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In seeking to cut costs without affecting outputs, the Government can usefully draw on experience in the private sector, born of the pressures of meeting customers' demands in competitive markets. Money can be saved while focusing on key outcomes through efficiencies and cutting economically less productive programmes. Take the skills sector, for example. To increase efficiency, the alphabet soup of quangos could be rationalised, and recent research by London First suggests that significant savings could be made from skills programmes which have low market impact. However, an objective mechanism is required to remove low-value programmes across all departments. Cutting spending well is as important as the pace and scale of cuts.
Lastly, government should preserve investment in long-term productive infrastructure. Noble Lords have heard me championing the case for Crossrail many times before. Inevitably, the Department for Transport has to bear a share of spending cuts, and the business community strongly supports robust action specifically to drive down costs in the Crossrail project, but cuts to scope are a false economy. Crossrail and, indeed, the Tube provide the capital's arteries.
On tax, the new Government should espouse three principles: fairness, competitiveness and stability. The Government have already set out a number of measures aimed at providing a fair tax framework, protecting those on the lowest incomes. Competitiveness in both business and personal taxes is also vital. We need to keep our existing talent and investment, as well as attract internationally mobile businesses and business people. If we fail, our productivity and our ability to grow in coming years will be damagingly constrained, as will tax yield.
Greater predictability in tax policy-making is equally important. Recent policy changes-for example, over non-doms or the bankers' bonus tax-have undermined the UK's reputation as a stable jurisdiction. I understand
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In closing, I shall mention three areas of policy which have no funding impact but which require sensitive application if they are not to have a negative economic impact. The first is international air links. The cancellation of runway three is not the end of the story. Heathrow is still running at 99 per cent capacity. We need this hub for international business travel to be world class, which it cannot be without addressing delays caused by this lack of resilience.
Secondly, I urge caution in revising the planning system while the property sector remains fragile. Reform may be necessary, but not as necessary as ensuring that the buildings we need get built.
The third area is the implementation of an immigration cap. People who contribute to our global talent hub, whether in business or as students, must be allowed to come and go. Poor implementation risks multinationals running their operations from elsewhere and damage to our relationship with emerging economies.
Finally, we need a new relationship between government and the business community. The lead-up to the election saw an unhappy fight between parliamentarians and bankers to be least favourite. The Government need to find a way of respecting the strengths of the financial community while fine-tuning their legislative response to the credit crisis, and the banks need to recognise the Government's legitimate concerns while putting their own houses in order. I know that in this final area we can rely on the noble Lord, Lord Sassoon, to proceed with understanding and tact.
5.32 pm
Lord Cotter: My Lords, I also congratulate the noble Lord, Lord Levene, on this debate, and I express apologies on behalf of my noble friend Lord Newby, who could not attend due to the retiming of the debate.
Clearly, there are many factors to be taken into account in encouraging competitiveness, top of which is to have a business-friendly Government. It is clear that right from the word go this Government are emphasising the need for the private sector to lead our recovery, and thereby the need to help and encourage business and industry. On the one hand, we are living through very difficult times when costs have to be cut and savings are needed but, on the other hand, we have to be sure that the drivers for our recovery are not discouraged.
It is encouraging that in the past few days, weeks or months we have seen a resurgence in manufacturing, which I very much applaud. Before I entered Parliament, I was the managing director of a small, 30-employee manufacturing company, so it is good to see a bit of a lift in that direction.
The low rate of sterling is of course advantageous for our exports. Also, because of the difficult circumstances in which we are living, many firms have had to cut costs over the past few years, so that in its own way will help with competitiveness.
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As my noble friend Lady Noakes said earlier, we have to be very careful to ensure that bureaucracy and red tape are addressed. I know that this has been said many, many times by many, many people, but I assure her and others that we on these Benches are going to encourage the new brush and the new enthusiasm to cut back on red tape and bureaucracy. I believe that with fresh enthusiasm we can do a lot to help.
The noble Lord, Lord Levene, spoke about the future of the financial sector-something about which we are naturally all concerned. When there is much talk about rebalancing, with implied negativity towards the financial industry, of course he should be concerned. However, I would also say that the City and financial institutions need to be encouraged to invest in manufacturing, for example. So often in the past British and UK innovation, ideas and inventions, whatever they may be, have not been encouraged enough. I urge the financial sectors of all sorts to look, as we are all saying, towards production in manufacturing terms.
In the short time since the election there has rightly been a lot of emphasis on business. In that connection I refer to the debate last week in this House on the Queen's Speech. The noble Baroness, Lady Wilcox, opened the debate with many encouraging announcements on the Government's programme, when she reiterated the need to cut bureaucracy. She also spoke, among many other aspects of business, about the need to help businesses to start up. There were a number of points that were encouraging, among which was the emphasis that the Government will put on high-speed broadband and wider deployment. Certainly these signs are encouraging and I, along with others, look forward very much to hearing from the noble Lord, Lord Sassoon, with his wide experience and expertise. I am sure that he will make a great contribution to this debate.
5.36 pm
Lord Young of Norwood Green: My Lords, I, too, congratulate the noble Lord, Lord Levene, on ensuring this debate. It is also a great pleasure to welcome the noble Lord, Lord Sassoon, to your Lordships' House, and to congratulate him on his appointment to the Government. I applaud him and look forward to his maiden speech. It is quite a lot for him to do in one evening but I am sure that he will rise to the occasion.
Every Member of this House knows what a privilege it is to be here, but the noble Lord, Lord Sassoon, is particularly lucky. As many of you will know, he served in the Treasury for a number of years. From 2002 to 2006 he was managing director of finance, regulation and industry, so it was he who was responsible for the Treasury leg of the tripartite relationship that was supposed to identify and regulate the systemic risk in British banking-a relationship that we all know failed somewhat spectacularly. Now he has the chance to put things right-that is what you call luck. In 2007 and 2008 the noble Lord, who was still in the Treasury, acted as Gordon Brown's ambassador to the City and then he left the Treasury to become David Cameron's ambassador to the City. He is certainly fleet of foot in all directions.
Every speaker in this debate has been absolutely right in stressing that in the global economy, sustaining and enhancing the competitiveness of Britain must be
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On the aspect of modern support, I shall just cover the point about the banks. Will the Minister tell us whether the Government's policy is that banks should rebuild their balance sheet or should they lend more? It will be difficult for them to do both at the same time. A number of references have been made in the debate to the question of rebalancing. The point has been well and truly made that the financial services make a huge contribution to exports. Getting that rebalancing right-if that is what we are going to do-while not undermining a valuable export service will be supremely important.
A section of the speech was entitled "Liberalise". Apparently Vince Cable is going to be given the power to say no. Since he has not been given any other powers I suppose that that is something. There was one clear policy commitment in that section, which states that,
It is interesting that if we examine corporation tax rates in the G20 we find that 14 out of the 20 countries already have higher corporation tax than we do, and five have lower rates. If we are to be the most competitive we need to cut it by more than 8 percentage points which, to save the Minister looking up the figure, I have worked out. The rough size of that pledge is between £10 billion and £15 billion. It would be interesting to know how we will deal with that.
I was interested that throughout this debate, there have been plenty of pleas for getting rid of taxes. On taxes on bankers' bonuses, the noble Lord, Lord Levene, warned us that there will not be any bankers left. I find it unlikely that nature will permit that kind of vacuum. The noble Baroness, Lady Noakes, told us that we do not want a tax on jobs and that we certainly do not want any increase in capital gains tax. I will be interested to see how the Government balance that. My noble friend Lord Haskel reminded us that when hedge fund managers are paying less tax than their cleaners, we cannot have got the tax system absolutely right, especially under a Government committed to fairness.
On funding economic growth, I notice that that my previous department, BIS, will suffer cuts of about £836 million-more than any other department. What is the real substance of those cuts and what will be their impact on the competitiveness of British industry? In previous debates, we have heard comments about the previous Government's commitment to assist Ford with £1.5 billion in building a new engine plant and guarantees given to Nissan, Vauxhall and Sheffield
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I must concur with the point made by the noble Lord, Lord Tugendhat, about the importance of not denigrating the vital role of the public service. We are all committed to ensuring efficiency in the public sector, but how we go about that will be vital. My noble friend Lord Myners stressed that we need to ensure that the Government create the right environment to ensure the creation of jobs, and made the vital point: where will be the source of growth? The impact of growth in demand stimulated by the falling exchange rate embodies a crucial lesson: industry will invest and competitiveness will be enhanced only if there is a prospect of growing demand.
The coalition has not put forward a coherent industrial strategy. That is the reality behind the rhetoric. There is no credible strategy for skills, no credible strategy for research and development, and no credible strategy for funding investment. There is no consideration whatsoever of the impact of its age of austerity on jobs, innovation and competitiveness. The core of the coalition approach amounts to liberalisation plus corporate tax cuts.
In the interests of time and ensuring that the noble Lord, Lord Sassoon, has plenty of opportunity to answer the questions, I will leave my comments there.
5.43 pm
The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, I rise with considerable trepidation to address this most august of Houses for the first time. First, I thank the officials of this House, who have been so helpful and supportive in easing me into your Lordships' House. Last week, I listened to the well merited tributes paid to the noble Lord, Lord Myners. I know that he will indeed be a very hard act to follow, and I am very grateful to him for his kind words this afternoon, as well as to my noble friend Lady Noakes, who so ably carried the Treasury portfolio on the opposition Front Bench. I was tempted to remain sitting and just leave the two of them to get on with it, but I will carry on.
I am also particularly grateful to the noble Lord, Lord Levene of Portsoken, because the topic of this debate resonates with so much in my background. My great-great-grandfather came to this country from Bombay in 1858 as an inward investor to build trading links with the cotton mills of Lancashire and to establish a financial base for our family in the City of London. So it is absolutely in my blood to want our financial sector to grow and prosper and that it should support the needs of the UK's industrial base. Whether this makes me a Swiss/Indian/Iraqi banker I do not know, but I am not a pure Swiss banker.
In the first part of my career as a banker, I advised on the privatisation programmes of the UK and many other countries-privatisation programmes that were so central to the structural reforms and growing investment flows of those countries. When I moved to the Treasury in 2002 as a civil servant, I was responsible for competitiveness issues. I made it part of my business to travel regularly to the major Asian economies, the Gulf states and to other countries to listen to the concerns
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In my new role as the first Commercial Secretary to the Treasury, I combine in my responsibilities both financial services and wider business policy, so the UK's competitiveness is again a central concern of mine. I am therefore delighted that we are discussing how this Government intend to maintain the UK's competitiveness. However, we are here not simply to maintain our competitiveness; we are here to improve it.
This means, first, recognising those drivers of competitiveness where the UK is a leader but where we must work ever harder to preserve our advantages. I am thinking of the UK's flexible labour market, of our pool of highly skilled talent, of our competitive markets and of our openness to inward investment and investors. On the other hand, the UK suffers from some long-standing structural weaknesses. The challenge here will be to set a clear medium-term policy direction while cutting our cloth in line with the new economic realities. In this category I put our infrastructure and energy policies, dealing with lower skills and planning policy, and translating our science base into profitable enterprise.
In terms of immediate action, we need to look at two drivers of competitiveness that have been much talked about today: tax and regulation. High taxes damage business and hamper investment. We need lower, simpler and more predictable taxation. For this reason, the Budget will set out reforms on corporation tax. We will set out a road map for the creation of the most competitive corporate tax regime in the G20. We also need to keep a hawkish eye on regulation. We will introduce a one-in, one-out rule, and sunset clauses will be imposed both on regulations and regulators so that the need for each regulation is regularly reviewed.
I should turn to some of the specific points raised in this important debate, but I recognise that if I addressed only half of the questions put by the noble Lord, Lord Haskel, we would be here all night. Your Lordships will perhaps forgive me, therefore, if I pick out just a few major points; I shall write on some others. With a couple of weeks to go before the Budget, a number of macroeconomic points, made particularly by the noble Lord, Lord Myners, and tax points, made by, among others, my noble friends Lord Patten and Lord Northbrook, we shall just have to defer for now. However, I shall try to respond to some points, starting with the questions put by the noble Lord, Lord Levene of Portsoken, about helping exporters, which I regard as critical. As I have said, I did a certain amount of that in my previous role. I believe that we must continue to work with UKTI and ECGD to ensure that their support continues to be targeted where it can most help our UK exporters.
The noble Lord, Lord Haskel, asked a number of questions about choice, of which I shall pick up on one or two-one of my answers responds to a point made by the noble Lord, Lord Levene of Portsoken.
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Having said that I cannot talk much this afternoon about taxation, I want to answer a question asked by my noble friend Lady Noakes about tax simplification because it is not just a matter of rates. The noble Lord, Lord Young of Norwood Green, referred to headline tax rates. They are very important, but we also need a tax system that is certain, flexible and proportionate, so I can confirm that the Government will set up an office of tax simplification to suggest reforms to the tax system.
I talked about the need for putting downward pressure on UK regulation. The question of European regulation was raised by a couple of noble Lords. Yesterday, I was talking to Professor Mario Monti, the former commissioner, who has recently written a key report on how to drive forward the single market. Although not everything in that report would be endorsed by the Government, there are some critically important things, including a welcome approach that he suggests for the European Commission to put its own house in order for better targeted and better enforced regulation.
There were one or two questions and comments about skills and questions about savings being made in expenditure, including a question asked by the noble Lord, Lord Haskel. To indicate the importance that the Government attach to skills and to dealing with cuts in expenditure in a sensible and responsible way, within the recently announced £6.2 billion savings in 2010-11, there was a plan to reinvest £200 million in improving Britain's growth potential, £150 million in funding 50,000 new apprenticeships and £50 million in capital investment in FE colleges most in need.
The noble Baroness, Lady Coussins, drew our attention to the important question of languages. It is easy to be complacent about this. Every time I go to China, I am reminded that the Chinese leadership is increasingly speaking English, and I feel very inadequate. I take the noble Baroness's general point to heart, and I will feed back to colleagues the specific point she raised.
Another important issue raised by a number of noble Lords was public sector cuts and public sector workers. I admire and respect the contribution of public sector workers. Of course there will be savings from lower-priority schemes within the programme of spending cuts that is coming, but key front-line services will be protected, and we respect the public sector workers who provide those and all other services.
Finally, the noble Baroness, Lady Valentine, talked about the need for a new dialogue between banks and industry. All I can say is that I have policy responsibility for both banks and industry in my new portfolio, which is probably an indication that our Chancellor exactly takes her points.
I am embarrassed that the necessity for brevity in my speech this afternoon makes my comments seem no doubt both superficial and rather trite. However, we have highlighted some key factors that affect the
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Lord Levene of Portsoken: My Lords, I am sure that the Minister is about to sit down, but I hope that I may be permitted to congratulate him on his incisive maiden speech. He has spent much of his career advocating and critique-ing the work of the financial services industry in the City. As we heard from the noble Lord, Lord Young of Norwood Green, he has done so wearing many different hats and serving a number of different political masters with equal effectiveness and irrespective of their political affiliation. Now that he
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Lord Sassoon: I am very grateful to the noble Lord. That is the sort of interruption that I can take. I am particularly grateful to be thanked afterwards as well as in advance. I end simply by saying that the prize, if we get all this right and can restore the UK's position as the most competitive economy, is very clear.
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