UK: Competitiveness

Lord Patten Excerpts

Tuesday 8th June 2010 Lords Chamber

[Lord Patten]

I am glad to attempt to straddle the oratorical gap left by the noble Lord, Lord Newby, who unfortunately at the last moment cannot be here, but I am sure that my coalition partner would agree fully with everything that I am about to say.

Two texts should underpin my brief intervention in this debate. First, after the mess that we have been left after 13 Labour years, we have to drag ourselves out of it altogether. That may take another very substantial period of time, which will mean cuts in public expenditure and higher taxation affecting us all. However—and here I echo the noble Lord, Lord Levene—I hope that it is not the sort of higher taxation that affects competitiveness. The second of my texts is that any changes in levels of taxation and taxation regimes that deter entrepreneurship, reduce job creation and lower tax receipts would be a bad thing for our citizens, all the more so if the competitiveness of UK business was damaged and foreign investment into our characteristically and happily open economy is discouraged.

My interest in industry in the City is long declared, along with my equally strong declaration of long-standing admiration for how the noble Lord, Lord Levene of Portsoken, has led so many great issues affecting the City of London. I make one other declaration, which may shock those of your Lordships of a rather sensitive disposition. I should come out this afternoon and reveal that a number of bankers are my close personal friends. It is really very counterproductive to excoriate across the piece everyone in any sector of our society; it is the greatest possible mistake. Indeed, living in these straitened times when the blame game has become a national sport, we had better realise that no great sector of society seems popular at the moment. The public sector, with its often unfairly so-called pen-pushers; the world of financial services, to which I have just referred; and, in particular, politicians—all of us are in “Sniper Alley” in one way or another. As we try to be more competitive economically, we should certainly try to be much less competitive in attributing blame and crawling over what has happened in the past, as the noble Lord said.

With the state that we are in, we know that something is not quite right, to put it mildly. The international league tables of competitiveness, to which my noble friend Lady Noakes has already referred, do not tell us all that much of use in the end in exactly how to pull up our economic boot-straps. They just tell us where we are by different measures. There are figures for competitiveness ranked by country, produced by the Centre for International Competitiveness. Then there is the World Competitiveness Yearbook, and the World Economic Forum. Someone remarked in my hearing how luminaries, loving to gather under spotlights like pigeons at a grain sack, not only started turning up at the World Economic Forum in Davos but migrated shortly afterwards to the literary festival at Hay-on-Wye, in a sort of moving caravan of commentariat. These types should listen with particular care to my noble friend the Commercial Secretary to the Treasury, because of his great financial expertise and the literary heritage that flows through his veins. I look forward to the speech that he is about to make to conclude our affairs today.

I hope that my noble friend will not find it too unwelcome if I ask, in the way of the times, that the excellent principle of transparency so much advanced by my right honourable friend the Prime Minister yesterday will extend to making a clear impact statement of the expected economic outcomes of any tax changes after they are announced. If we raise tax—and in particular, as my noble friend Lady Noakes, has said, the capital gains tax—too much, then jobs, profits and tax revenue will all suffer. It always has that effect, or at least history shows that it does. All our experience in the UK and the US demonstrates this. For example, over the 30 years from 1975 to 2005 when capital gains taxes were cut, revenues rose as a share of national economic output and in cash terms. However, when capital gains taxes were raised, the revenues always slumped. May it be different this time around? I do not know. History does not always repeat itself, of course. I am not an economist, just a simple Back-Bench Peer, but one who is fearful that if we go too far down the route of raising the taxes to which I have referred, then down, down, down will go profits, investments, wages and employment.

What I do know is that the new transparency much applauded by the coalition Government demands a clear and open impact assessment of any eventual proposals on taxation when they are known. I hope that if CGT changes have the effects feared by some on competitiveness or productivity—take your choice of term—then we must be clear that the changes in taxation are being produced for good economic reasons, not for political reasons that will have bad economic outcomes.