That this House has considered national productivity.
It is a pleasure to serve under your chairmanship, Mr Paisley, and I declare an interest as a metropolitan mayor. I am pleased to see the Minister and the shadow Ministers here this morning. I know they all take this issue very seriously, and rightly so, because it affects all corners of our United Kingdom and all our communities.
I wanted to secure this debate because, for too long, the general debate about productivity has been too narrow—it has been too focused on the purely economic, on gross value added and on national statistics. That is the wrong approach. Growing productivity matters to people, matters to our businesses’ ability to raise wage levels and matters in terms of the types of job our economy makes available and the prospects we seek to create for our young people.
Being part of a productive economy also builds those intangible bonds between our people and our places, and between our role and our contribution. I hope that I speak for all Members when I say that we all want to live productive lives; we all want to leave the world in a better place than we found it; we all want our children to grow up full of ambition and aspiration and to be confident that we are building a world in which their hopes and dreams can be realised; and we all want an economy that creates wealth, enabling us to invest in our public services, in our people and in our communities.
Raising productivity, which is, in essence, about creating more value with the same or less input, is at the heart of all of those aims. Yet, despite the importance of raising productivity, the size of our economy has for too long been the overriding measure of success. That has led to an approach towards economic growth that has neglected the real long-term drivers of success: skills; investment in research and development; a balanced economy, with opportunities available right across the country; and the enabling infrastructure, the lack of which in many parts of the country means that we lag behind.
Perhaps conveniently, we have been able to ignore the growing weight of evidence that we are in the midst of a productivity crisis. The figures are stark. Since the financial crash, the UK’s average productivity growth has been a woeful 0.3% a year. For that reason, the Royal Statistical Society awarded it what in this instance is the unwelcome accolade of the “statistic of the decade”.
That is costing us billions in lost economic output, and the situation is even starker outside London and the south-east. Public policy has entrenched a productivity gap between the north and the rest of the UK of around 12%, which costs the economy about £40 billion. The OECD calculates that regional productivity gaps alone account for lost economic growth of around 10%. Looking across the whole UK, according to the Core Cities Group, which represents cities across the UK, if we brought all our regions up to the UK economic average, we would put around £80 billion into the economy every year. So the current situation is a huge missed opportunity for our people, our businesses and the Exchequer.
There is no silver-bullet solution to tackle the productivity challenge, but the levers to pull are all within our collective grasp, and there are things we can do urgently that will start the process of addressing the national and regional productivity challenges we face. First and foremost, we must win the argument for investing in an active place-based programme of investment that includes every region, city and town across the country. That programme must be focused on investment that is linked to the strengths and capabilities of each individual local area: its people, its businesses and its research institutions.
We must ensure that such investment is better balanced across the UK. Public R&D investment in Oxford, Cambridge and inner west London accounts for 41% of total public R&D spending in the UK. I do not begrudge any of those fine places any of that investment, but we must close the gap between academic research and the implementation of the ideas that we create. That means increasing investment in institutions such as the Advanced Manufacturing Research Centre, the Advanced Wellbeing Research Centre and the Olympic Legacy Park in the Sheffield city region. Such institutions connect ideas, innovation and research with real-life business challenges. They are ready-made vehicles through which we can supercharge regional economies, and they must be the focus of greater Government investment.
Around such institutions, we must build deep and pervasive programmes of support, to connect them more effectively with the productive potential of our existing businesses. We are already starting to do that in my own region of South Yorkshire; indeed, I believe we offer a national blueprint that shows how we can turn the productivity challenge around through the creation of innovation districts.
Many hon. Members will have heard of the University of Sheffield’s Advanced Manufacturing Research Centre. At the AMRC, the Government, the university and the public sector have invested alongside industry to build an institution that is focused on tackling real-life industrial problems, operating in that sweet spot between academic research and industry, and applying knowledge to problems.
Through the AMRC, we have been able to attract companies such as Boeing, McLaren, Rolls-Royce and many others to our region. We have built our inward investment offer around that approach. We have built the AMRC training centre, which helps to connect our young people to the opportunities that are being created. We have started to develop supply chain programmes that connect small businesses in the region to the opportunities being created by larger manufacturers. We are also looking to invest in the enabling infrastructure, to enable our workers to get to work by rail, tram and bike. That approach is building a true industrial commons, where academia, the public sector and businesses come together in a way that puts us in the vanguard of the reindustrialisation of the north.
However, there is so much more we can do. To create transformational productivity growth, we must embed this culture of innovation and ideas more broadly, across all our businesses, from sandwich-makers to steel manufacturers, and from education technology to energy production. If the Government are looking to establish a Massachusetts-style institute of technology for the north, they should look no further than South Yorkshire and the assets that we already have in place.
What we need right across the country is the ambition, matched with the investment, to scale up that approach and scale it out. Underpinning it all, the Government must take care of the fundamentals of any modern, regionally balanced and progressive economy. According to the Core Cities Group, deprivation is the cause of up to 40% of low regional productivity. Therefore, economic policy must sit right alongside our social regeneration and skills policies. We must tackle the issue of vocational and technical education head-on, and the Government must reverse a decade of under-investment in vocational education.
I congratulate my hon. Friend on securing this important debate and on all the work he has done on this issue. He is absolutely right to highlight the lack of funding, because it has had a huge impact on areas such as ours, in Barnsley. Does he agree that skills are the missing link in South Yorkshire? We need more investment in vocational education, so that all kids can access courses.
I am grateful to my hon. Friend and parliamentary neighbour for that intervention. She is precisely right about all of that. We are seeking to do a huge amount of work across South Yorkshire, working with our further education colleges, our universities, our training providers and our businesses. I am incredibly concerned to ensure that, within our local enterprise partnership, we have the requisite knowledge, skills and experience to develop our skills sector. It is a fundamental and crucial pillar of our strategic economic plan, but it requires more thought and certainly more investment, as my hon. Friend rightly suggests. I give her an assurance that it is right at the top of my list of priorities, and I look forward to working with her and with colleagues right across South Yorkshire to ensure we have the investment in our skills system that we so need and deserve.
I was just making the point about the importance of investment in vocational and technical education. We need to ensure that we create parity of esteem across academic and vocational education routes so that we give businesses, our young people and their parents confidence in the skills system. We must better connect our businesses to the skills system. Notwithstanding the excellence of our civil servants and the capabilities and competences of Ministers of this Government, there is no way that skills, innovation, enterprise and transport systems can best be brought together at the national level. I know the Minister understands that.
To make all that happen, our places have to be given the right tools, so we must empower our places up and down the country to build their own industrial commons. Following years of austerity and systemic neglect, the manifesto on which the Government were elected contained a raft of ambitious infrastructure projects and a promise to level up investment across Britain, much of which was aimed at voters in the north of England.
It is nice to be involved in a debate anywhere in the House, but especially in Westminster Hall. I thank the hon. Member for Barnsley Central (Dan Jarvis) for setting the scene. As he does so often, he spoke in a cool and calm voice, giving all the detail and evidence that backs up the case. He does it well, and it is a pleasure to be involved with him. I see the Minister in his place. I think this is the second time he has responded in Westminster Hall, and we look forward to his comments.
As the hon. Member for Barnsley Central said—it was one of his first sentences—this debate is all about how we help all the regions in the UK to benefit from national productivity. Productivity is certainly an intricate subject, with many facets. As always, I am very thankful to the Library for the briefing note it prepared, which clearly makes the point that while we are up on productivity from this time last year, the overall increase is not satisfactory. The hon. Gentleman talked about ensuring that we improve productivity in areas or regions where it could be better. Productivity rose by 0.4% in the third quarter of 2019 compared with the previous quarter, but it was only 0.1 percentage points higher than a year ago, so the rise is not as significant or as positive as we would like it to be. The slight pick-up in productivity growth should not obscure the continued weakness in the overall trend. We welcome any increase—we have clearly seen an increase, and it is important we recognise that as a positive facet—but at the same time we have to recognise that it is a bit slow.
Does my hon. Friend agree that one of the reasons, if not the central reason, for the decline in productivity has been the past three years of uncertainty about Brexit, and that now that that is—hopefully—departing fast over the ridgeline, productivity will improve in all the regions, but particularly in Northern Ireland, the north of England and Scotland?
My hon. Friend is absolutely right. The debate should not be centred just on England, but on all the United Kingdom of Great Britain and Northern Ireland and how we can all grow. Historically, UK labour productivity has grown by around 2% a year, but since the 2008-09 recession it has stagnated. To be clear, I am a Brexiteer and I look forward to the possibilities of Brexit and leaving on 31 January. Even though we in Northern Ireland have not got the deal that we wanted, we must be pragmatic and look forward to where the possibilities are. Labour productivity in quarter 3 in 2019 was only 2.4% above what it was more than 11 years ago in Q4. That was the pre-recession peak.
We could play the blame game and blame an ageing population. We could continue to blame the banks for the banking crisis. Some will blame Brexit. People always look for someone to blame—that is the nature of life—but in this case we want to be more positive. We could more accurately blame the behaviour in this place and the refusal to honour the vote of the people, point to the uncertainty that the trading partners have been displaying and point to the new leadership regimes in trading partners, but doing that is now pointless; we have to look positively towards the future, where we are and what we are trying to achieve. With that in mind, there are the possibilities after Brexit for trade deals with many parts of the world, and the Minister might give us some detail of that.
There are many possibilities and positives that we should be looking at to see how we can all gain. We in Northern Ireland want to participate in that gain, as my hon. Friend the Member for East Londonderry (Mr Campbell) said. We want to see what is coming our way, so that everyone in the United Kingdom of Great Britain and Northern Ireland benefits. We must look at how we can increase productivity throughout the United Kingdom and how we can realise those possibilities and new markets.
It is a pleasure to serve under your chairmanship, Mr Paisley. I congratulate my hon. Friend the Member for Barnsley Central (Dan Jarvis) on an intelligent, measured and thoughtful speech that went to the nub of the issue. We have a new Parliament and there has been a lot of change, but some things never change. The hon. Member for Strangford (Jim Shannon) set himself up in Westminster Hall in 2010 and is now claiming squatters’ rights because he speaks here so often. [Laughter.]
Before I begin my comments on productivity, I have to express my disappointment in the attendance on the Tory Benches today. A couple of weeks ago, a large number of Tories were elected in the north. In this debate, my hon. Friend the Member for Barnsley Central focused his remarks on the north. I am disappointed to see that many of those representing northern constituencies are not here today to speak up for their constituents. This debate is important.
The prize-winning global economist, Paul Krugman, wrote in 1994:
“Productivity isn’t everything, but in the long run it is almost everything.”
The words Krugman wrote 26 years ago are as important today as they were then. Productivity is the key driver of economic growth in the UK. As the Bank of England chief economist, Andy Haldane, said in a speech in June 2018:
“It is a terrible word, as it leaves most people dazed and confused. Few are those who can define it and fewer still those who can measure it. Yet it has entered the popular lexicon and with good reason: the one thing we do know is that productivity is crucial to our pay and living standards over the longer run. Productivity is what pays for pay rises. And productivity is what puts the life into living standards.”
Productivity is no higher now than it was just before the 2008 financial crash. Annual growth of 2.1% was recorded during the decade before the crash; had the pre-crisis trend persisted, productivity would now be 20% higher—a stark statistic. With the Office for National Statistics releasing figures in November showing labour productivity—a measure of economic output per hour of work—slumping by 0.5% in the three months to June compared with the same period a year ago, it is the worst performance since mid-2014. We now face a situation whereby low productivity is no longer a mere blip but endemic to our economy.
It is a pleasure to serve under your chairship, Mr Paisley, and to speak in the debate introduced by my hon. Friend the Member for Barnsley Central (Dan Jarvis), who made a characteristically serious contribution.
Those of us who have participated in economic debates over the past decade, as I have had the great fortune to do in this House, have been talking about productivity for some time; yet the problem is not resolved. Today, we are talking about national productivity, and we have heard about regional disparity, which is certainly a problem for our economy. The divergence between some of the regions of the United Kingdom is greater than between some of the regions of the European Union as a whole, so if we think that Brexit will solve all our problems we are in for a bad surprise. However, that is not the reason I rise to speak.
It is true that investment in our economy, particularly from the private sector, is in a chronic and parlous state. We need a greater contribution to the future potential of our economy, and as an ex-employee of Network Rail nobody believes more than I do in the power of infrastructure, particularly trains, to do great good for our economy. Unfortunately for us all, infrastructure investment is necessary but not sufficient for the future good of our economy.
I want to make a different contribution on how we should look at productivity in the UK, because it is important to understand and get to the root of the issue. When we look at who does the jobs in the least productive firms—those jobs that add less to our national productivity—the answer is women. Women work in jobs that are, on average, 22% less productive than those that men do. Why? It is because they work in those areas of our economy that are the least productive, such as retail and hospitality, where productivity growth has been slow for many years.
As a result, women do the worst-paid work. We can ask ourselves whether women do those jobs because of gender stereotypes, whether those jobs are paid less because of gender stereotypes, or whether investment in those areas is so poor because of gender stereotypes, but the truth is that that is the situation we face. I simply ask the Minister to point to what the Government strategy will be to approach that, because if they do not approach the question of productivity with a focus on gender we will not solve the problem.
It is a pleasure to see you in the Chair, Mr Paisley, and I thank everybody who has come to contribute to today’s debate and try to resolve the productivity issue that is plaguing the UK economy. The hon. Member for Barnsley Central (Dan Jarvis) pointed out that there is a real need for investment in skills, research and development, creating a balanced economy and infrastructure, and also a need to tackle the deprivation that holds back so many people in so many communities from accessing and participating in the economy.
Since the Scottish National party came to power in Scotland, productivity there has grown three times faster than in the UK—a rate of 1% a year, compared with the UK average which, as the hon. Member for Barnsley Central said, is 0.3%. When we consider that we have done that against the backdrop of austerity, and more recently against the backdrop of Brexit, it is all the more impressive. We are doing things such as encouraging businesses to sign up to the Scottish business pledge. According to its website, 722 businesses have now signed up to that pledge, including firms of all different sizes, large and small, from multinationals such as Coca-Cola and Deloitte to The Good Spirits Co., which is a small shop in my Glasgow constituency. Hearts football club has also signed up to that pledge, so a range of different organisations have signed up to it.
The Minister will be interested to hear that the Scottish business pledge has three core elements: payment of a real living wage, not the Chancellor’s pretendy living wage but one that people can actually afford to live on; action on the gender pay gap; and no inappropriate use of zero-hours contracts within the companies that sign up. Once companies have met those three core pledges, they are encouraged to work towards further elements of the Scottish business pledge, including environmental impact, having a skilled and diverse workforce, workforce engagement, innovation, internationalisation, community and prompt payment, all of which are important to businesses of all sizes.
It is a pleasure to see you in the Chair, Mr Paisley. I thank my hon. Friend the Member for Barnsley Central (Dan Jarvis) for securing the debate. He made an excellent contribution, as did the hon. Member for Strangford (Jim Shannon) and my hon. Friends the Members for Islwyn (Chris Evans) and for Wirral South (Alison McGovern). I genuinely enjoyed listening to them. I say that every time I close a debate, but it was true today, because if I had my way, we would be talking about this subject every day of the week.
All hon. Members have correctly said that the No. 1 objective of any Government must be to ensure that the country’s economy works to provide the maximum prosperity and living standards for all parts of the country and all our constituents. That is what we all want, which means that we should celebrate what we do well as a country and the optimism that the Government are asking us to embrace. It also means, however, that we must be honest about what is not working well and what needs to get better, and then discuss what the solutions might be. In the UK, productivity is clearly one of those significant problems.
As my hon. Friend the Member for Barnsley Central said, according to the figures from the House of Commons Library, UK labour productivity has historically grown by about 2% a year, but it has stagnated since the recession in 2008-09. The level of labour productivity in the third quarter of last year was only marginally above what it was 11 years earlier, in 2007. We might look at the impact of Brexit and the uncertainty that was mentioned earlier, but we must acknowledge that the problem is more deep-seated.
It is normal to expect a recession of the depth and severity that the financial crisis brought about to have an impact on productivity, but we would expect that to last only for a certain amount of time. The fact that we are still only just recovering to pre-crisis levels is a deeply worrying indicator and does not reflect well on how the Government have handled the recovery. Overall, UK productivity is still 16% below the average for the rest of the G7 countries. As hon. Members have said, that matters a great deal. In a highly competitive global environment, we are not match-fit. We are about to voluntarily increase our barriers to trade—at least in the short term—with our major trading partner, the European Union, as Brexit occurs, so if we do not improve productivity, we face a challenging future.
On that point, there were people on the news this morning who were unable to get a train on time. One lady, who started a new job in Manchester in the new year, had been late to work every day since—not because of her, but because the trains were late. If there is going to be connectivity and dependability on the train service, that service must ensure that the trains are on time and that the number of trains can grow, so that people are not saying, as they were this morning, “If the train doesn’t go on time, I’m going to go by car.”
I could not agree more. I am delighted to hear about new jobs being created in Manchester, but not that people are struggling to get to them.
My point about the state of infrastructure, and not just the short or medium-term performance of the franchise operators, is that, not that long ago, people said that modern communications technology would make place less relevant to economic development, that we would all be able to work from home, that it would improve productivity, and that we would see the benefits of that. My hon. Friend the Member for Barnsley Central made the point, however, that place is as crucial as ever, because cities have generated the jobs of the future, particularly in the knowledge industries and in services. Our transport system is only now trying to catch up.
If we cannot give people an adequate journey over 10 miles, we have no chance of linking up the north, the midlands or South Yorkshire more comprehensively. From Stalybridge and Hyde, people should be able to go to work by public transport in not just Manchester, but Leeds, Liverpool, Sheffield and, of course, Barnsley. That is why I have always championed transport projects in my constituency, such as electrifying the Huddersfield rail line, which the Government are still prevaricating about and telling us might be partly possible; the Mottram-Tintwistle bypass, which would make it easier to get to Barnsley; and the extension of successful transport networks, such as the Metrolink tram network. That is also why we need schemes such as HS2 and Northern Powerhouse Rail. I say to the Minister that those two projects are complementary, not in competition. They will require major transport investment, but it will be worth it.
Secondly, I want to talk about automation. Many people fear the rise of automation and worry that it will destroy jobs and create huge and painful upheaval. I understand those concerns; I grew up in the north-east in the 1980s, which was a time of tremendous upheaval. We did not deal with those changes well, but, in the right hands and with the right leadership, automation makes the country more productive and more prosperous, not less. The problem in the UK is that we have not enough automation, rather than too much. The International Federation of Robotics notes that, in 2018, there were 71 robot units in the UK for every 10,000 manufacturing employees. The comparative figure in Japan was 303, in Germany, 309, and in South Korea, 631. We need more ambition with technology, not less. It is amazing that, until very recently, one 10th of all the fax machines in the world were in use in the NHS. I would like to see the Government lead on a managed automation plan as part of their industrial strategy, to drive up the use of new technology, and alongside that, have a technology displacement fund to support workers with the skills and training they would need if they faced displacement through new technology.
I begin by echoing the thanks of all Members to the hon. and gallant Member for Barnsley Central (Dan Jarvis) for calling today’s debate on an issue that goes to the heart of so many of the issues facing our economy and our society. I congratulate him on his key role in progressing the devolution deal for South Yorkshire, which we all hope will help to unlock significant productivity benefits for the people of his region. I know he shares this Government’s view that devolution across the nations and regions of the United Kingdom can boost productivity across the country, and we look forward to working together to achieve that.
Giving power to local people on the ground is undoubtedly the best way to make the most of every area’s unique strengths and to confront their unique challenges. That is why since 2014 the Treasury has led negotiations with several city regions across the country to strike landmark deals with eight places as part of a devolution revolution. The slogan might have changed, but the metro mayors are now delivering on local priorities. Tees Valley, where I live, is home to the South Tees Development Corporation, which is regenerating the former SSI site at Redcar. Manchester, the home of the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), has a focus on trams. We are talking about Northern Powerhouse Rail connecting up the regions better. Liverpool has its rail networks, as the hon. Member for Wirral South (Alison McGovern) alluded to, which are key to driving the benefits that we all want. Our commitment to enabling local people, who know their areas best, to be the masters of their own economic destiny could not be stronger.
We saw further progress just last week, as South Yorkshire moved forward with its own deal that agreed £900 million of new Government funding over 30 years for investment in local priorities identified by the Mayor and his combined authority, not by Westminster. I will be travelling to Leeds next week to hold talks with West Yorkshire’s leaders on a mayoral devolution deal for Leeds city region. We are determined to build on Leeds city region’s strengths in digital, financial services and the creative sectors, as we level up and share the success of the opportunities ahead. We will put our money where our mouth is for the right agreement. I will go to Leeds next week in search of that deal.
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If the Government are serious about building a collaborative, sustainable and inclusive economy where everyone shares the benefits, reversing the prolonged stagnation in productivity should feature at the very top of their agenda. The way to do that is by redistributing power to our nation’s regions through a programme of meaningful devolution. Westminster needs to give us the tools to do the job. I say this with the greatest respect to colleagues in the Government, but it is time to let go, because it is no coincidence that a country that has this level of political and economic centralisation also has some of the lowest levels of productivity growth and some of the highest regional inequalities. That is not good for the state of our nation. Nor is it good for the state of our public finances or the health, happiness and wellbeing of our communities. Let us make a change.
I put on record my thanks for the hard work of my hon. Friend the Member for Belfast East (Gavin Robinson) and others who played a huge part in securing the future of Harland and Wolff, and indeed the successful sale of Bombardier, or Shorts, as we would all know it and so affectionately still call it in our part of the country. Both those businesses were in doubt not because of the quality of the service or what they manufacture, but because of the uncertainty in the market at that time. It was hard work that secured those businesses, so I put on record my thanks to my hon. Friend for all that he did in relation to that.
At that time, the Government stepped into that gap to help my hon. Friend because the Northern Ireland Assembly was not functioning, but the Northern Ireland Assembly is now functioning. We welcome it being back in place and offer the Minister for the Department for the Economy, Diane Dodds, all the best. Has the Minister had the opportunity yet to speak to the Minister in the Northern Ireland Assembly? If not, when will that happen? It is important that we communicate regionally about where we want to be and how we can benefit each other. More of that needs to be done, and the start of that is ensuring that as much Government business as possible is carried out by British-owned, British-supplied and British-staffed factories.
My constituency of Strangford, like yours, Mr Paisley, has a burgeoning agrifood sector. Manufacturers are not just looking within the United Kingdom to sell their produce. Sales go down south, as far as the middle east and out to the States as well. The businesses involved include Willowbrook Foods, Mash Direct and Rich Sauces, along with Pritchitts and Lakeland Dairies. Probably 1,600 jobs depend on those factories, and then there are all the farmers that feed into those companies as well. We have a thriving pharmaceutical sector, with Eakin in Ballystockart outside Comber leading the way. It wants new opportunities in markets across the seas. We need a close working relationship between Ministers here and those in the Northern Ireland Assembly.
Light engineering is prominent in North Antrim and elsewhere. Cooke Bros is a small company that does magnificent work through its engineering firm. Again, such companies need help from the Northern Ireland Assembly as well as from central Government here. Bus orders should no longer be fulfilled in Europe because of EU regulations, but by our own Wrightbus. I put on the record our thanks to you, Mr Paisley, for your hard work and endeavours in that respect. We all note the reasons why that firm was helped from going under: by finding a new buyer, retaining some of the jobs and having a really good base for the future. Wrightbus has a global reputation for high quality and reasonable prices. It should win on the level playing field. Such companies from our own areas have done very well, and we want to see how they go in future.
As I said in this Chamber yesterday, I agree with the industrial strategy. Now is the time to invest in ourselves. We want to be more productive and we want to compete globally, so we need help to make sure we can do that. We can be proactive and positive. When it comes to promoting ourselves on the world stage, we should do it under the flag of Great Britain, the Union flag, because that is our flag—that flag of our country collectively. I know the Department does do that and it is really proactive, but I want to make sure we can build upon it. We must show that we have belief in ourselves. We have to encourage employers to take on employees in their 50s. We have those who perhaps need help in that age bracket, so we should try to help. With the increased pension age, people will be in work longer. We must encourage businesses to look at skills and not simply age. By the same token, we must also ensure that we raise generations of skilled workers with a good work ethic and a healthy work-life balance. We have a very good skilled workforce in Northern Ireland, as we have in other parts of the United Kingdom. Again, how do we build on that?
On 31 January, we will turn to a fresh page in the history of this great nation of the United Kingdom of Great Britain and Northern Ireland. We need to take the opportunity to make better decisions, encourage better behaviour and simply do better by our own constituents. We must start productivity reform by being productive in this place and giving better than we have given thus far.
Productivity stagnation since the crisis has been concentrated in a small number of industries: finance, telecoms, energy and management consulting. Over the past 18 months, the issue has been heightened by higher employment in less productive service sectors. In the past decade, we have arrived at a productivity puzzle that can be put down to three things. First, the UK is less productive than similar countries, most importantly, France and Germany. It is a long-standing feature of the British economy. In about 1960, France and Germany overtook us in terms of output per hour. To put it more colloquially, the people living in France will have been more productive by Thursday lunchtime than will the people living in Britain by Friday teatime. Secondly, productivity growth has slowed since the 2008 financial crash. Before 2008, output per hour worked was increasing by 1%. Since the crisis, it has grown by 2% in just one decade. Lastly, we have a third element. The slowdown in productivity growth has been more rapid and steeper in the UK than in any other developed economy. Before the crash, Britain was near the top of the G7; since then, it has been near the bottom.
To add some context, across the board companies’ capital spending is only 5% above its pre-crisis peak compared with a 60% increase over the decade after the 1980s recession, and 30% following the 1990s slowdown. In the immediate aftermath of the 2008 crisis, business investment was constrained by some companies’ inability to borrow money as banks shored up their balance sheets. That is less of a problem now because most banks have recapitalised. Other factors, such as a lack of worthwhile investment or uncertainty about the economic outlook must now be playing a greater role in deterring companies from more capital spending.
The financial crash saw the election of a coalition Government. For all the talk of paying down the deficit or paying the national debt off—they are mixed up—the simple fact is that it was the Bank of England that used monetary policy to see off another recession. Fiscal policy, unfortunately, was largely ignored. Quantitative easing and low interest rates kept unemployment low, but had a huge effect on productivity. It is argued that low interest rates have sustained zombie companies. Record low interest rates have cut companies’ borrowing costs, allowing some highly unproductive companies—so-called zombies—to avoid going bust. That appears to be borne out by how the rise in the number of companies going into administration was much less dramatic in the past recession.
Monetary policy was very different in the most recent big economic slowdowns compared with the previous ones. The Bank of England cut interest rates to 0.5 per cent, making it easier for companies to finance their loans. By contrast, interest rates were held above 10% during the recession of the early ‘90s. However, it is not only unproductive companies that have high levels of debt relative to their profits—leverage that puts them at risk of becoming insolvent when monetary policy inevitably tightens.
Both high-productivity and low-productivity companies have high debt ratios.
“Higher interest rates hit both types of company,”
said Andy Haldane, the chief economist at the Bank of England in March 2018. Interest rates explain part but not all of the productivity stagnation. An increase in the number of people looking for work, which has helped to hold down wage demands, and uncertainty about the economic outlook since the Brexit vote might have encouraged companies to hire more staff rather than invest in technology. The question should be asked: in the wake of a lost decade of low productivity, can the country solve its own productivity puzzle? Many of the problems that have come down to productivity come from a skills shortage. Getting the right workers with the right skills to work efficiently and effectively is a simplistic and obvious way to boost performance, but it is easier said than done.
I was interested in what the hon. Member for Strangford (Jim Shannon) said about Northern Ireland. I could not help but think that Northern Ireland, the north-east and Wales have the same problem: we are heavily reliant on the public sector to provide jobs. We have a smaller private sector than other regions. It is very difficult to increase entrepreneurship and encourage people to set up their businesses. The vast majority of businesses set up in Northern Ireland, the north-east and Wales are microbusinesses, which provide employment for one person. The fact is that we do not have a history of entrepreneurship. It is vital that as part of careers advice in schools we talk to children about setting up their own business and employing people. I talk to so many people who have the ambition of setting up a business, inspired by “Dragons’ Den” and “The Apprentice”, but when they go to do it, even though they have a fantastic idea, they find it extremely difficult. The Government need to educate people on self-employment and give them the confidence to be self-employed.
We talk about skills shortages. In my constituency, we have General Dynamics, a defence contractor from the States, where the average wage is £40,000—high-skill, high-tech jobs. We also have Axiom, another high-level engineering plant, and Unilever. They are all household names and big blue-chip companies. They will not have a problem upskilling their workers. On the other side of the coin, a small engineering outfit will need its workers to work and will not have time to upskill them. It is a truism of society today that people will not have a job for life; everybody needs to upskill continuously. That is why it is important that the Government introduce a skills levy, to allow companies to upskill their workers. In the short term, that will cost money, but in the long term it will work because we will have a more highly skilled workforce. If we ask businesses to invest in technology, a small business with fewer than five employees will have to decide between machinery or skills. That is where the Government need to step up to the plate.
The second area that we need to look at is even more obvious than upskilling. Technology has driven every change in society. From the first industrial revolution to the fourth revolution now, technology is at the forefront and the cutting edge. The biggest changes in society have come about because of technology. Even today, the most productive companies in this country are those that have invested in cutting-edge technology. The figures bear that out: on average, those that have cutting-edge technology are up to 6% more productive than other companies. Again, the Government could step in. Yes, we could have high levels of connectivity and faster broadband, particularly in rural areas, and such areas as Northern Ireland, the north-east and Wales, which I have talked about. However, there also has to be an effort from companies themselves. They need to utilise that technology, which feeds into my earlier point that they need to have the skills to do so.
Low productivity is the biggest problem facing our economy. We have high employment, but people feel unhappy because they are not feeling it through their wages. We can say that low productivity is a fact of our economy, but if we have the political will and we harness the skills and energy of the British people, the next decade can be this country’s most productive.
Women are also less likely to work in high-productive firms. We have heard a lot about advanced manufacturing. It is certainly the case that the most productive firms are those that invest heavily in technology. I do not think that it is fair that half the population has much less of a chance of working in the sectors of employment in our country that are likely to offer a higher pay packet.
In order to understand the question, we need to think about what productivity actually is. As has been said, it is a measure of how much value is added to the economy with the time that we have. That is why the question of time is so important. How we improve productivity depends on who decides what we do with our time. According to the data, women’s productivity really drops off around child-bearing age, because that is the point at which women have less of a choice about what they do with their time.
Childcare responsibilities still fall heavily on women, and the Institute for Fiscal Studies has found that access to childcare is a central problem for the productivity of our country. If we focus just on putting pounds in the ground—building new railways and road links, and investing in heavy infrastructure—we will fail to solve the productivity crisis in our country for yet another generation.
The other aspect is about power inside low-productivity firms. It is about time management, and the poor quality of management that we have had in the United Kingdom for many years in low-productivity firms, where people do not have the power to say, “Actually, I would like to manage my time so that I can be out of the business for one day a week, so that I can learn and upgrade my skills.” Again, women are most likely to be unable to do that, because of childcare responsibilities and, increasingly, responsibilities looking after older people in our society. Our social care system is collapsing before our eyes, and when that system collapses, it means that women cannot get to work because they are busy looking after older relatives as well as children.
In summary, if national productivity is to mean anything and if the Government are to have any kind of strategy to improve the productivity of this country, we must recognise that one half of our population are unable to take the steps they need to improve their working life and their ability to contribute to our economy. If we do not recognise that, we will fail yet again.
I encourage the Minister to look at that pledge; I believe it has been a hugely important factor in improving productivity rates in Scotland, because businesses are being asked to sign up to something that will make them, or encourage them to, act responsibly. That pledge also has a wider effect on the economy, as those businesses spread the good word and encourage more and more people, including those in their supply chains, to sign up to it. This is not just an issue of business growth, but of the wellbeing of employees, which has a huge impact on productivity and how people feel when they turn up to work in the morning. The Minister needs to look at that further as well.
The Scottish Government are taking other measures, such as the Scottish National Investment Bank legislation which, excitingly, passed unanimously in the Scottish Parliament yesterday. The Scottish National Investment Bank seeks to increase innovation, give support to small and medium-sized enterprises and build an inclusive, high-tech economy, which is incredibly important. We can see how investment banks such as KfW, which was set up post-war in Germany, have changed, worked for and invested in their economies; for example, KfW has changed housing so that investment in that sector works towards greener standards. There are real things that we can learn, and it seems bizarre that the UK Government at that time set up an investment bank in Germany but never thought to set one up for itself, when we could use it so much.
The hon. Member for Barnsley Central mentioned the importance of R&D. The Scottish Government have invested £37 million in R&D and have a target of doubling business investment by 2025, which should go some way to make sure that people are investing in the businesses, technology and infrastructure that they have, as well as in people. We have a green new deal that will harness the power of that Scottish National Investment Bank, including a £3 billion green investment portfolio and a green growth accelerator to attract green finance to Scotland and bring the inward investment that will help drive its economy. We in Scotland have also recognised the importance of inclusive growth, and have been recognised internationally for our approach to inclusive growth. If an economy leaves people behind, it cannot be a particularly good or productive economy, never mind a happy one.
The Scottish Government are reviewing measures to tackle historic disparity. It would be useful to hear whether the Minister has any further information about things like the shared prosperity fund, because European money has been absolutely crucial to addressing that historic disparity in a number of ways. In areas of Scotland where we have been working so hard over so many years to try to correct that post-industrial Thatcher legacy, European money has been crucial, not just for constructing buildings and other things, but putting money into training programmes, universities, colleges and infrastructure. During last week’s education debate, my hon. Friend the Member for Glasgow North West (Carol Monaghan) mentioned the importance of college education in Scotland. I have City of Glasgow College in my constituency, which now has two campuses in the city centre, and looks and feels like a beacon that will attract people to enter. It does not sit, up on Cathedral Street, with any less dignity than the University of Strathclyde, which neighbours it, and that is important for how people feel when they are accessing those education institutions.
Our lack of control over wages in Scotland is a real challenge to productivity. I have already mentioned the Chancellor’s pretendy living wage; I am yet to hear a reasonable explanation as to why a 16-year-old starting in the same job and on the same day as a 25-year-old is worth over £4 less, which is all they are entitled to. The majority of people in those low-paid jobs will be women, and they will be in part-time work as well, which makes it very difficult for those women to bring more money in to support their family and to bring along the next generation. They will be struggling. As the hon. Member for Wirral South (Alison McGovern) said, it is crucial that we look at women as part of this productivity issue.
I attended the graduation ceremony at the Open University, which plays a huge role in enabling people who might not have been able to access more traditional forms of degree to obtain skills. At the end of the graduation ceremony, the participants in the room who were receiving their degrees were asked to put up their hands if they had children, had a disability, had caring responsibilities, or were working while they were doing their degree. Hands went up everywhere. I am pretty sure that no other graduation ceremony would look like that, so I ask the Minister to consider the importance of the Open University in ensuring that productivity is increased.
I also ask the Minister to review the mechanisms that are currently holding people back, particularly universal credit. Universal credit makes it incredibly difficult for people to change their job and improve their circumstances, because they are penalised when they try to do so. For example, the two-child limit traps working families who perhaps started off in life with three children, and were working quite well until something went wrong. It makes it incredibly difficult for them to get back on track when they cannot get enough money to feed their family; they end up in a trap that they cannot work their way out of. The childcare element of universal credit should be paid up front, rather than in arrears, because that is a barrier to families taking on work. It makes it very difficult for families to access employment when they have to pay those childcare fees themselves and claim them back. Other elements of universal credit, such as conditionality, sanctions, and the fact that if a woman is added as a second earner in a household it automatically has an impact on household benefits, also make it difficult for those families to improve their circumstances.
Other hon. Members have mentioned entrepreneurship, self-employment and skills shortages, all of which are important to addressing productivity. Looking ahead, all those things will be made worse by Brexit. I disagree with the hon. Member for Strangford (Jim Shannon); he always views things with great optimism, but I am afraid that I do not share his optimism about Brexit, because it will have an impact on investment and on skills. At the moment, skills shortages are filled by EU nationals’ being able to work and travel freely. I fear that the absence of those people, who are running businesses and are in our schools and our education system, will have a significant impact on our ability to improve the productivity of this country, and that impact will continue for many years to come.
Interestingly, the Chartered Management Institute sent a briefing to the debate. Its research, which is backed by the Bank of England, mentions
“a long tail of poorly managed and unproductive organisations”—
a real issue, which the Minister would do well to address. It gives a figure of 2.4 million “accidental and unskilled managers” and has worked on management apprenticeships to try to ensure that firms do not just put people into management roles without that support. An interesting aspect of the debate is to ask what more can be done to support those managers—those people who end up in positions of influence—and make sure they understand that their roles are important, that they are well supported, and that they can play an important and active role in their organisation to make it more productive.
In Scotland we look to the experience of the Scandinavian countries, which have happier and, by all definitions, more productive and equal societies. I look at them with envy, because they have the full set of economic powers that small independent countries can have and they do well for their people—not just for their economies—as a result. I imagine what Scotland, as an independent European nation, could do with the full set of economic levers to move towards being a more inclusive, fair and prosperous country for all our people. That is very much something to aspire to, but which we cannot fully reach at the moment in the UK.
There are many reasons for that underperformance. Something so persistently bad must be deep-rooted, and many hon. Members have put forward accurate analyses and persuasive arguments about what they want to be addressed. My hon. Friend the Member for Barnsley Central talked about skills and devolution, and I agree entirely. My hon. Friend the Member for Islwyn talked about capital investment and monetary policy, which was spot on. I particularly agreed with the contribution of my hon. Friend the Member for Wirral South about gender disparity and the need to look at issues such as childcare alongside capital infrastructure projects.
I will talk about three additional areas where we need decisive action: transport, automation and business support. I acknowledge, however, that there is a counter-argument to what I will say. Some people will put the UK’s poor productivity down to our higher employment rate. In other words, some might say that, by definition, having more economically active people than France, for example, comes at the expense of higher productivity—so a country could feasibly have a smaller but more productive workforce that exists alongside significant unemployment.
We cannot be satisfied by that explanation. In 2018, the employment rate among people of working age was the highest ever in this country, as we have often heard from Ministers in Treasury debates. But in 2018 the employment rate was also the highest ever in Canada, Germany, Australia and 22 other OECD countries. The truth is that the Government have been incredibly fortunate to be in office at a time when technology has driven up employment rates in all developed countries. We should therefore be in no doubt that we have serious work to do.
On transport, I will shamelessly talk about my own constituency. Every hon. Member present has a sound grasp of north-west geography, but for people who are not aware, Stalybridge, Hyde, Mossley and Dukinfield sit about 10 miles east of Manchester city centre. My constituency’s other border is where Derbyshire begins. It should take about 15 minutes to get from Stalybridge train station to Manchester city centre, but that can happen only if the train turns up. Every single day—today is no different—I get up, turn on Twitter, and see my constituents telling me, rightly, that they are not getting the service they deserve. If I say, “Brexit is coming. We’ve all got to roll up our sleeves and improve this nation’s productivity,” they will reasonably suggest that the first thing to do to achieve that might be to give them a train service that gets them to work on time.
The problem is about much more than underperformance by the franchisee, although that is evident too. It is an endemic problem of inadequate infrastructure outside the south-east of England. Not that long ago, my constituency was full of big firms such as ICI, Christy, which produces towels, and Total Petrochemicals—real industrial giants—that employed the vast majority of local people.
I also want to talk about business support, because as well as the things the Government need to do to improve productivity, decisions that individual firms make clearly have a big impact, based on the leadership and training they possess. The previous Chancellor, Philip Hammond, used to mention that a lot. There is some excellent work already happening. Many Members will be familiar with Be the Business, the business-led organisation that works with peers to improve and benchmark productivity performance. I am impressed with its work, but I wonder whether it could be taken further. Could Be the Business be the basis for a new social partnership or standing organisation to further expand on that work?
I hope this is one of many debates we will have on this subject in this Parliament, but I want to sound a word of warning. We are told the Government want to ban the word “Brexit” in an attempt to present it as being done, but, in reality, so many of the debates in this Parliament will be related to our exit from the European Union. The impact of future trade deals, in particular, will require serious debate about which sectors will be prioritised and which will be severely disrupted. The announcements we have had so far suggest there will be no substantive deal covering services of any kind, especially financial services, and that, on goods, the just-in-time supply chains that the automotive and aerospace manufacturers depend on will be significantly disrupted. Those sectors are where productivity is currently strongest. For instance, the Nissan car factory in Sunderland has a claim to being the most efficient in the world. If all of us here today are in agreement that national productivity must be improved, we must also make sure we do not lose the good sectors that we have.
We should work to improve the UK’s productivity where we can, but we should not take poor decisions that would make our productivity and therefore our prosperity and the living standards of our constituents much worse. I look forward to what the Minister has to tell us about the Government’s plans in this area.
We know that Britain is currently too centralised and that solving the productivity puzzle will need us to think differently. We cannot just sit in Whitehall, pull a lever and cross our fingers—I completely understand that. People want control over their lives to come up with their own plans and, crucially, to be able to put them into action more quickly than the machinery of central Government sometimes allows. We need to give them that. We are hugely committed to making devolution to Sheffield city region a success. We look forward to continuing to work closely with regional leaders to build an economy that works for everyone by improving connectivity, strengthening skills, supporting enterprise and innovation and promoting trade to ensure that the people of South Yorkshire benefit from the powers and investment envisaged in the deal.
Clearly, such issues transcend the borders of England. The hon. Member for Strangford (Jim Shannon) referred to Northern Ireland, and I am delighted that we have managed to get devolution back up and running at Stormont. It is crucial to ensuring that all parts of the community in Northern Ireland feel the benefits of renewed growth and renewed control over their own destiny. I very much look forward to picking up talks with the new Ministers there as part of our efforts to make sure that our policies and theirs work as closely as they can for our shared benefit.
In her powerful speech for the SNP, the hon. Member for Glasgow Central (Alison Thewliss) mentioned the UK shared prosperity fund. Obviously, we are determined to make sure that that is delivered correctly; we need to take the time to get that right. I confirm that we will be setting out our full plans at the comprehensive spending review later this year. That will be the moment when we start unveiling how that will work and give people the clarity that they need to make the investment decisions over the course of the years ahead, as we transition out of the European Union.