United Kingdom: Productivity — House of Lords, 2015-09-08
Topic: Macroeconomics
Howard Leigh (Conservative, Centre-right): My Lords, it is always a privilege to speak in your Lordships’ House, and in particular on a subject so vital to the future of the UK economy as our nation’s productivity. A Financial Times columnist—not Smithers, as it happens—wrote recently that: "Leadership is to politics what productivity is to economics: not quite the only thing that matters but almost" It is therefore perhaps apt throughout this debate tonight and the continued tribulations of the leadership elections elsewhere that we can explore the validity of both facets of that claim in a single week In the previous Parliament, thanks to the Government’s long-term economic plan, 2 million new private sector jobs were created, and at a time when all across Europe—and indeed the world—unemployment had reached levels without recent precedent. The party opposite said that this was the wrong approach. Indeed, many economists said that it was wrong. They wrote letters in the national press saying that reductions in public sector jobs would not be counterbalanced by private sector job creation. They were wrong. They said that reductions in public spending would lead to recession. They were wrong. Beware of economists making predictions, and I speak as someone with an economics degree who learned of JK Galbraith’s famous comment that: "Economics is extremely useful as a form of employment for economists" Many of those same critics and commentators are now, in the face of these consistent growth and employment figures, being tempted to move the goalposts and say that it has all been the wrong kind of growth or that high employment has come at the expense of productivity growth. That is a claim worth examining, and we should always look for ways to increase productivity. But first we should state clearly, as we have done, that we make no apology for keeping people in work, and helping those without to find work. At a time of financial crisis and recession, there is a moral imperative to look beyond the economics to the human cost of unemployment. The Government can be proud that they have done so. We should also be careful as to how much weight we give to recent productivity data. The only consensus emerging on Britain’s so-called productivity puzzle, as the Minister said, is that the way we collect the data needs updating. Furthermore, we should question whether today’s modern knowledge economy is measurable using the techniques of yesterday. The creative and service industries are being continually overlooked in favour of heavy industry. That is why I welcome, as does my noble friend Lord Flight, the review of how we collect economic statistics that is being undertaken by Sir Charlie Bean, who as part of his mandate will, "assess the UK’s future statistics needs in particular relating to the challenges of measuring the modern economy" Before examining ways to improve productivity, on the broader economic debate, it is worth reflecting on what we do know. The latest GDP figures suggest that the UK economy grew by 0.8% in Q2, and on what is perhaps the most unambiguous measure—the tax take—the numbers are in rude health, with July showing record income tax receipts leading to £1.3 billion surplus for the month. I am confident that in January 2016, with the second payment of this last tax year, they will be equally positive and surprisingly healthy, all of which will reduce public borrowing requirements and help speed the path towards an overall surplus as set out in the summer Budget However, neither the strength of the economy today nor ambiguities in the statistics should mean that we do not continue to look for ways to improve our productivity. As the Minister mentioned, it is good to see that the Government are not showing any complacency and I was pleased to see that Sir Charlie Mayfield’s taskforce had been set up by the extremely industrious Secretary of State for BIS, Sajid Javid. It comprises a business-led action group for productivity—not full of politicians As part of the summer Budget, the Government published Fixing the Foundations, a comprehensive strategy to boost productivity. It sets out not just the challenges of boosting our productivity to reach a leading position, but also the rewards for doing so. Increasing annual trend growth by just 0.1%, a much more modest figure than the noble Lord, Lord Bilimoria, would seek, means that the UK economy would be £35 billion larger by 2030, which equates to £1,100 for every household. The strategy sets out numerous ways to achieve this important goal based on increasing long-term investment and economic dynamism. It is clear from the early stages that we have to focus on the benefits of flexibility. Traditional attitudes towards the workplace are changing. As of January 2015, the number of freelancers in the UK was growing and they were earning a median income of £42,857, which compares with the national average of around £24,000, and they work an average of 38.2 hours a week. Labour’s approach is simply to criticise zero-hours contracts, which are in themselves an important step forwards to helping productivity, but admittedly on its own not enough to change the way we work and how we measure work Others have spoken eloquently about the digital aspects of the economy and ways of improving productivity, on the importance of savings and indeed on education, so I would like to focus on the two areas that are of particular interest to me, productive finance and trade. We can analyse skills, innovation and infrastructure but, if capital is not allocated efficiently across the economy, it will be an uphill struggle for every sector. Recent travails should not distract from the fact that the financial services sector remains a huge contributor to the UK economy, and of course I declare an interest as being part of that sector. Financial services contribute £58 billion in net exports, thus contributing 8.4% of gross value added in 2014. But if the crisis has taught us anything, it should be that finance is good for the economy only if it does what it is supposed to do: channel capital to the most productive areas of the economy, creating wealth not destroying it, and fostering growth not hampering it Currently, 80% of all finance in Europe comes from banks, and this has to change. With the big banks engaging in much-needed restructuring of their balance sheets, we need a new model of business finance. This means lowering barriers to entry to increase competition from challenger banks, which the Government have correctly identified as an issue. We also need greater diversity of funding sources for businesses looking to grow. In the last Parliament there were many start-ups. This one, I hope, will be where they grow. The Government’s paper is candid about this. Somewhat amazingly, only 3% of start-ups with one to nine employees grow to have more than 10 employees within three years. That is astonishing, and we are well down the OECD’s league table. Having created a whole new generation of small companies, we need to work hard to help them flourish Another key plank to rebuilding our productivity is to burnish our reputation as a trading nation, pulling in foreign direct investment and exporting goods the world over. I will not go into the same history lesson as my noble friend Lady Harding, but it is true to say that I am a member of a party that was torn asunder by trade in the 19th century with the repeal of the Corn Laws, which was taken through this House by the Duke of Wellington. Then it was benefits to ordinary consumers that won the day, and that is the lesson I have spoken before in this House about our trading legacy and the need to rediscover it: the need to stand up for free trade in the form of trade agreements such as TTIP and others with emerging markets, and the need to lead the EU towards completing the single market in services and capital markets; as the leading exponent of both, it would be hugely to our benefit. I know that my noble friend the Minister is leading a trade mission to China next week, and I am sure that he takes with him our best wishes for every success in that important export drive. Trade drives competition and innovation, brings in investment and creates new markets for our businesses to sell to. This in turn creates better-paying jobs and increases living standards. This is not an argument for either staying in or leaving the EU; we can be equally successful either way There are many facets to this debate, but I will finish where I started. We are all agreed that productivity is an important issue. It is therefore ironic that the areas I have focused on, trade and finance, attract such ire from critics who purport to be sticking up for working families. But difficult though the arguments may be to make that competitive trade policy and efficient financial services are the best way to help these families, as Conservatives I am sure that the Government will continue to make them.