Economic Competitiveness

– in the House of Lords at 2:05 pm on 11th January 2007.

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Photo of Baroness Kingsmill Baroness Kingsmill Labour 2:05 pm, 11th January 2007

rose to call attention to the United Kingdom's competitiveness in a global economy; and to move for Papers.

My Lords, I am pleased to open this debate on UK competitiveness in a global economy. As a newcomer to the House of Lords, I feel privileged to be addressing your Lordships on a matter of such importance. Few themes are more central to the future of UK prosperity and I hope that this will be the first of many such debates. I am pleased that so many of my noble colleagues have indicated their interest in this area and I am sure that we will have a most stimulating debate, which will help us understand the changing world, examine the role of government and consider the economic conditions for our future growth and prosperity.

I want to cover two main areas. I hope to examine some of the key issues that we need to understand about the global economy and what we can do to maximise its benefits to the UK. The global economy offers major opportunities, but only if we are hard-headed in our analysis and focused on excellence.

I do not think that it is too much of an exaggeration to say that we are now at a pivotal point as we witness the huge global restructuring that is taking place as Asia becomes, with Europe and the United States, a major world economic power. The economies of India and China are powering ahead, growing at phenomenal rates each year. This growth has been hugely advantageous to the developed western economies.

We in the UK have benefited greatly from the abundance of cheap imports from India and China. These have contributed to the lowering of global inflation and so to lower interest rates. The British consumer is much better off as a result of globalisation and not just because of cheap imports. Our exports of knowledge services have trebled in the past 10 years as globalisation has grown. In fact, it is estimated that the UK is between 10 and 15 per cent richer than it otherwise would be thanks to global trade.

It has become something of a cliché to talk of the knowledge economy but this is where the future lies for mature economies such as ours if we are competing in the global economy. Traditional manufacturing and agriculture account for less than 20 per cent of our national output and are declining sectors. This is not where we should seek to compete in the global economy. We cannot and should not try to compete on wage costs. India and China with their huge populations have an unassailable advantage when it comes to the supply of cheap labour. They are undergoing their industrial revolution and, as we did in the 19th century, are experiencing the wholesale movement of rural populations into the factories and towns. Increasingly in China, the factories are moving out to the rural areas and new urban centres are growing around them. China now has 40 cities of over 1 million people.

It is misleading, however, to think that if we cannot compete in low-cost manufacturing, we cannot be competitive in a global economy. Contemporary consumers want more than the satisfaction of their core material needs and are prepared to pay for it. The jacket I am wearing was made in China; however, it was designed in Italy, marketed internationally and sold in Sloane Street. I bought it because it is fashionable and, according to the modern consumer trend analysts, because it creates an unconscious sense of psychological well-being. And it looks quite nice, too. The point is that the value added to the basic manufacturing cost is where the opportunity for the UK lies. This is at the heart of the kind of economic model I have in mind. The production cost of such a jacket as a proportion of the eventual retail price is at most 10 per cent, probably even less. The balance is accounted for by distribution, marketing, wholesale and retail margins. The healthy return on capital accrues not to the primary manufacturer in China but to the designers and retailers in Europe who created the brands and added the value. The creative industries of design, marketing and retail are ones in which the UK excels.

Will Hutton, in his new book Writing on the Wall, distinguishes between hard knowledge and soft knowledge. By hard knowledge, he means the sort that is needed to build a new chip or a jet engine, to devise a distinctive marketing campaign or invent a new financing vehicle. Soft knowledge is, he argues, the bundle of less tangible production inputs such as leadership, communication, emotional intelligence, innovation and the ability to harness soft and hard knowledge to create goods and services to meet human needs. It is the interaction and combination of both that creates the knowledge economy. This is where the UK needs to concentrate its efforts and focus its energies.

One of the best stories of UK competitive leadership in the knowledge economy is in the City of London, the most international of all the world's financial and business centres, where our open markets show the success that globalisation can bring and where I have spent many years of my career. The City is internationally owned, internationally managed and internationally staffed, but it is regulated here. It is a great place to do business and it acts as a magnet to a lot of highly skilled and dynamic people. The financial services industry in London is a world leader and a massive contributor to the prosperity of the UK through employment and taxes as well as being one of the most innovative of our business sectors. I must declare an interest here as I advise the Royal Bank of Scotland, which has in the past five years gone from being a small Scottish bank to one of the world's biggest, with a significant interest in China. The City is to financial services what Silicon Valley is to IT and we need to grow more such specialist clusters of knowledge-based businesses—in nanotechnology, for example, or green energy, stem cell research and the creative entertainment and music industries.

We are already rated among the 10 most competitive economies in the world by the World Economic Forum, which publishes an annual index of the best performing countries distinguished by their competent economic stewardship. We certainly have had competent economic stewardship. We have over the past 10 years enjoyed an unprecedented period of stable economic growth which we should not take for granted. We must build on this and create a strong economic environment which enables business to make the most of the opportunities of the global economy.

But we must also ensure that our children and young people are educated and equipped with the skills and learning to operate comfortably in such a world. We cannot afford to waste the talents of our people. The proper development and management of our human capital is vital to our competitiveness. As the noble Lord, Lord Leitch, pointed out in his excellent report published recently, our nation's skills are not at present world-class. We have neither the quantity nor the quality of necessary vocational skills. We must do more and will do more to embed a culture of learning in our society. Increased investment is planned in this area to enable us to be more competitive in the global economy and to eliminate inequalities at home.

I am personally most concerned that we are not harnessing the skills and talents of our women. They are graduating in greater numbers than men and with better degrees and qualifications. Yet, as the report of the EOC published last week points out, they are missing from the senior positions in our economic life. This is a symptom of poor human capital management which the UK cannot afford. I know that my noble friend Lady Gale shares my concern and has more to say on this point.

But we cannot merely look at the potential economic opportunities for ourselves in the world. It is the rich countries which are already benefiting from globalisation through the import of cheap manufactured goods and access to new markets. We must in a globalised world recognise that others need help to meet basic needs. The debate today flows on easily and well from that promoted earlier by my noble friend Lady Whitaker. We must be good neighbours in a global world. It is worth reminding ourselves that more than 1 billion people do not have access to clean water; 10 billion children die of preventable childhood diseases; and AIDS, TB, cholera and malaria claim millions of lives throughout the world each year. We have the skills and the resources to tackle this. And this is not an entirely altruistic ambition. It is in our own interests from many points of view, not least that the global nature of travel means that infectious disease is very mobile. It is also the case that it is in our interests from a security point of view that people in the developing world see us as sympathetic to their problems and supportive of their economic and social goals rather than hostile. Healthy, educated people in secure communities working in productive and satisfying jobs make good global neighbours.

It is clear that the free market is the best way to ensure the most efficient allocation of goods, services, capital and opportunities in a global economy. However, while the free market may ensure efficiency, it cannot, left unregulated, ensure fairness, equality of opportunity and a cohesive society. It is through policies of social justice, combined with policies to encourage economic progress, that conditions can be created where people can make the most of their lives. It is the task of government to create the conditions, the systems and the tools to enable us all to do this, and this must be done in the context of the ever-increasing pace of globalisation. Security, climate change, conflict and world poverty are just some of the challenges that face us all.

However, globalisation brings with it huge opportunities as well as challenges and how we recognise and respond to these opportunities will shape our lives and those of our children. I beg to move for Papers.

Photo of Lord Patten Lord Patten Conservative 2:17 pm, 11th January 2007

My Lords, in declaring my business, commercial and City interests, I begin by warmly congratulating the noble Baroness, Lady Kingsmill, on the timing of her speech because competitiveness in this country is at a cusp and it deserves the close attention that she gave it in her excellent and far-ranging speech. I am sure that if my wife, who, like the noble Baroness, is a businesswoman of longstanding, were present in the Chamber, she would share my admiration for the noble Baroness's speech. Furthermore, as the noble Baroness also raised the subject of the very handsome jacket she is wearing, I am sure my wife would want me to point out that a similar check is obtainable in another store, probably at a competitive rate by comparison, of which my wife is a non-executive director—that is, Marks & Spencer.

I am a great believer in competition and would wish to see a statue raised in Parliament Square to its virtues. I would also wish to hear someone taking part in our debate representing the missing ranks in the Chamber. I know that Bishops are always very busy, but it is unfortunate that we do not often see them in the Chamber taking part in our debates on competitiveness and the economy. I am in order in speaking as I am referring to Bishops in the Chamber. It is sad that such debates are sometimes seen as Prelate-free zones. I would not want that to be the case in future and would encourage Bishops to play a role in guiding us on virtue.

As regards our competitiveness, we need to have some objective measures in the UK. I shall concentrate on that rather than on the global reach of the noble Baroness, Lady Kingsmill, before examining two other areas, one of which will be familiar: that is, tax and spending levels. They are so important to business and competitiveness. I want then to look at an area that has not received much attention recently but which I think will roar up the political agenda; that is, the importance of integrity and ethics in business not only as good things in themselves but as positive business-getters and going straight to the bottom line in business.

One could pick and choose lots of statistics on our competitive situation. I have tried not to do that. At best, one can say that the present Government's record was pretty reasonable until the beginning of this century. It then began to fall away. My evidence for that is the World Economic Forum September 2006 report, which points to the UK dropping to 10th place in the rankings, and to the report a month later by our very own and dear Office for National Statistics. On 4 October it reported:

"UK productivity in 2005, as measured by GDP per worker, was behind the average of the other G7 countries as a group".

It went on to say that,

"GDP per worker in the USA is 27 per cent higher than in the United Kingdom".

But I do not for one moment suggest that the Government have broken the British economy in the same way as I must reflect on the fact that a general serving in the Army has said that they have broken the British Army or, as we all know in the Chamber, they have so successfully broken the Home Office. I do not think that the economic record of the Government has been at all bad. They have done pretty well in leaving to one side and letting them get on with their own business the most sophisticated financial markets in the world and letting them flourish with light-touch but effective regulation. They have also continued to promote a flexible labour market.

On the other hand, I believe that the Government have overtaxed the businesses of this country. We can see that businesses are acting vigorously by relocating. I will not talk about the sort of lobbying we have on this issue but simply ask the House to reflect on the fact that 19 large British companies such as Omega and Hiscox have relocated. Hiscox, which is an insurance company—here is a reverse declaration of interest: I pay it; it does not pay me—has relocated its insurance business to Bermuda. In oil, Shell has done the same thing and relocated to the Netherlands. Experian has gone to Dublin. The time has come for the Government to look again very seriously indeed, with international and multinational companies such as Kraft spurning the UK, at scrapping corporation tax on foreign dividend income in this country in the interests of trying to preserve our competitive position.

Unless that is done I believe that in a very short period of time we will see a substantial number of companies moving to new locations, not just in western Europe but to Dubai—to locate in tax zones like that—and smaller companies moving to the Baltic states. That will happen in the next five to 10 years. We will see a mass migration out of this country of competitive businesses, which is not what the Chancellor really intended when he introduced the cat's cradle of taxation controls. It means that our pile of tax legislation is second only in its height to that in India.

Secondly, and lastly, I turn to the importance of integrity, transparency and ethics as vital components in business success and thus in our competitiveness. Just before Christmas, some big institutions in the City, of which the noble Baroness spoke so warmly, said very important things about the importance of ethics. That was heartening. This issue will roar up the agenda. In a letter published just before Christmas, F&C referred to the need to have an investment climate that is,

"marked by clear, predictable standards and independent enforcement of the rule of law".

We must never undermine the integrity of the capital markets any more than we must undermine personal integrity. That is why I was also very pleased to read the view of the chief executive officer of Hermes, Mr Mark Anson, stating:

"Lack of credibility in the regulation of one company can spread to the rest of the stock market creating higher risk premiums and cost of capital".

These are very important issues indeed for the Government to reflect on.

I reflect on the very wise words of the present excellent Solicitor-General back in 2004 when he was an industry Minister. In another place he said that poor standards in this respect are "bad for business". I am sure that is a sentiment which he and our present Attorney-General quite often reflect on as they consider the conduct of businesspeople in this country.

Good business has business interests, but it should have values of transparency, ethical clarity and honesty. These things are business getters, not business losers, and are very important in maintaining our competitive position.

Photo of Baroness Valentine Baroness Valentine Crossbench 2:25 pm, 11th January 2007

My Lords, I should perhaps begin by saying that my jacket is mail order from Boden. I thank the noble Baroness, Lady Kingsmill, for introducing this debate today. I know that she backs bringing business and government closer together. I would add to that the need to bring business and skills provision closer together, particularly given today's debate. I also endorse her encouragement of more senior roles for women in business.

I would like to focus on the importance of "Team UK" in competing globally. In an increasingly global economy, our strengths and weaknesses become more noticeable. The UK needs to play to its regional and sectoral strengths. I use a football illustration: there are not many Liverpool fans who would support Wayne Rooney of Manchester United on a weekly basis. However, plenty of those fans support Mr Rooney as a member of the England team when it comes to the World Cup.

London First, of which I am chief executive, has produced a report, entitled Keeping the UK Competitive. It examined the economic relationship between London and other UK regions and made recommendations to government on spending priorities to support UK competitiveness. Two characteristics of the UK economy stood out. First, 40 per cent of export growth since 2000 has come from London, predominantly from the financial services sector. Secondly, London and the rest of the UK are increasingly inter-dependent rather than competitive. A successful London is more a source of opportunity to Glasgow, Manchester or Birmingham, than a threat.

Regional economies are structured differently. London is highly specialised in financial and business services, while the north-west and the West Midlands are specialised in manufacturing and East Anglia and north Wales in agriculture. Where significant inter-regional competition exists, it does so between other regions and not with London. Another example of that symbiotic relationship is that there is often a view that London is a brain drain on the rest of the country. What in fact happens is that graduates come to London in their early 20s but in their 30s and 40s they often go back with young families to their roots—in the most recent year, 178,000 people migrated out of London to the rest of the UK. So there is in fact a skills transfer back to the rest of the country in people's later careers.

Businesses based in London sell to consumers in the rest of the UK, and vice versa. Typically, London exports financial and business services and buys manufactured goods. London exported around £125 billion of services to the rest of the UK in 2004 and imported around £110 billion worth of goods—a relatively balanced trade.

On the global position, London can compete credibly for a bank's European head office. Once won, a London HQ can help Manchester or Edinburgh win secondary offices versus European competitors. London competes for business with world cities such as New York and Tokyo. This global competition is increasingly understood by other UK cities as Birmingham competes with Brussels and Liverpool with Lisbon. So an emerging entente cordial between the capital and other UK cities is helping to attract inward investment: a collaboration born of pragmatism.

What are the constraints on UK productivity and growth? The report is clear. We need investment in transport and in job-related skills. Our large cities are highly congested. Public transport is patchy in quality and capacity. Overcrowding on London's Underground is unprecedented in extent and unbearable in effect. How can City businesses grow if new employees cannot get to work? This might drive business from the UK—a matter that has been touched on—or deter new employers coming altogether. Sir Rod Eddington's recent report confirmed the importance of transport to the economy. If Government truly recognise that, this year's Comprehensive Spending Review must prioritise transport investment. In particular it must commit to Crossrail.

Skill deficits and worklessness drag down productivity. To be globally competitive, the UK requires world-class skills training. The current system is not sufficiently responsive to the market's diverse and changing needs. Skills provision must be driven by the market—by demand. That may mean different skills and training offers in different parts of the country.

Government talk of increased productivity conjures visions of white coats and clipboard time and motion studies, on 1960s production lines—clearly not the right concept for 2007 and entirely inappropriate to the productivity of London and the service sector.

London has an insatiable demand for high-end skills, to which success against global competition only adds. That demand is, rightly, satisfied by recruiting the world's best. If London stays an attractive place to live and work, our businesses will attract more such stars, benefiting UK plc.

At the other end of the skills spectrum, many less productive, lower-skilled roles are filled by immigrants, including some 70 per cent of staff in London hotels. But London's real productivity issue relates to those not in work. London has the highest unemployment rate in the UK at a stubborn 8.2 per cent. The reasons for that are complex, including social issues, low aspiration, lack of work experience within the family and opportunities in the informal economy, as well as benefits which can disincentivise employment. Disengaged people need urgent help from skills training providers to return to work. An indigenous, long-term unemployed population is undesirable and unsustainable, both socially and economically. Other UK cities have their own distinct problems. Every region needs flexibility to provide the best training for its own economy, its employers and employees.

To conclude, the United Kingdom is a successful and competitive economy. We need to recognise and play to the different strengths of the UK regions. As a 20th century business leader, Henry Ford, said:

"Coming together is a beginning. Keeping together is progress. Working together is success".

If we work together as cities, regions and nations to maintain and build on our strengths, we will ensure that every citizen has the opportunity to share in that success.

Photo of Lord Bhattacharyya Lord Bhattacharyya Labour 2:32 pm, 11th January 2007

My Lords, I thank my noble friend Lady Kingsmill for securing this debate on such a vital topic. As a former deputy chair of the Competition Commission, she has great expertise in these matters.

Global competition is nothing new. All my working life I have been wrestling with global competition, especially in the manufacturing sector. I remember the Japanese product invasion that took place in the 1970s. It happened so suddenly and provoked so much debate. I also remember coming back to this country after visiting Japan many times when there was disbelief that that could happen, and being told that it was only because of cheap labour costs. Of course, what Japan exposed was the inefficiency of the manufacturing sector in the West. Our products were old-fashioned and very little innovation was taking place.

I do not need to tell noble Lords how that competition affected the UK. We were inward-looking and complacent. Our complacency about our products left us far behind. Even then, it was perceived that the Japanese were competitive because of low labour costs and cheaper capital. There was a clamour for protection in the West, but Japan, extremely cleverly, invested in Western assets.

In the end, we discovered that Japanese growth was due to intelligent investment, rigorous training and an emphasis on quality products. A new lexicon entered the business vocabulary: "just in time", "lean", "total quality" and "team working". Japan was no miracle; it was structured common sense intelligently applied. As a result of Japanese innovation, consumers and economies around the world benefited from an innovative value-for-money product base. The West learned from Japan. The resurgence of the western automotive and white goods industry shows the benefits that we gained from global competition.

Next was the rise of the tiger economies. At first, their growth was entirely due to their low cost-base, light regulation and good infrastructure. Growth was driven by products made in south-east Asia, but not designed there. South Korea was different. It chose to develop its own product base, R&D and specialist sectors. Today, Korean businesses and houses are the most digitally connected in the world.

However, during the past 10 years, global competition has taken on a different magnitude with China and India opening their economies. China began by merely producing other people's products, but has now moved on to using its expertise to build its own technologies. The rate of purchase by Chinese companies of foreign technologies is unbelievable. Every time I go there, I see a new Chinese company being formed by taking over a western company. That is one reason why I am always concerned when we say that we as a nation must concentrate on knowledge-based economies. Knowledge is transferable at the click of a button.

I remember working with Japanese companies in the early 1980s. Their training and R&D were entirely driven by the private sector. At that point, the Japanese education system trailed the West and companies knew that they would succeed only if they developed a skilled workforce. The same was true in South Korea and is happening today in China—R&D and skills are primarily driven by the private sector. I wish that British corporations were focused on R&D to the same extent. I would not mind having levies if that is the only way to get a skilled workforce in this country.

There has been a convergence of understanding by Governments of the fiscal frameworks and foreign direct investment required for growth. Almost all of the world's Governments now want to grow their economies and understand the economic drivers of growth to make it happen. As a result, I shall not spend too much time on that. However, I shall mention one thing. I was interested recently by what Chirac said about the reduction of corporate tax rates. We will face more pressure on that front in the coming years, because that is what is happening throughout the world. In our trade with China and India, although they are growing so much, we are languishing as a country. We have not improved our trade relationships with those countries to the extent that our competitors have.

The great transformation of the global marketplace is the growth of the digital economy. The scale of the change has been breathtaking. Most homes in the UK now have more than 10 microprocessors, found in appliances ranging from phones to washing machines. More than a million UK homes now have broadband access and the figure is growing at an astronomical rate. In the business world, it is no longer possible to imagine a successful business that is not part of the digital economy. The transformation is directly linked to the liberalisation of the global telecoms market. Unbundling has transformed the industry. Competition has driven innovation, cost reduction and new markets. It has been the spark plug for competitiveness in all sectors. Without the digital economy, China and India would not have been able to grow as fast as they have. Take India, where the IT service, back-office and software industries were made possible by the digital economy and made practical by competition in the telecoms industry.

It is clear that we need the UK to be at the top of that sector. Just imagine how the financial sector would suffer if it fell behind in data security or speed; or how the media industry would look if others took the lead in data-handling and visualisation. I must admit that there are not huge capital costs and I know that a huge amount of people in China and India are working in that area. It does not take much time to take a lead in those areas.

Here, I must express an interest. I believe so strongly in the importance of the digital economy that I have started a £50 million digital laboratory to help the UK remain at the forefront of digital business research. It is a joint venture between Warwick Manufacturing Group, Warwick University and Advantage West Midlands. I am doing that because data capture, acquisition, reliability, security, simulation and modelling are transforming all sectors from financial services to manufacturing and healthcare. With tremendous innovation in imaging and visualisation, we are able to develop digital diagnosis and prediction. We in the UK are very good in these technologies and we have the advantage that the common language of software is English. However, we must be careful not to be complacent. Every economy in the world wants to be in that market.

What are the practical applications of that technology? I give just one example. Take the humble car. From the use of modelling to achieve quicker and cheaper design changes to improve the environmental performance of the car, speed sensors and, of course, satellite navigation, digital innovation is transforming the automotive sector. That is one sector. Although we do not have an indigenous automotive manufacturing industry, we are excellent when it comes to consultancy and R&D in this sector. We must not and cannot let this chance slip.

Industrial production grew by more than 20 per cent in China in 2003-04, and in India GDP is growing at the rate of 9 per cent in the second quarter. Of course there are problems in this country with the infrastructure and with regulations and bureaucracy, but I will tell noble Lords one thing; only last week I heard that 20 million people are now working in the manufacturing sector in the Pearl River Delta alone, up from 1 million in 1990. The rate of change is absolutely phenomenal, and we must take some advantage of the growth in both China and India, which we have not done.

Many people believe that this expanding productivity is due to cheap labour, but most of these companies are adding and expanding their locations and co-operation in these two countries not because of cheap labour or because they want to export, although of course some companies do, but because they want to be at the centre of this market when it expands. They want their market share, and some of them are doing extremely well.

Finally, many people will talk about skills but I am quite pessimistic, because we have fiddled around the edges writing reports and changing structures but not dealing with the core of the problem. We will never succeed unless and until the private sector works and pays for the skills, needs and demands of these companies.

Photo of Baroness Farrington of Ribbleton Baroness Farrington of Ribbleton Government Whip

My Lords, I remind all noble Lords that this is a strictly time-limited debate.

Photo of Lord Leach of Fairford Lord Leach of Fairford Conservative 2:42 pm, 11th January 2007

My Lords, to see global competition at close quarters, I recommend taking a trip up the Pearl River to what used to be called Canton. There is mile after mile of dormitory towns, with people making goods that used to be made in the West. Nowadays they are paid about $180 a month, but Chinese proprietors are shifting work to Cambodia, where labour is cheaper. A western factory worker or employer looking at this through the train window will see trouble in store, but an enterprising financier or the owner of a great brand will see something different; an emerging market on a scale unparalleled since the arrival of the USA as an economic force at the end of the 19th century.

Hong Kong, at the mouth of the river, was once famous for textiles, but the industry has migrated north and the city has had to reinvent itself as the Asian hub for a 21st-century economy. Let us not forget that Britain also reinvented itself in the 1980s. It was painful, but had we followed a policy of propping up industries and taxing financiers out of business, we might have a sense of moral superiority but the country would now be nigh on bankrupt.

As things have worked out, Britain has become an advanced service economy. The City of London houses an industry as important to us as Silicon Valley is to the States or the motor industry is to Germany. If I harboured Guy Fawkes-like designs on the City, which would give me a heightened conflict of interest with my directorship of Rothschild, which I declare, I would hatch two plots. First, I would strangle it with rules and statute-based laws, recognising that much of its success has been due to enlightened regulation. Secondly, I would reduce traffic to a standstill. At this stage, I would think I was making good progress. I would count as a triumph the new European financial services action plan, which will cost the City about £20 billion to implement over the next four years. As for transport, I would be spoilt for choice, with the failure to build Crossrail or modernise Heathrow, the state of the Underground, bendy buses, the price of a rail ticket, and so forth.

I have not forgotten the environment. Whatever the true pace of man-made climate change, it is clear that large amounts of money will be devoted to research, clean energy, and the adaptation to weather effects. That money will not be generated without a successful economy, so London's transport problems must be fixed. Green absolutism, for example about airports, would be counter-productive. As noble Lords have said, we cannot take our pre-eminence as a financial centre for granted. This sort of business is extremely mobile. Parts are already splitting off to Ireland, Bermuda, Asia and Switzerland.

There is a broader context, too. Britain has fallen in the world competitiveness rankings, as my noble friend has said. Apart from the financial sector, multinational food, tobacco, oil and consumer goods companies have all recently relocated their headquarters abroad. A trickle risks turning into a flood. There is no single explanation for this exodus. Poorly educated school leavers, inadequate infrastructure, regulation, low investment and high taxes have all been blamed at one time or another. Many of these causes are not easily measurable. Investment and productivity figures, which people often like to quote, are often really just mumbo-jumbo, but tax is quantifiable. The Government inherited an economy where only 10 of the world's 30 leading developed nations had a lower corporate tax rate than we have, but now 20 of them are lower. France will overtake us this year. Germany's will be half ours next year. The next Chancellor will inherit deteriorating national finances despite a benign economic environment and years of tax hikes. He will also inherit too complicated a tax system. The EU is not helping either, with its regulatory and protectionist propensities—protectionism being particularly dangerous for an open trading nation such as ours.

We should not be misled by current figures. It took nearly 10 years for the reforms of the 1980s to show through in hard results, and it could take the same amount of time again for our declining competitiveness to show through in weak figures. If that does happen, it will be no good our flirting with protectionism or blaming regulations that we should have vetoed, departments that we should have reformed, or expensive IT projects that we should never have started. It is time to take responsibility for ourselves. Unless there is a change of direction, either we will slip slowly backwards in step with the EU, which is forecast to decline from over a quarter of world GDP in 1985 to less than an eighth by 2050, or we will see a divisive gap opening up between corporate Britain and domestic or social Britain as companies shift their operations abroad to protect themselves. We should view neither outcome with any equanimity at all.

Photo of Lord Bilimoria Lord Bilimoria Crossbench 2:48 pm, 11th January 2007

My Lords, the question before us today is simple: how can we maintain our place as one of the world's five largest economies, which is respected worldwide and the envy of Europe? I have always said that one of the reasons for Britain's great success is that we have one of the freest and most open markets in the world. Our openness has enabled Britain, and London in particular, to become the world's pre-eminent global financial centre.

Britain has one of the world's most flexible labour markets and a workforce capable of adapting to change. We have also had a stable economy with a long and sustained period of low inflation and low interest rates. There is a movement in entrepreneurship in Britain, and entrepreneurship is flourishing and celebrated in our country today. There is no question but that Britain has become increasingly economically competitive in the last generation. However, we must ask ourselves whether this competitiveness is sustainable. I have serious concerns.

My first concern is whether Britain has the necessary components of a competitive society and a competitive economy. In a country such as ours, our richest resource is our people. Centuries of innovation and discovery testify to the skills of the British people—skills that have adapted over time to meet new challenges. Yet today almost 5.5 million people of working age are not in employment and are supported by the state. Our productivity, as we have heard, remains below the G7 average. Of our 11 year-olds, 120,000 leave primary school unable to read or write properly. Of those students who go on to gain qualifications, a diminishing number have an interest in maths and science. This is a foreboding start for a generation destined to lead us into the new era of the global economy.

I could, however, take heart from the recent report from Universities UK, Eureka UK, which was packed with world-changing innovations to have come out of British universities over the past 50 years. Certainly, in terms of competitiveness, our universities are one of our greatest strengths, with three British universities among the world's top 10. Even here there is cause for concern, because our universities must compete globally, but with far fewer resources. When I came to the UK from India for my higher education, I was in a minority because many of my contemporaries went to the United States, where universities were perceived to be better and there was more money for scholarships and bursaries. Perception is important. Our image as a country matters. Britain is a world player. We are at the top table in every area. However, a brand is what a brand does. If Britain is to maintain its currency as a destination for students, professionals and investment, we must maintain a good profile and remain a strong brand.

The future of our competitiveness also means looking outwards, which brings me to my second concern. As we have heard, the global competition has raised its game. We have giant competitors looming, specifically China and India. They are, in many ways, the Goliaths to our David. They are ambitious, liberalising, moving quickly and ravenous for success. India is a massive opportunity for Britain, but despite Britain being one of the world's great foreign investors, and despite a long and close relationship with India, in many ways Britain has been beaten by so many other countries. We once had a head start, but now we are rushing to catch up.

I say rush, but when I was appointed as UK chairman of the Indo-British Partnership in 2003, the south Asia department of what is today UK Trade and Investment had just cut its staff by six times in the UK. This was at a time when India had already started growing by 5 per cent year on year. Since then, India has been growing by 8 per cent, yet these resources have not been increased in the UK. British business and the Government need to be far more proactive, not only in India or China but worldwide.

Britain's largest trading partner is, of course, the European Union. This has had its benefits, but has also made us subject to arguably unnecessary amounts of regulation, which stifles British business and makes it uncompetitive. Quite apart from regulations that are forced upon us, very often we inflict these regulations on ourselves. We are eroding, as I said earlier, those very fundamentals on which our prosperity relies. We are increasing the tax burden, as we have heard. It is now almost 40 per cent of GDP. We are complicating taxes, hitting consumers and business alike, and making us less attractive to inward investment. There has also been a huge increase in public sector spending, with the number of public sector employees increasing by more than 500,000 in the past six years, in many cases, I am afraid to say, with not enough to show for it. At the same time investment of £350 billion is needed urgently to improve our infrastructure.

Security is also fundamental. Our Armed Forces are seriously underfunded, under-resourced and stretched beyond limits. As my noble friend Lord Dear said in his excellent maiden speech, the police in this country are stretched so thinly that their ability to do their jobs is threatened, as is the rapport they once enjoyed with the public. Such issues are inextricably linked, not only to our security, but to our civil society and standard of living. The economy, taxes, spending, education, health, security and infrastructure are surely all of the first importance to our global competitiveness. All these factors contribute to our ability to progress as a country and a people.

The crux of the matter is that our competitiveness affects all of us, not just business. We need a new alignment of government, business and citizens. This attitude must filter down to every level. We cannot afford to sit back. Everyone must contribute at every stage. The bar worldwide is being raised faster than ever. We are a tiny nation but, historically, we have defied the odds and not only survived but prospered. We are a nation that has been such a great influence around the world. If we are to recapture and sustain that, we need to take action now. We are a wealthy nation, but our wealth cannot last for ever unless we take action now. When I was a child in India, Britain was looked upon as a has-been. What was once the greatest nation on Earth was seen as sick and weak. In the past 25 years Britain has regained its position and re-earned its respect. We must never let that go.

Photo of Baroness Gale Baroness Gale Labour 2:56 pm, 11th January 2007

My Lords, I congratulate my noble friend Lady Kingsmill on securing this debate and on her excellent opening speech. I declare an interest in that I serve on the board of the Women's National Commission. In order for the UK to compete in the global economy it must surely be vital to use all the talent available.

This may seem obvious, but I draw noble Lords' attention to the recent Equal Opportunities Commission report, Sexand Power: Who Runs Britain?. It talks about the "missing women" and asks:

"Where are the women missing from our boardrooms and public life?"

It goes on to say:

"If we hope to shatter the glass ceiling we would need to find nearly 6,000 women 'missing' from more than 33,000 top positions of power in Britain today".

This report shows how painfully slow progress is for women. If the UK wants to be a success in the global market, it needs to maximise the expertise and talent of the entire workforce. In all walks of life there are very few women in top positions, be that in business, industry, the media, the judiciary, politics or public life.

An article by Larry Elliott in the Guardian on 27 November 2006 said:

"The role played by women in the economy is strange, to say the least. Women do better than men at all levels of the educational system, from primary school to university, and the government wants Britain to be at the cutting edge of the knowledge economy in which brains rather than brawn are the secret of success.

So it should be simple. Put the people with the smarts in charge and we would all be better off. Yet the latest evidence suggests that the thicker of the two genders remains firmly in control. Women may be making their presence felt in some of the professions—medicine and the law, for example—but men are still firmly in control of high finance, big business and the economics profession".

Women make up just 10.4 per cent of directors and non-directors in the FTSE 100 companies. According to the Equal Opportunities Commission's report, it will take another 60 years at the current rate of progress to get an equal number of female directors. The same goes for other professions. At the top levels of the Civil Service, for example, 26.3 per cent are women, so at the present rate of progress it will take 20 years to achieve equality in Civil Service top management. In the senior judiciary it will take 40 years to achieve an equal number of women. At the moment they make up just 9.8 per cent. As for women MPs, it will take 200 years or 40 general elections to achieve equality.

The Equal Opportunities Commission speaks of the missing 6,000 women. If the UK is to be competitive in the global economy, these 6,000 women must be found, and it will not be too hard to find them. There is no lack of talented and ambitious women, so what prevents them playing their full part in the public, political and business life of Britain and why are they being denied their right to play that full part as they wish to do? I recognise that there is now equality of opportunity, but while the opportunity is there for women to apply for posts, what I and many others want to see is equality of outcomes. There are many barriers to overcome and the glass ceiling is firmly in place.

Women want the opportunity to play their full part in keeping the competitive edge of the UK in the global economy. In the public, political and business life of Britain today, women are there, waiting for the chance but being deprived of it. The UK is missing out on this great pool of talent. Employers at every level of business should look at how successful women have been in running their own businesses. Over 1 million women in the UK today are self-employed, and the number of self-employed women has increased by 18 per cent in five years. Many become self-employed because they cannot achieve their full potential in the workplace but can prove that they are good and successful businesswomen. The Equal Opportunities Commission report says:

"The absence of women at the top of public and business life in Britain today is not of their making. Significant barriers remain that prevent women from progressing up the career ladder into positions of power. Unless we drive forward change at the top, remove barriers and take concerted steps to consolidate and build on the progress we have made, there is a risk that we will not only see progress stall but see it go into reverse. The significant number of women 'missing' from positions of power is indicative of our failure to meet the economic and social challenges that confront us".

Much legislation has been brought forward in recent years to assist women at home and in the workplace, but the law by itself cannot eradicate prejudice, which unfortunately still exists. Employers must accept the fact that by not allowing women to achieve their full potential, by not giving them the promotions they deserve, their businesses too will not reach their full potential. Only by using all the talents of the workforce in the UK will we keep a competitive edge in the global economy.

Photo of Lord Lang of Monkton Lord Lang of Monkton Conservative 3:02 pm, 11th January 2007

My Lords, like other noble Lords I begin by complimenting the noble Baroness, Lady Kingsmill, on securing this debate and on her extremely interesting speech, with almost all of which I found myself in agreement. In my seven minutes I should like to address some of the issues she did not have time to cover.

The need for the United Kingdom to be competitive in a global economy that is evolving faster than ever is fundamental to our future prosperity and well-being as a nation. I shall start on a note of agreement with the Chancellor, who, in his Pre-Budget Report of 1998, described productivity growth as,

"a fundamental yardstick of economic performance".

One can happily agree with that sentiment, but performance has sadly not matched the rhetoric. Many factors come into play, and I would like to try to address some of them, but I agree with the Chancellor that productivity and the rate of productivity growth in relation to other nations lies at the heart of the issue of competitiveness.

In the 1990s, when my own party was in government, we gave high priority to improving productivity, and we deferred some easy and electorally popular decisions in order to achieve it. It was achieved, with annual productivity growth of 2.6 per cent over 1992-97, closing the gap with our major competitors year after year. But for the past five years, our productivity has grown by only 1.5 per cent. I accept the warning of my noble friend Lord Leach about the quality of productivity figures and their availability; nevertheless I am comparing like with like, and the trend is clear enough. Certainly the momentum of our growth rate continued in the first few years of the Labour Government, as the Chancellor stuck with our macroeconomic policy. But since 2002 the productivity gap with our G7 partners, which had reduced in the previous decade from 22.6 per cent to 8.2 per cent, has started to widen again. In 2005 only Japan, still in the depths of its own unique internal recession, had lower productivity than Britain among the major economies of the world. The World Economic Forum figures show us dropping from fourth to 11th place in the international competitiveness league, and our productivity growth rate is currently half that of the United States. The same picture is reflected in the growth of the economy, falling from 22nd place to 25th in the European Union growth league.

It is not just the actual figures that are so damaging to the strange picture the Chancellor seeks to paint of what is in his words a "uniquely high growth economy"; it is the reversal of the tremendously positive trends that he inherited in 1997. I think it is a pity that, in the Chancellor's speech to his own party conference in September last year, he sought to imply that the growth the British economy has enjoyed in the uniquely benign global conditions of recent years all began in May 1997. We have had 38 quarters of uninterrupted growth, he claimed, but it was closer to 58 because it began in the last five years of Sir John Major's Government. From the turn of the century, the forward momentum, the positive trend that we had established, was stalled and lost and now almost all the indicators are negative. The IMF is revising its forward-growth estimates downwards.

This certainly is not the fault of business, which has had to swim against the tide of government profligacy, as a result of which business investment at 9.5 per cent is currently at its lowest since records began—lower over the past six years than France, Germany and the United States. If time permitted I would have liked to explore excessive regulation, the amount and complexity of regulation and tax law, the inadequate transport policy, the incoherent energy policy, a poor skills base and the lowest education results in the European Union, with one in six school-leavers unable adequately to read and write. These are all contributory causes of these present problems, but I believe that the root cause of our competitiveness failures is the bloated burden of taxation and borrowing that the Chancellor has imposed. This burden has raised tax from 39 per cent of GDP 10 years ago, around the OECD average, to a forecast 42.6 per cent this year, while the OECD average will have fallen below 38 per cent. That is a massive increase and a massive blow to British competitiveness. We are going against the trend so the burden will get worse.

To take just one example of the countless tax increases that business has faced, I cite the Chancellor's withdrawal of tax credits from pension scheme dividends, which is reckoned to have cost £100 billion so far. It does not just penalise individual pensioners, serious though that is, but forces industry to redirect resources from investing in and growing their businesses to plug the holes in their pension schemes. It affects their stock-market rating and therefore their ability to raise new capital.

Corporation tax is too high. Other countries where it has been reduced are more competitive. As my noble friends have said, more and more British companies talk of moving abroad to Switzerland, Bermuda and other countries. Fewer foreign companies now talk of coming to Britain. The OECD tells us that unemployment in Britain has risen faster than anywhere else in the developed world. This is despite the huge increase of well over half a million jobs in the public sector, a sector that has grown twice as fast in the last decade as the private sector yet whose productivity is dramatically poorer, as numerous reviews demonstrate.

Added to the tax burden to fund this splurge of public spending is the increase in borrowing with which Mr Brown has saddled us, which is clearly running out of control. In 2001, he said he would borrow a total of £28 billion over the next five years. The actual figure he borrowed over that period was £128 billion. This tax, spend and borrow policy has not just mortgaged the future but undermined our national competitiveness. It has displaced the private sector, whose enterprise and efficiency create the prosperity on which the public sector relies. No wonder the United Kingdom's structural budget deficit is larger than that of all the major EU countries, including even Italy.

In conclusion, global competition is getting fiercer but our ability to keep up is being held back. Britain is losing ground because of Britain's Government. If we are not to sink further in the world competitiveness league, we urgently need to return to responsibility in the management of our economic affairs.

Photo of Lord Tunnicliffe Lord Tunnicliffe Labour 3:09 pm, 11th January 2007

My Lords, I too thank the noble Baroness, Lady Kingsmill, for introducing the debate and congratulate her on her opening speech.

I will use my seven minutes on the narrow issue of better regulation. It was one of the seven issues that, the CBI thought, should be brought to the Chancellor's attention before the Pre-Budget Report. Better regulation is central to the performance of British industry, and international regulatory reform is central to a level playing field for our industry to compete on. I have spent a career in regulated industry, starting work as an airline pilot. I have worked in airlines, railways and the nuclear industry. I declare an interest as chairman of the Rail Safety and Standards Board, a central point for debate of safety regulation in the railway industry. I am employed by the Ministry of Defence and will from April be a non-executive director of Defence Equipment and Support. I will have a special interest in the safety of defence equipment.

Better regulation is a good thing. Yesterday, we celebrated the creation of the EU market by Lord Cockfield. This market of nearly 400 million citizens trades everything from washing machines to medicines and from heavy industry to services, creating an incredibly diverse supply of goods and services at incredible prices. It is supported by a suite of important, appropriate regulations. Regulations protect people as consumers, as workers and as citizens at large. They protect the environment today and tomorrow.

If regulation is so wonderful, why does it get such a bad name? First, the benefits of regulation are not perceived. When we go on holiday or travel on business and use an airline, it does not cross our mind that there is an enormous suite of regulations standing behind that operation, so that aeroplanes and aeroplane services are traded in a single standard international community. International boundaries disappear because the aeroplanes operate to a common standard. The enormous suite of regulations that aviation works within is not perceived by the consumer, who now enjoys a diversity and price of aviation unthinkable two or three decades ago.

Secondly, regulation has benefits but also burdens. It is unusual for the benefit and the burden to fall in the same place. Generally, the benefits accrue to individuals and society and the burden, at least in the first place, to industry. Of course, any burden to industry comes back to us as individuals. That means that regulation has an essential tension all of its own.

Regulation is complex. The idea—the crucial test—that the benefits should be greater than the burden is simple. In the enormously complex world that we live and trade in, the outcome is complicated. Regulation can be perverse, and that perversity often comes from ourselves. Political intrusion in regulation usually produces bad regulation. Perceived bad outcomes are not usually sensibly and proportionately addressed by knee-jerk reaction from politicians.

What have the Government done to create better regulation? I believe that their record is good. They have introduced over the years the Better Regulation Task Force or executive or commission, whatever you want to call it—its name has constantly changed. Its work is professional, and it brings forward good results. The Hampton report of May 2005 set a basis for the better regulation agenda. The Better Regulation Commission's report of October 2006, Risk, Responsibility and Regulation: Whose Risk Is It Anyway? is, as much as you can ever get in this world, a racy read on the subject. The Davidson review looked at gold plating; the review of penalties came out in November 2006; the Legislative and Regulatory Reform Act came out in November 2006; and the Government published their simplification plans in December 2006.

We have made good progress, but we must do much more. Our efforts at regulatory reform put us in the forefront of efforts in the developed world. However, our language on the subject is naïve. It is not simply cutting red tape and simplifying; it goes to the central test of regulation: is the benefit significantly greater than the burden? Can the burden be discharged efficiently?

We must do more. What more can we do? Who should do it? It has to be those who know; it has to be businesses, often through their trade associations, regulators, Governments, pressure groups. They must work together more—I mean work, not just throw across the table one-line answers to each other—and they must understand more. Regulators must understand the burden that they bring upon business in particular; business must understand better what benefits the regulators are trying to bring about. They must try to produce fit-for-purpose outcomes, both in new regulations and the continuous review of old regulations, to make sure that the test of proportionality is achieved. We must work in the European Union and the wider trade community so that the benefits of better regulation are widely shared and we create a level playing field in which to live and trade.

Better regulation means a better world for everyone. It deserves appropriate resources and some of our best talent, and respect, support and gratitude for the practitioners who provide it.

Photo of Lord Sheikh Lord Sheikh Conservative 3:16 pm, 11th January 2007

My Lords, one of the great challenges that the UK faces is the way in which it engages with globalisation and makes it work for the benefit of the British people. A significant proportion of global trade is won by service industries such as financial services and the industry in which I work, insurance. I am the chairman and chief executive of an insurance broking and independent financial advisers organisation. We are provisionally accredited Lloyd's brokers and have offices in the City of London. I have a long-standing connection with the City. In fact, when I was elevated, I chose the title of Baron Sheikh of Cornhill in the City of London. I have held senior voluntary positions with the British Insurance Brokers' Association and the Chartered Insurance Institute. I am indeed very proud of the achievements of my industry and the City.

The UK insurance industry is the largest in Europe and the third largest in the world. The industry had total net investments of £1,010 billion in 2004. It accounted for almost 20 per cent of the total net worth of the UK economy. The industry is a major foreign currency earner. It owns £236 billion of overseas portfolio investments and was the largest single contributor to net exports of the UK financial sector with a contribution of £6.4 billion. The industry is also a major generator of taxes.

One of the reasons for our global success is the skill and competence of our staff. It has enabled us to be a major financial centre in the world. I used to be a visiting lecturer at the City of London College and realise the importance of this. It is imperative that we maintain and promote our education and training facilities to keep up our supreme position. Although we are pleased with our achievements, we cannot be complacent. We need to be proactive and innovative. The world is changing and we must face and be alert to new challenges, opportunities and possible threats.

The insurance industry and the City generally would welcome assistance in regard to global trading. To that end, we need better intelligence and lobbying on regulations in overseas countries. Regarding India, we would urge the Government to ask the Indian Government to raise the limit on foreign investments in insurance companies from 26 per cent to 49 per cent. That will allow British insurers to raise their stake in joint ventures and increase their underwriting capacity in the Indian market.

With regard to China, the chief issue is the lack of transparency of the insurance regulator, and we ask the Government to consider approaching China in order that it can open its insurance market. It gave such a commitment in the past when it joined the World Trade Organisation.

In respect of the United States, we ask Her Majesty's Government to assist us in replacing the requirements for reinsurance collateral with a non-discriminatory system. We are regarded as alien reinsurers and are obliged by many states to post collateral in the United States. I am, however, pleased that the reinsurance monopoly in Brazil is about to open up at last.

It is important for the industry and for Britain that the City remains a highly competitive financial services market. We are fearful that some international insurance business is drifting from London to Bermuda and Ireland. To enable the industry to continue its activities successfully, it is vital that excessive regulatory and fiscal burdens are avoided. Will the Minister kindly tell the House whether the Government would consider a review of the tax regulatory regime affecting the City? Current concerns of the Association of British Insurers include worries over the complexity and unpredictability of the tax regime, particularly corporation tax, VAT and IPT.

Although we feel that the Financial Services Authority's prudential regime is helpful, the authority could be encouraged to make faster progress towards principles-based regulation of the conduct of business. I would appreciate the Minister's comments on that point. An open market at home and opening further markets abroad are the key to our continued prosperity.

Photo of Baroness Warwick of Undercliffe Baroness Warwick of Undercliffe Labour 3:23 pm, 11th January 2007

My Lords, I am delighted to be able to take part in this timely debate, called by my noble friend Lady Kingsmill. It is clear from every contribution to the debate that the UK faces a number of challenges to its future competitiveness. Attention has been drawn in particular to the economies of China and India, which are growing dramatically. That offers major opportunities for western companies, including those of the UK, but it also presents major challenges. Not only are those economies driving us out of business at the low-skills, low-cost, low-tech end of the spectrum; they will increasingly present a challenge to our competitiveness in high-skills, high-tech business. Spend on Chinese research and development tripled between 1998 and 2003. The Chinese contribution to scientific journals now stands at 40,000 papers, 5.1 per cent of the total. It was only 0.4 per cent at the beginning of the 1980s. Asia increasingly offers a favourable business climate, and countries will increasingly invest and locate their business in Asia in response to that growing strength.

Other major challenges include the impact of the expansion of the European Union, creating a bigger trading zone. Again, there are opportunities here as inward migration makes a substantial contribution to our economy, but there are also challenges. The ageing workforce in the UK and our falling birth rate create new imperatives for us to invest in lifelong learning, to ensure our population can be more productive for longer. Those are big issues that will need long-term thinking to resolve. Some of them will need support from our European partners, the Commonwealth and the United States; others we will have to resolve on our own. I look forward to hearing from the Minister how the Government expect to tackle those many and varied challenges over the coming years.

The House will no doubt remember the Chancellor of the Exchequer's Statement to Parliament on the Pre-Budget Report last year when he said that the key to the UK's future economic competitiveness lies in our ability,

"to out-innovate and out-perform competitors by the excellence of our science and education".—[Hansard, Commons, 6/12/06; col. 306.]

UK universities are already playing a vital role in meeting the challenge that the Chancellor described. Because of that increasing role, I want to briefly highlight the importance of higher education to the UK's competitiveness and the knowledge economy. I know that this subject is close to the heart of the noble Baroness, Lady Kingsmill, who has been pro-chancellor of Brunel University and will thus recognise how crucial this issue is. At this point, I should declare my interest as chief executive of Universities UK.

As the recently published Leitch review, conducted by my noble friend Lord Leitch and the Treasury, makes clear, the UK currently enjoys relative economic strength and stability. We have seen 14 years of unbroken growth and have the highest employment rate in the G7, but the global economy is changing and, as Leitch says, we will have to run to stand still. The UK's productivity has improved in recent years but still lags behind that of comparator nations. The average French worker produces 20 per cent more per hour than the average UK worker, while the average German worker produces 13 per cent more and the average American worker 18 per cent more.

Although recent research has attributed 10 to 15 per cent of the productivity gap between the USA and the UK to differences in management practices, Leitch points to the UK's relatively poor skills base as the major underlying cause. While the UK's skills base has improved over recent years, other countries have been improving their skills too—and often from a higher base. As a result the UK lies 17th in the league table for low skills, 20th for intermediate skills and 11th for high skills. The noble Lord, Lord Leitch, also makes it clear that there is no doubt that the higher education sector will play an increasingly important role in engaging with employers to provide the higher level skills essential to meeting the economic challenges facing the UK.

The growing number of partnerships between universities and business and industry is recognised by both sides, as is the importance of teaching and knowledge transfer in enhancing UK competitiveness. I am pleased that the Government have set an ambitious target for increasing UK spending on research and development to 2.5 per cent of GDP by 2014. As part of that, I know the Government also aim to increase private investment in R&D to 1.7 per cent of GDP, and I welcome significant increases in public spending through the last and current spending reviews. I also welcome the increased support for business investment in R&D through tax credits, including their extension to companies with between 250 and 500 employees as part of the 2006 Budget.

However, noble Lords may be interested to learn that 43 per cent of US investment in higher education comes from public sources, amounting to 1.25 per cent of GDP compared to only 0.8 per cent in the UK. I hope the Minister will agree with the comments attributed to the Chancellor, Gordon Brown, that,

"this is not a figure that can stay at that level".

We cannot escape the conclusion that investment from both public and private sources needs to increase.

We certainly need to build on our graduate numbers if we are to continue to compete with the 4 million graduates per year now pouring out of Indian and Chinese restaurants.

Noble Lords:

Oh!

Photo of Baroness Warwick of Undercliffe Baroness Warwick of Undercliffe Labour

I apologise, I meant universities. I think it has something to do with the fact that I have not had any lunch. But in that context, overseas students, both at undergraduate and post-graduate level, play an important part in UK competitiveness. So before I end, I urge my noble friend the Minister to ensure that our immigration policies do not undermine this. The implications of Home Office reforms for higher education are significant, not only as recruiters of international students but as employers of international staff and hosts of visiting international staff. These international activities of UK HEIs, with all their benefits to both the economy and the UK's competitiveness, could be severely jeopardised by the implementation of a crude, short-sighted charging system. I hope that the Home Office officials drafting the reforms will listen carefully to this debate.

Universities and higher education institutions are a vital pillar of the knowledge economy and provide one of the dynamics for innovation through research and development. Just as my noble friend Lady Kingsmill showed that world-class business competes in the City, so the best universities compete in a global marketplace. It is clearly vital that we continue to invest in both financial and human capital in the UK, which will enable us to tackle some of the challenges that this debate has touched on, so that we can remain competitive in the years ahead.

Photo of Lord Puttnam Lord Puttnam Labour 3:31 pm, 11th January 2007

My Lords, I join every other speaker in congratulating my noble friend Lady Kingsmill on a wide-ranging and extremely stimulating speech, and in making what I regard as a very important debate possible. I shall also entirely understand if my noble friend Lady Warwick wants to pop out for a sandwich while I speak.

How do we best prepare the UK to prosper and thrive on a sustainable basis in this early part of the 21st century? There are many in this House who have forgotten more than I will ever know about British political history but, with that caveat, I should like to begin by mentioning one small and fairly recent sideshow of our political heritage. "Butskellism" is of course often invoked, for the most part negatively, to describe the consensus that existed in the 1950s around a commitment to a mixed economy, and the future of the welfare state in particular. But, in truth, that consensus was far more imagined than real. There was both a socialist and a conservative vision of the role of the welfare state in delivering a fair and equitable society, and those visions were quite visibly distinct. It is my contention that, more than 50 years on, when it comes to the issue we are discussing today—how best to promote our nation's competitiveness—there is, indeed, a consensus of a kind that would have made the staunchest Butskellite of the mid-1950s positively giddy with excitement.

The consensus has evolved with regard to those forces which drive competitiveness. They can be summed up as a well educated and highly skilled workforce and a knowledge economy built on the twin pillars of creativity and innovation.

As this debate has already demonstrated, there is a large measure of agreement among all the Benches of this House regarding investment in skills and knowledge as the key drivers of competitiveness. I go further. I believe that anyone who reads any recent speech by just about any senior and informed politician can only be struck by the remarkable degree of agreement which has come to exist on these core issues. In fairness, I should say that the noble Lord, Lord Forsyth, who I am delighted to see is present, has offered a mildly dissonant voice in his recent report on taxation, but there are not many such voices.

The problem lies in the fact that we have assiduously sustained a political system which actively encourages the adversarial at the expense of the common ground, even in situations in which a thoughtful consensus is overwhelmingly clear. This tendency is, of course, aided and abetted by parts of the media in their search for political "entertainment". As a consequence, it is all but impossible to discern the sometimes quite remarkable extent of agreement through the fog of political warfare.

Some noble Lords may well have become concerned that I have finally lost my marbles in being naive enough to believe that true consensus could, or even should, prevail in even a small part of the political forest. But if we are remotely serious about sustaining our competitiveness in the coming decades, then surely we should all be learning from those economies that have developed a vision for themselves built around consensus, and have then had the courage to stay with that vision across several decades.

One such economy is that of Finland. It ranks second in the World Economic Forum's global competitiveness index. In the interests of fairness, as a proud trustee of Davos, I think that the World Economic Forum may well be entitled to a royalty on today's edition of Hansard. Finland also ranks number one with regard to its commitment to higher education and training, a position it has maintained for many years now. According to the authors of the index, the Finnish economy demonstrates that:

"A world-class educational attainment and a focus on technology and innovation are a successful strategy for maintaining competitiveness".

The cornerstones of success for the Finnish economy were created over several decades, through a consistent commitment to increasing R&D expenditure and to investing in the skills of its workforce. This contrasts in many ways to what seems to me to be the short-termism of the private equity world which now controls a significant proportion of British business, with its quite undisguised commitment to stripping out costs and seeking an early exit. This undermines our ability to see our way through towards any form of sustainable economy, but I appear to be entirely alone in this belief.

Several expert commentators have observed that Finland's success can be directly attributed to a political consensus that opportunities are based on knowledge. As I have suggested, in the UK there now appears to be a similar settled consensus that the knowledge-based industries—IT, pharmaceuticals, media design and so on—are for us the engines of long-term growth. But as a nation we seem strangely unwilling to provide the type of long-term investment that produces sustainable growth in this overwhelmingly knowledge-based sector.

According to the most recent figures available from the OECD, the UK's total R&D investment as a share of GDP remains significantly lower than the OECD average. Since 1997 it has hovered at around 1.8 per cent of our gross domestic product. The OECD average is around 2.5 per cent. The US manages 2.8 per cent, while the Finns invest 3.5 per cent. What is it that we know, and they do not? Or could it be the other way around? That is a question that only our grandchildren will be able to answer and I fear for them if we happen to have got it wrong.

There are others who argue that we can afford to invest less in R&D because we have such a strong financial services sector. But surely financial services are notoriously cyclically vulnerable. For instance, they have always seemed to me to be prone to displays of irrational exuberance during each economic boom, frequently leaving a trail of pain behind them. Moreover, they are largely concentrated in London and the south-east, thereby serving only to exacerbate regional economic and social disparities. The idea that the financial services sector can deliver us sufficient competitive advantage in and of itself is surely an illusion. I have spent much of the past 15 years arguing for the importance of the creative industries to develop our competitiveness. But I have never for one moment believed that the creative economy, if separated from a robust manufacturing economy, could deliver sustained competitiveness. That being the case, it is my hope that we might find it possible to stop squabbling at the margins and start investing intelligently in what will become all our children's futures.

Photo of Lord Newby Lord Newby Spokesperson in the Lords, Treasury 3:38 pm, 11th January 2007

My Lords, I join other noble Lords in congratulating the noble Baroness, Lady Kingsmill, on initiating this debate. I particularly enjoyed the example of her suit to demonstrate the global nature of production and marketing. I should perhaps complete this by saying that my vote, in terms of a suit, goes to the wife of the noble Lord, Lord Patten, rather than the retailers of Sloane Street but I am not sure whether it has given me the boost in psychological well-being that the noble Baroness has clearly achieved.

How competitive are we? On most headline figures we do not do too badly. Everybody has been looking at the World Economic Forum figures. We are 10th, down from ninth, but it is a pretty high level and looks quite good in comparison to China, which is 54th. I suspect that that raises questions in some noble Lords' minds about the appropriateness of the index in every last respect. But the problems that the noble Lord, Lord Sheikh, mentioned, such as transparency and openness in China, explain why they do not do so well in some areas as in others and why we still do pretty well overall.

One figure which should give us pause for thought before we get too enthusiastic about our 10th position is an old-fashioned one that has not been mentioned today: the balance of trade. It says something about one's competitiveness if the balance of trade is adverse. The fact that in November, the latest month for which we have figures, it was negative to the tune of £4.7 billion, despite a significant surplus concerning services, should give us pause for thought.

I have one final point about the nature of competitive economies, which flows from some of the indexes. The noble Lord, Lord Puttnam, talked about Finland, which is by all accounts and measures one of the most competitive countries. Quite a large proportion of the most competitive countries are also by international comparisons high-tax countries. Therefore, while I understand some of the concerns expressed by the noble Lord, Lord Lang, about taxation levels, there is no straightforward correlation between the level of tax and competitiveness. You can have high tax and low competitiveness internationally, but equally you can have the obverse.

There are clearly some things that we are very good at as a nation. Financial services and other professional services have been mentioned. The noble Lord, Lord Puttnam, mentioned the creative industries. We are global leaders in a number of these respects. We are also still global leaders in some areas of manufacturing, although not as many as we would like. It is a mistake to write off manufacturing as it has become almost trendy to do in some quarters in the UK. In the past few months, we have seen how the research into a plastic chip has been led by the UK. Whether we will manufacture it here is an interesting question, but at least the research is happening here. In recent weeks, we have seen the announcement of a new kind of stainless silver coming out of Sheffield, a very traditional manufacturing industry that is reviving itself by adopting very high levels of research and innovation. It is still a model in a number of respects.

There is, however, clearly a sense that we could do better, and that in some areas, at least, we are not doing as well as in the past. Regulation has been mentioned. The noble Lord, Lord Tunnicliffe, gave a very balanced view of why we need regulation but how we need to watch that it does not take over. The problem here is not to do with a Government; it is about a gold-plating mentality that certainly obtained when I was in the Civil Service and that has not changed much since then.

The second area of concern is tax. In the recent CBI/MORI survey, there is an interesting hierarchy of the problems perceived by business regarding tax. The first perceived problem is complexity. Here, as noble Lords have pointed out, this is a real problem. We have more tax legislation than any other major economy in the world except India. Under this Chancellor, the number of pages of tax legislation has increased exponentially. We on these Benches have suggested that one way of cutting through a lot of that is to have a general anti-avoidance rule. It is a controversial proposal, but it is a way of dealing with the issue. One thing that slightly frustrates me about debates such as this one is that it is very easy to analyse the problems, and we have heard rather more of that, necessarily perhaps, than about practical ways of grappling with them.

The second problem that business has with the tax system is compliance costs and the demands of Her Majesty's Revenue and Customs in its current crack-down on companies' taxation matters. This is in part a predictable consequence of merging the Inland Revenue and Her Majesty's Customs and Excise. Having worked for Customs and Excise, I can see the hand of some of my former colleagues in how it is attempting to deal with business. They know an awful lot about smuggling, and in some cases rather less about long-term business planning.

The third area that worries people in business is the headline level of corporation tax, given that across the developed world it is coming down. We on these Benches have proposed that by cutting out a raft of relief you can make modest cuts in corporation tax, but the challenge for all of us who would like to see lower corporation tax is to explain where we will find the money to do so.

Britain's big problem in competitiveness is skills, to which a number of noble Lords referred. It is worth repeating some of the figures: out of the OECD's 30 countries, we are 17th in terms of low skills, 20th in terms of intermediate skills and only 11th in high skills. That means that 5 million adults are functionally illiterate and, as noble Lords have said, one in six school-leavers cannot read, write or add up properly. Those are scandalous figures, which we have become used to; despite all the additional funding in this area, we have not dealt with it satisfactorily and there will be a long period of hard work to make progress, not just in absolute terms but more importantly in comparison with our major competitors.

In recent weeks, the report by the noble Lord, Lord Leitch, has been published; it is a compelling analysis of why we need a highly skilled workforce and of the current shortcomings of the skills system. He set very high attainment targets for 2020 that he believes are necessary if we are to remain competitive. But a number of issues in the report cause concern to many, including noble Lords on these Benches. It suggests that there should be a voluntary pledge by employers to train employees at work to level 2, and that if there is insufficient progress by 2010 it should be made mandatory. Why on earth does he think that there could be sufficient progress by 2010 when that has not happened so far? If you believe that that is so important, you should make such pledges mandatory now and stop fiddling about.

The noble Lord, Lord Leitch, gives a huge role to skills councils in simplifying and approving vocational training courses and setting attainment targets for new qualifications in their sector. From what I have seen of sector skills councils, they have generated a lot of good work, but I am not convinced at all that they are all capable of taking on such a role. They do not necessarily have the staff, and I am not sure that they have the buy-in from sufficient employers. Other major issues in that area need to be examined in more detail in relation to the Leitch report. I hope that your Lordships' House will soon have the opportunity to do so.

To sum up, I think that we all agree that competitiveness touches the lives of every citizen in the UK. Today's debate has been a useful rehearsal of the issues, but the key factor in the period ahead is ensuring that we take the necessary action to ensure that the UK remains both competitive and prosperous.

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury, Shadow Minister, Work & Pensions 3:48 pm, 11th January 2007

My Lords, along with other noble Lords, I thank the noble Baroness, Lady Kingsmill, for providing this opportunity to debate the UK's competitiveness in a global economy. It is a subject that has always been close to the hearts of those on these Benches, but today has demonstrated that the issue is close to the hearts of those from all parts of the House and that there is a consensus that the competitiveness of the UK is a key issue for this country.

One undeniable and uncomfortable fact is that the UK's position in the global league tables, as many noble Lords have mentioned, has weakened significantly in the past 10 years. Our position is different in different league tables, but the overall answer is always the same: that the UK is becoming less competitive. These Benches have often raised this issue with Ministers, who have tended to be in denial on the subject, usually choosing to quote back at us a few favourable statistics, rather than facing the facts. We now have a new Minister dealing with Treasury matters and I welcome the noble Lord, Lord Davies, to that position. I am, therefore, full of hope that when he winds up he will be brave and will address the issues, rather than deny them.

The worst outcome for the UK would be for our performance to drift constantly downwards in comparison with our international competitors so that we end up among the also-rans. If the UK does not become sufficiently competitive against the leading economies of the world, our exporters will suffer, we will fail to attract sufficient investment and our economy will eventually run out of steam. That is why we welcome this debate.

Much reference has been made to the World Economic Forum's global competitiveness index, where we are now 10th. The important thing is that we were fourth in 1997 and while the noble Baroness, Lady Kingsmill, said we were in the top 10, she failed to mention the important direction of travel. The index concentrates in particular on factors underlying productivity growth because that in the long run drives economic growth. My noble friend Lord Lang has already quoted the Chancellor on productivity back in 1998 and rehearsed the rather dismal productivity performance statistics of the UK, particularly in the past six years or so.

It is perhaps not surprising that we do not do as well as the US, it being an even more open and nimble economy, but it is humiliating that Germany and France still beat us. Our overall productivity statistics are impaired by the performance of the public sector. Even with the Office for National Statistics at its most creative, it has been clear that public sector productivity has gone backwards in the past eight or nine years and money has been wasted. Public service reform is an urgent matter for the health of our economy but we are pessimistic about the Government's ability to deliver real and lasting public sector reform.

The more important issues that impact on our competitiveness include regulation, education, our transport infrastructure and taxation. All of these have been mentioned by other noble Lords. Let me start with regulation. The Government often talk a good Conservative story on regulation but I do not think they share our philosophy. When we were in power, we had a Deregulation Task Force which the Government turned into a Better Regulation Task Force. Any businessman will tell you that better regulation is no substitute for less regulation. In the past 10 years we have definitely seen an overall increase in the amount of regulation.

There have been recent initiatives to reduce the administrative burdens of regulation by 25 per cent. If they are delivered, they will help, but only at the margin. They will not significantly attack the overall burden of regulation, which is estimated to cost over £120 billion each year. More importantly, initiatives to tidy up the administrative side of regulation do not really reflect a change of sentiment in the Government. They do not stem the tide of new regulations or ratchet the regulatory burden down. What businesses need is a commitment to less regulation year after year.

That may mean standing up to Europe, which is the source of most of our new regulatory burdens imposed in the UK. We believe that the Government often sign up to European initiatives without giving enough thought to the balance of advantage for the UK. My noble friend Lord Leach pointed to the £20 billion price tag attached to the financial services action plan, but that plan delivers little or no tangible benefit for the UK and it would certainly contribute very little to helping the UK's competitiveness in global financial markets, which is far more important to the UK than the markets within Europe.

On education, which many noble Lords have referred to, too many children emerge from schools with insufficient basic skills. The statistics that came out today on achievements in English and maths at GCSE are shocking. Higher education and further education still do not produce enough of what employers actually need. Against that background, it is perhaps no surprise that in the past 10 years unemployment among 16 to 24 year-olds has worsened.

On transport, the Government's contribution has not been sunny. They published a 10-year strategy in 2000, but that was never going to be delivered and it is no longer mentioned in polite company. Last year, the Department for Transport was described by the Transport Select Committee of another place as,

"well intentioned but sluggish and sometimes muddled".

The Department for Transport concentrated on renationalising part of the railways rather than delivering an infrastructure to support British business and the Government have dithered over Crossrail, a project which many believe is important to the future of London, which in turn is a major contributor to the UK's GDP growth, as the noble Baroness, Lady Valentine, knows only too well.

The Treasury has published many pages on productivity and competitiveness, but it has not yet grasped that part of the problem lies at its own door. Several noble Lords referred today to the increased burden of taxation which is dragging down our economy. The UK has been slipping down all the published rankings of tax competitiveness, as well as the overall ones that we have discussed. I am indebted to my noble friend Lord Forsyth of Drumlean for the insightful analysis contained in the report of his Tax Reform Commission, Tax Matters. I am delighted to see him in his place today. I recommend anyone interested in our competitive position to read my noble friend's report on taxation. It contains excellent analysis and many useful suggestions.

Our tax system is among the most complex in the world. The World Bank has said that its complexity is now a critical threat to our competitiveness. The Government have never responded seriously to our calls for a policy of tax simplification and seem convinced that complexity is a natural by-product of tax avoidance. There are other ways, one of which was mentioned by the noble Lord, Lord Newby, but a completely different mindset is required from that currently found in the Treasury.

On the tax rate, referred to by my noble friend Lord Patten, we once led the way with our corporation tax rates, but we have fallen far behind. The Government usually say that corporate taxes as a percentage of GDP are relatively low in OECD terms. So it's all right then. But that completely misses the point. Does the Minister seriously think that global businesses looking to invest look at taxes as a percentage of GDP? No, they do not. What is important is the tax rate that applies to them. The truth is that the rates of corporation tax have stayed static in this country while other countries have been moving theirs downwards. That is why we are now above average rather than below. Corporation tax, referred to today, is only one part of the problem. Other taxes such as employers' national insurance, irrecoverable value added tax, business rates and so on roughly double the amount that companies pay, according to an analysis prepared last year by the accountancy firm PricewaterhouseCoopers.

All of this adds up to an erosion of the UK's former competitive advantages. The UK's performance in terms of export market share over the past 10 years, particularly in manufacturing, is poor. Our export growth to India and China, already mentioned, has lagged behind countries such as Germany. Do the Government believe there is any explanation for this other than falling competitiveness? What other explanation is there for the low levels of business investment as a proportion of GDP in the past few years? Manufacturing investment has reduced by nearly 30 per cent since 1997 and we think that manufacturing is an important element in the UK. I was sorry to hear the noble Baroness, Lady Kingsmill, practically write off the sector.

We often hear about record inward investment. Those headline figures are distorted by a number of things. If you look below that, the underlying capital investment by overseas companies has also been falling as a percentage of GDP, and the DTI's own analysis shows that the number of new jobs created by overseas investment has been falling.

Without strong business investment, where will our economy be in a few years' time? When we look behind the statistics are we not hearing a wake-up call from businesses to say that the UK needs new policies to ensure its competitiveness? That was the strong message from the excellent speech of the noble Lord, Lord Bilimoria. My noble friend Lord Sheikh gave the Minister a shopping list specifically for the insurance sector. I sincerely hope that the Minister will be responding positively today. We believe that if these issues are not addressed, the UK will slip even further behind in its international competitiveness, and our country's citizens deserve far better than that.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 4:00 pm, 11th January 2007

My Lords, I begin with an apology. I am afraid that I am the holder of a very heavy cold, and I hope my voice will last for the brief time that I have to make this reply. I begin also with two expressions of gratitude—first to the noble Baroness, Lady Noakes, for welcoming me to this brief, which I accept with great enthusiasm. Secondly, I convey the debt of gratitude that the whole House owes to my noble friend Lady Kingsmill for the topic she has introduced, which in many ways is as important as any topic one could think of that is currently before the country. I am grateful also for the way in which she introduced the topic. She identified not only the challenges we face in globalisation but the benefits we derive from it when we respond to it intelligently.

There is no doubt that, in many respects, this country's economic growth in recent years has occurred because we have been well placed to respond to the global challenge. My noble friend Lord Bhattacharyya, with all the authority he brings to the issue, emphasised Britain's position in the digital industries. We all recognise that it is in the levels of intellect, innovation and high skills that we will secure our future. Incidentally, I agree with the noble Baroness, Lady Noakes, that we should not be dismissive of manufacturing industry. It is still one-sixth of our economy, and substantial parts of our manufacturing industry are still hugely successful. Nevertheless we all recognise that, in a changing world, we need to trade in high-value goods. That puts a very heavy premium on investing in the skills of our people and their ability to meet the challenges of the new industries and the new opportunities.

I counsel a little against some of the more pessimistic expressions of opinion on the current state of the economy. The slippage to the position of 10th from ninth is hardly, as the noble Lord, Lord Newby, identified, a calamity for the nation. It is a matter that we need to address. But I do not think that we can then suggest that everything is running heavily against Britain sustaining its position in the world. The UNCTAD World Investment Report 2006, released on 16 October last year, shows that, in 2005, the UK had the world's largest inflow of inward direct investment, at $165 billion. We are not going to get that investment unless we have the right environment. Inflows to the UK in 2005 accounted for 39 per cent of all FDI inflows to the G7 countries. That is a mark of the success of the economy. The OECD still ranks the UK as among the most attractive places for direct investment in the world, commenting that,

"EU members led by Britain, have the lowest barriers to" direct investment in the industrialised world. So it will not do for noble Lords opposite to be too pejorative about present concerns, although I agree that we must look to the future and identify the issues most conducive to Britain improving its position. That is what the Government have set out to do.

As for the illustrations of companies that seek to relocate elsewhere, in a global economy there are bound to be outflows as well as inflows. Some major companies will move elsewhere. The idea that somehow one can create a static base or a base with only inflows is a fallacy. Consequently, I do not take too seriously the representations that suggested that suddenly the British economy had become an unwelcome base for many global players.

One theme in the debate for which I was grateful was that raised by my noble friend Lady Gale

Photo of Lord Patten Lord Patten Conservative

My Lords, I am very grateful to the Minister for giving way. As he will know, in the past two years 19 major companies have decided to relocate from the United Kingdom to other countries because of lower taxation regimes and other reasons. Can he name me one major corporation that has chosen to locate in this country during the past two years?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, all that I am saying is that, as the noble Lord should recognise, we have an environment that is encouraging inward investment. In his speech, he was kind enough to introduce an element that was not followed up by any other contributor to the debate, so I take this opportunity to reply to it. He emphasised the importance of ethics in business conduct. I entirely agree with him. I was glad that he identified that. There is no doubt that when it comes to locating in Britain, one of the more attractive features is that there is certainty about how business operates here—with one or two occasional blemishes. He was absolutely right when he said that poor ethical standards are bad for business. It is important that we draw attention to that fact.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I have only a short time in which to reply to a debate in which there have been 16 contributors, so perhaps the noble Lord will forgive me on this occasion.

A key theme followed by a number of speakers in the debate was voiced most completely by my noble friend Lady Gale, concerning the role of women in society and why it is important that we extend equality of opportunity and create a more equal society. I cannot go into great detail on that in such a limited time, but my noble friend will know of the Government's strenuous commitment to extend equality of opportunity and improve the position of women in society. We have a programme costing half a billion pounds to promote an increase in the number of senior-quality jobs available part-time, because there is no doubt that the quality and availability of part-time employment is very important to women.

Apropos of this debate, if one wanted to see a mark of change, consider any Lords debate a decade ago on economics. I very much doubt if five of the 16 contributors or the introducer of the debate would have been a woman. We can take pride that reform as attained in this House—by a Labour Government, of course—has produced some progress, to the great benefit of all the work that we have been considering today.

The issue of skills in the economy, which of course depends on the participation of women on equal terms with men, was emphasised by my noble friends Lord Puttnam and Lady Warwick, who, from different but equally informed perspectives, said that we will need to invest greater resources in research and design and in our universities. Although it will be recognised that a balance must always be struck between public sector and private sector investment, as the noble Baroness, Lady Noakes, will be the first to point out, there is no doubt that public investment is crucial to the development of the competitive economy in improving skills in our society. That is why the Leitch report is of great significance in identifying the areas in which we are still behind our European competitors. This is an area in which we have been identified as falling behind leading competitors for very many years, and it is an area to which the Government are obliged to pay increasing attention. It is important not only to improve the skills at the highest level with regard to university graduates and researchers, but, as noble Lords have said, to ensure that those who leave school have gained the necessary qualifications to fulfil the higher demands of the jobs that we envisage in the future.

The noble Baroness, Lady Valentine, and the noble Lord, Lord Leach, referred to the needs of the City for enlightened regulation, which I take to mean appropriate and effective regulation. We cannot meet the request of the noble Lord, Lord Patten, unless we have some form of regulation. There is also the need to ensure that that regulation is kept to the minimum and is clear. Both the noble Baroness and the noble Lord, Lord Leach, emphasised the importance to the City of our transport policies. There is no doubt that we need to make progress on Crossrail, and that we cannot expect the City of London to sustain its crucial role in the economy, which no one underestimates, unless we have a transport system that is fit for purpose and serves London well.

There have been improvements in recent years. The direct link to Heathrow from Paddington has improved the position, and increased investment in the Underground will also gradually give rise to an improvement, although I am all too aware as a daily user of the Tube how painful the process of investment and renewal of the track and signalling is for passengers. Nevertheless, that investment is essential. We also need to deal with congestion, which confronts all of us in this House and the whole country with very interesting questions about how we use cars on our scarce road space. The limited experiment to deal with congestion in London was too extensive for some, but there is no doubt that we will need to tackle the concept of road pricing, lest we and our economy become overwhelmed by clogged roads through the sheer weight of the number of vehicles used on a limited road space.

Several noble Lords, and the noble Lord, Lord Bilimoria, in particular, stressed the massive significance of the rapid development of the economies of China and India. There is no doubt that they are a challenge to whole areas of jobs and production in traditional industries in the West. But, as the noble Lord, Lord Leach, said, where some see a threat, others also see an opportunity. There is no doubt that those economies will also present great opportunities for British companies to export to them. We need to make better progress than we have so far. Although Britain scores well against our European competitors in most statistics, that does not alter the signs that our position may not be so far advanced, particularly in respect of China. I accept the charge of the noble Lord, Lord Bilimoria, that we are not as well placed as we might hope to be with regard to India. Certainly work needs to be done in that direction.

There have been concerns about aspects of regulation, a subject which my noble friend Lord Tunnicliffe concentrated on in much of his speech. The UK is ranked second in the OECD on that measure, with a regulatory environment found to be less restrictive than that of nearly all other countries. The US is ranked fourth, Germany 18th and France 24th. I recognise that regulation can be irksome and that it is in the nature of the enterprising spirit to chafe against control, but we need to keep things in proportion. It is not the case that Britain is overregulated. It will be recognised that in recent years the Government have addressed the question of removing the more irksome and unnecessary regulations in order to make our economy more effective.

The noble Baroness, Lady Noakes, raised the question of productivity in a considered manner and without aggression. I am not surprised by that. Over the first half of the current economic cycle, since 1997, the trend in productivity growth was 2.66 per cent each year, compared with 1.9 per cent over the previous economic cycle, from 1986 to 1997. I do not want to be overtly political by identifying which Administration were responsible for which parts of those cycles. Although I accept entirely the enjoinment of the noble Baroness that we should seek to improve productivity—an extremely useful measure of successful economic activity—she should be fair and recognise the progress made under this Administration.

This has been a most interesting debate which has focused on an area of the greatest significance to our fellow citizens. I apologise to the noble Lord, Lord Sheikh, for not being able to address the particular issues of the insurance industry. It is my first day in this brief, though I am not sure that I would be qualified to answer the questions he raised on my second day. I will write to him on the particular concerns he raised; I know that they are of considerable significance. This has been a most useful debate. I congratulate my noble friend both on introducing it and on the way she presented it to the House.

Photo of Baroness Kingsmill Baroness Kingsmill Labour 4:19 pm, 11th January 2007

My Lords, I have thoroughly enjoyed the debate this afternoon. We have ranged far and wide on the issues we have addressed and I am grateful for the experience and insights that noble Lords have delivered.

I should like to make only one point. Certainly in the area that I am most experienced in at the moment, the financial services sector, the benign and constructive regulatory environment which pertains here has led to significant increases in the number of, for example, IPOs. That is very much to do with the fact that we have taken a relaxed, sensible and principles-based approach to regulation as opposed to the legislative approach taken by the United States in Sarbanes-Oxley. We have done extremely well out of it. There have been no IPOs in the past 12 months in New York whereas we have had a great many in the City. We have also spoken at length about the World Economic Forum index, which is a useful measure. We have slipped one point but it makes little difference. The United States, on the other hand, has fallen out of the list altogether, largely because of the closed nature of its economics.

I shall draw the debate to a close. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.