My Lords, I start by underlining the importance of enterprise and innovation in business as this brings economic growth as its product. No doubt all sides of the House will be in general agreement with that, just as all sides of the House are presumably against sin, but equally no doubt this debate, which I am pleased to introduce, will produce varying solutions.
At the outset, as we will be talking about promoting enterprise in the private sector, I must stress that I have real anxieties over research that has shown huge increases in jobs in the public sector and precious few in the private sector in recent years. As a Scot, I am not proud of the fact that in Scotland one in four is employed by the state-over 600,000 people-which I am told is an increase of over 50,000 since 1999. I am not alone in my concern. Entrepreneur Sir Tom Hunter has criticised the size of that country's public sector and warned of "mind-dumbing" dependency on the state.
I hope that in this debate we can identify the roadblocks that stand in the way of progress for private firms, particularly for small and medium-sized businesses and start-ups. We must never underestimate the importance of start-ups. Look at Taylor Woodrow, now a worldwide construction company, started by Frank Taylor with £30 and a bank loan of £400. Later on, I will be very critical of the Government in some respects, but I start by approving wholeheartedly of their decision to set up three manufacturing resource centres costing £70 million in Southampton, Loughborough and Brunel universities to help UK businesses to develop technological products of the future in the areas of metal, regenerative medicine and photonics. I will leave others to explore the large percentage of aid that seems to have ended up in government-held marginal seats.
Why me to open this debate? Noble Lords are entitled to ask that question. The answer is that business has been my life. When in 1990 I started up a firm from scratch, I found that much more testing than sitting on the government Front Bench in the late 1980s, although I would not have sat there if I had not as a businessman in the 1970s been so appalled at hearing Ministers talk of making the pips squeak with high tax. Noble Lords will recall that the top marginal rate of income tax was 83 per cent, plus the imposition of a tax surcharge on income from savings and investments, taking the marginal rate to 98 per cent. Who in their right mind, with all the risks of investing in small firms, would work for 2 per cent? That got me off the touchline and into the game of politics. In those days, I had followed closely what my party was planning for small businesses, starting in the early 1970s with the pioneering pamphlet Acorns to Oaks by my noble friend Lord Cope, then a younger man, and the emergence of the Conservative Small Business Bureau, which got massive encouragement from my noble friend Lady Thatcher.
And now here we are again. The Minister said recently:
"Confidence is the biggest threat. We need businesses to have confidence to invest in the future".
We would all agree with that, but how does it square with the Government's record? I hope that this will be covered in the debate, but if we are to have an export-led recovery-a low pound is not a bad start-it is not being helped by bringing in a 50 per cent tax rate on the so-called rich, threats to entrepreneurs that make them flee the country and the introduction of extra taxes on jobs.
I declare an interest as a director of two medium-sized businesses that are both dependent on innovation to stay in business. In fact, if it had not been for innovation, both would not be in business today. One deals with turning softwood into hardwood by a chemical process, thus preserving the shrinking supply of wood from hardwood forests, and the other manufactures high-class cashmere knitwear using the most modern machinery to compete with foreign manufacturers, who incidentally have no problem with redundancy payments or swingeing costs on health and safety. Concentrating on this business, we had no option in 2004 but to throw out all our main machines and replace them with the latest innovations. It was expensive and tough, as we had to ask many people to leave. Redundancy is a big cross to bear and I wish that there was some way of mitigating it, as I am sure that for some businesses the costs could well prevent necessary action.
Earlier I said that now, as in the late 1970s, we are looking at a difficult marketplace. In our business, if we are not exporting, we are quite simply out of business. What have we been told? The British Chambers of Commerce says that the blizzard of fresh red tape and taxes related directly to employment between April this year and April 2014 means that the cost for firms will be £26 billion in that period. These are horrifying figures and a far cry from 1997 when Ken Clarke passed on his golden economic legacy. All I seem to remember about that time was that Gordon Brown sold the gold. With hindsight, I do not think that that was a very good investment decision.
What did my finance director and accountant say when I said that I was speaking today? They said quite a lot. The finance director said:
"One of the biggest bureaucratic nightmares for us is Health & Safety. We are all on side to make working places safe but a whole industry has grown up. Commonsense and reasonableness are irrelevant-thus very onerous documentation resulting in our having to employ a health & safety consultancy at considerable cost".
I am sure that the Liberal Democrat Benches will be pleased and honoured to hear that I am going to quote WE Gladstone, who said in 1890, when he disclaimed his belief in the nanny state:
"Thrift has to be encouraged by judicious legislation, not by what is called grandmotherly legislation, of which I for one have a great deal of suspicion".
My accountant said:
"While most businesses can accept that credit rating would become more closely supervised in the recession, many firms are appalled by the increases in margins and the arrangement fees even when their results have held up in the recession. Clients cannot go elsewhere as High Street banks appear to have the benefit of a virtual cartel. Ministers tell us the new Enterprise Finance Guarantee Scheme is working. I hope it is as good as the SFLG scheme which was very effective where a viable business lacking the collateral for bank lending could get help. We hear a lot about the value of loans offered but this is not the same as the value of loans draw down".
Will the Minister tell us in his reply what percentage of loans offered are drawn down?
Over this difficult time we must cut away unnecessary bureaucracy and cut the time taken in setting up new businesses. At present, it takes twice as long here as in the USA, Denmark and Hong Kong-and I should know, as my daughter set up and runs an ice cream factory in Hong Kong. The number of forms needed to register should be cut and small business rate relief should be automatic, with the consequent savings for small firms.
In the turbulent months ahead-as they will be-can we do everything possible not to stifle innovation? It is to be hoped that we will adopt the Lawson mantra of "cut the rate and increase the take", open every door to encourage export-led recovery, encourage entrepreneurs not to rush abroad and ensure that Governments of whatever party understand the importance of capital allowances to businesses. I support wholeheartedly my party's plans for creating a new generation of entrepreneurs. After all, Sir Keith Joseph said, I think, that the interpretation of the French word "entrepreneur" was "an undertaker of risk". All those who get involved in business have to take risks.
A work-for-yourself programme would help to move people into self-employment. It would build a network of business mentors, offer substantial loans to would-be entrepreneurs, support self-employment and franchising as a route back into work, and work with specialist organisations that already have a proven track record in this area, such as the Prince's Trust and the Bright Ideas Trust. I hope that my noble friend Lord Hunt will elaborate on some of the measures that these Benches will support to cut the cost of red tape, get company tax to a more competitive level in the world and, above all, make sure that entrepreneurs do not end up as busy fools whom the banks and the Government leave with very little profit.
I conclude with two specific requests of the Minister. Will the Government join the USA and, I hope, Italy in making representations to the World Trade Organisation to stop China awarding export rebates of some considerable value for cashmere products that it exports? The figure is 16 per cent. It is as if I were to ask the Government here to discount all my cashmere exports to the tune of 16 per cent-an extraordinary situation. It is wrong and it is grossly unfair, but it is carrying on at the moment. I know that the Cashmere and Camel Hair Manufacturers Institute wrote on this matter to the noble Lord, Lord Mandelson, two months ago, but it has not had a reply. I know that the Minister, as a Welshman, will take this ball and run with it, because it will be a great help to our industry.
Secondly, and nearer home, as a Scot I am incensed that no new replacement nuclear stations are to be built in Scotland, thus depriving the industry there of work. That is a result of this Government's handing over all planning powers to the Scottish Parliament, with the SNP Government setting their face against nuclear installations. That must be wrong. I hope that the Government might reconsider the situation and perhaps amend the Scotland Act to ensure that planning powers for strategic energy decisions come back to Westminster, ensuring as a result that Scotland will be able to continue to be a net exporter of power through the interconnector as it is at present.
We will get out of this recession by trading our way out, by businesses creating wealth-export-led, I hope-so that we, along with the British Chambers of Commerce, can say that the roadblocks to progress have been removed. I beg to move.
My Lords, I congratulate the noble Lord, Lord Sanderson, on securing this timely debate. For 30 years, I have been the director of Warwick Manufacturing Group at the University of Warwick. We have spent those three decades working on enterprise and innovation with businesses around the world, so I am happy to declare an interest.
It took a global economic tsunami for both major parties to see that economic expansion will not be as easy as the financially driven growth of the past two decades. Whether it is a "green investment bank" or a "UK innovation investment fund", everyone is now playing "innovation" mood music. Of course, you never know what music the other band will play after an election. We know where we stand on this side of the House.
Everyone now agrees that exporters, manufacturers and new start-ups must drive the economy forward. The question is how. We could boast that Britain is the sixth-largest manufacturing nation, but the truth is that much of our manufacturing depends on the research of others. For example, although many companies make cars here, most do their research and development elsewhere. If we look at the world's most recently successful economies such as Japan, China, Singapore, Korea and India, we see the importance of an integrated infrastructure where companies do a lot of local R&D in an environment that encourages their investment. British pure research is world class, well funded and second to none, thanks to this Government. Unfortunately, we often do not take advantage of the commercial opportunities that our research gives us.
There have been many attempts to bridge that gap. In 1992, the right honourable Peter Lilley, then Secretary of State for Trade and Industry, came to Warwick to announce the creation of an innovation unit in the DTI. That was followed by the White Paper of the noble Lord, Lord Waldegrave, on science, engineering, technology, wealth creation and quality of life.
Those moves remain the benchmarks on these issues. Unfortunately, the good ideas were not backed up with money, so the fruit withered on the vine. Since then we have had a lot of policy papers about innovation. The problem has been that innovation simply became a buzzword. It was not directly linked to science and technology funding, and successive research assessment exercises ignored economic impact. At last that is changing under this Government.
At the same time, "manufacturing" became a dirty word for policy-makers. There was a perception that manufacturing meant trouble and we should leave it to others while we concentrated on high added value, whatever that meant. We have some excellent manufacturing sectors in the UK. They are golden nuggets and we can use them to build on. Some of these golden nuggets, like aerospace and life sciences, have that status precisely because of the Government's direct and indirect support for their products. We need to expand from those narrow sectors into new business areas.
Integration is the key to doing that. We spend a lot of money on innovation, from research councils to RDAs to capital funds, but all that needs to be integrated to work. If we are going to fund R&D, start-ups and research, we need to have a single agency for doing so and to make the funding process simple and fast. Our problem is not that we do not spend enough money but that we do not use that money with real purpose, with our objectives integrated across government for economic impact. For example, the £2.5 billion automotive assistance fund announced by the Government last year was hard to access and lengthy to apply for, and so did not integrate with what business urgently needed. We were draconian while our competitors were fast on their feet.
We need a change of culture, so I propose the creation of an arm's-length innovation bank to develop technology as a source of wealth creation. If we put together all the different sources of funding from applied science across Government, we could create a £1 billion-a-year applied research fund with no extra funding. We should integrate both funds with other funding, like enterprise capital funds, the higher education innovation fund, launch aid and the regional venture capital funds. This would create an innovation bank, which would encourage entrepreneurs, researchers, business leaders and inward investors to create wealth in Britain. It could be a one-stop shop.
We must keep focused on one thing in everything we do: real economic impact. That would mean giving leadership of the innovation bank to people with business experience, setting them clear priorities and offering them the freedom to achieve their goals.
Next, in an economy as regionalised as ours, we need to give the power to make decisions at the local level. A couple of weeks ago, after a debate, I wrote in the Birmingham Post about the importance of local leadership to economic growth. It is fortunate that the local leader, Mike Whitby, has been to India and China and seen what they do, and has come back and put forward certain proposals. We need local and regional leaders with a real understanding of what is going on in the outer world. In China they send their mayors-I have seen this and spoken to them-to other parts of the world to see what is going on. Here we need to develop local leaders with the same vision and give them the power to deliver national aims in a local way.
We need to prioritise our funding and then regionalise the funding structure. That would create some real joined-up thinking that linked our research base with our industrial competitiveness. Of course that involves risks, but risk is a part of enterprise and the core of innovation. Not all businesses succeed, and many experiments fail. Out of every 100 companies that venture capital supports, four succeed. However, we must offer people the chance to succeed, not throttle them with bureaucracy.
What Governments can do, at most, is create an environment where other people can come and set up their manufacturing companies, start-ups and so on. Governments cannot do start-ups and should not fund anything. Rather, the Government must create a framework for success.
My Lords, I thank my noble friend for introducing this debate which, as noble Lords have said, is one of the most important matters that we can discuss. So often in this House we talk about how to spend money. It is marvellous that we can now discuss for a short period how we might create some. It is a privilege to follow the noble Lord, who is a recognised expert in this area, and I was delighted that he ended up talking locally because I am going to talk about what I see locally. I come from the north-west of England.
I first declare my interests. I am deputy chairman of the company, Midas Capital plc, which is a fund managing company. I am chairman of RockTron Ltd, which is a highly innovative company where we own the technology to beneficiate fly ash at coal-fired power stations. There are millions of tonnes of fly ash at coal-fired power stations throughout this country and billions of tonnes worldwide.
We have now completed our first plant at Fiddlers Ferry power station near Warrington. That processes 100 tonnes of fly ash per hour. We turn it into a range of added-value products. That plant was funded by Scottish and Southern Energy. We are now looking to expand the business worldwide and raising the finance to do it will be a major task. We won the Nicklin medal in 2009, which is the prestigious medal awarded by the Institution of Chemical Engineers for the most important innovative idea in this area in the whole world. Twenty countries applied for the medal and we won it in the UK. We also won the Rushlight award recently, again for this highly innovative technology. I tell the House that from my experience of being involved in that industry.
Most of my life I was in the farming and food business. Everyone who is in that business knows that the life is a struggle so I had to struggle very hard to survive at all. You either try to make your money first and lose it in farming or else you struggle.
Following on from various activities, in 1995, we started Campus Ventures in conjunction with the University of Manchester. That was set up with European funds and we ran a business incubation unit especially for technology companies. The idea when we formed it was that most of the new ideas would come out of the universities, particularly the University of Manchester. But in practice, most of the people we encouraged came from larger companies. They had innovative ideas which the major companies that employed them were not prepared to support. We had the funds, the technology and the people-who are the key and I will return to that point-to help them. We could provide facilities such as office space, technology, computers and so forth to get them going.
We ran that for 10 years until 2005. I was chairman for the first five years and president for the second five years. During that time we started 184 companies, of which 155 are still in operation. None of them became very large companies, but we were able to get them off the ground. They are still running and are still active parts of the economy of the north-west of England.
I learnt from that the importance of having much more money than we had, both to start ideas and, more importantly, to fund the companies as they grew. So in 2001, I started to raise money for a major fund to make that possible in the north-west. I went round the institutions and ultimately raised £19 million from mainly the pension funds in the area, some from the RDAs and some from the banks, which was interesting at the time. Then I had to find somebody actively to manage it. It is interesting that I was able to raise the money on the basis that it would assist the north-west economy before I had a fund manager. We then appointed a fund manager: Enterprise Ventures is run by Mr Richard Bamford and based in Preston. That was a 10-year partnership arrangement, which has run until today.
I am still chairman of what we call the RisingStars Growth Fund Ltd but I do not manage the fund. That company has now introduced 34 new companies. Two of them are on AIM. It is now a success, in that we are feeding money back to the investors. We started RisingStars II in 2006; it has made 14 investments and is working extremely well. What is the key to making it work? We laid down these rules at the very beginning. The key is that we have a range of skills in management that can offer advice to each level of a company; we do not make big investments at the beginning, but feed the money in as the company reaches certain standards; we follow the company at all stages; and we make sure that it has the money that it needs every six or 12 months as it grows. That is one of the key issues. It has been a highly successful operation. I am very pleased that we have been able to operate it.
The Northwest Regional Development Agency now has £184 million due from the EU and the RDF scheme. I understand that it will be distributed this year. That could make an enormous difference, provided it is given to venture capital companies that have certain standards of operation. What we do not want are large venture capital funds that want to make large contributions but not get involved in the management of these small start-up businesses that need an awful lot of assistance. That has to be a key issue.
My noble friend has made many interesting political points with which I agree entirely. Success in this area needs an environment that makes it possible and encourages people who are probably now one-man bands to start employing people. A lot of people I know, including my son, who runs my family business, will not employ anybody. He says that it is not worth it; it is only an extra problem and he would rather do it himself. He is limited to what he does but that suits him. Many people take that view: why would you employ somebody, given the responsibilities and difficulties? These are issues that any future Government must tackle in a large way.
We are now in the most competitive world that we will ever see. If we do not get down to wealth creation, the economy of this country is doomed to be even worse than it is now.
My Lords, I join noble Lords in congratulating the noble Lord, Lord Sanderson of Bowden, on having initiated this debate. I am pleased to follow the very interesting contribution of the noble Lord, Lord Wade, although what I have to say will be rather different.
As we move out of recession, it is not enough to speak just of a return to growth. We must speak of a transition to low-carbon growth. As someone who is not especially party political, I was pleased that this figured prominently in Mr George Osborne's speech of a couple of days ago. In response to issues of climate change and energy security, Governments all over the world are gearing up for investment in new energy technologies. This issue is transformational in nature. The fossil fuel industries of oil, gas and coal, gigantic though they are, are now sunset industries, at least in their current form. This situation is creating a new competitive environment, to which the UK must respond and which will be truly global.
These changes will no longer be led-certainly not only and perhaps not even primarily-by the western countries. Twenty years ago, China contributed less than 2 per cent of world R&D spending. Now that proportion is 20 per cent and is still rising. China overtook Japan in 2006 and is closing fast on the US in terms of overall levels of expenditure. In its recent stimulus package, China allocated a very high proportion-some 58 per cent-to investments in infrastructure, environmental technology and renewable energy sources. The leader in the world is South Korea. It invested fully 85 per cent of its stimulus package in these areas. If you track what has been happening in South Korea, you will see that it has a detailed forward plan for a wholesale transfer to renewable sources of energy over the next 20 or so years. It is a very detailed and very impressive plan. It does not simply respond to the crisis of climate change but is very much driven by the urge to substantiate a new competitive position within the world economy.
Of course, we have our own plans. Indeed, there has been a proliferation of them over the past couple of years-for example, the low carbon transition plan. However, we will need an awful lot of innovation to implement them. It will involve-in this respect I differ a little from the noble Lord-a new level of industrial activism and a certain level of government intervention. In my view, my noble friend Lord Mandelson is right to say this. However, business firms have to be in the driving seat. Markets have a flexibility and capability of innovation which Governments certainly do not possess. The key thing, as my noble friend Lord Bhattacharyya said, is the "how?" of this. What kinds of connections will most effectively stimulate new economic growth and job creation in these areas? Entrepreneurs must be in the driving seat. President George Bush is famously reputed to have said that the reason the French are no good at business is because they do not have a word for entrepreneur. We do have a word for entrepreneur and noble Lords on this side of the House recognise the crucial importance of entrepreneurial activity in promoting economic growth.
What would an activist strategy look like? I mention three main points. First, it should concentrate less on renewable technologies than on the more basic areas of innovation that underlie them. A good example is industrial biotechnology, where I feel that significant investment from private and state capital needs to be made. The industry recently produced a very interesting and extensive report for the Government. A crucial area of innovation, among others, will be third generation biofuels, which will be a gigantic business across the world. They will supplant ethanol, which has very notable disadvantages. Not only will third-generation biofuels be renewable, they will displace large chunks of the fossil fuel industry in the short, medium and long term. They will also possibly be capable of recycling CO2 through the atmosphere due to current innovations. Therefore, it is crucial not just to support specific interests such as wind power but to look for what lies behind them. That is where the most important generalisable innovations will occur.
Secondly, in this area as in others, there is a lot of loose talk about innovation. By and large, we cannot predict where innovation will come from. Innovation does not tend to be linear. It does not necessarily follow what we are doing today. The best innovators are lateral thinkers. The most important sources of innovation are those which came from the side field. No one anticipated them but they have been transformational. The internet is an obvious example of that, in which, incidentally, the state played an important role; it was not just generated by private enterprise-initially, anyway.
Given that one cannot predict innovation, it makes sense to concentrate on the innovators, and we need to create circumstances in which we promote them. Universities have a key role in this and I should like to ask the Minister to comment, if he is able to, on Canada's interesting scheme for attracting top talent back from the United States to its universities-the Canadian research chair scheme-which has been enormously successful. That could be copied here.
Thirdly and finally, we have to try to change the climate of public opinion on science. In biotechnology there is a great deal of prejudice against some really promising processes. We cannot allow a culture in which science is undermined, and I should like the Minister to reaffirm his belief in and commitment to the integrity of science as crucial to economic progress.
My Lords, my noble friend Lord Sanderson of Bowden highlighted some of the challenges facing innovators and entrepreneurs. I thank him for his contribution and reiterate some of his comments, particularly regarding roadblocks for small and medium-sized businesses. We need to change direction to enable businesses to expand. It is surely unacceptable that red tape, bureaucracy and extra burdens placed on UK businesses are not shared by our overseas competitors while we all compete in a global market.
I remind noble Lords of our family farming interests.
My comments will reflect on these issues, but from a rural perspective. Some 34 per cent of small and medium-sized businesses are based in rural areas. Many years ago, farming and land-related work would have been the main source of employment, but today myriad businesses are based in the countryside. Farming is as important as ever and food security is a challenge for all Governments worldwide.
The UK agri-food sector's contribution to the economy in 2007 was some £80.5 billion and is the UK's largest manufacturing sector. Food and farming employ 3.6 million people. The Government's Food 2030 strategy states:
"We will try and find the best way of doing things and will only regulate where we need to".
When talking with farmers all over the country, the burden of regulation, inspections and red tape is always raised. Why do we in this country always appear to gold-plate regulations? I give the example of the common agricultural policy single payment and support schemes regulations introduced in 2005, which dealt with cross-compliance for England. The EU regulation defining good agricultural and environmental conditions was spelt out in a mere 13 lines. By the time the regulation had been put into English law it had become 700 lines.
A Game and Wildlife Conservation Trust publication of
"has the meaning given to it in",
followed by a reference to other legislation. These regulations cover activities that will be in the planning and prototype stage now for inclusion in the emission allowance trading scheme from 2013. Does innovation have to be made so complicated by the Government? It is costly, time-consuming, energy sapping and downright discouraging.
The proliferation of regulations and the difficulty of applying them are exceeded only by the Government's mania for licences. It is undoubtedly a good way of pulling in income for a bankrupt Treasury, but it encourages neither start-ups and small-scale innovation, nor, where there is no funding for local authorities, proper scrutiny of the resultant economic activity.
The Government are right to look at simplifying regulation, although it is regrettable that Defra failed to achieve its 25 per cent target by December, achieving only 16 per cent. There is too much duplication within inspection agencies coming on to farms; information held is not shared between departments, and the financial cost for both farmers and the public purse is wasted. Surely regulation should be effective, efficient and co-ordinated.
The second area of frustration experienced particularly in rural areas is the lack of adequate broadband provision. Some 160,000-plus homes are without broadband access and they are to be found in very rural areas. In some parts, even where broadband is available, the 2 megabits available are totally inadequate, and at peak-user time it is nearly impossible to do meaningful work. Those who are able to have full-time good broadband facilities do not appreciate the difficulties found by those living and working in rural communities. A couple of years ago, I complained that BT was slow in fixing telephone faults because their teams were busy in towns installing broadband. Rural areas suffered as a result.
If a market town has more than 10,000 inhabitants, it is classed as a conurbation and lumped in with city centres and suburbia. However, in practice, it is the hub for a number of rural villages and outlying areas, and has a very different profile. Many market towns have been hit harder by unemployment and retail closures forced by the recession, but funding for initiatives associated with recovery has been directed towards areas of concentrated deprivation. By definition, rural areas are dispersed and not seen in that way. High-speed broadband is essential and should be going to not only the cities but rural areas, which should not be left lagging behind.
As the noble Lord, Lord Wade, mentioned, farm profit has, over the years, been difficult to achieve, but is affected particularly by poor broadband standards. The most popular form of diversification has been the letting of buildings for non-farming use. In today's climate, fast broadband is a prerequisite. It may sound a little trite, but the giant Apple corporation started life in a garage. I believe that rural diversification into small businesses is critical and will eventually lead to big businesses. For this reason, rural areas should be treated in the same ways as our cities.
My Lords, I entirely agree with what my noble friend said about broadband. She made an extremely important point. I congratulate my noble friend Lord Sanderson on the subject of this debate and his excellent speech. I wish to make three brief points.
First, if "enterprise" and "innovation" are the key words-as they are in this Motion-the creative industries in Britain must be included. Industries such as film and television, on which the Select Committee on Communications that I chair has just reported, and industries such as music and games, play an increasingly important role in our economy, yet they tend to be overlooked in the orthodox surveys of British industry. My claim is that these industries should be taken very seriously indeed. They are important in terms of employment and overseas earnings. There is no doubt that Britain has vast talent which has already achieved much and could achieve much more.
The British television industry employs something like 80,000 people and has overseas earnings of more than £1 billion a year. That figure could be substantially more, for reasons that I will come to. The film industry employs about 35,000 people and also has overseas earnings of about £1 billion. Within those industries, you have skilled men and women: not just producers, directors, actors and writers, but also staff in post-production studios, special effects experts and animators in British companies like Aardman, which has a worldwide reputation. In the past few years, we have seen outstanding productions: films like "Slumdog Millionaire", television productions like "Planet Earth" and "Inspector Morse"-not to mention "The Apprentice" from the noble Lord, Lord Sugar.
However, not all the trends are encouraging. We are a long way from those distant times when Roy Thomson called commercial television a "licence to print money". Over the past four or five years, there has been a dramatic fall in spending by the public service broadcasters on British-originated programmes-down 15 per cent since 2004. The decline has affected all sectors, but particularly children's programmes and news. In films, independent film-makers struggle to raise finance while the industry has to cope with heavily subsidised competition from overseas.
My second point is that the Government must be involved in tackling the issues facing the industry. The Government alone cannot solve all the challenges, but at crucial times they can certainly help. They could have helped with the video-on-demand proposal put forward by the BBC, ITV and Channel 4: Project Kangaroo was turned down by the Competition Commission, with the effect that American companies are now filling the space, to our national disadvantage. I will give another example. I was struck by the number of those giving evidence to the committee who mentioned the theft of their products and the infringement of their copyright. One example is file sharing-better described in my view as piracy. With the noble Earl here, I will not go too far down that road, except to congratulate the Government on bringing forward the Digital Economy Bill. However, I hope that that is not the end of their ambitions.
One form of crime that causes film-makers great concern is camcorder crime, where a new film is recorded on a camcorder or other device and then put on a DVD and sold. A distinguished British contributor, Timothy Richards, told the Communications Committee that,
"these are not students, these are not young people out on a lark. This is sophisticated, organised crime that is engaged in the piracy".
That is the threat. The rewards are high. Another witness told us that £20,000 to £30,000 bounties are offered for the first high-quality capture of a film. The result is that the industry has been pressing for a considerable time for there to be a specific criminal offence. The reply of the Government is that this is covered by the Fraud Act 2006. They have been saying for a long time that a test case is imminent. It was imminent for months and finally in November it was heard in Newport magistrates' court in the Isle of Wight. I am not entirely sure that the case qualifies as a test case. Nevertheless, a man was convicted of camcording on a mobile phone and was fined £150 plus £60 costs. I do not believe that that is much of a deterrent. The case received so little publicity that the Secretary of State for Culture, Mr Bradshaw, wrote to me about two weeks after it had been heard saying that it was imminent. The news had not even reached the department, let alone the public. My view, which is shared by the industry and the committee, is that there is a very strong case for a specific offence here.
My third point is that films and television are global industries. The British film industry has for years suffered from the fact that there is no global distributor. Distribution is dominated by the big American studios. In television, we have an opportunity in the potential of BBC Worldwide. Worldwide is the commercial arm of the BBC-I emphasise "commercial". It has been extremely successful. It has made about £1 billion a year and has profits of around £150 million-and that is in a recession. Its problem is not success, but that it does not have the money to expand. It is unrealistic to think that that can be done through the licence fee. That is why we advocated private capital being introduced, and the creation of a public/private company. The BBC should retain a substantial stake, but private investment should have the majority share. I suggest that the Government are already sympathetic to this view, and I hope that they will confirm today that what we need is a decision by the BBC Trust. To date, it has not been enthusiastic, although there are all kinds of advantages, not just for the BBC but for the whole of the British television industry. It would be a vast and profound mistake to turn our back on this. It is an opportunity for the creation of a British global brand. In a week when a long established and successful company, Cadbury, fell into the hands of a debt-laden American company, that might have some advantage.
My Lords, I thank the noble Lord, Lord Sanderson, for initiating the debate, and I appreciate the opportunity to have an input. Enterprise and innovation are hugely important to creating growth in the economy. In June of last year, the Prime Minister asked me to assist small to medium-sized businesses and encourage enterprise among the young. This is something that I have been doing for the past 12 years. I have visited schools, universities and colleges of further education, and have spoken to hundreds if not thousands of small businesses across the country. Since June, as an adviser to the Government, I have been up and down the country meeting small businesses. I have also reviewed the advice available to the businesses through the Business Link centres. I have held question and answer sessions attended by thousands of small businesses. At these sessions, I have made myself available to the audience, to draw down on my 45 years of experience in running businesses of all sizes. The noble Lord, Lord Hunt of Wirral, quoted in this House something that I did not in fact say but that he got from a national newspaper, as an example of how busy I have been.
In this relatively short period as an adviser to the Government, I have concluded that the Government should create an environment where business can start up and flourish. They should intervene where there is failure in the market, and where barriers to growth exist: but having created those conditions, they should not interfere any further.
Rolling up your sleeves to turn an idea into a business is one of the most rewarding things anyone can do. The past 18 months have been challenging for many businesses. However, having been through more than one recession in my business career, the climate is not new to me. Survival is all about realism; tightening one's belt and constantly reviewing the day-to-day activities of one's business. One thing I have learnt is that these times can provide new opportunities. In speaking to the SMEs, I have made it clear that, in the face of a downturn, they have a choice of either complaining about things not being as good as they would like them to be or getting on with things and viewing this as a wake-up call and a chance to take a fresh look and to think about where they are going next.
I have seen businesses where entrepreneurial spirit has kicked in-where business owners have taken stock and gone out and found new markets and sectors in which to operate. I recall that when as a young man in 1967 I started my business-not in a garage, as the noble Baroness, Lady Byford, put it in relation to my colleagues at Apple, but in similar circumstances-there was no question of going to a bank to get finance. The reality then, and now going forward, was that banks wanted to do business but expected sound business cases to be put in front of them. It is unrealistic and, more to the point, undesirable to expect banks to lend as freely as they have done over the past 10 years. Some might join me in saying that that was irresponsible.
Small businesses need to be proactive. If they are not happy with the response from their bank, they need to shop around. However, if five or six banks say no, there is a distinct message there: it is time to re-evaluate their business or business idea. When I found that a bank would not lend me any money, I went back to my proposal, took account of what the bank had said and reworked my plan either to get some finance or to delay until I could meet the bank's criteria. I am not saying that banks always get it right. In the past six months, I have repeatedly asked to see evidence of bad practice. There are a few examples, for sure, but the situation is not as bad as some would like us to think.
During most of my career, I have found that banks practise a thorough and professional approach, and in my case they were a good barometer. They made me think more than once about many of the ideas that I put forward. I have met people with unrealistic expectations and no track record, and I have also come across businesses with poor or disastrous balance sheets. It is highly unlikely that any ordinary bank will provide money unless the person with the proposition puts in some equity themselves or provides some security. That is the harsh reality. People cannot simply jump out of bed on a Monday morning and say, "Today I'm going to start a new business enterprise", especially if they have no experience in it but just think that it is a good idea. In fact, not everyone is cut out to run a business. Regretfully, I have to say that the disappointment expressed by some people who have been turned down by banks should, in many cases, be translated as an excuse for their own failings and inadequacy. I have met many innovators enthused by their ideas but they have no experience of the realities of sales, marketing or commerce in general. I encourage these people to consider getting the idea off the ground by collaborating with partners who share the enthusiasm of the idea but have different skills. Banks, venture capitalists and other investors will be interested in propositions where all aspects of an idea have been covered. I tell those starting new businesses that it is better to have 50 per cent of a business that is going somewhere than 100 per cent of a business going nowhere.
I am grateful to the noble Lord, Lord Fowler, who has already raised this issue, and I am sorry to bring it up, but I can assure your Lordships that this is not an advert but a fact. My involvement in the TV show "The Apprentice" has gone according to my plan. I can confidently say that millions of young people have been inspired by this programme; they have been made aware of business and enterprise; and they are ready and eager to enter the exciting world of business. Your Lordships should be encouraged by this. There is certainly no lack of desire out there and it would be wrong to think that there was.
The noble Lord, Lord Sanderson, should note that this week is Apprenticeship Week. This time last year, I helped in a campaign to encourage enterprise and apprenticeships for the DCSF. Over that month, there was a 10 per cent rise in employers taking on apprentices. The website got 100,000 hits per week, compared with 50,000 before the campaign started. The noble Lord should note that his colleagues who sit on the Green Benches have unfortunately prevented me assisting further under the guise that that would have some conflict with my current role as an adviser to the Government. This is a classic example of political heckling-getting in the way of progress. To prevent my use as an asset is counterproductive, to say the least.
Getting back to business, there are always hurdles or obstacles to overcome but a determined individual will overcome them. Too often, a lack of finance is used as an excuse, but we need to make it clear that there are no free lunches out there; people have to put up some of their own assets or cash. That is how it was in the past and that is how it should be in the future.
The Government have rightly stepped in with temporary schemes, such as the enterprise finance guarantee scheme, to support lending. That scheme was created to support loans of up to £1 million to businesses that have propositions on the border-line-between those that the banks are willing to finance and those that are simply not viable. In my opinion, it is unreasonable to rely on government alone to instil confidence and create an atmosphere that encourages people to take the leap and start a business. It would, I dare say, be very helpful and encouraging if the media in general and certain business representative organisations took a more positive stance and reported the successes more. In my short time as a government adviser, I have been disappointed by negative comments and moaning, particularly from those who purport to represent small businesses. Such talk is hardly helpful, to say the least, and certainly does not send out encouragement to those who are considering entering the world of business.
My Lords, reading the title of today's debate, led so effectively by my noble friend Lord Sanderson, stirred memories for me of the exhibitions that I organised many years ago, the concept of which I believe could be adapted to be of use again today.
I start by telling your Lordships of my experience, going back some 25 years, when I picked up the phone one day to be asked whether I would take a call from Denis Healey-now the noble Lord, Lord Healey-who was then Chancellor of the Exchequer. I said yes, of course, and he came on the phone. He said that, as Chancellor of the Exchequer, he had responsibility for chairing the National Economic Development Office and that they were looking for someone who could take over as chairman of the Clothing Economic Development Committee. Furthermore, he said he had heard that I was a man of ideas, and I thanked him for the compliment. I said that I did not know anything about the clothing industry, other than having a liking for nice clothes. Then I told him that I was chairman of the Conservative Party in Greater London and that my big idea would be to defeat his Government at the next election. He laughed and said, "We will win", but he went on to ask whether I would accept the role of chairman of the Clothing Economic Development Committee. I said yes, as I had told him of my position and also that I liked a challenge.
When I started in that new role, it soon became clear that the industry was in trouble-mainly because of the growth of imports, which led to the decline of clothing manufacturing in the UK-and that jobs were being lost. I spent the first few months of my chairmanship organising and getting to know my committee. Once I believed that I had got to grips with both the industry and the unions, I felt that we should do something different. I had initially thought that I might have problems with the unions but they were positive and helpful throughout. I made many friends in the unions and we worked together well.
After much discussion and sweet talk, I finally managed to convince my committee that I should organise what I came to call a "back to front" exhibition, where, instead of manufacturers exhibiting their products, we would invite retailers to show the products that they imported and ask British manufacturers whether they could compete. So the concept of Better Made in Britain was born.
Our first exhibition was for the clothing industry when 22 major retailers exhibited and 200 manufacturers attended. The exhibition was opened by HRH the Princess of Wales and it was visited by many politicians and trade union leaders. Over the following years we ran exhibitions in many different sectors of industry, including the following: clothing, footwear and knitwear; soft furnishings and floor coverings; hardware, DIY and building products; food and drink; food packaging and supermarket equipment. In all, we ran more than 20 different exhibitions.
One main benefit was that manufacturers who could not normally get to meet buyers could in one day talk to a large number of buyers directly and conveniently. Without being immodest, this "back to front" concept, which was new, caught the imagination of industry and brought back a very large quantity of previously imported goods to be made in Britain. As well as these major exhibitions, a number of retailers also ran special open days in their stores, particularly when a new store was opening. On those occasions, they asked British manufacturers to view the goods they imported to see whether they could be competitive-and they were.
I was also asked by the Government to head up a special mission to the Far East, which was followed by organising a trip to Northern Ireland by a group of Japanese businessmen who were keen to open up business in the Province. As well as Better Made in Britain, we established the quality mark, which was a standard of excellence in manufactured goods based on the British standard kitemark. I believe that these concepts could be updated and used today, and that the Government should encourage the right person to organise it. Times are difficult and jobs are being lost daily, so I hope that this concept-or a version of it-will be considered positively, as I have experience of it being successful. I hope that today's debate will reaffirm the importance of the role of enterprise and innovation in our country and the stimulation of much-needed economic growth.
My Lords, I also add my congratulations to the noble Lord, Lord Sanderson, on initiating this debate. I shall talk briefly on industrial growth before moving on to other matters.
First, I believe that the competitiveness of Asian countries in manufacturing will be so great that we will be struggling to retain manufacturing in our country. I am not being alarmist, but it was possible a few years ago to move successfully from low-tech to high-tech industries and R&D-intensive industries. In my visits to India and elsewhere, I have seen how much that gap in R&D is being exhausted, as my noble friend Lord Giddens said. We can no longer rely on hoping that we will move up the advanced technology ladder and that Asian countries will be behind. We have to consider this problem seriously and, as my noble friend Lord Giddens said, perhaps green technology is a direction in which we can go.
I shall now move on to something completely different as I do not believe that we should talk only about manufacturing when discussing innovations. I want to talk about financial innovation. Because of the severe financial crisis, it has somehow become fashionable to say, "The financial sector is too large; we ought to pare it down. Manufacturing should be larger and the financial sector smaller". It is almost as if someone somewhere can determine the proportions in an optimal way. We cannot afford to lose any part of competitiveness in British industry. The City of London is the best thing that we have done in many centuries. In deciding government policy on financial and banking reform, we have to be very careful not to stifle the innovative energy of the City of London, because our financial services expertise is so great that we have been able to compensate for any balance of trade deficit on commodities by earning surplus on financial services.
The large financial sector will have to be restored to its original size and we will have to encourage more innovation in the financial industry so that we keep up our lead, as that is where our comparative advantage still lies. Whatever we do about banking reforms, we should not stifle the growth of hedge funds or of different new products such as CDSs and CDOs. Perhaps more new products will be introduced. It often happens that, after a burst of innovation, depression follows that first surge, and people believe that innovation is the trouble and that it must be restrained or stopped. But innovation is then fed into the system more properly and its progressive input continues, as happened with railroads and other things. I believe that the same thing happens with financial innovations. Things such as the credit default swaps may have looked bad in this crisis, but as we proceed they will be standardised and we will not be able to do without them. We will have to have those products as well as others. Whatever we do, let us not curb the City of London; because our chance of maintaining high levels of employment depends very much on having a competitive financial sector. Whatever happens in manufacturing, we will always need the financial sector.
My Lords, I begin by declaring, as a precautionary step, my business interests as per the Register of Lords' Interests. I congratulate my noble friend Lord Sanderson on securing this Motion which identifies two of the most important components of economic growth. His excellent speech drew attention to so many aspects of what is needed and to the failures of the present Government to provide them.
Enterprise is not just a label for a government department or a buzz word for a policy to hand down from government but a mainspring of human endeavour. So is innovation. It was man not government who invented the wheel and every other invention that has formed our civilisation. Too often that is forgotten. Government's role is to enable those human talents to grow and to create wealth, not to corral them into the constraints of a particular policy or agenda. In the 1980s and 1990s we demonstrated the way in which enterprise can release so much success and momentum in business development. Following the broken economy that we inherited on coming into office in 1979, it looked difficult then, just as it looks difficult now, but by releasing the mainspring of human endeavour through enterprise and innovation, by cutting taxes and reining back trade unions, by attracting inward investment in large quantities and using the resources of our academic institutions, we succeeded in turning the corner. I believe that we can do so again with the right approach.
Now, while other countries are emerging from recession, we must labour in the shadow of mountainous deficits and debts built up over not just the past two years but the past decade. We all know that unemployment is high and going higher, with more than 1 million redundancies announced in the past year alone, but the jobless figures disguise the extent of economic inactivity among the British workforce. The employment rate is only just above 70 per cent of the working age population, and if we take into account the shorter hours being worked, longer holidays, sabbaticals, the surge in part-time employment-100,000 in the past three months-not to mention the "bad back" count, it almost feels that we are back to the three-day week. That is a human tragedy.
The Government have brought in a raft of new schemes and measures to try to help business, but they do not help much when regulations introduced in the past year alone are alleged to have cost business £13 billion, according to the Government's own figures. It seems that the new schemes introduced to help business through the recession have been a flop-they clearly do not respond to what business needs. The Government's flagship package, Real help for business now, introduced in January last year by the Department for Business, Innovation and Skills, promised £18.7 billion in help. One year later, only £2.4 billion has been delivered. Clearly, these schemes are not working and, as a measure of the problem, exports have fallen by 25 per cent in the past year.
Let us look at some of the schemes. The Capital for Enterprise scheme, designed to bring real help for high-technology firms, was launched by the Prime Minister last January with £50 million to help small firms convert debt to equity. Nine months later, only five firms had benefitted. The £5 billion Trade Credit Insurance scheme, announced in April last year, was designed to give, in the Prime Minister's immortal words, "real help with credit insurance". Six months later, only just over £10 million has been committed. The Automotive Assistance Programme, launched in January last year with £2.3 billion in guarantees, was said by the noble Lord, Lord Mandelson, to provide real help for the car industry-so real that at the official end of the recession last September no loans had been made at all under the scheme.
Clearly, these schemes are not working, but the problems are even more acute. Manufacturing output has fallen by 12 per cent over the past decade. We must rebuild that manufacturing base as part of our diverse economy. It is the spirit of enterprise and innovation that is the key to that. We need a workforce that is well motivated and with high technical skills. In particular, we need to encourage knowledge-based jobs that will grow in number, linked to the academic strengths of our universities, as we did so successfully in the past.
However, we find that the biggest failure of all in this field has been the failure to motivate and train our young people. One in five is jobless and demoralised at the present time. Why, I wonder, do the Government pick this time to cut university funding by £950 million, saying that universities can survive on their own resources but threatening to fine them £3,700 for every student they take on over the government-imposed limit.
India and China are churning out hundreds of thousands of engineers and scientists from their universities every year. Like America, they have spotted that that is where future growth will come. But we find that across the United Kingdom in recent years degrees in science, technology, engineering and maths have fallen in number. In China, one third of all graduates are engineers, while in the United Kingdom it is 8 per cent and falling. The number of physics degrees is down 30 per cent in the past 15 years. Chemistry departments are closing at about one a year. By 2014, the Royal Society of Chemistry predicts that only six chemistry departments will be left in the country. I am told that there is a government department entitled Innovation, Universities and Skills. One has to wonder what it has been doing. It claims a science budget allocation that is up by 13.6 per cent, but one has to ask: why then did the newly formed Science and Technology Facilities Council enter its first full year of operations with a budget shortfall of around £80 million?
The root of the problem is of course the present calamitous state of the public finances, but that is not just a recent problem. The Government cannot hide behind a credit crunch of a global nature. The large and often unproductive increases in public expenditure of recent years, funded by tax increases, deficits and debt, have created hundreds of thousands of public sector jobs. But as my noble friend Lord Sanderson pointed out, in doing so they have squeezed out enterprise in the private sector.
The failure to stimulate investment and ease credit to companies means that business investment has fallen 20 per cent over the past year. Does the Minister believe that the answer to that kind of problem is to load business with national insurance increases and to bring in six-month paternity leave? Does he agree that it is profoundly serious that our GDP share of research and development is as low as 1.8 per cent below the European average and half the rate of countries such as Sweden and Finland?
The past 10 years have been years of the locust. Only in wartime have our national circumstances been so severely jeopardised and our wealth so consumed. It will need a massive effort and an entirely new attitude to turn the tide, but I truly believe that as a nation we can make that new start only with a new Government.
My Lords, today is almost the day of the Scots because there are a high proportion of us in your Lordships' House. Let the noble Lord, Lord Davies of Abersoch, who is to reply to the debate, look to Scotland on Sunday because I believe that French will also be spoken there. I thank my noble friend Lord Sanderson for giving us the opportunity of debating innovation and industry.
I declare a particular interest-I am a member of the Institute of Chartered Accountants of Scotland. The noble Lord, Lord Sugar, will be interested to hear that I am perhaps the only Member of your Lordships' House who signed an apprenticeship. I was an apprentice, and every member of the firm I joined in Glasgow on
The first major industry I was asked to study was the pharmaceutical industry. It is a long word, and perhaps one now calls it the bioscience or the drugs industry. Throughout the years, I have consistently tried to make an O-level study of that industry. I have looked at some figures. In 2008, the industry had a surplus of £6 billion. Its exports were £17 billion. Of the top 20 most effective medicines in the world, 20 per cent were discovered and produced in the United Kingdom. My noble friend Lord Lang referred to research and development. He will be interested to learn that 28 per cent of the commercial research and development in the UK is carried out by the pharmaceutical industry. It employs 67,000 people. That does not take into account the massive number of tiny, spin-off firms-are they called clusters?-all around the UK.
Looking at medicines globally, we will see that 54 per cent of the top 100 products were discovered and produced in the United States. Who is in second place? It is the United Kingdom, with 19 per cent. Even that great nation known so well to my noble friend Lord Selsdon and me, Switzerland, with two massive companies in Basle, has only 11 per cent in turnover and output of those top 100 medicines. How is that carried out? I took gentle advice from a paper entitled Life Sciences in 2010. The skills not just of those 67,000 but of many others in academic institutions around the United Kingdom, the encouragement given in schools and elsewhere, and perhaps even the advice and example of the noble Lord, Lord Sugar, show that if you want to you can do it. It is a matter not just of taking the first step but of taking the second and subsequent steps. That is when you need two qualities-perhaps we shall find out about that at three o'clock on Sunday afternoon-which are courage and persistence, so endemic in the Scots.
That makes me think of Robert Bruce and the spider, which kept falling as he watched it. After, I think, its 18th attempt, he saw the spider make it. That is what industry needs to do-particularly life sciences, bioscience and what I call the jewel in British industry, the pharmaceutical industry.
I mentioned that I was an impudent young Scot from Angus. I know that the University of Dundee is one of the world leaders in oncology, but I had been unaware that a very small company-I have had very minor dealings with it-CXR Biosciences in Dundee, is pushing forward in blood, plasma and other areas, tied in with the much greater example and help given by the University of Dundee.
I have one minute of my time left, which I will use to talk about innovation. In 1959, my military career was interrupted by a triple fracture of the leg while skiing, about a mile away from where my noble friend Lord Selsdon and I go. Complications were suffered, and I was sentenced to three summers in plaster and on crutches, undergoing a process then known as bone graft. It was carried out by Sir Archibald McIndoe and a particularly excellent and kind friend and surgeon, Sir Henry Osmond Clarke, who used the process of innovation to give me something called a bone graft. I am no scientist; I have not got one O-level, so I will not go on about that, but that innovation process enabled me to go on skiing until last year. I am particularly grateful for that. Innovation is not just in industry; it is not just in knowledge and skills; it is also in biosciences.
I conclude by thanking my noble friend Lord Sanderson and saying that, today, it is Scotland 1, United Kingdom 0.
My Lords, I, too, thank the noble Lord, Lord Sanderson, for initiating this interesting debate. It is a pleasure to speak in this important debate, during which many contributions will surely provide food for thought as the UK comes out of its current economic difficulties.
It is time for Britain to look not only at the inventions and research which get major headlines across the world-as important as those are-but at the potential millions of smaller innovations which can happen every day in companies across the country, and which provide a stimulus to economic growth.
I am talking about those workplaces where the whole workforce is engaged in continuous improvements and where everyone has a contribution to make. Once a company embeds that culture, everyone is not only empowered to make improvements but to start thinking in a different way-the kind of workforce mentioned by the noble Lord, Lord Lang of Monkton. It raises the consciousness of every employee, and gets them to think about what they are doing and how it may be done better. That might mean taking steps to reduce waste, to speed up processes or to increase productivity. All those activities are key to the significant and, more importantly, sustainable growth which the UK needs.
I have particular examples of that from my involvement with Semta, the Sector Skills Council for Science, Engineering and Manufacturing Technologies. I am sure that many noble Lords will agree that those sectors will be key to the economic recovery and will lead the way to the headline-making inventions I mentioned. However, Semta has not only been working with those companies on the cutting edge of technological breakthroughs, it has been supporting supply chains and those firms which turn great ideas into practical reality.
My noble friend Lord Giddens posed the question: where will future innovators come from? I suggest that they will come from many places. Through its compact activity in England and wider employer engagement across the UK, Semta has encouraged companies to embed qualifications such as the NVQ in business improvement techniques across the whole workforce. That qualification, which is an innovation in itself, helps an individual to understand and take responsibility for improvements in the way that they work. Our Government have supported that initiative by investing millions of pounds to ensure that businesses succeed.
Businesses succeed by having people who are trained and an innovative workforce to support their success. That enables someone to put those improvements into practice and measure their effectiveness, which is crucial. The ultimate outcome is to create a mindset where an individual is constantly thinking about their methods of working, initiatives that they can take and ideas that they have which will improve the outcome of their activity and, importantly, the company's bottom line. By investigating techniques such as visual management systems, set-up reduction and six sigma process mapping, people who take that qualification can use them to improve their own efficiency and that of their colleagues in the company.
Some firms have put literally hundreds of their employees forward for that technique. Others have nominated key individuals who can then cascade that learning through teams. By making a large number of small improvements to a system, companies are seeing a big impact on their productivity and profitability. By freeing all their employees to exploit opportunities and making innovation part of everyone's role, those companies are creating whole workforces full of people who think like entrepreneurs.
Within those companies, every employee knows the value of their contribution, and every person involved in a process is committed to making it a success. Although that hive of activity may not get the headlines of the new iPod or the latest drug, it contributes to the sustainability of the UK's science and engineering processes, for instance. It means that those big breakthroughs have fewer unforeseen consequences and costs, and ensures that they are sustainable in the long term. Business improvement activity makes our companies exciting and rewarding places to work and the UK an attractive place to invest.
What I am sharing with your Lordships today is the possibility, the desirability and, importantly, the opportunity for the vast majority of the workforce to illustrate through their contribution the enterprise and innovation that they bring, and how that supports our objective of achieving company improvement, which in turn, stimulates economic growth.
My Lords, it is with a sudden feeling of horror, having consulted my noble friend Lord Lyell, that I realised that I will have been in your Lordships' House for 47 years next Monday. My noble friend is of course senior to me, because I came only in 1963, and he came in 1961, shortly after Gagarin got into space, whereas the noble Lord, Lord Reay, who has just left us, arrived only in 1964.
The problem in those days was that you had a duty to do, and you were required to do it if you were young, but you had to have to have a job because you had not got any money to live on. That was very difficult. Occasionally your Chief Whip and others would say, "Could you consider being an Under-Secretary?". I did not even know that an Under-Secretary was a Minister. In fact, when I sat here first, this was the Barons' Bench. When the Government changed, I did not know that you changed with them, so there were certain difficulties. From all that, you realised that if you wanted to be here, you had to change your job. Therefore, you had to do something yourself that earned you some money, which was extremely difficult when you were totally unqualified.
Over the years, I have spoken on economic affairs and this sort of activity in the 1960s, 1970s, 1980s, 1990s and now the 2010s. It has always been the same thing: we British have declining industry, manufacturing has gone out of the window. When I chaired various trade boards, I would argue that we could not live without manufacturing. The noble Lord, Lord Desai, who always seemed to speak after me, would say, "No, no", that as long as we could fund our balance of payments deficits, there would be no problem, and that we can do that through financial services.
My philosophy is the creation of added value and of trade, which is effectively buying and selling-something that the noble Lord, Lord Sugar, was very good at. I remember that I wrote to him at one time when I was a director of an Italian washing machine company and suggested, when he was going into white goods, that he consider working with us. He brushed me off, I was cast aside. We then went and bought a company called Colston, which made fantastic dishwashers-desktop machines. They could heat the water hotter, so they could clean the plates better. How did they heat the water hotter? Charles Colston played squash, and he worked out that the rubber of squash balls had a certain quality: it got hot when you beat it about. If you put that as a seal in the washing machine or dishwasher, you could heat the water hotter.
Over time, these things began to interest me, and I wondered how and where we could lead this country forward. Being a Scot, I was naturally brought up on the philosophy that if no one else would do something, you should do it yourself. You always have to begin with the philosophy of conceptualisation-concept-and you end with the two words: relation and réclamation-being paid. Between the two, there is a fantastic word. It is called Walt Disney; it is called animation. It is about bringing the project alive. Then you turn round and say, "Who does that?".
I hate the terms "private sector" and "public sector". I loathe all the government names for ministries that have changed. Could the Minister tell me how much the rebranding of the good old Department of Trade has cost since his Government have been in power? It is now BISOF or something, and before that, it was BURP, and it has more Ministers than ever. The problem with our country is that intelligent people now want to go into the public sector because they know that they will have more power and influence. They do not want to go into the private sector. If they are intelligent and have outside interests, they can also calculate that the benefits of a secure job with a relatively indexed pension are important.
The first thing is how we convert the bulk of the public sector into productive areas because it has some great people. I worked on international projects, even with Taylor Woodrow. My noble friend Lord Sanderson was very kind to promote my great bank. Frank Taylor came to Midland Bank, and it gave him his first loan for the four houses. One day, I got a letter from him. "My Lord", he wrote, "I would like to call to see you because your great bank assisted me many years ago, and I would be grateful for assistance now". The amount had moved from £400 million to £1.4 billion, and I am afraid it was not possible.
I go to the basic principles of added value and buying and selling. That is what it is about. First, are you a buyer or a seller? I always used to say to my banking colleagues, "Can you tell me whether we are buying or selling money this year?", because that is what it is about. Then you ask how you create that entrepreneur. You have to look back and say that we are in the worst mess since I started to speak on economic affairs. That means that we have the greatest opportunity for the young, but we may have a five-year problem. So let us start to look at those who are 14 years old now. What can they do? What would catch their enthusiasm? They will want to think of jobs, and they want to earn money. That may be the paperboy who offers to deliver something else.
When I got involved in the East End of London-I had to be a well known Labour Peer in order to get on down there-I used to drive an old car. There was a car wash that said, "Hand Wash". I said, "I'd like to give you some business. Can I look at your kit?". They said that they had an old bucket and got water out of the lock and did hand washing. I said, "What? With your hands?", and they said yes. The human skin is better than anything else for washing and polishing cars. It is better than any chamois leather. I went and bought them a few buckets, and they became friends over the years. It was about the initiative of some of the young.
Those of us who were brought up at the end of the war remember when we did not have enough clothing coupons and when you could not go to school if you did not have a proper jacket. These are the things that I remember. In the country, you learnt to be a scrounger. You learnt that it was wonderful if you could swap two eggs for a bottle of whisky with the American forces. They were enjoyable times.
When I worked in the East End, I was chairman of Hackney Quest. We had more GBH per square metre than anywhere else in the world. Some of the young people knew how to fiddle. There was a young boy who could cut a £5 note in half with a Gillette Blue razorblade and double his money overnight. He used a bit of starch, and there you were. He did it for me in front of the police, but he gave it up and went on to great things.
My suggestion is that we do not look at ourselves. I know I have to go on trying to earn some money somewhere, but we should look at that age group and try to encourage them to think at an early age because some of those young children are switched on.
My Lords, this debate is timely and crucial, and I join noble Lords in congratulating my noble friend Lord Sanderson of Bowden. I declare an interest as a small business owner. The economic downturn has, of course, brought great misery to many in Great Britain but, in particular, to small and medium-sized businesses. It has been a time of great distress to see good, long-standing businesses that have served local communities go under because of cash flow, credit and regulatory burdens. Against this backdrop, we ask people to take a risk to be at the heart of innovation and enterprise, but we also say to them that assistance is complicated, hard to access and very bureaucratic.
My grandfather came to this country in 1938 seeking a life of opportunity through economic mobility. Of course, when he came, and when my parents came after him, he faced huge discrimination, prejudice and cultural expectations, but still he knew that a good education, having ambition and hard work were the most important components you needed to succeed. I come from a culture that believes in enterprise and, as someone who started a business aged 19, I reaped the benefits of that spirit. I believe that it should be heartily encouraged, and yet we make it so difficult for people and offer them so little support that that spirit of adventure is quickly lost. That is unfortunate for this country. When my son wanted to start up, it was very difficult for him to access credit from the banks, and he had to return to his parents, who took out loans on his behalf.
I hope that the Minister will tell noble Lords why exports, business investment and savings have fallen as a proportion of national income under this Government, why we have the highest youth unemployment ever, why there are so many more children living in workless households in Great Britain than in any other European country and why child poverty continues to grow. We know that huge sums have been spent on education in the past decade or so, so why are so few children taking stem subjects that are crucial to innovation, research and development and taking on the challenges we face on climate change, renewable energy and medical advance? During the past decade, there were many reports that highlighted the need for a better skilled and better educated workforce, for example, the report by the noble Lord, Lord Sainsbury, The Race to the Top, or that by the noble Lord, Lord Leitch, on responding to competitive global markets through a more skilled work base and the need to upskill, as well as to reskill.
I come from the inner city of Leicester. It was once among the richest cities in Europe through its manufacturing, but now the local authority is among the biggest employers. Like other inner cities, we have an ageing population and high BME communities that bring their own challenges. In Leicester, educational results are among the lowest in the country and, while we have two excellent universities in the city, students who have little to stay for leave, and another nail is hammered into the coffin. I am passionate about the progress my city can make. I want it to be once again an international player. With a population that has so many historical ties with the Indian subcontinent, there are huge opportunities to be explored. I am saddened that the Government have not encouraged them more.
I am ever the optimist, but I feel we are letting down people who are willing and able, at this difficult time, to get up and do things. The Government have created huge uncertainty for students hoping to go to university. By cutting back on budgets for FE colleges that train adults who wish to reskill or retrain, the Government have made it incredibly difficult. It is complicated for small firms to take on apprentices, although I heard this morning that the Government are taking on our idea of rewarding small businesses with a bonus payment for every apprentice they take on. The Government have finally seen sense. In National Apprentice Week, I congratulate my noble friend Lord Hunt on introducing the modern apprenticeship in 1994, from which many people have benefited.
Great Britain has always been a world leader in new ideas and new technologies and in producing some of the greatest thinkers in the world. We cannot afford to drive this down. The Government brought in schemes last year, and I am sure that the Minister will remind us of many of them. Can he tell us the take-up on those schemes and the cost-benefit to the taxpayer? My noble friend Lord Lang of Monkton clearly highlighted the failure of many of the schemes which the Government trumpeted so enthusiastically. Economic growth comes when people feel confident. Great Britain is full of people with new ideas-the innovators and creators of enterprise-but the Government lack the experience, the vision and the drive to excite people such as my grandfather, who came to this country with a dream.
My Lords, I thank the noble Lord, Lord Sanderson, for the opportunity to discuss this, especially as I am chairman of the All-Party Group on Entrepreneurship. I declare that I have interests, which are on the Register, in several small businesses.
I start from the point that SMEs fuel growth in the economy. They grow and expand and are eventually swallowed up by the big businesses, which rationalise and downsize in trying to become more efficient the whole time. If we do not have SMEs and that growth, there will be no one to pay taxes in the future and no one to pay our pensions. Everyone needs to remember that. The trouble is that the sort of people who innovate in small businesses are very different in character from the sort of people who run Governments, large companies and large organisations. They are risk-takers and will sail very close to the wind to get something done. Otherwise, they do not get off the ground. They have to do that. People who run the big things, such as the ship of state, need to be much more risk averse; they cannot afford to take these sorts of risks the whole time. We must have the right climate in which innovators can prosper.
Then there are the barriers-the Government and regulation-and what one should do about them. We need to disband departments that are dedicated to tinkering with existing regulatory regimes. They are always adding to the burden. The trouble is that a small business does not have the time to read it all, absorb it and implement it. The noble Baroness, Lady Byford, talked about rural enterprise. My wife runs a business. Four large pamphlets arrived that revise all the various codes. There is also the new employment stuff to worry about, as well as all the health and safety regulations on explosives and pesticides and all sorts of other bits and pieces, because of the large quantities of fertiliser. It is a nightmare.
We need to remember that we employ someone to get some work done to enhance the business. We are not employing someone to become an arm of the social services. Small businesses should be widely exempted from having to continue to employ people who just do not fit in, for one reason or another. There should be far greater discretion. My wife would certainly have expanded into other areas of business by now if she did not have to take on employees to do so. She deliberately decided not to expand into two businesses because of the danger in employment.
I am about to become involved in a small business in the alternative energy field, which is developing some intellectual ideas from one of the universities in this country. The first thing the accountant said was, "Don't manufacture over here. Manufacture overseas. It's a killer otherwise". That is not a very good start for UK plc.
Given what has happened recently, I have become very aware that the Government are not good at distributing money efficiently in small tranches. Why should they be? They do not have that skill. As I have just said, risk-averse people, not risk-takers, go into government. The two do not understand each other. I sometimes think, when I look at the distribution costs of the small amounts of money that filter out to the sharp end, that it would be cheaper to hand out £10,000, free and unaccounted for, to everyone who had a good business idea. We would save money and might get some good stuff out of it. I ask noble Lords to remember the story of the 10 talents.
We talked earlier about banks. In a crisis such as this, the banks play a little naughtily, so a small business has to be careful that it is not left vulnerable. When the banks tried to address the problems with their balance sheets, they started to call in the loans from businesses with good cover. They could threaten the director who owned a house and guaranteed the loans because they knew that they would get the money and that that would go against the balance sheet. They did not call in loans in the case of dodgy businesses because they knew that they would lose out.
Starting up a business is very high risk. One of the big problems with getting money is that you tend to end up going to friends and family or business angels. It is a different game; it is not government-type or bank-type money. Where the Government do try to help with tax incentives, they can make it difficult to claim them. HMRC is very sceptical about whether you really did try to get a business going. If you have a very good year, you have to pay tax up front for the next year and you have a cash-flow disaster on your hands. The biggest danger is to have a profitable year; it is a killer.
Rates on empty buildings when you are waiting for planning permission that is held up for years are another killer for business. What do you do? You pull the building down or go out of business. Then there is the rural infrastructure and the ratings on fibre. There is a lot of dark fibre running down the railway lines-it used to belong to Global Crossing-but it is uneconomic to put signals down it because of the ratings structure, which is based on Victorian water pipes.
Then we come to the high earners who have spent money and who support the few small manufacturing businesses that we have. Those businesses can cater to the very high value market because they can afford to pay high labour costs. If we drive them overseas by taxing them enormously, they, too, will disappear, which is not to the good.
What positive things can we do? I talked to a serial entrepreneur who was absolutely positive that we could teach entrepreneurship and enterprise to people at an early age. I think that entrepreneurship is a combination of talent and teaching. We should teach it so that those who have ideas know roughly what they are doing. Mentorship is also essential. You have to find a mentor to show you the way through the minefield. Always walk behind someone who has done it before. Those things need to be encouraged and certain organisations are doing very laudable things in that area.
I entirely agree with the noble Baroness, Lady Byford, about rural broadband and the infrastructure. People who do well in life and make money and are our key people tend to go to the rural areas; they want to get out of the tower blocks and the big conurbations. We need to be able to get them well connected so that they do not have to commute in the whole time. This will help the green economy. The highlands could also start to be repopulated, because you can now run a business from anywhere with the internet, as long as you have a reliable connection. In the knowledge economy-this takes us back to taxation-we must be very careful not to drive people offshore.
I am afraid that I must have a quick dig at the noble Lord, Lord Fowler. I entirely agree that we need to protect copyright and intellectual property. I am very firm about that. However, cutting off people's broadband-the lifeline of their business-because their children or someone else is piggybacking on it is not the way to go about it. The noble Lord and I will probably always disagree about this. We need new business models that can be driven by the internet. There are very good ways of doing that.
To sum up, we need to reduce overnight the regulatory impact on small businesses and we should use the Government's procurement policy to drive business to SMEs. The United States has some very good initiatives and we should look at what it is doing. I take the point made by the noble Baroness, Lady Verma, about most employment in an area being with the local authority. Again, we must have government policy to get businesses going. A lot of government policy is risk-averse and militates against them. Innovation Initiative UK is trying to introduce large businesses and government to SMEs and to explain to the large risk-averse organisations that it is not necessarily risky to deal with an efficient and innovative smaller business-because it is innovative, it can be hugely beneficial.
My Lords, I, too, thank the noble Lord, Lord Sanderson, for introducing this debate. I am a serial entrepreneur and I find it reassuring that there are so many in your Lordships' House who share my passion for this area. The noble Lord talked about rates of tax being at 98 per cent at one time. Every time I have started a business, the rates of income tax have been very high indeed-as high as he said-but that never seemed to bother me. I never thought about tax. I was always interested in being independent and setting up a business; I was interested in all the joys that come from allowing something to bloom and grow. We talk about 50 per cent tax. I do not like 50 per cent tax. If I had my way, I would put it back down to 40 per cent and tax bankers' bonuses by 80 per cent. We would probably be better off. As the election approaches, people will bang on a lot about the rate of tax. It is worth saying yet again that, when this Government came into power, capital gains tax was 40 per cent. It is now 18 per cent. As an entrepreneur, I have my mind fixed on that rate, not on the rate of income tax. It is to this Government's credit that we have kept and encouraged entrepreneurship in this way.
I shall divide my speech into two sections. In the first I will talk about a great British success story-the IT education industry. In the other I will make the case yet again for the UK's equipment-leasing industry, which I believe holds the key to increasing capital investment in these difficult days.
Ten years ago, in an act of amazing generosity, Microsoft approached me and one other person with a simple request. British children needed to have access to computer technology at home and at school. Microsoft wanted a charity to be formed to make that happen. Noble Lords may not believe this, but it gave us a cheque for £1 million and told us not to involve it any longer but to get on with it. We set up the e-Learning Foundation. I declare my interest as its current chair. In those days, laptops were expensive, broadband did not exist and the teaching profession was highly sceptical. It was so sceptical that when the Government introduced the Laptops for Teachers initiative, it became known as the "laptops in boxes" initiative. Many computers were never opened by teachers. Those days have gone.
While he was Prime Minister, Tony Blair was instrumental in setting IT targets for schools. I may have my facts wrong, but I think that one of the targets was that in every school there had to be one computer for every seven children. That was thought to be impossible then, but today that sort of target would be laughable. There are laptops in every school and in homes they are ubiquitous.
Last year, the Government announced the Home Access project, in which £300 million would be made available to ensure that children in socially disadvantaged areas had access to computers at home and at school. In this 24/7 world, education is not just confined to the classroom. Lessons can continue at home and projects can be completed in the student's own time. As well as bringing our school children into the 21st century, the Government have spawned a new, world-beating industry-education technology.
Every January, an exhibition called BETT-British educational training and technology-is held. I first went to BETT 10 years ago when it was very small with few attendees. Today, it is huge. The exhibitors take up all Olympia and the demand for space outstrips supply. Britain is now the world leader in education technology, by which I include education software, hardware, content and all associated services. This new industry employs 25,000 people in the UK and exports £250 million.
I should like to give your Lordships just one example of a British company, Promethean, which has become a world leader in this area. The company makes intelligent whiteboards. It is now possible for teachers to run their classes using these boards on an interactive basis. Teachers can write on the boards, access the internet and show videos. Tests can be set and pupils can use their own laptops and handhelds to reply. Feedback is instantaneous. The Government injected some early funding into Promethean. Private equity came later. I read that it is now considering an IPO.
I relate this background to show that this Labour Government are able to support and have supported new industries of this sort, thus supporting the quest to make our children IT literate and to raise education standards. At the same time, they have created an environment that has caused a new British industry to flourish. It is an industry that, without question, is the best in the world. What I recount today is just one example, but there are many more.
On my other topic, my whole career was in the leasing of high technology. I declare my interest. I formed a company called Syscap Ltd. I sold it to private equity, but I still have a small shareholding. I have regaled the Minister, my noble friend Lord Davies, with what I was going to say today and I received a sympathetic reception. I also heard what my noble friend Lord Sugar, who is not in his place, said about the SME marketplace.
The leasing industry in this country is responsible for one-third of gross capital formation. In other words, of all the capital assets in this country, one-third is financed by leasing. That is very important. It gives the benefits of better cash flow, secure funding, quick decisions and no need for an overdraft. It is everything that an SME wants. It gets funds to companies quickly. It is a conduit from the banks to small companies. Yet there are tax disadvantages on which Her Majesty's Revenue and Customs is being very difficult. If Barack Obama was, "Yes we can", I am afraid that HMRC is "No we can't and never will".
There are special capital allowances on high-technology equipment. The problem is that the only people who can use them are the users and not the owners. At a time when many companies are just coming out of recession and are not generating profit but want new equipment to boost their productivity, they cannot use these benefits because they are not making a profit. The situation is crazy. With a flick of a switch, which would enable the owner or the user to use these capital allowances, it could all be changed and there would be a dramatic inflow of funds to the SME marketplace. I hope that the Minister has listened to what I have said and I will be interested to hear his answer.
My Lords, I, too, congratulate my noble friend Lord Sanderson on securing this debate and for the way in which he introduced it. I record some interests as a Member with involvement in three small to medium-sized enterprises in the north-east of England. None has had the great fortune, talked about by the noble Lord, Lord Mitchell, of having Microsoft arrive on our doorstep, giving us £1 million and telling us to go away and get on with it, but we always live in hope.
I want to focus on the importance that enterprise and innovation have on productivity, which is what we are talking about. Productivity in the UK has been falling back against our major competitors significantly. We are losing ground against the G7, especially against France and Germany. That is partly because enterprise and innovation are only part of the picture. Competition, investment and skills are also required. Enterprise creates competition; competition drives innovation; innovation demands investment; and investment requires skills. Our competitors have got their heads around that virtual circle and we need to get ours around it.
Analysts have cited a large number of factors which lie behind the UK's poor productivity performance. Chief among these have been the limited availability of skilled labour; relatively low levels of capital spending on R&D and infrastructure investment; the slow pace of innovation; and the decline in the relatively higher-value end of manufacturing. A lack of competition, overregulation, financial market volatility and poor labour relations have also been put forward as explanations for that.
The noble Lord, Lord Sugar, is just entering the Chamber, so I will make one compliment and come to a criticism later. When he said that the Government should intervene where there is market fear, but should not interfere, there were cheers on all sides of the House. That was a profound and welcome comment. However, there are some different views from the small business community. On Monday evening, I had the privilege of attending the annual dinner of the Federation of Small Businesses, which represents 215,000 members and businesses around this country. They make a huge contribution. John Wright, the national chairman, addressed policy-makers in the audience on what he regards as the three most urgent requirements for the Government to understand at this time, and we all should sit up and take notice. He said that the first urgent requirement was access to finance and that it is the number one concern. The noble Lord, Lord Sugar, said that if you had a case you could get the money. But that is not what John Wright said and he is representative of a large body of small businesses.
We have to remember that small businesses do not necessarily have between 50 and 250 employees. They often have one, two or three people. That is what small businesses comprise, and they form the vast majority of businesses in the country. They feel that the lack of access to finance is a brake on an emergence from the recession. It explains why we went into recession first and we are going to come out of it last. It is particularly galling that banks which have been rescued at vast cost to the taxpayer and in many of which we now retain a majority shareholding are sitting tight on our money. It is not reaching the small businesses that so desperately need it.
The second of the three points raised by John Wright is the need for tax simplification. It is not immediately on the agenda, but that is what he has said. We have just overtaken India as the country with the longest tax code in the world. In 1997, Tolley's Yellow Tax Handbook ran to 5,000 pages and was the culmination of nearly two centuries of tax regulation. By 2009 the handbook ran to 11,500 pages. Complexity in the tax system adds dramatically to the cost of running a business, and a paradox that was picked up by my noble friend Lord Sanderson and let slip by the noble Lord, Lord Myners, earlier this week is that this complexity reduces the tax take. When will the message get through?
The third point made was the essential need to encourage innovation. John Wright stated that small businesses drive innovation. Every year some 500,000 people start up their own businesses and 60 per cent of all commercial innovations come from small firms. They should be supported, not ignored. So often we see this Government get hung up on the flavour of the month in terms of particular technologies or fashionable concepts. Like investment bankers, they seem to get excited about and invest more in the ideas they understand the least. The message we need to stress is that innovation and enterprise are for everyone. They are the universal principle at the heart of every successful economy, and whether that innovation or enterprise comes from a car mechanic, a plumber, an insurance broker, a knitwear manufacturer, a computer programmer, a bioscientist, a teacher, a nurse or a police officer, the effect is the same: productivity increases and customers and clients get improved value for money. That is what we are seeking.
The people from the small business sector attending that dinner represent the backbone of our economy. They are not the cause of recessions, but all too often they are the first casualties. It is their efforts which create the jobs that so often government agencies and departments take the credit for, and they create the wealth that our public services depend on. They want a Government who are on their side, not on their back.
My Lords, I apologise once again for my bad habit of speaking in the gap, but having seen that the debate today includes the words "enterprise" and,
"innovation in stimulating economic growth",
I thought that it would be the last debate to which I had any possible relevance given my career in bankrupt businesses. On the other hand, from the 11 public companies that I have handled in that respect, some 30,000 people are today drawing a wage. In a roundabout sort of way, I seem to have achieved exactly what it is that noble Lords today have been seeking to stimulate. Why is that? Those 11 companies had one thing in common apart from being bust. They had all gone bust for the same reason, because they had been successful. In being successful, they had become overambitious and had been seduced by low interest rates into borrowing more money than was relevant to expand their capacity beyond the ability of their markets to sustain the uptake.
I bring to the attention of this and any Government to come that there is huge potential for achieving what noble Lords are seeking, by reactivating the conditions of success in such companies through proactive effort to reduce the overcapacity of businesses that have gone bust in this way, either by merging unsuccessful businesses or by carrying the cost of writing off the overexpansion which has been sustained. That was the key to getting such businesses to work in the past and I think that it is a totally ignored and undervalued part of the present Government's attempts to reactivate the economy. It is hugely important that the Government should become more proactive about this, and I hope that the Government to come will be very proactive.
My Lords, I join all other noble Lords in thanking the noble Lord, Lord Sanderson, for bringing this debate before us. It is very apt not only for the reasons indicated by noble Lords on all sides of the House but also because we did not need Anatole Kaletsky writing in the Times this morning to tell us that UK plc is facing a crisis in its capitalist model; namely, the economically liberal, democratic model that we have been used to both in this country and the United States for the past 25 years or so. Following the trade union reforms of the early 1980s and the big bang in liberalising City institutions in 1986, along with possible blips in the early 1990s, the model has delivered unparalleled economic growth until the events of last year overcame us. As we know, that model is under attack by France and Germany, which wish to impose extremely onerous regulations on the City of London because Monsieur Sarkozy and Frau Merkel appear to believe that it was the Anglo-American model of capitalism that destroyed City institutions. I have no doubt that a government of any persuasion will see off that Franco-German challenge, particularly if the Tory party comes to its senses and rejoins the mainstream Conservative grouping within Europe.
That economic model is also under serious attack from China. We can forecast what share of world GDP China is going to obtain over the next 10, 15, 20 or 30 years, but the more important question is whether the Chinese model of a non-democratic, command and control economy, which is beginning to be followed by India and Brazil among the newly emerging economic powers, will result in us wanting to change our economic models. That is very relevant to the debate that the noble Lord, Lord Sanderson, has introduced. I do not think even the surviving members of old Labour on the Labour Benches would really want to go back to the days of command and control in our economy. It is generally accepted on all sides of your Lordships' House that the way this economy has been run for the past 25 years, irrespective of who has formed the government, is the right structure.
However, this is an opportune moment to pause and ask what it is that Her Majesty's Government, whoever runs it, can do to address the issues that noble Lords have been discussing today. If we look at the structure of the economy before the crash, some 40 per cent of it was in the public sector, 15 per cent in banking and finance, about the same percentage in manufacturing, up to 10 per cent, as the noble Lord, Lord Fowler, indicated, in the creative industries and the balance in leisure pursuits such as pubs, restaurants and theatres: all the things that people do in their spare time and which attract tourists. What can the Government do in these various sectors?
Let us take the public sector first. A number of noble Lords have indicated that the public sector is the major employer in their towns and cities. Manifestly, whoever forms the next government is going to have to cut public expenditure, which is a euphemism for sacking public sector workers because that is where the overwhelming bulk of the money goes. The next Government must be absolutely clear that they are going to have to manage the process, particularly in a lot of northern and Scottish towns, of people leaving the public sector and going into unemployment.
In the banking and financial sector, it is clear that the Government are going to have a role. We cannot go back to where we were, and what produced the crisis, because it must not be allowed to happen again. There will be significant debates as to whether we ought to introduce what the Americans had with the Glass-Steagall Act and ask whether we should separate banks' activities and proprietary trading from their retail deposit taking and investment banking structures. Everyone will agree that we need better regulation of the banks and we cannot have people approving the Northern Rock type of business model ever again. But here I slightly disagree with the noble Lord, Lord Mitchell, in that we have to be careful not to kill the goose that lays the golden eggs.
I am not one who believes that the whole banking community is going to go and live in Zug. Anyone who has been to Zug will realise that the attractions of Mayfair far outweigh the attractions of Zug, particularly for their wives or partners. On the other hand, that does not mean that the bankers must be subject to penal taxation in the way the noble Lord has indicated. We must be careful and ensure that our banking employees have fair, not penal, taxation.
What can the Government do elsewhere? Having considered the banking sector and the public sector, we are still left with more than 50 per cent in a combination of the manufacturing and creative industries. We have huge advantages in this country. We have four of the top 10 universities in the world in Oxford, Cambridge, University College London and Imperial College London; we have 52 Nobel prize winners in science spread across the economy; we are ranked eighth in the world for our flexible labour market efficiency; and we are still the sixth largest manufacturing employer in the world-our output is sixth in the world.
We have a significant base on which to build but the Government, of whatever persuasion, must do a number of things. They must ensure that we have the right infrastructure-noble Lords have referred to the railways and broadband. As the noble Lord, Lord Giddens, said, they must develop the green agenda. The Government are quite right to use the strategic investment fund announced in the 2009 Budget to invest in low-carbon sectors. This is absolutely essential because the green agenda not only deals with climate change but also creates jobs. Wherever possible, the Government must improve the education structure of the country and target the education of our young people to ensure that they all have skills for the future. They must encourage links between universities and business based on the model of Silicon Valley and Stanford. It is calculated that Massachusetts Institute of Technology students have created 25,000 companies with sales of $2 trillion, which would make that the 11th largest economy in the world. There is no reason why we cannot build on the strength of the Oxford and Cambridge business parks to do that. It would be an absolute scandal if the report in today's paper is correct and one in four state schools can no longer offer physics at A-level because they cannot get the teachers to teach it. That would be scandalous and must be the Government's top priority.
Finally, the Government must of course cut regulation. You have only to go into any form of business to know that regulation is excessive. We all know how it happens: an incident occurs; it is reported in the papers; the permanent secretary says to the Minister, "This is what you need to do, Minister, because otherwise the Daily Mail will slaughter you on its front pages"-and so we get another regulation. The Government are not eager to do this, but that is what happens.
There is a deep flaw in the Government's DNA, irrespective of party. In the House of Commons today, fewer than 20 per cent of Members have any business experience at all. I have not done the analysis, but I suspect that it will get worse after the next general election. We should not expect the kind of changes that Governments of any party will need to implement to meet the aspirations enshrined in the Motion of the noble Lord, Lord Sanderson, unless the composition of the House of Commons is changed, with more people in government having experience of business.
However, I am not pessimistic because the DNA of the British people is still there. After all, we created the industrial wonder of the world 150 years ago and I see no reason why we cannot do it again. I remain optimistic.
My Lords, I declare the interests set out against my name in the Register. I congratulate my noble friend Lord Sanderson of Bowden on initiating an outstanding debate. He, of course, has not only business and ministerial experience but a great deal of experience of the real world, which came across in some very important points.
I understand why the Secretary of State cannot be here, but we have in the Minister someone who also really understands the business world. The Secretary of State explained that he is at the biannual Joint Economic and Trade Committee talks with India at Lancaster House. I do not know whether the Minister has seen the recently published book by Dietmar Rothermund, India: The Rise of an Asian Giant, but much in that has been reflected in the debate. It is about this Asian giant whose role in the world's future will be unique and important. It is vitally necessary that we should talk about our mutual interests in taking the world further forward.
As the noble Baroness, Lady Wall of New Barnet, said, the debate gives us all food for thought. We have had some excellent exchanges. The noble Lord, Lord Sugar, and my noble friend Lady Verma pointed out that this is National Apprenticeships Week. I am grateful to my noble friend for paying tribute to what has been done and for indicating that we embarked on this road when I had the privilege of being Secretary of State for Employment. It is an important road and I am pleased to continue travelling down it as the non-executive chairman of McDonald's Education Company, where in the past 12 months 5,000 employees have embarked on a programme that has been described in the week as,
"Opening doors to a better future".
As my noble friend Lord Selsdon put it, despite all the other problems that we have talked about in the debate, there are some exciting opportunities for the young. It was good of my noble friend Lord Lyell to give us the benefit of his experience, too.
In many ways, as the noble Lord, Lord Razzall, pointed out, healthy economic growth, sadly, now seems like a distant memory and a remote possibility. The mismanagement of the economy by the Government has led us into the longest and deepest recession on record. The six quarters of recession over which the Prime Minister has presided have seen a 6 per cent decline in this country's GDP since the beginning of 2008. As the Chancellor he sowed, as the Prime Minister he reaps, but for millions of people it has been a bitter harvest. Overhanging the debate is the appalling burden of debt, where interest payments alone will cost £4.4 billion next year-who knows how much will have to be paid out eventually?-and it must all be funded by growth in the private sector. We have a long way to go to get back even to where we started.
A couple of weeks ago, the First Secretary of State challenged the figures that I had cited of the numbers of businesses that had, sadly, gone under in Labour's recent great recession. I can confirm today that what I said was not contrary to the fact, as he suggested it was, that almost 3,000 more companies have gone bust or become insolvent in Labour's recent great recession than in the recession of the 1990s. I have checked the figures and they are depressingly correct.
The Government's answer appears to be to have more schemes, and we have heard about many of the schemes that people have in mind. However, I am reminded of the words of the late, great Iain Macleod, who once said:
"Labour may scheme their schemes, Liberals may dream their dreams, but we have work to do".
Many noble Lords who have contributed to the debate have pointed out what we should do, including my noble friend Lord Fowler, with his strong advocacy of the creative industries, and the noble Lord, Lord Giddens, with his suggestion for investment in new technologies. I remember the noble Lord, Lord Bhattacharyya, once welcoming me to Warwick when I was the Cabinet Minister for Science and telling me about all the things that he had in mind. I was very excited by them, because he is not only a businessman but also, if I remember rightly, an engineer. Sadly, we have a lot of evidence that, although some of these schemes may sound good, they are not being taken up. My noble friend Lord Lang gave us the figures: £18.7 billion of taxpayers' money has been promised through various schemes, but only 13 per cent of that has been delivered. That paltry percentage also came too late to be of any assistance to most struggling companies.
My noble friend Lord James of Blackheath specialises in this area and understands the significance of insolvency. I suppose that a lot of people would have been helped if only we had had in place a large, bold and, above all, straightforward national loan guarantee scheme. I reckon that Ministers are now slowly and grudgingly implementing a pale shadow of this scheme. We have wasted a lot of time and money, both luxuries that British businesses did not have as the recession bit.
As I have said, we have had lots of ideas. However, one of the messages that have come across in the debate is the need to cut bureaucracy and red tape. My noble friend Lord Bates had an important message from the small business sector. In many ways, the message of this debate has been that a responsible Government would empower firms and individuals within the private sector to do what they do best, which is innovating, expanding and flourishing-or, sadly, from time to time, failing-but on their own merits. It is not for the Government to pick winners, which I believe is now generally accepted. Unfortunately, I feel that in the inner recesses of the Labour Party-this was not reflected in the debate-is still a section that regards the private sector with distrust, as being part of the problem, whereas, in this debate, we see it as a very large part of the solution.
My noble friend Lady Verma and the noble Lord, Lord Bhattacharyya, pointed to the importance of innovation. I shall certainly study further the ideas of an arm's-length innovation bank and a framework for success. As the noble Lord, Lord Sugar, knows, these ideas can catch fire and suddenly take off, as his programme has shown. We have a lot to learn from all this.
I return to regulation. To ensure that we start punching our weight, as the noble Earl, Lord Erroll, and my noble friend Lady Byford pointed out, we have to take an axe to regulation. It takes twice as long to start a business in the UK as in the United States. Several instances were given of where we need to improve. My noble friends Lord Wade and Lord Feldman remembered business incubation units. So many ideas exist. However, Ministers have become so distracted by crisis management that they have lost sight of the longer-term needs of the country. The worst and most pernicious effects of a recession may be mitigated in the short term by a combination of loose monetary policy and public expenditure, but the long-term prosperity of the British people will depend on a successful enterprise economy.
Ultimately, it is the private sector that creates wealth, not Ministers. That requires a higher savings ratio and increased investment. It requires a war against disproportionate, unnecessary red tape and bureaucracy. My noble friend Lady Byford called it all unacceptable; I could not agree more. Our economy will not recover under a lethargic, dying Government who, sadly, seem to have run out of ideas, energy and time. We cannot go on like this. Our economy, as my noble friend Lord Lang of Monkton said, will not regain its confidence and impetus until we have a strong lead from a new and energetic Government with vitality, clarity of purpose and a genuine commitment to enterprise.
My Lords, I begin by offering advance congratulation to the noble Lord, Lord Selsdon, on his 47 years. I shall address the specific questions raised in this excellent debate, but, before that, I shall step back and answer its theme, which is to call attention to the role of enterprise and innovation in stimulating economic growth.
Basic economics tells us about the three factors of production that determine economic growth: capital, labour, and technology. However, as Michael Porter pointed out in the 1990s, you need to make sure that human resource, physical resources, infrastructure, knowledge and capital are joined together. It is really technology, knowledge and innovation which contribute to economic growth in the long run. Innovation pushes up productivity, reducing the costs of production and giving us additional money to invest in the economy. In that regard, I agree with the comments of the noble Lord, Lord Lang. As the Prime Minister said on
"We know that growth is ultimately created by enterprise and innovation, and by the dynamic and talented genius of people who are in businesses and companies".
The Government are supporting growth for the future. We are investing in the capabilities that we need to create the jobs of the future, and in the skills, science and infrastructure that we need in every part of Britain. Our advanced manufacturing is strong and is built on our capabilities in science and research. We have earmarked almost £1 billion for cutting-edge projects during the past year through the strategic innovation fund. We are creating more than 35,000 new advanced apprenticeships to build a new British technician class. We are also making huge new investments in digital infrastructure and high-speed rail. To reinforce the comments of my noble friend Lord Giddens, we have a clear commitment to renewable and nuclear energy. Our carbon targets and our big investments in low-carbon technologies will help ensure that the UK builds real new strengths in low carbon and is a world leader in this growing sector.
However, we are not complacent; we know we need to do more. It is very clear- certainly to the Government if not to the Opposition-that we will secure the recovery and then halve the deficit over four years. Cutting support to the economy now risks choking off recovery. The economy is stronger now because of the actions that we have taken to support the recovery.
However, the economic future around the world-I was in Davos last week-is still uncertain. We need to be frank about cutting the budget deficit and make sure that we do not undermine confidence and demand. However, listening to some of the comments made today and to the shadow Chancellor in the other House, I begin to wonder whether we have any industry at all. The reason that we are so optimistic about the future of British business is that Britain is still the world's eighth-largest exporter. We are still the sixth-largest manufacturer: advanced engineering accounts for a third of all exports.
The noble Lord, Lord Fowler, made an interesting point about the importance of the creative industries. I visited Aardman Animations, the Wallace and Gromit company. It is a wonderful example of British innovation and a truly international business. We sometimes forget that the UK has Europe's largest creative industries sector, set to grow at more than 4 per cent per year and employing 1.3 million people. I shall host a meeting of the industry in the next month or so.
UK manufacturing activity increased in January at the fastest pace in 15 years, adding to evidence that the recovery is gathering pace, but we should not forget that the UK has the largest industries in Europe for life sciences, information technology, creative industries and financial services. Yes, we have many challenges in the financial services industry, but it is an important part of the economy and we need to make sure that we are competitive but realistic about the challenges that it faces.
The UK's technology and communications sector accounts for more than 10 per cent of GDP. The noble Lord, Lord Lyell, commented on our science capability, and it is clear that that is a strong part of the economy. However, so is our defence, security and aerospace industry. We are number one in Europe in attracting inward investment and R&D investment. The UK is already a net exporter of low-carbon goods and services, life sciences products and business and financial services.
We are, rightly, proud of the fact that the UK ranks fifth in the world and top in Europe for ease of doing business, according to the World Bank. We have committed to moving up to fourth place next year. The OECD reports that the UK has the lowest barriers to entrepreneurship in all OECD countries. The average cost of starting a business in the UK is just £20, compared to a European average of £382.
As the noble Lord, Lord Wade of Chorlton, commented, with his experience of 155 businesses, the SME is critical to the UK. There are a record number of businesses: 4.8 million SMEs at the start of 2008, which was over 1 million more than in 2000. SMEs employ 13.7 million people-they are the lifeblood of the British economy. Employment in SMEs has grown by 1.6 million since 2000, and on average 260,000 businesses have registered for VAT or PAYE each year since 2000. Enterprise and innovation in Britain are alive and well; Barclays estimates that 1,296 new businesses started up every day in England and Wales every day in the past 12 months.
There are challenges, however. We need better role models. Over the past 30 years there has been an overemphasis on celebrities and sports stars and perhaps, if we are to encourage entrepreneurship and innovation, we need to re-establish some role models. We have done so with teachers and doctors by investing in those areas; we now need to "role-model" entrepreneurs on a wider basis in the UK.
In the Government's ambitious response to Alan Milburn's report on social mobility, Unleashing Aspiration, we agreed with the vast majority of the panel's 88 recommendations on fair access to professions. This confirms our commitment to promote the aspirations of all young people, whatever their background.
There is no doubt that invention and entrepreneurship are at the heart of our national advantage. Few believe that this is random. The US, as has been mentioned a few times, is a favourable environment for commercialising invention, where people are supported in taking risks. We need to improve our ability to do that, and there are definitely lessons that we can learn from the US.
We also need, however, to compete on the global stage. We need to export for growth, and we need an international mindset among the UK's small businesses. But we have to be in a trading block, not isolationist; we are very much part of the European trade continent. Total UK exports make up 29 per cent of the UK's GDP. Firms that export have high growth aspirations, but they also have many more chances of success.
The comments made by the noble Lord, Lord Feldman, on the fashion industry, are important. They highlight the fact that exhibitions are hugely important for a range of industries, which is why UK Trade & Investment is investing more in the trade access programme to help small companies, entrepreneurs and innovators with exhibitions around the UK and internationally.
I mentioned earlier that I was in Davos last week at the World Economic Forum. I met executives from Nike, Siemens, Merck, Wipro and Deutsche Bank, to name a few companies. They all commented that Britain is highly regarded as a centre for foreign investment because of its innovation, its universities, its scientific capability and its great workforce. So those who talk down our capability or say that we have none and we have no manufacturing are making a huge mistake.
A key area that a number of noble Lords have mentioned is access to finance. My noble friend Lord Myners and I are working extensively with the banks to ensure that finance continues to be available to all firms of all sizes. Generally, SMEs are able to get the finance they need. Around two-thirds of applications from small firms with a turnover below £1 million are approved, and over 80 per cent of loans and 90 per cent of overdrafts in the medium sector are approved.
There is no doubt, though, that SME demand for finance remains a key issue and remains down compared to 2007 levels, although this is due in part to SMEs taking advantage of low interest rates to repay their debts. I will be meeting with the credit officers of all the major banks involved in dealing with entrepreneurs and small businesses next week to discuss these issues and to make sure that they are there with access to finance as demand recovers.
One or two people have said, "Well, some of these schemes haven't worked". It is interesting, though, that the enterprise finance guarantee has had an 83 per cent drawdown, and of the 7,792 loans 6,456 have been drawn, which has resulted in £647 million being injected into the economy.
I could go through the other schemes, whether VAT, the deferment of tax, empty property relief; you name it. I will not go through the list, but an extraordinary number of serious measures have been introduced, and I would say that they have had a profound impact on the economy.
The crisis has highlighted-I think the noble Lord, Lord Wade, mentioned this-that we need a better way of getting funds into the market. The Rowlands review has highlighted that the venture capital industry needs to be stronger in the UK. We have set up an innovation fund that now has £325 million available, but we are also setting up the growth capital fund and there are other ideas floating around. We need a framework to bring these together, and we are thinking about that at the moment.
There have been quite a few comments about enterprise and skills. The reality is that we need to embed enterprise at primary and secondary school level. Pupils have to be encouraged to develop enterprise skills-being creative, taking and managing risks, problem-solving and adopting a can-do attitude-across the curriculum.
Activities like Make Your Mark clubs and Make Your Mark challenges, co-ordinated by Enterprise UK, are very important, as have been the National Enterprise Academy and the National Council for Graduate Entrepreneurship. It is encouraging to see that last year we had a record number of people starting apprenticeships-240,000, up from 65,000 in 1997.
This morning, I was at a get-together hosted by the noble Baroness, Lady Coussins, on language skills. If we are going to be a competitive, entrepreneurial and innovative society, it is clear that small businesses need to improve their language skills. That will require a partnership between universities, business and schools.
If we are going to have such a society and grow on the success that we have had in the past decade, though, we need to tackle underachievement by key groups so that you have an opportunity irrespective of your gender, ethnicity or location. That is why women's enterprise is getting so much attention from us as a Government. Women run about 15 per cent of our 4.8 million small businesses. If we had the same percentage of women in business as in America, we would have another 700,000 businesses. If women had the same start-up rate as men, an extra 150,000 start-ups per year would be created. This week, I met a group of black African and black Caribbean business people with whom we are working to see how we can get more success in that ethnic minority group. Huge progress is being made but there is much more to do.
I now turn to the subject of regulation. We clearly need good regulation. We have seen improvements in health and safety and we need to ensure that that balances the rights of individuals and businesses but does not hinder business. We are the first Government to measure and commit to real reductions in regulatory burdens. Since 2005, we have published annual departmental simplification plans. We have made £2.9 billion annual business savings, rising to £3.3 billion by May 2010. But there is no doubt that this is a continuing challenge and that is why I went to Brussels a few months ago to see how other countries are doing. It is a challenge not only in Europe, but in the US, Canada and throughout the world.
I have already referred to the fact that when you look at the ease of doing business in the UK, the OECD ranks us very highly. When you look at entrepreneurship and foreign direct investment into the UK, the reality is that this is a continuous challenge for all Governments, but we are continuing to attract foreign direct investment into the UK and people are still starting new businesses. There is no doubt that the world is getting more complex. It is a challenge for all countries, which is why we have given this a huge focus, in the same way that we have given focus to public sector procurement. A number of noble Lords have mentioned that we need an efficient public sector procurement. The public sector spends around £220 billion per year on goods and services. We are committed to seeing more SMEs bidding for and winning a fairer share of contracts. That is why we are working to implement the Glover report.
Another issue was mentioned by a number of noble Lords. The noble Baroness, Lady Byford, mentioned digital requirements. We need the right infrastructure. Infrastructure UK, which is a new body, provides strategic focus in the Government across the full range of infrastructure sectors. It raises the bar on how infrastructure investment is planned, prioritised, financed and delivered. I hosted a breakfast this morning with Infrastructure UK and a range of financial institutions to look at how we might get more investment into this sector. It is clear that we need to be a digital economy. That is why the Digital Economy Bill is so important and is why we are committed to two megabits universal broadband throughout the UK. Infrastructure investment is a challenge right across major nations. That is why Infrastructure UK has been created and why we are giving it the right type of focus.
My last couple of points are on the right tax environment. The UK has the most competitive corporation and capital gains tax rates in major developed nations. The main rate of corporation tax at 28 per cent is the lowest ever rate and the lowest in the G7. Strong public finances are necessary for the long-term health of the economy and for jobs in the long term. We need a competitive tax environment for small firms.
Finally, we need the right support for innovation. We can all quote from different tables, but the one that I would like to quote from is that the OECD ranks the UK second only to the US in research excellence. As my noble friend Lord Giddens highlighted, we have and should continue to build on a successful partnership between universities and business, particularly in the area of research. The Technology Strategy Board has £1 billion to invest in this spending review. It is also important that a number of these projects have been in partnership with the EU.
We talk about innovation and enterprise. If I had been closing this debate in 1989, there would not have been an internet. There were very few mobile phones and the Berlin Wall was still up. The past 20 years have seen huge scientific and economic progress around the world. Britain has the strength, innovation and creativity to be a key participant in the growth of the world economy in years to come. The Government's focus is on supporting enterprise, fostering knowledge and helping young people to develop the skills and capabilities to reach their personal and economic potential. We are investing in infrastructure, ensuring open and competitive markets, building on our industrial strengths and, in particular, providing active and strategic government. Enterprise and innovation are at the heart of a successful economy. That is why we are backing them so strongly. I thank the noble Lord, Lord Sanderson, and I will respond to him in writing on cashmere sweaters and nuclear power.
My Lords, I thank all noble Lords who have taken part in this debate. I particularly thank the Minister for his reply. At one stage, it was a little like what Sir Walter Scott said about the debating skills of the Duke of Wellington-he sliced the argument into two or three parts and helped himself to the best. With that final comment on today's debate, I beg leave to withdraw the Motion.