Queen’s Speech

Baroness Wheatcroft Excerpts

Wednesday 16th May 2012 Lords Chamber

[Baroness Wheatcroft]

My Lords, Governments cannot legislate for growth, we have been reminded today. Nevertheless, Governments can remove some of the obstacles to growth. The regulatory reform Bill announced in the gracious Speech does that with changes to employment law, reductions in red tape and with the inspection regime. I welcome those changes almost as much as the noble Baroness, Lady Turner of Camden, regrets them. The changes have been particularly welcomed by small businesses, which are also being encouraged with a new loan guarantee scheme and even the possibility of rent-free office space in empty government buildings. However, for significant growth in the economy, it is to bigger business that we must look. The majority of small businesses stay small. That may be because of the nature of the business or because of a lifestyle decision. There are many founders who do not even like the idea of having to manage hundreds of employees.

It is the big companies that will help to do away with some of the unemployment that now dogs this country. The latest figures are encouraging but there is still a long way to go. Big business must be encouraged to expand but, as pointed out by the right reverend Prelate the Bishop of Durham and others, big business is sitting on cash rather than investing. The right reverend Prelate referred to the survey from the ITEM Club. This showed that at the end of last year, the holdings of currency and bank deposits by the UK’s non-financial companies had reached an astonishing £754 billion. That is half the country’s GDP—maybe they should have bailed out the banks. Why are these companies not investing? We have just heard my noble friend Lord Broers call for more expenditure on research and development. How right he is: failure to invest in the future consigns businesses to the past.

Nervousness about the prevailing economic climate is understandable but it is not holding back companies in China and India from investing. Our companies have to compete with them if they are to survive. I believe that they are fearful of the reactions of their shareholders. A recent survey asked chief executives how they would react to a potential investment proposition that would be for the long-term good of the company but would have a short-term dampening effect on financial performance. The vast majority, under the comforting cloak of anonymity, admitted that they would not make the investment. As my noble friend Lord Tugendhat suggested, some of them may well have been influenced by pay structures, but those structures are moving more towards long-term incentives. I suspect the major part of the problem is that they do not have owners interested in the long-term good of those businesses.

The ownership of the UK’s quoted companies is fickle, often fleeting. The term investor flatters many who are little more than traders. It is the same as the ironic misnomer “investment bank” for organisations which do just the opposite. The insurance companies and pension funds which, as recently as 1993, held over half the stock in UK quoted companies had, according to the Office for National Statistics, fallen to holding below 14 per cent by the end of 2010. Individuals, who had accounted for 54 per cent of shareholdings in 1963, were down to holding 11.5 per cent at the end of 2010. The shareholder spring has certainly shocked one or two people and been achieved by a few active investors, but there are not nearly enough of them. This is an area where a little bit of government help might make a difference. More could and should be done to encourage employee share ownership. Who better to take a long-term view of their company than those who work in it? Research, including some by Oxera, has shown that companies with significant employee shareholdings are more productive than those without.

Now, I am clear about the Government’s need to keep tight limits on spending. Those who would encourage them to spend, spend, spend, believing that Keynes has the solution, forget that Keynes would not have started from here. He would have used the good times to husband the cash and pay down the debt. Sadly, the previous Government just kept borrowing, so this Administration are very limited in what they can do. However, they have taken the view that reducing corporate taxes will enhance long-term growth and have moved strongly to lower those rates. I suggest that employee share schemes should be expanded, the tax relief involved being an investment in growing a stable shareholder base.

Today, the monthly maximum for a save-as-you-earn scheme is £250, and the annual limit on a share incentive plan is just £1,500. These limits have not moved since 2000. Companies that operate the schemes are convinced that, if the limits were raised, more money would flow into the schemes and their employee shareholding would grow. This has to be a desirable outcome.

With my time running out, there is only one other point that I would like to make. It concerns the comment of the Foreign Secretary, who urged business not to get on its bike but to jump on board planes. Would that it could. Our airports do not have direct flights to the potentially lucrative markets that we need to reach. Germany and France do not disadvantage their businesses in this way. We need increased airport capacity. If we cannot have a third runway at Heathrow then let us have “Boris Island”, but let us not vacillate any longer. Let us take the decision, and do it.