Enterprise (Hansard, 8 May 1996)

§ Mr. Anthony Coombs (Wyre Forest)

While I am grateful for the opportunity to raise this important matter, I had hoped for a debate of an hour and a half, which would have allowed other Members to speak, including Labour Members. Sadly, the Labour Benches are empty, despite the importance of the subject. We could have heard from Labour about its attitude towards enterprise, which at times appears to be antipathetic.

I wish to talk about the enormous progress that has been made and the transformation that has taken place in the British economy in the past 15 years, and I shall refer to some of the disastrous consequences that would ensue were we ever unwise enough to elect a Labour Government. I also wish to make one or two suggestions as to how enterprise and the enterprise spirit of the British people can be better stimulated.

Despite the importance of the subject and of the message that I want to get across, I must agree with my hon. Friend the Member for Gloucester (Mr. French), who said two months ago that if one wants to keep a secret, the best way to do it is by making a speech on it in the House of Commons. As I shall be describing good news, the press will have very little interest in the debate.

I want to make two points about fostering enterprise in this country. First, enterprise is very easy to take for granted. We have had a growth rate of 40 per cent. in the past 15 years, which translates into more than £80 a week in real terms in additional earnings for a man with two children. That growth rate has resulted in improvements in every section of society. For example, pensioners' incomes have risen slightly higher than the average increase in incomes throughout the country. The increased growth rate has resulted in Britain setting aside some £600 billion in pensions savings and has enabled spending to increase in areas such as education—an increase of 31 per cent. in real terms in the past 15 years—and the national health service, where the increase has been 17 per cent. in real terms, or £700 per person.

Those things do not just happen—they happen as a result of people creating businesses with payrolls, making profits and paying taxes on those profits. That is what funds the welfare state. We cannot make that point too strongly—enterprise is the life-blood of the welfare state. Those people, particularly those involved in the public sector, who constantly demand more resources—never money—for the welfare state would do well to remember that.

Secondly, although enterprise is a sturdy plant, we live in an increasingly competitive world, in parts of which economies are growing in a dynamic fashion, with some experiencing growth rates of 10 per cent. a year while paying between a thirtieth and a third of British wages. Those countries are unencumbered by the social apparatus that affects many western European economies. For those reasons, it is crucial that we maintain our momentum by reducing inflation, increasing tax incentives and continuing the deregulation process so as to add to the natural growth rate of our economy.

Although the growth rate of our economy is significantly greater than that of our European neighbours, adding just 1 per cent. to the natural growth rate would 202 increase available resources by some £7 billion a year. That would go a long way towards fulfilling people's expectations, in terms of both living standards and public services.

I wanted to refer to the transformation that has taken place under this Government, because it is so often taken for granted. When the Conservative party came to power in 1979, Britain was regarded—even by the British ambassador in Paris—as the "sick man of Europe". Since then, there has been a massive transformation.

Geoffrey Dicks, writing in The Sunday Times a month ago, said that he had been studying the British economy for the past 30 years, and added: on any objective measure of economic performance, the last four years have been as good as, if not better than, any comparable period since my student days. The president of the German equivalent of the Confederation of British Industry has said that the British economy, of all the European countries, is now the best equipped to deal with what he called the challenge of global competitiveness". Jan Timmer, the head of Philips—a £5 billion-a-year international company—says that the most competitive country in Europe today is the United Kingdom. Bernd Rischestrider, the chairman of BMW, has said that Great Britain is currently the most attractive country in Europe to produce cars.

In its 1995 report, the Organisation for Economic Co-operation and Development complimented Britain on a 3.8 per cent. growth rate—the highest in Europe—on an inflation rate lower than at any time for 27 years and on unemployment falling by about 800,000 in the past two and half years. Unemployment in this country is now, for the first time, consistently and significantly less than in Germany and, obviously, is less than in France and Italy. We have strong net exports and a relatively small current account deficit. Those are the findings of the OECD.

In my constituency, those facts translate into an unemployment level of 6.9 per cent.—a fall of a third since 1992. On small businesses, we should look at the March survey carried out by the Institute of Directors, which reported renewed growth in orders—which had been slowing down—and growth in output, employment and profits, particularly among small firms employing between 10 and 100 people, and particularly in the midlands. Liquidations are decreasing, while the number of new firms is increasing. It is also anticipated that the growth rate for 1996 will be 2.5 per cent., one of the highest in Europe.

The Foundation for Manufacturing and Industry now says that Britain is the best place to manufacture in Europe and is rapidly becoming the enterprise centre of Europe, despite the fact that we often hear Labour arguing that manufacturing is being ignored by the Government.

Given that background, it is surprising that anyone could contemplate a Labour Administration. Labour still appears to be philosophically against enterprise and the profit motive. For example, during yesterday's debate, in which I spoke on renovation grants and the building industry, the right hon. Member for Chesterfield (Mr. Benn) argued—in what I described as "Castro-esque terms"—for the common ownership of land.

This country must reduce the proportion of its gross national product that goes in tax. Sophisticated economies—such as Switzerland, the United States and 203 Japan—have successfully created jobs and prosperity, and they take only 29 or 30 per cent. of their GNP in tax. The Labour party wants to move in the opposite direction. Although it ducks and weaves on the issue—in a way that would pay credit to Frank Bruno in his non-fight against Mike Tyson—it wants to increase taxes. Why? Inevitably, the Labour party will spend more because of its involvement with producer interests and because of the huge debts that it will have to repay as a result of the promises that it will make to try to get into power.

For example, recently the Labour party proposed a windfall tax on public utilities. We counted the number of pledges that were covered by that windfall tax in the different spending proposals of different Labour party members and we found that it would be spent 11 times over. When we monitored Labour Members' speeches, we found that 40 per cent. of them made demands for extra spending and extra resources. If hon. Members need further evidence, the hon. Member for Newham, North-West (Mr. Banks)—despite the efforts of the hon. Member for Dunfermline, East (Mr. Brown) to appear responsible—recently said: at the next election, I do not want to have to tell voters on the doorsteps in East London—people who have voted Labour for generations—that there will be no extra spending to help them. What will be the result of the Labour party's spending? Taxes will go up—they always do under a Labour Government. The hon. Member for Birmingham, Ladywood (Ms Short) has said that we ought to pay a bit more tax—and we all know what that means. The top rate of tax currently starts at 1.5 times average earnings. The Labour party would increase the tax for the vast majority of middle-income earners from 40 per cent. to 50 per cent. and it would also take away the ceiling for national insurance contributions. There would be a top rate of at least 60 per cent. for middle-income families. Anyone who does not understand that is living in cloud cuckoo land.

The Labour party tries to sugar the pill by talking about something called stakeholding—and we know what effect that would have on enterprise. John Edmonds and John Monks of the trade unions have said that that would give greater power to the trade unions. We know that it would translate into a minimum wage, which is a political sop. It would destroy jobs. It is estimated that a minimum wage of £4.15 would destroy 950,000 jobs nationally and approximately 80,000 in the west midlands. The CBI has estimated that if wage differentials were increased by only half, it would affect hundreds of thousands of firms, particularly small firms. Small firms create jobs and have consistently done so over the past 20 years.

We know of the Labour party's intentions in relation to the social chapter, which will include the part-time work directive, the parental leave directive and the works council directive. The Department of Trade and Industry has estimated that the social chapter will result in £2 billion a year in additional costs—totally unnecessary costs—for British industry. We now have the social chapter opt-out. I think that £2 billion equates to about one sixth of manufacturing profits, so one can see the appalling effect that it would have on investment in this country.

We have heard how the Labour party has decided, cap in hand, to remove child benefit for those aged over 16. That will cost the average family approximately £1,000 for the first child who takes A-levels. If the Labour party 204 thinks that that is a good way to encourage young people to stay at school, its economic policy is even more illogical than I suspected it to be. In a different context, Lord Hailsham said: If the British public falls for this, I say it will be stark staring bonkers. Frankly, the public would be stark staring honkers to believe this. The Labour party has to reveal its plans as we move towards the next general election, and the British people will agree with Lord Hailsham.

I shall make one or two suggestions as to how we can continue to promote enterprise and competitiveness in this country. Promoting enterprise is not just a one-off event; it is a continuous process, and the Government must be vigilant. There are economic and moral arguments for lower tax—it would leave people with more money in their pockets, which they could spend better and more wisely for their families than would a bureaucrat in Whitehall or in their local town hall. Lower taxation is needed to promote enterprise. For example, the Institute of Directors recently conducted a survey of its own small business men. It stated: But the clear message is that small businessmen believe that the present level of taxes on their business activities seriously hinders their ability to grow their businesses. One of the reasons is that the present tax structure—forget about the rates—militates against retained profits rather than distributed profits, particularly as it relates to income tax for those who are self-employed. The United Kingdom has a large public company sector and our relative level of dividend payments as a proportion of post-tax profits is high—in the region of 38 to 40 per cent. We need to address that.

The Tax Law Review Committee, established by the Inland Revenue, has recognised that the present tax system is horrendously complex—and made more so, too often, by allowances that are meant to deal with particular problems without taking the axe to the Gordian knot. There are no fewer than six volumes of income tax legislation and 408 pages of capital gains tax legislation. Therefore, we ought to take an axe to the tax law to see whether it can be simplified. We should try to amalgamate national insurance contributions and pay-as-you-earn tax—that would be simpler for small companies and for individuals who create jobs.

For too long, we have pretended that we shall reduce capital gains tax or eliminate it altogether, but we have not done so. It is a tax on wealth creation and on family companies, which reinvest their profits in a way that public companies tend not to. It would raise revenue in the medium term for the Inland Revenue, because there is an enormous overhang of capital gains tax as people realise that 40 per cent. is a punitive level. If we want to free up the capital market, significant reform of capital gains tax—I am talking not about tapering, but about a significant reduction in the rate—is absolutely necessary.

I refer to deregulation in terms of promoting enterprise. The Government have embarked on a first-class initiative in establishing business links, bringing together all the sources of advice that are available to small companies through training and enterprise councils, chambers of commerce, the Department of Trade and Industry, local councils and so on. Recent evidence from a survey by Ernst and Young shows that no fewer than 80 per cent. of companies surveyed use business links in some way 205 and half the companies take some action to improve the competitiveness of their business as a result of business links. In my constituency, people are embarking on an initiative called business builder—a series of development workshops to help small businesses and to improve the way in which people are educated to run their companies.

Business links can be further developed to encompass the Inland Revenue and the Contributions Agency, so that they become one-stop shops for anyone who wants to set up in business. Those wanting to set up in business can then be guided through the maze of licences and regulations that often have to be overcome before they can do so.

Although that is a success story and although I am aware of the deregulation task force and the unit chaired by Francis Maude, our erstwhile colleague, I still have the impression, as I think do many of our constituents, that regulation—like the sea with King Canute—keeps insidiously rising. I urge the Government to redouble their efforts. It would be helpful, at least in parliamentary terms, if the Deregulation Committee could take a proactive role in deciding which areas should be deregulated rather than merely reacting to what Government Departments say is appropriate. They have been too conservative in the way in which they have used the new, accelerated legislation route whereby secondary legislation can overcome primary legislation.

I should like to see far fewer European Union initiatives on small and medium-sized enterprises. That is yet another form of bureaucracy designed to enable European bureaucrats to justify their own existence. We should turn our back on that.

Far greater importance should be given to the investigation of illegal subsidies on the continent, many of which involve the carpet industry, which employs about 400,100 people in my constituency. Many of those employees are concerned that foreign companies gain an unfair advantage from such illegal subsidies.

I congratulate the Government on the work that they are doing to promote the enterprise economy. The results, which are already becoming evident, will become increasingly evident over the next few months as we move towards the general election. They will ensure that the British people recognise the Government's efforts at the appropriate time.

§ The Minister for Small Business, Industry and Energy (Mr. Richard Page)

I thank my hon. Friend the Member for Wyre Forest (Mr. Coombs) for producing this subject for debate. Like him, I believe that an hour and a half would not be long enough to deal with the enormous success story of promoting enterprise in the United Kingdom—[Interruption.] The hon. Member for Thurrock (Mr. Mackinlay) may try to heckle from below the Gangway, but the success story is coming through, and I shall not be diverted.

My hon. Friend put his finger on what is necessary for this country to drive itself forward to provide employment and a better standard of living for its residents. As I understand it, the message from my hon. Friend for UK Ltd. is, "If you don't earn, you can't spend." The only 206 way in which we shall earn money is by putting people to work in productive manufacturing jobs and gaining the benefits that flow from that.

As my hon. Friend says, it is a success story, and as such it will not attract any publicity, because in this country we tend not to take pride in our successes; we tend to denigrate ourselves and run ourselves down for the occasional failures that come our way.

The Government's aim for this country is clear: we shall make the United Kingdom the enterprise centre of Europe. We are working at that; we are working at the economy to make it the most competitive, dynamic and prosperous in Europe—we are well on the way to achieving that goal. The Government's policies are delivering sustainable growth, low inflation and rising prosperity. Over the past 17 years, the UK economy has turned round, as my hon. Friend said, to transform us from the sick man of Europe to the envy of our European competitors.

Our achievements are immense. The 1980s was the first post-war decade in which output, investment and manufacturing productivity grew faster in the UK than in either France or Germany. We narrowed the productivity gap. Germany was 50 per cent. ahead of us, but it is now only 10 per cent. ahead and, day by day, we are catching up fast. The world is choosing to do business with, and invest in, the UK. We have attracted 40 per cent. of Japanese investment and American inward investment into the European Union. Our stock of inward investment has risen threefold since 1985. The world verdict is: come to Britain because it provides the best environment for jobs and factories to prosper.

It is a pity that the hon. Member for Houghton and Washington (Mr. Boyes) is not present in the Chamber as, since 1995, another 200 jobs have been created at Nissan in his constituency. It is also a shame that the hon. Member for Dunfermline, East (Mr. Brown) is not present as he must be absolutely delighted that Lexmark International has come to his constituency and created 500 jobs. The hon. Member for Livingston (Mr. Cook) must be delighted that Motorola has come to his constituency and created 500 jobs. I could also speak about the hon. Member for Newport, West (Mr. Flynn)—we must not leave out the Welsh. Some 760 jobs have come to his constituency with the creation of the Newport Wafer company. Another 500 jobs have been created in the constituency of the hon. Member for The Wrekin (Mr. Grocott).

The list goes on and on, and I could spend the next half hour reciting the complete list of inward investments. I could then move on to talk about regional selective support. More than 1,000 companies have been encouraged to come and invest and grow in the United Kingdom. They come here because we have the best environment in which companies can grow and develop. Our inflation performance over the past three and a half years has been the best for almost half a century. We have 16 of Europe's most profitable companies out of the top 25—no wonder the Organisation for Economic Co-operation and Development described our economic performance as impressive.

My hon. Friend the Member for Wyre Forest put his finger on an important point when he spoke about competitiveness. It is not a one-off hit; we must pay attention to detail every day. The opposition in other 207 countries produces goods, and those people will ensure that they work every day to improve their efficiency and quality—we must continue to do the same. We shall achieve that by continuing to create a climate in which business can win, and work with Government to create wealth. We shall achieve that end because we have led the world in policies on privatisation, deregulation and liberalisation and because we have a commitment to open markets.

My hon. Friend mentioned the movements that have taken place in our economy. It is interesting to note—not too many Opposition Members seem to mention it these days—that, before 1979, those "hugely successful" state-owned industries were dipping into the taxpayers' pockets to the tune of £50 million a week. Now, privatised companies produce £55 million a week for the Exchequer. Consumers have benefited because gas and electricity prices have gone down and British Telecom's main prices have gone down by more than 35 per cent. in real terms.

The media and the Labour party will try to ensure that that achievement is perceived as a failure, but it is not—it is a magnificent success. The proof of the pudding is in the eating. When it is asked, the Labour party says that it will not renationalise because it realises that what we have done has given immense support to the British economy. When I was Member of Parliament for Workington, it took 14 man hours for British Steel to produce one tonne of steel; now it takes less than four hours per tonne. We are one of the most efficient economies in the world; we are vying with Korea to be the most profitable steel producer. When British management and the British worker are let free to do their own thing without the dead hand of politicians, they produce results. We are achieving results—we see them coming through every day in our industries.

I am grateful that my hon. Friend introduced this subject for debate. One of the driving forces will be our small business sector, which is why we have done so much to help it. We have driven down corporation tax from the high level of 52 per cent. to the low level of 24 per cent. for small firms. We have raised the VAT level to allow more companies to escape from it, if they so wish.

I must emphasise what my hon. Friend said: we shall not let free the deadly duo—the social chapter and the minimum wage—on to the British business man. My hon. Friend quite rightly pointed out that if we allowed those measures to go through, 900,000 people would be put out of work, and it would be the small business man and small business woman who would be put on the scrap heap.

My hon. Friend made one or two taxation proposals, and there are a variety of reasons why I should not respond to them. One is that the Chancellor of the Exchequer might be slightly upset if I were to give definitive responses at this stage. I must tell my hon. Friend, however, that I have considerable sympathy for a number of his proposals. I congratulate him on initiating the debate today, and I hope that he will keep at it.