17 Jun 2015 : Column 382
Simon Hoare: Clearly, the hon. Gentleman is not a barrister. One should never ask a question to which one does not know the answer: last Thursday in the Lobby.
Chris Leslie: I am delighted to hear it. I only wish that the Chancellor would come and talk to the rest of us about productivity.
Madam Deputy Speaker (Mrs Eleanor Laing): Order. For the record and for the avoidance of doubt, it is not normal practice, although I will forgive the hon. Member for Nottingham East (Chris Leslie) on this one occasion, for the performer at the Dispatch Box to ask questions of the other side’s Back Benchers. In case anyone who is new to the House thinks that this is how we do things, I should say that it is not. However, on this occasion, I will allow some leniency.
Chris Leslie: Thank you for that sage advice, Madam Deputy Speaker. I suspect that the Chancellor will be forced to address the question of productivity in the forthcoming emergency Budget on 8 July. Let us dwell for a moment on why productivity matters.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op): I think that my hon. Friend is being a little unfair on the Chancellor. I have asked the Chancellor several times about productivity and he has no answers. That is the truth of the matter. Time and time again, the Opposition have asked the question and he does not know the answer, because productivity is flatlining.
Chris Leslie: That is why I think it is so appalling that the Chancellor could not be bothered to mention it in the Budget speech in March. It should be at the top of the agenda of all Treasury teams and all Departments—
Mark Garnier (Wyre Forest) (Con) rose—
Chris Leslie: I will give way in a moment to the hon. Gentleman, who will, I know, have plenty to contribute on the subject.
Our economic prosperity depends on maximising the output from the efforts of working people and the resources available to business. The amount of output per hour worked is a useful way for us to measure whether our economy is advancing and adding value, or whether we are just treading water. Creating a more productive economy means creating a virtuous circle of higher growth, higher living standards and, as a consequence, more effective deficit reduction. When working people can produce more and they have the tools and the skills to create output more efficiently, employers can afford to pay them more, tax revenues become more buoyant and our GDP can grow in a more sustainable way.
Andrew Gwynne (Denton and Reddish) (Lab): rose—
Chris Leslie: I will give way to my hon. Friend after I have given way to the hon. Member for Wyre Forest (Mark Garnier).
Mark Garnier: The shadow Chancellor is absolutely right: productivity is incredibly important. The Treasury Committee and The Economist have been banging on ad nauseam about it, certainly during my five years as a Member of Parliament. Why has he picked up on it only in the past six months?
17 Jun 2015 : Column 383
Chris Leslie: I will send the hon. Gentleman the anthology of Chris Leslie’s speeches, because I am sure that he will be keen to find out every occasion—in 2013, 2014 and 2015—on which I have talked about productivity. I have been talking about it for a very long time. We must not think of it as simply a parliamentary issue. The CBI has emphasised the importance of higher productivity as the only way to secure long-term and sustainable wage growth. In the words of the Governor of the Bank of England,
“productivity growth—doing more with less—is the key determinant of income growth. Our shared prosperity depends on it.”
As Paul Krugman famously put it:
“Productivity isn’t everything, but in the long run it is almost everything.”
We need a cross-party approach to the challenge.
Andrew Gwynne: The Chancellor is always very keen to make economic comparisons between the United Kingdom economy and G7 counterparts, but UK output per hour is 17% below the G7 average and a huge 31% below the USA average. Is not that the root cause of this problem?
Chris Leslie: We can see that the problem is particularly stark when we make those international comparisons. Our productivity growth rate has plummeted to the second worst in the G7. The UK was ranked 29th out of 36 OECD countries for GDP growth between 2010 and 2014. My hon. Friend makes an important point.
Andrew Bridgen (North West Leicestershire) (Con) rose—
Mr Jim Cunningham (Coventry South) (Lab): Will my hon. Friend give way?
Chris Leslie: I give way to my hon. Friend.
Mr Cunningham: Surely we can take the argument further when we talk about productivity. This is not a new debate—it has been going on for very many years. We do not necessarily have to look at hourly productivity; we have to give the individual who produces things the equipment and research to do the job. That is how we increase productivity, when we break it all down.
Chris Leslie: As my hon. Friend says, it is incredibly important to invest in new production process technologies and make sure that we have the necessary machinery and capital equipment. I will turn to business investment and how we can incentivise it. We have to make sure that the Chancellor addresses those challenges. He has his emergency Budget and his own political priorities that he wants to put first, but this, ultimately, is the key.
John Redwood (Wokingham) (Con) rose—
Chris Leslie: The hon. Member for North West Leicestershire (Andrew Bridgen) was on his feet first, and I would not want to pick the right hon. Gentleman before him.
Andrew Bridgen: The shadow Chancellor talks about productivity and the need to invest in plant and machinery, and the need for cross-Chamber support, to improve our productivity. Does he therefore support the Conservative Government’s maintenance or increase of capital allowances for businesses, giving them a clear incentive to invest in their businesses?
17 Jun 2015 : Column 384
Chris Leslie: Labour Members have consistently supported proper and sustained capital allowances for business investment. One of the errors in the previous Parliament was that the Chancellor reduced them so rapidly before he then saw the error of his ways and returned them to the level at which they are now. That chopping-and-changing, stop-start approach is anathema to good, proper, long-term business planning.
We would not know it from the Chancellor’s complacency, but UK economic productivity is stuck in the slow lane. According to the Office for National Statistics, the stagnation of productivity growth is “unprecedented” in post-war Britain. Earlier this month, the OECD said that weak labour productivity remains a problem and that
“the sustainability of economic expansion and further progress in living standards rest on boosting productivity growth”.
The Bank of England has emphasised the “extremely and uncharacteristically weak” growth in UK productivity and said that there is still
“great uncertainty about how productivity might evolve”
and how that could affect the economy.
Cat Smith (Lancaster and Fleetwood) (Lab): Why does my hon. Friend think that productivity has been so stagnant for the past three years in particular?
Chris Leslie: The evidence is very clear that we have had persistently poor productivity in recent years. I will talk about the impact of Government investment on infrastructure and tackling the skills challenge that we need to address. The issue has been very much kicked into the long grass in recent years, and that is not good enough.
Michael Fabricant (Lichfield) (Con): I commend the hon. Gentleman for introducing this debate on an important subject. Does he accept that in certain areas and segments, such as car manufacturing, UK productivity is high? At Nissan, for example, productivity is as high as at any car manufacturer in Europe. Will he applaud the Government’s proposals to create 3 million apprentices? Nissan and other manufacturers accept that it is through the apprenticeship schemes that productivity will be raised.
Chris Leslie: It is important to recognise that productivity problems are not the same across every single sector. Some sectors are managing to break through and making a difference, perhaps relative to other sectors in other parts of the world. It is important that we focus on apprenticeships and skills, but the quality of those apprenticeships is key as well. I will say more about skills, on which we have just had an Opposition day debate.
Robert Flello (Stoke-on-Trent South) (Lab): Some apprenticeships are undoubtedly very good, but I am aware of some in north Staffordshire and the wider area that are little more than “YTS rebranded”—people come in, work for a period almost as exploited slave labour, are then kicked out, and the next batch of apprentices are brought in. There are some very good apprenticeships, but some are frankly scandalous.
Chris Leslie:
I agree that we need far better scrutiny of the nature of apprenticeships and of skills and training. We sometimes have a blanket approach that all schemes or tax incentives are the same and—this is the
17 Jun 2015 : Column 385
classic Whitehall problem—leave them without going into the detail of how they add value and of how quality fits in. I would advocate a better look at the quality of such investments.
Chris Leslie: I ought to give way to the right hon. Gentleman.
John Redwood: This is a very important debate, and we can learn together about how we can do better. During the 13 years of the Labour Government, there was practically no productivity gain whatever throughout the whole public service. Why was that, and what can we learn from it?
Chris Leslie: Normally, I have a lot of respect for the right hon. Gentleman, but I am afraid his facts on that are wrong. Under the previous Labour Government, we had a period of sustained productivity growth. [Hon. Members: “Public sector!”] Did I hear something, Madam Deputy Speaker? When it comes to private sector productivity, we had a sustained period of growth. We can talk about public sector productivity, but I am focusing on the wider economic, private sector productivity, which is ultimately the way in which we create wealth and prosperity in this country.
I am very proud of what the previous Labour Government did. Between 1997 and the period just before the global financial crisis, productivity grew by an average of 2.2%. In fact, it reached 4.2% in 2003. At the time, the UK’s productivity was second only to that of the United States. The CBI has emphasised that improvements in labour productivity accounted for almost three quarters of UK economic growth during that decade. Over that period, real wages rose faster in the UK than in other advanced economies, and rising productivity and GDP growth meant that the previous Labour Government were able to take significant steps in tackling poverty and improving public services. That was not by accident, but by design.
We achieved sustainable growth in productivity because of relentless efforts to focus on competition, innovation, investment, skills and enterprise, including a 10-year framework for science and innovation, incentives for investment in business research and development, the expansion of higher education and adult and vocational training. That was the record of the previous Labour Government.
Sammy Wilson (East Antrim) (DUP): Does the hon. Gentleman accept that employers also have a big role to play? The appetite for low-paid, unskilled employees has added to the problem. Employers must value workers much more, invest in them and be prepared to pay them wages that mean it is worth while investing in them.
Chris Leslie: There is indeed a problem in the shift away from the added-value, higher-skilled economy that we must have to maintain our place in, and indeed win, that famous global race. If we think that we can do it simply by chasing lower-wage, lower-skilled markets, we will never ultimately succeed relative to other countries.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP) rose—
17 Jun 2015 : Column 386
Chris Leslie: I will make a little progress, if I may, and then give way.
The Office for Budget Responsibility’s recent forecasts have lamented the persistent weakness of our recent productivity. According to the OBR, if our productivity per worker was closer to 4%, our national debt would be £350 billion lower by the end of this Parliament. Those are big numbers, but that is £5,000 less debt for each person in this country. The productivity issue is therefore absolutely crucial, and it is linked to the health of our public finances. Translated into potential GDP, it would mean growth of 3.7% by 2019-20, which is the sort of growth that we need in this country. The OBR is right to warn that improvements in growth and living standards very much depend on our productivity performance and to say that it is the most important and uncertain part of its economic forecasts.
Quite simply, if sustainable productivity growth fails to materialise, the Chancellor will just continue to miss his deficit reduction targets, however hard he may try to distract us with his dreams about permanent surpluses. Although productivity traditionally drops off during a recession, seven years after the global banking crisis our productivity is still 1.7% below the pre-crisis peak, and a whopping 16% below the level implied by the pre-crisis trend. Last year, productivity growth was just 0.2%; in 2013, it was negative, at minus 0.3%; and in 2012, minus 1.2%. That is just not good enough.
Chris Philp (Croydon South) (Con): The figure that the hon. Gentleman has not mentioned is, of course, the productivity figure for 2009—the last year in which Labour was in government—and in that year it dropped by a staggering 2.6%, the highest for the last 25 years.
Chris Leslie: This might be a shock to the hon. Gentleman, and I am not sure where he was at the time, but there was a global banking crisis—[Interruption.] I know it is a shock to Conservative Members, because in their script it has been expunged from the record, as if it never happened.
Mr MacNeil: The hon. Gentleman is making a very good speech. Does he agree that the culture of long working hours can often be the enemy of productivity? The textbook example is Volkswagen 10 or 20 years ago: when the working week was cut from 35 to 28 hours, productivity went up. When workers feel that they do not have all day to do the job, they get on with that job and productivity rises.
Chris Leslie: I think there is a case to be made for ensuring that we focus on the morale of those in employment. There is an optimal point from which morale can dip and fall. We have to focus on what creates the optimal circumstances for those in work to produce the amounts that our economy needs. That is all part of this complicated picture.
When we have managed to get the Chancellor to talk about productivity in the past, he has referred to a “productivity puzzle”. If we are looking for clues to the solution to that puzzle, looking more closely at the nature of our economic recovery is important. It still feels a bit stressed, quite fraught and fragile. Reflecting on that is part of the solution.
17 Jun 2015 : Column 387
On skills, just a few weeks ago, the Office for National Statistics published its analysis showing that the share of high-skilled jobs in the economy is falling relative to the share of low-skilled work, which is of course taking its place. The Bank of England’s last inflation report stated that since mid-2013 employment growth had been more concentrated in lower-skilled occupations, concluding that this shift in the composition of the labour force could have dragged down aggregate productivity growth over the past two years.
That is not something that we should simply accept. I do not believe that we are just at the mercy of events and unable to influence our economic productivity. On this side, we believe that it does not have to be that way. History shows that Britain can do better. By contrast with the traditional Conservative approach, which is to step back and hope that productivity magically springs from the market out of thin air, we take a very different view. We believe that decent infrastructure and decent public services can support business growth. Motorways that flow freely and trains that commuters can get on; tax offices that answer business queries efficiently rather than keeping their company staff always on hold; swift treatment of sick employees in a decent NHS: all that is part of the productivity story, as is an education system that supports a workforce with high-quality skills. So many aspects of our public services are crucial for our future economic productivity. Each of those depends on the Chancellor making the right fiscal choices for this Parliament. This should have been at the top of the Chancellor’s agenda throughout the last Parliament; for him not even to mention it in the last Budget speech was a grievous error.
Kevin Hollinrake (Thirsk and Malton) (Con): It is important to look at the facts. The hon. Gentleman quoted the ONS. Does he agree that when the ONS talked about oil and the financial service industries, it said:
“Together, these two industry groupings account for the majority of the fall in productivity since Q1 2008.”?
Chris Leslie: As I said earlier, different sectors face different productivity challenges. Ultimately, if we think that this is just a problem in one or two sectors, we would be wrong. We need to address this forensically and make sure that we look from sector to sector to assess the problem in a mature, evidence-led way. That is what we need to do.
I am aware that many Members want to join the debate because they believe that productivity is an important topic. I respect them for that, but it is important not to let this issue pass without seeing the connection between productivity and the health of our public finances. We still have a £75 billion deficit in this country and I would like the new Chief Secretary to at least acknowledge in his response to the debate the truth that stronger productivity is crucial for repairing the public finances.
We need sensible savings across non-protected Departments to reduce levels of public expenditure, but if the Chancellor makes the wrong fiscal choices in the forthcoming emergency Budget he could make the situation far worse. There is a hard-headed business case for protecting and prioritising those services that enhance investment, skills and innovation. That is the responsible fiscal approach the Chancellor should take. Productivity
17 Jun 2015 : Column 388
should not be adversely affected by his fiscal choices and that is the point that I hope the Chancellor will understand. Whether he does and whether he can see through his political ambitions to the economic consequence of the decisions he takes are the important issues.
I have written to Robert Chote, the director of the Office for Budget Responsibility, to see whether we can make some progress, working across parties, to try to get a better evidence-led approach to the impact of the choices the Chancellor faces on productivity and on levels of public investment. I think that an OBR review would acknowledge the centrality of the productivity challenge and would help to make the right choices for the country. It would be better to have that evidence-led understanding of the consequences of alternative fiscal choices.
David Mowat (Warrington South) (Con): When my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) intervened and mentioned the oil industry, which has become significantly less material to the national accounts and is massively productive in value-added for numbers of people, the shadow Chancellor did not answer the question properly. One of the productivity challenges is the significant relative demise of the oil industry, and the hon. Gentleman should not use words such as “forensic” without recognising that.
Chris Leslie: As one industry declines, others will have to fill the gap. It is also important to recognise that multiple aspects of energy activity and energy markets are coming on stream and we need to ensure that we develop them and exploit new opportunities for our country, for energy security and for our future economic prosperity.
Robert Flello: My hon. Friend is being extremely generous with his time. I was hoping that he might touch on the question of workers on zero-hours contracts. They have seen their salaries driven down to minimum wage levels, they might have to supply their own uniform, and, if they are an agency worker, they might not know from one day to the next what they will be doing and where they will be doing it. Is it any wonder that their productivity is depressed?
Chris Leslie: That is a crucial point. A far healthier environment is one in which the workforce feel valued and that they have a stake in the output, not just in their wages but as partners in the company or in the firm. Those are the sorts of discussions we must have about the economy we want for the long term.
The Chancellor faces a fork in the road, and this is very relevant as the emergency Budget on 8 July approaches. Will he take an ideological approach to public services and public investment or will he join a consensus that productivity, growth and living standards should be at the heart of those Budget choices? We are now hearing some practical options that are open to the Chancellor if he is serious about boosting productivity.
We need further reform of incentives to encourage research and development, support scientific discovery and underpin long-term financial backing for projects that do not necessarily always yield near-term returns. We need to break the politicking about infrastructure and flush through the pipeline of stalled projects. Ministers
17 Jun 2015 : Column 389
should feel free to steal the idea of a more independent and evidence-led approach to infrastructure prioritisation as advocated so eloquently by Sir John Armitt in his report for us before the election. We need to sweat the authorisations already voted for by Parliament to underwrite infrastructure development with Government-backed guarantees, which are so woefully underutilised at present. We need skills and training to flourish and not fall victim to short-term and ill-thought-through budget decisions driven by a political timetable. We need serious action on housing supply to help working people with the choices they face in work and to support new employment opportunities as they arise; and we need clarity that local enterprise partnerships will get the immediate devolved powers required to unlock local growth—not political delays because the Chancellor takes exception to a particular form of local governance arrangement.
We need an early decision in response to the Davies commission report on airport capacity. It is due imminently, but Ministers are already starting to kick it into the long grass. Apparently they are only going to address this vital question at the end of this year at the earliest. We also need real announcements, in short order, on specific rail interconnectivity between towns and cities. Those are some of the priorities that deserve urgent attention at the top of Government.
Will the Chief Secretary shed some light on the thinking of his great and glorious leader, the First Secretary of State, or will we have to wait for this agenda to fit into a Downing Street soundbite before it gets any attention? I genuinely wish the Chief Secretary luck in gaining favour with the Prime Minister-in-waiting, because right now we have a Chancellor distracted by his political ambitions who cannot even be bothered to debate productivity, let alone remember to mention it in his Budget speech. Britain cannot afford this issue being neglected any longer, and we will keep reminding the Chancellor—when he is here—of his responsibilities until real action is taken.
4.41 pm
The Chief Secretary to the Treasury (Greg Hands): I am delighted to respond to this debate on productivity, because it is absolutely central to our long-term plan to fix the economy. My ministerial colleagues at the Treasury have been candid about the scale of the productivity challenge, so in some ways I agree with a great deal of what the hon. Member for Nottingham East (Chris Leslie) has said, but this is a challenge that the UK has faced for decades, not “several years” as the motion suggests.
We have been very clear that increasing productivity is a key challenge in this Parliament for this Government: it will be a key focus of ours over the next five years. Indeed, the Chancellor noted as early as August 2010—very early on in the last Government—that our relatively low productivity was a drag to economic recovery, when he spoke at Bloomberg about the economy of the future.
The hon. Gentleman has said that productivity was not mentioned in the Budget, but I refer him to page 1—the very first page—of the Budget document.
17 Jun 2015 : Column 390
Greg Hands: No, first of all I am going to tell the hon. Gentleman what it says:
“The deficit remains too high and productivity too low, there are still long-standing structural weaknesses in the economy, and the gap between the economic performance of London and the rest of the UK remains too wide.”
Chris Leslie: The key thing is the difference between the Budget document and the Budget speech. The Budget speech was more than an hour long, so why did the Chancellor not mention that very paragraph?
Greg Hands: Surely the most important thing is the delivery of the Budget, not just the speech. The delivery of the Budget was all about things such as digital communications infrastructure, housing, science, innovation, freezing fuel duty, doing something for the oil and gas regime, the sharing economy and backing business by launching a comprehensive review of business rates. The most important thing in government is what is delivered.
The Chancellor announced four weeks ago—way before the hon. Gentleman tabled a motion or wrote an article—that we will publish a productivity plan: a plan to make Britain work better. I will remind the hon. Gentleman of that speech, because he was there with various Labour leadership contenders, minus the hon. Member for Islington North (Jeremy Corbyn). Curiously, he seemed to have been missed off the CBI invitation list, but he may be up for an invitation in the future. The Chancellor said:
“Let me be clear”—
perhaps he was not clear enough for the hon. Member for Nottingham East—
“improving the productivity of our country is the route to raising standards of living for everyone in this country.”
I am sure the shadow Chancellor will recall that, because he was there.
It speaks volumes that the Treasury ministerial team announced in May by the Prime Minister includes Jim O’Neill, one of the most respected economists in the country and an authority on productivity. His input is more about deeds than words and it will be vital as we put in place the policies that will turbo-charge our economy.
Our productivity plan will build on the significant supply-side reforms we have put in place over the past five years. It will be wide-ranging and ambitious. It will look to the long term. It will help rebalance the economy and build the northern powerhouse. It will improve our infrastructure and reduce burdens on businesses; increase our support for childcare; ensure that many more affordable homes are built; expand apprenticeships and equip us with the skills we need for the 21st century; and make a bold next step in this country’s remarkable economic recovery.
Andrew Gwynne: Can the Chief Secretary confirm whether the success or otherwise of his productivity plan will be assessed by the Office for Budget Responsibility? Will it cut across all Government Departments to ensure that some of the regional imbalances that he has mentioned will be tackled across Government?
Greg Hands: The hon. Gentleman makes an important point. Of course the OBR looks at all Government proposals at the appropriate time, and I do not think that there will be any exception for this.
17 Jun 2015 : Column 391
John Redwood: Does the Chief Secretary recall that Labour took into public ownership Network Rail, a crucial industry for our country, and that the previous Government commissioned the McNulty report, which discovered that that big organisation was way behind its continental comparators when it came to productivity and efficiency and that their system of managing it had fallen short? Is that something he can help remedy?
Greg Hands: I thank my right hon. Friend for that intervention. Infrastructure will be a key part of the productivity plan, so we must study which are the productive and which the less productive areas of our infrastructure.
Gareth Johnson (Dartford) (Con): Productivity is vital for the British economy, and the way to achieve good productivity is by having a strong economy. Does the Chief Secretary agree that we need a pro-enterprise, low-taxation and low-regulation economy, as opposed to what the Labour party is proposing?
Greg Hands: My hon. Friend is quite right. Labour seems not to be learning the lessons of the general election five weeks ago. Encouraging enterprise and promoting sound public finances by dealing with the deficit are extremely important, so I entirely agree.
Andrew Bridgen: At least twice during his opening speech the shadow Chancellor said that we are now seeing highly skilled employees replaced by low-skilled employees. Does my right hon. Friend agree that the shadow Chancellor should not talk himself down like that?
Greg Hands: My hon. Friend makes his point in his usual way. All that I can say—
Chris Leslie: At least he is here.
Greg Hands: Yes, my hon. Friend is here, unlike half the shadow Treasury team who went into the election and were wiped out by either the Conservatives or the Scottish National party—and that includes the hon. Gentleman’s former leader.
Ian Blackford (Ross, Skye and Lochaber) (SNP) rose—
Greg Hands: I shall give way shortly. I think I have awakened the hon. Gentleman’s interest with my reference to the SNP.
I thought that it would be helpful to start by setting out the productivity question in relation to the UK’s general economic competitiveness, setting the scene for the problems we face. Hon. Members will of course be aware that, thanks to our long-term economic plan, we can be proud of having the highest growth of the major advanced economies in 2014, and we are predicted to repeat that in 2015. We are highly competitive, and that is linked to productivity. We are ranked ninth of 144 countries globally for competitiveness, we enjoy the lowest corporation tax in the G7, and we are seen as being well governed, as we are in the top 20 of 102 countries on all eight factors of the World Justice Project’s Rule of Law index for 2015. London remains a world-leading international financial centre. British universities are by far the best in the world outside the US. For those who complain that we no longer make things, within two years we expect the UK to match its all-time car production
17 Jun 2015 : Column 392
record, which was set back in the 1970s. The city of Sunderland now produces more cars than the whole of Italy put together. We are extremely competitive.
George Kerevan (East Lothian) (SNP): Is the Chief Secretary aware that the high productivity in British automotive products is an optical illusion because only 37% of the spend in the value chain relates to this country, whereas two thirds of it relates to the imported content of those cars, most of which comes from Europe—the Europe that you are trying to take us out of?
Greg Hands: It is a bit churlish to debate the precise details like that. The fact remains that car production in this country is extremely impressive. We should celebrate that throughout the UK, including in Scotland.
Graham Evans (Weaver Vale) (Con): Will my right hon. Friend give way?
Greg Hands: Let me make a bit of progress.
The high productivity that I have mentioned is very good, but we need to be equally honest about the areas where we can do better. We need to improve our literacy and numeracy skills, and our OECD position for intermediate skills needs to rise. To match the highest rate of female participation in the workforce in the G7, which is in Canada, or in the OECD, which is in Iceland, we would need over 500,000 or 2.5 million more women to enter the labour force respectively. Our gross value added growth is still too reliant on London and the south-east. We are not building enough housing, and our investment in roads and rail has not yet undone the effects of the decades in which we under-invested. All that means that our economy needs to find an extra gear.
We should view this debate in the context of the broad decreases in productivity growth across the OECD over the past few years. We are not unique in this regard. Other G7 countries, including Germany and Italy, have seen their measured productivity per worker fall since 2007. We have to accept that productivity is a major challenge, but it is not a new challenge—it has been around for decades. To meet that challenge, we must look calmly and seriously at the variety of factors that affect productivity, and put in place wide and ambitious long-term reforms.
Importantly—the hon. Member for Nottingham East needs to engage with this point—those reforms must not jeopardise other elements of our economic growth. That is the approach that the Government will take in our productivity plan, because productivity is not an end in itself, but a means to an end. It is all about prosperity. When we publish our productivity plan, I hope that the Labour party will see fit to support it, because we agree that improved productivity will be good for living standards across the country and help us to meet our fiscal commitments, which is a point that he raised.
Ian Blackford:
What the Chief Secretary is saying does not meet the reality of what has been happening for the past seven years. Productivity in the UK has fallen and the Government have failed to deliver prosperity. The root of that has been the failure of macroeconomic policy. Your big idea was quantitative easing, with
17 Jun 2015 : Column 393
£375 billion of new assets being created, but none of that has fed through to bank lending. That is why we have not seen the underlying investment in our economy that is required. You need to address that and make sure that we see investment in infrastructure, industrial investment and a plan for growth, not some meaningless productivity, which is just hot air and words, but no reality.
Madam Deputy Speaker (Mrs Eleanor Laing): Order. Several people this afternoon, not just the hon. Gentleman who has just spoken, have used the word “you”. When one uses the word “you” in this Chamber, it refers to the Chair. I have not done any of the things I have been accused of this afternoon. I do not want to pick on individual Members at this early stage of the Parliament, but please let us use the correct language.
Greg Hands: I dispute the premise of the hon. Gentleman’s question. Productivity in this country is rising, albeit at a relatively low level. We would like it to be higher. It has risen by 0.9% this year. The OBR’s projection is that productivity will increase by between 2.1% and 2.5% per annum in the coming years. We need it to increase by even more than that, but it is certainly not the case that productivity has collapsed over the past couple of years.
Ian Blackford: Over the past seven years, it has declined.
Greg Hands: Okay, I hear the hon. Gentleman.
To answer the point raised by hon. Member for Nottingham East about the OBR, the OBR already produces forecasts and commentary on productivity, and will continue to do so independently and impartially as it always has done.
Chris Leslie: We are looking for the right hon. Gentleman’s support in commissioning the OBR to look at the spending choices the Chancellor has before him. He will have to acknowledge that certain decisions on reducing public expenditure could have more of an adverse effect on productivity than others. We want to make sure that we have a proper analysis of the impact of those decisions. That would be a better, more sensible way to think about how we spend. It is not just a debate about how much we spend.
Greg Hands: The OBR remit is pretty clear on this kind of thing. Let me just say that I have listened to the hon. Gentleman a great deal in the past five years. Coming from a party that never set up the OBR, or any equivalent to it, he seems now to be rather over-fascinated in what its operations should be. He might have thought of some of those questions during the 13 years of the Labour Government.
The hon. Gentleman said that employment growth had been of poor quality. I would dispute that. I think we will find that in the five years since the first quarter of 2010, more than 60% of the increase in employment has been in high skilled occupations. Some 75% of the increase has been in full-time employment and, after the excellent results this week, wages growth now exceeds inflation for the eighth consecutive month.
I am going now to make a bit of progress, because I am conscious that we have one or two maiden speeches
17 Jun 2015 : Column 394
coming up and a highly subscribed debate. Let us look at what we did in the previous Parliament. In 2010, the priority clearly for the Prime Minister and the Chancellor was to put in place a jobs-based recovery. We all know the result: 1,000 jobs created every day, with three quarters of them full time. The employment rate is now at its highest on record at 73.5% and around the highest level on record at 31.1 million. We make no apology for prioritising job growth in the past five years. It is the best way to make people’s lives better, as the nearly 12,000 people who found employment in the shadow Chancellor’s constituency will surely agree.
At the same time, we put in place important supply side measures to improve our national productivity. We increased average public and private infrastructure investment to about £47 billion a year between 2011 and 2014, which is more than a sixth higher than it was in the previous Parliament. We have completed 15 major schemes on the strategic road network, worth £3.4 billion, with a further 17 schemes, worth £2.5 billion, under way. We have completed more than 2,650 infrastructure projects and extended access to superfast broadband to more than 2.5 million more premises. We have accelerated the academies programme, with more than 4,600 academies now opened, and we have set the path for high-speed rail to unleash the full potential of our northern cities. We have protected the science budget in cash terms and set out a long-term capital commitment on the science budget as well, ensuring that it will rise in line with inflation for the duration of the Parliament.
Peter Kyle (Hove) (Lab): Does the Chief Secretary recognise that in constituencies such as mine 90% of all businesses employ fewer than eight people? The skills and productivity challenge we have is on the softer, entrepreneurial side. He mentions the skills challenge and the setting up of academies. Does he acknowledge that we need to invest more in the soft, communication and entrepreneurial skills that young people need in an economy such as mine?
Greg Hands: I welcome the hon. Gentleman to this place and thank him for his intervention. I do not necessarily disagree with anything he says. Equally, I am sure that he would welcome what has been done in Hove in the past five years. Unemployment has fallen by, I think, almost 1,200 in his constituency—a 53% fall in joblessness. We will consider what he proposes, but he must recognise what has been delivered for his constituency.
We have raised the annual budget of Innovate UK, the core innovation support mechanism for businesses in the UK, from £360 million in 2011 to more than £500 million in 2015-16. I am sure the hon. Gentleman will also be delighted to learn that we have put a premium on apprenticeships, of which more than 2.2 million have been created, and that we have pledged to deliver 3 million this Parliament.
As I said, productivity began to rise last year, although we are still below our pre-crisis peak. We agree on the extent of the problem. The OBR expects productivity to pick up in 2015 and to grow at a reasonable rate afterwards in every year of the forecast period, which is good news for businesses and individuals and has undoubtedly contributed to our economic recovery.
I want to say a few words about the next five years, because, although a lot has been done, now is the time to redouble our efforts. My right hon. Friend the Chancellor
17 Jun 2015 : Column 395
told the CBI last month that we had a once-in-a-generation opportunity to find an extra gear for the British economy. Our productivity plan will set out how we will do that, and I will not, and cannot be expected to, pre-empt that plan. Let me remind hon. Members, however, of our manifesto commitments to boost productivity. We said we would invest in infrastructure, on which previous Governments failed to take the decisions that other countries did, meaning we fell behind in the ’90s and in the time of the last Labour Government.
Can you imagine, Madam Deputy Speaker, that in 2010 we did not even have a national infrastructure plan? I appreciate that the hon. Member for Nottingham East was not here between 2005 and 2010, having lost his seat in Shipley, but he was a Minister for part of the time Labour was in government, so he could have raised some of these points when he was sitting around the table. We have caught up a lot since, but our historical stop-start approach has meant that our physical infrastructure is not nearly as good as it should be. Now is our opportunity to fix that.
Chris Leslie: Will the Minister give way?
Greg Hands: No, I am going to make a bit more progress.
We will invest more than £100 billion in infrastructure over the next Parliament, including more than £70 billion in transport alone, of which £15 billion will be spent on our roads.
Chris Leslie: Will the Minister give way?
Greg Hands: I will come back to the hon. Gentleman in a moment.
We are investing in broadband and home building, with a commitment to build 200,000 starter homes to be sold at a 20% discount exclusively to first-time buyers under the age of 40.
Greg Hands: I give way to my hon. Friend the Member for Weaver Vale (Graham Evans) and welcome him back to the House after his fantastic election result last month.
Graham Evans: I am grateful to my right hon. Friend. Will he remind the House of the previous Labour Government’s record over 13 years? In 1997, 20% of GDP was from manufacturing, but by 2010 that had dropped to less than 10%.
Greg Hands: My hon. Friend is right that the previous Labour Government had a dreadful record on manufacturing, and that is one of the key challenges—this reads through to productivity—facing us this Parliament.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab) rose—
Greg Hands: I have allowed the shadow Chancellor quite a bit of time already, so I will give way to the Member for Washington.
17 Jun 2015 : Column 396
Tom Blenkinsop: I am the Member for Middlesbrough South and East Cleveland. I welcome the Minister to his new role. Of course, in the past five years, under the coalition Government, manufacturing shrank by 1%. In terms of productivity, the north-east is probably the lead region in the country, mainly because of its chemical and pharmaceutical sectors, but they have seen the largest slump over the past five years, due mainly to the lack of investment. Does he agree that one problem is that the Government imposed the unilateral carbon floor price tax on energy-intensive industries, and did not the Chancellor promise to bring in a compensation mechanism? Will he speak about that, because it would not pre-empt the Chancellor’s emergency Budget in July?
Greg Hands: I thank the hon. Gentleman for that series of questions, but his use of statistics was highly selective. I am sure he will join me in celebrating the fact that the two regions in which employment is rising the fastest are the north-west and the north-east. Of all regions, the north-east leads the way in export growth. I am sure he will also join me in welcoming the fall of 1,518 in unemployment in his constituency under the last Government—again, just shy of a 50% fall.
Greg Hands: I will give way to the very patient Member for Nottingham.
Chris Leslie: I thank the Member for Fulham for giving way. Would he be so good as to look at the point he was making on transport infrastructure? I asked about the Davies commission on airport capacity, which he knows is an issue affecting Britain’s productivity as a whole. Will he give us an assurance that the Government will make a swift decision when presented with the final conclusions of the commission’s report, and not kick it into the long grass until the end of the year or beyond?
Greg Hands: The position is unchanged. It is as set out in our manifesto. We await the publication of the Davies report, and we will act accordingly. However, we recognise that airport capacity is an issue, which is why we commissioned the report in the first place.
Greg Hands: I am going to make some more progress, because I know that others wish to speak.
Marcus Fysh (Yeovil) (Con) rose—
Greg Hands: I will give way to my hon. Friend the Member for Yeovil (Marcus Fysh)
Marcus Fysh: I thank my right hon. Friend.
The A358 runs from my constituency up to the M5 and all the new jobs that will come on stream at Hinkley Point. Before the election, the Labour party planned to cancel the dualling of the road. Will my right hon. Friend confirm that that will not happen under this Government?
17 Jun 2015 : Column 397
Greg Hands: I congratulate my hon. Friend on his amazing election result. It was a fantastic achievement. Indeed, I think that he unseated one of my predecessors as Chief Secretary.
Of course we are still committed to delivering the A358. I believe that the Labour party produced only two proposals for reducing the deficit during the election campaign, both of which were highly misguided, including the proposal for cuts in the A358 programme.
It is, in many ways, a vindication of what we have achieved since 2010 that we are debating the issue of productivity today. Over the last five years—[Interruption.] The hon. Member for Nottingham East says that he has been raising the issue. I have gone through all the speeches—well, not all of then, because I could not find them all, but most of them—that he made when he was leading the “Gordon Brown for leader” campaign in 2007. I have also gone through the speeches that he made when he was backing Ed Balls in 2010. I must say that I found scant reference to the word “productivity”.
Chi Onwurah (Newcastle upon Tyne Central) (Lab): Will the Minister give way?
Greg Hands: No. I am going to finish now.
As I was saying, it is, in so many ways, a vindication of our record of the last five years that we are debating the issue of productivity. Many of us will remember our debates—led by the hon. Member for Nottingham East—on mass unemployment, the cost of living crisis, and “too far, too fast”. In all those respects, the hon. Gentleman’s approach turned out to be absolutely wrong. We now have financial stability, unemployment is down to historic lows, and living standards this year are predicted to grow at their fastest rate since 2001. All that is thanks to the tough decisions that we have made.
We now have a great opportunity to step things up a gear, and to solve a challenge that has been a drag on the United Kingdom’s economy for decades. The wind is blowing in the right direction. We have a falling deficit, a growing economy, an historic mandate, and a firm resolve to tackle this issue, along with the right team to do it. That is how we deliver for the people of the United Kingdom, and that is what this Government will do.
5.8 pm
Michelle Thomson (Edinburgh West) (SNP): I commend the Chief Secretary for his speech. He has clearly been reading the SNP manifesto, given his comments on female participation in the workplace and the gravitational pull of London. I hope that he enjoyed reading it.
Productivity in the UK is indeed low, and it has shrunk by 0.7% over the past seven years. It is now 17% lower than the average in the G7 economies, and that has had an associated impact on living standards. Growth in the EU has been 5% over the same period. The United Kingdom’s GDP is only now returning to pre-crash levels, a point that most of our European competitors reached many years ago. Our downturn in the UK was steeper and lasted longer than those of our neighbours, and recovery has also taken longer.
Jeremy Quin (Horsham) (Con):
Does the hon. Lady not recognise that during that period we were more
17 Jun 2015 : Column 398
dependent on the financial services sector than any other country in the G7, and also in the EU? That undoubtedly had an impact on our productivity.
Michelle Thomson: I am going to address that point.
The much-vaunted recent growth has brought us back only to a certain point. When judged against nations smaller in population size—those with between 3 million and 10 million people—the sluggishness of UK plc is laid bare for all to see. Sweden’s productivity is 18% higher than that of the UK; Denmark’s is 26% higher and Norway’s an incredible 77% higher. Even poor Finland, which has no oil, no fisheries and no substantive premium food and drink industry—in fact, it has none of the inherent advantages and natural resources that Scotland enjoys—delivers a productivity performance some 8% higher than that of the UK. The phenomenon is not limited to Scandinavia. In central Europe, Austria’s productivity is 13% higher, and Switzerland’s 23% higher, than that of the UK.
Ian Blackford: The picture that my hon. Friend is painting of many small, successful countries is one with which we are all familiar. I am delighted to see that our friends in the Scottish Government have an aggressive agenda of investing in innovation and skills. If Scotland had powers over taxation, however, would not that allow us to deliver higher rates of productivity similar to those of the small, successful European countries?
Michelle Thomson: I am inclined to agree with my hon. Friend, and I shall address that point further in a moment.
Sammy Wilson: I know that it is in vogue for the Scottish nationalists to blame everything on the Westminster Parliament, but does the hon. Lady accept that most of the supply-side measures that could be introduced to improve productivity are already in the hands of the Government in Scotland?
Michelle Thomson: I thank the hon. Gentleman for his intervention, but he is, quite frankly, wrong. I shall also cover that point later in my speech.
The sad fact is that the recent growth in UK GDP has been driven not by increased productivity and not by a focus on increased investment levels or high-value sectors. Instead, it has been delivered with zero-hours contracts, often paying the minimum wage and with low employee engagement. That is not the way to power a modern 21st-century advanced economy. We see the results of this poor performance in our manufacturing sector. Previously, manufacturing accounted for some 30% of total GDP—a position shared with many of our European neighbours. However, a lack of investment and a focus on the City of London have resulted in a manufacturing percentage of GDP that is now barely into double figures.
With only a limited set of powers, the Scottish Government have set out an ambitious strategy to increase Scotland’s productivity and, as a result, Scotland’s economy has seen sustained growth over recent years, with record numbers of people in employment. Female participation in the labour market has increased, and Scotland’s female employment has reached a record high. Including more women in the workforce is a
17 Jun 2015 : Column 399
powerful driver to increased productivity and encourages a balanced and inclusive economy. The Scottish Government’s plans to expand the provision of free childcare will encourage more parents into work, too. It is worthy of note that between 2007—the year of the SNP’s election to Holyrood—and 2013, the largest relative rise in productivity of any region or nation in the UK was in Scotland.
This debate must fundamentally be about ambition, which is something that the SNP has for Scotland in droves, but our ambition is for much more than simply a return to pre-recession levels of economic performance. Allow me to highlight some key areas that the Scottish Government’s economic strategy—a real long-term economic plan—promotes.
Tom Blenkinsop: The hon. Lady is making a very good speech. She will note that, in the last three years of the coalition Government, imports of Chinese steel have risen by 40%. Does she think it was helpful that the Scottish Executive awarded a contract for the firth of Forth bridge to a Chinese company instead of using British steel?
Michelle Thomson: I thank the hon. Gentleman for his comment, but I would point out that that we did not make the steel in Scotland and that it was a decision of the Scottish Government, not the Scottish Executive.
I was about to highlight some key areas that the Scottish Government’s economic strategy promotes. They include internationalisation, which helps firms to compete in international markets, to increase exports, to make Scotland a preferred location for inward investment and—most importantly from my business perspective—to promote Scotland as the brand of “We are outward looking, we are ambitious and we are open for business”. The plan also promotes investment in our infrastructure, transport, technology and digital connectivity.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP): Does my hon. Friend agree that one key component of our productivity strategy has to be building on that essential power of the production of knowledge and that universities throughout the UK, including our world-class universities in Scotland, are key in that regard? It is vital that we protect, and indeed enhance, research funding through the universities.
Michelle Thomson: I thank my hon. Friend for his comments. I absolutely agree with them, and I am going to cover that issue further in my remarks.
We must equip our people, who live in and give to Scotland, with the skills— supporting them with free university education—the health, the ambition and the engagement to contribute to making Scotland a great place.
I mentioned manufacturing, and the SNP supports measures to boost the sector, including targeted research and development tax credits and support provided through the Scottish business development bank. However, the lack of access to business funding remains the biggest critical factor affecting small business, which is the lifeblood of our economy. I still await any evidence of that being recognised and acted on by the Government.
The plan promotes innovation, creating a culture of ambition and drive where we reward the risk-taking entrepreneurs—those who drive real change and live by
17 Jun 2015 : Column 400
creative and adaptive thinking. Our plan also supports our excellent universities in commercialising the work they do. Finally, it promotes inclusivity, in the form of building a labour market that can contribute equitably, by promoting fair work and sustainable jobs and by taking positive steps to ensure that families can contribute and lead the way in supported childcare. With further devolution of employment law and the minimum wage, the Scottish Parliament could boost pay and standards, and raise employee satisfaction still further. We want to see more sustainable and high-quality employment opportunities, with a partnership approach to employment conditions. We have also proposed a £2 rise in the minimum wage to £8.70 by 2020 and have actively promoted the living wage.
The Scottish Government are doing what they can with the devolved powers they currently have. Given Scotland’s impressive relative performance since 2007, they have been successful. The truth is that the UK operates a failed and outdated business model, one that delivers for the few but not for the many. With its focus on the City of London and its neglect of key manufacturing and other high value added sectors, it has failed to deliver for the people of Scotland, as well as for many across many other parts of the UK.
Chris Philp: Does the hon. Lady not welcome the fact that the UK has the highest growth in the G7, the highest level of employment on record and the lowest unemployment since 1975? Does she not welcome those things?
Michelle Thomson: Of course I welcome those things. What I am suggesting is that we can do much better and that we have the ambition in Scotland. I hear a lot of talk, but not enough about substantive ambition. We need to do a lot more and we in Scotland are ready for that.
Delivering more meaningful economic powers to the Scottish Parliament, not the extremely limited ones included in the Scotland Bill, would allow a much more holistic and comprehensive economic strategy. With full tax, investment and employment powers, the Scottish Government could implement policies to boost economic growth and raise productivity levels in Scotland. We have the ambition.
Madam Deputy Speaker (Mrs Eleanor Laing): Order. Before I call the next speaker, may I say that it will be obvious to the House that a great many people wish to speak, including some who will make maiden speeches this afternoon, and I have therefore to impose a time limit of six minutes?
5.18 pm
John Redwood (Wokingham) (Con):
The productivity puzzle can be understood and resolved. It is a combination of bad news and not such bad news. There was a sharp fall in productivity at the time of the crisis, because we lost a lot of very expensive output, a lot of people lost their jobs and the net result was a big fall. Since the crisis has hit, there has been a continued loss of top-end jobs in areas such as oil, financial services and banking, which score very well in terms of the way people compile productivity figures. An industry such as oil, which produces a lot of extremely valuable output and has a limited number of very well-paid people, gives an enormous
17 Jun 2015 : Column 401
boost to productivity, as we have learned today from Norway. We have just lived through a period when, through no fault of any of the three Governments who have been presiding over it, there has been a sharp decline in the output of oil—because it is now a very mature province—and a big fall in the oil price. That recent fall is down to market circumstance and to things happening well away from this country.
There was also a big loss of top-end jobs in banking and financial services. There will be mixed views in the House of Commons on the social value of those jobs, but they scored very well in the run-up to the crash. Some of those jobs have now gone altogether and some have gone to lower tax jurisdictions elsewhere. The bad news side of it accounts for the drop in productivity during the crisis and the slow growth since the crisis.
The better reason why our productivity is below that of some of our continental comparators is that we have gone for a model—I think and hope with the agreement of all parties—of having more people in employment and of creating conditions in which this economy can produce many more lower paid jobs in the hope that that will lead on to higher paid jobs and more output and activity, which is a better model than those people being out of work.
Let us look at the way the productivity figures are calculated. If a country sacks 10% of the least productive people in the economy, which is the kind of thing that the euro was doing to some of our competitor countries in euroland, it can be flattering for its productivity figures, because the least productive jobs go, and the productivity of the total country rises, but the country is a lot worse off, because it then has 10% of its workforce out of work who would otherwise have been in less productive jobs. It is the same in a business. The easiest way for a business with below-average productivity to get to average or above-average productivity is to close its worst factory, but that is not always the answer that people in this House would like.
George Kerevan: The right hon. Gentleman is making the best he can of a bad job. For instance, if we look at the share of research and development in gross domestic product in the UK, we see that it was down not just over the 1990s, when we had the last Conservative Government, but for the period from 2000 to 2007. R and D is a fundamental component of productivity and it is down. He cannot gainsay that.
John Redwood: One has to first understand a problem before one can address the problem. I think we are all in agreement on this issue. Would we like higher productivity? Yes, we would. Would we like more better paid jobs? Yes, we would, and that goes for Conservatives as much as any other party in this House—probably more than any other party in this House. We not only will the end—more high-paid jobs—but are prepared to take some of the decisions that Opposition parties always deny or query in order to allow those better paid jobs to be created.
Let me go on from the analysis. I hope that the hon. Gentleman will reflect on what I have said and understand that I have provided a good explanation of the path that
17 Jun 2015 : Column 402
productivity has taken since 2007, which is a matter of common concern but has some understandable things that we cannot address. For example, we cannot suddenly wish a lot more oil into Scotland, and that remains a fact. We will not be able suddenly to create all those high-end banking jobs. Some Opposition parties probably would not like them anyway. We are where we are. What we can do about productivity is to work away on those parts of the economy where the performance has been most disappointing.
Amanda Milling (Cannock Chase) (Con): Does my right hon. Friend agree that cutting some of the red tape that affects our small and medium-sized businesses would help with the productivity puzzle?
John Redwood: I agree, but only if we have ineffective or over-the-top regulation. Removing it can give more people access to the market and provide a greater competitive challenge, but we need some regulation, because we need rules and certain guarantees in the market.
Let us take a sector that I asked the shadow Chancellor about. It was a problem that, in the Labour years, we had a long period of practically no growth in public sector productivity. I am the first to admit that the concept of productivity is more difficult in parts of the public sector. People actually like more teachers relative to the number of pupils, because they hope that that will create better teaching and a better system in classes, but it means that productivity falls. That means that we need other parts of the public sector, where the productivity issue is more straightforward or more like the private sector, to be even better, so that the overall performance of the public sector does not lag behind and cause difficulties. As we have quite a big public sector in this economy, the performance of the public sector is very important. It also happens to be the area where Ministers have most control and most direct influence, so it is the area that this House should spend more time on, because we are collectively responsible for the performance of the public sector. I think most parties now agree that we want to get more for less in the public sector, so that we can control public spending. There are disagreements about how much control we should exert on public spending, but I hope there is agreement that if it is possible to do more for less while improving—or not damaging—quality, that is a good thing to do.
Bill Esterson (Sefton Central) (Lab) rose—
John Redwood: I am afraid I need to move on because many people wish to speak. Time is limited.
I draw the attention of my right hon. Friend the Chief Secretary to the Treasury to the issue that I raised with him in my intervention. One very important industry that is almost completely nationalised—the tracks, signals and stations are completely nationalised and the train operating companies are very strongly regulated and controlled by franchises, so they are almost nationalised—is the railway industry. It is a growing industry, and this Government are committing a lot of money to it. It is an industry which, I believe, all the main parties in the House wish to commit money to and wish to grow and invest in.
17 Jun 2015 : Column 403
However, an independent study in 2011, the McNulty report, showed that our railway does less for more cost than comparable railways on the continent. It should be a matter of great concern, and I hope it will be a matter for review by those dealing with the railways and with public spending, because as we channel those huge sums of money into our railway to try to get expansion and improvement, we need to pull off the trick that the best private sector companies manage—of driving quality up and costs down at the same time. A myth in some public sector managers’ minds is that a cut in the amount spent is bound to lead to worse quality or impaired service, whereas every day in a good private sector company they go to work saying, “How can I spend less and serve the customer better? How can I apply new technology so that I get more for less? How can I have a better skilled and better motivated workforce?”—I hope it is not done by unpleasant management, because that usually leads to the wrong results—and “How can I motivate the workforce more so that they are empowered to achieve more and do less?”
That is the spirit that we need in the public sector, and if we began with the railways, it would make a very important contribution to improving our overall productivity rate.
5.27 pm
Mr Iain Wright (Hartlepool) (Lab): It is a pleasure to follow the right hon. Member for Wokingham (John Redwood). I seem to recall reading in the Financial Times three or four weeks ago an extremely perceptive article by him on productivity, so it is a real pleasure to follow him. He has given these issues careful thought.
I am pleased that we are discussing productivity so early in this Parliament. UK output per hour is about a fifth below that of the rest of the G7. It is the largest gap since 1991. In France, output per hour has increased by 2%. In the US, it has increased by 9%. Ours has not shifted. It has been said time and again that if we want rising living standards and a historically decent long-term economic growth trend of 2.5% or 3%, productivity needs to improve.
Chris Philp: In France, productivity figures may well have been achieved at the expense of extremely high unemployment. Is the hon. Gentleman suggesting that he would like to see very high unemployment here in exchange for fractionally better productivity?
Mr Wright: I represent a constituency in the north-east that has suffered and still bears the scars of long-term unemployment. I do not want to see unemployment at all. We need to address that. But in order to remain competitive in the global economy, we must address productivity.
The Chief Secretary to the Treasury said that not all sectors of the economy had been affected by stagnating productivity. It is true. High-value manufacturing sectors such as aerospace and automotives have seen huge leaps in productivity in recent years. They have led to better, more innovative products that are more competitive than our rivals’ products, and which are sold in increasing numbers around the world. He mentioned Nissan in Sunderland, which produces a car every 61 seconds, to rival any other car plant on earth. This week we are
17 Jun 2015 : Column 404
seeing the Paris air show, where about £7.8 billion-worth of products from enterprises based in the UK have been sold around the world. We need to encourage this virtuous cycle, because that will lead to more well-paid jobs in these sectors. It is the model of the British economy that we should be encouraging.
To be fair, credit must be given to Vince Cable and David Willetts when they were in the Department for Business, Innovation and Skills for continuing the approach set out by the Labour Government. That long-term approach, a mature business policy transcending individual Parliaments and thinking about what is required for our economy for the next 20 or 30 years, gives business the confidence to invest for the long term. We have seen the dividends of such an approach in globally competitive sectors such as aerospace and automotives, but I worry that we have seen no endorsement of that approach from the new Business Secretary. It is concerning that in his interview in the Financial Times about two weeks ago, he seemed to draw a line under the industrial strategy that has helped competitive sectors succeed in Britain.
Great examples of business-Government collaboration, such as the Automotive Council, the Aerospace Growth Partnership and the Aerospace Technology Institute, which have brought billions of pounds of investment into Britain, no longer seem to have Ministers’ attention. Is the new Business Secretary going to adopt a new approach? Is that long-term business policy going to wither on the vine on his watch? That would be to the detriment of long-term, high-value economic success and improvements in productivity. I hope that when he responds, the Minister will provide clarity as to what the new Government’s industrial strategy will be.
A key way to improve our competitiveness and productivity is to invest in new technology and innovation. However, our long-term performance in that respect is woeful and has been for far too long. UK gross domestic research and development expenditure, as a percentage of our GDP, peaked in 1986 at 2.03%. In the past 15 years or so, R and D spend as a percentage of GDP has been in the range of 1.59% to 1.73%, well below the EU average and significantly below ambitiously innovative nations. South Korea spends five times as much on R and D—not as a percentage of its economy, but the actual amount—as the average European nation, and that relentless focus on innovation and moving up the value chain has reaped massive rewards. Half a century ago, South Korea was poorer than Bolivia and Mozambique; now, it is richer than Spain and New Zealand. That is the lesson we have to learn.
We are living in what could be the most significant era of challenge and innovation for humanity. Britain’s historic strengths in science and in areas such as pharmaceuticals, aerospace and motor vehicles should and could be harnessed much more and spread throughout the economy in a much more balanced way. We are complacent in the extreme if we think we can carry on as before and not provide more resources to R and D. So will the Government commit to prioritising science? What is the future of the catapult centres, which have seen Government and industry collaborate on a range of issues relating to technology and innovation? Will funding be secure in those areas?
A further way in which we will rise up the productivity chain and in competitiveness is by emphasising skills. The days 40 years ago when somebody in my constituency
17 Jun 2015 : Column 405
would leave school on a Friday at the age of 15, start work at the steelworks on the following Monday and stay there for 35 years have gone. That will never come back. The modern British workforce will need to adapt and retrain and, crucially, be given the opportunity to do so. Men and women in Hartlepool and elsewhere may be made redundant in their 30s and 40s, and will need the means to retrain for a new career—quite possibly several different careers. But BIS, supposedly the Department for growth, is cutting the adult skills budget by 11% in this financial year.
The total budget from the Department for adult further education and skills funding will fall not just in real terms, but by 5% in absolute terms. When the BIS cuts took place during this Parliament, announced by the Chancellor in the Queen’s Speech debate a couple of weeks ago, £450 million was stripped out of further and higher education. That will not give us a modern, innovative workforce.
Should we not be prioritising adult skills? We should have flexibility areas to ensure that we can maintain Britain’s future prosperity. As Neil Carberry, CBI director for employment and skills, said today:
“If we are to deliver sustainable higher wage growth, we need to see a rise in productivity. That means businesses investing in skills, and the Government helping firms innovate by supporting investment in next month’s Budget.”
I hope that for the sake of future prosperity, productivity gains and our competitiveness as a nation, the Government will respond to those concerns and make sure that we can be a high-value, innovative nation that can compete with the rest of the world.
5.34 pm
Oliver Dowden (Hertsmere) (Con): I have the tremendous privilege of representing the constituency of Hertsmere. Hertsmere was created in 1983, incorporating much of the then constituency of Enfield West, which was for many years represented by the late Iain Macleod. He is well known in this House as a proponent of the one nation tradition of conservatism, and I am proud to see that it is so well represented in the Government’s legislative programme. Perhaps a little less well known is the fact that as Minister for Health in the 1950s, he was the first person to announce that the link between smoking and lung cancer had been proven. He did so at a press conference, through which he chain-smoked continuously. Iain Macleod was a tremendous politician and parliamentarian, and his death in 1970 cut short his service to the House.
Macleod’s immediate successor was Cecil Parkinson, who is now Lord Parkinson. It is almost 25 years since he stood down as our Member of Parliament, and to this day he is fondly remembered in the constituency, not only for the central role that he played in the transformative Thatcher Governments of the 1980s, but for his tremendous personal warmth and charm, which he has kindly demonstrated towards me on many occasions.
My most recent predecessor was James Clappison. James is a true gentleman who was absolutely devoted to his duties in the House, both as a Minister in the 1990s and as a diligent constituency Member of Parliament.
17 Jun 2015 : Column 406
He remains fiercely committed to defending the Jewish community in this country. In his first intervention in the House, he attacked the scourge of anti-Semitism. That is of particular importance in Hertsmere, where we have one of the fastest-growing Jewish communities in the country. I assure the House that I will do my utmost to continue his excellent work.
Many other faiths also thrive in Hertsmere. In particular, our Christian community remains strong, as I saw this weekend when I joined the congregation at St Mary’s in Potters Bar for a joyful celebration of their centenary. Hon. Members may also be interested to know that we are home to the United Kingdom Hare Krishna community. Their temple is a delightful place, where one can always be sure of a very warm welcome—although perhaps not as warm as that accorded to their cows, which are hand-milked and treated to massages with scented candles and soothing music in a spacious cowshed made of the finest French oak. Their luxurious residence is known locally as the Ritz of the cow world.
I assure hon. Members that the cowshed is not the only place of beauty in Hertsmere, however. They will find no finer spots on this island than villages such as Shenley, Aldenham and neighbouring Letchmore Heath. Such beauty is given greater poignancy by its sheer fragility, because Hertsmere is 80% green belt. It lies at the very southern edge of Hertfordshire. When I stand in the delightful churchyard at Ridge, where the Earl Alexander of Tunis rests, I see ahead of me the last unspoiled rolling hills of England before the home counties give way to London. It was during childhood walks through those fields that my love of the English countryside was fostered. They give us the space to roam and enjoy nature, and they enhance the charm and character of our towns and villages. I am absolutely determined to preserve them from soulless urban sprawl so that my children and grandchildren may enjoy them as I have done.
Hertsmere has the distinction of being at the heart of the British film industry. Many films, from “Star Wars” to, most recently, “Paddington”, have been shot at Elstree film studios in Borehamwood. We also play host to the BBC Elstree centre, which is home to the permanent set of “EastEnders”, so hon. Members may be surprised to hear that I can make a legitimate claim to be the Member of Parliament for Albert Square.
What characterises Hertsmere, far more than its landscape or its industry, is the character of its people. They get up very early every morning and from Bushey, Potters Bar, Radlett and Borehamwood they cram on to commuter trains or set off along the M25 and the A1. They are hard-working men and women who make sacrifices to provide for themselves, their families and their community. They know that in this life, we do not get something for nothing; we have to work in order to get something out.
Growing up locally, I was very much imbued with those values. My dad worked in a factory in Watford, my mum at a chemist’s in St Albans. They worked hard and were determined to give me the very best start in life. That started with the excellent education that I received at my local comprehensive school. These are the values that have built the prosperity of this country, and the values that lie at the heart of this debate on productivity. For only if, as with this Government, we take tough choices to reform welfare and control our
17 Jun 2015 : Column 407
deficit can we continue to invest in our infrastructure, invest in our schools, and cut taxes so that hard-working people keep more of what they earn. That is how we boost productivity—by pursuing this Government’s aspirational agenda that will deliver for the hard-working people of Hertsmere.
5.40 pm
Harry Harpham (Sheffield, Brightside and Hillsborough) (Lab): May I congratulate the hon. Member for Hertsmere (Oliver Dowden) and say what a pleasure it is to follow him?
As the new Member for Sheffield, Brightside and Hillsborough, I stand here with a good deal of trepidation, knowing the tireless and dedicated service that my predecessor, David Blunkett, devoted to his constituents. From both the Front and Back Benches, David fought unceasingly to improve the lives of ordinary people. David is Sheffield through and through. He was born in the constituency he would go on to represent, became a councillor at the age of 22, and led the city through the turbulent years of the 1980s. He was elected to the Commons in 1987, moved swiftly into the shadow Cabinet, and finally became a Cabinet Minister in 1997. He fought ferociously for his point of view in Cabinet, and although he may not always have got his way, as a lifelong Sheffield Wednesday supporter he was well accustomed to taking the rough with the smooth.
David carried the views of his constituents into Cabinet, and despite his heavy workload as Secretary of State for Education and Employment in Labour’s first term, and as Home Secretary dealing with the aftermath of the Oldham riots and the 9/11 terrorist atrocities in New York, he made a point of continuing to attend his constituency advice surgeries in person. He was relentless in his desire to drive up educational standards and improve the educational opportunities of all. Throughout his career, David was dedicated to the idea that for democracy to be worth the name, it should be a truly collaborative endeavour, and that politicians should reach out to the disaffected and the disfranchised. I pay tribute to the work of a man who has made an indelible mark on British politics.
Sheffield Brightside and Hillsborough covers the north-east of the city and is dominated by the low-rise housing that was originally built for those working in the steel industry centred in the nearby Don valley. These days, employment patterns are more diverse, and many of my constituents work in the retail sector and in health and social care. There is an iron age hill fort at the eastern end of the constituency on Wincobank hill. This was built by the Brigantes tribe to keep out the Roman legions, so clearly our ancestors were against further integration with Europe. Perhaps if they had had the Prime Minister renegotiate the terms, they might have thought differently.
Despite the fort, we are a diverse constituency, but we are a community that faces some stiff challenges. My constituency is ranked 19th highest in the country for the proportion of people claiming jobseeker’s allowance—6.4%, a rate well over double the national average—and the number of children living in poverty is double that found across the UK as a whole. Much of the so-called economic recovery in our area has come in the form of low-paid, zero-hours contract work, leaving families unable to budget from one week to the next. Despite the
17 Jun 2015 : Column 408
Chancellor’s crowing, far too many of my constituents are still struggling to make ends meet. There are 6,000 households in my constituency living in fuel poverty, 14% of the total in the whole of the Yorkshire and the Humber region. That is one of the issues I will take up vigorously over the coming weeks and months.
Although I welcome the Government’s commitment to full employment and the creation of more apprenticeships, this by itself is not enough. We need not just more jobs, but better jobs. Our poor productivity is holding back our economy and holding down living standards. I am deeply concerned that the Government have no clear plan for boosting output. What we need is the investment in infrastructure and a properly thought out skills agenda that will not only lead to more stable, meaningful jobs but address the pressing problem of productivity that Britain is facing. Unless Ministers act on this, not only will UK businesses fall behind their international competitors, but working people will not see the improvement in their standard of living that Government rhetoric leads them to expect.
In Sheffield, budget cuts have left the public services that so many of my constituents depend on struggling to cope. In spite of the innovative and dedicated efforts of the council, local NHS services and ordinary men and women in my constituency, people are turning to support that more and more simply is not there.
I am originally from Nottinghamshire. At 15, I left school on a Friday and started down the pit on the Monday morning. I had no qualifications to speak of. It was moving to Sheffield that gave me a second chance at education. It is the city where knowledge that everyone’s chances can be improved has been found in the past, and where I will do my best to make sure that it can be found in our future.
I got into politics because I know the good that can be done by public servants working in the interest of the communities they serve. From the Opposition green Benches, I will do what I can to protect those services from ideological attacks that would reduce them to a shadow and leave those they serve paying the price.
Madam Deputy Speaker (Natascha Engel): Order. Before I call the next Speaker, I am afraid that I must reduce the time limit to four minutes to accommodate as many Members as possible. With that in mind, I call Huw Merriman.
5.47 pm
Huw Merriman (Bexhill and Battle) (Con): I pay tribute to the hon. Member for Sheffield, Brightside and Hillsborough (Harry Harpham) for his moving speech about a part of the world I know well, having spent two and a half years fighting you, Madam Deputy Speaker, in North East Derbyshire; my productivity was not as high as yours. I also pay tribute to my hon. Friend the Member for Hertsmere (Oliver Dowden) for a fantastic, polished speech. I would like to follow in the same manner, but I may fail.
I am reminded that the concept of productivity requires the measurement of the quantity of goods and services produced per unit of labour input. Although many Conservative Members would maintain that it has indeed
17 Jun 2015 : Column 409
been Labour input that has caused a lack of productivity, via the party’s role in government during the economic crisis of 2007, I wish to explore the performance of my Government since 2010. In short, I contend that our success in creating 2 million new jobs in a difficult economic climate may have had some impact in the ratio of goods and services produced per unit of labour, but increased employment will ultimately cause the increase in productivity that I believe we are on the cusp of enjoying if we remain on the course we have plotted since 2010.
In reaching that conclusion, I am indebted to the excellent article “The UK productivity puzzle”, published by the Bank of England. The report explores the various factors at play in explaining why productivity has not behaved as one would expect following a recession. Again, I consider these reasons to be grounds for reflection or optimism in that, first, the UK electorate has been protected by the Government’s macro interventions since 2010; secondly, companies have focused their output on matters, such as research and development, that are not measured in productivity figures until unleashed on the market; and, thirdly, that we have new entrants to the workforce—some of whom are economic migrants, who have the potential to increase our productivity as they excel up the career ladder. I will briefly take each point in turn.
First, on protecting the UK electorate, unlike in previous recessions UK plc has not shed its workforce, but has retained its staff. Companies have kept going and kept workers employed and they deserve our thanks for doing so. These positive survival rates for businesses can also be put down to the increased forbearance of banks with respect to SMEs.
In previous recessions, banks failed to stand by businesses, which experienced falls in profitability. Thanks to the pressure applied by this Government since 2010, companies have been able to ride out the recession because banks have been forced to stand by them. Additionally, the Treasury, the Bank of England and HMRC have played a part by providing incentives to employ, keeping interests low and granting time-to-pay schemes for staffing levels to be maintained and for recruitment to occur.
Maria Caulfield (Lewes) (Con): Does my hon. Friend share the view that the Labour party’s aim to raise taxes from businesses would have put people out of work and put job security at risk?
Huw Merriman: I absolutely agree. These decisions and the extra 2 million new jobs created might have had some impact on productivity in a statistical sense, but we have done what a one nation Government should do. It is markedly different from the behaviour of other Governments during past recessions. It is different, too, from measures taken by countries such as France. French productivity may be higher, but France created fewer jobs between 2010 and 2015 than did Yorkshire. The French labour market is so regulated and expensive that French companies opt out by failing to hire. Higher productivity can mean lower employment and vice-versa.
A second cause of optimism about increased productivity is the output to come. Companies have had to work harder to win or maintain a stagnant order book,
17 Jun 2015 : Column 410
perhaps moving labour to roles such as sales and marketing, which would not count as “output” in the national accounts until the product was sold. As this effort bears fruit, the productivity rates will benefit. A similar argument can be put for research and development. Thanks to this Government’s programme of incentives to increase R and D, investment has proved strong. The output from R and D is not apparent, and not included in the GDP data, but as these returns filter through, R and D will, as the Bank of England reports,
“bring about a relatively prompt and significant improvement in productivity growth”.
Helen Whately (Faversham and Mid Kent) (Con): Does my hon. Friend agree that the roll-out of high-speed broadband is vital in constituencies such as mine and his for the productivity of rural businesses?
Huw Merriman: I agree that high-speed broadband is essential. It would create capacity and productivity in areas that infrastructure might find hard to reach.
These factors will, I believe, allow the UK to overcome the impact on productivity from cyclical and sector changes, such as the scaling back of financial services and the artificial productivity that financial services might have created during the last 10 years.
The third cause of optimism is the new workforce. Although a high proportion of the 2 million jobs are highly skilled, some are obviously lower skilled and might not yet contribute as much to the UK’s productivity. This is part of the investment in people, via new jobs and apprenticeships, which will take people up the career ladder to increased productivity. Giving a job opportunity to someone who was previously on welfare can transform their lives and, as they reach their potential, I believe that will help our economic productivity as well as enriching the cause of social justice in this country.
I am led to conclude that the nation has experienced significant support, thanks to action taken by the Government since 2010 that has allowed UK plc to increase the UK employment rate by 2 million jobs. Naturally, with the definition of productivity being the unit of output per unit of labour, that may have impacted on overall productivity rates, but I believe we stand right to increase our productivity as long as the Government stand their course on the route ahead.
5.53 pm
Chi Onwurah (Newcastle upon Tyne Central) (Lab): I would like to welcome you, Madam Deputy Speaker, to your position. I also welcome two new Members—the hon. Member for Hertsmere (Oliver Dowden) and my hon. Friend the Member for Sheffield, Brightside and Hillsborough (Harry Harpham). I was moved by their contributions and I am sure that the House will benefit from both their careers.
Low productivity is not in the interests of the UK, of employees or of business. One reason why the Chancellor missed every single one of his 2010 economic targets was that tax revenues did not meet Treasury forecasts. The jobs created by the last Government were low-paid, low-skilled, insecure jobs for commoditised labour. Although the toll of such insecurity on individuals is hard, the toll on the economy is also harsh. Less money is raised in tax, which means that we need more cuts.
17 Jun 2015 : Column 411
To improve productivity, we need to do one of two things: improve the outputs from people or from technology. During my 20 years in industry, including an MBA at Manchester Business School, successful managers often cited to me the bestseller and classic “In Search of Excellence”, which sets out two fundamental principles that mark a great company. The first is valuing employees as partners and as
“the primary source of productivity gains”.
The second is shared values of respect, quality and responsibility.
The Labour party is absolutely right to champion skills and encourage businesses to value and invest in their employees. What value does a zero-hour contract place on a worker? The Government consider labour to be a commodity, and commodities are not productive. We need to give people the skills and tools as well as a sense of agency and involvement to increase their productivity. As Mariana Mazzucato, a leading innovation economist, says, productivity does not come from paying workers less or attacking their rights.
That brings me to the second factor in productivity, which is technology. An article in the Harvard Business Review yesterday drew on analysis from the London Centre for Economic Policy Research to demonstrate that robots contribute 0.36% to total annual productivity growth rates whereas IT contributes 0.6%. Remember, our productivity growth rate is 0.4%, so we would welcome that increased contribution. As leading US technologists, economists and investors argued in the MIT Technology Review this month, the technology revolution
“is delivering an unprecedented set of tools for bolstering growth and productivity, creating wealth, and improving the world.”
That does not mean dumping people in low wage, low skill and insecure zero-hour jobs.
When I asked the Prime Minister last week about productivity, his answer simply showed how little the Government understand about what drives productivity. He talked about planning and entrepreneurship, but for entrepreneurship to work we need a competitive environment that new companies can enter and compete in and we need high skills in the workforce. We will never achieve high rates of productivity unless we understand that people as well as technology are the key drivers.
5.57 pm
Marcus Fysh (Yeovil) (Con): It is a pleasure to follow such excellent maiden speeches, not least that of my hon. Friend the Member for Hertsmere (Oliver Dowden), who gave us a wonderful tour of the massage parlours of his constituency.
The amount of value we create in our work is key to what we can expect to earn over the long term. We heard earlier this afternoon from the Secretary of State for Education how this Government are focused on getting great teaching and skills to our young people to give them the best chances in life. I support that and am keen to ensure that recent improvements on that front in my Yeovil constituency are consolidated and taken further. I want more funding for school places in my county of Somerset, too, so that we can build a better future for our children, developing their talents to their full potential.
17 Jun 2015 : Column 412
I also support the plan for productivity mentioned earlier by the Chief Secretary to the Treasury. We have a plan for productivity, not just platitudes as espoused by the Opposition. Differences in productivity levels between G7 nations have been relatively static over time, reflecting widely different structural characteristics. There are significant measurement problems in the statistics—for example, in picking up the intangible benefits of changing technology. Productivity growth has dipped in America, too, in recent years, so it is not just a British disease, as some are trying to claim, although we should look to America as an example of an economy with higher productivity growth on average than we have managed over time.
Recessions are bad for productivity growth, as capital for investment becomes scarce, so confidence in further recovery is definitely a factor for us to encourage. We also must be careful not to restrict our service businesses while we attempt, rightly, to encourage manufacturing. Services are a huge competitive advantage that we have as a nation, and we need to get them firing on all cylinders and respect their contribution.
It is fantastic news that 2 million net new jobs have been taken up since 2010. In the past year alone, the unemployment count in my constituency has come down by 24%. That is an outstanding achievement and it shows that my constituents are finding positive answers to their questions on employment, even if there is more to do and we need always to prepare for an uncertain future. We must not be complacent and we must certainly do what we can to enable employers to make the jobs they offer more rewarding, improve the number and quality of apprenticeships, and support businesses with the right policy settings.
Of course, we can do better as a nation, and that is important to the national finances, as well as to personal pay packets. People in the south-west want to cut red tape, extend investment allowances, keep taxes low, invest in infrastructure such as the dualling of the A303 and A358, connect people with broadband, including those in rural areas, and reopen rail connections in Yeovil and Chard, to get people and their work and ideas to where they need to be.
Simon Hoare: My hon. Friend is absolutely right to mention broadband, an issue that affects many constituencies. Does he agree that an increase in mobile telephone signal is also very important in rural areas, to help small and medium-sized businesses?
Marcus Fysh: That is a very good point, and we are pursuing it in the south-west.
People are not just productivity statistics from a survey in a report. What suits one person will not necessarily suit another, and it is wrong to say that lower-paid work is necessarily bad or should not be respected. It is a good thing that all types of jobs are being created. Things are getting better in our country and we must resist talking down the great achievements and sacrifices our people have made over the testing period we are coming out of. We can all play our part to build a better future, and if we do the right thing the statistics will follow.
17 Jun 2015 : Column 413
6.2 pm
Mr Steve Reed (Croydon North) (Lab): First, may I congratulate you, Madam Deputy Speaker, on your new role? I also add my congratulations to my hon. Friend the Member for Sheffield, Brightside and Hillsborough (Harry Harpham) and the hon. Member for Hertsmere (Oliver Dowden), who made their maiden speeches during this debate. They were incredibly impressive contributions and I am sure the whole House looks forward to hearing much more from both of them over the coming years.
It takes British workers until the end of Friday to produce what a German or American worker has produced by Thursday, and yet British workers work some of the longest hours in the industrialised world. The fault lies not with our workforce, but with a Government who have failed on investment. After 2010, the previous coalition Government choked off investment in infrastructure, which damaged the confidence of the private sector to invest. They failed to reform the banking sector with regional and sectoral banks, so it remained difficult for businesses to secure the investment and borrowing they needed to grow.
The economy is becoming more global and more digital. We need a workforce with the skills to match the opportunities, but instead we have continuing cuts to further education, a failure to recognise the importance of vocational education, and pressure on schools to teach learning by rote instead of the flexible skills that young people need for tomorrow’s economy.
Low productivity leads to low pay, and low pay leads to job insecurity and growing levels of household debt. Just like before the crash, Britain now faces a credit bubble based on an unsustainable housing market. The huge increase of people in work forced to claim benefits to top up poverty pay illustrates just how shaky our economy has become.
It is in places such as Croydon that the Government should be looking to boost productivity. I hope the Chancellor will fully back our Labour council’s bid for a Croydon growth zone by agreeing to the local retention of business rate growth and stamp duty in order to kick-start a £9 billion programme that will create more than 23,000 new jobs, build 8,000 new homes and invest in one of London’s fastest growing tech hubs. Ambitious, creative investment such as that is the first step to higher productivity and a more efficient economy. But we cannot build sustainable economic growth on poverty pay, household debt, low skills and job insecurity. A failure to invest might create a short-term boost in profits, but in the long term it leads to decline.
The Government are planning legislation that will take away workers’ rights. It is a huge mistake to think that the only way to be pro-business is to be anti-worker. Our economy can succeed only if we are both pro-business and pro-worker. Instead of a fresh round of anti-union laws that leave people even more insecure, the Government should give workers a more direct incentive to share in the fortunes of their employer. Workers on company boards and the right to shares in an employer’s business would encourage the workforce to share in the sacrifices sometimes necessary to boost productivity. A bigger voice for workers would allow companies to benefit from the insights of their own employees.
17 Jun 2015 : Column 414
One of the big causes of the crash was a lack of accountability in the banks, which led to cheating and uncontrolled risk. Improving the accountability of firms to their own workforce and customers could help reduce that risk in our economy. Britain has no statutory right to request employee ownership when a company is being dissolved or sold, and we lag behind the rest of the EU in legislating for workers on boards.
It is a crying shame that the Government treat Britain’s workforce as a problem to be contained, rather than a resource to be harnessed. Britain cannot build sustainable economic growth on low productivity, low skills, low pay and low investment. We need the precise opposite to give our people the opportunity to make the most of globalisation and the digital economy.
6.6 pm
Kevin Hollinrake (Thirsk and Malton) (Con): I am grateful for the opportunity to speak in this important debate. It is also a pleasure to speak after the excellent maiden speeches we heard from the hon. Member for Sheffield, Brightside and Hillsborough (Harry Harpham) and my hon. Friend the Member for Hertsmere (Oliver Dowden).
It is important to look at productivity in the context of the overall economy. Productivity is not a means to an end, but an end itself. We must look at the reasons we have difficulties with productivity. We must avoid short-term thinking, let the positive effects of the past five years take hold and take a long-term approach to making progress on the issue. The overall economy is doing well; employment is up by 2 million since 2010, and in 2014 ours was the fastest growing major economy. On 8 June the CBI said that we should expect
“solid, steady and sustainable growth”
with rising incomes. Business investment is making a strong contribution to growth. It is important that we do not damage what we have already achieved. We need to look at the facts behind the data, including the fact that oil and financial services are skewing the figures on overall economic and productivity gains.
The key determinants of productivity are competition, regulation, investment and education. In my experience, the best way to drive productivity, efficiency and innovation is by encouraging competition. When a business person is faced with stiff new competition, time and again they raise their game, work harder and motivate their staff. Some 70,000 new private sector businesses were created in the previous Parliament, creating 2.3 million jobs. The Government are doing what they do best: setting the stage and letting business get on with creating the jobs.
On regulation, there is now less red tape in this country than there was five years ago. In 2010 we had the second highest level of red tape in the G7, but we now have the lowest. Some 50% of businesses want the Government to focus on reducing regulations. Labour introduced six new regulations every day. We must have a Government who understand business. This Government want to cut the costs of red tape by £10 billion over this Parliament.
We need to encourage investment. We must invest in human capital, have better links with schools and universities and move over time towards the living wage. Tax credits are an employment subsidy, and
17 Jun 2015 : Column 415
subsidies create complacency and inertia. We need a long and stable tax regime. Capital allowances must be consistent, because businesses need a long-term understanding.
James Cartlidge (South Suffolk) (Con): My hon. Friend makes a brilliant point about tax credits. As a small business owner, I was shocked to receive a call from one of my staff saying that they did not want the pay rise I had just emailed them about because they would lose so much in tax credits. Is this not a crazy dependency culture that is holding back productivity?
Kevin Hollinrake: Absolutely. We need to move towards a living wage over time. Rushing to a living wage too quickly might put jobs under pressure, but I believe that we should move towards a living wage over time and in consultation with business.
We need low and consistent corporation tax, which is what the Government are delivering. Governments should do less, not more, and the tax regime should be the same not only in one year’s time, but in 10 years’ time. Of course we need investment in infrastructure, such as roads, railways and broadband. That is particularly important for those in the hardest-to-reach areas, because rural businesses want a level playing field with those in urban areas. The VAT threshold of £82,000 is prohibitive, because businesses that want to invest but do not want to go over the threshold do not take on new employees and do not invest in new technology for fear of losing a significant amount of their profits.
In conclusion, statistics are important, but they are no substitute for judgment. Our judgment, and the judgment of the people of Britain, is that things are getting better. This is certainly the most business-friendly Government I have ever known. They have done the right things to give businesses the chance to start, grow, prosper and produce more.
6.11 pm
Bill Esterson (Sefton Central) (Lab): I think that business will take a rather different view if Conservative Members take us out of the EU, as some of them are hellbent on doing.
I congratulate the hon. Member for Hertsmere (Oliver Dowden) and my hon. Friend the Member for Sheffield, Brightside and Hillsborough (Harry Harpham) on their excellent maiden speeches, and you, Madam Deputy Speaker, on your election. This is the first time that I have served under your chairmanship.
Government Members talk about the difficulties in oil and gas as though they are the only reason for the low productivity in our economy, but they are not the only cause. Since the crash, we have seen weak investment in new equipment; a lack of bank lending, despite the attempts of the Treasury to boost it—or perhaps because of those failed attempts; problems in infrastructure; and challenges and difficulties in respect of skills. All those factors have played a part in the low productivity and weak recovery that we have seen, alongside a fall in living standards, since the crash.
Debbie Abrahams (Oldham East and Saddleworth) (Lab):
Another issue for small businesses is late payments. Businesses spend hundreds of thousands
17 Jun 2015 : Column 416
of hours a year chasing late payments, but the Government did little about it in the last Parliament. I hope that they improve their record in this Parliament.
Bill Esterson: That is an excellent point. The uncertainty for business, which has contributed to a lack of investment and the other problems that I have touched on, is not helped by the treatment of small and medium-sized businesses by some larger businesses in the supply chain.
Andrew Bridgen: It is certainly true that business hates uncertainty. There was a drop-off in business investment in the run-up to the general election, but that was because of the uncertainty over who would be in government and the fear of business that there would be a hard-left Labour Government.
Bill Esterson: I take it from the hon. Gentleman’s intervention that he will support, with every fibre of his being, the yes campaign in the EU referendum to avoid the damage that would be done if this country left the EU. I welcome his conversion to the cause.
Government Members have talked about the jobs that were created under the coalition over the past five years. Let us be clear that those jobs were created by private businesses, not by the Government. I think that the Government have shown a worrying complacency, given that we have had the weakest recovery since the war and that productivity has been so low over the past seven years, decreasing by 0.5%. It has been pointed out that that productivity has gradually started to inch up, which is welcome.
In the analysis by Government Members, I see little evidence of skills development for workers in predominantly low-paid jobs. In my constituency, a third of people in work now are paid less than a living wage. That is not a recipe for high living standards or an improvement in their day-to-day lives. We need an increase in productivity. That will help to lead to higher paid jobs, and that comes from skills and from the kind of investment I have talked about.
We heard from another colleague that the scale of the problem with productivity in this country is that output per hour is 17% below the G7 average and 31% below that of the United States. Unless that picks up, the sorts of problems I have mentioned with the very high number of low-paid jobs will continue. We will end up with an economy that relies on low-skill, low-wage employment and see a continued fall in living standards. Let us remember that since 2010, people in work are on average worse off by £2,000 a year. There is a very long way to go to make up that shortfall.
I want to talk about one particular skill that historically we have really struggled with: management. I want to talk about the role of managers and leaders in motivating and getting the best out of staff and organisations, whether in the public or private sectors, and the role that that has to play in raising productivity. Some 85% of people in a professional occupation have a higher education qualification, but only 44% of people in management roles have a higher education qualification. We just do not regard management and leadership in this country as high-quality roles. We do not treat them with the importance they deserve. There is not an automatic understanding that management and leadership
17 Jun 2015 : Column 417
are skills in their own right, and that leads to a number of problems. We need to regard them far more highly.
Before I came to this place five years ago, I worked in training and development and went into a lot of large organisations. Typically, the problem was with middle-ranking management—or that was the analysis given by senior managers. We often discovered that in fact the real difficulty lay with the senior management and leadership as well. That is a real problem. The importance of having good management and good leadership should not be understated in any discussion of productivity. Employee performance is linked to how well people are looked after. Yes, remuneration is important, but often it is the motivation, the way they are treated and the way that management behaves that are critical. [Interruption.]My hon. Friend the Member for Blaydon (Mr Anderson) behind me uses the right word: respect. That is absolutely crucial. If we want to improve productivity and compete internationally, we have to look at management as a skill, along with all the other factors that hon. Members have mentioned.
Madam Deputy Speaker (Natascha Engel): Order. Many people want to speak and there is very little time, but if we do not have interventions there is an outside chance that everybody will get in. I just wanted to remind people of that.
6.18 pm
Julian Knight (Solihull) (Con): Thank you, Madam Deputy Speaker. I am particularly delighted that I may not be taking an intervention on this, my second speech to this place. I congratulate my hon. Friend the Member for Hertsmere (Oliver Dowden) and the hon. Member for Sheffield, Brightside and Hillsborough (Harry Harpham) on their very fine maiden speeches.
Productivity is an excellent subject to debate, because raising this nation’s productivity has been the economic elephant in the room for a generation or more. Why is it that we beat many of our larger continental rivals on measures of economic performance and, crucially, employment, and enjoy the benefits of a flexible and vibrant labour market, yet our productivity per worker is lower than that of both France and Germany?
It is good to hear the Opposition mentioning business, although seemingly only in soundbite form. I think we often lose sight of the simple fact that every penny we earn as a country—every job and every sum spent by the public sector on schools and hospitals—comes from business ultimately. It seems, however, that the language used by the shadow Chancellor in particular and in the more left-leaning press has the air of productivity being the latest economic criticism cab off the rank, this week’s crisis of choice. The Opposition have talked of numerous supposed crises in recent years: we were apparently cutting too far, too fast; then we had the double-dip recession that now, it seems, never took place; then the domestic energy crisis; and finally we had the cost-of-living crisis, whereas, as we know, real incomes are now moving ahead, while inflation is at a generational low. All the time, the UK economy has been beating expectations.
17 Jun 2015 : Column 418
It is good that the Labour party has now settled on productivity, because it is a far longer-term challenge that we must meet, but it has chosen the wrong path to meet this challenge, if the policies of the past few years are anything to go by. More big state; taxing entrepreneurs and wealth creators—this is not a passport to productivity. It is quite the opposite. In addition, Government borrowing matters hugely to productivity. If we have runaway borrowing, eventually we will have higher interest rates for businesses and individuals, while the debt interest repayments will mount up for the Government and in turn damage public investment.
The Government’s first job is to get their finances in order and create certainty for business to invest and individuals to strike out on their own. Where the Government can play a key role is through the education system. Young people need many different options when they leave education, and in my constituency the biggest employer, Jaguar Land Rover, is very involved in local schools, offering apprenticeships. Universities should be among a suite of options for young people, so I am delighted that the Government are moving ahead with their apprenticeship agenda.
Another area where the UK can draw a lesson from Jaguar Land Rover is in exporting to the right countries. It was a travesty that when the coalition Government came to power in 2010 we traded more with Ireland than with the BRIC nations, and I applaud the Prime Minister’s efforts in this area. The truth is that we must look to trade with everyone, as this will bring in the necessary outside investment, skills and different perspectives.
We have allowed people to live in a state of dependency. For far too many, welfare has become a handout rather than a hand-up. Welfare reforms are a crucial means to get people economically active and contributing rather than receiving from the state. This raises productivity. And please, let us never again hear, “It’s the wrong type of job”—a regular refrain from Opposition Members. A job is a job, and from humble starts superb careers can be built. There is a cultural snobbery factor when it comes to work, which this country needs to address. All sides need not only to talk the language of business, but genuinely to understand that it is a transformative bringer of social good—more so than the state.
6.22 pm
Thangam Debbonaire (Bristol West) (Lab): I congratulate you, Madam Deputy Speaker, on your recent election. I also congratulate the hon. Member for Hertsmere (Oliver Dowden) and my hon. Friend the Member for Sheffield, Brightside and Hillsborough (Harry Harpham) on their excellent maiden speeches.
Across my constituency, young people are struggling to manage in working conditions that reduce their productivity and blight their futures, as well as costing the economy and the taxpayer. Low-wage, insecure and zero-hours contracts, under which an employer binds a worker to them but without offering a guarantee of work, are a negative force working against productivity. I will tell the House what life is like for a young man I met recently in Bristol West. On Monday, he gets up to a text message telling him to turn up for work, but when he gets there, he finds there is no work. He has spent
17 Jun 2015 : Column 419
money on the bus fare, so he walks home to save the £2 and so that he can spend something on food. By Friday, this pattern has continued, so he has only had two days’ work and has had to walk home every day.
This young man is tired, he is anxious, he cannot save and he does not contribute to his local economy, beyond paying rent and buying the bare minimum of food. He dare not speak up, and he does not have a trade union to represent him, because his employer has warned him against joining one. His employer regularly pays late and less than he was expecting. He does not get training and does not develop his skills, and therefore he feels no loyalty to his employer and has no motivation to increase his output. His health, both mental and physical, suffers. He contributes little to the local economy, and he barely manages to get by. And we the taxpayers are subsidising these poor employment practices because we have to top up low wages. We the nation suffer, as economic growth remains stagnant, insecure or unstable.
In Bristol West, we have employers who understand that, and there are some who invest in training and skills and do not employ staff in such low-wage, poor and insecure conditions. If the Government wish productivity to increase, they could start by encouraging, enabling or, if necessary, requiring employers to treat their workforces with respect, to pay them properly and invest in them. They could also invest in the infrastructure that we all need to ensure that employees can arrive at work on time, healthy, educated and decently housed. If the economy is picking up, as the Government claim, no business should need to resort to zero-hours contracts.
If the Government do their part and invest in transport, health, housing and education, businesses should do theirs. They should not rely on the taxpayer to pick up the tab, or on exploited workers to accept such poor conditions. That would help businesses as well, as was pointed out earlier by my hon. Friends the Members for Newcastle upon Tyne Central (Chi Onwurah) and for Croydon North (Mr Reed), as well as other Labour Members. I urge the Government to invest in that infrastructure, and also to draw attention to the excellent businesses—in Bristol West and beyond—which treat their workers properly, and do not use zero-hours contracts. They must encourage businesses who fail to treat their workers with humanity to change their employment practices, and help them to recognise the business benefits to their own output of doing so. That will increase worker productivity, which in turn will lead to sustainable economic growth throughout the country.
Worker productivity is directly affected by conditions of employment. I urge all businesses, and the Government, to take seriously what Labour Members know is true. Many of us have spent our lives campaigning for better conditions in workplaces. I urge the Government to end the scourge of exploitative employment practices, particularly zero-hours contracts and insecure pay.
6.26 pm
Chris Philp (Croydon South) (Con): It is a pleasure to follow so many excellent maiden speeches, and such a passionate speech from the hon. Member for Bristol West (Thangam Debbonaire). It is a particular pleasure for me to speak in this debate. Over the past 15 years, I have set up and run businesses of my own, one of which I managed to float on the stock market.
17 Jun 2015 : Column 420
It is interesting that Labour Members chose this topic. It is rather like the dog that did not bark. Let us think about all the topics that they might have chosen, but did not. They did not choose employment; that is no surprise, because it is at record levels. They did not choose unemployment; that is no surprise, because it is at its lowest levels since 1975. They did not choose the deficit; that is no surprise, because it has halved. They did not choose inflation; that is no surprise, because it is zero. They did not choose wage growth; again, that is no surprise, because it is now running at 2%. Instead, they chose to focus on this one economic indicator. What the shadow Chancellor forgot to mention when he reeled off the recent figures was the level of productivity during the last year of the Labour Government. In 2009, productivity fell by 2.6%, which was a far bigger drop than we saw in any year during the last Parliament.
It is fair to say, however, that international comparisons suggest that there are opportunities for improvement. It is also instructive to compare different sectors. As we heard earlier from my right hon. Friend the Member for Wokingham (John Redwood), both the oil and gas and the finance sectors have declined somewhat in the last few years—for reasons that he explained— and they were among the most productive sectors. Nevertheless, there are a number of industries from which we can learn, most conspicuously the automotive and aeronautical manufacturing industry, whose productivity has grown by a staggering 56% in the last six years. A British worker now manufactures, on average, 11.5 cars per year, up from just 9.3 five years ago. That is an impressive improvement.
Both the Institute for Fiscal Studies and the Bank of England have published interesting reports on this subject, which I sincerely commend to fellow Members. They cite as a general cause of declining productivity —not specific to the United Kingdom—a lack of accessibility to capital that could be invested in better plant and machinery, combined with cheap labour. Firms are tempted to be lazy and hire such labour, rather than investing in machinery or technology.
I am pleased that, in the last five years, the Government have taken action to deal with both those issues, most recently by raising the minimum wage by 3%—the largest increase since 2008—and by encouraging banks to lend more. I hope that in the next five years they will continue to increase the minimum wage and encourage banks to lend more to operating businesses, because I believe that both those measures will help to address the productivity issues that have been raised today.
The Government have taken extremely compelling action in a number of other areas, not least in reducing energy costs, in rolling out broadband, in reducing regulations—£10 billion in the last Parliament and the same again this year—and in reducing corporation tax to just 20%, the lowest level in the G7. In the light of all that, it is no wonder that we are growing so strongly and that wages are now growing by 2% a year. In my view, that is a leading indicator of productivity increases. I am delighted to be supporting the Government’s record and I look forward to it continuing for the next five years.