Queen’s Speech

Lord Tugendhat Excerpts

Tuesday 10th June 2014 Lords Chamber

[Lord Tugendhat (Con)]

My Lords, I believe that every so often an event occurs that should lead Governments to reconsider well established attitudes and policies. Recently one such event has occurred in the area of responsibility covered by the Minister and his department. In fact, there have been two: one is the annexation of Crimea and all that Mr Putin has done in Ukraine and said about how Russian policy in its near abroad is likely to develop; and the other is the Pfizer bid for AstraZeneca.

Let me take Russia first. In recent years, all EU member states have done business with Russia as if it is a country much like ours and becoming more so. Little or no thought has been given to the extent to which deals and relationships that EU member states regard as part of the normal course of business may become hostages to fortune in diplomatic, strategic and even military disputes. The most obvious example of this vulnerability is the massive dependence of Germany and some other member states on Russian gas supplies. It is hard not to conclude that this plus of course Germany’s massive industrial exports to Russia have not played a part in determining German responses to recent Russian actions in Ukraine. However, Germany is only the most obvious, as distinct from the only, major EU member state in this position. Has not the French contract to supply warships to Russia, including one aptly named “Sevastopol” influenced French attitudes? Has not the British attitude to possible financial sanctions been influenced by the massive Russian involvement in London’s financial and other markets?

In the time available to me I cannot deal at length with these issues but in the light of recent Russian actions and statements, our own policy and that of the European Union as a whole should change. A set of criteria within which economic and commercial relations with Russia should be conducted must be developed. Whether in relation to imports and exports or inward and outward investments, account must be taken of our political and strategic interests and the possible risks as well as purely business considerations. With vital imports, such as gas, this means not becoming overdependent on Russian supplies and ensuring that there are alternatives available. With exports, it again means avoiding overdependence and not supporting Russia’s armed forces. With financial investments, it means ensuring that sufficient is known about them to enable whatever action might be required in an emergency to be taken with the minimum disruption to other market operations.

We, the EU in general and Britain in particular, should also bear in mind our experience with Russia in our dealings with that other great autocratic power, China. As it has demonstrated on many occasions, China does not hesitate to use whatever leverage it has in relations with other countries in pursuit of its diplomatic and strategic aims. Her Majesty’s Government have had experience of that when they were frozen out by Beijing after the Dalai Lama incident. Now I am very much in favour of doing more trade with China and encouraging Chinese investments in the United Kingdom. We are a long way behind our EU partners, notably Germany, in developing economic links with China and we should try to catch up. However, we must also be aware that in China commercial and financial relations are always subordinate to diplomatic and strategic considerations and that Chinese companies are instruments of the Chinese state, not free-standing, independent entities.

So, as with Russia, and in conjunction with our EU partners, we need to develop a framework of rules and criteria within which to conduct our economic relations with China. As with Russia, the aim must be to ensure that we do not lay ourselves open to pressure and blackmail. Unfortunately, I feel that we are at the moment tilting in the wrong direction. I refer in particular to the bending of the rules to enable Chinese banks to set up branches rather than subsidiaries in the City of London. We have offered Chinese nuclear power station suppliers the inducement of high, guaranteed returns. It is difficult to think of an industry more sensitive than the supply of nuclear power stations and it seems strange that we should particularly invite investment into that area by a state with the characteristics of the Chinese People’s Republic.

I conclude with some thoughts arising from Pfizer’s abortive approach to AstraZeneca. Over the years, Britain has derived great benefits from foreign direct investment—the auto industry being the classic example. However, we have also seen too many great and successful British companies disappear—including two with which I was once connected, BOC and Blue Circle—because the German and French companies that took them over wanted them for their long-term value whereas the shareholders were more interested in short-term gains. Both those companies were world leaders, they were not bailouts, and they were bought precisely because they were world leaders. Since then, I am afraid, with the rise of hedge funds, shareholders have become even more short-termist. Other factors unrelated to the underlying soundness and long-term interests of the target company and its employees, suppliers and customers have also arisen.

The Pfizer/AstraZeneca incident illustrates this very well. Whereas the companies that took over BOC and Blue Circle were driven by long-term industrial goals, Pfizer was, above all, driven by tax planning—or, should I rather say, by plans to minimise taxation. In these circumstances, the Government need to take a much broader view rather than simply letting the market decide. They must recognise that the interests of shareholders who trade shares are not, and cannot be, coterminous with the interests of the target company’s employees, suppliers, customers, research programmes and all the rest of it. The long-term national interest needs to be taken into account in a very important way.

The Government should also recognise that, given shareholder pressure on managements, and the fact that this year’s predator can very well be next year’s victim, no assurances, however well meant, about future employment and research can be binding for more than a very short time. I must say that the way in which government Ministers appeared to react to the assurances that Pfizer was making showed a certain unawareness of contemporary industrial realities. As a representative of the Government, will the Minister look again at the public interest test in relation to takeovers of all kinds, with a view to strengthening it as necessary?