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Lord Razzall: My Lords, would the noble Lord, Lord Saatchi, be prepared, in order to elucidate his point, which I well understand in the context of criticism of governments, to give similar figures for 1996 and 1997?
Lord Saatchi: My Lords, does the noble Lord mean figures for the rate of growth of spending?
Lord Razzall: My Lords, I mean figures for the amount of borrowing that the Conservative government left this Government with.
Lord Saatchi: My Lords, I do not have that figure to hand.
Lord McIntosh of Haringey: My Lords, you could write to him.
Lord Saatchi: My Lords, that is a good idea. As we know, the Government made a great deal of the fact that they had repaid the debts of their predecessor. We now know what happened.
Lord Razzall: My Lords, I thought that the point that the noble Lord was going to make was that, when the finance director—the Chancellor of the
Exchequer—for 1996 and 1997 got to the ballot box, he was sacked by the electorate in the way that he ought to have been.
Lord Saatchi: My Lords, I am not sure that I completely follow that point, but I am sure that it was a good one.
The third course heading is "Transparency". Business school students are taught never to weave a tangled web and never to engage in too-clever-by-half accounting practices because it will all unravel in the end. What is the Government's example to business? First, they tried to bury £15 billion a year of tax credit costs in the notes to their accounts. Currently, they are trying to magic about £100 billion of debt off their balance sheet by the creation of special purpose vehicles that carry the debt away from the public gaze. It is no wonder that Professor Likierman, chief adviser to the Treasury on such matters, said:
- "Reader understanding [of financial reports in the public sector] is sometimes felt by those who compile them to be a disadvantage".
I end the series of tests with the final Harvard coursework heading. It is probably the most crucial, as it concerns human relations, a vital issue to everyone in business. The heading is "Profit-related compensation". Business school students are taught that pay should be linked to results, which could be sales, profits, market share, share price, customer satisfaction or whatever. In a bizarre caricature of business school teaching, the Government have somehow absorbed into their collective brain the idea of business-like targets for their employees. So it was that the Secretary of State for Health told a radio programme on 4th March that,
- "Everyone has targets these days. It's part of the currency of management in the private sector".
The editor of the Guardian agrees with what my noble friend Lord King of Bridgwater said about what, I think, he called the inability of the system to administer what Parliament has enacted. Here is what he said about the Government's business-like approach:
- "They have become the modern day equivalent of Russian train managers who, in the most oppressive period of Soviet rule, sent out numerous empty trains through the middle of the night to fulfil their timetable targets".
The Government directly employ 25 per cent of the population—7 million people. They control the lives of 40 per cent of the population by, first, taxing them and, then, allowing them to claim means-tested benefits. They have made 90 per cent of the population eligible for a government credit. It is on to that body that the Government are attempting to graft the head of the American type of businessman that, they say, they so admire. They are putting a panther's head on a camel's body. Is it any wonder that the monster so created is doomed to die?
With regard to the regulation or taxation of business, the Government are nobbled by their heritage. As all my noble friends said today and as my noble friend Lady Thatcher—I am sorry not to see her in her place today—once memorably said,
- "The facts of life do invariably turn out to be Tory".
4.37 p.m.
Lord McIntosh of Haringey: My Lords, I am particularly grateful, for two reasons, to the noble Baroness, Lady Hogg, for introducing the debate. First, there is the more personal reason that she anticipated a response from me that would, she said, be thoughtful and considered. I shall try to achieve that, although I cannot promise that I will. I must say to her that I thought that her introductory speech was thoughtful and considered, and I am grateful for it. It was a contrast to some of the speeches that followed.
The second reason why I am grateful to the noble Baroness is that she added to the words of her Motion. To the phrase "fiscal and regulatory burden", she added the word "economic". That was right. We cannot think about the position of business in this country or in any country without considering the economic circumstances as well as the fiscal and regulatory circumstances. As one who ran a small business myself for 30 years—I have declared that interest before—I believe that it was the economic climate, rather than the fiscal and regulatory burden, that was the key to whether I slept at night, whether I could employ people and whether the business was successful.
In the 1980s, I paid interest at a rate of something like 16 per cent and, because of international connections, was able to go to a Swiss private bank and get finance at 7 per cent. It was then that I realised that there was something wrong with the way in which that government conducted economic policy. That was enormously more important to me than fiscal burdens. I paid corporation tax roughly every other year because it was advantageous to claim it back in the years when I could avoid paying it. That is true of a great number of small and medium enterprises. As to regulatory burdens, yes, I went quite frequently to the office on Saturday afternoons and Sunday mornings to complete the VAT returns. I hasten to say that that was much more serious than any other regulatory burden. It is only under the present Government that small enterprises have been relieved of that burden by being allowed to make a VAT return on the basis of turnover rather than on the basis of a collation of transactions.
I return to the economic climate because that seems to be the most important consideration. Of course it is true that our economic performance has improved over the past six years; of course it is also true that some of the foundations for that were set in the previous few years. But we are in an economy which has the lowest inflation for 30 years; which has the lowest business interest rates for nearly 50 years; which has the lowest unemployment rate since the 1970s; and which has faster growth than any other major EU economy. Any honest businessman or woman will say that that is more important than the other issues which have been debated today.
The noble Baroness, Lady Hogg, made a legitimate point about levels of business investment, to which I shall return. Business investment is not dependent on fiscal or regulatory burdens, it is dependent on volatility or stability in the economy. That is what we should have been debating. If the noble Baroness, Lady Hogg, had put down her full Motion at the beginning rather than the more limited Motion, perhaps the debate would have been a little wider and would have benefited for it.
I turn therefore to the issue of taxation. I have heard it said—indeed the CBI has said—that business taxes have risen by over £47 billion. I studied those figures in some detail and I shall respond to them. But I look at taxation in the context of the fact that we have the lowest corporation tax rates in history and that we have capital gains tax on business assets at 10 per cent, which the noble Baroness, Lady Hogg, specifically welcomed. That is a lower figure than in the United States. Within the past year, the OECD said that this is a "lightly taxed economy". We have a high VAT threshold which is of enormous importance to small businesses, as well as having the option of more simplified VAT calculation.
The CBI said, and the noble Lord, Lord Saatchi, repeated it, that taxes on business have increased. I listened to the points made by the noble Lord, Lord Brooke, about the CBI and I have looked at those figures. The £47 billion figure that he quoted includes the abolition of payable tax credits which removed a major distortion in the tax system and which encouraged companies to pay out their profits as dividends rather than retaining them for reinvestment in the business. It includes the windfall tax, which was a clear Labour manifesto commitment and a one-off tax—£5.2 billion of which was spent on measures of direct benefit to business, including employer subsidies and efforts to enhance labour supply.
The figures include the increase in employer national insurance contributions announced in the Budget 2002, which have just taken effect, and which of course are of huge benefit to business because the money is going into the National Health Service to improve the health of employees. The CBI said that workplace absence cost over £10 billion in 2002. Above all, the CBI figures are aggregated over a period of eight years, which gives a somewhat misleading picture.
Therefore, I challenge the view that the Government have raised business taxes by more than 47 per cent. I point to the rates of business taxation as evidence that our fiscal system is far from being inimical to business and is recognised, not just in this country but internationally, as being favourable to business.
Returning to the economy, it is true that we are not isolated from the global economy. Unlike the position in the 1990s, world trade is falling—profits, markets and investments are falling, as is the volume of world trade. As my noble friend Lord Haskel and the noble Baroness, Lady Noakes, noted, of course that has an effect on productivity. Until the slow-down in the world economy our productivity was rising fast. Our productivity was the fastest growing in Europe. We were closing the gap with France and Germany and I believe we are closing that gap still. But clearly a world slow-down makes a huge difference.
A large part of my speaking notes, such as they are, was devoted to matters which have not been raised in debate—in other words, to the actual regulatory regime for business. It is interesting that few of the matters I noted as being a significant element in the regulatory regime of business came up in debate. That must be because—I am glad to hear—they are no longer in controversy in this House. On listening to business leaders and to those who write letters to the business press, there are constant complaints about employment legislation, environmental legislation and other such matters. But today there has been a strange silence on nearly all of these points. There are those in business who would say that the Conservative Opposition have pulled their punches. The noble Lord, Lord Brooke, in particular, commented on the cost of employment legislation. But he quoted the gross figures which include the value of benefits to recipients. The gross costs of employment legislation are indeed £5 billion; namely, 1 per cent of the wages and salaries bill or £4 per employee per week. But the administrative cost, which is what we ought to be concerned with, is one penny per employee per week. In respect of tax credits, as the noble Lord, Lord Razzall, pointed out, yes, for more than 50 years we have been using business as tax collectors. Governments of all shades have done so and I do not hear the Conservative Party saying that it will abandon that and go back on PAYE. The real cost of tax credits is the implementation costs and not the gross costs. I have heard no criticism of that.
I have heard no criticism of the minimum wage, which is criticised widely outside. I have heard criticism of pensions policy, but that was answered very effectively by the noble Lord, Lord Razzall. I do not propose to repeat what he said because I could not say it as well. I have heard hardly any criticism of the working time directive, holidays, time off, or maternity leave. Yes, the noble Baroness, Lady Noakes, criticised flexible working, although she failed to recognise that the flexible working provisions allow a request to be made to the employer for flexible working; they do not require the request to be fulfilled.
I have heard no criticism of what employers complain about often; namely, trade union recognition and the role of employment tribunals. There was some comment about agency work and the noble Lord, Lord Brooke, paid tribute to Alan Johnson. There was reference to the extraordinary claim made by the CBI that this measure will cost 160,000 jobs. We heard that type of claim about the minimum wage when it was introduced and we shall sit quite comfortably until we hear whether the claim is fulfilled. Of course, the noble Lord, Lord Brooke, knows as well as I do that agency work was used as a way of avoiding employment protection laws. It had to be dealt with and has been dealt with effectively.
Turning to manufacturing industry, I heard no comment today on the beneficial aspects of government policy—for example, the way in which we set up the small firms loan guarantee scheme, which we debated last week, the regional venture capital funds or the regional selective assistance. All of these were set up with the support of both the CBI and the TUC. One would have thought that there might be some discussion of that in a debate in your Lordships' House. While criticism has been made of manufacturing investment and manufacturing productivity levels, to both of which I have responded, so far as I can see, that criticism has not been related effectively to fiscal and regulatory burdens.
We recognise the productivity gap between us and other European countries, but no one answered the legitimate questions of my noble friend Lord Haskel about why it should be true that there is higher productivity where there is also a higher degree of regulation.
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