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Economy: Growth — Motion to Take Note

Part of the debate – in the House of Lords at 6:05 pm on 29th January 2013.

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Photo of Lord Bilimoria Lord Bilimoria Crossbench 6:05 pm, 29th January 2013

My Lords, I remember coming to this country as a boy in the 1970s, when my father was posted here as the Indian Army liaison officer with the British Army, and seeing a country on its knees. Just a quarter of a century before that, this country had the largest empire that the planet has ever known but, at that time, the world had written off Britain as a has- been. When I came back to England as a 19 year-old student in the early 1980s, Britain was the sick man of Europe.

I welcome the Minister and congratulate him on his amazing leadership in the Olympics. He has an impressive track record-to use a pun-of delivery, which is what this debate is about. If you fast-forward to today from the 1970s and 1980s, we are a country which is possibly entering a triple dip recession. Yet this country has shown, over the past three decades, that it can completely reform its economy and that, despite all these problems, we are one of the 10 largest economies in the world. With no empire we are still a very wealthy country with so much going for us. So what are we doing wrong? We cannot blame everything on the global situation or Europe. We seem to have come to a binary way of looking at the world: in or out of Europe, austerity or spending, tax cuts or tax rises. If only the world was so simple. As the noble Lord, Lord Forsyth, said, we know that public expenditure of 50% of GDP is not only unaffordable but not right. We also know that the coalition Government's tough talk of austerity seems to mean that we cut everything, including higher education and defence, no matter how vital some of these areas are, as the noble Lord, Lord Skidelsky, said. Just look at what is happening, unpredicted, in North Africa now. How short-sighted are our defence cuts, particularly in regard to troop numbers, now that we are intervening in Mali?

We know that, even with the Government's tough talk, expenditure is going up not down. As the noble Lord, Lord Forsyth, said, debt is going up, not down. We have heard throughout this debate that austerity may have actually worsened our chances of recovery. At the very least, it has sent out a very negative signal and sapped the confidence of our consumers and our businesses. The only thing this tough-talking austerity has achieved is maintained our triple-A credit rating, but it seems that we might be on the cusp of losing that, too. It is ironic that our current global financial crisis was caused by the lowest prolonged level of interest rates we had known. I am talking about interest rates of 5%. We have now had three years of interest rates 10 times lower at 0.5% and that is what is propping up our economy. What will happen when those interest rates increase?

The Government have, to be fair, tried a great many measures: quantitative easing, injecting liquidity, fixing the regulatory and supervisory banks and putting more power in the hands of the Bank of England. That is terrific. The Government are doing absolutely the right thing on schools and welfare. However, the Government need to be fair and firm and they need to go further in some of these areas. Our welfare bill, including pensions, is over £200 billion a year. There is still a benefits trap and it pays not to work. A trial of a scheme which requires compulsory community service for jobseekers has been successful. Could the Minister confirm that this will be rolled out nationwide? I remember an event organised by the noble Lord, Lord Forsyth, at which I spoke to the former Australian Prime Minister, John Howard, about Australia's very successful welfare-to-work scheme. He explained that he thought it was going to be very unpopular but it proved to be very popular, including with the jobseekers themselves. That is not austerity-that is the wrong word. It is about being firm and fair, and that would be in the best interests of this country because work pays and it is good to work. Of course, if you genuinely cannot work, the safety net should be there to assist those who genuinely need it.

How do we therefore get this economy into growth? The appointment of the incoming Governor of the Bank of England, Mark Carney, sends a very positive signal-the appointment, for the first time in history, of someone who is not British shows what an open country and economy we are. It is going to bring in fresh thinking. For example, he has suggested that apart from inflation targeting we should have GDP growth targeting. Does the Minister agree?

To get the economy growing, not only do we have to cut wasteful, unfair public expenditure but we need to change the mindset and attitude from that of an entitlement culture to an aspirational culture. To generate growth, we need to be competitive. We have a situation in this country in which our taxes, overall, are far too high. Time after time, we have seen that reducing taxes not only increases investment in the form of entrepreneurship and foreign investment but creates employment. Increasing taxes, on the other hand, stifles the economy, jobs and consumers. As the noble Lord, Lord Forsyth, said, just today it has been revealed that this Government have implemented almost 300 tax rises. These increases are harming business. In my industry, the brewing industry, the beer duty escalator has contributed to killing our pubs-the heart of our communities. Our alcohol duties in this country are up to six times higher than in some of our colleague European countries.

As a proud manufacturer in this country, I know the huge potential that manufacturing has to spur the growth in our economy. Manufacturing creates jobs, not only through the people who work in the factories but through the supply chains and the service sector. We face an uphill battle in terms of balance of trade. Manufacturing is key to increasing our exports. My business has exported to more than 40 countries. The noble Lord, Lord Howell, said that the potential for exporting is enormous. At last the Government have woken up to the need to rebalance our economy in favour of manufacturing, but we need to go further. We need an industrial policy that targets a specific level of manufacturing as a percentage of GDP. Does the Minister agree?

It is good that the Government are reducing corporation tax to 21%, but are we being bold enough? What about Ireland reducing it to 12.5% and sticking to it, with all the problems that that country has gone through? Employers' national insurance is one of the most unfair taxes. We should be offering a break to SMEs that create jobs. We should not be taxing the creation of employment but celebrating and incentivising it. We need to support SMEs, as the noble Lord, Lord Mitchell, said, particularly in raising finance. I have said it before and I will keep saying it: despite all the government schemes intended to encourage SMEs, they are not working. Finance is still very difficult to raise for all businesses, particularly SMEs, as the noble Lord, Lord Lamont, stressed.

We need to do much more to encourage our businesses to engage with emerging markets. I am the founding chair of the UK India Business Council. I have seen what UK Trade and Investment does and I applaud its efforts, but we need to do much more, particularly to correct the negative image of our economy created through the rhetoric of austerity that continues. It is spoiling a lot of the work that UKTI is trying to do.

One of the most important elements of recovery will be the creation of new businesses. If we invest in entrepreneurship, we could create those extra 1 million jobs that we are looking for, with tens of thousands of new businesses-small businesses. They have to employ just a handful of people and one can create a million jobs. Entrepreneurship needs to be celebrated and embraced. Businesses and the whole of Britain needs continually to understand and appreciate, as my noble friend Lord Jones constantly says, that it is businesses that create the jobs that pay the taxes that create the growth in our economy. We need policies to encourage optimism among our entrepreneurs, rather than gloomy rhetoric about cuts and tax rises.

One of the reasons that the United States consistently bounces back, year after year, is that it invests much more than we do in research and development. The Minister outlined some measures that the Government are taking to encourage it, but we need to do much more, not only in university research but in helping the private sector. Can the Minister really say that the Government are doing their best on this? Our higher education sector is the best in the world, along with that of the United States, despite our sector being underfunded proportionately by up to three times when compared with America. Just imagine how much more we could achieve if we had the same proportionate level of funding that the Americans put into higher education and research and development.

This has become a bit of a Cambridge University debate, with the noble Lord, Lord Deighton, and his supervisor, as well as the noble Lord, Lord Eatwell, followed by the noble Lord, Lord Wolfson, who was treasurer of the Cambridge Union when I was its vice-president. It goes on. He spoke about the quality of investments. We all know that infrastructure investment must happen, but it has to happen fast. HS2 is going to take 20 years. Is that some sort of joke-a high-speed network being delivered at slow speed? It baffles us all over here. What about airports? What is happening about that strategy? That needs to be implemented fast. These large infrastructure projects are desperately needed for our competitiveness.

The mindset of the Government needs to change and, in the words of our inimitable Mayor of London, Boris Johnson, this Government should "junk talk of austerity". We need to do that because the Government have to be seen to be firm and fair, and positive and aspirational in their outlook. They need to make the cuts required in areas such as welfare, but they also need to show that we want to be more competitive in cutting taxes. We need to look outwards and work much more with developing nations, such as the BRICS countries. We must be confident that despite all our problems, we have so much going for us. Just imagine what we could achieve. On 26 January, it was India's Republic Day. I am reminded of the words of Mahatma Ghandi, who said:

"Your beliefs become your thoughts. Your thoughts become your words. Your words become your actions. Your actions become your habits. Your habits become your values. Your values become your destiny".

The time has come to change our beliefs and to believe in ourselves with confidence. Then we can determine our destiny.