Autumn Statement

Lord Leigh of Hurley Excerpts

Thursday 4th December 2014 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I welcome the noble Lord, Lord Rose of Monewden, to the House and congratulate him on an exemplary maiden speech. This is the second time this year that I have followed the noble Lord, as he left the board of Blue Inc earlier this year for me to join. He brings to this House a wealth of experience at some of the country’s leading businesses, such as Argos, Arcadia, Ocado, Booker, Woolworths, Fat Face and the Burton Group. As he said, he started as a management trainee at Marks & Spencer to rise to CEO and then executive chairman. In 2006, the World Leadership Forum gave him its Business Leader of the Year Award, but he survived that accolade. I am delighted to say that, since then, on leaving M&S, he has become involved in a significant number of start-ups and SMEs. So he brings to your Lordships’ House invaluable international business expertise, and we look forward to many future contributions.

I would like to lend my support to the package of measures announced by the Chancellor in the other place yesterday as further evidence that this Government continue to strike the right balance between fiscal responsibility, on the one hand, and measures to encourage growth and investment, on the other. Indeed, with the deficit down by a half, and projected growth of 3% this year—the envy of our peers in the developed world —on both measures we are succeeding. The Opposition have long said that we are cutting too far and too fast. Indeed, in 2012, the Leader of the Opposition said somewhat opportunistically that we should be more like France. He hailed the election of President Hollande, and gave a description of their first conversation:

“We talked about growth and austerity in Europe and how we can tilt the direction of where Europe is going”.

Well, that tilt has been tried in France and, as we now know, it has led to recession, higher unemployment and, this week, protests in Paris by business men and women frustrated at the unfriendly policies to business adopted by the French President, whose current low rating in popularity is matched only in the UK by his admirer the Leader of the Opposition.

Because we ignored our critics and stuck to our long-term economic plan, Britain is now growing seven times faster than France and we have created record numbers of private sector jobs in the UK. Unlike in other parts of the world, where finance and business continue to be vilified, this Government are encouraging investment, particularly in smaller companies. For example, I welcome the one-year extension of the Funding for Lending scheme to January 2016 and the additional help for the enterprise finance guarantee scheme of some £2.9 billion to small businesses, extended by a further £500 million.

When the banks simply will not lend, we need alternative sources of finance. It is a welcome development that, within the ambit of the British Business Bank, there will be an extra £400 million to support the enterprise capital funds programme. Support for SMEs does not end there; business rates, as the noble Lord, Lord Rose, said, remain a significant impediment to all businesses, but particularly small ones. So I am very pleased to see that small business rate relief will be doubled to 2016, meaning that 385,000 small businesses will continue to have 100% relief, and a further 190,000 will benefit from taper relief, which will be a great help to them.

However, we must also make sure that, as the economy grows, large multinational corporations pay their fair share in helping to get the deficit down. There can be little doubt that globalisation has completely outpaced and outgrown our system of national taxation and, as a result, global corporations are paying less and less tax while acting within the law. So we must change the law. As my noble friend Lord Lawson has said, it is pleasing to see that the Chancellor has taken such dramatic, innovative and radical steps in many areas, but particularly in taxing multinationals. I suspect he must have been listening to the debate in this House on the excellent House of Lords Economic Affairs Committee report, entitled Tackling Corporate Tax Avoidance in a Global Economy, led by my noble friend Lord MacGregor of Pulham Market. The noble Lord, Lord Rose, might be interested to know that by a happy coincidence, it was on that subject and in that debate that I gave my maiden speech.

The Prime Minister, through his leadership of the G8, has put tax evasion on the political map, and this Autumn Statement keeps it there. At a time when we have asked public sector workers to accept difficult pay freezes, it is only right that corporations and high net-worth individuals pay their fair share as well. The OECD is doing vital work in this area in trying to secure international agreement, but at some point one country has to show leadership, and I am proud to see that this is the UK.

Industrial Strategy: British Business Bank

Lord Leigh of Hurley Excerpts

Tuesday 8th July 2014 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I thank my noble friend Lady Wheatcroft for instigating this debate. Her insightful remarks come as a result of her very distinguished career as a business journalist at the Times and the Wall Street Journal, where her articles were a must-read for any businessperson for many years. I am particularly pleased to be able to take part in this debate because the financing of SMEs is an area in which I have had an interest all my working life. I refer your Lordships to my various interests as declared in the register of interests. I shall focus my remarks on the British Business Bank.

It was very clear to many of us in 2010, when the coalition Government first came to power, that the country’s finances had been left in a ghastly state in many areas and directions. It was not just the out-of-control debt and deficit which were threatening the whole economy and country, but the shock of the global financial crisis meant that banks were making life extremely difficult for many perfectly good businesses that desperately needed finance, both for working capital, or short-term finance, and longer-term equity injection.

It is probably safe to say that the incoming Government were shocked by the inability of the traditional banks at that time to take on the role they had previously undertaken in providing finance to SMEs and were acting a bit like rabbits caught in the headlights. The numbers bear this out. Successful loan applications for SMEs had dropped from 88% in 2007 to 65% in 2010, as opposed to 76% in Germany. In addition, the changing capital requirements, commonly known as Basel III, applied a risk weighting system with increased premiums for lending to SMEs which simply exacerbated one of the main areas in the UK for retail clearing banks. Indeed, it seemed clear that the retail banks simply could not, or would not, lend money to SMEs and found themselves incapable of doing so on a cost-effective basis. As the noble Lord, Lord Haskel, mentioned in the debate on Thursday on manufacturing, the noble Lord, Lord Young, reminded us of his recent enterprise report and noted that more than 95% of firms in this country currently employ fewer than 10 people. Smaller businesses are crucial to economic growth, and the current ratio of 80% of UK smaller business having as their bankers one of the four big banks is not sustainable.

There are particular circumstances for SMEs, which mean that they need special help. Many do not have a finance director but rely on the owner’s ability to do a service function and many other functions, and they rarely have time to shop around for finance. Indeed, research shows that 71% of SMEs seek finance only from their existing provider and, on average, in terms of median, the time spent by all SMEs looking for alternative sources of finance is less than one hour. Like all of us, SME owners do not enjoy filling out forms. Accordingly, in 2010, the word was out that banks were no longer interested in lending to them and, as a result, the problem became self-fulfilling as SME owners did not bother to apply to banks for such finance.

It then transpired that around the world, as the noble Lord, Lord Haskel, said, there were better ways of doing business. The noble Lord, Lord Stoneham, mentioned that in Germany there was the successful KfW model, which dwarfs anything that has been done in this country. We were the only country in the G8 not to have a comparable institution—by which I mean an institution that lends and invests in banks themselves. This is the work of the British Business Bank, which is probably misnamed. Although it is certainly British and certainly business-focused, not domestic, it is not really a bank as commonly understood, but rather an investor in challenger start-up organisations, which themselves pump-prime finance in a mixture of debt and equity to their own clients. This is infinitely preferable to the well trodden route of government direct intervention and subsequent massive write-off and losses.

I understand that the British Business Bank is tasked to achieve a return roughly equivalent to five-year gilts. It is not money that is written off; it is money on the books of BIS that seeks a return. I hope that we see full transparency on the results of BBB and, equally important, of each of its partners, some of whom, such as the start-up loans, will find profitability a stretch. I note that £300 million has been allocated to the investment programme to promote choice and competition in business finance, of which £203 million has been recommended. This is an excellent initiative, but it contains a large element of risk. Trying to achieve a return comparable to five-year gilts will prove a challenge.

There has in the past, before BBB, been a plethora of direct schemes available to entrepreneurs but, as I have said in this House, finding out about government grants and availability of funds has not been easy. Although the Government have reduced the schemes down to one government website, which is very helpful, the results are not produced in a way that is easy for an entrepreneur to select the appropriate scheme. The last time I looked, I found 791 schemes available to entrepreneurs seeking grants. I then tried a more selective search and I chose to look for a business in London with up to 250 employees in the service sector; by pressing the button, I was offered 42 grants, which is still too confusing.

The creation of the British Business Bank is a huge step forward and reflects the approach taken by this coalition Government to business, often by people in government who have had real experience of running a business with all the frustrations and pleasures that this entails. It is particularly pleasing to see that only 19% of British Business Bank’s business has been in London, so more than 80% is in the rest of the UK. It has ambitions to unlock further substantial sums as the new legislation allows. This is, of course, in addition to the £6 billion of growth deals announced by the Government yesterday, which is a separate matter.

I want to emphasise that the British Business Bank is not the only source of finance to businesses arranged by the Government. I particularly recommend to your Lordships the Business Growth Fund, an organisation that is finally coming to fruition and is investing equity finance into British business. I look forward to the British Business Bank reporting that its allocation of close to £3.9 billion has been deployed. I very much hope that all parties, while they may not have supported every aspect of the Chancellor’s successful recovery, will commit in their forthcoming manifestos to support the British Business Bank.

Tackling Corporate Tax Avoidance: EAC Report

Lord Leigh of Hurley Excerpts

Wednesday 30th October 2013 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, it is with great pleasure that I rise for the first time, to speak on this important issue of tackling corporate tax avoidance in a global economy, in the same debate as my noble friend Lord Lawson whom I have admired for so many years, for reasons connected to this debate, which I will come on to shortly.

I want to start by thanking the many people here who have helped me in so many ways, particularly since my introduction. This includes those who work here, for what seems to be very long hours, and who have guided me through the past few weeks. I am very grateful to my supporters, my noble friends Lord Feldman of Elstree and Lord Fink, who have been close personal friends for some time, and with whom I have had the honour to work in my role as a treasurer of the Conservative Party.

I understand that it is customary in a maiden speech to make a few remarks about oneself. Members of my family first arrived in this country in 1780, whereas other scions arrived here later in the 1880s. My ancestors probably left the Middle East some 2,000 years ago. I suspect that in that time, during their itinerant travels, no country has treated my family better than this one.

I hope to contribute to this House in a number of areas, not least because some 25 years ago I started my own business with one partner and one assistant and it has grown to become well established in its field of expertise. Accordingly, I have spent the last 25 years advising businesses, principally entrepreneur-owned small and medium-sized enterprises, and have some understanding of the issues that SME businesses face, partly as I started one and still have an interest in one, and partly from talking to those entrepreneurs on a daily basis. I hope that my daily interaction with these businesses, together with my activities within my other communities, will enable me to contribute to the House.

My early career started in chartered accountancy at a large multinational firm where I specialised in tax. In addition to serving on the council of Institute of Chartered Accountants I qualified as a fellow of the Chartered Institute of Taxation some 30 years ago, before moving to my current specialist field of mergers and acquisitions. Accordingly, although it might seem a little early for me to make my maiden speech so soon after my introduction, I was keen to have the opportunity to speak in this debate on tax matters.

I congratulate my noble friend Lord MacGregor and his colleagues on this excellent report. Reflecting upon my time as a tax adviser, albeit nearly 30 years ago, it is interesting to see how much has stayed the same and how much has changed. Equity financing as opposed to debt financing was an issue, as every inward investment had to have an agreed structure negotiated in advance. At that time, some 30 years ago, the mood was changing dramatically and suddenly the United Kingdom became an attractive place to invest after years where businesses had felt that there would be no point in coming here, either because they were not going to make a profit, or simply because they felt unloved. We need to ensure that we never go back to those very dark days.

This takes me back to my earlier reference to my noble friend Lord Lawson, who did so much to change the climate of taxation in this country, taking bold and imaginative steps dramatically to reduce both the legislative and fiscal burdens, which helped us to have a boom for the subsequent 25 years. It is with that in mind that I am nervous to read about proposed fiscal steps that might make multinationals feel less than encouraged to come to the UK, either because there is a feeling that this country might become anti-business or because there is uncertainty about how their tax affairs will be treated.

As the OECD report on base erosion and profit shifting notes, in the past 30 years there has been a huge change in the way multinational corporations arrange their finances. They are now perfectly able to choose in which country they want to invest, where their profits arise and, frankly, where to pay taxation.

The rules that I had to work with then, and many are still extant, are not fit for purpose as domestic tax regimes fail to interact globally, sometimes leaving gaps but sometimes doubling up. As a result, an enormous amount of legislation is being churned out to plug holes, which may work but frequently just creates other inequalities. For example, the aforementioned worldwide debt cap, which HMRC introduced some five years ago to limit the total tax deduction for interest that the UK part of a corporate group can claim as a fair deduction, has in fact produced an absolute bonanza—but only for the firms of accountants that have charged millions in fees trying to calculate this elusive proportion.

Accordingly, a wider holistic approach to this problem is needed. The UK has a track record in leading the way. Our approach to CFCs is regarded as the best in class worldwide. I welcome the Government’s decision to contribute a further €400,000 to the OECD to establish a global solution to these issues. This is important, as there is nothing so frustrating and annoying to hardworking entrepreneurs in the SMEs than the belief that a large multinational competitor is somehow avoiding paying its fair share of tax to the community from which it derives its income.

There are of course other organisations that benefit from a reduction in tax by the use of debt finance, whose activities are entirely based in the UK but whose use of offshore tax havens to shelter interest payments—and thus, of course, profits—may need further investigation.

I could comment much more on the report, particularly on my concerns over the regulation of tax advisers and the very good points made about the secondment of staff to HMRC, but my Whip, my noble friend Lady Jenkin, has given me excellent advice on many matters, particularly timing, for which I am grateful. So this time—it is the first and it may be the last—I will abide by her instructions and resume my seat, with thanks to her and to many others in this House.