Queen’s Speech — House of Lords, 2016-05-25
Topic: Macroeconomics
Jonathan Oates (Liberal Democrats, Centre to centre-left): My Lords, I join other noble Lords in congratulating the right reverend Prelate the Bishop of Newcastle on her compelling maiden speech. We are debating the economic elements of the gracious Speech at a time when millions of people in western democracies are concluding that the current economic settlement no longer works for them, and that mainstream politics offers no answers to the unsettling economic changes they are grappling with. This gracious Speech will only confirm their lack of faith. It fails to acknowledge, much less to tackle, the profound challenges to our economy. Corporate executives continue to gain super-rewards for inadequate performance, while real average wages are stagnating and traditional modes of employment are disintegrating. Productivity remains stubbornly resistant to improvement. Our public services are suffering under the strain of six years of austerity. Our banking system remains unfit for purpose, as the noble Lord, Lord McFall, so eloquently set out. If that were not enough, the Conservative Party has decided that this is the moment to gamble Britain’s economic future in an EU referendum Rarely have a Prime Minister and Chancellor so nakedly placed their political interests ahead of the interests of their country and the jobs and living standards of millions of their fellow citizens. For whatever the result of this referendum, Britain is already paying the price in slowing economic growth and deteriorating public finances as a result of investments frozen and spending put on hold. That matters because it means jobs not created, pay rises deferred and real lives made harder. God willing, we will not compound this folly with the profound economic shock that would follow exit from the European Union. Whatever the outcome, we will still have to face two major challenges—how we provide an economic framework that can serve the needs of the British people in an era of exponential technological change, and how we can ensure that the benefits of this new economy are spread fairly and do not continue to accumulate in super-rewards for the few and super-economic insecurity for the many Between 2008 and 2015, real wages fell in Britain by more than 10%. That is the longest decline since the middle of the 19th century, and wages for the majority have barely risen since. On top of stagnant wages, workers have seen other benefits such as pension entitlements curtailed or withdrawn. An Uber economy is increasingly developing, where workers are expected to employ themselves, with no entitlement to sick pay or holidays, while corporates enrich themselves at the expense of a workforce for which they refuse to accept any responsibility. While employment insecurity grows and average wages have declined, the gap between average wages and the remuneration of top executives has widened every year No believer in a market economy should object to people being paid well for doing demanding jobs. But let us be clear. If someone employed by a public company is taking home annual rewards of £10 million, £20 million or more, as some British bosses are doing, that is not fair reward for a tough job—it is publicly acknowledged, politically accepted and legalised embezzlement. It would be one thing if these top executives were delivering extraordinary results for their companies, but most are not. Research conducted by academics at the University of Cambridge and the University of Utah indicates that CEO pay is in fact negatively related to future share price performance. It found that firms that pay their CEOs in the top 10% of excess pay see abnormal negative returns over the next three years, of approximately minus 8%. Overconfidence arising from being overpaid, the research finds, makes for bad decisions and poor outcomes for shareholders. Why have we tolerated this situation where a small minority of people reward themselves so absurdly? What motivates such absurd levels of greed and what callousness allows top executives to accept such inflated rewards, while holding down the wages of their fellow employees, to the extent that research from the high pay unit shows that chief executive pay is now 183 times greater than that that of average employees The public rightly feel profoundly let down by the response of mainstream political parties. Between us we have acquiesced in economic outcomes that have profoundly distorted the market economy; we have allowed risk to be shifted from super-rewarded risk-takers on to the shoulders of ordinary taxpayers; we have allowed public companies to be pilfered by their top executives and corporate taxation to become an optional extra for the wealthiest corporations in the world; and we have not even begun to recognise, let alone prepare for, the profound changes that are coming in the economy. The Government should address themselves to these issues in the gracious Speech. They should craft a new economic settlement which celebrates and rewards effort and innovation but spreads the rewards fairly. They should propose a policy framework to provide security in the new employment environment in which people increasingly operate. They should tackle the threat to our economy from a still unfit banking system. They should reform the curriculum to ensure that every child, no matter their background, has the skills to benefit from an increasingly digital economy. But they have done none of that. They are too busy repeating the tired-out mantra of the "long-term economic plan" to have noticed that they have no coherent economic plan at all There are very direct political consequences to this failure of mainstream politicians to tackle the real economic challenges that people face. Those consequences can be seen in the rise of the bombastic politics and beggar-my-neighbour economics of Donald Trump and the sinister success of nationalist parties right across Europe. If we are to avoid such outcomes in the UK, we have to address ourselves with much greater urgency to crafting a new economic settlement that will serve the interests of the many, not the avarice of the few. If we do not, before long we will have to face a new and unwelcome political settlement instead.