The Minister spoke about encouraging innovation. When it comes to R&D, the Royal Society has produced some interesting figures. My noble fried Lord Rees was an eminent president of the Royal Society, and the next president, for the first time ever, is going to be an Indian. Sir Venki Ramakrishnan is a Nobel laureate and a fellow at Trinity College, Cambridge, where my noble friend Lord Rees was master. Cambridge University has produced more Nobel prize-winners—90—than any other university in the world. Within Cambridge University, Trinity College alone has produced 32 Nobel prize-winners. According to the Royal Society, 51% of productivity between 2000 and 2008 was due to innovation. The Royal Society has also noted that firms that invest consistently in R&D are 13% more productive than those that do not.

Today I had a meeting with the Secretary of State for Defra, Elizabeth Truss. I was informed that Britain’s food and drink industry is bringing 16,000 new products to markets per year. That is brilliant; it is more than the figure for France and Germany combined. This is extraordinary and very exciting, and there is a new initiative being promoted which I am delighted to be supporting.

The UK is great at research. Figures from the Royal Society show that, with less than 1% of the world’s population, we achieve 3.2% of global R&D expenditure. We have 4.1% of researchers globally and we produce almost 16% of the world’s most cited academic articles. This is in spite of the UK Government hugely underinvesting in research and development as a percentage of GDP. They invest 0.49% of GDP in R&D compared with 0.67% invested by OECD countries and 0.76% invested by the US. The figure for Germany is 0.85%. Does the Minister accept that we should increase government expenditure on both higher education and R&D and innovation? The Government talk about the science budget being ring-fenced. As it stands, it is not protected from inflation and is going to go down in real terms. Does the Minister accept that?

Our universities are also being stifled by the Home Office and, in particular, by the Home Secretary’s economically illiterate policies on immigration, removing the two-year post-study work visa for foreign students—75% of the population think that they should be allowed to stay on and work if they want to—having a target to reduce net immigration to the tens of thousands and continuing to include students in the immigration figures. Does the Minister agree that foreign students should be removed from the Government’s immigration statistics and targets? Is it any wonder that the number of students from India has declined by 50% in the last five years?

I was recently appointed as a president of the UK Council for International Student Affairs. ·Is it any wonder that 51% of foreign students feel unwelcome? Is it any wonder that, when the Home Secretary makes statements saying that foreign students should leave the day they graduate, headlines from India read: “Graduate, then get the hell out!”. Foreign students are one of our greatest forms of soft power, with the vast majority returning to their country of origin as

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ambassadors for Britain for years—for generations—to come. I am the third generation of my family, from both sides, to have been educated in this country. One in seven world leaders has been educated at British universities, including Greece’s current and former Finance Ministers. Dr Manmohan Singh, the former Prime Minister of India, was a graduate of Oxford and Cambridge. Foreign academics make up 30% of academics at our top universities, including Oxford, Cambridge and the University of Birmingham. These Immigration Rules and negative perceptions are damaging our universities and directly damaging our productivity. Does the Minister agree? We should be attracting foreign graduate entrepreneurs, for example by using the Sirius scheme of UKTI, which is brilliant.

We should of course invest more in infrastructure. As regards the airports report that has just come out, we should expand both Heathrow and Gatwick. The noble Lord, Lord Desai, spoke about investment. I am proud to say that private industry is doing its job. My joint venture partner Molson-Coors has invested £80 million in the biggest brewery in the country, in Burton-on-Trent, where we brew Cobra beer, by upgrading our bottling and packaging to make it world class, and improve our quality and productivity. I recently chaired an event in Parliament for entrepreneur-to-entrepreneur exchange, at which Sherry Coutu spoke about her scale-up report. If we close the scale-up gap, the estimate is that it will be worth an extra £225 billion and 150,000 jobs in the next 20 years. Does the Minister agree that we should have a Minister responsible for reversing the UK’s scale-up gap?

In conclusion, we have a lot going for us in this country. We have world-class capabilities and institutions —whether they are the Royal Society, institutes of engineering, livery companies, high-end aerospace, lawyers, accountants, beer, cars, JLR or Tata. They are shining examples. Just imagine how much better we would be if we invested more in higher education, better schooling, R&D and innovation, and had a sensible policy on immigration. We are great; but in the words of Saint Jerome:

“Good, better, best. Never let it rest. ‘Til your good is better and your better is best”.

8.57 pm

Baroness Harding of Winscombe (Con): My Lords, it is a great pleasure and honour to speak in this debate. I must declare an interest not in either football or cricket but as the chief executive of TalkTalk, the ISP, and as a non-executive director on the Court of the Bank of England.

I welcome not only this debate but the renewed focus across the Government on productivity. I take a moment to remind ourselves why raising productivity is such a good thing. History is littered with examples of nations that have sought to resist it. Many of the technologies and innovations that have spread the greatest prosperity were initially resisted by those who thought defending the status quo was the best way of guaranteeing living standards and protecting their political power.

For example, I should like to take noble Lords back to 1445, when the first printing press was invented in Germany. In 1473, the next one appeared in Budapest.

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In 1476, a printing press arrived in London. In 1485, the Ottoman Sultan issued an edict banning printing in Arabic. It took 300 years before the first printing press began work in Ottoman lands. As a consequence, the adult literacy rate in the Ottoman Empire in 1800 was 3%. The adult literacy rate of males in the UK at the same time was 60%, and 40% among females. With that came the associated difference in skills, productivity and wealth. There are thousands of other examples, including Elizabeth I, who refused a patent for a knitting machine for fear of the political unrest that the loss of jobs from hand knitting would create, and boatmen in Germany who sank the first rudimentary steam engine as early as 1705 for fear of what it would do to their industry. The lesson from history is clear: the societies and economies most open to innovation are the ones that benefit most from the growth it brings, while closed societies lose out.

Britain led the Industrial Revolution, not by chance but because we as a nation embraced the technology of the age with more vigour and skill than our rivals and our politicians refused to kow-tow to the elites of the day who had most to lose from the emergence of those new technologies. As many noble Lords have said in this fascinating debate, today’s challenge is to replicate that with the technology that will define the next century. That means, as the noble Lord, Lord Stoneham, said, fulfilling Britain’s potential to be the world’s most advanced digital nation. Much like the invention of printing, steam power or factory automation that underpinned the Industrial Revolution, the digital revolution is a classic example of the sort of change that might be resisted because of a fear that it threatens the jobs that we have today. In doing so, we risk turning our back on the high-skilled, high-paid jobs of tomorrow. We might succeed in resisting change for a couple of years—probably not for as long as the Ottoman Empire did—but the only long-term beneficiaries of that will be our rivals, who will grow more prosperous at our expense.

We need to be much more confident in embracing and explaining the benefits of technology-based innovation. Contrary to the notion that somehow it will threaten jobs, European Commission research shows that 75% of the value created by the internet is in traditional industries. It helps small businesses trade with new markets, allows them to source cheaper suppliers and reduces running costs, which can be reinvested in traditional growth. To put that into context, according to the Copenhagen Business School, if the UK automated to the extent that Germany has, productivity would rise by 22%. That is growth we can ill afford to lose.

Britain can be rightly proud of London’s status as one of the world’s leading technology hubs. Since 2010, London’s digital sector has grown by 46%, now employing 200,000 people. Research by EY shows that London is now the most attractive place in Europe for international technology companies to invest. That is a success story truly to be proud of, but the challenge is to ensure that it is a national success story, not just a London success story. I do not believe that there are any magic bullets to achieve that, but I would like to highlight two small but essential components.

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First, there must be a relentless focus on the digital skills that will define tomorrow’s economy. The noble Lord, Lord Bilimoria, spoke very eloquently and passionately about the importance of further education. I would like to talk about skills and education at a much more fundamental level. Across the UK today, 10 million adults lack basic digital skills, by which I mean the ability to send an email, do a web search or fill in an online job application. Contrary to popular perception, they are not all beyond retirement age—50%, some 5 million people, are adults of working age. That is a huge drain on our national productivity.

I am proud to serve on the board of Go ON, the national digital skills charity, which is doing a lot of work across the country with different businesses, local government and charities. But charities alone will not close the gap. There is a very significant political focus on all sides of this House on digital infrastructure, and with significant public funding going into it, but almost none and no discussion about the skills that people across the country will need to use that infrastructure. Just as basic literacy was needed several hundred years ago, driving basic digital skills across the country requires leadership from government. As my noble friend the Minister pulls together the detailed action plan behind the Government’s productivity plan, I urge him to consider how building universal basic digital skills into that agenda can happen.

Secondly, we have to address the physical and cultural barriers that contribute to the productivity gaps that we see in different regions across the country. ONS data show that London has higher levels of productivity than any nation or region in the UK—almost 29% higher than the UK average in 2013. Left unchecked, that gap will undoubtedly entrench economic inequality and poorer living standards in the worst-affected regions.

I feel that very personally, as the chief executive of a business that has quite a large number of people based in London but more people based in the north-west. TalkTalk has two sites in London, one in Farringdon and one in Shepherd’s Bush, and two sites in the north-west, one in Warrington and one in Irlam. Coincidentally, both are seven miles apart from each other, in the north and in London. It is considerably easier for my people to travel between Farringdon and Shepherd’s Bush than between Warrington and Irlam. It is also culturally easier to do that. We find fantastic talents in the north-west as well as in London, but persuading people to move from a job in Warrington to a job in Irlam is considerably harder than it is to persuade people to move to take a job in Farringdon versus a job in Shepherd’s Bush. So as a CEO of a business whose heart and soul is there, I am delighted to see the focus on building a northern powerhouse. It is clear that it is intrinsically linked to better infrastructure, but the political and social leadership to create a broader cultural entity is just as important. That does not mean turning the northern powerhouse into one amorphous entity—Greater London is not that at all. It is totally different whether you live in Bexleyheath, Clerkenwell or Highgate—just to mention three—but everyone in the Greater London catchment is part of that world-class talent base. There is just as brilliant talent in the north. We need to invest in it and create

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the political and social infrastructure that will drive it. It is fantastic to see this Government bringing that to bear.

As a chief executive who passionately believes that Britain can be a real leader in the digital economy, I welcome the focus on growing productivity. It has been hugely heartening to hear the number of contributions this evening focused on the digital economy, because it is undoubtedly our future.

9.06 pm

Lord Rees of Ludlow (CB): My Lords, the maxim “if we don’t get smarter, we’ll get poorer” becomes increasingly germane to the UK as our economy and public services become more dependent on the high-tech sector and high-skill individuals. There are three interlinked prerequisites for higher productivity: better education and training at all levels, from school to PhD; excellent R&D, exploited here; and success in attracting and retaining mobile talent.

As regards the first of these, there is real concern. The UK is a laggard in educational attainment levels at the secondary school stage. This aggravates the life-chances for the cohorts whose job prospects are already blighted by current austerity. That is why we should welcome greater emphasis on apprenticeships and on a more appropriate curriculum for the 50% of 16 to 18 year-olds who are not aiming for higher education.

There are currently too few schoolteachers with specialist subject knowledge. More than 20% of mathematics and chemistry teachers, a third of physics teachers and more than half of computing teachers in state-funded schools in England have no relevant post-A-level qualifications in the subject that they teach, and language teaching is equally dire. There have been many initiatives here. The best hope lies in expanding the number of well-qualified people who transfer into teaching mid-career.

My own experience is of university teaching and research, so I will now focus on this and declare an interest as a member of Cambridge University. We are mindful of the need to transition academic expertise into the wider economy. I think our Cambridge network exemplifies how this can happen if the environment and sociology are right.

The country’s R&D effort depends on both public and private investment. An impressive recent study by Jonathan Haskel and colleagues at Imperial College revealed that there were symbiotic links between public and private investment. There is a “crowding in” effect whereby publicly funded R&D enhances the amount that is privately funded and incentivises the attractiveness of this country to foreign companies and investment. But, as we all know, both private and public levels of investment are low by international standards, and industrial research is concentrated in rather few sectors. According to 2012 data, the percentages of GDP spent on private and public R&D were 3.32% and 1.04% respectively in South Korea, which is top of the league, and 1.23% and 0.5% respectively here. And we are far below the US and Germany.

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Just today, there is a letter in the FT from senior figures in the pharmaceutical industry urging the need for enhanced public R&D if we are to sustain competitiveness. Of course, we are lucky that medical charities donate £1.3 billion annually—one-third of all publicly funded medical research.

Incidentally, R&D levels within all government departments have undergone sustained long-term decline. They are down by a factor of more than three since 1980 and by a factor of more than two since 1994. This signals a worrying loss of expertise in parts of Whitehall where policy and procurement choices should be based on high-quality strategic advice. We need to adopt the right priorities in infrastructure and energy decisions. Let us learn from the dismal tragedy of nuclear R&D. Our national labs were once world leaders. Now, if we have any nuclear power, it will be state-owned—but by the French or Chinese state.

I will focus now on university research. Recent steps towards restoring pre-austerity levels of capital investment are welcome. But the flat cash settlement over the past five years means that the cumulative erosion of the ring-fenced science budget since the 2010 spending review amounts to more than £1.1 billion. The research community has made large savings through equipment sharing and multi-institutional alliances, but this cannot continue indefinitely. That is why the new spending review is crucial for science and why we need to close the gap between us and other major countries to which the noble Lord, Lord Bilimoria, referred.

Cuts to research and innovation in the 1980s drove many leading UK scientists to the USA. Today, generous investment in research by Governments across the world, coupled with austerity at home, risk creating a similar exodus. Perception is important, too. If we are perceived to be on a steeper upward gradient than other nations, we will get more than our share of the best talent. Our cost-effectiveness will rise. Conversely, if perceptions are pessimistic, as I fear they are, we will not merely end up with less research effort, but what we are left with will be less cost-effective. We should welcome brain circulation but not a brain drain.

A recent RAND Europe study of the worldwide correlation between research funding and output revealed, importantly, that it takes at least three years for a decline in real-terms funding to manifest itself in publications and other indicators. This is ominous because it means that we may not have seen the full downside of recent stringency, and it makes it even more urgent that we reverse the trend.

Current visa restrictions and Home Office rhetoric are real own goals. I will cite my own experience. I am based in a small Cambridge department that is world-class academically. Our last five faculty vacancies were filled by outstanding foreigners, three from outside the EU. Just last week, one of them told me that he thought it would be harder to attract people such as him now than it was when he joined us because of these perceptions.

Along with their status as research powerhouses, the most important output of universities is their graduates—both undergraduates and postgraduates—who will follow careers in all walks of life. If universities cannot attract or keep the best faculty, it will impact negatively on the quality of output of the students.

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Here, the UK has an opportunity to enhance teaching through the world-leading Open University and its FutureLearn platform. Online courses may have been overhyped in the US, but they have a genuine edge, especially at the level of taught master’s degrees, where they enable mature and motivated part-time learners to acquire specialist qualifications. Surely other universities should help by augmenting the OU’s content so that it can expand and enhance the range of such courses, which will have great value not only in the UK but worldwide.

Finally, we should surely all hope that the UK will achieve its proclaimed aim of being the best place to do science and ensure that it thereby helps to enhance national wealth. We need to incentivise international companies to establish research bases in the UK and to encourage enterprise and start-ups. That will require changes to visa rules and public investment in the next five years that narrows the gap with other nations.

9.14 pm

Lord Leigh of Hurley (Con): My Lords, it is always a privilege to speak in your Lordships’ House, and in particular on a subject so vital to the future of the UK economy as our nation’s productivity. A Financial Times columnist—not Smithers, as it happens—wrote recently that:

“Leadership is to politics what productivity is to economics: not quite the only thing that matters but almost”.

It is therefore perhaps apt throughout this debate tonight and the continued tribulations of the leadership elections elsewhere that we can explore the validity of both facets of that claim in a single week.

In the previous Parliament, thanks to the Government’s long-term economic plan, 2 million new private sector jobs were created, and at a time when all across Europe—and indeed the world—unemployment had reached levels without recent precedent. The party opposite said that this was the wrong approach. Indeed, many economists said that it was wrong. They wrote letters in the national press saying that reductions in public sector jobs would not be counterbalanced by private sector job creation. They were wrong. They said that reductions in public spending would lead to recession. They were wrong. Beware of economists making predictions, and I speak as someone with an economics degree who learned of JK Galbraith’s famous comment that:

“Economics is extremely useful as a form of employment for economists”.

Many of those same critics and commentators are now, in the face of these consistent growth and employment figures, being tempted to move the goalposts and say that it has all been the wrong kind of growth or that high employment has come at the expense of productivity growth. That is a claim worth examining, and we should always look for ways to increase productivity. But first we should state clearly, as we have done, that we make no apology for keeping people in work, and helping those without to find work. At a time of financial crisis and recession, there is a moral imperative to look beyond the economics to the human cost of unemployment. The Government can be proud that they have done so.

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We should also be careful as to how much weight we give to recent productivity data. The only consensus emerging on Britain’s so-called productivity puzzle, as the Minister said, is that the way we collect the data needs updating. Furthermore, we should question whether today’s modern knowledge economy is measurable using the techniques of yesterday. The creative and service industries are being continually overlooked in favour of heavy industry. That is why I welcome, as does my noble friend Lord Flight, the review of how we collect economic statistics that is being undertaken by Sir Charlie Bean, who as part of his mandate will,

“assess the UK’s future statistics needs in particular relating to the challenges of measuring the modern economy”.

Before examining ways to improve productivity, on the broader economic debate, it is worth reflecting on what we do know. The latest GDP figures suggest that the UK economy grew by 0.8% in Q2, and on what is perhaps the most unambiguous measure—the tax take—the numbers are in rude health, with July showing record income tax receipts leading to £1.3 billion surplus for the month. I am confident that in January 2016, with the second payment of this last tax year, they will be equally positive and surprisingly healthy, all of which will reduce public borrowing requirements and help speed the path towards an overall surplus as set out in the summer Budget.

However, neither the strength of the economy today nor ambiguities in the statistics should mean that we do not continue to look for ways to improve our productivity. As the Minister mentioned, it is good to see that the Government are not showing any complacency and I was pleased to see that Sir Charlie Mayfield’s taskforce had been set up by the extremely industrious Secretary of State for BIS, Sajid Javid. It comprises a business-led action group for productivity—not full of politicians.

As part of the summer Budget, the Government published Fixing the Foundations, a comprehensive strategy to boost productivity. It sets out not just the challenges of boosting our productivity to reach a leading position, but also the rewards for doing so. Increasing annual trend growth by just 0.1%, a much more modest figure than the noble Lord, Lord Bilimoria, would seek, means that the UK economy would be £35 billion larger by 2030, which equates to £1,100 for every household. The strategy sets out numerous ways to achieve this important goal based on increasing long-term investment and economic dynamism. It is clear from the early stages that we have to focus on the benefits of flexibility. Traditional attitudes towards the workplace are changing. As of January 2015, the number of freelancers in the UK was growing and they were earning a median income of £42,857, which compares with the national average of around £24,000, and they work an average of 38.2 hours a week. Labour’s approach is simply to criticise zero-hours contracts, which are in themselves an important step forwards to helping productivity, but admittedly on its own not enough to change the way we work and how we measure work.

Others have spoken eloquently about the digital aspects of the economy and ways of improving productivity, on the importance of savings and indeed on education, so I would like to focus on the two areas

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that are of particular interest to me, productive finance and trade. We can analyse skills, innovation and infrastructure but, if capital is not allocated efficiently across the economy, it will be an uphill struggle for every sector. Recent travails should not distract from the fact that the financial services sector remains a huge contributor to the UK economy, and of course I declare an interest as being part of that sector. Financial services contribute £58 billion in net exports, thus contributing 8.4% of gross value added in 2014. But if the crisis has taught us anything, it should be that finance is good for the economy only if it does what it is supposed to do: channel capital to the most productive areas of the economy, creating wealth not destroying it, and fostering growth not hampering it.

Currently, 80% of all finance in Europe comes from banks, and this has to change. With the big banks engaging in much-needed restructuring of their balance sheets, we need a new model of business finance. This means lowering barriers to entry to increase competition from challenger banks, which the Government have correctly identified as an issue. We also need greater diversity of funding sources for businesses looking to grow. In the last Parliament there were many start-ups. This one, I hope, will be where they grow. The Government’s paper is candid about this. Somewhat amazingly, only 3% of start-ups with one to nine employees grow to have more than 10 employees within three years. That is astonishing, and we are well down the OECD’s league table. Having created a whole new generation of small companies, we need to work hard to help them flourish.

Another key plank to rebuilding our productivity is to burnish our reputation as a trading nation, pulling in foreign direct investment and exporting goods the world over. I will not go into the same history lesson as my noble friend Lady Harding, but it is true to say that I am a member of a party that was torn asunder by trade in the 19th century with the repeal of the Corn Laws, which was taken through this House by the Duke of Wellington. Then it was benefits to ordinary consumers that won the day, and that is the lesson.

I have spoken before in this House about our trading legacy and the need to rediscover it: the need to stand up for free trade in the form of trade agreements like TTIP and others with emerging markets, and the need to lead the EU towards completing the single market in services and capital markets; as the leading exponent of both, it would be hugely to our benefit. I know that my noble friend the Minister is leading a trade mission to China next week, and I am sure that he takes with him our best wishes for every success in that important export drive. Trade drives competition and innovation, brings in investment and creates new markets for our businesses to sell to. This in turn creates better-paying jobs and increases living standards. This is not an argument for either staying in or leaving the EU; we can be equally successful either way.

There are many facets to this debate, but I will finish where I started. We are all agreed that productivity is an important issue. It is therefore ironic that the areas I have focused on, trade and finance, attract such ire from critics who purport to be sticking up for working families. But difficult though the arguments

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may be to make that competitive trade policy and efficient financial services are the best way to help these families, as Conservatives I am sure that the Government will continue to make them.

9.24 pm

Lord Davies of Oldham (Lab): My Lords, this has been a most fascinating debate, although I think that I detected a common theme running through many of the contributions, which I guess will probably distinguish it from the debate to take place on Thursday on a Labour Motion. I shall dwell on the relationship between education, training, skills enhancement and the significance of that for improved productivity in a moment. Of course, noble Lords covered a wide range of issues in addition to that theme. I know the Minister will delight in responding to those contributions, including the questions posed by my noble friend Lord Monks. He spoke about the short-term nature of so much British investment and decisions by boards which cost us dearly in comparison with those countries where it is clear that investment runs over much longer patterns and they therefore are able to reap the rewards more effectively. I am sure my noble friend is right that part of that is related to the short-term, massive rewards which go to senior people in British companies.

Should the noble Lord, Lord O’Neill, give an answer to the noble Baroness, Lady Noakes, about the virtues of HS2, I hope he can refute the suggestion that the first payback will be only after £50 billion has been spent. As regards her contribution, I do not think the issue is about the travelling time from London to Birmingham, which is the criteria, but about increasing the capacity of rail to help the economies of northern England as well as the Midlands and their connection with London. I hope that the Minister is well versed in his history because he has heard elements from economic history, which would be quite challenging—whether it is a question of the Speenhamland system, which thankfully gave way to the workhouse, but was not always regarded as the most effective and efficient system of organisation of labour in this country, or whether the digital revolution is critical to our future, as there is no doubt that it is.

I want to dispute what has been put forward so much in this debate. Of course, I recognise the value of higher education in skilling our nation. Higher education would never have been able to expand at the rate it did if it had been able only to concentrate on a small number of grammar schools, at which only a small percentage of children qualified at that time, and their product. Subsequently, we have had aspirations to greatly expand higher education, from which we deserved, and have derived, the benefits that we have had.

Even in this period of crisis, higher education can largely sustain itself. After all, the Government have given it the freedom to enrol as many people as it wishes to enrol. They have guaranteed that the fee income can go up with inflation. As the noble Lord, Lord Bilimoria, noted, universities have access to other resources as well. I am the first to recognise that that may not be quite on the scale of Yale and Harvard, and there will never be a time when we match the

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endowment resources of American universities. But that has not held our universities back from achieving similar levels of excellence and being regarded so highly in the world.

With regard to skills, the issue is not the failure of universities or even their impending doom, because neither is accurate. The problem is the one that the noble Baroness, Lady Harding, and the noble Lord, Lord Stoneham, referred to, of how we enskill the vast majority of our people who are still not going to go to university. The noble Lord, Lord Rees, also recognised that point. We are so far behind. The Government have to recognise this fact. In productivity, we are 17% below the average in the G7, 27% behind France, 28% behind Germany and 31% behind the US. Those are government figures. We have a lot to do. Since we are so behind it is quite clear that we cannot tolerate the very low level of skills in our nation, the skills that are beyond and different from university-level skills. I do not want to say this, but from what I know, American students tend to be waiters while at university in their time away from college. In Britain, graduates become waiters because they cannot find appropriate jobs.

We should think about graduates, but I do not want to concentrate on whether we have sufficient graduates, because I certainly think we have. Nor is the issue resolvable through this wild chase for 3 million apprenticeships, because I do not think that the apprenticeships were anything other than a misnomer. If people are not getting training, if there is no base for the enhancement of their skills, if they are on these contracts that we all recognise are so very limited, the concept of apprenticeships does not serve a useful purpose. We need to concentrate on the skills that Polish plumbers show we are deficient in. We are pleased to see that so many of those who arrive in this country have skills that we have not got in sufficient number in our working population. That is key to the enhancement of our productivity. It means that all of us, including all of us in this House—even those in the Department for Business, Innovation and Skills—must recognise that education goes beyond universities. It is also where further and adult education keep the capacity to enhance the skills that we lack so much in our nation. It also keeps people in touch with the possibility of improving their skills throughout their lives and of being adaptable in a fast-changing economy.

If the Minister says that he agrees with that—I think that he might, because he paid lip service to it in his opening remarks—I have to say this to him: if the universities can sustain their resources, that is not true of further education, which has taken a dreadful hammering under this Government. Some 16% has been cut over the last four years and another 6% was cut in July. We are chewing up the seed corn of our education system. The Government must get beyond the idea that there are only schools and higher education. They have to tackle the points that the noble Baroness, Lady Harding, indicated, namely that we cannot afford for people to be illiterate, in either a literal or a digital sense, in this modern world. That is where the Government have to show that they appreciate the problem and are prepared to back it with the necessary resources. Thus far, there is precious little indication of that.

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If we are to meet the point that my noble friend Lord Desai indicated of how we increase productivity in the caring professions and areas of public service, I say this: the best chance we have of making people better at their jobs, more skilled in the services that they deploy using scarcer resources to better effect, is to ensure that they get the necessary skills and training often provided outside the education system mentioned so often in this House. Therefore, I want this debate to open up for the Government a big challenge on further and adult education. If the Minister cannot respond to that in full this evening I hope that he will go back to the department and give it a little education on the need for change in this respect.

9.35 pm

Lord ONeill of Gatley: My Lords, as always, even in my relatively short time in this place, we have yet again had an incredibly high standard of debate. I am grateful to noble Lords for a considerable number of thoughtful remarks.

I began my opening remarks with a reference to the football match taking place at Wembley. I happened to notice that there is exactly the same number of speakers in this debate as there are who generally participate in one team in a football match—that is, 11. Whatever the outcome of that game and irrespective of whether Mr Rooney has achieved his lifetime ambition of becoming the highest scorer, I suspect that the collective contribution of the 11 noble Lords participating in this debate will be greater.

Baroness Noakes: My noble friend the Minister might like to be aware that England were leading 2-0, and that Mr Wayne Rooney has indeed achieved his lifetime goal.

Lord ONeill of Gatley: I am very grateful to my noble friend for enhancing the quality of our proceedings, making it even better than it was previously.

Before I focus on a number, if not all, of the comments that were made, it is important to comment specifically on the environment and the circumstances in which we are trying to meet this challenge. A number of noble Lords recommended higher levels of spending, notably on education but also in other areas. However, it is important to put this in the context that, despite the rather successful stance on economic policy adopted by the previous Government, the level of net debt as a share of GDP in the UK last year reached its highest level since 1967 of more than 80% of GDP. A central focus of any rational Government, based on plenty of evidence from the recent and more distant past, should be to try to reduce our level of debt significantly below that level. By definition, that will constrain aspects of how the Government prioritise their spending. This has influenced some of the things on which we have chosen to focus our spending priorities, as I outlined in the very interesting debate on the Budget that we had just before the Summer Recess.

I will go a little off-script in trying to respond to all the valuable comments that noble Lords have made. I shall do it in the same team order, sticking with the spirit of this evening. First, the noble Lord, Lord Monks,

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may be surprised to hear me say that I welcome many of the ideas that he mentioned. As we stated in the productivity plan, we are in the process of exploring the whole interplay between long-term incentives to invest and the long-term management behaviour of all participants in the economy, including that of CO leadership. It is one of the reasons why it is particularly helpful, as was pointed out by a number of noble Lords, including my noble friend Lord Leigh, to have Charlie Mayfield and his colleagues leading the separate approach to what business itself can do for productivity. That is very important in the context of what the noble Lord, Lord Monks, said. There are a number of aspects on which I would like to expand. I do not have enough time to concentrate on them now but I am sure they will come up in future discussions.

On executive pay, it is of course the case that more policies have been introduced to give the boards of publicly quoted companies direct influence on executive pay. Even more importantly in terms of the broad productivity argument, the data show that levels of executive pay in the United States are, and have been for a long time, considerably higher than ours and yet its level of productivity is considerably higher. While there are aspects of long-term incentives that deserve considerable investigation and thought, I am not entirely sure that that much of the blame should be laid just on executive pay.

I was somewhat disappointed to hear the disparaging remarks of the noble Lord, Lord Stoneham, about the quality of the productivity plan. I cannot resist mentioning that the typical practice of my previous life concerning a number of empty pages was partly to encourage those who study these things in great detail to use those spaces to make notes to inform their subsequent comments. Moving on to the noble Lord’s more substantive comments, there was a brief reference to the balance of payments, which I will come back to. My noble friend Lord Flight touched on it as well. There are intriguing ongoing aspects to our balance of payments performance that also deserve further detail, which I do not have time to go into, but I will come back to those in a short while.

On the noble Lord’s challenge about the data on superfast broadband, I think I am right in saying, despite his observations on the productivity plan report, that we cited a goal of achieving the capabilities of what appears to be the best in the world: Singapore. In that regard, despite the fact that we have yet to reach the 95% goal, according to the data that I have seen we are significantly ahead of similar developed countries across Europe today. But that is not good enough and we should aim to have the best in the world.

My noble friend Lady Noakes touched on a variety of very interesting topics, including infrastructure projects. It was interesting to hear her particular angle because from many others there was implicit reference to the fact that we are not spending enough on important infrastructure projects, yet she drew attention to one for which a particularly large cost has been discussed. The noble Lord, Lord Davies, also referred to it. It is well known that, in my previous life, I stated a number of views about the relative priority of various train infrastructure projects in the UK. I am pleased to say that despite what appears to be a misunderstanding in

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the media, we are committed to expanding other forms of train infrastructure, including making further progress in the setting up of Transport for the North, which will be a critical part of the delivery of the northern powerhouse.

Turning to the interesting comments of my noble friend Lord Flight, I found that much of what he suggested or discussed gave an extremely good rationale of the Government’s strategy in this five-year term, and in particular on policies to try to induce stronger, sustainable economic growth, and with it efforts to boost savings. My noble friend made a couple of references to the linkage between savings and investments, and during one of them raised the indirect linkage to the balance of payments. Somewhat intriguingly, as another angle on why the analysis of our economic data’s accuracy that Charlie Bean is undertaking is so vital, it is less well-known that in the past couple of years there have been notable improvements in our trade balance, at least in the reported data. The deterioration in the current account is actually coming from the so-called invisibles account. It is probably something to do with the valuation effects relating to the considerable inflows and outflows on the capital accounts, which are an inevitable consequence of our crucial role in global finance.

In so far as some of that savings and investment balance would traditionally be associated more with the trade balance there are, as I say, reasonably interesting signs of some improvement, at least as reported by the data. However, it is inevitably the case that we need to do more to boost the structural performance of our savings rates because, as my noble friend Lord Flight points out, if you look around the world recently, and especially historically, countries with higher savings rates typically have higher investment performance—and, with that, better productivity performance.

The noble Lord, Lord Desai, gave us some interesting statistics from his active time, by the sounds of it, in using our wonderful Library facilities. He made some particularly interesting comments on the reality of how our workforce is split between those employed to produce what are typically regarded as the more highly productive parts of our output and those who are not. I want to touch on a couple of anecdotes relating to my own observations and to comments that came up from other noble Lords, particularly one from my noble friend Lord Leigh. This is related to my focus on the northern powerhouse. It was widely feared in recent years that, as a result of the fiscal strategy and its reduction in public spending, with the loss of public sector jobs, due to the dependency of some regions of the north on public spending those economic regions would be particularly vulnerable. According to the data as produced, however, among the rather encouraging signs in recent developments is that some of these areas, notably the north-east, are showing considerable improvement in their job creation and overall employment performance. Virtually all this is being led by the private sector, which, if sustained, is a very encouraging development.

The other thing I would suggest, linked to the interesting suggestions of the noble Lord, Lord Desai, is that investing in high-producing areas that relate to

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future and current technologies is getting considerable attention, particularly given the role which the British Business Bank may play in supporting such developments. That is something I have had a number of conversations about.

Quickly moving on, I think that the noble Lord, Lord Bilimoria, devoted most of his interesting comments to the topic of education. He knows, from my own past, that I have spent a considerable time in that area, including as a non-executive at the Department for Education before I took on this role, as well as in a number of areas of education philanthropy. I will just pick up on a couple of comments that the noble Lord, Lord Bilimoria, made, not least because they relate to comments made by other noble Lords and focus on very important issues.

Although the absolute level of spending of this and previous Governments on higher education may appear low relative to other countries, I go back to my opening comments: at this particular moment in time, we are constrained by the high level of debt in so many other areas where one would naturally think about wanting to spend more. That is a reality that we cannot lose sight of. However, as the noble Lord, Lord Bilimoria, pointed out, it is remarkably encouraging how well our higher education stands in a global context. If we could achieve the same success with primary and secondary education, on those few measures of international comparison that are available, I suspect that we would have a lot more satisfactory views collectively about our productivity challenge.

If you look in detail at the bits we have discussed in the productivity plan—of course it could have been 162 pages if we had put everything in that we wanted to—there is indeed quite a lot of focus on dealing with educational challenges at primary and secondary level. It also relates to the important points that the noble Lord, Lord Davies, touched on before his request for us to focus much more on higher education. In that regard, I would highlight that the Government are now trying to focus on what you might call coasting schools and, importantly, schools in coastal towns and cities. These are at the core, in the evidence we have available today, of some of these particularly grave education and skills challenges.

Noble Lords made a couple of comments about the success of London. I would link again to my own experiences, which I have mentioned before in this place: the success of London in primary and secondary education in the past 10 to 15 years is, I believe, a particularly interesting case study. We should explore using that example around other parts of the country to achieve improved outcomes, which are very important. It is influencing the thinking of Governments in a number of related areas.

My noble friend Lady Harding gave a very brief but interesting history of the development of literacy, which for me was very educational and which touched again on a number of the areas that I have just referred to in respect of London and skills. One point

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that my noble friend touched on, which a number of other noble Lords did too, was about the supposed success of Germany. I cannot miss the chance to touch on that. Although it is true that productivity in Germany, like in the rest of our G7 neighbours, is considerably higher than ours, what seems to be less well-known is that in recent years Germany has not been so successful with productivity or investment. We have requested the data analysis because there may be something going on in common in a number of countries, which is leading to doubts about how some of this data is being collected.

A number of comments made by other noble Lords touched on the importance of both secondary and higher education. Given the short time I have left, I just reiterate what think I said at the outset and in previous comments: in my judgment, all the different areas of education and skills are probably the most important things that we need to have some success with, if we are to deal with the long-term challenge of productivity; albeit less so with respect to the cyclical challenge.

Given his remarkable history, the noble Lord, Lord Rees, made several comments that are well worth focusing on and thinking about in some detail. In that regard, I shall take them away from this evening’s interesting debate.

My noble friend Lord Leigh, to a couple of whose valuable comments I have already referred, also focused on the important areas of finance and trade. I would put those in the “relatively easy” pot compared to the complexity and depth of the challenge that we need to deal with in education and skills. However, as he noted, they are areas on which we are focused. Trying to increase the number of challenger banks and the competitiveness of the financial sector to provide finance for the economy, and trying to boost our trade with important rising powers around the world—am actively at the centre of that—is a crucial part of our economic policy.

In summary, this has yet again been an interesting debate with some important and powerful contributions on which I want to ponder, reflect and incorporate to frame some of my thinking about the right policy to help in this long-term challenge for the country. I said that increasing our productivity has been the chosen next step by this Government on the path started by the previous one towards a strong and secure economic recovery. Implementing that step and achieving that goal will require action and input from across the whole spectrum, whether it be from industry, academia or policymakers—not least from the Members of this House. I welcome the contributions that have been made by your Lordships this evening and will welcome contributions from all of you and others going forward. I look forward to updating this House on progress on an ongoing basis.

Motion agreed.

House adjourned at 9.57 pm.