Economy: Government Policies

Baroness Valentine Excerpts

Thursday 24th March 2011 Lords Chamber

[Baroness Valentine]

My Lords, I congratulate the noble Lord, Lord Lawson, on securing this timely debate. I declare that I am chief executive of London First, a not-for-profit business membership organisation seeking to improve London's competitiveness.

My contribution comes in the form of a “SWOT”—strengths, weaknesses, opportunities and threats—although I have taken the liberty of reordering it into a “TSWO”. First, however, I should like to test the meaning of the phrase “rebalancing the economy”. Rebalancing can mean relatively less activity in the south-east and relatively more in the north, or relatively less activity in the public sector and more in business, or it can mean relatively less activity in financial services and more in green industries. However, ahead of rebalancing must surely come growth, to deal with our immediate debt problem. I am pro more growth in the north, but alongside, not instead of, growth in the 30 per cent more productive south. I am pro growth in the private sector, but we need to cut government spending as well. I am pro green industries, but also pro financial services that provide a million jobs across the country and currently contribute substantially more. If growth is our priority, our main challenge is international competitiveness. The UK needs to maximise its helping from the global banquet at the same time as the Government start to rebalance the shrinking pie of UK government spending.

I start with the threats. In the West, Germany and France compete with the UK for car design and production, creative services and high-tech innovation. London competes with New York for investment in global HQs, as it does for global deals in financial and associated markets. In the East, South Korea and Russia are increasingly competitive; and Shanghai, Singapore and Mumbai are also after London’s lunch. In the most recent Z/Yen Global Financial Centres Index, Shanghai, for instance, rose seven places from a year earlier to fifth place overall.

Of course the UK has many strengths. We speak the world’s favourite trading language, are in a convenient time zone, have stable legal and political systems and a heritage of openness to other cultures. Our membership of the EU brings a market of 600 million consumers. London is the preferred destination for Chinese investors as they seek to develop trading links with Europe and the US, while American investors see the UK as a bridgehead to Europe and the Middle East.

However, our weaknesses are of our own making. New immigration rules risk hassle and delay for valuable international professionals and students. Chinese tourists, who spent over $40 billion last year, are spending millions of euros in Galeries Lafayette, Paris, rather than pounds on tea in Fortnum’s, Piccadilly. Why? It is because only 110,000 were prepared to tackle our clunky visa application system. Heathrow is full, but government seems content for aviation policy to drift. New nuclear generation may be a difficult subject post-Fukushima, but we must address genuine concerns about energy capacity.

Our top rate of tax of 52 per cent, when national insurance is added, is the highest of the world’s 10 leading financial centres, and is now higher than in Germany and France—traditional tax-hungry regimes. I welcome the Chancellor’s acknowledgement that this is a temporary tax measure. I trust that the newly announced review of its effectiveness will take account of lost revenue from those who have chosen not to work in London as a result.

However, opportunities remain. In a time of global turmoil the UK is a stable and trustworthy regime. It can signal a competitive approach on tax, and stand by it. It can export expertise to the rapidly growing economies of the Far East. It can invest in its infrastructure; and, of course, we have the opportunity to showcase the UK at the Olympics next year.

Let me give the Minister some simple, specific ideas. First, minimise the bureaucracy of new immigration rules and simplify Chinese tourist visa applications. Secondly, as suggested in the Conservative manifesto, appoint a Minister to Brussels to influence emerging regulation, such as financial supervision and labour law, which have a disproportionate effect on the UK. Thirdly, tackle the 180,000 migrants who have overstayed their visas and crack down on bogus colleges, but look after and welcome legitimate international students, who will be tomorrow’s leaders.

In summary, let us not adopt the horseracing practice of handicapping winners, especially when younger colts are accelerating on the rails. Instead of bashing bankers, we should encourage creative, dynamic people—bankers, architects, restaurateurs or computer game developers—to set up and grow businesses here. The Government called yesterday a Budget for growth, but I remember so-called Budgets for prudence which proved to be anything but that. It is not the intention or the rhetoric that counts, but the action and the implementation.