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Baroness Symons of Vernham Dean: My Lords, the best way that I can answer my noble friend Lord Rea is to quote from what Dr Blix said at the Security Council on 22nd April. He said:

He went on to say:

    "It is also evident that some of the premises upon which the Council established UNMOVIC and gave it far-reaching powers vis- à -vis Iraq have changed".

Nottingham City Council Bill [HL]

3.8 p.m.

Read a third time.

Clause 5 [Information to be kept by registered dealers in second-hand goods]:

The Chairman of Committees (Lord Brabazon of Tara) moved Amendments Nos. 1 and 2:

    Page 5, line 25, leave out "this section" and insert "the relevant paragraph"

    Page 5, line 43, after "may" insert "by resolution"

The noble Lord said: My Lords, both the amendments have been proposed by the promoters and are minor drafting amendments. They are available in the Printed Paper Office in the usual way for Private Bills. I hope, therefore, that it will be for the convenience of the House if I ask leave to move the two amendments en bloc. I beg to move.

On Question, amendments agreed to.

On Question, Bill passed, and sent to the Commons.

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Business of the House: Debates this Day

The Lord Privy Seal (Lord Williams of Mostyn): My Lords, I beg to move the Motion standing in my name on the Order Paper.

Moved, That the debates on the Motions in the names of the Baroness Hogg and the Lord Hanningfield set down for today shall each be limited to two and a half hours.—(Lord Williams of Mostyn.)

On Question, Motion agreed to.

Burdens on Business

3.9 p.m.

Baroness Hogg rose to call attention to the fiscal and regulatory burden on businesses; and to move for Papers.

The noble Baroness said: My Lords, I am honoured to have been invited to move this Motion. I should like to thank the House for this opportunity and the Minister for what I know will be a thoughtful and considered response. I believe that this debate is extremely timely because it comes at a point of great vulnerability in the business cycle.

I must start by declaring my interests, which I hope will also serve as my credentials to speak on this subject. I am currently chairman of two companies. One is large—3i, Britain's leading venture capital company, started nearly 60 years ago and today invested in more than 2,000 businesses across Europe—and one is rather smaller: Frontier Economics, started less than four years ago, which has a turnover of about six and a half million pounds. I am on the board of Carnival, the dual listed company that—uniquely—is in both the FTSE 100 and the S&P 500. I am also on the board of one of Britain's most respected engineering companies, GKN.

In all these contexts I see enterprise as being about capturing the value associated with business opportunity. First, for people to do this successfully there clearly needs to be opportunity. Secondly, people have to see and want to take that opportunity. Thirdly, to enable and encourage them to do so, there needs to be the right economic, fiscal and regulatory climate, which is where government, which can destroy enterprise but never create it, come into the picture.

When talking of the economic climate I always remind myself that God created economists only in order to make weather forecasters look good. But I think that any fair-minded person would acknowledge that this Government started, in 1997, with the economic climate set fair. Their predecessor had provided British business with important advantages in terms of the fiscal and regulatory regime, the incentives provided by five years of continuous economic growth, widely spread across the economy, strong investment and low inflation.

I readily acknowledge that this Government have helped to embed macro-economic stability by their approach to monetary policy. I also should like to pay

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tribute to the Chancellor's commitment to competition policy which—again unlike some of his colleagues—he clearly understands to be essential to efficiency and growth. On the fiscal side, I welcome the reduction in capital gains tax to 10 per cent and the development of the Enterprise Management Initiative.

But I know that the Minister is too sensible, and too honest, to pretend that everything is sunny today. Perhaps the most serious evidence of trouble has been the collapse in business investment, which helped to precipitate the economic slowdown and the sharp downturn in business confidence. We must hope that the Chancellor is right to forecast in his Budget that the economy will pick up in the second half of this year. But I note that even he is not forecasting much of a recovery in business investment.

I think that we have all learnt by now that there is an inverse correlation between the weight of the Budget book and the weight of its contents, so it was with something of a relief that I found that this latest one hits the kitchen scales at close to a kilo. There is this year less micro-engineering in the Budget and some evidence that the Chancellor has recognised the cost of complexity in some of his earlier ideas. Since the hefty increases in national insurance had been announced previously (and the Chancellor did not exactly dwell on them in his Budget speech), all the Budget does is to take roughly the sum of money of which taxpayers have been deprived by a refusal to index their income tax allowances and spread that around elsewhere.

Even so, there are interesting tax proposals in the Budget that need clarifying. We have yet to see how the changes to VAT will work out in practice, though I recognise good intentions. On stamp duty the picture is more confused and the Government are in danger of creating damaging uncertainty here. However, as a member of the Select Committee which is having its first shot at reviewing elements of the Finance Bill, I hope that we can mobilise expert opinion on these issues to good effect. I believe that via this important innovation your Lordships' House will be able to expose some of the weaknesses in tax legislation in Britain—the paucity of consultation, the uncertainty created by a lack of preparation or poor drafting, the erratic approach to implementation dates—without in any way infringing the constitutional rights of another place.

The key conditions for creating a good fiscal climate are that tax should be fair, that it should not be over-complicated to administer—either for business or for the public sector—and that it should not be at levels that will drive business away from Britain. The same criteria apply to the regulatory regime.

There is something of a paradox involved in making international comparisons. As a member of the European Union we badly need other members to stop dragging their feet on economic reform. Reluctance to proceed with the Lisbon agenda is undoubtedly acting as a drag on growth in our most important market. I commend the Prime Minister's intentions in pursuing this, although I would rather be commending his

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success in achieving it. At the same time we need to maintain the edge in terms of light regulation and low business taxation established in the late 1980s and early 1990s in order to attract investment and encourage growth in Britain.

Last year the European Venture Capital Association published a benchmarking study of the tax and legal environments in member countries. The fact that Britain was still in the lead is both good news and bad. With Germany in the bottom three, it shows how much needs to be done to give the European economy the stimulus to growth provided by a healthy venture capital market. At the same time it reminds us that the UK has relied on a leading edge which can easily be blunted. The latest international survey of corporate tax rates shows that edge is suffering from some erosion. These warning signs should discourage Ministers from imposing yet more distracting regulation, from conceding regulatory agreements in Brussels that might damage British business, and from counting on business to be the financial source of the Government's spending plans.

There are warnings enough even in the Budget arithmetic. This shows how the Chancellor's revenues have been dented by the weakness of the economy, and most notably by the weakness of the corporate sector. Yet he is expecting the overall tax burden to rise rapidly, to over 40 per cent of GDP by 2006. I have to warn noble Lords that the Minister is likely to give them a rather lower percentage because the Government have developed a rather cute way of netting off the total of the tax burden those bits of the social security system that are being combined with the tax system. The proper national accounts measures, free of this distortion, are, however, safely in the Budget Red Book, provided you get as far as page 260. They will show you that the Government plan to have increased the burden of taxation from last year to the end of this Parliament by 150 billion.

I say "even in the Budget" because most respected outside commentators believe that the Chancellor is overestimating the revenue that is likely to be generated by the existing tax regime. The important point to note is that this is true even of those—most notably the highly respected National Institute—who go along with the Chancellor's forecasts for economic growth. That is to say, they believe that even if the economy grows at over 2 per cent this year—a number of people have challenged that figure—and accelerates next year, tax revenue will still fall well short of the levels in the Budget Red Book. That means, of course, that tax rates would need to be raised substantially to deliver the tax revenues the Chancellor forecasts.

As a member of the President's Council of the CBI, I know how great industry's concerns are that the current levels of regulation and taxation should not be further increased, and about measures in the pipeline from Brussels and Whitehall that may add to the burden. We appreciate the steps that the Chancellor took in his latest Budget to lift a few straws out of the sack, but I fear that his colleagues are still puffing behind him with further loads for the camel's back. Perhaps it is foolish of me to hope that timely warnings

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can be helpful, but I shall let hope triumph over experience today and look forward with the greatest confidence to the Minister's response. My Lords, I beg to move for Papers.

3.18 p.m.

Lord Haskel: My Lords, I am most grateful to the noble Baroness for moving this Motion. I was very interested to hear her review of the economy but I should like to take this opportunity to lay some of the myths and misapprehensions about the effect of regulation and taxes on business.

If you listen to the rhetoric, you get the impression that if business were free of regulation and taxes, the economy would flourish and the world would be a better place. Yes, there are some countries where there is very low taxation, little regulation and the minimal state. There are the oil rich countries of Nigeria and Angola. Haiti has very little regulation and virtually no taxes. But these are not places where people want to live. People want to live in the G8 countries, which are the most highly taxed and have the most highly regulated economies. People want to live in those countries because they are the most economically successful.

The explanation of this apparent paradox is simple. Business does not exist in isolation, it exists within society. Markets are as much a social phenomenon as an economic one. If business is to operate successfully within a society it has to accept the values of that society and the norms of its communities. Ignoring that has led to the disappearance of many, many businesses.

It is regulation and taxation which balances the needs, rights and responsibilities of society and business and enables them both to thrive. The balance is achieved by long-standing public regulatory institutions, and the economic success of the rich states depends crucially on the quality of institutions such as the Financial Services Authority, the Food Standards Agency, Ofcom and all the others that we have.

Yet if we listen to organisations such as the CBI or the IoD, we get the impression that they want business to be relieved of the burden of regulation, so that they can be free—free to pollute the atmosphere, to sprawl over our countryside, to exploit staff and customers, and to undertake risky and hazardous activities without any responsibility for negligence or mismanagement. I think that most members of those organisations simply would not want to live in a country with that kind of society. However, we are constantly fed misleading information about how excessive the burdens are. Let me give an example.

At the British Chamber of Commerce conference on 31st March, we were told that 3,849 regulatory instruments were passed last year and that the huge burden on business was becoming unbearable. Nothing like that number of statutory instruments come before your Lordships, so I am grateful to Polly Toynbee, who found out a little more about them. It seems that nearly half were to do with local traffic

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restrictions in order to allow road works and other activities to take place. Others dealt with stopping arms being exported to terrorists or to countries such as Zimbabwe. Many dealt with regulating bus services. There was a regulation abolishing VAT on lifeboats.

Are those really an unbearable burden on business? Yes, there was a regulation about fitting seatbelts to fork-lift trucks because there had been a number of serious accidents, including fatalities, caused by fork-lift trucks tipping over. Surely that is something that most reasonable businesses would do anyway, yet it is listed as a burden on business.

Another regulation on the list of burdens was to do with maternity arrangements. Do we really want to label women having children as a burden on business? Surely the end result will be that business will lose 50 per cent of the nation's skills and alienate 50 per cent of the nation's brain power. Is that what business wants to do? I do not think so. Family-friendly working has been shown to bring benefits.

The truth of the matter is that our regulatory institutions—they are proportionate and minimalist—work better than most. That was confirmed in a recent OECD report, which said,

    "entrepreneurs face a better business and regulatory environment in the UK than in most OECD countries".

The same applies to the so-called burden of taxation. The noble Baroness, Lady Hogg, pointed out that our burden was less than in most OECD countries. They are catching up. When the average level of corporation tax in the world's 30 richest countries was 37.5 per cent, ours was 30 per cent. They have had to cut their rates to bring the average down to 31 per cent, so ours is being cut yet again, particularly for small businesses. Another example is social insurance, which makes up 21 per cent of employment costs in America, but the average in Europe is 24 per cent. In the UK, it is 13 per cent.

One reason why I think that our institutions work well here is that we have a counter-regulation culture in place, and have had for many years under both Tory and Labour governments. Regulations are looked at to see if they are a barrier to innovation and progress, and we are getting better at it. As David Arculus confirmed recently, we have got much better at consulting on regulation.

In spite of our relatively low fiscal burden and the warm words of the OECD, all is not well with British business. In spite of the low burdens on business, productivity here is lower than in most OECD countries. Could it be that, although we have fewer regulations, the standards are too low? Was the noble Lord, Lord Heseltine, right when he said that a great deal of German productivity gains came because Germany's government imposed even higher standards on manufacturing which could be paid for only by improved productivity? When the EU decided that fridges had to be disposed of without releasing ozone-depleting chemicals into the atmosphere, we had to buy German technology to achieve the required standard.

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How do we explain higher productivity in France despite its inflexible and over-regulated employment laws? I am not suggesting that it is because we have too little regulation. I am suggesting that perhaps the market is less effective and slower at driving up standards than regulation—and rising standards is what we all want. The indiscriminate and exaggerated condemnation of regulatory and fiscal burdens does not do business any good in the eyes of the public, who are after all our customers. The recent scandals about pay and dishonesty only add to the mistrust of business by the public.

It is the mentality behind the corporate scandals—that senior executives can use their powerful positions for their personal gain rather than accepting the duty, care and responsibility for the livelihoods of their employees, customers and others who depend on the company—that is worrying. Sadly, the same mentality exists here in Britain and in the US. The opportunities are fewer here than in the United States thanks to our regulatory institutions.

I end where I started. British business should be thankful that we have institutions which regulate effectively and proportionately, and tax relatively lightly. The continued carping and exaggeration by business organisations do us all a disservice, because they seem to be calling for the minimalist state, a place where none of us would want to live. Indeed, it is that exaggerated complaining about regulation which is making business less trusted, and that lack of trust will inevitably lead to calls for yet more regulation.

3.27 p.m.

Lord Freeman: My Lords, noble Lords will wish to congratulate my noble friend Lady Hogg on a most excellent speech. It was succinct, clear and comprehensive, and I am sure that at least we on these Benches will very much agree with it. If she will permit me, I do not intend to try to emulate her contribution, but rather to pick up a number of points made by the noble Lord, Lord Haskel. I very often follow him in debate, and each time I find myself in total disagreement, not only with the general tone, but with a lot of the particulars. He is a good debater, but I am sure that noble Lords will appreciate the chance to have some of his assertions properly debated.

I declare an interest as a chairman of an electrical engineering company and a consultant to PricewaterhouseCoopers, which has to grapple with the flow of tax legislation to which my noble friend referred, and on which I want to touch. I do not intend to quote examples or even to get into an argument with the noble Lord about the number of regulations introduced and their sub-categorisation. That is a blind alley that will not be constructive to the debate. However, I want to follow him in looking at the process whereby governments create regulation and parliaments fail to check it.

I have only 20 years' experience in Parliament, which is a mere fraction of the service of many in this Chamber. However, to be frank, we are losing the battle. The noble Lord says that we live in a counter-regulation culture. We do not. I refer to both

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government and to Parliament, which, sadly, fails to check the executive. We all live in a culture of regulation in this country. I believe that we are losing the battle. More regulations affecting business are issued each year than can be dealt with under the excellent initiative referred to by the noble Lord, Lord Haskel, introduced by the noble Lord, Lord Heseltine—improved, it must be said, by the present Government in 2001—to introduce deregulation measures. Despite those welcome initiatives there is a continued net increase in regulations which adversely affect business.

The Finance Bill gets longer each year—a point referred to by the noble Baroness, Lady Hogg—and is now becoming almost unwieldy. New initiatives from the Department of Trade and Industry in particular, and state aids, which are offered by a number of departments, although each is individually welcomed by different lobby groups, now amount to a blizzard of initiatives which are extremely complicated to understand and which in many cases are counter-productive.

The problem is that Ministers and civil servants can always justify each new regulation on its merits. But if you look at one regulation incrementally added to the totality of regulation affecting business, there are always arguments for and against. Ministers are always eloquent in arguing that social justice, pressures from Europe, the need for the improvement of the interests of one section of our economy or society over the rest will justify the introduction of a regulation. The problem is that there is no one looking at the totality—not only of those regulations introduced during the course of the year but cumulatively. There is no one making a judgment as to whether, overall, they are in the best interests of our economy. I believe that the burden on business is now intolerable.

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