Debate on the Address

My Lords, it is a great pleasure to follow the noble Lord, Lord Bilimoria. I congratulate him on an excellent and informative maiden speech, and I am sure that he knows that his great-grandfather’s grandson and I did our doctorates together at Birmingham University, so we have a lot in common. I also know that his finance director was born with me in the maternity ward, because his father was writing his thesis. I was reflecting on the noble Lord’s biography during his speech; it is a story of consistent achievement and willingness to take risks. His knowledge of business, understanding of the importance of social responsibility as a holder of the royal society’s Albert medal, grasp of export markets, and not least the wine he produces—which, with proper respect, like a Parsi, he has named after his father—will all be welcome contributions to the life of this House. He has made a very good start and we all look forward to hearing many more speeches from him. I hope that it will not interfere too much with his recreation of making beer. The gracious Speech allows us to focus on the longer-term challenges of the UK economy. It is an opportunity to reflect on not only the legislation itself, but the economic issues that underlie it. First, I want to join noble Lords from all sides in thanking the noble Lord, Lord Sainsbury, for his long service as a DTI Minister. He has been a true innovator and will be missed by the science and technology community. One of the changes at the DTI that we have seen recently has been the setting up of the technology strategy board, to encourage growth of applied research. For a long time, applied work supported by government near the marketplace was a taboo. For the first time, the technology strategy board, as an arm’s-length body, gives recognition to applied research that will help drive the creation of wealth. Of course its budget should be at least £600 million, not under £200 million, but a first step is always welcome and I congratulate the noble Lord and Sir Keith O’Nions at the DTI on setting up the body so promptly. I also congratulate my noble friend Lord Truscott on his appointment. I am sure that he will act with distinction and expertise. His expertise in Europe will certainly be of great benefit to the scientific community. The response from the Benches opposite and the media when faced with the last decade of growth has usually been to say that it all goes back to a Conservative Government—the ““golden legacy”” argument. The Conservative Government made vital changes to the structure of the UK economy, yet the ““golden legacy”” analysis has a major flaw: it ignores the importance of stability and security. Even ignoring the human cost of economic failure, from a business point of view, instability hurts. If you cannot operate with a reasonable expectation of low interest rates, it is hard to plan ahead. That has changed over the past decade. Secure and stable growth has been a great achievement of this Government. Another argument from the media and the Opposition Benches has been that taxes are strangling the economy. Of course there are always justified critiques of specific taxes and rates but, when I travel abroad, I see that foreign Governments are unanimously impressed by our achievement of growth without recession. Foreign Governments and businesses can see the bigger picture, which is one of growth, stability, increased employment and increased prosperity. As a result of this stability the Government have been able to tackle public service reform. It is one of the hardest issues for any Government to tackle, with so many stakeholders, employees and vested interests, so perhaps the Government raised expectations too quickly. There has been a lot of criticism as a result of those expectations, but we must admire the great number of achievements in the past five years. The gracious Speech has been spoken of as being about security. Put another way, the legislation is all about managing risk. So, how do we manage risk? We seem to be free of the doctrine of economic nationalism in the UK, but we need to do more to encourage inward investment with the greatest potential for growth. Successive DTI Ministers have talked about the need to focus strategically on key industries, whether they are called sunrise industries, the knowledge-based economy or high value manufacturing, and leaving everything else to the developing nations. I understand the point, but the sector-based argument ignores the fact that our economic competition is growing across all sectors. After all, technology can move at the click of a button and the education base of developing countries is growing fast—two factors that will have a huge impact on the knowledge-based economy. For example, Tata Motors, another Parsi company in India, developed the first indigenous-designed Indian car less than a decade ago and now has ambitious plans to produce over a million cars a year within the next few years. China, which produced less than a million cars at the end of the previous decade, is already producing 3 million cars a year and is well on the way to becoming the world’s second largest car manufacturer. That progress means that British companies and governments should not patronise those in the developing world by implying that only we can be at the top of the technology and skills pyramid. Our competitive advantage should involve a fiscal framework to attract and maintain investment. Alongside this, there should be emphasis on both maintaining an expertise in skills and an R&D base, and in building mutually beneficial partnerships with companies in developing countries. In short, we have to be excellent in everything we do. A lot of comment has focused on the need for a stronger skills base. This has been a post-war problem for the UK economy. There have been many attempts to ensure that we build our skills base and we await the Leitch report with great interest. Business also needs to do more. A good example of what can be done is Network Rail. Under John Armitt and Iain Coucher, it has set up the Westwood leadership centre, adjacent to Warwick University, which trains people from all across the workforce in a range of areas of expertise. Such investment will be vital for the future of Network Rail and other UK industries. It is good to know that Network Rail has made a profit for the first time. The Government set up the regional development agencies, such as Advantage West Midlands, which are creating a framework for sustainable economic development. The sub-regions of the West Midlands are now seeing real benefits from economic investment, from Staffordshire in the north to Warwickshire and Coventry in the south. We have also seen the benefit of the RDAs when they have handled economic shocks such as the closure of Rover, Massey Fergusson and Marconi. Being able to act early and with local knowledge is a real advantage. I hope that the Benches opposite will change their views of RDAs, which should be given more power to deliver for their communities, to be bold and to take risks in preparing their regions for the changing global manufacturing and service markets. Changes in manufacturing are not restricted to the UK. The fall in the share of GDP produced by manufacturing has been across the board in all the advanced nations. Why is this? It is not simply because of lower labour costs. It is because manufacturing companies want access to the markets of developing nations. China and India represent a market of 2.5 billion people with growth rates of between 8 and 10 per cent. What a massive purchasing power. As a result, even when buying the most advanced capital goods from western countries, they can demand huge offsets. Even with those pressures, and after much restructuring, manufacturing still represents 16 per cent of UK GDP and substantially more if we include manufacturing-dependant industries. Because the UK market is important and we are a stepping stone for inward investment in Europe, manufacturing will remain a vital part of the UK economy. We can ensure its future by continually improving its competitiveness and by seeing ourselves as partners with businesses in rapidly expanding economies, not as rivals. The same global understanding must inform our approach to climate change. We have known for a while the environmental risks of climate change; the Stern report now outlines the economic risks. It is not only a risk but a catastrophic risk, and it needs to be tackled. I agree with the noble Lord, Lord Newby, that climate change can be dealt with effectively only at a global level. That is not an argument for inaction, but it is clear that the solutions to climate change cannot be found simply in a Bill or a target but in international persuasion and compromise. The Foreign Secretary’s expertise in this area will be of great benefit to the Government. There is a lot of debate about the impact of Chinese and Indian growth on climate change. With high growth rates, there is increased energy demand and, as we see, increased demand for fossil-fuel plants and a surge in hydroelectric power projects. That is good. We should also be aware that, although China and India are both building nuclear power capacity, that option is not available to other countries in south-east Asia, all of which are growing strongly and will require energy to fuel that growth. As it was in the UK in the 1960s, the impact of those developments on the local environment will lead to regulation of environmental controls. Although the cities are polluted, there is already a huge amount of pressure in Beijing, Shanghai, New Delhi and Mumbai for environmental control. I am glad that a Bill is to be presented on climate change. Although we can lead by example, we need to persuade others to go with us; a holier-than-thou approach will only do tremendous damage. Since the publication of the Stern report, there has been a lot of debate about penalising the owners of SUVs and 4x4s, whether through taxation or congestion charges. When we consider these issues, we must remember that Britain produces the best 4x4 in the world. It is an export success and the industry is a major employer. We should make sure that we set a level playing field. For example, will our regulation levels match those of other advanced nations? If not, the economic consequences will be very negative. Companies should not be forced to produce different models for different markets. We also need to be aware of the risks of globalisation when we develop tax policy. We cannot risk being outbid in that regard. There has recently been a great media debate on capital gains tax, inheritance tax and corporation tax. I am sure that the Chancellor and the Treasury are fully aware of that debate, and their decisions will be based on a proper analysis of the impact on the economy. This issue will be decided on the economic case, not by news headlines. Managing risk is also the foundation of the debate over regulation. Every business can tell a story of crazy regulation and of staff time focused only on filling out forms, and the temptation to demand another bonfire of the regulations is never far away. I welcome the pressure from the top of government to reduce unnecessary regulation, as I do today’s announcement by the Prime Minister. Yet, we can see why consumers welcome regulation when businesses such as Farepak go bust. We need to trust businesses which show that they can handle a light touch but we need to look more carefully at those which have real risks. I welcome the draft Bill that embraces risk-based regulation for local businesses, and I welcome the Consumers, Estate Agents and Redress Bill, which will help to create more trust in business. Today, the CBI conference is taking place. Despite the rather predictable headlines that this event generates, Britain is a great place to do business. What better proof of that could there be than the number of bids for British companies and the number of non-UK companies looking to start British operations here? It is true that the Chancellor inherited a growing economy a decade ago but, even if one grants the maximum possible credit to his predecessors, a decade of steady, stable economic growth is an achievement that every post-war Chancellor would give their right arm for. That record of growth is as good an indicator as any target, any annual measure or any statistic could be. I am familiar with advising business, and I would tell any company that a record that good means that the manager responsible is ready for even greater responsibilities.