Economy: Enterprise and Innovation — Debate

Part of the debate – in the House of Lords at 1:56 pm on 4 February 2010.

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Photo of Lord Bates Lord Bates - Shadow Minister (Also Shadow Minister for the Cabinet Office and Communities and Local Government), Shadow Minister, - Shadow Minister (Also Shadow Minister for Communities and Local Government and Energy and Climate Change), Shadow Minister, - Shadow Minister (Also Shadow Minister for the Cabinet Office and Energy and Climate Change), Shadow Minister, Shadow Minister (Business, Innovation and Skills), Deputy Chair, Conservative Party, Shadow Minister 1:56, 4 February 2010

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.