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31 Mar 2009 : Column 841

I welcome the Government’s clear agenda of getting help out there as soon as possible. As has been said on many occasions on this side of the House, it stands in stark contrast to what the Opposition would have done, as they would have let the recession take its course and done nothing. I also know that my right hon. Friend the Chancellor is committed to continue to take whatever action is necessary to bring Britain through the downturn—hopefully stronger and hopefully soon.

However, I need to impress on ministerial colleagues the fact that, according to the feedback I am getting from the businesses in my constituency, there appears to be a singular lack of knowledge among the banks of the help that is available. Certainly according to actual stories given to me and anecdotal evidence from the Federation of Small Businesses in Scotland, it appears that high street banks are either not aware of the Government schemes that we have spoken about this afternoon or they do not know how they operate. I understand from reading some of the reports produced after the Treasury Select Committee’s tour of SMEs around the country that the same message was given to them. Yes, it is fine for us to have strategic discussions and take strategic decisions here, but we have to recognise that information must get through to the grass-roots businesses that are so crucial to the existence of our local communities. I know that there is some evidence that the Royal Bank of Scotland is beginning actively to promote schemes and to offer to work more closely with the business community, which is obviously welcome.

Let me make this concluding point. There is now a level of expectation of what the banks, particularly those in which the taxpayer has majority control, can and should do—and I think the banks need to be aware of that expectation. That should apply not just to their dealings with small businesses, but to how they conduct their own business. To use one final example from my constituency, I received a communication from a small IT company that had a successful relationship with the Royal Bank of Scotland over some years. According to my constituent, it is now a stated aim of RBS to seek offshore services to replace suppliers such as his company—regardless of the logic and, in some cases, in complete disregard of the business case. He accepts the need to get the best price for the job, but is aggrieved—and, I have to say to my right hon. and hon. Friends, with some justification—that firms such as his are being excluded by a bank that he feels he has a stake in. I hope that Ministers will continue to use the influence we have on banks under our majority control to ensure that we not only exercise that control, but exercise it in the best interests of British business at a time when it is facing major difficulties.

Finally, let me say that small businesses did not cause the recession, but they will be vital in getting us out of it. I know that my Government will continue to take all necessary action to ensure that small businesses are supported through these difficult times, but let me make one final plea: we can talk all we like about this, but the partners—the banks, the business gateways, the local authorities—must ensure that the information is getting through. Otherwise, if there is a complete disconnect between what we say nationally and what is happening locally, we will undermine the credibility of all of us, and perhaps make this situation last longer than necessary.


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6.40 pm

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): I pay tribute to the right hon. Member for Stirling (Mrs. McGuire) for highlighting the importance of small businesses to the economies of our constituencies, and I echo what she said about their frustration that the banks do not always seem to understand what schemes are in place and how they can be best delivered. There is also the general frustration felt by our constituents when they see the big—global—sums going into the banks and then how little seems to be coming out the other end. The banks must be encouraged to recognise the importance of small businesses to our economy.

I want to raise a specific constituency issue that is of major importance to the UK economy too: the future of the oil and gas industry, which has been a great success story for the UK economy. The Treasury has a vital role to play, and now, in the run-up to the Budget, the timing could not be better to reinforce to the Treasury how important the industry is to the country. I should declare some of my interests as registered in the Register of Members’ Interests. The most relevant of them are shareholdings in Shell, an oil and gas company, and a visit to the Offshore Northern Seas conference and exhibition in Stavanger, funded by oil and gas companies.

Let me first, however, address some of the general issues that have come up in the debate. I echo the view of my hon. Friend the Member for Twickenham (Dr. Cable) that the economic stimulus of the VAT cut was untargeted. Many Members on both sides of the House have argued that a more targeted approach in other areas of the economy might have led to a more direct benefit. On behalf of another industry in the constituency, the distilling industry, I should add the concern that although the VAT decrease is temporary, the spirits increases will be permanent, and that sends a signal to overseas markets that such discrimination against these products can take place. In the run-up to the Budget, I urge the Government to look again at the approach to alcohol taxes and VAT.

We as a country should celebrate the oil and gas industry as a major achievement, and welcome its successes. A third of the Government’s corporation tax comes from the industry, and there are 500,000 jobs in it. It has also been a major part of providing a secure energy supply to this country, and has helped to contribute to our cut in CO2 emissions through the use of a lot of gas in energy generation in this country. We need to build on that strength. Oil and gas is not a lame-duck industry; it faces major challenges at present, but it has a strong future.

Oil and gas is one of those industries where, even for those who do not believe that the Government and industry should be too closely involved with each other, it is inevitable that there will be a major involvement, because the oil and gas under our seas belong to the nation, but we do not have the skills and wherewithal to get them out of the ground without using private industry. Therefore, there will inevitably be a strong relationship between Government and industry if we are to achieve the maximum benefit for the UK economy.

Some of the challenges that the industry is facing are background challenges, of which the Treasury was, I think, beginning to be aware even before the current credit crisis. The maturity of the North sea province is
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one of the challenges: a lot of the infrastructure is quite old, and the finds are much smaller and therefore more expensive to produce, and they rely on the existing platforms and pipelines still being in place to make it economic to produce them. Therefore, there is an increase in costs in a globally competitive market, and the challenge to take forward investment when faced with much higher input costs.

Then, of course, the oil price dropped and the credit crisis hit. Some of the big companies—ExxonMobil, Shell, BP—have their own cash flow and are not necessarily directly hit by the credit crisis, but the maturity of the UK market makes the credit crisis more serious, because many of the innovations and new explorations in the North sea are coming from smaller companies that do not have the cash flow to make the investment.

It is also a matter of great concern that the two major banks that were providing a lot of the liquidity in the North sea were the Royal Bank of Scotland and HBOS. With their tightening up of lending, there is a credit problem, and the drying up of the equity markets also causes a credit problem. In the short term, therefore, the industry faces a challenge. What is needed is not a bail-out, but investment incentives and a better sharing of the risks and rewards between the Government and industry.

The Budget offers an opportunity to provide that. The Government had already been engaged in considerable dialogue with the industry on tax incentives to invest even before this crisis hit, and they have come up with a proposal for a value allowance to encourage greater investment in new fields—smaller fields and high temperature, high pressure fields, and fields west of Shetland where there is more of a challenge and even greater investment costs. The Government must make sure that when they introduce that allowance in the Budget it is of a serious enough scale actually to encourage new investment.

The Government also need to extend the scope of what they are doing to existing infrastructure. Without the existing pipelines, processing plants and platforms still being in place, the new fields into which they hope to attract investment will not be economic, so they need to extend the tax encouragement to incremental developments on those existing platforms in order to make those platforms worth keeping in place for longer and keep the infrastructure available for the new investment.

Another issue the Treasury needs to look at is the cash-flow crisis, because it can play a part where the banks are failing. Exploration gets tax relief. For existing players with existing income, that tax relief comes up front, but for new entrants the Government could bring forward the tax relief, pay that up front, and then reclaim it over the life of the field as production comes in. If they can trigger a greater interest west of Shetland, it will be a real morale boost to see a new province opening up with new finds.

The industry itself has an important role to play, and any Government working with the industry need to emphasise to the industry that it must learn the lessons of previous downturns and keep the skills as far as possible, and not make people redundant. So far, there have been strong signs that it has learned that lesson, but we need to reinforce it. People do not come back to
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an industry in the upturn if they have been turned away in the downturn. The industry also needs to reinforce its own code of conduct in the supply chain by making sure that those who are cash-rich at present settle their bills quickly, because if the supply chain is not kept operating efficiently and effectively during the downturn, it will not be there again for the upturn.

The reward for the Government if they get the incentives right and get us through the crisis is more oil and gas coming out of the ground in the future, more income to the Treasury in tax returns, and—this is the great jewel in the crown for the UK economy that has come out of the North sea—the exports, such as the skills we now send around the world and that bring money back into this country, to the benefit of our balance of payments. That is especially the case in sub-sea engineering; a great lead has been shown by British expertise in the North sea, from bases in Aberdeen and the rest of the country, and that is now being applied internationally and globally.

While manufacturing is being challenged in many parts of the economy, the North sea oil and gas industry is providing major investment in, and stimulus to, manufacturing. Many constituents in the north-east of Scotland still do not realise how substantial a manufacturing base we have on the back of that industry.

That industry has other contributions to make to the future of UK energy in terms of the low-carbon economy, because the skills learned there can be applied to carbon sequestration, so the Government need to make sure that the incentives for taking forward carbon sequestration are well developed. The expertise learned in the sub-sea engineering sector, which I have mentioned, cuts across into the engineering needed for deep-sea offshore wind developments and for tidal and marine developments for the future.

This is not a lame-duck industry; it is a major part of the UK economy and it is facing a challenge at the moment. With the right handling by the Treasury and the right announcements in the Budget, that challenge can take us forward to a very exciting future where we can see and get rewards—where both the Government and the industry get more. Any oil and gas left in the ground will pay no tax and provide no jobs, and will not contribute in any way to our security of energy supply, so the real message to the Chancellor is to get it right in the Budget. We are at a crossroads; we have bounced back from previous downturns because there was a less mature province and there were still big finds to tempt people back in, but if we do not handle this downturn right, we will not get the benefit of the recovery because we will not have the infrastructure in place to secure that benefit. I urge the Chancellor to make a dramatic move in the Budget to see us through this crisis to a great future—

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I call Mr. Lindsay Hoyle.

6.50 pm

Mr. Lindsay Hoyle (Chorley) (Lab): I am pleased to have the opportunity to speak in today’s debate, which is one of the most important that the House is holding. It is about how effectively we are addressing the issues affecting the UK economy: jobs; the survival of businesses;
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and protecting the individuals who are hit the most by the downturn. We are at a defining moment in our response to the economic challenges that we face. More of the same will not work; the challenges have changed and so must our response.

In changing our response, I believe it is time to bring forward the end date of the VAT reduction. I supported the measure when it was introduced because it had an immediate impact and it was right to introduce it at the time. There was no doubt about that, because we wanted to get money into the economy very quickly and the way to do so was through a VAT cut. That worked at the time, and I do not question the Government. The measure was about helping hard-working families, but there are now signs that the policy intervention has run its course. That was recently highlighted by the Office for National Statistics, which stated that companies are increasingly deciding to reverse the VAT cut; in fact, some local authorities never introduced it, and that has always been a problem.

In addition, we have to assess the opportunity cost of this measure. The VAT reduction has been quite expensive—Treasury figures show a cost of £8.6 billion between now and the end of the year. That sizeable amount could be better redirected in a targeted way to help those in greatest need. One option is to introduce a time-limited wage subsidy scheme, targeted to keep open viable businesses that are struggling due to the economic downturn. The Government have rightly introduced measures to help those who are unemployed, but surely we should be acting to prevent unemployment in the first place—that would be the way forward.

Mr. Graham Brady (Altrincham and Sale, West) (Con): The hon. Gentleman suggests ending the VAT reduction nine months early. Surely one of the big problems with the temporary reduction was the disruption that it caused businesses, which had to change prices without any warning. Is there not a danger that that disruption would simply be multiplied by giving them very short notice of a further change?

Mr. Hoyle: It is not often that I disagree, and the hon. Gentleman makes his point, but I say to him that some businesses never introduced the reduction and some have already put prices back up, so we have a mix-and-match approach in the VAT circles. I understand that there was a cost to business, but this is about doing the right thing by the people of this country and the best thing by people who are losing their jobs. It is about refocusing and re-using that money—we can do that—to keep people in employment, and that is what it should be about. We have to support people who have lost their jobs, because there is no greater upset to any individual or family involved. Surely if we can protect people so that they do not lose their job, that ought to be the measure that we take.

It is a concern that short-time working and temporary lay-offs are now a reality. In some cases, that is having a negative impact on workers who qualify for tax credits, as short-time working is taking them below the minimum hours qualifying threshold. We can help them and we can ensure that those families will still receive the tax credits. We are seeing the impact of short-time working in constituencies up and down the country. My constituents have told me about its impact, highlighting the difficulties
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and uncertainties facing both workers and employers. Each week more businesses are being forced to do the same. These companies and their workers deserve our support, and we have a responsibility to respond to their needs.

We should introduce a wage subsidy scheme that is time-limited, and that has sufficient safeguards to ensure that only those firms directly affected by the impact of the recession can qualify and that we avoid a dead-weight—in doing so, significant benefits could be achieved.

Mr. Robert Flello (Stoke-on-Trent, South) (Lab): I am enjoying my hon. Friend’s contribution. On Saturday, I met union representatives from Michelin, Pirelli, Goodyear and others in the essential car component industry, which is being heavily hit at the moment; some employees are now on half the wages that they used to receive. Would he like to comment on those workers in that key industry?

Mr. Hoyle: Manufacturing does matter and we have to protect those workers. My hon. Friend is right, because if workers are on half the salary that they were on and they are working half their hours, it is right that we introduce a wage subsidy scheme. It would help those people and we ought to be doing that.

Mr. David Drew (Stroud) (Lab/Co-op): The problem with short-time working is that it will have long-term consequences if we do not introduce such a scheme. The jobs will go to France and Germany, and even to parts of the UK, such as Wales, that offer these wages subsidies at the moment. That is, quite simply, unfair for manufacturing industry in my hon. Friend’s constituency and mine.

Mr. Hoyle: I totally agree with that, and I shall touch on the point that my hon. Friend makes about Wales.

Support such as I am outlining would enable employers to avoid immediate redundancies and to retain essential staff and skills, and if it were linked to training in the workplace, it would provide the added benefit that we would be best placed when we come out of the recession—we would not have lost the skills and we would not have missed out on training. This country has to be best placed, because when the dam bursts the opportunity will be there before us and we must ensure that our people are in place. We will not be able to go round the country saying, “Who has got this skill? Who has got that job? Come back to work here.” That will not be good enough. We have to support these people now.

Such support would enable employers to avoid immediate redundancies and the scheme should also be about extra training, because long-term work force investment could be provided in this way. The TUC has estimated that, for a cost of £1.2 billion annually, excluding the training costs, up to 600,000 workers could be protected each year through such a supporting measure. The funding could be drawn from the ending of the VAT reduction, and there would be a considerable sum left over to target elsewhere. As I have said, we could maintain manufacturing, which should be the backbone of a successful economy in the future; we should not be reliant on the financial services. We have to get back to where we were and we have to learn from the mistakes that we have seen. The previous Government and this
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Government have fallen into the trap: they gave up on manufacturing when they should have been supporting it, investing and making sure that we were best placed. Let us not make those mistakes again. It is crucial that we get things right this time for the future of manufacturing.

Across Europe, Governments have recognised the benefits of such a scheme. We have already seen the support that has been given in, for example, Germany, France, Spain, the Netherlands and Italy. Closer to home, the Welsh Assembly Government introduced a wage subsidy scheme called ProAct at the beginning of the year; a scheme that took only two months to set up has become operational and now benefits many businesses and workers across Wales, and quite right too. If Wales can do it, so can we. Furthermore, the introduction of a short-time wage subsidy is supported by business leaders such as the Federation of Small Business, by major corporate organisations such as Corus and JCB, and by many trade unions; this is supported across industry and across the trade unions. We must make keeping viable businesses open and protecting jobs the priority if we are to come out of this recession in a stronger position. If we fail to do so, there is a danger that we will lose many of the much-needed skills that are vital to ensuring that our economy is the best. I urge the Government to introduce such a scheme without delay.

The second policy that is urgently needed is a change to the way in which statutory redundancy pay is calculated. I am sure that my right hon. Friend the Financial Secretary is aware of the aims of my Statutory Redundancy Pay (Amendment) Bill. Some 200-plus MPs have signed the early-day motion, and the Bill has had a Second Reading and I hope that it will now go into Committee. It is critical that the Government pick up this issue in the Budget. There is a real belief that it would make a difference, so I hope that the Government will not let the people of this country down. Let us reduce the two-year period to one, and let us be honest and stand by our manifesto pledge.

I also urge my right hon. Friend to reject the proposal for a minimum payment guarantee, floated by the CBI. There is a real danger that many workers would lose out as it would be lower than the current statutory cap.

Workers up and down the country are facing the threat of redundancy through no fault of their own. We need to do something to help them. Many hard-working people are looking forward to the Budget. People who have saved money and are dependent on those savings for an income are now being failed. We need a scheme that would provide a guaranteed minimum return for savers, through a national savings scheme. That would guarantee that those pensioners who have looked after their money and saved all their lives would get a return when they need it.


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