Motion to Take Note
That this House takes note of the economic and financial prospects of the United Kingdom.
My Lords, I welcome this opportunity to introduce an economics debate because so much has happened in recent months regarding our business and our economy. Ten months ago, we debated the economy after austerity. We looked at the impact of technology, of climate change, of terrorism, of conflict and of low oil prices. Even though these problems remain, I would have liked to have called this debate, “Bremain”. However, the powers that be thought that we should look beyond 23 June, and they are right. There is life after the referendum, and possibly a life more turbulent because added to these old pressures are: the uncertainties of protectionism and trade wars after the elections in the USA and Europe; the effect of excess capacity in China; redundancies in the UK oil industry, even though the price of oil has risen; and the fall in manufacturing output since the last debate.
In addition, we are seeing sentiment moving away from our preoccupation with the deficit. Two weeks ago, the OECD and the IMF both suggested that we might have avoided the low investment in our infrastructure, rising inequality and poor productivity by growing out of our financial difficulties instead of cutting costs. There is much to debate, and I am most grateful to noble Lords who are participating and to the Front Benches.
There is more of a social dimension, too. In recent months, when speaking of the economy, the Government also speak of increasing life chances and helping people who face economic challenge and disadvantage, with a more generous and humane concern about people’s economic insecurities and difficulties. Does this mean that the Government are coming round to our way of thinking—that the market also has to serve people, not just business? Does it mean that there might be government intervention, not only when there is market failure but when there is environmental and social failure—in fact, reflecting the ideas of Labour Business, an organisation of which I have the pleasure to be an honorary officer?
For some time, many have felt that things are not working out as they should—that the cost of austerity could be much larger than the economic benefit. Now there are important allies, whose “disquieting conclusions” as the OECD puts it, is that these policies result in increasing inequality and undermine economic growth. On Tuesday, I heard a major City investor say they now look for good social, environmental and governance factors as a condition for investment, because that is where they are finding competitive advantage. When people feel more secure about the welfare state, they become more willing to accept change, to accept the onset of intelligent machines and robots and the digital economy, which disrupts working patterns—although whether to the extent of 47% of existing jobs, as experts have said, I do not know. Meanwhile, we are stuck in a jobs-rich and low-investment economy, with flat productivity, stagnant wages and lacking in skills, with many workplaces reluctant to utilise labour-saving technologies. At this time of change, when many workers are not with any employer, or are with many employers for a short length of time, it is important to ensure that people enjoy the basic protections when it comes to health, pensions, job security and training. As part of their concern for people, will the Government work towards this end, perhaps in association with the trade unions, which understand these things, where business is concerned? Otherwise, technical progress will become demonised, and investment will go elsewhere.
These ideas are not new; they just need active implementation. The recent papers from the IMF and OECD are just one more nudge in this direction, a nudge to which I hope the Government will pay attention. Another nudge came from the recent EY report about inward investment. The point of the EY report is that inward investors found Britain attractive because of our quality of life, our stable social climate, our diversity and our culture. But inward investors, like that City investor, are now having concerns, largely because of the effect that austerity is having on those elements. The report voiced other concerns—about the environment and the high cost of housing. But, of course, another major threat to foreign direct investment is our leaving the single market. I suspect that foreign direct investment is one reason why many people in business are in the remain camp, together with the practical advantages of free trade.
Part of the remain case should be to present a vision of what we want the European Union and single market to look like when we remain, and particularly what we would try to achieve during our probable presidency in 2017—how the economic welfare of people as well as business can be improved by setting basic standards to prevent a race to the bottom, a race that not only workers but good companies would suffer from.
Initiatives of this kind will indicate that not only are we staying in the single market but we intend to play an important and leading role in its development. However, there is more to do. Half our exports to the EU are manufactured. This is because the uniform regulations and standards make it easy, with many facilities being available for 28 countries. For instance, you can register your trade mark on one piece of paper, and it is valid in 28 countries. Many companies now sell their products or services by profiling potential customers from data available over the internet, but different countries have different rules about personal privacy and protection. We in the UK are rather more liberal over data protection, but this form of direct marketing is growing strongly and we need one rule for all.
So much about the economic strategy in Brussels. What about the economic strategy at home? Many have accused the Government of having none. In response, Ministers trot out the various technology centres and institutes that have been set up—the Advanced Manufacturing Research Centre, the Centre of Nuclear Excellence, offshore wind investment or the British Business Bank—but this is not a strategy; it is filling in gaps. Certainly it is sometimes filling them in well, but many gaps remain.
Ministers also point to our world-class science. Yes, we have world-class science and technology, and we have world-class scientists and technologists, but we have very few world-class science and technology businesses. Why? This has been answered many times by people such as John Kay and the noble Lord, Lord Turner, and we are waiting for the Government to act. Perhaps they need an emergency to act, as is happening in the steel industry, but that is not a strategy; it is being a fire brigade.
It is the same with productivity. Ministers produced a productivity paper last year which we debated in this House hoping that it would be an important part of the Government’s industrial strategy, but it has disappeared. The BIS committee in another place described the proposals in it as a vague “collection of existing policies” with non-existent milestones. We also know that with long-term interest rates available to the Government at virtually zero, now is the time to invest in the infrastructure, housing, technologies, training and intangible investments needed to raise our productivity. Yes, we have passed the Enterprise Act, but again that was just a catch-up exercise to plug gaps which were becoming more and more obvious. A strategy is not just filling in the gaps as they arise, it is not just dealing with emergencies as they arise, it is not just something spoken of and then forgotten; a strategy is long term. It needs constant nurturing. All these elements need an annual review to understand the short-term changes and to learn lessons. This is the kind of commitment that we seek to raise our productivity.
On 25 May, I asked the Minister about our balance of trade. He surprised me and many noble Lords when he complacently replied that,
“our trade deficit has been relatively stable at around 2% of GDP for the last seven years”.—[Official Report, 25/5/16; col. 383.]
However, that deficit accumulates, and it is now at an all-time high of 7% of GDP. One thing is clear: because of the trade deficit, we are completely dependent on inward investment to pay our way in the world. In no other developed country have inward investors taken control of such a large part of business and industry, finance and public services, welfare and health. I can certainly see the big advantages of foreign investment in industry, with its policy of long-term investment in production and skills. We certainly gain in technology, but ownership matters. Big decisions are taken elsewhere. UK firms are told where they can and cannot export.
Also, much of the money is spent on buying and selling assets, not investing in growth and development. If you walk through my part of London, you will find that the hospital building is owned by a Japanese bank, the street lights by a Swedish finance company, the buses by a state-owned Dutch company and the water by a company in Jersey. The brochure promoting the northern powerhouse presents it as a great opportunity for overseas investors.
There have been a series of initiatives to support foreign direct investment, but if a local citizen is unhappy with what is provided, it is becoming less a matter for the council and more a matter of the terms of the contract with the provider. Meanwhile, we in Parliament are doing what we can to encourage localism. Does the Minister agree that there must be a limit as to how far this can go, not only because this is affecting our democracy but because it restricts our choices in economic development and balancing our economy? I am all for free trade and against trade barriers, but I think a public interest element should be present in these negotiations. The Government are obsessed by the wrong deficit. Paying our way in the world is becoming more important than just balancing our books.
This debate is about the economy. So I ask the Minister: are we a stronger economy when we have a vision for the single market after the end of this month? Are we a stronger economy when we have political control over our basic services and industries? Are we a stronger economy when we carefully invest in our future with a long-term strategy? Are we a stronger economy when we pay our way? Are we a stronger economy when there is a safety net to see us all through these hard times of economic and technical change? I look forward to hearing the views of other noble Lords, and I beg to move.
My Lords, it is as always a great honour to speak in this debate on the economy, and I congratulate the noble Lord, Lord Haskel, on securing it. Between this and his other recent erudite contributions on the economy, he has consistently been carrying the torch of rational economic arguments for the Opposition that some would say has been strangely discarded by his colleagues in the other place. His contribution today was extremely well measured, and I hope that the rest of the debate does not descend into a rant about the forthcoming referendum or views on the EU, but focuses on the questions he has raised.
We are asked today to consider the UK’s economic and financial prospects—no small matter indeed. Having said all that I have and meant it, I of course do not agree with everything the noble Lord said. I am happy to say that, thanks to the enduring wisdom of the British electorate, our prospects are good. Not content with a coalition Government who made great strides in restoring our economic credibility, they voted for more of the same in 2015: a resounding mandate to continue the restoration of our public finances and improve the competiveness of our business climate. “Why would they not?”, we might well ask. The UK economy is on the right track. Employment is up, bringing 2.5 million new jobs to the UK, giving to so many the dignity of a job and a means to support their family. As the noble Lord has observed, the deficit is down from a record post-war high to less than 3% this year, and this morning’s trade figures show a reduction in the trade deficit and an increase in exports.
I believe that FDI is actually of great benefit to this country. The noble Lord asked a Question on 25 May about the current account deficit. The point was made that if we had more FDI externally into other countries from UK investors, the current account deficit would close. However, analysis of the UK economy is to some extent best left to experts—specifically those of the IMF, which said in its assessment of our prospects:
“The UK’s recent economic performance has been strong, and considerable progress has been achieved in addressing underlying vulnerabilities. Growth has been robust, the unemployment rate has fallen substantially, employment has reached an historic high, the fiscal deficit has been reduced, and financial sector resilience has increased”.
Those are the IMF’s words, and we continue to grow, create jobs and attract inward investment. I, too, quote from the OECD, which forecast that we would have the fastest-growing major advanced economy this year.
The debate today specifically asks: what of our prospects? To that I say: if this reverse of Labour’s economic management can be achieved over the past six years, imagine what we can do in six more. There are clouds on the horizon. Falling oil prices have plunged Russia and Brazil into recession, and China’s rebalancing has led to lower growth in many economies. So the risks are great and we cannot rest on our laurels. Since some in the party opposite want to question the whole basis of capitalism back to the time of Chairman Mao instead of looking forward, we should at least ask ourselves what is next. In response to that I would like to say a few things specifically about the SME business sector—small and medium-sized businesses—and what can be done to enable it to play a bigger role in our economic future.
The House may be aware that SMEs are a constituency worth looking after, since in 2015 they were responsible for half of employment and a third of turnover in the private sector. Furthermore, a recent interesting online survey by eBay showed that two-thirds of small businesses in the UK are planning to increase investment in the period 2016-17. Let us help them help the British economy.
Budget 2016 set out important measures to help our small businesses thrive. Lower corporation tax, down to 17% in 2020, encourages entrepreneurship and economic activity in small and medium-sized businesses. That it is the lowest in the G20 serves as a lighthouse, gathering small, entrepreneurial ships to our shores to innovate and create jobs.
Small business rate relief—I declare an interest, as noted in the register, as a director of a retailer—has also helped, as the relief for small businesses is being doubled to 100%. We have also seen cuts to capital gains tax—again, I declare an interest as an adviser to businesses which are seeking an exit. This cut in capital gains tax, in combination with continued improvements to entrepreneurs’ relief, which I particularly welcome, will encourage investment in small businesses and start-ups. So we will create the world-class tech businesses that the noble Lord, Lord Haskel, wants to see emanating from these shores.
Most importantly, I am pleased to see tax avoidance being addressed. As I have said in previous debates—I believe that Members in all parts of the House are keen to see this—it is important that large companies are made to pay their fair share but also that the tax system is made easier to use for those who are less well resourced: our small businesses and entrepreneurs. Thanks to measures in the Finance Bill, the self-employed will enjoy simpler treatment through digital filing, and investment in HMRC will help. I hope there will be more to come in this Parliament to support small businesses further.
However, I think the EU referendum is the right call because it is clear from the level of debate in the country that there is a need to discuss many issues. It has been alleged that there is a disparity of views between small and large businesses, with large businesses preferring to remain in the EU—for debatable reasons—and small businesses preferring to come out. I am not sure that that is the correct distinction. To my mind, it is more significant—and the distinction perhaps easier to make—to look at the owners of those businesses. We can look no further than Members of our own House—the people who invest in their own businesses, such as my noble friends Lord Harris of Peckham, Lord Wolfson, Lord Borwick and Lord Bamford, and Lord Edmiston, who has recently retired. They are all entrepreneurs who, in the true definition of entrepreneurship, have invested their own money in their businesses, and they have made their views clear. I only hope that, whatever the result of the referendum and whichever direction we go in, the Government will have listened to the debate and to the businesses that have said changes need to happen.
We have a competitive policy and regulatory climate for small businesses that is attractive. It is not easily built up but it is easily destroyed. We must not return to the old approach of a new regulation here and a new tax rise there. I urge the Government to stick to their strategy of setting out a clear direction of travel for business tax and regulation, one that survives the buffeting of global economic events. If they do this, to return to the subject of our debate today, our prospects look bright indeed.
My Lords, it is a pleasure to participate in this debate and to congratulate my noble friend Lord Haskel not only on his excellent speech but on his persistence in ensuring that this subject is at the forefront of our attention in the House of Lords.
I suggest that the economic and financial prospects for the UK are grim if we leave the European Union. I agree, actually, with the late Margaret Thatcher, who, in quoting approvingly from Clem Attlee, said that referendums are a device for dictators and demagogues. This referendum mirrors the Scottish referendum in that there are bitter and bad-tempered exchanges, and it will leave a poisonous residue long after 23 June. It has denigrated the term “immigrant” to the extent that it has seeped into the bones of the electorate.
Facts and expertise have been disregarded and discarded. On ITV last week, Michael Gove, supposedly the most cerebral of the Vote Leave MPs, said that people have “had enough of experts”. I have more reason than anyone to be cautious of experts. As chairman of the Treasury Committee, I drilled holes in the Budget proposals of every Chancellor who came before us. However, although economic models are often wrong, that does not mean that they give no knowledge at all. Indeed, they build up a picture of evidence and trends. Forget the precise figures from the Chancellor—that house prices will fall by 18% and that every household will be poorer by £4,300 per annum. The important point is that the findings by a gamut of economic institutions and researchers—internationally, in the IMF, OECD and WTO; and nationally, in the Bank of England, the IFS and the National Institute of Economic and Social Research—are unequivocal in their belief that Brexit would be a very costly option in both the short and long term.
Only one economic modelling exercise has generated a positive case for Brexit, and that is from a Vote Leave economist called Professor Patrick Minford, of Cardiff University. His analysis has been demolished by the London School of Economics economists, and fellow Vote Leave member Andrea Leadsom, a Tory Minister, disavowed it in a recent “Newsnight” debate.
Let us assume that no precise figures are correct in the Brexit debate. What is incontrovertible is that the negative economic impact ranges from “pretty bad” to, in the words of Christine Lagarde of the IMF, “very, very bad”.
As it stands, Britain has 1% of the world’s population but 4% of global GDP. Already, as an EU member, we are well interconnected in today’s global world. That is a world that has three hubs: the USA, with NAFTA; Asia, with China and the Asian Development Bank; and Europe, with a single market and 500 million people.
Recently, I had the opportunity to have a reunion with a chemistry student who I taught over 40 years ago. He is immersed in the global hub that is Europe and is now leading on research into the Zika virus, which is blighting the lives of many infants in Brazil. I came face to face with a case where UK science is in the vanguard of the search for global solutions. His message to me—and the message of leading university chemistry heads in a letter published this morning in the Times—is that membership of the EU is integral to the success of science. I well remember the wise words of the noble Lord, Lord Parekh, when he said in a debate here on the Scottish referendum, in January 2014, that in conducting our argument we should always emphasise “the shared ‘we’” and our commonality. We should recognise how we would feel pain, and how both of us would suffer, if Brexit were to happen. On the commonality theme, I am reminded of Pope Francis’s short but hugely symbolic visit to the island of Lampedusa. When he visited the migrants there, he spoke about the issue of global indifference and stressed the physical, environmental and moral space we share, which is under threat as never before.
Mindful of our shared and common endeavours, let us ensure that the questions we ask in this debate are liberating rather than destructive. In that vein, we should pose questions such as: do we wish the European Union to become more effective in the way that it works; and, if so, how do we tackle a democratic deficit and ensure that the home country parliaments have their wishes better respected? Do we wish to strengthen and enhance areas such as international law, human rights, environmental justice and global peace and security, almost all of which hang by a thread at the moment? If we do, others will be safer, but we will be safer as well. On tax havens and the global financial system, do we wish to continue working with our EU partners so that we check rising inequality, enhance our public services and provide a more secure future for our young people?
This referendum is all about young people. They will be the losers if we persist in the bitter, negative and destructive exchanges. Economists are unanimous that Brexit will be a very costly political, economic and social option. I submit that that is too high a price for future generations to pay.
My Lords, I am grateful to the noble Lord, Lord Haskel, for giving us the opportunity to have this extremely important debate. I am glad that its context concerns the prospects for our economy. It is always a pleasure to follow the noble Lord, Lord McFall. I agree with his words: our prospects are grim if we leave the European Union. We are one of the world’s largest economies, but we are so because we are in the European Union, not because we are outside it.
I want to put this debate into the context of the north-east of England—where I live—our manufacturing base there and this referendum debate. The north-east of England is a manufacturing and exporting region. Many thousands of jobs—around 150,000 in the north-east of England and millions across the UK—depend on exporting to our European partners. Leaving the EU’s single market, which is the world’s largest free trade zone, would hit our trade and investment and increase unemployment.
I am proud that, because we make things, my region has a positive balance of trade. We manufacture cars and now we manufacture trains. We have huge supply chains in support of our manufacturing. It would increase unemployment significantly if we voted to leave the European Union. The north-east of England simply cannot afford the cost of Brexit. It would be a massive own goal disrupting our economy and the livelihoods of very many households.
Last year, 44 foreign inward investment projects came to the north-east, but this will be put at risk if we leave the EU. Why would an overseas company seeking to expand in the EU want to put itself outside the single market, facing tariff barriers to its exports?
The north-east needs access to the EU single market of 500 million people, with a say over the rules of doing business across Europe. That means more jobs and more financial security for our region.
In addition to manufacturing, sectors such as farming, science, higher education, tourism and hospitality would also be adversely affected by Brexit, and the north-east of England would lose access to hundreds of millions of pounds of EU funding for regional development. The success of our universities relies heavily on EU research funding and our businesses rely on free movement of skilled workers both to and from the UK to drive growth and jobs.
As the noble Lord, Lord Haskel, pointed out, manufacturing still provides half of our country’s exports, three-quarters of scientific innovation and 2.5 million jobs. Almost all UK economists support our remaining in the EU but, amazingly, one economist who favours Brexit—Professor Minford—has admitted that if we left the EU it seems likely that we would mostly eliminate manufacturing. This is unacceptable. We need manufacturing and the innovation, jobs and growth it can bring. Car manufacturers and rail manufacturers—indeed, all manufacturers who export or plan to export—want access to the European single market to enable them to trade freely on common technical standards. Small businesses need the same because they form part of the critical supply chain to bigger businesses.
The EU helps all these industries by eliminating both tariff and non-tariff barriers. The next stage of development of the single market will bring down the remaining barriers to trade in services, energy and digital industries, which will be hugely beneficial to the UK. Our success at manufacturing and in the north-east of England depends on our continued membership of the European Union. In the north-east, the warnings from Hitachi and Nissan need to be taken seriously. They want us to be in the single market and their views matter profoundly. The north-east needs the jobs and the prosperity they bring.
The prospects of the north-east of England depend on our being part of the EU and its single market. Voting to leave would do immense damage to our economy, to our growth prospects and to the prospects of our next generation.
I thank the noble Lord, Lord Haskel, for securing the time for this debate. It is an extremely pertinent debate given that we will in two weeks be able to choose whether to guarantee our financial and economic prospects or endanger the flow of trade to and from the single market, which accounts for some 10% of our GDP.
Already we can observe the outflow of money from British assets. Some £65 billion either left the UK or was converted into other currencies in March and April. This is the fastest rate since the financial crisis in early 2009. Alternatively, we could look at it as £1.3 million a minute leaching out.
I am disappointed to see the populists of the leave campaign start to turn the polls around. It is notable to see the pound drop more and more as they gain in the polls. People need to understand that this means higher prices in the shops and, if we pull out of Europe, import tariffs. For my business and all the people we employ this will be utterly disastrous. Jobs will be lost and I and others will find it harder to attract the investment that drives so much of our growth.
The sheer foolishness of cutting our trade links with the body that receives just under half of all our trade is extreme. I do not know if we will be trading on Norwegian terms or Turkish terms or Canadian terms. I think that one of the Ministers leading the campaign even suggested that we use Albanian terms. This is the single biggest risk to the economic prospects of the UK. Every single reputable body, from the Treasury to the IFS, from the OECD to our allies, has told us to stay in.
We would be voting for permanently lower growth, higher prices, diminished living standards and a recession. Being in Europe does not act as a muffler; it is a loudspeaker. It is one of the most important international institutions in which we can make our voice heard. Simply, to secure our economic future, we must stay in Europe.
There is another issue which has been somewhat lost in the din of this campaign and will no doubt emerge once the debris has settled. Infrastructure is of critical importance to our future economic growth. I welcomed the decisive moves by the Government earlier in the year to roll out superfast broadband. Physical infrastructure still plays a significant role in the ability of businesses to scale up and sell goods to other nations.
Since I arrived in this country, there has been the perennial blight of airport capacity in the south of England. I, like many others in this and the other place, have seen numerous signs and adverts for Heathrow or Gatwick expansion. The arguments are finely balanced and I will admit that I have been swayed by the warnings of ground-level pollution in west London should Heathrow expand. Noise is also an issue, but ultimately we must weigh up the decision and balance it against the undoubted boost to productivity and growth that it will bring.
My message to the Government is simple: expand one airport or the other, or both. The lack of capacity makes freighting goods overseas far more expensive and the tremendous crowding actually leads to more noise as jumbo jets taxi around the metropolis. Also, we are seeing other hub airports eat our lunch. Amsterdam has captured large swathes of commercial flights, especially on routes that were not in demand a decade ago, such as to Lagos or Manila. Unless the Ministers responsible are capable of screwing up their courage, the UK will continue to be denied growth and transport opportunities for those goods that cannot be transported by sea or overland.
The other pressing infrastructure question concerns our rail capacity. Crossrail has recently been completed and is in my view a roaring success for British engineering, manufacturing, and of course tunnelling. The evidence of the Eddington report showed that the pressing issue of rail capacity was overcrowded commuter lines around big cities such as London, Bristol and Manchester. I still cannot see the case for spending £55 billion on a high-speed connective link when it makes more sense to invest money in higher-capacity and faster regional and metropolitan services. As with most big infrastructure projects, I can confidently predict that the figure will rise during construction.
Trimming half an hour off train trips from London to Manchester will not heal the north/south divide or boost growth in any meaningful sense. The London train will not even stop at a well-connected station due to the decision to make it stop at Euston instead of Old Oak Common. Reinvesting that budget in road improvements or regional train networks will yield fewer photoshoots but greater transport flexibility and capacity. Shorter commuting times around often badly connected suburbs in our big cities will boost productivity, which is where we can reap significant gains. I would urge the Department for Transport to rethink its strategy and redirect at least some investment into regional infrastructure rather than this expensive project.
My Lords, it is a great pleasure to take part in this debate and to congratulate my noble friend. Not only did he make a really good speech, he has shown over many years a real consistency in terms of good business, making sure that business is supported and seen as part of the nature of our society and our communities. In a sense, that is what I should have liked to pursue in my remarks, but I am afraid I shall upset the noble Lord, Lord Leigh, because I, too, will have a rant about the crisis that we have been plunged into, totally unnecessarily, and the effect that it will have on my region, which I suspect he does not know in any great depth.
Those of us who come from the north-east—I shall have to be careful not simply to repeat what the noble Lord, Lord Shipley, said—are extremely concerned about the referendum and the potential effect on our region. I very much agree with my noble friend Lord McFall on referendums, and I think this one is not about listening to the British people. I could not help but smile when I heard the noble Lord, Lord Leigh, talk about the great debate. It has been a terrible debate and most of the British people are turned off by it, but they know that they will have to make a decision when they do not feel that they have heard honest assessments of what the outcomes will mean.
What sort of economy do we want? That is where I want to start. I am dismayed that many of the people who are talking about leaving say that manufacturing is not as important as it used to be, and they are satisfied with that. I want an economy that takes manufacturing seriously and goes back to understanding that what we are able to make is still very important. Yes, services are important and I am pleased that the European Union is well down the track in negotiating a service agreement and free trade, in addition to the current agreements that there are within Europe. None the less, I would have thought we had learned the lessons from the crash and what happened to the banks and to the rest of us following that crash. A service industry-led economy will have problems. We need a strong manufacturing economy to make sure that services can succeed.
In the north-east in 2014, we exported £7 billion of goods to the European Union. That was 56% of the total of goods exported from this country. Is it any wonder that those of us from the north-east are very worried about Brexit when we overwhelmingly export the most of what this country exports to Europe? We know that we have to increase the amount so that we can do such things as tackle what is still the largest unemployment rate in the country. We want to do that around jobs that people can value and where they are valued in doing those jobs.
Think about Nissan and consider all the arguments that took place in our region, and elsewhere when Nissan first came to Sunderland. It is now the UK’s largest car manufacturing facility. One in three cars built in the UK are built in the town I was born in. That is a matter of pride. When I talk to people who work at Nissan, they have an amazing experience. I have one friend whose son started at Nissan, having had a somewhat troubled adolescence, I might say. His dad was just so pleased that he got a job. Then he got involved in training and ended up being a senior salesperson who frequently went across to Europe to make sure that the cars were sold. Nobody would have imagined him doing that. That was because the company got hold of training, spotted his potential and developed it even though he did not join with lots of qualifications. Nissan built more than 500,000 cars in 2013 and more than 80% of those were exported. The bulk went to Europe; most of the rest went to other countries on the back of EU agreements with them.
Hitachi has now established itself in Newton Aycliffe, which is not very far from the constituency that I represented in County Durham. It is building trains there. Its chairman made absolutely clear a couple of weeks ago that the only reason it came to the UK was because it is a gateway to Europe. We know from Nissan’s example that Japanese manufacturers like to be in the UK because English is their second language. Hitachi’s chairman came to the north-east because of very good negotiating from my honourable friend the Member for Sedgefield in the other House, Phil Wilson. It has just started and has made clear that it is thinking about contingency plans in case Brexit goes wrong. Its investment is there because the UK is the gateway to Europe.
I have lots more to say about other companies, but I do not have time. This is a rant, but it comes from the heart because I want my region to continue to succeed and succeed even more. It will not if we leave Europe.
My Lords, I congratulate the noble Lord, Lord Haskel, on securing the debate. With only a fortnight to go until the referendum, which is so crucial to our country’s economic future, I must focus my contribution on it. I very much disagree with the noble Lord, Lord Leigh, on this, although we share the same tailor.
My mood is a mix of anger and sadness—anger that the leaders of the Brexit campaign choose wilfully to ignore the warnings of so many who have far more experience of international trade and finance than they do. They do not care that virtually all trade bodies that have polled their members want to remain, from manufacturers to tourism bodies, from bankers to the NFU. Some 80% of members of the CBI want to remain, as do 80% of the Society of Motor Manufacturers and Traders, 80% of the Engineering Employers’ Federation, 80% of the leading tourism body, UKinbound, and 80% of the leading chairmen of our retailers, as polled recently by Korn Ferry. The leaders of the Brexit campaign do not care that the heads of our great international trading companies, such as Shell, Vodafone, GKN, Rolls Royce and Diageo are in favour of remaining, as are all our airline chiefs, who warn that travel and holiday costs would rise if we leave. The leaders of the campaign do not care if our construction industry is deeply concerned that a severe shortage of skilled workers would arise on Brexit, that our hospitality industry would virtually collapse without migrant workers from mainland Europe, or that our banks, such as JP Morgan, have warned of severe job losses.
Brexiteers talk of increasing trade with countries such as China and India. What are these products that we could sell but are not at the present time? Please name me a company that has said it needs Brexit to export more. Of course, Europe would still want to trade with us on Brexit, but it would not make it easy, if only to discourage other countries from following us. On renegotiating trade deals, as Robert Azevêdo, the director-general of the World Trade Organization, said earlier this week:
“It seems that there is a great deal of confusion about the trade implications of a British exit from the EU. I think it’s important to provide the facts. The likelihood is that a British exit would lead to a sequence of complex negotiations—with the EU itself, with the 58 countries that have trade agreements with the EU, and also with all the other members of the WTO. These negotiations would be complex and drawn out”.
Brexiteers peddle another myth: that onerous EEC regulations could and would be swept away. The Chartered Institute of Personnel and Development, which represents 140,000 personnel directors and managers, says that Brexit would lead to “very little … change” in UK employment law. I could do no better than quote Sir Roger Carr, the chair of BAE Systems, who said in the Times on Monday:
“To leave Europe would dislocate the momentum of our steady recovery and threaten exports today and productivity tomorrow. It would be both foolhardy and disruptive”.
How dare those Brexit leaders such as Duncan Smith, Gove and Johnson, with near-zero commercial experience themselves, arrogantly challenge all those bodies and individuals that I have quoted today?
I said I was also saddened by so many of the older generation interviewed in our pubs and clubs just focusing on immigrants and immigration as a reason for voting “out”, as if, by a stroke on Brexit, our borders will be closed and the sad flow of refugees internationally stemmed. Sadly, many of those older Brexiteer voters would suffer if we exited, through stock market turbulence affecting their pensions, price rises on imported goods and more expensive holidays. Their children and grandchildren would suffer through fewer job opportunities as foreign investors chose to invest within the EEC rather than the UK, where they would have to surmount tariff barriers to export to Europe.
Anyone who knows anything about investing and business expansion knows that an economic background of certainty and confidence is crucial. Brexit would provide just the opposite: turbulence and uncertainty; stock market and sterling falls; likely interest rate rises; and a flight from sterling that has indeed already started. I hope and pray that we vote “remain” on 23 June, and that in the end our people pull back from the brink and from the tragedy that Brexit would deliver for this and future generations.
My noble friend Lord Haskel eloquently introduced what is the third debate on the economy in this House in the past three months. In doing so, he made a compelling case for your Lordships returning to this subject. If a week is a long time in politics, a month is an age in the global economy, even before considering the agonising feeling of time dragging as the EU referendum campaign grinds its way towards a conclusion.
The referendum to be held two weeks today is an inescapable factor in considering the prospects for the UK’s economic and financial prospects. The powers that be have not had the chance to discourage me or a number of other noble Lords from making this a central part of our speeches. In the short term, the referendum itself has clearly had some effect on confidence levels, leading to delays in investment and some consequential slowing up of economic activity. In the longer term, however difficult it is to forecast even one scenario let alone two, the decision that will be taken in two weeks’ time is highly likely to have a significant impact on the economy’s path. The protagonists on both sides have framed their arguments substantially, though not exclusively, around the economic implications of Brexit or remain.
An unexamined life is not worth living, so I do not believe that our membership of the European Union should have been exempt from critical scrutiny. Indeed, even though the great Groucho Marx was American, I think the Groucho principle of not being sure you want to be a member of any club that will have you represents the best form of British scepticism—though I am even more attracted to one of the graffiti seen in Paris in May 1968:
“Je suis Marxiste, tendance Groucho”.
I commend that to others, from the supporters of Bernie Sanders to some members of my own party.
Reform and clarification have been, and will continue to be, needed; and the agreement reached to exempt the UK from ever-closer union and to ensure that non-members of the eurozone should not be discriminated against are important, both symbolically and practically for the UK and other members of the EU. None the less, it is difficult not to feel that these and other reforms could not have been achieved without the cost and uncertainty involved in the referendum, as opposed to considerations of party management and electoral tactics by the party opposite.
Yesterday’s Financial Times carried a measured but powerful article by Douglas Flint, the chairman of HSBC, based on his conversations with the bank’s mid-market UK corporate customers—the very SME sector to which the noble Lord, Lord Leigh of Hurley, referred . He concluded:
“Leaving the EU risks dismantling the very apparatus that has enabled UK firms to compete, while distracting them from the priority of growing their business and creating wealth”.
He also said that these companies felt,
“a frustration over the lack of a clearly defined alternative to Britain’s current EU membership”.
In this context, perhaps Boris Johnson’s amusing, but economically illiterate, quip:
“My policy on cake is pro having it and pro eating it”,
is an illuminating explanation of why the Brexiters believe that the UK could have all the benefits of the single market and none of the obligations and costs.
The decision on our membership of the EU is being taken against a background of huge uncertainty and challenges both in the global economy and domestically, such as: low growth in productivity in many major economies, all the more baffling for its occurrence during a period of rapid technological innovation and implementation; the challenge of moving from the current, exceptional monetary policies to more normal ones; and in the UK—and at least as much in the eurozone—an incomplete reconstitution of the banking system, which constrains the supply of capital to business.
There is evidence that quantitative easing and other monetary policies in response to the financial crisis have not been the sole, or even the principal, cause of the unprecedentedly low level of interest rates. Ben Broadbent, the deputy governor of the Bank of England, has spoken on this, which has been taken up in turn by Martin Wolf in the Financial Times. Whatever the other causes may be—the declining rate of productivity growth, an exaggerated level of caution in the system, a generally low level of business confidence—the effect has been to keep the cost of equity capital high, even while the risk-free rate has fallen so far. The equity risk premium is twice the level that it was at the turn of the century.
These challenges should not obscure the strength and competitive advantages that we have in this country: an education system which, despite the stresses and strains of past decades, at its best still helps turn out outstanding scientists, engineers, entrepreneurs and managers; global leadership in a range of manufacturing and service industries; a budding technology start-up sector; and generally efficient and, as my noble friend Lord Haskel told your Lordships, increasingly sensitive capital markets. How, therefore, can we best protect and enhance this base of excellence and growth? The noble Lord, Lord Leigh of Hurley, suggested that we should look to the undoubtedly successful business owners and managers whom he cited for a lead. However, a lead in the opposite remain direction is given by innumerable other successful entrepreneurs, particularly at the cutting edge of new technology, whether in IT, drug discovery, FinTech or AI.
In economic and, I believe, social and cultural terms, there is a decisive argument in favour of remaining in, and continuing to work to improve, the EU. I fervently hope that in 15 days’ time we will find that every part of our economy and society are still able to benefit from that membership.
My Lords, I, too, congratulate the noble Lord, Lord Haskel, on securing this debate. The financial and economic prospects of the UK look far better balanced and stronger than many had predicted. This position has been achieved due to the sensible stewardship of the economy by the Chancellor of the Exchequer and his team and so, after seven years of low interest rates, low inflation, rising living standards and real GDP growth—currently the second fastest in the G7, at 2.2%—today we have the highest full-time employment levels of any major EU economy and a country where the poorest communities have seen a fivefold increase in employment since 2009.
The economy is in a relatively healthy state, but how can this be maintained and enhanced? Those among your Lordships who saw the recent Barclaycard 50th anniversary advert will recall that David Mitchell reminds us that Napoleon may well have called us a “nation of shopkeepers”, but I would like to add that we have always been a nation of entrepreneurs, innovators and inventors—people who work hard and want to get on in life. A story goes that a shopkeeper was dismayed when a brand-new business much like his own opened right next door and erected a sign reading, “Best quality”. He was horrified when another competitor opened up on the other side of his shop and put up an even larger sign reading, “Lowest prices”. The shopkeeper was clearly distraught and panicked, until he got the idea—after all, he was an entrepreneur, innovator and inventor—to put up the biggest sign of all above his shop, which read, “Main entrance”.
It is therefore no surprise that, in 2015, the UK was placed among the leaders of the world in entrepreneurship and as the highest in the EU by several highly rated think tanks. It is also encouraging to see our European partners taking further steps to encourage an environment in which entrepreneurs can flourish across Europe, such as the entrepreneurship 2020 action plan—and I am confident that they will remain our partners in the coming weeks. However, what is perhaps most encouraging is that Britain could soon become a nation of young entrepreneurs, with statistics published by YouGov showing that almost a quarter of young people between the ages of 15 and 18 have the aspiration to start their own business here in the UK.
The Government must therefore continue their determined efforts to support the development of new start-up businesses across the entirety of the United Kingdom and help to fulfil the ambition of the so-called “wired generation” to start businesses in the UK. I am delighted that progress towards this has already begun; Britain’s world-leading tech sector gives us a competitive edge that is not just transforming our daily lives but driving the whole economy forward.
Not only does the UK have one of the lowest corporation tax rates in the G20 but you can register a company within 48 hours for as little as £15 and have access to the second largest workforce in the EU. The Government have also supported a number of initiatives, both directly and indirectly, to encourage people at different stages in life to be entrepreneurial. But to best fulfil the aspirations of those young entrepreneurs and, therefore, to drive the financial and economic prosperity of the UK, we must teach them the skills they need to succeed in life. In key areas such as computer science, we must build on the work of this Government to introduce coding classes in schools and further encourage pioneering UK charities such as the Raspberry Pi Foundation. Its credit card-sized, single-board devices, costing only around £30, have the potential to be used in an unlimited number of ways, and its efforts to use these devices to encourage children to learn more about computing are highly commendable.
The Raspberry Pi Foundation poses the question: why buy a child a toy when you could buy them something with the potential to create 1,000 toys, allowing them to use their imagination and create something unique? Developers in all age ranges have used this device to create music players, gaming consoles and remote-controlled cars, among other things. The learning experience, alongside the entertainment value of the device, will only help children grow in a world of automation and software development. I congratulate the six founders of this charity, who not only are helping the next generation of entrepreneurs grow but have been successful UK entrepreneurs themselves, including, of course, the noble Baroness, Lady Lane-Fox. The recent announcement that they have sold 8 million devices, making Raspberry Pi the bestselling personal computer in the UK ever, is truly astonishing. Through efforts such as this, I am confident that the UK will be able to maintain and enhance its position as a place of entrepreneurship and technology, and drive its economic and financial prosperity into the future.
In conclusion, will my noble friend the Minister confirm that the Government will continue to support entrepreneurs, especially the aspiring young entrepreneurs I spoke about, in their quest to drive our economy forward and increase the financial prosperity of the UK?
My Lords, two weeks ago there was a brief debate at Question Time on the state of our balance of payments. The debate was prompted by my noble friend Lord Haskel, who asked Her Majesty’s Government,
“what steps they are taking to reduce the United Kingdom’s deficit on the balance of payments in overseas trade”.
I am indebted to him for providing this opportunity to pursue the matter further.
In answering the Question, the noble Lord, Lord O’Neill, the Commercial Secretary to the Treasury, asserted that the UK’s current account deficit has been driven by “changes in investment income”. He added, somewhat counterintuitively, that this has been a reflection of,
“Britain’s attractiveness as a destination for investors”.
He explained that,
“the recent deterioration is due to the growing attractiveness of the United Kingdom … in the minds of investors all over the world”.—[Official Report, 25/5/16; cols. 383-84.]
This seemed to defy logic. Therefore, I must attempt to uncover what may have been in his mind and what might also be believed by some of his colleagues.
The country’s international transactions fall into two major categories. On the one hand is the current account, comprising the income from the trade in goods and services and the income from investments; on the other hand is the capital account, which I shall examine in more detail hereafter. There can be a surplus or a deficit on either account but, by the logic of accountancy, this must be met by an equal and opposite deficit or surplus on the other account. My noble friend Lord Haskel was alluding to the fact that today Britain has an unprecedented deficit on the current account. This ought to be a major cause for concern.
Our international creditworthiness cannot survive a prolonged current account deficit and to lose it will have dire consequences. The effect will be similar to that of a run on a bank, albeit on a much larger scale. The money invested by foreigners in the UK will be withdrawn and the value of the pound on the international currency markets will plummet. In an attempt to stem the flight of capital, the Government will be forced to raise interest rates. Growth and investment will cease and there will be a prolonged period of economic misery.
The UK has recorded current account deficits every year since 1994. The latest figures show that the current account deficit was 5.2% of nominal GDP in 2015, which is the largest deficit since the records began in 1948. The deficit is worsening. In the fourth quarter of 2015, it was running at 7% of GDP. Unless this situation is amended, the cumulative total of the deficits will sooner or later pass a threshold or a tipping point, and the miserable consequences will ensue.
The principal cause of our current account deficit has been the failure over many years of our export trade in manufactured goods. Our export of goods has diminished both as a proportion of our foreign trade and in absolute terms. In contrast to the deficit in the trade of manufactured goods, there has been a surplus in the trade in services. This surplus defrays part of the deficit in the trade of goods. However, it is less than the deficit, and its growth has ceased.
There are two more items in the current account. These are the so-called primary income account and the secondary income account. The secondary income account concerns payments to and receipts from international organisations, and other miscellaneous transfers. This is something that for present purposes we can afford to ignore, albeit that the relatively modest transfers to and from the European Union are commanding disproportionate attention at present. The primary income account concerns earnings from investments. Our own earnings from investments overseas must be set against the earnings of foreigners from assets held in the UK. In the past, our net earnings have been positive and, at times, substantial. Now, the account is in deficit. The most significant factor in determining the deficit on the income account is the balance between the value of the overseas assets owned by the UK and the assets that are in foreign ownership. The balance is no longer in favour of the UK. In 2014, the stock of UK liabilities surpassed that of UK assets, for the first time since records began. The deficit on the primary income account is a reflection of this circumstance.
We have sought to defray our current account deficit and to balance our payments by divesting ourselves of the ownership of our capital assets and selling them to foreigners. As the Commercial Secretary, the noble Lord, Lord O’Neill, has remarked, they have been keen to acquire the ownership. He has described our divestment of the ownership of our assets as “foreign direct investment”. This terminology is highly deceptive. In the inverted logic of the Minister, the growth of foreign ownership is the cause of our current account deficit. Of course, he is mistaking an effect for a cause. The true cause of our current account deficit has been our failure to export manufactured goods in sufficient quantities. The effect is that we have to rely on the sales of our capital assets in order to maintain the overall balance of payments.
On a previous occasion, I have described the remarkable extent of the foreign ownership of our assets and how this is prejudicing our economic welfare. We have only a finite supply of companies and properties for sale abroad. Eventually, the supply will be exhausted and the consequences that I have mentioned will ensue. The only way in which to mend the balance of payments is to increase substantially our exports of manufactured goods. For our goods to become saleable abroad, the value of the pound must be reduced. If nothing is done to overcome the balance of payments problems, it is inevitable that the value of the pound will eventually plummet.
I asked the Minister, in the course of the brief Question Time debate, whether he could envisage a more orderly way of reducing the value of the pound. There are many ways of achieving this which our economic competitors have applied to their own currencies. However, the answer from the Minister implied that he did not recognise the significance of the problem with the balance of payments. I wish to emphasise the severity of that problem and to call for action to address it.
My Lords, this has been a wide-ranging debate and I will start by recalling the words of the noble Lord, Lord Leigh, who is sadly not in his seat, who reminded us in his speech that the country voted for the Conservatives’ economic plan last year—but not quite by the massive mandate of his imagination. More pointedly, the noble Lord, Lord Haskel, said that the Government are still searching for a strategy and are mainly just filling in the gaps. That has been one of the themes of this debate.
I thank my own colleagues: my noble friend Lord Shipley, for the very strong case that he made for remain in respect of the north-east, and my noble friend Lord Lee who, with all his investment experience, warned us of the great dangers of uncertainty for the British economy. Whatever else we must assume from this debate today, I think we would probably all agree that the economy is at a turning point or even on a knife edge. We have had very hard times over the last six years to get the deficit down. We have to ask ourselves: can we sustain the growth in jobs and employment that we have had, and the economic growth, so that the benefits can be shared by those who have experienced the pain of the past six years?
I would say that after 23 June, this country will still have to ask itself four basic questions in respect of the economy. First, can we still close the current government spending deficit while protecting long-term investment in infrastructure? Can productivity, which has recently been flatlining, be improved so that we can close the gap with other G7 nations? Can we reverse the worrying trend of the past three years of recovery, during which the balance of trade, as explained by the noble Lord, Lord Haskel, and the noble Viscount, Lord Hanworth, has actually worsened? There is currently a £100 billion deficit on the current account. We should be more worried about paying our way in the world as well as paying our way at home.
The fourth question is broader than the ones that the debate has tried to encompass so far. Can we counter, through our economic policies, the populism of Trump, Farage and Le Pen? They are feeding on the concerns of working and middle class people, who see their previous certainties and security undermined by globalisation. We are seeing a very slow growth in real income: that has been so over the past 10 years among these groups. The pace of change has been undermining the old skills and making them redundant, and driving people out of well-paid jobs into lower-paying and less secure jobs. There is constant pressure on industry and all other sectors to lower costs and improve efficiency. Home ownership is out of reach of the children of these people unless they downsize and help their children into ownership. There are pressures on public services which people previously took for granted. Pension security is being undermined as well.
On top of globalisation, we are having to deal with digitalisation, robotics, and the transformation of job structures by the application of artificial intelligence to replace layers of routine administrative and support jobs. The insecurity and uncertainty are increased by a growing resentment or outrage in our society at the hollowing-out process whereby it appears that there are a few rich people benefiting from all this while the rest—certainly those at the bottom—have to rely on lower-paying and very flexible jobs. In this very uncertain and insecure world, should we now be baling out from the principal organisation designed to develop and extend our trade within a fair, competitive environment?
It needs explaining to people that this organisation is about developing trade while ensuring that unfair competition does not deplete jobs and that we also retain reasonable working conditions for people in the Union. Of course government, immigrants and distant organisations such as the EU—or London, if you live in Scotland—get all the blame, but that is not a rational analysis. We joined the EU to take advantage of a bigger market in order to raise productivity and growth and to improve competition. So as we look beyond 23 June, whatever happens, let us just return to the principal concerns that we should have: the need to improve productivity; the need for more exports; the need to deal with the deficit and the problem of capital spending; and the impact of digitalisation.
What are we going to do? The Government have been dealing with the steel industry over the last six months, and I hope that they will use that experience. The Secretary of State for Business should give more attention to the industrial strategy initiated by his predecessors. Developing skills, funding research and helping to restructure the development of businesses all require a partnership between business and the state. There is also a vital role within the EU to ensure fair competition.
Our advanced manufacturing sector—whether it is the automotive, aerospace, defence, nuclear or rail sector—requires the development and manufacture of new steels. But here is the rub: development and research can be undertaken more rapidly in this field if we retain our domestic steel production as a partner in the research that needs to be done, alongside end-users, research institutes and universities. Reliance on overseas producers of materials will simply slow the pace of development and risks leading to the offshoring of this whole supply chain. After dealing with pension issues, energy prices and Chinese dumping, using the negotiating power of the EU, we should also as a country set up a materials catapult focusing on technology developments to support future growth in manufacturing.
The second issue is that of supply chains. I do not think that the complexity of supply chains crossing borders is understood in the EU debate. The more we can do to have supplies in this country the better, but, given the complexity of these supply chains and the benefit we get from them, there will be total disruption if we leave the EU. The benefits of sourcing lower supply costs help the competitive position of our exports. It is a little-known fact that in the motor industry, the export of cars has been slower within the EU than in the outside world, which undermines the argument that Europe is holding us back. The export of cars outside the EU between 1998 and 2014 grew from £2.9 billion to £13 billion, against growth inside the EU from £8 billion to £11.9 billion. The complexity of sorting out cross-border sourcing of supply without the EU framework is frightening. We have the opportunity for the UK to source more components here—but, without the EU, all the potential investment will go.
The third area is infrastructure. As we rightly address the current deficit in the public sector, we need to separate out the capital account. Transport, communications and housing are all underinvested in, and a decision on airport capacity will perhaps be symbolic for the business community; the Government will be taking years of underinvestment and stagnant productivity seriously again.
The EU provides a framework to open up trade and ensure fair play. It provides a framework against excessive competition, protects wages and conditions, prevents a driving down of taxation rates and prevents government spending or subsidies going up through unfair competitive practices. It is a framework which still needs reform and better understanding, but, with the issues we need to confront in the next five to 10 years, remain is essential to the current debate over our social and economic progress as one nation.
My Lords, I of course congratulate my noble friend Lord Haskel on securing this debate and on introducing the third of our economic debates in recent times with issues of real moment and substance as far as the future of the UK economy is concerned. Inevitably, in a debate in which a very substantial number of my noble friends and other noble Lords in the House have discussed Europe, I have to make some reference to it. However, I bear in mind that my noble friend Lord Haskel wanted us to focus on other issues in the economy and will therefore dispense with Europe in fairly short order: first, because I expect the Minister to express the predominant views of the Prime Minister, which my own party substantially supports as far as the referendum is concerned; and secondly, because nearly all the opinions expressed in the House today have been clearly in favour of remain. In fact, where is the noble Lord, Lord Pearson, when we need him? We have had no alternative stance, not least because noble Lords participating in this debate know enough about economics to recognise that there is in fact no case for leaving Europe.
I will make the obvious political point as well: no serious major industrial country in Europe is going to give good terms to a country which withdraws from the European Community and then seeks to negotiate reasonable terms. It is not going to happen, and Brexit better take on board the fact that we would face a calamitously difficult negotiating position if the referendum went the wrong way. I am grateful to those noble Lords who articulated that case. The noble Lord, Lord Shipley, identified that only Patrick Minford had put any kind of case forward in economic terms for the Brexit position—and even he recognised that it would be a sacrifice for our manufacturing industry. I am grateful to all my noble friends, including my noble friend Lord McFall, who I had hoped might talk about banking again, because he does it with a luminosity and accuracy that we all value. But I respect the fact that he concentrated on Europe today.
I want to get back to what I think my noble friend Lord Haskel wanted us to cover—the fundamental position of the economy, and some of its obvious weaknesses. I heard the noble Lord, Lord Leigh, put forward a very interesting case on the progress made thus far. I think that he has to concede that we have made the slowest recovery from a recession in modern times, and we are still struggling with the consequences of our slow progress. We will all recall that the Chancellor was meant to hit his deadline in 2015 for the elimination of the deficit. He is now asking for four more years to create a surplus, and is rated by the IFS as having a 50:50 chance of doing so, so the Government’s progress in these terms is pretty limited.
We have crucial issues to face—and I am grateful to the noble Lord, Lord Stoneham, who has just spoken, and to my noble friend Lord Hanworth, who emphasised the unsatisfactory response of the Government to our questions about the balance of payments. I am also grateful to my noble friend Lord Haskel, who after all opened up the debate on some of these issues. We have a critically difficult trade deficit position, and the gap is widening—and it is causing serious economists to identify that our situation is parlous. We need a strategy for improving our response to the gap in our balance of payments, and to tackle the other issue, the disastrous position of productivity. Are we prepared to accept that we are sixth out of the seven top countries for productivity and that a Frenchman produces more in four days than the British counterpart does in five? Germany is, of course, much more successful than that. Do we honestly think that the economy can recover while its productivity levels are so dismal? My noble friend Lord Haskel drew our attention to those difficulties. We have to recognise that our productivity is growing at 0.25% a year, when prior to the crisis in 2008 we were used to productivity growth of 2.5%. Productivity growth is crucial to the nation’s welfare.
The Government are facing a major problem with the issue of the skills agenda and support for our enterprise and industry. Although the Government boast about the number of apprenticeships, they are pretty poor value compared with the apprenticeships of the past with their rigour, training and skilling of the nation. People who go into apprenticeships from graduate level are taking on apprenticeships that basically embrace A-level skills, while those who go in at A-level level are involved in apprenticeships that stretch them about as far as GCSEs. In other words, these are not apprenticeships that are sufficiently rigorous to really skill the nation, and it will not do for the Government just to bandy the general figures; we have to establish criteria for the levels at which apprenticeships operate. That means that, for a very significant section of our population, particularly young people, their chances are blighted by the lower level of skills that they obtain.
Furthermore—and I have said this in the past, although I have never had a response from the Dispatch Box opposite—the construction industry is poised to have enormous demands made on it. At some stage, the Government will get their act together to get an increase in housebuilding and, at some stage, they will translate promises on infrastructure into real commitment of resources—although, as my noble friend said in talking about the north-east, that area is being neglected. Only one in 13 infrastructure projects that the Government envisage is in northern England. So much for the northern powerhouse.
We need recognition from the Government of what my noble friend Lord Haskel established—that we have to increase our levels of productivity and increase the skills of our nation, ensuring that our nation is more competitive in the workplace. Instead we have the overwhelming commitment to austerity, which both the IMF and the OECD have said has been taken so far that it might have been better if the UK had pursued a growth strategy than concentrating solely on the issues of fiscal reform and the improvement in the budget. Why do the Government persist against that evidence? It is because, overwhelmingly, their commitment is not to the advance of the economy but to the realisation of their own political and ideological agenda, and it is costing the country dear.
My Lords, I, too, thank the noble Lord, Lord Haskel, for leading this debate and all noble Lords on all sides who have contributed. This is a complex area, with no easy answers. I am sorry that my noble friend Lord O’Neill could not be here—and I was even sorrier when I heard the contribution from the noble Viscount, Lord Hanworth. My noble friend is in America, working on addressing the threat of antimicrobial resistance, which is a key problem for the future that could kill 10 million people a year by 2050 if we fail to act. I am sure noble Lords will join me in wishing him well in that vital work.
Turning to the discussion today, this Government are continuing to carry out a long-term plan to strengthen the British economy. A long-term and strategic view is what many noble Lords have referred to, and I shall come back to that. The foundation remains the principle that we should not spend more than we can afford. Back in 2009-10, the Government were borrowing around £150 billion a year. That is not only unsustainable but leaves the country increasingly vulnerable to any unforeseen economic shocks. That is why we made a commitment to the British people to bring public finances under control, and we are delivering on that promise. We have brought the deficit down by almost two-thirds and we remain on course for a surplus by the end of this Parliament. The results of our action to foster long-term growth in our economy are also clear to see, as ably outlined by my noble friend Lord Leigh. Since 2010, we have been the second fastest growing economy in the G7, and in some years the fastest. Last year, our GDP was up by 2.3%, and we have seen over 2 million extra people in work since 2010. However, although our economy is now in fundamentally better shape, there is still more to do.
I shall respond to some of the issues raised in the debate and highlight some of the key steps the Government are taking in a minute, but I feel that I really have to address the EU, to which many if not most noble Lords have referred. As they noted, this is the key decision which will affect our economy in the short and medium-term future. The noble Lord, Lord McFall, mentioned, among other things, the harmful effect to the UK’s economy and science base. The “rant” by the noble Baroness, Lady Armstrong, as she called it, was not a rant but was very persuasive. She talked about the impact of leaving the EU on the north-east of England, as did the noble Lord, Lord Shipley. She noted that the chairman of Hitachi said that he would prefer to remain in the EU and that the EU was helping to secure the region’s future. I could go on.
The noble Lord, Lord Shipley, also referred to the benefits. We agree that remaining in the EU is the best decision for all the regions and nations of the United Kingdom. The noble Lord, Lord Lee of Trafford, made a persuasive contribution on the importance of the EU, and included the interesting fact that he shares a tailor with my noble friend Lord Leigh of Hurley, but perhaps, by the look of it, not the same shirt maker. The noble Viscount, Lord Chandos, also focused on the benefits of the EU.
I think it is important that I make the Government’s position clear and outline the benefits in a way that is, I hope, positive and does not contain any wild and dramatic facts that people can disagree with. We are clear that we will be stronger, safer and better off in a reformed Europe than out on our own. We will be better off because, as the noble Lord, Lord Haskel, and many other noble Lords reminded us, British businesses will have full access to the European free trade area of 500 million people, bringing jobs, investment, lower prices and financial security. Since we joined the EU in 1973, living standards in the UK have risen more than in the US, Canada and Australia, as well as in other EU members such as France, Germany and Italy. We will be safer because we can work closely with other countries to fight cross-border crime and terrorism, giving us strength in numbers in a dangerous world, and we will be stronger because we can play a leading role in one of the world’s largest organisations from within, helping make the big decisions that affect our future. The noble Lord, Lord Haskel, reminded us that we have the presidency of the EU in 2017.
We also have a duty to point out the downside risks of leaving the EU. I do not regard this as Project Fear. I agree with my noble friend Lord Patten of Barnes that it is Project Sanity, Project Reason and Project Real World. As noble Lords are aware, on 18 April, the Treasury published analysis looking at the long-term economic impact and I think noble Lords know the results of the central scenario. Some people have derided this work, but the assumptions are clear and open and it is a genuine attempt to estimate the effects of Brexit. I do not see any comparable document from the other side. All the alternatives to membership that have significant access to the single market would require the UK to implement its rules, but the UK would no longer have a vote on those rules. No country has been able to negotiate a better deal than the alternatives considered in this analysis, and it would not be in the EU’s interest to agree such a deal for the UK. What incentive would there be for it when it exports only 7% of its goods to us, whereas we export 50% of our goods to Europe?
The Treasury has also considered the short-term impact of a vote to leave the EU. Analysis published on 23 May came to a clear central conclusion: a vote to leave would represent an immediate and profound shock to our economy. Who is most affected by shocks to the economy? It is the worst off, the low paid, those with no savings, those looking for work and the young. Leaving means risk at a time of uncertainty. It is a leap in the dark.
The noble Lord, Lord Haskel, is right that despite the crucial importance of the vote on 23 June, we must also concentrate on the future and look to improve the working of the EU. In respect of the UK, the noble Lord asked why we are not listening to the IMF and the OECD and why we are not investing. Our long-term security hinges on the fact that we are significantly reducing our debt-to-GDP ratio. With a recession every eight to nine years over the past 60 years, responsible fiscal policy should allow room for these risks. We have prioritised investment over day-to-day spending, funding key infrastructure while delivering an overall budget surplus by 2019-20, all the while exceeding our commitment to invest £100 billion by 2020.
The noble Lords, Lord Davies and Lord Haskel, and other noble Lords talked about productivity. I accept that productivity growth is a long-term problem. UK productivity has lagged behind other major advanced economies for decades; this is not a recent problem. For example, in 1990, UK productivity was 29 percentage points behind the US. In 2014, 24 years later, UK productivity was at a similar level behind the US— 30 percentage points. This is a long-term problem that the Government have identified, and we set out measures to address this issue in the productivity plan last year and the Budget this year. Sustaining productivity growth is not a problem which is limited to the UK. Since the financial crisis, all developed countries have experienced sluggish productivity growth. There are even problems in the US: in Q4 2015, productivity growth fell there. That is the problem. It is a general problem internationally, so what are we doing about it? We are investing in infrastructure, we are increasing public investment, which I will come to in a minute, we have the northern powerhouse and the midlands engine for growth, and we are investing in education and apprenticeships. I shall not go into those in detail because of time, but that is what we are doing.
The noble Lord, Lord Davies, also mentioned austerity. We set out our long-term plan to repair public finances. Let us not forget that the deficit inherited in 2009-10 was 10.3% of GDP, its highest level since the post-war period. The Government were borrowing £1 in every £4 they spent. Significant progress has been made since 2010 to put the public finances on a more sustainable footing. The deficit as a share of GDP has been cut by almost two-thirds from its post-war peak, reaching 4% of GDP by the end of 2015-16. The noble Lord, Lord Stoneham, asked whether we can meet the fiscal surplus while still investing at the rate we are. We made significant progress over the past Parliament to fix the public finances, but deficit reduction needs to continue to finish repairing them. While we are reducing the deficit at a rate of 1.1% of GDP, we are still investing in key infrastructure, exceeding our previous commitment to invest £100 billion by 2020. The consolidation of day-to-day spending has been deemed appropriate by the IMF and, paired with investment in key infrastructure, will lead to a budget surplus by 2020.
I shall talk a bit more about public investment and its long-term nature. As we are taking the necessary steps to put the public finances in order, we are able to make the long-term investment which we all agree we need to build a more prosperous and productive nation. The spending review laid out the Government’s key investment priorities including education and skills, science and crucial areas of economic infrastructure such as the transport network. Taken together, those plans mean that average public investment as a share of GDP is higher over this decade than under the whole period of the previous Labour Government. They include doubling the housing budget; investing £61 billion in the transport system, £20 billion more than in the previous Parliament, including the biggest investment in the nation’s roads since the 1970s; and providing nearly £7 billion in science capital funding to ensure that British science remains at the cutting edge. All in all, the Government are on track to comfortably exceed our commitment to invest £100 billion in infrastructure over the Parliament. In fact, we will invest £120 billion.
The Budget in March reiterated the Government’s commitment to well-calibrated long-term investment, with new funding in key areas like motorways and flood defences. We have brought forward £1.5 billion of public investment that was planned for later years, to ensure that the public benefit sooner. We gave the green light to Crossrail 2 and High Speed 3 between Leeds and Manchester. We are taking steps to ensure that every pound of investment is targeted to provide maximum returns for the public. That is why we are setting up the National Infrastructure Commission to determine infrastructure priorities and—crucially, as the noble Lord, Lord Davies, mentioned—hold the Government to account for delivery so that it is not just, as he said, a case of vague plans with no delivery attached.
My noble friend Lord Polak asked whether I could confirm that the Government will continue to support young entrepreneurs. Of course we will. That is why we want to invest in education, skills and apprenticeships, which will help small and medium-sized enterprises and entrepreneurs. My noble friend Lord Leigh mentioned other measures to support young entrepreneurs, such as reducing capital gains tax, which are crucial for the development of jobs and the economy.
In moving this debate, the noble Lord, Lord Haskel, asked what the single market will look like when we remain. He said that we need one rule across the digital single market in particular. The Prime Minister’s renegotiations, which come into effect only following the vote to remain on 23 June, mean a much more ambitious agenda of economic reform in the EU. That will include the next stage of development of the single market over the next 15 years. These reforms are centred on four priorities: the single market for services, the digital single market, the single energy market and external trade agreements. Further action will be taken to reduce —in the digital market in particular—barriers in cloud computing, payments and postal and parcel deliveries.
My noble friend Lord Suri and the noble Baroness, Lady Armstrong, asked about infrastructure investment and building a more productive economy. I have talked about infrastructure. We think that by prioritising vital capital investment, we have provided long-term funding certainty for key areas where infrastructure is publicly funded. As I mentioned, the £100 billion for infrastructure, which will move up to £120 billion, will include £60 billion for transport up to 2020-21. That is the biggest investment in transport infrastructure in generations, increasing spending by 50% to £61 billion this Parliament. We are committed to building the high-quality infrastructure needed to build and sustain a more productive economy.
I am afraid that in the interests of time I am going to try to duck out of the spat, if you like, between my noble friend Lord O’Neill of Gatley and the noble Viscount, Lord Hanworth, on the complexities of the balance of payments and the balance of trade, mainly because all the answers I would give are exactly what my noble friend would have given. I will draw the matter to his attention, though, and I think that the two economists can deal with this better than we all can today. That may be the coward’s way out but I think it is more productive.
In conclusion, we are making strong progress towards fixing our economy, as my noble friend Lord Leigh has outlined so clearly, and I thank him for his supportive remarks. We have more jobs, rising wages, steady growth and an economy on course for a surplus. Because of that, we can spend more on our hospitals, schools, defence and security, infrastructure and skills. We are creating a lower-tax, lower-welfare and higher-wage economy, with 1.3 million taxpayers taken out of income tax in 2010 and over 1 million workers due to benefit from the national living wage. We must continue along this path to deliver the sensible reforms that we need to live within our means and make our economy fit for the future. We will be relentless in our efforts to create the conditions for growth, whether that is supporting businesses, investing in infrastructure or putting money back into the pockets of working people. We will rebalance our economy to ensure that opportunities are spread across the UK. This is an economic plan for the long term that will lay the foundations for a strong, stable and sustainable economy.
I thank all noble Lords for participating in this debate, which I have found fascinating. It is interesting that most of us agreed on the benefits of remaining within the single market. People spoke of the benefits to shop prices and the cost of living; the benefits to science and to the north-east and how important that is; the benefits to our national and economic security; and its importance to financial and capital markets, and to the hospitality industry. Several noble Lords spoke about the turbulence that the referendum is causing and how that could have been avoided, and questioned whether the whole thing was really necessary anyway.
My noble friend Lord Chandos spoke about the obligations of the single market as well as its benefits, and he is quite right. A number of other noble Lords raised other issues. I agree with the noble Lord, Lord Leigh, about small companies. I myself built up a business and know exactly what he is talking about, although I do not agree with his views about small businesses and the single market.
I found the views of the noble Lord, Lord Polak, about Raspberry Pi very interesting. He and the noble Lord, Lord Stoneham, raised the whole question of the importance of technology and technological entrepreneurs, and I agree with them entirely. Have there really been 8 million Raspberry Pis? I am amazed at the number; I thought there were about 2 million or 3 million. I know that the BBC gives out a similar device; in fact, my grandchildren set theirs going using their smartphones.
I thank my noble friend Lord Hanworth for raising the effect of our continually not paying our way, and the uncertainties of the pound for our deficit. He is quite right. The noble Lord, Lord Stoneham, also told us about the importance of paying our way, and I agree with him. I thank my noble friend Lord Davies for his kind words. He is right to raise the whole question of productivity and how it affects us all, particularly our standard of living.
The Minister spoke about cutting the deficit and what our bookkeeping targets were, but we are still waiting for them to be achieved. Of course he did not tell us about the cost of all that—the social cost, the cost in inequality and the cost of lost investment at a time when the Government could invest at virtually zero cost. The other point to which I am not sure the Minister really responded was how much it all depends on inward investment. There is of course a great cost to that. The noble Lord, Lord Leigh, said that we ought to invest our money in other countries where we get a better return. I am not sure that that is the only consideration and that we are wise now to depend so much on inward investment. There is a democratic risk there.
Several things have not been mentioned, such as climate change and other risks. Of course, the overuse of antibiotics is a risk to us all. The noble Lord, Lord O’Neill, is doing work on that and I am glad that he is getting on with it.
My time is up, so I thank all noble Lords for speaking. I am most grateful to everybody for their contributions.