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Address in Reply to Her Majesty's Most Gracious Speech

My Lords, I am grateful to everyone who has taken part in this valuable debate, which has effectively highlighted the successes of the British economy and the challenges that it faces. My noble friend Lord McKenzie, in his opening speech, described the success of the Government's macroeconomic policies. I now want to emphasise the success of British business in recent years. Business investment, exports and manufacturing output have all risen in the past year. We have one of the most favourable environments for starting and growing a business. We now have 300,000 more businesses than in 1997–98, with new businesses starting up at the rate of more than 1,000 a day. Our barriers to trade are among the lowest in the OECD and we remain the largest destination for foreign direct investment in Europe. British business has never worked so productively, created so much wealth and generated so many jobs. But while we should celebrate that success, we should not underestimate the challenges that British business will face in the years ahead. The economic world is being transformed. Barriers to world trade are coming down. The Chinese economy, with wages 5 per cent of ours, is growing rapidly. The world's division of labour is being redrawn. In 1980, less than a tenth of manufacturing exports came from the developing countries; today it is almost 30 per cent. In 20 years' time, the figure will probably be 50 per cent. We face a major challenge. At the same time, technology and scientific understanding are changing our world faster than ever before and creating new opportunities. Developments in ICT, new materials, biotechnology, new fuels and nanotechnology are creating a new wave of innovation and new opportunities for entrepreneurial businesses, large and small, to create competitive advantage. We face a major challenge but also many opportunities. What does industry need to meet the challenges and seize the opportunities? There are five areas of crucial importance for businesses: macroeconomic stability; a regulatory framework that is clear, predictable and "light touch"; a tax policy that rewards success; the ability to draw on a pool of innovative, skilled people; and an environment that favours science and innovation. An energy policy that meets the three key objectives of low cost, energy security and sustainability is also essential. I should like to focus first on four of those issues, which have come up constantly during the debate: the regulatory framework, energy policy, science and innovation, and education and training, which, I believe, will be at the top of our agenda in the next year. Many, including the noble Lords, Lord Newby, Lord Haskel, Lord Bhattacharyya, Lord Tomlinson and Lord Razzall, raised the question of regulation, which I welcome and on which I shall comment briefly. First, the amount of regulation is obviously of great concern to industry, but we should be careful not to overestimate the regulatory burdens faced by UK industry competing abroad. Independent surveys show that the UK has among the lowest administrative and regulatory burdens of any major industrialised country. For example, the World Bank, in September 2004, placed the UK top in the EU and 7th out of 130 countries for the best business conditions. KPMG, in February 2004, ranked the UK first in competitiveness in Europe and third overall out of the 11 countries it studied. However, we are not satisfied with that situation and believe that much more needs to be done if we are to give free rein to entrepreneurial British businesses. The DTI is therefore committed to a £1 billion reduction of regulatory burdens arising from DTI regulations over the period 2005–10. We will also adapt the "one in, one out" principle that the Dutch use for administrative reform, and radically reform enforcement and inspection by consolidating 31 national regulators into seven regulatory bodies. The better regulation Bill will enable a greater number of reforms to be delivered by regulatory reform orders. The noble Lords, Lord Redesdale and Lord Tomlinson, and the noble Baroness, Lady Miller of Chilthorne Domer, raised the issue of energy. On energy policy, over the coming months we will update the facts and analysis behind the energy White Paper that we issued in 2003. That is essential in areas such as energy policy, where markets and technology are constantly changing. Some of that work is already under way in the Climate Change Programme review. It shows that we are falling short of our goal to cut CO2 emissions by 20 per cent by 2010. But it also shows that we remain on course to meet our Kyoto target to cut greenhouse gases as a whole. In seeking a way forward, we will look at the potential of all new technologies—carbon capture, clean coal, renewables and nuclear—as well as the scope for energy efficiency. As the noble Lord, Lord Redesdale, said, difficult issues are involved, such as nuclear waste. We need to be certain we are moving forward on them, including the issue of cost, before nuclear becomes a real possibility. In that, we will try to achieve consensus. There is no problem in that we can act as an intelligent customer if we are put in the position where we decide that new nuclear build is essential. We have constantly stated that we have kept the nuclear option open and to that extent we have done so. The noble Baroness, Lady Miller of Chilthorne Domer, mentioned photovoltaics. That remains immensely expensive as a way of producing renewable energy and there can be no question that one would require people to make use of it. Encouragement should go only so far, because it carries a heavy cost burden. Given the enthusiasm of the Conservatives for nuclear, as shown in this House, I looked enthusiastically at their manifesto to find it. Obviously I understand that they did not want to include it and that it would be much nicer if the Government took such difficult decisions. However, it suggested that the Conservatives' enthusiasm for nuclear was less clear-cut than it might appear in this House. I turn to science and innovation because in that the Government have made a great deal of progress. This is not simply a side issue: it is clear that it is essential to the economic future of this country if we are to compete against the low-wage countries. As a result of substantial increases in a number of spending reviews, the science budget will have more than doubled in real terms, from £1.3 billion in 1997–98 to £3.4 billion by 2007–08. We have also successfully given major incentives to universities to transfer knowledge and introduced R&D tax credits for large and small businesses. We have developed a technology strategy programme to provide a business-driven framework for identifying and supporting emerging technologies. In the previous Budget, we made mandatory a small business research initiative which requires government to procure 2.5 per cent of its R&D from small business. We also have major plans for the future. We have set ourselves ambitious goals in the 10-year investment framework for science and innovation and committed ourselves to increasing science spending at least in line with the trend growth rate in the economy. Also as set out in the Labour Party manifesto, we will create diversity of excellence in our universities by providing additional incentives through the higher education innovation fund to those universities which chose to focus on user-driven research, and construct more science bridges between world-class universities and high-tech clusters in the UK and the USA. Finally, let me say something about education and training. Despite what many people say, including the noble Lord, Lord Marlesford, and my noble friend Lord Bhattacharyya in the debate, there is no problem in this country in terms of the overall number of young people studying for science and technology degrees. It is not widely appreciated that today there are 120,000 more young people studying for science and technology degrees than in 1997–98. The percentage of the total of the whole student body has risen from 38 per cent to 41 per cent. These include large increases in those studying in the biological sciences but also a 78 per cent increase in those studying computer sciences and a welcome 38 per cent increase in those studying mathematics. The physical sciences have remained fairly constant at 50,000 and there has been a fall in the number of students studying for engineering and technology degrees from 87,000 in 1997–98 to 80,000 in 1999–2000, though this figure seems to have stabilised at this level. It is clear from these figures that we have a specific problem in engineering and technology and I believe that the main problem here is that young people do not see engineering as exciting and as part of the new knowledge-intensive economy. Clearly, this is wrong and we need to work hard to change this perception. We need both to revitalise engineering education in our universities and to communicate to young people exciting developments in industries such as aerospace, telecommunications, new materials, nanotechnology and bioengineering, which critically depend on engineering skills. We also need to communicate the challenges that engineering faces in areas such as energy and sustainability. While the overall number of young people studying science and technology remains very high, the quality of vocational training for young people and adults remains a weakness. I was delighted that my noble friend Lord Tomlinson raised the issue. The percentage of our workforce qualified to technician and intermediate skill levels is low: 28 per cent in the UK, compared with 51 per cent in France and 65 per cent in Germany. We have set out ambitious plans to elevate the status and relevance of vocational qualifications for both young people and adults. Designed in collaboration with employers, specialised diplomas for 14 to 19 year-olds will be established in key areas of the economy leading to apprenticeships, to further and higher education and to jobs with training. We have already increased the number of apprenticeships from 75,000 in 1997 to more than 250,000, and we will increase the number to 300,000 in our third term. We will improve the supply of people with technician and intermediate skills by piloting an extension of the national employer training programme to fund jointly, with business, training for intermediate and technician skills at level 3. I turn to some of the other issues raised by noble Lords. The noble Baroness, Lady Noakes, ranged over familiar ground. She drew attention to the fact that we failed to rule out national insurance tax increases. But I think it is true to say that the Conservative Party, when equally challenged, also refused to rule them out. We have lower corporation tax rates and income tax rates than we inherited and we remain below the EU in terms of tax rates. The noble Baroness was very keen to have a bet with my noble friend Lord McKenzie about tax, but I thought it was significant—