Defence: Budget

Lord Bilimoria Excerpts

Tuesday 11th November 2014 Lords Chamber

[Lord Bilimoria (CB)]

My Lords, following on from the remarks of the noble Lord, Lord West, does the Minister agree that the SDSR in 2010 was means before ends? It was negligent in that we had unpredicted events, one after the other—Libya, Iraq, Syria, Ukraine—and our Armed Forces cannot even fill Wembley Stadium. Will the Minister assure us that we will stick to the 2% spending commitment to NATO and that we will not cut our Armed Forces any more?

[Lord Newby]

My Lords, the Government are committed to that 2% for the remainder of this Parliament and into the next Parliament and to keeping the defence equipment budget growing. Any commitments in the medium term beyond that are commitments that the parties will be making in their manifestos.

Tackling Corporate Tax Avoidance: EAC Report

Lord Bilimoria Excerpts

Wednesday 30th October 2013 Lords Chamber

[Lord Bilimoria (CB)]

My Lords, I declare my various interests in this area. I congratulate the noble Lord, Lord MacGregor, on initiating the debate. I also congratulate my friend the noble Lord, Lord Leigh of Hurley, on his excellent maiden speech. He is a fellow chartered accountant and we have known each other for many years. As he humbly said in his speech, he is also a fellow entrepreneur and a successful one at that. I read a book by a Wharton professor about givers and takers: in life you have givers, takers and matchers. It is not necessarily the case that the givers will get further in life, but when they do get there they always get there in a much better way and have a more sustainable, happier future. The noble Lord, Lord Leigh, is a giver. He has given to this House today his expertise as an entrepreneur, as an expert in corporate finance and as a chartered accountant. We welcome him here.

The noble Lord, Lord MacGregor started with the complexity of the UK tax regime. He spoke about multinationals and the infamous example of Starbucks which, from 2006 to 2011, had UK revenues of $18 billion yet paid UK corporation tax of only $16 million. As the noble Lord said, there is a serious issue of avoidance. The Select Committee on Economic Affairs—I am proud to have been a member of the Finance Bill sub-committee every year—has produced a thorough report, Tackling Corporate Tax Avoidance in a Global Economy: Is a New Approach Needed? The report says right up front that the present system is not working and urgently needs reform. It says that it is confident that the Treasury will bear this in mind as it conducts its proposed review. However, we have heard that the Government have not really listened to the report, and will not be taking much of it into account.

The report highlights that UK corporation tax, having come down to 20%, is the lowest in the G20. The German rate is 29%, France’s is 33% and the United States’s is 40%. This is wonderful news. On the other hand, the report also highlights something which is not understood by the public: a significant feature of the UK’s corporation tax regime is the low rate of allowances for capital spending. Our regime does not encourage investment. In fact, within the OECD and the G20 countries, only one country, Chile, has a less generous allowance than the UK. We must look at this as a whole.

The other major point which has not yet been highlighted in today’s debate is how much corporation tax yields as a percentage of GDP. Again, the report lays this out clearly in a table comparing us with other countries such as France, Germany and the United States. Our UK share of corporation tax receipts has held up pretty well in spite of falling headline rates. As a percentage of GDP, in 2005 corporation tax was 3.2%; today it is 2.7% in spite of rates having fallen. The nub of it all is that, of the contribution by tax to total HMRC receipts, corporation tax stands out in that it is only 8.7%. It is dwarfed by income tax at 32.2%. National insurance contributions constitute 21.8% and VAT constitutes 21.4%. This clearly shows that, yes, everyone is getting upset about corporation tax not being paid by certain companies, but are people talking about all the other taxes that these companies are generating, predominantly through creating employment? Employment generates a far greater proportion of taxes than corporation tax. We are not quite getting the context of and perspective on this. I will come back to that point at the end of my speech.

In fact, 81% of UK corporation tax is paid by the top 1% of companies. Here we are getting upset about 1% of companies; 99%—SMEs have been mentioned—are paying the full rate of corporation tax in many cases. We are losing a sense of perspective. The report says:

“In total, PwC say that Hundred Group members contributed around £8 billion in corporation tax in 2012 and a further £16.8 billion in other taxes borne”.

A multinational company is not taxed as a single entity but as a number of legally distinct, individual companies all over the world. The present tax system around the world encourages multinationals to move their profits around the world. That is the reality. We are trying to stop that. The report recommends ways of stopping it. When I was on the sub-committee for the previous Finance Bill, we focused on the GAAR. As the noble Lord, Lord Hollick, said, when he came up in the business world he was taught the distinction between evasion and avoidance. To a chartered accountant it is very simple: evasion is illegal; avoidance is allowed. Now we are going one step further and saying “abuse” as well. However, it is clear that the GAAR will not catch everything. It is narrowly focused. It will not, for example, catch the Starbucks situation at all. That needs to be communicated. I am glad that the Government have listened and that the GAAR will be communicated to the public.

I am proud to be a fellow of the Institute of Chartered Accountants in England and Wales. The report says:

“The ICAEW offers advice to its members that appears to go well beyond the Code of Conduct. It states, for example, that ‘Although tax avoidance may be legal, whether something is within the law isn’t the only thing that matters. You are under a duty to take into consideration the public interest and at all times to comply with ICAEW’s Code of Ethics … The boundary between legal tax avoidance and illegal tax evasion is not always clear and there’s a danger that what starts out as legal tax avoidance may slip into illegal tax evasion’”.

Who is competent to catch all of this? The noble Lord, Lord Lawson, raised the point of the structure of HMRC, this merged entity. Is it fit to deal with this? What about the relationship between the Treasury and HMRC? A lot of the policy is formed in the Treasury and HMRC is meant to execute it. Can the Treasury make this policy properly?

Then there is the question of reputation. In my business, our most valuable asset is our brand. The threat of naming and shaming companies is serious. We, as companies, are all very concerned about our brands. Much more can be done in this area by naming and shaming companies.

The Government actively promoting the implementation of the G8 proposals on the movement of funds between companies is very good. We need to continue to do this. Again, however, it will not solve everything. A unitary tax system, treating multinational companies as single entities in the global economy, is attractive in theory, as the report says, but is quite frankly utopian. In practice, we cannot even get the EU to agree on corporation tax rates. How on earth are we going to get the whole world to agree on something? We have to realistic and practical about this.

The setting up of a Joint Committee to supervise and oversee this matter is a great idea. The expertise of the House of Lords in this area is far greater than the expertise in the other place. This expertise is used in the Finance Bill sub-committee. If it could be used on a permanent basis, that would be great. Will the Minister consider forming such a committee to oversee the issue on a general basis? I think that the confidentiality argument is absolute nonsense, as was said by noble Lords earlier.

I now come to the points made by the noble Lord, Lord Lawson, which I thought were excellent. He hit the nail on the head. He said that corporation tax in the modern world is inequitable between multinationals and SMEs and that, in the way it is structured at the moment, it has had its day. He has summed it up. The noble Lord, Lord Browne, talked about a tax gap of £32 billion and said that the tax gap is going up. I want to refer to a friend of mine, Vindi Banga, who is a former head of Unilever in India and was then on the main board of Unilever here in the UK—companies do not get more multinational than Unilever. He wrote an excellent article earlier this year in the Telegraph, headed, “Tax compliance should be judged by rules and not morals”. This was when the Starbucks issue was at its height, when it was being bashed by politicians—the noble Lord, Lord Hollick, referred to this. The Prime Minister, David Cameron, at the World Economic Forum in Davos, said:

“Companies must wake up and smell the coffee”.

One cannot get more specific than that. Vindi Banga then talked about IP royalties; the way companies move profits around the world, perfectly legally. One way, of course, is to charge royalties from where the IP is headquartered. Let us say that the IP is headquartered in a country outside the UK; royalties are charged and paid, reducing the tax here in the UK. However, what we overlook is that the UK is also a recipient of royalties and we encourage IP. We encourage the innovation of IP, the generating of IP and the holding of IP. In net receipt terms, the UK receives more royalty income than we pay out. So it will go against us if we stop that in trying to address tax evasion.

The other point that Vindi Banga made—this is my main point—is that our tax system has to be competitive because we, as companies, operate in a really competitive environment. In fact, while evasion is immoral, avoidance, if it is legal, is a duty: companies almost have a duty to try to pay as little tax as possible in order to be as competitive as possible and to survive and compete in the global environment. However, there is something that could and should be done. Could the Government bring in even more regulation for companies to disclose all the tax that they are paying in one simple table? Every company would disclose how much it generates as a result of its operations in terms of PAYE paid, employer national insurance paid, employee national insurance paid, VAT collected as a result of sales, and corporation tax. In my company’s case, there would also be the excise duty generated as a result of the company’s existence. That would put into perspective how much tax a company is generating.

The noble Lord, Lord Leigh of Hurley, made a very valid point about the legislation that exists because our tax code is so complex. In spite of all the efforts of the noble Lord, Lord Lawson, we still have such a complex tax system and legislation is constantly plugging holes. The noble Lord, Lord Leigh, said, very correctly, that it is not fit for purpose and that we must continue to try for a global solution. He spoke very clearly about SMEs, which are paying too much tax, in relative terms, unfairly. As a country, we do not have a competitive tax regime overall. Our corporation tax rate may be one of the lowest, but our capital allowances, on the other hand, are not good enough and our top rate of income tax, at 45%, is still very high. The overall tax burden on the consumer and on companies is actually very high. Do the Government have the guts to address the overall situation?

I conclude by getting to the crux of all this, which is that we should not really be focusing on corporation tax, although we must address that. My dream is for us to have a simpler, fairer tax system that is competitive, attracts investment and promotes spending, saving and growth.

Bank of England: Monetary Policy Committee

Lord Bilimoria Excerpts

Monday 14th October 2013 Lords Chamber

[Lord Newby]

My Lords, that is what the Bank of England Act says. The Monetary Policy Committee is operationally independent. The remit of the Monetary Policy Committee has to be set by the Governor of the Bank of England. It has to be renewed every year. It was renewed this year. The difference between this year and previous years is that the Chancellor asked the governor to look at possible methods of forward guidance which would give greater certainty to the markets about the medium-term movement of interest rates and, indeed, QE. That is exactly what the governor did, in line with the request from the Chancellor which was in line with the provisions of the Bank of England Act.

[Lord Bilimoria (CB)]

My Lords, I join in wishing the noble Lord, Lord Barnett, a very happy 90th birthday. He has asked an excellent question in that it relates to forward guidance. For a long time I have been saying that when setting interest rates the Governor of the Bank of England and the Monetary Policy Committee should look not just at inflation targeting but at the wider economy. This is excellent news. However, is it wise that the governor should tie himself down to a specific level of 7% unemployment, after which interest rates are to be raised, unless inflation is going out of control? When does the Minister think that the 7% will be achieved? Secondly, would it not have been wiser to have had a wider remit taking into account other aspects of the economy, not just inflation targeting?

[Lord Newby]

As the noble Lord says, the governor is now looking at unemployment in terms of when interest rates might change, but there is no iron rule that the moment unemployment rates hit 7%, interest rates will go up. There are three potential arguments which would mitigate against that, of which by far the most important is if the outlook for inflation was higher. As to when we might reach 7%, in August when the Bank of England published its report suggesting this, it thought it would be in the third quarter of 2016. The good news is that since then the economy has grown more quickly, and the consensus is now settling around summer 2015.

Finance Bill

Lord Bilimoria Excerpts

Monday 15th July 2013 Lords Chamber

[Lord Bilimoria]

My Lords, I declare my interests in this area. I remember when qualifying as a chartered accountant it was very clear that tax avoidance was legal and tax evasion was illegal. Recently, there has been a huge public outcry about avoidance having escalated to abuse and companies operating within the law have been vilified.

The tax gap has been estimated at around £32 billion. Within that tax gap, it is estimated that the annual cost of tax avoidance is around £5 billion and the annual cost of tax evasion about £4 billion. The official definition of tax avoidance is,

“bending the rules of the tax system to gain a tax advantage that Parliament never intended. … It involves operating within the letter but not the spirit of the law. Tax avoidance is not the same as legitimate tax planning”.

Tomorrow an event will be held by the All-Party Parliamentary Group for Social Science and Policy entitled, “What can policy makers do to reduce tax avoidance by large companies?”. The invitation letter to the event states:

“Tax avoidance by multinational companies such as Google, Starbucks and Amazon has sparked a public outcry. A recent poll commissioned by ActionAid found that 80% of people want the government to take tougher action. In 2012 Amazon paid just £2.4m of UK corporation tax on UK sales of £4.2bn—less than the £2.5m it received in government grants. Thames Water paid no corporation tax and pocketed a £5m credit from the Treasury. Every pound lost through tax avoidance could have been spent on protecting public services—yet last year HM Revenue & Customs wrote off £5bn in tax as uncollectable. It estimates the … ‘tax gap’ at £32bn”—

as I said—

“while many tax experts believe the … figure is twice that”.

I thank the noble Lord, Lord MacGregor, and the Economic Affairs Committee, of which I was proud to be a member, and all the officials—Bill Sinton and the team. It was a tremendously constructive and pro-active committee in which to take part.

In his opening speech, the Minister said that the objectives are to improve competitiveness, tackle tax avoidance and help hard-working families. The noble Lord, Lord MacGregor, made the very important point that, for the first time, we as a committee were able to meet in advance of the Finance Bill being published and look at a draft version. I congratulate the Government on allowing us to do this and thus take advantage of this House’s expertise.

There is no question that the intentions of the GAAR—the general anti-abuse rule—are good. However, does the Minister accept that it is too narrowly targeted and focused through the double reasonableness test, and therefore will not catch the Googles, the Amazons and the Starbucks? Do the Government accept, as the noble Lord, Lord MacGregor, said, that they need to communicate very clearly to the press and public that this will not happen, although the intentions are very good, given that people have the expectation that now that the GAAR is there, all this tax avoidance—tax abuse on a large scale—will disappear?

As the noble Lord, Lord MacGregor, said, the important point is that this needs to be tackled internationally. Are the Government confident that they will be able to do that on an overall basis? Furthermore, I do not think that the public understand clearly where the tax that is generated comes from or the composition of the tax pie. Will the Government confirm that they will publish tax information to enable everyone to understand where the tax they are paying is going so that they understand clearly that corporation tax actually makes up a very small proportion of the tax that is generated in this country? The companies that are being attacked should pay more corporation tax but are they being sufficiently congratulated on the employment they are generating, the taxes generated through that employment, the innovation they are generating and the business they are bringing to this country? Are things being looked at in proportion? However, as the noble Baroness, Lady Kramer, said, there is no question that the GAAR should at the least be a deterrent and send out a signal that tax avoidance which becomes abuse is not acceptable.

The cap on income tax reliefs was not consulted on properly by the Government. It was ill thought through and I agree with the noble Baroness, Lady Wheatcroft, that it risks restricting reliefs for genuine trading and other losses. In fact, she described it as perverse. I request that the Government do a more detailed review to get a better understanding of the effect of the cap because it could hamper business investment. The Government did very well in consulting on the GAAR, but unfortunately I do not think that they consulted adequately on the caps and reliefs. The noble Lord, Lord MacGregor, spoke about simplification and the noble Baroness, Lady Wheatcroft, spoke about Tolley’s Tax Guide getting bigger and bigger. Surely the Minister would agree that the Government should be working towards simplifying tax. Could he confirm that?

President Clinton spoke here in London a few years ago and I remember him clearly saying that, increasingly, we live in a world that is more interconnected and integrated. Now the time has come to work together to tackle this tax abuse on a global scale. Better transparency is the only way that we can deal with it. The noble Lord, Lord Wakeham, as a fellow chartered accountant, summed it up beautifully when he talked about being true and fair. That is what we were brought up to do. Audit reports had to reflect a true and fair view. We have to aim for that.

Once again, I thank the committee, the noble Lord, Lord MacGregor, and the officials. I also thank the Government for consulting and allowing us to meet in advance so that the House of Lords can play a role and use our expertise, even though we have no power whatever over financial matters. Here is an opportunity for us to give our views in advance, and to have them listened to and taken into account by the other place, so that, as the Minister said, we have a tax system that will tackle avoidance, is fair and, most importantly, is competitive, transparent and simple.

Financial Services

Lord Bilimoria Excerpts

Thursday 20th June 2013 Grand Committee

[Lord Bilimoria]

My Lords, in 2011, the financial and insurance services sector contributed more than £125 billion to the GVA of the UK economy. That is more than 9% of our total GVA. London itself accounted for 46% of the total GVA of the finance and insurance sector in 2009. The contribution to jobs approaches 4%. The other point is that trade in financial services contributed huge amount to the trade surplus that the UK has in services. The banking sector alone contributed £21 billion to UK tax receipts in corporation tax, income tax and national insurance. The OBR has shown that in 2007-08, the effective tax burden from corporate and income tax as a share of the GVA was the highest for the financial intermediaries. That is partly because of the relatively high profits that the sector makes compared to its contribution to GVA. Again, according to the OBR, in 2010-11 the financial sector accounted for around 7% of government receipts once the bank payroll tax and bank levy were included.

It is a huge sector. As the noble Baroness, Lady Goudie, said, the financial services sector accounts for 9.6% of GDP, but if you add the professional services—a further 4.9%—it makes up almost 15%. Relative to other countries, the financial services sector is very important for Britain. It is much higher than in the United States, where it is just over 7% of the economy, and it is more than double a percentage of our GDP compared with countries such as Japan, France and Germany.

Of course, we then come on to the question of whether we have a balanced economy. I thank the noble Lord, Lord Dykes, for initiating this really important debate at this time. The noble Lord, Lord Flight, mentioned the importance of the City of London. The joke is that the Lord Mayor of London—and the City—makes the money and the Mayor of London, Boris Johnson, spends the money. I do not think that this bizarre situation exists anywhere else in the world, where you have power and finance in a square mile of a huge city. Do we have the balance right? Do we have the relationship right? Does it need to change? I am not suggesting for one moment that it needs to, but I would be very interested in the Government’s opinion on this very important relationship.

The noble Lord, Lord Dykes, spoke about the European Union. One of the UK’s great advantages, particularly when it comes to financial services, is that we are not only at the top table of the European Union but we are seen by countries such as India as a gateway to Europe. As a founding chairman of the UK-India Business Council, I know how important this is for Indian companies. It is crucial that we stay at the top table of Europe, although I completely agree with the noble Lord, Lord Dykes, that any talk of a tax on financial transactions would be a disaster. We need to keep the balance right and thank God we do not belong to the euro.

Another advantage that London has is AIM. The Alternative Investment Market started in 1995 and is coming up to its 20th anniversary. It is a huge success but to this day, AIM shares are not allowed to be included in ISAs. I declare my interest as the senior independent director of the Booker Group. When I joined the board nearly six years ago we were an AIM company. We then graduated to the main list and are now a FTSE-250 company. I find the situation so difficult to understand. I believe the Chancellor said in the Autumn Statement that this would be looked into and that consultations would start in 2013. They still have not started and AIM shares still cannot be included in ISAs. So we are not really encouraging investment in these shares as much as we could. AIM is a crucial market in encouraging entrepreneurship and growth companies, not just for the UK but I know how attractive an AIM listing is even to companies from India. Perhaps the Minister could talk about the importance of AIM, in particular AIM in ISAs.

When I used to promote Britain when doing business with India, I would always speak with pride of our light-touch regulation and of what Margaret Thatcher did in the 1980s in opening up Britain and the City of London with the big bang, and how this gentlemen’s club and closed shop opened up into being a meritocracy, and the world’s greatest financial institutions flocked to London, and London has flourished. But later, after the financial crisis, my colleagues abroad would say, “Ah, what happened to your light-touch regulation?”. I would speak with pride about the independence of the Monetary Policy Committee, one of the best things that Gordon Brown did when he was Chancellor.

However, in 2007, when this country was hit by the subprime crisis that became the credit crunch, that became the financial crisis, that became the great recession, that turned into the sovereign debt crisis, that turned into the eurozone crisis, we realised the mistakes that we had made. The Treasury, Bank of England and the FSA, which in all the good times leading up to this crisis were a happy merry-go-round, suddenly turned into this great blame-go-round. I remember taking part in the debates on the Bill to nationalise Northern Rock in early 2008. Northern Rock went bust in September 2007 and was nationalised within six months; it cost £26 billion to bail out a company—the biggest bailout of any one company in the history of the world. We are now talking about RBS and Lloyds. It has now taken six years to come up with our new financial supervision regulations which will be much more robust. Perhaps the Minister could talk about that.

We get into problems and are attacked because of our tax system and companies not paying enough tax. Well, the GAAR—the anti-abuse regulations—have been brought in, but will not stop the Starbucks and Googles from what they are doing. This brings me to the point of perception and reality. I chaired a meeting of the Industry and Parliament Trust. Sadly, the public’s trust in business is 16%, and in government it is 17%. Shockingly, in a poll after the Olympics which asked, “Are you proud of Britain?”, the vast majority of the public were. When asked, “Are you proud of British business?”, only 4% were.

Earlier this week, I spoke at Oxford University for the reputation executive leadership programme at the Centre for Corporate Reputation in the Saïd Business School. It is clear there that the finance sector, and bankers in particular, have a terrible reputation at the moment. There is a lack of trust. On brands, which I spoke about, the financial sector, London and the City are a brand. What is a brand? I know about brands from my own business, Cobra Beer. A brand is what a brand does. The Harvard Business Review recently published a survey of 25,000 companies over 40 years. It identified the companies that were successful over a sustained period and called them miracle makers. They followed three principles: first, they followed “better before price”; secondly, “revenue before costs”; and thirdly, only those first two principles mattered. “Better before price” is all about quality. The City has fantastic quality, our financial sector has amazing quality and our professional services have the best of the best in the world.

“Revenue before costs” is about whether we are growing enough. Are the Government committed to growing the financial sector? I hope that with the arrival of the new Governor of the Bank of England—a Canadian, of which I am proud; it shows our openness as a country and an economy—not only will we target inflation but GDP growth. Will the Minister confirm that? It would promote growth in our financial sector.

I conclude that, while we may not have an empire any more, one of the legacies of the biggest empire that the world has ever known is the City of London and our great financial sector. It is one of the jewels in the Crown of our great country.

Queen’s Speech

Lord Bilimoria Excerpts

Monday 13th May 2013 Lords Chamber

[Lord Bilimoria]

My Lords, the gracious Speech said a lot of really good things: build a stronger economy so that the United Kingdom could compete and succeed in the world; strengthen Britain’s economic competitiveness; ensure that interest rates are kept low and that people who work hard are properly rewarded; invest in infrastructure—I could go on. It is terrific.

However, when I was making my maiden speech, as the noble Baroness, Lady Lane-Fox, did today, in the same debate on the economy, I was advised, “Don’t worry about what’s in the gracious Speech; you can speak about things that are not in the gracious Speech”. I congratulate the noble Baroness on an excellent maiden speech. I am delighted to have a fellow entrepreneur in the House, and on the Cross Benches too. She spoke passionately about online inclusiveness, and I am sure that from now on all Peers will be online. Of course, we already are.

What is missing? What has been picked up in a huge way is Europe. The noble Lord, Lord Forsyth, said that to him this was like Groundhog Day—déjà vu. I am not going to go into that topic. Europe is going to go on for a long time. The eurozone crisis has not gone away. There are regular lulls before the storm, but that storm is still about to come and it will be a perfect storm. I believe that we need to start with a clean sheet of paper and renegotiate our position in Europe. I say every day, “Thank God we are not in the euro”.

As an economy, we may have lost our triple-A rating but our interest rates are low and our inflation is relatively low. However, although we have avoided a triple dip, we are bumping along the bottom. We need to generate growth. What worries me is the Government’s priorities in achieving this. Why did we waste so much time pushing through employees giving up their rights for shares? This was against the will of business. It was twice sent back by the House of Lords to the House of Commons. It has gone through in a watered-down way. The lesson that I have learnt from this is that I could see very clearly that the Government had not consulted business properly first or listened to it. One of my favourite sayings in business is that good judgment comes from experience and experience comes from bad judgment. Will the Minister confirm that the Government have learnt from this mistake?

[Lord Lea of Crondall]

If the noble Lord will forgive me—this is a slightly sensitive subject—in regretting that noble Lords did not press their amendment, he may just be reminded that it was a Cross-Bencher, the noble Lord, Lord Pannick, who had put up an excellent performance on the first two occasions, who withdrew the amendment.

[Lord Bilimoria]

The noble Lord, Lord Pannick, did an excellent job, and the noble Lord is absolutely right. Will the Government accept, learn and consult business more in future?

The spending review is about to come along. Are the Government on target, given that, as the noble Lord, Lord Forsyth, said, our borrowings are increasing and will double to £1.5 trillion? We have to bring government expenditure as a proportion of GDP down. Is there a target of 40% of GDP for government spending? Could the Minister confirm that?

With regard to priorities, immigration has reared its head again. I am really worried about this. The gracious Speech mentions dealing with illegal immigration, the bad immigration that harms our country, and yes, we need to deal with that. Unfortunately, though, the signals that are being sent out, reinforced by highlighting immigration in the gracious Speech, are about discouraging and deterring the immigration that we benefit from. The number of Indian students has gone down by more than 40,000. In fact, recently we had a former head of immigration from Australia in the UK, and he said that every day in Australia they pray and thank God for the existence of the UK Border Agency. It has been proven unfit for purpose; that is why it is being dismantled. We are harming our competitiveness. If students do not come here, they go to Australia, Canada and the United States. It is one of our biggest strengths. We need to send out a very clear signal that we want immigration to benefit this country and that we appreciate the good immigration that has benefited it.

On infrastructure and High Speed 2, the noble Lord, Lord Forsyth, hesitated, but in his fantastic speech moving the Motion for an humble Address, the noble Lord, Lord Lang, spoke about High Speed 2 being a good investment in infrastructure from which our grandchildren will benefit. It is high speed being delivered at slow speed. Will the Minister confirm exactly when this project will be completed? It is an example of long-term thinking, which is great. The Minister spoke about Crossrail. I congratulate the Government on Crossrail. It is a fantastic initiative, started by the previous Government, which will benefit our economy, but nobody has spoken about Heathrow and the desperate need to improve our air services. We need that third runway at Heathrow. Why are the Government just postponing it?

What about a balanced economy? There is nothing in the gracious Speech about a balanced economy. When I am asked about my business, I say with pride that first and foremost we are manufacturers. Are the Government keen on promoting manufacturing? What are they going to do about that? We should be maximising our competitive strengths.

The tourism industry brings more than £115 billion to this economy. Expanding Heathrow would help tourism, but the most photographed building in the world is the Eiffel Tower. The second most photographed building in the world is our wonderful Palace of Westminster. The reason it is second is because we are not in the Schengen scheme for visas. There are so many people, particularly from China, who come to Europe, come as far as the channel, but do not come to the UK because a Schengen via for 25 countries is cheaper than a UK and Ireland visa. We should join Schengen. Anyone who has a Schengen visa should be able to come into this country. The reason we do not join Schengen is that we are worried about our border security. I have just spoken about the UK Border Agency. Why are the Government continually postponing imposing exit checks at our borders? They need to be brought in soon. We know who is coming into our country, but we do not know who is leaving. We need to have those exit checks. Will the Minister inform us of when they are going to be introduced?

Another of our competitive strengths is higher education, but there was not one mention of it in the gracious Speech. Earlier this month it was mentioned in this House that the University of Cambridge has achieved more Nobel Prizes than any other university. That is something of which we should be proud. That is in spite of the fact that we spend less as a proportion of GDP on R&D and innovation than the OECD or the European Union. We spend half the proportion of GDP on R&D that South Korea spends. When it comes to higher education funding, overall we spend less as a proportion of GDP than the EU average or the OECD average and way below countries such as the United States. Why is it that the United States always bounces back quickly? Why is it so competitive? Why is it so productive? Why it is so innovative? It is because it invests more than we do as a proportion of GDP in innovation and higher education. Why do the Government not do more of this?

Will the Minister confirm that we are going to be promoting clusters? There are three big clusters in the world: Silicon Valley, Boston-Cambridge in Massachusetts and Cambridge in the UK. We need to promote more clusters. Birmingham, for example, is a prime location for a manufacturing cluster. Will the Government promote clusters more proactively?

The noble Lord, Lord McFall, spoke about the financial sector. I remember speaking in the debates about Northern Rock. That was six years ago. The nationalisation of Northern Rock was rushed through in six months. It has taken us six years to get to reforming our banking system. That is scary. I am very hopeful, and I congratulate the Government on appointing Mark Carney, a Canadian, to come in and head our Bank of England. Can the Government confirm that, apart from inflation targeting, they will now encourage the Bank of England to also have nominal GDP growth targeting as well? On SMEs, which other noble Lords have spoken about, I keep hearing that they cannot raise finance. In fact, I have heard that the enterprise finance guarantee scheme loans are falling. Can the Minister confirm that? They should be increasing at times like this, when businesses desperately need finance.

On a positive note, I am delighted with the efforts that the Government are putting in through UK Trade and Investment to promote British businesses doing business abroad. I am delighted to hear that the UK India Business Council, which is funded by UK Trade and Investment and of which I am the founding chair, is now to be opening up within India. The British high commission in India has opened up two new deputy high commissions in Hyderabad and Chandigarh and will increase the number of people on the ground helping to promote British business in India. This is fantastic. As the noble Lord, Lord Forsyth, concluded, we must promote and encourage our businesses not just in doing business with Europe, but in doing business with the emerging markets such as India—the BRIC nations.

The Government are doing a fantastic job through their marketing campaign, “Great Britain”. The “Great Britain” campaign tries to promote Britain with confidence aboard. I suggest that we need a “Great Britain” campaign to promote Britain within Britain. We do not appreciate enough the amazing strengths that we have as a country. We have the best of the best in the world in just about every field you could imagine, whether it is the creative industries or the legal and accounting professions, and manufacturing including beer, automobiles and aerospace, as well as sport, film and theatre. Our universities are, along with America’s, the best in the world. London is the greatest of the world’s great cities. I could go on.

We may be bumping along the bottom as an economy, but we should never take for granted the amazing strengths that I wish the Government would get behind—strengths which we should spread with confidence throughout our country. Then we will be able to generate growth with confidence.

Budget Statement

Lord Bilimoria Excerpts

Thursday 21st March 2013 Lords Chamber

[Lord Bilimoria]

My Lords, last year we had the omnishambles Budget, with measures such as a “pasty tax”. Last year we had the Government making U-turn after U-turn, and the criticism that the Treasury had not thought things through or listened. This time, the Budget has so much in it that shows that the Government are genuinely trying to listen. For a long time, many of us have been saying that employers’ national insurance is a tax on jobs and that it should be removed and reduced for new businesses and SMEs, and the Government have listened and shown that in their NI initiatives in the Budget. Of course, they should go further, but this is a great start. Our fuel duties are some of the highest in Europe, and the Government have listened and cancelled the fuel duty rise in September.

In the brewing industry, in which I have declared an interest, we have suffered from beer sales drastically reducing for decades, and we have had the wretched and hated beer duty escalator, introduced by the previous Government, increasing the price of beer above inflation for years. There has been a tireless campaign by the British Beer and Pub Association and the Campaign for Real Ale, and the work of Andrew Griffiths, the MP for Burton, where I was yesterday with my joint venture partners Molson Coors at its the headquarters in the UK. All these campaigns have asked the Chancellor to stop that escalator. Eighteen pubs a week have been closing, with two pubs in London alone closing every week. Jobs have been lost and the average Briton has found that the cost of one of life’s simple pleasures has gone up. I pay credit to the Treasury Minister, Sajid Javid, who has listened to those concerns and not only removed the beer duty escalator but cut the price of a pint by a penny. Of course, the campaigns on both the fuel duty and beer duty were ones that the Sun newspaper got behind. In spite of that newspaper’s criticism of the press reforms, calling the Government the “Ministry of Truth”, it would claim that, “It’s The Sun Wot Won It”.

Could the Minister confirm that the Government have checked that they will be able to go ahead with the beer duty reduction? There have been complaints from organisations such as the WSTA that claim that it breaches EU rules by reducing duties for beer but increasing duties for wines and spirits. Could he confirm that the beer duty reductions could and should go ahead?

On the face of it, the Government have listened to business. They are concerned about business and have listened to consumers, and they are concerned about consumers. They have paid particular attention to the less well off consumers by raising the tax threshold to £10,000, but the reality is that we are two years away from an election, and this was the Chancellor’s last chance. The political reality sadly overshadows everything. We all know that the situation is so bad that we need drastic measures. Getting down to a 20% corporation tax is fantastic news, but we know, for example, that Ireland has gone down to 12.5%, which has made a huge difference in attracting inward investment and spurring growth. It was a bold move. We need to get this into perspective. Corporation tax brings in barely over 5% of tax revenue, but reducing it sends out huge signals.

The reality is that although the Government have reduced the deficit, they promised to eliminate it by the end of Parliament in 2015. We all know that they will be nowhere near achieving that, and the noble Lord, Lord Eatwell, who is not in his place, spelled that out clearly. Public sector net debt is predicted to double from £800 billion at the start of this Parliament to more than £1.6 trillion by 2017-18. Just this year alone, in spite of seeing the lowest ever interest rates, the Government’s debts will cost the taxpayer nearly £50 billion. That is far more than the entire defence budget. The reality is that the Government’s austerity plans for the past three years have not worked, because they were based on projections that showed that the economy would be growing at 3% a year by now. We know not just that growth has been slow but that the economy has been flatlining or been in recession. The reality is that the OBR has halved its growth forecast from 1.2% to 0.6%. In other words, we will be bumping along the bottom once again.

The Government have made a rod for their own back, once again for purely political reasons. I am sorry to say this, but the Opposition would probably have done the same: ring-fencing certain areas of the Budget such as health, international aid and schools. When you add all those ring-fencings together, it makes up well over 50% of the Budget, which means that what you can cut is under 50% of the Budget. In defence, for example, although the Government are helping the Armed Forces by giving the fines raised from the banks’ LIBOR scandal to the Armed Forces charities, which is terrific, and increasing the pay of those in the services by 1.5%, the reality is that in real terms all our workforce is being squeezed. Inflation has been well over 2% for three years, and real wages for all the people in this country will have seriously shrunk over the course of this Parliament. People are worse off, and are going to be worse off. With defence, we have had spending cuts, including nasty cuts in our troop numbers and our capability, when we continue to have black swan and grey swan threats. Yet we continue to intervene globally to the extent that even the current Defence Secretary has spoken out in protest.

Of course, the further good news in this Budget is that the Government are going to give the Governor of the Bank of England flexibility to help to generate growth in the economy, but why have the Government not been more specific about that growth remit? Why have they not set a specific nominal GDP growth target for the Bank of England, for economic growth and job creation, as well as targeting stability?

Of the more than £700 billion of public spending, welfare, social services and the National Health Service account for more than half the amount. Huge savings need to be made in those areas. Public spending as a percentage of GDP has reached 50%. This Government are reducing that proportion, but can the Minister confirm that they have a target of reducing public expenditure as a percentage of GDP to 40%? At that level, this country can still provide the world-class services that a top-10 nation such as ours deserves and still provide the safety net that our people deserve, while still providing the environment to generate growth where we need to invest.

This Budget has saved the Chancellor from his last chance saloon, but it will not have saved the country. Unfortunately, political reality has got in the way. The Government have failed to deliver growth in the past three years and failed on the promise to eliminate the deficit over this Parliament. Yes, there have been external causes, the global economic crisis, the eurozone crisis and the uncertainty of the world in which we live, which would have been challenging for any Chancellor. The previous Government blamed external factors for getting us into this mess, and this Government blame external factors for not being able to get out of it.

We must give credit where credit is due; there is much to be happy about both for consumers and for business. However, in this increasingly global world, there is nothing in the Budget about incentivising and increasing exports and doing business with countries such as India and China: the BRICs. As founding chairman of the UK India Business Council, I know that the good news is that Britain is still one of the top 10 economies in the world. When I accompanied the Prime Minister to India last month, I advised him that the global race is competitive. We need to be bold and optimistic and shout from the roof tops that we have the best of the best in the world, whether it is in education, professional services, accountancy, law, design and high-end engineering. We have the best institutions in the world, yet there is not enough in the Budget, as the noble Lord, Lord Kestenbaum, said, to invest in science and technology, innovation and higher education. We need to be bolder in getting our priorities right and generating growth and confidence for our consumers and business. In the words of the Duke of Wellington, “Fortune favours the brave”.

The Minister said that this was an “aspiration nation” Budget. My great grandfather’s motto was to “Aspire and achieve”, and my business’s motto is to “Aspire and achieve against all odds, with integrity”. That is just what this country needs to do.

Economy: Growth

Lord Bilimoria Excerpts

Tuesday 29th January 2013 Lords Chamber

[Lord Bilimoria]

My Lords, I remember coming to this country as a boy in the 1970s, when my father was posted here as the Indian Army liaison officer with the British Army, and seeing a country on its knees. Just a quarter of a century before that, this country had the largest empire that the planet has ever known but, at that time, the world had written off Britain as a has- been. When I came back to England as a 19 year-old student in the early 1980s, Britain was the sick man of Europe.

I welcome the Minister and congratulate him on his amazing leadership in the Olympics. He has an impressive track record—to use a pun—of delivery, which is what this debate is about. If you fast-forward to today from the 1970s and 1980s, we are a country which is possibly entering a triple dip recession. Yet this country has shown, over the past three decades, that it can completely reform its economy and that, despite all these problems, we are one of the 10 largest economies in the world. With no empire we are still a very wealthy country with so much going for us. So what are we doing wrong? We cannot blame everything on the global situation or Europe. We seem to have come to a binary way of looking at the world: in or out of Europe, austerity or spending, tax cuts or tax rises. If only the world was so simple. As the noble Lord, Lord Forsyth, said, we know that public expenditure of 50% of GDP is not only unaffordable but not right. We also know that the coalition Government’s tough talk of austerity seems to mean that we cut everything, including higher education and defence, no matter how vital some of these areas are, as the noble Lord, Lord Skidelsky, said. Just look at what is happening, unpredicted, in North Africa now. How short-sighted are our defence cuts, particularly in regard to troop numbers, now that we are intervening in Mali?

We know that, even with the Government’s tough talk, expenditure is going up not down. As the noble Lord, Lord Forsyth, said, debt is going up, not down. We have heard throughout this debate that austerity may have actually worsened our chances of recovery. At the very least, it has sent out a very negative signal and sapped the confidence of our consumers and our businesses. The only thing this tough-talking austerity has achieved is maintained our triple-A credit rating, but it seems that we might be on the cusp of losing that, too. It is ironic that our current global financial crisis was caused by the lowest prolonged level of interest rates we had known. I am talking about interest rates of 5%. We have now had three years of interest rates 10 times lower at 0.5% and that is what is propping up our economy. What will happen when those interest rates increase?

The Government have, to be fair, tried a great many measures: quantitative easing, injecting liquidity, fixing the regulatory and supervisory banks and putting more power in the hands of the Bank of England. That is terrific. The Government are doing absolutely the right thing on schools and welfare. However, the Government need to be fair and firm and they need to go further in some of these areas. Our welfare bill, including pensions, is over £200 billion a year. There is still a benefits trap and it pays not to work. A trial of a scheme which requires compulsory community service for jobseekers has been successful. Could the Minister confirm that this will be rolled out nationwide? I remember an event organised by the noble Lord, Lord Forsyth, at which I spoke to the former Australian Prime Minister, John Howard, about Australia’s very successful welfare-to-work scheme. He explained that he thought it was going to be very unpopular but it proved to be very popular, including with the jobseekers themselves. That is not austerity—that is the wrong word. It is about being firm and fair, and that would be in the best interests of this country because work pays and it is good to work. Of course, if you genuinely cannot work, the safety net should be there to assist those who genuinely need it.

How do we therefore get this economy into growth? The appointment of the incoming Governor of the Bank of England, Mark Carney, sends a very positive signal—the appointment, for the first time in history, of someone who is not British shows what an open country and economy we are. It is going to bring in fresh thinking. For example, he has suggested that apart from inflation targeting we should have GDP growth targeting. Does the Minister agree?

To get the economy growing, not only do we have to cut wasteful, unfair public expenditure but we need to change the mindset and attitude from that of an entitlement culture to an aspirational culture. To generate growth, we need to be competitive. We have a situation in this country in which our taxes, overall, are far too high. Time after time, we have seen that reducing taxes not only increases investment in the form of entrepreneurship and foreign investment but creates employment. Increasing taxes, on the other hand, stifles the economy, jobs and consumers. As the noble Lord, Lord Forsyth, said, just today it has been revealed that this Government have implemented almost 300 tax rises. These increases are harming business. In my industry, the brewing industry, the beer duty escalator has contributed to killing our pubs—the heart of our communities. Our alcohol duties in this country are up to six times higher than in some of our colleague European countries.

As a proud manufacturer in this country, I know the huge potential that manufacturing has to spur the growth in our economy. Manufacturing creates jobs, not only through the people who work in the factories but through the supply chains and the service sector. We face an uphill battle in terms of balance of trade. Manufacturing is key to increasing our exports. My business has exported to more than 40 countries. The noble Lord, Lord Howell, said that the potential for exporting is enormous. At last the Government have woken up to the need to rebalance our economy in favour of manufacturing, but we need to go further. We need an industrial policy that targets a specific level of manufacturing as a percentage of GDP. Does the Minister agree?

It is good that the Government are reducing corporation tax to 21%, but are we being bold enough? What about Ireland reducing it to 12.5% and sticking to it, with all the problems that that country has gone through? Employers’ national insurance is one of the most unfair taxes. We should be offering a break to SMEs that create jobs. We should not be taxing the creation of employment but celebrating and incentivising it. We need to support SMEs, as the noble Lord, Lord Mitchell, said, particularly in raising finance. I have said it before and I will keep saying it: despite all the government schemes intended to encourage SMEs, they are not working. Finance is still very difficult to raise for all businesses, particularly SMEs, as the noble Lord, Lord Lamont, stressed.

We need to do much more to encourage our businesses to engage with emerging markets. I am the founding chair of the UK India Business Council. I have seen what UK Trade and Investment does and I applaud its efforts, but we need to do much more, particularly to correct the negative image of our economy created through the rhetoric of austerity that continues. It is spoiling a lot of the work that UKTI is trying to do.

One of the most important elements of recovery will be the creation of new businesses. If we invest in entrepreneurship, we could create those extra 1 million jobs that we are looking for, with tens of thousands of new businesses—small businesses. They have to employ just a handful of people and one can create a million jobs. Entrepreneurship needs to be celebrated and embraced. Businesses and the whole of Britain needs continually to understand and appreciate, as my noble friend Lord Jones constantly says, that it is businesses that create the jobs that pay the taxes that create the growth in our economy. We need policies to encourage optimism among our entrepreneurs, rather than gloomy rhetoric about cuts and tax rises.

One of the reasons that the United States consistently bounces back, year after year, is that it invests much more than we do in research and development. The Minister outlined some measures that the Government are taking to encourage it, but we need to do much more, not only in university research but in helping the private sector. Can the Minister really say that the Government are doing their best on this? Our higher education sector is the best in the world, along with that of the United States, despite our sector being underfunded proportionately by up to three times when compared with America. Just imagine how much more we could achieve if we had the same proportionate level of funding that the Americans put into higher education and research and development.

This has become a bit of a Cambridge University debate, with the noble Lord, Lord Deighton, and his supervisor, as well as the noble Lord, Lord Eatwell, followed by the noble Lord, Lord Wolfson, who was treasurer of the Cambridge Union when I was its vice-president. It goes on. He spoke about the quality of investments. We all know that infrastructure investment must happen, but it has to happen fast. HS2 is going to take 20 years. Is that some sort of joke—a high-speed network being delivered at slow speed? It baffles us all over here. What about airports? What is happening about that strategy? That needs to be implemented fast. These large infrastructure projects are desperately needed for our competitiveness.

The mindset of the Government needs to change and, in the words of our inimitable Mayor of London, Boris Johnson, this Government should “junk talk of austerity”. We need to do that because the Government have to be seen to be firm and fair, and positive and aspirational in their outlook. They need to make the cuts required in areas such as welfare, but they also need to show that we want to be more competitive in cutting taxes. We need to look outwards and work much more with developing nations, such as the BRICS countries. We must be confident that despite all our problems, we have so much going for us. Just imagine what we could achieve. On 26 January, it was India’s Republic Day. I am reminded of the words of Mahatma Ghandi, who said:

“Your beliefs become your thoughts. Your thoughts become your words. Your words become your actions. Your actions become your habits. Your habits become your values. Your values become your destiny”.

The time has come to change our beliefs and to believe in ourselves with confidence. Then we can determine our destiny.

Bank of England

Lord Bilimoria Excerpts

Tuesday 22nd January 2013 Lords Chamber

[Lord Newby]

My Lords, the Question that has been raised, about whether to change the inflation target, is an important one. Before any change is made, however, the question that we have to answer conclusively is: what could the MPC do under that target that it cannot do now? A debate is currently going on that is academic in part and in which all the commentators are involved. For the time being, however, we see no reason to change the current framework.

[Lord Bilimoria]

My Lords, the Government should be congratulated on appointing Mark Carney and for the first time bringing in somebody from outside the United Kingdom to serve as Governor of the Bank of England. It shows not only what an open country and economy we are but that we can get a fresh input of ideas—such as the suggestion that we should look at GDP as a target as well as interest rates. I think that the noble Lord, Lord Barnett, probably meant to ask whether the Bank of England should look at inflation targeting as well as targeting GDP—as the Fed in America always has—to help growth in the economy.

[Lord Newby]

My Lords, I am extremely grateful to the noble Lord. The House will be aware that under the Bank of England Act the MPC has to meet, or aim to meet, an inflation target. Subject to that, it has to aim to promote the Government’s broader economic objectives. It is worth pointing out that in the past 20 years, the vast bulk of which have been conducted under the current regime, we have had an inflation target of 2%, inflation having been one of the main economic problems facing this country over recent decades. Against a target of 2%, the outturn has been 2.1%, so it has been a pretty effective target.

United States Budget: Economic Impact

Lord Bilimoria Excerpts

Monday 10th December 2012 Lords Chamber

[Lord Newby]

My Lords, I agree with the noble Lord that the US economy is extremely important to our exporters. Last year, we exported £80 billion of goods and services to the US, which amounted to 16% of our total exports. However, perhaps I have watched too many episodes of “The West Wing” but I suspect that a deal on the US budget will be done in time, albeit at the last minute.

[Lord Bilimoria]

My Lords, it is estimated that if the US falls off its fiscal cliff, its GDP will fall significantly. Will the Minister admit that, following the Chancellor saying in the Autumn Statement that deficit reduction will now take three years longer, we in this country have already fallen off our own fiscal cliff?

[Lord Newby]

No, my Lords, the situation is quite the opposite. The fact that the Government took decisive action in 2010 to effect a fiscal consolidation over a number of years—and then flexed that, given the severe headwinds that we faced from the eurozone—means that we are not faced with a fiscal cliff and we are now looking to a period of growth next year that will be higher than that anticipated in, for example, the eurozone.