Economic Recovery and Welfare Debate

House of Commons Chamber

Peter Luff (Mid-Worcestershire) (Con): I am now very glad that I came to this debate. Hearing the speech by the right hon. Member for Holborn and St. Pancras (Frank Dobson) has certainly taken me back a few years, that is for sure. How reassuring it was to hear an old voice reasserting itself in the Chamber. I have one simple question to ask him: who has been in power for the past 12 and a half years? Some elements of his analysis were right—for example, the ratings agencies have much to answer for—but who could have put that right over the past 12 and a half years? It was not us on the Opposition Benches; it was him, when he was in the Government, and his colleagues on the Government Benches.
Frank Dobson: Will the hon. Gentleman give way?
Peter Luff: With pleasure, but by the way, the reason why I did not intervene when the right hon. Gentleman asked his question about hedge funds was that I cannot name a single hedge fund. It was a pass, not a negative.
Frank Dobson: Can the hon. Gentleman give a single example of anyone from the Tory Front Bench calling for more regulation of the financial services industry in the past 12 years?
Peter Luff: I will happily send the right hon. Gentleman some of the excellent speeches by my hon. Friend the shadow Chancellor of the Exchequer, who calls for better and more effective regulation of the banking system all the time. Indeed, to jump ahead in my remarks, it was the incompetent reordering of the financial services system by the right hon. Gentleman’s Government that contributed to the mess in the international economy, for which he has dared to have the cheek to criticise us.
Mr. Redwood: My hon. Friend might like to remember that in our economic policy review in 2007, we called for stronger cash and capital regulation of the banks and said that a massive credit excess was very evident.
Peter Luff: It seems that some of us were more prescient than members of the Government. That report was produced at the request of those on our Front Bench and they paid great attention to it. I am afraid that the right hon. Gentleman is wrong. However, I am glad that he took us back. I do not know how far—probably to the heady days of nationalisation in the post-war period.
Mr. Binley: Back to the 1930s.
Peter Luff: It was to the 1930s, 1940s. I am glad that the right hon. Gentleman took us back, because in his opening remarks the Minister sought to take us back to the 1980s. I am an old man, it seems, in parliamentary terms. I was brought up not in the ’80s, but in the 1970s—a book published today by my good friend Lionel Zetter implicitly describes me as a grizzled veteran of the Major years. My formative experience was of the 1970s. I remember why the 1980s were so painful: it was the result of the mess that that lot on the Labour Benches made of the economy in the 1970s.
I remember being at university in Cambridge in the 1970s and being told that there was no future left for this country. There were too few producers and no manufacturing industry—the nation had gone to rack and ruin. It was the Thatcher years, painful as they were and mistakes made as they were, that saved the country. It is about time that the Government stopped criticising those years and instead gave thanks to a Government who saved this country from economic damnation.
I am probably being a little partisan for a Select Committee Chairman, but it is objectively true that, economically speaking, we face two huge crises in our society. First, unemployment is catastrophically high, as it always is towards the end of a Labour Government. Indeed, it has doubled in my constituency in the past year. Unemployment was not something that we had to worry about in Mid-Worcestershire, but now we do, thanks to the Government’s incompetent management of our economy in recent years.
Secondly, the scale of the debt burden facing our children is truly horrifying. Indeed, it is a problem that will hang over the House of Commons for years to come. However, it is not down to the reasons that the right hon. Gentleman gave, but down to structural problems—that is, the constant seeking to spend and spend on things that people wanted over many years. That is the underlying problem. What Tony Blair’s Government used to call the bills of economic failure—the bills for unemployment, debt interest and so on—will be massively higher in the next Parliament than those that he had the cheek to criticise us for back then. Therefore, I will take no lectures on debt either.
One of the two great deceptions practised by this Government has been to say that this recession has its roots entirely in the United States of America. It is true that the American economy is five times bigger than ours, so any problem on that side of the pond will necessarily have an impact five times bigger on the world economy. However, it is also true that all the mistakes made in the United States of America were made here as well. An excessive reliance on debt, sub-prime lending, poor regulation—all those mistakes were made here as well. This is a recession made in the UK and the USA. I therefore regret very much that the Government still seek to hide behind that pathetic excuse.
What is more, and what is so tragic, is that the Government pretended that they had ended boom and bust. That lured many innocent folk into making decisions about their investments that they would not otherwise have made—bankers tell me this endlessly. If there is one phrase that should act as the sad epitaph of this Government, it is “an end to boom and bust.” Those of us who are students of economics know that that is absolutely impossible. That is the nature of the way the world works—it has been for centuries and it always will be. “An end to boom and bust” was an impossible claim, but it lured people into making very bad decisions.
Let me say in brackets that one thing that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) said in his opening remarks puzzled me. He said that this was not an economic debate. However, I see it very much as an economic debate. Indeed, it is a great shame that we have so few economic debates in this place. I do not yet know whether the Government have announced a date for the pre-Budget report, which will presumably come after the Queen’s Speech. I appreciate that announcing dates in the next Session poses challenges, but I hope that there will be a debate this year on the pre-Budget report, which there has not been for many years. The Government are committed to such debates and it is important that they should be held, because scrutinising the economy is one of the two most important challenges facing our society—the other, in our view, is addressing our broken society. I therefore urge the Government to keep to their previously declared pledge to have debates on the pre-Budget report.
The Government often hide behind headlines, one of which is Britain’s relatively high standing in the World Bank’s “Ease of business” table. It is true that we have risen a place in 2009-10, from sixth to fifth, which superficially looks like a cause for cheer. However, the detailed breakdown of the figures that underpin that result show that a lot of the things that are done better are things for which the Government can take little short-term responsibility. However, where we have got worse is, for example, on employing workers. We are now the 35th easiest country in the world for employing workers. That is a terrifying statistic. We are slowly but surely crawling down the league tables—on starting a business, for example, we were ninth last year, but now we are 16th. On the measures that are under the Government’s control, therefore, we are getting worse in that ranking table.
What is more, we are being caught up by some worrying countries that understand exactly what is necessary to do business effectively. I went to Saudi Arabia with my hon. Friend the Member for Northampton, South (Mr. Binley) earlier this year, where we heard about the phenomenal attempts being made by the Saudis to move up those business tables. We need to watch out, because some unlikely countries are snapping at our heels. In 2004, Saudi Arabia was the 67th easiest country in the world to do business; in 2009, it had become the 15th. Now it is the 13th and it expects to be in the top 10 next year.
The world is changing fast. We have to move fast to adapt to it. Many of the old platitudes offered for years in this Chamber—about the need to deregulate, for example—can no longer be treated as platitudes. They have to be acted on with the utmost urgency.
Having said all that—and perhaps reverting more to the role of a Select Committee Chairman—I am also anxious that we should not talk down the success of what has been achieved. We still have a successful manufacturing sector in the United Kingdom. I would argue that it could have done better under different policies. Indeed, our manufacturing sector would be stronger if the Government had not fallen so in love with the financial services sector, but there we are: we are where we are. However, the manufacturing sector has grown consistently in most years. We produce more as a nation than we have ever produced, notwithstanding the current recession.
As my Committee pointed out in our recent report—a report that attracted no attention at all, because it was entirely constructive and often praised the Government—the UK is
“the world’s sixth largest manufacturing nation...the eighth largest exporter of manufactured goods,”
and in 2006,
“25 per cent. of those goods were high-tech”.
Indeed, we have the highest proportion of high-tech exports of any of our major competitors. In many ways we are doing extremely well. However, we need to criticise the Government objectively and fairly when we think that their policies fall short.
It is always disappointing when the Government react in a knee-jerk way to a Select Committee report. For example, the Secretary of State for Children, Schools and Families owes us more explanation of his reasons for rejecting the recommendation of the Select Committee on Children, Schools and Families than he gave in answer to today’s urgent question.
Mr. Stephen Crabb (Preseli Pembrokeshire) (Con): My hon. Friend makes a powerful point about the need not to talk down the success of British manufacturing and about whether the UK manufacturing base would be doing better under different policy conditions. He will be aware that the manufacturing sector has been haemorrhaging jobs, with almost 2 million lost over the lifetime of this Labour Government.

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Peter Luff: I want to caution my hon. Friend about this jobs argument, which is a double-edged sword. Sometimes those jobs are lost because of improvements in productivity. We are still producing more. That kind of talk risks a self-fulfilling circle of decline, which I am rather nervous about—indeed, that is one of the major themes of our report, which I shall come to in a minute. There are huge and exciting opportunities for young people in manufacturing, if they had them explained to them properly, but if we talk it down too much, our young men and women will not choose careers in those industries. I am therefore nervous about the jobs argument. It is not quite as strong as Opposition politicians have sometimes thought it was, when the main parties were on other sides of the Chamber, or as some think it is now.
On dismissing Select Committee reports, my Select Committee on Business and Enterprise produced quite a constructive a report about the automotive assistance programme. Strangely, that is not part of the Government’s amendment, and I will explain why that might be if I have time. However, it was a constructive report, although one has, of necessity, if one is to get coverage these days in our rather simplistic media, to emphasise the negative, and we perhaps did that in our press release. The result was that Lord Mandelson told BBC News 24 on the day of publication:
“I am afraid the Committee don’t know what they’re talking about...Well, I’m equally astounded these MPs don’t have a clearer idea of what’s going on on the ground.”
I was a little dismayed because I had hoped that he would regard our report as a constructive contribution that suggested ways in which the AAP could be improved.
My judgment was vindicated by the Government’s formal response, which was published in September. It stated:
“The Government welcomes the Business and Enterprise Select Committee’s report—The Automotive Industry in the UK...This is a valuable contribution to the discussions now taking place about the best way to support this critical part of the UK’s manufacturing sector now and in the future...The Government thanks the Committee for their positive comments about this work and the commitment of Ministers”.
That shows the danger of knee-jerk reactions, and I hope that the Minister will take back to Lord Mandelson, who I wish could be more accountable to this House, my slight warning that he should read things a little more often before he comments on them.
The Committee likes to give praise where it is due, and we have done that in our report. However, we have one warning, which echoes the words of today’s Opposition motion. We say:
“Over the last year, the Government has produced a succession of strategy and policy papers related to innovation and industry. Their proposals cannot be implemented by the Government alone. All those involved now need to ensure that the emphasis is on the actual delivery of policies designed to support innovation, rather than producing further policy documents.”
I sometimes feel that the Government think that saying the right words will achieve the right ends, but that is not always the case.
Often, by the way, the best schemes cost little or nothing. I am in favour of schemes that support industry, and many guarantee schemes never cost a penny or certainly cost very little. Even the scrappage scheme—it is a very good idea, and I argued for its extension—will cost the Treasury very little, because of the tax revenues that it generates. The best schemes therefore often do not need to spend large sums, and the debate about fiscal stimulus and supporting industry often echoes old and tired politics.
Sometimes, clever interventions cost very little. One example is the enterprise finance guarantee scheme. It is too limited, and the Conservative party’s national loan guarantee scheme would have been a better and more generous option. It would have been easier to administer and would have had very few public expenditure implications, but, to be fair to the Government, their scheme has broadly worked. Expectations were perhaps raised a bit about how it might work in practice, but it has been quite a targeted scheme, as Baroness Vadera explained to the Committee at an interesting evidence session. Broadly, the scheme is delivering the goods after a slow start. That is certainly the conclusion of our report.
The Department for Business, Innovation and Skills has been effective in its dealings with the aerospace sector. The establishment of the Technology Strategy Board is a welcome step forward, as long as the board can remain reasonably focused on its core tasks. On the other schemes, however, the warnings about trade credit insurance have been continuous and vocal. Where are we with it now? The Financial Times has described the take-up as “paltry”. On 27 August, it said that just £7 million of cover had been provided to 52 businesses. On 9 September, the answer to a written parliamentary question showed that the Financial Times figures were correct. On 26 July, a survey of 100 members of the Construction Products Association—construction has been one of the hardest-hit sectors in the recession—found that just one had taken advantage of the scheme, which the association’s members had found
“very expensive with very limited cover”.
That is an example of a well-intentioned scheme that was delayed for far too long and then implemented incompletely and imperfectly.
As for the automotive assistance programme, which does not feature in the Government’s amendment, I suspect that the Government are a bit embarrassed about it. It was announced with a great fanfare of trumpets in January as a £2.3 billion scheme. That sounds like quite a lot of money, but under cross-examination from my Committee last week, the Department’s permanent secretary admitted that it was actually a £400 million scheme, because that was the amount of the loan guarantee available to support the £2.3 billion of lending that the Government hoped would come forward. What is more, most of that £400 million should never be spent, because it is a guarantee—a liability. The scheme’s actual expenditure is nugatory. So far, by the way, only one scheme has been advanced under the automotive assistance programme. It is for a loan—not a loan guarantee—of £10 million. Therefore, a £2.3 billion scheme advanced in January has provided one £10 million loan in the middle of October, which is extraordinary and extremely disappointing.
The Government perhaps did not think about the scheme properly before they introduced it. There was a gap between the AAP’s £5 million lower level and the
£1 million upper level of the enterprise finance guarantee scheme. The Government have now closed that gap, acting on a recommendation from my Committee. Their response to the Committee hinted at that new flexibility and things such as lower thresholds. Last week, however, the permanent secretary confirmed to our delight that the gap had been closed and that the AAP applied from £1 million up. The Government should be trumpeting that much more.
Whatever one makes of the merits of using taxpayers’ money in effect to subsidise the private sector, and there are arguments about that, the French and German Governments moved much more rapidly to support their automotive sectors than the British Government did. The treatment of Jaguar Land Rover is still a matter of serious concern. The Government hold it up as a triumph that the company has gone back to the private sector for its finance, but the time and effort that it spent negotiating in good faith with the Government suggests that it was driven there by desperation rather than need. However, we are where we are, and I hope that JLR—a very important company—will now survive.
The AAP is an example of a scheme that was, in many respects, well intentioned, over-promised and late in delivery and which did not deliver as it should have done for a crucial sector. Equally, however, there are some good things in it, and I am grateful to the Government for their constructive response to our report, notwithstanding Lord Mandelson’s initial reaction.
I still have high hopes for my own small measure for small businesses—the Small Business Rate Relief (Automatic Payment) Bill. I have a meeting with a Minister in the Department for Communities and Local Government on Wednesday, when she will explain the Government’s latest thinking. I am still convinced that that is the kind of measure that would help small businesses, for which the odd £500 here and £1,000 there makes a big difference. I can see no overriding reason why the Government should not embrace my Bill. I warn the Government that the Conservative party is explicitly committed to embracing it in government. If the Government want to give the small business sector some good news, they should embrace it.
This is an important debate, and I hope that there will be more such debates. Some of the Government’s schemes are very effective, but some are not. It is time for the Government to acknowledge the failings of those schemes and to address them.

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