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I hope that my noble friend will not find it too unwelcome if I ask, in the way of the times, that the excellent principle of transparency so much advanced by my right honourable friend the Prime Minister yesterday will extend to making a clear impact statement of the expected economic outcomes of any tax changes after they are announced. If we raise tax-and in particular, as my noble friend Lady Noakes, has said, the capital gains tax-too much, then jobs, profits and tax revenue will all suffer. It always has that effect, or at least history shows that it does. All our experience in the UK and the US demonstrates this. For example, over the 30 years from 1975 to 2005 when capital gains taxes were cut, revenues rose as a share of national
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What I do know is that the new transparency much applauded by the coalition Government demands a clear and open impact assessment of any eventual proposals on taxation when they are known. I hope that if CGT changes have the effects feared by some on competitiveness or productivity-take your choice of term-then we must be clear that the changes in taxation are being produced for good economic reasons, not for political reasons that will have bad economic outcomes.
5 pm
Baroness Coussins: My Lords, I was privileged to lead a debate six months ago about the contribution of modern language skills to the UK economy, and I am grateful for the opportunity to update the House in today's debate. I declare an interest as chair of the All-Party Parliamentary Group on Modern Languages.
I refer noble Lords to Hansard of 3 December 2009 for the details of the earlier debate. I shall not repeat it today, but it boils down to the fact that the UK's competitiveness is being damaged by the inadequacy of foreign language skills in the workforce. Professor Michael Worton concluded in his review last year of modern languages in universities that Anglophone Britons are on course to become one of the most monolingual peoples in the world, with severe consequences for our economy and for business competitiveness. Many surveys of employers have recorded frustration at the lack of language skills among both school-leavers and graduates, to the extent that they are increasingly forced to recruit abroad to capture the skills they need.
The latest report from the CBI, published three weeks ago, says that over two-thirds of employers are not satisfied with the foreign language skills of young people and over half perceive shortfalls in their international cultural awareness. The report found that at least 4 per cent of firms knew that they had missed out on opportunities because of inadequate language skills but that a further 17 per cent did not know whether they had lost business or not, so the scale of the problem could be much bigger. Indeed, other research suggests a significantly higher level of lost business. The British Chambers of Commerce has claimed that 80 per cent of English exporters were unable to conduct business in a foreign language and that 77 per cent of them believed that they had lost business as a result. Research from Cardiff University's Business School suggests that the UK economy could be losing contracts worth up to £21 billion a year because of a lack of language skills.
French is still the most sought-after language, but Mandarin or Cantonese is now coming a close second. In addition, with new markets opening up in Latin America, the Far East and central Asia, employers are
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The importance of language skills is often underestimated and even dismissed by people who believe that English is enough in the business world, but that is very short-sighted. Yes, English is vital, and yes, we benefit enormously from so many other people wanting to learn it, but 75 per cent of people on planet earth do not speak English at all, and not all tender documents appear in English.
Competitiveness in academic research is another area being undermined by lack of language skills. Much cutting-edge research on, for example, climate change or counterterrorism is by definition international and comparative. Graduates from the US, China, India and other EU countries are more likely to have a language or two in addition to their main subject, whether that is law, chemistry, economics or geography. The British Academy is concerned that that may damage the internationally recognised distinction of UK scholarship. The fact is that there are large sums available on a competitive basis from EU sources for university research groups based in three or more countries, and it will become increasingly difficult for UK universities to put forward convincing applications for such funds.
In debates about competitiveness, the importance of the STEM subjects-science, technology, engineering and maths-is always and quite rightly a top-line issue. But the Minister should remember that languages have also been designated, alongside the STEM subjects, as strategically important and vulnerable-or SIV subjects, to use the acronym. Do the Government still accept that designation for languages? Will the Minister also undertake to liaise with his colleagues in the Department for Business, Innovation and Skills and the Department for Education to press the competitiveness case? That is needed, among other things, to inform and speed up the decision on the future of the cross-sector forum on languages, which was set up following Professor Worton's review but which now seems to be in limbo. Set up under ministerial chairmanship, the forum brought together schools, universities and employers for the first time to address the nation's language capacity and it is important that it does not lose more momentum.
It would be a hugely welcome and motivating signal if the Government were to designate a Minister with specific responsibility for languages, with a brief that included all relevant departments, not just the Department for Education but also BIS and the Treasury. Indeed, I pay tribute to the noble Lord, Lord Davies of Abersoch, who as a BIS Minister in the last Government took responsibility for the languages issue on an informal basis, because of his personal commitment to language skills and his understanding as a leading businessman in his previous life of their vital importance to business success. Will the Minister replying today confer with colleagues and see whether a formal responsibility could now be allocated, as for science? Our shortfall in languages is restraining our competitiveness at just the time that we need those skills to contribute to our economic recovery.
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5.07 pm
Lord Tugendhat: My Lords, I thank the noble Lord, Lord Levene, for introducing this debate. He is my colleague on the Economic Affairs Committee and I know how strongly he feels about the subject. I should also like to express my delight at the appointment to the Treasury team of my noble friend Lord Sassoon. He brings a great deal of varied experienced to the post and will I am sure provide exactly the same strength of reinforcement to the government Front Bench as the noble Lord, Lord Myners, did under the previous Administration.
I approach this debate from a different angle from those that other noble Lords have spoken about. For the avoidance of any misunderstanding, I should state at the outset that I am the chairman of the Imperial College Healthcare NHS Trust. I was prompted to intervene by the Prime Minister's speech yesterday on the severity of the forthcoming public expenditure cuts. I support the objective of reducing the deficit. I support, too, the aim to cut waste, re-examine the role of government and, where appropriate, to shed functions, to make the economy more competitive and, over time, to make society better. But if the Government are to carry through their deficit reduction programme without damaging the economy let alone improving its competitiveness, the Government will need to mobilise all the support, skills, resources and dedication of managers in the public sector.
To put it in military terms, Ministers are the generals who issue the orders. The managers in the public sector are the troops who will have to carry through the fighting. By that I mean that they are the ones who will have to implement the spending cuts, choose which programmes to axe, initiate the redundancy programmes, renegotiate the pension plans and carry through the closures. That is a very difficult programme. I therefore urge Ministers not to repeat the error that the Thatcher Administration fell into of associating cuts in public expenditure with the denigration of the public sector managers whose task it is to carry them out. I was chairman for some of that time of the Civil Aviation Authority, which in those days incorporated the National Air Traffic Services, since privatised by the Labour Government, and I know what damage the denigration of public sector managers did and how much harder it became to recruit good people into the public sector to do the difficult jobs that were required.
I fear that we are already hearing in the background far too many murmurs about pen-pushers and bureaucrats ripe for the slaughter, as if the cutting of public sector jobs is in itself an objective rather than a necessary cost of what is being undertaken. Of course the Government want to maintain front-line services and to free the professionals who staff them to get on with their jobs, but they must remember that doing that in a time of cuts requires skilful and careful managers-the fewer the resources, the greater the management challenge. The cost-effectiveness of those programmes and thus the competitiveness of the British economy will suffer without the skill and the support of public sector managers. The same applies to the redesign of the management structures, the taking out of layers of management, the streamlining of functions and the
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We hear a great deal from the Government-and not only from the Government-about the importance of improving the quality of management in the private sector in the British economy and we hear a great deal about what the public sector can learn from the private sector, as it can, although there is also a reverse process. However, we need to bear in mind that, if the Government are to carry through their programme, which I support, they will need the support of managers in the public sector. I urge them to value those managers and to show understanding of and sympathy with what they will be required to do and the losses that some of them will suffer. The Government should avoid the mistake of conflating reductions in public sector expenditure with the denigration of those who have to carry them through.
5.13 pm
Lord Myners: My Lords, I, too, congratulate the noble Lord, Lord Levene, on securing this debate on an issue of considerable national importance. He speaks with considerable experience not only in leading Lloyd's-a market of excellence and global leadership-but in his many other successful functions in the commercial and public sectors.
I welcome the noble Lord, Lord Sassoon, to the Front Bench. Like the noble Baroness, Lady Noakes, I know that his maiden speech will be excellent. I have known the noble Lord for close on 20 years. He has an excellent reputation for the clarity of his expression; I have always known him to be somebody who answers questions in a forthright and straightforward way and never seeks to duck them. In that respect, he will be a blessed addition to the Front Bench, as we have struggled in previous debates to get any clarity at all about government policy from the noble Lord, Lord De Mauley, and the noble Lord, Lord Henley, who surprisingly has still not written to noble Lords after the Queen's Speech debate last week. The noble Lord, Lord Sassoon, joins a long list of Swiss bankers who sit on the government Benches. He joins the noble Lords, Lord Freud, Lord Garel-Jones, Lord Brittan, Lord Waldegrave, and many others who have worked for UBS. It is good to know that our economic management is now in the hands of the gnomes of Zurich.
Competitiveness is absolutely vital to our economy. It comes from the value created that exceeds the cost of production. That is the edge that will give us economic competition. It is through being economically competitive that we get growth and it is through growth that we deliver our policy objectives sustainably in supporting education, health and other areas of national importance. The noble Lord, Lord Levene, in a speech given on 17 September last year, a few days after the anniversary of the collapse of Lehman Brothers, said:
"Competitiveness demands excellence, and continued excellence requires constant change and evolution".
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To be successful in that respect we need the right environment. Competitiveness is even more important in an era of globalisation, particularly when mobility of location is so important, as the noble Lord, Lord Levene, noted in his introductory statement.
The Government can create jobs but they cannot create the capacity sustainably to support those jobs if they are either imprudent in their fiscal policy or if the public sector begins to bear too heavily on the economy. However, as the noble Lord, Lord Tugendhat, said, there is good work done in the public sector. We must ensure that during this period, when we face the need for fiscal adjustment, we do not denigrate those who work in the public sector.
We clearly need a policy of fiscal caution. It was right to support the economy during the global recession but there now needs to be fiscal adjustment, as evidenced by the last Government in the Fiscal Responsibility Act. There is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation. There will need to be significant cuts in public expenditure, but there is considerable waste in public expenditure. I have seen that in my own experience as a government Minister. I hope that the Government will pursue with vigilance their search for waste and efficiencies without making cuts which are injurious to the provision of public service. The difference between the Government and the previous Government was on the issue of timing and when those cuts should take place.
There was flawed thinking about job creation in the past. I found it very frustrating to sit in meetings with some of my fellow Ministers talking about creating jobs in the green economy and biotechnology. The Government cannot create jobs. The Government can create an environment that is conducive to the creation of jobs, but they cannot create jobs and we mislead ourselves if we believe they can. We need to create a context for competition, incentives for capital investment, protection for intellectual property and promotion of high standards of governance. We also need high- quality business inputs in infrastructure, human capital and physical infrastructure-a subject that I am sure the noble Baroness, Lady Valentine, will speak to in a moment. We need predictable and business-sensitive administrative rules, and a technological infrastructure which promotes innovation.
The economies of the state are not the same as the economies of the business or the family. There is an important role for the Government in supporting economic activity. The noble Lord, Lord Skidelsky, made that very clear in a penetrating contribution to the Queen's Speech debate last week. The economy is still operating at a rate in excess of 5 per cent below productive capacity. One of the questions that I would like to ask the noble Lord, Lord Sassoon, is: where are the sources of growth for the economy over the next 12 months? Mr Cable has suggested that consumer expenditure will reduce. We know that public expenditure will reduce. Over the weekend, George Osborne claimed the credit for persuading our trading partners to reduce their consumption through their own fiscal deficit programmes, so where does the noble Lord see the
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Finally, I would welcome a comment from the noble Lord, Lord Sassoon, on the banking commission, which is causing considerable uncertainty. When can we expect to have details of this commission? Will its membership be constituted in accordance with public appointment rules?
5.21 pm
Lord Northbrook: My Lords, we are all grateful to the noble Lord, Lord Levene of Portsoken, for introducing this short debate. First, I pay tribute to the former Minister, the noble Lord, Lord Myners, and to my noble friend Lady Noakes for encouraging a high standard of debate in the previous Parliament and for their legislative achievements, such as the Banking Bill, which did great credit to this House. I also warmly welcome the noble Lord, Lord Sassoon, in his new position. Like his predecessor, he brings great financial experience to our deliberations and a good grasp of matters political from his time at the Treasury. He will be an invaluable addition to the coalition.
To encourage a sound economic background to enable UK competitiveness to flourish, the coalition needs to get UK finances back on to a more even keel, which it is already starting to do. Without this, the cost of government and business borrowing could increase rapidly as markets worry about the state of the UK economy. You only have to look at Greece to see the consequences of delaying doing anything, and the Spanish situation is of concern, too. Taking a leaf out of the Canadian book in the 1990s seems to be the latest mantra and that seems a sensible one.
The latest edition of the IMD World Competitiveness Yearbook, which ranks the competitiveness of 58 economies on the basis of more than 300 criteria, puts the UK at number 22-down one place from last year. Five of the top 10 are from the Asia Pacific region. For the first time we are seeing the creation of a self-sufficient economic block of developing countries. They have money markets and technology that did not exist 10 years ago. The biggest loser is Europe. Only three old world countries, Switzerland, Sweden and Norway, broke into the IMD's top 10 this year. The
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- "obviously the UK is undergoing the uncertainties of the post election period but also faces the dual challenges of the huge financial cost of the crisis as well as the deindustrialization of its economy".
The deindustrialisation means that the UK cannot suddenly change track and become a mass manufacturer as our labour costs are too high compared with the Far East and other relevant developing countries. We need to retain and develop our focus on specialist niche, higher value-added manufacturing. Like my noble friend Lady Noakes, on this front I strongly argue, even at this difficult time, against restrictions on capital allowances for manufacturers, which would be a short-term and retrogressive step. Will the Minister make the strongest representations to the Chancellor on this point?
One of our major economic strengths is in financial services, as other speakers have said, which has been demonstrated by the success of Lloyd's. The noble Lord, Lord Levene, mentioned that last year. This area must be nurtured even after the banking crisis of the past few years. The balance that the Government must seek to achieve here is to combine the right amount of regulation-to avoid a repeat of the sub- prime crisis-with a regime that allows bank lending to recover. Capital adequacy of banks is crucial, but this regime must be agreed internationally, whereby UK banks are not put at a disadvantage to their global competitors. This is already proving to be a slow process.
Regulation is a key factor in other areas of the economy. Overregulation means that the UK will be at a disadvantage compared to other less regulated markets. However, a balance has to be kept to ensure that safety and quality standards are adhered to without gold-plating European rules and regulations.
Another area that the Government should focus on to make sure that the UK retains its competitiveness is tax rates. The Chancellor is correct to be considering reducing corporation tax. The proposed increase in national insurance for employees should be reversed as soon as possible, because it is an extra burden for business to bear against international competition.
Capital gains tax is another area that causes me, like my noble friend Lady Noakes, concern. The proposed hike in the rate will cause concern especially to the elderly, who need to resort to capital to fund their living expenses. This could also curtail the activities of those who previously had spare capital to fund start-up enterprises. I ask the Minister to use his influence to argue for a return of taper relief and/or indexation to soften the blow of this proposed hike. I should like to point out that while I am not opposed to a higher short-term gains tax within a year to avoid income being turned into capital, the rate should decrease, whereby after three years it should be about 25 per cent. High personal tax rates can discourage enterprise. I therefore hope that the coalition will reduce the 50 per cent top rate of tax as soon as possible.
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In summary, like my noble friend Lady Noakes, I believe that regulation and tax are two of the most important areas in encouraging the UK to maintain its competitive advantage.
5.27 pm
Baroness Valentine: My Lords, I thank the noble Lord, Lord Levene, for introducing this important debate. I declare an interest and, I trust, a valuable perspective as chief executive of London First, the non-profit-making business membership organisation which champions the competitiveness of the capital.
London and the south-east account for one-third of Britain's GDP. Productivity rates in this region are substantially higher than in the rest of the UK, and the region sports internationally competitive talent in creative industries, professional services and, yes, even banking. My speech today therefore focuses on how to nurture this valuable global talent hub at the same time as balancing the budget. Encouragingly, the Government appear to be proposing spending cuts to tax increases in the ratio of roughly 80 per cent to 20 per cent. That approach is supported by successful international examples of deficit reduction campaigns, such as that in Canada.
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