Economy: Growth

Lord De Mauley Excerpts

Thursday 21st June 2012 Lords Chamber

[Lord De Mauley]

My Lords, I start by thanking my noble friend Lady Kramer for initiating this debate and noble Lords on all sides for participating and for some important, helpful and often creative ideas. Even if I do not have time to touch on all those ideas specifically this evening, I will, I assure noble Lords, take all of them back to the respective government departments.

As underlined in my noble friend’s opening speech, the Government’s overriding priority is to return the United Kingdom to strong, sustainable and balanced growth. There are three parts to our strategy to achieve that. The first two are focused on dealing with the challenges we face now: sustained deficit reduction to deal with the record deficit we inherited; and monetary activism to provide immediate stimulus to the economy through credit easing, quantitative easing and the recently announced liquidity and funding for new bank lending. The third part of our strategy focuses on dealing with the challenges of the future: promoting long-term growth by accelerating supply-side reforms that will enable United Kingdom businesses to develop and grow.

I will deal with each of those in turn, along with the points that have been raised. First, I turn to the immediate challenges. As I think no one would dispute, we are living in difficult economic times. We are recovering from the biggest financial and debt crisis of our lifetimes. If one thing is clear, it is that we cannot borrow our way out of a debt crisis. The actions we have taken to reduce the deficit and rebuild the economy have secured stability and positioned our country as a safe haven in an international debt storm, with interest rates near record lows, benefiting families, businesses and the taxpayer.

Our fiscal plan, supported by the IMF and the OECD, has helped us maintain our AAA credit rating and lowered interest rates to record lows, making business loans and family mortgages cheaper. Of course, as the noble Lord, Lord Paul, said, the eurozone crisis remains a challenge. As we have said before, Britain cannot cut itself off from what happens elsewhere. Problems in the euro area—our biggest trading partner—affect us too, but there are still encouraging signs: 630,000 private sector jobs have been created, more than outstripping public sector losses; manufacturing output, rightly referred to by the noble Lord, Lord Bhattacharyya, is up by more than 3 per cent; and exports outside the EU are up by nearly a quarter since this Government came to office in 2010.

Of course, we acknowledge that there is a long way to go. Building for the future, our Plan for Growth set out a wide-ranging, radical programme of economic reforms to help build a stronger, more balanced economy in the medium term. We have already made significant progress towards our four ambitions.

The first is to create the most competitive tax system in the G20: cutting corporation tax to 24% in April this year, and to 22% by April 2014; committing to lower the top rate of tax; and committing to make tax easier for small unincorporated businesses by introducing a new cash basis for calculating tax.

The second is to make the UK the best place in Europe to start, finance and grow a business. There has been £3 billion saved through deregulation; we have introduced the national loan guarantee scheme, with further support for credit to follow as the Chancellor and the governor announced last week; and we have increased the generosity of incentives for investment in early-stage businesses.

The third is to encourage investment and exports as a route to a more balanced economy—£1 billion has been invested in infrastructure to reduce congestion on the roads, for example—and setting an ambition to more than double UK exports to £1 trillion by 2020.

The fourth is to create a more educated workforce that is the most flexible in Europe. We created more than 450,000 new apprenticeships last year. We will continue to work closely with business to implement our reforms.

I turn to specific questions from noble Lords. My noble friends Lady Kramer, Lord Shipley and Lord Stoneham, among others, asked about housing. Each of my noble friends stressed the importance of housing to the Government’s growth strategy, and they are right. Over the past decade, housing construction, repairs and maintenance have accounted for an average of 3% of GDP. As noble Lords will be aware, the Government published our housing strategy last November. This included introducing the NewBuy mortgage indemnity scheme; launching a new £400 million Get Britain Building investment fund, which was subsequently increased to £550 million; and reinvigorating the right to buy by increasing the maximum discounts to £75,000. My noble friends urged us to go further, perhaps using guarantees, and I am grateful for their views. We have said that the Government are looking at further ways to use the principle of guarantees to boost the credit for housing and infrastructure, and that work is ongoing. We will set out our plans in due course.

My noble friends Lady Kramer and Lord Shipley and the noble Baroness, Lady Valentine, raised the matter of tax increment financing and made a number of specific points. As my noble friend Lady Kramer explained, from April 2013 all local authorities will be able to borrow against future business rates revenues, partly or wholly to fund the provision of infrastructure. That in turn should lead to an increase in business rates, which normally would be taken into account when resetting local authorities’ tariffs and top-ups. However, to allow long-term planning, the Government have set an aspiration to allow 10 years before that reset for TIF. While I accept that that may not be long enough to allow local authorities to finance big-ticket projects, it is another tool that local authorities can use to promote growth in their area and could kick-start many small projects that are, as we well know, ready to go.

My noble friend also mentioned TIF 2, which was the announcement in the Budget that up to £150 million will be available in 2013-14 for large-scale TIF projects in core cities. Bids from core cities are now being assessed. We appreciate that the limit of £150 million means that not all TIF 2 projects will be able to go ahead, but TIF 2 schemes come at a cost to the Government because we have to count the cost of the additional spending that the new borrowing by local authorities supports. As a result, with our continued priority of deficit reduction, the Government have to limit the amount of funding available for TIF 2 schemes at this time. However, I will ensure that the noble Lord’s comments are passed to the Treasury.

My noble friend Lady Kramer touched on the importance of a social investment strategy. She called for the Government to develop one, and I am pleased to say that the Treasury is already undertaking an internal review of the financial barriers to social enterprise. This will conclude by the autumn. The Cabinet Office is also looking at the legal and regulatory barriers to social enterprise through the red tape challenge. We are very much alive to these issues.

My noble friends Lady Kramer and Lord Popat talked about the banking sector. My noble friend Lord Popat argued that the Government should be encouraging the creation of new banks. We have seen a number of new entrants into the current-account market in recent years, including Metro Bank, and I agree with him that it is essential that the regulatory regime facilitates new entrants wherever possible. The Government are of course also supportive of ensuring that the divestments of branches by Lloyds results in as strong a challenger bank as possible. We have engaged with the European Commission and with Lloyds itself on that point.

My noble friend Lord Popat also talked about smaller lenders. He might be interested in the Government’s support for community development finance institutions. For example, £30 million of regional growth fund money has been used to establish a wholesale fund that will provide extra capital for CDFIs to lend on to businesses and individuals. I know that my noble friend Lady Kramer is well aware of the importance of CDFIs. Like my noble friend Lord Popat, she raised the advantages of local banking models focused on building relationships with customers. I very much agree with her that banks need strong relationships with their customer businesses, and it is encouraging to see the success of banks such as Handelsbanken, which focused on its relationships with businesses. More widely, I am encouraged by the work that the major high-street banks have done through the BBA’s business finance task force to build relationships with businesses—for example, through a new appeals process and support for mentoring for small businesses. I am pleased that my noble friend acknowledged the schemes announced by the Chancellor and the governor last week. Those follow the national land guarantee scheme that we have introduced, and measures such as expanding the enterprise finance guarantee and setting up the £1.2 billion business finance partnership to encourage non-bank lending. The Government remain focused on the need to help businesses obtain credit.

My noble friend Lord Popat also raised his concern about the planning system. I certainly agree with him about its importance. Indeed, the Government have made this issue a priority in our growth strategy. Already, we have published the national planning policy framework, which is now in effect. This focuses 1,000 pages of policy guidance into around 50, and includes a powerful presumption in favour of sustainable development. This will remain a focus for the Government because the planning system had simply become too complicated. I hope that the chances we are making can unlock the kinds of investments that my noble friend mentioned, which have in the past been stopped by planning rules getting in the way.

My noble friends Lord Popat and Lord Bates also raised the vitally important matter of exports, a subject which a number of other noble Lords also touched on. There are, as my noble friend said, some encouraging signs, with exports to countries outside the EU up by nearly 25% since May 2010. In terms of the key emerging markets which my noble friend Lord Popat mentioned, and in particular the value of UK goods, exports to India grew by 11.9% over the past year, and to China by 15.8%. As a result, China and India were the destination of 5% of UK goods exports in 2011, twice as large a share as five years earlier.

I agree, however, that the Government have to stay focused on this, including on the diplomatic support which our companies need. Indeed, my noble friend Lord Sassoon is not here responding to the debate today partly because he is doing exactly what my noble friend Lord Bates exhorted us to do—he is meeting with my right honourable friend the Prime Minister and my noble friend Lord Green to talk about how the Government can best target high-value export opportunities and inward investment into infrastructure, a matter to which my noble friend Lord Popat also referred.

The noble Lord, Lord Bhattacharyya, raised the matter of an industrial strategy. I agree with him not only about the dangers of picking winners but that we need to think about the long term. We are developing an industrial strategy to give businesses, investors and the public more clarity about the long-term direction of the economy. We are responding to what industry is calling for, looking at how we can set out a vision for where the UK’s strategic capabilities should lie and how we will support them.

My noble friend Lord Clement-Jones raised a number of points, and I welcome his recognition of the role of tourism and the creative industries in promoting growth. On his specific points, he asked about businesses being banned from declaring that they have acted as a supplier for the Olympics, a matter to which the noble Lord, Lord Haskel, also referred. I agree that it seems, to say the least, a little strange, so we are looking at redrawing the terms of these arrangements. We will make an announcement in due course.

My noble friend also talked knowledgably about skills in the creative industries and suggested merging the Creative Skillset sector skills council and the Creative and Cultural Skills council. I understand that there have been discussions about this, but that it was decided that it was not the right time to take it forward. I will, however, ensure that his views are noted. He also asked about overseas promotion, and I welcome his positive comments on UKTI’s work. UKTI has a network of advisers working on this, working closely with DCMS and other organisations.

Finally, my noble friend asked about the work of the Creative Industries Council on access to finance. I am not yet in a position to tell him what was in the report presented last week but I assure him that it will be looked at closely. I welcome his interest in these sectors and assure him that the Government share it.

My noble friends Lord Clement-Jones and Lord Bates specifically raised the matter of foreign students. We need to bring migration down to sustainable levels. The Government are committed to achieving net migration in the tens of thousands. However, we recognise the economic benefits of overseas students and the substantial export earnings that they create for the UK, as well as the importance of the long-term relationships that they can create. We welcome legitimate students but we must crack down, and we are, on bogus colleges and those who abuse the student visa route. The new system ensures that only high-quality, genuine students can come to the UK to study with legitimate education providers, which, I am sure, is what noble Lords want.

In related comments, the noble Baroness, Lady Liddell, and my noble friend Lord Clement-Jones, spoke thoughtfully about the importance of tourism—with which I strongly agree. Of course, we have enormous opportunities to capitalise on the Olympics this year. I should perhaps mention VisitBritain’s £100 million campaign to attract international visitors, with matching funding from the private sector. Added to that is the Great Britain image campaign, with funding of more than £22 million. We estimate that nearly 90 million people will see these advertisements at least five times. Put together, VisitBritain is running the largest tourism marketing campaign in our history.

My noble friend Lord Bates and the noble Baronesses, Lady Liddell and Lady Valentine, referred to Chinese visitor visas and the recent letter from Her Majesty’s ambassador, Sebastian Wood. Obviously, I would never welcome the apparent leaking of such a letter but it at least shows noble Lords that the issue is being looked at seriously by senior Ministers. I noted the suggestion of the noble Baroness, Lady Liddell, about allowing access to Chinese visitors with a Schengen visa. I will certainly pass that on and make sure that it is considered as part of this work.

The noble Baroness, Lady Valentine, touched on the important issue of airport capacity. The Government are committed to maintaining the UK’s aviation hub status. The aviation policy framework is due to be published shortly and will set out the Government’s strategy to ensure that aviation contributes to economic growth within environmental constraints. The Department for Transport plans to publish a call for evidence on maintaining our hub status this summer. This will give all stakeholders the opportunity to comment in more detail. I am sure that the noble Baroness and London First will put forward their views.

The noble Lord, Lord Paul, spoke about, among other things, the effect of low interest rates on companies’ pension liabilities. It was an interesting point and one that I will look into. However, one must weigh this concern against the very real benefits to those same businesses from the effect of low interest rates on the cost of their funds, to which my noble friend Lord Stoneham, among others, referred.

The noble Baroness, Lady Royall, spoke about research and development, which is extremely important. I am not sure that she asked a specific question but the Government launched their innovation and research strategy for growth in December 2011. It sets out how the Government will support innovation and research in the UK, where our investment can add value, how we will achieve this and how we can leverage significant public and private investment to drive sustainable growth.

There were a lot of questions to which it is impossible to do justice in the time allowed. However, I will ensure that any that I have not been able to answer are addressed in writing. I hope that I have demonstrated that the Government are tackling the current economic challenges head-on. Continued deficit reduction and monetary activism are vital to rebalance the economy and achieve strong, sustainable and balanced growth. Alongside dealing with our immediate challenges, the Government have a plan for growth, which I have outlined today. These issues are vital for the UK economy; noble Lords made that point forcefully today. Again, I thank my noble friend Lady Kramer for bringing this matter to your Lordships’ attention and all noble Lords who have participated.