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Sir Alfred Sherman, a great hero of mine who unfortunately died in 2006, referred in one of his books
to politicians making proposals that were “painless panaceas”. I fear that the Bill is an attempt to introduce yet another painless panacea—the view that irrespective of the additional burdens that we keep putting on business, we can have as many jobs as we currently have and perhaps even more. Such painless panaceas do not exist.
Mr. Evans: I agree with my hon. Friend that painless panaceas do not exist; if only they did. We have put several questions to the hon. Member for Nottingham, East to try to find out exactly the direction of the Bill. As I told him, I totally support giving protection, and equality of protection, to workers in this country. On several occasions, however, he was not certain whether such legislation existed in other countries or whether the EU was trying to introduce it. Perhaps private Members’ Bills should have a pre-legislative stage so that hon. Members who are interested can seek out the answers to such questions before Second Reading. Other than perhaps my hon. Friend the Member for Huntingdon (Mr. Djanogly), none of us is an expert, and such a pre-legislative stage would enable us to get those answers in advance.
Philip Davies: My hon. Friend raises a valid point, and I am sure that what he describes would make us all better off. If every other country in the world were taking the same route, the proposal might have more merit, because British businesses would not be put at a potential disadvantage. I have always been a fan of multilateral rather than unilateral action. Labour Members might argue that if we took the lead and introduced such a proposal, every other country might follow. I have never been particularly taken with that argument. It was, of course, the argument used by CND in the 1980s—that if we got rid of all our nuclear weapons, everyone else would follow suit. I was never persuaded by that argument then, and I am not particularly persuaded that if we were to have an avalanche of workers’ rights, every other country in the world would automatically follow suit. I suspect that most other countries would say, “What a set of fools you have been. We will now exploit the competitive advantage you have just handed us.” I therefore agree with the thrust of my hon. Friend’s point.
Mr. Chope: Does my hon. Friend accept that one problem today is the Government’s failure to respond to the Treasury Committee’s report last July, paragraph 81 of which called on the Government to clarify the application of TUPE in the sort of situations discussed by the hon. Member for Nottingham, East in introducing his Bill? As a result, we are in the dark when discussing the matter today.
Philip Davies:
My hon. Friend makes a good point. My understanding is exactly the same as his. No doubt the Minister will be able to shed some light on that issue. My hon. Friend also makes the valid point—my hon. Friend the Member for Ribble Valley touched on it as well—that we are slightly in the dark on this matter. I am well aware that the hon. Member for Nottingham, East has some explanatory notes, but like my hon. Friend the Member for Christchurch (Mr. Chope), I have not had access to them. On some
matters, I might therefore seek clarification that has been provided in the explanatory notes, but which I would not be aware of.
Mr. Heppell: I accept that the hon. Gentleman feels that he is very much in the dark about the Government’s response to the Treasury Committee report and the law on the matter generally. How does he think that workers feel about being in a far worse position, when in the process of being taken over by one of the companies under discussion? Does he not think that they might feel that they are in the dark as well?
Philip Davies: The hon. Gentleman is right that workers are often in the dark. I was working for Asda when it was taken over by Wal-Mart. Inevitably, because of market sensitivities, we were in the dark to a certain extent about what was happening, but we were pleased that we would retain our jobs and that the company would survive and flourish as a result of the takeover. Being kept in the dark is a minor issue compared with having one’s company safeguarded.
We ought to touch on the importance of the private equity and venture capital industry to the UK economy. It is estimated that in the last financial year, 2006-07, private equity-backed companies generated total sales of £310 billion, provided exports of £60 billion and contributed almost £35 billion in taxes to the British economy. That tax bill alone equates to the salaries of all nurses, ambulance staff and police officers throughout the United Kingdom. Private equity firms are therefore making a massive contribution to the UK economy, as well as to the public services that their taxes provide. Currently, more than 1,500 firms are engaged either directly or indirectly in private equity-related activity. The industry itself employs more than 18,000 people, more than 15,000 of whom are highly skilled professionals. According to a survey carried out last year by the Financial Times analysing the 30 biggest private equity deals conducted during 2003-04, 36,000 jobs had been created as a result of those investments.
The Government are for ever stressing—rightly, as it happens—the importance of improved productivity to the United Kingdom’s economy, and the fact that we cannot succeed without it. A study by Michael Wright of Nottingham university is particularly insightful. He surveyed the industry output of 30,000 UK factories, and found that factories that underwent a buy-out enjoyed big productivity increases, rising from an average of 2 per cent. below the average before the buy-out to an average of 90 per cent. above the average following a private equity exit deal. Private equity is leading the way in improving the productivity of British business. Moreover, it provides substantial returns for its investors.
Labour Members may well conjure up images of fat-cat investors, but we should not forget that many pension funds are investors in private equity firms, and many people’s pensions depend on their success. They provide fantastic returns for their investors. More than 1,300 UK companies received a total investment of more than £10 billion last year alone.
Andrew Miller (Ellesmere Port and Neston) (Lab): How were those productivity figures measured?
Philip Davies: I am grateful for the hon. Gentleman’s interest in the study to which I referred. I will happily send him a copy of the report by Michael Wright of Nottingham university, so that he can enjoy reading it at his leisure. I am sure that it will make it abundantly clear how the figures were obtained. I am sure that he is not questioning the ability of Michael Wright of Nottingham university.
Andrew Miller: The hon. Gentleman has prayed in aid a study carried out by Nottingham university. I want to understand how it fits into his argument, so will he kindly tell the House how the productivity figures were measured?
Philip Davies: I just told the hon. Gentleman that I would send him a copy of the report, which he can study at his leisure.
Andrew Miller: He does not know the answer.
Philip Davies: I am not sure whether the hon. Gentleman is trying to question the ability of Michael Wright of Nottingham university to come up with an impartial report—
Andrew Miller: I am not questioning Michael Wright. I am questioning the hon. Gentleman.
Philip Davies: If the hon. Gentleman is not questioning Michael Wright, whose figures I am quoting, he will accept that the productivity of those companies increased. Perhaps he will give us his estimate of the productivity gain, or lack of it, produced by private equity companies.
Andrew Miller: My point is that there are several different ways of measuring productivity. This could be about massive land disposals or massive redundancies, or it could be about incentives given to the work force by a new management approach. There could be all sorts of reasons for those increases. I want to know what the hon. Gentleman is focusing on.
Philip Davies: If the hon. Gentleman had listened to what I said in the first place, he would know that I made it clear that I was talking about industry output. It was not about selling off land; it was about the industry output of 30,000 UK factories. I hope that that has clarified the position.
Mr. Evans: This reinforces my point about the need for more pre-legislative scrutiny. We are talking about legislation that may have unintended consequences—consequences that the hon. Member for Nottingham, East does not want. It could adversely affect investment in this country, and it could also have a negative impact on jobs. Does my hon. Friend agree that there should be much wider consultation, rather than our saying “Let us kick the Bill upstairs into Committee and see where it goes from there”, which would pose a huge danger to future investment?
Philip Davies: My hon. Friend is absolutely right. Before we embark on a measure that could have such a negative effect, people should be able to understand the consequences. Another benefit of pre-legislative scrutiny, of course, is that it could give people such as the hon. Member for Ellesmere Port and Neston (Andrew Miller) time to read studies conducted by Nottingham university.
Mr. Heppell: I fear that the debate is turning into exactly what I did not want it to become: a debate for or against private equity. I certainly have no wish to get rid of private equity takeovers. However, what the hon. Gentleman has said helps to emphasise one of my own points. I suspect that the productivity changes resulted from changes in the way in which the institution worked, which would almost certainly mean changes affecting the work force. Why can the work force not be involved in consultation about such changes beforehand? I do not see why that should be a problem.
Philip Davies: I understand the hon. Gentleman’s point, but it is not always possible to reconcile the future of a business with meeting the demands of the work force. That is an unfortunate reality. I realise that he does not want to get bogged down in a debate about the merits of private equity, and we are all satisfied that it plays an important role. What I am trying to explain is how important the industry is to the British economy, and how important it is for us not to damage it. If we did damage it, there could be devastating consequences not just for the growth of the economy and the taxes raised, but for the number of people employed.
Mr. Heppell: Does the hon. Gentleman not believe that this industry should be expected to obey the same rules as the rest of industry?
Philip Davies: As my hon. Friend the Member for Huntingdon (Mr. Djanogly) made clear earlier, there are rules applying to private equity firms in relation to workers’ rights. My argument is that the Bill would have such negative consequences for the whole industry that it could cause the firms to invest elsewhere. I shall say more about that shortly. The consequences of where investment goes are very relevant to the debate.
Mr. Evans: That brings me back to a question I asked earlier about whether Lord Jones had been consulted. Clearly the Government have one view, and Digby Jones normally has another view. At least we can have confidence in what he says, because he has been involved in industry for many years. I think that everyone respects his opinions. The CBI, the organisation that he used to head, has said that there is no logic in applying TUPE to private equity transfers, because sufficient protections for employees already exist. I hope the Minister will say something about that. If the legislation already protects workers irrespective of how their company is taken over, why should we introduce legislation that may duplicate what already exists?
Philip Davies: My hon. Friend is right: protection does already exist.
Tony Lloyd: The hon. Gentleman has just made a very important statement. He has said that protection already exists. Will he enumerate the existing protections, so that we can be absolutely certain that he knows what he is talking about and we know what the protections are?
Philip Davies: With the greatest respect to the hon. Gentleman, if he allows me to continue my speech he will hear me deal with the laws that already exist. However, I think it right to begin by explaining the importance of the industry to the UK’s economy.
One of the myths about private equity is that it is a short-term investor, entering a business as a carpetbagger and exiting at the first possible opportunity after making a big profit. A study published earlier this year by the World Economic Forum found that private equity firms tend to hold on to their companies for longer than investors in public companies. In fact, nearly 60 per cent. of private equity fund investors have exited more than five years after their initial investment. It seems that in these increasingly uncertain economic times, private equity has a crucial role in helping to provide stability in the economy, because it takes a long-term investment view. The hon. Member for Nottingham, East said that workers faced uncertainty while people were buying into or taking over firms. On the whole, however, private equity firms invest for longer in companies and therefore create less uncertainty for workers than is normally created.
In order for our economy to remain competitive, businesses need a stable economic and regulatory environment, but the Bill would serve only to add to uncertainty in the private equity industry about what future regulations might apply to it. I fear that, if such an arrangement applies, some private equity businesses might decide to invest abroad. We are competing in an increasingly global economy, so we cannot rely on people just to keep on investing in British companies alone.
Mr. Chope: Does my hon. Friend accept that the mergers and acquisitions activity that takes place in the City of London is vital for our national economy, and that the City is a global hub for that activity and a market leader because of our mergers and acquisitions regime, which is self-regulated rather than having a lot of petty regulation imposed by this Government or the European institutions?
Philip Davies:
My hon. Friend is entirely right. One of the consequences of globalisation is that countries will have to concentrate on their areas of strength. Economies will develop on the basis of certain countries being seen as experts and world leaders in particular fields. Financial services are one of the UK’s few remaining genuinely world-beating industries, and we must build on that. We certainly do not want to undermine it. We must make London as attractive a place as possible for private equity and venture capital to come to. That is the only way we will continue to attract the current levels of investment and encourage the brightest and best people from around the world to come here and invest their money here. We do not live in an era of protectionism, or an era when people must invest in this country and put up with the laws as they
stand. People can invest money in different countries. We need to try to win as much of that business as we can. Winning it will lead to faster growth, higher productivity, more innovation and a higher tax-take for the Exchequer to pay for better public services. If we lose that investment, however, there will be falling productivity, lower pensions, lower general investment, fewer jobs, and a lower tax-take for the Government to invest in public services. That is why it is crucial that we maintain the investment into this country.
Mention was made of sovereign wealth funds. They are estimated to have collectively between $2 trillion and $3 trillion at their disposal to invest. I was therefore interested in the comments of the hon. Member for Nottingham, East as to whether sovereign wealth funds would be covered by the Bill and how such measures might apply. I look forward to reading his explanatory notes on the definition of private equity and to seeing how far his Bill covers that area.
Mr. Chope: It is unclear from my hon. Friend’s comments whether he is for or against the Bill extending to sovereign wealth funds.
Philip Davies: I hope I am making it clear that I am not in favour of the Bill at all, so I do not want it to apply to any funds, including sovereign wealth funds. I am grateful to my hon. Friend for allowing me to make that point clear.
We all agree that we must upskill the UK work force. The UK currently has far too many unskilled jobs. There will always be unskilled jobs in any economy, but because of the globalisation of our economy, our reliance on unskilled jobs will decrease as other countries can provide those jobs much more cheaply. Private equity and venture capital companies are among the best providers of skilled jobs in the country. We must attract such jobs into the country, rather than rely on unskilled work—something we cannot rely on too far into the future.
Mr. Chope: Is my hon. Friend aware of this statistic: companies that have received private equity backing account for the employment of approximately 3 million people, which is equivalent to 21 per cent. of UK private sector employees, and that almost all those employees would be categorised as skilled workers?
Philip Davies: My hon. Friend is absolutely right, and I am grateful to him for emphasising my point.
I mentioned earlier that 1,300 companies received private equity investment in the last financial year. More than three quarters of them received less than £2 million. Those investments were not, therefore, big takeovers; rather, they were crucial to development and growth, often of small companies or start-ups. Small businesses in this country often find it difficult to get going; the high taxes and the number of regulations that they face mean that it is hard for them to become successful. Private equity is one of the key investors in helping small businesses to get started, develop and therefore become bigger businesses that can pay higher taxes and employ more people.
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