Economy: Government Policies

Lord Sassoon Excerpts

Thursday 24th March 2011 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, we have had a tremendously interesting and wide-ranging debate, and I add my gratitude to my noble friend Lord Lawson of Blaby for having secured it on the day after the Budget. It has been a debate enriched in particular by notable maiden speeches, to which I shall return. I wish that I had the time to do justice to all the points made but I am very grateful for all the contributions, even if I am not able to cover more than a small percentage of them.

Last June’s Budget was all about rescuing the nation’s finances and paying for the mistakes of the past. Yesterday’s Budget was about reforming the nation’s economy so that we have sustainable growth and jobs. However, this will not be possible without sticking to our deficit reduction plan. It is that plan which has secured economic stability and our international credit rating, and it has been commended by the OECD, the IMF, the World Bank and many others. Therefore, I am very grateful for the starting point of my noble friend Lord Lawson, who, at the beginning of the debate, confirmed, as did many other speakers, that the prime duty of the Government—and it is what my right honourable friend the Chancellor did yesterday—is to stick to plan A to eliminate the structural deficit. That was touched on by my noble friends Lord Newby, Lord King of Bridgwater and Lord Tugendhat in particular, who stressed that these are difficult times in which we have to operate. Indeed, the consistent message across a range of speakers, including my noble friends Lord Oakeshott of Seagrove Bay, Lord Higgins and Lord Griffiths of Fforestfach, was that we must carry on with that plan. There were one or two discordant voices, but only one or two, led by the noble Lord, Lord McKenzie of Luton. But it flies in the face of all the advice, domestically and internationally, that we are getting.

I say to the noble Lord, Lord Myners, who tries to paint a very negative picture of where we are, that on the latest figures, which the EU has put out, the growth numbers for the UK this year are lower than those forecast last year, very largely due to the disappointing fourth quarter that we had last year, which flows on through to this year. I acknowledge that, but nevertheless, on the EU’s figures, the UK will grow faster this year than France; it will grow faster than the eurozone average and it will grow faster than the average of the EU. We must get out of the habit of talking down the prospects of the economy.

The action taken by the Government has allowed us to move from rescue to recovery. Yesterday’s Budget will encourage enterprise and increase investment; it will support exports, manufacturing and innovation; and it confronts a hard truth, which has been ignored for far too long, that for the past decade Britain has been losing ground in the global economy. While other nations have reduced their business tax rates, ours have increased; while other countries have removed barriers to enterprise, ours still stand; and while our competitors have improved their education systems, reformed welfare and increased exports, we have gone backwards on all those measures.

The legacy bequeathed to this Government was one where Britain’s future was gambled on a debt-fuelled model of growth that has clearly failed. It is no good saying there was growth as it was based on unsustainable debt and the private sector was crowded out. As we have been reminded, the state represents almost a half of all our national income. We simply cannot afford to continue down that path. It is a point that has been made forcefully today and most forcefully made by noble Lords on the opposite Benches, starting with the noble Lord, Lord Sugar. He made it quite clear that it was ill-discipline in the banking system—he did not quite get to say that it was ill-discipline that was allowed to go on by the previous Government. That was one element of it.

The noble Lord, Lord McFall of Alcluith, drew attention to another aspect of the legacy that we have in the too-big-to-fail challenge. My noble friend Lord Oakeshott of Seagrove Bay drew attention to excess debt and the noble Lord, Lord Haskel, again referred to debt-fuelled growth. I could not agree more. My noble friend Lady Kramer very rightly made the point that, if the growth is to be sustainable, we have to move from a debt-fuelled to a savings-fuelled basis for growth.

The noble Lord, Lord Myners, seems to have forgotten where he was on these matters only a few months ago. As he put it—I could not put it better:

“The mistake we made as a government was that we ran large deficits in the middle part of the last decade when the economy was clearly running at full capacity”.

I do not think he drew our attention to that today but, if I am wrong, I apologise—I missed it. However, the fact that we need sustainable growth is at the root of what the Government now have to fix.

Britain, like any other nation, has to earn its way as the world becomes more competitive. We have to reverse the trend that has seen us drop from fourth to twelfth in the global competitiveness league. We have to ensure that growth is to the benefit of every region of the UK, not just of London and the south-east, a point that has been made this afternoon. The alternative would be to accept this country’s economic decline and a continuing fall in living standards for our population. That is why my right honourable friend the Chancellor has set out the Government’s new vision for growth. It is a vision that has four key economic ambitions at its heart: that Britain should have the most competitive tax system in the G20; that Britain should be the best place in Europe to start, finance and grow a business; that Britain should be a more balanced economy by encouraging exports and investment; and that Britain should have a more educated workforce that is the most flexible in Europe.

First, I take taxation. Britain used to have the third lowest corporate tax rate in Europe; we now have the sixth highest. Our tax code has become so complicated that it has overtaken that of India to become the longest in the world. We have to address that. Our taxes must be fair, predictable, simple to understand and easy to comply with; and they have to be efficient in supporting growth. From April this year, corporation tax will be reduced not just by one percentage point, as we announced last June, but by two, and it will continue to fall by one percentage point in each of the next three years, taking our corporate tax rate down to just 23 per cent, which is 16 per cent lower than it is in America, 11 per cent lower than in France and 7 per cent lower than in Germany, and will give us the lowest corporate tax rate in the G7.

A lot of points on tax have been rightly raised in our debate. My noble friend Lord Lawson kicked it off by taking the big picture view: drawing our attention in particular to the need to look forensically at the top rate of income tax. Yes, of course, we will look at the lessons of his dramatic reduction of the top rate from 60 per cent to 40 per cent, and factor that in. I acknowledge and note that the noble Lord, Lord Myners, did not agree, and is prepared to say so consistently, with his Government's decision to raise the top rate to 50 per cent. My right honourable friend the Chancellor has made it quite clear that that is not part of what he sees as the medium to long-term regime for income tax.

On the question of the possible combination of income tax and national insurance, I take the warnings of my noble friend Lord Lawson to heart. Yesterday, my right honourable friend described it very precisely as an operational merger. We are conscious of the difficulties. Indeed, we keep a copy of my noble friend's memoirs on the ministerial floor; it is presently in the office of my honourable friend the Exchequer Secretary. We will take the lessons to heart. It will be a measure that will certainly reduce administrative burdens for employers. It will bring the two regimes operationally together. It has the capacity to allow us to smooth out some major inconsistencies, but we will take it stage by stage through the consultation process.

On tax incentives for entrepreneurs, I very much agree with the noble Lord, Lord Sugar, and my noble friend Lord Northbrook, who drew attention to those important measures. On fairness, which underpins everything that the coalition does in the tax system, my noble friends Lady Kramer and Lord Oakeshott of Seagrove Bay, rightly drew attention to the coalition's emphasis on measures to take 1.1 million people totally out of the tax system and measures that will lower income tax for 25 million people. While we are on fairness, I say to the noble Lord, Lord Haskel, that the pain is indeed being fairly shared. As was confirmed in the distributional analysis published in the Budget document yesterday, the top 20 per cent of households by income will make the biggest contribution to deficit reduction. That is absolutely right and proper. Lastly in this area, I am grateful to my noble friend Lord Higgins for mentioning measures on charitable giving. It is expected that the inheritance tax measure will result in about £300 million additional benefit to charities when it is in full effect.

Our second ambition is for Britain to become the best place in Europe to start, finance and grow a business. In this area, I agree with many speakers that there is a pressing need for reform. In the past decade alone, countries such as Germany, Denmark and Finland have overtaken the UK in the international rankings for competitiveness. The Government’s plan for growth has many actions in it, too many actions for a few of your Lordships who made references to lollypops and so on, but it is out of a process where we had the most intensive and wide-ranging discussions with representatives of business. These measures were widely welcomed yesterday by business as responding to what it asked of us and they are measures which we have been able to afford. I assure the noble Baroness, Lady Valentine, that we will see these things through. She is quite right that it is a plan for action that will be driven through. A similar point was made by my noble friend Lord Griffiths of Fforestfach who questioned the responsibility for seeing it through. I could recite the list of ministerial responsibilities, but I assure him that implementation will be vigorous.

I note that a number of contributions stressed the regional aspects. I am always refreshed to hear my noble friend Lord Bates reminding us of the vigour with which the north-east is responding to very difficult conditions. I welcome his recognition of how some of the proposed interventions target his region. We seem to have the north-east and the south-west in coalition in that corner. It was also good to be reminded that Wiltshire has been thriving and leading the way from the mid-9th century. I am grateful to my noble friend Lord Brooke of Sutton Mandeville for that.

Another very important and separate regional dimension was raised by my noble friend Lord Lexden and the noble Lord, Lord Empey. I am grateful to my noble friend for mentioning that the Treasury has today published a document on rebalancing the Northern Ireland economy as the Northern Ireland economy faces particular challenges. Another dimension mentioned by a number of noble Lords, including, in his inimitable way, my noble friend Lord Lyell, is the industrial sector. We have it very much in our plans.

When one steps back from all the measures, it is perhaps the issues to which my noble friend Lord Lawson drew attention at the beginning of the debate that are critical. They were also mentioned by my noble friends Lord Northbrook and Lord Tugendhat. They are the broad deregulatory measures. I think a new and concerted look at the planning system is important. I am grateful to my noble friend for stressing that.

The third of the Government’s ambitions is the need to have balanced growth to encourage investment and exports. I shall highlight a few of the measures we are taking. We have put a lot of effort into the sectoral cut when discussing them with numerous sector groups. For example, in life sciences, we will radically reduce the time it takes to get approval for clinical trials, which is critical if the UK is to continue to be at the cutting edge, and in the digital and creative industries, we will improve the intellectual property regime. The noble Lord, Lord Paul, quite rightly drew attention to the mixed picture in manufacturing. On the one hand, there has been very dramatic slippage in manufacturing over the past decade, but on the other, our manufacturing sector still has very great strengths. I am pleased to say that at the moment manufacturing is growing at a record rate with 14,000 more jobs having been created in the sector in the past three months. To help this to continue and to build on this progress, the Government are creating new export credits to help smaller businesses. We are launching Britain’s first technology and innovation centre for high-value manufacturing, and we are funding a further nine new university centres for innovative manufacturing.

Several noble Lords, including the noble Lord, Lord Sugar, in his fascinating speech, drew attention to the help to SMEs, which is critical. My noble friend Lord Newby drew attention to the difficulty of getting credit and my noble friend Lord Hussain, in his very clear, direct and interesting maiden speech, could not have been clearer about a number of things, but particularly the challenge facing SMEs. I also note that there will now be at least two doughty champions for Luton in this House and we shall be reminded of all the good things that are going on there.

I assure my noble friend Lord Hodgson of Astley Abbotts that we will watch very closely the process by which SMEs get credit. I am grateful to my noble friend Lord Risby for stressing the range of support that the Government are giving SMEs. I am grateful also to my noble friend Lord Ahmad of Wimbledon for his different perspective on these issues. In a related area, my noble friend Lady Hooper rightly stressed the need for us to press on with trade arrangements that benefit small, medium and large companies. Yes, we will place new emphasis on EU bilateral free trade agreements and, yes, we are working on Latin America. Only next week, the Deputy Prime Minister will be there and of course he will promote trade as part of his visit.

On the last of our four ambitions for growth, to create a better educated workforce that is the most flexible in Europe, it is alarming to see that Britain’s working age population has lower skills than the same demographic in America, Germany and France. That perhaps is the biggest problem facing our economy and is why the Government are committed to funding new university technical colleges, which will provide 11 to 19 year-olds with vocational training that is among the best in the world. But that will not alone solve the problem. Our attention quite rightly was drawn to that issue by a number of speakers. In the maiden speech of my noble friend Lady Stedman-Scott, she could not have been clearer about the challenge of getting young people, even those furthest away from the labour market, into employment. I can only commend the work that she has done and does with Tomorrow’s People and I thank her for her contribution. These issues were also touched on by my noble friend Lord Renton of Mount Harry and the noble Lords, Lord McFall of Alcluith and Lord Haskel.

The noble Lord, Lord Haskel, talked about 40,000 apprenticeships for the young and unemployed. It is perhaps worth remembering that that is incremental to what the Government had already announced. It brings the total number of apprenticeships available over the next four years to 1.2 million. As a result of this Government’s policies, and because this is so critical to the future of the economy, there will be some 250,000 more apprenticeships over that period.

In summary, the Government are looking to get the economy back on the right path. I say to the noble Lord, Lord Eatwell, that we will reverse the trend of the past decade that has seen our share of world exports decline, has seen the UK’s economy becoming increasingly unbalanced and has seen our businesses held back by a mountain of bureaucracy and a myriad of red tape. That is the legacy of the previous Government. Instead, we will make the UK Europe’s leading destination for enterprise, with the most competitive tax system in the G20, the most flexible workforce in the EU and an economy that is the envy of the world. That is how we will drive growth in this country, how we will create the jobs for the future and how we will build the more dynamic, prosperous and sustainable economy that this country deserves.