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It is further customary, I note, when speaking in a debate, to declare an interest. Today I declare with pride an overwhelming interest in Wales—not the mammal, although that may be in this era of increased environmental awareness, but the country, a unique constituent of the United Kingdom. It is somewhat different today from the description given in my 1888 edition of the Encyclopaedia Britannica, which, when you looked up Wales, had two words: “See England”.
I had the privilege of serving as chairman of the Welsh Development Agency under four Secretaries of State and three Welsh Assembly Ministers. I am most proud to be in the House in the company of such distinguished former Secretaries of State: the noble and learned Lord, Lord Morris of Aberavon, who kindly introduced me, together with the noble Lord, Lord Griffiths of Fforestfach; the noble Lords, Lord Thomas of Gwydir, Lord Crickhowell, Lord Walker of Worcester and Lord Hunt of Wirral; and two former celebrated Ministers of State, the noble Lords, Lord Roberts of Conwy and Lord Rowlands.
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In 1975, the noble and learned Lord, Lord Morris of Aberavon, steered the legislation which created the Welsh Development Agency; a development agency that was to become a benchmark for excellence not only in the United Kingdom but across western Europe. The WDA became synonymous with the term “inward investment”. In the 1980s and 1990s Wales regularly attracted some 15 per cent of the total inward investment flows into the United Kingdom, punching, as has already been said in other contexts, considerably above its weight when one considers that it has but 5 per cent of the UK population. However, inward investment was not the only activity of the agency. By the year 2000 it had completed the largest land reclamation programme undertaken in western Europe, returning more than 22,000 acres of derelict and contaminated industrial sites to commercial, leisure and residential use. Further, the agency encouraged, stimulated and assisted indigenous business innovation and entrepreneurship.
Why was all this activity so vital? Wales had had a fairly static workforce of 1 million, of which more than one-third was employed in coal and steel after the end of the Second World War. By 1975 it was estimated that more than 400,000 jobs had been lost from those industries. As the noble and learned Lord, Lord Morris, must have realised when he created the WDA, something must be done—a statement that some noble Lords may recognise was made by the then Prince of Wales on his visit to the south Wales valleys in 1936, and used, almost 65 years later, by the noble Lord, Lord Rowlands, as the title of a publication.
Something was done. Today I note that in the recently published UK competitiveness index, Wales increased 3.2 per cent year on year, the third best rate of improvement in the United Kingdom. However, we also sadly number two local authorities among the UK's worst performing five. Employment in Wales is standing at 1.3 million—an annual increase of 18,000. For much of 2005 the unemployment rate was below that of the UK. How different this story might have been if successive Governments had not seen fit to assist the transformation of the Welsh economy from black gold to computer chips.
However, today the future is equally challenging. Each week the manufacturing jobs that came into Wales in the 1980s and 1990s from all parts of the world move overseas. Of course they do not move just from Wales; this phenomenon is occurring throughout the United Kingdom as the culture of globalisation embeds itself completely in the corporate psyche. Flows of large, job-creating investment are over. Downsizing and closures are the reality. It is imperative, therefore, that in the face of the diminishing manufacturing base, in which employment is now at an historical low, we redouble our focus on high value-added production to maintain some semblance of activity in this sector in the long term. There is also an increasing urgency to stimulate entrepreneurship—as we have heard this afternoon on more than one occasion—and innovation to create and sustain appropriate funding for our students and pioneering research so as to achieve and maintain leadership.
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We must also heed the warnings of the past and current leadership of the Confederation of British Industry that the present level of corporation tax is unsustainable if we are to retain competitiveness not just with Asian economies but with the rest of Europe. It is particularly concerning as outward flows have now begun to include regional and global headquarters and, with them, goes higher paid employment. To complicate the issue further, a World Bank study published three weeks ago, to which the noble Baroness, Lady Noakes, referred, reported that the UK lies second only to India in the global table of most complicated overall tax regimes, with the tax code in the UK about twice the length it was a decade ago.
An increasingly significant factor in our economy is the role of the creative industries. Here I declare another interest. In a recent communication to the Chancellor from the National Campaign for the Arts, it was pointed out that the Department for Culture, Media and Sport believes that almost £1 in every £12 of the UK’s total gross value added is generated by the creative economy. Creative industries have grown far faster than the rest of the economy. From 1997 to 2004, employment grew at 3 per cent per annum, in comparison with just over 1 per cent for the rest of the economy. The UK’s creative industries account for 8 per cent of GDP and provide some 2 million jobs. They provide some 4 per cent of UK exports. In Wales, the creative industries are a great source of innovation, enterprise and prosperity, employing 63,000 people directly, which represents 5 per cent of the economically active workforce.
Recalling the reception given by this House to that part of the gracious Speech that dealt with the proposed legislation to create an independent board to enhance confidence in government statistics, I use those figures with an appropriate health warning. However, I do know more surely about the economic impact of the Wales Millennium Centre. Coincidentally, today marks the second anniversary of its formal opening by Her Majesty the Queen. Since that day, the centre has attracted 1.2 million visitors, of whom 700,000 have watched performances. It has generated an economic contribution that is estimated at some £120 million. It is becoming a national icon, significantly increasing the profile and tourism potential of Cardiff and of Wales as a whole. It has stimulated local business and growth; 30,000 business people have attended 830 conferences. Some 28,000 schoolchildren have attended formal educational visits. This morning, at the centre, I took part in the launch of an imaginatively constructed, zero coupon, Welsh Coalfields Bond, designed to liberate creative talent in all age groups. I could go on, but suffice it to say the performing arts specifically can and do make a difference in monetary terms, but they are also vital to our education system and to community well-being.
In the company of the fledglings of your Lordships’ House, I await the results of the consensus that is being created on its reform, wondering perhaps which of the accounting principles, LIFO or FIFO, may apply. Meanwhile, I thank noble Lords for their patience, and I look forward hopefully to the opportunity of future participation in your Lordships’ deliberations.
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5.17 pm
Lord Brookman: My Lords, congratulations are warranted on a first-class maiden speech, as was the previous one. I am sure that all noble Lords present share my view and warmly congratulate the noble Lord, Lord Rowe-Beddoe. He and I have much in common. No, I did not go to Cambridge, but I did go to grammar school. We were born in the same year, but I won’t tell what year if he won’t. We did our national service at approximately the same time, he in the Navy and me in the RAF. Of course, as you can tell by my accent—not necessarily by his accent—we are both Welsh, and very proud Welshmen we are. The similarities end here—he has three daughters and so have I, hence our aged look.
The noble Lord has had a distinguished career. As chairman of the Welsh Development Agency—we have just heard him talk a little about that—he was successor, some years down the track, to Dai Davies, my predecessor. He was some eight years in that job. His work in the Wales Millennium Centre is recorded and has been invaluable. The noble Lord has made a major contribution to the people of Wales, and I sincerely hope that we will hear from him on many more occasions in this House.
I am grateful for the opportunity to speak in this debate and to focus on the approach to British industry and economic development, as well as to refer to climate change. Under Labour’s stewardship, in my view—I realise that it is not necessarily the view of many present in the House—our nation has prospered from nearly a decade of growing employment, steady economic growth and low inflation. In that respect, I agree with the Minister in his excellent opening address to the Chamber. Much of the benefit has been skilfully and imaginatively deployed to restore and develop the NHS and our public education. Much has been done, but much more needs to be done.
However, noble Lords would not expect me to intervene in the debate just to celebrate the successes of the Government whom I support. No, I speak from the perspective of a former general secretary of the steel workers’ union, the Iron and Steels Trade Confederation, now renamed Community—a union with a new and imaginative approach that is capturing the imagination of many. I speak to reflect once again—I have said it before in this Chamber—my deep concerns for the millions of people whose employment and standards of living depend on manufacturing industries. I, for one, believe in a strong manufacturing base. Therefore I am sad to have to say that my Government could do more for manufacturing.
For some, the Government offer little comfort to British manufacturing. Our manufacturing industries are losing jobs at a much faster rate than the competing industries in all other European countries. That is especially true of the steel industry, whose productivity has maintained an average of 10 per cent annual improvement during the past 20 years. British productivity in steel is among the highest in the world, yet output has declined. Indeed, our output per capita has fallen below that of every other western European
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It has been said before that the challenges are considerable and will intensify; the Minister said so himself. That will be the case whether the owner is Tata Steel, CSN—the Brazilian company—or any other company with or without access to cheap slab or iron ore, because UK producers suffer greatly compared to other European producers. That is my key point. For example, why was a decision taken to move from the tested method for calculating new entrant allocation for steel companies under the Emissions Trading Scheme in its second phase, and to move to arrangements not used by any other European producer? That will penalise the very investments likely to yield increased carbon efficiency.
In my considered view, my Government do not ensure a level playing field—and they should. Community and other unions are correct in saying that on this issue and in other areas the Government should listen to their representations. Some weeks ago in this Chamber, the noble Lord, Lord Lamont, in a question to the Minister said that it was outrageous—I paraphrase him, but that is the feeling that he conveyed—that the French and Luxembourg Governments were examining and questioning the bid for Arselor by Mittal Steel. I disagreed with the noble Lord, Lord Lamont, but the Minister agreed with him. Those Governments were trying to ensure that the workers’ interests and their national interests were being safeguarded. I have no difficulty with that. In these troubled times, is it not the case—and if it is not, let us be told—that steel is still a strategic industry? I have always held that view and if that is not the case I should like to hear it from the Minister. If it is a strategic industry, the Government should support it in every way possible.
Take our policies on climate change—we know that it is of great importance to this country and to the world, as has been said here most eloquently, but heavy users of energy in this country are again at a disadvantage relative to the rest of Europe. That is an undisputed fact. For example, in recent months, Avesta Polarit, a stainless steel manufacturer in Sheffield, closed, citing the high cost of energy as a key factor in that decision. Last week, Alcoa, the Canadian aluminium manufacturer, closed its plant near Swansea for exactly the same reason. Carbon steel companies in the UK pay between 40 and 50 per cent more for their energy than their competitors in western Europe. Our European partners will and do not stand idly by while their steel or other
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I have a great fear that carbon steel efficient plants in the United Kingdom will suffer greatly at the expense of China, Brazil or countless other countries that are not party to Kyoto. That is not right and my Government, the Government who I support wholeheartedly, will have failed if they sit idly by.
Finally, I was privileged to attend the Aneurin Bevan memorial lecture given by John Monks, once general secretary of the TUC and now general secretary of the European Trade Union Confederation. I recommend his first-class thesis and that it be widely read. He spoke of “new capitalism”—yes, “new”, which is the operative word—in which firms were bought up and then restructured, before being sold off at a profit. John talked of “Wimbledonisation”, whereby we in the UK provide a good location, but the top prizes are won by foreigners. That speech is worth a read. He is a moderate man making a case worth listening to.
5.28 pm
Lord Wade of Chorlton: My Lords, I wish to draw attention to the needs of the technology industry’s small business sector and the venture capital available to it. First, I congratulate our two maiden speakers today; it is a privilege to be taking part in a debate in which we have heard two such excellent speakers and I look forward to hearing them on many future occasions. I am particularly enthusiastic because they are so keen on developing the economy and on enterprise, in which I strongly believe.
I declare two interests. First, I am chairman of the RisingStars Growth Fund Ltd, a company set up some four or five years ago to promote a venture capital fund involved in starting and funding small technology companies. I am also chairman of Midas Capital Partners Ltd of Liverpool, which is five years old and number one in the cautious managed sector in the UK.
We started the RisingStars fund because, having been involved in start-up businesses at Manchester University and having tried to spin out technology companies from the university and others, I was very much aware of the shortage of start-up capital. It was difficult to arrange the sort of funding that we required, but I managed to raise some £19 million from institutions in the north-west and from the RDA to create a fund, which I gave to enterprise ventures as the managers of the fund. We continue to promote further funds and have just achieved the first closing of a new fund called RisingStars 2, which will cover the whole of the north of England, whereas the first covered only the north-west. We hope to work with the eight major research universities across the north of England to provide start-up capital for the spin-out companies that will come from them.
It is interesting to note that from the first fund we made 33 investments, with a total cash investment of £13,082,000 and a total of 1,541 inquiries. For RisingStars 2, which we are only just starting and for which to date we have raised just over £15 million,
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I have spent a lot of time in this sector because I feel strongly that wealth creation is very important. We spend much time in this Chamber hearing about how we should spend money, where everyone wants the money to go and how we should hand it out to this and that group, but we rarely mention that every pound that this Government spend has been made by a business. We should just think about that: every pound distributed by any Government has been made by a business—by a hard-working individual entrepreneur or a large business. The vast majority of our businesses are small, and all big businesses start as small businesses. But, unless we have a very positive policy of creating new companies, the proportion of wealth creation will gradually reduce.
Some people might think that the figure that I am about to give is very good: 50 per cent of people employed in the north of England are paid by taxpayers’ money. They are paid by money that comes not from a business but from you and me and all the taxpayers in this country: they work for government, local government or a public body. Perhaps the Minister can give me an idea of the stage at which he considers that proportion to become unacceptable. Can we employ 60 or 100 per cent of people in that way? At what level does the balance between those who earn and those who work for government become unacceptable?
I want to mention a couple of things that we have learnt during our money-raising exercise. Clearly, there is an enormous amount of money about, and there has never been more equity available for all kinds of investment opportunities, but there is no encouragement for that money to be put into the small business sector. A number of shortages have clearly been identified. A group of people at Liverpool and Bangor universities recently carried out an investigation into the availability of venture capital, particularly for start-up technology businesses. They assumed that, considering the large number of projects and exercises operated by the Government in recent years to encourage money into the venture-capital sector, that must have done some good and more money must be available than there was a few years ago when we did not have the various activities now being operated by the Government. However, the disappointing thing was that they found exactly the opposite. Less money is now available in the system for technology start-up businesses than there was 10 years ago. The investment going into the start-up sector is only one-tenth of that going into the small business sector in the United States. Obviously, investment in the US is very much higher than it is here, but it is interesting that that country appreciates the importance of the small business and small technology sector far more than we do.
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There is one issue that I should like the Government to consider and I shall be interested in the Minister’s response on it. The large amounts of money that are now available for investment and are being invested by very wealthy people in the UK are going into management buyouts, large investment deals, and taking equity and turning it into debt. All these new technologies and financial systems are being invested in large companies, but how can we move more of that to the small sector? The Government should be thinking seriously about these issues. They are not going to achieve their objective of creating financial strength in this country, which it is necessary to do if they want to keep spending money as they have been doing, unless someone earns the money. If that does not happen, we are going to miss out on an enormous opportunity.
Technology is the driver that makes things happen. I have listened to noble Lords saying how we will change global warming by living differently and by giving up this and that. But that is not going to happen: it has never happened yet and it never will. If we want to solve the problem, it will be solved by technology. Society has always solved its problems with technology—from inventing the plough and starting to milk cows to the latest developments in micro-processing—and that is how we will solve global warming. We will find other ways of producing and using our energy more efficiently, but we will not do that unless we encourage the development of that new technology. Whatever Government are in power in the future, I believe they will have to do far more than we are doing now to solve these problems.
There is another issue related to the investment in and development of technology companies. It is not just a question of money; we need far more effective managers of investment funds. One reason that many financiers have not made the investments that we expected of them is that some very nasty colds have been caught on the end of small venture capital funds. That has had much to do with the poor management of those funds, although the situation is improving dramatically. The fund that we now have in the north-west has been extremely well managed, with a lot of professional people who were not there previously having been brought into it.
It is important to understand the details of the business that you are investing in and to control the level of investment that you make; in other words, you do not put all the money in at once but measure it against success in the business. You need a range of quality people and managers within the venture capital company who can deal with the company’s problems as they arise. You do not just need people who go in, assess the situation and make the investment; you need people who understand the marketing and sales aspects and the financial dealings with the banks and can give technical advice that brings growth. You also need far more mentoring, which is the key to the success of this sector. That means that you need people from outside on whom you can draw.
Many successful directors are not prepared to get involved in what they see as the risky end of the business—again, this has a lot to do with government
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Another interesting point came from an inquiry carried out on behalf of Liverpool University and the management school at the university: the attitude towards entrepreneurs—those who want to drive their businesses—and investors. Investors seldom understand the technology—what an entrepreneur is looking for—and sometimes an entrepreneur can be very inarticulate at expressing his views, his long-term development plans and his hopes to investors. So the relationship does not click as it should for a successful business, with money on the one side and ideas and technology on the other side.
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