My Lords, we have worked hard to build a stronger, fairer economy, dealing with the deficit, helping people into work and cutting taxes for individuals, families and businesses. We have created the £37 billion national productivity investment fund and have provided £600 billion in capital investment, including in infrastructure and skills. On sterling, it is important to note that the UK does not have an exchange rate target. The price of sterling is set by the market.
Minister, how can we believe your words about growing the economy when last week the Bank of England told us that the Government’s recent actions—yes, actions not words—had reduced the level of UK productivity by 2% to 5% and caused many British companies to significantly cut investments plans? With the decline in the value of sterling, there has been a sharp drop in factory output. What will the Government do to put this right?
My Lords, the noble Lord mentioned a number of issues, one of which was factory output. I remind him that manufacturing now accounts for almost half of total UK exports—49% in 2017, with a value of just over £300 million. The manufacturing sector has seen productivity increase over three times faster than the UK economy as a whole over the past 10 years. I cannot add anything more relating to sterling but I reiterate that we have provided over half a trillion pounds in capital investment. We are cutting taxes to support business investment, we have improved access to finance through the British Business Bank, and we have improved skills through investment in apprenticeships and the introduction of T-levels.
My Lords, here is another statistic: the ONS says that productivity fell 0.6% between April and June. Over the summer Andy Haldane, who is not only the chief economist of the Bank of England but the chair of the Government’s Industrial Strategy Council, gave an important speech on the UK’s productivity problem. Its subtitle was “Hub No Spokes”. If the Minister had been here I would have asked him if he had read the speech; perhaps his stand-in can pass that question on. More importantly, having read that speech, what are the Government going to do to redress the balance and respond to the important points that Haldane makes?
No, my Lords, I have not read Mr Haldane’s speech, but I will pass it on to my colleagues in the department. However, there is something that the noble Lord should acknowledge regarding the ONS statistics on productivity: he will be aware that the Bean review reported in March 2016, that the Government supported its recommendations, and that the ONS has so far made good progress in acting on them, to ensure that we have proper productivity figures available for our examination.
My Lords, does my noble friend agree that in the digital age and in a predominantly service economy, as the UK is, it is increasingly hard to measure accurately the notion of productivity? Does he therefore agree that all these discussions and comments need to be treated with great caution and balance?
My noble friend is quite right, as always. He mentioned the digital age that we are in, and of course noble Lords will remember that we have the £400 million digital infrastructure fund, which is unlocking £1 billion for full-fibre broadband to connect more homes so that they can act upon this digital age.
My Lords, does the noble Earl appreciate that his answer to my noble friend clashes with reality? With the pound at a low level you would expect our manufacturers and exporters to be making considerable progress, but informed opinion—as opposed to that from the Government Front Bench—in the manufacturing industry says that investment in that industry is at its lowest level since the slump and great crisis of 2008. How do his previous answers square with the brutal facts?
My Lords, the noble Lord will be perfectly well aware that our economy has changed over the years. As I said earlier, the manufacturing sector has seen productivity increase by over three times faster than the UK economy as a whole over the past 10 years. As noble Lords will be aware, what is becoming more and more important is the service economy, our advances in the digital age and the technology that we are producing. That is what is really important and it is how the economy will grow further.
My Lords, does the Minister agree that productivity, as measured by output per hour, is largely inappropriate for huge chunks of the British economy, particularly services? More importantly, productivity is affected by employment. In a period of full employment, productivity is bound to go down as the least productive people are employed. That has happened because this Government have a higher rate of employment, whereas Labour Governments have always left office with a higher rate of unemployment than when they came into power.
My Lords, my noble friend makes a good point. He talked about the link between productivity and employment, which throws up different statistics. That is why it is so important that the review of the ONS comes forward with a more accurate way to measure productivity.
Can the Minister, or his department, justify the statement he has made twice that manufacturing productivity is rising three times faster than in the economy as a whole? Can he place a copy of the calculations on which that statement is based in the Library, so that we can all see whether it is fact or fiction?
My Lords, are the Government aware of the extent to which increased regulation is causing a fall in productivity, particularly in the financial services sector? The numbers of people working in regulation are not producing anything positive and the effect is estimated to be as much as 10% over the last decade.
My Lords, my noble friend makes some interesting points. He will be fully aware of how the labour market is responding to the policies of Her Majesty’s Government, with 3.8 million more in work, youth unemployment falling by 46% and over 1 million fewer workless households since 2010.
My Lords, will the Minister acknowledge that, although there has been a productivity challenge in this country, the top 10% of our companies are world class, with world-class productivity? The challenge is to invest more in education, R&D and innovation. What is the progress in the industrial strategy towards increasing R&D and innovation expenditure from around 1% of GDP to 2.8%, as in the United States and Germany, let alone Israel’s rate of 4%?
As noble Lords are aware, the whole point of the industrial strategy is to boost productivity and the earning power of people throughout the UK, as well as encouraging investment in the technologies of the future. The centrepiece of our approach is increased public investment in infrastructure and R&D through the national productivity investment fund. We have increased its total size to £37 billion, but the noble Lord makes a good point.
Can the Minister confirm that he understands that the current Brexit crisis is having, and will continue to have, a profound effect on investment in this country? This will not end quickly, deal or no deal, because the problem continues. That is what we need to address if we are to take investment seriously in the future.
My Lords, the noble Lord makes an important point as we move towards 31 October. We recognise that there has been some exchange rate volatility. This is not unusual as we move to our new relationship with the EU. It is important to remember that the UK’s macroeconomic framework is based on an inflation target, not an exchange rate target. It is for the independent Monetary Policy Committee to set monetary policy to meet that target.