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Mr. Henderson: I welcome my hon. Friend’s point. In those days, it was not just the high level of interest rates that made planning future investment difficult, but the wild fluctuation in interest rates. A fluctuation of 15 or 20 per cent. on an annual interest rate of, say, 15 or 17 per cent, has a lot more impact on the international
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competitiveness of a company than a 15 per cent. fluctuation on a 3 or 4 per cent. interest rate, as will be obvious to most Members.

Mr. Philip Dunne (Ludlow) (Con): I am grateful to the hon. Gentleman for the history lesson in fluctuating interest rates. I think that the point he is trying to make is that expectation of interest rate movements has an influence on business investment. Does he agree that businesses currently have to operate in a very uncertain environment, with rising inflation and the expectation of rising interest rates? What will be the impact of that on business investment this year?

Mr. Henderson: I am happy to have an interjection of monetarism into my historical examination. To go back to the 1990s—in the sense of saying, “You started it”—the fluctuations on high interest rates made conditions extremely difficult. I am not saying that we can accurately predict interest rates—indeed, I am still in a quandary about whether to buy dollars today or wait until Friday. I accept that there is an expectations issue, but there is much greater stability. The ability to predict generally the trend that is going to take place greatly affects those who make the major investment decisions. As I said to the hon. Member for Chipping Barnet (Mrs. Villiers), if we get the major investment decisions right, in general, the small investment decisions will be right as well.

Julia Goldsworthy: Does the hon. Gentleman agree that one key to ensuring that we have more stable inflation and interest rates was the decision to give independence to the Bank of England to allow the Monetary Policy Committee, rather than a politician, to decide such things? That was obviously a Liberal Democrat proposal.

Mr. Henderson: The leader of the hon. Lady’s party was helpful in the Budget debate in acknowledging the success of the British economy. I am grateful that she has acknowledged the correctness of the policy that was struck in 1997. If that was a policy that the Liberal Democrats agree with, it goes to show that it is not possible to get it wrong all the time. We all very much welcome that.

There are many other indicators. My test is not growth, although that is important. The thing that affects human beings of working age more than anything else is whether they have a job. If one looks at the misery in families up and down the country over the years, which we have all come across, sometimes in our own families, we can see that things have been at a nadir when people have had the least opportunity of getting employment.

The major gain in our economic performance made by the Government is the fact that employment is at an all-time high. Unemployment—not just this year or last year, or this month or last month, but over 10 years—is at a sustained low level. Unemployment in my constituency is way under half of what it was in 1997. That is the major achievement. That is what gives people hope, dignity and opportunity. That, to me, is the test of success in a global economy. If we do not compete successfully in a global economy, we do not compete on employment in the world in which we live.

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It is useful again to consider further why we have been able to achieve that. To some extent, it is about the business world and people in general having confidence in what is going to happen—in knowing that the economy is in good hands and that policies on tackling inflation, on having an independent determination of interest rates and on having high employment as a major political and economic goal are going to be consistent. Everybody knows that that is the case. People might not agree with some of the objectives, but they know what they are. It is that stability, given by the strong leadership of this Government, and in particular by the Chancellor, who has sustained it over 11 Budgets, that has got the economy in a position where it is competing successfully in the global world.

Mr. Brian Binley (Northampton, South) (Con): Does the hon. Gentleman appreciate that we are in the middle of a cycle where UK plc is shedding about 1.5 million jobs and the small and medium-sized business sector is creating about 2 million jobs? In the light of his comments about employment, what impact does he think the increase in corporation tax for small business will have on that scenario?

Mr. Henderson: I come back to the point that I raised with the hon. Member for Chipping Barnet. I am not underplaying the importance of taxation regimes for the small business world, although they have to be fair. There must be equity between people who work for themselves and people who work for themselves with perhaps others in a company. That is an important principle of taxation. However, I do not believe that what we do in that regard ultimately affects our international competitiveness very much. What does affect our competitiveness is the ability of the economy to sustain a high level of aggregate demand, along with our ability to invest now to ensure that that continues in the future.

I know that I have been speaking for rather a long time, and that many other hon. Members want to speak, but I want to say more about education and reskilling. I do not wish to underplay the hon. Gentleman’s point, but sustained demand helps small businesses more than anything else. If someone wants to buy a product, there is an incentive for the producer to ensure that it is worth buying. Businesses must live with the various regulatory regimes—financial, environmental, or whatever they may be.

Leadership and predictability are important. It is also important to understand that we live in a global world in economic and indeed in social terms. It is not a case of Bradford competing with Birmingham or Bordeaux; it must compete with every town in the world that begins with “B”.

Mr. Flello: Beijing?

Rob Marris: Bombay?

Mr. Henderson: Beijing, yes. Bombay—well, that has changed to Mumbai.

Small business people who are trying to sell engineering products or the like know who they must compete with. They know the market: they know what
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other businesses compete in it, and what those businesses are doing. There is now a recognition in the British economy, driven to some extent, but not entirely, by the Government, that we operate in a global world. It does not matter whether we are talking about BAE Systems, employing thousands of people, or a small contractor, perhaps a freelancer, doing some computer work for it. That recognition is a major achievement. It may not have been achieved only by the Labour Government, but it has been achieved while there has been a Labour Government. It means that we must have a more flexible economy than we have ever had before, in all sorts of different ways. A flexible economy does not mean throwing away workers’ rights, which should be secured, but the workers must be flexible in the way in which they do their jobs.

How can we keep all this going? There is not much difference in the availability of capital around the world. Someone who has a good idea in the relatively stable political environment that much of the world can offer can usually obtain capital from somewhere to finance it. If it is necessary to develop or purchase technology, it does not matter where one is in the world, as long as people are prepared to provide money to be invested in technology. Where we can make a difference is in labour. The business environment factor is also important, but the labour factor is crucial, as I think all Members recognise.

The test of the Budget is, does it help? Will the Government’s policies generally, as reinforced by the Budget, and the specific policies in the Finance Bill help us to invest in a skills base in the future? The evidence suggests that it is possible. I am told that we expect to spend £90 billion on education in 2010. We are now spending 5.6 per cent. of our gross domestic product on education, compared with 4.7 per cent. in 1997. Our expenditure levels have increased dramatically, and we all know what that has enabled us to do in our constituencies. There are new schools in Westerhope and Gosforth and new equipment in virtually all the schools in my constituency, and that is replicated in most constituencies in the country. There has also been more spending per pupil. Earlier Budget decisions gave head teachers more control over the way in which expenditure could be used, and those welcome decisions have been reinforced in this year’s Budget.

We have doubled the number of apprenticeships, which provide an important way of improving how we adapt to the new technologies that we must use in our economy. The one-to-one tuition proposal, which is partly financed by the revenues raised in the Finance Bill, is one of the most radical measures taken in education policy—certainly by this Government, and arguably by any Government in my political lifetime. We all know that if a child attending a state school—and sometimes even a child at a private school—is suffering, a parent who has a couple of bob in their pocket can buy extra tuition. Many people have done that, but it has not been possible for those whose finances are tight—and they are tight for far more than 50 per cent. of families. The Government’s proposal that anyone can get additional tuition in English and maths is fundamental to improving skills levels, which will help small businesses in five or 10 years’ time—or
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15 to 20 years’ time—to get the skilled labour that they need and that we as a nation need if our economy is to be successful.

I will not trade in education statistics—because, to be frank, I do not know much about that—but the aggregate figures that I have looked at show that we have better results at all levels in education, right through from primary school to university. That is a reflection of a greater commitment to society and of the investment of more resources. However, although there will be many long-term benefits in our economy, there is a problem to do with labour which we must address more effectively than we have thus far been able to address.

In the past few years, the strange situation has occasionally arisen that at the same time as unemployment has increased—which it did in some months last year—so, too, has employment. That has never happened in any period of economic history that I have looked at, and certainly not during my political lifetime. There is a simple explanation for it: where companies have had a demand for labour, they have met that demand by bringing in people from somewhere else—such as Australia or eastern Europe. They have frequently got good skilled labour, but as they have been able to do that, some employers have not worked as hard as they might have done in the past, when it was not possible to do that, to improve the skill levels of our indigenous people—of those who have been in the country a lot longer. There is a certain amount of alienation among some of those people who have not experienced the benefits of increased prosperity and growth in the economy. We must look into that territory more carefully.

I am vehemently in favour of the mobility of labour. I would hate it if a Government somewhere in the world were to tell me that I could not go and sell football programmes in their country—in Milan, or Africa, or wherever. As a human being, I like to live under a regime where people can do that. Therefore, I do not want any restrictions on immigration. There must sometimes be controls on the numbers over certain periods by using different methods—such as visas—but the principle should be that people are able to move around: people should be allowed to move to where there is demand for labour. However, we must also help people in our country—especially in constituencies such as mine—who often do not get any of the benefits that come from that.

The Budget has recognised that issue in a number of ways, and it is therefore covered in our Finance Bill. The extension of the working tax credit threshold will help, as will the extension of the £40 work credit. Increasing the minimum wage, which is financed by the Budget, is another helpful measure, and the partnership for jobs proposal points in the right direction. However, we must address the issue more seriously than we have in the past.

I absolutely accept that the business climate is nowadays merely a factor of production. We must make sure that we get that climate right, if we are to achieve economic prosperity. The corporation tax proposals in clause 2 will overwhelmingly be welcomed by large and small companies alike. They will be welcomed by large companies because their tax burden will be reduced, and by small companies because that
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will create more growth in the economy. The provisions in clause 36 for extending capital allowances for small companies are also important. In past Finance Bills we have extended tax relief on research and development. That is done again in this Bill, and it needs to be done on a greater scale. Investment in public science is a crucial factor in improving our productivity in the future.

Mr. Dunne: I do not wish to interrupt the hon. Gentleman’s paeon of praise for the various measures in the Budget, but he mentioned the welcome that he anticipates that they will receive from smaller companies. How many smaller company proprietors or managers in his constituency have actively welcomed the measures to increase the rate of corporation tax for smaller companies?

Mr. Henderson: Before the hon. Gentleman intervenes again, he should know that I am not a born sycophant. Although I have a list, it does not include every measure. If one consults the bodies that represent small companies in my constituency, such as the chamber of commerce, one finds that they have all said that education is the priority and that we need to raise the revenues and have the right educational programmes to make us more efficient and productive in the future. They are right about that.

Every small company that I know, and I know quite a few, is most concerned about whether someone wants to buy their product, not the hassle they have with Revenue and Customs. One always has hassle with Revenue and Customs, so that is not the issue. They are concerned whether anyone wants to buy their product or service and whether they can make that product or deliver the service in a way that will make people want to buy it tomorrow. That tends to be determined by attitudinal feelings in the economy and the level of aggregate demand.

Mr. Flello: Does my hon. Friend agree—in relation to his earlier point—that when it comes to selling products around the globe, the need is for the highest levels of skill, ability and knowledge to make a product stand out, which is of crucial importance when wage rates across the globe are so markedly different? For example, tax rates are so low in the far east that companies in this country will never be able to compete on price if they are simply trying to sell the same product.

Mr. Henderson: I agree. When a product has many different inputs, the question is which bit we want to concentrate on, and that is a decision that companies often have to make. The machine tool industry is a classic example. Instead of trying to sell the whole machine—the whole Cincinnati, for example—one can try to sell a specific high-value part of it as a contribution to others’ productions systems. Decisions like that have to be made all the time, and my hon. Friend is right about that.

Mr. Binley rose—

Mr. Henderson: I am happy to give way to the hon. Gentleman, but I should say that I do not usually go on at such length.

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Mr. Binley: The hon. Gentleman is being very generous. I just wondered how many service industry small businesses there are in his constituency, because there would appear to be none. More importantly, the hon. Gentleman seems to discount the impact of regulation, taxation and other problems faced by small businesses. Does he not recognise that in relative terms the impact is up to 30 times greater on small businesses than it is on UK plc companies?

Mr. Henderson: Of course I accept that there is a disproportionate impact on small businesses. That is bound to be the case as it is in the nature of small businesses. But my general point, which I am not moving from, is that that does not generally affect the prosperity of the small business which is, as I have already said two or three times, based on whether people have the money to buy their products—

Mr. Binley: Or services.

Mr. Henderson: Yes. The service sector is crucially important, but we are now seeing changes in definition. When I used to work at Rolls-Royce, we did everything, but it is all subcontracted now. Some of the subcontractors are classified as service industries, such as the catering, management systems and accountancy, but previously they would have been involved in manufacturing. There are slight changes in definition, but I take the general point that services must be a major part of Britain’s economy—we have to up the value of service industries if we are to compete in the future.

Julia Goldsworthy rose—

Mr. Henderson: The hon. Lady has been so helpful that I must give way to her again.

Julia Goldsworthy: I thank the hon. Gentleman for giving way, because I am keen that he does not underestimate the importance of the contribution that micro-businesses make to the economy. Micro-businesses are the largest employers in the county of Cornwall, which has one of the lowest GDPs in the country, so supporting the smallest enterprises in the small and medium-size range is critical to turning around the county’s economy.

Mr. Henderson: I understand the predicament in areas such as the one the hon. Lady represents. Helping small businesses is fine and throwing money at them may keep them going for a little while, but if they do not change and find products that people want to buy or if they do not operate in an economy where people have the money to buy their products or services, that help will not solve their problems. That is why the general state of the economy and our ability to compete on skills in the future is what really matters for small employers in her constituency.

Mrs. Villiers: No one is suggesting that we should throw money at micro-businesses. The point is that we should not penalise them with such an incredibly heavy regulatory burden and that there will be real problems if the tax burden is increased, as it will be by the Bill.

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