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Lord McKenzie of Luton: My Lords, like other noble Lords, I welcome the opening sentence of the Queen's Speech. It is a particular pleasure again to follow the noble Viscount, Lord Trenchard. I would say on this occasion that what he said in relation to the reason for the withdrawal of the imputation credit was correct—the alignment to the rate of income tax. Nevertheless, the impact on exempt funds is, as I described earlier, that under the previous Government the amount of imputation that was withdrawn almost equates to that which was withdrawn in 1997.
The Minister, my noble friend Lord Davies of Oldham, has given us the data on our outstanding economic performance—uninterrupted growth since 1997, 2 million more people in work since 1997, our lowest unemployment for 29 years, the longest period of sustained low inflation and interest rates since the 1960s and new businesses starting up at the rate of more than 1,000 per day. That is an impressive
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economic record and one which has enabled record investment in our public services and the challenges of eradicating child and pensioner poverty to be confronted.
But, as other noble Lords have stated, there is no room for complacency. We are now the world's fourth largest economy. We know that if productivity matched the US, domestic output would be £6,000 per capita more a year. If women started businesses at the same rate as men, there would be 100,000 more start-ups each year. If all regions of the UK performed to the same rate as the existing average, our national wealth would increase. As well as those internal challenges, as the DTI's five-year programme sets out, we face extraordinary challenges from the world economy.
The economies of some of today's emerging markets will dwarf that of the UK within two generations—none more so than China, which in 40 years is projected to be the largest economy in the world, overtaking the US and by that time, possibly, 10 times the size of the UK economy. India will by then have overtaken Japan to become the third largest economy in the world. Those currently emerging economies will not only be aggressive producers and exporters; they will be huge markets, presenting us with fantastic opportunities if we can deliver appropriate products and services on an attractive basis.
Because those emerging economies have come late to the market, they have the benefit of skipping one or more generations of technology that are the norm in developed economies. They will go straight to state of the art in parts of their economic infrastructure, particularly IT and communications, as well as seeking technology transfer as part of their inward investment approvals. Many thousands of bright young students, future leaders in all spheres of life, will study at universities in the UK and elsewhere.
The UK has some 25,000 students from China each year studying at our universities, 1,000 of whom, I am delighted to say, are at the University of Luton. Many of those students are focused on business and computing studies. They come for a variety of reasons: the quality of the courses available, the opportunity to improve their English—the language of business and science—and because of current lack of capacity in China despite rapidly expanding programmes.
The challenges will come not only from Asia, but from South America and from central and eastern Europe. So what should the UK's response be to those changes to the world economy and what role does government have? Our analysis is not, of course, unique. Other developed economies, especially in the EU, will be making the same analysis. The position has been put most forcefully by Professor Michael Porter in a recent DTI paper. It states:
"The UK has now reached a transition point. Competing on relatively low input costs and an efficient business environment is no longer sufficient to achieve the levels of prosperity the country is aiming for. To achieve higher prosperity UK companies will have to upgrade their productivity by competing on more unique and more innovative products and services".
There are many facets to this but two of the challenges involve more effective commercialisation of technology and a sustained programme of cluster development.
As to the first, we make up 1 per cent of the world's population, we undertake 5 per cent of the world's science, we produce 9 per cent of all papers and we have 12 per cent of all scientific citations. Yet if we look at patenting in the US by UK-based institutions—the data are not totally current but are a reasonably reliable indicator of world-class innovation output—we are but average. There is strong representation from international companies but low representation from universities and other public institutions, highlighting perhaps that some are less active in converting the science into commercialisation efforts.
In the past, the UK has invested less public sector money in R&D than have most other advanced economies. My noble friend Lord Haskel made that point. It is good to see that policy changes under this Government have started to address that situation, and there has been a significant revamping up of public sector R&D spending. But, as in other areas of investment in public services, it will take a while for the years of underinvestment of the past to be overcome.
Clusters are groups of interconnected companies located close to each other, being suppliers, service providers and associated institutions in a particular field, linked by commonalities and complementarities. Classic examples would include the IT cluster in Silicon Valley and the Boston Life Sciences cluster.
Clusters tend to affect competitiveness in a number of ways. They help productivity because the proximity of suppliers generally means lower levels of stockholding. Innovation is increased by the presence of, and interaction with, world-class research institutions and competing companies, which provide a fertile ground for new ideas. They also lead to a congregation of expertise and funding opportunities, which stimulate new business formation. The UK has some strong cluster developments in some markets but more progress is needed.
I can report that we have been doing some work on that locally via the national Centre for Competitiveness, which is part of the University of Luton. Indeed, it was opened by the noble Lord, Lord Heseltine. This has involved workshops and analysis of the Cambridge cluster phenomenon, seeking to understand how it might be replicated in Luton and the south Bedfordshire conurbation. It is not easy to bottle, but learn from it we must.
It is against those challenges that we must measure the role and strategy of the DTI, and that is why I welcome the five-year programme aptly entitled Creating Wealth from Knowledge. The focus in on locking in and building on existing competitive advantages but also on seizing the opportunities needed to build prosperity for the future. As well as continuing to bear down on regulation and extend competitive markets, the programme is about strengthening science and boosting innovation,
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promoting enterprise, particularly through business-led RDAs, boosting skills and enhancing consumer information and rights. The programme encompasses a recognition that, just as business must adapt, invest and innovate in the global economy, so must those parts of government which speak for, regulate and promote business and skills. It is about making the DTI fit for purpose.
Like others who have spoken, I find it extraordinary that at the current time, with all the opportunities and challenges which face business, the DTI has become a football to be punted around the political landscape—either a candidate for abolition or emasculation to plug the inconvenient gap in the tax-and-spend arithmetic which opposition parties feel unable to face.
What has the DTI ever done for us? Frankly, the list runs from Business Link, which has helped more than 600,000 people with small business advice over the past 12 months, the Manufacturing Advisory Service, which has provided support for 6,400 SMEs since 2002, UKTI's help for 20,000 UK exporters, billions of pounds in costs saved for business through influencing EU regulations, and the promotion of British business success in overseas markets, particularly aerospace, and much more.
The DTI's influence on the local economy in Luton and south Bedfordshire has been profound in recent years. This is an economy in transition from one previously heavily reliant on manufacturing, and it has struggled, especially since the brutal recession of the early 1990s, to cope with the long-term decline in heavy manufacturing. Matters were made worse by a precipitate and unwarranted decision to close the Vauxhall car plant.
It was the DTI which led the response to that, causing the Luton Vauxhall Partnership to be set up under the chairmanship of the East of England Development Agency. The work which flowed was extensive, covering retraining, a supply chain support programme and support for an innovation centre. The latter is being built as we speak—the funding gap being filled by £4 million from the DTI. It will provide a high-quality base to increase the number, quality and growth performance of knowledge-based enterprises in the Luton and south Bedfordshire area, thus helping to transform our local economy. It is a practical example of the DTI making a significant difference to the present and helping to invest for the future.
The economic strength of the UK places us in a powerful position to face that future. If we are to make the best of it, we need to build a consensus, as my noble friend Lord Drayson said, so that business can be assured of a clear and consistent framework for it to plan to meet these fierce global challenges. I am delighted that the Government are leading the way on that, and I hope that other parties will now follow.
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