Budget Resolutions and Economic Situation

Because any business activity is inevitably impacted, for good or ill, by a Budget, may I begin by drawing attention to the Register of Members' Interests? Like several other speakers this afternoon, this is my valedictory. The hon. Member for South Derbyshire (Mr. Todd) and my right hon. Friend the Member for Fylde (Mr. Jack)—and, I hope, myself—are going when our constituents are sighing woefully, as opposed to with tears of joy. In a sense, I am going when there is still some energy left in this body, after 23 years of service in this House. I am also leaving with some sadness, as this has been a fascinating period. When I first entered the House, I served on seven successive Finance Bills, which might be considered slightly beyond the call of duty. Because of the magnificent economic management of the Conservative Government, that did not mean seven successive years—in at least two years there were two Finance Bills. I look back with some degree of pride that I got a reputation for boring for Britain in favour of employee share-ownership schemes at a time when they were not fashionable. I am delighted that the current leader of the Conservative party has, in revitalising the party, revitalised that idea, particularly in the social field. I welcome that enormously. When I came up with that idea in the late 1980s, I thought its time had come, and I even wrote a pamphlet for—remarkably—the Adam Smith Institute. Given my other views, that was an offer I could not refuse. That idea is now mainstream. I was also—I think—the first person in the Conservative party to write a pamphlet on corporate social responsibility. Again, that was slightly out of time, because only now is it mainstream Conservative policy. In a sense, I am going just when the party has caught up with me. I suspect, therefore, that my party is rather pleased that I am going. The Budget is strange—it is a fag-end-of-a-Parliament Budget. We do not know what the election result will be, but I obviously hope that my right hon. Friend the Leader of the Opposition becomes Prime Minister. He has revitalised the Conservative party and I hope that he will revitalise the country. We might not know what will happen in the election, but we do know that the Budget does not give much guidance on what must happen the moment the election is over, when we must begin to take things seriously. Of course, there are some nuggets in it. I was rather delighted that there might be some relaxation regarding automatic retirement at age 65. I am retiring from the House just before I am 65, but I hope to do other things outside. I was thrilled with the potholes money—I believe it was £100 million. Surrey county council could probably make use of the whole of that fund judging by the size of the potholes in my county. I hope that the Treasury looks kindly on the much underfunded and neglected county of Surrey, part of which I have served for all of those 23 years. Otherwise, the Budget rather misses the big challenges. One thing I did not see was any concept of our international position. We have a relatively weak currency at the moment, which is normally regarded as a good thing—people say, "Terrific. We can get manufacturing and other exports rising." However, that requires markets into which we can sell, and many other countries are undergoing great difficulties at the moment. I have been known, from time to time, as being rather positive about the European Union, from which I do not resile. However, I wish my friends in the German Government would wake up to the reality that they cannot continue to have the surplus they have and a stable monetary zone within the European Union. By the way, Portugal has had its fixed rating reduced today, so it is being fingered as country with a higher risk than is appropriate within the eurozone. We already know about the Greeks and I suspect that Spain is sweating on its credit rating, but the German Government must get their act together. Germany is the motor of the European Union and, regardless of whether or not we are in the euro, one of the motors of our exports, so it is vital that it understands that there is an obligation, which is ultimately in its interest. It is not just about China, as my right hon. Friend the Member for Fylde said. I mentioned China because its reserves, given the level of the renminbi, could be tremendously destabilising. The Americans are getting a little belligerent and asking whether they should impose import duties on Chinese goods, but they should remember that if it was not for the Chinese buying dollars, the dollar would be in a state of genuine crisis, which would have big knock-on effects on domestic interest rates. We do live in this global economy and although I certainly do not share the Prime Minister's view that he saved the world during the middle of the debt crisis, I give him credit for understanding that, regardless of the problems in UK, this was solvable only by looking around the world and trying to get agreement. That will have a considerable impact on the way in which we begin to structure the recovery. Inevitably, there will have to be what is called a "fiscal contraction", which can be either an increase in tax or a reduction in expenditure. We have had a sterile debate at times this afternoon. No party is advocating no cuts, because that would be unsustainable. I note two things in this regard. Page 11 of the Red Book shows that debt interest is now £43 billion a year which, as my right hon. Friend the Member for Wokingham (Mr. Redwood) said, is greater than the defence budget and twice the budget of industry, agriculture and employment. If one looks down the page at the figures on receipts, one sees that debt interest takes up the whole of the receipts from corporation tax. That is just an unsustainable situation, and it is occurring when rates of interest are artificially low. I am not saying that they should not be at their current levels, but if interest rates were to start to rise, debt interest would become dramatically higher and would begin to swamp excise duties, which raise only £46 billion. The relationship between these sums is important. A better way of trying to explain to the British people that we have a problem might be to tell them that we are fighting a war in Afghanistan—my son is a soldier, and he is now safely back from Afghanistan, having served his second tour—yet the British Government are spending less on defence than they are paying in debt interest on their borrowings. The public understand that that is unsustainable. We want to reduce services without affecting the front-line services and while looking after the people who work in those services, who are wonderful. Any Member of Parliament who visits their local schools and hospitals has a very high regard for the people working in the public sector. The cuts will be painful. The difference in the language used by the Government Front-Bench team and our Front-Bench team is not about whether or not we should have cuts; it is about the fact that the longer one leaves making those cuts, the more dangerous they are likely to be because the deeper they will have to be to convince the markets. The markets are important because of the debt interest that we are already paying, as I have already mentioned. I hope that during the election campaign we will be able to get away from the sterility of the argument, "You are going to cut sooner than we are going to cut" and get on to consider what sort of economy we want to have after we have cut what we will have to cut. That is what I want to focus on. During my many years in the House, I have taken a particular interest in higher education, science and space. I was lucky enough to be a Minister with responsibility for science and technology in the mid-1990s—that was up until the 1997 election. That was a fantastic portfolio, and being space Minister was quite interesting. Most of my colleagues rather wanted to send me to outer space, nevertheless the role was a stimulating experience. Within the context of public expenditure constraints, we must preserve expenditure as much as possible in education, science and space and, in some cases, invest, in contradistinction to the cuts that we will need to make in other sectors. We need to do that because what will really determine whether this country will be successful, whether it will punch its weight in the world, whether it will not be increasingly ignored by the G2 of America and China and whether it will have its voice heard not only within the European Union, of which I profoundly hope we are an influential member, but within the G20—it is actually the G28 because some countries want to hang on in there, despite not being part of the G20—is whether we are extremely careful not to destroy the added-value industries and skills that this country will depend upon for growth. Our economy is not going to grow again on the back of North sea oil. We have been lucky enough for that to happen in the past decade or two, but North sea oil is disappearing. There are some interesting opportunities for the further recovery of oil in fields that have been part-extinguished, and for deeper-sea drilling, but they will not give our economy the kind of boost that it has previously had. Indeed, it is likely that we will be importing more than 60 per cent. of our gas and oil requirements shortly—perhaps by the end of the decade—from unstable countries such as Russia. We will not see a recovery at the same level as before in the financial services industry. I hope that we do not destroy that industry; I do not want to get into the issue of taxes on banks, but we want the banking, financial services and insurance sectors to do well, as they are great drivers of wealth and innovation in the economy, not just for the bankers. The reality, however, is that we will have to stimulate other parts of the economy such as the service sector and the creative industries if we are to survive, to export and to generate wealth. That means doing something to ensure that we do not just cut higher education out of convenience. I welcome the comments in the Budget about funding for extra students in science, technology, engineering and mathematics. That is a positive move, although it is not enough. I juxtapose, as the Royal Society did in its recent report, "The Scientific Century", the fact that France has just announced an extra €35 billion in funding for research and development in science, and the fact that we are slicing £600 million from our higher education sector. Some strange concepts about this issue concern me deeply. We need to encourage universities to teach scientific subjects and we must recognise that those subjects are more expensive to teach, pro rata, than arts subjects. In turn, we need to encourage more people to take those scientific subjects, which means offering better teaching in the schools that are the feedstock of our higher education institutions. I also want to discuss science and engineering, which are not valued in the public debate as much as they need to be if we are to recover as a knowledge economy. The importance of applied science in particular is not fully appreciated. We have a high regard for our basic scientists and a very high regard for those who get citations published—we punch above our weight as a nation in that regard—but we are not so good at pulling across into reality the innovations that are necessary to enhance our knowledge economy. Again, I noted that there was further funding in the Budget for spin-outs from universities, but I think that we need to look at proof-of-concept-stage financing and to give more encouragement to industry and universities to work together on research projects, because not all ideas come out of universities—quite a lot of them come out industrial research establishments. We are aware of that, but we are fiddling at the edges. The Labour Government have rightly taken credit for increasing the amount of money that goes to the research councils; they have more than doubled it since I was the responsible Minister, when I was unable to persuade the then Chancellor of the Exchequer that he should do the same thing. I therefore give credit to Lord Sainsbury for changing attitudes to the research councils. However, it is interesting that both his retirement report, "The Race to the Top", and this month's report from the Royal Society draw attention to the fact that, in terms of expenditure as a percentage of research and development, the expenditure on public R and D is the same now as in 1997, when I left office as the Minister for Science and Technology, at about 0.7 per cent. of gross domestic product. So, despite the increase in the research councils' budgets, there has been a diminution in public investment in science across the board in other Government Departments. We need to be careful about that and to watch it. My view is that scientific expenditure stimulates growth in other sectors of the economy, although not always predictably. President Obama has put in place massive science and technology stimulus projects that will have a big effect progressively on the way in which the United States recovers, because it will have a lot of value-added industry and skills in universities. Some of the money going into American universities will attract talent from throughout the world, so there will be an influx of top academics and research institutes, perhaps including those from the United Kingdom. We need to be careful, so I hope not only that science expenditure will be ring-fenced, but that the importance of science will be underlined and understood in Government Departments, so that each Department's chief scientific adviser, and perhaps their engineering advisers, will ensure that every Minister understands the importance of projects that lead progressively to more scientific expenditure and the application of science in Government decision making. As I said, I shall make a comment about space, and I make the specific disclosure that I am a non-executive director of a company involved in satellite broadband. I welcomed this week's Government announcement on the space agency; Lord Mandelson and Lord Drayson were right to make the decision. This country needs a stronger position on space activity. It is one of the most innovative industries and contributes about £7 billion a year to the UK economy. It involves cutting-edge technology, a lot of which reads across to the non-space sector. The sector is therefore important, so I hope that my Conservative Front-Bench colleagues will not only endorse the space agency, as I think that they will, but understand that it will need Government funding along the lines that have been announced if it is to bring in the proposed industrial funding, which I know about from the industry and Government policy group report that preceded the space agency announcement. Let me focus on a final point that the Government need to take on board and on which I hope my party will focus more explicitly. The Budget included a mention of small and medium-sized companies tendering for Government contracts—I call that smarter procurement. It is vital that that happens, although it is not easy to achieve. The Government spend more than £160 billion on all procurement. For 30 years or more, America has put in place a set-aside of about 20 per cent. of such expenditure for small and medium-sized companies, which leads to a tremendous pull-through. The best form of capital for a smaller company is revenue, so if a company wins an order, it will be much more likely that outside investors will back it. The difficulty in this crucial area arises due to the costs of tendering. The Budget envisages such expenditure representing 15 per cent. of the total, which would mean that upwards of £20 billion a year would go into smaller companies. Obviously, that would have a tremendous impact, and it would be a much greater amount than the budget for the science research base. If we can get this right, as I hope that we will, the results could be dramatic. Britain deserves to be a leading-edge, innovative economy. I commend a recent report to Conservative Front Benchers by Sir James Dyson, which covers much of the same ground as, and makes similar recommendations to, a report that I gave to the shadow Cabinet in 2007. The time for such ideas has come, but I felt that the Budget was tired in the sense that it contained a lot of little initiatives, but no real vision of how we can drive this country back into a situation in which we can afford, through the growth of high-technology industries, the very services on which we know that the public depend. That is a real gap. I hope that during the election and beyond it, we will recover our self-confidence and determination not to be dependent on what goes on elsewhere in the world for our livelihood, and show the rest of the world that British industry can compete and that we can have the skills base that will enable us to hold our head up high. Those are my final words in the Chamber. I have enjoyed 23 years here, and it has been a privilege. The Esher constituency between 1987 and 1997, which became Esher and Walton from 1997 to the present, has been a wonderful constituency to represent. I have been greatly supported by my wife, whose father was a Member of the House from 1950 to 1961, when he went Upstairs, so we have a long association with the Commons. It has been a great honour for me to serve here. I hope that debates in the next Chamber flourish and that Members speak without notes, preferably, because it is a debating Chamber. It would be even more stimulating if people were to think things through and understand what they want to get across to the British nation in the Chamber, rather than waiting to put out a press release. I have enjoyed my time here, and I am very grateful to everybody in the House for allowing me to do so.