Lords Hansard text for 11 Jan 200711 Jan 2007 (pt 0009)

2.42 pm

Lord Leach of Fairford: My Lords, to see global competition at close quarters, I recommend taking a trip up the Pearl River to what used to be called Canton. There is mile after mile of dormitory towns, with people making goods that used to be made in the West. Nowadays they are paid about $180 a month, but Chinese proprietors are shifting work to Cambodia, where labour is cheaper. A western factory worker or employer looking at this through the train window will see trouble in store, but an enterprising financier or the owner of a great brand will see something different; an emerging market on a scale unparalleled since the arrival of the USA as an economic force at the end of the 19th century.

Hong Kong, at the mouth of the river, was once famous for textiles, but the industry has migrated north and the city has had to reinvent itself as the Asian hub for a 21st-century economy. Let us not forget that Britain also reinvented itself in the 1980s. It was painful, but had we followed a policy of propping up industries and taxing financiers out of business, we might have a sense of moral superiority but the country would now be nigh on bankrupt.

As things have worked out, Britain has become an advanced service economy. The City of London houses an industry as important to us as Silicon Valley is to the States or the motor industry is to Germany. If I harboured Guy Fawkes-like designs on the City, which would give me a heightened conflict of interest with my directorship of Rothschild, which I declare, I would hatch two plots. First, I would strangle it with rules and statute-based laws, recognising that much of its success has been due to enlightened regulation. Secondly, I would reduce traffic to a standstill. At this stage, I would think I was making good progress. I would count as a triumph the new European financial services action plan, which will cost the City about £20 billion to implement over the next four years. As for transport, I would be spoilt for choice, with the failure to build Crossrail or modernise Heathrow, the state of the Underground, bendy buses, the price of a rail ticket, and so forth.

I have not forgotten the environment. Whatever the true pace of man-made climate change, it is clear that large amounts of money will be devoted to research, clean energy, and the adaptation to weather effects. That money will not be generated without a successful economy, so London’s transport problems must be fixed. Green absolutism, for example about airports, would be counter-productive. As noble

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Lords have said, we cannot take our pre-eminence as a financial centre for granted. This sort of business is extremely mobile. Parts are already splitting off to Ireland, Bermuda, Asia and Switzerland.

There is a broader context, too. Britain has fallen in the world competitiveness rankings, as my noble friend has said. Apart from the financial sector, multinational food, tobacco, oil and consumer goods companies have all recently relocated their headquarters abroad. A trickle risks turning into a flood. There is no single explanation for this exodus. Poorly educated school leavers, inadequate infrastructure, regulation, low investment and high taxes have all been blamed at one time or another. Many of these causes are not easily measurable. Investment and productivity figures, which people often like to quote, are often really just mumbo-jumbo, but tax is quantifiable. The Government inherited an economy where only 10 of the world’s 30 leading developed nations had a lower corporate tax rate than we have, but now 20 of them are lower. France will overtake us this year. Germany’s will be half ours next year. The next Chancellor will inherit deteriorating national finances despite a benign economic environment and years of tax hikes. He will also inherit too complicated a tax system. The EU is not helping either, with its regulatory and protectionist propensities—protectionism being particularly dangerous for an open trading nation such as ours.

We should not be misled by current figures. It took nearly 10 years for the reforms of the 1980s to show through in hard results, and it could take the same amount of time again for our declining competitiveness to show through in weak figures. If that does happen, it will be no good our flirting with protectionism or blaming regulations that we should have vetoed, departments that we should have reformed, or expensive IT projects that we should never have started. It is time to take responsibility for ourselves. Unless there is a change of direction, either we will slip slowly backwards in step with the EU, which is forecast to decline from over a quarter of world GDP in 1985 to less than an eighth by 2050, or we will see a divisive gap opening up between corporate Britain and domestic or social Britain as companies shift their operations abroad to protect themselves. We should view neither outcome with any equanimity at all.

2.48 pm

Lord Bilimoria: My Lords, the question before us today is simple: how can we maintain our place as one of the world’s five largest economies, which is respected worldwide and the envy of Europe? I have always said that one of the reasons for Britain’s great success is that we have one of the freest and most open markets in the world. Our openness has enabled Britain, and London in particular, to become the world’s pre-eminent global financial centre.

Britain has one of the world’s most flexible labour markets and a workforce capable of adapting to change. We have also had a stable economy with a long and sustained period of low inflation and low interest rates. There is a movement in entrepreneurship in Britain, and entrepreneurship is flourishing and celebrated in our country today. There is no question but that

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Britain has become increasingly economically competitive in the last generation. However, we must ask ourselves whether this competitiveness is sustainable. I have serious concerns.

My first concern is whether Britain has the necessary components of a competitive society and a competitive economy. In a country such as ours, our richest resource is our people. Centuries of innovation and discovery testify to the skills of the British people—skills that have adapted over time to meet new challenges. Yet today almost 5.5 million people of working age are not in employment and are supported by the state. Our productivity, as we have heard, remains below the G7 average. Of our 11 year-olds, 120,000 leave primary school unable to read or write properly. Of those students who go on to gain qualifications, a diminishing number have an interest in maths and science. This is a foreboding start for a generation destined to lead us into the new era of the global economy.

I could, however, take heart from the recent report from Universities UK, Eureka UK, which was packed with world-changing innovations to have come out of British universities over the past 50 years. Certainly, in terms of competitiveness, our universities are one of our greatest strengths, with three British universities among the world’s top 10. Even here there is cause for concern, because our universities must compete globally, but with far fewer resources. When I came to the UK from India for my higher education, I was in a minority because many of my contemporaries went to the United States, where universities were perceived to be better and there was more money for scholarships and bursaries. Perception is important. Our image as a country matters. Britain is a world player. We are at the top table in every area. However, a brand is what a brand does. If Britain is to maintain its currency as a destination for students, professionals and investment, we must maintain a good profile and remain a strong brand.

The future of our competitiveness also means looking outwards, which brings me to my second concern. As we have heard, the global competition has raised its game. We have giant competitors looming, specifically China and India. They are, in many ways, the Goliaths to our David. They are ambitious, liberalising, moving quickly and ravenous for success. India is a massive opportunity for Britain, but despite Britain being one of the world’s great foreign investors, and despite a long and close relationship with India, in many ways Britain has been beaten by so many other countries. We once had a head start, but now we are rushing to catch up.

I say rush, but when I was appointed as UK chairman of the Indo-British Partnership in 2003, the south Asia department of what is today UK Trade and Investment had just cut its staff by six times in the UK. This was at a time when India had already started growing by 5 per cent year on year. Since then, India has been growing by 8 per cent, yet these resources have not been increased in the UK. British business and the Government need to be far more proactive, not only in India or China but worldwide.

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Britain’s largest trading partner is, of course, the European Union. This has had its benefits, but has also made us subject to arguably unnecessary amounts of regulation, which stifles British business and makes it uncompetitive. Quite apart from regulations that are forced upon us, very often we inflict these regulations on ourselves. We are eroding, as I said earlier, those very fundamentals on which our prosperity relies. We are increasing the tax burden, as we have heard. It is now almost 40 per cent of GDP. We are complicating taxes, hitting consumers and business alike, and making us less attractive to inward investment. There has also been a huge increase in public sector spending, with the number of public sector employees increasing by more than 500,000 in the past six years, in many cases, I am afraid to say, with not enough to show for it. At the same time investment of £350 billion is needed urgently to improve our infrastructure.

Security is also fundamental. Our Armed Forces are seriously underfunded, under-resourced and stretched beyond limits. As my noble friend Lord Dear said in his excellent maiden speech, the police in this country are stretched so thinly that their ability to do their jobs is threatened, as is the rapport they once enjoyed with the public. Such issues are inextricably linked, not only to our security, but to our civil society and standard of living. The economy, taxes, spending, education, health, security and infrastructure are surely all of the first importance to our global competitiveness. All these factors contribute to our ability to progress as a country and a people.

The crux of the matter is that our competitiveness affects all of us, not just business. We need a new alignment of government, business and citizens. This attitude must filter down to every level. We cannot afford to sit back. Everyone must contribute at every stage. The bar worldwide is being raised faster than ever. We are a tiny nation but, historically, we have defied the odds and not only survived but prospered. We are a nation that has been such a great influence around the world. If we are to recapture and sustain that, we need to take action now. We are a wealthy nation, but our wealth cannot last for ever unless we take action now. When I was a child in India, Britain was looked upon as a has-been. What was once the greatest nation on Earth was seen as sick and weak. In the past 25 years Britain has regained its position and re-earned its respect. We must never let that go.

2.56 pm

Baroness Gale: My Lords, I congratulate my noble friend Lady Kingsmill on securing this debate and on her excellent opening speech. I declare an interest in that I serve on the board of the Women’s National Commission. In order for the UK to compete in the global economy it must surely be vital to use all the talent available.

This may seem obvious, but I draw noble Lords’ attention to the recent Equal Opportunities Commission report, Sexand Power: Who Runs Britain?. It talks about the “missing women” and asks:

“Where are the women missing from our boardrooms and public life?”

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It goes on to say:

“If we hope to shatter the glass ceiling we would need to find nearly 6,000 women ‘missing’ from more than 33,000 top positions of power in Britain today”.

This report shows how painfully slow progress is for women. If the UK wants to be a success in the global market, it needs to maximise the expertise and talent of the entire workforce. In all walks of life there are very few women in top positions, be that in business, industry, the media, the judiciary, politics or public life.

An article by Larry Elliott in the Guardian on 27 November 2006 said:

“The role played by women in the economy is strange, to say the least. Women do better than men at all levels of the educational system, from primary school to university, and the government wants Britain to be at the cutting edge of the knowledge economy in which brains rather than brawn are the secret of success.

So it should be simple. Put the people with the smarts in charge and we would all be better off. Yet the latest evidence suggests that the thicker of the two genders remains firmly in control. Women may be making their presence felt in some of the professions—medicine and the law, for example—but men are still firmly in control of high finance, big business and the economics profession”.

Women make up just 10.4 per cent of directors and non-directors in the FTSE 100 companies. According to the Equal Opportunities Commission’s report, it will take another 60 years at the current rate of progress to get an equal number of female directors. The same goes for other professions. At the top levels of the Civil Service, for example, 26.3 per cent are women, so at the present rate of progress it will take 20 years to achieve equality in Civil Service top management. In the senior judiciary it will take 40 years to achieve an equal number of women. At the moment they make up just 9.8 per cent. As for women MPs, it will take 200 years or 40 general elections to achieve equality.

The Equal Opportunities Commission speaks of the missing 6,000 women. If the UK is to be competitive in the global economy, these 6,000 women must be found, and it will not be too hard to find them. There is no lack of talented and ambitious women, so what prevents them playing their full part in the public, political and business life of Britain and why are they being denied their right to play that full part as they wish to do? I recognise that there is now equality of opportunity, but while the opportunity is there for women to apply for posts, what I and many others want to see is equality of outcomes. There are many barriers to overcome and the glass ceiling is firmly in place.

Women want the opportunity to play their full part in keeping the competitive edge of the UK in the global economy. In the public, political and business life of Britain today, women are there, waiting for the chance but being deprived of it. The UK is missing out on this great pool of talent. Employers at every level of business should look at how successful women have been in running their own businesses. Over 1 million women in the UK today are self-employed, and the number of self-employed women has increased by 18 per cent in five years. Many become self-employed because they cannot achieve their full potential in the

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workplace but can prove that they are good and successful businesswomen. The Equal Opportunities Commission report says:

“The absence of women at the top of public and business life in Britain today is not of their making. Significant barriers remain that prevent women from progressing up the career ladder into positions of power. Unless we drive forward change at the top, remove barriers and take concerted steps to consolidate and build on the progress we have made, there is a risk that we will not only see progress stall but see it go into reverse. The significant number of women ‘missing’ from positions of power is indicative of our failure to meet the economic and social challenges that confront us”.

Much legislation has been brought forward in recent years to assist women at home and in the workplace, but the law by itself cannot eradicate prejudice, which unfortunately still exists. Employers must accept the fact that by not allowing women to achieve their full potential, by not giving them the promotions they deserve, their businesses too will not reach their full potential. Only by using all the talents of the workforce in the UK will we keep a competitive edge in the global economy.

3.02 pm

Lord Lang of Monkton: My Lords, like other noble Lords I begin by complimenting the noble Baroness, Lady Kingsmill, on securing this debate and on her extremely interesting speech, with almost all of which I found myself in agreement. In my seven minutes I should like to address some of the issues she did not have time to cover.

The need for the United Kingdom to be competitive in a global economy that is evolving faster than ever is fundamental to our future prosperity and well-being as a nation. I shall start on a note of agreement with the Chancellor, who, in his Pre-Budget Report of 1998, described productivity growth as,

One can happily agree with that sentiment, but performance has sadly not matched the rhetoric. Many factors come into play, and I would like to try to address some of them, but I agree with the Chancellor that productivity and the rate of productivity growth in relation to other nations lies at the heart of the issue of competitiveness.

In the 1990s, when my own party was in government, we gave high priority to improving productivity, and we deferred some easy and electorally popular decisions in order to achieve it. It was achieved, with annual productivity growth of 2.6 per cent over 1992-97, closing the gap with our major competitors year after year. But for the past five years, our productivity has grown by only 1.5 per cent. I accept the warning of my noble friend Lord Leach about the quality of productivity figures and their availability; nevertheless I am comparing like with like, and the trend is clear enough. Certainly the momentum of our growth rate continued in the first few years of the Labour Government, as the Chancellor stuck with our macroeconomic policy. But since 2002 the productivity gap with our G7 partners, which had reduced in the previous decade from 22.6 per cent to 8.2 per cent, has started to widen again. In 2005 only Japan, still in the depths of its own unique

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internal recession, had lower productivity than Britain among the major economies of the world. The World Economic Forum figures show us dropping from fourth to 11th place in the international competitiveness league, and our productivity growth rate is currently half that of the United States. The same picture is reflected in the growth of the economy, falling from 22nd place to 25th in the European Union growth league.

It is not just the actual figures that are so damaging to the strange picture the Chancellor seeks to paint of what is in his words a “uniquely high growth economy”; it is the reversal of the tremendously positive trends that he inherited in 1997. I think it is a pity that, in the Chancellor’s speech to his own party conference in September last year, he sought to imply that the growth the British economy has enjoyed in the uniquely benign global conditions of recent years all began in May 1997. We have had 38 quarters of uninterrupted growth, he claimed, but it was closer to 58 because it began in the last five years of Sir John Major’s Government. From the turn of the century, the forward momentum, the positive trend that we had established, was stalled and lost and now almost all the indicators are negative. The IMF is revising its forward-growth estimates downwards.

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