My Lords, I thank all noble Lords who have made time to prepare for and contribute to this important debate on taking note of the conditions required for economic growth. I pray that it will be helpful, constructive and stimulating, as we hold the Government to account for their major election pledge to bring about growth, presently at which they are struggling. I will focus today on mood, spirit, culture and the social underpinnings of market economies, often neglected subjects in growth discussions.
On 29 July, the Chancellor first said the new Government had
“inherited a projected overspend of £22 billion”,—[Official Report, Commons, 29/7/24; col. 1033.]
or a black hole, and so began the gloomfest, with warnings of a very difficult Budget and, probably unintentionally, the destructive talkdown of the economy. The cloud of employment rights soon appeared on the horizon, with much employer scratching of heads as to how these 28 reforms were going to deliver growth, given concerns, for example, that day-one rights could mean that they were stuck with an unsuitable hire.
Last quarter’s rise in unemployment is being blamed on the Budget’s further disincentives to hire with higher employer national insurance contributions and minimum wage levels producing an accelerator effect of pessimism. Business confidence is now at a very low ebb. One entrepreneurial farmer I was talking to recently, who has businessmen friends who were full of plans for new enterprises and the expansion of existing ones, said they had all cancelled these plans since the Budget and are hunkering down to survive.
Lifting the gloom is essential for growth. There needs to be reward for risk-taking and succour for the entrepreneurial spirit being deadened by an emphasis on rights. Responsibilities need to come back into fashion. We need a JFK moment: ask not what your company can do for you—ask what you can do for your company. Many employers shoulder significant risk. Their decisions make the difference between someone’s job being there or not, and they live daily with existential threats facing firms they have built up with their own money and effort.
Employment rights are obviously important, but employees also have responsibilities towards their employers, which should be pursued out of self-interest, if for no other reason. Securing rights, for example, to work from home or in a hybrid pattern should not be in the teeth of good business reasons for office-based staff to be working together in the office. In 1789, Pierre Victor Malouet warned France’s Estates-General:
“Take care when you tell man his rights. For you will transport him to the summit of a high mountain—from where you will show him an empire without limits”.
My Lords, in principle, the growth problem is straightforward: invest in the quality of labour via education and training, and in the quality of capital via research and development and innovation. On the one hand, the state is the main investor in education and skills and plays a crucial role in providing efficient infrastructure and much of the budget for fundamental research. The funding of research is particularly important because the state is able to invest in areas that only yield an uncertain return in the long term. Consider, for example, the fact that all relevant innovations embodied in the iPhone were developed in public sector institutions. It was the genius, then, of Steve Jobs to put them all together.
On the other hand, business investment requires incentives and means. The incentive is clear: the expectation that the investment will be profitable. That depends on the prospective demand for the goods and services that the investment is designed to produce. It does not matter if interest rates and taxes are low or even zero; if you cannot sell the product due to a lack of demand then investment is a waste of money, so the maintenance of a high level of effective demand is the vital precondition for the stimulation of competitive investment. Even if demand is there, though, the means are required—namely, the finance. Much investment is financed by retained profits, but truly innovative investment—the investment that changes the world—requires the medium-term to long-term support of financial institutions.
That is where Britain fails. Our major financial institutions define the concept of investment peculiarly: they claim they are investing billions in Britain, but what they mean is that they spend billions in the purchase of financial assets in secondary markets. They do not finance the creation of new, real, productive investment—investment in national accounting terms. It used to be argued that liquid secondary markets were a necessary complement to primary investment, but the relationship is declining, with an increasing proportion of investment being funded through private vehicles.
My Lords, I thank the noble Lord, Lord Farmer, for instigating this important debate. I want to offer some practical solutions, with three different hats on.
The first hat that I wear is as an adviser to the digital centre of government. This week, we announced some big changes in how public services will be delivered in the next wave of what GOV.UK will look like. I mention it because one enormously important plank of this work is the opportunity to change the procurement processes in government—particularly in relation to the digital sector, but this applies across the whole of government. I believe deeply that if the Government were to take a more creative, innovative and urgent view of the procurement process, we could achieve an extremely interesting level of growth, particularly for our own industries that sometimes lose out to bigger US commercial sectors. Can the Minister please reflect on the procurement issues as he sees them? I know that Minister Gould has been working on these issues effectively as well.
My second hat is that of the president of the British Chambers of Commerce. Noble Lords will be aware that the chambers of commerce do quarterly reviews and that at the minute, those are pretty bleak, but in a spirit of collaboration with the Government, I note that the noble Lord, Lord Livermore, has met my colleagues at the British Chambers of Commerce. We have a long list of infrastructure projects that just need urgent decision-making today. They range from Sizewell C, which has not yet been given the official go-ahead—although I hear that that announcement might come very soon—through to the electrification of various railway lines and planning for offshore wind. It is not acceptable that projects that will enormously increase wealth, jobs and opportunities in local communities and economies are sitting for so long in planning decision inboxes. Has the Minister had time to reflect on that British Chambers of Commerce infrastructure list and might he be able to keep kicking the relevant departments? This is such an easy win for the country right now.
My Lords, I too thank the noble Lord, Lord Farmer, for bringing this debate to the Chamber. I believe that this debate is fundamentally about determining the correct policy sequence to achieve economic growth. Do we wait for stability in government finances, even if that means raising taxes and deterring investment today, with the view that investors will return once the economy is stabilised, or should the Government prioritise protecting investors in the belief that their investment capital propels growth and in turn increases government tax-take to fund public goods? There is always a risk that a concept such as economic growth gets used so much that it becomes detached from its core elements and the inputs that drive it. As a reminder, it is worth looking at the United Kingdom’s prospects through the prism of the three classical inputs for economic growth: capital, labour, and productivity.
First, in terms of capital—in essence, how much money you have—Britain’s debt and deficits are well known to be distressed on a historic basis. Britain’s public debt-to-GDP ratio is forecast to breach 100% this year. Together with a constrained fiscus, these will be headwinds for growth. The second is labour, which pertains to the quantity and quality of the workforce. On quantity, we know that 9.3 million people between the ages of 16 and 64 were economically inactive as of the end of 2024. On quality, the latest OECD PISA assessment in 2022 shows that the United Kingdom’s scores for reading, mathematics and science all fell from those in 2018. Worse still, science scores have fallen in three consecutive PISA reports. The third is productivity, which explains roughly 60% of why one country grows and another does not. In the third quarter of 2024, UK productivity was estimated to have fallen by 1.8% versus the prior year, and the story of UK productivity is that it has grown by only 1.3% since pre-pandemic levels.
It is my sense that we are tilted too much towards stability today, taking a risky gamble that could lead to too little investment tomorrow. The Office for Budget Responsibility raised cautions of a disturbing future that awaits the United Kingdom by 2050. In its baseline projections, public spending will rise from 45% to over 60% of GDP, while revenues remain at around 40% of GDP. Debt will rise to 270% of GDP. All the while, the Government remain vulnerable to shocks, including: an ageing population with rising healthcare and retirement needs; a falling birth rate; climate change, with threats from more extreme weather, and ever rising geopolitical tensions which will demand greater defence spending.
My Lords, I am pleased to speak in this debate, and I thank my noble friend Lord Farmer for securing it. I refer to my interests in the register.
Today, we have a Government who wish to spend other people’s money to advance social justice and deal with a range of issues that they believe are important. Indeed, many of them are, but, unfortunately, with a tax rate at a 70-year high, we have now run out of other people’s money. Looking at borrowing, we are at a 64-year high relative to GDP. We are now paying more on our 10-year gilts than most other developed countries, so there is no more money there either.
That leaves growth: the magical elixir the Government hope will provide all the answers. They are completely right to focus on this, as our wealth per capita has been declining since 2010. It has been masked by surging population growth, largely through immigration, but the brutal truth is that the slices of economic pie available to individual British citizens are shrinking.
In December, the Office for National Statistics confirmed that living standards in the UK are falling, as measured by the all-important metric of GDP per capita. Its verdict was that:
“Real GDP per head is estimated to have fallen by 0.2% in Quarter 3—
that is July to September last year—
“compared with the same quarter a year ago”.
Even if that GDP figure is flatlining, as long as the population is increasing, which it has been at 0.75% per year, that means GDP per capita will continue to fall. The increase in GDP needs to be outstripping the growth of the population for living standards to be rising again. So far, we have seen very little evidence of a growth plan, other than warm words. Even Professor Ben Ansell, a significant economist, last week described the Government’s growth policy as contradictory and “empty-minded”.
My Lords, before looking at what we have to do to get growth back, perhaps we should consider where we are and why we are here—not just in this country but across the West. We are in a very difficult position. As has already been noted by the noble Lord, Lord Agnew, GDP is falling. GDP per head, which is the only thing that matters, has begun to fall again. It is at the same level that it was in 2019. It is no wonder that people in this country do not feel better off; they are not better off.
This is not just in this country; it is common across the West. If you compare the pre-financial crash growth figures to the post-financial crash figures, only America and Australia have maintained even half their growth rates. Most of the Europeans are down 20% or 25% on their previous levels. Famously, Tolstoy wrote in the beginning of Anna Karenina:
“All happy families are alike; each unhappy family is unhappy in its own way”.
The same is true of most western economies; we all face different sets of problems. The specifics are different, but I do think we are all facing a variant of the same very deep-seated set of problems that we have to be honest about and grapple with.
First, the end of the Cold War—I think we have to go back that far—removed the pressure to remain productive and constantly demonstrate superiority of the western free-market model, and we got complacent. Secondly, what happened is what always happens when there is no counter pressure: collectivism. Intellectually bad ideas started to set in and go down the path of least resistance.
Thirdly, we saw economic policy follow that intellectual trend, with an expansion of government, more regulation and more state intervention. All that inevitably led to worse economic outcomes, more social conflict and a political environment that got worse. In the end, political choice accommodated itself to this environment. Most western electors faced the choice between two different versions of international progressivism and social liberalism—one supposedly on the right, involving international economic institutions, trade liberalisation and international business, and one conventionally on the left, involving redistribution and a lot of “woke” politics. Neither aspired to change the fundamentals; both involved high levels of migration, weakening social bonds and the nation state still further.
My Lords, I shall not speak about the economy, because I am not an economist, but I have always believed that the economy should be the servant of society. The trick is to allocate scarce resources to opportunities, with the objective of maximising social benefit. Even I recognise that excess demand for finite resources will just create inflation.
What are the opportunities that I am talking about? They are immense, starting with net zero. Then there is housing, with the target of 1.5 million houses; housing problems are at the centre of many of our social problems. There is domestic energy, heat pumps, insulation, transport, roads, rail, airports and health infrastructure to counter the crumbling infrastructure in the health service and other services, including water.
To achieve things, you need material, machinery and workers. Who are the workers that we need? They fall into two groups. The first group are roughly called “graduates”, who in general create intellectual property. The other group of workers, much more numerous, are the skilled manual workers who actually create the property. I believe from what I read that there is a crisis in the creation of a cohort of skilled manual workers. Where does it come from and what can be done about it?
We start with schools. For decades, we have said that success at school means that you go to university and get a degree. We do not recognise the value of the skilled manual worker; we have to change the culture so that they are held in similar regard to the workers in intellectual property. Further education has been chronically underfunded over several decades; it needs to be properly funded and integrated into the whole issue of creating this new cohort of skilled manual workers.
On industrial training, clearly the vehicle here is apprentices, but apprenticeships need to be much more finely tuned to what the real needs are and encouraged in any way we can way we can to improve the general training of workers. We are not just talking about initial training: we are talking about whole-life training, which is so powerful in a changing environment and for the dignity of workers.
My Lords, financial and professional services contribute 12% of total UK economic output and employ more than 2.4 million people, two-thirds of whom are outside London. The sector pays more tax than any other sector and is the UK’s biggest net exporting industry, and therefore a significant contributor to economic growth. I therefore welcome the fact that both financial and professional services are included in the Government’s industrial strategy—and I also welcome my former CityUK colleague Emma Reynolds MP to her new role as Economic Secretary to the Treasury. I trust that her experience at TheCityUK will be invaluable in moving forward some of these ideas to implementation.
The City, especially in the wholesale financial markets, has always been an early adopter of technology. In its quest for improved productivity and increased competitiveness, it has always invested in technology and striven for growth. It is in its DNA. I am therefore immensely proud of the work that the UK-based financial sector has done of late to try to help successive Governments to identify barriers to economic growth, whether that has been in the work of the IRSG, which I used to chair, or its parent entities, the City of London Corporation or TheCityUK, or indeed the many trade bodies, such as UK Finance, ABI, the IA or GDF—there are too many to mention today. They are all working tirelessly to help HMT and the financial regulators, via numerous task forces and working groups, to identify the best way forwards to unlock growth.
The financial regulators, the FCA, the PRA, the Bank of England and others, have been actively involved in this stakeholder endeavour for the past four to five years, including via various sector reviews, such as the Hill, Austin and Kalifa reviews, and indeed a lot of task forces. I commend that collaboration. I will highlight a few of those initiatives that could yield results if we implement quickly. The work of the Capital Markets Industry Taskforce, led by Dame Julia Hoggett, and numerous other groups, contributes to ongoing UK pension reform. However, waiting until all our pension funds consolidate will take years. Although necessary, we need to find ways now to incentivise domestic capital to invest in UK equity and opportunities, including via pension tax credits, where firms are perhaps rewarded for participating in UK risk assets, whether they are listed, quoted, private or critical infrastructure, and then we taper the pension tax credit, for example, if they are not.
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Rights are voracious.
JFK also said:
“One person can make a difference, and everyone should try”.
Call me nostalgic, but people used to work hard because of the need and inner drive to support their families. Arguably, they are now encouraged to vote for the party, no matter where on the political spectrum, that will do the best job of looking after their family for them. Of course the state has a role, but it should not smother or quench that provider instinct.
I welcome this Government’s efforts to stoke, not stifle, the spirit of adventure by shaking up environmental regulators and the Competition and Markets Authority. Many potential wealth-creators are snarled up in the sticky web of regulation for no reward and often at much cost. Even trying to open a bank account takes far too long. Regulation can sabotage the good intentions of policy. Of course we need a rules-based system, but when it becomes sclerotic and pathologised, it simply breeds despair.
My first City boss was always questioning whether one had the spirit of adventure. He was not counselling recklessness: risk needs to be analysed, and the risk-reward ratio needs to be calculated. The British Volksgeist, or national spirit, currently pervaded by gloom, needs to be freed from stultifying processes and reborn as a spirit of adventure. Alongside that, the world of ideas needs to be freed from the dictatorship of orthodoxy. A high percentage of the British elite inhabit a unipolar world where only one sort of ideas is considered—for example, on the issue of equality, diversity and inclusion.
Many in the British public are desperate for change. They are flirting with the idea of Farage and intrigued by the dominance of the disruptors in the United States, yet most mainstream news outlets recycle disdain for Trump and Musk and ignore the energy their ideas are pumping into the American Volksgeist. Americans have rediscovered that the buoyant animal spirits that need unleashing flourish in freedom.
Stimulating wealth creation requires encouraging people to take risks and act on out-of-the-box ideas. In this country, the hero is not the risk-taker but the reasonable man. George Bernard Shaw said:
“The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man”.
We will not see progress in this country when blandness is the ideal. Trailering the second Conservative debate later today, we are seeing it in the withdrawal of education options, by making the national curriculum compulsory across academies and forcing independent schools to close.
However, the liberation of market forces does not necessarily produce unending economic growth. A sustainably flourishing economy requires a stable social base. Towards the end of her time in office, Margaret Thatcher recognised that she needed to turn to social renewal after a decade-long focus on unleashing the markets and economic reform. The destruction of old industries had a devastating effect on the social fabric of the country, and family breakdown picked up speed on its already upward trend. The noble Lord, Lord King of Lothbury, the former Governor of the Bank of England, is adamant that stable families are the building blocks of a productive society, and ignoring that truth sowed seeds of destruction for future growth. Indeed, Tony Blair said in 1996 that a strong society
“cannot be morally neutral about the family”,
but now almost half of all children do not grow up with both parents.
Hyper-liberal individualism runs alongside purist free-market philosophy; hence many who espouse the latter are libertarian in their outlook. Yet, when social liberalism partners with economic liberalism, the inherent contradiction eventually brings the engine of growth to a shuddering halt. The social underpinnings of markets have been gnawed away. A real-world example is that coping with relationship breakdown made my employees less productive at work.
I once suggested to the Treasury that it should investigate the correlation between our low position on OECD league tables for both productivity and family stability and try to cost the loss of productivity that family breakdown brings. The Treasury spad that I spoke to was horrified at the prospect because, in his words, the cost would be far too high. In other words, the link with stable family life, with all its benefits to individuals and society, is well known but ignored by politicians running from an unpopular message.
Yet family instability undermines us economically in myriad ways. Adults who experience family breakdown as children are significantly more likely to have debt problems or to be on benefits. They are almost twice as likely to underachieve at school, experience mental issues such as alcoholism, be in trouble with the police or spend time in prison. One-quarter of prisoners have spent time in local authority care, and three-quarters of men in prison had an absent father. Future prosperity is sacrificed to liberal individualism.
Moreover, economic liberals’ demands for lower taxes and a smaller state will be forever thwarted when the demands on the public purse are so great, and that has much to do with the degradation of social and, particularly, family bonds. Family hubs are vital to remedying that. There are now around 950 family hubs in over 130 English local authorities, working closely with hundreds of children’s centres, building on the work of previous Labour and Conservative Governments. I declare my interest as a guarantor of FHN Holding, the not-for-profit owner of Family Hubs Network Ltd, in asking the Minister whether his Government will keep investing in family hubs in the spending review.
More broadly, David Halpern and Andy Haldane’s Social Capital 2025 says that strengthening wider networks and trust dramatically improves countries’ economic fortunes. In their words:
“The social bonds that tie us are the hidden wealth of nations”.
Strong social trust allows doing a deal on a handshake instead of through lawyers, sharply lowering transaction costs. A 10% increase in social trust increases relative economic productivity by 1.3% to 1.5%.
Social trust requires greater trust in our politics and requires politicians to tell the truth and be straight with the electorate. The leader of the Conservative Party recently admitted the futility of virtue-signalling announcements such as, “We will get to net zero by 2050”, without a credible plan. Labour has form here too. Building 1.5 million homes was hard enough when we did not have the manpower and other resources, and then the minimum wage and national insurance went up. When the Chancellor said her Budget did not increase tax on working people that was true only in a casuistic sense, and voters are sick of casuistry. Politicians should not underestimate the value of honesty. Facing up to things engenders respect. The public see through the deceit of talking down the economy when it was on the way up and misrepresenting Conservative spending plans. They simply say, “A plague on both your houses”.
Having been involved in markets for half a century, I have found money to be particularly honest. It is either there or it is not; you are either broke or you are not. In contrast, an ideology that says that net zero requires closing North Sea oilfields down will simply not work in the timeframes being driven through, not to mention that the solar panels we will rely on being made with Chinese slave labour.
Wealth creation is vital to support and lift those who need Churchill’s safety net of the welfare state, but many become entangled in that net if they are mentally or physically unwell. So, just as in the wider welfare population prior to universal credit, we need to cut welfare but, more than that, we also need to de-risk coming off welfare, especially where people are languishing on sickness benefits.
We also need to reduce the state by reducing the Civil Service. Productivity has gone up in the private sector but not the public sector, where the existential threat that many private sector companies face daily is non-existent.
To sum up my main points, poor growth has cultural as well as economic drivers. Will the Minister inform the House how the Government will banish gloom and blandness and encourage that spirit of adventure? How is he going to pep us all up? How will the Government emphasise responsibilities, not just rights, and rebuild a stable social fabric based on families and communities, where people provide, care for and trust each other? Will they admit that there is a pressing need for big ideas and people who think outside of the box? However uncomfortable they make us feel, we need disruptors who can discredit and destroy the dictatorship of orthodoxy. I beg to move.
There are exceptions to the non-real investment and non-growth stance of UK finance. Some of the larger institutions have small real investment divisions. However, investment is usually confined to fintech. There are some specialist small and medium-sized banks that spread their investment outside fintech into other growth areas, often with a real estate content. Some private equity firms promote organic growth in their target companies, and venture capital trusts are a valuable source of SME funding. Unfortunately, however, it is clear from the overall lack of second-stage SME funding in the UK that these exceptions do not add up to the scale required to transform the growth prospects of the economy.
For example, the entire assets of the venture capital trust sector amount to around £6.2 billion. This compares to the £1.5 trillion size of Barclays’ balance sheet alone; that is 250 times greater than the entire venture capital sector. This suggests that we cannot simply look to the financial services industry as it is currently structured to do more. More of the same will simply not be good enough.
The structure of financial services must be changed. The new National Wealth Fund will contribute to that change, but for scale we need the private sector, so carrots and sticks are required. On the carrot side, there are already significant tax advantages associated with innovative investment, but these do not achieve what is necessary. The reform of pension funds will be very important. The US pension reform in 1978, which enabled investment in alternatives, gave rise to the professional venture capital industry in that country. It is striking how many successful UK SMEs raise their secondary funding in the United States—another indicator of the failure of UK financial services.
How about the stick? Well, how about requiring appropriate financial institutions of over a certain balance sheet size to devote a given proportion of their assets to real investment, either directly or indirectly via funding organisations such as venture capital funds? We must also find a way of weaning the banks off algorithm-driven lending and get back to old-fashioned relationship banking. For how that is done, see Handelsbanken: the point being that real investors need a close advisory relationship with their funders, where advice flows in both directions.
It is a remarkable paradox that our wonderfully successful financial services industry is one of the main reasons for our growth failure. But until fundamental reform, by carrot and stick, induces greater flows of finance into real investment, that sad paradox will remain.
I will finish by talking about my final hat, which is perhaps the more unusual of the hats I wear. It is as co-founder of Lucky Voice, my karaoke chain of businesses, which I am sure many noble Lords have indulged in. It is a small and medium-sized business. We have venues around the UK and a couple overseas. It came from my idea that the Japanese have too much fun singing in private rooms by themselves and that we should be able to do it here in the UK. It is a hospitality business and not very big. It is run by a young colleague, who was elevated from where he joined to now running the business. I own it—full disclosure—but it is having a super tough time; no surprises there. I have been reflecting a lot on how I can best help that business. It is definitely not by trying to help at an operational level; that is normally when I cause total mayhem.
The thing that I come back to continually with the CEO is the intensity of the media headlines around our economy right now, which the noble Lord, Lord Farmer, reflected on in some of his comments. I do not want to get into a political debate about the justification for those headlines, but I think all of us would probably accept that we are in a dark place in terms of reporting on what is happening and the plans that are coming up over the next few months. Can the Government reflect on how, in the absence as yet of the industrial strategy, they will fill that void, because it really matters?
Every single day matters right now. I have seen that from the British Chambers of Commerce and our member businesses. I also see it every day at Lucky Voice. Consumer confidence is not there and when we ask our customers whether they have a difference in their finances, very often they do not. They are just scared about what this year might bring and do not want to go out and spend cash. I know that engaging in a media war is probably not top of the Minister’s agenda, but I urge him to think carefully about how we can fill the void, particularly in the absence of the forthcoming industrial strategy. Can I also, as a not very successful entrepreneur, urge on him that urgency really matters? Being seen to be urgent across the different spheres that I have tried to highlight would really make a difference.
Without investors and their investment, the picture I paint here will be materially worse. On a more granular level, it is good news that the Government included a £3.5 billion investment in the technology sector in their Budget, with £1 billion dedicated to advancing supercomputing and AI technologies. A bigger and stronger venture capital environment, from which the realised dividends would be considerable, is crucial for this long-term growth story.
Take the United States as an example. According to a Goldman Sachs report, the big six technology firms, all with roots in venture capital, added roughly $5.3 trillion of market value in 2024. This amount is larger than the current nominal GDP of every single country in the world, except the United States and China. Venture capital has significantly influenced the US economy, with some estimates saying that 43% of all public companies since 1979 were venture backed, accounting for 57% of total market value and 38% of employees.
We can drive this sort of dynamism and success here in the UK too by forging, nurturing and creating a culture of risk capital, where, beyond the traditional banking system, entrepreneurs can raise millions in seed capital to do something that has only a low chance of working but where investors bet that the expected value of the investment is still positive. I see no reason why the Government should not, through serious regulatory subsidies and tax incentives, spark the British risk appetite in the same way that the US Government help to ignite Silicon Valley.
It is easy in opposition to throw rocks and complain; I would like to offer one small route that is largely in the Government’s gift and would cost very little money. One of my registered interests is as chairman of the Trade Facilitation Commission. It arises from my time as the Brexit border readiness Minister. I have met some extraordinarily talented people who know the business of trade inside out. Many are now on the commission. By a long chalk, I am the least qualified. It is non-political and seeks to advance prosperity. We published a report in October last year, which is available at www.facilitation.trade, showing the path to economic growth through trade facilitation.
It is important to stress that this is not a dogma driven call for things that a Government cannot deliver; it is about the plumbing that facilitates trade flows. To many this is extremely boring and to many more it is simply incomprehensible. But this document, written for the benefit of this Government, shows a path. It needs only some will and co-ordination to achieve it. The potential is huge. It has been estimated—and not by us—that, if improvements in trade flows were implemented, it would increase GDP per family in the UK by £3,500. If the UK improves its trade facilitation process to the level of the best global performer, we could be adding as much as £40 billion into the UK economy. Here are four things the government can and should do.
First, they should appoint a Minister for Trade instead of the current illogical idea of a Cabinet Office Minister for EU trade and mishmash of Foreign Office, Department for Business and Trade and Home Office Ministers, who are all not co-ordinated.
Secondly, instead of talking about dynamic alignment to a fundamentally anti-competitive EU regulatory system, they should embrace unilateral recognition of EU standards. We have already done this for medicines, where we recognise EU, US and Japan for drug approvals. Dynamic alignment is sophistry; all it means is subjugation to rules that we have no control over. However, it is even worse than that because it will almost certainly put us into conflict with any US trade deal and our newly signed trade deal with the CPTPP. Both of these trade blocs are growing far faster than the EU.
Thirdly, we should encourage and expand trusted trader schemes. These preapprovals provide reduced border delays and cost friction. They enhance security and compliance, and they enhance access to mutual trade recognition agreements.
Finally, they should look at the use of digital trade corridors. These reduce the cost, duplication and harmonise data requirements. They enhance data security and improve visibility and connectivity. But in the last few weeks the Government have abandoned their plan for a single trade window. Why has that happened and what are the plans instead?
I would urge the Minister and his colleagues to review this report and meet some of the authors. That is not a pitch for myself to be included; all are better qualified than me. If you care about economic growth in this country, please listen to them.
This system now has its own internal dynamism, and it looks very difficult to break out of it. The result is what we are seeing—the collapse in growth and zero-sum conditions. The economy is ceasing to grow, we cannot afford things that we have got used to having, social conflict is growing and crisis is near. Doing more of the same is not going to help—it will just make things worse. We have to face this reality and we need to do two very difficult things. First, we must make a huge attempt, much bigger than anything that is being contemplated at the moment, to reverse the trend of economic collectivisation and regulation from the past 30 years. There needs to be a determined attempt to end deficit financing; shrink state and taxation; recreate incentives; reverse the net-zero policy and produce cheap and more abundant energy; remove the vast corpuses of legislative regulation that dominate economic activity; intensify competition in the economy; sort out public services; conduct painful reductions in welfare transfer programmes; and look at investment in infrastructure, housing and so on, in many places.
However, it is not only this. As my noble friend Lord Farmer has set out, we need to look at the social environment too. We need to make a major effort to repair the sinews of social fragmentation, to reconnect and rebuild politics by consent. If we cannot do this, we will never get the consent for the economic changes that are necessary. Here we are going with the flow of electorates; there is a greater emphasis on culture, the nation and social conservatism. We need to go with that, which means cutting migration, controlling borders, getting an effective Government, getting out of the web of binding international agreements, killing off wokeness, getting serious about defence and thinking of investing in the family much more.
We need to do both those things, which requires making a series of correct choices, many of which are going to be unpopular—but it still has to be done. I finish by quoting the great man Sir John Hoskyns, who was behind the Stepping Stones report in the late 1970s. He said:
“It is not enough to settle for policies which cannot save us, on the grounds that they are the only ones which are politically possible or administratively convenient”.
We have to do better than that. The British people want better than that—they know something is going wrong—and it is for us, the politicians, to provide it.
Finally, the role of Her Majesty’s Government—sorry, that was old speak, I mean His Majesty’s Government—is to make things happen. Does the Minister agree with this analysis? Who in government owns the problem? All too often, problems are created by the structure of government. Who owns the problem of creating this skilled manual workforce and what are His Majesty’s Government going to do about it?
That could also extend to initiatives for the retail market, where we need to incentivise some of those savers to become investors. Reducing the cash ISA allowance in favour of an investment ISA could be a valuable tool to incentivise this shift. According to the Centre for Policy Studies, the UK has around £1.8 trillion sitting in idle savings accounts. The UK needs scale-up capital. Small businesses represent 99% of our UK business population. The Government therefore need to continue to support—if not better support—investors in start-up capital. We need to put that saving capital to work as investment.
Allowing retail investors to participate in IPOs is another way in which we might be able to facilitate some of these initiatives. Investors, including retail, need easy access to investment in growth companies. Some disruptor firms, such as Aquis Exchange, are making headway, but as its chief executive, Alasdair Haynes, has said, there needs to be an acceleration of progress. Why is UK equity investment still subject to stamp duty? It makes it more expensive for our pension funds and retail investors to invest in the UK rather than in global markets. Surely this could be a quick win.
I turn to the digitisation of capital markets and draw noble Lords’ attention to a phenomenal report that was published just this morning by TheCityUK and Hogan Lovells. It gives a blueprint and timeline for actions which, if taken up by His Majesty’s Government, could ensure that the UK’s position as a global financial centre remains and expands in the digitised world of future capital markets. This is about not just growing our economy but preserving our dominant position in global trading and financial markets. Any inaction or further delay will weaken our economy.
The reality is that speed, rather than perfection, is now of the essence. We need our framework for crypto assets, and digital assets generally, to be published immediately and implemented quickly. We really do need to assist our regulators in accelerating things, especially given the change of Administration in the US. Calibrated risk-taking can yield sustainable economic growth from this sector.