---

Economy: Enterprise, Taxation and Manufacturing

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 our positions on taxation and regulation put us in the optimal place to minimise any damage that may be caused as a result of this situation. 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 that case is depressingly symptomatic of a wider malaise at the Treasury. It is increasingly apparent that the Government are unwilling to or incapable of thinking through their proposals with a view to our competitive position and the difficulties facing businesses in this country. 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. I place on record my congratulations to those firms that have invested in research and development, and that are continuing to thrive in both domestic and international markets despite the challenging complexities and disadvantages imposed on them. It is imperative, however, that continuous training programmes are led by the industries, training bodies and employers. We need to ensure that people are adequately trained in science, in technology subjects and in every other way. My business is insurance and financial services, and we lead the world in this field. That is mainly due to our expertise and quality of people. We create considerable revenue for the country, and the Chartered Insurance Institute, the British Insurance Brokers Association and insurance companies are actively involved in training schemes. Our example can be followed by others. We need to invest in people for our well-being and growth. We need to be innovative and invest in opportunities abroad. Over the past year, I have visited India and countries in the Middle East several times. There are growing markets in which we can participate and we need to be proactive, otherwise we will be left behind and others will overtake us. In conclusion, I return to my original thesis: despite the challenges confronting those who create wealth for our country in the ever more competitive global market, we have some grounds for optimism. That optimism is established on our export markets, as we witness a decline in growth in domestic markets, and ever greater pressures placed on consumer spending. If we are to weather the storm, we need the Government to recognise that they have been part of the problem in recent times and they need urgently to relieve small, medium and large enterprises from the excess burden of regulation and the damages caused by the complexity and level of taxation. I look forward to hearing the Minister's assurances that the Government have learnt that lesson and that we can allow the enterprise sector in our economy to do what it does best: to generate wealth through innovation that retains our country as a major economic player in this increasingly competitive global market.