Economy: Spring Statement

Lord Judd Excerpts

Thursday 15th March 2018 Lords Chamber

[Lord Skidelsky]

My Lords, in his Spring Statement, the Chancellor saw,

“light at the end of the tunnel”.—[Official Report, Commons, 13/3/18; col. 718.]

The light is pretty dim, and the tunnel has been much too long. The two are connected, the dimness of the light being largely the result of the length of the tunnel, as I shall try to demonstrate.

First, I have a question about the light. Real GDP is expected to grow by an average of 1.4% a year for the next five years. This is just over half of the trend rate of growth before the crash. GDP per head is expected to grow by under 1% a year in that period. This is a picture of a stagnant, becalmed economy. In the 1950s and 1960s, Britain was often called the sick man of Europe because its annual growth rate was a miserable 2.8% a year. Now we are promised half of that as the new normal. Note that it is by no means the new normal for other countries. The United States is expected to grow by 2.2% over the next three years, the eurozone by 2% and the rest of the world by 3.7%. So our new normal is actually quite a lot worse than the expected new normal of most of our trading partners. The noble Lord, Lord O’Neill, asked whether this pessimistic estimate is credible; possibly not. I am not a great fan of five-year growth forecasts. But what I would say is that it has nothing to do with Brexit. As the OBR made very clear, these poor economic prospects that it sees are rooted in structural problems in the British economy, which have been there for quite a long time.

The OBR characterises the British problem as one of lack of supply, stating that the main indicator of this is,

“stagnation in productivity … since the financial crisis”.

I do not disagree with that, but what is lacking from the analysis is how a demand-side shock produced by the financial crash morphed into a supply-side problem. That is an interesting point of analysis which is underresearched. The explanation lies in the Government’s reliance on a market-led recovery. We now have a labour market that works pretty much as the classical theory tells us it should; that is, very flexibly and with a trade-off between wage growth and employment growth. With this kind of labour market, the economy rapidly returns to full employment, but it is a low-productivity level of full employment that leads inexorably to a low-productivity trap.

Output per hour worked grew by 2.3% between 1998 and 2008. Since the crash, it has grown by 0.3%. The fall in productivity growth would have been even greater had not hours worked fallen somewhat. The OBR has therefore said, rightly, that,

“a revival in productivity growth is essential”,

to sustain even the 1.4% annual growth of GDP.

This requires a return to the pre-crash level of investment. Public investment as a share of GDP has fallen from 5% in the 1960s and 1970s to roughly 3.5% today. Instead of compensating for the fall in private investment after 2008, George Osborne cut the state’s investment programme as part of his austerity Budgets. Low productivity is a direct consequence of the austerity policy.

We have now entered the Chancellor’s long tunnel and need to ask why it has been so long. This is the Chancellor on “responsible budgeting”:

“First you work out what you can afford. Then you decide what your priorities are. And then you allocate between them”.


This is absolutely fine, except that what you can afford is not independent of what you can do. If you can do nothing, there is an absolute limit to what you can afford, but that is not true of government. Government can raise taxes and increase its borrowing. The Treasury view, echoed by the Chancellor, is that such measures cannot bring about a net increase in government revenue because they reduce private sector activity by an equivalent amount. That is the real meaning of that little moral tale that the Chancellor has advanced.

This is exactly the same as the old Treasury view of the 1920s. For example, Winston Churchill when he was Chancellor of the Exchequer said in 1929 that,

“very little additional employment and no permanent employment can in fact and as a general rule be created by State borrowing and State expenditure”.

We thought that Keynes had demolished that doctrine, but it has returned with a vengeance. Since 2010, the Treasury and the OBR have been united in the view that there has been little or no spare capacity in the economy and therefore no scope for fiscal expansion. Rather, the only contribution fiscal policy could make to recovery was to cut the deficit. This would restore confidence and bring about a rapid bounce-back in private spending and investment. That was the doctrine; as far as I know, it still is. In fact, as the Minister says, the deficit has been coming down, but at a much slower rate than expected or forecast. And because austerity has lengthened the tunnel, it has postponed the solution of the budgetary problem.

Every competent authority agrees that the austerity policy lengthened the tunnel by two to three years and made the average household at least £5,000 poorer than it would have been. In doing this, it reduced the capacity of the economy to produce output.

Is there nothing fiscal policy can now do to raise the growth rate? Is it true that there is no spare supply in the economy? I should like to make two observations on that. The OBR estimates that unemployment, which is expected to stay at just over 4% over the next five years, is at an equilibrium rate. That is, that any expansion of fiscal policy now will simply lead to inflation, not produce any extra employment.

Is that true? I doubt it. I do not believe that headline unemployment figures are a true measure of spare capacity in the economy. I would question the idea that 4.4% unemployment represents the equilibrium rate of unemployment in this country, for two reasons. First, 4.4% is an average. It disguises the fact that there is overheating in some parts of the economy and underheating in others. In the south-east, unemployment is down to 3%; in the north-east, it is nearly 6%.

Secondly, and more importantly in my view, the 4.4% disguises the extent of underemployment—people working less than they want to. In 2016, the International Labour Office estimated that 6% of those in employment wanted to work longer hours than they were allowed to. In the United Kingdom, there are 32 million in employment, and 6% of that is 2 million. If we add this number to the headline unemployment figures, we get 3.4 million. That is an underemployment rate of 10.4%, not 4.4%. That seems to me a more accurate measure of the extent of spare capacity.

To conclude, I think there is more spare capacity in the economy than the OBR believes to be the case. If I were in charge of the Treasury—many noble Lords might say, thank goodness you are not—I would loosen fiscal policy, expecting to create a demand draught, and I would want monetary policy tightened to any extent needed to repress inflation. We have the spare capacity. What we lack is spare imagination.

[Lord Judd (Lab)]

Before the noble Lord sits down—I am certainly not one of those who turns white at the thought of him as Chancellor of the Exchequer—does he agree that it is not just a matter of people being underemployed? It is much more complex than that because some are very highly employed but their working conditions in this country are atrocious.

[Lord Skidelsky]

I completely agree. If you want to get a comprehensive view of what underemployment consists of, that would be a very important factor. I was just citing the most convenient measure we have, which is the measure of the International Labour Office: people who want to work more hours than they are allowed

Safeguarding in the Aid Sector

Lord Judd Excerpts

Tuesday 20th February 2018 Lords Chamber

[Lord Bates]

We need to communicate that, but the noble Earl will recognise that we have had many debates on these things and we are almost always on exactly the same page. The message needs to go out that there is zero tolerance on this. We need to come down very hard to change the culture within the aid sector. That was one of the reasons why the previous Secretary of State took such a strong approach on the allegations against UN peacekeepers and was at the forefront of driving that up the agenda, to the extent that it was at the UN General Assembly and the Secretary-General has taken action on it because it goes to the heart of the problem. People who are there have a duty to protect, not to exploit. As in every type of organisation and institution that faces allegations of this type, the very few people who are doing this are having a devastating effect on the 99% of people who are carrying out that work selflessly and, as my noble friend said earlier, putting their lives at risk to help others, which is in the great tradition. It is in their interests and for them that we ought to be so ruthless in rooting it out.

[Lord Judd (Lab)]

My Lords, I must declare an interest as from 1985 to 1991 I was director of Oxfam. I was a long-standing supporter of Oxfam before that and I remain a firm supporter of Oxfam. Last weekend, I was in my local shop in Cockermouth talking with the volunteers, who have obviously been affected by this story. For all of us involved in that work over the years—right back to 1942 in the middle of the war, when Oxfam was founded to try to get relief to the Greeks under German occupation—this has been a terrible nightmare. What happened in Haiti was wrong and despicable. It was a complete contradiction of the purpose of Oxfam in its exploitation of individuals, who will remain harmed. I am very glad that the organisation has not just issued an email but been to see the Government to talk to them about how genuinely sorry it is.

We must remember certain points. First, the Government have a responsibility for public funds, and that must be recognised by everyone. Secondly, it is terribly important to recognise that charities, not only Oxfam but right across the field, must be accountable, and, as the Minister has said, being accountable involves transparency, complete integrity and openness. Anyway, it is stupid to do anything else because, as we have seen, almost inevitably it will become known in one way or another and do even more damage than it would have done at the time.

I shall conclude by making a couple of observations. The current leadership, including Mark Goldring and the new chairman who took office only last year, were nowhere near the situation when it occurred; they have been dealing with a situation that they inherited. A lot of very hard work has been going on in seeing how proper standards, regulation and accountability can be put in place. If that is not sufficient, it is quite right that the Government should challenge it, and I am sure that if they work together it can be tackled. However, it is interesting to note that the highly esteemed Tufts University in the United States, which has done an inquiry into this problem, has said that during its inquiry it became convinced that the best regulations now in place were those of Oxfam. There is therefore a certain paradox in the situation.

I thank the Minister for the understanding way in which he has handled this Statement. It is quite right that the organisation has to look to its governance and its transparency. It also has to face up to its responsibility to those countless volunteers; the saddest part of the whole story is what these wicked people in Haiti did to their very own colleagues and the work that they were trying to do. I would like a reassurance from the Minister that in all that the Government are doing, and I totally understand that the Government have to be very firm in the public interest, their objective is to enable Oxfam to be in a convincing position to continue the work that started in 1942—it has been in the front line of so many situations, such as in Kampuchea, South Africa in the bad years, Latin America and the Middle East—and to face the public and speak with authority and morality again.

[Baroness Stedman-Scott (Con)]

I thank the noble Lord for his significant contribution. If he has a question, may we please have it? There are other people who still wish to ask questions.

Palestine: Refugees

Lord Judd Excerpts

Tuesday 23rd January 2018 Lords Chamber

Asked by

[Lord Judd]

To ask Her Majesty’s Government what additional support they are providing for key services for Palestinian refugees, including schools, health, and emergency food and cash distribution, following the decision by the government of the United States to cut funding to the United Nations Relief and Works Agency for Palestine Refugees in the Near East.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, we are consistently a major donor to UNRWA, having so far provided around £50 million in 2017-18 based on the agency meeting rigorous performance indicators. We contributed more than expected for this financial year to help to manage UNRWA’s funding gap in December. We are working closely with UNRWA and other key donors to do all that we can to maintain essential services for Palestinian refugees.

[Lord Judd (Lab)]

My Lords, I thank the Minister for that reply. I am reassured that the Government are working hard on closing the gap, but cuts of $50 million to $60 million are bound to have severe impacts on the ongoing work of UNRWA with women, children and, indeed, men. Will we do everything possible to make sure that these cuts do not have to take place? Will we recognise that cuts of that kind, coming so soon after the President’s precipitant action on Jerusalem, must inevitably raise anxiety and unrest about the level of commitment to the Palestinian people required of us by the Balfour Declaration?

[Lord Bates]

As the noble Lord will know from his immense experience in this area, the Government and officials are having meetings with their opposite numbers in the United States, seeking to understand the position in relation to that. As we understand it, a tranche which was due to paid of about $65 million was withheld, the basis for which can vary depending on who you talk to. Part of the reason from the US is that it wants to encourage more international donors to step up to the plate to help to fund UNRWA—and, on that point, I think that it has something to say. The largest bilateral donors are Germany with $76 million, Sweden with $61 million and the United Kingdom with $60 million, while the United States contribution last year was $364 million. It is a huge contributor to UNRWA and, as well as the international community rightly challenging the importance of the humanitarian assistance from the United States, we should recognise the significant contribution that the United States makes to UNRWA’s important work.

DfID Economic Development Strategy

Lord Judd Excerpts

Monday 27th November 2017 Lords Chamber

[Lord Judd (Lab)]

My Lords, it is a great joy to follow the noble Viscount, Lord Eccles. During my ministerial days, I had the joy at one stage of being the Minister responsible for CDC, which has a powerful record that we should all recognise. Indeed, I put on record now my appreciation of the very helpful brief CDC sent in preparation for this debate.

As the noble Viscount said, it is not either/or; we have to get better at understanding the pluses and minuses in all situations with what different people have to offer. I will make just two gentle observations about CDC: it is a matter not just about growth but about focusing on poverty reduction as well. We need to know more about what is being achieved by CDC on poverty reduction. It is also very important to encourage CDC in its new commitment to the emancipation of women and their part in economic development. We should hear all we possibly can about how that work is going. Another, more general point worth mentioning about CDC is that perhaps its patchy record of development impact could be a little fuller and more detailed. That would help its case tremendously.

I simply must declare an interest as much of my life has been spent working in this sphere, as a Minister in overseas development, in the Ministry of Defence and, indeed, in the Foreign Office. I have also been involved in the NGO world professionally—as noted in the register—and as a trustee and volunteer.

I am concerned that voices are now being heard by us all, calling in quite strident terms for a cut in the aid programme. This is a misunderstanding of the situation and is often very naive and ill-informed. I suggest that the challenges for the aid programme are still immense. In the aid programme, we still have the issue of world poverty. The World Bank itself has said that there are 770 million people living on less than $1.90 dollars a day. Getting it down to that level has been an incredible achievement by all concerned. Since 1990, 1.1 billion people have lifted themselves out of extreme poverty, but we have to face the reality that the growth that has helped to deliver this has been vastly unequal in most countries. The World Bank’s own figures show that, had growth been pro-poor between 1990 and 2010, 700 million more people, most of them women, would not be living in poverty today.

It is also important to point out that living on $1.90 a day is far from a job well done, when you think about all the difficulties and hardships involved. It is an incredibly basic amount of income. It is also worth noting that, despite the downward trajectory of poverty, the number of hungry people in the world has increased for the first time since the turn of the century. In 2016, the number of chronically undernourished people reached 118 million, up 38 million from the previous year. That is a huge challenge—and it is no time to start talking about cutting the aid programme.

There are other aspects to this. I never forget the alarming statistics that the number of displaced people in the world is 65.6 million, and the number of refugees in the world is 22.5 million people. The number of stateless people in the world is 10 million—and just think of the proportion of those who come from South Sudan, Afghanistan and Syria. If we are concerned with peace and security, we should see how indispensable the aid programme is in meeting challenges of this scale, which military activity alone cannot possibly solve. They are all breeding grounds for alienation, polarisation, extremism and worse.

I have been looking at another set of statistics, and I put on record the help that I have received from our excellent Library, which I greatly appreciate. The World Health Organization is carrying a huge responsibility on behalf of the world, with the Ebola epidemic and other similar episodes that could follow. It is a vital international organisation in the cause of the service of humanity. The shortfall in its programme budget is recognised by it and by others to be $1,119 million. Others, very well informed, have said that it is closer to £2.2 billion dollars.

UNRWA is an organisation on the front line dealing with Palestinian refugees. That is central to stability and peace in the world. Its general fund has a deficit of $101.2 million. Its project shortfall is $191.5 million. The shortfall on its emergency appeal is $995.6 million. Where on earth are the people who talk about cutting the aid programme at this juncture coming from, when we have challenges on this scale to meet? The deficit in the current budget of the UN High Commissioner for Refugees is 46%. UNICEF, an organisation which is well known and greatly respected across the world, needs $932 million for its vital education programmes in emergency countries. So far, the voluntary contributions towards that have been less than $115 million. So the humanitarian challenges are irresistible.

I will talk for a moment about growth. Of course it matters and the noble Baroness made that point powerfully in her very good opening speech—which was not surprising in view of her almost unrivalled experience of what we are talking about. However, it is not just about growth as such: it is about the quality of growth, too. Where is that growth taking place; what are its knock-on consequences in, for example, fragile states; can it actually be risky in terms of conflict sensitivity; and are some vulnerable people in society being made more vulnerable as growth takes place? It is a constant preoccupation of mine that this matters tremendously, not just in humanitarian terms but for an intelligent approach to peace and security. We need to be more cognisant all the time about the nature of growth.

I will conclude with some specific points that the strategy requires us to look at. DfID surely needs to ensure that the objectives of its economic development strategy are framed around the sustainable development goals, ensuring that no one is left behind. In its economic development programmes, consideration needs to be given to the growth diagnostics in measuring economic development. It is not sufficient to have markers that measure only the quantity of job creation: quality has to be examined as well. I suggest, unashamedly, that these should be in line with the standards set by the International Labour Organization. There are questions around what indicators are being used and how DfID plans to monitor and report on the implementation of the strategy.

There are concerns that the strategy does not have sufficient focus on youth. There is a lot of work to be done with the private sector on the sustainability of industries as young people move to cities. Look at the huge drift of young people to the Channel and the immediate problems that confront us there. That happens because they find themselves without jobs, without work and without a purpose in life. There is a terrific challenge to be tackled at the grass roots in the countries concerned, not least in west Africa. What job opportunities are being created for the young on the ground?

We also need to be certain that there is a truly inclusive approach, ensuring that policies within DfID and between it and other government departments are coherent and do not undermine development outcomes. One of the things that worries me about the strategy is its insufficient emphasis on climate change. This is fundamental and needs to be strengthened. There will be immeasurable consequences not only for people in the poorest countries, particularly low-lying countries, but for ourselves. That needs to receive more attention.

I am glad that there is a strategy; it probably was time to examine what our direction and underlying objectives should be and whether they meet the real demands of the society in which we live. However, as the noble Viscount kept saying, it is not a case of either/or. In our preoccupation with the efficiency and contribution of industry, commerce and the rest, we must not lose sight of the humanitarian challenge, which cannot be separated from creating an environment in which industry can survive and flourish in the long term. It is vital not to lose sight of the need for a stable and peaceful world. Therefore, I plead with some of those who spoke in last week’s defence debate to go away and do their homework, to face the realities and to see that it is not a matter of just cutting the aid programme to put into defence. Of course there ought to be appropriate co-operation and a recognised interrelationship between development and defence—I would be the first to emphasise that and see its value—but that is very different from a naive perception that you simply cut money out of the aid programme and put it into defence.

East Africa: Refugee Crisis

Lord Judd Excerpts

Wednesday 19th July 2017 Lords Chamber

[Lord Judd (Lab)]

My Lords, the situation is appalling, the suffering is acute and the courage and resilience of thousands of people is amazing. I am glad that the noble Lord has been able to reassure the House that our humanitarian commitment is firm. However, would he agree that this situation is, sadly, a symptom of what lies ahead in the world, and that crises of this kind will recur, with inevitable pressures on Europe? Is not this the very time we should be working flat out with our international partners, not least in Europe, to think about the strategies we must develop to meet the crises that lie ahead?

[Lord Bates]

The noble Lord speaks with great authority and understanding of these issues and I totally agree with him. We need to look at the underlying causes. This is sometimes portrayed in the media as a climate issue which has caused suffering to the people of this region. However, it is a manmade crisis, which needs a manmade solution. This means people putting their civilian populations first and protecting them, and the international community needs to come forward—as it did through the G20—with radical plans to bolster job creation, economic growth and security in that region so that there is the potential for peace in the future.

Development Aid Budget

Lord Judd Excerpts

Monday 3rd July 2017 Lords Chamber

[Lord Judd (Lab)]

My Lords, I join all those noble Lords who have thanked the noble Baroness, Lady D’Souza, for having introduced this debate. It is terrific to see her in her emancipation leading so forcefully on such a vital issue.

I declare an interest because of my past ministerial responsibilities at the Ministry of Overseas Development, as it then was, at the Foreign Office and at the Ministry of Defence, and because of a great deal of my life spent voluntarily and professionally in organisations in the voluntary sector.

I have one worry underlying this debate: I wish we would stop using the word “impact”. We are talking about development; development enables people to take control of their own lives and take them forward, and enables Governments and communities to take charge of their own affairs and carry them forward. “Impact” is not the right language for doing that; we should talk about contribution or, as my noble friend Lord McConnell put it, effectiveness. Those are the sort of words that we should be using.

The other thing that we should watch carefully is the contrast between long and short term—and, of course, “impact” lends itself to the short term. We have seen that in conflict situations, when the army liberates an area and wants to see something done quickly. DfID may have reservations and say, “This is not going to be sustainable—it’s not the best thing to do in the long run”, and we have to look at that. It is also about empowerment, which means prioritising education; it means, of course, income generation, and sweeping up the gender issues in that income generation. But it is not just about women; it is also about too many millions of young men, idle in their community, unemployed and prey to extremism. We really have to think about that very hard.

It is also about multilateral agencies. If my life has taught me anything, it is that competitive aid is doing harm. We need to co-ordinate our efforts with others, sometimes running joint programmes—but not necessarily just that; it is about co-ordinating the priorities that we share. It is also about refugees and displaced people. The difficulties and issues that we face at the moment in this sphere are child’s play by comparison with what is going to happen in future if one looks at climate change alone. That demands a global strategy on how we meet these challenges. What exactly are the Government doing to develop those global strategies; how far are they working closely, hand in glove, with UNHCR in this context?

It is about justice. We love to talk about the rule of law, but justice costs money. How do you establish effective systems of justice in the poorest countries in the world? They do not come cheaply. It means that a great deal of resources have to be targeted and provided. And it is also about having security sector reform, because nothing will progress without peace and stability, and the security sector is vitally important. It has to be a sector in which people and communities have confidence, operating to the highest standards of integrity and with a real commitment to human rights.

We have great NGOs in this country—I can say that from personal experience—and their briefing is always invaluable, based as it is, invariably, on the authority of engagement. I have listened to this debate so far and seen that the briefing has not been lacking; it is clear that the NGOs are at work.

Fifty percent of DfID’s budget goes to fragile states. We need to hear more precisely about how in such fragile states, often in acute conflict, DfID and the Government’s commitment—our commitment—to human rights, sustainable development goals and poverty alleviation is being sustained and developed.

I can see very great potential advantages of interdepartmental co-operation and, similarly, of interdepartmental ministerial appointments. But it is not just about intellectually seeing it as a good idea; it is about how it is actually helping in these situations. Are the principles, priorities and commitments of DfID really being upheld? Is it really in the driving seat? Otherwise, we must worry that public funds and taxpayers’ money may be going to activities which cannot be justified by the aid programme.

There is a disturbing rise in civilian casualties in conflict areas, particularly in siege situations. We need to ask how, in situations where people are really suffering—and, as has been discussed, they are doing so at this moment—DfID’s priorities and the Government’s professed objectives are being upheld and the standards fulfilled. It is going to be tough and complex but we need to know how it is being done. In general, we also need to know how closely DfID and the Foreign Office are really working together in the application of human rights. In the immediate situation for refugees—not least those in the central Mediterranean area—how are we ensuring that commitments to human rights and the protection of children are being upheld? I am alarmed to hear stories about border patrols, which we may be financing, arresting children who then end up in prison. We need to watch things like that and it would be good to hear more from the Minister.

In conclusion, it is refreshing that Bond, the global forum of our NGO community, has reminded us of the words of the former Archbishop of Canterbury, Rowan Williams—the noble and right reverend Lord, Lord Williams of Oystermouth—in April this year. He put it extremely well, saying that,

“aid is not about creating dependence but helping people become valued partners and co-workers for a safe and equitable world”.