SIR KEN JACKSON, MR IAN BORKETT AND DR JOHN LLOYD

TUESDAY 26 FEBRUARY 2002

  240. It has been put to me by a large engineering company that one of the things we should look at is the relative level of corporation tax between ourselves and some of our competitor countries, and, of course, if we had a lower marginal rate of corporation tax that is generally advantageous, but when it comes to R&D expenditure specifically, it can be a disadvantage, because then a locational decision might see greater allowances against R&D in a higher tax country than in this one. Would that be, in your view, a reasonable kind of comparison to make, a tax credit which was sufficient to offset what might otherwise be the greater advantage of certain allowances against tax than this country?
  (Sir Ken Jackson) I think all we ever ask for is a level playing-field, that, wherever our competitors, whatever advantages they enjoy, we do enjoy a similar level of taxation in this country; and it is always difficult to make comparisons, because of the different layers and levels of taxation that we have. But we do want a level playing-field, we have never asked for and never can be in a position where we get an advantage on taxation or tax credits in terms of other countries, but certainly we do not feel that to be disadvantaged is something that is in our interests. And we want a taxation system that actually encourages people to invest, that does bring forward the best, in terms of British companies, to do the research and development in this country, and that we can actually turn that into manufacturing jobs as well. So I do feel that the taxation system has got to support and not penalise certainly research and development in this country.

  241. There was just one point you made in your evidence which, I confess, I did not understand, perhaps you could just clarify for me, it was a point about extending credits that are available to primary contractors to other suppliers in the supply chain. Now I am not quite sure I understand this. Would it not be the case that a general R&D tax credit would be available to those companies in any case, in relation to their own R&D expenditure, or are you suggesting that, somehow, what strikes me as something of an innovation, that tax credits that would be available to one company, in relation to its final product, might be able to be transferred to other taxpayers?
  (Sir Ken Jackson) The point we made earlier, in terms of component manufacturers, for example. There is co-operation between the major contractor, or the end builder, and the contractors; in some instances, that does drift down, but in other areas, and we have certainly seen it over the last two years, where in some industries—and I do not think we need to go into which industries, at this moment in time—where the people who are really screwed are the component suppliers, and certainly they are not in a position to develop R&D to the levels that they would like to, based upon, whatever you like to call it, people making sure that they have the lowest, lowest possible price, in terms of supplying the major contractor. We feel that if, in their own right, that did cascade down, the research and development that they obviously have to do, in terms of a component manufacturer, if it were to cascade down, then there would be more incentive, and more direct incentive, for them to develop the product. And it is a major problem, certainly, in component manufacture over the last two years, that because of the strong pound the component manufacturers have had really a very difficult time; and the point we made about Dyson, earlier on, that a lot of the component manufacture has actually drifted out of this country. If you look at the motor manufacturing industry, which has gone through a lean time over the last few years, the component area of that really has drifted out.

  242. You mentioned earlier, Sir Ken, about the importance of investment in skills, and I was just wondering, we have had many witnesses who have said that the skills gap is a problem, in terms of productivity in manufacturing, why do you think we have this problem of underinvestment in skills, and what would you like to see done to deal with it, which are the main areas where you think the skills shortages are the most serious problem?
  (Sir Ken Jackson) I think, if you look back over the last 20 years, in particular, even when we have had high levels of unemployment, and people have been paid to be unemployed rather than to go through a skills training programme, and a skills programme would actually deliver the skills that we need, one of the big problems we have got in industry, whenever there is a cut-back then the first thing that suffers is investment in training, they stop taking on recruits, they stop taking on apprentices, they stop training, because you can affect the bottom line very, very quickly. Of course, when the economy starts to pick up, you have immediately got a skills shortage, which then reflects in the fact that people have got then to start to bid up the rates of pay that they pay, in order to attract the skilled labour that is available; it is a vicious circle. And what we feel is that we need training programmes, and employers need to have incentives, or some people believe in levies to persuade people that they have got to have ongoing training, that they need to sustain their business and to develop it. And we find difficulty in persuading employers actually to take on and train people, I think as John Monk said earlier, to find that when the economy starts to pick up people then go out and poach the skills that they need, and people will not train for someone else's advantage. So there is no easy answer, there is no simple answer to that, like with anything else, but we find that, the downturn in the economy, one of the first things that suffers, or the first thing, is training, both internally, taking on new people, taking on graduates, all of these things reflect right through the economy. And there is no doubt that you have either got to have an incentive for people to train on the scale that we need it, or people have got to do as they did in the past, everyone has got to contribute to skills training in this country.

  243. Thank you very much indeed. The timing is unbelievable. I was about to say that, unless colleagues have further questions, and the advice here is that there will be a vote any second now, so this is perfect; sorry, Sir Ken, forgive me, domestic arrangements intrude occasionally. But we are very lucky, we have had a full session in the afternoon where we have got a running vote, that we have not been interrupted before. Unless colleagues have any further questions, thank you very much indeed, to you and your colleagues, for coming along this afternoon, and for your written submission; and if we have any further questions that arise from our subsequent evidence sessions we will get back to you. But, for the moment, thank you very much indeed.
  (Sir Ken Jackson) Well thank you for the opportunity, and obviously we take manufacturing extremely seriously, because that is the major part of our membership; but, of course, it is also extremely important for the future of this country, in terms of employment, and, as I said, generating the cash that we need to provide the public services that we all recognise that we need.

  Mr Berry: Thank you very much indeed.