Skip to main content

Economy: Growth

Volume 745: debated on Thursday 16 May 2013

Motion to Take Note

Moved By

To move that this House takes note of the current level of growth in the United Kingdom economy.

My Lords, the international financial collapse in this country and many other countries around the world produced a situation which in many ways was very similar to that of the 1930s and had a devastating effect on the economics of family life here and elsewhere. It is not something that was born and bred in the United Kingdom, as some people say. If anybody has doubts about the seriousness of the problem, they should look at the excellent BBC money programme on the subject—the second part of which was on last night, and there is a third part coming soon. One of the things that slightly troubled me about the speech of the noble Lord, Lord Deighton, in the debate on the Queen’s Speech, was his comment that,

“we need to complete our work in fixing the financial system so that it is able to sustain growth in the economy”.—[Official Report, 13/5/13; col. 143.]

He was absolutely right to say that. However, if we wait until we have fixed the financial and banking problems we will, frankly, have to wait at least four years before we can expect growth.

Although I, like everyone, hope that the outgoing chairman of the Bank of England is right, I cannot be sure. I have not argued much about whether we are in a second-dip or third-dip recession, but few people in this country or elsewhere would disagree that we have been bouncing along the bottom. Events in the euro area will be a further challenge to us, as I am sure the Minister will be the first to agree. Although I accept that there is a need to reduce the deficit, the key problem is growth. If we do not get growth into the economy we cannot deal with the deficit quickly enough. We will be constantly chasing our tail, trying to cut the deficit without getting back to growth.

Contrary to popular opinion, the United Kingdom has on many occasions had far worse debt-to-GDP ratios—sometimes up to 225%. Britain has never defaulted and has had one of the best reputations in the world for financial management, and we still have it. Interestingly, the Government were concerned enough to say that if we were not careful we would lose our triple-star rating, but when we lost it they said, “It doesn’t matter so much anyway”. It does not matter that much. If we can get growth to go back into the economy, we will deal with the deficit.

I remember a Minister—I cannot remember who—saying that future generations would never forgive us because we would be burdened with this debt for generations to come. This might be a good time to remember that we finally paid off the debt for the Napoleonic wars in the late 1990s. My worries when I was at school did not include the debt which had been dumped on us during the Napoleonic wars. Britain has always borrowed and done what most other advanced economies do; they grow themselves out of the debt problem. That is why growth is so important and what we should focus on.

As a politician I know the temptation among all political parties to blame the Government whom you are trying to replace for just about everything which has happened anywhere in the world including the weather—in fact, particularly the weather. At the last general election it was clear to me that the outgoing Labour Government had already lost the argument on this subject. The then Conservative Opposition and the Liberal Democrats were going round saying that this was the most desperate situation that we in this country had ever been in, but that was not true. It was not true that the deficit was the key problem. The international financial collapse caused the problem.

We talked ourselves down in that election. Once you do that, people will naturally pull back. They will not spend money—they tend either to save it or to wait to see what will happen, and that adds to the problem. The debt-to-GDP ratio showed only small changes between 1970 and 2010, and a number of economists are now stating that much more clearly. They say that history suggests that the current radio of debt to GDP is not alarming. If my views on that do not satisfy noble Lords, let me quote the IMF’s World Economic Outlook of October 2012. It states:

“Throughout the past century, numerous advanced economies have faced public debt burdens as high, or higher, than those prevailing today”.

That was the view of people such as Robert Neild, the Cambridge economist, and others who have said that the debt-to-GDP ratio is not alarming. That does not mean that it is desirable or that we should not reduce it, but it suggests that we have had the argument the wrong way round for the past few years, and that is what troubles me. I suppose that I am a natural Keynesian, and I felt that although we had to give the Government space in their deficit-reduction programme, the position should have been reversed and we should have been saying that growth comes first. If you do not get growth, your debt problems will be far worse.

I should like to provide another quote from the IMF’s World Economic Outlook. It states:

“First, support for growth is essential to cope with the contractionary effects of fiscal consolidation. Policies must emphasise the resolution of underlying structural problems within the economy, and monetary policy must be as supportive as possible”.

Again, I am not arguing that getting the right public sector and public debt relationship is unimportant. I am saying that you should use your fiscal policies to underpin policies for growth. The coalition’s focus on cuts in expenditure is a repetition of the 1930s, and only recently has it begun seriously to address growth. That is what I should like us to do a little more, and I hope that the debate will focus on it.

The key question is, “How do we get growth?”. Recently, the Government have rightly been saying that we need to do more on infrastructure, and they have mentioned a range of issues. I should like to deal with a couple of those issues.

It is beginning to be recognised—certainly by many economists—that you need to have a more balanced approach to how much you borrow in order to invest. It is no good borrowing simply to pay off debt. We all know that and no one has any doubts about it. Borrowing to invest, as long as that investment is leading to growth, is not a bad thing. That balance is right.

I agree that infrastructure is a crucial element that gives us opportunities. The United Kingdom’s infrastructure is not as good as it ought to be. I refer to the remarks of the noble Lord, Lord Deighton, who said:

“We are committed to creating a single local growth fund for the key areas of skills, housing and transport. The final size of the fund will be set out at the spending round next month”.—[Official Report, 13/5/10; cols. 140-41.]

I look forward to that. Quite rightly, he focused on two of the big issues that are always good for generating growth: transport and housing.

What has troubled me not just about the current Government but for a considerable time is that when they talk about transport, they are referring to rail and road and do not mention aviation. The Minister knows my strong views on Heathrow. Before he gets worried, I should tell him that I am not about to embark on a debate on Heathrow; this issue goes much wider. I have always argued that growth in aviation is crucial, and is important for the regions. The Government have placed great emphasis on high-speed rail. I agree with that and do not have a problem with it. However, high-speed rail deals with the transport of people, not of goods, whereas every aircraft that flies out of this country with passengers also usually has in its belly large quantities of high-value export goods. I shall mention Heathrow once and try not to mention it again. Only 0.001% of flights in or out of Heathrow are cargo aircraft. All the cargo comes and goes in passenger aircraft. The same is true for all our local regional airports. If you want to encourage exports, we must allow aviation to grow.

Therefore, my first question to the Minister is: are the Government taking seriously enough the contribution that aviation can make to growth? There is enormous potential there. It is no good telling people in Exeter that the high-speed rail line will help them because it will not. However, flights from Exeter airport to other airports around the world will help them. Birmingham Airport, which is currently trying to expand, needs to have permission to go ahead—again, because Birmingham can export more if it has growth. Therefore, the growth factor is very important.

There are two other points that I want to make in relation to aviation. First—again, the Minister will have heard this before—air passenger duty is a disaster for the aviation industry. It is massively outpricing us in competition with other countries and other airlines. We need to reduce air passenger duty. I know that we cannot do that quickly—it cannot be done overnight—but the duty is a major hindrance to the expansion of growth for the British aviation industry and that presents it with very real challenges at the moment.

The second thing that I have to say about aviation also applies to other areas of transport. One reason that aviation has not been focused on by successive Governments in the way that it should have been is the fear of climate change. I yield to no one in my concern about climate change. I first wrote about it back in the early 1980s and I still have the same views about it. However, I do not believe that you deal with it by closing down aviation. There is a terrible warning here from the way we conceded to the green movement the argument about nuclear power. Only now are we catching up with the green movement and saying, “Yes, we must have nuclear power”, when the whole argument against it was what held us back early on. The same is happening with aviation and we have to be very alert to that. All sorts of efforts are now being made—frankly, they should have been made earlier and I have been very critical of the aviation and aerospace industry on this—to deal with climate change issues through, among other things, fuel research, which is showing real possibilities.

The other area that I want to touch on is housing, which every political party is saying is important. We now have the Green Investment Bank and a business investment bank. It may interest the noble Lord, Lord Newby, that many years ago in the 1980s, when I was dealing with housing in the House of Commons, we put forward a proposal for a housing investment bank. The proceeds from the sale of council houses, which were very high at the time, would be placed into a housing investment bank, which would then receive matched money from the building societies and big building companies. They were very positive about that process and they wanted to do it. Unfortunately, the receipts from council house sales were simply used to cut taxes, whereas if they had gone into the investment programme, that would have been far more effective. I ask the Minister to look again at this possibility.

I am in favour of selling public housing up to a point. However, that housing must then be replaced, and you do that by having sufficient income from the sales to fund a replacement programme. That would enable us to have a steady housebuilding programme, instead of what tends to happen in this country, which is a lurching from excessive building to none at all. We have gone backwards and forwards with some pretty disastrous consequences, as we saw in the 1950s and 1960s.

My final point concerns the other area on which we need to be much more focused—the emerging countries. We have tended to talk about just the Brazil, Russia, India and China group but we really must not forget Africa. I have seen some very interesting articles. The other week, Chuka Umunna in the House of Commons made a very good point about this. Nigeria has a dramatically growing economy, as have many other countries in Africa with which we have good relationships. There is an expanding market there, particularly in high-tech goods. It is high-technology that can drive our expansion.

In conclusion, I hope that today we will look at how we can achieve growth. Over the past year or two, I have heard the Government shift their position away from simple deficit reduction to growth. Very recently, I have heard some of their suggestions on infrastructure, transport and housing in particular, and I should like the Government to say a bit more today about how they are going to deliver that growth. That is the key question. We could bounce along the bottom for a long time yet but, if we get growth going in the economy, frankly we will do what Britain did very successfully in the 19th and 20th centuries, which was to grow itself out of its economic problems. That is what most advanced countries do. I have the IMF on my side on this, as well as a large number of economists, so I think that I have quite a strong argument.

My Lords, I thank the noble Lord, Lord Soley, for organising this excellent opportunity to debate this matter. It is critical that we have debates such as this, and they are not to be confused with the manifest subjects involved with the Queen’s Speech. It is a slight shame that it is taking place in the graveyard slot of lunchtime on a Thursday but it is an important issue.

I also wish to apologise to the House for the fact that I have to leave after I have spoken because my boss has called me. There are very few people to whom I say yes but he is one of them. Therefore, I give my apologies if I have to leave.

The Prime Minister has put trade and the enhancement of British trade at the heart of economic recovery. I congratulate him on the leadership he has shown—he has led huge delegations all over the world. Wherever he goes abroad, he takes a very big delegation with him to further those efforts.

I have the honour of being the Prime Minister’s trade envoy and have visited roughly 30 countries in the past 18 months. To respond to the point made by the noble Lord, Lord Soley, I have been to Mozambique, Angola, two or three times to Algeria, Morocco and Libya. I am planning on being in Gabon in the next month and, I hope—if that is the appropriate word—Ghana in July. The noble Lord is absolutely right: Africa is an important area for us. It has been left unnurtured for far too long by successive Governments. We have been complacent over it and so we are going into overdrive. My noble friend Lord Green, the Minister for Trade and Industry, has also travelled extensively, taking big delegations with him.

We have reorganised UK Trade & Investment with a change of board, having brought in commercially focused people from industry. We have reorganised the way that they interface externally, working with our ambassadors, who are being driven by the Foreign Office to be much more outward-focused. We have set up a trade envoys programme. We have eight trade envoys from across the parties—Liberal Democrats, Labour, Cross Benches and Conservatives—to focus on territories on which we have not focused previously. We have a business ambassador’s programme, where business ambassadors who are leaders of industry across the country are sent to various countries, and I am also honoured to chair that programme.

I note in her place the noble Baroness, Lady Symons, whom I would call a friend, although she is not a “noble friend”. She is a friend to this country in the work that she does overseas, particularly leading delegations in the Gulf region. She has just returned from Saudi Arabia—a vital market.

We are establishing a Ministers travel programme, where Ministers will continue to lead trade programmes, and of course we have invested time and money in making the export guarantee fund a very flexible fund to support businesses.

Everywhere I travel, I discover that people want the British offering. One feature of the Olympics was that they gave us self-confidence. They reminded us of the incredible bandwidth of skills that we have as a nation, from airlines to the arts, and from music to mechanical engineering and so on. The Olympics showcased those skills not only to ourselves but to the rest of the world. Excepting that bandwidth of skills, why do people want to do business with Britain? Simply, we are a transparent nation. Transparency is the key to how we do our business.

I had my misgivings about the Bribery Act but now I am completely behind it because it sets us above other countries which continue to indulge in corrupt dealings. It sets Britain apart, and that is something of which we should be unbelievably proud. Indeed, we can take our open government programme and what we have done through the Bribery Act to overseas countries which are desperately trying to find a way through this corruption. Of course, we also have the rule of law, which is a fundamental basis for doing trade and is being adopted by many countries.

I shall not dwell for too long on the headline deals that have been done in the past few months alone but they include a £10 billion contract for Shell in Abu Dhabi, a new cybersecurity programme in Kuwait, an award for the new Kuwait airport, companies being appointed for the metros throughout the Arab world, and warships being sold to Brazil to protect their coastlines against piracy. All manner of big sums are being generated through this trade activity.

The Government are creating the weather. Government is an enabler and it has to create the weather. In many ways, we are turning a marathon into a sprint. That is what we are driving ourselves to do. As Mervyn King says, there are signs of good news out there. However, the key point he makes is that this is not a time for complacency, and he is right. A damning statistic from the Federation of Small Businesses shows that only 20% of its members’ businesses export. That is a terrifying figure for a trading nation which, as the noble Lord, Lord Soley, mentioned, for years has gone out and exported its trade. Another damning statistic is that 70% of small and medium-sized businesses export only when someone from abroad has knocked on their doors to buy something. This is a damning and frustrating challenge not only for us in government but for the businesses themselves.

My plea to everyone in this House, the other House and elsewhere is to persuade the local companies you have got to know to get out there and trade and make investments overseas. We are doing our best to take the horses to water but they have to drink it. They will only do that if they work through UK Trade & Investment and the various business associations in which many Members of this House are involved, where they allocate funds for export and travel, and ultimately take the risk. However, the most important thing is that we have a Government focused like no other on helping them to trade.

My Lords, I join in the congratulations to the noble Lord, Lord Solely, on obtaining this debate. He is absolutely right—there is no more important issue than growth in our economy—and we in this Parliament and the Government have to focus directly on these crucial issues.

However, I would challenge him on his analysis of how we got where we are today. I fully accept that a financial crisis came—some say like a meteor out of the sky; others, who have looked at the banks, thought it was predictable—and hit us hard in 2007-08. This country was in no position to sustain that blow. We were at a point where the former Labour Government had raised public spending and public borrowing to a point where it offered no resilience. I can understand how the Labour Government got there. They bought into the idea that boom and bust had ended and that there would be a constant flow of substantial tax receipts coming from the financial services industry and that they therefore could let loose the leash on both spending and borrowing because there would be a constant flow of money coming into the Treasury. They should have recognised that we were at the top of an economic cycle—we do not end boom and bust; economies cycle—and every Government have prudently to take cognisance of that. So that is the situation in which we found ourselves.

We also found through that process that the underlying British economy was in very weak shape. We had become so dependent on financial services that we had bled much of the life out of our other activities, both in the service industries and manufacturing industries. We had allowed the balance to swing so heavily to London and the south-east that much of the north was being sustained only by having public service activities there—the private sector had not been building and thriving for a long time—and, worst of all, we had failed to recognise for more than a generation that the backbone of the economy is our small businesses. Twenty per cent of all the small businesses in the EU are in the UK. This is a thriving location for small businesses but it has not been receiving the kind of support that it needs to grow, to take risks, to create new jobs and to build its export base.

For the past few years, the rebalancing of that shift has been the work of this coalition Government. I am encouraged by the comments of Sir Mervyn King and the CBI made earlier in the week which suggest that they can finally see that we are going into a modest recovery. It is very dangerous in this current unstable international environment to focus too much on green shoots, but the same verdict is coming back from small businesses, from the accountants who spend time up and down the country with businesses and even from the commercial section of the banks. They identify that the beginnings of a real recovery are under way, in part because of the rebalancing and redevelopment of those abandoned areas. This work will turn out to be absolutely crucial.

I have often said before that the neglect that most appalled me, not only during the Labour years but during the Conservative years before, was in the area of building skills among our young people. The fact that there was a lack of apprenticeships and that the whole apprentice structure had been allowed to collapse was irrelevant in many people’s minds. There has been a turnaround in that area: more than 1.25 million young people are now either in or have gone through apprenticeships in the past couple of years. That will be important.

We all thought that any debate introduced by the noble Lord, Lord Solely, would undoubtedly touch at some point on aviation and I admire his self-restraint in not addressing the issue of Heathrow. I shall therefore limit my comments on this issue out of common respect to his self-restraint.

However, I wonder whether he recognises the inconsistencies in his own position. I agree that regional aviation capacity is the key issue we must look at. As he knows, that is not hub aviation capacity but very much point-to-point. One of the issues that the Davies Commission will have to take on is whether we should try to build a single London-style hub as our primary connection both within the country and outside. Should we have one main hub and a number of minor hubs? Should we build a balance between one hub and a number of point-to-points? We have to come up with a solution that manages and supports the rebalancing necessary for our economy. That means that it must service the north and the west as well as London and the south-east. That is one of the arguments that leads people to think that much of the London hub should now be shifted somewhere between London and Birmingham, potentially alongside an HS2 route, but there are a number of other visions.

The noble Lord also stressed the fact that aviation, usually thought of as passenger aviation, plays a crucial role in freight. I fully accept that. However, you cannot drag those words out of most of the aviation industry because it becomes impossible to argue for the use of Heathrow, an incredibly expensive and scarce resource, when you are doing a point-to-point freight movement. So that issue has to come into the picture and it will be interesting to see where it goes.

There are two issues I wish to address before I sit down. I shall certainly not use my full time today. One is an issue which is sometimes not addressed in the context of economic growth—that is, tax avoidance. I recommend a speech made on this yesterday in the other place by my colleague, Ian Swales, MP for Redcar. As he was discussing the problem that we face—the inherent reality that most multinational companies now effectively enjoy a corporation tax rate of zero because they export their profits to somewhere such as Luxembourg or outside the G20—he said that one of the impacts of that is greatly to disadvantage those very small and medium-sized businesses in our economy that we need to grow for the future. For example, a chain of three book shops within my local community have pasted on their walls that each book shop pays for a trainee nurse through its taxes on an annual basis, whereas Amazon, their great rival, effectively contributes nothing. Yet they face this price differential because, in effect, the international community has provided a taxpayers’ subsidy to the large multinational entities. We have to tackle the tax avoidance problem for that reason in addition to the failure of those companies to contribute as they should to the public spending that, as it were, pays for the society in which they participate and provides the basis for many of their sales. I think that the level playing field argument is an incredibly powerful one.

In my last comments I wish to pick up on the remarks of the noble Lord, Lord Marland, on exports. I agree completely that building the exports of our SMEs is absolutely vital. However, sometimes I disagree with BIS about its focus on saying to small businesses, “Come on, go to China, Brazil and India”. It is wonderful if small businesses can export to those countries and I have no problem with that, but when you talk to these businesses, you find that many of them have had very bad experiences when they have tried to do it. It is quite risky to export to China if you have a patent you wish to protect. It is very difficult to export to the United States because of all its non-trade barriers. I have talked to quite a few small businesses, but I shall not use their names because they are quite hesitant about this, which have found that in the end they had to form a joint venture to sell into the United States and essentially surrender most of the upside of their additional revenues and the exports from their US operations. Instead, they just accept royalty payments because, without a joint venture relationship, it is impossible for them to operate on American soil.

From the small business perspective, the ongoing debate that David Cameron was leading on in the United States in his discussions with President Obama on an EU/UK trade negotiation to tackle many of these non-tariff barriers, is absolutely crucial. There is a real need for an awareness that this is the kind of thing we can tackle only as part of the EU. I lived in the United States for 20 years and I know a lot of people in the Administration. The chance that they would ever waste time on a UK/US debate along these lines is close to zero. I suspect the same for China and, indeed, for the various developing economies of the world.

We are at an exceedingly exciting point where there is great potential. We are starting to see movement in the economy, but it is crucial that we have sustainable growth, not growth created by a sudden surge in public spending that sparks a short-term response and transient behaviours. We need long-term, sustainable growth by getting new businesses off the ground and encouraging them to export. Any discussion is too much to try to include in this speech, but it is also crucial that the banks back up that growth with a credit supply, because it will be in huge demand as businesses begin take off when they see the end of the recession and can move into a much more investment-focused and expansionary mode. We are at a very interesting point at which the decisions and the way we shape this growth must be such as to set us up well for future years.

My Lords, I congratulate my noble friend Lord Soley on securing this debate on economic growth. We all have an interest in this subject, but I should declare my interest as chairman of the Warwick Manufacturing Group at the University of Warwick. For more than three decades, we have been working very hard, helping companies to grow. A week ago the gracious Speech pledged that the Government would focus on, “building a stronger economy”—fine words, even if they are undermined by the recent rows about referendums. Britain’s economic situation is extremely weak. Yes, we have avoided a triple-dip recession and it may even be that the double-dip recession will be revised away, but that is little to boast about. After five years of recession, our GDP remains 2.6% below where it was before the crash. Our productive sectors have struggled, with manufacturing gross value added down 10% over the past 10 years. Construction has fared worst of all, falling into deep decline in 2012, and it is now almost 20% down on 2008. Nor will foreign growth rescue us. The European Commission, the IMF and the OECD all say that the eurozone will decline this year. Finally, devaluation cannot solve our problems. Sterling is almost a quarter below its peak, but many exporters are facing increased costs from raw materials and components, which means that we are not benefiting from the short-term competitiveness we enjoyed in earlier devaluations.

Our problems are deep and significant and they require great attention, but if we take the right decisions, they can and will be resolved. I have spoken many times in this House about the need to take a long-term view. The challenges we face have arisen as the result of years or even decades of too little innovation, too little investment, undercapitalisation and not enough support for the physical and social infrastructure which can deliver lasting growth. We must all pull together to change this. Step by step and day after day, we must follow a steady path that supports innovation, investment and infrastructure. I am encouraged that the leader of my party and the shadow Chancellor speak regularly on these issues, and commissioned Sir George Cox’s excellent report on long-termism. Even the Mayor of London now talks about the need to take a long-term view on growth, but unfortunately the Government seem mostly to be focused on the tactical short-termism that got us into this mess. We will not get a recovery from immigration crackdowns and referendums.

To be fair, the Government are doing some good things, mostly at the urging of the Business Secretary. We share the aim that all young people should take up training apprenticeships or go into higher education on leaving school, and I congratulate the Government on pressing ahead with high-speed rail. It is politically difficult, but necessary. While the science budget is declining in real terms, the Government have at least tried to protect it. However, sadly, this is where their long-term vision ends. Despite all the talk about growth, I searched the gracious Speech in vain for a mention of science, technology or research. In the press briefing that accompanied the speech, we heard much about scraping the barnacles off the boat, but these issues are not barnacles, they are the materials from which the boat is built. I want our Government to take a practical, long-term approach to creating growth.

One way that can be done is by supporting reshoring, which when I put it in plain English means bringing back the jobs that left Britain due to globalisation and cheap labour overseas. In both manufacturing and services, rising wages abroad and technological innovation at home could mean that these jobs come back, and we should make such a return our priority. A recent RSA/Lloyds Banking Group report, Making at Home, Owning Abroad, argues that more than 200,000 jobs could be created through reshoring. The question is less whether jobs can come back to the West, but which countries they will return to. How can we encourage inward investors to choose Britain? The first way is through procurement.

In America, there is an expectation that those who get government help will return their back-office and IT functions to the US. That is why “Buy US” clauses have appeared in many bailed-out companies’ purchasing contracts. Today, a combination of informal pressure, immigration rules, tax changes and US wage competitiveness means that companies such as General Electric and General Motors are creating IT jobs in America, not in India. Indian outsourcing companies are facing tough times because of this. Their growth and profits are down, and the outsourcing market is projected to stagnate or even decline. Yet the UK seems to be uninterested in supporting the reshoring of its own money. The NHS spends millions of pounds on offshoring IT and data management. For example, half of the NHS shared business services staff are based in India. If we were to demand that such direct government spending was done in the home market, we would immediately create many hundreds of thousands of jobs in Britain.

The next rule of procurement is that it should act as a capacity and innovation builder for British business. Many people ask me, “Why can’t we have a Google or an IBM in this country?”. Britain is a small country. The reason those companies succeeded in the beginning was by growing in their internal market. Government procurement must be such that it helps small companies to create an internal market and then grow. If we use procurement to support innovation through a major extension of the Small Business Research Initiative, we would help UK businesses develop new products and services for both the home and the export markets. As I said, we are a relatively small country. We do not have the critical mass to support innovation in the domestic market unless we focus resources on it directly. This is needed to help small companies grow.

Next, we must transform our approach to skills so that investors want to create jobs in Britain. The government response to the Richard report was full of warm words but kicked the question of funding for skills into the long grass. We need to find a better response. We do not need government to spend more but our businesses to invest in their people. We should create sector training boards, with the power to issue training levies, as they do in construction, so that all firms have a common incentive to invest in their employees. If we approach skills in this way, we might be able to rid ourselves of our cumbersome skills bureaucracy. Some object that this means a new tax on business. I understand this concern, but if firms train their people they will more than get that money back.

Perhaps I might make a counterproposal. I am no fan of corporation tax. As the IFS says, much of corporation tax is,

“passed on to workers in the form of lower wages”.

Ideally, I would like to see corporation tax fall to 15%. Of course, that would be expensive and people would argue that it cannot be done. So why not reduce or even abolish corporation tax for firms with a tax liability of less than £10,000 which are subject to sector skills levies? Such firms contribute only £2 billion of corporation tax receipts—less than 5% of the total—but they represent more than half the companies that pay the tax and their profit is essential to the future growth of Britain.

The next challenge is to help our businesses secure finance. At the micro level, I have much sympathy with the arguments of the noble Lord, Lord Young, in his report Growing Your Business. I agree that support for small business should be extended, with start-up loans made available to all entrepreneurs, as should the enterprise finance guarantee. But we need to go much further. As the noble Lord, Lord Young, says,

“when banks started to remove the manager from their branch network they inadvertently broke many of their links with SMEs. This has had a disastrous effect”.

I have long argued for a dedicated business bank with real scale, preferably with a regional or sectoral focus, so that lending decisions are made by bank managers who know their businesses. Such a bank could be focused on the sectors supported by innovation catapults, thus making investing in British innovation and British production in key sectors more attractive to both inward and domestic investors. I am delighted that my party has embraced this proposal as part of its policy review.

Next, if we are to reshore contracts in advanced sectors, we need to transform our overall innovation capability. This means reforming our research funding councils and boosting innovation agencies such as the Technology Strategy Board. We pride ourselves on being a great nation for science, but our real-terms R&D budget is declining and we are doing little to get the maximum economic benefit out of what we spend. I am pleased that our research councils are giving more attention to economic impact, but we have to do much more to ensure that the research we fund contributes to economic growth.

Let us compare our approach with America’s. In his State of the Union address, President Obama said:

“Our first priority is making America a magnet for new jobs and manufacturing”.

He announced a $1 billion investment in innovation institutes to encourage the return of manufacturing. In Britain we have to fight for years for an extra few million. Whether it is the huge American investment in innovation, the Canadian reform of research councils to make applied research their top priority or Germany’s Fraunhofer Institutes, KfW and Sparkassen, it is other countries that are trying to secure long-term growth through industrial innovation. We are far behind, and falling further. All parties share the blame for this, yet there are many on all sides of your Lordships’ House who regret these missed chances.

Outside politics, this agenda is widely shared. Last week I attended a seminar at the Royal Society, where scientists, entrepreneurs and business leaders discussed how to bridge the academic-industrial divide to support growth. For the first time the Royal Society has taken on that challenge. There is a real opportunity for growth here, if only we seize it. We should use procurement to stimulate demand and get scale for innovation; push firms to invest in skills, and give tax incentives to smaller firms; use business banks to support innovation investment in sectors and regions with high growth potential for reshoring manufacture and services; and refocus research funding and increase applied technology funding to encourage both inward and domestic investment in innovation. Of course, the obvious question is: how we can pay for such a programme? It is not easy but it could be done.

Today there exists a rare opportunity to borrow cheaply to invest for the future. We should take it. However, that will not last long and we will certainly need to be fiscally very tight for a long time. The key is gradually to switch resources from unproductive to productive spending—what used to be called the costs of failure. That means pay restraint, reducing welfare and housing benefits over time, and perhaps removing benefits from those on above-average incomes. It may even mean more co-payments for public services so people understand the cost of the services they use.

None of this will be easy, but if sustained restraint helps encourage the job-creating, technology-led growth we need, it will all be worth while. Our growth problems are significant and real. But by backing the skills, ingenuity and ability of our people, they can—and will—be solved.

My Lords, it is always a privilege to follow the noble Lord, Lord Bhattacharyya, who has done so much to promote Britain at home and abroad in terms of economic growth. I listened very carefully to what he said and I think a lot of his remarks will probably be more warmly received on this side of the House than his own Front Bench, particularly when it comes to identifying the importance of tax reductions and controlling public expenditure, as well as the focus on enterprise.

As the noble Lord was talking, particularly about developing IT, I should have been paying more attention but I was flicking through pages 4 and 5 of the excellent House of Lords Library briefing that has been prepared for this debate. I found a lot of very encouraging things. Some things, I have to say, had passed me by, such as the tenfold increase in the annual investment allowance for small enterprises; the introduction of a seed enterprise investment scheme offering investors 50% income tax relief to encourage investment in early-stage companies; doubling the lifetime limit on gains for eligible entrepreneurs’ relief to £10 million; providing 100% business rate relief for small businesses seeking to get going; a £200 million growth accelerator scheme designed to provide business coaching for high-potential firms, which 4,000 SMEs have signed up with; start-up loans and, of course, the Funding for Lending scheme. I commend those pages to the noble Lord but I very much appreciated his contribution, and his record.

Of course, I also pay tribute to the noble Lord, Lord Soley, for securing this debate and the measured way in which he introduced it. My only disappointment is that more colleagues from the Back Benches did not want to take part in it. I know that we have just had the debates on the gracious Speech but this really is the most important issue for our country at the present time—because everything else flows from it. If growth gets under way and strengthens, revenue yields will grow and therefore we will have more to fund the public services that we talk about. That would have been good but I thank him for securing this time.

In his opening remarks, the noble Lord made mention of the farewell comments of Mervyn King as he presented his final quarterly review of economic outlook as Governor of the Bank of England yesterday. I thought that it was cause for encouragement. Certainly, the front page of the Financial Times today was very positive—you do not often see there reasons to be cheerful, and nobody could necessarily accuse Mervyn King of being an unbridled optimist. When he says:

“There is a welcome change in the economic outlook … and growth is likely to strengthen over the course of the year … That’s the first time that I’ve been able to say that since the start of the financial crisis”,

it should give us some cause for optimism. Of course, everybody immediately then rushes to say, “Well, we don’t want to be overoptimistic; we’ve got to be cautious”—my noble friend Lady Kramer reminded us of the “green shoots” of recovery described by my noble friend Lord Lamont—but there is a balance here, because part of what leadership and government are about is creating confidence in the economy. Confidence is hugely important, whether you are a Premier League football team, a small business or a Government. It is hugely important that people have confidence in our economy. We are led to believe that corporations are currently sitting on a mountain of some £750 billion of cash which could be invested to drive forward the economy. While we all need to be cautious, we need also to talk up our economy and the fact that Britain is becoming internationally more competitive, having fallen substantially down the competitiveness league tables produced by the World Economic Forum. We are now steadily climbing back up and re-entering the top 10.

Many noble Lords travel extensively around the world—the noble Lord, Lord Marland, referred to the excellent work of the trade envoys. I was in Kuala Lumpur last weekend and met SP Setia, which is investing in the Battersea power station redevelopment. It has £600 million of investments. I met there our tremendous team of UK Trade & Investment representatives, including Tony Collingridge, which had been instrumental in bringing that investment to the UK. I met many other people there who thought that SP Setia from Malaysia had got a cracking deal and wanted to know whether there were any more going in Britain, because they regarded Britain as the most favourable destination for foreign direct investment in Europe. That is a great thing. I sometimes wish that we could spend more time overseas seeing ourselves as other people see us, as Robert Burns chided us to do, because we might then be very encouraged.

A few weeks earlier, I was in Shanghai with the McLaren motor racing company, which is undertaking significant investments. The Chinese appetite for British advanced manufacturing technologies is incredible. We should take pride in British engineering, manufacturing output and in the way we are moving forward, albeit slowly, to a projected 1.2% growth in the current year and a return to pre-recession, pre-crisis levels in about 12 months’ time and about six months ahead of normal.

This will come in sharp contrast to other parts of the world; for example, in Europe. The same newspaper has heralded the encouraging performance of British business in terms not just of growth figures but of greater confidence, as evidenced by the Purchasing Managers’ Index report on new export growth, which had gone from expansion from contraction, tipping over the 50-point threshold for the first time in recent years. It pointed to the fact that 500,000 vacancies were being advertised in jobcentres, which was their highest level since 2008. Let us contrast that with the eurozone. We do not want to point to other people’s suffering, although, sometimes, when I hear the policy prescriptions put forward by the party opposite, they remind me of something that you can point to as if they were on “Blue Peter” and say, “Here’s one where we can actually see it being road-tested”. You have only to go across the Channel to see President Hollande putting forward his solutions for the economy. They are having a disastrous effect. His wealth tax of 75% is driving people through the Channel Tunnel to London to build up our economy rather than build up their own at a rapid rate. We need to remember that, in an age of intellectual capital, intellectual businesses are highly mobile and pay attention to tax rates, as the noble Lord, Lord Bhattacharyya, reminded us. At a time when we are reporting that we have perhaps come out of that phase of the recession, that is why the French economy has gone back into it. The unemployment rates are another indicator here that we have to look at. According to the Economist this week, the unemployment rate in France is 11% and rising; the UK’s is 7.9% and stable or falling. That is a very important indicator along with GDP.

The other thing that we need to look at is the number of new jobs being created in the economy. One and a quarter million jobs have been created in the economy since 2010, which is the fastest rate of job creation that we have witnessed since 2000. Moreover, for every one job lost in the public sector, six jobs are being created in the private sector. That addresses one of the points made earlier about one of the objectives that we set out with being to rebalance the economy away from relying just on financial services towards relying on manufacturing—we are seeing a growth in exports. We need to move away also from overdependence on the public sector to a more balanced economy. We are seeing a rate of growth in new enterprise that is almost unprecedented, with 471,466 new businesses, new enterprises, established in the past year. Anyone who has ever set up a business will know that the first year is incredibly tough, and the number of start-ups which go out of business in their first year is tragically high, but the ones which stay the course are where the growth will come from—in employment, in revenues and in taxes. Therefore, the fact that we have an enterprise-friendly culture in this country is important.

Perhaps I may offer a note of caution about the growth figures for an unusual reason. Understanding national accounts is something which I never really got to grips with—even when I was a Treasury Minister, I have to confess; understanding corporate accounts comes a little bit more naturally. National accounts are incredibly complex and faceted. We chase after this half-time score of the GDP growth rate every quarter, and sometimes we are happy and sometimes we are sad. Knowing what goes into a lot of indicators is a bit like the old argument about pasties: if you knew what went into them, you perhaps would not eat them quite so readily. We have to get better at measuring what is happening and following the right KPIs for the growth of our economy.

The GDP figures are collected by way of a survey, as those who have worked in that area will know. The mix of the survey, which is organised by the Office for National Statistics, includes 6,000 manufacturing companies, 25,000 service sector companies, 5,000 retail companies and 10,000 companies in the construction sector. I am always suspicious of round numbers. We should look into this and ask why we define progress and growth in our country by that mix of samples. How often is that looked at? I encourage my noble friend, who I know takes these matters seriously and perhaps understands them much better than I ever did, to undertake a review of what goes into the GDP statistics. That in itself would make for an interesting debate. At the time that the first data are released, only 40% of the information is in and available. That is why we constantly get revisions and it comes down. At the end of the day, it is only a survey.

In business, the only thing that people watch when they are in charge of the finances is cash. You can waffle your way through a P&L account or set of accounts but you cannot waffle your way through the cash you have in the bank. That is one of the things that we should benchmark ourselves against. There are some better indicators. VAT receipts would be a very good indicator to use to track the health of the economy: they are reported quarterly and are one of the highest levels of adhered-to taxes. We have to look again at the basket of what we are measuring to ensure that we make the right judgments and policy prescriptions for the economy.

When we talk about cash at the bank, the reality is that we seem to be doing a little better. We have not paid down any of the debt and our overdraft currently stands at £111 billion but that is down from £159 billion three or four years ago. The deficit is down by a third but there is still a very long way to go before we ever get to the point we need to reach of paying down some of the debt as well. That has now been moved to 2017-18. It is encouraging that that cash element in the transaction between what is going out of the government bank account and what is coming in seems to be heading in the right direction and confirms the optimism of the Governor of the Bank of England.

My Lords, I congratulate my noble friend Lord Soley on securing this debate and concentrating on the issue that must be of prime importance to all of us: how we restore growth to a flatlining economy. Of course, there are rather fewer contributors today than there were in the economics debate on Monday. It is also true that just before the end of the previous Session we had a major debate on the issue, so one would have thought that the relatively small number of noble Lords participating in this debate reflects the fact that others have made their contributions already.

This debate concentrates on growth. I hope that the Minister in replying will indicate where he thinks growth is coming from and acknowledge the danger our society is in from an economy that has flatlined, as ours has. It is all right for the noble Lord, Lord Bates, to indicate that six times as many jobs are being created in the private sector as are being lost in the public sector, but then why do the latest unemployment figures show a distinctive and frightening rise? Why are a million of our young people still unemployed? What does it mean for the next generation when jobs are so difficult to obtain?

I also appreciate the self-restraint of my noble friend Lord Soley on aviation, which is nothing like the self-restraint of this Government, who have pushed aviation policy not into green shoots but into some distant long grass before any decision will be taken. Let us look at long-term investment by the Government. In aviation we have to wait a considerable time before decisions will be taken, and the much-vaunted HS2, which we welcome, is also a considerable period away from any significant investment being made. In the depths of a recession at least certain factors ought to work to the country’s advantage. After all, sterling has depreciated by almost a fifth. Yet has that produced a significant increase in exports? No, since that devaluation of sterling we have seen our balance of payments deficit get worse.

No one should underestimate the problems that accrue from the crash of 2008, but our challenge to the Government is that they have pursued the wrong priorities. The noble Lord, Lord Bates, compared Britain with France. There was never a mention from the government side comparing Britain with the United States of America. Has no one from the government Benches looked at the Michigan economy and seen what the response has been to a Government who pumped in resources to save two of the biggest car manufacturers in the world and to sustain employment and their balance of payments position by ensuring that such critical industries were not lost? Of course, for our Government such action would be complete anathema.

We are content to see austerity being pursued to such an extent that no one in our society with resources has the confidence to invest. Quantitative easing goes to banks, but banks do not have the confidence to lend to industry. In industry, many of our major companies are awash with resources, with £670 billion in cash, but they do not invest either. Why? Because the pursuit of austerity and impoverishing our people throttles demand. What is actually happening is that there is very limited purchasing power in the economy. It is of course right that we pay some regard to the activities of the Government in seeking to promote small businesses, but every noble Lord knows that the contribution made by small businesses to our balance of payments and exports is quite limited, although I note the points made by the noble Baroness, Lady Kramer, and agree with a number of them. We have to get our major areas of investment right, and at the present time we have not because of the absence of demand.

My noble friend Lord Bhattacharyya indicated how we could improve crucial aspects of the supply side of industry. There is no doubt that the Minister ought to respond positively to his recommendations in this debate. With such a low level of demand in society, it is extraordinarily difficult to get investment going again. It is not as if the Government exude confidence by their actions. After all, their austerity targets are missed. We were meant to see the deficit disappear by 2015, but we are now working to a longer-term cycle of 2017, with a certain elasticity even in that. We were meant to make ourselves pristine for the credit agencies, but two of the credit agencies have reduced our three-star status. We were meant to hold our heads high in the international world, but a visitation from the IMF has been presaged by serious criticisms of the Government’s position for having produced an economy so devoid of growth.

That means that the Government are patching up rather than following an intelligent strategy. They have to patch up. Think of the schemes that have already failed. Think of Merlin, which was meant to give some substance to the banks. Think of the insurance strategy, which the noble Lord, Lord Bates, welcomed because the north of England was included, whereas London and East Anglia were not. The problem is that the strategy produced only a tiny fraction of the jobs that it was predicted would follow.

Even in the most recent Budget, have the Government learnt lessons? Of course they are right that we should address the issue of housebuilding and achieve stimulus in those terms, but they have not suggested that the resource should be directed at the first-time buyer. They are not even suggesting that the resource should be directed only at someone buying their first house. It looks as if all that they will do is give a further twist to the house price spiral, thereby making even more remote the opportunities for people with limited resources to get into the housing market.

When we are critical of the Government about demand, it is because every Budget under the Government has significantly reduced purchasing power. The Government must recognise that if they slash benefits, many of which also apply to people in work, they are cutting demand. They must appreciate that if they direct their significant resources to the elite in our society, particularly those who enjoy millionaire status, it will be such an unfair society as to be demoralising for people who work hard but receive very little. One statistic of which the Government should take note is the significant fall in real wages since 2009. That is not just a real reduction in purchasing power among people at work but a worrying reduction in confidence.

If all that was the result of government incompetence, we would have real worries, but it would always be hoped that lessons could be learnt. It is not government incompetence. This strategy is pursued by a Government who believe fundamentally in a smaller state, who want significantly to reduce public expenditure and, in doing so, deliberately create circumstances in which there is higher unemployment and lower demand in society. That has underpinned the whole strategy of the Chancellor of the Exchequer and the Prime Minister since 2010, and that is why the Minister must respond on the state of the economy, which at present is a cause for concern on every side.

My Lords, I thank the noble Lord, Lord Soley, for initiating this debate because he asks the single most important question facing the country: how do we get more growth? He and the noble Lord, Lord Davies, have a relatively straightforward answer. Sadly, we believe that it is the wrong answer. Their answer is to borrow more. It was not the answer of the previous Labour Government. The Fiscal Responsibility Act required the Government to have halved the deficit by the financial year 2013-14. I am not sure whether the Labour Party has finally and formally renounced that legislation, but that was the course that it set.

The noble Lord, Lord Soley, points out that we had 225% of GDP borrowing after the Second World War, but I should have thought that he could see that the circumstances at the end of the Second World War were so fundamentally different in almost every respect from those of today that that is not a useful analogy.

There are a number of reasons for getting the deficit down. In my view, the most clearly demonstrable one is that a higher deficit and an incredible fiscal consolidation programme would undoubtedly lead to higher interest rates. Why is it that at the end of last week the UK was paying 1.84% on its debt, the US was paying 1.86%, Italy was paying 3.89%, and Spain 4.25%? The answer is: because this country has a credible economic policy in which the markets believe. Without that, there is no reason why our interest rates could not rise by 1% or 2%. Bear in mind that a 1% increase in interest rates means that a mortgage payer with a £100,000 mortgage is paying out an extra £1,000 per year, leaving aside the additional costs to industry and the additional billions of pounds extra that the Government will be paying to service their debts.

When the Government came in, national debt was running at 11.2% of GDP. That was possible in a crisis. I do not think anybody believes that such a level of national debt, which seems to be the level that the Opposition are talking about—we still have national debt running at more than 7%—is sustainable. The noble Lord, Lord Soley, talked about Keynes. People disagree about Keynes, but I am pretty certain that he never advocated sustained levels of borrowing over a long period. He knew, as everyone else knows, that although such a thing is possible, and desirable, over a short period, it is not possible in the long term.

Today, in part, we have been discussing another of Keynes’s aphorisms, which is hugely important at the point at which we find ourselves in the economic cycle: his emphasis on the role played by “animal spirits”, to use his phrase, on investment decisions and a whole raft of economic decisions. Indeed, that was the burden of the speech by my noble friend Lord Bates. At this juncture, the turn in the cycle that we are clearly seeing will accelerate because the view of people in the markets—“animal spirits”: what people are saying to each other—is changing positively.

I would like to address specifically several of the points made by the noble Lord, Lord Soley, about the components of growth. Indeed, most of these features have been about one or more components of the growth picture. I start with infrastructure, where there was widespread agreement that more needed to be done. Last year, according to the World Economic Forum, the overall quality of our infrastructure was 24th in the world. We do not believe that this is good enough, which is why we are investing more in transport infrastructure in this Parliament than was the case under the previous one. Our railways are seeing the largest programme of investment since the Victorian era. Incidentally, I am pleased to see, as I am sure the noble Lord, Lord Soley, is, that the amount of freight carried on the railways is going up significantly, which reverses a very long-term trend and is very welcome.

Total public and private investment in infrastructure between 2010 and 2012, at £33 billion per year, is higher than that of the final five years of the previous Government. At Budget 2013, the Chancellor unveiled an increase in capital spending plans by £3 billion per year from 2015-16. That is in addition to the £5.5 billion of investment in infrastructure announced in last year’s Autumn Statement. This included £1.5 billion for the road network.

The noble Lord, Lord Soley, and my noble colleague Lady Kramer talked about airports, which is clearly a significant component of the nation’s infrastructure. I do not believe that there is total agreement that we need to have a major national airport hub in this country, but the Government believe that it is a requirement. As noble Lords know, the Airports Commission, headed by Sir Howard Davies, is looking at airport capacity in the short and the long term. We are looking forward to seeing his interim report later in the year. In the mean time, Heathrow has spent £1 billion upgrading and Gatwick is spending £1.2 billion, so it is not as though our airports are atrophying. We know that it is a long-term issue and has been a long-term problem with no consensus within or between parties, but that is what the Davies commission is looking at.

The noble Lord, Lord Soley, talked about housing, which again is a long-term challenge. All parties have taken their eye off that issue over the past decade as house prices have risen inexorably and the proportion of the population owning their own homes has risen. There are three components to improving the stock and appropriateness of housebuilding. First, we have to make it easier to build houses. Secondly, we have to help to supply more houses. Thirdly, we have to make sure that there are no artificial restraints on demand for housing.

We believe that the National Planning Policy Framework, which we published in March 2010, has had some effect in a positive direction. The proportion of planning applications being approved is at a 10-year high, a significant proportion of which are around housing. As for building more houses, we already have an £11 billion commitment in the spending review. The Budget 2013 announced a housing package totalling £5.4 billion, including the Help to Buy and mortgage guarantee schemes. There is a lot of activity on that front. However, I agree with most noble Lords that we have to do more, and we are actively attempting to do so in three strands: to make it easier to get planning, to help have more finance to build houses, and to make it easier for people to afford a mortgage.

The international component of our economic activity is clearly crucial. To rebalance the economy, we need to export more. Last week’s evidence of a narrowing of our trade deficit is a positive sign that UK exporters have faced significant challenges in recent years. Yesterday’s data confirmed that the recession in the euro area, which is our most important export market, continued in the first quarter of this year. Therefore, as the noble Lord, Lord Marland, explained, we are right to be looking more widely.

In the period 2009-12, our goods exports to China increased by 96%, to Brazil by 49%, to Russia by 133% and to India by 59%. Last year, while our exports to the rest of the EU fell by 2.5%, our exports to the rest of the world rose by 1.2%. While we look elsewhere, we should not forget that we are still exporting 42% of our goods and services to the eurozone. As we try to get more SMEs involved in exporting, many will go to the eurozone because it is so much easier for a whole raft of reasons. Getting on a plane or a train to get to a potential export market in an hour is very different from going to Brazil or China.

I have seen that with a small manufacturing company in West Yorkshire which exports mainly to Europe. Through its website, out of the blue it has had a couple of orders from Brazil for £25,000, which is pretty good for this company. The question is what it will do to capitalise on it. It has no idea who the people are who have asked for this export. The directors have had a long discussion about whether they should go to Brazil. Eventually, they decided that they would go but the cost, in time and money, meant that that was a very difficult decision. If that order had come in from Spain, they would have been off straightaway. Therefore, as we rightly put more emphasis on the rest of the world, we must not ignore the fact that the bulk of our exports are to the EU and will remain to the EU. The EU is where people dipping their toe in the export market will start.

Over the past year, we have increased UKTI’s budget by £70 million to help to deliver world-class services to move SMEs into exports and to focus our activities on the high-growth market. I hope noble Lords will feel that we are making a real impact in that crucial area.

My noble colleague Lady Kramer discussed the challenge of corporates paying the right amount of tax, an area on which we the Government have put a lot of additional emphasis. At the G8 meeting, we made clear that international tax avoidance and rebalancing the rules around taxation are our top priority. At the recent meeting of G8 Finance Ministers, which included George Osborne, it became clear that we had the support of all the leading countries to look at this. It is not something that we can do unilaterally. It has to be done on a global basis. I think that for the first time ever there is a global consensus that we have to do more around corporate tax avoidance.

In that respect, I should like briefly to mention the personal and corporate tax avoidance in tax havens where up to now there has been a huge degree of secrecy. There is a growing momentum of considerable proportions to open up data about people and companies that have set up entities, which until now have been secret, in the principal tax havens of the world. It is worth while looking at what has happened in the past year. Having signed an agreement on the automatic exchange of information with the US in September, we have done the same with the Isle of Man. In March, we reached agreement with Jersey and Guernsey. In April, France, Germany, Italy, Spain and the UK agreed to develop and pilot multilateral tax information exchanges. Also in April, we set out our priorities around tax transparencies for the May European Council. Most significantly of all, perhaps, within the past month the overseas territories have agreed to greater automatic information exchange with the UK. Here, we are talking about the Cayman Islands, the BVI and other places that have had a degree of secrecy which we believe is simply no longer acceptable.

The noble Lord, Lord Bhattacharyya, spoke with his unrivalled knowledge about the constraints on innovation and investment. I had a great deal of sympathy with much of what he said, particularly about supporting reshoring, which to a certain extent is happening anyway. However, as he suggested, I am sure that the Government should look at ways of doing more. I am particularly aware of an initiative that my noble friend Lord Alliance is heading up on the textile industry and which is bearing considerable fruit. His view is that the potential from reshoring textile manufacture, so that we can have the just-in-time manufacture of textiles in the UK, could be as much as 250,000 jobs in the north-west. This is potentially a huge thing.

I agree with the noble Lord, Lord Bhattacharyya, that we could be doing more. I was particularly interested in his suggestion of how we might use public procurement to help. We should look at that further, and I will discuss it with my colleague Vince Cable, because it seems an interesting idea. I say in passing that the suggestion that we should be emulating the Americans to increase car manufacturing here seems to ignore the fact that car manufacturing has increased here substantially, without government bailouts but with government support. That is because we have had fantastic investment by companies such as Tata, which have completely turned around iconic British brands by investing more than £100 million of their own money in innovation and investment. They are working very closely with the universities, possibly including the university of the noble Lord, Lord Bhattacharyya, and are placing their own research people in those universities. That has happened without direct government subsidy, on the American model, but because this is a good environment for that kind of activity.

We have a raft of initiatives on the table. There are the Catapult centres, whose work includes high-value manufacturing, initiatives on science and innovation and capital projects from the research partnerships fund. We have done a raft of things to help small businesses to generate capital and have access to it, from abolishing stamp duty on shares and expanding the small business research initiative to £100 million and having further funding committed via the new investment bank, which we are in the process of establishing.

For three-quarters of his speech, the noble Lord, Lord Bates, did a tremendous job in helping the movement of animal spirits in a positive direction. Then he slightly undermined that by saying that the figures on which we are placing a certain amount of hope are perhaps not worth the paper they are written on. I paraphrase slightly. However, I think we will have in the UK what has just happened in the US, where the basis of the GDP figures is being looked at. I believe this is the case, although it may not be on exactly the same basis as he wants. The sad thing is that if the consequence of that rebasing of GDP leads to GDP figures going down, everybody will say that this is the Government’s fault for being completely incompetent, while if it shows them going up, that will lead to everybody saying that they have been fiddled, so I do not place too much hope on that. A consistent series of figures is probably the best that can be done. Although it does not necessarily reach an absolutely precise representation of the truth, that is good enough.

If the noble Lord will allow me, I just need to correct for the record that I did not say that the GDP figures were worthless. I never used that term. I simply queried the mix between the construction and service sectors—be it 5,000, 10,000 or 12,000—and whether that mix was under review in order to ensure that we are accurately reflecting the performance of the economy.

I apologise to the noble Lord. As I was saying, I believe that the ONS is doing a pretty fundamental review of that at the moment.

The Government are under no illusions at all about the challenges ahead in respect of growth. Implementing our ambitious programme of reform and securing strong, sustainable growth will not be easy, but the Government will not deviate from their course. The prizes in the global economic race are great and we are determined to win more of them.

My Lords, I am very grateful to everyone who took part in this debate. In his opening comments the noble Lord, Lord Marland, described vividly the work he is doing around the world to encourage British exports. I very much support that. Indeed, I was quite excited, so maybe we ought to have a word outside afterwards. I must declare an interest as the chairman of the Good Governance Foundation. He mentioned corruption and the rule of law, which is precisely what we are trying to do through the company. The amount of work available for British universities on promoting the rule of law is considerable.

The noble Lord, Lord Bhattacharyya, gave a very good speech on a wide range of things. I simply say to him that science and technology deserves a debate on its own when it comes to growth. The high-tech part, which I work with, deserves so much to be put forward. The noble Lord, Lord Bates, also mentioned the importance of confidence in the economy, and I entirely agree with that.

I was slightly disappointed by the Minister’s response because I feel that he slipped back a bit. Yes, Keynes did say to take interest rates into account, but in view of the fact that the noble Lord referred to the long term and the short term he should also remember that Keynes said, “In the long term, we are all dead”. That is perhaps worth remembering, but the important point was really what the IMF and various economists are saying. I simply remind the Minister of the quotation I gave from the IMF report: that many advanced countries had debt to GDP ratios much higher than we have now, and they have dealt with them through growth. It is the alarmist approach, which I thought the Government were moving away from, that undermines confidence, because it says to people, “Oh, we are like Greece”. Well, we are not. That was a silly argument in the first place. Britain is in a much stronger position and we should not talk ourselves down in that way.

Finally, because a number of people chided me again for my interest in aviation, let me say one thing about why this is so important. This is not about hub airports but about airports generally. It is not about the Davies report. I gave evidence to that and will do so again. It is that Britain invented the Industrial Revolution. The second stage of that revolution resulted in railways, which produced the first country in recorded history where manufactured goods could be delivered from one part of the country to the other in large quantities. In other words, we had the world’s first integrated manufacturing economy.

This is such an important point because what aviation is doing for the global economy today is what railways did for the British economy in the 19th century. We lost our lead on railways after the end of the 19th century. We still have the second most advanced aerospace industry in the world. Do not let us lose our lead in this as we did on railways, otherwise we will regret it deeply. Aviation delivers goods, and people, all over the world, and it does not require public money. Most of it can be done with private money, so your Lordships can relax a little more about debt. I thank everyone for this debate.

Motion agreed.