Queen’s Speech Response

6th June 2014 Featured Speeches

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This speech was originally delivered to the House of Lords on 5th June 2014

It is a pleasure to follow Lord Deighton, and to pay tribute to him for his sterling work over the past year in promoting HS2.  Six weeks ago the House of Commons carried the 2nd reading of the HS2 Bill by the colossal margin of 452 votes to 41.  HS2 is vital to transforming transport capacity and connectivity between London and the major cities of the Midlands and the north, and the Bill will be proceeding in this session with our support.

However, if HS2 is the Flying Scotsman of the new session, the rest of the Queen’s Speech barely merits Thomas the Tank Engine.

Starting with the economy.

The Gracious Speech tells us that “an updated Charter for Budget Responsibility will ensure that governments spend taxpayers’ money more responsibly.”

I assume this means that the Chancellor will be updating his fiscal rules of 2010 and proclaiming them as a charter.  But since the Chancellor isn’t on target to meet either of his 2010 rules by 2015 as intended, because of the weakness of the economy for most of the four years since he became Chancellor, it’s hard to see why the public should have more confidence in any new set of rules just because they are dressed up as a charter.

As for the proposed legislation to cut bureaucracy and promote access to finance for small businesses, we welcome effective measures to deal with late payments in particular, although the public sector is often itself the culprit. But the government has been spent the last four years announcing one initiative after another on access to finance– mostly to little effect: remember Project Merlin?  So the House won’t be holding its breath.

The plain fact is that, as the Bank of England’s last report on trends in lending said in April, lending to all businesses is still falling, with small and medium sized enterprises hit worst.

The Queen’s Speech also promises yet another bill to reform the planning regime and promote infrastructure – even as the ink is barely dry on the last Growth and Infrastructure Bill, intended – yes, to reform the planning regime and promote infrastructure.  ‘Deja vu all over again,’ as someone once said.

This House will therefore want to focus on the economic fundamentals, not the thin gruel of the Queen’s Speech.

Thankfully, the economy is at last reviving. We all welcome the recent improvements in employment and output, and the fact that inflationary pressure remains low.

However, before we hear too much about an economic plan that is working, the best gloss that can be put on Britain’s relative economic performance is that, at last, we are in catch-up mode.  Unlike the US, Germany, France, Canada and Japan, the UK’s GDP is still below its pre-2008 peak. Out of the G7 only Italy has a worse record.

As the Office for National Statistics says in its latest analysis: ‘UK real GDP fell by 7.2% [in the recession] and the subsequent economic recovery has been one of the slowest in the G7, and in UK economic history.”

Nor has economic growth been accompanied by a pickup in productivity, the key determinant of long term prosperity. Productivity growth in the UK since 2007 has been lower than in all other member countries of the G7 including Italy.

This underlying productivity weakness partly explains why average real incomes have been languishing for so long and why wage growth is still weak.

Exports remain especially weak. The current account deficit stands at 5.5% of GDP, the highest level since records began in 1955. Over the past 2 years the UK’s exports have been flat, and the government is not remotely on track to meet its target of doubling exports to £1 trillion by 2020.

As for employment, the top line employment figures tell only part of the story. 1.4 million people are working part-time because they are unable to find full-time employment. As the Bank of England notes, this very high number reporting they would like to work longer hours points to considerable underemployment. The rise in claimed self-employment, accounting for over half of the increase in total employment reported since last summer, also suggests that millions simply cannot find permanent jobs and are looking for other ways to make ends meet.

Youth unemployment remains especially high. At 19% the UK’s youth unemployment rate is higher than Italy, Denmark, France, the Netherlands, Austria and Germany. We are failing the next generation: a lost generation of young people with poor skills and no work, with no hope for the future.

The truth is that Britain is growing, but the foundations are weak, the young are especially disadvantaged, and a good deal of today’s growth is being driven by a surge in house prices and by consumer debt. This partly also explains why growth is so regionally imbalanced, concentrated on London and the south, while the midlands and the north do less well. Tellingly 21 of the 25 worst-performing retail centres in the country are in the North, the Midlands and Wales, while 22 of the 25 best performing are south of the Watford Gap.

Household consumption and private housing investment, fuelled by this price surge in London and the south east, represented fully 60% of GDP growth last year, while net trade and business investment, essential for driving innovation and high value jobs, remain worryingly low.

A critical issue here is the failure to build new homes on anything like the scale the country needs. The rate if house building is lower than at any time since the 1920s, less than half the 250 000 new homes a year required are being built nationally, and less than a third of the 60,000 needed a year in London.

So, where are the policies to deal with these fundamental weaknesses- to improve youth skills, to transform vocational education, to accelerate investment and to dramatically improve the rate of housebuilding?

To tackle youth unemployment we need more apprenticeships and more work opportunities for young people. Yet the number of apprenticeships for under 19 year olds is still below its 2010 level, a figure disguised by the government lumping all apprenticeship numbers into one total, when most of the growth under this headline number is for those already in employment in their mid or late 20s.

Even in the public sector, apprenticeship numbers are pitiful and too little is changing too slowly. The civil service used to have no Whitehall-wide apprenticeship scheme whatever; now it’s just started one but for a mere 100 apprentices. There should be thousands.

As for the government’s ‘Youth Contract,’ billed by the Deputy Prime Minister as a big answer to youth unemployment when launched 2 and a half years ago, this has massively underachieved. The policy was for 160,000 wage incentives for employers taking on long term unemployed aged 18-24. There were also to be 250,000 unpaid work experience places. Two and a half years later a mere 4,000 young people have been placed with an employer for six months with full government support. That is a mere 2.5% of the way to 160,000. Furthermore, a recent employers survey revealed that 81% of the jobs advertised under the youth contract would have been offered anyway. As for the 250,000 work experience placements, fewer than half of them have been created.

It is a similarly sorry story on housebuilding. Why is the rate of housebuilding so low? Because of a serious construction skills shortage, private sector land banking, and the unwillingness or sheer inability of the public sector, in its various guises, from local government to the MoD and the NHS, to get building on its own land. There have also been some NIMBY councils, but others want to do more but don’t have the powers. To tackle these problems the government has done far too little. For example three years ago the Prime Minister told us he wanted to see new garden cities. So far, only one has been announced- Ebbsfleet- which already had planning permission for 10,000 homes.

To drive improvements in skills, housing and infrastructure the government should be following Lord Heseltine’s advice and empowering England’s cities and localities by radically devolving budgets and powers to local authorities and local enterprise parternships, overcoming what Vince Cable, the Business Secretary, called the “Maoist” abolition of the Regional Development Agencies in 2010. Instead, only a fraction of the Heseltine devolution has taken place, mostly dependent on complex and protracted individual city deal negotiations- far from the rocket boost required.

It’s a similar story of half-measures or no measures in respect of energy and infrastructure.

The average dual gas and electricity bill is now at a record £1,353 a year, up from £819 in 2009. Over the four years to October 2013 gas prices increased by 21%, and electricity went up by 25%. The ONS estimates that the share of household income going on essentials is up by 10% since 2003 – a huge burden on family budgets.

Lack of an effective energy market is part of the explanation. This isn’t just our contention.  Since Ed Miliband put this issue up in lights, it has become the government and the regulator’s contention too. In February Ed Davey asked the Bix Six energy companies to review their pricing. He also asked OFGEM to ‘think radically’ and even consider breaking up the Big Six if they had overcharged.

In March OFGEM reported back that they found evidence of both collusion and overcharging – ‘evidence of possible tacit coordination between energy companies that includes a strong alignment of pricing announcements in timing and extent’ and ‘evidence that the Big Six have seen increasing profits that do not appear to reflect increasing efficiency, a possible sign of lack of competition.’

A Competition and Markets Authority investigation is now underway, but nothing is being done in this Queen’s Speech to freeze or reduce prices while this happens. And we won’t get any action on competition until after the election.

As for energy infrastructure and new supply, according to a recent survey by the CBI and KMPG, two thirds of British companies fear UK infrastructure will deteriorate over the next five years, and their concerns are most critical over energy.

Legislation on fracking is proposed in the Queen’s Speech, which the government says would put shale gas production in line with the coal industry, water and sewage, all of which have access to underground land. We welcome this in principle, provided communities are reassured about impacts on the environment, including contamination of the water table.

The critical issue is that a fifth of the UK’s power generating capacity will close over the next decade, yet plans for delivering new gas and nuclear power stations are well behind the curve. Ministers talk about a dozen new nuclear power plants, but only two are as yet proceeding. As for gas, because of a lack of clarity and confidence in the government’ s capacity mechanism for encouraging new supply  we are facing a situation where existing gas stations may be mothballed, with little appetite for new plants.

And on renewables there appear to be two governments: Ed Davey’s DEC in favour, while Eric Pickles’ DCG repeatedly turns down applications for extra capacity.

The story on housing and energy applies to transport too. While a few welcome – largely inherited – projects like Crossrail and HS2 are proceeding, there are too many plans without delivery, the biggest plan of all being the constantly re-launched National Infrastructure Plan, which is a catalogue of everything on the infrastructure drawing board, only a fraction of which is actually being taken forward.

In one area of vital economic importance – extra airport capacity in the south east – there still isn’t even a plan, just a commission which isn’t due to report for at least another year because for the entirety of this parliament the government hasn’t even been able to form a view, let alone take a decision.

It is the same situation with the new lower Thames crossing, vital infrastructure to relieve the Dartford Crossing, the most congested short stretch of road on the entire trunk network. I published three options for the new crossing five years ago. Since then, all the coalition government has done is reduce the three options to two, so there still isn’t a plan, let alone a decision. Yet a new crossing would be entirely paid for by the private sector through tolls.

The government’s non-delivery is summed up by the extraordinary saga of the A14.  The upgrade of the A14—a vital growth corridor from the east coast ports to the Midlands—was shovel-ready in 2010. One of the first acts of the coalition Government was to cancel it, along with a string of other major transport schemes.

Two years later, in 2012, Ministers tried to resuscitate the A14 as a toll road with magic money. That scheme collapsed, and last year, finally, the government said the A14 would go on ahead on its original plan. So a vital major trunk road scheme, which might have been finished by now, is not even remotely close to starting. This story can be told hundreds of times over in infrastructure schemes, stalled or cancelled.

So as a country we face huge challenges. At last there is growth, but far far more needs to be done to tackle youth unemployment and underemployment, and to construct the homes, infrastructure, and energy and transport systems Britain needs to thrive.

Where the legislation in the Queen’s Speech addresses these problems we will give it our support, but the imperative is for a bold and ambitious government. For that the general election can’t come soon enough.

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