Budget Statement

Lord Haskel Excerpts

Tuesday 21st July 2015 Lords Chamber

[Lord Haskel (Lab)]

My Lords, I, too, welcome the focus of this Budget on productivity. On Friday morning, I got hold of this paper and I read it and, yes, the index indicated that the paper was going to deal with the many aspects of productivity that concern us on this side of the House—so, welcome to our concerns, Minister.

I started reading the paper and fairly soon I got the same feeling you get when you take a book out of the library and, after you have read the first chapter or two, you realise that the plot is familiar. Gordon Brown’s five drivers for productivity were all there, but enterprise had been split up into resurgent cities, fair markets, infrastructure and productive finance. That was practically what Vince Cable did when he produced his industrial strategy, as the noble Baroness, Lady Kramer, has reminded us. Okay, the diagnosis has not changed, so what about the medicine?

My friends in business keep pointing out to me that what matters in the end is individual businesses becoming more competitive and raising their game. How does the business plan encourage this? At paragraph 2.13, Sir Charlie Mayfield is going to engage with other business leaders to develop proposals to encourage long-term financial thinking. Yes, investing in science and innovation is an important part of productivity, but where to invest? Sir Paul Nurse has been asked to lead an independent review. In a recent debate, the Minister himself and several other noble Lords were concerned about the way we measure productivity. True enough, on Budget day it was announced that Sir Charlie Bean will review the work of the Office for National Statistics. I think that noble Lords will get the message. There have been endless reviews, but what we need is action. We need action because next April, the low-wage subsidy is going down and the minimum wage is going up, but the IFS has told us that one does not balance the other out, in spite of the additional allowances.

The only way to deal with this is, as I say, for business to raise its game and take practical steps. I do not think that this is unreasonable because the answers already exist, as my noble friend Lord Bhattacharyya reminded us. I have been told by friends that Six Sigma, continuous improvement and lean processing are all tried and tested methods in common use. There is a modern manufacturing centre and catapult in Sheffield to help out. ISO 2001 and matching markets are all known to be effective ways of raising productivity in services, as is connecting everything digitally on standard platforms. I am sure that the Minister knows that. I can tell my noble friend Lord Desai, who is not in his place, that in the hospitality and services sectors, which are very large, productivity goes up when staff are offered a career with a clear pathway and investment is made in skills. That is largely because you get retention. Generally, there are all kinds of digital schemes to raise productivity which are supported by the noble Baroness, Lady Lane-Fox, in her capacity as a promoter.

Success does not hinge on a list of proposals, however worthy they may be. It requires the Government to reshape their political position so that all the signs point to raising productivity, but in this Budget the message is mixed. My noble friend Lord McFall mentioned some of the mixed messages. Rebalancing tax on dividends helps, but perhaps long-term investment would be better served by a higher level of tax relief on capital instead of a small, lower level reduction in corporation tax. Also, is a more generous inheritance allowance an incentive to invest?

There are other pressures. If productivity fails to increase sufficiently but wage growth continues to accelerate, the Bank of England would be forced to raise interest rates more quickly. That will help neither investment nor exports. Our balance of payments deficit has to be tackled. So my point is this: if it is the intention of the Government to help pay for the increased minimum wage and the withdrawal of in-work benefits by raising productivity, practical steps have to be taken, and they have to be taken now. In 12 months’ time, in-work benefits will decrease and the minimum wage will go up. If productivity does not fill the gap, the numbers that the Minister gave us just will not work. We will see yet more poverty and inequality, and especially more child poverty, as other noble Lords have mentioned.

The Chancellor has said that Britain deserves a pay rise. Yes, but we have to earn it, and do so through productivity. We know how to do that and many firms are already doing it, but others must raise their game and meet the challenge—and they must do it now. What are the Government going to do to encourage this?

Economy: Productivity

Lord Haskel Excerpts

Monday 8th June 2015 Lords Chamber

Asked by

[Lord Haskel]

To ask Her Majesty’s Government what action they will take to increase productivity as compared to that forecast in Table 5b of the Bank of England May inflation report.

[The Commercial Secretary to the Treasury (Lord O'Neill of Gatley) (Con)]

My Lords, productivity is a key challenge for this Parliament and a key focus. That is why, before the Budget, the Chancellor will publish a productivity plan, which will be a plan to make Britain work better.

--- Later in debate ---

[Lord Haskel (Lab)]

My Lords, I welcome the Minister to his first Oral Questions. I also welcome his words, but I think that many noble Lords will agree with me that we have heard these promises before. However, manifestly, they have not worked. Why not? Will the Minister agree with me that they have not worked because they do not understand that productivity involves every aspect of our economic life and beyond—a life which is presently dominated by austerity? So, once again, I ask the Minister whether the Government will demonstrate their commitment to productivity by moving on from a life of austerity to a life of productivity.

[Lord O'Neill of Gatley]

My Lords, as your Lordships can tell, I am not yet very familiar with the exact procedural formalities. I apologise, as I should be. I have been immersed in studying issues to do with productivity for a large part of my adult life. It is dangerous to associate productivity improvements with a so-called focus either on austerity or on some other particularly cyclical fiscal policy stance.

We are living through a moment in time when a very large number of diverse developed countries are all apparently showing a dramatic slowing in measured productivity, whether it be Germany, which is generally regarded as successful and whose measured productivity has been even weaker than ours in the past few years, or the United States, which is frequently regarded as a beacon. In my maiden speech last week, as those of your Lordships who were here would have heard, I highlighted a number of factors that will be focused on. When the Chancellor makes his presentation, I think your Lordships will see that those feature highly in the appropriate steps we plan to implement.

Queen’s Speech

Lord Haskel Excerpts

Thursday 4th June 2015 Lords Chamber

[Lord Haskel (Lab)]

My Lords, as a fellow Mancunian, I welcome the Minister to the House and congratulate him on his maiden speech.

Yes, the election and its surprises are behind us, but our economic problems remain. My noble friend Lord Mendelsohn reminded us of them. We all know the answer, which many noble Lords have given: productivity. Yes, raising productivity is the main determinant of our standard of living, so why has it not happened? Could it be that productivity contains so many different ingredients, spread across so many government departments, that it is just too difficult to bring it all together? However, that is what leaders do. Yes, progress is often incremental, but sometimes it happens when leaders bring different elements together so that the whole is greater than the sum of the parts. That is true of productivity. The irony is that many of the elements required to raise productivity are already here, waiting to be harnessed by leadership.

What are those ingredients? The Minister listed some. We have an excellent science base in our universities and research organisations. Nurtured and supported in an age of productivity, it will become even better. We know that government spending on science pays, and it is a good example of investment crowding in. The noble Lord, Lord King, spoke of that. We have in place Innovate UK—the old Technology Strategy Board—which the noble Lord, Lord Newby, mentioned. I declare an interest as a past honorary president of its Materials Knowledge Transfer Network, and so I know the excellent work it does. In an age of productivity, there would be more nurture and more support for those organisations.

Another ingredient is skills. The gracious Speech promised us 3 million more apprenticeships. However, in an age of productivity the number would be less important than the standard; vocational education would be given the same priority as other sectors, instead of being the poor relation. The numbers are important as regards raising the number of firms offering good apprenticeships. The age of productivity in the digital 21st century requires digital skills and education. What has to be done is laid out in your Lordships’ own ad hoc committee report on digital skills.

Steps towards the age of productivity have already been taken in finance. We have an embryo industrial bank and the Business Growth Fund, and once our priorities change to productivity instead of austerity, new areas of finance will present themselves. Although sometimes misdirected, the City’s contribution, too, is important in an age of productivity. The UK would have much to lose by its decline—and much to gain from directing its ingenuity towards productivity. The noble Lord, Lord Reid, queried the data, and I agree. Much production is hidden in intangible production, but we raised that with the Minister’s predecessor on many occasions.

In an age of productivity, a national infrastructure commission would address our chronic underinvestment, as mentioned by the noble Lord, Lord Birt, and tax incentives would encourage productive investment over rent-seeking investment, as the noble Baroness, Lady Kramer, mentioned. The Minister spoke of cutting red tape. By the three internationally accepted measures we are among the most lightly regulated OECD countries. In an age of productivity, sensible regulation is important. Other attitudes, too, have to change: we need longer-term business leadership where productivity growth replaces financial engineering, as the noble Lord, Lord Reid, said. I put it to the Minister that the means of achieving this ambition of raising productivity is all around us. It needs to be harnessed.

The Minister is new, but your Lordships have heard this from me many times. However on this occasion I have an important ally: the Governor of the Bank of England. In the quarterly Inflation Report published this May, the Bank draws our attention to the fact that productivity has hardly moved in the last seven years; the Minister gave us the numbers. It speaks of the disproportionate number of low-skilled and low-paid jobs that require little investment. The point is that we cannot achieve sustainable increases in our standard of living by employing more and more people for longer hours on low pay. The message is that, when interest rates go up and the supply of cheap labour runs down, do not expect the Bank of England to keep things going by printing money and easing monetary policy.

The governor expects us to become more productive, and he is right. If productivity goes up by 0.5% a year, after five years we would still have £104 billion to find in cuts. A rise of 4% a year—ambitious but not impossible from a low start—would leave the Chancellor with £18 billion to give away. It can be done. We already have some wonderfully productive companies showing us the way. Unipart even has its own university of productivity, and McKinsey tells us that three-quarters of potential productivity growth comes from adopting these better management practices. So why are the Government not encouraging this?

The Minister reminded us that in the gracious Speech there are Bills to get Britain working. I am so ancient that I can remember something similar from Barbara Castle’s day, when she was the Minister for productivity. When Gordon Brown was Chancellor, he had a team in the Treasury doing this. The coalition claimed to have an industrial strategy. The Government’s proposals are therefore nothing new.

So what is missing? What is missing is an understanding that productivity is not just economics. Both Ministers have been in business—they know that productivity has to be a way of life and a culture, because it affects every aspect of a company’s business. And so it must be for Britain. It has to become our way of life, instead of austerity.

I put it to the Minister that this age of productivity is the real one-nation politics. It raises the standard of living of us all. It is business friendly. It would have the support of the Bank of England. The time has come for our culture to move from the age of austerity to the age of productivity.

Finance (No. 2) Bill

Lord Haskel Excerpts

Thursday 26th March 2015 Lords Chamber

[Lord Haskel (Lab)]

My Lords, it is a pleasure to speak in the Second Reading debate with such a short and, perhaps I may say, select list of speakers. I start with a question. There is one ingredient which, if inserted into the Finance Bill, would raise pay, raise the tax intake, reduce welfare costs, increase exports, raise our standard of living and cut our deficit. What is that magic ingredient? The Minister will not be surprised to learn that it is productivity. He and I have debated it many times over the years, and I think that he agrees with me.

So why is there no strategy for raising productivity in the Finance Bill? The Bill makes some announcements which may help the nation’s economy. The Minister has mentioned some, but there are others: help for northern cities and the energy-intensive industries; encouraging online sharing; apprenticeship vouchers; and, yes, the tax avoidance that he spoke about. But that is not a strategy. It is not a coherent whole; it is not a clear vision; it is just reacting to events.

The Government do not understand that because they have a one-sided view of the economy. By concentrating on total GDP, they ignore the fact that our GDP per head is 1.8% lower than it was in 2008. Total GDP has risen only because of population growth—largely because of immigration, we have been told. Output per person is 1.8% lower. In his speech, the Chancellor took pride in the fact that Yorkshire had created more jobs than the whole of France. What he did not tell us is that four people in France produce as much as five people in Yorkshire, and we work longer hours. Perhaps that is because the French taxpayer is reluctant to subsidise low wages.

On Budget day, the BBC’s “Today” programme went to Reading. Among others, it interviewed a man who works for a company, not identified but said to be nationally recognised, that guaranteed him seven hours’ work per week. The rest of his hours were subject to summons by text message with 30 minutes’ notice. Not only is that unfair to the employee; it is unfair to the taxpayer. Why should we subsidise that job with housing benefit and tax credit when it would appear that, with better management and a more acceptable business model, the company could reduce the employee’s dependence on taxpayers’ support? Low productivity is enabled—indeed, it is facilitated—by exploiting workers through low pay and unfair terms of employment, and the absence of a sense of public value.

In raising these matters, some accuse us of not being business-friendly. Not true. Does the Minister not agree that the wider interests of business are better served not by leniency towards dubious business activity by people and companies, not by special treatment for powerful lobbies, not by subsidies given to compensate for poor management but by a clear business strategy, especially one to raise productivity? Yes, the Government have tried to have a business strategy, a strategy consisting of helping exports, encouraging those sectors which show promise, innovation stimulus centres—the Minister mentioned others—but they could work a lot better. Why? Because increased productivity is what is really needed to make those initiatives work. The two are interdependent.

What should be in the remaining 337-page Finance Bill to deal with that? Jonathan Portes, director of the National Institute of Economic and Social Research, said:

“The question is: what should the government do? It should go hell for leather on doing whatever it can to boost productivity, like infrastructure investment and housing. We should be throwing the kitchen sink at it.”

In this era of low interest rates, now is the time to boost the supply side. The world is awash with cheap capital, so let us use it to have the blitz on productivity called for by Jonathan Portes.

What makes it more urgent is this. The Chancellor tells us that unemployment has fallen to 5.5%. We are reaching the unemployment norm, which means that future growth depends on raising our productivity. Indeed, without growth in productivity a growing economy means that we will continue to see rising inequality and rising immigration, perhaps reaching a point where things could really become quite nasty. A strategy for productivity means planning for the long term—not changing grants and allowances or doing a lot of the things that the Minister has just mentioned, but spending evenly spread and not what the OBR calls “a rollercoaster profile” for public spending, with a big drop followed by a big rise. That is no way to do it.

If the Government really want to be business-friendly, what about having another 10-year plan for science? What about raising the proportion of GDP that we spend on research? What about introducing the long-term values into our business culture, so that we can take advantage of this? I put it to the Minister that this is what is being business-friendly. This version—our version— will encourage business to be more productive, to invest and to create the kinds of inflation that build the value of our goods and services. What I would like to see in the Bill is a long-term strategy that is business-friendly in its widest sense.

Yes, we have some wonderful companies that take a long-term view and, yes, they will benefit from some of the aspects of this Bill. But it is too little and too slow to deal with today’s productivity challenge. I know that the Minister has heard much of this before, from me and from others, but it does not make it any less true. These are honest, consistent and responsible elements—elements which, I am afraid, are hard to find in the Bill.

--- Later in debate ---

[Lord Newby]

I will do that very readily. Finally, the noble Lord, Lord Davies of Oldham, described this as a mean-spirited Bill, and he did not have a huge number of positive things to say about the Government’s track record during this Parliament. This is now the end of the Parliament and we have been in government for five years. We came into the coalition to turn the public finances around and to put the economy on a positive track, and that is what has happened. I think of the position that we were in, even when I first stood at this Dispatch Box three years ago, on growth, employment and our prospects in virtually every respect, and I look at the situation now. We have the quickest growth in the G7, the claimant count has come down a third in this Parliament, there are 400,000 fewer households with children with no one in work, and record numbers of women, both absolute and proportionately, at work.

Nobody can claim that the economy has yet reached a state of perfection—that will never happen—but looking at the progress that this Government have made in turning the economy around and making it fit for the challenges that we face, I am very happy to fight a general election on that basis. This Finance Bill completes the process by the Government in that respect and I commend it to the House.

[Lord Haskel]

Is the noble Lord aware that the figure I used for productivity per person comes from the Institute for Fiscal Studies? I think it can be considered to be pretty good and independent. On skills and qualifications, the Minister spoke of numbers, but it is important to speak of standards, because that is what will help our economy. We do not need what the OBR calls the rollercoaster attitude towards science; we need the continuous support over many, many years.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.

Autumn Statement

Lord Haskel Excerpts

Thursday 4th December 2014 Lords Chamber

[Lord Haskel (Lab)]

My Lords, I, too, was disappointed that in the Chancellor’s Statement we heard hardly anything about productivity. In fact, more has been said in this House than in the other place—and it needs to be said. In the past six years output per hour in this country has fallen by 3%. In the US it rose by 7.6%. In Germany, France and Italy it also rose. I assume that the Government’s view is that weak productivity is the price worth paying for the kind of labour market they have created.

I put it to the Minister that productivity determines our standard of living—our standard of living has always risen as productivity has risen. By neglecting this, the Autumn Statement is condemning us to yet more stagnation in our standard of living. Are the Government just hoping for the best? Are they hoping that as demand strengthens so our productivity performance will improve? I put it to the Minister that this is a gamble the Government should not be taking. Instead, the Government should be taking action because the benefits of rising productivity—equally shared between employer and employee—benefit us all, including the Government.

During an Oral Question on welfare on 24 November, I asked the Minister how much would be saved in housing benefit paid to those in work if their productivity went up by 1% and was equally shared between employer and employee. The Minister did not have a number, but he thought it was a good idea. A couple of days later I received a letter from a professor of economics with a calculation. The answer is £210 million—a nice contribution and it could even pay the bedroom tax.

The Government’s policy of subsidising low pay to encourage employment has certainly helped raise the number of people in work in the short term, but it has downgraded the quality of jobs. Surely, this is one reason why our productivity has been stagnant: most of the jobs created since this Government came to power have been part- time or in the self-employed sector. Many of these jobs are in an expanding service economy that has lacked the strong investment and skills needed to raise productivity.

The noble Viscount, Lord Younger, spoke of the rise in GDP, but GDP considers investment and consumption to be the same. It does not differentiate between money spent on research or new equipment and money spent on going on holiday or getting your hair cut. Indeed, GDP also includes value-destroying expenditure, like pollution or traffic jams: it does little for productivity. The living wage movement has given a number of examples where higher pay has actually bred higher productivity. The Low Pay Commission has said that raising the minimum wage, alongside improved training, could even help raise the UK’s productivity.

Yesterday, the Minister referred to productivity rather indirectly, through infrastructure and lower taxes; he even asked for suggestions. My noble friend Lord Adonis has spoken of skills, and there he was absolutely right. I would be happy to oblige further, but I see that my time is nearly up, so it will have to be on another occasion. Perhaps the Minister thinks that getting business to raise its game and be more productive is anti-business or interference. It is not: it is pro-business and pro a business community that wants to raise its game, improve its performance and improve its engineering and technology. We have to ensure that rising productivity results in rising real wages for all, not just for the top earners. This Autumn Statement is a missed opportunity to change our focus from short-term rises in GDP fuelled by low-paid jobs—subsidised by the taxpayer and yet more credit—to lifting our ambition to raising the standard of living of us all through productivity. This is where the next Government—a Labour Government—will have to turn their attention.

Autumn Statement

Lord Haskel Excerpts

Wednesday 3rd December 2014 Lords Chamber

[Lord Deighton]

I think that other countries will be treated in exactly the same way.

[Lord Haskel (Lab)]

Is the Minister aware that the new science and innovation strategy is being announced today? Is this so that it is overshadowed by the Autumn Statement, or is it part of the Autumn Statement? If it is, could we know what the strategy is?

[Lord Deighton]

The noble Lord is right. Though it may not have succeeded, the idea was for the Autumn Statement and the science announcement to amplify each other, but if they have had the opposite effect we will clearly have to have a word with the communications team.

Consistent with our other strategies, the science strategy is really to make sure that we are clear about what we are trying to do in the long term. We have put a financial settlement behind it that enables us to get it done. This includes a support of science as something worth while in its own right, and a very clear strategy about the things that we are good at and how they tie in to our potential economic advantage. It is likely to include the upgrading of what is effectively our laboratory base, so that that remains at the world’s cutting edge. This country has gone from about 20th in the Midlothian innovation index to second in the past five years. We want to stay there and do even better if possible. There will also be a fund for “grand challenges” where smart ideas that have great potential can apply for money. One of the most interesting things is the £250 million investment in a new advanced materials research institute in Manchester, connected to other universities. It will be called the Sir Henry Royce institute, and will be a magnificent initiative.

Income Tax

Lord Haskel Excerpts

Wednesday 19th November 2014 Lords Chamber

[Lord Newby]

My Lords, the impact of the reduction in the 50p tax rate was about £100 million, when all the secondary effects were taken into account. In respect of capital gains tax, I will need to write to the noble Lord.

[Lord Haskel (Lab)]

Did the Minister see the research recently which said that paying a living wage encouraged people to be more productive and raised the level of income tax? Why do the Government not just do it?

[Lord Newby]

My Lords, paying the living wage is something that the Government support but, as we have discussed before in your Lordships’ House, there is a balance between rising wages and unemployment. That is the basis on which the minimum wage is set. I gave an example from the Dispatch Box the last time we discussed this: having spoken to people working in the textile industry in Leicester, they demonstrated to me that a big increase in the wage that they were paid would mean that fewer of them would be earning it, because they would be out of the job.

Income Tax: Top Rate

Lord Haskel Excerpts

Tuesday 15th July 2014 Lords Chamber

[Lord Newby]

No, my Lords, it simply is not true that the sole purpose of tax is to bring in revenue. Obviously every tax does bring in revenue, but some tax is introduced in order to affect behaviour. We are about to have a plastic bag tax but I do not think that the primary purpose of that tax is to bring in money.

[Lord Haskel (Lab)]

My Lords, the top 1% pays more tax. Is that because their income has gone up?

[Lord Newby]

It is partly because their income has gone up, but proportionately it is because they are prepared to pay the tax. As noble Lords opposite know, and as the noble Lord, Lord Lawson, has just demonstrated, when you get to very high levels of tax and very wealthy people, whether they pay it or not is not simply a question of whether they get a demand from HMRC.

Industrial Strategy: British Business Bank

Lord Haskel Excerpts

Tuesday 8th July 2014 Lords Chamber

[Lord Haskel (Lab)]

My Lords, I am most grateful to the noble Baroness for moving this Motion, because it provides us with an opportunity to learn more about the business bank. It seems to have been below the horizon in recent months, but I notice it published a strategy document last month, in June.

The noble Baroness puts the business bank in the context of an industrial policy strategy. My response is: what strategy? Yes, she explained actions that the Government are taking, and Ministers refer to an industrial strategy that was announced in 2012. Last Thursday, the Minister spoke of a strategy in a debate on manufacturing and mentioned several initiatives, all of which are very welcome. However, the noble Baroness described initiatives reacting to market opportunities or to issues that have arisen in the economy: skills, training, technologies and sectors for support, exporting and, yes, financing. She also described existing businesses.

However, that does not add up to a strategy. Those are piecemeal responses to changes or problems that have arisen over the years. A strategy has to be intellectually coherent. It has to provide a framework for all of these activities. It has to be a means to an end—a means for achieving a vision. If we have one, perhaps the Minister can tell us what is the purpose of our strategy? Is it economic growth, or to benefit us all?

Ministers like to learn from Germany. Fifteen years ago, Germany was the sick man of Europe. Their strategy was laid out in Lisbon 2000 and the Haas report. It was economic, social and environmental, and yes—it has worked. It has provided a path for everybody in Germany to improve their quality of life and their ability to earn a living, and their economy is winning the race to the top. That is a strategy.

The noble Baroness is therefore right to put the question of the business bank in the context of a strategy. However, I put it to her that this is yet one more example of the Government reacting to events. Indeed, she told us as much when she said that the bank had resulted from what occurred during the banking crisis, because of lack of investment funds for small and medium-sized enterprises.

I welcome what the bank has done, acting as an intermediary in supplying credit, unlocking funds through guarantees and filling in other small funding gaps. I also welcome the way it has tidied up the work of the small loans guarantee and the capital for enterprise initiatives. The website gives us the numbers, but it does not make clear how much are loans on the bank’s own account and how much are for acting as intermediaries. Perhaps the Minister can tell us that. Although welcome, the amounts are quite small in relation to the size of the financial market and will have a modest impact on the market.

A proper strategy would deal with the financial market itself, not just one of its failures. It should be a market which provides patient capital to allow small and medium-sized enterprises to develop their businesses. It should provide investment in capital intensive schemes such as power stations or cement works, which are mainly foreign owned because our financial market is adverse to this kind of investment. The same goes for infrastructure investment. The market should work for us all instead of finance largely being an end in itself.

We know that just giving the banks more money to lend to business obviously does not work—the money goes elsewhere. A proper strategy would encourage putting money into industry for the public benefit instead of inflating the value of our homes for private benefit. For instance, in many European countries, including Germany, you cannot borrow against the rising value of your house, so rising property values do not suffocate lending to business. A proper strategy would encompass more competition. In this morning’s Financial Times there was news of the potential for 30 new banks. That is good.

If the objective of the business bank is to raise the quality of life of us all and help our industry win the race to the top, all those issues have to be part of a strategy, throughout government. An industrial bank can help, especially as part of a coherent strategy, but it cannot do it alone.

Budget Statement

Lord Haskel Excerpts

Thursday 27th March 2014 Lords Chamber

[Lord Haskel (Lab)]

My Lords, I start by thanking the usual channels for giving us an extra week in which to consider the Budget before we debate it. Things that first of all seem too good to be true often benefit from this rather longer consideration. For instance, the pension reforms mentioned by many noble Lords may be welcomed a little bit less when you realise that annuities are an important source of long-term finance for investing in our infrastructure—investment which concerns many noble Lords. Or is the Chancellor after the early tax revenue from the consumption that early withdrawals will produce? My party is absolutely right to call for a more considered and careful scrutiny. Pensions have to be a consensual matter, not a political toy. The noble Lord, Lord Stoneham, just reminded us of the pensions mis-selling scandal which resulted from a previous change.

What about the public finances? I think the Minister told us that they are not bad. Headline borrowing is down. However, my noble friend Lord Myners reminded us that the OBR tells us that, if you take into account the upswing in the economic cycle, the figures are actually worse than a year ago. Growth estimates are not going to do very much for this because what the Minister did not say is that the OBR is concerned that the recovery may not last, as it is largely cyclical.

Where are we looking for the recovery? The Minister mentioned industry. There are modest incentives to invest more, export more, train more and do more research. This will require better management by business—the people referred to by the noble Viscount, Lord Eccles. I put it to the Minister that it also requires better management by government.

Every year, the Government pay some £90 billion to private contractors and the voluntary sector to provide public services, and that is going to rise. Unless this is well run, we will end up with a weak and sickly state and poor civic life. Most of this money goes to a small group of companies that seem to be good at winning contracts but mediocre at delivering services. In some cases, they are dishonest. These services are central to our civilised society, as is banking. Like the banks, these companies are becoming too big to fail. I put it to the Minister that part of a Budget should be to examine the Government’s competence to manage these enormous sums, and not just hide behind commercial confidentiality, as happens at present. It is no good having a policy if you cannot manage it. The few figures released in the Budget show that failure of the Government’s contractors to deliver on things such as disability benefits, the jobs programme and other schemes is stacking up huge costs for the state.

The Minister declared that raising productivity is most important, and I agree. Does he agree that subsidising low pay through the tax system also encourages low productivity? Instead of subsidising low pay, surely it makes more sense for the Government to encourage people to run their businesses better. With his background, the Minister must know that subsidising low-paid, low-skill jobs through the tax system encourages a low-productivity economy. Housing benefit paid to people in work is also rising sharply. I put it to the Minister that this is another way of subsidising a low-pay, low-productivity economy. I agree with my noble friend Lord Myners that low pay is no way to encourage economic growth.

On 20 February, the Office for National Statistics gave the final productivity estimates for last year. It told us that output per worker fell compared with the previous year. We were told that we are 21 percentage points below the average for the rest of the major G7 industrialised economies. I agree with the Minister that we are not going to pay our way in a globalised economy if we stay like that, and neither is that how we are going to increase our exports to deal with our balance of payments. It is this that leads to the inequality described so graphically by the right reverend Prelate the Bishop of Chester. Unless we address this inequality, the economic recovery for which we are all working cannot be healthy and will not be balanced, as the Minister promised and as the right reverend Prelate the Bishop of Sheffield called for.

The TUC’s fair pay campaign demonstrates that many jobs being created are low pay and low productivity. Many exclude security, training and good prospects. Some employers insist on dehumanised terms and working conditions. Successful leadership means that people have to think that you believe in what they believe in, otherwise you get the social problems referred to by a number of noble Lords. No, it would not be difficult for a Labour Government to manage this better because the current level is so low.

I welcome the Budget’s encouragement for training, apprenticeships and qualifications to raise productivity, but the economy is changing, too. We are moving into the kind of economy that does not pay you just for your qualifications and knowledge but for what you innovate, as my noble friend Lord Kestenbaum explained. That kind of knowledge economy requires a different kind of investment that is less tangible. I put it to the Minister that it is strong investment in these less tangible assets that explains the success of many of our younger, newer rising businesses. Although you cannot touch these investments now, they are made in the hope of benefit in the future—not only in training but in designing a new service, in building a database or in producing something that is copyrighted. They involve branding and marketing. In this changing world, this kind of investment is just as important as the more tangible investment in machinery, buildings and transport.

I mentioned this in last year’s Budget debate, and someone must have listened because, on page 73 of its outlook, the OBR says that we do rather well at this kind of investment—better than most of our competitors—and we have kept it up. Good for us. So why do we not recognise this in the Budget’s tax and incentive systems? Surely this is part of our journey away from the low-tech, low-pay and low-productivity economy. It is this kind of economy that demands more and more group enterprise—the kind of enterprise that depends a lot on leadership, collaboration, adaptability, and ability to learn and relearn. It is the absence of these less tangible skills that concerns so many employers today.

There was a time when we were promised an industrial strategy that would produce balanced and sustainable growth. However, as many noble Lords have said, it looks as if we are getting a recovery based on low productivity, a housing boom, consumption involving households dipping into their savings, and increased borrowing. Instead of a recovery that works for us all, it is working for the few. Many have to make do with low wages and dehumanised working conditions. This Budget is going to produce neither the economy nor the society that I would like to see.