Budget Statement

Baroness Valentine Excerpts

Wednesday 25th March 2015 Lords Chamber

[Baroness Valentine (CB)]

I appreciate that the recent Budget should be treated more as political positioning ahead of the election than as a serious attempt to tackle macro long-term issues, but I want to touch on two things in that latter camp: the north/south divide and the provision of housing. I declare that I am on the boards of London First, HS2 and Peabody.

I turn first to the north/south divide. I am delighted that early on in his speech, the Chancellor recognised that we do not pull the rest of the country up by pulling London down. In the years since the credit crisis, while London has continued to play to its strengths as a global hub—currently we have more large foreign subsidiaries than any other city in the world—the rest of the country has struggled to keep up. As the Chancellor has reined in spending and cut public sector jobs, those economies which are more dependent on the public sector have suffered. But any future Chancellor is going to be faced with the reality that we are still spending some £90 billion a year more than we receive in tax receipts. Without the more than £30 billion net tax receipts provided by London last year, that figure would be a third higher. So the Chancellor needs to work out how to continue to invest the billions of pounds in the infrastructure that is required to get a return from London while at the same time stimulating growth in the north. Perhaps he can take some comfort from a report published yesterday by London First showing that every £1 invested in London’s infrastructure generates around £2.50-worth of economic benefit.

Whether you look at Britain from London or from the north, the key issue is the same: productivity. London is by far the most productive part of the country, but its productivity will be increasingly hampered unless the pressure on housing, commercial property prices and transport is eased. In the north, where Birmingham, Manchester and Leeds are all below the national average, poor connectivity is an important contributing factor. Infrastructure is key to turning both around, and our current low interest rates mean that we have a once-in-a-generation opportunity to invest.

I see HS2 as the backbone of the UK, connecting up social and economic opportunity from north to south. But in order for it to achieve its full potential, it needs to be part of a co-ordinated national transport strategy, and local communities, councils and businesses need to seize the opportunity. The Department for Communities and Local Government should stand ready to support local growth strategies, with serious investment in cities such as Birmingham. In this context, I am very heartened by proposed devolution to Manchester. I am likewise sure that significant investment in London will require some kind of further local tax.

In the Budget, we heard once again about plans for building many houses. The Chancellor claimed that 20 new housing zones outside London could support up to 45,000 new homes, while inside the capital, funding was promised to help unlock 7,500 homes at Brent Cross and 4,000 in Croydon. However, on its own, increasing targets is no guarantee of more houses. In London, targets have increased from 32,000, to 42,000 and on to 49,000—yet actual completions remain stubbornly at around 25,000. Housing in London has got so bad that, in a recent survey, three-quarters of business leaders identified the housing crisis as one of the biggest threats to our economic competitiveness.

There is no quick way to sort this out, but one important dimension is making those targets bite. Local authorities, which are at the sharp end of nimbyism, need both stick and carrot. The stick should be the threat of planning applications being taken over where targets are repeatedly missed. The carrot should be a far higher financial incentive. The current housebuilding bonus has had no discernible effect on housebuilding and is simply not enough. Alongside being more generous on the homes bonus, I would urge our future Chancellor to look at freeing up local authorities’ ability to borrow prudentially for housebuilding. I would, though, like to congratulate the current Chancellor on his proposal for the creation of a land commission in London, which will facilitate getting unused public sector land and buildings out into the marketplace for housing.

I cannot resist finishing on one other small point. The Chancellor has set aside money to help UK exporters to China. It would be very good if a future Chancellor could sort out our airport strategy so that we can actually get to this eastern economic nirvana.

Economic Prosperity and Employment

Baroness Valentine Excerpts

Thursday 18th July 2013 Lords Chamber

[Baroness Valentine]

I declare that I am chief executive of London First, a business membership organisation, which includes companies involved in infrastructure and development.

I thank the noble Lord, Lord Haskel, for introducing this debate and presenting such a cogent argument. However, I want to gently challenge the title and suggest that the role of government is not to generate economic prosperity and employment but to create the conditions in which that prosperity and employment can flourish. Timely interventions by a Government can do that. However, the most efficient, easiest and least costly interventions are often avoided because they are politically uncomfortable. Where business would act, government prevaricates.

Take our international links. To provide us with much-needed air routes to emerging economies we should have built a new runway in the south-east years ago. While we have been staring at our navels, Frankfurt, Paris and Amsterdam have built four-runway or six-runway hubs. There is an easy solution: the Government could just say yes to any of the privately funded offers to build more runways that are currently on the table.

Back in the real world, while I support the creation of the Davies commission, the business community needs assurance that whoever might be the Government of the day will act on its recommendations. Can the Minister reassure me that the current Government would? Can he also reassure me that, while we wait a decade or more for even one runway to be built, the Government will do everything in their power to enable more flights to emerging economies in the mean time?

On immigration, Paris attracts eight times as many high-spending Chinese tourists as London. Why? Because France is part of the Schengen visa, on which you can visit 26 European countries but, to add the UK to a European tour, visitors need to go through the hassle of applying for a separate visa. I accept that, politically speaking, we are unlikely to join a single visa system, strong as the business case may be. However, if we are to acknowledge that political reality, can we please do whatever we can to take the hassle out of applying for two visas? Let us build on the Government’s recent improvements to our visa process, but recognise that incremental improvements will deliver only incremental increases in visitor numbers. The step change will be achieved by sharing application centres in China with key European partners, once Schengen introduces biometric requirements.

In a similar vein, the practice of treating international students as a balancing number in our net migration target has had the unfortunate consequence of giving countries such as India the impression that their students are unwelcome here. Higher education is our eighth biggest export and we should be cultivating rather than inhibiting that sector.

I turn to an area in which positive government intervention can make a real difference, albeit at a cost: investment in infrastructure. I pay tribute to the Government on their recent spending review. A five-year settlement for Transport for London’s capital investment programme makes much more sense than an annual one. The guarantee for the Northern Line extension has enabled the redevelopment of the iconic Battersea power station, paving the way for up to 26,000 jobs.

We must keep that momentum going, though, and with a sense of urgency, if real progress on vital projects such as the Thames tideway is to be made before the next general election. If creating 9,000 jobs to build this new sewer is not enough of an incentive, then the Government might also consider the benefit of allowing the residents of London’s thousands of new homes to flush their new toilets. I am confident that the Government will do the right thing and give the go-ahead.

Finally, I must mention Europe. The UK is one of the most successful global trading nations. We are the third highest exporter of services and the sixth highest of goods. The global companies that base themselves in London do so as a centre for Europe. They have no interest in or understanding of the UK breaking away. While they certainly struggle with aspects of European regulation, particularly of our financial services post-credit crisis, they understand the need to address failures in regulation and for intensive negotiation to find solutions that balance stability, reputation and growth. I have not met anyone in any of these companies who is looking for an exit. Indeed, for most, talk of a referendum suggests a trigger-happy approach to sensitive diplomatic matters.

There is, though, the need to reassess the relationship between those inside and outside the eurozone, and to do that the Government need to fully engage and negotiate as an equal partner, rather than with one hand on the escape hatch. While there are political realities, therefore, there are also economic realities, and if the Government are serious about prosperity and employment, there are occasions when they need to recognise that government itself is the problem, rather than looking for new, politically easy solutions.

Financial Services Bill

Baroness Valentine Excerpts

Tuesday 3rd July 2012 Lords Chamber

[Baroness Kramer]

My Lords, I appreciate the introduction to the topic from the noble Lord, Lord Eatwell, and I hesitate to speak on behalf of all of my noble friends but I think we have become aware in this country and across the globe that shifting the balance of policy in favour of economic growth is a desirable target. Therefore, to use language, as he has, which downgrades that role in the way that it is approached by the Financial Policy Committee frankly strikes me as unfortunate. We are talking to some degree about semantics but we have learnt the hard lesson that promoting is more important than simply paying regard. He could argue that when his own party was in government it chose the wrong policy path and was pushing on a boom. But had it really examined that boom, it would have recognised that underneath it the fundamental necessary structures for economic growth were not being achieved.

We have all heard in a variety of other debates that manufacturing was declining steadily, certainly as a percentage of this country’s GDP and in comparison to competitive economies such as Germany. We know that there was an incredible overreliance on a banking sector that was reporting forced profits because we were hearing an inflated set of reports from the banks that were not based on a genuine economic boom. We know that underlying that whole period, youth unemployment was steadily growing even though it was masked by overall employment figures. We know that that particular boom was being fuelled by consumer debt that led to both intensive borrowing by individuals and therefore a lot of purchasing, which in a sense was a false contribution to the underlying economic growth, and also inflated house prices creating a house-price bubble. Requiring the new FPC to dig beneath what is actually happening in the economy, to recognise what is happening with the fundamentals of economic growth and then to give that a great deal of importance in the way that it shapes its policy is essential.

I am glad in many ways that the whole issue of economic growth does not have much in the way of party characteristics. I hesitate to quote from the BBA at this point but, like a curate’s egg, everybody has good stuff in parts and this is one of the good parts. It talks about the Chancellor’s commitment to an economic growth objective to stand beside the financial stability objective and says:

“This is to be welcomed as we have said on many occasions that there is a risk that insufficient weight will be placed upon the achievement of economic growth and jobs which must be the overarching objective. This we believe feeds through to ensuring that the FPC be set the symmetrical task of using its tools and powers not only to subdue demand at the top of the economic cycle”,

which is the issue of sustainable growth,

“but also to ensure that reserves are used in support of lending capacity at the bottom”.

That strikes me as very important. Mr Sants, before he stepped down from his role at the FSA, said:

“Changing the FPC’s remit is really important. The interaction between regulation and economic growth should be debated at the FPC”.

It seems to me that the language we have used frames that debate.

I wanted to take this opportunity to comment on part of the amendment in my name and those of the noble Lord, Lord Sharkey, and the right reverend prelate the Bishop of Durham, because it contains within it one further element that the noble Lord, Lord Eatwell, at this particular point in time, has not addressed. That is the language that includes within the objective the promotion of,

“a stable and sustainable supply of finance to the economy”.

We see that as important enough to be worth integrating and highlighting. We should not simply assume that it will be part of an economic growth objective without a specific mention.

The reason we have done that is probably evident to many in your Lordships’ House. We have all shared frustrations over Project Merlin, quantitative easing and credit easing, and I fear we may have the same problem as we look at the consequences of the Government’s new “funding for lending” scheme. The Government, or the Bank, effectively push money into the system, which gets as far as the banks but does not emerge the other end. The second quarter report from the Federation of Small Businesses shows that demand for credit among its members was stable but that more small firms than ever were being rejected, with the rejection rate now reaching 41%.

The Bank of England’s credit conditions survey, for that same second quarter, shows that for small businesses, interest rate spreads actually widened, despite the Government’s loan guarantee scheme, which is meant to bring down interest rates for small businesses, and despite a sharp drop in default levels among them. Small businesses are demonstrating that they are less risky than they might have seemed historically, but are being rejected at a greater rate and also found that they were facing wider spreads on interest rates. We have to acknowledge at present that high street banks are the only distribution network of any size to get credit to those who need it on a small scale, but looking at the overall situation, we can easily recognise that the high street banks have many easier ways to generate a higher level of return than lending to small business.

There is a reason why, in our language, we have used the word funding and not just credit. The supply of finance is not just a debt issue but one of equity capital. Capital willing to take risks is hard to find. Angels are fewer than ever and venture capitalists are finding funds harder to raise. Indeed, long-term money of any kind is difficult to find at the moment, as I suspect the Government are finding as they try to look at ways to develop infrastructure projects. Some disintermediation of the banks is, if anything, aggravating the problem.

The UK differs from many other countries because it has very low retail investment in bonds and equities. Retail money is less volatile and tends to stick through the good times and the bad times. Germany is a good example, although there are many others, of a country where businesses, particularly small businesses, have been far less impacted because that retail sector, investing in both bonds and equities, is available to them.

There is another area where it is crucial that we have the attention of the FPC because the regulator can make a difference. We have a system now where the small end of the spectrum is very ill served—the small stockbroker, who often followed the small company, has largely gone. Most of the funding we have is simply fairweather funding. To change this, we have to develop a reliable funding supply. I understand that that is not for the regulator alone, but the regulator has a huge role to play if we are ever going to close those kinds of yawning gaps. This amendment puts it in a position to act. Some will say that there is already a competition objective in this Bill. There is a competition objective for the FCA, but it is very much designed to encourage a multiplicity of products—not to bring in new players or expand the scope of existing players, but to cover access to funding right across the business spectrum. Those are two very different things and we believe that we must capture that second aspect in the language that we use.

The FPC has to be engaged and to be part of making sure that there is capacity for funding the system across the whole spectrum, whether it be small, medium or large businesses. I would argue it also covers disadvantaged individuals and social enterprises, charities and other bodies which play a crucial role in our society today and will play bigger roles in the future. I suspect that other people will have much more to say about that, perhaps around this amendment and others. It is to push those underlying principles that we have put down Amendment 35.

[Baroness Valentine]

I am grateful to the Government for tabling Amendment 35A. This is a very important and conceptually challenging issue. I hope noble Lords will excuse me if I talk around the subject a little because, while it is certainly a step in the right direction, it is not at the moment clear to me whether, in legal terms, this amendment sets the right framework.

We should, perhaps, first consider that whatever framework we adopt must be flexible enough to operate effectively in three primary sets of economic conditions: first, the healthy state when one would expect the Financial Policy Committee to be scanning the horizon for future shocks at the same time as being conscious of any impact its actions might have on economic growth; secondly, crisis, where stability must be paramount; and, thirdly, the current state where uncertainty, principally from the eurozone, must be expected to continue for some time. This is, of course, a situation over which we have little control.

In the first and third of these scenarios, the issue at stake is the interplay between economic health and financial stability and the difficulty of balancing the two. There is a well-known saying:

“A ship in port is safe, but that’s not what ships are built for”.

In this instance we can see absolute financial stability as a safe port but it would be ironic, given our island’s history as a trading nation, if the port were so secure that our businesses could not put to sea.

At a simple level, this is seen in the tension between capital ratios set by regulators and the demand that the banks increase lending, variously voiced by parts of the Government, some parts of the business lobby and the media. It is sometimes forgotten that the collective interests of the banks are, in fact, aligned with those of the Government in seeking economic health and financial stability, but both sides of the lending equation have curbed their appetite for risk. Just as banks are mindful of their own exposures, small businesses, because of economic conditions, will be both less robust to lend to and less keen to take on debt.

On this point, it is essential to have a common understanding between the Bank of England, BIS and the Treasury, and for the banks and the real economy to have the same understanding of where we sit on the risk spectrum. We also need the Government to be clear whether, and to what extent, they can or want to influence lending in the marketplace through initiatives such as the Business Growth Fund, the green investment bank or, indeed, their shareholdings in certain banks.

The amendment, as proposed, makes it clear that financial stability retains primacy. Some have argued that there is a logic to this because it mirrors the hierarchy of the Monitory Policy Committee’s objectives. The flaw in this argument is that the primary objective of the MPC is clear and measurable. Inflation is X%. Conversely, I know of no indicator as simple as inflation that would provide a proxy for financial stability. The primary objective of the FPC therefore requires judgment. We cannot state that financial stability is 23 whereas last month it was 27. So the point at which the secondary objective comes into play can remain for ever opaque.

I think this argues for one of two approaches: either tightening up the FPC objective to one which is measurable or leaving it as it is but then recognising that the interplay between the primary and secondary objective is necessarily different and therefore that the current drafting may not in fact be fit for purpose.

The challenge for the FPC is that it is unlikely that any Government will be prepared to state explicitly where the axis between stability and growth should sit. As we saw under the previous regulatory culture, the Government’s desire for risk-based regulation, under which banks could and would be allowed to fail, lasted only as long as it took for a bank actually to find itself on the brink of failure. Under the new regime, I suspect that Governments of all political persuasions will wish to champion both goals, leaving it to the FPC to judge how to offset the two. I believe, therefore, that we need a clear mechanism under which the FPC can demonstrate how it has achieved its primary objective while complying with the requirements placed on it by its second one and not hindering the Government’s economic strategy.

Financial Services Bill

Baroness Valentine Excerpts

Monday 11th June 2012 Lords Chamber

[Baroness Valentine]

I declare that I am chief executive of London First, a not-for-profit business membership organisation, whose members are drawn from a wide range of business sectors, including banking, insurance and professional services firms, and their customers

Over centuries and through several crises, the UK has built a global reputation as a safe and honest place in which to do business. Its financial sector is seen to offer a deep pool of knowledge and expertise that is, arguably, unrivalled. Businesses value this expertise and the ability to harness it to their own requirements. These can be as diverse as raising capital, structuring and financing mergers and acquisitions, or hedging against price fluctuations in their raw materials. These are essential services for businesses. Therefore, in developing the framework for regulating the financial sector, we must take into account the likely impact on not only the financial institutions themselves but, perhaps more importantly, their clients.

For business, the price, range and availability of financial products and services will be contributory factors in achieving economic recovery and maintaining international competitiveness. With this in mind, I join other noble Lords in expressing concern that the proposed objective of the Financial Policy Committee is solely to focus on ensuring financial stability. This objective should, I believe, be complemented with a duty to foster an environment in which the financial sector can continue to support economic development—for example, by helping to ensure a stable supply of credit.

When we look at other national regulators or central banks, we see that they are often given similarly balanced objectives. For example, in the US the Federal Reserve maintains the goals of maximum employment, stable prices and “moderate” long-term interest rates. The Reserve Bank of Australia has both its social and its economic purposes clearly defined in law. Its job is to ensure that its monetary and banking policy contributes to,

“the economic prosperity and welfare of the people of Australia”.

Closer to home, as other noble Lords have noted, the Bank of England’s own Monetary Policy Committee includes in its objectives the aim of supporting the Government’s,

“objectives for growth and employment”,

albeit, as the noble Lord, Lord Barnett, notes, as a subsidiary objective.

Financial stability must, of course, be a core objective of the regulatory system—it is a precondition of economic well-being—but it should not be the only criterion against which we measure success and, indeed, we should not be seeking financial stability at the cost of economic development. If we do so, we risk hard-wiring a bias towards conservatism into the new regulatory architecture. We have to recognise that innovation is part of what will keep us at the cutting edge of global markets. Without it, the economy will continue to be stifled.

At a time when our economy is in a double-dip recession with an anticipated slow and bumpy road to recovery ahead, all aspects of the regulatory framework, including financial regulation, should be designed and implemented in support of growth. I cannot see why this approach is not relevant for the Financial Policy Committee and, in his closing remarks today, I would welcome some explanation from the Minister of the rationale for adopting such a narrow brief.

I further note that the Government have established a Regulatory Policy Committee to ensure that any new regulation meets the principles of good regulation. There is a strong argument for bringing the FPC and its sister bodies within its scope.

My second concern relates to the approach that the UK is taking towards integration with the new European regulatory framework and the need for those working with the new European bodies, on the UK’s behalf, to have relevant market experience and expertise.

Increasingly, the regulation and supervision of financial services is driven by decisions taken outside our Parliament at a European or G20 level. This is right if we are to ensure a consistent approach to supervising global institutions, but it seems strange that the proposed UK framework does not correspond to the recently established European framework. We appear to be developing a new imperial system while the rest of Europe consolidates a metric one.

The UK already punches below its weight in voting terms. Despite having more than 35% of the European wholesale financial markets, under qualified majority voting we have fewer than 15% of the votes on decisions governing those markets. British nationals occupy only 5% of the posts in the Commission, even though we make up 12% of the population, and that proportion is falling. At a time when the so-called Anglo-Saxon model of financial services faces considerable suspicion from some quarters, for the UK to be so under-represented is worrying. My fear is compounded by the general lack of experience of truly international financial markets among those responsible for regulation and supervision in the new European regulators. It is essential that Britain’s regulators offer a coherent voice that can provide these new institutions with the expert guidance and insight they will need to fulfil their functions without damaging the very markets they have been established to protect.

[Lord Lea of Crondall]

I am most interested in the point that the noble Baroness has just made about whether we have the right number of people in Brussels, Frankfurt or wherever. Is that the view of her constituency in the City of London and, if so, what are the members of that constituency doing about it?

[Baroness Valentine]

I could give a long answer to that. I do not believe that industrial representatives from the City are necessarily welcome in the European supervisory bodies, and that creates a complication in dealing with that particular issue. I think that they would be happy to put forward people but you have to be clear that the Chinese walls are there. I am not sure whether that answers the noble Lord’s point.

I welcome the Government’s creation of an international co-ordinating committee to present issues and concerns from the UK regulatory bodies. However, I believe that its effectiveness and credibility would be enhanced by mandating a secretariat made up of individuals who have experience of the international markets and have worked in international organisations. This would be a significant step towards ensuring that the UK’s contribution to EU financial regulation was proportionate to the importance of the financial sector to our economy, and would send a clear signal that the Government recognised that contribution.

Last week the chairman of the Treasury Select Committee commented that this Bill was,

“the most important overhaul of financial regulation ever undertaken in this country … It is crucial that we get it right”.

I could not agree more.

Despite laying claim to be the birthplace of modern football, it is many years since any of our national teams have been dominant on the field—as I fear the French may well be demonstrating this evening. I do not know the score.

[Noble Lords]

A draw.

[Baroness Valentine]

A draw. However, we have long been pre-eminent in financial services and we should aim to remain so. I therefore urge the Government seriously to consider the suggestions I have made this evening.

Government: Convergence Programme

Baroness Valentine Excerpts

Thursday 12th May 2011 Lords Chamber

[Baroness Valentine]

I declare that I am chief executive of London First, a not-for-profit business membership organisation. I am also pleased to serve on this House's European Sub-Committee B, under the able chairmanship of the noble Baroness, Lady O'Cathain.

I welcome this debate. The EU Committee’s report says of the reform programme,

“No surprises, no panacea, but still worth doing”.

It is worth doing because transparency and scrutiny by other member states, EU institutions, the OECD and others can only be helpful in establishing good practice. However, I take note of the reservations of the noble Lord, Lord Newby, about the practicalities.

Europe 2020: UK National Reform Programme 2011 makes clear the importance the Government rightly attach to growth. The national reform programme states:

“As Europe recovers from the worst recession since the 1930s, Europe 2020’s aims of higher growth and increased employment represent the most important long-term challenges, and opportunities, facing the EU”.

I will focus my remarks on the “bottlenecks” to growth identified in Chapter 3 and suggest some areas where the Government can perhaps do more to overcome these challenges.

First, on competitiveness in financial services and taxation, after tackling the deficit the first challenge identified by the report is,

“ensuring a well-functioning and stable financial sector capable of meeting the financial intermediation needs of the real economy”.

The Vickers commission’s work to improve competition and stability within the banking sector is relevant, but we need to add a third leg to this stool—the global competitiveness of the UK sector. There have been failures in governance, supervision and regulation, but the UK has demonstrable competitive advantage in the financial services sector. We must make sure that any unilateral action does not diminish that competitiveness.

The EU’s annual growth survey calls for Europe-wide co-ordination in the taxation of the financial sector. That is commendable, but London is the EU's only world-competitive financial centre, so taxation in other global financial centres outside the eurozone is just as important. What we actually have, though, is a unilaterally applied banking levy that satisfies neither point. The Government made a good start by consulting on their approach to the introduction of taxation last year. Post credit crisis, politicians attempted to shoot from the hip, but boring, slow, internationally compatible and considered changes in taxation are much better. So, while the tax hike on oil and gas exploration may or may not have been right, its abrupt introduction was almost certainly not.

I welcome the national reform programme’s section on,

“Facilitating an increase in aggregate fixed private investment”,

which reiterates the Government’s objective of creating,

“the most competitive tax system in the G20”.

However, the UK heavily depends on its service sector for growth. We are claimed to be the second highest exporter of professional services worldwide. In this context, the international competitiveness of our personal taxes is important. Recent Treasury signals of a future reduction in the top rate of income tax are welcome. Unfortunately, other changes—to personal allowances for high earners, national insurance contributions, the non-dom levy, pension tax relief and the banking bonus tax—portend anything but a stable and predictable tax regime.

Secondly, on infrastructure and investment, the Government are right to aim for industry to have the confidence to invest in our economic infrastructure. Londoners are relieved that the Government have maintained the much needed and long overdue investment in our transport infrastructure, and we look forward to the forthcoming national infrastructure plan.

However, I would like to highlight some concerns. The Localism Bill, while motivated by an admirable desire for local empowerment, risks giving local authorities powers without resources—again. It risks frustrating development on the one hand by giving weight to the nimby vote while on the other failing to provide the tools to local authorities to fund the infrastructure that underpins regeneration and growth. How does one get the Northern line extended to Battersea power station to create a new economic quarter? While we have good progress with the Olympic Park Legacy Company in sorting out the park and indeed, under the Localism Bill, turning that company into a mayoral development corporation, who will act as client for investment in energy and the public realm south of the Olympic park to catalyse the East End regeneration that we all desire? Surely, alongside localism we need to give local authorities the benefit of the doubt in raising the finance to invest in the infrastructure that is a prerequisite to that regeneration.

The thorny question of aviation capacity in the south-east also remains unsolved. The NRP recommends rebalancing towards net exports. With £20 billion of business services exports driven by London, according to the Work Foundation, the capital’s links to the world are critical. Aviation policy should expand businesses’ international links rather than funnelling them through the most overcrowded airport in Europe.

I turn to Brussels. As the Minister asserts, policies to drive the UK’s growth are largely in the hands of the UK Government, not the EU, but there are important areas of European influence. We need to ditch our little England approach to Brussels. By that I mean not embracing some great Utopian European dream but concentrating on the key areas of policy that affect our businesses and citizens. We must be sure to shape policy-making at the front end of the process and not as a desperate afterthought. In football-speak, we are last-ditch defenders when we have all the skills to be creative midfielders.

I am concerned about two areas in particular: labour laws and financial regulation. Europe 2020 seeks a 75 per cent employment rate across Europe. The Department for Business’s own research indicates that more flexible labour laws lead to higher employment. Well meant protection for existing employees risks reducing employers’ appetite for creating new job opportunities or employing more challenging candidates, when they worry about having their hands tied. The UK and Europe need to get the balance right between what is fair and what leads to more employment.

My second worry is financial regulation. The British financial sector is the most global in the EU and therefore needs more sophisticated regulation, but this regulation must be well informed both about products and about real-world market practice. The UK has 12 per cent of the EU population but makes up just 6 per cent of Commission staff. The UK needs to value people who serve in Europe; it should be seen as a boost to a career in either the public or the private sector. Given the vital role of the new European supervisory authorities in relation to our financial markets, would it make sense for, say, 20 per cent of their staff to have experience of London’s financial services?

In these and other areas, politicians need to get in early and help to set the rules, rather than regarding Europe as a perennial irritation. I wish the national reform programme well.

Economy: Government Policies

Baroness Valentine Excerpts

Thursday 24th March 2011 Lords Chamber

[Baroness Valentine]

My Lords, I congratulate the noble Lord, Lord Lawson, on securing this timely debate. I declare that I am chief executive of London First, a not-for-profit business membership organisation seeking to improve London's competitiveness.

My contribution comes in the form of a “SWOT”—strengths, weaknesses, opportunities and threats—although I have taken the liberty of reordering it into a “TSWO”. First, however, I should like to test the meaning of the phrase “rebalancing the economy”. Rebalancing can mean relatively less activity in the south-east and relatively more in the north, or relatively less activity in the public sector and more in business, or it can mean relatively less activity in financial services and more in green industries. However, ahead of rebalancing must surely come growth, to deal with our immediate debt problem. I am pro more growth in the north, but alongside, not instead of, growth in the 30 per cent more productive south. I am pro growth in the private sector, but we need to cut government spending as well. I am pro green industries, but also pro financial services that provide a million jobs across the country and currently contribute substantially more. If growth is our priority, our main challenge is international competitiveness. The UK needs to maximise its helping from the global banquet at the same time as the Government start to rebalance the shrinking pie of UK government spending.

I start with the threats. In the West, Germany and France compete with the UK for car design and production, creative services and high-tech innovation. London competes with New York for investment in global HQs, as it does for global deals in financial and associated markets. In the East, South Korea and Russia are increasingly competitive; and Shanghai, Singapore and Mumbai are also after London’s lunch. In the most recent Z/Yen Global Financial Centres Index, Shanghai, for instance, rose seven places from a year earlier to fifth place overall.

Of course the UK has many strengths. We speak the world’s favourite trading language, are in a convenient time zone, have stable legal and political systems and a heritage of openness to other cultures. Our membership of the EU brings a market of 600 million consumers. London is the preferred destination for Chinese investors as they seek to develop trading links with Europe and the US, while American investors see the UK as a bridgehead to Europe and the Middle East.

However, our weaknesses are of our own making. New immigration rules risk hassle and delay for valuable international professionals and students. Chinese tourists, who spent over $40 billion last year, are spending millions of euros in Galeries Lafayette, Paris, rather than pounds on tea in Fortnum’s, Piccadilly. Why? It is because only 110,000 were prepared to tackle our clunky visa application system. Heathrow is full, but government seems content for aviation policy to drift. New nuclear generation may be a difficult subject post-Fukushima, but we must address genuine concerns about energy capacity.

Our top rate of tax of 52 per cent, when national insurance is added, is the highest of the world’s 10 leading financial centres, and is now higher than in Germany and France—traditional tax-hungry regimes. I welcome the Chancellor’s acknowledgement that this is a temporary tax measure. I trust that the newly announced review of its effectiveness will take account of lost revenue from those who have chosen not to work in London as a result.

However, opportunities remain. In a time of global turmoil the UK is a stable and trustworthy regime. It can signal a competitive approach on tax, and stand by it. It can export expertise to the rapidly growing economies of the Far East. It can invest in its infrastructure; and, of course, we have the opportunity to showcase the UK at the Olympics next year.

Let me give the Minister some simple, specific ideas. First, minimise the bureaucracy of new immigration rules and simplify Chinese tourist visa applications. Secondly, as suggested in the Conservative manifesto, appoint a Minister to Brussels to influence emerging regulation, such as financial supervision and labour law, which have a disproportionate effect on the UK. Thirdly, tackle the 180,000 migrants who have overstayed their visas and crack down on bogus colleges, but look after and welcome legitimate international students, who will be tomorrow’s leaders.

In summary, let us not adopt the horseracing practice of handicapping winners, especially when younger colts are accelerating on the rails. Instead of bashing bankers, we should encourage creative, dynamic people—bankers, architects, restaurateurs or computer game developers—to set up and grow businesses here. The Government called yesterday a Budget for growth, but I remember so-called Budgets for prudence which proved to be anything but that. It is not the intention or the rhetoric that counts, but the action and the implementation.