Economy: Government Policies — Debate

Part of the debate – in the House of Lords at 1:33 pm on 24th March 2011.

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Photo of Lord Northbrook Lord Northbrook Conservative 1:33 pm, 24th March 2011

My Lords, like other noble Lords, I am grateful to the noble Lord, Lord Lawson, for initiating this debate. Before I move on to discuss the very important issues that my noble friend raises, I should like to congratulate the Chancellor on his vigorous approach in tackling the appalling legacy of the Budget deficit left to us by the last Labour Government. This had to be the first economic priority after the election. His deficit reduction policies have been approved by a whole range of organisations and individuals: including the IMF; the European Commission; the OECD; Fitch, the rating agency; and Timothy Geithner, the US Treasury Secretary. This is all in contrast to the last labour Government's legacy.

I noted with interest the wise words of the noble Lord, Lord Myners, in his interview with the Guardian in August last year, when he reflected that the Labour Government had abandoned fiscal responsibility, that the former Prime Minister "grew to forget" the golden rule, and that Labour ran large deficits in the middle part of the last decade when the economy was clearly running at full capacity, that the party needed to come clean on what cuts it would make, and that it needed to prove once again that it is a credible party of economic management. The noble Lord criticised the current shadow Chancellor. He said:

"I don't agree with Ed Balls. I do think the Labour party has to wrestle with the fact that it tends to leave office with large deficits. And I think its licence to govern is weakened-and it would be weakened in the future-if it could not produce credible arguments to show that it is capable of sound economic management through the cycle".

The Chancellor, having set out his fiscal policy, can now concentrate on promoting enterprise and growth. His key message was that he was boosting manufacturing, growth and jobs by cutting taxes for businesses and entrepreneurs, scrapping burdensome regulations, radically reforming the planning system, investing in science and innovation, and providing more support for young people with 50,000 apprenticeships and 100,000 work experience places. I will look at most of these areas in turn.

First, I shall focus on the help for business. I welcome the extra reduction in corporation taxes for large companies from April 2011, the reforms to the foreign profits legislation, the announcement of new enterprise zones and the proposed low rate of corporation tax for offshore finance companies. That will all be good news for larger businesses. Also, the Chancellor has dealt a very generous hand to VCTs and EIS investors, increasing the tax relief and the amount of investment while rightly warning against abuse of the rules. The slight improvement in the capital allowance regime for short-term assets is good news. I also welcome the relaxation of the rules for non-doms, allowing them to offset tax on money remitted here to invest in the UK.

Those positive aspects of the Budget far outweigh the negative ones for a few sectors of the economy. Terry Scuoler, chief executive of EEF, the manufacturers' organisation, while praising the Budget in the main, said that,

"the significant rise in energy bills threatened by the Carbon Price Floor is unwelcome".

The Financial Times today has also pointed out that the medium-sized oil companies will suffer from the new output levy:

"Britain's offshore oil and gas industry is one of the biggest losers in the Budget, with industry representatives warning the surprise increase in the tax on production would not only deter investment in the North Sea but could also raise dependence on imports."

In the banking sector, banks such as HSBC might be more inclined to move their headquarters overseas after yet another levy. Nor do I see much help for unincorporated smaller businesses on the tax front. Although they might benefit from scrapping existing regulation and easier planning laws, there is little assistance for them elsewhere-except in the R&D area, which I shall come to-particularly if they are in the manufacturing sector. New employment laws will come into force later this year, which might hinder companies taking on staff.

I move on to the subject of regulation. The Chancellor unveiled a series of useful measures, scrapping existing regulation that costs businesses £350 million a year and a moratorium on new domestic regulation for firms with fewer than 10 employees. However, the approach to regulation remains ad hoc, unfocused and, in the long run, in danger of being unsuccessful. The Government need to do three things: first, stem the flow of new regulation; secondly, rationalise existing regulation and eliminate barriers to competition and innovation; and, thirdly, reduce the costs of compliance. Without that strategic cross-departmental approach, the regulatory regime, rather than our growth rate, will keep growing.

In support of my view, I refer to the second report of the Regulatory Policy Committee issued in February this year. This committee advises the Business Secretary and is charged with reducing unnecessary regulations. It reviewed no less than 189 impact assessments in the last quarter of 2010. Of those 189, 57 were EU-sourced and 132 were from Whitehall. The RPC concluded that no less than 44 per cent of the impact assessments that it scrutinised were inadequate. It does not split the inadequacy between Whitehall and Brussels. In fact, its report is far less useful than it might have been, but at least it highlights that the tide of new regulation is even higher under this Government than the last.

Next, I come on to the proposed reforms of the planning system. These radical reforms to planning and regulation are to support economic development, including a presumption in favour of sustainable development. However, I ask the Minister how this change to the planning system squares with the current coalition policy of local plans?

Moving on to the area of science and innovation, I applaud the decision to support innovation and manufacturing with an additional £100 million this year for new science facilities and an increase in the SME rate of research and development tax credit over the next two years.

Overall, I welcome the 2011 Budget. The Chancellor has a difficult hand to play and no money in the kitty. His message is clear; Britain is open for business and it has produced major incentives to companies and individuals to create wealth, which I believe is the right approach for the future growth of the UK economy.