Category: Economy

Economy Debate

My Lords, I, too, congratulate my noble friend Lord Forsyth on securing today’s debate. I am very grateful for the opportunity to contribute on such an important and timely topic.

This debate comes just two weeks after the Chancellor delivered the Budget but, according to the National Institute of Economic and Social Research, the economy in this country is contracting faster than in the 1930s and far more than was forecast by Mr Darling in his Budget. Nearly 2 million people are unemployed at present and this figure is likely to rise. In addition to losing their jobs, large numbers of people are having their houses repossessed. On the Government’s own figures, the national debt will double again to £1.4 trillion; every baby will now be born owing £22,500; and interest repayments have risen to £43 billion a year, which is more than the schools budget.

In recent months, much has been said in your Lordships’ House about leadership. Instead of strong leadership, we have seen mismanagement of the economy, with the Government appearing to be in crisis-management mode, lurching from one disaster to another. Rather than strong and decisive action when it was most needed, Labour has dithered on important decisions, and this has resulted in the massive debt in which we as a nation and people all over the country find themselves. Today, we find ourselves less well prepared than any of our major competitors.

I think we all appreciate that fiscal responsibility must be the foundation of any economic policy. Rather than having excessive expenditure and failing to save when times are good, to my mind it is essential that a Government learn to live within their means. That is not just a good policy for the Government; it is an important lesson for every household up and down the country. We must all appreciate that there is not an endless amount of credit to be had and that restraint is good. British households have the highest debt of any major economy. The number of bankruptcies and repossessions is rising, and this legacy will take years to overcome.

As the chairman of an insurance organisation, I firmly believe in trimming expenditure and feel that the Government must be prudent. I believe that we can cut waste without affecting front-line services, and this is an important goal. There is too much waste in public services—in bureaucracy within the NHS, the police and other areas. By cutting this waste, we will not hamper their efficiency but improve it. Better front-line services are important to everyone, and we must be committed to cutting waste where it exists and ensuring better value for money for the hard-working taxpayer. We must strive to achieve this to ensure that help is in place for those who need it—the sick, the poor and the unemployed—when they need it.

I am an employer. All employers create wealth and provide employment. A number of employers and entrepreneurs earn more than £150,000 a year, and these people will be penalised by the imposition of the 50p tax rate. I firmly believe that higher taxes for the wealthy are counterproductive and that they stifle the creation of wealth for the country.

My business is financial services. In future, the banking and financial services industry needs to exercise proper housekeeping and better risk-management measures. There needs to be a change of culture. We need to revitalise the industry and to think carefully before we apply very strict regulations. The industry of course creates a considerable income for the country.

Most of us have elderly parents and relatives, and we should believe in a fair approach to pensions so that older people do not suffer and are comfortable in their retirement. Older people make a huge contribution to society but this is not always reflected by government. It is important that their potential is recognised and supported. Their savings need to produce an appropriate yield.

I have a number of friends who are doctors and I feel that we need to look carefully at all aspects of the National Health Service. This means that proper funding is needed and, where risk exists, it must be eliminated to ensure that patients benefit. A&E departments and maternity units are vital to communities, and these must be preserved and not cut. All this can be achieved by prudent spending and cutting back on unnecessary waste in the system. Front-line services such as the NHS do not have to be affected in the economic downturn if we are prudent about where the money goes.

Now is the time when we need to help ordinary families; instead, this Budget taxes the people who can least afford it. The national insurance contribution in 2011 will hit everyone earning £20,000 a year or more when we should be starting to see the economy grow further. My party wants to help families. On that note, I shall end as my time is up.

 

Economy

My Lords, I accept that the present economic situation has been affected by global economic factors, but it must be stressed that it has been greatly aggravated by the Labour Government’s complacency in constructing an economic boom on a mountain of debts. The Labour Government abandoned the principle of prudence and they have failed to follow a monetary policy to deal with demands. I declare that I am chairman of an insurance brokering and financial services organisation and have always believed in building sound reserves and controlling the company’s expenses.The Government’s borrowing probably now exceeds £60 billion and it may reach £110 billion by 2011. In addition, it must be pointed out that the economic crisis will result in a reduction in tax revenues and there will be a need to spend more on benefits. The country has borrowed heavily and the population has a serious debt problem, and this problem is likely to continue for some years. It may be difficult for the Bank of England to cut interest rates as fast as is necessary.

I remind your Lordships’ House that, in 1997, Mr Gordon Brown stated that,

“we have learned from past mistakes … you cannot spend your way out of recession”.

What is the Prime Minister doing now? He is reneging on that statement. Higher borrowing will result in higher taxes and we need, therefore, to follow a monetary policy and keep control on public finance and borrowings. The Government’s approach to fiscal management has not earned them much credit. Their failure to control public and private spending over the past decade has created a debt level that is irresponsible and unsustainable. The value of the pound has plummeted, and we are entering a boom-and-bust scenario. The Government failed to make hay when the sun was shining.

In my business, I have dealt with mortgages and have practical knowledge of the subject. One reason for the problems was because building societies converted into banks, threw away the principles of mutuality and ignored the practice of prudence. I lay the blame at the financial institutions which have been irresponsible in their lending practices. The FSA and the Bank of England should have exercised better control and supervision of these institutions. The supervisory regime needs to be strengthened and be much more thorough.

Small businesses account for 99 per cent of the firms in our economy, and contribute 59.2 per cent of private sector employment and 51.5 per cent of private sector turnover. I am a great supporter of small businesses and, therefore, welcome the proposal that an incoming Conservative Government would cut the rate of tax for small businesses and, furthermore, set up a procurement budget for small businesses. Our approach does not stop there, as my party has announced deferment of VAT bills for small and medium-size enterprises, initially for six months, and the cutting of national insurance contributions for smaller businesses. My party proposes to apply a freeze on council taxes. It is also important that we revitalise the regions, and building high-speed rail links between various parts of the country will help us to achieve this.

I am great believer in following a monetary policy with fiscal responsibility, and it is important that we consider putting that into practice to enable us adequately to deal with the financial crisis. We need also to consider the relative weakness of our economy and how best we can prepare to ensure that we are better able to minimise the pain caused by future downturns. It must be appreciated that we do not fully possess the necessary skills. It is important that we build those skills by better education and suitable training, and back these with resources and investment.

For too long, our wealth has depended upon property and financial services. We need to develop a range of measures to create a more balanced and resilient economy. It is fundamental that we increase our economic base and expand more science and high-tech services. We have an opportunity to become world leaders in the development of green technologies and innovation. We need more engineers and high-level manufacturers. That must be a key priority. We are not encouraging enough people in high-level engineering, in which we have led the world. I was brought up in a colony and everything important was marked, “Made in England”. I am pleased that there is a resurgence of our motorcycle industry and that the Norton name has come back.

The strength of the financial services sector as a key player in the United Kingdom economy has been a good thing. My own business is financial services, but we need to ask ourselves whether we could have done more to ensure that the manufacturing sectors could have been more competitive; but let us look to the future and establish and build on what has been lacking in the past.

Finally, we have to confront the need to change our broken economy, but the present Government have shown that they lack the credentials to make the necessary changes. I say that with a deep sense of regret. We need to make changes swiftly but, given that the Prime Minister and the Chancellor of the Exchequer are caught in a collective denial, it is unlikely that they will be able to identify what needs to be done, let alone make the judgments necessary to repair the damage.

 

 

Economy: Enterprise, Taxation and Manufacturing

My Lords, this is a very relevant and timely debate, and I congratulate my noble friend Lord MacLaurin of Knebworth on bringing the issue to the House. The general economic climate should be a cause of great concern to most economic actors in the United Kingdom and, as we face the challenges of a global economic turndown, we need to be clear that our positions on taxation and regulation put us in the optimal place to minimise any damage that may be caused as a result of this situation.I am concerned that the credit crunch and the scourge of inflation may cause real harm to our manufacturing sector. The impact on household disposable income is weakening consumer markets and the message from the Governor of the Bank of England last week was that we should expect household incomes to become further eroded in the months ahead. In consequence, it is important that we maintain and promote our position in the field of export, particularly in specialised products—machinery and vehicles. Companies in this country are increasing levels of investment in niche markets and it is essential that they continue to do so. In addition, considerable wealth is generated from overseas by insurance, financial services, media and IT companies. It is essential that enterprise is allowed to flourish without hindrance and is given every support.

I am sure that noble Lords will all agree that most of the companies in the United Kingdom are SMEs which provide excellent service and employ a considerable number of people. We need to promote and protect SMEs for their growth and even their survival.

One of the most common complaints, which we have great cause to be concerned about and which my noble friend mentioned, is the impact of taxation. The tax burden on business in this country has increased in absolute terms and relative to our competitors. A few years ago, this country was proud to lead the field on corporation tax rates, but that has been squandered. European Union accession countries enjoy lower tax than us, as do a host of our other competitors. China is set to achieve its fastest growth rate since 1993. India is now the second most attractive venue for foreign direct investment, after China—ahead of the United States and Russia. Indian companies have been proactive in acquiring foreign companies and affording them access to new technologies and strengthening their position in global markets.

However, the rate of corporate taxation is not our only problem. Businesses rightly complain about the increasing complexity of the tax system in this country. Complexity causes costs to companies and the more time that businessmen have to spend trying to understand the regulations and taxes imposed upon them, the less time is available to them to generate the wealth that keeps our economy afloat. Much of this complexity directly derives from the previous Chancellor of the Exchequer’s desire to micromanage business by tinkering with tax rates and special concessions.

At one time, when British firms merged with foreign partners it was attractive to locate the parent of the combined group in the UK. Now instead we see a steady flow of companies choosing to emigrate from the UK. They are leaving because of the burden and complexity of our tax system, a system that threatens to become even more burdensome with the Government’s proposed revision to the taxation of foreign profits.

Unless the Government change their attitude to the taxation of enterprise, that steady flow risks becoming a flood of departures. The Government may have been forced into a turnaround on the 10p tax rate, but that case is depressingly symptomatic of a wider malaise at the Treasury. It is increasingly apparent that the Government are unwilling to or incapable of thinking through their proposals with a view to our competitive position and the difficulties facing businesses in this country.

Businesses have a right to demand predictability from the Government. Whatever the merits or otherwise of particular measures taken by politicians, we have a duty to minimise the disruption caused to those constructing business plans, as unnecessary change not only increases the costs for them, but inspires a growing frustration towards tax authorities. I strongly urge the Minister to reflect on that in her response, as it is a serious cause of concern among the business community and a major hassle for our nation’s wealth creators.

Predictably, compliance is a greater problem for new and smaller businesses, which have the most to gain from assistance and simplified requirements. We need to make it a priority to reduce the regulatory burden on small businesses and to simplify the tax system for them, including reforming the incredible complexities of the system of government support for small and medium-sized enterprises.

Economic Competitiveness

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.