Budget Statement — House of Lords, 2017-12-04
Topic: Macroeconomics
David Edward Lea (Labour, Centre-left): Some parts are forgiven. We have to have a new deal in both senses of the term: a TVA-type new deal and a new deal for workers. There is an ambiguity to what a lot of the speeches add up to of where this productivity problem arises In passing, the noble Lord, Lord Tugendhat, made a speech that could have been interpreted as saying he does not quite believe the statistics and that the economy is growing in a way we have not recognised. I used to be a bit of a guru on national income accounting. Income, output and expenditure have to be measured to match. I cannot see how the ONS can be all that wrong in saying that the economy is not growing by nought point something On the idea that there is some mysterious factor in the economy we are not measuring, a lot of people in Silicon Valley believe the zillions of extra things we can do with the things in our pockets—our phones—must mean that productivity is rising. There is a puzzle there, but for the moment the statisticians are correct: they are not adding to our productive potential. We are just playing around on our mobile phones; we are not doing anything useful with them. That is a big factor, but at the moment there is nothing that is measurably happening We can have a look at measuring the rate of economic growth, but everything else is second order. The main candidate for something the Chancellor can do about it is public investment. It is a long time since we have been worried about productive potential, but it is the only term that meets where we are at the moment. It goes back to the strange discussion we had the other day on the industrial strategy with the noble Lord, Lord Henley, when he took some comfort from the fact that unemployment is down and that this was a good way of justifying lower productivity—"Don’t you people want lower unemployment?" It is one of those questions you get on the BBC’s "Today" programme, as our friend Mr John McDonnell found out the other day. You cannot look at a dynamic economy by trying to stick to questions and answers such as that We have to jack up the rate of investment. Whether we get the money off the Norwegian wealth fund, which is now worth $1 trillion, or not I do not know, but there has to be a dynamic piece of arithmetic and we can agree on some the answers—if you did get the economy to grow at that pace, then you would get this return through business growth and tax returns. We ought to raise the level of public discussion, whether at the BBC or anywhere else. We are not short of excellent material. The number of excellent reports we have heard mentioned is extraordinary. I will not go through them all because I only have two more minutes, but they all say roughly the same thing: we have a low pay trap, a low productivity trap and low investment, and we ought to transform the economy in some way. Mr McDonnell has said most of the right things about how to increase our productivity potential, as has the Social Mobility Commission. I congratulate Mr Milburn and the noble Baroness, Lady Shephard, on the way they identified these cold and hot spots around the country, because that is also very important in terms of where public investment should be going We have to make sure there is some targeting in numerical terms in this debate—how do you get to, say, 3%? Even as a paper exercise it would show us where we need to do something. Without sounding as if it is all to do with pay, the fact is you cannot change the definition of value added without recognising that value added is pay and profits. There are people at the top earning zillions, but pay and productivity are low. I am not saying you do it just by increasing pay, but we cannot wallow as a zero economy, with zero growth in real pay and in productivity I have one final word on the Brexit effect. There are undoubtedly three very bad Brexit effects relating to this. First is an investment problem relating to trade barriers. The second is the spectre of the exchange rate falling, as it has at 90p to the euro. We can see circumstances in which it could well have parity with the euro. The third is the prospective collapse of investment in those industries with a single factory floor in Europe, whether it is Jaguar Land Rover, Airbus or Unilever, and all the other sorts of investment which require a change in the policy so that we stay in the single market and the customs union.