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12.16 pm
Lord Bilimoria: My Lords, as I mentioned in my maiden speech in your Lordships' House, when I came to this country in the early 1980s as a 19 year-old from India, for my higher education, Britain was the sick man of Europe with no respect in the world economy. The City of London, where I worked and trained to qualify as a chartered accountant, was a closed shop. What has happened to transform the Britain of a quarter of a century ago into the Britain of today? I believe that three fundamental factors have enabled that transformation.
First, we are today one of the most open and free markets in the world. Without the “big bang” and the opening up of the City of London in 1986, there is no way that the City of London would today be the pre-eminent global financial centre of the world. This openness has also made the British economy one of the most attractive destinations for foreign investment. Without this openness, there is no way that I, as a 27 year-old with £20,000 in student debt to pay off, would have been able to start a beer brand from scratch in the most competitive beer market in the world. And the competition means that the biggest beneficiary in any sector is the consumer, who is in the driving seat demanding more variety, more choice and better quality. The bar is continually being raised.
The second factor is that in the Britain I came to just over 25 years ago, the word “entrepreneurship”
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Today, we encourage entrepreneurship throughout all universities in this country. I am proud to be the national champion for the National Council for Graduate Entrepreneurship set up by the Prime Minister, when he was Chancellor, spreading the spirit of enterprise and entrepreneurship through every university in this country.
The third factor is taxation. There is no question about it—where business is concerned, high taxes are stifling. I am grateful to the noble Lord, Lord MacLaurin, for calling this debate to address these crucial issues.
So what is the role of government with regard to business? Many would say that the best role for government is to get out of the way and to let business get on with it. But I believe that government, regardless of political party, has played a very important role in the transformation of Britain over this past quarter of a century. Government can be a helper, supporter and a catalyst for business. Most importantly, government can create the environment in which business can flourish.
I will give one example from my experience: that is, the Government’s small firms loan guarantee scheme, of which we have been a beneficiary. They guaranteed 75 to 85 per cent of the loans that we raised.
I remember that, in 1993, one of these loans saved me from having to give away 25 per cent of my company to a venture capitalist. That enabled me to save the equity of the company, so that everyone in my company now has access to a share option scheme. Having started £20,000 in debt, I still own the majority of my company. This is an example of how government can be a supporter of, and enabler to, business. I was delighted to hear the Prime Minister say in a recent speech that this scheme will be expanded. I urge the Minister to expand it in a big way.
Coming back down to earth, we have a situation today where, over the past 12 months, the Government, who had done so much until then to help business, have removed taper relief, which reduced capital gains tax to just 10 per cent, encouraged investment and was aimed primarily at entrepreneurs and entrepreneurship. They have removed the lowest 10p rate of tax, affecting 5.3 million individuals and families. The Chancellor, in the last Budget, reduced corporation tax for large companies, yet increased corporation tax for small companies.
Then we had Northern Rock, which clearly demonstrated a lack of clarity, accountability, responsibility and communication between the triumvirate of the Treasury, the FSA and the Bank of England. The happy merry-go-round in what the Governor of the Bank of England called “the NICE decade” became a miserable blame-go-round. The Government had to inject £25 billion to rescue Northern Rock and then had to nationalise it. I do not think that we in this nation, or the world, have grasped the magnitude of a
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We had the charge being imposed on non-domiciled individuals, threatening the openness of our economy and alienating many key individuals who have invested so much and brought so much talent to this country. More recently, we had the furore over the taxation of UK companies’ overseas activities. I am sorry to say that, with all these changes, the Government have, without consultation and often without having thought through these changes, alienated and upset virtually every part of the business community in this country.
There is talk of simplifying taxes, yet the tax burden in this country has continually and steadily increased. Companies are moving, and talking about moving, their headquarters to countries such as Switzerland and Ireland, which has a 12.5 per cent rate of corporation tax. In a snap poll by the Federation of Small Businesses two months ago, 93 per cent of small business owners said that their confidence in the Government had decreased since last year.
Britain’s manufacturing industry is still responsible for one-sixth of the UK’s output. It accounts for more than half of UK exports and undertakes 75 per cent of all business research and development. It employs 3.5 million people, and many more indirectly through the supply chain. I am very proud of British manufacturing—the cutting edge, high-value-added manufacturing of companies such as Rolls-Royce. Sir John Rose, in an FT article earlier this year, said:
“Having a mixed economy in which both manufacturing and services are important gives a stronger base”.
I give a quick example from my own company. Until this month, we produced more than two-thirds of our European production of Cobra in Poland. It was cheaper and more efficient to produce it in Poland, even after paying the distribution costs to bring it into the UK. However, now we have found a ground-breaking and innovative manufacturing model and we are moving our production back to three breweries in the UK; bottling and packaging in an integrated manufacturing, bottling and distribution plant, created and built with Irish inward investment near Manchester. This will save us several million pounds from day one. Who said British manufacturing was dead?
As an enterprise leader for the Prince’s Trust, I was delighted last week to hear the Minister announce that the Government will support the Prince’s Trust business programme, which celebrates its 25th anniversary this year. The Prince’s Trust has done a marvellous job in helping 70,000 businesses, not only through providing loans, but also through its fantastic mentoring scheme. The Minister said that the Government would contribute £1 million to support the Prince’s Trust. The Prince of Wales then took the podium and said that he was delighted that in the audience was the noble Lord, Lord Young of Graffham, who, in 1988, when he was Secretary of State for Trade and Industry, supported the Prince’s Trust and, to celebrate the prince’s 40th birthday, said that, “For every pound you raise, we will match it”. The Prince’s Trust, even in that dreadful economic climate, raised £27 million and, reputedly, the Government matched it with £27 million.
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Is it the case that the Government are giving £1 million in support this year, versus £27 million in 1988? They are giving £25 billion to rescue Northern Rock to maintain financial stability. If only we could support small businesses the same way in which the American small business service has done for decades, with tens of billons of pounds of support; imagine what we could do with entrepreneurship, enterprise, manufacturing and innovation in this country. Imagine where we could be.
Something dawned on me when I opened the fourth Joint Economic and Trade Committee meeting in my role as UK chairman of the Indo-British Partnership and the chairman of the UK India Business Council. I welcomed the Indian Minister for Commerce and Industry to his fourth meeting in a row, and I welcomed our Secretary of State for business to his first meeting. He was our fourth Secretary of State in four years. Are the Government taking business seriously? The Secretary of State for business should be one of the great offices of state, but unfortunately it is not. In my role as chairman of the UK India Business Council, I have seen how far £1 million of support can go. The support that we get from UK Trade and Investment genuinely allows us to promote trade, business and investment bilaterally.
Britain is still one of the six largest economies in the world. We have only 60 million people—we are a tiny nation in comparison with the giants of China and India—and yet one in five school-leavers is still unable to read and write properly and, despite our enormous wealth and in spite of us being able to provide free education, free health, roofs over our citizens’ heads and a safety net of welfare, we still have child poverty and huge areas of deprivation. We have much to do. It is fundamental that, particularly in the current economic climate, the Government put business first, because, as my friend, the noble Lord, Lord Jones, constantly reminds us, it is business that creates the profits and the jobs that pay the taxes that provide the public services. Actually, business is at the heart of it all.
Goldman Sachs predicts that in 2050 China and India will be the largest two economies in the world but that Britain will still be one of the 10 largest economies in the world. We have always punched above our weight and we have always been adaptive, flexible, creative and innovative. By putting business first, we will always keep the “great” in Great Britain.
12.27 pm
Baroness Buscombe: My Lords, I, too, thank my noble friend Lord MacLaurin for introducing this important and timely debate on a crucial subject concerning the role of enterprise in the United Kingdom. I declare my interests as chief executive of the Advertising Association and as a non-executive director of Three Valleys Water plc, which is a water company. I will focus my contribution on three areas: regulation, the creative industries and the disproportionate and disruptive power of some non-governmental organisations.
UK businesses are now facing massive economic uncertainty. A decade of Labour Government has
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Sir Martin Sorrell, chief executive of the advertising firm WPP, has warned against the planned tax changes that would see large chunks of multinational companies’ overseas profits brought within Britain’s tax net. He said:
“If the measures ... are introduced, ratified, confirmed and implemented, we will be taking a very serious look at the advantages and disadvantages [of moving]. I think the proposals will lead to the exodus of a number of multinationals. I have been surprised by the number of our clients and non-clients who are considering this action”.
Earlier this week, at the annual CBI dinner, the president of the CBI said:
“What business needs is clarity, certainty and competitiveness—what we have got is more cost, complexity and capriciousness—and we can’t go on like this”.
Let us take the creative industries as an example. They are collectively a huge and growing contributor to the economy, but I know from my own experience that they are feeling particularly fragile in the current economic climate of uncertainty and high taxation. More needs to be done to give this sector freedom to thrive and there are a number of ready solutions. For example, we should look to exempt the creative industries from changes in legislation such as TUPE and capital gains tax, which damage free and fair competition in the market and undermine entrepreneurialism.
TUPE has been extended to certain professional sectors such as the advertising industry, for which it was never well adapted. It threatens to strip advertising agencies of the flexibility they need for the development of new ideas and concepts for new clients. TUPE particularly hurts the smaller agencies, the small businesses that do not have the legal and personnel resources to manage it. My experience of working in the creative industries is in stark contrast with my experience as a director of a company in a heavily regulated industry. That is simply because there is an enormous difference between working in an inflexible, bureaucratic and heavily regulated environment and working in an industry with clearly defined boundaries of self-regulation.
It is no accident that the creative industries are growing at twice the rate of the rest of the economy when they are not unnecessarily constrained by the heavy hand of regulation and compliance. Advertising regulations deliver fast, free and flexible, albeit strong, consumer protection and, as a bonus, the whole regulatory process is paid for by the industry at no cost to the consumer. We should therefore look to adapting existing self-regulation models to more business sectors, not to additional legislation, to set standards.
I wish to consider another sector constantly undermined by regulation. A survey conducted last year by the University of Reading among industry leaders found that regulation, particularly poorly drafted
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One of the things that has struck me in recent years has been the extent to which industry appears to be fixed in the headlights of non-governmental organisations. There seems to be a conventional wisdom that the more industry concedes, the better for everybody. In my experience that is entirely wrong. NGOs are insatiable and the more conceded, the more damage they do and the ever more they demand. Many NGOs appear simply to want to undermine trust in business and to believe that their rationale is to cause damage. It is disappointing that NGOs lobbying the Government and opposition parties often pursue an agenda of their own, focusing on a single set of issues. They have no duty to refer to the wider picture. In some cases, especially in relation to consumer affairs, consumers can be bombarded with mixed and negative messages without fully comprehending the nature of the source of criticism. The fallout from this in some instances significantly and unjustifiably affects the balance sheet by damaging the reputation of business. Shareholders and consumers lose out.
Given my eight years here in your Lordships’ House as a shadow Minister across seven different briefs, I can attest to persistent, powerful and very professional lobbying by NGOs across different sectors. But should that not be largely the function of the taxpayer-funded National Consumer Council? It would be much healthier if NGOs sought to work with industry and government to tackle complex social problems in the round.
The Government’s priority should be to build a more enterprising society in which all who have the initiative, skills and drive have the opportunity to start and run a successful business. The Government should create the best environment in the world to start and grow a business and to tackle specific barriers that inhibit successful enterprise. Enterprises do not want government to be a burden on their backs; they want government to be an understanding and supportive friend at their side. The Government should seriously question whether they should intervene at all, not, as they currently do, take it for granted that they must.
At this week’s CBI dinner the Chancellor of the Exchequer said of competitiveness:
I have to say that all those sitting in Grosvenor House listening—more than 1,000 businesspeople—found that statement completely breathtaking. I say in response to the Chancellor and to the Minister, please prove it.
12.35 pm
Lord Sheikh: My Lords, this is a very relevant and timely debate, and I congratulate my noble friend Lord MacLaurin of Knebworth on bringing the issue to the House. The general economic climate should be a cause of great concern to most economic actors in the United Kingdom and, as we face the challenges of a global economic turndown, we need to be clear that
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I am concerned that the credit crunch and the scourge of inflation may cause real harm to our manufacturing sector. The impact on household disposable income is weakening consumer markets and the message from the Governor of the Bank of England last week was that we should expect household incomes to become further eroded in the months ahead. In consequence, it is important that we maintain and promote our position in the field of export, particularly in specialised products—machinery and vehicles. Companies in this country are increasing levels of investment in niche markets and it is essential that they continue to do so. In addition, considerable wealth is generated from overseas by insurance, financial services, media and IT companies. It is essential that enterprise is allowed to flourish without hindrance and is given every support.
I am sure that noble Lords will all agree that most of the companies in the United Kingdom are SMEs which provide excellent service and employ a considerable number of people. We need to promote and protect SMEs for their growth and even their survival.
One of the most common complaints, which we have great cause to be concerned about and which my noble friend mentioned, is the impact of taxation. The tax burden on business in this country has increased in absolute terms and relative to our competitors. A few years ago, this country was proud to lead the field on corporation tax rates, but that has been squandered. European Union accession countries enjoy lower tax than us, as do a host of our other competitors. China is set to achieve its fastest growth rate since 1993. India is now the second most attractive venue for foreign direct investment, after China—ahead of the United States and Russia. Indian companies have been proactive in acquiring foreign companies and affording them access to new technologies and strengthening their position in global markets.
However, the rate of corporate taxation is not our only problem. Businesses rightly complain about the increasing complexity of the tax system in this country. Complexity causes costs to companies and the more time that businessmen have to spend trying to understand the regulations and taxes imposed upon them, the less time is available to them to generate the wealth that keeps our economy afloat. Much of this complexity directly derives from the previous Chancellor of the Exchequer’s desire to micromanage business by tinkering with tax rates and special concessions.
At one time, when British firms merged with foreign partners it was attractive to locate the parent of the combined group in the UK. Now instead we see a steady flow of companies choosing to emigrate from the UK. They are leaving because of the burden and complexity of our tax system, a system that threatens to become even more burdensome with the Government’s proposed revision to the taxation of foreign profits.
Unless the Government change their attitude to the taxation of enterprise, that steady flow risks becoming a flood of departures. The Government may have been forced into a turnaround on the 10p tax rate, but
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Businesses have a right to demand predictability from the Government. Whatever the merits or otherwise of particular measures taken by politicians, we have a duty to minimise the disruption caused to those constructing business plans, as unnecessary change not only increases the costs for them, but inspires a growing frustration towards tax authorities. I strongly urge the Minister to reflect on that in her response, as it is a serious cause of concern among the business community and a major hassle for our nation's wealth creators.
Predictably, compliance is a greater problem for new and smaller businesses, which have the most to gain from assistance and simplified requirements. We need to make it a priority to reduce the regulatory burden on small businesses and to simplify the tax system for them, including reforming the incredible complexities of the system of government support for small and medium-sized enterprises.
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