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Economy: Enterprise, Taxation and Manufacturing

rose to call attention to the role of enterprise in the United Kingdom economy, the effect of taxation on the competitiveness of small and large businesses, and the current situation and future direction of manufacturing; and to move for Papers. The noble Lord said: My Lords, it is a great privilege to open this debate and to see so many of your Lordships here to take part. The success of business and enterprise is fundamental to a free and prosperous society. Yet for too long we have heard too little about what industry and commerce contribute to the wealth of our country and too much about how much money is being spent. It seems to have become a badge of pride to spend while the need to earn it first is forgotten. More and more of the nation’s earnings, which are desperately needed for future investment, are being spent and wasted today—past earnings that are stored in pensions, present earnings that must be fought for every day in a harshly competitive world, and future earnings that are mortgaged increasingly by reckless government borrowings. This would worry me at the best of times, but now that the clouds of economic slow-down are gathering, even the Governor of the Bank of England says that the nice times are over. This makes today’s debate especially timely. It would be easy to look back and be critical of the hubris that declared an end to boom and bust or that failed to prepare in the good times for the harsher days that inevitably come, but it is important that this nation should do what every good businessman must do—analyse and learn from past mistakes, look forward to ways in which we can first minimise the effects of the coming downturn, rebuild this country’s competitive edge in a rapidly changing world and strengthen our manufacturing base. Our best companies still thrive on excellence, know-how and entrepreneurial drive, but they face difficult times. The credit crunch will obviously have an impact on business investment, but rising inflation poses other risks. If strikes in the public sector spark inflationary pay claims in the wider economy—fortunately there is little sign of this at present—even more jobs will be jeopardised. We are already seeing cutbacks in financial services, in retailing and in construction, and I have no doubt that other sectors such as distribution and transport will soon join them. Ministers are right to say that some factors are beyond their control, but that makes it doubly important that we deal with the challenges that we can remedy. In my business career, I have been privileged to work for some of Britain’s finest and most innovative companies. My experience of large, medium and small start-up companies is that every business shares similar hopes. We all need a business environment that embraces stability, offers certainty, practises simplicity, rewards success and attracts the most talented. Far from there being simplicity, business at every level is being encased in complexity. Annual Finance Acts of around 600 pages are frankly shameful, and it is even worse when Ministers reverse financial rules that they have only just put into place. Constant changes to the tax system undermine certainty and are a disaster for long-term planning. We have to face an annual crop of new taxes, new revenue-raising regulations and new rules that affect the workplace. It is unpredictable, unsettling, and worst of all wholly unproductive for front-line managers trying to control costs, to improve services, to motivate staff, to win new orders and to develop new ideas. It is simply ludicrous when medium-sized companies complain that they are spending more on accountancy fees than they can afford to pay job-creating managers. Companies are not experimental playgrounds for Ministers and civil servants. Where changes are wanted, they must be properly considered and consulted on. The bodged form of capital gains tax was another classic example of inadequate consultation triggering unforeseen consequences. While there was widespread acknowledgment for the need for reform and probably support for moving to a simple flat rate, without proper consultation the ship struck rocks that could so easily have been avoided. It was bad for business, bad for Britain and bad for Ministers, whose reputation suffered, probably irreversibly. Then again, the threatened exodus of companies relocating themselves abroad in response to government plans to tax foreign profits shows how easily the wrong decisions can undermine our country’s competitive appeal to international businesses. International competitiveness is fragile. You have to work to maintain it every day, and then come in the next day and, maybe, start all over again. There is immense mobility in a modern economy and unprecedented freedom to relocate. Tax is a major consideration for any business, and poorly thought-out action by government may win a headline one day or a party conference cheer the next, but it is not much good when the lights go out in offices across the City of London. Imposing tax on worldwide income will inevitably impact on the UK’s competitiveness compared to other countries, not just tax havens but other EU states. I am ready to join those who salute the benefits of economic immigration, but economic emigration is far easier to do and far harder to prevent. Poor consultation and a failure to listen are at the heart of this and other problems. I urge Ministers to stop levying new taxes, stop introducing complicated structures that only lawyers will read in pairs and stop thinking that they know better than people who have a lifetime of experience in business running successful companies. Proposals such as the supplementary business rate and the community infrastructure levy will only add to the burdens and complexities that businesses face. Increasing tax on business in a time of economic slowdown is akin to shop owners putting up their prices when customers stop walking through the doors. It does not work on the high street and it certainly does not work for our country. My right honourable friend David Cameron struck a chord with millions when he said that the tax burden has risen beyond the tolerance of mortal man, and certainly beyond the capacity of large and small businesses in this country to absorb. On business tax, do Ministers agree that a cut in the main rate of corporation tax from 28 pence to 25 pence would provide a real boost to the competitiveness of British business in these troubling times, even if that means some reliefs have to be withdrawn? I cannot ask the Minister to write a new Budget: we have just had two in two months, and I certainly do not want a third. However, I hope that she will take that message to her colleagues. Excessive and invasive regulation is another major worry—not just the principle, but the unprecedented scale and bureaucratic interference that is now belching out of Whitehall like an old lorry’s polluting emissions. This regulatory culture represents a real threat to enterprise and business in the United Kingdom, both through direct costs and also through the uncertainty and inefficiencies that it generates in the business environment. The ABCC has estimated that the financial burden of new regulations on business has reached a staggering £65 billion since 1998. Since the Government came into office, I am told that an average of 14 new regulations have appeared every working day. Yet, despite repeated assurances, promises and task forces, the Government are still manufacturing regulations like widgets. This Session there was yet another Bill before this House on deregulation. Incredibly, it contained new powers—as your Lordships exposed—to allow bureaucrats to impose penalties without independent appeal and without trial. Clearly, Big Brother is watching us all. Inevitably, it is the small businesses that will be the first to be caught up in this mess. It can and must be stopped. Cutting regulation means cutting tasks, cutting jobs and accepting risk. Unless we have more courage, we will go on as we have been: one week enacting new regulations and the following week promising fewer. In the mean time, companies and managers are worrying whether what they are doing today might be unlawful tomorrow. I hope noble Lords will join me in commending a formula to Ministers. Regulations should be compatible with enterprise and the public interest. Their impact should be fully costed in advance. They should have sunset clauses where they can be renewed only if they have proved to have been worth while. Regulations which cost jobs should be repealed. Regulations which cost more than the benefits they provide should be scrapped. Regulations which have perverse effects should be suspended immediately. Finally, regulations should be applied fairly and efficiently. None of us wants to see companies exempt of any regulation. Equally, however, we must never allow the companies on which our prosperity depends to be second-guessed and micro-managed by platoons of political appointees and civil servants. The current trend to give regulators far-reaching investigatory powers backed up with threats of draconian penalties may sound consumer-friendly but if the consequences are suspicion, fear, wariness and fatter bills for the lawyers, neither customers nor shareholders will benefit. What targets do the Government have to cut the number of regulations affecting business in the next 12 months? What assurances will the Minister give on behalf of the Government not to introduce new regulations in the next 12 months? I will ask an easier question. How many regulations has the Minister personally scrapped in her time in office? I conclude by saying a few words about the state of our manufacturing industry. Since the 1970s, there has been a steady decline in the number of jobs in this sector. In 1978 7.13 million were employed in this sector. In 1997, the figure was 4.53 million. In the three months of this year it fell to an all-time low of 2.9 million—a fall of more than 30 per cent in a decade. Despite this decline, many businesses have adapted to changing markets and developed new products. In recent months, exports have risen as a result of the falling pound. However, a combination of tighter credit and rising inflation could certainly be damaging. What effect do the Government expect tighter credit to have on levels of business investment next year? I remind the Minister again that lower taxes, stable taxes and fewer regulations will be warmly welcomed. At the same time, how do the Government intend to tackle the scandal of underperforming schools that see thousands of young people leaving full-time education lacking basic skills and the aptitude for work? Our country is already losing some of the competitive advantages that we won in the 1980s. If we are to weather the difficult times ahead, encouraging enterprise and new business start-ups is essential. The Government say they want to listen. The language is welcome but I remind the Minister that in business, only deeds matter. I look forward to hearing the contributions of those noble Lords who follow me in this debate. I beg to move for Papers.