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Economic Environment: Growth and Jobs - Motion to Take Note

Part of the debate – in the House of Lords at 12:07 pm on 11th July 2019.

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Photo of Lord Haskel Lord Haskel Deputy Chairman of Committees, Deputy Speaker (Lords) 12:07 pm, 11th July 2019

My Lords, my experience is of building up a business from small beginnings. That was some time ago, and the business environment was very much as the noble Baroness described it. But things are changing.

This was brought home to me when, early in January this year, I was shown a letter from the chief executive of BlackRock, perhaps the world’s largest investor. It was a letter addressed to chief executives saying that companies needed to do more than make profits. He said that they must make a positive contribution to society and he planned to hold them to account. Companies needed to show that they had a purpose, not just high-minded mission statements. How do we achieve these social ends, as well as being efficient, productive, progressive and technologically advanced? We achieve this by government and business working together to move in this direction.

For instance, we played an important part in preparing the UN agenda for sustainable development and we are committed to achieving its goals, which include a commitment to tackling injustice and inequality, particularly in employment. We have declared a climate emergency and signed up to environmental standards. The noble Baroness mentioned education. Several universities have now opened business and society departments. The Government have committed themselves to a civil society programme, using public procurement to create social value and public good. This is our modern business environment and it will become even more so as the next generation takes over.

However, it is still widely accepted by some that tax discourages economic activity, and that tax cuts will raise revenue. There is absolutely no empirical evidence for this. Indeed, recent analysis of business growth and investment in the UK economy seems to show that, as a result of tax cuts, large corporations are investing more money in dividends and share buy-backs than in sustainable business growth. This is reflected in our stagnant productivity.

It has been widely reported that, as the noble Baroness mentioned, the large digital companies pay a pittance in UK tax because they profit from favourable cross-border tax arrangements. I am grateful to UKCloud, a cloud-hosting company, for its briefing. It says that by 2020, Amazon Web Services will have captured some three-quarters of the total public sector cloud market. It has the advantage of paying significantly less tax as a percentage of its revenue than UK-based companies. UKCloud also tells me that the forthcoming digital service tax will not go far enough to combat this tax advantage. By awarding contracts to such companies, the Government give tacit approval to such tax practices and, by consolidating the market power in the hands of a small number of large providers, reduce the opportunity for others to enter the market. We all know the dangers of that; we have seen them over the last year.

This overall reliance by the Government on big suppliers helps explain the reported rise in business becoming concentrated in fewer, larger hands. It is much easier to scale up an intangible digital business, because once you have written the software, there is little more direct investment or employment as required. This is opposite to most other businesses, and part of the digital effect which the noble Baroness spoke of. This concentration is certainly not the kind of business environment that we should be seeking. It is to help deal with this, and to introduce a fairer form of bidding for government contracts, that the British Standards Institution has now introduced BS 95009. I make no apology for raising this once again in your Lordships’ House.

I remind the Minister again that with this standard, firms of all sizes can demonstrate their competence and suitability. It simplifies the process because, by achieving this standard, firms will have demonstrated their credentials across a whole range of criteria and their ability to carry out good practice. As well as reducing concentration, it is entirely in keeping with the Government’s stated civil society programme and the UN sustainable development goals target, to both of which the Government are committed. Will the Government now support this initiative?

To borrow a phrase from Tomorrow’s Company, the economy requires stewardship. That is the kind of environment that we must see—a way of doing business with a focus on human purposes; to see things long term, and to look after the wealth creation system, so that we can pass it on to our successors in better condition—an environment that rewards everybody fairly, proportionately and sustainably. The Government can have an immediate effect by influencing the rules and incentives that they lay down and the behaviour they encourage. This is the kind of business environment that we are now seeking, and which the next generation wants to see. Will the Government help create it?