Queen’s Speech

Viscount Chandos Excerpts

Monday 16th May 2022 Lords Chamber

[Viscount Chandos (Lab)]

The Government

“will drive economic growth to improve living standards and fund sustainable investment in public services. This will be underpinned by a responsible approach to the public finances, reducing debt while reforming and cutting taxes … Ministers will support the Bank of England to return inflation to its target.”

It is worth repeating these few words from the Queen’s Speech, at first so bland and uncontroversial but, on further consideration, highlighting the challenges and choices the Government must face.

Exactly whose living standards will the Government prioritise improving? Must any improvement for any income group await the promised economic growth? How will the Government strike a balance between investing in public services, reducing debt and cutting taxes? Apart from supporting the Bank of England, what will the Government do to reduce the rate of inflation and to mitigate its impact on the most vulnerable households? Neither the Conservative Government’s record nor the Bills proposed for this new Session of Parliament provides any encouragement that these challenges are being met or difficult choices made.

I look forward to the consideration of the UK Infrastructure Bank Bill, establishing a much-needed infrastructure bank to replace the funding provided by the Green Investment Bank and the European Investment Bank, as the noble Baroness, Lady Kramer, has already pointed out. The Minister—the noble Baroness, Lady Penn—said she looked forward to the new infrastructure bank being a long-lasting institution. Will the Minister who is winding up—the noble Lord, Lord Callanan—therefore explain why the Government decided to privatise the Green Investment Bank barely five years after its formation?

Although there are other Bills proposed in the economic sphere, as the noble Baroness, Lady Penn, set out, a former Conservative Minister quoted in the Financial Times last week hit the nail on the head in saying:

“There is only one bill that matters and that’s the finance bill”.


The macroeconomic framework is set by the Chancellor, the allocation of funds to departments is set by the Chancellor and the management of public finance is the responsibility of the Chancellor. So the Finance Bill due towards the end of the year, and the day-to-day decisions by the Chancellor in the meantime, will define the Government’s answers to the big questions posed in the gracious Speech.

Before I join the noble Lord, Lord Forsyth, in speaking briefly about the Bank of England’s role in the control of inflation, I urge the Government, as he did, to at least restore the £20 per week universal credit uplift. The cost of living crisis is painful for many, but devastating for the lowest-income households, so many of which include people with disabilities.

The noble Lord, Lord Forsyth, delivered a forensic analysis of the Bank of England’s performance. As a member of the Economic Affairs Committee when it conducted its inquiry into quantitative easing, under his chairmanship, I very largely agree. My sense of caution is that we should not overestimate the contribution of quantitative easing and monetary policy to the acceleration of inflation. My noble friend Lord Wood of Anfield argued this better than I could. Quantitative tightening and further increases of interest rates are likely to be required to bring inflation back under control, but the Bank needs to tread carefully to avoid triggering a severe recession.

I am also cautious about the Government seeking, as is their wont, to shift all the blame to a so-called independent body. The noble Lord, Lord Forsyth, set out the aspects of the Bank of England’s governance where independence is honoured more in the breach. More than that, there is very strong evidence that there was day-to-day pressure at the start of the pandemic on the Governor of the Bank of England by the Chancellor to increase QE in line with the borrowing requirement, to which the noble Lord, Lord Forsyth, also referred. The Government’s ability to shift all the blame to the independent Bank is a little limited. Most of all, that independence must be restored and honoured in the pursuit of monetary policy and quantitative tightening.

Subsidy Control Bill

Viscount Chandos Excerpts

Lords Hansard - Part 1 & Report stage
Tuesday 22nd March 2022 Lords Chamber

Moved by

[Viscount Chandos]

1: Clause 2, page 2, line 26, after “grants” insert “, investment in equity securities”
Member’s explanatory statement
This amendment would specifically include investment in equity securities on the face of the Bill, as well as it being an example in the Illustrative Regulations and Guidance.

[Viscount Chandos (Lab)]

My Lords, when I spoke to a similar amendment that I tabled in Committee, I was encouraged by the support of the noble Lords, Lord Lamont and Lord Fox, my noble friend Lord McNicol and other noble Lords, so I felt it was worth trying one more time to persuade the Minister to make this small but, I believe, important change.

I have changed the wording of my amendment slightly in response to the concern expressed by the noble and learned Lord, Lord Thomas of Cwmgiedd, that the use of the simple word “equity” as a form of investment risked being confused with the use of “equity” in the social justice sense on which he is so focused. Although participants in financial markets have become used to thinking about equity in both senses, I was happy to change my amendment to include “investment in equity securities” as an example of when a subsidy can be given to avoid any possible misunderstanding.

I acknowledged in Committee that Clause 2(2) did not purport to be comprehensive and that the related guidance includes equity investment as a possible means of subsidy, but I continue to believe it is highly desirable that it is included as an example in the Bill. When responding to my amendment in Committee, the Minister, the noble Baroness, Lady Bloomfield, said that

“attempting an exhaustive list could be counterproductive, implying that measures not listed would not be considered subsidies.”—[Official Report, 31/1/22; col. GC 130.]

I am tempted to say “The prosecution rests, m’Lady.” The Government have chosen to include some examples in Clause 2(2), and although they are not intended to be exhaustive, the inclusion of six means by which financial assistance can be given, without any reference to investment in equity securities, risks exactly what the Minister said she was concerned about; that is, implying that a measure not listed would not be considered capable of being a subsidy. My amendment would not make the list exhaustive and, if it did, surely that would make a compelling case that the exclusion of equity investment was all the more unacceptable.

As I said at Second Reading and in Committee, equity investment is the most complex and hardest to measure of all of the transactions through which a subsidy can be given. Equity is the highest-risk form of capital and should therefore offer the highest prospective return, even if it is not precisely predictable from the outset. A market return on an equity investment is based on assumptions about the cash flow of the company concerned and often relies wholly or predominantly on the terminal value when the investment is realised. Let us say that, based on a company’s business plan, a public body makes an equity investment on terms that are projected to generate an internal rate of return of 10% per annum over 15 years. That may seem a good return compared with, say, the risk-free rate of return on a 15-year gilt, but a commercial venture capital fund would require a return of, say, 15% per annum and if that was the only source of funding for the relevant company’s competitors, the public body’s equity investment would have embedded in it a subsidy equal to 30% of the total amount of the investment being made.

Equity investment is a key instrument for state support for innovation and strategic investment, which, if implemented selectively, carefully and transparently, I strongly support. In their funding of, for instance, OneWeb, the Government would appear to agree with this, although whether it was implemented selectively, carefully and transparently I am not sure. That company’s dependence on Russian rocket launching is a belated reminder of the uncertainty and risks involved in this type of investment.

This Bill seeks to bring transparency and fairness to government support for private enterprise, first and foremost to ensure a level playing field for all participants in the market but also, as a by-product, to improve scrutiny of the use of public funds. This Bill is proceeding with an unusual degree of bipartisanship, as demonstrated by the amendments tabled in the names of both the Government and Opposition Front-Bench spokesmen. I urge the Minister to respond to my amendment in that same spirit and add equity investment to the six other examples of means by which a subsidy can be given. I beg to move.

--- Later in debate ---

There is no question that an investment in equity securities may constitute a subsidy if it is made on more favourable terms than those dictated by the market. But there is no utility in attempting an exhaustive list on the face of the Bill. Not only is it unnecessary but it also runs the risk of implying that a measure not listed would not be considered a subsidy. The proper place to provide more extensive lists of examples is in guidance and, as the noble Lord mentions in his explanatory note, equity investments made on favourable terms are already mentioned in the illustrative guidance published by my department in January. I am happy to confirm that I will ensure that this remains beyond doubt in the final version of the guidance. I therefore hope that the noble Lord will feel able to withdraw his amendment.

[Viscount Chandos (Lab)]

I thank noble Lords who have spoken to this group, in particular the noble Lord, Lord Fox, and my noble friend Lady Blake, in confirming their view that this was a worthwhile and important amendment. Therefore, it is disappointing to hear the Minister repeat the same arguments as were made by the noble Baroness, Lady Bloomfield, in Committee, and I have to say that he showed no sign of having listened to my response to those arguments in the remarks that I made in introducing this amendment.

As I have said earlier, the Government’s argument that there is a danger in an example of a means by which a subsidy can be made being left out of that being interpreted as being that it is not susceptible to being used for a subsidy; that is precisely the argument that I was making. Six different examples are listed, which the Minister just read out. What I was suggesting did not make it exhaustive in itself. The Economic Affairs Committee, of which I am privileged to be a member, has heard over recent weeks about how important contracts for difference have been in helping to stimulate the growth in the generation of renewable energy. That may be a guarantee or a purchase of future services, but it is a good example—something that is fairly specialised and rare, which I do not think that it is appropriate to have as an example. But equity investment is one of the principal means by which a Government or a public body can give support, and it is perverse to exclude it.

That said, while I shall consider what I might do at Third Reading, I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Subsidy Control Bill

Viscount Chandos Excerpts

Committee stage
Wednesday 9th February 2022 Grand Committee

I hope that this amendment will be agreed to but, if the Government are unwilling to extend the current arrangements, can the Minister at least commit to allowing referrals outside that window in certain cases? I beg to move.

[Viscount Chandos (Lab)]

My Lords, I will speak briefly in support of the amendment in the name of my noble friend Lord McNicol, spoken by my noble friend Lady Blake. It is one of the most important amendments that the Committee has considered. In my speech at Second Reading, I made the point that the combination of transparency and comprehensiveness of the data that is provided and the time period allowed to interested parties to appeal it lies at the core of the effectiveness of any new regime. As my noble friend Lady Blake pointed out, there is asymmetry between the length of time given to public authorities to put data into the public domain and the very short time period proposed for interested parties to appeal it. Can the Minister name any instance where the Government are subject to a one-month deadline for a significant decision that they have to make?

I do not even think that the one-month deadline is particularly helpful in reducing the workload that may come to the tribunal because, the shorter the deadline, the more an interested party may feel that it has to submit an appeal without having had the time to do the work fully to assess the position. So I urge even more strongly than my noble friend Lady Blake that the Minister considers the case for a change to three months, and I ask him to say, if he is not willing, why he thinks that the one-month deadline is fair and effective.

[Baroness Randerson (LD)]

My Lords, I am pleased to speak in support of this modest amendment. As the noble Baroness said, the issue has been raised before, and one month is a totally unrealistic timescale. To my mind, it indicates a clear governmental preference to reduce scrutiny of decisions on subsidies that are made in general.

It is especially an issue because this also involves agricultural subsidies and agriculture is, in large part, based on small businesses. I shall give you a picture: farmers in Wales are not commonly monitoring the decisions taken by local authorities in, for instance, eastern England, which might cause them to feel aggrieved. It might take them some time to get up to speed on the implications of those decisions. It might surprise some people, sitting in the centre of London, to know that wi-fi in the centre of Wales is not wonderful. Many communities still rely on the postal service and weekly newsletters, for example from the farming unions. There can be lots of reasons why information that would worry small businesses affected by a subsidy decision would take some time to filter through.

In general, I can think of a host of reasons why one might miss this deadline—for example, summer or Christmas holidays provide an interruption of several weeks to ordinary business. I join the noble Viscount in his point that it could simply be counterproductive. People may think that, if in doubt, they should lob in an appeal to the tribunal because, in reality, they would not be able to find all the information required in the timescale this Bill provides. On a previous group of amendments, the Minister referred to the pre-action information request process. I believe that process will find itself exceptionally heavily used, if the Government do not see that this timescale is far too tight to be practical.

Subsidy Control Bill

Viscount Chandos Excerpts

Committee stage
Monday 31st January 2022 Grand Committee

[Lord Wigley (PC)]

My Lords, I apologise for appearing to hog the Committee at this early stage. I will have a self-denying ordinance as things go forward, I promise. Amendments 2 and 3 are in my name and go to the heart of the use of subsidies as a legitimate tool for securing economic objectives. From the Minister’s remarks at Second Reading, it is clear that the Government accept that in some circumstances the payment of subsidies may be legitimate. Surely that must be right.

Let us take as an example the Covid crisis. If the payment of subsidies was necessary to enable a company to bring forward a vaccine more quickly, say, or to enable an adequate supply of face masks to be available for hospital and home care workers, if that is the only way of securing such socially necessary provision, no one in their right mind would oppose such payments being made. Equally, if subsidies were made to one company to give it an unfair advantage over another, that would clearly not be an acceptable use of public funds, unless it was to enable economic or social benefits to become available in a manner that would not have been possible by paying similar subsidies to other potential providers.

This brings us to the fundamental question of the circumstances in which the payment of subsidies is legitimate and who decides that that is the case. I do not pretend for one moment that we can define in legislation all the circumstances and eventualities in which a credible argument can be made for the use of subsidies, although there clearly needs to be transparency and the circumstances need to be defined in terms that can be appreciated by those who might want to supply goods or services for which subsidy payments may arise. This might be difficult to define in words that are both comprehensible and able to withstand scrutiny in the courts.

To make that process easier, I believe that it would be helpful if some of the principles on which a determination of the efficacy and appropriateness of subsidies could be defined in the Bill. If such a detailed approach is difficult—or, indeed, impossible in some circumstances—at the very least there should be some principles spelled out in legislation for the benefit of the Governments of the four nations of these islands and for the guidance of those involved in the provision of goods and services, who have the right to know the ground rules within which they operate.

Amendment 2 seeks to deal with a set of considerations that may well arise for Governments trying to operate within the framework of the Bill. For colleagues to appreciate the background against which I bring it forward, I draw the Committee’s attention to the way in which successive Governments in Wales have tried to tackle the endemic unemployment levels that have blighted Wales for most of the last century, consistently running at twice the level experienced in England. To tackle this, the Welsh Government have—absolutely rightly, to my mind—tried to ensure that public sector contracts for the provision of goods and services in Wales go, as far as possible, to contractors based in Wales or those that will make it their policy to employ people living in Wales to undertake the work.

Clearly, there has to be value for money and tender prices are a factor that cannot be ignored, but that is only one of several relevant factors. The best deal for the community as a whole is not necessarily ensured by insisting that tender prices are the only factor that determines where widgets must be purchased. Quality of product, security of supply, and aftersales service are absolutely legitimate considerations which may trump a pure price consideration.

There is also the effect on the local economy. It is worth noting that in pursuing a local sourcing policy, which clearly can also have significant environmental benefits by cutting unnecessary transport costs, the Welsh Government have succeeded in raising the level of local sourcing from under 35% to some 55% over the past 20 years. The target is to push that figure to 70%. To my mind, that is an absolutely valid approach. If sandwiches for Welsh hospitals can be made locally rather than brought in from Birmingham or London, they most certainly should be sourced locally, as should service provision contracts. There was a nonsense a few years ago when a contract for grass cutting in schools in Anglesey was apparently placed with a company in the east Midlands.

The net effect of this approach has been to reduce Welsh unemployment figures so that they now stand below the level in England for the first time in my lifetime. Activity rates have also increased.

I readily concede that this approach does not solve all our problems. The level of GDP per head of population remains stubbornly low, and I understand that this argument has to be confronted. The quality of work and the added value must also come into the equation. Our Governments, in Wales and Scotland as well as Westminster, must take these considerations on board when developing public policy.

In this amendment I seek to write into the Bill a provision that states that it is absolutely acceptable for Governments to seek to secure economic activity within the communities for which they have responsibility and that it is legitimate in some circumstances to pay subsidies to businesses that employ people within those communities and pay taxes to local government in those areas, and whose profits may circulate in those local economies.

I make it clear that this is not a block on tendering for contracts to provide goods and services for an area. Those who are primarily based away from that area should not be debarred, but surely it is necessary that when such decisions are made, consideration is given to whether companies are willing to locate an office in the areas offering subsidies, to purchase supplies from within those economies and to have a transparent policy of recruiting people in those areas, preferably to work within their communities.

My amendment states that no payment should

“be regarded as a subsidy”

for the purpose of this Bill

“if it is equally … available to all enterprises”

that undertake “economic activity” to which the subsidy relates “within the territory” of the governmental body making any such payment.

In his wind-up speech at Second Reading, the Minister stated that it would continue to be in order for a public authority to give subsidies if in doing so it is “addressing regional inequality”, so I hope that he will either accept the amendment or undertake to bring forward his own, either at the end of Committee or preferably on Report when it can be voted on. It may be that the wording of this amendment needs to be tightened and more focused. What I now seek is an indication as to whether the UK Government appreciate that other Governments must have their hands free to improve the economic well-being of their communities and that the judicious use of subsidies is a perfectly legitimate tool in trying to stimulate economic activity.

Briefly, Amendment 3 is different in nature but relates also to ensuring that Governments are not precluded by this Bill from making payments for the provision of local services by public bodies in their territory. There are many aspects of local services that may be provided by both public authorities and private contractors. One has to think only of care homes, refuse collection, recycling or highway maintenance to see areas where there could be arguments as to whether public authorities are subsidising activities in competition with the private sector.

My amendment is tabled to give the Minister an opportunity to state categorically that the Bill, when enacted, will not constrain public authorities from making such payments and to point out in the Bill where such safeguards are provided, if indeed they are. If they are not, we will need to return to these matters on Report. I believe I may be knocking on an open door with this amendment but I will listen to what the Minister has to say. I beg to move.

[Viscount Chandos (Lab)]

My Lords, I support Amendments 2 and 3 in the name of the noble Lord, Lord Wigley. With the agreement of the Committee, I shall speak to my Amendment 2A. My amendment would add just one word to Clause 2(2) and I will try to be commensurately brief.

Clause 2(2) lists examples by which financial assistance may be given, starting with

“a direct transfer of funds (such as grants or loans)”.

It does not purport to be exclusive or comprehensive, so why do I think it is important to add equity to the examples given of grants and loans? The guidance published last week, following Second Reading, includes the following:

“Subsidies can be provided in many different forms, including grants, soft-loans, loan guarantees, and tax breaks. Other forms, such as taking an equity stake in firms … may also constitute subsidies [to be inserted—link to future section on determining whether an intervention is a subsidy].”


That prospective insertion of a link to a future section—further evidence of the Government’s ill-preparedness for a Bill that they have known for months, if not years, was needed—gives a clue as to why it is important to add equity to the examples given in the Bill.

A grant from central or local government is self-evidently a subsidy. It is relatively easy—not totally simple, but not rocket science either—to gauge whether a loan is, for the borrower, more favourable than market terms and hence has a subsidy embedded within it. A loan will ordinarily carry the requirement to pay regular interest and, by final maturity, to have repaid all the principal amount. The arithmetic is pretty simple. Equity is much more difficult to analyse as the future returns are unpredictable. The risk of loss is total and the potential returns unlimited. Professional venture capital and other investors can take strongly divergent views about the prospects for any one company, which explains the huge dispersion of returns between different funds.

I acknowledge that it can be difficult to say whether an equity investment is made on market, and hence unsubsidised, terms. A judgment has to be made about the share of the company concerned received for the investment made; the speed with which a decision to invest is made; the proportion of the funding contributed; any liquidation preference attached to different classes of shares; and a whole range of other conditions, whether imposed or waived. Even if private sector investment is made pari passu with the public sector’s commitment, that may not be prima facie evidence that the public sector’s investment is on market terms, since the commitment, particularly if as a significant cornerstone investment, may in itself attract private sector investment in a way that could disadvantage competitor companies.

Economic Environment: Growth and Jobs

Viscount Chandos Excerpts

Thursday 11th July 2019 Lords Chamber

[Viscount Chandos (Lab)]

My Lords, I am full of admiration for the noble Baroness, Lady Neville-Rolfe, for her bravery in introducing this subject at this point in the Government’s management of the Brexit process and the ingenuity of her remarks in attempting to draw the House’s attention away from it. I draw the attention of the House to my entry in the register of interests, in particular my involvement in a number of small companies. This debate cannot be Brexit-free, but at least should be Brexit-lite.

The noble Baroness referred to the inevitable focus on Brexit over the next 100 days. Whether we leave the EU on 31 October or not, it is not 100 days. It may be 1,000 days, or 10,000, while the future trading arrangements with the EU are agreed. The uncertainty and confusion over Brexit overshadows everything. It has united the CBI and the TUC; it is to be welcomed in some ways but regretted in others.

The Government were unprepared for a no vote in the referendum and for the triggering of Article 50. We are now faced with the leadership contenders in a race to the bottom, competing to establish their macho credentials for contemplating leaving without a deal. As the noble Baroness, Lady Neville-Rolfe, acknowledged, even when Brexit is resolved, other issues are as important as tax if not more so. The more vibrant and vigorous a market is, the firmer regulation needs to be to address monopolistic and oligopolistic tendencies and to protect competition and the consumer. Other issues are education and training, migration and visa policy, and infrastructure.

Tax policy to encourage business growth and job creation is therefore a necessary but not a sufficient condition for a successful economy. As with regulation, a balance has to be struck between supporting business and fairness for all taxpayers and individuals. As the leadership race for the Conservative Party unfolds, I guess it is between the entrepreneur and the other candidate—I am not sure what he is; a comedian, a chameleon? One advocates a cut in corporation tax to 12.5%, even though, despite what other noble Lords have suggested, there is no firm evidence that the reduction from 28% to 19% has been beneficial to the economy. The other candidate advocates raising the threshold for higher rate income tax from £50,000 to £80,000. Whoever becomes leader of the party will perhaps, or presumably, become Prime Minister. Should the unwritten constitution not require that when the leader of the governing party changes, there is a vote of confidence—another confirmatory vote—in the House as a matter of course?

In contrast to the Conservative Party leadership candidates, in this debate I will concentrate my remarks about tax on the position of small businesses. The noble Lord, Lord Leigh, said that these Benches are not interested in, or supportive of, “the little guy”. When this House debated the report on RBS’s treatment of small businesses through the Global Restructuring Group, a couple of weeks ago, I was struck that there was no speaker from the Back Benches opposite. I love small businesses and start-ups and have worked with them for many years, as my entry in the register shows. I have worked with many different entrepreneurs, some of them even more successful than the Foreign Secretary, and some unsuccessful. I disagree with the noble Lord, Lord Leigh: the one common theme in my dealings with those entrepreneurs is that I have never seen any sign that tax ranks in the first five, or 10, considerations in their decision to start a business, to build it, and to do so in this country.

I finish by urging, as I have in previous speeches in this House, that the Government—the next Government or maybe the one after; it is too late for this Government—conduct a thorough review of the cost benefit of the myriad tax breaks for small businesses. I am hugely supportive of small businesses, as I have said, but if you aggregate the tax breaks of business property relief under inheritance tax, EIS, VCT and entrepreneurs’ relief, it is running at £10 billion of transactions per year, at a cost to the Exchequer of around £3 billion per annum. Do we get value, do small businesses even get value, from those reliefs?

Artificial Intelligence (Select Committee Report)

Viscount Chandos Excerpts

Monday 19th November 2018 Lords Chamber

[Viscount Chandos (Lab)]

My Lords, I join other noble Lords in thanking the noble Lord, Lord Clement-Jones, for securing this debate and chairing so well the Select Committee, the report of which, on artificial intelligence, we are debating today.

I believe the report is a strong demonstration of the effectiveness of the ad hoc committees—to be renamed, possibly with the aid of some artificial intelligence, special inquiry committees—in addressing cutting-edge technological issues in the fast-changing society and economy in which we live. I draw the attention of the House to my entry in the register of interests, in particular as a trustee and chair of the investment committee of the Esmée Fairbairn Foundation—an investor in venture capital funds worldwide with significant holdings in AI companies—and as a director and shareholder of an AI-powered music company.

In referring to AI companies, I am reminded of an interview in the mid-1990s given by Andy Grove, the Hungarian-born co-founder and chief executive of Intel Corporation and author of the bestselling business book, Only the Paranoid Survive, a well-thumbed copy of which is doubtless in the library of 10 Downing Street. “Soon,” Mr Grove said,

“people will stop talking about investing in internet companies. They will invest in companies, almost all of which will use the internet”.

Similarly, I suspect, we will not think about AI companies for long but about companies generally, which almost universally will use AI. Indeed, in the evidence given by MMC Ventures to the committee, it was suggested that, already, only 10% of companies that it considered funding were pure AI developers while the remaining 90% were applications of AI.

At this stage of the debate, I shall concentrate on just one of the many questions arising from the committee’s report: how well placed is the UK in developing and applying AI? I have no hesitation in expressing my admiration for the excellence of research, expertise and work in the UK’s universities—Cambridge is singled out in the report, but is by no means the only leader in the field. It is a huge challenge to maintain, let alone strengthen, this position, even without the uncertainties and difficulties posed by Brexit. In the US, for instance, there is a virtuous circle of successful technology entrepreneurs acknowledging their debts to their alma maters with generous donations to their endowments. As long ago as 2001, Gordon Moore, another co-founder of Intel, and the author of Moore’s law, gave $600 million to Caltech, the California Institute of Technology which, I believe, is still the largest gift to an academic institution.

While British entrepreneurs are increasingly generous in supporting our leading universities, there is still a gulf between the resources available to them and their peers in the US. Not only is it essential, as my noble friend Lord Hollick has said, for EU funding in this area to be fully replaced, but significant real increases must be provided if the UK’s position is not to slip. In the Government’s response to the report, paragraph 53 scatters numbers like confetti but does not make it clear whether this challenge will be met. Will the Minister clarify the position?

The US, with its academic excellence and resource, the power of its technology clusters and the scale and expertise of its venture capital industry, presents massive competition, but China may be an even more formidable competitor, as my noble friend Lord Giddens and the noble Baroness, Lady Rock, have already suggested. Dr Kei-Fu Lee—arguably the leading technology entrepreneur in the country, whose PhD at Carnegie Mellon University in the 1980s was on AI—has calculated that 43% of all academic papers worldwide on AI have had at least one Chinese co-author.

Data privacy in China is substantially less well regulated, allowing data-driven, AI-powered businesses to operate highly effectively in areas such as banking and fintech. I do not advocate a regulatory race to the bottom—I leave that to the malfunctioning artificial intelligence of the European Research Group—but I draw these comparisons to emphasise that if we choose, rightly, to ensure that privacy, integrity and trust are prioritised in our approach to AI, we have to ensure all the more that we do not miss a single trick in providing the highest level of human and financial capital to companies developing and applying AI in this country.

The noble Baroness, Lady Rock, said, “We have the capital”, and the venture capitalist Eileen Burbidge, in her evidence to the committee, argued that there was no shortage of financial capital at any stage, whether seed, early or growth. Maybe, my Lords. In the last year for which comprehensive data is available, $6 billion of venture capital funds were raised in the EU, $26 billion in the US and over $30 billion in China. Of course, money is not everything but it sure as hell helps. Even more important than the quantity of money is the quality of money—the expertise and support of the venture capitalists who direct the funding to entrepreneurs. The scale of the VC funds raised in the US and China contributes critically to the depth of resource that the venture capitalists can devote to their investee companies. Once more, we face a formidable challenge in the UK in matching—let alone exceeding—that with the patient capital fund that is being established, painfully slowly, under the British Business Bank, doing little more than replacing the funding the UK has been receiving from the European Investment Fund.

I believe in the capability of the AI community in the UK. To return to the words of Andy Grove:

“Success breeds complacency. Complacency breeds failure. Only the paranoid survive”.

Brexit: Competition and State Aid (EUC Report)

Viscount Chandos Excerpts

Thursday 24th May 2018 Lords Chamber

[Viscount Chandos (Lab)]

My Lords, I thank my noble friend Lord Whitty and the other committee members for this important and interesting report. I also thank the Government for their response which, as my noble friend pointed out, was rather more prompt than we are seeing on many other reports. Indeed, last week I spoke in a debate on one report where, after 13 months, there had been no response at all. I draw your Lordships’ attention to my entry in the register of interests.

Anti-trust, merger and state aid policies are hugely important to the workings of a social market economy and, for that reason, I very much agree with what the noble Lord, Lord Inglewood, has just said. They are at the heart of balancing the benefits of the markets for employment, growth, prosperity and tax revenues with the specific interests of consumers, over and above their participation in a successful and efficient economy. Under the EU regime, these policies have generally been applied well but, not surprisingly, not perfectly. In the area of anti-trust and mergers, for instance, Res Publica gave evidence to the committee and said:

“Something has gone wrong with our markets and something has gone wrong with our competition law”.


That view is held, within reason, across the ideological spectrum.

We should ask whether it would have been better if we had been outside the EU throughout this period. Today is literally the eve of the implementation of GDPR. Admittedly it is around privacy and data, but none the less it is a great example of the European Commission’s initiatives relating to the largest internet and data companies and it has also taken energetic and vigorous action against them in the areas of competition and tax.

What then should be the future in this area after we have left the EU? It seems important that there should be active co-operation, as the committee recommended, for instance through a relationship with the European competition network, and renewed and rigorous focus by the CMA. Should that include a change to broader public interest rather than narrower competition issues? In the speech that other noble Lords have referred to, Michael Grenfell of the CMA posed that question. I recognise that that is outside the scope of the committee, but it is inevitably a live and important topic. As the movie would have it, “It’s Complicated”. In 2005, there was a proposal for Pepsi to take over Danone. The Anglo-Saxon financial community mocked the French for treating yoghurt and mineral water as strategic assets, but five years later we found that cream eggs and tonic water were perhaps as strategic to us as yoghurt and mineral water were to the French. More recently, issues surrounding the hostile take of GKN by Melrose have brought renewed focus on this issue. I hope that there will be continuing debate over the months to come as we fine-tune, I hope, competition policy in the UK post Brexit.

In the area of state aid, there is no doubt that the EU regime has caused problems and issues, but however complex and important they may have been to local government, devolved Administrations and others, it is fair to say that they are minor in the scheme of things. Other noble Lords have highlighted the extent to which we have been modest investors of state aid in industry and the economy. One of the leaders of the leave campaign said to me, before the referendum, that the reason for leaving the EU was that the UK just did not know how to play the EU game. That may to some extent account for the relatively modest deployment of state aid and the tendency to see the EU as the constraint on greater exploitation of it. That comment rather begs the question: if the UK did not understand how to play the EU game while it was a member, why would it understand how to play that game during its negotiations to leave?

I believe it is right that there should be a formal regime after Brexit and that responsibility for it should be assigned to the CMA. The Secretary of State for Exiting the EU, in a speech in Vienna at the end of February, when I suspect he was taking his sensible pills, said:

“It cannot be right that a company situated in the European Union would be able to be heavily subsidised by the state but still have unfettered access to the United Kingdom market. And vice versa”.


None the less, harnessing the power of the state in a careful and selective way on the economic stage is an important and valid ambition. It need not and should not involve massive nationalisation; rather, it should involve targeted and discriminating initiatives.

The CMA and, before its formation, the Office of Fair Trading and the Monopolies and Mergers Commission have always needed unimpeachable independence. Arguably, the addition of state aid to the CMA’s remit reinforces the importance of that. Therefore, it seems all the more surprising that the newly appointed chair of the CMA should be appointed as, initially, a Conservative Life Peer. While the noble Lord, Lord Young of Cookham, clarified on Tuesday that he would sit as a non-affiliated Peer, it should not have needed the Institute for Government and the noble Lord, Lord Newby, to flush this issue out. That is a regrettable start to the new regime at the CMA.

I commend this excellent report to your Lordships and hope that the Government, in addressing the vital issues raised by the committee, will be more sure-footed than they have been to date.

Industrial Strategy

Viscount Chandos Excerpts

Monday 8th January 2018 Lords Chamber

[Viscount Chandos (Lab)]

My Lords, at this late stage in the evening, I will try to speak briefly, with other noble Lords having already made many interesting contributions in response to the “compendium”, as the noble Lord, Lord Maude, has called the White Paper. I start by drawing the attention of the House to my entry in the register of interests.

“Every government has an industrial strategy however it is articulated”,


wrote Anna Valero and Richard Davies of the LSE in a recent paper. On that basis, perhaps even the nine different strategies that my noble friend Lady Young has counted are an underestimate. But the articulation of a strategy is important and, as the noble Lord, Lord Wrigglesworth, said, over the years—from Sajid Javid back to Nicholas Ridley, who in the Thatcher Government saw his role as Secretary of State to abolish the Department of Trade and Industry—there have been periods of industrial policy minimalism. So we should perhaps welcome the recognition by the current Prime Minister of an articulated industrial strategy. However, to adapt Dr Johnson, I feel churlishly that a Conservative industrial strategy is like the dog walking on its hind legs: it is not done well but you are surprised to find it done at all.

As the co-founder 30 years ago this year of the Social Market Foundation, I was heartened by the advocacy of the social market by the noble Lord, Lord Howell. Indeed, the noble Lord, Lord Wrigglesworth, invoked the Social Democratic Party, for which the social market economy was a central policy. It seems that the noble Lord, the Secretary of State, the noble Lord, Lord Horam, and I have all drunk together from that cup. In a social market, the Government’s duty is to intervene when there is market failure—but only then, whether that failure is on the one hand the abuse of oligopolistic power, or on the other hand underinvestment.

On the terms of the White Paper, I would like to talk principally about ideas and the business environment, and in particular the importance of venture capital. Last week, the Secretary of State for Transport talked about his confidence that the UK could be a world leader in autonomous vehicles, based on technological excellence and regulatory liberalism, if not laxness. If Mr Grayling is still Secretary of State, he seems to have been a victim earlier today of some faulty autonomous tweeting. I draw his attention to the advice of the noble Lord, Lord Heseltine, not to confuse healthy ambition with unrealistic assumptions. The network effect is likely to give a huge advantage to companies with scale, such as Waymo and Baidu. I hope and believe that the UK can contribute significantly to autonomous driving and other emerging technologies, but I am not sure it is helpful to couch it in terms of market leadership.

Autonomous driving will rely heavily on artificial intelligence and deep learning, another area of innovation highlighted in the White Paper. It may be worth bearing in mind in this context that 43% of all academic papers ever written on AI have had at least one author who is Chinese. As the noble Lord, Lord Heseltine, said, we face formidable competition. I hope the argument that students should not be included in the main migration figures, which the Prime Minister has so far ignored, even from within her own Cabinet, might yet succeed.

Another way of illustrating the scale of the challenge that the UK faces is to consider the availability of venture capital investment to support early-stage high-technology companies. I think it was Professor Ronald Gilson of Stanford and Columbia Universities who wrote that:

“Venture capital … is widely recognized as a powerful engine that can drive a nation’s innovation, job creation, knowledge economy, and macroeconomic growth”.


In 2015, $36 billion of venture capital funds were raised in the US and $30 billion in China, where the figure is up six times in 10 years. In Europe as a whole, only around $6 billion equivalent was raised. The British Venture Capital Association records only the funds raised by its members, so underestimates to some degree the size of the total UK market. Its figure for 2015 was only $700 million equivalent.

The White Paper and the November Budget drew on the patient capital review, commissioned in 2016. One of the recommendations from the industry panel was for a patient capital investment vehicle capable of co-investing £1 billion per annum in knowledge economy companies. In the event, the Government have announced a £2.5 billion fund over 10 years, to be run by the British Business Bank. That is around one-quarter of the amount recommended and it is to be floated or sold as soon as is possible—and this at a time when UK venture capital funds will be losing, in all likelihood, up to £400 million per annum of investment from the European Investment Fund, the SME arm of the EIB.

Why has the UK, with its powerful position in financial services, been so weak in the development of a venture capital industry in keeping with its academic, technological and entrepreneurial strengths? There is a clue perhaps in an article from Forbes magazine in April 2016. Forbes is not a magazine for bleeding-heart liberals, nor, I suspect, is it even the second-favourite reading of my right honourable friend the shadow Chancellor, but the headline of the article read: “How the UK’s Growth Businesses Became Addicted to Tax Relief”. The article was reporting on research commissioned by Her Majesty’s Treasury from Ipsos MORI that found that 40% of all investment under tax-advantaged EIS and VCT schemes would, in the view of the investors and the investee company, still have happened without any tax relief. Seventy-nine per cent of investors said that the principal reason for investing was to gain the tax relief. In 2012-13, £2 billion of EIS and VCT investments were made, implying the loss or deferral of tax revenues of between £600 million and £1 billion. The Government have in the November budget proposed some tightening of the rules for EIS and VCT eligibility to prevent, they hope, low-risk investments benefiting from tax relief as they have done in recent years.

However, this is a never-ending treadmill, remembering similar initiatives as far back as the 1980s and 1990s. Up-front tax breaks will invariably attract risk-averse investors and ingenious intermediaries. Even for risk investments there may be little or no additionality yet, at the same time as tightening the eligibility, the Government propose a doubling of annual limits for both investors and companies.

There are two adverse consequences of this: one is the loss of tax revenue and the other, arguably even more important, is the distortion of the market. Thirty years of tax-advantaged investing in unlisted shares—unique in major economies—has contributed significantly to the stunting of a professional institutional venture capital industry on the scale necessary to support our knowledge economy and comparable with those in our principal competing centres.

Breaking an addiction can involve cold turkey, not an appetising prospect for any of us—particularly at this time of year—so I accept that, even if this argument is regarded as valid, any further changes may have to be phased in. However, the Government have a long way to go before there is an effective venture capital industry to support the knowledge economy.