Budget Statement

Lord Bhattacharyya Excerpts

Thursday 21st March 2013 Lords Chamber

[Lord Bhattacharyya]

My Lords, the Budget Statement was trailed as a Budget for growth. I declare an interest. As chairman of Warwick Manufacturing Group, I work with many international companies on their growth strategies. I have learnt that to achieve sustainable growth, you must think of the long term, not of headlines or short-term profits. The Budget reminded us how difficult things are for the British economy. It did not explain why Britain has found it so hard to recover. Of course there is the global crisis but others are navigating the storm more swiftly than Britain. Whether Germany, the United States, China or the Scandinavian countries, those with a record of long-term investment in R&D have more to offer growing markets.

Unfortunately, Britain’s investment in R&D is lower than the OECD and EU averages. It is even well below our own target. Britain is a small country. In order to survive, we must export. In order to export, we must have products and processes that are internationally competitive. That means that our core innovation implementation has to be very good, but it is very patchy.

Worryingly, the OBR said yesterday that business investment will increase next year by very little, yet it is only by encouraging innovation and investment that we will create sustainable growth. As I said, that requires long-term commitments on capital, research and infrastructure. Of course, there are positive policies in the Budget, from tax credits to corporation tax, but the steps forward are too small, and they do not cover enough ground. For example, the Budget talks about £1.6 billion for an industrial strategy, including the aerospace institute, but when you look at the detail you see that this money is over 10 years, and £1 billion of it is committed to just one sector. Surely an industrial strategy should include other sectors, such as the automotive industry and other key export drivers.

As I said, there are things to welcome in the Budget. Often, they are the signs of the Business Secretary trying to shake off the shackles of the Treasury. I have a very high regard for the Business Secretary and admire his efforts on all sorts of matters, including his recent efforts on apprenticeships. I understand that Dr Cable will seek to undo his ties again today, on the investment bank.

I welcome the news that capital spending is being increased. I also welcome the acceptance of the Richards report, asking Sir Andrew Witty to look at how universities and LEPs can work together, and the endorsement of the report of the noble Lord, Lord Heseltine, No Stone Unturned. However, when we look at the budgets allocated, the stones still seem pretty firmly in place, and even where they are being turned over, the projects will not happen until after 2015.

The Labour Party under Ed Miliband is developing a long-term policy agenda that goes beyond the noise of annual budgets to create a critical mass of policies to support sustainable growth, but it seems a shame that long-termism should have to wait until the next Labour Government. What more could we do to encourage investment today? We need to look at the structures that support commercial R&D in Britain. Offering businesses incentives to innovate is useless if there is no innovation capability for them to invest in.

To grow, you must build on your strengths. In Britain, we have outstanding academic research, so we should use that as our super-magnet to attract industrial R&D spending. We need to shake up the whole system of research funding so that it attracts new business funding from companies large and small. Today, the weight of government R&D funding is completely insufficient to support business innovation. The Technology Strategy Board is an excellent organisation, but its budget is far too small compared with the research councils, while the Higher Education Innovation Fund is nowhere near enough to shape academic research priorities.

Next, we need a procurement strategy that helps smaller companies invest in innovation and hence start-ups. In the United States, that is the biggest spur. How do we get small companies a market in order to grow? It is so very difficult for small companies to grow because the market is not there. The only market you can get is export, so government procurement should be a huge help for start-ups. That means the Small Business Research Innovation Fund must be made to work. The Chancellor’s aim to increase the SBRI budget from £40 million to £200 million by 2015 is welcome, but represents only a tiny shift in overall funding.

Finally, we should establish a “one-stop shop” approach for industrial innovation budgets, with a sectoral or challenge theme. I have long been an advocate for government demonstrators and grand challenges as a catalyst for innovation. The Government have identified eight priority technology areas and have allocated them £600 million of capital funding. However, there is always a temptation for such programmes to minimise industrial partnerships. Businesses are awkward customers for bureaucrats, refusing to fit neatly into boxes. We should make attracting industrial innovation funding central to our grand challenges. I believe all these government funds should require matching financial investment from companies, with a proportion devoted to SMEs, to ensure commercial research partnerships are at the heart of all our innovation policy.

Despite all the publicity, in truth the Budget yesterday changed very little. There was little to spend and no new plan. We saw a few tired rabbits come out of the Chancellor’s hat, but little more. If we are to grow, it is essential that we invest in our long-term future. That is the real agenda for transforming our economy. Yesterday, the talk was of mortgages, petrol and beer. The danger is that we neglect our future for the sake of these headlines. When Governments focus on the short term, Budgets become just another missed opportunity. I fear that after three years of bad headlines, this Budget fits that pattern. Everything worth while has been pushed back to after 2015. Perhaps the Chancellor had a premonition of the future. Despite the fine words, actually delivering sustainable growth has been postponed to the next Labour Government. We are hungry for that challenge.