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Volume 713: debated on Monday 26 October 2009


Asked By

To ask Her Majesty’s Government what steps they are taking to create a more balanced economy.

My Lords, Budget 2009 noted that the macroeconomic environment provided the conditions for a significant rebalancing of demand in the economy. This adjustment would entail increased saving by households, increased investment by companies as they responded to new opportunities, and a rebalancing of domestic and external demand. The Government have also taken steps, both domestically and internationally, to support this rebalancing.

The G7 Finance Ministers agreed in Istanbul to develop a new framework for strong, sustainable and balanced growth.

I thank my noble friend for that reply. It is the kind of reply that would get top marks in an exam paper set by my noble friend Lord Peston, but I am afraid that it has little meaning to men and women working in industry, to the designers and engineers who are developing our new products and new technologies, to the scientists working in our laboratories, all of whose work is absolutely essential if we are going to rebalance the economy. What are the Government doing for them?

I thank my noble friend for his complimentary remarks about my Answer. I must say that I did not get top marks when I was answering questions in the University of London economics exams, whether marked by my noble friend or not. However, on the particular issue that my noble friend has raised, we have increased investment in science by 88 per cent since 1997. We have also spent a great deal more regarding money distributed by the Technology Strategy Board, which has more doubled over the past 10 years. When my noble friend emphasises how important research and development, scientific research and engineering research are to the recovery of the economy, he is speaking in terms which the Government entirely endorse.

Are the Government satisfied with the support that they are giving to manufacturing industry and have given in the past? The Minister will be aware that many of us in this House have been urging the Government for a considerable time to give more support to manufacturing industry.

My Lords, the House welcomes all sinners that repenteth. We can remember the noble Lord’s Administration and its devastating effect on manufacturing industry in the 1980s. I emphasise that we should not underestimate the significance of the manufacturing sector to the economy. In 2007, it was responsible for 13 per cent of the gross value added, a figure that puts us alongside the United States and France. I emphasise to the noble Lord that we take manufacturing industry very seriously indeed and are prepared to put our money where our arguments are.

My Lords, my heart goes out to my noble friend for attempting to answer this Question since there is no agreement in economics about what is meant by a balanced economy. It certainly does not mean a balanced balance of payments or a balanced government budget; it certainly does not tell us what the relative sizes of the manufacturing and other sectors should be or what the relative sizes of the public and private sectors should be—that is the 10 out of 10 answer, I might add. Does my noble friend agree that what really matters is that the Government should continue with their current policy stance of bringing the economy back to full employment and maximum growth in the short term and, as he said, in the sustainable long term?

My Lords, my noble friend has given me the marks I deserve for my initial Answer and I respect that point, not for the first time. On our overall policy, we entirely accept the case that my noble friend is putting forward; namely, that it is of the greatest importance that we have investment in our economy and quantitative easing that extends demand in circumstances where otherwise unemployment levels would increase hugely and our manufacturing industry and our exports would suffer accordingly.

My Lords, does the Minister accept that if unemployment is to be tackled effectively, small and medium-sized companies in manufacturing and elsewhere need access to finance? Does he further accept that the banks that the Government effectively control have agreed targets with them for providing such finance but are not meeting those targets? What does he plan to do about it?

My Lords, the noble Lord will know how active the finance Minister, my noble friend Lord Myners, is in pursuing these issues with the banks. The noble Lord is right to press on this issue. It is essential that the banks re-establish their balance sheets and get out of the mess—the crisis—that we have been in over the past two years. However, the role of the banks is to provide the necessary credit for the restoration of the economy, and the noble Lord is right to emphasise how necessary credit is to small and medium-sized businesses. The Government are pressing the banks on this issue as strongly as we can.

My Lords, can the Minister confirm that the Government’s £5 billion trade credit insurance scheme has thus far delivered only £13 million of support for British businesses and that not a single penny has been paid out from the £2.3 billion automotive assistance programme? Precisely how are the Government going to assist our economy?

My Lords, the role of the Government is to make resources available, so far as we are able, and to insist that the banks make credit available to those who need it. The take-up of the credit depends upon confidence being restored in the economy, and that is a reflection of the extent to which the world economy picks up. I think the noble Baroness will recognise that we are talking about a situation two years through the greatest depression that we have had since the 1930s. Far from it being a British-generated depression, which we had in the 1980s under a previous Administration, this is a worldwide depression, which is why the challenge is so very great.

My Lords, in 1997 we were told that we were the fourth largest economy. Just this week we have been told that our economy has slipped way down the tables, below even Italy. Are we really doing so well?

My Lords, no one is suggesting that the economy is doing well during this crisis; far from it. We all know that our fellow citizens are paying the price of an economy that is in great difficulty—a difficulty that is a product of the enormous onslaught that has been sustained against Britain’s financial sector, and of the great reduction in investment over the past 18 months. That is why the Government are intent on generating the necessary investment and ensuring that the economy recovers. That is absolutely critical. The noble Lord will recognise that the strategy that we are pursuing is being pursued by all enlightened Administrations in the world.