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Mr. Philip Dunne (Ludlow) (Con): The hon. Gentleman's catalogue of achievements since 1997 prompts me to ask who he thinks is responsible for the increase in the unemployment count by close to 100,000 over the past 12 months. Is it the Chancellor of the Exchequer or is it someone else?

Mr. Henderson: There are cyclical trends within a pattern. Over the past 12 months, there has still been an increase in the number of jobs. Some of them have been filled, as my right hon. Friend the Member for West Dunbartonshire said, by migrants who have come to this country. That has meant that some people have lost out. I do not want to dwell on that. I am the rapporteur for one of the Council of Europe committees that deals with these issues, and I will be happy in another debate to discuss the rights and wrongs of this filling of jobs and the implications that ensue.

In the Budget, and in the provisions set out in the Finance Bill, the fiscal clauses underpin our ability to have both significant public and private investment.

Stewart Hosie: Investment in the Budget is predicated on a massive expansion of public-private partnership schemes. Does the hon. Gentleman really believe that an example such as the Edinburgh Royal hospital, where a hospital costing £184 million will cost the taxpayer £1.26 billion—all hidden off balance sheet—is a good deal?

Mr. Henderson: I am grateful to the hon. Gentleman for raising that issue. It shows that investment is going into the health service, which is improving people's lives. I will be happy to have a discussion on another occasion in the Chamber when the debate is more narrowly focused on how one arranges the sums involved in public finance. We all have views on that. However the sums are arranged, the evidence is clear: more resources are going into health and education. I will return to these issues.

It is important that both the private sector and the public sector have the necessary buoyancy to generate growth in the economy. In the private sector, confidence is crucial. That is not something that we can determine in this place, and it is not something that we can determine solely in this nation. However, we can make a contribution to building that confidence. Our interest rates are at an historically low level, and that is a significant factor in giving those who want to invest the feeling that the cost is such that that can be met by the rewards that are down the road.

Our tax rates are also important. I know that there has been a to-ing and fro-ing on the complexity of taxation. We would all want to see a simpler tax system, if that could be arranged, while still meeting the objectives of the system. However, there is confidence; people know roughly how much they will be expected to pay in income tax, depending on what they earn. Companies know roughly how much they will be expected to pay in corporation tax and other taxes,
 
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depending on their profitability. If anyone wants to have an argument with me about that, I will be happy to bring in some of the people whom I know in some financial institutions, who would be delighted to confirm what I say. [Interruption.] I nearly referred to my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) in the context of financial institutions. For example, I would be happy to bring into the debate those who give evidence to my hon. Friend's Committee, who would bear out what I say.

Public sector resources are crucial. The starting point has to be basic education. If we do not invest in basic education—nursery schools and primary schools—it does not matter what we do in secondary schools and higher education institutes. Without that initial investment, we will not have the people coming through who have the necessary and basic educational tools to take on a new challenge. I hope that every party represented in the House agrees that such investment in primary education is essential and a vital path for public sector investment to follow.

The resources available for public sector investment are extremely important. I have never said that the public sector should run manufacturing industry in a big way. I do not believe that that is an effective way of generating strength in the economy. However, the public sector has a role in nurturing the private sector and taking it through early days, particularly with small companies. There is a need to pump prime new technologies that have a major future.

Mr. Colin Breed (South-East Cornwall) (LD): Does the hon. Gentleman agree that small business investment, including research and development, is extremely important? Tax credits provide incentives for research and development, but many small businesses find it difficult to obtain them and sometimes they cannot even carry the cash-flow implications of such investment. However, not enough small businesses take advantage of those tax credits. Does he have any ideas about how we can improve that situation?

Mr. Henderson: I have some ideas that I would be happy to discuss. I am not ducking the issue, but research and development assistance is not crucial. The ability to apply the results of research and development is often more important in the very small company sector. Someone who has conducted research and development at a local university may set up a small company with five or 10 people to create a product range. It is important that that company can use scientific development to innovate. If that is what the hon. Gentleman is suggesting, I agree.

Huw Irranca-Davies: Does my hon. Friend acknowledge the very good example set by the Welsh Assembly Government with Technium, which has taken up the tax credit initiative and built it into university-sponsored campuses, which take a product from research and development on to the shop floor? At the Sony Pencoed site, a large factory space is devoted to taking new, innovative products from research and development to the shop floor. That is a good example of the way in which the Government provide funding so that people can develop products from the idea stage and go into production.
 
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Mr. Henderson: I agree. It is important that regional development agencies throughout Britain play a part in such initiatives. I regard such agencies as more broadly based financial and management consultants that can help small companies to move from the university desk to the factory floor.

We have always been a trading nation and, thankfully, we remain one today. The strength of our economy will be based on our future international competitiveness, and it will be founded on ever-higher skill levels, or it will not be founded at all. It depends on the adoption of new technology, not only in the crucial small company sector but in larger and medium-sized organisations, and on the provision of ever-greater added value to the various enterprises in which we engage. We have major strengths in the internationally traded economy. We are world leaders in pharmaceuticals, aerospace, engineering design and the financial services market.

Rob Marris: And in the legal market.

Mr. Henderson: Indeed. We are at the cutting edge internationally in many other engineering processes. It is important that we consolidate and build on those industries. At the heart of my argument—in other circumstances, I would have been prepared to make it more briefly—is the belief that we must exploit new opportunities. Education is a strong export for this country. It is fashionable to say so, but I am not a newcomer to that view, as I have held it for a long time. I have close links with the University of Newcastle, as well as Strathclyde university in Glasgow, and I have discussed the issue with academics and others. Education offers us a major export opportunity. Some people say that we should not engage too much in the international educational market, because foreign students whom we educate will go back home and undercut us when they start in business. I do not believe that that is the case. If we are ahead of the game, that issue does not matter, because other people and their sons and daughters will come here. It is a strength of the British Council that it is more likely that those who have benefited from education and gone out into the bigger world will maintain any educational links they have had. There might be what we could call an international old boys' network. Such links are very important. People like to do business with people in whom they have confidence. If people have been in the same educational institution or nearby institutions, they will be given confidence in each other, even if they did not know each other previously.

Mr. Breed: I entirely agree, and I support that view 100 per cent. The hon. Gentleman referred to globalisation. We know that universities outside Europe, especially in America, are scouring Europe for the best students and offering them riches beyond their wildest dreams to attract them. If we are to base our future economy on knowledge-based industries, ingenuity of design and so on, we will need the best people to come to us.


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