UK Economy: Growth, Inflation and Productivity

Lord Whitty Excerpts

Thursday 29th June 2023 Lords Chamber

[Lord Whitty (Lab)]

My Lords, I thank my noble friend Lord Eatwell for his masterly introduction to the debate, which means that I am scrapping half my speech, and my noble friend Lord Leong, particularly for his last point: that we need to invest in our workforce, in our people, in this country as part of solving the productivity problem.

Productivity is part of the intent of this debate, but it is of course simply a statistical calculation: it is output over the labour force. To that extent, I suppose I could say facetiously that the fact that we have cut the workforce by older workers being deterred from staying at work and by cutting off the flow of migrants post-Brexit means that the Government have at least inadvertently managed to achieve part of keeping productivity up, but, as other noble Lords have said, we are behind on productivity and growth of output compared with almost all our competitors.

In order for productivity to be raised, we need three things: we need increased quality of input, both capital and workforce, increased quality and dimension of output but also general macroeconomic stability and context in which those things work. As other noble Lords have said, we have seen a serious relative decline in investment in the UK. As the noble Lord, Lord Howell, said, we are losing our share of international corporate direct investment. We are also failing in domestically generated investment. There is quite a lot of money around, and quite a lot of foreign money around, but it is coming in by slightly shady methods and is not, by and large, being invested in productive industry but in property, land and housing, distorting the housing market and worsening problems in it as a result of investment in what is basically a dead asset, making it impossible for families and landlords to operate efficiently in the housing context.

One of the difficulties of an overall debate is that the Government blame everybody. They blame the greedy workers going on strike. They blame, as I see the Chancellor did this week, “greedflation” in the supermarkets. They blame President Putin, maybe rightly, and they blame world economic conditions. But those world economic conditions apply to every one of our competitors. What is so unique about this country is that economic policy has been seriously incoherent for most of the past 13 years, as we move from austerity to quantitative easing to the Kwarteng/Truss debacle to the present incoherence and lack of direction. That is what the Government need to address at this stage. They even, of course, blame the previous Labour Government, but I will not go there.

We need to provide the context in which the owners of money—capital, or whatever we like to call it—put it into productive investment. In order for that to happen, we need to ensure that we have workers trained to operate that capital and the management to manage it. According to statistics published last week, one in four British workers is a manager but very few get any training in management, and the lack of organisation and incoherence of many of the decisions—in both the public and private sectors—is caused by the failures of our management class. It is not a result of their own failings, but of our failure to put enough into management training.

It also means that the regulators have to operate effectively. By the regulators, I do not just mean the Treasury and the Bank of England—although it would be handy if they had the same policy and were not pulling in opposite directions—but the rest of the regulators. I understand that the Chancellor, who has been quite busy, met the economic regulators this week. We have seen the failures of Ofgem and the incoherence of the energy market in recent years, moving from an oligopolistic system with six companies to one of nearly 70 companies, and then back again, as many of those companies went bankrupt. We have seen the failure of Ofwat in the water industry. There is not only sewage in our rivers but now, apparently, a complete overgearing of several companies within that sector. The economic regulators, the Treasury and the Bank of England need to get their act together, and it is only really the Government and the Chancellor that can get them to do so.

One other aspect is our own savings. It is ridiculous that the recent high interest rates are not being passed on to savers. The reality of the broader role of the Bank of England is to ensure that the financial sector operates to encourage saving in this country. If we encourage saving, even by 2% or 3% more, we will have additional investment moneys to go into our industries. I accept that that is a failing of successive Governments—we have always had a relatively low savings rate—but we cannot continue in the way we are.

There is real incoherence in government. Let us get some coherence. Abandoning the industrial strategy was daft but there is an industrial strategy—it is called the net zero strategy. However, just yesterday, the Climate Change Committee produced a chart which shows that most of the objectives of that strategy are at red or amber. In other words, it is failing so far. Let us get back to a clear strategy for the medium to long term, but one that is coherent and through which all aspects of government work together.