UK Economy: Growth, Inflation and Productivity

Baroness Chapman of Darlington Excerpts

Thursday 29th June 2023 Lords Chamber

[Baroness Chapman of Darlington (Lab)]

My Lords, it is a pleasure, as ever, to follow the noble Baroness, Lady Bowles, who brings such knowledge, experience and specificity to our debate this afternoon. She made a clear pitch to the Minister and I await the Minister’s response—I am interested to know what she will say.

This has been a wide-ranging and thought-provoking debate. There have been too many quality contributions to mention them all. However, I assure my noble friend Lord Liddle that Rachel Reeves rules the Parliamentary Labour Party with an iron grip, and I am one of many hopeful Labour parliamentarians to have gone to see her to ask her to invest in something of absolute importance without which we will never win another election, only to be given a very hard no. Obviously she was right and I was wrong, and I am sure that is where it will remain.

We have shared some disagreement this afternoon on the issues of inflation, productivity, investment and the role of government. To generalise and perhaps simplify, we on these Benches favour an active, engaged state with a mission. We do not agree that it is good enough for a Government to leave the pitch—to deregulate and then allow our citizens to sink or swim in all but the most extreme of circumstances.

In his introduction, which I agree was delivered with absolute clarity, my noble friend Lord Eatwell said that investment requires confidence in the prospect of future growth. For this we need the foundation of a stable Government with a plan that is shared and understood by the country.

My noble friend Lady O’Grady talked about AI and its potential to increase productivity. I think most of us would wholeheartedly agree with that, but we need it to happen as part of a modern industrial strategy. How do we think our life sciences have done so well? It is because the then Labour Government made it a priority and created the framework and support in higher education and investment in research to enable it to happen.

The truth is that economic growth in the UK has been weak since the global financial crisis. Had the pre-crisis trend continued, our economy today would be 26% bigger than it is. In 2010, growth had begun to return but austerity sucked demand away, and we know what has happened since. We have heard various judgments today about the relative significance of different factors, including Brexit, Covid and austerity, and how they have affected productivity growth and stagnating business investment, and more recently labour market inactivity. The points from the noble Lord, Lord Londesborough, about leading a productive workforce were very well made. We agree with him on the need for strategy.

The arguments from my noble friends Lord Leong and Lord Wood about investment are important. I observe that skills degradation over time is undermining what should be one of our strongest suits as a nation. The graduate salary premium outside the south-east is declining, which tells us that too many graduates do not leave university with the skills that businesses are prepared to pay more for.

That is not all. A report published just this morning by the Sutton Trust showed that highly able disadvantaged pupils achieve, on average, a whole grade lower per subject at GCSE than the most affluent highly able children. Some 62% of better-off high-potential pupils got five or more 7 to 9 grades at GCSE in 2021, compared to 40% of disadvantaged high-potential children. Over 28,000 disadvantaged young people who would have been expected to achieve top grades at GCSE between 2017 and 2021 did not do so. It is impacting their future life chances. Despite their high potential, disadvantaged highly able pupils are twice as likely as their better-off peers to say that people like them do not have much of a chance in life. This is a criminal waste of potential and it is holding the UK back.

It is not just educational inequalities; regional inequalities are important too. The IMF says that regional disparities are harmful for economic efficiency, as limited opportunities for those stuck in the wrong place lead to the underutilisation of potential and constrain overall growth. More broadly, regional disparities, including urban and rural differences, can fuel social tensions, promote political polarisation, and threaten the social fabric and national cohesion. Free markets cannot fix these things. It takes leadership from both national and, probably more importantly, regional government.

My noble friend Lord Whitty mentioned international productivity comparisons, and well he might. Twenty years ago, the average Briton was wealthier than their European neighbour but today the average French family is 10% richer than their British peers, and in Germany that figure rises to 19%.

Austerity trashed our public services—everything from Sure Start to social care, community policing to cancer. Life expectancy gaps are growing and regional inequalities are more entrenched than ever. We have hammered public services, and now we can see it: austerity has hammered our growth as well. Ed Balls was right. He said that George Osborne was going too far, too fast. He said that austerity would fundamentally undermine the ability of our population to thrive and would threaten productivity.

Brexit without a plan, followed by a bad deal, increased the administrative burden on business, left us out of Horizon, does not allow for mutual recognition of professional qualifications, left the institutions of Northern Ireland paralysed and sucked every ounce of political energy away from where it needs to be—focused relentlessly on delivering a stable and secure economy. We are paying the price for all those things today. The Covid inquiry is just beginning to reveal how ill-equipped the UK was for the pandemic in terms of our planning but also our health service and our supply chain resilience.

Where we make things and who owns them matters. We need to develop new partnerships between an active state and a free market with countries across the world which share our values. We believe that leadership of the economy does not start and end with management of interest rates.

The noble Lord, Lord Effingham, rightly focused on public health: this is about good jobs, decent pay and fair working conditions so that working people can contribute to our national success and their financial security will underpin our economic strength. Rachel Reeves talks about “securonomics”—I can sometimes barely say that without really focusing, but that is the word we are using to describe it. What she means is that she wants to build the kind of economic security that provides hope: that our best days are ahead and knowing that we can get on, not just get by.

I again thank my noble friend Lord Eatwell for providing the opportunity for this timely debate. As we all know, he brings enormous experience. The name Andy Haldane has come up a few times today and, coincidentally, I was talking to Andy last night and I mentioned that this debate was going to be led by my noble friend, and he said, “Ah, yes, John Eatwell. He wears his learning lightly”. I think I know what he means. His introductory speech was as coherent and comprehensive an explanation of our current predicament as I have heard. I look forward to reading it back later, but for now, I look forward to hearing the Minister’s response.