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House of Commons

Thursday 6 May 2004

The House met at half-past Eleven o'clock

PRAYERS

[Mr. Speaker in the Chair]

Oral Answers to Questions

TRADE AND INDUSTRY

The Secretary of State was asked—

Small Businesses

1. Mr. David Heath (Somerton and Frome) (LD): What assessment she has made of the impact on small businesses of changes in tax treatment set out in IR591. [170678]

The Parliamentary Under-Secretary of State for Trade and Industry (Nigel Griffiths): The growth in the UK economy, at a time when all other leading economies contracted, is the result of the Chancellor's prudent policies in helping businesses to invest. This measure was designed to encourage businesses to retain profits, to reinvest in their businesses and grow. Sadly, it was abused as a tax loophole simply to avoid paying tax and national insurance by reclassifying income as dividends. The Budget's impact on small businesses will ensure steady business growth and prosperity that is the envy of our neighbours.

Mr. Heath : Is this not a problem entirely of the Chancellor's making, by ignoring advice at the time and providing a fiscal incentive for incorporation that resulted in a massive 43 per cent. increase in the number of incorporations? Now, the tinker man in the Treasury is reversing the flow and causing a mini boom and bust for small businesses. Do not our small businesses deserve a more stable environment to grow their businesses?

Nigel Griffiths: The hon. Gentleman might want to consult on this matter on his website. He could perhaps take a leaf out of the book of the hon. Member for Kingston and Surbiton (Mr. Davey), who speaks on local income tax for the Liberal Democrats and who, in a survey of his constituents, managed to secure the support of only 12 people for their policy, with 2,400 against. If the hon. Gentleman consults small businesses, he will find that it is widely accepted that the abuse had to be stopped. Indeed, had he attended the all-party parliamentary group, he would have heard the director general of the CBI denounce this measure and
 
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the abuse that followed from it and say that the Chancellor had no choice but to close the loophole—a view that is widely held by business.

David Taylor (North-West Leicestershire) (Lab/Co-op): When does an incentive become an abuse—when the take-up is higher than Treasury officials predict? Having been an accountant and a financial adviser to small businesses in a life before 1997, I think it deeply unfortunate that this measure was needed. The Chancellor has flagged up the fact that a review of small business taxation will report in the autumn. Will the Minister feed into that process the fact that small businesses—those acorns that will become the oaks of our future economy—need clarity and certainty? Those are the watchwords, not perverse incentives of the sort that were introduced in April 2002.

Nigel Griffiths: I will certainly feed into that process, and I will feed in the latest Barclays survey, published on 31 March, which shows that 485,000 new businesses started up last year—an increase of 19 per cent. I am grateful to my hon. Friend for all the help and advice that he has given to businesses to ensure that they are now thriving.

Mr. Andrew Mitchell (Sutton Coldfield) (Con): Is the Minister now beginning to get from the reaction of the House today the hang of just how annoyed the business community is about this? Having followed the Government's advice on incorporation, are not businesses now faced with extra costs, regulation and taxes, as the Government try to remedy the effects of this blunder? Surely a little contrition, even humility, from Ministers would now be welcome.

Nigel Griffiths: I treat the joint advice from the Conservatives and the Liberal Democrats with the respect that it deserves.

Pharmaceutical Industry

2. Mr. Eric Illsley (Barnsley, Central) (Lab): What steps she is taking to improve the competitiveness of the UK pharmaceutical industry. [170679]

The Minister for Trade and Investment (Mr. Mike O'Brien): The UK is one of the world's leading locations for pharmaceutical research and development, and the Government are committed to maintaining and strengthening that position. Our 10-year strategy on science and innovation, as well as specific work undertaken in partnership with the pharmaceutical industry, will help to ensure that we achieve that aim.

Mr. Illsley : I am grateful to my hon. Friend for that response. As he points out, the UK pharmaceutical industry makes a huge contribution to our economy, investing some 40 per cent. of this country's research and development budget alone. He may be aware that, at a recent seminar in the House, reference was made to the competitiveness of the UK industry compared with that of the United States. Will he look again at the higher spend on drugs in the US, which makes it attractive to highly mobile capital and pharmaceutical
 
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companies? Will he do all that he can to ensure that the UK pharmaceutical industry maintains its current position?

Mr. O'Brien: We shall certainly do all that we can to ensure that the UK pharmaceutical sector enjoys a highly favourable position in the UK economy and is competitive, but it operates in a globalised area of the world economy. The UK continues to be strongly favoured for investment; the rest of Europe perhaps less so. The UK played a key role in the G10, the EU high-level group on innovation and the provision of medicines, which reported to the Commission in 2002 with recommendations to address the growing imbalance in competitiveness and investment with the United States. Europe has great strengths in science and research, but that does not translate into industrial leadership and investment. As in other sectors, the key is to provide the right framework for incentivising and rewarding innovation. We in Britain do so, but other parts of Europe do not. We are working hard, however, to ensure that the European pharmaceutical industry as a whole remains high on the EU's competitive agenda.

Dr. Andrew Murrison (Westbury) (Con): The health of the pharmaceutical sector in this country is heavily dependent on its research base. In that context, what discussions has the Minister had with the industry about the likely impact of forthcoming legislation, particularly the Human Tissue Bill and the EU clinical trials directive?

Mr. O'Brien: The Department has had discussions with the pharmaceutical industry to ensure that we respond to its concerns. It may not always want everything that we can do, but it is satisfied that we are listening carefully and are responding with appropriate amendments.

Dr. Ashok Kumar (Middlesbrough, South and Cleveland, East) (Lab): Given the importance of the pharmaceutical industry to our economy, as the Minister said, and its strong links with the chemical industry, I wish to raise a matter affecting Teesside, where Huntsman is going to build a polyethylene plant and apply to the Department of Trade and Industry for regional selective assistance. Will he consider that grant and provide all the support that he possibly can, because the plant is very important to the Teesside economy?

Mr. O'Brien: I accept that it is indeed important, and know that my hon. Friend has made strong representations on behalf of Huntsman. We look forward to intensive negotiations and discussions with the company to ensure that we provide whatever support is appropriate for us to provide. We shall obviously look at all the circumstances surrounding its bid for an RSA grant, and hope to be able to give my hon. Friend good news, but we cannot guarantee to do so.

Mr. George Osborne (Tatton) (Con): The 5,000 people who work in AstraZeneca's laboratories in my constituency are a testimony to the investment that is being made in the British pharmaceutical industry. Does the Minister agree that the capacity to make such
 
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investment and develop new life-saving drugs is undermined by unilateral decisions by, for example, the Hungarian Government, to slash pharmaceutical prices, thus reducing the amount of money paid for some pharmaceutical products? That has hit profits and the capacity of companies such as AstraZeneca to invest in eastern and central European countries. What are the British Government doing to make representations to the Hungarian Government?

Mr. O'Brien: Hungary is an EU accession country, and we must ensure that it accepts the need for a level playing field and negotiates with its partners in the EU about the operation of the industry and the support and advantages that it seeks to provide. The aim of the EU is to create that level playing field. As for AstraZeneca, we are listening carefully to the concerns that it shares with other pharmaceutical companies about advantages that are being sought in some eastern European countries, and we shall make appropriate representations on their behalf to the Hungarian Government.

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