Business: International Competitiveness
Baroness Neville-Rolfe
To ask Her Majesty’s Government what direct measures they are taking to promote enterprise and the international competitiveness of British business.
Baroness Neville-Rolfe (Con)
My Lords, I ask this Question today to call attention to and encourage the measures that the Government are taking to promote our international competitiveness. This is a huge subject, and I will not talk much about the excellent work done by our ambassadors, UKTI, and by our Prime Minister to improve exports to China, Russia and so on, as I know that other noble Lords will do that. I will focus on three key drivers of enterprise and competitiveness: tax and regulation—we need fewer, better and clearer regulations and a mindset that encourages enterprise; infrastructure; and education. These are critical to a skilled workforce.
Economic advances stem from ideas developed by individuals and by private companies. When government has sought to take a direct hand in business, the results have often been disappointing. But government can and must provide a sound macroeconomic framework, sensible policies on tax and regulation, sound legal, competitive and educational structures and a good transport system. If policies in these areas are unwise, business finds it much harder to succeed. Enterprise and industry is also the source of the wealth on which ultimately everything else depends. That basic fact is sometimes overlooked. Schools, health, defence and welfare are important, but the resources available are dependent on the wealth that the business sector creates.
I come to this subject as someone who has spent many years working for a British company, Tesco, which has been one of the major commercial successes of the past 20 years. As a civil servant I led the deregulation initiative under my noble friend Lord Heseltine. I hope that my continuing business interests, which are recorded in the register, will keep me up to date in this House.
I begin with tax and regulation. As regards macroeconomics, the Chancellor has adopted the right strategy in rebalancing Britain away from reliance on debt and deficit. The deficit is declining rapidly as a proportion of GDP and we now have 30 million people in work. More important, from my perspective, is that for every one job lost in the public sector, four new jobs have been created in the private sector since 2010.
To match other countries in competitiveness, we must keep business headquarters in Britain. In my experience, philanthropy, R&D and a focus on a country’s interests all go with the headquarters, so it is excellent news that WPP, the advertising giant, has returned from Dublin to London. I welcome the new regime for taxing companies’ overseas operations and the Patent Box. They will help us to keep here companies such as GSK and ARM, which exports the chips for the iPhone to China. Best of all is the policy to reduce corporation tax; to help us to compete I would like to see it even lower.
We also need a regime that helps the 4.9 million small businesses in the UK. What the Government are already doing is not very well known: £2,000 off national insurance; an allowance to boost jobs from this April; no national insurance charge at all from next April for under-21s who earn less than £813 a week; a £25,000 increase in the investment allowance for plant and machinery until 2015; £150 million in start-up loans—a long list. For the high street, which is close to my own heart, 360,000 small businesses pay no rates at all because of the doubling of business rate relief.
I am the president of EuroCommerce, the EU-wide association of 6 million retailers and wholesalers. For us, the most important driver of enterprise is the EU single market. We also work hard to open up world trade, and I was delighted at the progress made at Bali, which included changes to border processes worth billions of pounds in saved time. I offer many thanks to my noble friend Lord Green, who did so much to make this happen.
I turn to the vexed subject of red tape. I know from my time in government, in Brussels and, indeed, my weeks in this House that everyone believes passionately in their own proposed regulations. However, the cumulative effect, especially on small business, can be disastrous and enforcement a further burden. Often, our regulators are judge, jury, scribe and enforcer, and so frightened of the media that they take a heavy-handed approach.
We have a programme of deregulation, but to make a real impact on small business, we have to change the mindset in the public sector from bureaucracy to customer focus and the elimination of wasteful error. We have to do less and champion simplicity—fewer, clearer laws, forms and penalties and better process using simple IT, including apps. Tesco taught me a lot about cost control. A process that saved one second at the checkout saved the company £2 million. We learnt lessons from complaints as well.
My second theme is infrastructure and the investment we need in our proverbial roofs. Some great things are being done. Crossrail is fantastic—although you never hear about it, possibly because it has admirable cross-party support. It is a £15 billion project and is estimated to bring benefits of £42 billion. The building of 55,000 new homes will come forward. Thousands of jobs have been created, some with small contractors as far away as County Down. It is a model project, to my mind, with the cost shared equally between government, Transport for London and business.
We need to mend the roof north of Birmingham as well. We need imaginative plans for our northern cities with transport links that do not just come to London, such as the Northern Hub and the Ordsall Chord, Manchester’s own Crossrail, which links Victoria to Piccadilly.
It is a digital age, and as the UK leads Europe in digital business and consumer internet access, we need proper broadband and mobile coverage everywhere. I commend the 2012 report of our Communications Select Committee on this very subject. In Shanghai, my phone works well. At home in Wiltshire, I had to go to the local cafe to do business last summer because of broadband problems. The Government are investing £500 million with matching funding from local authorities and BT. These are huge sums, so why cannot we require a basic level of connectivity everywhere by 2015? What about an official map, perhaps held by the Land Registry, to show street by street what progress is being made?
Finally, I turn to education. International competitiveness depends on education, and it is a scandal that in the latest OECD tables, our best place was at number 21. The Secretary of State is doing many good things, with free schools a fine innovation—we just need more of them. So are the new academies, such as the London Academy of Excellence at Newham, which sends more children to Oxbridge than some famous private schools. I hope that the Minister will update us on examples of business involvement in education that can really inspire others, such as our studio schools and university technical colleges.
However, as a businesswoman, I am very concerned about the way that Britain is being left behind. We need to improve education across the board and stop it being a postcode lottery. That is the best route to social mobility and reversing those worrying PISA scores. I would allow more grammar schools to expand.
In any event, I think that streaming should be the norm in our schools, as it also helps innovative teaching to be used in the slower streams. By recognising that children have different skills and strengths, more streaming could also give a boost to vocational training. Let us learn from Germany, where trades are learnt from sitting alongside experienced master craftsmen and engineers, and where employers have a big role in course design. The scale of apprenticeships under this Government and across the economy is a story that we should celebrate but work to improve yet further. Rolls-Royce had 318 apprentices in 2012, and this year, Tesco had 4,127.
I have one final point, and it is a warning. Looking back at the run of general elections, one sees parties vying to promise short-term measures that crack down on business and do disproportionate damage. There have been recent unfortunate examples. We must avoid this temptation: the effect will be to hurt our international competitiveness, our reputation and our country. We must promote enterprise and the competitiveness of British business. I look forward to further suggestions from noble Lords and to the Minister’s response.
Lord Bhattacharyya (Lab)
I thank the noble Baroness, Lady Neville-Rolfe, for securing this important debate, and I declare my interest as chairman of Warwick Manufacturing Group at the University of Warwick.
Much of the Government’s role in making business competitive is essentially passive: keep corporation taxes down, do not over-regulate and do not impose unreasonable bureaucracy. I have no quarrel with this: competitive taxation and sensible regulation are essential in a modern economy. In Britain we have outstanding finance and services companies that rely on these principles. However, this is a minimum, not a maximum, strategy for being competitive. To go further, we must actively support the creation of a strong product base in a wide range of sectors. We cannot rely just on banking or on our aerospace industry, because the global market is changing. The Prime Minister found this to be so in China. Economies such as China and India know their consumers are very attractive to global businesses. Understandably, they want to keep more of the value of their growing markets in their economies.
What does that mean for Britain? In population terms, we are a relatively small country. For our businesses to grow they must succeed in export markets as well as at home. The first step to achieving this is a competitive exchange rate. For many years, British exports were strangled by high sterling, and we must not let that happen again. The Bank of England has a major role to play by not rapidly increasing interest rates. Stable exchange rates clear the way for government to help create an innovation framework that helps businesses develop their product base. This is the key to sustainable growth. For proof, look at the export data by region. In most of Britain, exports were flat in 2013, but in the West Midlands exports were up a staggering 14%. Why? It cannot be the exchange rate, or tax rates, or regulation. No, the reason is that one company, Jaguar Land Rover, is enjoying huge success, now accounting for almost a quarter of all British exports to China. This is no accident. When the global market was in crisis, JLR spent billions of pounds on researching innovative new products. It spends £100 million a year in my place on R&D. Now it is reaping the rewards. Naturally, the companies which export so successfully will need to build factories in their biggest markets. Crucially, however, the benefits of this expansion will also be felt at home.
How can we spread this success more widely? First, we must help more businesses invest in Britain for the long term. We are beginning to do this with the UK Business Bank. However, compared to our competitors our help is insignificant: less than 1% of the assets of the German KfW. It is no wonder that German investment in both R&D and fixed capital is far higher than ours. The Business Bank must be greatly expanded. Secondly, we must encourage industry sectors to work together to identify the scientific challenges that will shape global markets, and fund the R&D that will solve them. The UK Automotive Council shows how this can work, developing research road maps and co-ordinating investment in areas such as battery technology. This is especially vital in building our supply chain, so that the success of a single company also supports broader growth.
Next, we must increase investment in workforce training and skills. The best people to identify the skills needed in the economy are businesses and workers themselves, not government. I welcome the approach of Vince Cable in encouraging apprenticeships and employer-led skills training. We have a university technical college because the noble Lord, Lord Baker, asked me to set it up. Within a year, we had 200 students joining us, long before it had even started. However, this must not be a free lunch for businesses. The quid pro quo must be greater business funding for skills training. A return to the training levy system would be supported in many sectors, as it would remove free riders.
Finally, if you want to attract investment, do not get in the way of businesses hiring talented people. The current visa policy is, if not causing a problem, creating a sentiment that Britain does not welcome talent. If we want to be competitive, we must encourage the best and brightest to come to Britain. British business has invested in the automotive sector to create innovative products, skilled people and efficient processes. That sector was in the dumps five years ago but, as a result of that investment, it is succeeding in the global market. Our challenge is to increase the number of industries where this is happening and to spread growth down the supply chain. This will take time and it is a task for many Governments, not just the current one, but the prize is surely worth the effort.
Lord Green of Hurstpierpoint (Con)
My Lords, I join in thanking my noble friend Lady Neville-Rolfe for tabling this important debate. International competitiveness is a function of many things, as we would all recognise: there is tax, regulation, infrastructure, education and the skill base. The two previous speakers have covered those. I want to focus on why it is so important for UK business to enhance its international competitiveness and on some of the implications of success in the international arena for policy and action by both government and business.
First, on why it is so important, I draw attention to the balance of payments. The current account deficit in 2012 was nearly 4% of GDP. That is a substantial deterioration on 2011, although that is partly—but only partly—the result of a fall in profitability on outward investment, which may be an aberration. The broader truth is that we have had a weak balance of payments position for the working careers of us all in this Room, and that trade has recovered only rather modestly since the 25% or so devaluation of sterling which happened five or six years ago. That is perhaps the slowest recovery ever, or at any rate since the war. The first decade of this millennium was the worst in terms of balance of payments and recent numbers show that we are, to say the very least, not yet out of the woods.
Why does this matter? Time was when a market fundamentalism had it that it did not really matter what the balance of payments did because the market was self-regulating and self-stabilising, and whatever current trade position we had, the market would take care of it and make the appropriate adjustments seamlessly. We now know that that is not true. Indeed, there is some reason to fear that future devaluations of sterling will be less effective than they have historically been because there is a rising share of imports in exports. About 70% of the value of some of our major exported manufacturing products is now in fact in imported components, which of course blunts the effect of any sterling devaluation.
Even more fundamentally, a weak and weakening trade position is a drag on growth. We all know that we need to rebalance the economy to shift it away from the old growth model, which depended too much on the domestic consumer taking on debt to drive growth. We know that we need to find other sources of growth and that means stronger investment performance—another story—but also, importantly, a stronger trade performance, because that way lies sustainable growth.
That is the macroeconomic perspective. The microeconomic perspective is that international involvement is clearly good for companies. There is compelling evidence from both government surveys and academic and private sector surveys that companies which get into the export markets become materially more productive and efficient than those which do not, and that those effects are very quick. Unfortunately, the evidence is that fewer British companies are engaged internationally than is the case with our natural competitors. For the sake of discussion, I will treat those as being Germany, France, Italy and such countries. A challenge for both the Government and the business community is to encourage and support more companies to get into the international arena: first, because we need it from the balance of payments perspective; and, secondly, because it is good for their productivity and we thereby strengthen the backbone of the whole economy.
What do we need to do to encourage and support this? There is the role of the Government themselves of course, and we have already talked about the importance of the tax and regulatory framework. I want to dwell briefly on the role of trade promotion. I might be regarded as parti pris in so saying, but I think that the role of UKTI and UKEF is important. The key themes of work in progress in both cases are obvious to us all—more private sector experience in their leadership, more ability to operate flexibly and to market their services to British companies up and down the land, and adequate budgetary resourcing. Can the Minister assure us that the work that has been put in hand over the last two to three years will be continued? This is, I might add, a marathon and not a sprint. We need to continue it, not merely through the next spending review, but probably for the next 10 to 20 years, if we are to put this right.
My final point is that this is a national challenge. Even if the Government get everything right, and we score the Government 10 out of 10 on all criteria, there is a job for business in this, and in particular, an important role for overseas business groups and chambers. In recent months, we have begun to work with the chambers overseas to upgrade their activities. My impression, from my previous role, is that there is a growing recognition among them of the importance of this, and a growing readiness to step up to the plate. Again, I invite the Minister to confirm that the work that has been put in hand will continue, because as I say, this is a marathon and we have to keep this up, probably for a generation.
Lord Stoneham of Droxford (LD)
My Lords, we know that the prime purpose and focus of the coalition has been to rebalance the nation’s finances, but frankly there is no point to austerity if we cannot now achieve growth.
In April 1990, I took on a new responsibility running a newspaper business—a very cyclical business. The English economy was just tipping into the property recession at that time. Within six months, the profits of that company halved. In the subsequent six months, 50% of the rest disappeared. It is an experience seared in my mind. It took more than five years before we rebuilt that business. Once your market goes, you concentrate on cost-cutting to remain viable. You push back on marketing and investment. It takes time for consumers and suppliers to regain their confidence. Then it takes time for the business to have the confidence to invest and retrain and recruit staff to take advantage of the pick-up, and build on its competitive advantages.
One of the problems at the moment is that although we have rising confidence, with increasing orders for business, the preconditions for sustained upturn are not yet in place. We know that consumption is fragile, and what we do not want is another boom-bust based on credit. We need the sustainable growth which builds on our competitive advantages in business, to compete better as a trading nation. The noble Lord, Lord Green, mentioned the vulnerability of our current trading account in international trade. This is where the Government have to concentrate on improving the underlying business environment, through their industrial strategy. They have to adopt a strategic approach to championing key sectors in the UK, where their competitive advantage gives them possibilities of advances and future opportunities for growth in international markets. It represents a once-in-a-generation opportunity to use the pressures of the recession, and business desperate to recover, to achieve the changes we need.
I am very optimistic. We have seen in the past year the success of the Olympics—the construction firms and the supply chain companies which are benefiting from the reputations gained in that very successful enterprise. It is a remarkable case study that our motor industry has been transformed in the last 20 years, building—announced only this week—1.5 million cars last year, and set for 2 million by 2017. In the next two months, our creative industries, through our film makers—the British producer of “12 Years a Slave” and the technical specialists on “Gravity”—are almost certainly going to be honoured as world beaters. There are 1.7 million jobs in that sector, which is 5.2% of our economy—also announced this week. It is beyond belief, and I cannot quite understand it, that this is not one of the key sectors in the Government’s industrial strategy. I question sometimes those slightly misplaced criticisms of media studies courses in our universities—but I pass on.
I mention also the company in which my son works, easyJet. Founded in 1995 by a Cypriot businessman, it is now the biggest airline in the UK. It has more than doubled its revenues during the recession. We certainly have the experience and the managerial talent to take us forward.
I commend the CBI’s publication, Raising the Bar, which illustrates in its business environment scorecard what we need to do to raise our game and to be more successful. It measures how we are doing against our principal competitors of Germany, France, the US and Japan. We are ahead now on corporate tax competitiveness. We have a strong competitive advantage in our science renewal facilities, but we have major catching up to do in education and skills, R&D expenditure as a percentage of GDP, overall infrastructure quality and especially ease of access to loans. On regulation, we do not score well, but nor do France, Germany, the USA and Japan.
What do we need to do? We need to build on what we are best at. Clearly, partnerships need developing between government, business and university research establishments—the new £1 billion advance propulsion centre to develop new propulsion technologies in the motor industry is one example of this. Of course, we need to reform regulation, particularly in Europe, but we do not need to undermine business confidence by sacrificing all the benefits of the open markets of Europe.
We need to focus on technical training and might well have to accept some sacrifice in our university education. We are leaders in some of the elite sectors of education, but we are underachievers in the less successful parts of education, where we need to increase the resources and the commitment given to technical education. Finally, we need to examine our supply chains. Only 36% of UK vehicles are sourced from domestic business, and there are opportunities for our suppliers to fill those gaps.
The momentum of the industrial strategy needs to be maintained. A political consensus is required to support it through the next Parliament and to ensure long-term investment. I hope that the industrial strategy council will hold government and business to account to ensure that real economic growth shows the benefits for the wider nation.
Lord Lyell (Con)
My Lords, I thank my noble friend for giving us a chance today to hear some outstanding speeches. I am afraid that I am well down the list, so, as far as industry is concerned, I am very much the tail-end Charlie. However, I take enormous pride in the fact that, 52 years ago, I started my commercial career as a apprentice chartered accountant in Rolls-Royce in Glasgow. Then, in 1962, there was—and indeed there still is—a strong shipbuilding industry on the Clyde in Glasgow. One of the first jobs that I did as an apprentice accountant was to go to a colossal steel company in Motherwell and to a seal fabrication company. Alas, that was 52 years ago. Things have, sadly, moved on from that particular aspect.
However, in the great city of Glasgow, what have we got? We still have the brains and the industry, including Rolls-Royce. Another firm very much involved in high technology, which the noble Lord spoke about, is Barr & Stroud. It is in defence and makes superb aiming and technical equipment. There is also the Weir Group. Wherever there may be problems with energy pipelines, you will find the Weir Group. Where is it based? It is in Glasgow. It is involved not just in the defensive aspect; it is aggressive in developing ideas throughout the world. These are all enormous, worldwide successes in different sectors, but I take some pride as a humble accountant in the fact that, defensively, they are all carefully watched by the accountants. I believe that we have good accountants in Scotland, but they keep their feet firmly on the ground of what you can afford. That is definitely crucial. I look at accounts and finance as being a first-class defence in that particular area.
In the early 1970s, I found myself spending more and more time in your Lordships’ House. In January 1977, I found that I was No. 2 apprentice on the Opposition Benches.
In January 1977, we discussed something called patents. I said, “Oh yes, that is very interesting”, but I then discovered that you had to be a lawyer or a scientist to have any clue about it. I am neither. However, thanks to wonderful advice from your Lordships’ House and from the pharmaceutical industry, I gained undying admiration for that industry in the United Kingdom, which I believe is a world leader. It is a subject of enormous pride and a colossal success in the UK. Looking at the competition all over the world, one or two of these enormous pharmaceutical enterprises in the United Kingdom have perhaps contracted but they have appeared in other areas. That is very much the lesson that my noble friend gave: where there has been a reduction in employment in some areas—for example, the public sector—there has been an improvement in other jobs, whatever the ratio may be, and we see that in the pharmaceutical industry.
The Minister who will be replying knows that I, too, am from north of the border. I am enormously proud of what we have in Dundee, with world-famous oncology ideas coming forward at the university. Indeed, the noble Lord, Lord Patel, is a world leader in that subject.
I understand that two aspects are relevant to the industry. One is something called the Patent Box, which I think my noble friend referred to. That involves finance and is most important, and I am sure that my noble friend Lord Younger will be able to reply on that. On the second aspect, I have a question. The Minister does not need to reply to me today but can he please ensure that the pharmaceutical industry is kept up to speed with patents and that it seizes the ideas and inventions that come forward within this country?
I thank my noble friend for the opportunity to take part in a star-studded debate. I am the junior batsman but I hope that I have made it.
Lord Paul (Non-Afl)
My Lords, I, too, thank the noble Baroness, Lady Neville-Rolfe, for initiating this very timely debate. I declare an interest as the chairman of the Caparo group, an industrial manufacturing company.
We are seeing a recovery in the economy—in particular, in UK manufacturing. This is very heartening, and confidence is important in achieving any recovery. However, I am concerned that growth will continue to struggle without the necessary environment of efficient regulation and support that only government can provide.
As someone who is involved with manufacturing industry, I am keenly aware of the fragility of this current upturn. In the automotive sector, for example, we have seen recent international success for the UK plants of Jaguar Land Rover and Nissan, yet for most other car plants, market conditions remain challenging. The fourth, fifth and sixth biggest car manufacturers are producing 30% fewer cars than before the financial crisis, and although we are now buying as many cars as we did before the recession, only one in every seven cars sold in Britain is made here. Even for those that can sell their products in this sector, skilled engineers are hard to find, and working capital to fund growth remains difficult to secure.
Behind the big car-producing household names lies a supply chain of component manufacturers and service providers upon which the car makers rely and which provide the majority of jobs and income on which our manufacturing regions depend. Most of these businesses have been unable or unwilling to risk investing in new productive capacity in the past few years. They are now feeling more confident to invest, but how are they going to find the capital and skilled labour to allow them to do this?
Despite the Government’s efforts, the commercial banking sector in the UK has continued to shrink its loan books, and what is available remains difficult to access. I welcome the initiative of the Government in setting up the British Business Bank, and wish the recently appointed chairman every success in investing the £1.25 billion that the Government have set aside, but this may be too little, too late. Germany’s KfW, on which I believe the British Business Bank is based, invested more than €17 billion in Germany’s Mittelstand companies in the first nine months of 2013 alone. If we are to compete in international markets, the Government and financial sector need to work together now to provide easily accessible funding solutions to support investment in our economy. Tax incentives for lease finance providers, coupled with enhanced investment allowances for manufacturers, could and should be considered.
We must also support our manufacturers in the training, development and availability of skilled labour at all levels, from shop-floor technicians through qualified engineers to senior managers. This must be a true partnership between government, academia and manufacturers. We need to ensure that a significant part of our higher education system is providing relevant skill training that serves the needs of commerce, and that involves local communities.
The Government must make key decisions for the country’s longer term future, such as proper plans for future power generation, airport capacity, transport infrastructure development and cutting procedural red tape, which stops us getting things done.
As yet, we do not know the outcome of the EU vote, nor are we likely to until at least 2017. Of course, at home we have the Scottish devolution vote. Any investor in UK commerce, whether domestic or from overseas, wants certainty on what it is committing to, and those unresolved issues hinder and frustrate even those who have the money and the labour. I urge the Government to start making decisions now, before it is too late.
The time may have come when the Government might think about the experience of our colleague, the noble Lord, Lord Green, and put him in charge of British industry’s development.
Lord Borwick (Con)
My Lords, I am grateful for the opportunity provided by my noble friend Lady Neville-Rolfe to make a few points about the international competitiveness of British business. The noble Baroness has had a tremendously successful career running an enormous British business employing thousands of people to satisfy millions of customers.
My experience is rather more mixed and modest, but I have started several engineering businesses, and at one time I could say that I was the first person to start an automotive production line in Coventry since the war, to make a new electric delivery vehicle to sell to companies such as Tesco. The noble Lord, Lord Paul, once drove it with me. Unfortunately, we were pioneering too early and in a dreadful recession, and I had to shut that business down. The business was indeed helped by BIS, but that was not what broke it. The reason why we started such a pioneering business in the Midlands was the depth of skills there and the enthusiasm of local businesses to help a small manufacturing start-up.
I am not sure that my experience is general, but I believe that making things is fun. I have had the privilege of running the company making the London taxi and I got a kick out of seeing taxi drivers doing business in my product, making themselves money. The noble Lord, Lord Bhattacharyya, may remember helping us, as he has helped so many Midlands-based manufacturing businesses. Indeed, he trained most of the engineers in most of the businesses in the Midlands.
When I saw the new electric van in Tesco livery, it was a thrill. It was not government encouragement or help that made us want to start the business. I believe that the most important thing that the Government can do to help British business is to reduce tax. The way in which entrepreneurs want help is by cutting the costs of doing business, the regulations on health and safety and the regulations on human resources that sap the little energy left in the mind of an entrepreneur after he has concentrated on satisfying his customers. Reducing tax is exactly what this Government are doing, and it is exactly the right thing to do. They may be doing so of necessity, because in this age of international trade it really is impossible to identify exactly where a profit is made and therefore where tax should be levied. Is it made by exploiting the patent or capitalising on the brand? It is quite reasonable to have a dozen different opinions on the implications of the same facts.
The best solution is to lower the tax rate to the point where it is not economic for the taxpayer to argue. I am not sure that 21% is low enough, but it is certainly a start and every little helps. We often underestimate just how beneficial tax cuts can be. There were encouraging signs of progress on this at the Autumn Statement 2013, with some preliminary work done on the dynamic modelling of corporation tax cuts. They were much more beneficial than static calculations had suggested. The Treasury and HMRC should be commended for finally undertaking this task. The model should now be published in full so that improvements can be made.
When I was a struggling entrepreneur, my wish was for smaller government, not better or more frequent free advice. My wish was for simpler tax laws, and now that I have the enormous fun of joining your Lordships’ House I am sure that tax legislation would be improved immensely if it were subject to the wisdom that is endemic here. The advantage to British business of your Lordships’ scrutiny of tax laws would be immense. If someone could actually read them before they were legislated, that would be an enormous advantage. The noble Baroness has called for debate on the direct measures that the Government are taking to promote entrepreneurship. The best single measures are to reduce Government expenditure and to reduce and simplify taxes.
Lord Young of Norwood Green (Lab)
My Lords, I, too, congratulate the noble Baroness on introducing this debate on a vitally important topic. It has been fascinating to see and hear the different perspectives. I did not take issue with many of the points raised by the noble Baroness. She mentioned the Patent Box, and we ought to claim a bit of the credit for that for the previous Government, whose idea it was.
However, I stumbled a bit when she confessed her desire to increase the number of grammar schools. As an ex-grammar school student myself, I must admit that the quality of my education was good, but I do not think that in the 21st century that is really the answer to our problems. We are far more likely to succeed with the model of university technical colleges which the noble Lord, Lord Baker, has been proselytising, if we are serious about inspiring the next generation of young people to get involved in craft and engineering. That seems to me to be a much more important way forward than trying to reintroduce grammar schools.
The noble Baroness also made the point about job creation, and one public sector job lost and four new jobs in the private sector. Of course we welcome the expansion of jobs in the private sector, but with some of them there is a price to be paid. A significant number are not full-time jobs but part-time jobs, and they do not actually fulfil the requirements of many people who need a full-time job. I do not quarrel with the expansion of jobs in the private sector, but we ought to get it into perspective.
Similarly, there is the question of the importance of education and apprenticeships. Of course, I applaud the work of the Government in building on our rejuvenation of what was in fact a dying apprenticeship scheme. My only problem with the current approach is that there is sometimes a desire to quote numbers. However, many of them, as we found out from examination, are adult apprenticeships which are really reskilling rather than being real apprenticeships. For me, with 1 million young people unemployed, the real focus ought to be on the age ranges of 16 to 24 and 16 to 18.
As has been said, a number of companies are doing well in recruiting apprentices—names such as Jaguar, Range Rover and Rolls-Royce. Yes, they are success stories, but far more worrying is the fact that still at best 8% of British companies have apprentices—that is the real nub of the problem, if we are serious about improving our skills—and still only one-third of FTSE 100 companies have apprentices. We have a long way to go in promoting that. There are still too many companies that believe that training is some other company’s problem, not theirs.
A couple of things have not been mentioned in this debate that interest me. One is the quality of management. We still have some way to go. I forget the exact figures from the Chartered Institute of Personnel and Development, but it was something like one in five managers having any training. So if we are serious about addressing the quality of the products and productivity itself, then surely that is one of the things that the Government need to focus on: improving the quality of managing.
I cannot help reflecting on another issue that no doubt impacts on Britain’s ability to export, and that is the cost of energy. We are all struggling with how we are going to deal with fracking and shale gas but I do not believe that we can ignore it. Look at what has happened in the States: the impact of low energy costs is not insignificant. I do not want to spoil the debate by focusing on the negative but a number of contributors today have indicated that we are not doing as well as we should be. The noble Lord, Lord Green, said, in relation to the nature of the recovery, that it was fragile. There is still a worry that the level of debts and the housing bubble are not really what we seek to do. If we are talking about sustainable growth then surely it does not matter which party you are a member of, but the latest figures are still worrying.
I look forward to hearing from the Minister whether he thinks that—I conclude on this—the biggest constraint that businesses have with regard to expanding and exporting is the thorny question of credit finance. A number of noble Lords have pointed out that the current efforts by the Government have not remedied this problem, but the latest proposal for a small-owned business bank itself may not be sufficient. I think it was the noble Lord, Lord Paul, who drew our attention to the German model. Whichever model we create, we must ensure that it delivers on what British businesses, especially small businesses, require, and that is reasonable rates of credit and finance.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con)
My Lords, I thank all those who have contributed today, and particularly congratulate my noble friend Lady Neville-Rolfe on initiating this important debate. Indeed, I understand that it was her first debate in this House.
In my remarks I will outline the measures that we are taking to meet our aspiration that the UK is seen as the best country in the world in which to do business. There is of course much to say on both enterprise and competitiveness, so I will focus only on some key areas; that is, improving access to finance, equipping people with the right skills, increasing our exports and simplifying both taxation and regulation—all subjects that have been alluded to today.
First, the Government’s growth and business plan for UK plc is set out in our industrial strategy. As part of this, we are implementing 11 sector strategies in partnership with business. My noble friend Lord Stoneham highlighted the importance of focusing on specific sectors. I am co-chairman of one of the sector councils—the Professional and Business Services Council. This is the UK’s largest economic sector, accounting for 12% of UK employment and 11% of gross value added.
We have been working on some exciting projects. The Government have invested, in partnership with industry, approximately £2 billion in the Aerospace Technology Institute and, as my noble friend Lord Stoneham mentioned, £1 billion in the automotive Advanced Propulsion Centre. The first projects for both will be launched later this year. We have also earmarked £600 million for eight technologies where the UK has the potential to be a world leader; we have announced a new £100 million employer ownership fund to co-finance investment in skills in key sectors and new technologies; and we are going to reform public sector procurement to make it more accessible to SMEs.
The Government are also taking steps to strengthen manufacturing by encouraging innovation, business investment, technology commercialisation, skills and exports. For example, the Advanced Manufacturing Supply Chain Initiative has made £245 million available to support manufacturing supply chains in England.
The Government are also committed to ensuring that businesses can access the finance that they need for investment and growth. The new British Business Bank brings together the management of existing government loan guarantee and investment schemes into a single, commercially minded institution. I am pleased to have broad support for this from the noble Lord, Lord Paul.
Business bank schemes are supporting £600 million-worth of lending and investment on an annualised basis. This includes the successful Start Up Loans programme, which has already provided £60 million of funding, helping more than 11,500 entrepreneurs to set up their own businesses. The business bank will use its funding to unlock up to £10 billion-worth of additional business lending and investment. It will achieve this by developing innovative programmes for smaller businesses and investing alongside the private sector.
Your Lordships will be aware that apprenticeship numbers continue to rise as we make it easier for employers to take on an apprentice. The noble Lord, Lord Bhattacharyya, and my noble friend Lady Neville-Rolfe, highlighted the importance of skills and education, as did the noble Lord, Lord Young of Norwood Green. We are equipping people with the skills that employers want—for example, 2.5 million adult learners achieved a government-funded further education qualification, representing an increase of 9% in 2012-13.
I now turn to exports. First, I pay tribute to my noble friend Lord Green, a tireless advocate for UK businesses. He recently vice-chaired the World Trade Organisation summit in Bali. The outcome of the summit is the first global trade deal in 20 years. It will add £100 billion to the global economy and will provide £1 billion of benefit to UK businesses annually.
As Trade Minister, my noble friend also encouraged UKTI to focus support on those sectors most important to the UK—for example, helping AugustaWestland to win a £1 billion helicopter contract with the Norwegian air force and safeguarding 3,000 jobs in Yeovil. It is also working with British chambers to deliver a one-stop shop of support services to UK companies in overseas markets.
As Minister for Intellectual Property, I should like to plug, rather unashamedly, the business support provided by our network of international IP attachés. They have directly helped almost 300 businesses since November 2012 and advised 2,600 in their outreach and business education work. My noble friend Lord Green raised the very important point about the continuation of the work that he started at UKTI. I reassure him that that very good work will continue and will be built on to achieve the challenging targets that he himself set and which are still the bedrock of what UKTI must achieve. For example, I understand that UKTI is on target to assist 50,000 businesses by the end of 2014-15, and it is making a major contribution towards achieving the target of £1 trillion of exports by 2020 and getting 100,000 more businesses exporting by the same date.
We have set out to reduce tax and provide a stable tax environment to encourage investment. We will be reducing corporation tax to 20% by 2015, which will be the joint lowest in the G20. We have introduced the Patent Box to encourage innovative businesses to invest in R&D in the UK, and to boost the research base we have made R&D tax relief more generous.
The Patent Box, which my noble friend Lord Lyell mentioned, provides a 10% rate of corporation tax with the full benefits being phased in over five years, starting last April. It has already been widely welcomed by businesses and by representative bodies, including the CBI, and is expected to benefit up to 5,000 companies including SMEs. R&D tax relief helped to support over £11.9 billion of R&D expenditure in around 12,000 companies in 2011-12, and we have built on the success of this scheme.
We have reformed our controlled foreign company rules to give British businesses more certainty in their international operations. We are now starting to see the results of our tax changes, with businesses coming to the UK, including WPP and AON, and companies which plan to invest more in research and manufacturing facilities in this country, such as GSK and AstraZeneca. I do agree with my noble friend Lord Lyell that pharmaceuticals are indeed a key sector in the UK, and, by the way, it was good to have a plug from him for the city of Dundee. He also raised the point about the importance of patents and education, and I can reassure my noble friend that as Minister for Intellectual Property, the communication of the importance of protecting IP is very high on my agenda. Last year, for example, the Intellectual Property Office contacted 25,000 businesses. The Patent Box helped secure an investment of £500 million by GSK, which will create 1,000 new jobs in Cumbria.
My noble friend Lord Borwick raised the issue of tax, and I agree with him that the wish for simpler tax laws is very high on our list. I am sure that tax legislation would be improved if it were subject to the wisdom which is endemic here in this Chamber. The Government’s aim is for a tax system that is simple to understand and easy to comply with, and we have taken action to modernise and simplify the tax system. The Government established the Office of Tax Simplification in July 2010 to provide independent advice on simplifying the tax system, and have acted on a range of its recommendations—for example, a new cash basis for calculating tax in April 2013 for up to 3 million of the smaller self-employed businesses, and investing £200 million to expand HMRC’s digital services over the next three years, making it easier and cheaper for all 4.8 million small and medium-sized businesses to deal with HMRC.
However, we must make life simpler for businesses. We continue to work hard to reduce bureaucracy. I am happy to report that our efforts on deregulation have already saved businesses over £1 billion per year. We are exempting micro-businesses and start-ups from new regulations. This has recently been extended to businesses with up to 50 employees through the new small and micro-business assessment. We have committed to scrap or improve at least 3,000 regulations through the Red Tape Challenge. This includes stopping unnecessary health and safety inspections for low-risk businesses and introducing fees for employment tribunals to help deter spurious and vexatious claims. I know, as she has said, that my noble friend Lady Neville-Rolfe takes a keen interest in deregulation and I particularly wanted to thank her for her valuable contribution to the better regulation strategy group chaired by the noble Lord, Lord Currie.
We all know how vital small and medium-sized enterprises are to the economy. That is why we published a document, on 7 December, Small Business: GREAT Ambition, which sets out our commitment to help them. It focuses on a number of areas where government can help, including financing business growth, hiring people, developing new ideas and products, expanding into new markets, and getting the right support at the right time. What this means, more generally, is letting businesses get on with doing business.
My noble friend Lady Neville-Rolfe emphasised the importance of where business headquarters are located. I am happy to report that Ernst & Young reported in December that 60 multinationals were looking to move to the UK in the following 18 months. KPMG’s recent tax competiveness survey confirmed for the second year running that companies believe Britain has a more attractive business tax system than key competitor countries.
My noble friend Lord Stoneham raised the issue of the creative industries and asked why they were not one of the key sectors, which is a fair point to raise. The Government take the interests of the creative industries extremely seriously. We have the Creative Industries Council, which is chaired by my right honourable friends in the other place, Vince Cable and Maria Miller. I attended one of its meetings last year and can testify to the great work that the Government and industry are achieving by working together in this particular sector.
We are listening to businesses and we are doing everything we can to make sure that they develop, prosper and flourish. The initiatives I have spoken about today are of course only a selection of what we are doing to help, and I believe it is working. Evidence shows that businesses are more confident. Since April 2013, the proportion of businesses that believe their output performance is higher than 12 months ago has been increasing each month. We know there is still much to do, and the noble Lord, Lord Young, mentioned a fragile recovery. I believe it is better than that, but there is much more to do. We will continue to work hard, first, to make sure that the UK is seen as the best place in the world to do business; secondly, to make sure that the quality of British goods are acknowledged as exceptional around the globe and that enterprising companies have the necessary opportunities for growth; and finally, to continue to push our way to the very top of the World Economic Forum and the World Bank’s ranking for ease of doing business.