Budget Statement

Lord Whitty Excerpts

Monday 4th December 2017 Lords Chamber

[Lord Lea of Crondall (Lab)]

My Lords, the state of the economy at the moment is gloomy in the extreme. I am sorry to those people who think that we ought to say that there is light at the end of the tunnel, but at the moment, there is not. I follow the noble Lord, Lord Skidelsky, in saying that we have to target one thing above all: we have to jack up the rate of economic growth to 2% or 3%. Nothing else will work unless we do that. That sounds a bit like George Brown in 1964; I say, “Come back George Brown, all is forgiven”.

[Lord Whitty (Lab)]

Not quite all.

[Lord Lea of Crondall]

Some parts are forgiven. We have to have a new deal in both senses of the term: a TVA-type new deal and a new deal for workers. There is an ambiguity to what a lot of the speeches add up to of where this productivity problem arises.

In passing, the noble Lord, Lord Tugendhat, made a speech that could have been interpreted as saying he does not quite believe the statistics and that the economy is growing in a way we have not recognised. I used to be a bit of a guru on national income accounting. Income, output and expenditure have to be measured to match. I cannot see how the ONS can be all that wrong in saying that the economy is not growing by nought point something.

On the idea that there is some mysterious factor in the economy we are not measuring, a lot of people in Silicon Valley believe the zillions of extra things we can do with the things in our pockets—our phones—must mean that productivity is rising. There is a puzzle there, but for the moment the statisticians are correct: they are not adding to our productive potential. We are just playing around on our mobile phones; we are not doing anything useful with them. That is a big factor, but at the moment there is nothing that is measurably happening.

We can have a look at measuring the rate of economic growth, but everything else is second order. The main candidate for something the Chancellor can do about it is public investment. It is a long time since we have been worried about productive potential, but it is the only term that meets where we are at the moment. It goes back to the strange discussion we had the other day on the industrial strategy with the noble Lord, Lord Henley, when he took some comfort from the fact that unemployment is down and that this was a good way of justifying lower productivity—“Don’t you people want lower unemployment?” It is one of those questions you get on the BBC’s “Today” programme, as our friend Mr John McDonnell found out the other day. You cannot look at a dynamic economy by trying to stick to questions and answers such as that.

We have to jack up the rate of investment. Whether we get the money off the Norwegian wealth fund, which is now worth $1 trillion, or not I do not know, but there has to be a dynamic piece of arithmetic and we can agree on some the answers—if you did get the economy to grow at that pace, then you would get this return through business growth and tax returns. We ought to raise the level of public discussion, whether at the BBC or anywhere else. We are not short of excellent material. The number of excellent reports we have heard mentioned is extraordinary. I will not go through them all because I only have two more minutes, but they all say roughly the same thing: we have a low pay trap, a low productivity trap and low investment, and we ought to transform the economy in some way. Mr McDonnell has said most of the right things about how to increase our productivity potential, as has the Social Mobility Commission. I congratulate Mr Milburn and the noble Baroness, Lady Shephard, on the way they identified these cold and hot spots around the country, because that is also very important in terms of where public investment should be going.

We have to make sure there is some targeting in numerical terms in this debate—how do you get to, say, 3%? Even as a paper exercise it would show us where we need to do something. Without sounding as if it is all to do with pay, the fact is you cannot change the definition of value added without recognising that value added is pay and profits. There are people at the top earning zillions, but pay and productivity are low. I am not saying you do it just by increasing pay, but we cannot wallow as a zero economy, with zero growth in real pay and in productivity.

I have one final word on the Brexit effect. There are undoubtedly three very bad Brexit effects relating to this. First is an investment problem relating to trade barriers. The second is the spectre of the exchange rate falling, as it has at 90p to the euro. We can see circumstances in which it could well have parity with the euro. The third is the prospective collapse of investment in those industries with a single factory floor in Europe, whether it is Jaguar Land Rover, Airbus or Unilever, and all the other sorts of investment which require a change in the policy so that we stay in the single market and the customs union.

--- Later in debate ---

[Lord Whitty]

My Lords, the news for the Government since the Budget has not been great, and I am not even going to talk about Brexit—I will leave that until later in the week. On the economic side, the OBR projections have shown all too clearly that the austerity strategy has lamentably failed on all fronts: on debt, on growth, on productivity and on living standards. On the social side, the report of the Social Mobility Commission, compounded this morning by the further report from the Joseph Rowntree Foundation on child poverty, shows just how uneven life chances are in this country. We are greatly divided, societally and geographically. In that view, I have to differ from my former noble friend Lord Balfe. I think he had rather rose-coloured spectacles on today. There is great division in our society and the Budget will not help to address it.

I pick out three issues. One is the housing crisis, where I broadly follow the remarks just made by the noble Lord, Lord Shipley. The Government claim to have addressed the housing crisis, but it is a seriously misconstrued strategy, in so far as it has been so far revealed. It has attempted to tackle the wrong problems, mostly with the wrong measures and benefiting the wrong people. The second crisis, which has also been referred to at length in this debate, is the social care crisis. The Government have completely ignored it in this context. I hope the Minister will tell us that we are about to get a new White Paper with a strategy on social care. Both residential social care and care visitors are in colossal crisis.

Residential homes’ standards of care are diminishing as they cannot contend with the combination of squeezed resources and burgeoning demand. As we have heard in recent days from the CMA, of all people, some care homes are facing closure and bankruptcy. Local authority fees for care are capped too low to be economic for care homes or for care workers to be paid adequately. Private funders, who are often hard-pressed families themselves, are faced with fees of more than £45,000 a year and often forced to sell their own homes or their parents’ homes. In care homes, deteriorating conditions and slashed staffing levels make the final years of many of our elder people, some of our own age, and our parents and grandparents, an avoidable misery. Not all the generational disadvantage is in one direction.

On housing, I shall not say much more. Other noble Lords have clearly spelled out that if we are to achieve the 300,000 target that the Government now support, there will have to be a substantial increase in council house building. The Conservative Party still seems to have an antagonism to council houses and to local authorities being involved in housing provision. To meet their targets they will have to get over that, because the cut in stamp duty and the other measures announced by the Government do not address the right people. In most parts of the country, people with quite adequate incomes for all other purposes are unable ever to get on the housing ladder. That means we have to provide some form of rented accommodation. We know that the private rented sector has seen escalating rents and deteriorating conditions and security.

We are going back to a situation that existed 100 years ago, when there were only two forms of tenure: you either owned it or you rented it from a usually grasping, exploitative landlord. In many parts of the country, that spectre has returned already. The only reason people can afford to meet those rents, and in some cases meet their mortgage, is that they are bolstered by social security, particularly in the rented sector by housing benefit, which continues to grow, despite the Government’s attempts to limit it. We are effectively passing money from the state to private landlords. That is not a sensible housing policy, a sensible social policy or a sensible economic policy. We therefore need to follow the well-trodden path of creating greater social housing, through both councils and housing associations, to get decent, well-built, sustainable homes for the majority of our people. The Government are ignoring that at their peril. I hope that the social housing Green Paper, or whatever it will be, calms my fears about that, but I have seen no indication from anything any government Minister has said so far that gives me any cause for comfort.

I know there are those who will say that I see the housing market through the eyes of a London-based politician, but I do not. The reality is the same in all parts of the country, particularly in the south-east. London prices have affected the whole of the south, including the south-east. They have also affected many of our other great cities. The reality is that this is part of a bigger problem. It is part of the problem that was highlighted to some extent by the Social Mobility Commission: the overheating of the London economy and the relative advantage of people in London as against the rest of the country is causing grave dislocation in our society, our economy and, as the Brexit vote shows—I promised not to mention Brexit—our body politic between those who are benefiting, directly or indirectly, partially or totally, from the London effect and those who are not. The families who live in the Midlands and the north, and in the rural areas of East Anglia and the south-west, where I live, are suffering from the fact that we have an unbalanced economy, yet there is no sign from the Government of developing a proper regional strategy.

For decades, in the early years of our being in the European Union, we relied on regional funds and structural funds from the European Union as a substitute for regional policy. The very small instruments for regional policy that the Labour Government instituted were abolished by the coalition. We need to go back to an interventionist industrial regional policy as well as an industrial strategy. At the moment we have some commitments towards a northern powerhouse but they have yet to be delivered and we have not even seen the machinery whereby they can be delivered. The third great gap in the Budget, after social care and housing, is the complete lack of any indication that the Government are about to have a rethink on regional policy in England.