I beg to move,
That this House has considered the matter of policy for growth.
It gives me great pleasure to move the motion and I know that I speak for many others in this House when I say that we welcome the Backbench Business Committee’s decision to hold a debate on this crucial subject. I also remind the House that in the Register of Members’ Financial Interests I have pointed out that I am a business adviser to a couple of companies.
This is a crucial subject because the Government’s whole economic strategy rests on the assumption of above-trend growth starting next year and continuing for the rest of the Parliament. I am sure that every Member would like to see faster and sustained economic growth from this point after the trials, tribulations and difficulties that the economy has been through in recent years.
Knowing how popular this debate is and that about 50 Members would like to catch your eye, Mr Deputy Speaker, I shall not exercise the right of the mover of a motion to speak at great length. The House will be delighted to know that I shall not be giving my analyses of where the world and British economies are or of monetary and growth trends, as that would take a little longer. All those who are desperate to know my analysis can read it on johnredwood.com—a not-for-profit site that is full of wise advice and good analysis with a great deal of modesty. I am sure that colleagues will be delighted to know that. I shall stick to the headlines, based on my analyses, and the conclusions that I should like to put to the Minister and others.
The strategy over the five years in the Red Book, as amended in the Green Book, says that by the fifth year of the Parliament the Government hope to be spending £92 billion a year more on current public services than in the last Labour year, and that they wish at the same time to reduce the deficit. To do that, they assume that there will be an increase in tax revenue of £176 billion a year by that fifth year. We believe that it is assumed that most of that increase in tax revenue will come from increases in current tax rates through growth in the economy. So the Government have a great deal invested in the idea that growth is going to speed up and be sustained—we all do.
My first point is that the one thing we cannot afford over the next five years is rapid inflation. Currently, inflation is too high. The Bank of England, I am afraid, was disastrous in the era of the exchange rate mechanism when it lurched from boom to bust and advised the Government to take that course. It was again extremely bad over the past five years when the conduct of monetary policy also lurched from boom to bust. The Bank and the banking regulators allowed far too much credit up to 2007 and then starved the markets of money and kept rates too high in 2007-08 and into 2009, and we lurched from boom to bust. That was not a global crisis: those events were not happening in India, Australia, Canada or China, but they were Atlantic events—America did something similar. Britain did that and we must not do it again.
My policy recommendation to the Treasury is that I hope that the Chancellor will make it very clear in the next couple of weeks that we do not need any more money printing or quantitative easing in the current circumstances. The economy is growing, jobs are being created and inflation is still running at somewhere between 3% and 4.5%, depending on which index one relies. When we talk to business, we hear that there is a lot of inflation out there in the pipeline thanks to commodity price increases and increases in the world supply line prices now. Those increases are largely fuelled by the enormous quantitative easing under way in the United States of America and we do not need Britain to fuel them further with more quantitative easing.
No, I do not think that is true at all. The reason we are now beginning to come off the bottom is that monetary policy lurched from being too tight to being too loose. Labour always said that that matter was decided by the Bank of England rather than by it, but we now need to think ahead. Monetary policy has been loosened somewhat and there is a bit more money around—indeed, there is a lot of money in the world as a whole—and it would be a disaster to fuel great inflation from here. If we can hold public sector pay and prices down—
I shall not give way, because many colleagues want to join in. The hon. Gentleman knows that I normally give way generously, but too many people want to join in.
If we allow public sector inflation to take off, that £92 billion extra will be needed to pay for the extra costs and wages and will not be available for real increases in programmes that most colleagues would like.
I shall not because we have to make progress. The £92 billion will go further if we can avoid high inflation. The Government should tell the Bank of England that the single objective is to get prices down, as it was asked to do, and to keep them down. More quantitative easing is not compatible with that aim.
My second point, which many colleagues will probably wish to address from their own, personal constituency experiences, concerns the lack of credit for business. Those two points are not contradictory, because while there has been a lot of money creation from which the public sector has benefited greatly by borrowing huge sums at very low prices, there has been a strict rationing of credit, particularly to smaller businesses, and a huge restriction on the balance sheets of the leading banks. One figure with which the House can never grapple is that the Royal Bank of Scotland—the state nationalised bank in all but name; we own most of the shares—has been on a drastic slimming course. It had a balance sheet of £2.2 trillion when it came into the public sector and by the end of this year, according to its plan, that figure will be down by £1 trillion—£1 trillion will have disappeared from the balance sheet. It is a global bank but quite a bit of that has an impact on the British economy.
It is not surprising in that climate that it is difficult for small businesses to get the money they want. So my second piece of policy advice to the Government is that they should tell the banking regulator that enough is enough. The bank balance sheets, which were trashed in 2007 by very lax regulation, are now in danger of being strangled by very tight regulation. The tier 1 capital ratios for example, which in some cases reached a scandalously low 4% in 2007 on Labour’s watch when it did not seem to care about these things, are now at about 10%. That is job done for the time being. We could, by all means, come back to it if we have rapid growth and if there are incipient signs that there is too much credit, but that is not the current situation. We should take the brakes off a bit, particularly for the small business sector.
My third point is that we need to get some of that credit into the big projects that the country needs. I hope that Ministers will make urgent moves to clear the ground on planning, regulation and general background so that the country can again get on with building power stations, transport links and the broadband links it needs to fuel growth. While I hope that all or most of those projects will be privately financed—another reason why we need to fix the banks more quickly—I hope that Ministers in this Government, unlike in the previous Government, will make rapid decisions so that the private sector can get on with that job.
Let me address two final issues. First, in order to collect £176 billion extra in tax in year five, from year zero in the plan, the Government need to optimise their tax rates. They accepted in their Budget statement that to go above 28% on capital gains tax would lead to a reduction in revenue. I welcome the development of wisdom in the Treasury on this important point, but I have bad news—28% is not the optimising rate for capital gains tax and 50% is not the optimising rate for income tax. I would like to tax the rich more—that will surprise colleagues and delight the Opposition—but the way to do that is to cut the rates. We need to do that to attract them here, keep them here and make them honest here, and we need to have rates that maximise the revenue from the rich—the sooner the better—to hit those targets.
Colleagues will be delighted to hear that I have come to my final point. We were promised deregulation and were told that there was going to be a mighty freedom Bill. The Deputy Prime Minister was supposedly toiling away in his enormous room in the Cabinet Office that was inherited from the Lord Mandelson regime and no expense was to be spared in making sure that we had a really big deregulation Bill. I now hear rumours that it is going to be a civil liberties Bill from the Home Office. Will the Minister, who has responsibility for small businesses, champion a proper deregulation Bill? Deregulation is the tax cut for business that does not cost the Treasury a penny. Indeed, it could be the tax cut for business that saved the Government money as well.
There is too much needless regulation and too much regulation that does not do the job. Labour introduced extremely complicated mortgage regulation and more of it is out there. It obviously failed. As soon as we had all the regulation, the mortgage banks went down—something that they had never done before—because the wrong thing was being regulated. I want to regulate the cash, capital and solvency of those banks, but to make it easier for people to borrow money. Does the Minister know that the mortgage market is seizing up through too much of the wrong kind of regulation? Will he get on and fix it? I hope colleagues have a great debate.
I am grateful for the opportunity to speak in this important debate. Economic growth in the UK in the months and years ahead is extremely uncertain for two reasons. First, the Government’s reckless gamble to eliminate the structural deficit in four years by reducing public spending by £81 billion is resulting in 500,000 public sector job losses and a further 500,000 private sector job losses are likely. This will impact on growth, causing a double-dip recession at worst and stagnation in the UK economy at best.
Let me make some progress and the hon. Gentleman can try again.
Secondly, having been caused by international factors, the current economic uncertainty and any prospects of growth are still going to be greatly determined by what happens in the international economic arena. Let me begin, then, with the international dimension.
Only yesterday, the Governor of the Bank of England warned:
“The outlook for growth is highly uncertain”,
“The contribution of net trade to growth has so far been weaker than the Bank of England Monetary Committee had expected, and it is unclear how persistent that weakness will prove to be.”
In other words, Britain’s exports and trade with the world are not boosting our hopes for economic growth, despite a 25% reduction in sterling over the last three years.
On a point of fact, the Governor of the Bank of England did not say that the growth outlook was tremendously uncertain, but that the inflation outlook was very uncertain. He said that, in his estimation, the UK’s economic recovery was likely to continue.
I have the facts here and we must agree to differ on their interpretation.
The Governor of the Bank of England added that unless the G20 nations at the current summit in South Korea work together on trade and tackle imbalances between creditor and debtor nations, the world economy is likely to be damaged. He said:
“What is most important at present, given the difficult and dangerous times that the world economy faces, is that the world leaders at the G20 have a constructive approach… We are in a position where the world economy can be a win-win outcome, but I’m afraid we’re also in a position where it can be a lose-lose.”
These are indeed difficult and dangerous times for the world economy and for UK growth prospects. Britain is particularly vulnerable to economic shocks in the eurozone. UK banks are exposed, with many loans to Ireland, Greece and Spain. Rumours of an EU bail-out of Ireland were rife in the financial markets only this week.
Equally, in the wider international economy, China, Brazil and India have all seen economic growth reducing. This all means more uncertainty as Britain tries to rebalance its economy away from being reliant on financial services and consumer spending on domestic service industries and more towards export-driven sales of our manufactured goods. My right hon. Friend the shadow Chancellor is right to say that the previous Government became over-reliant on tax receipts from the financial services sector, so it is right that, as we go forward, we try to build our manufacturing base back up and sell more of our goods in the world market, but it will not be easy.
I shall now deal with the domestic economy and growth—or, given the Chancellor’s reckless plans as laid out in the spending review, perhaps I should say the lack of prospects for such growth. The growth figures of 1.2% and 0.8% for the last two quarters have indeed been welcome news, but have nothing to do with the Government’s decisions since coming into office. The truth is, in fact, quite the opposite. Those two growth figures show the positive effects of the previous Government’s fiscal stimulus. When carefully analysed, the figures also show that much of the growth was due to a temporary and seasonal upturn in the construction industry.
If Members care to look at the predictions for the UK construction industry going forward into 2011, they will find talk of recession. This is not surprising, given the Government’s decisions in the emergency Budget and the spending review. If the housing capital budget is slashed by more than 50%, it does not take an economic genius to work out that the construction industry is going to take a hit. Equally, the cancellation of the Building Schools for the Future scheme, and the 60% reduction in the capital budget for schools, will also have a severe recessionary impact on the construction industry.
Let me illustrate that point with examples from my constituency and local borough. Ealing was due to have 18 schools either completely rebuilt or significantly rebuilt or refurbished. Some £305 million was to have been spent on those projects, representing a substantial boost to the local and regional economy, in addition to meeting the need for extra school building due to a rising demand for school places in the borough. Those plans were brutally cut in the emergency Budget, and in the end we managed to rescue projects for two sample schools, one of which is Dormers Wells high school in my constituency. However, we still face the withdrawal of almost £250 million of public money—
Thank you, Mr Deputy Speaker, for allowing me to speak in this important debate. In the short time that I have available, I shall focus on small businesses. Many Government Members agree that to get the economy back on track, we need small businesses and the private sector in general to begin to employ people again. We also believe that only when the private sector begins to employ people will we lift the country up and get it back on its feet. I want to tackle three elements that affect small business: first, the funding environment in general; secondly, the regulatory regime; and thirdly, the access to talent.
On the funding environment, much has been said in the House over the past few weeks and months about the need for banks to lend to small businesses, but we need to consider how banks treat small businesses in general. There is an institutional bias against small businesses in terms of lending money to them. Many banks would rather not do so, because the revenue profile of small businesses is too volatile, and banks tend to see that as equity-style risk, so they stay away from it. There is also an institutional bias in terms of the absolutely critical bank charges that small businesses have to endure.
Is my hon. Friend aware of the invidious practice, so prevalent in my constituency, whereby banks ask the directors of small businesses to give personal guarantees, despite the healthy shape of their balance sheets? Such practice discourages entrepreneurs from developing small businesses.
I agree 100%. For many small business men or women, the only way in which they can get the banks to give them credit to grow their businesses is to put their own assets on the line, and that is unacceptable because those people often take on a lot of risk to keep their business going. In looking at the funding environment, we need to get banks not just to lend, but to consider everything else, including credit.
It is great to see new small businesses trying to step into the breach, however. I came across a business called Funding Circle, which encourages lending by private individuals to small businesses, but that is nowhere near enough compared with what the big banks can do.
Sorry, I do not have much time.
Another thing that the Government can do, in particular, is look at cash flow. One of the biggest things that determines the fate of a small and growing business is the amount of cash flow, and national insurance and VAT are the key drivers of that. The Government have made the right decision by giving certain businesses national insurance holidays, but it would be great if we could extend that to more businesses.
Sorry, I have to push on.
We need to look at not only national insurance, but the VAT threshold. Ideally, it would be helpful to small businesses if we raised the threshold, but that is not going to be easy in the current environment, so perhaps we should ensure that Her Majesty’s Revenue and Customs, with its “Time To Pay” policy, does not clamp down too hard on small businesses that are trying to keep their business going, keep people employed and do the right thing. That is absolutely essential.
Let me turn to research and development grants. The representatives of a thriving business in my constituency came to my advice surgery and told me that, to get any R and D grant from the Government, they would have to move to Cornwall. They are willing to put a significant amount of personal capital into their business, but because R and D grants are organised regionally and targeted at certain regions, and they are in the south-east, they lose out. We should have a flexible system in which the money follows innovation and ideas and is not just targeted at certain regions.
My right hon. Friend the Member for Wokingham (Mr Redwood) mentioned the regulatory regime. A big challenge for small businesses is employment legislation. If every time an employer uses an agency worker they have to calculate after 12 weeks whether they can take on the cost of employing them, we end up with perverse incentives whereby businesses try to make their employees self-employed when they are in fact full employees. The employer is trying to avoid either getting sued if something goes wrong on the employment side or paying national insurance. That does not help the business, nor does it help the Exchequer. I strongly encourage the Government to consider using the freedom Bill to deal with the “one in, one out” policy in relation to legislation for small businesses.
Another factor is access to visas for highly talented people. Many internet and technology businesses who employ computer scientists and require people from all over the world are struggling because of the current visa regime. The Government must consider that, especially as last week the Prime Minister said that we want to create a silicon valley in the east end of London. However, for many of these businesses it is not just about having a cluster in that location, but about whether they can get the talent they need to grow their business. Their revenue profile is such that it takes them a very long time to start gaining revenues. They have a long period where they are investing and testing their technology, and then, if they are successful, they start getting in revenue. If our regulatory regime is such that they are incurring huge costs, whether in national insurance, VAT or statutory employment costs, before they are a viable business, we are not giving them the chance to succeed in this country.
I thank my right hon. Friend the Member for Wokingham for pushing for this debate. If we really want to be pro-business, we should put our money where our mouths are, take away all this legislation, and make the funding regime better for small businesses.
Thank you, Mr Deputy Speaker, for the opportunity to speak briefly in this debate.
For the past six months, Labour Members have had to endure speeches from Government Members based on the Andy Coulson script. I am allowed to criticise the No. 10 scripts because I used to write them, which is probably just one of the reasons we lost the election. The script basically says that the deficit is the only thing that matters, and that the deficit was caused entirely by the profligacy, over a decade, of the Labour Government. [Hon. Members: “Hear, hear!”] My version was beautifully delivered, one might say.
Let me trouble the House with a couple of facts that run slightly counter to that script. Figures from the Institute for Fiscal Studies show that in the period from 1997 to 2007, public sector net debt fell from 42.5% of national income to 36.5%. That was caused—I know that this will come as a tremendous shock and disappointment to Government Members—by the economy growing and revenues increasing. Before the financial crisis hit this country—the biggest economic shock that we have had for nearly a century—our debt was down to the second lowest in the G7, despite our increasing public spending by the second largest amount among all the OECD countries. The size of the budget deficit was caused by the decisions that Labour Members took in response to that global financial crisis. I know that Government Members will disagree, but the truth is that there are people in my constituency who are in work, have managed to keep their home, and still have world-class public services because of the decisions that we took. We should not apologise for that.
The deficit does need to be reduced, but one of the ways of doing that is through economic growth—the subject of this debate. When I watched the Budget several months ago, I found it perverse when the Chancellor said in effect, almost as a matter of pride, “Because of the decisions we are taking as a Government, growth will be less than it was going to be, unemployment will be higher, tax revenues will be lower, and the payments we will make in benefits will be higher.” About 490,000 public sector jobs will go over the spending review period according to the Chancellor, and PricewaterhouseCoopers estimates that another 500,000 jobs are at risk in the private sector because of the measures that the Government are taking.
I will not; Yorkshire men are normally very generous, as the hon. Gentleman knows, but we are short of time today.
Even the director general of the CBI has voiced concerns about where the jobs will come from. Next week, Professor Steve Fothergill of the centre for regional economic and social research at Sheffield Hallam university will launch a report, which I urge all right hon. and hon. Members to read, called “Tackling worklessness in Britain’s weaker local economies”. It has an important foreword by the leader of Barnsley council, Steve Houghton, and makes it absolutely clear that, under the Government’s current framework, job demand in Britain’s weaker local economies, particularly in post-industrial areas such as Barnsley, is low and unlikely to grow significantly in the coming period.
The situation is made worse by the cuts that the Government are making to local authorities, which will be particularly bad in areas such as my own, where the council tax receipts are lower and there is greater reliance on central Government funding. In such areas, the local authority is critical not just as a direct provider of employment but in generating private sector economic activity and employment. The “public sector bad, private sector good” view that Conservative Members put forward completely fails to understand that there is often a greatly complementary relationship between the two. Government support for a strong public sector is critical.
I ask Members also to examine the coalfields review produced by the former Member for Barnsley, West and Penistone, Michael Clapham. It made it clear that areas such as my own are more isolated than others and have a higher mortality rate, greater health difficulties, greater overall deprivation, fewer businesses per head of population and 25% fewer jobs per resident, and there are more young people not in education, work or training. Such areas are very different from others, and because of the Government’s proposals, I, like other hon. Members, am very worried about their future.
I should like to speak about growth through green technology, on which the Government have clear policies. I was very pleased to hear their announcements about the regional growth fund, carbon capture and storage, technology centres and investments in ports for wind technology.
I know that some people will be cynical about whether green growth and manufacturing is possible, but I shall speak about what is happening in Teesside to fill the House with a bit of enthusiasm for the future. Many companies there are already operating in the area of green technology or are about to start doing so, and I shall name a few.
Many people think that wind technology is the only area of green technology, and indeed there are companies in Teesside involved in it. Tata Steel, TAG Energy Solutions and Heerema Fabrication are all making wind turbine structures, and MPI Offshore, which runs turbine installation vessels, recently managed to put up 100 offshore turbines in under 100 days at Thanet.
There are also wave technology companies. Three companies—JDR Cables, CTC Marine and Brown Ltd—recently joined together to put in the new wave hub off Cornwall. In the area of fuel and energy, we have Ensus, which has the largest bioethanol plant in Europe; Harvest Energy, the UK’s largest biodiesel manufacturer; SITA, which has the largest energy from waste facility in the UK and has recently announced an extension of it; INEOS Bio, which has Europe’s first advanced bioethanol from waste plant; and Sembcorp, with the first large-scale wood biomass power station.
MGT has announced that it will spend £500 million on a new biomass power station, and Northumbrian Water has an anaerobic digestion facility that processes waste from an equivalent population of 1.9 million people. This week, a company called DRD Power has announced technology that should see an end to cooling towers in this country, because it will generate electricity from lower-temperature hot water.
There are many other companies involved. Greenstar makes recycled food-grade plastic packaging that is used by Marks and Spencer. The world’s largest tyre reclamation plant is also about to start. I could go on, and I make no apology for going through that list, because those are exciting developments.
There is a tremendous cluster of expertise in Teesside, and the Government should encourage it as much as possible. Teesside has been an industrial powerhouse for more than a century. Traditional industries, such as ship and bridge building, bulk chemicals and steel have declined, but we are now seeing exciting developments, which follow growth in offshore technology.
Local expertise can be built around such clusters, and that is obviously already happening. As we have just heard, joint bids can be made for projects. Local education establishments are focusing on the skills that are needed and are creating a system of apprenticeships to develop those skills.
Projects can also be implemented more quickly on Teesside. SITA’s UK technical manager recently said that major projects can be achieved on Teesside in less than half the time it takes in many other places.
As a result of the clustering that I mentioned, Teesside is also a great place for carbon capture and storage, and I urge the Government to consider industrial areas such as Teesside for carbon capture and storage grids and not to look just at coal-fired power stations.
Given those outstanding opportunities, the Government need to continue to help. They should carry on the seed funding provided by One North East for things such as the Tees valley industrial programme. I welcome the establishment of the Tees Valley local enterprise partnership and the regional growth fund.
The Government urgently need to clarify the long-term banding policy for renewable energy, especially biomass, and quickly to establish the green investment bank. Given all the expertise on Teesside, I recommend that the bank is put there.
I emphasise that all the projects mentioned are private sector projects. Government involvement could bring enormous leverage. In the end, many investors are ready to finance this new green technology. I recently met an investor who said, “Come to me with projects of a minimum of £20 million”—that was a minimum, not a maximum.
I am sure that the House would like to join me in congratulating those involved in the progress on green technology on Teesside—
We need to put into context the debate on economic growth, or as I might, surprisingly, put it, the new deal programme proposed by the right hon. Member for Wokingham (Mr Redwood), who seemed to be talking about a public sector growth package at the end of his speech, which was very welcome.
The consensus on the Government Benches is that it was a waste of money to use the regional development agencies to put public investment into the regions to stimulate economic growth, revitalise our northern cities and increase wealth, prosperity, enterprise, quality of life and opportunities. It is clear that many Government Members, including many Liberal Democrat Members, think that 13 years of sustained public investment were a complete waste of effort and resources.
Clearly, that must be the coalition’s position, and the position that all Government Members adhere to. Why else would they have abolished the RDAs within days of taking office and replaced them, down the line, with local enterprise partnerships, which have no resources to establish themselves and no fixed agreement as yet on their boundaries, and which, despite the Government mantra that decisions are best made locally, cannot be established without the Secretary of State’s say-so. Once established, they will have little in the way of resources and will have to bid for money from the £1.4 billion regional growth fund, which runs over three years. That is substantially less than the predecessor RDAs had from the previous Government’s coffers to regenerate our regions.
For the many Government Members who have probably never been north of Watford, or who hold the view that regional development agencies were wasteful and ineffective, let me say just a few words about my region, the north-east, and about the regional development agency, One North East.
Thanks to the work of One North East and the efforts of local authorities and other partners in the north-east, we were able to secure a major turnaround in our region’s economic fortunes. The region is still heavily dependent on the public sector, but in the period immediately before the 2007 financial crisis and recession, private sector growth in the region was significant. During that period, the rate of economic growth in the north-east exceeded that of London and the south-east, and was substantially higher than the national average. The proportion of new business survival was higher than it had been for decades, and our business failure rate, in very tough circumstances, was no worse than the national average. The north-east saw year-on-year reductions in unemployment from 2000. Between 2000 and 2005, unemployment in the region fell from 108,000 to 64,000.
The north-east is now recognised across Europe as one of the regions that put science and technology at the very heart of its economic strategy. Science parks such as Knowledge Campus in my constituency and NETpark in the constituency of my hon. Friend the Member for Sedgefield (Phil Wilson) have helped to support that high-tech industry growth as a major investment into the region’s key sectors. Innovative industries such as health science, new and renewable energy and process industries, and creative industries such as content-based businesses, including computer games and video production companies, grew faster in the north-east than in the vast majority of the rest of the country. There are now more than 2,800 creative businesses operating in the north-east, employing 26,000 people.
The RDA, One North East, was pivotal in rejuvenating those industries in the region, and incredibly importantly, our tourism industry. Its highly acclaimed and award-winning “Passionate People, Passionate Places” advertising campaign has brought significant growth and coherence to the region’s tourist industry. In Newcastle and Gateshead alone, 20,000 are employed in the hospitality industry. However, the campaign’s success has gone far beyond the region’s core conurbation of Gateshead-Newcastle—it has brought new life into rural Northumberland, County Durham and Tees valley.
That is not exactly a picture of failure. In fact, it is a great success story, but this Government, because of their blind addiction to a particular economic ideology, now want to jeopardise that success to the point of extinction. That is tragic.
As a small business owner, dealing with employment law took more hours of my time than any other management responsibility. Since 1997, employment laws and regulations have been piled on to British business from both Labour and Brussels, but for the employer, particularly the many small businesses in my constituency, that has meant a major cost in time and money. The intense focus on employee rights has ended up with the employer spending a huge amount of time ensuring that he or she is abiding by the law, and wary of the consequences of even the most innocent error.
Under the previous Government, the cumulative effect of employment law fundamentally changed the playing field and left employers feeling defensive, rather than confidently hiring new staff. The other day I saw a friend of mine who is setting up a new business. She told me that she had been advised to take her staff on short-term contracts rather than hiring them as permanent staff to avoid all the pitfalls. Therefore, at the key moment when we need more jobs—in fact, hundreds of thousands of jobs—the advice to a budding entrepreneur is to avoid permanent staff if possible.
According to the World Bank’s “Doing Business” report, employing workers in the UK has become harder every year since 2007. We have slipped from No. 17 to No. 35.
I am sorry but I will not, because then I would be biased.
As a headhunter working with some of the biggest companies in the world, I saw just how easy it was to put a senior employee in an international location rather than the UK. I have long list of examples of when London came last in the choice between London, New York and Asia. That will happen without fanfare or fuss, which is why our employment policies must be ruthlessly competitive, as must our tax and immigration policies.
Over the next few years, we desperately need people to take the risk and set up businesses, invest in existing ones and create jobs here in Britain. Labour accelerated its depressing legacy of employment law in its dying days. We have been left with the agency workers directive, the Equality Act 2010 and additional paternity leave. Each will have a major effect on British business, and the Brussels juggernaut has been relentless too. The pregnant workers directive will add £2 billion of cost to British business if it gets through. The coalition is trying to address these issues through a set of attractive policies to create the best conditions for growth—scrapping the job tax, the national insurance holiday for businesses outside the south-east and cutting corporation tax.
I pay tribute to the Minister of State, Department for Business, Innovation and Skills, my hon. Friend the Member for Hertford and Stortford (Mr Prisk) who is doing a phenomenal job for British business. We need to let business focus on growth, and the coalition is pushing forward with additional legislation, including removal of the default retirement age, the shared maternity and paternity rights, and the right to request training. Those are key measures that will be introduced next year.
Last week, I had an Adjournment debate, in which I urged the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey), to have a holiday on employment law for 2011, the year when we need more jobs than ever to be created in this country. I also urged the Minister to show British business a light at the end of the tunnel and do a full and thorough review of employment law, staying true to the coalition agreement of “one in, one out” and applying that to employment law as to every other regulation. If we are able to achieve both an employment law holiday and a full review, the coalition will have grasped the employment law nettle and begun yet another good initiative for growth in this country.
I thank the Backbench Business Committee and the right hon. Member for Wokingham (Mr Redwood) for organising the debate. On the eve of the G20 summit in Seoul, it is especially timely, because growth is the missing plank in the Government’s policy. Yes, we need to bring down the budget deficit, but if we deny the need to grow the economy, we will fail to create the jobs that we need, and a rising dole queue means a bigger welfare bill with less tax coming in, as the shadow Chancellor has put it.
History has taught us that economic recovery following a large-scale financial crisis is tough and that the wrong economic policies from the Government can make things worse. The USA saw signs of positive growth in the 1930s, and fiscal stimulus was withdrawn. The result was the great depression. In the UK during the 1980s, the Government maintained that there was no alternative and raised interest rates to tackle inflation. The result was recession, massive social disruption, huge unemployment, rising public spending and communities that have only recently begun to recover.
When the hon. Gentleman makes his speech, perhaps he will explain the exchange rate mechanism crisis.
In 1990 Japan had a debt to GDP ratio of 50%. The Government failed to take the swift action necessary to help the economy recover from recession and the result is that, 20 years later, debt in Japan stands at 190% of GDP. Those are the facts. Concentrate too much on one economic variable and we have an unbalanced economy that fails to achieve our economic objectives.
Despite these facts, the Government say again that there is no alternative. Let me offer an alternative programme for growth in which the Government act strategically on the side of business and industry. What would that mean in practice? First, there is a real and pressing need for the UK to be at the forefront of businesses for the future, especially low-carbon industries. To make the most of Britain’s potential requires a Government who support businesses. Instead, we had the tragedy of the cancellation of the loan to Sheffield Forgemasters. That company is a UK success story. It is British-owned, high tech and high skill. The owners built the company up from scratch and it has become a leader in its field. The loan—I emphasise that it was a loan and not a grant—was signed off by civil servants in the Treasury and was a product of two years of careful negotiation. Lord Digby Jones said that the loan would have been paid back 100 times over in benefits to the economy. Before the election, the Deputy Prime Minister described the loan as
“just the sort of thing”
we should be doing, and I have to admit that, on this occasion, I agree with Nick. The loan would have created jobs in the low-carbon industry of the future and added greatly to Britain’s export capability. However, as we all know, the loan has been cancelled, so instead of exporting civil nuclear components, we are exporting jobs to Japan and South Korea. That is not a strategy for growth, but a strategy for undermining it.
The second part of a strategy for growth must include promoting bank lending. The Prime Minister met business people in Watford last week who talked to him about the reluctance of banks to lend and how it was stifling job creation, and the Prime Minister admitted that it was difficult to know which levers to pull to get banks to lend more. His confusion does not surprise me, because I have read the Government’s Green Paper on bank lending. I read it once and assumed that I had missed the section on the action the Government plan to take, so I read it again. But it was not me; it was the Green Paper—a very green paper indeed. There was nothing there! The Government are not taking action. The review of the structure of the banking sector is still a year away, and in the meantime businesses are being denied the chance to grow.
The third component of a growth strategy is investment in the skills of the future. As the Prime Minister has just led a delegation to China, it is timely to reflect that in China and India last year 8 million people graduated from university. In contrast, on investment in higher education, the Government have reduced the university teaching grant by 80% and are making students bear the full cost of a university education. This is no way to grow the British economy.
The fourth component in a strategy for growth must be investment in our regional economies. In my region of Yorkshire, we take huge pride in our industrial heritage, and we want to build a future we are proud of as well. However, while the Leeds local enterprise partnership has been given the chance to go ahead, I have not found a single business leader in Leeds who would not prefer to continue with our successful regional development agency, Yorkshire Forward. A quarter of Yorkshire will not even be covered by a local enterprise partnership, and in the north-east that rises to more than 70%. Support for RDAs is strong not just in Yorkshire. John Cridland, the policy director at the CBI, likened the Government’s regional and economic strategy to throwing the baby out with the bathwater.
Where does this leave us? Investment in Sheffield Forgemasters will not go ahead, the banks continue to rein in lending, university funding is cut to the bone, and powers are being taken away from our regions to determine their own economic future. We all agree that the budget deficit needs to be cut, but the Government must match their ambitions for cuts with an ambition for growth that British businesses and workers can be proud of. Britain could be a world leader in the jobs and technologies of the future, but only if the Government put in the policies to make this a reality.
Many Members will now be aware that the expertise I bring to the House includes music-related issues. The banks do not have a good record of lending to this industry, so let me set some background. Since the 1960s and the first so-called British invasion, the UK’s musical talent has dominated the world stage. Last year, one in 10 artist albums sold in the US and Canada were made by UK artists, and Britain is one of only three net exporters of musical repertoire in the world. The 2008 report by the PRS for Music showed that British artists earned £139.6 million overseas, up 15% on 2007. International royalties have more than doubled since 1999.
The top-five touring PRS music acts in 2008 were, in order: first, the Police; second, Iron Maiden; third, Coldplay; fourth, the Spice Girls; and fifth, Elton John. For the UK, music is an enduring worldwide success story. It is vital that our music entrepreneurs, like any other small businesses, can gain access to the sort of finance that will ensure our creative talent keeps blooming. Unfortunately, however, evidence suggests that this simply is not happening right now. Early in 2009, the UK Government, with EU support, provided UK banks with €1 billion to invest in British small businesses. The scheme to enable the distribution of this money was called, as I am sure many hon. Members know, the enterprise finance guarantee. On 1 March 2009, legislation specifically sought to identify suitable music, composers and own-account artists—in other words, those artists looking for financial support outside the ever-shrinking record label investment—for EFG money.
The enterprise finance guarantee has failed the music sector. Research by UK Music and the Music Managers Forum has yet to identify a single example of a musical entrepreneur who has benefited from the scheme as originally intended. I hope that I am not alone in finding that attitude hugely disheartening. The previous Government talked about developing initiatives to support the creative industries, and especially music. In a report called “Banking on a Hit”, published as long ago as 2001, they concluded:
“Whilst small music businesses are similar in many respects to other small creative businesses, there are important differences which give rise to unique problems in raising finance, and contribute towards a ‘funding dilemma’ for Britain’s music businesses. Difficulties in raising finance are affecting the ability of the music business to grow and prosper.”
I agree entirely. UK Music has identified situations where banks will not lend to music businesses, even though they will guarantee the other 25%, because they consider them too risky and because they intend to lend to businesses to which they would perhaps already be lending.
I am delighted that the Department for Business, Innovation and Skills has announced that it will work to make the EFG more transparent and accessible. I am also delighted that a further £2 billion is to be provided to UK banks, and that the scheme has been extended. Specifically, I would like the Government to apply pressure to the banks to reverse their prejudice and apply EFG funding to British artist and music businesses, together with the £25 million of EFG credit set aside specifically for investment in music, and especially in young British artist talent. The figure of £25 million is what music industry leaders have advised is the lending required to ensure that we remain a net exporter of music and continue to be internationally competitive.
Music is not merely entertainment; it is a national and economic asset. With the right support, our artists, musicians and entrepreneurs will continue to dominate the world and do this country proud, but the Government need to work with the banks to ensure that development capital is available.
Thank you for giving me the opportunity to contribute to this timely debate, Mr Deputy Speaker. It is a pleasure to follow the hon. Member for Hove (Mike Weatherley).
Recent studies raise real concerns about the likely path of economic growth in the coming years, given the Government’s over-hasty proposals for fiscal consolidation and the lack of sufficient measures on innovation and research and development to amount to a genuine strategy for growth. This morning, the Fraser of Allander institute, the respected Scottish economic forecaster, published its latest economic outlook. Although it points to an upswing in growth in the second quarter of this year, largely caused by improved performance in construction, growth in the Scottish economy is expected to be an anaemic 1.1% next year and only 1.9% in 2012. The report also warns that wider public sector cuts could have a disproportionately greater impact on the Scottish economy when compared with the UK economy as a whole. The institute predicts that the expected reduction of around 11% in the Scottish Government’s budget by 2014-15 could result in the loss of between 49,000 and 113,000 jobs over the next five years. That could mean as many as 60 jobs being lost in Scotland every day for the next five years. It is likely that unemployment in Scotland will continue to increase relative to the UK in the next year, with construction and business services being the hardest hit.
Across the UK, although the National Institute of Economic and Social Research predicts that a renewed recession may be avoided, with a weaker recovery and dampened growth, the public finances are likely to recover far more slowly than the Office for Budget Responsibility and the Government have predicted. The next decade for our economy may turn out to be more like the 1990s were for Japan than they were for Canada. The grave danger is that, far from promoting private investment, the Government’s plans for fiscal consolidation run the risk of crowding out growth. There has not been the surge in exports that the Chancellor predicted, in spite of an exchange rate that is favourable to exporting businesses. The Bank of England’s inflation report this week says that UK exports continue to lose global market share relative to our competitors. With other EU countries also cutting their deficits, the possibility of a strong export-led recovery is far removed from that which Canada experienced from a fast-growing US market in the 1990s.
PricewaterhouseCoopers has produced a sectoral analysis of the likely impact throughout the UK on jobs and businesses of the Government’s fiscal policy, which suggests a 4% loss in output and more than 180,000 job cuts due to reduced public sector demand, and larger relative cuts in the construction sector, with an output loss of around 5% leading to around 100,000 job losses. Scotland, Wales, Northern Ireland and the north-east of England will suffer the biggest relative job losses. For the UK as a whole, total job losses could amount to 3.4% of total employment, or 943,000 jobs in absolute terms by 2014-15.
PricewaterhouseCoopers also questions whether the regional growth fund, and equivalent measures in Scotland, Wales and Northern Ireland, will provide a large enough incentive or access to funds to make a material difference, and whether local authorities or the newly created local enterprise partnerships will have the resources, financial powers and capacity to mitigate the impact of cuts and promote local growth.
The Government are simply not doing enough to invest in the new industries of the future and capital projects. There is a reduction in the number of grants for electric-powered and hybrid-powered vehicles, a lack of detail on the proposals for the green investment bank, and a reduction in capital and investment allowances to help small businesses. Keynes once said that when circumstances change, he changes his mind. We are seeing a change in circumstances for the worse in manufacturing, construction and business services. It is time for the Government to change their mind on their damaging economic policy.
I congratulate the hon. Member for Glasgow North East (Mr Bain) on his speech, and I refer him to the same speech that was made in this place in 1990. He can look at the record thereafter, because the Thatcher Government did exactly what he said this Government will not do, so there are some examples of that.
I thank my right hon. Friend the Member for Wokingham (Mr Redwood) for initiating the debate. It was good to work with him on obtaining it. The number of people who are speaking in it are clearly a vital part of the process—[Interruption.] I am sorry that I got the year wrong, but if the hon. Gentleman goes back a further 10 years, it will be about right.
I welcome the Minister to the debate. I am delighted to say that Conservative Members have confidence in the work that he will do, simply because he knows business. The previous Government’s failing was that they did not. That simple difference must be taken into account.
The truth of the matter is that the Budget strategy is dependent on growth, and that small and medium-sized enterprises are vital to the success of that strategy. It is that simple. The Government are saying the right things, and have had some success, but money is not getting through to SMEs, and we must ensure that it does. I urge the Minister to give us some answers on how that might happen.
There is no doubt that the Government’s approach has been successful to date. Our international credit rating is much more secure than it ever was, and that is vital. The third quarter growth in gross domestic product was 0.8%, and in the previous quarter it was 1.2%. Bearing in mind that the average over the past 25 years has been 2.5%, that is pretty startling, and a good start for the Government.
Does the hon. Gentleman agree that the principal component of that growth figure of 0.8% was in the construction industry, and was entirely driven by the stimulus that the Labour Government put in place? We have already heard that it is drying up.
That is absolutely incorrect. Construction has played its part, but not house building. If the hon. Gentleman looks at the size of growth in the manufacturing sector, he will see that it has been a major element of our growth.
I had intended to talk about manufacturing exports, but time forbids that now. I will say, however, that all of that is good, but the sector is not getting the money it needs, and we must pay attention to that. The banks say that lending to business is increasing, and that it rose by 0.9% this August, compared with the previous August. That sounds pretty good, but when we look beneath the surface, we find that most of that money was lent in foreign currency to foreign businesses outside this country. The truth is that lending to British businesses dropped by £400 million.
I recognise the hon. Gentleman’s comments about lending and about the struggles of small businesses and businesses in general. Was he disappointed, as I was, to see very little on lending in the comprehensive spending review Green Book? On page 30, we see mention of the £1.5 billion business growth fund, which was put in place by the British Bankers Association, but does he agree that that is woefully inadequate, given the difficulties that businesses are facing in getting access to finance?
I want to see more, but we must also recognise that the mess that the last Government got the banks into is one of the reasons that they are not lending money now. That is why we need to encourage them to find more creative ways of lending.
Small and medium-sized enterprises are concerned about how the banks are dealing with them. Thousands are talking about the breakdown in relations with the banks. The number of complaints to the banking ombudsman is up by 119% this year alone, and 14% of all SMEs are now using credit cards to pay for their business expenses. That is an horrific figure. According to the Federation of Small Businesses survey, 31% of SMEs—that is 1.4 million small businesses in this country—say that bank lending is the most important way of improving growth prospects in the sector. When are we going to get the message? Those figures underline the great importance of this matter.
The reasons that growth is important, and that small businesses will not be able to play their part unless they get the money to finance their growth, are very simple. Most of the money they need to finance growth is short-term money for extra labour, extra materials and extra resources. Those are all short-term requirements, and businesses must have them in place before they can grow. The truth is that the payback time is relatively long term. Businesses often go bust more in an upturn than in a downturn because there is no other way of paying back that cash flow drag than through retained profit. They go bust because they try to over-trade but without having the finances to complete the process. Those businesses need our understanding. What are the Government going to do about this? They need to take action for the short term very soon. I know that my hon. Friend the Minister is sympathetic to that view, so this is not a criticism in every sense.
Basel III allows banks to lend money to the Government while still classifying that money as capital reserve. It is a complicated business and I am sure that it needs quite a lot of thought to decide how we use that opportunity to help to finance SME growth. The Minister is a very clever chap, as is the Chancellor, and they have some very clever people in the Treasury. I am sure that it is not beyond the wit of that group of people to give us answers today on how we might release that money to help the small businesses that are in such great need. I repeat that we need to provide money for small businesses in order to make the strategy work. That is the important factor in this debate.
We also need to look into providing businesses with a greater choice of banks in the high street. That is longer-term work, but it still needs to be done as soon as possible. We need an extension of the enterprise guarantee scheme, and we need to know how the Government are going to implement it. We also need the Government to get tough with the banks, and to point out that there is a real need for them to be more interactive with small and medium-sized businesses, because that is not happening. But fine words butter no parsnips, as my grandmother would have said. I want to hear what action the Minister is going to take to ensure that small businesses get the money they need.
It is, as usual, an absolute pleasure to follow the hon. Member for Northampton South (Mr Binley). I did not come into the Chamber expecting to agree with so much of a Government Member’s analysis of what we need to do, but he is absolutely right: the banks do need to lend more, the Government do need to make the banks lend more, and in matters of economic policy we do need to take a long-term view. Those are fundamental principles with which I agree.
Whichever side of the House we may be on, we all know the basic Clinton mantra about what secures electoral success and that is an article of faith in which we must all believe in the modern economy: “It’s the economy, stupid.” Those words were not reserved specifically for the Chancellor of the Exchequer, but we know that the economy is fundamentally a moral issue as much as anything else. The effects of economic policy are primarily seen and felt not on a balance sheet, but in our communities up and down the country. I believe that an effective economic policy redistributes wealth and opportunity fairly: it underpins cohesive communities, enables individual ambitions to be fulfilled, and allows families and businesses to flourish.
I commend the right hon. Member for Wokingham (Mr Redwood) on securing the debate, because we need to discuss this subject more. Given that we are experiencing a period of economic transition in this country and, indeed, across the globe, our debates in the House are sometimes mystifying. We need to discuss this subject much, much more.
I sincerely hope that the Government’s economic policies work, because this is our shared interest and, surely, our shared goal, but I have to admit that I doubt that they will. It is undeniable that one of the worst aspects of the manufactured narrative surrounding the Government’s economic policy is the polarisation of the so-called private and public economies. The Conservative and, now, Liberal Democrat mantra is “Private is good, public is bad.” We should reject that flawed view. I say “Public is good, private is good.”
I think that what the Government are trying to say is that the state is not the same thing as the economy, and that pumping more money into the state is not the same as driving the economy. If we want the economy to grow, we need to enable the private sector to thrive. That is what the Government’s policy is about.
I entirely agree. This is not just about the state. However, economic policy should not be used in an ideological agenda to try to destroy the state, and we know that that is happening in this instance.
The “public good, private good” mantra is the one that we should adopt. Our national economy is one economy. “Public” and “private” are not segregated in our towns, villages and cities. As an analysis by PricewaterhouseCoopers has shown, it is not possible to cut the public sector without hitting the private sector hard as well.
Is it not the case that between 1998 and 2009, under the last Government, productivity increased by 20% in the private sector and fell by 4% in the public sector? It is the Government’s management of the public sector that caused the two sectors to diverge during that period.
I do not disagree with those facts, but I do not think that they are germane to the “Public bad, private good” mantra that we are hearing; quite the opposite, in fact.
The findings of the PricewaterhouseCoopers analysis are self-evident. The Chancellor has confirmed that as a result of his choices, the public sector will lose 500,000 jobs. PricewaterhouseCoopers has estimated that that will cost at least a further 500,000 private sector jobs, and the Chartered Institute of Personnel and Development has said that the Government’s plans will cost 1.6 million jobs over the course of this Parliament. All the while, in the face of the facts, the Prime Minister and the Chancellor persist with their economic medicine irrespective of the condition of the patient, like Elizabethan physicians with an absolute belief in the benefits of leeches.
As was mentioned by my hon. Friend the Member for Barnsley East (Michael Dugher), for communities like ours what matters is where the pain is felt. Of course we want to see growth in all sectors throughout the country.
If the hon. Gentleman will forgive me, I will not give way again. I have already done so twice.
At present, however, the Government have no growth policy at all for areas such as mine which depend heavily on the public sector.
There are only 650 parliamentary constituencies. It would not be difficult to undertake an impact analysis of the effects of these economic policies and spending cuts on each constituency. That could be done in short order, but it clearly has not been done. Why not? Is it because the analysis would demonstrate the pain and misery these economic policies will cause in areas and communities such as mine? In the absence of such analysis, policy is demonstrably being both produced and prosecuted in ignorance of its likely effects. What kind of policy is that?
The International Monetary Fund has told the Government to develop a plan B. The Government must produce a plan B, and, in the interests and spirit of the new politics, it should be brought before the House and debated so Members of this House can express their views on it.
The likely consequence of Government economic policy is that areas such as mine will suffer more than other parts of the country. Future Labour Governments will have to reverse that decline, but we will never be able to turn the clock back for those whose aspirations went unfulfilled, for those whose dreams were destroyed and for those whose lives were blighted as a result of this Government’s current economic policies. My constituents and this country deserve better, and I ask the Government to think again.
It is clear to me that the private sector’s unleashing of enterprise and entrepreneurialism is what will produce the real and sustainable growth that is the subject of this debate. If the Government are taking almost 60% of GDP and spending it in ways that do not generate growth, and incurring massive debt in the process, the private sector will be trampled underfoot by the high taxes that automatically follow. The damage done to Britain’s economic prospects in the last 13 years has been great. As a country, we are overspent, over-borrowed, overtaxed and over-regulated.
There are 11,000 small businesses in my metropolitan borough of Dudley, and I want to make a few points about Government policies that I believe in but with which I hope we can go further and faster to help those businesses. They have told me how much they welcome the reduction of the small company rate of corporation tax to 20%, the revitalised support for apprenticeships, and the exemption of start-ups from national insurance on the first 10 employees.
The Government have also announced a one-in, one-out rule for introducing any new regulations. I ask the Minister to remember that we are competing with economies like South Korea and China, not Italy and Greece, and we simply cannot afford the massive burden of regulation that encroaches on business every day. One in, one out just keeps us standing still, and that is not good enough. We must be more ambitious in our desire to deregulate.
Another area in my sights for reform is the loving care with which Whitehall implements European Union directives. We should follow the example set by France, and followed out of economic necessity by the newer economies of the former eastern bloc. This week the Business, Innovation and Skills Committee investigated the operation of the enterprise finance guarantee scheme, which I am delighted that the Government have extended. I ask Members to imagine our surprise, however, when we learned that companies could not access this scheme if they were exporters. Under questioning from our Chairman, my fellow black country MP the hon. Member for West Bromwich West (Mr Bailey), the BIS officials before us confirmed that exporting companies were exempt from this excellent policy because of the EU rules regarding state aid to exporters and the potential for distorting trade between member states. Can Members imagine other countries, such as France and Poland, being so deferential to such directives?
As many Members have said, we also need a “big bang” in credit for the small business sector. Since the banking crisis, there has been much talk about the difficulties small businesses have had in accessing capital. That is nothing new. My business experience dates back to the mid-1980s and what I learned from my father’s business career dates back even further, to the ’60s, and I can tell this House that the banks never wanted to lend small businesses money when we needed it, and always demanded the shirt off our back if they were ever persuaded to do so. So I am not sure quite when those halcyon days of bank lending to small business existed.
What is needed is a greater diversity of loan and equity finance. Last week the Black Country Reinvestment Society issued a report arguing for more finance to be channelled through mutual and co-operative societies. I was pleased to be informed by officials in the Department for Business, Innovation and Skills that such bodies are to be allowed to bid for funding from the regional growth fund. In addition, the enterprise capital fund programme will leverage equity financing. We must also find a way of incentivising high net-worth individuals to invest in start-ups and small and medium-sized enterprises.
Not only must we increase the number of small businesses, but we must get the existing ones into a position where they can grow their business, because only about 20% of small businesses really achieve great growth. The policies that this Government are pursuing now—at last—and many of the ideas we have heard this afternoon, including some in my contribution, will double the number of small businesses that can grow themselves, and in turn provide the growth that this economy needs from the private sector.
This is a timely debate. We have learned that my hon. Friend the Member for Glasgow North East (Mr Bain) was making speeches about growth when he was but eight years old, so we know that there has been significant interest in this matter across the House for some time.
We meet here today at the same time as the G20 meets in Seoul, and I wish to contrast the role that Britain played when the G20 met in London with what is happening at the current meeting. At the London meeting, the then Prime Minister, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), led the debate, shaped the debate and helped to pull the leading economies of the world together on an agenda that helped to prevent recession from turning into depression. What is happening at this meeting? Britain is playing no leading role, and the leading economies of the world are gathering together in an atmosphere of tension over exchange rates and trade imbalances. What a contrast between the London meeting and the one currently taking place.
Of course we all want to see economic growth, but it is also crucial for growth to be evenly spread throughout the country. We enjoyed many years of economic growth before the recession, and Labour put in place a determined and active sub-national policy to ensure that that happened.
If the hon. Gentleman wants to talk about outcomes, I would remind him that the action that the Labour Government took helped to ensure that the level of repossessions, business failures and unemployment during the recession that we are just coming out of was about half that in the recessions when his party was in power.
As I said, growth has to be spread evenly throughout the country. This is not just an economic question; it is a social and political one too, because if parts of the country are left out of the country’s economic future, there is a profound disaffection that affects all of us. So what policies might we look to so as to ensure that such growth occurs? Of course, finance for industry is essential. We have reached a point where there is a dialogue of the deaf between banks and businesses. Businesses say that banks will not lend to them or will do so only on usurious terms, whereas banks say, “There’s a lack of demand, and look at all the billions we’re lending.” The present Government say that the banks ran rings around the Labour Government, but the more they ramp up the rhetoric the more they expose their own weakness, and their impotence to do anything about the situation. After six months of this Government, we have heard nothing that will increase bank lending to business.
I suggest that we should have a proper contract in place that goes something like this: the taxpayer rescued the banks from financial collapse, so we need a new consensus on the role of banking, which is that, as that rescue had to take place, the banks must play their proper role in putting forward finance for businesses to invest and grow. The truth is that we can have all the debates that we like about growth in this House, but unless the banks play their proper role we will not see the economic growth that we need.
Secondly, we need proper financial support for industry. We have been too hidebound by a fear of talking about picking winners. This has inhabited Governments—I include my Government in this—from playing their proper role in the economy. Of course that has to be done with care and with discerning judgment, but if we want to take advantage of the economic opportunities of the future—the transition to low carbon, the opportunities presented by the digital economy and other such matters—Government must play their role. As my hon. Friend the Member for Leeds West (Rachel Reeves) said, what happened at Sheffield Forgemasters was not just a lost opportunity for one company but a lost opportunity for the country, because it could have made us a world leader in civil nuclear supply.
Let me say one more word about that project. The Government, having run out of excuses, now say, “It is a good project, but it’s unaffordable,” while in the same breath boasting about having a regional growth fund of £1.4 billion. If they really have that regional growth fund, why was its first decision not to reverse that mistake and grant the loan to Sheffield Forgemasters? I approve of the action taken on AgustaWestland, but I do not see the difference between the two proposals.
Thirdly, we must do better on sub-national economic growth and development. The Government have abolished eight regional development agencies and we now have what the director general of the CBI calls “a shambles” coming to replace them. The process appears to be being run not by the Department for Business, Innovation and Skills but by the Department for Communities and Local Government. It has to be rescued, or it will do real economic damage.
More points could be made in the debate, but they will have to be made by others given the time limits. There is a profound difference in our view: the Government are engaged in faith-based economics, stepping out of the way, whereas we believe in an active role for Government in securing economic growth.
One of the great pleasures of speaking in this place is occasionally hearing Members of the Opposition saying something that I agree with. I agree with both the hon. Member for Copeland (Mr Reed) and the right hon. Member for Wolverhampton South East (Mr McFadden) that we must ensure that growth is spread evenly across the country as the economy grows. Perhaps they should pause for thought, however, and consider the legacy that we have been left. The gross value added per person for the English regions that we have inherited is about half that for London and 20% less than that in the south-east. The fact that GVA in the regions is half that for the capital is staggering, and it is a situation that does not exist in any other OECD economy. We must fix that, and it behoves the Government to put into effect the policies that will stop that happening again.
I shall say it again: we have inherited a situation in which London has double the GVA per employee of the English regions, and that is not sustainable. The hon. Member for Copeland is right: it is a moral issue. Why has that happened? First, it has not happened simply because London is the capital. If that were the case, the same would happen in other countries, but it does not happen in the United States, in Germany or in Italy. In France, where Paris is dominant in the same way as London is dominant here, the disparity is not the same; it is not double. One small cause of the gap in the past few years has been the boom in financial services, which was unrestrained and went on for a couple of years. I should add that the widening of the gap accelerated during the last few years of the Labour Government.
That all happened here because we have a country that is very London and south-east focused. I spent 30 years in business constantly fighting initiatives to move functions to London, and fighting the idea, “This is important; we’ll have to do it in London.” That is a very tough thing to have to do, and it is like pushing water uphill all the time. Worse still, that attitude also exists in our civil service, in which London tends to be seen as the centre of everything. Another statistic that Opposition Members might like to consider is that capital spend per head under their Government was 50% higher in London than in the north-west. That is a terrible statistic, because capital spending at that level creates private sector jobs and all the good stuff that we need, and thereby creates affluence and prosperity.
We need growth in the regions, and as I have not heard a great deal from the Opposition about how to create that growth, other than by spending money on the regional development agencies, I shall make a number of suggestions. First, infrastructure matters more in the regions than in the south-east.
Like the hon. Gentleman, I am finding a lot of cross-party agreement and I agree with much of what he says. Will he pause to congratulate the Labour Government on driving forward the west coast main line upgrade, and will he back the rail infrastructure campaign for the north-west that could do so much to build the infrastructure that he says we need?
I am about to address infrastructure. We need High Speed 2 to link the north-west as quickly as possible, as we need our rail infrastructure to be linked through to the channel. Yes, I will give credit to the Labour Government for getting the west coast main line done. While I am at it, I shall give them credit for getting the BBC to move outside the M25 and up to the north-west, but that has not been enough, because of the massive disparity in value added per employee that is their legacy.
Like infrastructure, energy matters. I have not heard it mentioned in the debate yet, but energy is a very important component of growth. Broadly speaking, a unit of gross domestic product generated in an English region is more energy-intensive than a unit of GDP generated in London or the south-east, because we have more manufacturing and industry that uses energy. It is therefore very important to our prosperity in the regions for energy to remain competitive. A particular problem that we have inherited is the price of our electricity, which is 30% more expensive than in France. That is a tough issue to start with, but I am concerned that some of the initiatives we are taking will make the problem worse. We need to build more nuclear power more quickly.
The hon. Gentleman is making some terrific points, and I agree with many of his comments so far. He will know that the energy sector is responsible for approximately half of our manufacturing sector, and that we need to get quicker investment in UK manufacturing and industry on stream right now, facilitated by the Government and the private sector, including the global private sector, to meet our energy needs. Does he share my fear that the constant re-evaluation, reinterpretation and reformulation of planning policy is inhibiting that, and will cost the country financially?
There is a risk of that, but the nuclear power industry needs to press ahead quickly, which it did not do under the previous Government. I think that the steps being taken by this Government will help in that regard.
Energy is important. The magnificent technical achievement that is the wind farm in Thanet has just come on line, but it will require a subsidy of £1 billion over its life. That subsidy will be paid by industry and in jobs, so we have to be very circumspect about how we do that.
My third point about building the economy in the regions and what we need to do differently concerns skills. The industries that we need to generate the jobs that will make the household names of the next 30 years will be in fields such as advanced manufacturing and biomedical engineering. We need more applied scientists, more engineering graduates and, yes, more apprentices.
One damning statistic relating to the last few decades—not only under the last Government—is the fact that we produced more engineering graduates 30 years ago, when there were only a quarter of the number of people graduating, than we do now. That is not sustainable. We have not yet been punished economically for that, because of the success of the City and, to a large extent, because of the success of North sea oil in bailing out our economy. We will not get away with that again in the next decade or so.
On the regional development agencies, it is true that they did some good things. If we give someone £4 billion a year to spend, some of it will be spent well, but it was not cost-effective. We need to make certain that what replaces the RDAs works well.
Finally, if the coalition Government, too, leave a legacy of such disparity behind them, they should hang their heads in shame—in a way that I hope the Opposition Front-Bench team will think of doing now.
Many hon. Members have talked about the need for more and more economic growth to get us out of the current economic crisis, yet there has been very little discussion of what kind of growth that should be or of how to ensure that it is genuinely sustainable. It is clear that if we return to the kind of high-street credit boom that was instrumental in causing the crisis in the first place, it is unlikely to offer sound foundations for a genuinely sustainable recovery. The priority now should be for the Government to invest in the green infrastructure that we so urgently need in order to make a transition to a zero-carbon economy as quickly as possible.
One million green jobs could be created through a real commitment to investing in renewable energy, energy efficiency and sustainable transport. In my constituency, the potential for green jobs is very high. I warmly commend the report “One Million Climate Jobs Now”, which was produced by a number of unions and the Campaign against Climate Change. It points out that there is an environmental crisis as well as an economic crisis, although from the look of some of the media coverage in recent months, it seems as if that has been forgotten. There are ways of tackling the economic crisis and the environmental crisis at the same time through a real investment in green technology and green energies. That is a way not only to get our emissions to come down, but to create literally hundreds of thousands of jobs as quickly as possible.
From listening to previous speakers, I am reminded of the debates in recent years about targets. Our policy on growth is no more or less than a policy to increase gross domestic product by a certain percentage each year. Like any policy based around a specific target, it brings with it huge risks of distortion, unforeseen consequences and irrational outcomes. It is a familiar story across the public services. In health, we have had patients receiving the wrong care just so that an arbitrary target can be met. In education, we have had schools encouraging their students to take easier exams in order to try to make their record look better. Across the public sector we have had civil servants throwing money at wasteful projects as they come to the end of the financial year, rather than see it handed back to the Treasury.
When it comes to the economy, the distortion that comes from the pursuit of a single target is magnified tenfold. Gross domestic product does not differentiate the social values of different forms of economic activity, so a bank dabbling in stock-market speculation is on a par with a pharmaceutical company developing life-saving drugs. GDP has arbitrary divisions of what counts as economic activity. If someone helps out a neighbour by looking after their children, that is not economic activity; but if money is charged for doing so, it is.
GDP does not differentiate between revenue and capital. That is not just a technical distinction; it is a fundamental distinction, which is proper to the management of any business. If someone uses up capital, treating it in the accounts as revenue, the business is heading towards bankruptcy and the person is probably heading towards prison. Yet a Government who use up their capital—the country’s natural resources—and treat it as national income can boast of delivering economic growth and increased GDP. We have seen that on a vast scale with oil and gas from the North sea: billions of pounds treated as revenue with no thought for the fact that it is just a one-off boost to the economy. For 30 years, that has made the UK economy look far stronger than it actually is. Instead of those proceeds being invested wisely in the future—in renewable energy or other ways to keep the lights on when the oil and the gas run out—they have been used to fund consumer booms that have led to the inevitable busts.
Perhaps worst of all, GDP does not count the full cost of production. None of the impact on our natural world and people’s quality of life is covered by GDP. We have added coal, gas and oil to the credit side of the ledger and ignored their far greater negative impact on our climate, landscape and wildlife, on coastal communities and, above all, on those facing drought, flood and famine throughout the world.
The disastrous impact of the obsession of successive Governments with GDP growth affects every part of our policy making, yet there are alternatives. I commend to the House the work by organisations such as the New Economics Foundation and others, which produce measurements of our overall well-being that are far more meaningful than simple measures of GDP growth. In this debate, we need to move away from thinking that more and more GDP growth automatically means that we are better off, because there is plenty of evidence that it does not mean that. I hope very much that as the debate continues we will be more discriminatory in our definition of green growth.
The hon. Lady makes the very powerful point that money and economic well-being are not everything in life. Greater happiness provides for greater contentment, and it is good when people make judgments not solely based on money, so I very much welcome her contribution to the debate.
I, too, commend the hon. Lady’s very powerful points. Does she agree that there is an opportunity to combine our strength in banking with our interest in a new low-carbon economy by ensuring that the green investment bank is as good as it possibly can be?
Absolutely. The green investment bank will be critical to the transition that we need, but it absolutely has to be a real bank, not just a fund in the Treasury with “bank” attached to it. It has to be a genuine bank that can lend money, raise money, raise bonds and so forth.
Dropping the GDP target is not anti-jobs; it would allow us as a country to develop the measures and targets that reflect the immense complexity of our economy and society and put people’s well-being at the heart of policy making. Many people talk of “sustainable growth”, but we should unpack that phrase, because it is clear that on a planet with finite resources, the infinite production and consumption of natural resources simply is not possible. Efficiency gains will help, and technology will need to play a vital role, but there is a very real risk that with a rising population and understandably rising expectations from a growing middle class throughout the world, those efficiency and technology gains will be undermined by overall growth.
Behaviour change will therefore have to be a part of truly sustainable development, but that does not mean a less fulfilling quality of life. On the contrary, it is far more likely to lead to a better quality of life. There is plenty of evidence to suggest that although GDP growth has more than doubled in the past 30 years, our well-being and happiness have not. They have either stayed the same or, according to some indicators, even declined.
Finally, I commend to the House the report from the Sustainable Development Commission, called “Prosperity without growth?”, by Professor Tim Jackson, which explores those issues clearly and makes the case that countries such as France, and even President Sarkozy, are beginning to look at those issues carefully. I am grateful to the Backbench Business Committee for raising this important question, and I hope that we can deal more critically with the idea of green growth.
I join my hon. Friends the Members for Windsor (Adam Afriyie) and for South Northamptonshire (Andrea Leadsom) in commending the very good points that the hon. Member for Brighton, Pavilion (Caroline Lucas) made. I never thought that I would hear in this House a member—indeed, a leader—of a party such as the hon. Lady’s commending the pharmaceutical industry, but I am sure that the sector will be very pleased to hear it.
It is easy to talk of growth in terms of numbers—another point on which I agree with the hon. Lady—but growth is about the production of goods and services and employing more people. It is easy for people who are in employment and wealthy to say, “It is not all about money,” but we should not fall into that trap, because for most people the difference between growth and no growth is represented not by quarterly figures, but by the companies that are expanding, hiring more people and creating more jobs or by the people in the economy who are deciding to start a business themselves. The fundamental point is that growth in this country will occur only when more people decide that what they want to do with their lives is set up a business and employ people.
Unfortunately, over the past couple of generations it has become very unfashionable—I cannot say “uncool” because my teenage son would criticise a middle-aged person like me for using such a word—for young, bright people to have an ambition in life to set up a business, partly because of the lure of the professions, such as accountancy, law and the media. I know that from visiting very good schools in Watford, where very intelligent young people are well educated by the state. When they are asked who is interested in setting up a business, very few put up their hands.
We have to try to recreate the conditions where people who set up businesses are heroes in life—where people who employ other people are regarded as doing something that is very worth while. Government alone cannot do that, although they can try by setting up schemes, providing training, and so on. There needs to be a feeling of why people are going into business—to create money and profit for themselves and their families, and for the community by paying taxes. Until we change and improve the philosophy, growth will be just something that one hears about at the top level.
The hon. Member for Leeds West (Rachel Reeves), who is unfortunately no longer here—she always speaks well and knowledgeably; I believe that she was at the Bank of England before she became a Member of Parliament—mentioned the recent visit to Watford by my right hon. Friend the Prime Minister. I was there with him, and it is true that the 10 small business people to whom we spoke in a round-table discussion raised the point about bank funding that has been mentioned to the Minister time after time. However, far more of the discussion—unlike me, the hon. Lady was not at the meeting, so she was not in a position to mention this—was about those business people feeling that their businesses were being held up by bureaucracy, ridiculous employment laws now applying to temporary staff, and health and safety regulations. One small business man showed me a 20-page document that he had to fill out to offer work experience to people from local schools. That is completely absurd. The Government must get to grips with the situation. I am pleased to find that various things, including Lord Young’s report, are entirely commensurate with that.
Watford, as I am sure the Prime Minister would agree, is the hub of the universe. The Government—and the previous Government—have tried hard to encourage the film industry, which is very strong in Watford. Warner Bros has just announced an investment of £125 million in Leavesden studios. That will create many skilled, high-paid jobs that we need in the area. One of the reasons Warner Bros chose this country, and chose Watford and Leavesden, was the film tax credit that is given to people in the business. My right hon. Friend the Member for Wokingham (Mr Redwood) would say, with his experience and credibility, that that is a good example of how low taxation makes companies invest. That is very true. The film industry is picked out as a special case—
Let me start by congratulating the right hon. Member for Wokingham (Mr Redwood) on securing this important debate. I must confess that I could listen to him all day, for two reasons: first, he is one of the most engaging speakers in the Chamber; and secondly, if he were to speak all day, I am sure he would eventually say something that I might agree with.
The international financial crisis has affected every Government the world over, and getting back to sustained economic growth is the only real way to reduce the deficit and clear the financial crisis for good. The problem with this Government is that their Budget and comprehensive spending review have resulted in a set of conditions that harm growth. I would like to mention a few aspects of that which I am seeing locally in my constituency. As someone who runs his own small business—I have done so since I left university—I should say that many of the points that I will make concern things that I have experienced myself.
The first aspect is business confidence, particularly the small business confidence which, as many Members have said, is so important to economic growth. Many small business owners in my constituency currently see a quadruple whammy coming from the Government, which is not just stopping potential growth but risks causing contraction in the economy, with a real danger of pushing us back into recession.
First, there is a greater degree of nervousness among small businesses’ customers, who are concerned for their jobs and those of their families. They are therefore spending less and see no light at the end of that particular tunnel. In fact, the Government’s own figures, published by the Office for Budget Responsibility, show that 500,000 public sector jobs will go as a result of decisions made by the Government, and of course PricewaterhouseCoopers has projected another 500,000 job losses in the private sector. Many commentators are saying that that may be slightly on the low side.
I will make some progress, if I may.
The instability of the job market is causing customers great uncertainty. All in all, they do not see the Government doing anything to assist in the job sector.
Secondly, such problems are always compounded by personal finance, which undoubtedly affects confidence in the small business sector. Products and services will be hit hard by any increase in VAT in January. I am disappointed that the hon. Member for East Surrey (Mr Gyimah) is no longer in his place, because he mentioned cash flow for small businesses, which is a critical factor in how they operate. Many of them go under not because they are not profitable but because of cash-flow issues. One of the main effects on cash flow of what this Government have put in place will come from the increase in VAT in January.
Many people have forgotten the other hidden increase that the Government have imposed on people, which will hit confidence even further. They say that they are not introducing a jobs tax, but they are keeping the national insurance increase for employees, which will compound the problem of confidence in personal finances even further. Individual families see job insecurity, significant job cuts, increasing VAT and less pay in their pay packets, so bottom-up growth through the small business sector, and particularly the service sector, will be sluggish at best.
Thirdly, despite the warm words of the senior bankers whom we have all spoken to over the past few months, businesses and particularly small businesses are not able to borrow to enable growth. Not even in Edinburgh, which is at the forefront of financial services in Scotland and one of the biggest financial services centres in Europe, can small businesses access financial services.
To be slightly fair to the banks—I never thought I would say that in the Chamber—that may be partly a matter of perception. They tell Members that they have adequate funds to lend, but small businesses are not coming forward and creating demand. The Government and all Members have to do more to get rid of the perception that banks will not lend. While it still hangs around, small businesses will not approach banks and their business managers to access finance. Let us call the banks’ bluff. If they are telling us that the funding is there, let us all encourage small business to go and see their banks as soon as possible to have conversations about how they can borrow and therefore enable growth.
Fourthly, many businesses in my constituency rely on the public sector for contracts. If the public sector shrinks at the rate the Government wish, even though they want the private sector to take over, growth will be severely damaged by businesses not being able to access many billions of pounds of public sector contracts.
I was standing up, Mr Deputy Speaker. [Laughter.] Thank you for the opportunity to speak in this most important debate, which has been overdue for some months. We certainly need to up our agenda for growth.
Those who know me—and love me—will know that I am not a great interventionist. I believe that the most significant influence the Government can have over business and growth is through mood music. We need to do more to create the right mood and give confidence to the private sector, on which we will rely to provide the growth needed to repair the immense financial damage and the hole left behind by the Labour Government.
I thank the hon. Gentleman for his comments. When the previous Prime Minister stepped in, the economy was at a precipice, and there is no doubt that we took a great step forward. [Laughter.] There you go.
We need all Departments to look at their role and at the mood music they create. As Arthur Laffer says:
“You can’t love jobs and hate the job creators.”
The question is what we do about that. We cannot love jobs and hate the people who create them. That must be at the forefront of the thinking and agendas at the Treasury and the Department for Business, Innovation and Skills. I believe that our Ministers do love the job creators, but it would do no one in the Chamber any harm if we wore our hearts on our sleeves a little more openly.
The Government’s role is to set the conditions for business growth. The state of the public finances reduces our scope somewhat, but, to pick up a point raised by my right hon. Friend the Member for Wokingham (Mr Redwood), there is a method of cutting costs to business that will not reduce the Treasury’s take by a penny: reducing and minimising regulation. Over the first 10 years of the previous Labour Government, the increase in the regulatory burden saw the UK fall from fourth to 13th in world competitiveness rankings, a trend that has, unfortunately, continued.
As anyone who runs their own business will know—I am afraid that there are more business people on the Government side of the Chamber than on the Opposition side, and I ran a business for 22 years myself—business owners have spent ever-increasing amounts of time ensuring that their businesses comply with all the latest rules and regulations emanating from an ever-increasing number of Government agencies and quangos at home and in Europe. That is an unwelcome diversion from working and developing the business, and I welcome the measures being taken to reduce the number of quangos. We must, however, ensure that those quangos that remain do not unnecessarily hold back businesses, because time always costs money in the business world.
It was Adam Smith who said that vexation is the equivalent of taxation. I believe that regulation on business is vexation, so regulation is the equivalent of taxation. The business of business is business, and the business of government should be creating an economic and regulatory environment conducive to business growth and development.
I would, and I have asked questions about that of the Minister in this very Chamber. It is important to prevent rural isolation following the disastrous closing of the post office network in rural areas under the previous Government.
Only through a strong and vibrant private sector can our nation’s long-term prosperity be assured. With that in mind, it is vital that we undertake measures to deregulate as soon as possible. I urge the Government to consult a document that my right hon. Friend the Member for Wokingham produced on this issue. His economic policy review in 2007 presented 33 specific areas where it was thought that the repeal of, and amendments to, regulations could cut costs and improve business efficiency.
I sit on the Regulatory Reform Committee, and I have severe concerns that it is simply not busy enough. I want the Committee to be one of the most active and busy in the House, which is why I support calls for the Government to bring forward a deregulation Bill as soon as possible and as a matter of urgency. Measures such as the scrapping of the home information packs produced no ill effects and got rid of regulations that did nothing but increase the burden of costs on consumers and business. We must continue that work.
We must also do more to tackle the gold-plating that we are so famous for in this country. EU regulations are signed up to by many countries, some of which do not have the will to implement them, some of which do not have the administrative ability to implement them and some of which, unfortunately, have neither the will nor the administrative ability to implement them. We have both, and we are very good at implementing regulations. That is unsustainable and it puts a tremendous burden on our businesses. We need to look around Europe to see how countries deal with their regulations in a lighter way. If possible, we should adopt those approaches to make the UK more competitive.
The answer to bad government and bad regulation is good government and good regulation. Regulations almost curtailed the growth of my business 15 years ago, when they caused a seven-year delay on a factory relocation. Fortunately, we managed to find a way through that.
As so often, the hon. Gentleman is completely wrong. By incentivising local government by offering—potentially—10 years of business rates, the localism Bill will make local government considerably more business facing and business friendly than it was under the previous regime. Over-regulation is sending many businesses to the wall and dissuading many potential entrepreneurs from going into business.
We need an adult debate about taxation. Do we have taxation to provide the revenue for the essential public services that we need and deserve, or is taxation merely a tool for redistribution and a way to punish hard-working and entrepreneurial people, which is how I believe the previous Government often used it?
It is a pleasure to follow the hon. Member for North West Leicestershire (Andrew Bridgen), although I think we have very little in common politically. My politics are almost identical to those of his predecessor, the great David Taylor, a fine parliamentarian and a true socialist.
This debate is essentially about growth, but the Government cuts strategy will have the opposite effect. It is acknowledged that the cuts will drive up unemployment by something like 1 million, but there is speculation that that could go up to 1.5 million, which would mean a total unemployment level of something like 4 million. That will mean a massive loss of confidence for consumers, lenders and corporations as we plunge into depression, and years—possibly decades—of deflation. That has been described as the Japanisation of the economy, which is defined as the
“deflationary trap of collapsed demand that occurs when consumers refuse to consume, corporations hold back on investments and banks sit on cash.”
That is what we face.
My views are perhaps best expressed by Paul Krugman, the Nobel prize-winning economist, who said that the Government’s plan for the economy
“boldly goes in exactly the wrong direction”
and that it
“appears to come straight from the desk of Andrew Mellon, the US Treasury secretary who told President Hoover to fight the Great Depression by liquidating the farmers, liquidating the workers, and driving down wages.”
Krugman further observes that
“the Government is using the financial crisis of 2008 as cover for advancing an ideological programme for downsizing the welfare state and that its plan has been sold to the public with an unprecedented and unwarranted degree of fear-mongering”.
I absolutely agree with that. He might not be to the taste of Government Members, but a Conservative Member of the upper House, Lord Skidelsky, says that the Chancellor of the Exchequer’s fiscal contraction will lead to a fall in growth. I will leave that with them.
There are historical precedents. In the 1920s, we had the Geddes axe, a massive programme of cuts that saw the economy shrink in 1920-21 and slow growth throughout the 1920s. Government debt actually increased during that time from 135% of GDP in 1919 to 180% of GDP in 1923. By 1929, Government debt was still higher than in 1919, immediately after the first world war.
Subsequently in 1931, we had the Snowden cuts, a shameful period when our former Labour leaders brought about a split in the party. I am pleased to say that today’s Labour party grew out of the opposition to those cuts. The national Government—a coalition Government that was essentially Tory—took us off the gold standard. Snowden said afterwards said that no one told us we could do that. They recovered only by devaluing, which has happened time and again. Even then, there was relatively feeble growth through the 1930s. Not until the massive expansion in public expenditure during the war did the economy begin to recover. After 1945, there was a period of full employment for at least 25 years—unemployment was half a million or less—and Government debt fell from about 250% of GDP to 50% of GDP. That was a period of high Government spending, and it saw the development of the welfare state and the national health service, among other things.
I commend the hon. Member for Brighton, Pavilion (Caroline Lucas), who is no longer in the Chamber, for what she said about growth. There are enormous areas in which we could invest additional spending now to reduce unemployment and, in effect, the deficit. I suggest that we have an enormous programme of green growth and targeted investment in construction. We could build energy-efficient buildings, insulate every building in the land, and put local energy generation into every site. We could have heavy investment in infrastructure, especially railways and rail freight, and in areas that are labour intensive. Of course, one of the most labour-intensive areas is the public services, which the Government propose to cut. I suggest that we should invest more in the public services and soak up unemployment, which would have beneficial effects in every way, including bringing down the deficit. The environment needs enormous amounts of investment to improve it, and we could also invest in energy—solar, geothermal, wind, wave and tidal.
Indeed, in the short term, we would borrow it. Another factor that the Government constantly ignore is the tax gap of £120 billion a year in tax that is not collected. It is evaded, avoided or simply not collected. If we collected a fraction of that £120 billion, we would have plenty to spend.
In the short term, we should spend more and invest in labour-intensive areas to bring down unemployment, which would bring down the deficit and make life better for everybody. If we want growth, we have to spend more in the short term, not less, and that money can come initially from closing the tax gap. If we have to raise taxes on the better off, so be it, but we have to spend more, not less. The suggestion that Labour spent more than other countries is nonsense. For example, 10 years ago, public spending in Scandinavian countries was more than 50%, or 10% to 15% of GDP more than ours. We were not over-spenders. Indeed, I argued for a long time that we should follow the Scandinavians’ example. I was somewhat critical of the Labour Government in that respect, although they did infinitely better than this Government will do. I really fear for the future of this country, if the Government press ahead with this cuts programme. We face a period of mass unemployment and deflation, which is much harder to eradicate than inflation. Deflation—
I wish to approach this debate from a slightly different angle. According to the National Council for Voluntary Organisation’s “Almanac 2010”, the UK is home to around 900,000 civil society organisations with a total income of £157 billion, accounting for around 10% of our GDP and holding £244 billion worth of assets. More than 1.5 million people are employed by civil society organisations. So when we are talking about growth and plans for growth, we need to ensure that we include civil society within that and do not merely focus on the traditional divisions of private sector and public sector.
Whether we wish to recognise it or not, civil society has an important role to play in the growth of our economy. First, these organisations are at the forefront of the reskilling and upskilling of our economy. Organisations such as the Smallpiece Trust in my constituency are in the vanguard of providing courses and raising the profile of science, technology, engineering and maths. It is the Smallpiece Trust, and entities like it, that will help to provide the skills base that our country will need if we are to see a boom in the green economy, manufacturing and other sectors that will generate the growth and create the jobs that we need for the future. We all know that we face a skills challenge in the years ahead, and if we are to meet that challenge, we really need to galvanise voluntary organisations, educational charities and social enterprises.
Secondly, the UK is a very service-hungry nation and, although we are facing a difficult economic time ahead, that is unlikely to change. The public sector already spends nearly £200 billion a year on procuring services and demand is likely to rise. As a recent report by the think-tank ResPublica stated, there is a growing “customisation culture” where people want individualised services specifically created to meet their needs. Given this and given the advantages that civil society has in delivering the services that people need in a way that is individualised and customised with high quality, there is great potential for growth in this sector if the Government are willing to engage with civil society and look to the voluntary, third and social enterprise models to provide, rather than just continuing with the traditional monolithic state model of the past.
Moreover, civil society organisations use the service contracts and income they receive from private and public sources as a base for other activities. In doing so, they reduce the demand for services from the state, saving the country countless billions of pounds every year. If we engage civil society more in helping to provide the services that people want, we can free up funding, which can be used to stimulate other areas of our economy, while—more importantly—meeting people’s expectations. This is something I hope to put forward in my private Member’s Bill, which hon. Members might like to join me for next Friday.
Thirdly, we should recognise the potential for exporting civil society around the world. Countless UK civil society organisations are truly worldclass. These bodies not only provide help across the world to those who need it, but bring in highly skilled jobs and income. As the world continues to develop rapidly in the decades ahead, the work of civil society globally is likely to increase, and countries across the world will be looking towards countries such as ours to make progress. They are likely to want to work with our civil society, and will want to learn the skills and access the institutional knowledge stored in our organisations. The UK has a clear comparative advantage in that area, and we should not be ashamed to make the most of that.
There is no good reason why the skills and capacity generated by UK civil society cannot be exported across the world, and why organisations from this country cannot gain access to funding and generate employment at home while helping others. We have an excellent opportunity not only to help to produce a better global future, but to generate employment at home in a way that is also socially rewarding.
I warmly welcome this important debate—the first of its kind I can remember in my long years of service in Parliament—because it is a vital issue. Unfortunately, however, we have to compress our wit and wisdom into five minutes, and to do that I will concentrate on four basic points crucial to growth. The first is that the Government seem to see the public and private sectors as competing—if we cut back the public sector, the private sector with flourish and grow, or, as one Conservative Member put it, will be unleashed. That is just not true. The two are complementary. If we cut back the public sector in the way that is now being done, we will damage growth, jobs and demand for the products of British business. The two must march together in a complementary process.
Secondly, growth depends on a competitive exchange rate of a kind we have never had in this country. A competitive exchange rate reduces the price of our exports, increases the price of imports in this market and cuts our cost level in foreign currency terms, which we have to do because our cost levels have been too high. Every growing and developing country has started out with a low exchange rate and built a powerful exporting base from that. We have never done that, because of fear of inflation and the power of the City, which likes a high and stable exchange rate to serve its own interests. We now have the opportunity presented by the 25% devaluation. We have to seize that and keep the exchange rate down, so as to benefit manufacturing industry and encourage exports. Otherwise, manufacturing industry has to cut costs, and throw overboard research, design, development, the labour force and everything that makes for improvement, just to survive. A competitive exchange rate is vital.
Thirdly, we need an industrial policy. The Government do not seem likely to evolve one, but it is essential, to decide priorities, to help channel investment and to remove bottlenecks, whether in transport, ports or, indeed, in planning. It sometimes seems that in planning arrangements on the south bank of the Humber, the birds are more important than jobs. We need a national development strategy, because the market and banks are not capable of doing the job.
Fourthly, we need to shift the balance from the City and finance to industry, production and investment in our industrial base. We should look at the contrast between Britain and Germany. Germany has continuously improved and invested in its powerful manufacturing sector. It has maintained and defended a powerful Mittelstand, which has vanished in this country, which means that we cannot compete. The result is that Germany can now export powerfully, whereas our position is different.
What has been important to British companies is shareholder value. There has been an obsession with shareholder value and creative accounting, where the auditors are in collusion with the executives, and an obsession with executive rewards, which have been helped by creative accounting and bonuses for irresponsible gambling. The City makes a better living from fees for takeovers and dismembering British industry than it does from supporting it. Indeed, the City has never supported British industry and investment in this country on the scale that has been necessary. We have been badly let down in this country by our banks and by the City, and by their investment strategies. They have failed the country.
Government management of the economy and giving some definition to our industrial policy is crucial in all this. We shall not get the growth that we need if their policy is simply to cut, cut, cut and to wait for growth to spring fully armed from the head of a Chancellor who has no higher wisdom than to cut.
I would like to touch on a couple of specific points and, if there is time, to make a more general point.
I very much welcome the Prime Minister’s recent announcement about entrepreneur visas, when he spoke about laying out the red carpet for business people who come here to create wealth and jobs. Had that approach been in operation in recent years, it might have helped two constituents of mine. They are New Zealand nationals who run a multi-million pound technology business, which is now based in the UK. They came to this country following a meeting with Lord Digby Jones in 2008, when he visited New Zealand as part of a Government trade delegation seeking to attract investors and businesses to the UK. Following that meeting, they decided to relocate to the UK, and subsequently applied for leave to remain in May 2010, having set up their board in this country and secured more than £1 million of orders.
The UK Border Agency has yet to consider my constituents’ applications, and it is over six months since they were first submitted. My constituents run a company that creates products sold internationally, and they are often required to go overseas to secure further orders for their company, and, by extension, for the UK. Clearly they cannot do so while their passports are held for indefinite periods by the UKBA, and are available only for identification purposes, not for travel. If those business women want to use their passports, they go to the back of the queue. My constituents have told me that they are already considering relocating their business to Singapore or Hong Kong, as there are fewer barriers to setting up and relocating businesses there. However, they do not want to do that; they want to be based here in the UK. It would be a great loss to our economy if they relocated, and their case is indicative of a wider problem. I hope that Business Ministers can address the matter urgently with Home Office colleagues.
Tax increment financing schemes allow local authorities to fund major regeneration projects by borrowing against the future increase in local business rate income. We have talked a lot about the conflict between public and private regeneration, but TIFs bring the two together, allowing borrowing against the income of companies set up in the regenerated areas. TIFs have been successful in the US, and there have been some pilots in this country. TIFs are of particular interest to my constituency and people across London, and probably to people across the country, as it is hoped that they will help to fund the extension of the Northern line into the Nine Elms area, close to this place, and put Battersea power station on the underground map.
Members on both sides of the House may be interested to know that a detailed regeneration plan for that iconic building is finally going to the local planning authority this evening, with a recommendation for approval. If the plan gets the go-ahead, the funding for the tube extension, via a TIF, will be vital for securing thousands of new jobs and homes. I welcome the consultation outlined in October’s local growth paper, but I am given to understand that Business Ministers envisage TIFs being available only from 2013. I realise that they will require legislation, but I hope—this is also a plea—that Ministers can accelerate that timetable, to make possible their introduction much earlier.
I want to make a more general and perhaps slightly unfashionable point. It is time to stop talking down the financial services sector. We know about the huge problems in banking, which have been well covered in the debate, and many of the criticisms were correct. Nevertheless, financial services is a world-leading British industry. It is essential to economic growth, and a major export success for the UK.
The UK has global leadership in the provision of a number of financial services. For example, the UK insurance industry is the largest in Europe, and London is the world’s largest international insurance market.
It is unhelpful. The banking sector’s mistakes and the problems with lending are well documented. They have been covered, rightly, in this debate, but they should not obscure the wider interest that we all have in a thriving financial services industry. More than 1 million people are employed in that industry, two thirds of whom are outside London.
Will the hon. Lady acknowledge that our leading role in the financial services industry was one reason why the global crash in that very industry meant that Britain was exposed to that crash in ways that some other countries were not, and that it affected us more for that reason?
I am happy to take the hon. Lady’s point, and I have acknowledged it. I am trying to get across the point that we must see the wider picture. In most large banks and large City insurance and law firms, 40% of the staff are not professional; they are support staff. The wealth generated by those businesses supports many other businesses. It is essential to put some balance back into the debate.
I am a London MP, but I hail from north of Watford. I am not a banker, and never have been; I was a retailer for 23 years before coming to the House. Nevertheless, on behalf of the shopkeepers, restaurateurs, support staff, myriad small businesses, and the many thousands of people who work in the financial services industries at levels far below the super-rich, I call on all hon. Members to bear it in mind that a thriving City is good for the UK and for a great many people beyond those we hear about in the headlines. Let us not allow our frustration about bonuses and bank lending to blind us to that fact.
I welcome this debate. The Office for Budget Responsibility’s projections make it clear that if the private sector is to mop up the unemployment that will be created as a result of the Government’s policies in the public sector, we must have a rate of exports that has been matched in only one of the past 40 years, and similarly for private investment. That will have to happen year on year. That is a huge ask, and we must look at the world context to see whether it will help.
The economy in Europe is slowing down, and the G20 conference will consider the problems that are impacting on and threatening world trade. The international context is difficult, and added to that are, domestically, the VAT increase, depressed public demand and public expenditure cuts. The prospects are grim indeed. The Government have rightly highlighted the role of small and medium-sized enterprises in growing us out of recession. Indeed, around 65% of all new jobs are created by SMEs. But how will they do that in the context of the Government’s macro-economic policies, and without any coherent industrial strategy to deal with the consequences?
The strategy is predicated on the mythical assumption that somehow public sector investment was squeezing out private sector investment. That is not so. In areas of the country where traditional industries have declined, the public sector has generated private sector investment, and removing public sector investment will impact on private sector investment. I refer hon. Members to R3, the insolvency practitioners, which carried out its own survey. It pointed out that the loss of public sector contracts could result in 148,000 SMEs going to the wall. That might be a big exaggeration, but even if its projection is only half right, that would still be three times as many as went to the wall last year. That hardly suggests that the Government’s policies are going to enable us to grow out of recession.
The area that is particularly affected is the construction industry. It is highly dependent on public sector contracts in some parts of the country, and I am very worried about the withdrawal of public investment in that sector. May I make a request to the Minister? I would like him to look at the report produced by the predecessor to the Business, Innovation and Skills Committee under the chairmanship of the hon. Member for Mid Worcestershire (Peter Luff), which pointed out that a large number of insolvencies among SMEs in the construction industry could be avoided by using public procurement to promote project bank accounts to prevent cash-flow problems.
On manufacturing in general, I cannot understand the logic of a Government policy that reduces corporation tax, which will benefit the financial services industry, at the same time as introducing a tax to take money out of it, and paying for that by slashing the investment allowances to manufacturing industries that are a proven way of improving productivity, output and export performance. That has no coherence or logic whatever.
The Minister has commented, in a leaked letter, on the sub-regional reorganisation involving the replacement of regional development agencies with local enterprise partnerships, saying that RDAs were not delivering for small and medium-sized enterprises. I know a number of businesses in my constituency that have postponed investment decisions because they see the grants disappearing. They know that the regional growth fund represented only a third of the backing that they had in the past, and that it has a £1 million threshold. That is not going to help many SMEs. I could go on, but my central point is that there is no—
As a shareholder in UK plc, I am delighted that at this year’s emergency general meeting, the shareholders threw out the last management team and voted in a new one. They face a chronic challenge, and a chronic crisis in our finances. We have the largest deficit in the G20, with a £155 billion deficit this year and a total debt of £700 billion. Debt interest would have risen to £76 billion a year if the situation had not been tackled as robustly as it has.
We have come out of a decade of profligacy under the former management team. Its chief executive officer was too often away on overseas adventures; its finance director went on a spending spree with the company’s credit card, chasing support for his ultimate takeover bid in all too obvious a fashion; and its board members were too busy rubbing shoulders with the rich and famous to do their jobs. This led to a series of profit warnings, and ultimately to the collapse of market confidence. That is why we need a growth strategy, and why a reduction in public spending must be intrinsic to it. If we had not tackled the situation, interest rates would have risen and we would have triggered a true double dip with a crisis in our housing market.
I support the coalition’s programme for cutting the deficit and restoring this country’s culture of enterprise. I support the regional national insurance exemptions, the lower tax for small businesses, the regional growth fund, the green investment bank and the protection outlined in the comprehensive spending review for infrastructure, especially for the A11 in my area. I also support the ring-fencing of spending on science and research. Those are the policies of a Government committed to innovation and new business growth, and, as someone who has worked in new business venture capital for 14 years, I know how widely supported they are.
I believe, however, that as we seek to unlock a new age of enterprise, we might need to go further in exploring ways of unlocking new growth without increasing public spending. As with a business in a cash crisis, we need to shore up the profit and loss account by reducing waste, as the Government have so quickly done. Equally, as with real business growth, we need to look creatively at our balance sheet and think about our assets and our competitive advantage. Everyone in government, in every Department at every level, should be asking themselves, “What can we sell to the rest of the world, in order to repair our damaged public finances?”
In the few second that I have left, I want to summarise two or three matters that may be worth considering. The first is infrastructure. We should ask Network Rail what its plans are for the massive land estate on which its tracks are sitting. I agree with what others have said about tax increment financing and ways in which to unlock private sector funding of infrastructure. The second is public services. Let us have a bold programme to empower our best public servants, who are often entrepreneurial in delivering services, and to liberate them from the confines of the public sector. The third is the national health service. I know from my own experience that we are sitting on billions of pounds-worth of patient data. Let us think about how we can unlock the value of those data around the world. We also need to look at new sectors of growth, such as agriculture. Why do we not look around the world and think about collaborating with countries with rising populations, such as India, where there is a long history of scientific research and food science and a prosperous and productive agricultural sector? Those are things that we could be doing to unlock growth without spending new money.
Businesses throughout time have shown us inspiring examples of turnaround. I think particularly of what Tesco has achieved in my lifetime: a turnaround from being a moribund monolith to being one of our best businesses. Now it is time for the Government to do the same.
It is with some trepidation that Labour Members listen to the economic forecasters who speak of their uncertainty about the future of our economy. That is because for us growth has always been a priority. We know that it is both the foundation of economic prosperity and the motor for social change. For us, growth should be a central objective of Government, because without that determination, aspiration—as we see with the present Government—is just that, rather than achievement.
Economic growth depends on both supply and demand: supply of goods and services that people want to buy, and demand for those products. At times of economic upturn as well as downturn, Government, alongside the private sector, can be a key player in ensuring the flow of demand. It was no accident that the last Government decided to invest in capital projects to help to keep the economy moving in the midst of the global recession. It was not a case of money down the drain or a short-term fix; that investment provided real schools, real roads, real hospitals and real services to serve generations of people to come. It was a savvy outlay, as we saw in the earlier part of the year, because the growth that it brought back to our economy is helping to reduce the cost of the investment.
We know that the present Government take a very different view. Just as we are tipping back into a growing economy they wish to pull the plug, taking investment out and looking to the private sector to keep the bath filling up. That may make sense in monetarist theory books, but history has shown us that pulling investment out of an economy in the fragile stages of recovery is damaging to that recovery, especially in an economy in which the public and private sectors are so intertwined. Anyone who doubts that the public sector can generate private sector investment should go to Newport and see what the Office for National Statistics has done for the area, or go to Salford and see what the BBC has done there.
It is hard for economies to grow when businesses see contracts abandoned, workers see redundancy looming, and families see spending as dangerous. Rather than freeing the private sector to blossom, that approach to growth could cause both sectors to shrivel.
The legal judgment against the Secretary of State for Communities and Local Government is not a simple matter of procedure. Construction companies in the private sector are losing building contracts, which is affecting their balance sheets, their businesses and their ability to borrow. Will a construction company be able to go to its financiers and honestly say that it believes that Government contracts are a safe investment? It also makes little sense for those who seek to use the private sector to encourage growth to cut investment in the infrastructure that it needs in order to thrive. This is not just about new schools or university places; it is also about investment in becoming the world leader in new jobs and new economies such as our creative industries or the green industries. It is also about the human investment that an economy needs in order to grow.
The work of Professor Paul Gregg of the university of Bristol shows that unemployment at an early age is not just a waste of resource in our economy, but permanently scars the life chances of people who, in later life, experience much lower wages as a result of that early setback. The last Government understood that very well. They understood that the cost of unemployment was not only the spiralling price of the dole queue, but the long-term waste of potential. That is why they established the future jobs fund. The decision to cancel the fund—along with the falling opportunities for young people in universities, the lack of support enabling young people to benefit from training and education, and the cuts in education maintenance allowance—represents more than a passing shortage of funds. It increases the prospect that we shall have a generation of young people who find themselves less experienced, less skilled, and therefore less attractive to potential employers, sandwiched between their younger and older peers. Even if the economy picks up they will always be damaged goods, destined to earn less and do less as a result.
Let me be clear. The country needs a strategy for economic growth that sees public investment as just one tool for fiscal stimulus. There is no doubt that getting the tempo of spending right is the most difficult challenge that we face. If we spend too much, inflation will rocket; if we spend too little, our economy will shrink into recession. We Labour Members also know this, however: take away the support that our economy has had—to proven effect—too quickly and both the public and private sectors will fail. We can pay down the public debt and achieve fiscal consolidation through cutting spending, raising taxes and, above all, concentrating on growth. Each of those must take the strain, but without growth, cutting spending becomes its own driver of deficit.
I am fortunate enough to have studied at a business school to get an MBA. I do not know whether that qualifies or disqualifies me from—[Interruption.] I thank hon. Members for that comment, but I will nevertheless persevere, because I shall be relying not on what I learned at business school but on advice from my barber—the man who cuts my hair. I may not be—[Interruption.] Thank you very much. I may not be a good advert for his skills, but Sugaz on Lime street in Bedford is an excellent establishment.
My barber mentions a couple of things to me every time I go for a haircut. The first is the importance of getting people off benefits and into work, and I know he will be absolutely delighted at the statement earlier today by the Secretary of State for Work and Pensions. The second thing my barber tells me about—he often waves bits of paper in front of me to make this point—is the terrible impact regulation has on his business. I must say to the Minister of State, Department for Business, Innovation and Skills, my hon. Friend the Member for Hertford and Stortford (Mr Prisk), that the small businesses that I talk to are delighted that he is in his post and they are pleased with many of the initiatives he has already taken, but he needs to do more on the issue of regulation. He needs to acquire the reputation of being the Minister who will not rest until he has got the regulatory burden off our small businesses.
I want to make a few suggestions to my hon. Friend the Minister. The first follows on from points made by other Members. The hon. Member for Brighton, Pavilion (Caroline Lucas) said that there is now a wider understanding of well-being and what it means for growth, and my hon. Friend the Member for Warwick and Leamington (Chris White) pointed out that entrepreneurs are driven by various different motivations, not just profit making. When the Minister thinks about how we understand growth, he should be dextrous on the issue of motivation.
The Minister should be dextrous about something else, too. I want this Government to take away the fear of failure from people who start businesses. If we can accomplish that, we will achieve growth. I also urge the Minister not to listen too much to Opposition Members’ comments on how to achieve growth. In my town of Bedford, the average wage in 2002 was £24,899, but in 2009 it had fallen by £1,458 to £23,431, and unemployment is 28% above the national average. I therefore suggest that the Minister keeps his own counsel, and that he should not listen to the counsel of Opposition Members.
Thirdly, I ask the Minister to cut taxes on business. That is not only a priority; it is a necessity if we are to have long-term growth. Fourthly, as my hon. Friend the Member for Battersea (Jane Ellison) said, let us not hear any more bashing of financial services. They create millions of jobs and they pay billions of pounds in taxes. They are our part of the global economy, and we should be nurturing and considerably strengthening them.
May I also make two practical points? In respect of the Minister’s proposals for enterprise capital funds and angel investors, I ask him to consider dispersal across the country. There are currently nine such funds, but six of them are based in London. Will he consider promoting community funds that are dispersed more widely around the country and relaxing the investment track record criteria for setting up funds? Finally, I ask the Minister to consider the ways in which ECFs will work with regional growth funds, as we must not repeat the regional issue we had with the national insurance holiday. Bedford’s growth is in the south-east; we need this benefit from the regional growth fund. Please make sure we get it.
I begin by congratulating the Backbench Business Committee on securing this debate. Unemployment in my Wigan constituency currently stands at just short of 7%, and the human cost of that is evident in my surgeries every week. The families and individuals in Wigan who are suffering from the effects of high unemployment are also suffering deeply from the savage and unnecessary public spending and welfare cuts that have been visited upon them by this Government, and they are at a loss to understand why this is happening to them while at the same time the average pay of the FTSE 100 top chief executives rose by 55% last year.
The fact that that is happening is an insult to those people in Wigan; it is also economic madness. I am not a big fan of the over-simplified household economics practised by the Deputy Prime Minister, but it does not take a genius to work out that a family earning £10,000, £15,000 or £20,000 a year will put every pound that they earn back into the local economy—into businesses and services—whereas a banker earning millions in bonuses will not do the same. As my right hon. Friend the Member for Kingston upon Hull West and Hessle (Alan Johnson) said, it is bankers, not families, who should be paying for this economic crisis.
I wish to dwell briefly on the situation of my constituency, as a former coalfield area. My hon. Friend the Member for Barnsley East (Michael Dugher) talked about this subject compellingly and convincingly, so I shall simply say that the Coalfields Regeneration Trust and the regeneration programme was not just another well-thought-out initiative; it was a covenant between the Government and a series of communities who had suffered deep injustice at the hands of their own Government—injustice that is only now beginning to be put right. I urge the Minister, in his response to the report by the former Member for Barnsley, West and Penistone, which we expect shortly, to take that very seriously and to protect that investment, which is so badly needed.
I also wish to echo some comments made by many of my hon. Friends. In Wigan one third of people are, rightly, employed by the public sector, doing very important work, but most people work in small and medium-sized businesses. Those businesses rely deeply on public sector contracts and services; the two are interdependent, and if we damage one, we damage the other.
I wish to say a few words about the construction industry. When the Building Schools for the Future programme was axed, the children of Wigan did not just lose a badly needed new school; I heard compellingly from Union of Construction, Allied Trades and Technicians members what it meant for them in terms of the cost to jobs. It is exactly at times like this that we should be investing in those projects, not cutting them. I urge Ministers to think again, not only about that but about the regional development agencies; our RDA was the economic engine of the north-west. When the banks stopped lending, it was the RDAs that stepped in and supported small businesses. Small businesses in my constituency are going to the wall because of the Government’s decision to axe the RDAs and freeze their spending, and I urge the Minister to think again.
I read with interest the comments of Adam Posen, a member of the Bank of England’s Monetary Policy Committee, who said that rather than privatise the state-owned banks, we should use our stake in them to increase productive lending. I hope that the Government will consider that idea.
I end by stating that it is my strong contention that this Government have got it wrong—and that contention is not mine alone. As Joseph Stiglitz has said:
“Britain is embarking on a highly risky experiment…If Britain were wealthier, or if the prospects of success were greater, it might be a risk worth taking. But it is a gamble with almost no potential upside. Austerity is a gamble which Britain can ill afford.”
In the spirit of general agreement with some of the other speakers, I wish to say, first, that the hon. Member for Brighton, Pavilion (Caroline Lucas) was right to point out that there are more important things than just thinking about profit and so forth. We do think about the quality of life, and that is really important. I thank my right hon. Friend the Member for Workington—
All right, calm down. I thank my right hon. Friend for securing this excellent debate, because he is right about quantitative easing. Three hours ago he rightly reminded us that that could stimulate inflation. It is a form of inverted monetarism, and we should be mindful of that. He is also right about funding for smaller businesses. Crucially, as my hon. Friend the Member for Stourbridge (Margot James) said, we have to think about more than just overdrafts; it is a question of putting equity into smaller businesses as well. We need to construct a taxation regime that allows that to happen, and the Departments should be working really hard on that.
I have three or four points to canter through briefly. First, Airbus is a very important business in my region, and has a huge number of supply companies in my constituency. It is also important because it is an international firm, so I want to make it clear right now that we must ensure that international trade is free trade. I am referring to the cloud over the aviation industry in general: what Boeing thinks of Airbus, and what Airbus thinks of Boeing. I think Airbus is right, and we need to promote that.
The other day, somebody was telling me that they thought that France was merciless in its pursuit of commercial advantage. It probably is, and so should we be. It is high time we understood that, stopped complaining about other countries and got on with it ourselves. Let me take a case in point: Poland, a country that has not stopped growing for the past 15 years. Right now it is growing at about 2.5%—although I might be out of date, because I thought of this three hours ago. It is a country that is worth investing in, but where are we when it comes to investing in Poland? Fifth. France, Italy, Germany and America are all above us. We ought to be getting there, and getting going in that field.
My next point concerns the provision of security for investment, in the sense that public policy matters. The green investment bank is a good thing, so too is the green deal, and so is our focus on ensuring that we get high-technology investment in these sectors. The sort of security that we can provide by effective public policy will encourage growth in due course. This country must have that, to solve our problems.
Finally, we all talk about regulation. It is absolutely right to say that there is far too much of it, but I think that it is time we focused on exactly what it is that we should start deregulating. We must set small businesses free, and they need to get the sense that their contribution to this country’s future and their own is something that we want to see. It is a question of growth, and we must supply that growth. That is imperative for our long-term planning and our attitude and strategy for the deficit. Let us pave the way for it with the four recommendations that I have made.
Like others, I congratulate the right hon. Member for Wokingham (Mr Redwood) on securing the debate. Like my hon. Friend the Member for Edinburgh South (Ian Murray), I enjoy listening to the right hon. Gentleman’s contributions and—I have to admit—occasionally reading them on his website. I do not often agree with him, but they are enlightening none the less.
What has been good about today’s debate is that, with a couple of exceptions, speeches have been made and issues have been raised that do not necessarily follow the scripts that people get from time to time. People have discussed some real and serious matters and there has been agreement across the Chamber on a number of issues. In particular, I was struck by the speech of the hon. Member for Northampton South (Mr Binley), who I know has a strong interest in manufacturing. In the couple of minutes I have available, I want to make a few points about manufacturing and that part of industry.
The Government frequently talk about rebalancing the economy and they are right to do so. It is crucial that we learn some of the lessons of the past. One of the lessons, frankly, despite the amount of wealth that the financial services sector might create, is that being over-exposed in one sector causes immense damage. We need to rebalance the economy and we need to do that by looking for export markets. That is why I am quite pleased that the Government have taken the initiative in going to India and China to develop those markets. I hope that they will go to other places, too.
Crucially, we are not the only country trying to do that. Every developed economy is looking to the developing economies and BRIC economies—those of Brazil, Russia, India and China—to develop export markets. We need investment in the technology to get the products that people want and to develop the skills that we need and the technology that people want to buy. That is crucial and brings us to the points made in this debate about levels of investment in particular.
Anyone who was in the Chamber during Energy and Climate Change questions earlier will have heard Ministers waxing lyrical about the huge potential of the green economy. That potential can be realised only with the right investment, including from banks. The green investment bank should be up and running as quickly as possible and should be running as a bank, not as some grant-giving body. I hope that the relevant bits of the Government—whether that is the Treasury, the Department of Energy and Climate Change or the Department for Business, Innovation and Skills—get on with that as quickly as possibly because it is crucial. It is particularly crucial in constituencies such as mine, which has had a proud manufacturing past and deserves to have a future. Economic growth and our growth in manufacturing cannot be driven towards just one part of the country. As others have said, it needs to take place across the whole country and that is why it is very important that we get the green investment bank up and running.
I thank my hon. Friend for his intervention. Given the amount of time left, I shall say only that I am disappointed but not surprised by that.
Other Members have referred to the recent PricewaterhouseCoopers report. I am sure that the Minister has read it a number of times, but I draw his attention to a specific part of it, which calls on the Government to tackle the “financing gaps” by focusing investment
“in areas where it will have a catalytic role in growth.”
As my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) has said, there is a place for the Government, as well as banks and other sources of investment, in getting that investment right, developing industries and getting the skills and jobs that will save the public purse money in terms of benefits and other payments, so that communities and constituencies across the UK have a stake in the future of the economy. We should not be tied to any particular sector; we should be looking across the whole country and getting people into skilled jobs and into export markets that will benefit us all in the long run.
I welcome the opportunity to speak in this debate about growth. As my hon. Friend the Member for Mid Norfolk (George Freeman) pointed out, if the Government had not taken such prompt action on the deficit, kept our triple A credit rating status and ensured that our interest rates remained low so that our businesses could expand and consumer expenditure could be protected, there would be little point in talking about any form of growth.
I want to speak briefly about our fiscal consolidation. I am pleased that the Government have struck a balance between expenditure reductions and tax increases, with a weighting more towards the former. As my hon. Friend the Member for Bedford (Richard Fuller), who is sporting a splendid haircut, has pointed out, the importance of getting taxation on business down is absolutely key. I welcome the fact that tax will fall from 28% to 24% for larger corporates and to 20% for small businesses. That is important not only for growing our companies here but for attracting inward investment. In the Republic of Ireland, for example, the headline rate is just 12.5% and it has secured inward investment of about 2.5 times the EU average given the size of its economy.
The hon. Member for Copeland (Mr Reed) suggested that we on the Government Benches are anti-public sector. We are not, but we do recognise that productivity rates in the private sector are considerably greater than in the public sector. As the public sector slims down and the private sector expands, we can expect growth to come through that route.
Monetary policy and the dangers of quantitative easing formed a major part of the speech of my right hon. Friend the Member for Wokingham (Mr Redwood), and I fully subscribe to his concerns. Questions must be asked about injecting the economy in that way—by printing money, using electronic money to buy gilts, bonds and to some degree commercial paper—and the first of which is whether it works. We can look at the experience in Japan, where interest rates hit 0% in 2000-01 and a lot of quantitative easing was put into the system over the following six years. Although growth occurred, there was consensus among many economists that it was due to the approach of recapitalising the banks and getting them lending rather than to the money that had been put in and the creation of dishonest money in the system. When quantitative easing is being considered, almost by definition the economy is slowing down and there are deflationary and recessionary pressures on it. It is at such a moment that the banks are least likely to start lending the money that is being put into the system.
We need to be very careful about where we are in the cycle with inflation when we talk about quantitative easing. In the past two years, inflation has gone above 5% and down as low as 1.1%. It is now above 3% and, according to the Bank of England, is heading further north. We need to be absolutely certain that some of the temporary effects of low sterling and the costs of energy and oil coming through are not mistaken for a considerable rise in inflation going forward in the longer term. Other issues, such as the level of capacity in the economy and the low wage rate increases of about 2% that we have had recently, are equally important.
My final point on quantitative easing is that it would not be advisable to take away the authority of the Monetary Policy Committee to make such decisions. It should be exactly as it is with interest rate policy: the MPC should have the final say. I know that I differ from my right hon. Friend the Member for Wokingham on that, but I firmly believe it.
I wanted to contribute to the debate initially by talking about growth policy, but we have heard Conservative Members suggest that the economic situation we are in is due entirely to the Labour party’s activities, so it might be worth taking a trip down memory lane to see what it was like in 1997 when the Labour Government came to power. We had 3 million people unemployed; interest rates and inflation were at record highs; there were so many problems to be dealt with. What did we do? We invested. We invested in building more hospitals and more schools and in refurbishing our hospitals and schools. We invested in refurbishing 1.5 million substandard accommodations and homes that had been left neglected by the Tories for years and years. As a result of that investment, we created many jobs and flourishing sectors.
At the same time, we worked with the City and helped the financial sector. It is interesting to note that Conservative Members believe that we had something against bankers and those involved in the financial sector; of course we recognise that the financial sector is very important. It was the Labour Government who, when faced with various problems, invested billions to steady our financial sector so that it could grow. That prevented the loss of about 500,000 jobs. We have no need to hear Conservative Members telling us that we have done nothing to help people in the banking sector, that we are somehow their enemies or that we do not care about them.
As a result of that investment, economic growth has recently been restored. I heard the Prime Minister say from the Dispatch Box a few weeks ago that Labour Members would be unhappy to hear about economic growth in our country. Why would we be unhappy about that, particularly given that our policies underpinned that growth? If we had stuck to the Conservative or Lib Dem policy of doing nothing, we would have been in a worse situation. The truth is that we are delighted about economic growth and we take credit for regenerating the economy and saving the country from the banking crisis.
The Con-Dem Government want a massive reduction in spending. The cuts are ideologically driven and are not being made in the best interests of the country. We know not only that 500,000 people will lose their jobs in the public sector, but that 1.5 million people are likely to lose their jobs in the private sector. I urge the Government to reconsider what they are doing; they should not be driven ideologically to do so.
I will confine my remarks to two areas: exports, about which the hon. Members for Rutherglen and Hamilton West (Tom Greatrex) and for Glasgow North East (Mr Bain) have already spoken; and access to finance, about which a number of hon. Members have spoken.
It is salutary to look at export performance over the past decade. Since 2000, Germany’s share of world trade has risen by 17.9%, that of France and Italy has remained roughly the same, but the UK’s share has fallen by 20%. That is partly due to the depreciation of the pound, but that is not the only reason. To put it bluntly, we have been falling behind our European neighbours and competitors. It is hardly a coincidence that the country that has concentrated most on its export markets—Germany—is the one currently experiencing the strongest growth.
I am afraid that I will not, because other Members wish to speak.
A recent report by the Institute of Chartered Accountants, of which I am a member, showed that businesses that are globally engaged are more optimistic about their prospects than those that are not. Some 70% of companies, including half of all micro-businesses, are involved in business overseas, and what is of real significance, as Members have pointed out, is that much of the growth in exports has been in exports to emerging economies rather than to the developed world. Indeed, in the first four months of this year, exports to emerging economies from the UK grew at more than 30%. While attention is naturally and rightly on China and India, we should not forget the growing markets of central and south America, much of Asia and, not least, Africa. Sub-Saharan Africa is growing at 5%, and many countries look to the UK as a natural trading partner. The door is wide open, but many of our companies are simply not walking through it.
What do we need to do? First, we need to overcome a fear of excessive risk. The past two years have shown us that nowhere is risk-free, and the ratio of reward to risk in many developing countries is high. Secondly, there are concerns about payment, and we could do more through the export credit guarantee scheme. We should look at the schemes of some of our European competitors, which are better on short-term finance. Thirdly, on support for businesses, Britain has a real advantage in its superb embassies and high commissions throughout the world, and I welcome the Government’s commitment to ensuring that they increasingly support British trade.
We should also mention the advantages that our international development programme brings. Where we work with a country to overcome its poverty, we also help to create the conditions in which business—British business—can flourish. In Kenya, for instance, UK overseas development assistance in 2008 was £77 million, but our exports there were almost £200 million in goods alone. Fourthly, we need constantly to encourage people to learn the languages that make doing business with Britain throughout the globe easier, and we need to restore our pre-eminence in export finance. British banks once financed much of global trade, and I should like a new breed of enterprising British merchant banks to spring up and do that.
That brings me, briefly, to the second driver of growth: finance. There has been a lot of argument about how much banks are lending to businesses, especially small and medium-sized enterprises. I welcome the expansion of the export finance guarantee scheme, but it would be even more helpful if some of the £45 billion of unused capacity in existing bank facilities, which even one bank says it has, could be loaned to viable businesses. Businesses are crying out for it.
I welcome, too, the Government’s recognition of the importance of equity investment, with the expansion of the enterprise capital fund. Better still, they are exploring options to relax EU regulations on promoting the activity of business angels, but again I look to banks to show their true mettle and innate generosity of spirit. The British Bankers Association has announced a £1.5 billion business growth equity fund, but I urge the association to go much further, as we need it.
I, too, thank the right hon. Member for Wokingham (Mr Redwood) for securing today’s debate. I always admire the ingenuity with which he manages to weave into most of his speeches his perennial faith in the fallacy of the Laffer curve and his plea that we go easy on the banks. Today, he did so in respect of the capital holding legislation that is meant to protect us from the next recession that the banks might cause, as they caused the last one.
I should like, however, to make a plea for more evidence than Laffer uses in order to support our economic policy, because we do not have one that is based on evidence. We have a hit-and-hope policy that is based on faith. We know—the Government have told us endlessly—that the deficit was too high; investor confidence was diving; we could not afford to pay back our debt; we looked very much like Greece; the only answer was to cut 8% or thereabouts of GDP, which would restore confidence and we would see heroic growth, such as we had never seen, of 2.5% per year and an enormous explosion in the private jobs market.
The trouble is that neither economic theory nor the evidence supports that argument. I cannot really address the economic theory in too much detail given the time, but history and most economists would agree that when we contract growth by about 1%, that leads to a 0.5% contraction in GDP. That is what history has shown, and that could leave us with a 4% contraction in GDP due to the 8% effective reduction in spending over the next four to five years.
Instead, I shall consider the current evidence that we have to support the Government’s theory, because that is all it is—a theory. In order to have growth, we must have investor confidence, and we must, as the hon. Member for Stafford (Jeremy Lefroy) said, have an export-led recovery. Investor confidence is not present in the economy: that much is clear to us. The private sector is holding surpluses, not investing. I worked as a director of a biotech company for a long while before I came here, and I know that the biotech and pharmaceutical industries are not investing—they are laying people off, not taking them on.
Next, we need confidence that we are going to see some growth in the economy. Much has been made of the fact that we had 0.8% growth in the last quarter and 1.2% previously. As I said, the construction industry is what has driven much of that, but last week’s purchasing managers index for construction managers shows that the order book is drying up; they are looking at 1% growth in the last month. The construction industry is laying people off, not taking them on.
The markets are telling the Government that they do not have confidence in the economy. The yield on five-year bonds is down at -0.44%, which differs from the 3.5% rates that we were seeing in 2008. That is the market giving its view, in pricing terms, that there will be no or low growth in the economy. Merrill Lynch said this week:
“There are worries over the health of the economy and the danger that the government’s austerity measures are going too far.”
“The market…is sceptical about growth prospects”.
That is the reality of the situation that we face right now.
The International Monetary Fund has said that the Government need to develop a plan B. Olivier Blanchard, its chief economist, has said that he fears that the way in which the contraction is being front-loaded is going to damage our economy. It is places such as Wales, and my constituency of Pontypridd, that will see the worst impact of a further recession. The Government must come up with a plan B, and quickly.
I welcome the debate introduced by the right hon. Member for Wokingham (Mr Redwood). It comes at a crucial time for the area that I represent in the west midlands and the wider black country. I want to speak briefly about the growth challenge in the black country and the wider west midlands.
We have inherited some deep underlying problems after a period where we have had very low levels of private sector jobs growth, where unemployment is much higher than in other regions, and where growth has been lower than the UK average. Annual growth in gross value-added between 2002 and 2007 was the lowest of all regions in the United Kingdom. Rates of innovation have been poor, and productivity has been low. Labour Members talk about the effectiveness of the regional development agencies, but that is the reality of the economic situation that we face in the wider west midlands.
We have big, long-term challenges to address in the black country, so how do we do it? We need to promote enterprise, as many hon. Members have noted. We need to concentrate on stimulating the small and medium-sized enterprise sector. Organisations such as the Black Country chamber of commerce and the Federation of Small Businesses have been putting a great deal of effort into ensuring that we build on our SME base. We also need to build on the existing capabilities in the black country, where we still have a vibrant SME-based manufacturing industry. We also have companies involved in metal recycling, which does not sound very glamorous but is an innovative and important business in the black country.
We need to focus with laser precision on the generation of private sector jobs in the black country, and we need to drive innovation and raise skill levels. I strongly believe that a focused black country local enterprise partnership, working with those local authorities and with businesses, can deliver much more than was delivered by the one-size-fits-all regional development agency. I urge the Minister to sign off on that black country LEP if possible, once certain issues have been addressed, so that we can get on with the job of dealing with the long-term problems that we have inherited.
We need to build on the great industrial and enterprise heritage of the black country, with its long history of industrial innovation. We need to promote manufacturing, champion enterprise and develop the skill base in the black country economy, and we need to drive the private sector job growth that will be critical to the future of that economy.
In the four minutes that I have, I wish to say to the House that a Backbench Business Committee-led debate of this kind shows that there is huge consensus. The debate is about what Parliament can do to impress upon Ministers the importance of addressing the growth agenda.
I have agreed with many contributors about investment in transport. We need the Government to reconsider extended trains along the west coast main line to deal with overcrowding. We also need to consider national infrastructure and be ready for the digital age, ensuring that right across the country, we have state-of-the-art technology such as the broadband that is needed to inspire growth.
In line with what the hon. Member for Brighton, Pavilion (Caroline Lucas) said about the green economy, it is vital that we link the issue of growth with sustainability. Having chaired a conference led by the Aldersgate group in the City on Tuesday night, may I tell the Minister that the importance of the green investment bank cannot be overestimated? It is vital that he and his colleagues in Government apply the principles of the green investment bank in a cross-cutting way, so that people across the UK can take part in providing the £3 trillion or so of investment that is needed. That will create jobs in energy efficiency and enable us to provide insulation in homes. Those jobs will allow us to meet our carbon reduction targets, which is vital.
I would not be me if I did not make a parochial case for Stoke-on-Trent and north Staffordshire, just like the hon. Member for Halesowen and Rowley Regis (James Morris) did for the west midlands. I say to the Minister that this debate is not taking place in isolation. It has to be followed up in a cross-cutting way, and the Government must look favourably at the local enterprise partnership bid that is currently being drawn up across Staffordshire, including in Stoke-on-Trent. We need to consider the ceramics industry, and consider the problems with intensive users of energy, about which he knows, so that we can get the advantages of the green investment bank into Stoke-on-Trent.
We need to deal with the legacy of the coalfield communities, where further investment is needed, like that at Chatterley Whitfield. We need a cross-cutting agenda, working with various organisations such as the Prince’s Regeneration Trust, so that, with the voluntary sector, we can make enterprise happen. That matter needs to be addressed right across education provision, and we need extra investment in the further education college in Stoke-on-Trent.
Above all, we need a step change in sustainability. I say to the Minister that if we are to get people back into jobs and off benefits, those jobs need to be private sector-led. We urgently need Government recognition that an area such as Stoke-on-Trent, which was identified by the BBC as the third least resilient area in attempting to fight the recession, needs special attention. If the Minister cares to, he can visit my constituency as many times as he would like so that we can get that message across.
I never thought that I would stand in a Back-Bench debate on growth—the debate is most welcome—and quote Lord Lamont, but I am going to. Speaking of the 1992 exchange rate mechanism crisis, he said:
“I think it is worth emphasising that the ERM crisis was an international one…I am always surprised at the extent to which people see it as a purely British crisis. In that week in September 1992, eight countries either devalued or floated.”
The lesson that I take from that quote is that we forget the global picture at our peril. I have been pleased to listen to other Members reference the circumstances in which we find ourselves. We are trying to drive forward growth at a time when the world faces very difficult circumstances. We are not alone in our pursuit of growth, and we all need to heed that important point.
I want to make three extremely swift points in response to that global challenge. I can make the first very swiftly, because it has already been made this afternoon. On regional development agencies and growth policy in the regions, the Government appear to have wiped the slate clean. We have seen success with the regional development agencies, but there is a lack of understanding of the good practice that went on in them. In developing local economic partnerships, the Government might ask, in areas such as mine in the north-west, where the regional development agencies had success, what needs to be carried forward into the local economic partnerships to make sure that the RDAs’ practice of development—what one business I spoke to in the Wirral called their ability “to roll their sleeves up and help us out”—is not lost.
My second point, which has also been mentioned, relates to the importance of rebalancing. Like other hon. Members this afternoon, when I look at the global economy I wonder how we might provide and sell things that are needed around the world. I know from my constituency that science-led business is important in that. With the investment in superfast broadband and the other things that we hope to see in the Wirral, I hope that we will continue to be champions of science-led business, just as we have been historically, with Unilever at the heart of our borough. Through our expertise, we can lead the way.
Finally, we have real opportunities for export, given our historic links with India and China. I leave the Minister with one thought. The local economic partnerships need to be able to stand on the world stage and argue for those trade relationships. We all need to think what powers those local economic partnerships need so that they can stand on the global stage and argue for investment in Britain.
It is always interesting to listen to such Back-Bench debates because there is a high degree of consensus, but we also sometimes hear some of the things that people really think. My colleagues and I were berated from those on the Government Front Bench for our apparent failure to do more to tackle inequality, but we then heard an interesting speech suggesting that the only reason we raised taxes was to redistribute income. Government Members perhaps have to decide what line they want to propagate.
What I really want to do, however, is to tell a story about a city. In the 1980s, it was a bit of a backwater. It was notorious for its holes in the ground in very prominent areas. It was run by a council that called itself progressive; its members were Conservatives, but they called themselves progressives—we have had that again more recently. They took a hands-off view of how to run a city and saw themselves purely as some sort of administrators.
After that, the council changed political hands and was controlled by a Labour majority administration for the first time in its history. A great deal of effort was put into building up the economy. Those holes in the ground were filled. Infrastructure was put into a whole development on the west side of the city. That allowed the financial services industry in the city of Edinburgh to flourish, and the city became an important financial centre. However, it was the council—the public sector—that put the land deals together and made it possible for places to expand and to create the private sector jobs that have been so important to our city.
The holes in the ground were filled. We built a conference centre. There was some criticism of that at the time, and people asked, “Why is the council doing that?” but the criticism since has been that we were not ambitious enough—that the conference centre was not big enough to put on the kinds of exhibitions that go with conferences nowadays.
I regret to say that in the past few years, even in advance of the change of national Government, there has been some real contraction. The arm’s length company that we set up that got financial services off the ground in Edinburgh has been almost wound up. There is a reluctance to fund a transport project in Edinburgh that would make a big difference to our economy—the trams, which I was challenged to mention by my hon. Friend the Member for Edinburgh South (Ian Murray). The hon. Member for Battersea (Jane Ellison) spoke of her hope that the Government would fund a tube extension to Battersea. That is an acknowledgment that such transport spending is hugely important as an economic generator.
Contraction has already begun. School building has almost ceased, and construction workers have consequently been put out of work. It is important to recognise the role that the public sector plays in growth.
I will be brief. I want to talk about the importance of construction to the growth agenda in this country.
I have been very disappointed by the staggering economic amnesia displayed by the Government in the past six months. Labour had a proud record in the previous 13 years. The previous Government left a good economic legacy. Record levels of employment were achieved under Labour, inflation was kept low, and we ensured that interest rates were at record lows for a considerable period of our time in government. We also prevented the recession from turning into a depression. We have Labour policies to thank for those things.
My fear is that the policies pursued by this Government are likely to result, at best, in a very low level of economic recovery and, potentially, in a double-dip recession. The Government talk of a private sector-led recovery in this country, but construction is key to that. Some 92p in every £1 spent on construction is retained; 300,000 private sector companies work in the industry, employing 3 million workers, or 8% of our work force; and every £1 spent in public sector investment achieves a return of 56p to the Exchequer and results in £2.84p worth of economic activity.
I am concerned that the Government’s talk of a private sector-led recovery is just rhetoric, because their measures are undermining the construction industry in this country. My hon. Friend the Member for Pontypridd (Owen Smith) made the point that the construction industry is struggling. I spoke recently with representatives from the UK Contractors Group, who said that talk of growth in the building and construction sector was unbelievable. Their members are saying that they have poor order books and that at best there is likely to be a flat level of activity. Many will shed workers and go into decline.
One of the biggest factors, of course, is the election of this Government and their decision to scrap Building Schools for the Future. BSF was not only a fantastic educational investment, but a massive investment in construction. The construction sector has been undermined by that—the rug has been pulled from under it. That massive building programme would have sustained many construction companies.
Housing targets and the abolition of the regional spatial strategy by the Government will mean that far fewer houses will be built. Not only will people not be housed adequately, but there will be another negative impact on our construction industry. I therefore urge the Government to think again about their strategy for construction in the UK.
There have been some excellent and increasingly succinct contributions to this welcome debate on growth. It is a fantastic initiative and a tribute to the reforms led by the Backbench Business Committee. Important aspects of economic policy have been covered. My hon. Friends the Members for Glasgow North East (Mr Bain) and for Edinburgh East (Sheila Gilmore) talked about the Scottish economy and the importance of investment in their cities. My hon. Friend the Member for Stoke-on-Trent North (Joan Walley), and the hon. Members for Redcar (Ian Swales) and for Brighton, Pavilion (Caroline Lucas), talked about environmental jobs and new eco-technologies. The hon. Member for Hove (Mike Weatherley) talked about the music industry, the hon. Member for Warrington South (David Mowat) talked about energy pricing and the hon. Member for Watford (Richard Harrington) talked about the film industry. The hon. Member for Warwick and Leamington (Chris White) talked about the role of the voluntary sector in the economy and the hon. Member for Battersea (Jane Ellison) talked about tax increment financing in an important contribution.
As my hon. Friends the Members for Wirral South (Alison McGovern) and for Derby North (Chris Williamson) both pointed out, Labour did a great deal to support our economy and, until the general election, we had seen growth return and borrowing begin to fall and we were emerging from one of the gravest worldwide economic crises in generations. Clearly action is needed now more than ever to boost growth and jobs.
The Bank of England’s inflation report yesterday pointed out that nobody could predict the course of the economic environment in the years ahead, and some dangerous clouds are gathering. Yesterday’s report from the National Institute of Economic and Social Research calculated that growth was slowing further in the three months to October and claimed that it was 0.5% weaker than the official third quarter figure. Today’s G20 gathering in Seoul has to grip the serious imbalances facing the world economy, but, as my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) said in a very powerful speech, the Prime Minister and the Chancellor seem yet again on the margins of the debate rather than in a leadership position. We should be wary, of course, of a return to protectionism, but also of a slowdown in the eurozone, and we should therefore be doing more to encourage exports, jobs and growth here at home.
The doctrinaire approach by the Chancellor threatens the return to strong economic growth. He is ignoring those who say that the Government should proceed with caution and is instead rushing full speed ahead, risking the fragile recovery with his ideological zeal for cuts in public investment, as my hon. Friend the Member for Copeland (Mr Reed) said. Even Ministers have to accept that public sector spending cuts will undermine the return to growth. My hon. Friends the Members for Barnsley East (Michael Dugher) and for Pontypridd (Owen Smith) pointed out that we know from the analysis by the Office for Budget Responsibility that the Government’s budget and spending review shows that the choices they are making will cut our growth prospects rather than enhance them. Growth is essential to rebuilding our fiscal position and if we are to fund vital improvements in public services—as my hon. Friend the Member for Ealing, Southall (Mr Sharma) pointed out, with particular reference to infrastructure, and as did my hon. Friend the Member for Bolton South East (Yasmin Qureshi)—with no strategy for growth, the Chancellor has no viable strategy for investment in schools, hospitals or our future prosperity as a nation.
The spending review will hit the economy hard just at the wrong time, and the Government admit, as my hon. Friend the Member for Luton North (Kelvin Hopkins) pointed out, that they intend to slash half a million jobs in the public sector. We know that PricewaterhouseCoopers has predicted that the same number of jobs will also be lost in the private sector. The hon. Member for North West Leicestershire (Andrew Bridgen) talked about the mood music playing, and we can see that consumer spending is already shaken and confidence is being battered by the tune played by the Chancellor. My hon. Friend the Member for Edinburgh South (Ian Murray) mentioned that other factors will affect that confidence, including the impact of the VAT rise on businesses and consumers.
We have to boost employment, not pull the rug from beneath our own economic prospects. As my hon. Friend the Member for Walthamstow (Stella Creasy) pointed out, the abandonment of the future jobs fund was a major mistake. As my hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex) said, every 100,000 people out of work costs the taxpayer £0.5 billion in benefit payments alone.
We heard today from the Department for Work and Pensions that it is winding down all its current welfare-to-work projects ahead of its new scheme, which will not be ready until next summer at the earliest, yet new referrals to the current programme are to be halted from December in half of the country and stopped completely from March. That is complete madness at a time when we need to be working our hardest to get people into employment.
As we have heard time and again from all sorts of hon. Members, business investment is a key driver of growth, but that is at risk, I would contend, from the Government’s approach. I have bad news for the hon. Members for East Surrey (Mr Gyimah) and for Northampton South (Mr Binley) when it comes to the net lending targets that should be placed on the banks, as was promised in the coalition agreement. I am talking, of course, about those banks that are state owned and should be encouraged to lend more readily to businesses. Not only was any reference to those net lending targets in last week’s Green Paper conspicuous by its absence; the Prime Minister himself said in his speech in Hertfordshire last week that net lending targets are difficult to achieve. The Minister, who has responsibility for small businesses, has also seemed to row back from those net lending target commitments in the coalition agreement. I would be grateful if he could clarify where the Government stand on those targets.
The Government have taken an axe to some of the key foundations that have been supporting business investment in recent years. For example, they have cut back the capital allowances that have supported reinvestment in new plant and technology for industry. My hon. Friend the Member for Leeds West (Rachel Reeves) highlighted the cancellation of the loan to Sheffield Forgemasters. We heard this week about the scrapping of the grants for the business investment programme that have helped to create 50,000 jobs since 2004. That decision was criticised this week by Nissan, which saw that help as an essential and crucial factor in its decision to invest and in the rebalancing of the UK economy to help manufacturing.
As my hon. Friends the Members for Gateshead (Ian Mearns) and for Wigan (Lisa Nandy) said, the abolition of the regional development agencies, and more importantly the budgets they had to invest in the regional industrial economy, is a tragedy. This is compounded by any number of small changes that the Government are making that are not necessarily being noticed by our constituents, although gradually they will be. One such change that will be noticed now is the 80% cut in the undergraduate teaching budgets, which sends a clear signal that Ministers are failing to invest in the long term. The pace of private sector expansion will need to be record breaking, as my hon. Friend the Member for West Bromwich West (Mr Bailey) said, if they are genuinely going to take up the slack left by the Government’s austerity. Yet there are already signs, as in today’s Financial Times, that the business investment to GDP ratio is starting to fall short of the trend, compared with previous recoveries.
My hon. Friend the Member for Great Grimsby (Austin Mitchell) and the hon. Member for Stafford (Jeremy Lefroy) mentioned exports, which are essential to this picture. Unfortunately, they look like they will weaken because of the economic climate, and the Governor of the Bank of England said yesterday that with more than 60% of UK exports going to the eurozone—for example, 7% to Ireland alone—there are big risks to growth if our trading partners contract. The Treasury states clearly that it needs growth in exports at a rate only last achieved in 1974. Achieving that rate is a tall order.
As we see it, Ministers have very little strategy for growth, and are relying too much on monetary policy coming to the rescue. That is a dangerous approach. We say that jobs and growth need to come first, and the Government need to wake up and end their recklessness.
May I congratulate my right hon. Friend the Member for Wokingham (Mr Redwood) not only on securing the debate, but on being generous enough to be concise in his remarks? I can see that I will have to join the fan club for those who enjoy his website. I shall try to have a look at it later this evening. We have heard from more than 30 speakers today, and despite the absence of our friends in the media, it has shown that the House is alive and well, and very keen to ensure that there is a cross-party debate on this crucial subject. Indeed, not only did we get the views of 30 Members, but I also appear to have got the detailed views of a barber in Bedford. I suspect I will not be going there for the weekend for that particular support and advice.
I shall now move to the centre of the debate. Hon. Members will appreciate that in order to allow my right hon. Friend to deliver the last few words, I will be unable to address all the issues raised by my 30 colleagues.
Returning the UK economy to balanced and sustainable growth is the overriding ambition of the coalition Government, but to achieve this we need a different model of economic growth—one that leaves behind the old reliance on spiralling Government spending, a handful of economic sectors and debt-fuelled consumption. In its place, we must ensure that we build an economy that is rooted in higher levels of business investment, more exports and a strong manufacturing base. As a number of hon. Members have said—including my hon. Friends the Members for Watford (Richard Harrington), for Battersea (Jane Ellison) and for Stafford (Jeremy Lefroy)—economic growth will be led by the private sector and entrepreneurs, not by the Government. However, the way in which the Government tax, spend and regulate has an impact on businesses and their ability to compete at home and abroad. We therefore have a responsibility to ensure that we create the best possible environment in which they can grow and flourish.
When this Government took office, the most urgent task that we faced was to restore macro-economic stability to the UK economy. A decade-long credit binge had left us with a record public sector deficit, leaving households and businesses perilously exposed, so that when the credit crunch came, Britain was especially vulnerable. The previous Government let people think that there were no consequences to unsustainable borrowing. Their attitude to the deficit led the way, so that by the end of the last financial year, £1 in every £4 that the Government spent was borrowed money. Thus, if we had done nothing about the problem and followed the advice of the previous Government, by the end of this Parliament we would be paying £70 billion in debt interest. That is more than we spend on either schools or defence. Without stability, the economy simply cannot function properly, let alone grow.
Let me turn to some of the issues that hon. Members have raised in this debate, and in particular those concerning small and medium-sized businesses, the tax system and the pressures and problems of regulation. The first point, which was raised by a number of Members, including my hon. Friend the Member for North West Leicestershire (Andrew Bridgen), was the fact that the tax regime is strangling innovation. The UK tax regime has become increasingly complex and burdensome. After 13 years of a Labour Government, we now have the world’s longest tax code. That is why we have put reforming the tax system, making it simpler and more predictable, at the forefront of our plans.
The issue of improving access to finance has been raised by many Members in this debate, including my hon. Friends the Members for Northampton South (Mr Binley) and for East Surrey (Mr Gyimah), and the hon. Member for Copeland (Mr Reed). We recognise that some viable businesses—especially small businesses—are struggling to finance investment and expansion. Unblocking the flow of credit and increasing the availability of debt and equity finance, as mentioned by a number of hon. Members, is a priority. Let me make it clear that the industry’s recent commitments to finance the economic recovery—commitments made through the British Bankers Association—are welcome. The proposals include a new and revised lending code for small businesses, and a new appeals process when finance is declined. Both are welcome. The BBA has also proposed creating a £1.5 billion business growth fund to provide flexible equity finance for established businesses with good growth prospects.
However, let me say this to hon. Members—and, therefore, to the businesses in their constituencies and the banks that should be working for them. Where unreasonable behaviour is shown we will challenge those banks, and we will do so vigorously. It is extremely important to ensure that we do that. However, a key part of the solution lies also in finding more diverse sources of finance, and greater competition. My hon. Friend the Member for Stourbridge (Margot James) rightly pointed out that if we ensure a wider range of choices for small businesses, that will be important in the medium and longer term. The Independent Commission on Banking is looking at those issues, and it will report next spring.
In the meantime, the Government are taking action. We are extending the enterprise finance guarantee scheme until 2015, unlocking up to £2 billion of additional lending over the next four years. I note the remarks of my hon. Friend the Member for Hove (Mike Weatherley), and I ask him to keep me closely informed if there is any evidence that a sector is being deliberately discriminated against.
We are also increasing the enterprise capital funds by £200 million over the next four years, potentially enabling more than £300 million of venture capital investment. That will help to fill the existing gap in equity provision for fledgling SMEs with strong growth potential—a gap that many Members have referred to. As my hon. Friend the Member for Stafford pointed out, business angels are a crucial part of the equation. We are keen to see an expansion in business angels, so we are looking into how to create a more investment-friendly climate for them. That may include reforming the rules governing the enterprise investment scheme.
In the few minutes remaining to me, I want to turn to the big matter that many hon. Members, including my right hon. Friend the Member for Wokingham, and my hon. Friends the Members for Stourbridge and for Skipton and Ripon (Julian Smith) raised—red tape. In recent years there has been an increasing rush to regulate. Under the previous Administration, we saw that peak at the equivalent of 14 new regulations every working day.
As a new Government, we are trying not just to tinker with and change a few regulations, but to deal with Whitehall’s prevailing culture. It is time for a different approach, so we have adopted a one-in, one-out system of control for new regulations. That means that before a Minister can introduce a new regulation, they must first examine the cost to business and identify a corresponding cut in existing regulations, so we will be able first to cap and then to cut the burden of regulation. I hope that that answers hon. Members’ questions about whether the system would merely retain the problem, or improve it.
We want to do a lot more. We have inherited a significant number of regulations that cause real problems for existing businesses. That is why the Department for Communities and Local Government is already examining building regulations to improve, simplify and overhaul them for the construction industry. It is also why the Government have already adopted the proposals in Lord Young’s excellent report on reforming and improving health and safety legislation. It is why the Prime Minister asked Lord Young to go further, and to review the whole burden of regulations throughout Whitehall, and how they impinge on the bottom line of small and medium-sized enterprises.
Together, those measures will begin the process of changing not just a few regulations—not just 20, 30 or 40 regulations—but the culture of Whitehall. I am not naive enough to believe that the task will be completed in a year, or a couple of years. It will be difficult, but let me tell the House in no uncertain terms that we are determined to ensure that we get it right, because that is crucial for our economic competitiveness.
I shall conclude by saying that the Government believe that private sector enterprise, innovation and investment are the keys to future growth. We believe that the Government’s job is not to tinker and meddle, but instead to create a stable macro-economic framework within which businesses have the confidence to invest. That means not picking winners, but ensuring that we have the right business environment in which the best will flourish. It means a simple, more predictable tax system that rewards endeavour. It means better access to both debt and equity finance. It means less red tape and fewer regulators, a skilled work force and more apprenticeships. It means sustainable investment in our infrastructure and support for exports to markets around the globe. In each case the Government have a role to play, and we intend to be an effective partner for business.
I thank all who participated in this debate. It is a sign of the success of the Backbench Business Committee’s choice of topic that I do not have enough time to respond in detail to colleagues in the way that I would like, having sat here patiently listening to some good contributions. I hope that the Minister recognises that my hon. Friends and I, as well as Opposition Members, are extremely worried about the position on bank credit. The hon. Member for Leeds West (Rachel Reeves), my hon. Friends the Members for Hove (Mike Weatherley) and for Northampton South (Mr Binley), the right hon. Member for Wolverhampton South East (Mr McFadden), the hon. Member for Edinburgh South (Ian Murray) and I made a number of points.
Although I am grateful for the measures that the Minister sketched for an economy of a few billion pounds, we are talking about a £1.5 trillion economy. A few billions will not make a big difference, and I urge him and his hon. Friends in the Treasury to look again at why the Bank of England is depressing the accelerator—printing money and telling people that the water is lovely—and the banking regulator is depressing the brake and saying that money cannot be lent to industries that need it, or for the big projects that are much needed throughout the country.
A Labour Member became excited when he thought he heard me say that we want a big public works programme paid for by the public sector. I clearly said that we need a big public works programme—paid for wholly or mainly by the private sector. That is what we need to release banking credit for longer-term projects. We need the power stations, the transport links and the broadband. Those are the things that could bring the House together.
This has been a well-tempered debate, and hon. Members have expressed their fears and worries for their constituencies, but all have come together to say, “Yes, growth is what we need; bring on the growth; all we love is growth, and we must do more to achieve it.” The Government must control their deficit, but they must also do rather more on infrastructure, regulation, taxation and a number of issues to get that growth assured faster. They must persevere throughout the whole four years that remain of this Parliament and the Government’s budget strategy, so that we get those jobs and the big increases in tax revenue that are much needed to deliver their plans.
A large number of Labour Members—too many to read out in the few seconds remaining—were very concerned that public spending cuts would have a depressing effect on the economy.
Motion lapsed (Standing Order No. 9(3)).