Autumn Statement: Economy — House of Lords, 2016-11-29
Topic: Macroeconomics
John Tomlinson (Labour, Centre-left): My Lords, the Minister waxed eloquent about the growth in real wages, as he did about what he called our robust economy. His speech was full of optimism and good news, but that was not borne out by the analysis of the Office for Budget Responsibility. The confidence that the Minister manifested, which he shared with the Chancellor of the Exchequer, was very much misplaced When the providers of what is required to be our independent advice did their job within the legal constraints placed upon them by Parliament, there was an orchestrated criticism of bodies such as the Office for Budget Responsibility, the Bank of England and whoever put their head above the parapet and criticised the Government. The Office for Budget Responsibility was attacked with a ferocity usually reserved for the Governor of the Bank of England, especially when he is right The reality was somewhat different. We have had many quotations from the report of the Office for Budget Responsibility and I will not go through all of them again. Suffice it to say that they raised several clear points. For one, it said that it, "is required by legislation to produce its forecasts on the basis of current stated Government policy" That is what it was doing. It did not deserve the venom that was heaped upon it for getting a different answer from that of the Chancellor. It went on to say that it, "made a judgement—consistent with most external studies—that over the time horizon of our forecast any likely Brexit outcome would lead to lower trade flows, lower investment and lower net inward migration than we would otherwise have seen, and hence lower potential output" Those are very clear statements that follow quite logically and the Government ought not to get too upset by them but to heed them. The OBR particularly made the point in its report that in its opinion—I say this particularly to the noble Lord, Lord Horam, who spoke about growth in the economy— "the economy will grow more slowly than we expected in March, with GDP growth in 2017 revised down from 2.2 to 1.4 per cent and cumulative growth over the whole forecast revised down by 1.4 percentage points", and so it went on. The difference between the perspective of the Government and the view of the Office for Budget Responsibility is certainly welcomed by members of the public, and by Members on this side of the House, so that we can make a judgment about exactly where the truth lies. This is not to say that if you believe in one, you are accusing the other of lying but there is a clear conflict of views The noble Lord, Lord Wakeham, who is not in his place, made two interesting points that need to be taken up. I hope that they will be when the Government look at their next Budget. I say in passing that I welcome the idea of reverting to annual Budgets, so that we get taxation dealt with only once a year. I very much agreed with what he said about stamp duty and about equalising national insurance contributions for employees and the self-employed. Those two anomalies really need to be dealt with, and they can be to the benefit of the economy without there being any real adverse effects on the income that they produce There have been a number of interesting contributions on both sides of the House about the imperatives of growth in the economy and the need to have an increase in spending in the economy. We have had suggestions about investment spending leading to improvements in productivity and spending in relation to housing, the National Health Service and social care. All those things are very valuable. Has the Minister read the report published last week by the OECD, since its advice to the world is, "Spend, spend, spend"? If we want to get employment, growth, productivity and all those issues dealt with, that is its advice. I will understand if he has not read it but I commend it to him as a useful bit of post-Christmas-lunch reading, if he wants something different I particularly agreed with the speech of the noble Baroness, Lady Noakes, about productivity and I was interested to hear the noble Baroness, Lady Vere, on the same subject. Productivity is a problem that has been with us for the whole of my political life. I remember in the 1960s, when I was head of the research department for a large trade union, that productivity was the issue. I remember during my time as a Member of Parliament that every time that I met with the local chamber of commerce or the Engineering Employers’ Federation, the agenda did not change. It was about skills shortages, the training to meet those shortages and how we could improve productivity. That agenda is still the same. We have to consider very carefully not just the productivity that comes from investment, which is important, but labour productivity as well. I was very pleased that the noble Baroness, Lady Vere, dealt with this I say with all due respect to the Government that if they want to get great improvements in labour productivity and have workers’ collaboration in improving it, they should not do it on the back of having tried to attack them with the Trade Union Act. They were saved from themselves as a Government by the votes in this House because, had that Bill been carried as it was, trade union relations would be vastly worse than they are today. The Government and the unions would not have been able to talk comfortably to each other. Labour productivity must not only be increased; it has to be done on the basis of collaboration with our trade unions and representatives of labour We have had from the Prime Minister herself what appeared to most observers to be a discussion about worker directors on the boards of our companies. It then seemed to be withdrawn a few weeks later without any explanation—or the only explanation we got was that, "I never promised it in the first place", and that everybody else was so stupid that they misunderstood what the Prime Minister was saying. That is not the best atmosphere in which to have negotiations with trade unions in order to get their imperative collaboration with improvements in productivity. Against the background of the comments that we had on the Autumn Statement from the Resolution Foundation on the one hand and the Institute for Fiscal Studies on the other, that is not the atmosphere in which trade unions are necessarily going to say that discussions on productivity are automatically a good thing The Resolution Foundation said: "Average earnings are now forecast to be £830 a year lower than expected in 2020, with this decade now set to be the weakest one for wage growth since the 1900s" Paul Johnson, the director of the IFS, had a stark assessment for the Government when he said, "real wages will, remarkably, still be below their 2008 levels in 2021. One cannot stress enough how dreadful that is—more than a decade without real earnings growth … We have certainly not seen a period remotely like it in the last 70 years" The instinctive view of many people who are working in the areas where we need to see increases in productivity is: if we work more productively, we will get the work done with fewer people, but we are already being paid lower wages and we do not want the sack to happen at the end of our collaboration in increasing productivity. The Government have to accept that it is almost a necessary requirement to guarantee no compulsory redundancies in the circumstances in which you want to negotiate productivity deals with labour. The situation is pretty bleak I conclude by saying that I have probably surprised some of my friends in that I have chosen to abstain from inflicting on your Lordships any of my views on Brexit. We will have enough time to do that in what I suspect will be the years ahead. Suffice it to say that of its own volition Brexit will have a negative effect on budgeting forecasts. When the process is aided by the right honourable gentlemen Boris Johnson, David Davis and Liam Fox, the outcome is bound to be worsened.