UK Economy: Growth, Inflation and Productivity

Lord Wood of Anfield Excerpts

Thursday 29th June 2023 Lords Chamber

[Lord Wood of Anfield (Lab)]

My Lords, I thank my noble friend Lord Eatwell for this debate and for his excellent opening speech, which I agree with almost every word of. It is also a privilege to follow the noble Lord, Lord Lamont, from whom I always learn a lot, as I did again today on inflation.

I will make a few remarks about investment: how poor our record is, how fuzzy our thinking around it often is, and what we need to do to improve it. I fear that, historically, the left and the right have not served the cause of investment that well. The right tends to assume that investment will flow from lower taxes and a small state, when it does not, and my side of politics is often more enthused by state intervention in the cause of greater social justice than the cause of boosting business investment.

But our economy is in fundamental trouble. We have a strong record on employment, but it is no longer true for millions of families that working hard can keep their heads above water: 15 years of wage stagnation have left households £11,000 worse off each year on average. Productivity remains shockingly poor: the average of all other G7 nations is currently 16% higher. On the eve of Covid, levels of investment were the lowest in the G7, and they have been low for decades. The promise of liberalisation and deregulation has not brought the promised revolution in investment and productivity. Instead, it has brought the expected side-effects of lower wages and higher inequality.

An indicator of the depth of the problems that we face comes from just one statistic: the UK’s year-on-year inflation rate is currently 8.7%, with core inflation rising. This is the highest in western Europe and the highest in the UK since 1990. You would expect the growth rate that goes along with that to be middling to high; instead, UK growth is barely above 0%—we have an economy that is overheating at 0% growth. This tells us that something is fundamentally wrong with our supply side, with the way that the real economy works. Of course, Brexit is a huge part of that. That is the shock we chose to have, rather than the shocks like Covid and Ukraine, which we had to have. I will leave others to debate the Brexit issue, because I want to talk about investment.

In my view, the UK political debate around investment and growth suffers from considerable fuzzy thinking. Take the disaster of the mini-Budget last year, which the noble Lord, Lord Lamont, mentioned. It has left us with a national paranoia about the reaction of bond markets to policy changes but also with a misunderstanding about what alarms markets so much. The Liz Truss episode showed not that markets punish Governments who want to tax less or, indeed, borrow more but that, if you do so without setting out the fiscal plans that should accompany these decisions for the medium term, the uncertainty that that creates, for demand and for the anticipated reaction of the bank in interest rate setting, raises the risk premium on UK assets. Investment requires borrowing, of course—for people, families, firms and countries. Borrowing to invest makes sense. Sensibly planned borrowing does not spook markets, only badly planned borrowing.

The fuzzy thinking goes wider. The Government’s fiscal rules make no distinction between investment spending and current spending, which makes no economic sense. I am pleased to say that Labour’s pledge on eliminating the deficit in its own fiscal rules excludes investment spending, as it should, but there is a long way to go in the debate on both sides about a commensurate treatment of debt and targets on debt reduction.

The fuzzy thinking extends also to the relationship between investment and welfare. The health of our welfare state is crucially about the health of citizens, of course, but it also has huge implications for labour supply, as we have discovered with the link between rising sickness leave and labour shortages since Covid. Welfare policies in the UK are also far too little designed to help workers retain the skills that they have acquired when they become unemployed, because, in our country, we prefer instead the philosophy of getting people who are unemployed into any job as soon as possible. Thereby, we contribute hugely to significant skill scrapping over time.

Then there is the fuzzy thinking around how our public utilities work. The experiment of turning public utilities into privatised utilities with independent regulation has many problems, as we can see from today’s news. Chief among them is that the regulatory arrangements for utilities to have investment stimulated have not worked and the investment that has been generated is not consistent with their viability or the public purpose that they are supposed to serve. We need a mindset change, and a long hard look at the way we fail to put investment first: we use rules with contradictory approaches, and we fail to make connections between different policy areas and the drivers of productivity and investment.

So what can we do? I do not think that business investment will be transformed by tax cuts. For much of the last two decades, the UK has combined some of the lowest corporation tax rates in the G7 and the advanced world with one of the worst records in business investment in the advanced world. We need to look at the range of capital allowances; there is much more room to secure long-term expensing arrangements so that companies have certainty in the future. We should strengthen the R&D tax credits system, looking at better incentives for green and digital investment. We should be more courageous about speeding up planning laws and timeframes, especially for infrastructure projects. We also need to work on how to channel the trillions of pounds available in UK pension and insurance assets into UK companies. Currently, only just under 1% of that money goes to UK equities.

Mostly, we need a Government who use their fiscal, regulatory and procurement leverage to take a lead in public investment. Every major competitor around the world—from China to South Korea and Taiwan, from the EU to the USA—is using active state intervention on a large scale to promote investment, productivity and growth. The laissez-fairists, I am afraid, have lost the argument. The question is: what form should state leadership on investment take? I am happy that this territory is the area that my party’s shadow Chancellor is occupying at the moment. Whoever wins the next election is going to face very tough times. If Labour is in power, I hope to see a step change in the way that we as a country prioritise the stimulation of investment.

Budget: Household Impact

Lord Wood of Anfield Excerpts

Wednesday 16th September 2015 Lords Chamber

Asked by

[Lord Wood of Anfield]

To ask Her Majesty’s Government whether they intend to publish a distributional analysis of the impact of the Budget on households with different levels of income.

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

My Lords, distributional analysis of the impacts of government policy across household income distribution was published by HM Treasury alongside the summer Budget. The analysis presents the cumulative impacts of policy decisions since the June 2010 Budget, up to and including the 2015 summer Budget. It shows that the proportion of public spending received by households in each income quintile remained similar between 2010-11 and 2017-18.

[Lord Wood of Anfield (Lab)]

I thank the Minister for that Answer. The Institute for Fiscal Studies estimates that the Budget has made 8.4 million working families worse off, many considerably so, through tax credit changes. However, the Chancellor has unilaterally decided not to tell the British public from now on what the distributional impact of the Budget measures will be. It is ludicrous to argue, as he does, that having a deficit justifies not publishing information about the regressive effects of the Budget. Does the Minister agree with the Resolution Foundation, which said:

“Deciding to ditch Budget distributional analysis is a retrograde move for which there is no plausible good explanation”?

Will he urge the Chancellor to rethink this attempt to hide information from the public?

[Lord O’Neill of Gatley]

My Lords, contrary to that question, as a result of some discussions involving the Chancellor, the specific distributional analysis that was requested was posted on the government website on 21 July. There followed a number of conversations outlining the Treasury’s belief that the new analysis was intellectually superior to those in the preceding Parliaments. I should add, however, that the requested distributional analysis has indeed been published, despite the apparent lack of awareness of it displayed in the previous question.

Income Tax

Lord Wood of Anfield Excerpts

Wednesday 19th November 2014 Lords Chamber

Asked by

[Lord Wood of Anfield]

To ask Her Majesty’s Government what is their assessment of the level of income tax receipts so far this financial year.

[Lord Newby (LD)]

My Lords, the Office for National Statistics’ latest estimate for income tax and capital gains tax for the period April to September 2014 is £71.5 billion.

[Lord Wood of Anfield (Lab)]

I thank the Minister for that precise answer. As today’s alarming ONS figures confirm, this Government are presiding over a recovery in which wages, far from recovering, have continued to deteriorate. As a result, the public finances are getting worse and social security spending targets are being missed by over £15 billion. The deficit continues to rise. Will the Minister tell us why this is the case, and say whether he agrees that in the light of this, the Prime Minister’s promise in October of further unfunded tax cuts lies somewhere between heroic and reckless?

[Lord Newby]

My Lords, I remind the noble Lord, and the House, that growth in the UK is the highest among the G7 countries; that unemployment has fallen by 324,000 in the past year; and that the other piece of news today, which he omitted to mention, is that the gender pay gap has fallen to an all-time low.

Economy: House Prices

Lord Wood of Anfield Excerpts

Thursday 3rd July 2014 Lords Chamber

Asked by

[Lord Wood of Anfield]

To ask Her Majesty’s Government what assessment they have made of the impact of increases in house prices on the strength of the United Kingdom economy.

[Lord Newby (LD)]

My Lords, the housing market is recovering alongside the rest of the economy. As in previous recoveries, house prices have risen but, with the exception of London, remain below their pre-crisis peak in real terms. As a result of increased confidence in the housing market, planning approvals and housing starts are now at their highest for six years. With the creation of the Financial Policy Committee we now have the tools to guard against risks in the housing market.

[Lord Wood of Anfield (Lab)]

My Lords, the list of those expressing serious concern about the impact of the UK housing market now includes the IMF, the European Commission, the Royal Institution of Chartered Surveyors, the Bank of England, Vince Cable, the Deputy Prime Minister and the entire economics profession. However, in a week where new figures showed house prices in the UK rising by 10% and by nearly three times that figure in London, a leaked document from the Department for Communities and Local Government showed that the Government are, astonishingly, expecting new housing starts to fall by 4% this year. Can the Minister explain why government housing policy seems to be based on a mixture of denial, bad economics and passing of the buck? What is their plan to do something about the UK’s chronic shortage of housing?

[Lord Newby]

My Lords, I remind the noble Lord that in Q1 2009 there were 17,000 housing starts and in Q1 2014 there were 36,000. There has been a major crash in the housebuilding sector. This is now being corrected with housing starts and planning permissions being significantly greater—typically around 30% more—than a year ago. I also remind the noble Lord that while we have had a rapidly rising population in the UK, for decades housing starts have been 200,000 fewer than in France, for example, where the population has not been rising in the same way. There is a chronic problem in housing. We are beginning to tackle it by programmes that support people buying their own home, liberalising planning and providing support for small to medium-sized housebuilders. This is not going to be an easy fix for a Government of any colour.

Economy: Sustainable Jobs

Lord Wood of Anfield Excerpts

Thursday 27th June 2013 Lords Chamber

[Lord Wood of Anfield]

My Lords, I thank the noble Baroness, Lady Brinton, for this debate. I have learnt a lot from the various excellent contributions over the past hour.

The economic downturn that followed the crash of 2008 has been the most severe since the great depression and the most protracted since the Industrial Revolution. However, a conventional wisdom about the crisis has taken root, that although it is a growth crisis and a living standards crisis, it is not an employment crisis. This excellent debate has shown how misleading that conventional wisdom is. It is of course true that the headline unemployment rate, although too high, has remained remarkably stable over the past few years, despite a very poor record on growth over that period. However, it would be complacent in the extreme to point to the headline rate, or to the new private sector jobs created, and think that that is the end of the story. The truth is that we should be concerned not only by continuing patterns of unemployment but also by dramatic changes in the quality and conditions of employment in Britain today.

I will start with unemployment, and with youth unemployment in particular. We may not have a crisis of the proportions of Spain or Greece, but youth unemployment in Britain is now at an all-time high. There are now just under 1 million 16 to 24 year-olds unemployed in our country. This sits alongside a continuing rise in long-term unemployment, as discussed by the noble Lord, Lord Shipley. The number of people out of work for over a year is now at 900,000, three times the figure of seven or eight years ago. Just under half of this group have been out of work for two years, not just one. It is cold comfort for this group to hear that unemployment in Britain is lower than many economists expected.

The coalition’s response to this problem was to scrap Labour’s Future Jobs Fund and introduce a new welfare to work scheme, the Work Programme, discussed in detail by the noble Lord, Lord German. Last year, not only did this programme miss its targets but evidence showed its success rate in placing the long-term unemployed was lower than the expected rate if there had been no programme at all. Recent evidence suggests that it is doing better. However, I am afraid that there is a big gap between doing better and doing well. More than 900,000 of the 1.2 million people who have gone through the doorway of this programme do not yet have sustainable employment.

The lack of urgency in relation to youth and long-term unemployment is baffling and should concern us all. We know that protracted spells out of work have stigmatising effects, as the noble Lord, Lord Kirkwood, described so eloquently, as well as lifelong effects on well-being and physical and mental health. They also rack up huge costs to the taxpayer. Therefore, preventing worklessness must be a priority as much for people concerned with social justice as for people motivated by fiscal prudence.

I now turn from the world of unemployment to the changing world of work. One of the reasons that overall levels of unemployment have been lower than many expected is that much of the burden of adjustment in this crisis has been borne by those in work. For millions, pay, conditions and security of employment have changed significantly for the worse in the past five years. Let us take pay. Workers in Britain have experienced unprecedented cuts in real-terms pay of, on average, 6% since the global financial crisis began. Over two-thirds of all workers have experienced real wage cuts. One consequence of this has been the rise of in-work poverty. More than 6 million people in poverty are in working households. Some two-thirds of poor children are in working households.

Related to this is the growth in underemployment, also mentioned by the noble Lord, Lord Kirkwood. My colleague Liam Byrne has called this,

“the untold story of Britain’s jobs crisis”.

One in 10 people in work are now unable to work the hours that they need to make ends meet. There are 1.4 million part-time workers wanting but unable to get full-time work. This is the highest figure in 20 years, double the figure from five years ago. Add to this the numbers of people who would like to work additional hours in their existing jobs and there are a million more underemployed workers than five years ago.

These figures show a growing problem in terms of sustainable employment. For millions of working people, having a job is no longer sufficient to keep their heads above water and they are unable to find the extra hours or better work that they need to do something about it.

The composition of employment is also undergoing significant change, with a marked shift away from longer-term, more secure work to shorter-term, more precarious work. First, the number of jobs that are temporary contract jobs has gone up by a staggering 76% since 2008. Secondly, we are seeing a substitution away from full-time work. Since 2008 the number of full-time jobs has fallen by more than half a million while part-time employment has risen by well over a quarter of a million and part-time self-employment—mostly among lower-income workers—has risen by the same figure. Thirdly, we have seen a dramatic rise in the incidence of zero-hours contracts. Official estimates are that more than 200,000 British workers—predominantly younger and unskilled workers—are now on zero-hours contracts. The real figure is undoubtedly higher than this. That is a 150% increase since 2005. In 2012 alone, there was a year-on-year increase of 25%.

These contracts are often used to abuse vulnerable workers. Here is an anecdote from a care worker in the north-west from a recent excellent Resolution Foundation report. She said:

“It’s the uncertainty that gets to me … These contracts only work one way—they don’t offer any flexibility even if you wanted it because if you turn down hours you suffer. One of the girls had her hours permanently reduced because she asked the line manager for a day off to take her child to the doctors. From that day on her card was marked”.

That kind of treatment cannot be tolerated. I welcome the fact that the Government have at last woken up to the scale of this problem and announced a review into the practice. I hope that this can be a priority across the party divide.

This is the new world of work for too many in our country: a shift from permanent to temporary contracts, a shift from full-time to more part-time work, a shift from more secure to more insecure work, a growth in self-employment and a growth in employment in less well protected sectors of our economy. I firmly believe that these developments should give us cause for concern whatever our political affiliation, and whatever we think the Government’s priorities should be.

Why is that the case? First, the effects of long-term unemployment and insecure work are becoming increasingly obvious wherever you look in Britain and they are imposing significant costs on us. The Trussell Trust, a charity that operates food banks in the UK, says that many of the 300,000 people that it is helping are low-income working families. The national helpline charity National Debtline says that almost half of the 250,000 calls that it received in 2012 were from people in work. The size of the UK’s payday lending industry has increased in size by about 150% since 2008. Paying less in more insecure jobs is far from costless for all of us.

The second reason that we should be concerned is that restoring strong wage growth and building more secure jobs is sensible fiscal policy if we are to relieve the ever-growing pressure on the social security system to support low-income families. We must aim to shift some of the burden of supporting lower-income workers from the state to the private sector over time. This is why, of course, policies such as the promotion of the living wage are so important.

The third reason that we should be concerned is that it is hard to see how Britain can compete internationally with an economy that is increasingly characterised by lower-wage jobs in more and more precarious conditions. We cannot hope to compete with China, India and emerging African economies over the next 50 years if our model of competition at home is one of a deregulatory race to the bottom. There is no low-wage, low-skill, low-investment route to our country succeeding in a world where labour costs are significantly cheaper and skills are being built up significantly faster, as they are in many developing and emerging economies. We will succeed only if we build a higher road to economic success, not one built on insecurity in our labour market or tolerance of entire cohorts of people in our country who will never engage in productive work.

What can we do to bring about more sustainable employment? In the short term, there is a lot that we can do. We could and should introduce a compulsory jobs guarantee to get the young unemployed into work and to get the long-term unemployed into jobs too. We should reform the Work Programme so as to have better integration with the employment and support allowance tests. Most importantly of all, the Government should realise that they are not powerless to get the economy motoring again and that they should take action now to get growth up and unemployment down.

In the longer term, we need to think about how we can reshape the way our economy works. Better jobs have to be created in the context of a different kind of economy. If we want to have a higher-productivity, higher-skilled, higher-wage economy, we cannot do that by pulling one or two levers alone. It means reforming our banking system and re-examining the rules that generate short-termism in too many of our largest companies. As the noble Baroness, Lady Brinton, discussed, we need to address the UK’s poor record on technical skills and ask how our education system and our employers who do or do not offer apprenticeships need to be challenged to turn this around. We should use the power of government procurement to say that any company that wants a contract with the Government has to offer training and apprenticeships to its workforce.

The Government talk constantly about the need to rebalance our economy, but as this debate has shown, the world of work in Britain today is rebalancing, but in ways that are making lives tougher and more insecure for millions. That is not just bad for social cohesion; it is bad for our economy and it undermines our competitiveness. If we really want to break from this, we have to abandon an approach to economic management that sees wealth creation as the preserve of the wealthiest and which mistakenly seeks to succeed by giving lower taxes to the best off and less protection to the vast majority of workers. That way lies national decline, not national success.

Economy: Budget Statement

Lord Wood of Anfield Excerpts

Thursday 22nd March 2012 Lords Chamber

[Lord Wood of Anfield]

My Lords, yesterday we saw a Conservative Chancellor give a Budget at a time of stagnant growth, rising levels of unemployment not seen since the mid-1990s, youth unemployment at more than 1 million, with unemployment among certain groups such as young black males now around 50 per cent, and real living standards dropping—confirmed yesterday—for the second year in a row, which is the first time that that has happened for 36 years.

The Government would have us believe that all that is exogenous—the fault of the fallout of the economic crisis, or the previous Labour Government, or the eurozone, or spiking oil prices. Let us put aside the fact that the Government cite international factors to explain tough times on their watch but conveniently forget about them when it comes to their account of the previous Government. It would be reasonable, I think, for families, for small business and for pensioners to expect a Chancellor who finds himself in power in such an economic moment to use his Budget to respond to the squeeze and insecurities that they face. So what did we get? We got a Budget that was underpinned neither by an argument about how to counter economic stagnation nor by any measures to get growth and jobs going again. Instead we got a Budget that was focused on redistribution rather than growth—a venerable Labour tradition, you might think. However, the redistribution is in favour of the very wealthiest in our society—which, combined with the totality of decisions taken, is at the expense of pensioners and ordinary families.

I want to talk about two themes: growth and tax. I shall start with growth. Little was said about it yesterday, and I can understand why. Last year growth was expected to be 2.5 per cent this year. In his speech this year, the Chancellor sought to get credit from his own Back-Benchers because he now thinks that growth will be 0.8 per cent instead of the 0.7 per cent predicted at the time of the Autumn Statement. However, hidden in the forecasting is cause for continuing concern about the prospects for growth and the sources of growth. Despite some highly optimistic projections in the Budget documents for the growth of total investment in the next four years, the estimate of business investment growth was revised down considerably yesterday. As the National Institute of Economic and Social Research said, although some of the announcements will undoubtedly help the sectors to which they apply and should be welcomed,

“they do not address the major factor depressing business investment this year: a lack of demand”.

What about borrowing, control of which the Government have put at the heart of their economic strategy? As announced yesterday morning, net borrowing increased by £15.2 billion in February. That is a record for a monthly figure. The City had forecast that it would be half that amount. As my noble friend Lord Eatwell explained, after yesterday's Budget, the Government are still on course to borrow more than £150 billion more over the Parliament than they forecast in their spending review.

On tax, I want to look specifically at the decision to cut the 50p rate for the approximately 1 per cent of the population who earn above £150,000 a year. Assuming that there is no avoidance—I take the point—this income tax cut will give 14,000 people in Britain a windfall of, on average, £42,500 each. The justification for a higher rate of tax for those on very high incomes is that it reflects a distributional truth about our economy. Over the past 30 years, as we all know, the incomes of the very rich have taken off relative not simply to those at the very bottom but to the remaining 97 per cent of the population. Since 1979, nearly a quarter of every extra pound earned in the UK has gone into the pockets of the top 1 per cent. It is a higher rate for those whose salaries are not just higher but stratospherically higher than those of the vast majority.

What is the possible justification for prioritising, of all things, the reduction of the 50p tax rate? The advocates say, “You don’t understand. There are two effects of the 50p tax rate: first, it doesn’t bring any money in, because it is eminently avoidable; and secondly, it deters people, who will bring in wealth, from coming to this country”. You cannot have it both ways—either it is eminently avoidable, or it is an apocalyptic deterrent. If it is a deterrent that is avoidable, perhaps I may suggest that Her Majesty’s Revenue and Customs should focus resources on telling everyone how easy it is to avoid so as to bring the rich of other countries to our shores. Or perhaps we should adopt a more conventional measure—clamp down on avoidance, which makes our tax revenues less reliable, less predictable and produces greater unfairness.

What was striking yesterday was the discriminating approach that the Chancellor displayed towards tax avoidance. On stamp duty and general avoidance, George Osborne said that he will come down like a tonne of bricks on morally repugnant behaviour and sharp practices. At the same time, he was recommending the scrapping of the 50p tax rate for those earning more than £150,000 a year, on the grounds of a resignation to the unavoidability of avoidance of income tax. “But”, the defenders of the 50p tax rate continue, “you still don’t understand. The 50p rate stops people working”. Does the 50p tax rate stop people working? I have not seen any evidence of it. If it does, and if the productivity of the wealthiest in our society is dramatically on the wane, the fact that their incomes continue to rise way ahead of median and mean wages suggests that there is something deeply dysfunctional about the labour market at the very top. Perhaps that is something that a government inquiry might look at.

Even if there is evidence—although I cannot find any—that the abolition of the 50p rate will lead to people coming to Britain, there are two further questions that need to be answered. First, will the very wealthy who want to come to Britain pay income tax while they are here? Secondly, will they be wealth creators, as opposed to income gainers? On the first question, I would like to see evidence. In 2008, only 16 per cent of those who earned more than £10 million paid income tax. A policy based on worry about tax revenues that is aimed at bringing people who pay precious little income tax does not have the feel of evidence-based policy-making.

To the second question of whether they create wealth, we do not have the answer. We hear that it is important to signal that we are open for business—but is there any evidence that those who might be attracted to move here would use their wealth to create jobs and income for others? The Government had better hope so, because there was precious little in the rest of the Budget for those out of work.

The cut in the 50p rate was an ideological choice that has had its advocates scrambling around for a rationale. As the IFS said, the argument that 50p brings in no extra income is based on data for one year. This point was made by my noble friend Lord Eatwell. In the year on which the evidence was based there was a transition from 45p to 50p. The irony is that by scrapping 50p from April 2013 the Chancellor has thrown down the gauntlet to the accounting profession to meet another challenge. It has months to work out how to defer the income of its very wealthy clients for another year so that they may benefit from the 45p rate in 13 months’ time. The race is on. Perhaps the Minister will tell us whether the Treasury has factored in behavioural responses of the wealthy to this transition in its revenue calculations for the coming year.

The collection of courageous assumptions lying behind the Treasury's optimism about tax revenues made me want to applaud the Chancellor for his mathematical pyrotechnics. The Budget assumes that the ostensible cost to the Treasury of reducing the income tax rate will be only £100 million, because all those who avoided the tax at 50p will come flooding back into the tax system at 45p. This is an assumption about tax elasticity of heroic proportions. The Government are resigned to income tax avoidance but think that a 5p reduction will be sufficient to eliminate it completely. I wish them luck with that.

On the income that we will recoup from getting tough on stamp duty, the Government’s optimism continues. In contrast to their approach to income tax, they put their faith in a crackdown on corporate envelopes holding residential property. We should welcome the new stamp duty rates. However, my concern is not with them but with the idea that there is equivalence between a tax on the income or even the property of the very wealthy, and a tax on the very occasional and up until now eminently obscurable transactions on property worth more than £2 million. About 1 per cent of those earning more than £150,000 are likely to move to a house worth £2 million or more in the next year, so 99 per cent this group will enjoy a straightforward and sizeable tax cut.

I will end by focusing on two quick points. First, yet another Budget has passed without signs of a growth strategy. As a leading BBC economic journalist said on Tuesday, cutting taxes for a hedge fund manager and cutting taxes for his cleaner do not a growth strategy make. Even setting aside poor performance on growth and the escalating problems of unemployment—data were published today on consumer confidence and retail sales that should give us serious cause for concern—we will struggle to find in the Budget documents a growth strategy to meet the scale and urgency of these concerns.

Secondly, the Budget reveals something else. The Government talk constantly about tough choices. They are right that for all sorts of reasons they have to make them. However, yesterday saw the Chancellor make a decision that was big but not tough. It was a choice in straitened times to favour those who have the most. It was not the end of the Government's macroeconomic strategy—that remains in place, and we are the poorer for it—but it was the moment when their credibility as a Government who asked every section of society to bear its fair share of the pain was fatally undermined.

Economy: Growth

Lord Wood of Anfield Excerpts

Thursday 31st March 2011 Lords Chamber

[Lord Wood of Anfield]

My Lords, it is a privilege to be standing before you today. In particular, I am proud to be representing the cause and interests of redheads from across the political spectrum. I pledge to stand up for this minority in the years ahead. As an academic, my experience of public speaking has largely been limited to university lecture halls. I was given three tips by an academic colleague before my first lecture that I have obeyed religiously ever since. First, always insert a joke just after halfway through to wake your audience up if they are in danger of falling asleep. Secondly, never distribute your hand-out before you begin speaking or else your audience will pick it up, walk out and get a cup of coffee instead of listening to you. Thirdly, like Cicero, always make your points in groups of three. This advice has stood me in good stead and I pledge to repeat this formula during my contributions to the House in the years ahead.

I have felt not just a slight sense of awe but a great sense of humility since beginning my time on these famous red Benches. That is in part because, as a student and teacher of politics, I am acutely aware of the wisdom, distinction and contribution to Britain of generations of noble Lords who have come before me and served in this House, and in part because, at its best, I know that this House can provide an opportunity for scrutiny, reflection and collaboration in a political system otherwise short of such qualities and a place to speak up for those whose voices do not often get heard.

I am also humbled by the fact that I am surrounded by many of the people, on all sides of this House, who inspired me first to study, then teach and then practise politics. I had a sense as a teenager that politics was, as Tony Blair once said,

“the place for the pursuit of noble causes”—[Official Report, Commons, 27/6/07; col. 334.],

and could offer the possibility for ideas and collective action to change our country for the better. I believed it strongly during my time working for the former Prime Minister, Gordon Brown, to whom I will always be indebted and whose dedication to public service is second to none. I still believe it passionately and I hope my time in this House fuels rather than dims that optimism. Lastly, I thank noble Lords from all sides of the House for their kindness, in particular my noble friends Lady Nye and Lord Kinnock for their encouragement, friendship, cups of tea and hand-holding.

Growth is of course the necessary condition for meeting the aspirations of the British people and funding the public services on which we all rely. My point today is that we should take this opportunity as a country, as we emerge from the international recession, to move beyond a simple concern with what Keynes called,

“the growth of the cake”,

as,

“the object of true religion”.

In particular, we need to focus on three crucial aspects of economic growth. First, we need to aim not just for growth but for sustainable growth in which consumption is based on rising living standards, not excessively dependent on borrowing; where business profits rise as a result of investment and innovation, not simply through speculation; and where environmental sustainability is built in rather than bolted on to the business models of small and large firms alike. This is a long-term ambition. It cannot be achieved through a quick fix, and it requires thinking about how we reshape our economy in quite fundamental ways.

Secondly, we need to move on beyond the rather stale polarity of laissez-faire on the one hand and the demonisation of old-style corporatist industrial policy on the other, to work out not whether but how a Government can provide secure foundations for long-term growth and for raising productivity. Increasing the value of what we produce demands an intelligent role for government intervention: to stimulate greater innovation, modernise our infrastructure and ensure that our banks serve the investment and research needs of companies as well as they serve the short-term interests of their shareholders.

Thirdly, alongside our determination to restore growth, we must have equal determination to ensure that the proceeds of growth are enjoyed by the many, not the few. This is not the case at the moment and has not been for a while. In 1979, the top 1 per cent received under 6 per cent of Britain’s personal income; in 2005 they received over 14 per cent. For the last 30 years, 22 per cent of every extra pound earned has gone into the pockets of the top 1 per cent. Since the global recovery from the financial crisis began, real wages in the USA have increased by $168 billion and in Germany by €36 billion, but in Britain real wages have actually fallen while profits have risen by £14 billion.

In the United States a debate is raging about how growth can raise living standards for all, and whether it is globalisation, technological change, the competition for talent or political choice that is behind the increasing polarisation of rewards. In Britain that debate is only starting now but is long overdue. I hope that noble Lords agree with me that it is a subject to which we should devote some time in this House in the coming months and years, because doing our utmost to ensure that economic growth is not only strong and secure but shared widely is surely among the first duties of those who govern Britain.