Autumn Statement

Viscount Younger of Leckie Excerpts

Thursday 4th December 2014 Lords Chamber

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[Viscount Younger of Leckie]

That this House takes note of the Autumn Statement and measures to promote economic growth and to support businesses in the United Kingdom.

[Viscount Younger of Leckie (Con)]

My Lords, as we near the end of this Parliament, and on the back of the Autumn Statement, I am pleased to have this opportunity to appraise both progress on growth in the economy and the support that the Government are providing for business. But first, stealing thunder springs to mind. I am grateful to my noble friend Lord Borwick, who otherwise might have led this debate but unavoidably cannot be in his place. I also think that much of your Lordships’ thunder may be stolen today by the maiden speech of my noble friend Lord Rose of Monewden. I feel sure that his words of wisdom, honed by so many years of distinguished service in business, will provide a certain magic and sparkle. I can only assume that this is it; this is his Plan B.

The robustness of the economy and the opportunities for government to give resources to vital projects or services are inextricably linked. It is only because of a strong and growing economy that we are able to fund vital public services and major infrastructure projects. That is why it is so pleasing that my right honourable friend the Chancellor has been able to announce an essential annual £2 billion front-line boost for the health service, where expected increasing demands has put the ability to deliver at point of need under strain. That is why there is room to provide £15 billion to fund 100 projects, of which more than 80 are new, from improving links to the port of Liverpool, upgrading the A1 up to near the Scottish border, constructing the Stonehenge tunnel and in effecting the so-called “smart” conversion of the M62. That is why there is funding available for other major projects, such as £200 million for the proposed Manchester science research and innovation centre in the northern powerhouse and a £100 million housing boost for the second garden city at Bicester, that great centre for retail near to where I live.

This is welcome news because such projects are of national importance but also generate growth for local communities. They provide more jobs for skilled labour around the UK, including for the north-east and north-west, some of the supply for which will emanate from the new apprenticeship and the university technical colleges. This positive news builds upon the growth deals announced in July, including the city deals in 26 urban areas and support for the 39 local enterprise partnerships, with the provision of £6 billion-worth of cross-sectoral funding for transport, housing and business support and, of course, skills projects.

Growth and the health of business are important for every individual around the country because the ability to create jobs and gain new skills gives families greater financial security, opportunity to increase their spending power, more hope to plan for their careers, and it allows them better to realise their own personal plans and ambitions for the longer term. So, to be effective, growth must impact the employee, too. The news yesterday of the rise in the personal tax allowance to £10,600 next April is a direct boost to net pay. My right honourable friend the Prime Minister has pledged to raise this further to £12,500 by 2020. That is why I welcome the Autumn Statement which builds on these important values and ambitions and looks well beyond this Parliament to increase prosperity right around the country.

According to the ONS, growth since 2010 has seen the creation of more than 2 million private sector jobs, leading to the UK reaching a record 30.79 million employment level, and 1.8 million apprenticeships have been created. The UK was the fastest growing economy in the G7 in 2014 and is predicted to be the fastest in 2015 after the US. Annual GDP growth is now a confirmed lively and sustainable 3% for 2014, with 2015 predicted to be 2.4%, with marginally slower growth, primarily due to the continuing crisis in the eurozone and some other key export markets.

However, competitively, the UK is in a much stronger position, having grown 2.5 times faster than Germany but, less surprisingly, more than seven times faster than France. Some of the reasons for such strong growth stem from 2012, when the industrial strategy was launched by BIS. A strong and lasting foundation was built, with the emphasis and impetus placed on 11 key sectors, and with a £600 million boost to support eight key technologies. It was designed as, and remains, a long-term strategy to stretch well beyond this Parliament, with manufacturing and exports set to play a bigger role in rebalancing Britain’s economy.

To aid this, the Government in 2013 doubled the annual investment allowance to £500,000, meaning that businesses would not pay tax upfront for their investing in the future. Government lending to exporters was doubled then, while cutting the interest rate on export loans. It is therefore encouraging that since the Budget the OBR states that it has now revised upwards, from 4% to 27%, its estimate of business investment over this Parliament. But on exports, there are challenges. UKTI has taken splendid strides in reaching beyond the depressed eurozone into many new overseas markets, such as in Africa and Asia, with promising signs for securing contracts in Mexico and Colombia, for example. In April 2014, UK organisations won four new contracts worth £1 billion to establish 12 technical and training colleges in Saudi Arabia. Growth has to come primarily from selling our goods and services overseas, and our 40-plus ambassadors, envoys, and overseas embassies and high commissions are working well as a team to make this happen. It was pleasing yesterday that an extra £45 million package has been made available for exports. Can my noble friend the Minister say how and where this money will be spent and give a brief update on the prospects for our export markets?

Relentlessly pushing to increase productivity, to sell our goods abroad, on the back of the industrial strategy, is a key reason why the Government must continue to support business. To attract new markets, the eight great technologies—for example, robotics and energy storage—are in the forefront of research into innovation. They are supported by Innovate UK, which bridges that crucial gap between the universities and research institutions, and converts such ideas into marketable global products at the business end. This bridging is essentially aided by the nine catapults—for example, high-value manufacturing, cell therapy, satellite applications and transport systems. The importance of such initiatives cannot be underestimated as this will allow the UK to make its mark as the global base of choice, the centre of excellence for future technologies, making products and components for global markets.

There is a fascinating project focusing on the development of autonomous vehicles, interconnecting smart technology and the “internet of things”, robotics, and sensor technology. Such innovations are nascent, but they are the future and require sustained funding. Yesterday, we heard that the UK is now ranked second in the Global Innovation Index, having been number 14 in 2010.

Manufacturing is now growing faster than any other UK sector, and faster in the UK than in any other major advanced economy. The High Value Manufacturing Catapult is a particularly vital ingredient for such growth. Its ultimate aim is to more than double the contribution of the manufacturing sector to the UK economy. With an innovation order book of in excess of £218 million, industry demand for the services of the HVM Catapult is clearly strong. So I am delighted that £89 million has been designated further to fund this, spurred on from the recommendations of the Hauser review. A direct benefit is seen in the development and manufacture of fan disc and fan blade technology for Rolls-Royce. This has resulted in two new production facilities in this country—in the north-east and Yorkshire—generating hundreds of high-quality jobs. Can my noble friend give the House an absolute assurance that funding for the catapults will continue as a priority?

It is, of course, not just big business that drives growth. I am pleased that the Autumn Statement has placed an important emphasis on small and medium-sized business with the unlocking of £1 billion-worth of support. Britain is once again a nation of entrepreneurs. It is a well worn truism but worth repeating: small businesses are the engine room of the economy. They now account for 60% of employment and nearly half—47%—of turnover. It is very promising that around 20% of small businesses say they want to grow significantly. At the start of 2014, there were a record number of small businesses at 5.2 million—up 330,000 on a year ago. It is the first time that the figure has exceeded 5 million. It is the entrepreneurial spirit in the individual that is particularly prevalent: 7.3% of working adults were actively involved in starting a business last year. It helps to explain why last year 500,000 new jobs were created.

This is not in the Autumn Statement specifically but in a report. Emerging from the generic description of SMEs, high-growth small businesses are highlighted for the first time. They are defined as enterprises with an average annual growth greater than 20% over a three-year period and with an annual turnover of between £1 million and £20 million. Promising statistics on these HGSBs have been published by Octopus Investments on behalf of the Centre for Economics and Business Research. HGSBs represent only 1% of total business assets but were responsible for 68% of employment growth between 2012 and 2013. For the past year, this meant that 5,000 new jobs were created per week from as few as 30,000 businesses and there was an 18% growth in this sector between 2011 and 2013. More pleasing is that two-thirds of these businesses are based outside the south-east.

However, the report cited two significant barriers to growth. Skills shortages were highlighted by one in five HGSBs, in particular in science, engineering and technology. The second, an old chestnut, was access to funding. Some 25% of the HGSBs stated that borrowing was “difficult” or “very difficult”. It is noted that net lending from the banks fell by £300 million in the second quarter of 2014. Venture capital trusts, enterprise investment schemes and angel co-funds, for example, remain critical backstop funding sources, in addition to the successful UK AIM market. However, through the British Business Bank, yesterday’s extension of the enterprise capital fund programme will provide £400 million, with the guarantee of new lending of up to £500 million for SMEs. That is most welcome.

A strong economy allows for greater flexibility in reducing taxes for companies and individuals, and in making businesses more competitive. We welcome the review of business rates for 2016, as well as the doubling of small business rate relief for another year, the strengthening of the entrepreneurs’ relief, the social investment tax relief and the increasing of the R&D tax credit for SMEs right up to the maximum allowed. On tax, and with my old intellectual property hat on, can my noble friend the Minister update the House on the status of the tax advantage on the patent box? Secondly, how satisfied is he with businesses’ ability to access finance? What more can be done to encourage the banking sector to stimulate growth and productivity? I welcome the measures in the Small Business, Enterprise and Employment Bill that will take further steps for banks to be more transparent in their lending policies. But, as the Chancellor was at pains to point out, there is much more to do. Of greatest importance is the need to redouble our efforts to continue to tackle the deficit.

I return, finally, to what also matters: the individual, the employee and the benefit to him and her from business growth. Interest rates remain at an all time low, but wages still lag behind inflation in many sectors. The signs for individual pockets becoming deeper are encouraging: 85% of the working population are in full-time work, the claimant count is down 23%, the tax threshold is raised at the lower and higher rate levels, and the OBR has significantly revised inflation downwards and is predicting that wage growth will rise above inflation from next year for the next five years. Already, those who have been in work for over a year are experiencing a 4% growth in their wages. Even oil prices are reducing. We are earning and growing our way back to prosperity, which is the right way.

A journalist wrote last week that the Prime Minister and his party,

“need to draw the spotlight away from Nigel’s saloon bar and back to Dave and George’s repair shop”.

This is correct, and, because of the deficit, I believe that “repair shop” is still the right term to use. This Autumn Statement allows us to be safe in the knowledge that we have the stimuli, with the right spanners and the right workforce in place, to effect not just a patch up job but to continue a quality repair job which must be sustainable for the UK in the long term. I beg to move.

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[Viscount Younger of Leckie]

My Lords, any debate on the economy and the Autumn Statement—perhaps it should be called a Budget—is necessarily wide-ranging. This debate has brought out some excellent and markedly different perspectives on yesterday’s news. I particularly enjoyed listening to the interesting arguments behind the speech of my noble friend Lord Palumbo and the speech on budgetary cuts by the noble Lord, Lord Skidelsky—although I was not entirely in agreement with either. We were much lifted by the maiden speech from my noble friend Lord Rose. Some key high-level messages came out from his long experience in business: first, stay close to your customers; secondly, keep your fingers on the pulse; and, thirdly, be prepared for change in a changing world. That is very wise, and I have no doubt that he will be a great asset to the House.

In the final moments, I will just draw together some of the key common themes that arose during this two and a half hours. First, skills shortages are a genuine obstacle to growth. That was raised by the noble Lords, Lord Adonis and Lord Bilimoria, and my noble friend Lord Jones. It is interesting that my noble friend Lord Palumbo said that we needed skills for getting things done. I presume that he was alluding to better management skills, which are important.

I am glad that my noble friend Lord Deighton raised the issue of productivity. The noble Lord, Lord Desai, made a very interesting point about productivity. It may well be that we get wage growth up, but the danger is that it is not matched by productivity growth, or indeed GDP per head.

Finally, some important points were made about confidence. That is often talked about, and the level of business confidence is very important. That was raised by my noble friend Lord Rose and the noble Lord, Lord Bilimoria.

I conclude by saying that I, too, congratulate my noble friend Lord Deighton on his important work in pushing through these important infrastructure projects, and I again thank all Peers for their contributions to this debate today.

Motion agreed.