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Economic Environment: Growth and Jobs - Motion to Take Note

Part of the debate – in the House of Lords at 1:29 pm on 11th July 2019.

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Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy) 1:29 pm, 11th July 2019

My Lords, I will not follow the noble Lord on that point but I will pick up on his opening remarks, in which, in paying tribute to my noble friend for getting this debate together, he said that it reveals the complexity of the issues. I make that point because it would be rash of me to try to answer every single point that has been made. On some of the more detailed points, it might be helpful if I write to noble Lords. However, the idea that a subject of this sort could be wound up in a 20-minute speech defies belief.

Having said that, like the noble Lord, Lord Stevenson, I offer my congratulations to my noble friend Lady Neville-Rolfe on bringing forward this debate. It has been a very useful process to go through. She has attracted a very distinguished cast of speakers, all of whom have a great deal of experience in the world of business and beyond. One is my noble friend Lady O’Cathain, a fellow director of Tesco. I do not know whether we now refer to “buy one, get one free” but to have two in this debate is a great success.

I was deeply heartened by the comments of my noble friend Lady O’Cathain about the need for, and importance of, confidence in this field. I echo what she said and remind the House and the country about our successes in education. She mentioned the successes of our universities and the number of top, world-class universities in this country. The part of the industrial strategy with which I am most familiar is the one that deals with life sciences, and I look at the expertise in our universities up and down the country and at the small start-ups in science and technology that spin out from them. I appreciate that concerns have been expressed about those start-ups scaling up to big businesses, but that is happening in some cases. However, that area has had enormous success, as we constantly need to be reminded.

I am constrained in what I can say to my noble friends and others in this debate. The obvious constraints have been referred to, including that of timing, in that it looks as though we will have a new Prime Minister and possibly a new Chancellor and other new Ministers in the next few weeks. There is obviously also the constraint on a House of Lords Minister in BEIS when it comes to suggestions about reducing taxes. My noble friends Lord Popat and Lord Suri both said that they would like to see a major reduction in corporation tax. My noble friend Lord Popat looked at the removal of employers’ national insurance contributions—a tax on employing people. I would love to stand here as Chancellor, possibly sipping my whisky, and say, “That will be done”, but noble Lords know that that is not possible. However, I assure both my noble friends and others who made remarks of that sort that these matters will be passed on to the appropriate Ministers at the appropriate time.

The noble Lord, Lord Stevenson, emphasised the wide-ranging nature of this debate and the fact that we have covered issues relating to immigration and visas, Treasury matters, BEIS matters and the importance of education and training, planning and infrastructure. We have ranged wide, but it is important to go back to the fundamentals as set out by my noble friend. She said that businesses produce the wealth on which we depend. They are fundamental to our prosperity and to the industrial strategy, and I am very grateful for everything that my noble friend Lady Fairhead said about that. It prioritises facilitating the conditions for businesses to flourish. The tax framework can also be a powerful enabler for business in the growth and creation of good jobs.

A point made again and again—I will repeat it to remind the noble Baroness, Lady Kramer, although she accepted it—was that businesses pay the taxes that fund our public services. Public services are important but they need funding. Businesses also create the solutions to meet consumer needs. They bring prosperity and livelihoods to local communities up and down the country. I am grateful to my noble friend Lord Popat for emphasising that unemployment is at a record low in the UK. That is down to businesses doing what they do best: creating jobs and bringing prosperity to our country. I remind the House that not only is unemployment at a record low but employment among men and women, disabled people and others—the figures were quoted by my noble friend Lord Popat—is at a record high.

Businesses are the engine of our economy. The industrial strategy is precisely about backing businesses so that they can help to boost productivity—I will have a little more to say about productivity problems later—and create high-quality, well-paid jobs throughout the United Kingdom, with appropriate investment in skills, industries and infrastructure. To put it another way, the industrial strategy is how we are creating an economy that works for everyone: businesses and people who are highly innovative, highly skilled and of high quality, supported by low and stable taxation and smart regulation.

Our aim, as has been made clear by my right honourable friend the Secretary of State, is to make the United Kingdom the best place to start and grow a business. A number of noble Lords quoted the figures to show how we are rated in that respect. We are starting from a good base. Our business environment is internationally recognised as first class, robust and reliable. The World Bank and the OECD consistently rate the UK as being among the best places in the world for business.

Our stable, predictable and competitive tax regime and the strength of our legal, competition and regulatory systems have made the United Kingdom one of the world’s foremost financial centres and the home to some of the biggest and most respected businesses. International investors choose the UK because they know that our business environment is a fair and dependable foundation for growth and prosperity.

However, I understand that there are concerns about the tax framework, and my noble friend Lady Neville-Rolfe focused on that. As she put it, it is creaking under the weight of its complexity, with a doubling of the size of the tax code since 2009. We are committed to seeking a balance between a tax system that is easy to comply with and one that prevents avoidance and evasion. Since 2010, we have established the Office of Tax Simplification, as well as an independent advisory office in the Treasury. It offers valuable advice on ways of simplifying the tax system, which the Chancellor takes into account.

The framework is an important lever in any economic strategy. Our low-tax system, I believe, generates the incentive for firms to invest, start up, grow, hire new employees and provide benefits to their community and shareholders. I believe also that low corporation tax increases the returns that companies receive on their investments, allowing them to increase investment, lower prices, hire staff and increase wages. I say to the noble Viscount, Lord Chandos, and the noble Baroness, Lady Kramer, that reducing corporation tax has—as my noble friend Lady Neville-Rolfe made clear—increased the take. She cited the Laffer curve. Where the curve ends is a matter for judgment, but certainly that has had an effect. We believe that getting tax right is very important. It is about creating wealth across the country while striking the right balance. It is not about big or small businesses paying nothing and reaping rewards. I say to my noble friend Lord Leigh at this point that, when we leave the EU, we will obviously have even greater freedom to look at things as he suggested, and those opportunities should be taken up.

I accept all the points made by my noble friend Lord Cavendish about small businesses, and by all noble Lords about rates; we have to look very carefully at levels of taxation, how they work and how we get it right to ensure a degree of fairness between different businesses. A number of noble Lords talked about competition between the high street retail sector and the online sector and the need to make this fair. We want a system that provides funding and allows businesses to flourish. Businesses will then benefit from the Government’s investments in infrastructure and the standards of education to which I referred. We need to ensure that businesses are paying their fair share, helping to improve the wider public perception of tax equity and building a sense that we are all contributing to our shared prosperity.

I will say a little about innovation and regulation, which were rightly raised by the noble Viscount, Lord Chandos, my noble friend Lord Cavendish, the noble Lord, Lord Stevenson, and the noble Baroness, Lady Kramer. We are in a changing world. When I speak outside the House on the subject of regulation, I often start with the example of how we got it wrong 150 years or so ago with the introduction of the automobile, when we put a man with a red flag in front of the car. It was obviously not the brightest way of getting the automobile working and did not help particularly with safety—it may be that the Liberal Democrats have a new policy and would like to have a man walking in front of a car with a red flag to reduce emissions, but that is another matter.

Getting regulation right for the new world that we live in—for the fourth industrial revolution—will be crucial. That is why we launched our White Paper on regulation for the fourth industrial revolution—I hope that noble Lords will read it—which sets out the reforms needed to ensure an agile and flexible approach to regulation to embrace the technological changes that we face. The changes are moving very fast and will be difficult to predict. Our new approach to regulation will, I hope, support business to innovate and invest in the UK and give people faster access to new products and services that can transform their lives.

I always wish to give an optimistic, positive view of the state of the economy, but it is also right, as my right honourable friend made clear when he introduced the industrial strategy some 18 months ago, that we “fess up”, as it were, to the weaknesses as we see them. I am grateful to my noble friend Lady Neville-Rolfe for underlining the fact that we have a problem with low business productivity. We have some of the most productive businesses in the world—we do have successes—but we also have a long tail of less productive businesses across a broad range of sectors, all over the United Kingdom. Our review of business productivity showed that firm management matters enormously and that, on average, our managers are less proficient than those in comparable economies. United Kingdom businesses do not always adopt best-practice management techniques and technologies. The reasons are as varied as our businesses, but there is strong evidence that businesses do not always know what is possible, how to find help, or how new technology can benefit them. Again, we believe that the industrial strategy has addressed this and will continue to do so as we work through it.

As I said at the beginning, I want to cover a number of other issues, but I am not sure that I will be able to deal with all of them. However, I will say a quick word about the apprenticeship levy, which was raised by my noble friend Lady Neville-Rolfe. We need, now and in the future, to ensure that we have the right skills in the system. Our ambition is to increase the quantity and quality of apprenticeships to enable businesses to meet their skills need. We are monitoring the impact of the levy and will continue to work with employers on how it can be spent effectively and flexibly. In the last Budget, as noble Lords will remember, the Chancellor announced changes to ensure that it works for business, and we will continue to keep that under review.

Finally, I turn quickly to a point made by the noble Lord, Lord St. John of Bletso, about the need for diversity in entrepreneurship. I refer him to the recent review conducted by Alison Rose, who shed renewed light on the barriers faced by women starting and growing a business and identified ways to unblock untapped talent. We are committed to increasing the number of female entrepreneurs by 50% by 2030. We also want to foster that spirit of entrepreneurship; we have launched a young entrepreneurs review led by the Prince’s Trust, which will continue into the autumn of 2019.

I believe that we are at a crucial point in our history. It is true that our business community is living through a moment of uncertainty—but all eras are uncertain. We should be aware that there are opportunities ahead; the business environment frameworks developed through the industrial strategy will put us in a good position to continue to support business growth and job creation, supported by our fair, predictable and stable tax system.

Once again, I thank my noble friend for offering the House the chance to debate this matter.