Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 8:05 pm on 22 April 2002.

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Photo of Mark Tami Mark Tami Labour, Alyn and Deeside 8:05, 22 April 2002

Thank you, Mr. Deputy Speaker, for giving me the opportunity to contribute to this important debate. I welcome the Budget, which is probably the most significant since our election in 1997. It sets out and offers substantial year-on-year increases in investment in the NHS—investment that has been needed for many years and which was and is possible only because the Government have successfully managed the economy.

Much has been made of the 1 per cent. national insurance contribution increase for employees and employers. The Conservatives and some of their friends in the media claim that it will be the end of the world for business and, in some strange way, a tax on jobs. We have heard it all before. I recall that the Conservatives said that the minimum wage would lead to massive rises in unemployment and drive companies out of business. Equally, they said that giving workers fair and decent rights in the workplace, not to mention paternity and maternity leave, would be a disaster. They were wrong then, and they are wrong now.

Some people may have short memories, but others have not forgotten the days of 15 per cent. interest rates and mass unemployment, which did not create a fertile climate in which business could grow. Those conditions made investment precarious, to say the least. Of course, those were the years of Tory government and Tory economic mismanagement.

In contrast, under this Labour Government there has been sustained growth, a stable and expanding economy, the lowest interest rates for more than 40 years, the highest employment of any major European country and the lowest inflation in Europe. The cycle of boom and bust, which typified the Tory years, has finally been broken by a Labour Government. In this economy, business can invest with confidence and prosper.

I represent a constituency that depends heavily on manufacturing industry, so I recognise that growth in that sector is important if we are to maximise the successful expansion of our economy. Manufacturing suffered terribly under the Tories—nearly 3 million jobs were lost and output fell. For manufacturing to succeed, it must be at the forefront of innovation and change. We must be able to respond to changing demands and pressures, but we must also add value to our products if we are to remain at the front of the field.

I welcome the Government's recognition of the country's productivity gap. The problem, which has been with us for many years, results from a failure to invest in new technology and, importantly, to invest in the ongoing training of our work force. Recognising that we have a problem is one thing; doing something about it is another. We must be honest—we have a large productivity gap to bridge if we are to catch up and ultimately surpass our main international competitors.

Closing the gap requires the Government to establish the right environment for industry and business. Equally, industry and business must recognise that, if they are to succeed, they too must invest, not only in machinery and equipment, but in people—the employees. Industry's approach to training and retraining its work force has been woeful. It has too often considered training to be an avoidable cost rather than a necessary investment.

When a business hopes to expand, rather than use its own employees whom it had the forethought to train, it looks to poach from others. In essence, the management think, "Why waste money and time training our own staff when we can try elsewhere? Someone else will train them for us." Unfortunately, too many of our companies have taken that approach. Some old nationalised industries provided many trained people, but now that those companies are in the private sector they train considerably fewer.

In our expanding economy, we are all too quick to talk about how skill shortage inhibits growth and adds to our costs, but industry does little to address the problem. When times are difficult, we tend to make matters worse rather than better, but I applaud the sharply contrasting attitude of Airbus at Broughton in my constituency. Following the events of 11 September, it faced a major downturn in the industry and reduced aircraft orders, but in partnership with its employees—the trade unions—it approached the problem with a common goal in mind, which was to minimise job losses and secure the long-term future of the business.

As part of that approach, one of the company's first actions was to write to all its hundreds of apprentices, including those yet to start their training, and guarantee their continued employment with the company. It is refreshing to see a company, even in a downturn, look to the future—the long term—rather than just deal with short-term considerations. If we are to succeed in manufacturing, we must follow that approach, which is in sharp contrast to the traditional approach of British industry. According to that, a letter would also have been written to the apprentices to say that they no longer had a job or a future with the company, as they were a cost and their removal would improve the bottom line.

If we are to bridge the gap in productivity, we need to address our deficit in training and to encourage innovation. I welcome the CBI-TUC productivity working groups, which have identified key areas that need to be tackled. Their support for Investors in People is particularly welcome.

The extension of the research and development tax credit to large companies is an extremely positive development. At a qualifying rate of 125 per cent. of all R and D expenditure offset against corporation tax, that should further encourage companies to invest for the future.

However, I ask the Secretary of State to consider the Treasury's definition of R and D expenditure to ensure that it conforms to the realities of industrial investment. We must ensure that the incentives we provide are to the maximum benefit of our industry, especially industries such as aerospace. That is an important issue, and we must get it right if we are to deliver the maximum benefits that we all hope for.

For smaller and medium-sized businesses, the Budget offers further positive incentives, and shows Labour's continued commitment to that sector. The reduction in the starting rate of corporation tax from 10 per cent. to zero will benefit more than 150,000 companies. It is the lowest rate of such tax in Europe. In addition, the reduction in the small companies' rate will benefit hundreds of thousands more businesses.

I am pleased that the VAT arrangements for small business have been simplified, because we must create the right environment for those businesses to prosper. The problems associated with VAT returns are regularly raised with me by businesses in my area. I ask Ministers to consider the difficulties faced by small and medium-sized companies in applying for grant aid. We must simplify measures in that area to speed up the processing of applications. Time is vital, and delays to applications can sometimes lead to the collapse of the business before the grant has come through.

The Budget is a Budget for all sectors of our economy. The most important factor for any business is stability. The Budget continues to deliver that aim.