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Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 7:17 pm on 30th April 2002.

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Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 7:17 pm, 30th April 2002

It is always a pleasure to follow Mr. Mitchell—I often follow him on the Select Committee. I salute his contribution. It is hard for Opposition Members, particularly Conservative Members, to say very much about the current economic situation and the Budget because the economic indicators are so strong. We have high growth, low inflation, low interest rates and high employment.

Mr. Bercow, who is no longer in his place, mentioned the complexity of the Budget. He referred to the 1979 Budget—the first one presented by the incoming Conservative Government. The 1979 Budget was part of a process that led to 3 million unemployed, so short Budgets are not necessarily a good thing, as the hon. Gentleman suggested. I knew that I had many differences with him, and I have found another. He stood up in the House and said he hoped that he was still growing; I hope that I am not.

A measure of the difficulty in which the official Opposition find themselves is the wording of the amendment, which suggests that the Budget

"will have a negative impact on competitiveness and the attractiveness of the UK as a location for investment."

Implicit in that phraseology is a recognition by the official Opposition, and rightly so, that we are a competitive economy and an attractive place in which to do business. We on the Labour Benches want to further that process.

I shall focus on productivity. When my right hon. Friend the Chief Secretary to the Treasury opened the debate, he mentioned that capital investment—business investment—had gone up from 10 per cent. of national income to 14 per cent. of national income. That is to be applauded because productivity rests, like a three-legged table—a three-legged table should not wobble, nor should productivity—on capital investment, on research and development and innovation and on labour force investment.

It is interesting to consider some of the statistics on productivity—I will not bore the House with many—to show that we have some way to go, but that we have also made considerable progress under this Government. The hon. Member for Sutton Coldfield mentioned the high burden of business taxation in France. According to the productivity figures for 2000, if the United Kingdom is taken as 100 on an index, France is at about 118, the United States is at about 139, Germany at about 105 and, interestingly, Japan is at about 98. Japan and the US are low-tax economies. France is a relatively high-tax economy, as is Germany. We are a low to middling-tax economy, so there is no direct link between taxation and productivity.

On our productivity gains, one of the publications issued with the Budget—"Trend Growth: Recent Developments and Prospects"—shows the trend in the United Kingdom's underlying productivity growth measured as output per hour. From quarter 2 of 1986 to 1997, the figure was 1.84. From 1997 to mid-1999, it was 1.55, so there was a fall when the Labour Government stuck to the out-going Conservative Government's spending limits. From mid-1999 to quarter 3 of 2001, the figure was 2.4, so there has been an increase in productivity under a Labour Government. That is extremely important, and we should make further progress, as the Budget will do.

I urge the Government to consider one difficulty with productivity with which we have not yet grappled. In the submission of the National Institute of Economic and Social Research to the Select Committee on the Treasury, the report of which was mentioned a great deal earlier, Mary O'Mahony refers to the difficulties of measuring public sector productivity. It is obviously particularly important to grapple with that difficulty, given that a huge amount of extra resources will go into the national health service. Although those resources are very welcome, we ought to be able to measure any growth in productivity in the public sector, particularly in the health service, so that we know whether we are getting the right bang for the buck from the increased moneys.

I welcome the reduction in the Budget in some of the red tape faced by small business. One of the major headaches for small business is, of course, VAT returns, and the Budget addresses that issue. That will help productivity in the small business sector. It is very difficult to tell whether the increase in employers' and employees' national insurance contributions to fund the change that we need in the health service will have a positive or a negative effect on productivity, but mention has been made of what the effect on employment may be. Of course, if labour is made more expensive in a capitalist economy, capital tends to be substituted for labour, which tends to increase productivity in that economy.

I particularly welcome the changes on research and development in clause 52 and schedule 12. We need more research and development to push forward this country's productivity. We have historically underperformed in that respect. The Finance Act 2000 included tax breaks for small and medium-sized enterprises. Those tax breaks are now coming on stream for larger enterprises. We should be clear how beneficial those changes could be. As I understand that clause and schedule, a large company, like a small or medium-sized enterprise, that invests in research and development will in effect get 125 per cent. of the money back. It will get the 100 per cent. write-off, plus a 25 per cent. premium, against its profits to encourage that activity.

I welcome the fact that that proposal will cover qualifying bodies, such as Wolverhampton university in my constituency. Those bodies will be able to carry out research for larger enterprises, which will be able to claim that tax break. That will encourage large enterprises not only to carry out research and development in-house, but to farm it out to appropriate qualifying bodies, whether they be universities, charities or whatever.

I hope that some of those productivity gains and the advances in research and development will encourage business in this country to invest in two areas where we have been missing the boat. I have told the House about them before, and I think that I did so when I spoke on Budget day. The first area is the design and build of medical equipment, and the second is the design and build of pollution control equipment. We in the west midlands could well do with playing our part in those markets, which are growing in this country and abroad.

I have a minor request to make of the Minister. I am not an accountant but a non-practising solicitor, as my entry in the Register of Members' Interests shows, so I should like to know more about what happens when a company spends money on research and development and claims for staffing costs and consumable stores. I traced that provision back from the Bill to the Finance Act 2000, which introduced that research and development tax break for small and medium-sized enterprises. One of the schedules to that Act simply states:

"For the purposes of this Schedule expenditure on consumable stores means expenditure that would be treated as expenditure on consumable stores in accordance with normal accounting practice."

I was stumped by that and did no further research, so I hope that the Minister can enlighten me at some point about what that means. That request is not frivolous; it is intended to shed light on what can be claimed against that tax break. I do not know whether a claim could be made for a spectrometer. Would a spectrometer count as a consumable store, or as capital goods?

I should also like to make some remarks about another issue that is central to productivity: the skills of our work force. We need the skills to carry out the research and development to which I refer. We need skills to boost productivity—I read out some figures earlier. As hon. Members on both sides of the House will agree, we need to move to a high-wage, high-skill economy.

We need to develop skills to address the skills shortages that have developed for two reasons. First, the Conservative Government neglected to invest sufficiently in skills training. Secondly, although unemployment has dropped to a relatively low level under the Labour Government in the past five years, there are pockets of skills shortages throughout the country, especially in the south-east.

I am pleased that the Budget and the ancillary documents refer to pilot schemes under which, initially in six areas of the country, small employers will be paid to send their workers on training courses. Paragraph 3.34 of "Developing Workforce Skills: Piloting a New Approach"—one of the documents released with the Budget statement—states:

"Pilots will provide small firms with financial support of up to 150 per cent. of the average wage costs of low-skilled staff for the required period of time off."

That time off will be used for training.

I wholeheartedly support that push to encourage skills training; it is a part of the Budget that has been under-remarked upon. Lower-skilled workers tend not only to earn less but to be less productive. Paragraph 1.10 of that document states:

"Research at the worker level finds that holding a tertiary qualification (e.g. a degree) in the UK increases productivity by between 30 and 100 per cent. when compared to a worker with no qualifications."

That would be a massive productivity gain for our economy. We hope to push forward on that with the Government target of getting 50 per cent. of that age cohort into university by 2010. That should have huge gains for future productivity, directly and indirectly.

I welcome the sector skills councils that are being set up throughout the country to increase skills training and productivity. Box 2.1 of the document from which I have just quoted says that they

"will be strategic bodies with the sole purpose of identifying the skills and productivity needs of their sectors and galvanising action to tackle priority issues."

Ancillary to that, I welcome the Employment Bill now going through the House and on whose Standing Committee I served, under which trade union learning representatives will be given time off, paid for by their employers. That is a step towards encouraging a learning culture, which, in due course, will have increasingly beneficial effects on productivity in our economy as well as enriching the lives of the people who undergo that education and training.

I should like the Government to consider the sort of tax break for training that they have given for research and development—the 25 per cent. premium in addition to writing off 100 per cent. of training costs against taxation. Effectively, there would be the same 125 per cent. regime for training in certain circumstances that this Budget introduces for research and development in large companies and which there has been for the past two years for small and medium-sized enterprises.

I finish with a quote from the Treasury Committee's report, which has already been used by my hon. Friend Mr. McFall. When the Government are criticised about targets, it is salutary to remember that we need real measures and to keep on top of them. The hon. Member for Sutton Coldfield mentioned that indirectly in terms of the health service. Paragraph 21 states:

"We remain concerned about UK productivity which has lagged behind that of the United States. We agree with the Budget's aim to increase the rate of growth of productivity and recommend that the effectiveness of the various measures included in the Budget for this purpose should be closely monitored and reported on in future Pre-Budget Reports and Budget Statements."

If, like me, one has a great desire to increase productivity in order to catch up with the United States, to continue pulling ahead of some of our EU competitors and to catch up with France, and so on, we need to be able to tell which measures are working and which are not.