The Government gave only the briefest of initial responses to the report until yesterday, so I look forward to hearing what the Minister has to say. The Government are planning to strip Whitehall of about £58 billion of business support funding and place it in the hands of local enterprise partnerships, LEPs, in the biggest act of financial devolution ever seen. The CBI has commented:

“LEPs have so far lacked the power and resources to impact local growth”.

Given that this review highlights a number of key areas in which LEPs can support private sector activities, it is pleasing to hear that they have been given appropriate resources to help them to meet this challenge. Does the Minister believe that they have the powers and the skills?

The British Chambers of Commerce generally welcomes the report:

“Lord Heseltine’s analysis of the state of the UK economy is compelling”,

it says, yet his report for action,

“focuses too much on institutions, rather than on the fundamental barriers to business growth. Ministers should think carefully before committing to a restructuring of government, and focus first on the key restraints facing the real economy: the availability of growth finance, practical help for our exporters, our creaking physical infrastructure, and an education … system that responds to businesses needs. Government can best support enterprise by collaborating with business to get the basics right”.

Does the Minister agree with its observations?

The Federation of Small Businesses also welcomes the report by the noble Lord, Lord Heseltine. It suggests, however:

“The boards of LEPs must represent all sizes and sectors of local businesses. Otherwise they will fail. The FSB does not believe that the chambers should be legislated as they do not represent all businesses, particularly self-employed and micro firms”.

It concludes:

“To create a stable environment for businesses to thrive, the Government should look to the success of the US Small Business Administration—SBA—to coordinate small business policy, such as lending, procurement and exporting”.

I will end by congratulating the Government on three measures in the Pre-Budget Report that I believe will encourage growth. First, the increase in capital allowances from £50,000 to £250,000 is an excellent signal to manufacturers and has rightly been praised by key industrialists such as Sir Anthony Bamford of JCB. Secondly, the cut in corporation tax of 1% is equally welcome to increase UK competitiveness. Finally, the extension of the empty property rate relief is a measure to be much welcomed.

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5.15 pm

Lord Desai: My Lords, the Heseltine report is not just for Christmas and not just for austerity; it is for a much longer period than that. Some of the things that the noble Lord has pointed out have been constant and I have been hearing about them ever since I arrived here 45 years ago. We are too centralised and there is too little power in the regions and local authorities. There is too much regional inequality and London is too powerful compared to the regions. You can see that in the noble Lord’s diagrams.

The noble Lord is a paradox. He is a centralist who wants to decentralise by using central power and he is strongly in favour of state intervention to encourage private business. It is an interesting model. If we are serious about decentralisation the first thing to do is to decentralise Whitehall. There is no reason why all the ministries should be in London. There is no reason why Local Government, Transport or Business, Innovation and Skills should be in London. Once upon a time the technology was such that they needed to be near each other. Now with cyber technology none of them needs to be near the others. We can completely decentralise government and delocate it. That would be a great step forward in making the regions more powerful and generating more employment in the regions.

As my noble friend Lord Hollick said, if we are serious about local government, we have to give local government income which is independent of central government. The best way to do it would be to do what has been long delayed and revalue property. Property values have not really been revised since the early 1990s. We got into the whole poll tax/council tax dilemma because of the reluctance to revalue properties quinquennially or periodically. If we could do that, given council tax rates, we would generate buoyant incomes for local authorities. They would not need to come to central government for their income and that would allow central government to cut central taxes. If we are serious about localism, we should break up Whitehall into the regions.

Lastly, this is a wonderful opportunity. As we are considering the refurbishment and repair of the Palace of Westminster, let us move Parliament out of London.

5.18 pm

Lord Paul: My Lords, I declare an interest as chairman of Caparo Group, an industrial manufacturing company. I thank the noble Lord, Lord Heseltine, for initiating this debate and add my voice to the plaudits he has received for his report. I have been actively involved in UK industry for more than 40 years. In this time dozens of reports, documents, policy briefs and plans have come and gone. No Stone Unturned in Pursuit of Growth is an outstanding and comprehensive report that reflects the noble Lord’s rare depth of experience in both commerce and public life.

I am glad that the Chancellor has announced that the Government are taking action on the report, although he will respond formally in April. It is a happy coincidence that today’s debate is timed to follow the Autumn Statement. I am glad that the Chancellor is to take some immediate action. Speed is of the essence and I urge the Government to implement the report quickly

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in its entirety because decentralisation of power to the regions is long overdue. However, we must be careful not to create more layers of bureaucracy, more quangos and more consultants which will produce more inertia, of which there is too much already.

We need to bring together the education and business sectors. Education has been a lifelong interest of mine and I have been active in several institutions of higher education. When I was a student at MIT, I was most impressed by the strong collaboration between business, government-sponsored projects and universities in the United States. Universities get their funding while government projects and industry benefit from first rate research and technology. We in the UK have first-class universities and we need to encourage more collaboration along those lines. I have spoken on this subject many times. Innovative technology will help to build a more dynamic economy that will attract more foreign investment than public relations exercises or cash incentives.

This report has the potential for a dramatic impact on the economic crisis so I strongly endorse it. I hope that the Government act today to pursue its implementation with the same energy, commitment and determination that has been shown by the noble Lord in producing it. I was planning to ask for this debate in my name but, true to his reputation, the noble Lord beat me to it.

5.21 pm

Lord Lea of Crondall: My Lords, we are living through a period of the worst economic situation since well before the recession of the 1930s, if one looks at the loss of potential output. We need a massive kick-start. I am 100% in favour of what the noble Lord has done, particularly as he challenges us all in our cultural assumptions. Where will this massive kick-start come from?

We have a catastrophic imbalance and there are so many ways of looking at that imbalance: north-south divide, the City of London versus the sticks, and even the plebs versus the 0.1%. Indeed, someone has described it as a Wimbledon economy. As long as the multinationals have their headquarters here and their wives and husbands—they are gender neutral these days—can be within spitting distance of Wimbledon, that is fine. Transfer pricing and taxation all comes within that package. So the political radicalism that one wishes to bring to this is a matter of taste.

I start from the position that we need a national investment bank. The City of London has some of the best brains in the country. According to the Office for National Statistics, if value-added equals wages and salaries, then the City of London must be hugely productive and have high value-added because it pays itself a lot. There is something wrong with the measure of the economy in that sense of value added. They are not laying golden eggs; they are laying hand grenades and that is not value added in anyone’s book.

My thought is that the City of London ought to provide the best brains, if that is what they are, to make the national investment bank transfer a lot of our savings. Every time you open a newspaper, they

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are trying to pump £50 billion into long-term loans which do not get spent, but that should make the kick-start. They should work for national or regional investment banks. After all they cannot all wind up as the Archbishop of Canterbury. The heart of the classic Keynesian paradox is that we are spending too little and yet are told every day that we are spending too much. The noble Lord, Lord Skidelsky, rightly continues to remind us of that.

My final point is on Europe. I will set another challenge to the noble Lord, Lord Heseltine. I would like him to look at how much truth there may be in the notion that Europe is getting in the way of industrial policy. I think that there are a lot of myths about this. There are many things that you can do within the rules of the European Community on industrial interventionism, finance and so on. We ought to nail once and for all the idea that we cannot co-operate in Europe and also have an active industrial policy, including a national investment bank. Everyone else is doing it; why cannot we? I echo what my noble friend Lord Mandelson said in that regard.

5.25 pm

Baroness Wilcox: My Lords, I thank the Minister for allowing me to speak for a moment from personal experience in support of the call from my noble friend Lord Heseltine for empowering the chambers of commerce. In the 1990s, I went to France to take over the largest fish-canning factory in France, on the docks of the port of Boulogne. I took a new landing and processing method from Britain, and some of our people to work with us. I also took a small fleet to add to the very large fleet that there was already in Boulogne-sur-Mer.

As many noble Lords will know, it is a very busy port for ferries. I was catching pelagic fish that had to be processed within hours. In docks such as those there is a high-pressure atmosphere. When I got there, I was amazed to see that the most important building in the docks was the chamber of commerce, because the chamber there has statutory power. It ran—and runs—the docks. It made an enormous difference. It meant that we could go somewhere to fight our cause. The smallest voices tended to get the biggest listen, because the port was always looking for new businesses to come forward in case it lost control of the movement of any of the cargo that it was dealing with.

When I came back to London, Plymouth and Cornwall, I saw our chambers of commerce struggling with volunteer members in that lovely amateur way in which we like to run the world. It made me realise that we cannot do this any longer. Our chambers of commerce must be empowered to promote British business. We must be able to take our place in continental Europe. It would love us to do so. It cannot believe that our chambers of commerce have no power—and neither should we.

5.27 pm

Lord Wood of Anfield: My Lords, the excellent report of the noble Lord, Lord Heseltine, paints a vivid picture of some of the problems that have characterised our economy for decades, such as low

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productivity, poor translation of basic research into goods and services, and technical skills gaps. However, for me the issue that his report brings most to light is the staggering scale of regional inequalities in growth and income. Britain has bigger disparities between regions than any of our major competitors. It is the most regionally unequal country in the EU. GDP per head in the richest region is nine times greater than that in the poorest region—and the regional gap is widening, not shrinking. Since the 2008 recession began, poorer areas have seen income per head fall twice as quickly as in the wealthiest areas. In London alone, the richest 10% have 273 times the wealth of the poorest 10%. This is not just unfair and corrosive of social solidarity; it is holding our economy back. The impact affects us all.

What can be done about this? There are 89 recommendations in the report, but at their heart are three central principles that the noble Lord, Lord Heseltine, is urging on us all. The first is the indispensable need for a growth strategy. The noble Lord says that this strategy,

“must send a loud and unequivocal message to the country that the Government takes growth seriously and has a credible strategy”.

I think that it is fair to say that so far the coalition has sent not so much a loud and unequivocal message as something that has oscillated between a mumble and total silence.

The noble Lord’s second principle is the importance of devolving policy responsibility to the regions and localities. His report details a familiar story of excessive centralism and Whitehall silos. Some imagination on getting funding streams both rationalised and decentralised is clearly needed and we are keen to work collaboratively on any proposals with that aim. But what a shame that the bodies that would have been best suited to bear the weight of this agenda, the Regional Development Agencies, were hastily scrapped two years ago in a move that the noble Lord, Lord Heseltine, himself said was a mistake last year.

Yesterday, we heard that the Government are minded to make some progress towards single-pot funding for LEPs, which could be promising. But as the noble Lord, Lord Northbrook, said, for devolved funding to work, the bodies that power is devolved to must have the capacity to do the job properly. I am not convinced that LEPs have this capacity and I am not alone, because concerns about their governance, their ability to leverage funding, whether they have procurement contract management skills, under-representation of SME's and other worries are widespread and feature in the noble Lord’s report. Building up this capacity is a crucial precondition for any serious attempt to have a regional growth policy. Will the Minister say what the Government intend to do about that?

Concerns about LEPs seem positively minor compared with the concerns about the Regional Growth Fund. This fund aimed to create 330,000 jobs in its first year. It created 40,000. Two years into its life, only £60 million of the £1.4 billion allocated has reached the front line. The PAC said that its value for money was scandalous. Again, I would like the Minister to tell us how the Government intend to respond to those criticisms.

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The final principle, which is at the heart of this report, is the belief that active government, far from being the enemy of enterprise and growth, is indispensable to it. The noble Lord, Lord Heseltine, had the intellectual and political courage to stand up for this idea when it was deeply unfashionable under a Tory Government in the 1980s. My noble friend Lord Mandelson stood up for it in the last few years of the Labour Government, when it was also unfashionable. If there is one legacy of this excellent report for us all, I hope that it is that we rid ourselves of the prejudice that an active industrial strategy is bad economics, and rid ourselves of the error of believing that a laissez-faire approach is good economics.

5.31 pm

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Lord Marland): My Lords, this has been a magnificent debate and I am very grateful to the noble Lord, Lord Heseltine, for initiating it. It must have been wonderful for his grandchildren to witness this great debate.

When the thud of this arrived on my desk and the noble Lord gave us a briefing on it, the words of Caesar came to mind: “Veni, Vidi, Vici”. He came, he saw and he conquered, as he produced this excellent document. It is a capable landscape of the issues and problems that we all face. The most important thing is that it has answers. So often we criticise in society today but we do not have answers.

I will restrict my remarks in this very short time to a response to his document on behalf of the Government. I hope that noble Lords will forgive me for not dealing with their individual questions. I am sure that we can deal with those later. It is fair to say that the Government do not agree with everything the noble Lord said—it would be a rare world if we did—but I was much heartened when he said that the Chancellor's words yesterday were as much as he could have hoped for on the report.

Of course, a great deal of what the noble Lord wrote in this report is also happening within government. In particular, he wants to put in a test case in Birmingham where he is looking for a response for the Prime Minister. I have no intention of shooting the Prime Minister’s fox on this one because the noble Lord is waiting for him to reply, but I have a slight indication that he may be disposed to that as the right thing to do.

The noble Lord talked about a national growth strategy in this fine document, as did the noble Lords, Lord Wood and Lord Mandelson. It is absolutely fundamental that out of all of this we have a national growth strategy. That is what the Government are working to at the moment. Part of that strategy relies on the chambers. The report says that we should enhance the legal status of the chambers. The chambers are indeed at the heart of a British-led recovery. However, as the noble Lord, Lord Heseltine, remarks, the chambers themselves are in, at best, a pretty feeble state. They need boosting up. We will return in the spring to his comments on that with an official response, but clearly the direction of travel in boosting the chambers, which we are doing abroad at

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the moment, needs to happen very extensively in this country, because we have a serious breakdown at the moment.

Strategic relationship management was referred to. We have established 38 strategic relationship partnerships with big companies to lead ourselves out of the mess that we are in. Our ambition is to have 150 relationships by 2015. Rationalisation of trade associations is another issue. Having been the Minister for Intellectual Property and been on the receiving end as some 100 associations bombarded me with information in relation to intellectual property, I cannot help but agree with the noble Lord. That has of course to be led by the industry, but this gives a very helpful nudge.

The noble Lord refers to procurement strategy and procurement specialists within government. He is absolutely right. I was one of the five Ministers who were responsible, under Francis Maude, for renegotiating all government contracts and establishing strategic relationships and partnerships with government suppliers. That will be critical, not only for saving costs but in terms of building relationships. The Government’s commitment to 25% of government contracts going to small and medium-sized enterprises is absolutely key to helping the SMEs forward.

I am on the Civil Service reform board so am much taken by the reference the noble Lord makes to improving management information within government. We have to improve management information, which has not changed since the noble Lord, Lord Mandelson, was in government. We are still deluged by paper, which, in a modern world, should not be the case. There are communication issues within the Civil Service, but it is working hard to find a way forward with that, as indeed it is in commercialising the Civil Service, which is going to be critical to any reform.

A lot of the meat of what the noble Lord says relates to LEPs. I am glad that he feels that LEPs, working alongside stakeholders, are absolutely key to development through our regions. I do not think there is much argument in this House about that. The Government have committed £1.5 billion of funds which LEPs can apply to borrow. We have established 35 LEPs and a wave of city deals—28 already—which should increase employment by 175,000. A lot of work is going on there.

A number of noble Lords have referenced local government, while the noble Lord, Lord Wolfson, referred to planning and getting a much clearer path in that respect. That is very important, especially coming from a top entrepreneur like the noble Lord, who understands it as well as anybody. It is absolutely fundamental that we simplify some of the methods of local government.

On skills, I am a great fan of the UTCs, and we all pay huge tribute to the noble Lord, Lord Baker, for his part in devising them. I have had the privilege of working with him on a few things to do with UTCs and where they could be. They will be part of the regeneration in various areas. In addition to that, the

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Government have set up a number of skills training programmes and mentoring programmes, such as Get Mentoring, which has 15,000 mentors throughout the country supplying help to businesses starting up. It is all part of reducing that skills gap, as my noble friend Lord Heseltine suggested.

The noble Earl, Lord Lytton, referred to red tape. The one-in, one-out regulation reduction that we have has already saved £850 million of regulation costs to businesses. We must build on that, and we support the recommendations that the noble Lord has made.

In addition, the Government have adopted several key initiatives. We have set up the Green Investment Bank with £3 billion of funding. We have announced a business bank with £1 billion of new funding. We have set up catapults with an investment of £200 million to transform some of the new advanced technologies. We have set up the Business Finance Partnership. We have the Enterprise Capital Funds and the Funding for Lending scheme, as well as a whole raft of infrastructure projects that the Chancellor has announced not only recently but in the past two years. So the Government are trying their very best to force business and industry to respond to the challenges that the economy now faces.

Strategically, we have identified some of the economies that we want to back, such as advanced manufacturing in aerospace, motor and science. The Chancellor announced great support for science and technology yesterday in the Autumn Statement. We also want to support knowledge-intensive industries such as education, IT and business services—all key things in which we have tremendous skills. In addition, we want to enable some of the construction and energy companies to start rebuilding infrastructure.

At the heart of this is trade. Unless we start to trade as a nation, we will not have growth. Our initiatives for trade include investing more funds in UKTI, a department that I am proud to be involved with. We have reformed UKTI as a much more outward-facing unit than it has been. The Prime Minister has led several big trade delegations; there have been more than 280 missions this year alone through UKTI. We have had Export Week, we have had ExploreExport, and as of late I am pleased to have taken on the chairmanship of the Prime Minister’s trade envoys.

If there is one thing that I think sums up this debate and the admirable concerns of all noble Lords in this Chamber, which were echoed by the noble Lord, it is the notion that we are definitely all in this together. Through the trade envoys—which involve Labour, Liberal Democrat and Conservative Peers—and through our business ambassadors, we will be able to take the trade out to the world as UK plc. That is how we will get out of this mess—by all being in it together. I admire the words that the noble Lord used, because they are the icing on the cake on what I think is an excellent document and a good reference point for our Government.

House adjourned at 5.42 pm.