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Most of all, the sector is concerned about the burden of increased taxation. The Government talk about being business-friendly, but many of their actions in relation to taxation over the past year have given business a different message. This is an issue with which they need to come to terms. SMEs are genuinely wondering whether a Government who claim to be business-friendly are really recognising their problems and responding to them. I understand some of the Government’s arguments about some of the measures that they have taken, but I would still like to point out
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to them in the firmest of terms that the small business sector is vital to us. They have a real problem with the sector now, and they need to communicate with it and to listen to it in a more meaningful manner.

Julia Goldsworthy: Does the hon. Gentleman agree that it is often the businesses at the small end of the small and medium-sized enterprise sector that are at the sharp end of some of the Government’s decisions? Micro-businesses with only a handful of employees feel the impact of red tape the most.

Mr. Binley: I thank the hon. Lady for that contribution; she is absolutely right. It is reckoned that the relative burden of regulation and additional taxation on a micro-business can be 30 times as great as on our large plcs, which have the necessary income to pay for the expertise to deal with the problems created by the increased burdens and increased taxation. Smaller businesses do not have that income. I accept the hon. Lady’s point totally, and I am pleased that it has been included in this contribution.

The increase in the rate of corporate tax from 19 to 22 per cent. will be a massive blow to smaller businesses that want to grow. They often grow from retained profit, which is usually their only means of financing growth, especially at a time like this, when banks are being more particular about the money that they lend to the sector. Yet here we are adding a 16 per cent. increase in corporate taxes for those small businesses. I could go on, but I will not, as I want to keep this brief, as you requested, Mr. Deputy Speaker. I recognise that I am beginning to eat into my time, but let me make the point that small businesses tell me—day in, day out—that the burden of corporation tax will be great and cumulative. It is a great problem.

I could provide example after example when it comes to capital gains tax. It will hit small businesses in two ways. The first is that they are being hit hard and their pensions are being decreased by the very actions that we are told the Government will take. Secondly, entrepreneurs build businesses with an exit strategy in mind. They are the good people who create businesses and then hand them on to people who will go on to manage and grow them. Different skills are required, yet those people will face even greater difficulty.

I would love to go on for hours, Mr. Deputy Speaker, but you would not want me to— [Interruption.] No, you would not allow me in any case! I appeal to the Government to recognise that small businesses are under massive pressure, partly because of the impact of proposed Government actions on taxation. Even at this very late moment, I urge the Government to reconsider and provide more support and confidence to a sector that our children and grandchildren as well as ourselves will rely on to meet the global challenge that we are told they will face in 10, 20 and 30 years’ time.

4.51 pm

Mr. Mark Todd (South Derbyshire) (Lab): Given the subject of the debate, I should refer briefly to the health of the South Derbyshire economy. It is the area that I represent and we now have a claimant unemployment rate of only just over 1 per cent. We have a robust manufacturing base. A third of the South Derbyshire work force is employed in manufacturing, which is double the national average. The region has
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major companies such as Toyota, but also has many skilled Rolls-Royce and other workers employed in some of the key manufacturing businesses of our economy.

South Derbyshire is arguably the manufacturing centre of the UK and it is also becoming an increasingly affluent place to live. It is attracting businesses, which widens the range of work available to my constituents. Much of it lies to the credit of the work force, particularly their flexibility and their ability to absorb change, but many Government measures have aided these processes, so the Government deserve some credit for that.

I want to focus on more global issues. I am concerned that after a long period of benign circumstances in the global economy, we may face some difficulties in future. I have watched as current account imbalances in the USA have been matched by inward investment with growing doubts as to how long it can possibly be sustained. The potential consequences of those with savings and investments choosing not to place their wealth in the USA could be serious. There is little that we can do about it, but it is a real concern because of the implications for the global economy and then for our own economy, which, in being a centre for trading with the US and many other parts of the world, is a critical part of it.

The hon. Member for Stratford-on-Avon (Mr. Maples) touched on another important issue when he made some interesting remarks about Northern Rock. I refer to the process of financial integration in our world. First, it is important to say how positive much of that has been. We have tended to be rather complacent and accepting about what has been happening, without looking at the extraordinarily innovatory skills displayed over the past 10 to 15 years, and the ability to handle a transformation in the trading of increasingly complex products for dispersing loans around the world. One of the main benefits of that is the dispersal of risk over a much wider scale than previously.

However, the liquidity glut that we have had for some years, which terminated rather dramatically this summer, led to complacency in the pricing of risk, as was mentioned earlier in the context of one UK bank. We have also seen a race towards the lower and lower pricing of that risk in the seeking of new business. I have been concerned about that, and the regulatory authorities and the Bank have talked about some of those risks for some time, well before the Northern Rock hit us firmly in the face with a specific example of the possible consequences. There is in part an unwillingness on the part of those who trade in such products to fully appreciate that the risk is dispersed across the life of the product. They seem to think that just because conditions seem excellent now for trading the particular item, those conditions will remain in perpetuity, or certainly for the lifetime of the loan. We can learn some salutary lessons from the experiences of the past few months in relation to understanding how risk must be priced and the consequences when it goes wrong.

Clearly, a broader international understanding of risk management is required among regulatory bodies. Let me illustrate the scale of innovation that we have seen. In 1992, the worldwide volume of derivatives
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outstanding was valued at $12.1 trillion. In 15 years, that sum has grown thirtyfold. We have therefore seen a startling growth in the migration of loans around the world, and we ought to give credit for the fact that that has been achieved through incredible developments in our financial services markets and the skills of those who trade in them, and with relatively few disadvantageous consequences. We should try to keep in proportion the issues that we have faced recently—I will return to that issue in my final remarks. We have seen what happens when things go wrong in our own economy and banking system, but it is important not to overreact and ignore the context of a much longer period of stability and successful innovation in products.

The tool sets available for assessing risk in our financial institutions have been tested recently in the UK and, I have to say, have been found wanting. I do not want to prejudge the deliberations of the Select Committee on which I serve, but I would be surprised if there were not criticisms of the way in which the Financial Services Authority carried out its function of examining the affairs of Northern Rock.

Beyond the UK, there is also an important context. The internationally agreed frameworks for capital adequacy, such as Basel II, give inappropriate signals of the security of some financial institutions, when exposure to liquidity crises is not tested in the process at all. Northern Rock had passed the Basel II test and was about to distribute proceeds to shareholders because it thought that it did not need as much capital. Then the crisis hit. Of course, there was not a proper examination of its exposure to liquidity risk, so it did not seem to have built that into its thinking at all.

At the UK level, the Financial Services Authority has already accepted some degree of fault in the matter. I am sure that in future we will assess test scenarios for the security of our financial systems beyond those that have been used so far.

I want to say a little about the design of savers’ guarantees, to which the hon. Member for Stratford-on-Avon also referred. I agree with him that it is important for us to design a savers’ guarantee that correctly protects small savers who are innocents in this regard. If we protected every saving placed with a bank the potential liabilities to British taxpayers would be massive, and—this is the “moral hazard” argument which we have already heard—we would encourage mistaken behaviour in the banking community. However, the guarantee that we provide must be backed by a clear communication of its limit. I support the view that all depositors should receive a statement in bold type of the exact level of the guarantee that they are receiving when placing a saving in the hands of a particular financial institution. Such a statement should be expressed in not threatening but factual terms, so that no one can claim ignorance. As I said earlier in an intervention, I was startled at the number of people who had been putting very large sums in one institution—all their savings—without any appreciation of the risk that they continued to bear, small though it was.

Let me end by repeating something that I said earlier: we should not overreact to the circumstances of the last few months. The hon. Member for Stratford-on-Avon gave a very reasonable analysis of what had
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happened, and of the difficult decisions that had to be made. He could have gone on to explain, as I have tried to do, that there has been a generally successful regime in this country for quite some time under both parties, with relatively few failures and relatively small consequences when such failures have occurred, unpleasant though they have been for those directly involved in them.

It would be wrong for us to respond in a typically British way by ladling vast quantities of regulatory intervention into the system in the belief that it will prevent any risk from ever arising. That is a typical response to a crisis: we immediately command others to stop the risk occurring again. I regularly argue with constituents who say to me, “We must make sure that that never happens again”. I have to tell them, “We can attempt that—we can make it less likely—but we can never say never”. Ladling disproportionate intervention into the system would stifle the innovation to which I have referred, whose effects have been generally positive. It would also burden our financial sector substantially and, through that, burden the United Kingdom economy and make it less competitive.

We must react in proportion to what we have seen. It is difficult to avoid the instinctive feeling, which I have seen in all Governments, that they can take dramatic interventionist steps to prevent a risk from ever arising; but what is required is a better understanding of the risks that we face rather than vain attempts to eliminate them altogether.

5.3 pm

Mr. Stewart Jackson (Peterborough) (Con): It is a pleasure to follow the reasoned tones of the hon. Member for South Derbyshire (Mr. Todd). I am sure that Members on both sides of the House feel that he will be missed when he retires at the next election. It is also a pleasure to contribute to the debates on the Gracious Speech.

I shall confine my remarks essentially to two issues. The first, on which I shall speak very briefly, is the vexed question of party funding; the second, which is particularly pertinent to today’s debate, is welfare reform and the Government’s stewardship of the welfare state, including pensions and benefits. I draw the House’s attention to my entry in the Register of Members’ Interests.

On the issue of party funding, I would caution the Government—as informally as possible, and in a friendly way—against making the mistake of pursuing unilaterally the option of using vital legislative time to force through a Bill to gerrymander Opposition parties out of a number of key marginal seats without also seeking to include trade union funding and donations. The British public are aware of the fact that they have stumped up £10 million for the union modernisation fund over the past seven years, and that, in 2006 alone, £9 million was given by the trade unions to the Labour party.

The Minister for Employment and Welfare Reform (Caroline Flint): The hon. Gentleman said that he would like to declare something in the Register of Members' Interests. Could he detail what that is, because he leaves us rather perplexed?

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Mr. Jackson: I am sure that the Minister will be happy to read my entry when she leaves the Chamber. I have obviously hit a raw spot there.

The British public will see that Bill as underhand, unfair and completely self-serving. I caution the Government that they should not proceed with it.

I want to talk about welfare. The hon. Member for South Derbyshire made a reasonable point about the benign economic circumstances that have existed over the past 15 years in this country. I accept that, in every quarter since the middle of 1992, there has been reasonable economic growth, but I believe that the Government's reputation rests on three quite precarious pillars. One is financial services. Financial services are an immensely important part of the success of this country as a world economic power, and the United States investment bank crisis and the credit crunch will inevitably have an impact on this side of the Atlantic. The Government should be—I am sure that they are—aware of that. The second issue is the unprecedented level—

The Economic Secretary to the Treasury (Kitty Ussher): The hon. Gentleman advised that we look at his entry in the Register of Members' Interests. I wonder whether he could tell us what the United and Cecil club is.

Mr. Jackson: I am happy to—it is a dining club and it made a contribution to my fighting fund before I was a Member of Parliament. The Minister should perhaps research her attack points a little more comprehensively before she intervenes.

Madam Deputy Speaker (Sylvia Heal): Order. I think that the hon. Gentleman is about to move on, but I suggest that we move on and debate the amendment on the Order Paper.

Mr. Jackson: Thank you, Madam Deputy Speaker. I am sure that those on the Treasury Bench will have noted your comments.

The second issue is about public expenditure. We have seen unprecedented public expenditure—roughly 5 per cent. above the rate of inflation—over the past 10 years. That will significantly reduce and that will have a macro-economic impact. The third issue is the housing market, which in many parts of the country is such that new build is not sufficient to keep up with demand. Younger people and families cannot get on the housing waiting list. In my constituency, we have over 6,000 people on the housing waiting list. Any reduction in house prices will have an impact on the wider economy.

I would like you to cast your mind back, Madam Deputy Speaker, to 2 May 1997. How many Labour Members of Parliament would have imagined that their own Government would be—it is scarcely credible—so inefficient, incompetent and wasteful that we now have 5.4 million economically inactive people in our country? The Government do not even know how many jobs they have created. They cannot even verify their own spin. They cannot even say how many foreign workers have entered our country and are in the work force. They have probably understated the number by at least the 300,000 that was conceded two weeks ago.

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Three million people are not in work of any kind. We are constantly told about the Government's success in the economy, but those people are not sharing in that economic success and that growth. Under the current Government, we have embedded a culture of welfare dependency. Millions of people are excluded from sharing in success. They are in cultural and economic limbo.

Barbara Keeley: I do not know for how long the hon. Gentleman has been a Conservative, but I remember when there was a Conservative Government. I was in local government at the time, and there were millions of unemployed—there were thousands of unemployed people in any constituency. If the hon. Gentleman wants to talk about welfare dependency, he ought to think back to the damage wreaked on this country by Thatcher. Under the current Government, in my Worsley constituency we have 1,000 more people in employment. That is a fact. One thousand more families have benefited and are not welfare-dependent.

Mr. Jackson: Under the hon. Lady’s Government, the gap between the poorest 10 per cent. and the richest 10 per cent. has widened. That is a badge of shame for her Government, given the enormous amounts of public money they have wasted and frittered away. It does not wash for the hon. Lady to claim some sort of moral superiority.

Mr. Stephen Crabb (Preseli Pembrokeshire) (Con): We could spend all day arguing about the track records of different Governments, but the truth is that worklessness is still a serious problem in this country. The only thing that has let the Government off the hook in terms of not providing enough investment for skills training and not tackling the growing number of young people not in education, employment or training is the fact that the country has been swamped with a lot of foreign workers, many of whom are highly motivated and have a strong work ethic.

Mr. Jackson: I agree. The Prime Minister’s patently absurd—and, frankly, disingenuous—comments about British jobs for British workers are risible and stand up to no reasonable scrutiny.

Caroline Flint rose—

Mr. Jackson: I will not give way to the Minister because I must make some progress—if she will allow me.

What is the situation? There is a hinterland of crime, alcohol and drug abuse, poor educational attainment, antisocial behaviour and sexual promiscuity. We have the highest rate of teenage pregnancies in western Europe. We are currently spending within the remit of social protection £100 billion per annum—£4,000 per household. That is happening under a Labour Government. We are constantly told how many more people are in work, but rarely is mention made of how many people are not in work and thereby not contributing to the economy and generating tax income for our public services.

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