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Williamson of Horton, L.

Bill referred to the Examiners.

3.50 pm

The Chancellor of the Duchy of Lancaster (Lord Strathclyde): My Lords-

Noble Lords: Resign!

Lord Strathclyde: My Lords, a few moments ago when I was making the procedural statement, I explained that if the Motion was carried we would not continue with Second Reading. Therefore, we will not continue with Second Reading.

However, because the business has now effectively closed down rather sooner than we had anticipated, the noble Lord, Lord Levene, who has the next business, is not in his place. Therefore, I suggest that we adjourn the House during pleasure until 4.30 pm until we can find the noble Lord.

3.51 pm

Sitting suspended.

UK: Competitiveness

Question for Short Debate

4.30 pm

Tabled By Lord Levene of Portsoken

To ask Her Majesty's Government what factors they take into account when making sure that the United Kingdom maintains its competitiveness.

Lord Levene of Portsoken: My Lords, I am very glad to introduce this short debate this afternoon, not

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least because it will mark the maiden speech of the noble Lord, Lord Sassoon, who is now Commercial Secretary to the Treasury. The issue of competitiveness has particular resonance for me since I served in two government posts in previous Administrations, the first in the Ministry of Defence with responsibility for defence procurement and the second working for the then Prime Minister with responsibility for a programme called "Competing for Quality". Both posts were essentially based on the premise that competition brings with it efficiency and profitability.

For quite some time now, we have been living in an atmosphere of doom and gloom. The purpose of this debate, however, is more positive. It is to explore what policies will allow us, as a country, to export more goods and services and to attract investment-in short, to stop our morbid fascination with the financial crisis of 2008; to stop acting like carrion birds picking over what happened and who was to blame; and to start working out how we are going to make enough money to pay off our enormous debts. The time has come to stop wallowing in our condemnation of a group of greedy and unscrupulous bankers. Everybody enjoys the view from the moral high ground, but the new Government must tear their eyes away from the past and get to work fixing the economy.

The Prime Minister has said that he intends to reopen Britain for business. However, I would argue that Britain has never been closed for business. I am chairman of Lloyd's-an interest which I declare this afternoon-and in 2009, we made a record profit. Lloyd's is not the only business in the United Kingdom that has shown prudence and perseverance in facing up to the financial crisis. For example, in 2008, the insurance industry contributed £8.2 billion to the Exchequer. There are millions of men and women working up and down the country who are exporting goods and services. The starting point for this debate is to ask the Minister what his Government can do to help those exporters to operate in a competitive environment.

It is clear that the UK must grow its way out of debt, and the primary way to do this is both to sell our goods and services to the rest of the world and to encourage foreign capital into this country. The World Bank has described Britain as among the easiest places to set up and run a business. We need to decide once and for all: is this description of the UK as a place for international business to thrive and prosper a point of pride, is it something that we fear or is it even a point of shame?

I firmly believe that if we are to derive the enormous benefits of living in a globalised world, the UK must engage fully with the international economy. We cannot deal in half measures and mixed signals. For example, while immigration controls remain absolutely necessary, we should not throw the baby out with the bathwater by preventing experts from businesses outside the UK who want to set up here bringing their key staff with them or by excluding students, who are the lifeblood of a huge industry.

There are two areas to consider. The first is how we promote UK exports and offer practical assistance to help those exporters plug in to overseas markets. Here

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I pay particular tribute to the work of UK Trade & Investment. Lloyd's, which is one of the leaders in this country of invisible exports, has received outstanding support from the staff of UKTI in the UK, and even more so from its staff, who are based in our embassies all over the world.

The second essential component is to ensure that we have a business environment in which people want to trade. Many factors make the UK attractive, but the most hotly contested at present are what our tax rates should be and what business regulations we should set. This is where the Government must once and for all take decisive steps to prove that they are on the side of business. When I served as lord mayor of the City of London in 1999, I was able to travel around the world saying that we had one of the most competitive tax regimes anywhere. This is no longer the case, and the totally spurious arguments that increasing direct taxation has little effect on retaining the best talent in this country, or in attracting new talent to come here, must be corrected.

Businesses today, even British businesses, do not have to trade in the UK if they are offered a better deal elsewhere. This is particularly true of financial services, which require no factories, warehouses or heavy industry, and can move easily from one jurisdiction to another. We have experienced this first hand at Lloyd's, where only nine out of the 53 businesses that operate in the market remain domiciled in the United Kingdom. They are re-domiciling not only in the traditional tax havens but within the European Union, so it is critical that the Government take urgent steps to re-establish the UK as the most competitive location in the European Union.

The previous Government's levy on bonuses accrued a £2 billion windfall for the Treasury, but this kind of sudden taxation is playing with fire. One day there will be no bonuses, and no bankers left to tax, and you do not need a team of Treasury accountants to tell you that 50 per cent of nothing is nothing. I am becoming very concerned that the phrase "re-balancing the economy" is a sort of code for shrinking the financial services sector. That would be a mistake of huge proportions. If we want to boost manufacturing in this country, that is one thing, but we should not view a thriving world-class financial services sector as a barrier to this ambition. This is an industry that we happen to be very good at. It is an industry that has driven our economy and created hundreds of thousands of jobs. The hand wringing and recrimination that we have seen directed at the entire sector of more than a million workers in this country would not happen in other countries. Have noble Lords noticed the Germans castigating their car industry? Have any of your Lordships noticed the French castigating their wine industry? Not only does the financial services industry suffer in this way; so too does the other industry with which I was closely associated: the defence industry-another huge earner of foreign exchange and an employer of hundreds of thousands of people.

The domestic criticism of our financial services industry is being noticed overseas. One leading international banker very recently described the tax and regulatory environment in the UK as scary. In tax

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terms, the financial services punch above their weight. Last week, the lord mayor set out in a speech that UK financial services accounted for £61.4 billion in the tax take for the fiscal year ending in 2009. This equates to 57 per cent of the health budget, 75 per cent of the education budget and 150 per cent of the defence budget.

Today we need to move on, to be confident that we have learnt from our mistakes and to start once again building on what we are good at. I hope that the Minister and all noble Lords here today can send a clear message that we are proud that the City of London, and the whole of the UK, is a place where the world comes to trade.

The new Government find themselves at a crossroads. We can be ashamed of our success in certain sectors or we can celebrate it. We can pursue a path where we spend the next few years poring over the post-mortem of the financial crisis or we can take a pragmatic path-one that leads to jobs and money for British people. This decision needs to be taken now. The Government need to put business out of its misery rather than add to it. I hope that the Minister will be able to reassure us that this will be a feature of his department's forthcoming Budget.

4.40 pm

Baroness Noakes: My Lords, I congratulate the noble Lord, Lord Levene, on securing this important debate so early in this new Parliament. As we would expect, his speech was masterly and one with which I am in almost complete agreement. It is a great pleasure to take part in a debate on economic matters from the relative calm of the Back Benches, but it is an even greater pleasure to take part in a debate which features the first appearance at the Dispatch Box of my noble friend Lord Sassoon.

Usually a maiden speech is followed by other speakers who are able to say what a marvellous maiden speech has been made. But my noble friend has chosen to make his in a debate in which he will speak last. However, I know that he will make a marvellous speech and therefore have no hesitation in congratulating him on that in advance and on being a marvellous Minister.

Back in 1997, the UK was a competitive place to do business. We were seventh in the World Economic Forum's competitive league table. Last year's report, the latest, shows that we have slumped to 13th. The UK will not lift itself out of the economic mess which the previous Government created unless our competitiveness is restored. It is as simple and as complicated as that. Growth and jobs are essential to our recovery and they will not come without a big improvement in our competitiveness.

I would like to focus my remarks on two aspects of competitiveness-tax and regulation, to which the noble Lord, Lord Levene, has also referred. Again back in 1997, the World Economic Forum ranked us fourth in the world for tax and regulation. The last report shows that we had slumped to 84th and 86th for tax and regulation respectively. This shows the scale of the task facing our new Government.

The Institute of Directors recently estimated that the administrative costs alone of regulation are now nearly £80 billion a year, which is not much short of

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6 per cent of GDP. I welcome the coalition's plans for a one-in, one-out rule on new regulations and sunset clauses for both regulations and regulators. These initiatives should help to stem the tide of regulation but they may not involve a significant reduction in the burden of regulation. I hope that the Government will look again at whether there should also be a downward ratchet on the burden of regulation-for example, through the use of regulatory budgets, which decline year on year.

The EU is the source of most of our new regulations and those regulations typically offer low cost-benefit ratios. The Commission has never embraced the goal of reducing the burden of regulation as opposed to the administrative costs of regulation. What can my noble friend tell the House about our Government's determination to make a difference on EU-sourced regulation?

Turning to taxation, I welcome the fact that the Government are committed to not implementing Labour's tax on jobs. I also welcome the corporation tax reforms where simplifying reliefs and allowances will allow the headline rate of corporation tax to come down. But while reducing the headline rate of tax is a good thing, if it is achieved only by shifting around reliefs and allowances, in the short term it merely creates winners and losers, and in the long term it is not enough to make the UK a more competitive place for business. We need a commitment to much lower business taxes as well, and the Government's aim to create the most competitive tax system in the G20 is a good first step. But we must not take our eye off the nimbler fiscal regimes of the emerging economies because they will be the ones wooing inward investment away from our shores.

We have an inordinately complicated tax system which is a drag on the UK's competitiveness. Our party had a clear commitment to an independent office of tax simplification, building on the excellent work of my noble and learned friend Lord Howe of Aberavon. Can my noble friend say whether the Government will press on with this? Do our Liberal Democrat partners share our aims in relation to tax simplification?

A competitive tax environment has to go beyond business taxation; it must embrace personal taxation too. Top rates of taxation and national insurance of 52 per cent have no part in a competitive tax system. I hope that my noble friend will confirm that the Government understand that our personal tax system can be as important as our corporate tax system in terms of encouraging enterprise within the UK and attracting businesses from abroad. I hope he will agree that a tax system is not a fair one for the UK as a whole if it actively discourages business and enterprise.

That brings me to my last point on tax; namely, capital gains tax. My noble friend will be aware that the coalition's adoption of the Liberal Democrat's policy on capital gains tax has no popular support in our party or with the business community. I shall do no more today than quote from Arthur Laffer's article in last week's Spectator:

"Raising the capital gains tax rate does an inordinate amount of damage to an economy ... Raising tax rates on the rich and especially on capital gains is about as bad an idea for the UK as I could imagine".

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I do not expect my noble friend to reveal what will be in the Budget planned for later this month, but I hope he will confirm that our Government will have the competitiveness of the UK at the very heart of that Budget.

4.47 pm

Lord Haskel: My Lords, I, too, congratulate the noble Lord, Lord Levene, on putting down his Question and I very much welcome his tone of optimism. But we really need to know and understand what is the coalition Government's view on competitiveness, and who better to explain it than the noble Lord, Lord Sassoon. He comes with a formidable reputation and I look forward to what he has to say. I also congratulate him on his first appearance at the Dispatch Box.

For many, competitiveness refers to our ability to trade: the exchange rate for sterling. Some would say that all we have to do is reduce the value of sterling and we would become more competitive. If only life were so simple. Yes, with the recent devaluation of sterling, our exports have increased, but in addition we need to substitute imports because they have become more expensive. To increase our exports we need more of the brains, skills, supply chain, investment and all the other things, tangible and intangible, that go into successfully supplying goods and services. It may be complex, but what do the Government think is a competitive exchange rate?

Innovation, the ability to convert science and technology into products and services has become a race between nations to translate discoveries into economic success stories before other nations do so, and our ability to do this is crucial to our competitiveness. The Labour Government put a lot of effort into helping British industry win this race, so where do the coalition Government stand? Are they going to continue this effort or cut it? And to be competitive, most countries have built up an infrastructure to bridge the gap between research, technology and commercialisation. Here, it is the task of the Technology Strategy Board to deliver our national strategy and to bridge the gap. Its innovation agenda is crucial to our competitiveness. Does the Minister agree?

Equally important is how good our financial sector is at financing the enterprise and the new technologies essential to make us more competitive. The Hauser report and the recent report from the Council for Science and Technology lists many areas of new technology where we currently have a technical leadership and a defensible technology position, giving us a very good chance of becoming competitive. Are the Government going to accept these recommendations? Will they ensure that the finance is available?

Or is there no role for government in this? Tory dogma says that too much government stifles individual initiative and so it is best to rely on market forces and individual initiative. Others say that the state is an engine of progress in competitiveness. At the same time, Ministers speak of shifting the responsibility for this kind of support downwards from national to local, but local government has been a big loser in the first round of cuts. Are Ministers looking both ways? Where does the compromise lie?

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The noble Baroness, Lady Noakes, spoke about taxation. Many say that the debate about capital gains tax is central to our competitiveness. They say that taxing capital gains saps initiative. Unfortunately, well meaning tax concessions to encourage this initiative have unintended consequences, such as hedge fund managers paying tax at a lower rate than their cleaners. Of course, the real way to tackle this from a competitiveness point of view is to tax consumption and not income. Is the Minister prepared to go along this route?

The noble Baroness, Lady Noakes, and the noble Lord, Lord Levene, spoke about regulation. All new Governments tell us that the less regulated we are the more competitive we become. Of course poor and outdated regulation needs to be cut, but this is not the real threat to our competitiveness. As I said in the debate on the Queen's Speech, the real threat to our competitiveness is the absence of competition through unregulated market failure. On this the coalition agreement is silent. By choosing to be populist and ignoring the important, the Government will not help our competitiveness.

I agree with the noble Lord, Lord Levene, that our attitude towards world trade is very important. Will we be more competitive by being independent or by advancing international co-operation? Some say that to be more competitive we should abandon many of the rules of the European single market: "Trade with Europe on our own terms", they say. How is the coalition going to manage our partnership with Europe to strengthen our competitiveness? This is crucial because, thanks to the Labour Government's handling of this, the European Union has become our biggest market.

There are, of course, other considerations. How far do managers have to consider environmental and social issues-the triple context, as Tomorrow's Company puts it. Are our businesses more competitive if the attitude of business owners is one of stewardship or one of shareholder value? Which reflects the more responsible economic model the coalition agreement talks about? Which is more competitive?

These are some of the elements that affect our competitiveness, and there are many more. The point that I wish to make is that our competitiveness is not a matter of destiny or chance; we have to choose. Our competitiveness will be determined by the sum total of these choices. What are they to be?

4.54 pm

Lord Patten: I am glad to attempt to straddle the oratorical gap left by the noble Lord, Lord Newby, who unfortunately at the last moment cannot be here, but I am sure that my coalition partner would agree fully with everything that I am about to say.

Two texts should underpin my brief intervention in this debate. First, after the mess that we have been left after 13 Labour years, we have to drag ourselves out of it altogether. That may take another very substantial period of time, which will mean cuts in public expenditure and higher taxation affecting us all. However-and here I echo the noble Lord, Lord Levene-I hope that it is not the sort of higher taxation that affects

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competitiveness. The second of my texts is that any changes in levels of taxation and taxation regimes that deter entrepreneurship, reduce job creation and lower tax receipts would be a bad thing for our citizens, all the more so if the competitiveness of UK business was damaged and foreign investment into our characteristically and happily open economy is discouraged.

My interest in industry in the City is long declared, along with my equally strong declaration of long-standing admiration for how the noble Lord, Lord Levene of Portsoken, has led so many great issues affecting the City of London. I make one other declaration, which may shock those of your Lordships of a rather sensitive disposition. I should come out this afternoon and reveal that a number of bankers are my close personal friends. It is really very counterproductive to excoriate across the piece everyone in any sector of our society; it is the greatest possible mistake. Indeed, living in these straitened times when the blame game has become a national sport, we had better realise that no great sector of society seems popular at the moment. The public sector, with its often unfairly so-called pen-pushers; the world of financial services, to which I have just referred; and, in particular, politicians-all of us are in "Sniper Alley" in one way or another. As we try to be more competitive economically, we should certainly try to be much less competitive in attributing blame and crawling over what has happened in the past, as the noble Lord said.

With the state that we are in, we know that something is not quite right, to put it mildly. The international league tables of competitiveness, to which my noble friend Lady Noakes has already referred, do not tell us all that much of use in the end in exactly how to pull up our economic boot-straps. They just tell us where we are by different measures. There are figures for competitiveness ranked by country, produced by the Centre for International Competitiveness. Then there is the World Competitiveness Yearbook, and the World Economic Forum. Someone remarked in my hearing how luminaries, loving to gather under spotlights like pigeons at a grain sack, not only started turning up at the World Economic Forum in Davos but migrated shortly afterwards to the literary festival at Hay-on-Wye, in a sort of moving caravan of commentariat. These types should listen with particular care to my noble friend the Commercial Secretary to the Treasury, because of his great financial expertise and the literary heritage that flows through his veins. I look forward to the speech that he is about to make to conclude our affairs today.

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