Growth Strategy

I beg to move,

That this House has considered the growth strategy for the UK.

It is a pleasure to serve under your chairmanship, Mr Hollobone. A most welcome change has occurred in economic policy since the advent of the new Prime Minister. We are now told that the aim of economic policy is to promote the greater prosperity of the many in the United Kingdom by means of promoting faster economic growth. The Prime Minister often adds “opportunity” to his justified enthusiasm for growth and greater prosperity.

I welcome that fundamental change, because that is what I have wanted our policy to achieve in recent years, at a time when my party and the general economic establishment thought that priority had to be given to a single, central aim of economic policy—the reduction of state debt as a percentage of GDP. The change of aim in economic policy to the monitoring of state debt occurred first under the Labour Government in 2009, when state debt got out of control. Before the Labour Government left office, they accepted the need to get state debt down, particularly the running deficit, from very high levels, and made some cuts. The coalition Government changed some of those cuts, but went on with that strategy, because they rightly agreed with the outgoing Labour Government that the deficit was far too high and unsustainable.

I supported that policy in those days, but in 2015-16, when the deficit was under better control, I became more concerned about the tension between the central aim of getting the deficit down and the need to promote growth, which, in the longer term, is the best way of getting the deficit down, because it generates more activity and more tax revenue. Therefore, I started campaigning for an economic policy based on the promotion of prosperity. I am delighted that we now have a Government with that as their central aim.

Our economic policy under the previous guidance, from 2009 to 2015, stabilised our position and reduced the state deficit, necessarily, by a substantial amount, without preventing all growth. However, that policy ushered in a period of lower growth than we had experienced prior to the banking crash, primarily because of the way the deficit was tamed. At the time, it was said that the deficit was tamed by big cuts in public spending, but it was mainly tamed by a massive increase in the amount of tax revenue collected from the domestic economy.

It is true that there were individual cuts and individual departmental budgets took a hit, some of which were very contentious on both sides of the House, particularly among the Opposition. However, public spending went up overall in cash terms, and arguably went up slightly in real terms over that period. The main challenge of getting the deficit down was achieved through a series of tax-rate rises and collecting extra tax revenue out of the modest growth that the economy achieved, without any relief of that tax burden. Part of the reason that we had slower growth is that we became a relatively higher tax economy than we had been before.

We have seen an experiment conducted on both sides of the Atlantic since 2016, when the Americans opted for eye-catching and dramatic tax cuts, both cutting the rates companies must pay and putting money into the pocket of every person with a working wage, with a particular emphasis on getting people on the lower end of the income spectrum to have more money to spend. That has proved extremely successful: the American economy has been growing at more than 2% for most of the time since the tax cuts kicked in, whereas the European side, sticking with the Maastricht requirements, deficit reduction requirements and relatively high taxes, has been struggling to grow at 1%.

I congratulate the right hon. Gentleman on securing the debate. He is making a powerful argument for growth across the UK. On the issue of differential employment and income rates, does he agree that if this is to be successful, we must see economic growth and higher wage levels spread more evenly across the UK, so that regions with a much lower wage economy start to see more wealth and employment at the higher end?

Indeed, and I welcome the emphasis placed on that by the Prime Minister and Ministers. I hope that we can give them some more ideas on how that can become realistic policy. I am just setting the scene: there has been a big change in the aim of policy, which I warmly welcome. I suggest to the Minister and others that lower taxes might be an important way of trying to develop that aim. The experiment conducted on both sides of the Atlantic seems to suggest that countries with the ambition and desire to cut taxes on working incomes and businesses will experience more growth and success. We have seen a lot of money repatriated to the United States of America by big businesses, which now find the tax rates acceptable and therefore do not require the same legal structures—I am sure they were behaving legally—to keep the money offshore or not to pay taxes for the time being in the United States.

The United Kingdom Government have, even during difficult times, decided on lower corporation tax rates. I think we have a competitive corporation tax structure. Our lack of tax competitiveness rests in the treatment of individuals and income, and employment costs, rather than corporation tax, where we have done a good job relative to continental Europe. We are benefiting from that. It was good to hear it announced this week that the UK is now the third preferred destination for technology investment after only the United States and China—two economies much larger than our own—and that we are attracting more investment than the combined totals of France and Germany, so we must be getting something right in our approach to business investment and the taxation of business profits.

The Government have already set out a new fiscal framework, which I welcome, because they understand that it is not sufficient just to set a new aim for policy—they need a fiscal framework to deliver it. They have directly addressed the issue of state debt, saying that they will not spend money on revenue matters that is not covered by taxation—a prudent control on the situation—but they have also said that there is nothing wrong with the budget deficit expanding from just over 1% to 3%, if the purpose is for good investment, especially given the very low rates that the Government now have to pay to borrow money.

I thank my right hon. Friend for securing this very important and wide-ranging debate. He mentioned the car industry, which is largely based in the north-east of England, but it based itself there because clear incentives for it to do so were provided by the Government at the time. Does he agree that if we are going to rebalance this economy and level it up, we will need some incentives for businesses to start up in or relocate to some of these areas?

Yes, I am happy for there to be attractive reasons why people should go to the parts of the economy that have been less heavily invested in and that are less pressurised. However, with cars the issue is demand; there is not enough demand for the very good cars that the industry currently makes. The Government want to change the kind of cars that people buy, but it will take time for Britain, or anywhere else for that matter, to be able to produce the millions of electric cars that the Government want us to buy, at a price and to a specification that people like.

So, this is a top-down revolution and the public are not yet fully engaged in it in the way that the Government would like them to be. When polled, the public say that electric cars are a very good idea. However, when they are then asked, “Well, when are you buying your electric car?”, the answer is, “Well, not yet. Not me. I want a better subsidy on the car, I want a lower price, I want a higher range”—whatever it is.

There are still issues about engaging the public, which is why we are getting this industrial dislocation. China has experienced exactly the same thing and one would have thought that China would have continuous growth in cars, because it is coming from a much lower level of car ownership and individual income. However, even in China car volume is down, because of the regulatory changes and the dislocation involved in going from traditional product to electric product.

In addition, the Minister and his colleagues should look at the issue of property. Property is a very important part of the UK economy. It is often an asset base for people to borrow against in order to develop their business, and it is often the main way in which individuals hold their personal wealth. By buying a house on a mortgage and gradually paying the mortgage off, property often becomes people’s principal asset, which gives them some wealth and financial stability.

I congratulate the right hon. Gentleman on securing the first Westminster Hall debate of the new Session. Does he agree that there has been a major problem in the United Kingdom for many decades, which is that people—for one reason or another—have been encouraged to treat the house that they live in not as a place to live but as a speculative investment, on which they expect to make money? Also, does he accept that many people have been severely stung, because they thought that they would be able to stretch for a mortgage that they could not afford, in order to sell the house for more money in 10 years’ time? If the value of the house does not increase in 10 years’ time, they have a problem. That situation caused the crash in 2007-08 and it has caused a number of minor crashes since then. Does he also agree that more needs to be done to make sure that people who only have the money that they are investing in their house are protected against the possibility of losing their house and everything else when the market crashes?

Most people buy a house because they want somewhere to live that is theirs, and that they can then do up and change in the way they see fit, subject to planning. But yes, of course, it is also a way of holding wealth, and I repeat what I said: for many people it becomes their largest single asset. I do not think that is a bad thing. I do not think that people are treating their main property as a trading counter; it is where they wish to live, and they will only move when they want a different house, mainly for living purposes. People would only be able to buy property speculatively if the property was their second or third house, and not many people are in the fortunate position of having such wealth.

There is no absolute protection against house prices going down; they do from time to time, as the hon. Member for Glenrothes (Peter Grant) pointed out. However, if someone’s aim is to live in a house long term, and if they have taken out an affordable mortgage, temporary fluctuations in house prices are not life-threatening or wealth-threatening to any worrying extent, and they will just live through the period when house prices dip because there has been a recession, or whatever.

Fortunately, we do not seem to be looking at such a situation in the immediate future, and it is very important that we have a growth strategy, so that the slowdown in the economy that we have experienced in recent months is turned around quickly and does not become something worse, which could have negative consequences in the way that the hon. Gentleman talked about.

So my No.1 message to the Government is not to underestimate the damage that clumsy taxes can do, and they may even end up costing the Treasury, as stamp duty has done, because it is not collecting as much as it should. That is probably the case with vehicle excise duty as well, because of the volume impact on new cars, which relates to a whole series of factors; it does not just relate to the vehicle excise duty, but that was another complication in the situation.

My right hon. Friend is making some very good points, but is productivity not principally a regional problem? The gross value added per capita in London is about £50,000 a year. In the north-east, the north-west and Yorkshire, it is about £20,000 a year. Is that not where we have to level up, because that would drive productivity right across the UK?

I agree, and one of the things I hope will happen as we pursue policies that spread prosperity more widely is that some of the higher value-added activities that people come to London for will be carried out in other cities around the country. If somebody established a manufacturing business in a great northern city, it would be good if they had their media advice, public relations, legal advice, accountancy advice, consultancy advice and all the rest of it from firms in northern cities that specialised in those things, rather than the current model, where many of them come to London to take advantage of the excellent business and professional services available there.

In attracting more industry to the northern and western cities and towns, we need also to be conscious of encouraging the cluster of service businesses around them that can add value in other ways. In modern manufacturing, a lot of the traditional work is now done by machines and robots, so the individual plant does not attract a large number of jobs; the jobs are in all the other things—marketing, PR, services, legal, accountancy, invoicing and so forth—and we want to make sure that enough of those jobs come with the factory to the local area. That is where we have to see what other policies we need to put in place to spread such jobs more widely around the country.

The productivity puzzle is also caused by the public sector not innovating enough and not raising its productivity. It has been noticeable under Labour and Conservative Governments and the coalition that public sector productivity has stalled. That is disappointing, and we have a large public sector, so we need to get the Government to direct their attention to that, because the one bit of the productivity puzzle they can actually manage is the public sector, and Ministers have various powers to encourage and promote innovation.

I was interested to hear the Secretary of State for Health and Social Care talking last night about the role of innovation, new ideas and smaller businesses in the health service. There is huge scope for better partnership between innovative smaller and medium-sized companies and the public sector. The current contracting rules do not work well for many small businesses. It is difficult, because often the public sector wants a large solution for an awful lot of locations, and the small business can only handle so much and cannot scale up quickly enough. I hope that the Government will have another look at how the best of the private sector can be harnessed for the productivity increase we need from better innovation and better technology in big areas of the public services.

The debate will last until 11 o’clock, and I am obliged to call the Front-Bench speakers at no later than 10.27. The guideline limits are 10 minutes for the Scottish National party, 10 minutes for Her Majesty’s Opposition and 10 minutes for the Minister. Sir John Redwood has two or three minutes to sum up the debate at the end, but until 10.27 we are in Back-Bench time. Three Members wish to speak. I will not impose a limit, but the guideline is about seven minutes each so that everyone gets to speak.

I congratulate the right hon. Member for Wokingham (John Redwood) on securing the debate. It is always good to speak in Westminster Hall and it is good to be back at the start of a new season, so to speak.

We have all heard and been a part of predictions about the growth of this country in a post-Brexit world, and we are quickly approaching the date at which things stop being theory and become a reality. Back in November ’17, the Government announced their investment for growth strategy. To be fair, Government strategy on the economy has been strong and positive and has brought results, as we must acknowledge, but the press release stated:

“With the aim of making the UK the world’s most innovative nation by 2030, the government has committed to investing a further £725 million over the next 3 years in the Industrial Strategy Challenge Fund (ISCF) to respond to some of the greatest global challenges and the opportunities faced by the UK”—

the United Kingdom of Great Britain and Northern Ireland. It goes on:

“This will include £170 million to transform our construction sector and help create affordable places to live and work that are safer, healthier and use less energy, and up to £210 million to improve early diagnosis of illnesses and develop precision medicine for patients across the UK.”

In my constituency the construction sector is important to providing jobs and some of the money needed to boost the economy. We are now two years into the Government’s strategy, which is an interesting stage to look at growth over the past two years and to acknowledge it. In the interests of fairness, I must say that there were always impediments to high levels of growth—they stemmed from indecision and the near collapse of faith in our ability in this House over the past two years. The previous Parliament must collectively acknowledge that the to-ing and fro-ing and almost toxic atmosphere in this place were not conducive to presenting to the world that we were in an ideal place to be invested in and worked with. The House has been a hot place over the past two years, unlike this Hall today, where it is almost Baltic, Mr Hollobone. We might have our meetings outside—it might be warmer. I believe it was warmer when I walked here this morning at seven o’clock.

I congratulate my right hon. Friend the Member for Wokingham (John Redwood) on introducing this important debate. May I add that it is absolutely freezing in here, and I am very cold?

One of the most important duties of any caring Government is to grow the economy. The question of how a Government should tend to and nurture the economy has been tackled by politicians of all stripes and colours, and answered in many ways, arguably to varying degrees of success. Fundamentally, people’s lives—whether they can support their families, get on the housing ladder, or enjoy some of the nicer things in life—rest largely on the Government’s safe stewardship of the economy. Governments have a responsibility to protect and promote the livelihoods of their citizens.

We should all be really proud of the Government’s record on growth. Since the crash of 2008-09, when the economy collapsed by 4.2%, the Government have managed to grow the economy every single year. That said, we cannot rest on our laurels. There is a lot more that we need to do. Libraries could be filled with writings on the north-south divide. In 2012, The Economist said, rightly or wrongly, that the divide was so broad that the north and the south were starting to resemble different countries. Growth continues to be stronger in the south. London recorded a 1.1% annual rise in output per person to £54,700 in 2018, increasing the per capita gap with the poorest region, the north-east, where growth was only 0.4% to £23,600 per head, according to data from the Office for National Statistics.

Less well documented, however, is the increasing gap between the east and the west. Across the midlands and the north, the growth of the west has been twice as fast as that of the east since the 2008 financial crisis. Do not get me wrong: London and the south, as well as cities such as Manchester, are assets to the country and we should be really proud of them. However, regardless of where we live in these isles, we should all share the fruits of economic growth.

To address the problem, we must not bring those places down, but bring areas such as the east midlands up with them. The Government are not blind to the problem: the midlands engine for growth, which we must ensure happens, and the northern powerhouse show that the Government are listening, and are determined to address the issue. The 2020s offer a unique opportunity to rethink how we can foster growth in our regions.

I could list a range of issues that we could talk about, including investing in transport, investing in our high streets, which I know we are doing, and supporting leadership in SMEs, which I am incredibly passionate about. However, I am conscious of time, and I know that my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) would like to speak, so I will limit myself to one topic: free ports.

My hon. Friend might like to think about adding an enterprise zone to the free port. Obviously the free port allows people to import and export, but the enterprise zone allows people to sell to the domestic market as well.

I thank my right hon. Friend. That is an excellent idea, which I will certainly look into.

Of course, as the MP for Derby North, I would call for an east midlands free port. However, I believe that they have the potential to unlock and boost all corners of our country, and will go far to reduce some of the current imbalances. It is important that regardless of where people live they are able to go as far as their abilities can take them. I believe that the Government’s free port plans will go a long way to achieving that.

It is a pleasure to speak in the debate; I congratulate my right hon. Friend the Member for Wokingham (John Redwood) on introducing it.

I will start with a modern-day parable from a book called “The 7 Habits of Highly Effective People”. A man is walking through a wood and comes across a lumberjack who is trying to saw down a tree and not getting very far. He walks up to the lumberjack, taps him on the shoulder and says, “Excuse me. Your saw is blunt. You’d be better off stopping and sharpening it.” The lumberjack says, “No, no—don’t bother me. I’m sawing down the tree.” He tries again: “Excuse me. Just sharpen your saw and you’ll cut that tree down much more quickly.” The lumberjack says, “I haven’t got time to sharpen the saw.”

That parable has stood me in good stead in my business. I draw the House’s attention to my entry in the Register of Members’ Financial Interests, as I am still in business today. The most expensive and the most vital resource of any business is the people who work in it. It is important always to ensure that they are not working with worn-out tools, and that they are effective and as productive as possible.

The key to the UK growth strategy has to be productivity. I do not disagree with my right hon. Friend: it is a simple issue to solve. However, it will require significant investment, both from the public sector and, crucially, from the private sector. Public sector investment alone will simply not do it.

The reality is that across the north and the midlands we have been working with worn-out tools for too long. According to Andy Haldane, the chief economist at the Bank of England, of the six factors that drive prosperity and productivity the No. 1 factor is connectivity. Large swathes of the country, particularly the north and the midlands, but virtually all regions outside London and the south-east, are very poorly connected. That is because we have underspent in those areas for too long. I know that our excellent Minister will say that the Government are now investing equal amounts in the north as in other parts of the country. That is true to some extent, in terms of central investment. However, other regions, particularly London and the south-east, are very good at aggregating different forms of investment, including private sector and local authority spending. If we add all that up, for every £1 that is spent on infrastructure per capita in the north, about £3 is spent in London and the south-east. That is why those regions are phenomenally productive and therefore phenomenally prosperous. When I talk about more public sector investment, it is not about a grievance that we in the north or the midlands have not had our fair share; it is about sound economics.