Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 7:14 pm on 10th March 1999.

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Photo of Michael Foster Michael Foster Labour, Worcester 7:14 pm, 10th March 1999

I shall begin by referring to the car industry in the west midlands. The area is extremely reliant on that industry—and not merely on the huge car factories, such as Rover at Longbridge. There are many smaller component factories, such as Metalcastings Ltd. in my constituency, which is a classic example of a small manufacturing company that relies heavily on the Rover Group as a customer. I speak as a member of the third generation in my family to work in a car factory. I urge the Government to do what they can to support Rover on behalf of the many component manufacturers in my constituency and elsewhere in the west midlands.

The car industry is not a lame duck. It is not a primary industry with low profits, but one capable of being highly value-added, with high skills and a high-tech base. The industry has huge export potential and it should be encouraged. I ask the Government to ignore the editorial in The Daily Telegraphlast month, which stated that "BMW should close Longbridge" and that Subsidies simply do not work". The small and medium-sized enterprises that rely on the thriving car industry will welcome the Budget because it will undoubtedly make it more profitable to invest, but they also need a secure business environment in their sector so that they have the confidence to do so. I am pleased to note that the Government have recognised that. The Red Book refers to key investment mechanisms and goes on to mention spill-over effects, where one firm's investment creates new growth opportunities for other firms. That is perhaps best seen in the development of clusters of firms, where the opportunity for a particular firm to make profits depends crucially on the presence and prior investment of other firms. Rover, Longbridge, could be a classic case of that, if it gets the grant aid from the Government.

On the proposals for small businesses, I am pleased that the Chancellor has had time to read the December 1998 small firms survey that was conducted by Hereford and Worcester chamber of commerce before he finalised the Budget. Clearly, this Chancellor has listened to what those small firms had to say in the survey. The new rate of reduced corporation tax for small business start-ups and the lower rate of corporation tax mean that retained profits are more available for investment and that there is a greater reward for enterprise. A feature of the United Kingdom economy is that small firms rely heavily on retained profits for their investment plans. Indeed, the survey found that 56 per cent. of the small firms used only retained profits for their investments and more than half thought that it was their most important source of finance.

The extension of the 40 per cent. first-year capital allowance adds to what previous Budgets have done to give incentives to invest. Some people argue that the measure affects only the timing of the investment, making marginally profitable projects more viable. However, coupled with the economic stability that has been brought about by Bank of England independence, prudent fiscal management, an end of boom and bust and the positive growth forecast from the Treasury, that continued tax relief may affect the volume and not merely the timing of the investment.

Of special note is the small business service and the extra help with venture finance. In the survey that I mentioned, about 80 per cent. of respondents claimed that they needed more help from the Government in that area, 36 per cent. wanted easier access to the small firms loan guarantee, 35 per cent. wanted the Government to promote a wider range of finance options, and a further 36 per cent. wanted easier access to financial information and advice. Those small businesses will thank the Chancellor for his Budget. Those are the findings of those who are active within the chamber of commerce. Imagine what they would be for those who are not active members—those who are perhaps too busy to seek such advice.

I particularly welcome the help for automated payroll support. I spent six years teaching night school students how to do manual payroll calculations and I can assure the Government and every small business out there that computerisation works. That is a further example of the Government's reduction of the burdens on business by enabling businesses to process a piece of essential work. It adds to the already enlightened approach that the Government have taken in bringing together the Contributions Agency and the Inland Revenue, an act which was welcomed in the survey to which I have referred.

I have a few remarks to make on employee share schemes. I worked in the car industry for a company that gave employee shares to the workers—me included—and I saw at first hand the real interest that employees began to take in the financial success of the company. They love sharing in the good times. It is interesting to see workers on the production lines in the huge car factories of the west midlands scanning the newspapers to find out the daily share price of their holdings. They also quiz their line managers on what has caused particular movements. That interest and involvement should be admired and encouraged.

I taught accountancy at a college, and that included teaching about labour remuneration schemes—or new labour remuneration schemes as I used to call them. Employee share schemes clearly show a sense of partnership and team work in a business. They enhance other productivity measures that the Government are keen to see in industry. In particular, they will enhance new investment opportunities that will result from reduced tax levels.

Coupled with the works council directive and our fairness at work legislation, the Budget will equip the United Kingdom for the 21st century with workers who know that they will achieve more working together than acting individually within an organisation. The employee share scheme meets all the basic criteria of a good remuneration package. It is fair to all employees, because they are all eligible. It has a regular reward because dividends can regularly be converted into more shares. It is certainly easy to operate, and it focuses on long-term commitment to a company.

The three-year commitment if full tax advantage is to be gained will mean that, at a time when many small businesses are suffering from skill shortages, workers may commit themselves for longer to particular organisations. That will reduce the high costs of labour turnover that small firms face.

The Budget is good for business. It lowers business taxes, it improves investment incentives, it takes measures to improve productivity and it gives extra training opportunities. All that has been done the new Labour way. Employees and employers will be able to work together, and the Budget will complement existing Government policies. In short, a Government of joined-up thinking have produced a joined-up Budget.