Lord Bates
Main Page: Lord Bates (Conservative - Life peer)
Lord Bates
My Lords, it is a privilege to contribute to this debate. We have heard two excellent maiden speeches from my noble friends Lady Browning and Lord Spicer. Although their speeches were very different, they were both accomplished parliamentary performances. They will both be a credit to this House, and we look forward to many more of them.
I was particularly interested in the contribution of my noble friend Lady Browning, who drew on her experience in small to medium-sized enterprises. We have heard some wonderful expositions of macroeconomic theory in this debate—and I mean that genuinely. They have been quite astounding and it has been a privilege to listen to them. But there is also another side to this. I wonder what lessons could be learnt from the small business community, which has been wrestling with exactly the same recession that the Government are now wrestling with, and the same problems. They acted more responsibly. They have been controlling costs, which is the first thing that you can do in a recession, since the onset of the financial crisis two years ago. That lost two years of the Government taking responsive action has meant that the delay has increased the severity of the measures that are necessary to correct the problems that we face. Our costs are too high as a country. I cannot quite understand how it is possible to double public spending over the past two years and double the debt over the past five years but somehow not possible to reduce it by 25 per cent or to reduce government borrowing by a similar proportion. One might begin by simply retracing the steps taken to get us into the situation that we are in.
The responses that a small business might have to this crisis might be, first, to control unnecessary costs. What do I mean by controlling costs? One way in which to control costs in a small to medium-sized enterprise is by reducing complexity, which adds to cost. If you take out complexity, you increase efficiency in the business. One thing that I have been delighted about with the Finance Bill is that it runs to only 26 pages, which is terrific. I dug out from the Library last year’s Finance Bill, which was 167 pages long. Just to add to that, in case there might be a worry that it was not complex enough, 156 pages of Explanatory Notes went with it.
Every time you add complexity into the tax system, into government and into regulation, you immediately add to costs and overheads, because there needs to be people sitting in government departments interpreting what it actually means. It is more difficult to collect revenue from a complex tax system, simply because there are people on the other side who are hiring equally qualified accountants and lawyers to navigate through the same complexity that we are facing. So, complexity adds to cost. Simplicity reduces cost and I therefore pay tribute to my noble friend the Minister for introducing such an efficient Finance Bill to this House and I hope very much that this is a shape of things to come. We must be ruthless in cutting down on unnecessary legislation and bureaucracy, not because of some free-market experiment, but simply because that is the way that we can cut the overheads of government and cut the cost of government without cutting front-line services, which is what we all want to do.
There is another thing that we would do. So far in the debate, some comments have suggested that this is a one-gear approach to tackling the deficit; that all it is about is reducing cost. Of course, it is not about reducing cost, any more than in business it is all about reducing cost. It is about reducing cost, taking out cost, simplifying systems, but it is also about increasing sales, increasing revenue into government.
I am delighted to see a number of things in the Bill which are aimed at stimulating the enterprise economy so that we can actually start increasing sales: the reduction in the small companies rate to 20 per cent, instead of the previous Government’s planned increase to 22 percent from April 2011; the increase in the entrepreneurs’ relief lifetime limit for capital gains tax from £2 million to £5 million, effective immediately; the reversal of the most damaging part of the increase in employer national insurance contributions inherited from the previous Government; the raising of the threshold for national insurance contributions by £21 above indexation; a review of small business taxation, including IR35 regulations, to create a simple, more predictable tax regime. Together, I believe that all these measures will increase our sales as a nation and that has to be important.
Some might say that that sounds a bit simplistic, but a very sophisticated organisation, the World Economic Forum, undertakes an annual assessment of the competitiveness of all the economies in the world. I know that it has been a source of concern to the previous Government as well as to the current Government that the level of competitiveness of the UK economy is falling substantially. What are the criticisms that the World Economic Forum find in our economy, the reason we are tumbling down the league tables? There are four. It identifies, first, access to financing. Secondly, interestingly, it identifies inefficient government bureaucracy. Thirdly, it identifies tax regulations. Fourthly, it identifies tax rates.
That is an independent, credible organisation, undertaking an assessment of all governments around the world and coming out with some pretty clear statements about what it thinks the inherent weaknesses of our economy are. That is why the responses which have been brought forward by the coalition Government are interesting; they chime very much with what the World Economic Forum has found. First, I talked about tax rates and the measures which are being introduced there. I talked about the need for tax simplification and less regulation, a new system of regulatory control whereby Ministers must first show how they will reduce the existing burden of regulation before bringing forward new regulations—what a breath of fresh air. Also welcome is a fundamental review of all regulations that the previous Government scheduled for introduction over the coming year. Regulations will cease to be law after seven years unless Parliament has confirmed that they are still necessary and proportionate and they were explicitly set to have a longer timeframe. There will be a review of all the employment law for which each department is responsible, as well as unnecessary health and safety regulations. The gold-plating of EU regulations will be tackled. I am making the point that when an external audit of the performance of our company—UK plc—points out that there is a real problem with the complexity of the bureaucracy, that will help to reassure, as it relates to one of the responses that we are taking. The lower tax rates will help, too.
My noble friend Lady Browning made an impassioned plea about access to finance, which is a major problem. I see it from two sides. I have seen it on the small business side, where things are tightening up dramatically, but I also spare a thought for the banks, although I know that that may not be the most popular thing to say. The banks have said to me in conversation that the problem is not so much that they are refusing to lend now. The problem relates to the level of anxiousness that, unless there is confidence that the deficit will be tackled—I appreciate that this may not fit with economic theory, but it certainly fits with banking practice—there could be an increase in interest rates. The one thing that is keeping UK plc and many homes, families and businesses afloat is the 0.5 per cent base rate—not that you get it, but it is the base rate from which the premium is operated. Low interest rates are keeping people in their homes by making homes affordable and they are keeping people in their businesses and their jobs. If interest rates were to ratchet up to 5 per cent or 10 per cent as a result of international confidence in the economy decreasing—
Lord Skidelsky
I would not normally interrupt, but is the noble Lord seriously suggesting that markets are likely to price our government debt at 5 per cent or 10 per cent? If so, does he accept that view of the markets? Does he think that it is binding and that we just have to do whatever market sentiment tells us?
Lord Bates
That is a fair point but, in a sense, it does not really matter what the most distinguished economist in the room says about it or what the least distinguished economist in the room—me—says about it. Fitch’s preliminary assessment of the Budget was that,
“it sets out an ambitious deficit reduction path that, if delivered upon, will materially strengthen confidence in UK public finances and its ‘AAA’ status … Taken together, the specific measures announced today are substantial and enhance confidence in the outlook for UK public finances”.
Moody’s Investors Services has said that the UK Budget is “supportive” of the country’s AAA rating. There is that element of international confidence—
Lord Myners
I thank the noble Lord for allowing me to intervene. Is he quoting from the same credit rating agencies that played such a horrible part in the collapse of the banking system through their lack of foresight?
Lord Bates
I am quoting from the same rating agencies that rate government debt and sovereign debt around the world. That is what results in the prices of those debts being traded on the international money markets. The noble Lord, Lord Myners, knows better than anyone about the global flows of international finance. The rating levels are crucial to this, as we see when we look at the situation in Ireland. To stretch the small business analogy to its absolute limits, you can say that international confidence in the Government’s resolution to get to grips with the deficit is analogous to what many companies will have—
Lord Bates
I will just finish this point, if I may. It is analogous to what many companies will find in dealing with their share price. The share price reflects the market’s belief in the Government’s resolution and its confidence in the soundness of the finances. That has a huge impact on the Government’s ability to—
Lord Lea of Crondall
I am grateful to the noble Lord for giving way. I do not think he has answered the noble Lord, Lord Skidelsky, or my noble friend Lord Myners. Would it be too much of a caricature to say that if we have to believe in voodoo economics, which is what the markets add up to, the logic of the noble Lord, Lord Skidelsky, and my noble friend Lord Myners is of no matter whatever? Do we just have to worship the voodoo economics of the markets?
Lord Bates
I accept these points. All I am saying is that, by arguing the other way, the noble Lord effectively says that there is not the slightest correlation between the ratings of global rating agencies, the level of debt in the economy and the price that we pay for that debt. I find that a more extraordinary position to argue from. I agree that these are contentious matters. What I have tried to set out through my contribution to the debate is that it is a multi-layered and complex subject but, essentially, we need to control costs; introduce simplicity to the system as a mechanism of doing that; increase sales by driving up enterprise; and repair the balance sheet so that the international lenders who are providing the debt have the confidence to continue doing so. I believe that the Government have done that and they have my full support.