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Lord Drayson: My Lords, the fact that the very first sentence of the gracious Speech states that the,

reflects the pivotal importance that successful businesses and a prosperous economy have in enabling our country to afford the quality of life that we all wish.

Unless Britain succeeds as a dynamic, competitive economy, all our plans to create a happy, stable society, from whatever end of the political spectrum we come from, will be for nothing. Therefore, it was heartening to hear about the robust state of our economy as described by my noble friend the Minister.

This success is reflected in the mood of British business. In 2004 British industry is in great shape. We are competitive. It brings a smile to my face to say—we do not say this often enough, so it is worth
 
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emphasising—that British business is doing well. The confidence that British business has today comes in part from an acceptance that competition, from whatever quarter it may come, is healthy and brings out the best in us, and that we can now rise to the challenge. That is why I believe we have not heard much support for the protectionist viewpoint on the issue of offshoring.

That is not to say that there are no problems, and that business has no issues of concern—it does, and I want to deal with them in a moment—but just that we must place them in context. Now that Britain is doing well our focus must be on how we can build on that success and not reprise the arguments of the past.

I believe that the policies of the present Government demonstrate a grip on the issues that will determine whether Britain's industrial and commercial renaissance continues, or whether the gains of the past 10 years will melt in the heat of 21st century global competition. Therefore, I welcome the Government's policies that maintain a stable economic platform, provide funds for investment in skills, education and science and shift the emphasis from competing on the basis of lowest cost to competing on added value and unique design—the domains where UK enterprise will succeed or fail in the future.

However, there is a question in the minds of many business people, not just here in the UK but abroad as well; namely, can government or, indeed, the political process itself, respond effectively to the astonishing pace and complexity of change that characterises global business today? Europe is a key example. The Lisbon Agenda set out in 2000 had as its objective to,

Yet here we are, almost at 2005, and as Wim Kok recently reported, with very little progress to show. Business people question whether politicians have the will and expertise to grasp the barriers to innovation in Europe, to liberalise markets and to provide an efficient home base so that European companies can become truly global players.

The concept of creating added value—of using knowledge and innovation to get the most effect from limited resources—is as relevant to government as it is to business, and will become more so in future years.

We are seeing an increasing convergence of approach across the industrialised world as more and more countries enter the race to occupy the high ground of knowledge-based enterprise. I believe that the debate around industrial policy is moving on. There is wide agreement across the developed world on the policies needed for a country to compete in the 21st century. The question now is: which countries, having set out to implement those policies, will actually get them done? Many factors will affect this here in the UK, but a central issue, I believe, will be the effectiveness of the DTI—how well the DTI helps the nation to make the right investments in science, education and skills. How effective will be its regulatory touch? Too heavy and enterprise and innovation become stifled; too light and it allows bad practices to develop.
 
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It is because I believe that the effectiveness of the DTI is so central to Britain's continued success that I am so astonished by the policy of the Liberal Democrats to abolish it. While this may seem a beguiling prospect to create a windfall saving, to do so would fatally undermine this country's competitive position. Business needs a voice in government, making the case on its behalf, fighting its corner over planned regulation—both at home and in the EU. The saving of 10 billion euros achieved by the DTI under the chemicals directive is a case in point.

Having a clear national technology and manufacturing strategy and understanding the relationship between the two is vital, as is having the expertise to be able to determine what is and is not a strategic R&D investment in a new industry such as nanotechnology. Arguing the case for a single European patent at a cost to business that is competitive with the US system is also important; so are incentivising industry to invest in R&D and simplifying the process of new company formation to facilitate the creation of new businesses.

Those and many other issues need championing within a coherent strategic framework. There must be a clear vision of what British business needs to succeed against global competition, within a ministry that is itself globally competitive at getting those vital things done. That is not to say that the DTI is perfect. There is much being done and needing to be done to simplify the DTI's activities and focus on those that add most value to the pursuit of enterprise in this country. But, in my 25 years in business, I have seen the vital role that the DTI plays in sponsoring business and enterprise in the country.

A recent excellent example of the DTI's role has been the work of its bioscience unit with the biotech industry, addressing issues ranging from animal-rights extremism through to shareholder pre-emption rights in its quest to develop an environment where that vital new industry can thrive. The result is an industry in the UK that is second only to the US in the world.

I am optimistic about the future for British industry. Having witnessed the remarkable turnaround that has been achieved over the past 10 years, I am sure that we can rise to the challenge of the next decade. I am encouraged by the Government's commitment to the importance of economic stability and prosperity, and convinced that the DTI will play a vital role in delivering those goals.

Viscount Trenchard: My Lords, I am grateful to the noble Lord, Lord Davies of Oldham, for introducing the debate. I also want to say how much I enjoyed the contributions of the four maiden speakers, especially that of my noble friend Lord Steinberg. The Minister took too much credit, and I regret that there was much in his speech with which I could not fully agree. He expressed the view that the rising indebtedness was balanced by borrowers' growing confidence in the economy. He may be mistaken. Surely much of the
 
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increased debt burden has arisen in compensation for increased taxes and retirement incomes that are lower than expected.

The gracious Speech started with a statement that Her Majesty's Government,

However, it is finally becoming clear how the Government's actions now tend to achieve the very opposite of their expressed intentions. One of the most serious problems may be the decline of the savings culture, encouraged by the Government's mean-spirited reductions in the annual amounts that can be invested in ISAs, and by the abolition of advance corporation tax credits on UK dividends. The savings ratio has fallen by more than a third, from 9.5 per cent to 6 per cent since 1997.

When the Government came to office, our pensions were the envy of the world. Many companies took pension holidays because they were so confident that their pension fund assets would continue to grow at least as fast as their liabilities. As many of your Lordships are aware, membership of final-salary defined benefit pension schemes has halved since 2000. The much less satisfactory defined contribution pension schemes that are replacing them have contribution rates below the level likely to be required to provide adequate pensions. Around 9 million people are saving too little, at a time when longevity is increasing and will continue to increase. The latest survey published by the National Association of Pension Funds found that 55 per cent of private sector final-salary schemes in its sample closed to new members in the past three years.

I apologise to noble Lords for again returning to the subject of advance corporation tax credits. When I spoke on the subject in the debate on 5 November, the noble Lord, Lord McKenzie of Luton, who followed me, admonished me for omitting to mention the fact that previous Conservative governments had also reduced the value of ACT credits. Incidentally, I wonder why it is again ordained that he should follow me today. It is certainly curious; I wonder whether I might have the privilege in future of following him. He knows well that it was entirely logical to reduce the rate of advance corporation tax credits to reflect the progressive reductions in income tax introduced by the previous government.

The effects of the abolition of those tax credits on pension schemes and charities are consistently understated. The damage inflicted is far more than £5 billion a year for the five years since the abolition, because the effects are cumulative. Each year, pension plan managers have received less dividend income to invest, which has led them to reduce their weightings in UK equities. Both factors have resulted in a reduction in the amounts that they have invested in the UK stock market.

That is the principal reason why the UK stock market's FTSE 100 index has risen by only 2.1 per cent since 1 May 1997, by far the worst performance of any
 
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of the major industrialised economies. The equivalent figure for France is 42.1 per cent, and for the United States it is 49.8 per cent. The average increase over the period in the stock markets of comparable developed economies was 46 per cent. That extremely poor relative performance has taken place against a background of relatively good economic growth. The GDP growth rate has been slightly above the average for all countries in the OECD universe, at 18 per cent over the period.

Stock market investors have actually done even worse than those figures imply, because inflation over the period has amounted to 18 per cent in total. Such investors are therefore worse off in real terms by 15 per cent. That is before taking into account the effects of the abolition of the ACT tax credits. It would appear that new Labour is every bit as bad for the stock market as old Labour. The Government enjoyed a golden inheritance in May 1997, but the competitive advantages that they inherited have been progressively eroded by new regulations and tax increases. The costs of those have resulted in an additional annual burden on business amounting to £18 billion, which dwarfs the benefit of an estimated gain by business of £3 billion resulting from the cut in corporation tax from 33 per cent to 30 per cent.

That situation has been developing against a background of a growing budget deficit. PricewaterhouseCoopers has predicted that the budget deficit is likely to rise to about £36 billion this year—3 per cent of GDP—and to around £40 billion next year.

As my noble friend Lady Noakes clearly explained, the growing structural current budget deficit will most probably lead to fresh tax increase in the medium term, amounting to some £10 billion. So much for the Chancellor's cherished "golden rule". Perhaps the Minister would confirm when the Government think that the current economic cycle will end for the purposes of determining the extent of adherence to, or breach of, the golden rule.

In his Budget speech, the Chancellor announced a reduction of 14,000 staff, resulting from the proposed merger of the Inland Revenue and Customs and Excise. Today the Minister said that the figure was 16,000. I should like to ask the Government to what extent that reduction has been achieved. It is, in any event, dwarfed by the relentless net increase in the Civil Service as a whole, which now numbers some 520,000 people. This figure, of course, does not include large numbers of officials employed by the rapidly expanding regional administrations. The electors of the north-east have given their verdict, but the Government take no notice. In those circumstances, there should be no question of any reduction in the powers of your Lordships' House. It is arguable, indeed, that this House does not have enough powers to protect the freedoms of minorities and to act as an effective check or balance against the overwhelming power of an elected majority in another place.

I agree with the noble Lord, Lord Newby, that the Government's regional policy is in tatters. I also agree with him that the Government's attempt to force far
 
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too much new housing on the south-east must be resisted. But I fear that my agreement with the noble Lord does not go as far as agreeing with him on the remedy. Rather, I would advocate that planning powers be immediately restored to county councils, which I believe are the tier of government to which powers should be devolved—not to Mr Prescott's artificial, unloved and expensive regions. I was appalled to learn that representatives of developers have votes in regional assemblies which can overrule county councils' decisions on planning. The recent decision by the East of England Regional Assembly that Hertfordshire should have an extra 15,000 houses out of the 18,000 demanded for the region by the noble Lord, Lord Rooker, in spite of the strong condemnation of that plan revealed by the strategic environmental assessment of the plan, is a case in point. I fear that the Minister was too complacent in his introduction to this debate. The economy is now beginning to feel the effects of the Government's economic stewardship over the past seven years.

I welcome the Government's commitment to strengthen the voluntary sector and I look forward to seeing their proposals to modernise charity law. I wish that the gracious Speech had used the verb to "improve", rather than to "modernise", because it certainly does not follow that what is modern is necessarily an improvement over what was there before. As a former trustee of the Royal Air Force Benevolent Fund, I can say that the abolition of advance corporation tax credits has reduced the amount available for distribution as direct charitable expenditure by more than £1 million a year.

In conclusion, the gracious Speech seems thin on measures that would help to arrest the deterioration of the savings culture in this country; and it is, therefore, hard to be optimistic that our stock market will soon rise to levels which fairly reflect the success and continued growth of the private sector. But, to ensure the continuing future prosperity of that private sector, we need different policies that will restore the savings culture and a vibrant stock market.

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