Commons Sitting of 25 June 1999

Preamble
The House met at half-past Nine o'clock
PRAYERS
[MADAM SPEAKER in the Chair]
PETITION

  Health Products
  9.33 am
  Mr. John Bercow: I wish to present a petition on behalf of 77 of my constituents, headed by Susan Walters of Back to Nature, of Cornwalls place, High street, Buckingham, as part of the petition of Consumers for Health Choice, the Health Food Manufacturers Association and the National Association of Health Stores. The petition declares:
  We believe that the Government proposals which give the Medicines Control Agency (MCA) virtually unlimited powers to classify safe products as medicines, are wrong. This would mean that the MCA could remove at a stroke products that are vital to the good health of many consumers and are currently sold under the Food Law. This is an abuse of the democratic process and a denial of freedom of choice. We actively seek the creation of a new law appropriate to the special needs of safe, natural health products.
  The petitioners therefore request that the House of Commons urge the Secretary of State for Health to grant an immediate moratorium from the Government and the MCA that will prevent them from declaring these safe products to be medicines except on the grounds of illegal claims for safety.
  To lie upon the Table.

Innovation and Enterprise
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Robert Ainsworth.]
9.34 am
The Minister of State, Department of Trade and Industry (Mr. Ian McCartney): Good morning, Madam Speaker. I welcome the hon. Member for Rutland and Melton (Mr. Duncan) to his Front-Bench duties as shadow Department of Trade and Industry spokesman. I look forward to future debates and discussions with him in this forum and during Question Time, and perhaps in Standing Committee. This is the first time that there has been a shadow spokesperson to whom I can speak eyeball to eyeball. If the trend continues, the House may have to provide a couple of high chairs.
Today's debate is on innovation and enterprise. I shall set that in context, in case the hon. Member for Rutland and Melton has forgotten the situation before the last general election, and I shall set out the Government's positive and progressive agenda in partnership with business and the enterprising parts of the economy.
We inherited from the previous Government a boom-and-bust economy, with a company going bust every three minutes of every working day. Interest rates reached 15 per cent. and stayed there for more than a year. We underwent the longest recession in the second half of the century. A million jobs were lost in manufacturing. Unemployment peaked and remained at more than 3 million for a considerable period. More than 1 million home owners were in negative equity. We were a nation with no confidence in our economic future.
Against that background, the Government have spent the past two years developing macro-economic strategies and micro-economic policies to show our commitment to innovation and enterprise in the economy generally, and in British business in particular. I am happy to have an opportunity this morning to set out, together with my hon. Friend the Minister for Small Firms, Trade and Industry, the Government's robust policies for achieving those goals. Those policies have been developed not by Ministers in isolation, but with industry, on behalf of industry and for industry. Consequently, they will succeed.
The Government believe that only by fostering a strong entrepreneurial business culture can we create the wealth that we need to improve everyone's quality of life. That goal will not be achieved just with words and good intentions. Only by creating wealth can we tackle social exclusion and poverty, solve our social problems, and build and expand public services such as the national health service and our education service.
Governments do not create wealth. Only businesses and the people who work in them can do that. However, business will succeed only if we foster a spirit of enterprise in our society and help those who run or work in businesses to seize their opportunities. We must work in partnership with businesses, higher education, trade unions and local authorities to create a culture of enterprise and innovation.
We have discarded the uncritical laissez-faire philosophy of the previous Conservative Government. The hon. Member for Rutland and Melton was proud to wear the badge of the laissez-faire strategy, and I think

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that he still wears it. We believe that the Government have an important part to play in ensuring that those with the will to succeed have a fair chance. We can do that by creating a supportive and stable economic environment, by helping the academic and business community to exploit knowledge to everyone's advantage, and by helping to promote an entrepreneurial culture in the United Kingdom and across the European Community.
The Government's policies to create a stable macro-economic framework are already paying dividends. Inflation and interest rates are at their lowest for more than 20 years. Employment has increased by more than 400,000. Long-term unemployment has fallen by 50 per cent. and youth unemployment has been halved. Industrial harmony is in evidence, with only 23,000 man-days per month lost due to industrial action since the election, compared with 100,000 in the last year of the Conservative Government.
We recognise that the level of the pound is causing some difficulties for exporters, but we must not over-emphasise the issue of sterling. Manufacturers across Europe are struggling as a result of the global downturn. Thankfully the latest survey suggested that things are starting to improve for our manufacturers, and yesterday the pound was at its lowest level for two years against the dollar.
Since coming into office, the Government have moved decisively to encourage both new businesses and the enterprise investment culture. We intend to do more to give all who create wealth a greater stake in the wealth that they generate, which is why we introducing a new programme of shares for all in which employees will be able, for the first time, to buy shares in their own companies from their pre-tax income. Every employer will be able to match, tax free, what the employee buys.
Next year, we will introduce a new enterprise management incentive, which will provide help for smaller companies with potential for rapid growth that are seeking to recruit or retain key personnel by offering them equity remuneration. The scheme will allow tax relief for incentives of up to £100,000—but there is more to supporting business and encouraging innovation and enterprise than tax measures, important though those are.
That is why we will be setting up the Small Business Service in April next year. The new body will have three main functions: improving the quality and coherence of Government support programmes, helping firms to meet the demands of regulation and, most important of all, acting as a strong voice for small business at the heart of Government. Next week, we will be issuing a consultation document setting out our proposals in detail.
I pay tribute to my hon. Friend the Minister for Small Firms, Trade and Industry, who has been the champion of that proposal in the Government, and the co-ordinator across Departments. He knows all about small businesses and being enterprising and successful, and having him on the Front Bench has paid dividends. We are the first Government to bring people from the enterprise culture into government at policy-making level to manage the work of the Government day to day and to promote our strategy on the economy in support of innovation, enterprise and the development of the small and medium-sized enterprise culture.
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The Government cannot meet all the needs of small firms, nor should we attempt to try, but we want to ensure that Government support programmes offer a ladder of opportunity for small businesses at all stages of development—from the initial conception of a business idea, through start-up, taking on employees for the first time, and managing growth and movement into new markets. We also need to ensure that business is not constrained by other Government action, especially in relation to regulation.
That is why we announced a tougher approach to regulatory control in the modernisation White Paper in March. For the first time, we are compiling a forward programme of regulatory proposals that will enable Ministers to decide collectively on how to minimise regulatory impacts and burdens, and how to manage and reduce the cumulative impact of regulation. That is being done in partnership, involving the stakeholders at each stage in agreeing on whether regulation is required in the first place, determining whether a regulation is viable, considering what the impact of regulation will be and agreeing on how best to introduce it non-disruptively.
By listening to business, we have become aware that too many small United Kingdom businesses with good ideas have problems finding affordable finance. Small business people are workers without capital. They have intellectual capital—their ideas—but there is a disconnection somewhere and many entrepreneurs are unable to gain access to capital to help them to develop and grow their businesses.
The United Kingdom venture capital industry is the largest in the European Union, and it is growing. However, when we compare this country with the United States, very little venture capital goes into early-stage and technology-based investment. The Government are looking at ways of stimulating venture capital investment in such businesses.
Mr. Alan Duncan: Does the Minister accept that one of the best ways of encouraging small businesses is to reduce the social costs that they face in their infancy? Although assisting them with gaining access to capital would be helpful, the removal of those social costs would achieve far more.
Mr. McCartney: The hon. Gentleman is masking his laissez-faire views; he is obviously embarrassed by them. By reducing social costs, he means removing people's right to be paid a national minimum wage and their rights to take paid holidays for the first time, to investment in their skills and to workplace development. He should realise that the small business community does not want to be smeared by the Conservative party as a poor employer; it wants to be, and in the main is, a good employer.
The Government, working together with the small business community, have introduced a national minimum wage in a non-disruptive way. It has become one of the most popular policies with small businesses in Britain because, for the first time in the past 20 years, they can enter the marketplace in the sure and certain knowledge that they are competing on the basis of their ability to produce good-quality goods and services without

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worrying that some firm down the road is undercutting them by paying workers £1 or £1.20 an hour. That was the hallmark of the previous Conservative Government.
Mr. John Bercow: Will the right hon. Gentleman give way?
Mr. McCartney: I thought that that would get someone to their feet.
Mr. Bercow: I am grateful to the Minister of State for giving way. Of one thing we can be sure: he certainly cannot hide the fact that he is the left-wing troglodyte in his Department. Is he aware that the Secretary of State said in his speech to British Chambers of Commerce on 3 June that he intended to make three significant statements on deregulation in June. He regarded that speech as the first; what are the other two?
Mr. McCartney: If the hon. Gentleman had been at the conference, as I was, he would know that my right hon. Friend set out the framework of the Government's strategy on small and medium-sized businesses and the issues surrounding regulation and deregulation. I will outline that strategy in the remainder of my speech. My right hon. Friend's speech was received by the small business community with acclamation; indeed, when Ministers travel across the country to discuss such matters, we are all received with acclamation. Thank God small businesses have a Government who believe in and promote business. Our policy is not to close a business down every three minutes of every working day.
Let me make the hon. Gentleman an offer: next time I attend a business community event, I will look to see whether he is in the audience. I will invite him to join me and co-operate in promoting entrepreneurship in the British business community—
Mr. Bercow: I promise to stand up.
Mr. McCartney: I thought that the hon. Gentleman was already standing up.
Mr. Geraint Davies: Before my right hon. Friend was so rudely interrupted, he was talking about venture capital Although our venture capital industry is the most developed in Europe, does not it have some way to go? The vast majority of the venture capital industry in Britain is focused on re-engineering large enterprises through management buy-outs and leverage buy-outs. Its United States counterpart is much more diversified and focuses on new, high-tech small business enterprise growth.
The challenge for the venture capital industry in Britain is to achieve wider diversification to take advantage of the emergent opportunities in a new Europe and the single market. Unless we get our act together, there will be danger of a competitive threat from United States operators.
Mr. McCartney: My hon. Friend is absolutely right. I have been setting out the Government's strategy for turning round the Titanic that is the venture capital industry, successful as it is. The industry needs to play an effective, hands-on role with the small and medium-sized
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business community. It is also crucial that the Government have strategies for working with the financial community and the small business community, and bringing them together to deal with the equity gap in respect of technology-based investments and other investments which are important in achieving growth in such businesses.
The enterprise fund is a £180 million Government fund designed to increase the availability of finance for SMEs, particularly those caught in equity gap, as my hon. Friend the Member for Croydon, Central (Mr. Davies) said. New funds will be used to lever-in private finance and we will work with the private sector to maximise our resources and expertise. Early discussions have indicated support in principle from several major United Kingdom and European institutions.
We expect the fund to be operational by the end of the year. It will provide four key elements of assistance: continued support through the small firms loan guarantee scheme; support for regional venture capital funds specializing in the provision of small-scale equity to potential businesses, which is the area in which my hon. Friend the Member for Croydon, Central is keen for us to work; a national venture capital scheme to support early-stage, high-technology businesses, for which an additional £20 million was promised in the previous Budget; and flexible support for innovative proposals from the finance industry to meet the needs of fast-growing businesses and ensure that our SMEs have access to the widest possible range of funding options.
I shall now discuss ways in which we can promote an entrepreneurial culture. The Government can also foster a broadly based culture of enterprise so that people of all ages and from all backgrounds have the desire, confidence and skills to exploit an opportunity to turn new ideas into successful products and services—creating a society where people are willing to take risks and are rewarded. The Government will help to do that by supporting a national enterprise campaign led by British Chambers of Commerce. The campaign is designed to ensure that entrepreneurs are valued for the jobs that they provide and the opportunities that they bring, not just envied for the money that they make.
Young people's understanding of business is crucial to the creation and development of businesses in the future. The Department of Trade and Industry and the Government as a whole strongly support the young enterprise programme, which has been very effective in developing that understanding among schoolchildren. So impressed are we by young enterprise's achievements that we want to extend that understanding and the opportunity to development entrepreneurial skills among higher education students. Therefore, from October, 16 universities will participate in a scheme setting up 55 student companies.
Unlike the previous Government, we do not believe this country can compete as a low-wage, low-skill economy. We believe that the way forward is to produce high-value goods and services, but we will do that only if we raise the skills level of all our people—if we can bridge the skills gap and ensure that everyone has a higher level of skills than they previously needed.
Our strategy will not ensure a job for life; it is designed to ensure employment for life. The principle behind our drive is that people should be in a position to be employed

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for life because of the skills that they possess, their capacity for re-skilling and lifelong learning and their capacity to operate in an ever-changing labour market with companies that must meet constantly changing global demands. We need to be involved in and to develop that process.
When the Government came to office, one in three workers in Britain did not receive a single minute of training during their working lives. That is our inheritance from the Conservatives. It is impossible to compete in a global marketplace with such a poor record of investment in the skills development of our nation's greatest asset—its people, the work force. It is important that we bridge that skills gap, and that we do so in a partnership consisting of the primary, secondary, higher and further education sectors, Government and industry.
Mr. Duncan: What appropriate training did the Minister have for his job?
Mr. McCartney: I almost give up when faced with such a silly question, asked by an equally silly person. The hon. Gentleman should know—[Interruption.] Well, if the hon. Member for Buckingham (Mr. Bercow) wants to know, I spent a lifetime in work in the public and the private sectors. I was one of the first people in local government to help create a venture capital company. I was the first person to help create a single partnership between the public and private sectors. Mine was the first local authority in Britain to enter the process of inward investment. What more does the hon. Member for Rutland and Melton want to know? When I was the first Minister for inward investment, a record 600 new inward investment projects were attracted into the United Kingdom. Now what more does the hon. Gentleman want to know? I hope that the Prime Minister is listening to the debate. We are in a period when one must impress one's masters, so I thank the hon. Member for Rutland and Melton for that intervention. I ask him to make more during the debate. God almighty! Where do they find them? I got so excited I nearly lost my place, Mr. Deputy Speaker.
The intellectual property of our work force has a high value. Under the Conservatives, especially in the 1980s and throughout the 1990s, efforts were made to force a strategy of removing from the labour market a huge number of skilled workers—a million in manufacturing alone. Those people lost their job and their sense of self-worth and value; the economy lost the vast reserve of knowledge that they took with them. We should never, ever allow that to happen again. The combined knowledge of our work force is a strength that we need to build on and facilitate. That is why the culture of change, in providing an infrastructure for lifelong learning opportunities, is crucial to the success of this venture.
In 1997, the university for industry was a commitment in the Labour party's election campaign. By autumn next year, it will be open for business, transforming the availability and accessibility of learning opportunities for everyone. The university for industry will target those without basic skills; those trying to improve their information technology skills; and managers of small businesses, seeking to enhance their firm's performance. We expect that, by the year 2002, more than 2.5 million
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people a year will be using its range of information services and 600,000 people a year will be pursuing its learning programmes.
We are also conscious of the need to find jobs for those people who have the skills, but cannot find the right initial opening. There are excellent examples throughout the country of initiatives that enhance the employability of individuals and at the same time help businesses improve their competitiveness.
One example, in whose development I have taken a keen interest, run by Liverpool university, has helped create 500 jobs, has helped 2,000 graduates find full-time employment and has helped 1,000 small businesses to become more competitive. Companies large or small will succeed in exploiting knowledge only if they are innovative in the way in which they interact with their employees and others with whom they work. It is therefore crucial that, in local labour markets, skills and knowledge are matched with the needs of local enterprises.
Companies increasingly depend on the knowledge and skills of the people in their business to gain a competitive advantage. The DTI and Department for Education and Employment "Partnerships with People" report found that companies of all sizes, from all sectors of the economy, achieved sustained success by creating shared goals in culture, by continuously improving the skills of their work force and by sharing knowledge and information.
Hewlett Packard is an example of a company that has seen its success grow by this means. Its management style rests on the belief that the contribution of its employees is the most important factor in the company's success. All employees have targets relating to the company's goals, which encourage them to put into practice innovative ideas that will benefit the company. The Government will shortly launch a £5 million partnership campaign to stimulate many more such innovative partnerships at work.
However, Government cannot solve the skills gap by themselves. Upskilling is a challenge for everyone. It has the potential to deliver great benefits. A culture of continuous improvement, in which the contributions of individuals are valued, benefits both individuals and the company. [Interruption.] Does the right hon. Member for Haltemprice and Howden (Mr. Davis) want me to give way? Does he want to make a contribution to the skills gap of Britain?
Mr. David Davis: No.
Mr. McCartney: Fair enough. Perhaps he is just talking to himself. No one else would listen to him.
The DTI will shortly publish a best practice guide to help spread learning through business networks. That publication is built on partnership. The business community sat down with Ministers and officials to develop this approach. Business is feeding in ideas, and the ownership of the document will be in business itself, because it is essentially the work of business people, working together to identify best practice, sitting down with the DTI and then developing that best practice and ensuring that every enterprise in Britain has the opportunity to operate those best-practice models to

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improve, through business networks, opportunities for business investment and jobs growth. We want to encourage more businesses—
Mr. Geraint Davies: I am especially interested in the university for industry because some of the original ideas that gave rise to it were formed before the general election in the Labour finance and industry group, which I chair. Will there be a link between regional development agencies, which will establish regional strategies for specific industrial strengths in each region, and the university for industry, which can guide skills in the direction in which the region is moving industrially, so that training takes place and the pool of skills in a relevant area reflects the industrial strategy for that area?
Mr. McCartney: I can reassure my hon. Friend that the ideas have been the engine room of this change, and that the ideas are on-going in our extensive consultation process with the business community in each region, from which will emerge the piloting areas for each regional development agency. At every step in this regeneration of the United Kingdom's entrepreneurial culture, its business culture, its investment culture, business is working hand in hand with Government to get the maximum benefit from this process of change. It is critical that we provide local development partnerships that can affect areas of competitiveness.
I should like to refer briefly to the Wigan borough partnership. I declare a constituency interest, as a Member of Parliament for Wigan. Hon. Members can tell from the Lancashire accent—the elocution lessons did not go quite as well as I had expected.
Mrs. Angela Browning: The Minister needs a bit more training.
Mr. McCartney: Perhaps I could join the lifelong learning process.
Mr. David Davis: A bit of upskilling.
Mr. McCartney: As I understand it, Scotland has many call centres because people like the Scots accent. It has a truthful and honest ring to it. I think that that is true. [Interruption.] Mr. Deputy Speaker knows what I am talking about. Indeed, we sound just like each other. I shall keep my accent, and shall not take up the suggestion of the right hon. Member for Haltemprice and Howden of a bit of upskilling. I shall remain with what I have got and count my mercies.
Wigan borough partnership brings together TECs, chambers of commerce, business links, the careers service and the local authority. The breadth of the partnership has enabled all the stakeholders to establish a common economic vision for the future of the borough, and it adds up to real success on the ground. Through this partnership approach, Wigan borough partnership has taken the competitiveness agenda one stage further, and has made the links between physical development, skills and enterprises.
The European Union is now the UK's major market: it is a home market of more than 200 million people. If we are to make that market work, we must exploit the strengths of Europe and offer something to the global
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market that others cannot. Europe needs to undergo some fundamental changes in the way in which it treats business and enterprise. We need to encourage entrepreneurship in Europe by developing a European venture capital industry to match that in the United States, and by dealing with unfair taxes that distort real competition. Promoting economic reform must be an essential part of that strategy.
Europe has already come a long way, and we have a sound platform on which to build, but more progress is needed to improve the functioning of Europe's product, labour and capital markets. Europe needs to maintain the momentum of reform so that it has the necessary strength and adaptability to make job creation easier and growth more dynamic.
Building on the investment in our science base, the reach-out fund, launched on 15 June, has been jointly created by the Department of Trade and Industry and the Department for Education and Employment in partnership with the Higher Education Funding Council for England and the Department of Education in Northern Ireland.
The fund is worth around £20 million a year. It is intended to initiate an important third stream of funding for universities, alongside research and teaching funds, to recognise the importance of working with business, and to develop the capability in universities to respond to business needs. That in turn will help to stimulate more informed demand from business for greater innovation and competitiveness. The fund will be open to all universities in England and Northern Ireland, complementing measures in Scotland and Wales.
As today's publication of the 1999 edition of the DTI's research and development scoreboard indicates, we also need to do more to encourage firms to invest in R and D. The scoreboard focuses on the important role that R and D can play as part of a company's innovation process and business strategy.
The scoreboard celebrates the great strengths we have in pharmaceuticals, aerospace and defence. It also provides graphic evidence of the determination of some of our smaller companies in investing considerable amounts in R and D—they will be the Glaxos and Intels of the future. However, it is encouraging that many large United Kingdom companies recognise the crucial part that effective R and D plays in the innovation process.
It is good to see that the UK pharmaceuticals sector still continues to lead the world on R and D investment levels as a proportion of sales. However, it is worrying that many other United Kingdom companies still invest less intensely than their overseas competitors.
The Government are acting to improve UK investment in R and D through a new tax credit to encourage small business investment in this area. That should help more than 3,000 companies to invest in R and D, and help to support at least £700 million of R and D spending among small firms.
Companies can be innovative only if they look to the future. The UK foresight programme helps them to prepare for the challenges that lie ahead by bringing people who know about markets together with people who know about technology.
The DTI is increasing its innovation budget over the next three years to some £230 million. The extra money will be used to drive forward many new and large programmes, and to promote a fundamental change in the

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UK's climate for innovation. For example, we are increasing the funding of the teaching company scheme. The scheme not only helps to facilitate the transfer of technology and knowledge between the science base and businesses of all sizes, especially SMEs, but provides industry-based training for graduates intending to pursue careers in business.
Last year, 77 per cent. of all graduates who completed their two years in a teaching company scheme were offered permanent employment by their host company. Every one of them is likely to have been an agent of innovation and change within those companies.
We shall continue to support Shell's technology enterprise programme, under which 1,600 undergraduates undertake an eight-week project-based work placement. Last year, the student selected as the most enterprising STEP student in 1998 undertook a project in a company manufacturing chemicals and supplying the electronics industry. That important project was carried out by a woman graduate. Her work resulted in alternative materials being used in a process with significantly reduced environmental effects, and achieved recurring savings of at least £30,000 for the enterprise concerned.
To remain truly competitive, UK companies can learn from examples of business practices both at home and abroad. They need to benchmark themselves against leading businesses around the world for new ideas, new technologies and management best practice.
Mr. Bercow: The Minister said that the Government would oppose tax measures that would damage the competitiveness of British businesses. Given that the London eurobond market faces a threat to its competitive pre-eminence and to jobs from the proposed European withholding tax, will he give an unequivocal guarantee that, if that withholding tax remains unamended, the Government will veto it—I repeat, veto it?
Mr. McCartney: The hon. Gentleman knows full well that the Government are absolutely committed to ensuring that nothing—but nothing—is proposed that will damage the process of work in the City. We have said that time and again. We are getting weary of Conservative Members wanting Aunt Sallies to knock down because of their anti position on Europe and on all matters relating to Europe.
Mr. Duncan rose—
Mr. McCartney: Just a second. I shall give way to the hon. Gentleman, but I want to finish this point. I knew that Conservative Members would not be able to contain themselves, and that their anti-Europeanism would well up inside them. A few cracks are appearing in their facades and in their view about business succeeding in Europe.
The CBI "Fit for the Future" campaign is critically important to us. It aims to help business to learn about and adopt more efficient and effective business practices used by others in the United Kingdom and beyond. The campaign's mission is to achieve an increase in the number of companies engaged in the transfer of best practice. That will be done by promoting success and linking people
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with experience with people who want to learn, working through a network of partners and champions, and signposting valuable sources of information and advice. This is a simple and comprehensive approach in the drive towards achieving a step change in UK competitiveness. To date, 35 partner organisations—such as trade associations—and 49 leading business champions have signed up to the campaign.
Mr. Duncan: I know that the Minister is well-equipped to roll over from time to time, but will he answer the question? Does he believe that the withholding tax would or would not harm business?
Mr. McCartney: The hon. Gentleman knows that, from the Prime Minister and the Chancellor downwards, this Government will do nothing to allow the European Union, or anyone else, to damage UK business in the City. I cannot be straighter than that. The hon. Gentleman wants to acquiesce in, and agree with, his party's views, and to treat the issue as an Aunt Sally. In fact, over the past 20 years the only giving way in terms of taxation and European issues has been done by a Conservative Government.
Mr. David Davis: My hon. Friend the Member for Rutland and Melton (Mr. Duncan) will know the position with regard to the withholding tax. Essentially, the Europeans have given the British Chancellor an opportunity to generate proposals that will be in the interests of the financial markets in Europe, and will protect British jobs. We are waiting for our Chancellor to present those proposals. He reserves the right to use the veto if necessary, in order to protect Britain in the endgame. I really do not see the problem that the Labour party is engendering.
Mr. McCartney: The right hon. Gentleman is struggling. There is no evidence, in this or any other context, that the Government are other than four-square committed to the interests of the United Kingdom.
This Government are listened to in Europe. No one listened to the Conservative Government. Even if anyone had wanted to listen, the Conservative Government were never there. They had an empty-chair strategy. They would turn up, sign in and get on to the plane back to Britain. Then they would sit in a huff in their ministerial offices while decisions about Britain's future and a range of other matters were made. They had no positive input at all. We will take no lessons from the Conservatives about the principles of Europe, the strategy of negotiation or how this country's interests are defended in Europe. They scored nought out of 10 each time on all those issues, and so far today they have conveyed no sense of urgency in regard to the development of a policy in opposition.
Mr. Bercow: Will the right hon. Gentleman give way?
Mr. McCartney: The hon. Gentleman should not dive in too quickly. He has had numerous opportunities to inject at least a smattering of intellectual activity into the debate. I may have to stay around to establish whether there is even a chink of light on the Conservative Benches, and whether the Opposition have any sense of direction. I fear that they have not.

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Does the hon. Gentleman still want me to give way?
Mr. Bercow: When I listen to the Minister's speeches, I always feel that he is pricking himself with a needle. It would be much easier if he would answer questions directly, rather than giving a long, roundabout, circumlocutory response to my hon. Friend the Member for Rutland and Melton (Mr. Duncan). If he will not consent to any tax measure from the European Union that is injurious to British business, will he just confirm that any such injurious measure will be vetoed, vetoed—for the third time—vetoed?
Mr. McCartney: I do not know how many times I have to tell the hon. Gentleman that the Chancellor has already successfully negotiated with our European colleagues on proposals to tackle tax evasion and protect the legitimate interests of the British financial markets. We are ahead of the game. The hon. Gentleman is talking about an old agenda. The agenda has moved on, and, as I keep saying, at last the country has a Government to whom our European colleagues listen with respect. The Chancellor's proposals are moving the agenda further forward, and there is no possibility that our financial interests will be dealt with other than in a rigorously supportive way. The hon. Gentleman has demonstrated again that the Conservatives are not just behind the game, but out of the game. His is an old party with old policies to which no one will listen.
I hope that the hon. Member for Rutland and Melton will give us some inkling of whether the Opposition have learned from their 18 long years in government, during which they dismantled the British economy. Do they recognise that, over that time, tremendous errors were made in macro-economic policy? Do they realise how much social dislocation they caused through their lack of investment in training and research and development, and their failure to involve educational establishments with the business community? Throughout the sphere of innovation and enterprise, the last Government were found wanting.
Mr. John Butterfill: Will the Minister give way?
Mr. McCartney: The hon. Gentleman should wait a while. He should listen to the debate. He has only been present for about 15 seconds. Well, perhaps 30 seconds. I am prone to exaggeration. [Interruption.] I knew that would get them going. The Conservatives only wake up when we make a joke. When the serious stuff starts, they switch off.
The Department of Trade and Industry has worked closely with the Department for Culture, Media and Sport to create the national endowment for science, technology and the arts. NESTA will shortly announce details of its policies and programmes to support talented and enterprising individuals in science and technology, as well as the arts.
During their first two years in office, the Government have gone a long way towards ending the poverty of ambition that was prevalent under the Tories. We have gone a long way towards improving our science base, and giving people both the incentives to take risks and the rewards for taking them. We realise that there is much
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more to be done if United Kingdom companies are to compete in the new knowledge-driven economy, but I believe that the policies that I have outlined will help our companies to succeed at home and abroad.
This morning we shall hear a bit more of the old Tory boom and bust, but we should always remember one thing: at the next general election, the Tories will be an out-of-Europe, out-of-a-job party. They will lay to rest 3.5 million jobs in Britain because of their policies in respect of the business community. Every worker in Britain should understand that the Government's attitude to Europe and the business community puts at risk all those 3.5 million jobs, and our home market.
The Tory party is an out-of-Europe, out-of-a-job party. Ours is a party that wants to be at the heart of Europe, making decisions and leading Europe into an enterprising and innovative economy: an economy that reduces unemployment, and creates new opportunities for entrepreneurs, new job opportunities, new research and development and new markets, in Europe and elsewhere. This is a Government with a vision and a strategy, and a Government with the tenacity to see it through.
10.18 am
Mr. Alan Duncan: I acknowledge with gratitude the warm welcome extended to me by the Minister. Let me also say on behalf of us all that it is a pleasure to see him fit and well again, and in rumbustious and entertaining form. Long may that continue. The Minister is clearly enjoying his brief, and Conservative Members will enjoy sparring with him over the coming months.
If there is one thing on which the Minister and I agree, it is that the world is really run by those who are under 5 ft 6. I think that my hon. Friend the Member for Buckingham (Mr. Bercow) will agree with that. I am sorry that I do not have the Minister's mellifluous Scottish accent; I am afraid that my family lost that a generation ago. I shall have to be upskilled to get it back.
I look forward to carrying out my own brief. Perhaps I should adhere to the traditions of the House, and begin by making a full declaration of my interests. They are all registered, but the modern rules are a minefield. I want to make it absolutely clear to the Minister and the House that I shall not speak on matters pertaining to the motor industry, as I retain a shareholding in a Land Rover franchise overseas. I have some interests in oil and telecommunications, also overseas. Although I think that they have no bearing whatever on United Kingdom policy, I shall declare—indeed, over-declare—them as necessary.
I am also a non-executive director of a United Kingdom-based investment fund—a private venture capital fund that will concentrate on high-tech infant companies. In as much as any declaration is required on that, I shall endeavour to comply with the rules of the House to the highest possible standard.
Just a moment ago, I was thinking that it was exactly 20 years ago that I started seeking my first permanent job, on leaving university. I joined Shell, a big and successful—massive—Anglo-Dutch corporate concern. Looking back to 20 years ago, one can but realise that, in the intervening years, much has happened in our economy. I am pleased to say that much has happened in the Labour party, too.

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In 1979–20 years ago—when the Conservative Government first took over, the United Kingdom was a very sick economy; we were regarded as the sick man of Europe. Quite simply, we were going down the plug-hole. Trade unions were seen to be dominant and overpowerful, and strikes were reported daily in our newspapers and on television. United Kingdom inflation was probably the highest in Europe, touching 27 per cent. Amidst all that macroeconomic disaster, we saw the stifling of enterprise and the crushing of innovation.
The human spirit, however, endured. Now, we realise and appreciate much more clearly that the individual qualities of enterprise and innovation are the engine of prosperity, and that they are the justification of the capitalism that harnesses private endeavour for the public good. It took a Conservative Government more than 18 years to give enterprise and innovation the freedom that they needed to flourish.
I acknowledge, however, that the Labour party has also changed. It has been forced to admit that the previous Government were right, and that it was wrong. Indeed, the Labour party has adopted much of our language—the language of enterprise, innovation and of business. No one can deny that Labour says many of the rights things. At best, however, Labour is only halfway there: although it may have learned its lines, it does not really understand the meaning of the lines it utters.
Increasingly—particularly in the past few weeks—we have seen that, now that it is in government, Labour is schizophrenic and divided. As on other issues—such as proportional representation, Europe and welfare—it is gradually crumbling and dividing into groups composed of the old rebels—[HON. MEMBERS: "Who?"]. I am talking about Labour Members who are in the Chamber, although, on days when the House is fuller, the division between the old rebels and the new robots is much starker.
Some Labour Members actually believe in something, such as socialism, social justice, equality, redistribution, intervention and everything that goes with that.
Mr. Hilton Dawson: Will the hon. Gentleman give way?
Mr. Duncan: I shall in a moment.
There are also those Labour Members who—I do not know in which category the hon. Member for Lancaster and Wyre (Mr. Dawson) falls—slavishly merely follow a Blairite script, with little thought and even less respect.
Mr. Dawson: Does the hon. Gentleman accept that many Labour Members are deeply committed to manufacturing industry? In his eulogy of the Conservative years, will he acknowledge that, in constituencies such as mine, the manufacturing industry was decimated during that time, and that we are still struggling to recover from that problem?
Mr. Duncan: There is no doubt that, in the difficult years of the 1950s and 1960s, the manufacturing base was undermined—so that when reality dawned and hit the United Kingdom economy, there were some very hard times. We are seeing the same process under way, although much more extremely, in the former
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Soviet Union and in other east European countries. Economic reality in those countries is causing great hardship as the illusion of the past is being shattered.
If the hon. Member for Lancaster and Wyre really believes in manufacturing industry, he should come clean and tell us in which economic climate he believes that manufacturing industry will flourish—I should like to talk about that in the few moments in which I have to speak. We should then, perhaps, be able to see on which side of the Labour party divide he sits. Manufacturing industry is currently having a very hard time, despite the golden economic legacy that we left the Government in 1997.
The fact is that, 20 years ago, innovation and enterprise were words that the Labour party could not even spell. I welcome the progress that Labour Members have made, but ask them to understand more than they do.
Mr. Geraint Davies: Would the hon. Gentleman be interested in knowing that the number of work days lost per month as strike days is now down to 23,000, whereas, in 1996, there were about 100,000 such days? Any suggestion that there was industrial harmony and success under the Conservatives is therefore quite false.
Mr. Duncan: I am grateful to the hon. Gentleman for demonstrating the extent to which the previous Conservative Government succeeded in bringing the United Kingdom into reality. I am also pleased to say that there is now a climate in which there are fewer strikes. That is our legacy, and long may it continue. I also hope that the hon. Gentleman will realise that, in a climate of increasing global competition, future strikes will cause enormous damage, as will so many of the other burdens that the Government are placing on business.
Mr. Jim Murphy: Will the hon. Gentleman comment on that golden economic legacy in the light of the number of business failures under the previous Government? Only five years ago, there were 20,000 more business failures each year than there are now.
Mr. Duncan: The hon. Gentleman will know very well that the Government inherited a fantastic combination of low inflation, rising tax receipts and other factors, putting us in a perfect position to compete well with our European partners. The Government seem to be doing everything possible to destroy much of that competitive advantage.
This annual debate used to be entitled the "Small Business" debate. Sweeping that subject under the carpet is perhaps an interesting indication of the Government's priorities. They are not a Government who are friendly to small business. However, small businesses are enormously important, employing about 90 per cent. of United Kingdom employees. They are also the main innovators—the seedcorn of future commercial success. In fact, enterprise is usually more about taking that first risky step—as an individual, with an idea and a plan—than about the great corporate plans of larger concerns already present on the commercial map.
The small business is the embryo of a lifetime of commercial success. Microsoft started in a garage, as did Amstrad. Small businesses are the key matter, as they are our future. They are the ones on whom we should be directing so much of our thought and policy.

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Despite the language that the Government use, they still do not understand what it takes to run a business and to manage risk. Instead, they look on all business as some great sector that can—or so they think—cough up more money, assume costly social responsibilities and support the Government's continuing collectivist approach to life. Ministers have a lot to learn.
Quite often, at the root of all enterprise and innovation is one simple decision that has to be taken time and again and made at the margin, so that one small Government action might push the decision one way or the other. Often, the decision is very finely balanced, and will make a difference not only to the enterprise and its progress, but to society generally. Which issue must be decided by small businesses? It is, "Should I employ another person?"
The Opposition say that the willingness of one person to employ another is something to be encouraged and admired, and supported by creating a climate in which that is likely to happen. The Government, however, still think that it is something to be milked in the sense that employers are compelled to fulfil a wider series of social and economic obligations, so that the person who wants to take a risk and is prepared to commit his own money becomes obliged to fulfil many responsibilities that should lie elsewhere.
Those who run small businesses have to count their pennies. They have to borrow and struggle. They, perhaps, have to send the wife out to work, or live in a smaller house. Those people really have to put their lives on the line.
The Minister for Small Firms, Trade and Industry (Mr. Michael Wills): The hon. Gentleman was talking about the problems that small businesses face when trying to find the right finance, but under the Conservative Government, interest rates rose to 15 per cent. What does he think that did to small businesses?
Mr. Duncan: I admit quite openly that high interest rates did a lot of harm to small businesses and everyone else. I do not want a regime of high interest rates; I welcome the current regime of low interest rates that the Government were fortunate enough to inherit from us.
There is no doubt too that in the past, the industrial sector has been too reliant on interest-variable debt. I welcome the ability to borrow at fixed interest over several years as that is very good for business. It is a welcome development which the free market in capital has delivered over the past few years to the business community. The present Government could not have done that and will never be able to do it in such an effective way.
Mr. Jim Murphy: I listened with interest to quite a revealing insight into modern Conservative thought when the hon. Gentleman said that many small business men send their wives out to work. In my constituency, 36 per cent. of small businesses are owned and run by women. Whom do they send out to work?
Mr. Duncan: I was hoping that the level of debate would be a just little higher than that.
Mr. Geraint Davies: The hon. Gentleman suggested that the reduction in interest rates was somehow a
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Tory legacy. Does he accept that that is a product of the independence of the Bank of England and that when that decision was made, long-term interest rates went down overnight? Given what he said, can he confirm that, unlike many of his hon. Friends, he is in favour of the independence of the Bank of England?
Mr. Duncan: In its current role, the Bank of England must respond to economic conditions. It is responding to the economic conditions which, I repeat, his Government were fortunate enough to inherit.
The best way to encourage innovation and enterprise is simply to ensure a stable, low tax, low regulation environment for business. The Government speak that language, but deliver the opposite. There has been a massive increase in the tax burden placed on businesses since the Government were elected in 1997. They have done everything that they can to do it by stealth. They gave their promises and pledges in a way that was specifically designed so that they could be circumvented. They said that they would not increase certain rates, but they have slammed business with all sorts of other taxes, not just by stealth but by deceit.
Mr. Ian McCartney: The hon. Gentleman is completely wide of the mark. In each Budget, the Government have consistently reduced taxation. We now have a 10p starting rate for small businesses and a 20p rate of corporation tax—the lowest ever rates—and we are committed to those rates for the rest of this Parliament. We have introduced new potential taxation releases for companies that invest in research and development and capital equipment. Across the board, where taxation impacts on the viability and competitiveness of a company, the Government's strategy is to reduce it, not to increase it.
Mr. Duncan: I fear that the Minister requires some serious upskilling on tax economics. The Government may have reduced some tax rates, but they tend to go for the headline and cheat behind the scenes. A significant number of companies now have to pay their taxes quarterly. Large corporate concerns will have to pay five years' worth of tax in four years. That is a massive burden on cash flow and the financing costs of those big concerns, and represents an increase in their tax burden.
Mr. Bercow: My hon. Friend is right to educate the Minister of State in the distinction between tax rates and the tax burden. Frankly, the Minister ought really to be aware of that distinction. In considering the tax burden, does my hon. Friend agree that we ought properly to take account of the proposed climate change tax, the company car tax, the fuel tax, the vehicle excise tax, the windfall tax, the abolition of the tax credit on dividends and the huge hike in national insurance contributions? The cumulative impact of the Government's imposts is, as Sir Clive Thompson, the president of the CBI recently pointed out, to increase the tax burden on businesses by £20,000 million in the lifetime of this Parliament.
Mr. Duncan: My hon. Friend is absolutely right and proves—as if proof were needed—that he is rather more firmly rooted in real life than the Minister.
Mr. Ian McCartney: I am quite enjoying this debate. I apologise to the hon. Gentleman for failing to mention

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one tax—the windfall tax. We introduced an increase in tax on the profits of the privatised utilities. It has led to a huge investment in small and medium-sized companies in the private sector to take on new labour. It has enabled us to reduce by half youth unemployment and get more than 100,000 young people, who under the Tories were walking around the streets with their hands in their pockets, into work, giving them a future and a sense of self worth. We have reduced long-term unemployment by 50 per cent. as well, so one taxation increase has produced massive opportunity for the business community in Britain and helped a generation of young people and older workers who the previous Government had abandoned.
Mr. Duncan: I apologise to the Minister, because when I say he is not firmly rooted, I should not be so rude to the bonsai tree.
Businesses also have to cope with the national minimum wage, which some estimate will cost firms £8 billion over the lifetime of this Parliament and the working time directive, which could cost more than £6 billion and the loss of up to 200,000 jobs.
Mr. Butterfill: I am anxious not to restrict my hon. Friend's flow of rhetoric as he is making an interesting speech, but before we leave the issue of tax rates, can we look once again at the effect of the changes to advance corporation tax and the timing of the payment of tax? Does my hon. Friend agree that most investment by companies is funded out of retained profits and that, over the next two years, changes in the timing and the payment of tax will have robbed British industry of retained profits to invest? The Government do not seem to understand that.
Mr. Duncan: I am grateful to my hon. Friend as he has put that point much better than I did. He always speaks good sense on these matters and perhaps that will help the Minister upskill himself in a proper understanding of those matters.
Several hon. Members rose—
Mr. Duncan: I must make some progress, as I have been generous in taking interventions. I shall happily take some more in a moment.
One key issue that the Minister did not touch on is the vexed question of compulsory trade union recognition. In many respects it is a litmus test for the Government's conversion. Are they just saying what they feel people want to hear but doing something different behind the scenes, or are they genuine converts to the cause of enterprise and innovation? If they are genuine converts, they will remove the measure that would compel businesses compulsorily to recognise a trade union. Does the Minister share my view that small businesses should not have that requirement thrust upon them?
Mr. Ian McCartney: I put that down not to the hon. Gentleman's anti-trade union views, but to his job. The Employment Relations Bill includes an exclusion from the dispute resolution process which can lead to recognition by a ballot. Companies with 20 or fewer employees are
1432
excluded from that process, but they can agree to voluntary recognition. Since the introduction of the Bill, there has been a change in the business climate and many companies are reaching voluntary agreements with trade unions. However, there needs to be a process to deal with the dispute resolution and that is precisely what the Government are providing.
Mr. Duncan: The Minister will know that the matter was the subject of a Government defeat in the Lords. Will that be overturned when the measure returns here?
Mr. McCartney: The matter in the Lords did not relate specifically to the principle of union recognition; it was a technical amendment concerning the process. We are considering whether or not the amendment was effective and in due course the Government will decide whether to change that amendment or to remove it. It was not a defeat on the principle. The hon. Gentleman should realise that the Conservative Opposition did not move an amendment on principle against the concept of union recognition. If they did that and defeated the Government, we would certainly reverse that decision.
Mr. Duncan: We look forward with great interest to seeing what the Government finally decide to do about that.
Mr. Bercow: I am sorry to trouble my hon. Friend further. Is he aware that the Minister was the victor against the forces of modernity in his Department on trade union recognition? For the purposes of the Employment Relations Bill and trade union recognition, there is an exemption for firms of fewer than 20 employees. Does my hon. Friend think it extraordinary that for other purposes, such as the legislation on the late payment of commercial debt, the Government opted to define small firms as those with fewer than 50 employees? Why the inconsistency?
Mr. Duncan: As always, my hon. Friend is well informed and makes the point clearly—a point that the Minister is unready to admit. The Minister is also unready to admit the truth about the withholding tax. He refused to answer questions from my hon. Friend the Member for Buckingham and from me about whether that tax would be bad for business and whether he is against it. He equivocated in response to three interventions. He talks of principle and he gives us fudge. Will he give us a clear undertaking that the withholding tax will not be introduced and will he clearly admit that if it were introduced it would be harmful to business? I do not—
Mr. McCartney rose—
Mr. Duncan: Oh, I have caught a fish.
Mr. McCartney: The hon. Gentleman has not caught a fish. I have explained the issue until I get to the point of boredom. The Tory Opposition do not have a case. The Government are not only ahead of the game, but four-square in defending the interests of the City in all circumstances. We are also providing leadership in dealing with the issues that are important to the City. As a consequence, European policy has moved towards ours.

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I am certain that the Government's position will prevail. Our policy will always be to put the interests of the British business community in the City first.
Mr. Duncan: The Minister has just done for a fourth time what he had already done three times. Would he veto the withholding tax? He will not say. Would it be harmful to business? He will not say. Is he against it? Would he bring it in? He will not say. All that we get is fudge.
Mr. Gareth R. Thomas: On the question of fudge, will the hon. Gentleman clear up where he stands on the independence of the Bank of England? He has written about the need for an independent Bank of England. Will he give us an unequivocal statement that he still supports the independence of the Bank of England? While he is clearing up that issue, will he also tell us whether he intends to campaign within his party in favour of the abolition of the national minimum wage?
Mr. Duncan: I am pleased to say that I support my party's policy in both respects.
The state of the economy is mixed. The Minister declined to admit that manufacturing was having a difficult time. There is a big squeeze on profits and orders. We have a double-headed economy in which some sectors are doing well and others are having a hard time. We are in the middle of a technological revolution. Fifteen years ago, I thought that I was a big shot because I had a car in my phone. [Laughter.] Sorry, a phone in my car. I wanted to check that the Minister was still listening. I was pressing the test button and it worked. That is good.
Mr. McCartney rose—
Mr. Duncan: I shall allow the Minister one waggish witticism as a final salvo.
Mr. McCartney: If it is such a big phone, perhaps in the interests of competitiveness we could share it.
Mr. Duncan: I was clearly wise to give way. I look forward to our many encounters in the months ahead.
Conservative policies over the past 20 years have allowed Britain to keep ahead of many other countries and up with the United States in the fast-developing technologies. The UK has been made attractive for business and investment. Only Conservative policies—to which the Government now seem half committed—have made that possible.
Some of the Government's policies are putting a lot of that at risk. Inland Revenue press release IR35 threatens a crucial part of the progress of high-tech industries. A new pattern of employment is developing, with a dramatic shift away from big manufacturing concerns with lots of unionised employees clocking on at nine and clocking off at five. Big companies now look to little entrepreneurs for crucial support in the development of ideas and software—people with fantastic brains who do not need much plant and can do their work with a computer, a laptop and knowledge. They sell their services at a high price to add significant value to large corporate concerns.
The effect of IR35 is to say to those entrepreneurs, "To hell with that enterprise that you are showing. To hell with your plans and the way you have structured yourself
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and your energies and the risks you are taking. The advantages that you have derived from a free commercial regime in which you can set yourself up as a limited company, selling your services to a large corporate concern to add value to yourself and to them will be threatened." There is a risk that the hand of Government will reach into those concerns and cut off the life blood of innovation and enterprise that the Minister is pretending to champion. The Inland Revenue directive—or whatever we want to call it—risks doing an enormous amount of harm. I want an assurance from the Minister that it is being fully reviewed, that he will listen to the concerns and that it might be reversed.
Mr. McCartney: It is going out to consultation. Perhaps the hon. Gentleman could tell us whether he is opposed to tax evasion.
Mr. Duncan: Of course I am opposed to tax evasion. I am also opposed to a tax regime that will harm innovation and enterprise and hold back Britain's progress in developing frontier technology and innovative, pioneering companies in today's competitive world.
That is not the only threat to our competitive model. There is also a risk that many of the patterns of commercial activity that we see across the channel in other European countries will be imported to this country to our cost. We have our own model and structure. We have a different sort of economy in many respects. Given the Government's attempts to chum up with their European friends, we are likely to have many costly directives and structures brought into this country in the interests of some specious harmonisation that would lead not to competitiveness, but to uncompetitiveness.
The Institute of Directors speaks for clear-thinking people who understand business. In a recent press release, the institute acknowledged the need for an efficient regulatory framework. We are not talking about people whom the Minister would critically describe as laissez-faire capitalist anarchists.
Mr. McCartney: To be fair, I was talking about the hon. Gentleman, not the Institute of Directors.
Mr. Duncan: I am not one either. The Minister should read my books. He might upskill himself a bit more.
The Institute of Directors identifies several key issues for many companies. The Minister should listen carefully and put the issues on his agenda to ensure that we have innovation and enterprise. The first point in the press release is that
"the introduction of fresh legislation or new regulations should be avoided unless all alternatives have first been exhausted."
I wonder whether the Minister can give the House that pledge.
Mr. Gareth R. Thomas: Will the hon. Gentleman give way?
Mr. Duncan: I want to go through the press release first. I shall come to the hon. Gentleman afterwards if he wants.

1435
The IOD says:
"More time is needed by small firms both to respond to consultation documents and to familiarise themselves with new regulations."
The IOD also calls for sunset clauses. Does the Minister think it sensible that regulations should last for a finite time and not be renewed unless they have been proved to work satisfactorily?
The Minister seems unprepared to consult on this matter, but the IOD still wants an
"exemption for firms of fewer than 50 people from the Employment Relations Bill",
which is something that the Government should deliver. It wants the the parental leave directive to be scrapped—another burden on business imposed by the Government. It thinks that the
"introduction of National Works Councils across Europe must, in particular, be resisted in the UK."
That is quite a shopping list. If the IOD has such a shopping list, the Minister cannot in all good faith stand up and say that the Government are not placing new burdens on business.
Mr. McCartney: I cannot remember the date of the press release, but it is somewhat out of date. On national works councils, our policy in opposition and in Government has been to oppose any directive that would impose works councils on companies that operate wholly within the United Kingdom. We are in favour of the European works councils directive, which is being implemented with the support of British industry. The Government's negotiating strategy has led to a position where, so far, there is no proposal for national works councils—a success for the Government, working with business.
On consultation, the Government have set in place a framework of consultation with industry and across all stakeholders in relation to regulations.
Mr. Deputy Speaker: Order. I have been trying to give both Front-Bench spokesmen some leeway, but interventions must be brief, and the Minister's intervention is far too long.
Mr. Duncan: Let me make one thing clear. My hon. Friend the Member for Tiverton and Honiton (Mrs. Browning), my colleagues and I will do our utmost to scrutinise every regulation that looks as if it is winging its way here. In return, will the Minister guarantee that no EU directive will ever end up tougher than its original form, and that, when incorporated into UK law, it will be no more onerous than its legal form and implementation in competitor countries? Can he give such a guarantee to the House now, or are we condemned to have tougher regulations here than the parallel ones implemented in other EU countries?
Mr. McCartney: It was the previous Conservative Government who failed industry in terms of implementing directives. They refused to negotiate, be involved or even to sit down at the table in the interests of British business. They opted out. This Government have a clear strategic approach to directives. We will
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judge whether they will create or lose jobs; whether they assist in the free movement of labour; whether they assist the modernisation of the labour market; whether they assist entrepreneurship; whether they assist investment strategies; and whether they assist in a framework of basic minimum standards. If they meet those requirements, we will, working with industry, develop appropriate measures for implementation. Where they do not, we will oppose them.
Mr. Duncan: Some might think that that was a good answer to a completely different question. I was asking about the equity of implementation of a directive. Clearly, I will not get an answer today. When we are in government, the Conservative party will not introduce any regulation without finding another one to abolish.
Mr. Gareth R. Thomas: Is the hon. Gentleman aware that, according to the House of Commons Library, the number of regulations imposing costs on business was 223 in 1994, 209 in 1996 and 199 in 1998? If he is such an opponent of regulations that have a cost on business, can he explain why the two years of most regulation were under a Conservative Government?
Mr. Duncan: It may be a three-letter answer—QMV, or qualified majority voting. Anything that achieves less regulation is welcome on this side of the House.
The Minister did not mention the single currency. Those people, including business men, who support a single currency believe genuinely that it will reduce their risk and make for a less risky climate in which they will have to work and sell their products. However, if one locks into a currency, other economic variables will move, and probably move more violently. It could be interest rates, pressure on wages, pressure on labour mobility or capital flows. Big business will be able more readily to adjust to those pressures, at least in some respects.
The key thing about a domestic small business is that it cannot adjust. Therefore, there is a risk to all small businesses of having to face macroeconomic pressures to which they cannot adjust and to which they can only respond. I hope that the Minister will realise that small businesses will be at much greater risk than big businesses if the stringency and inflexibility of the single currency and its effects on the domestic economy come into play.
Mr. Butterfill: I do not know whether my hon. Friend has heard the breaking news this morning. Italian industry is now saying that in order to keep within the constraints of the euro, it may be forced to ask workers to give up their pension rights.
Mr. Duncan: My hon. Friend, as ever, is fully up to date. Even if those people have to suffer a reduction in their pension rights, and not their total abolition, that is a very heavy price to pay and is damaging to the long-term prospects of any employee.
The Labour party often talks about the long term. In opposition, it paraded itself as the champion of the long term. The one thing that Labour hopes for is that the long term is long enough for it not to be found out. Within months of coming into Government, the Labour party damaged the existing savings culture—it has hit pensions with a bill in excess of £5 billion. Individual savings

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accounts are an inferior savings vehicle to those previously on offer. Labour is attacking the savings culture that was in place before it took over. Labour has not done things for the long term—it has damaged the long term.
Economic lesson No. 2 is savings equals investment. If one attacks savings, one attacks investment.
Mr. Jim Murphy: What was economic lesson No. 1?
Mr. Duncan: Opportunity cost is the answer, and the hon. Gentleman should go away and learn what that really means and work out how Government policies always have an opportunity cost.
The Government talk about enterprise and innovation, but what have we seen in the papers this week? We saw the extraordinary headline in the business section of The Times on Tuesday:
"State-backed bank for PFI gets the go-ahead."
Mr. Wills: What a good idea.
Mr. Duncan: The Minister—and his Parliamentary Private Secretary, the hon. Member for Stevenage (Barbara Follett)—both agree. Some of us remember the days of the National Enterprise Board, a not-so-little outfit in the 1970s which was a disaster. We all remember the De Lorean gull-winged motor car; not the greatest commercial success in the history of industry, and the product of a poor decision by a Labour Government. The article says clearly that we are to have a state-backed bank—an announcement made not in the House of Commons, but in a press release to The Times—and states:
"The Government have given the go-ahead to radical plans to create a new state-backed bank, UK Capital—
it even has a name—
"aimed at injecting fresh enthusiasm into the Private Finance Initiative."
Not only does it have a name: it looks as if it has someone to head it. [Interruption.] The Minister clearly agrees. A Mr. Montague, the head of the Treasury-led PFI task force, will head it. The plan is to "inject fresh enthusiasm" into the private finance initiative. How can a private finance initiative still be a private finance initiative if it is to be financed by a state-backed bank? That means that it is not a private finance initiative, but a public finance initiative. The Minister shakes his head, but he will have to explain. He clearly has a clever scheme which, one day, he might have the courtesy to explain to the House.
The money will be off the Government balance sheet, which will help them to fiddle the figures. The subordinated debt will probably rank below private enterprise debt, so the risk is greater for the taxpayer and the state than for the private sector. The last paragraph of the newspaper article is the most telling. It says:
"The plans have caused alarm in the City, where the prospect of public money competing directly with private cash is viewed as unwelcome."
Will the Minister come clean and urge the Secretary of State to give the House a clear statement of what is intended and what will happen to what is said to be £1.2 billion of public money?
Mr. Gareth R. Thomas: The hon. Gentleman obviously has something of a selective memory. Does he
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recall that under the previous Government, about £30 million was spent on consultants' fees for PFI without one scheme coming to fruition?
Mr. Duncan: We launched PFI, which is very successful, and I suppose that that is why the Government are continuing to pursue it in one form or another, even though they said that they would get rid of it.
The Government have mastered the language but not the thinking. They say one thing and do another. I want to attach a permanent health warning to their use of the word "partnership". Beware the Labour word "partnership". It is not what they want people to think it is. It is a cover for collectivism, corporatism and, as we see elsewhere in the Government, cronyism. What really lies behind the use of the word is more Government interference and intervention.
We want small Government, less Government, less intrusive Government, fewer regulations from Government. I look forward to sparring with Ministers in the months ahead and showing that they are not delivering the enterprise and innovation culture that they pretend they are.
11.2 am
Mr. Jim Murphy: I am delighted to take part in this debate—the first Friday morning debate in which I have participated. It is rather cosy and intimate, but that does not disguise the strong differences of opinion on the issue. I am pleased to follow the hon. Member for Rutland and Melton (Mr. Duncan), who made quite a long speech.
Mr. Dawson: Endless.
Mr. Murphy: Fortunately, there was an end; no point, but an end.
I am also pleased to follow a fellow Scot, my right hon. Friend the Minister of State, who has now emigrated to Wigan. In a debate on enterprise and innovation, which includes invention, my right hon. Friend should not have been ashamed of his accent, whether it be Glaswegian, Ayrshire or with a hint of north-west England, because it was Scots who invented many of the great modern equipment and techniques and much that we now take for granted, such as the television and electricity.
My right hon. Friend spoke about call centres and Scottish accents. It was a Scot who invented the telephone, without which call centres would not exist. Without Scottish inventions, the hon. Member for Rutland and Melton could not have had a car in his phone and, more than that, if McAdam had not invented tarmac—tarmacadam—he would have had nowhere to drive his telephone with his car in it.
As my right hon. Friend said, we have a Government not only of economic competence, but of innovation. They have introduced a whole raft of policy innovations to deliver economic stability. In week 1, the Bank of England became independent. That was much criticised by the official Opposition, but much welcomed by business and others outside the House.
In the two years that I have been a Member of Parliament, I have not heard a proclamation or even a whisper from the Conservatives on whether they would

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reverse that policy. The hon. Member for Rutland and Melton was invited by my hon. Friend the Member for Harrow, West (Mr. Thomas) to tell us, but he refused. He said that he supported Conservative party policy. What is Conservative party policy on the issue? Is it to reverse the independence of the Bank of England or to stay with the stable environment created by the correct decision taken in the first week or so of the Labour Government?
Independence for the Bank of England has helped us to deliver low inflation and provide an economic framework to guarantee long-term investment. Labour is the champion of long-term investment because we know that we must invest in our people and our infrastructure.
Mr. Butterfill: The hon. Gentleman has referred several times to the independence of the Bank of England. There are independent central banks elsewhere in the world, but they are truly independent. There is a big difference between independent banks with an independent system for appointing their governors and the system introduced by the Chancellor, whereby the Governors of the Bank of England are appointed by him. That must call into question, at least to some extent, their true independence.
Mr. Murphy: The Government will decide what is in Britain's best economic interest. There are other models in the world, but I find it slightly odd that Conservative Members should encourage us to mimic European examples, when they are so hostile to much else that is European. The structure of the Monetary Policy Committee and the way in which the Bank operates seem to be very popular among the business community.
Mr. Geraint Davies: Long-term interest rates are at their lowest for 40 years. Long-term interest rates are an expectation on the part of the financial markets of future inflation. The markets are saying that they accept the current structure of the Bank of England as independent of political interference and believe that it will generate stable and low levels of inflation in the long term. That is precisely what the Government and the country want.
Mr. Murphy: My hon. Friend is characteristically accurate, and furthermore, if the Conservatives intend to reverse the Bank's independence if they come to power, it is clear that the business community has faith that they will not come to power, even in the long term.
My right hon. Friend the Minister of State talked about the skills gap and upskilling, and Conservative Members talked about downskilling. I was delighted to hear him reaffirming the Government's commitment to the university for industry, and telling us how many people will benefit from it and on what time scale.
We have had the traditional jousting on the one issue in which the Conservatives seem interested in this Parliament: the single European currency. I was pleased to hear again that the Government are committed in principle to joining a successful euro. That is important because it will set the economic framework and give advance notice to those who compete in business, in this country and internationally. We have laid down five economic criteria that will stand the test of time, in contrast with the Opposition, whose only test is time. That is an important difference between us.
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My right hon. Friend the Minister eloquently described new Labour's belief that social justice is the natural partner of enterprise and innovation. Social justice is not in competition with enterprise and innovation, although the hon. Member for Rutland and Melton gave the impression that he thought that that was the case when he said that small businesses must have their social costs cut. In his mind, every great social advance that the Government have introduced seemed to be a hindrance to small businesses and the economic competence and innovation of this nation.
Mr. Gareth R. Thomas: Is my hon. Friend aware that many small businesses campaigned for the introduction of the national minimum wage because they did not wish to be undercut by other employers?
Mr. Murphy: My hon. Friend is right, and I am sure that he talks from his experience in Harrow. In my constituency, it is my experience from the many events that I organise with my local business community that the national minimum wage is indeed popular, with businesses and with the many thousands of people who benefit from it.
Mr. Butterfill: To suggest that small businesses are in favour of the national minimum wage is extraordinary. I would like to know which small businesses the hon. Gentleman means, because the National Federation of Small Businesses is implacably opposed to it and has claimed that it will do its members immense damage.
Mr. Murphy: In tests of opinion, small businesses have shown their support for the national minimum wage. I know from my experience and from talking to hon. Members from both sides of the House that small businesses have been ahead of the game in preparing for the national minimum wage, adapting to it and benefiting from it, because it has given a boost to our economy.
In discussions about the national minimum wage, I am always reminded of a hustings held during the general election campaign in Barrhead in my constituency, at which a security guard said that he was paid less than £1.50 an hour. He was married with a family, but it is not acceptable for anyone to be paid £1.50 an hour. It is not acceptable that the market allows that to happen or that a Government allow that to happen. I hope that the gentleman comes back to the hustings in a couple of years and asks me again what we will do for the low paid. I also hope that he is no longer doing that job and that his economic position has improved, but I will look him in the eye and tell him the truth: we made a commitment to introduce a national minimum wage, and we have done so. What I do not know is what my Conservative opponent at those hustings will say. Will he tell the audience that his party would abolish the national minimum wage, adjust it or leave it alone?
Mr. Dawson: In an earlier exchange, the hon. Member for Rutland and Melton (Mr. Duncan) studiously avoided answering that question about the national minimum wage. One of my local employers said that the national minimum wage and the trade union legislation were important because they cut out the cowboys, but the hon. Gentleman seemed to be proposing a cowboy culture in British industry.
Mr. Murphy: My hon. Friend is right. The vast majority of small businesses—the honest, hard-working

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ones—are eager to compete on an equal footing and to pay quality wages to quality staff. There is no future for those businesses, or for our country, in paying £1.50 an hour to people with families who cannot survive on such wages.
At the hustings in two years' time, I will say that the national minimum wage has been a great success and it has benefited many thousands of people in Scotland and in my constituency. However, I still do not know what my Conservative opponent will say. I will ask the question repeatedly throughout the campaign, but perhaps the hon. Member for Rutland and Melton can give us the answer now. He was asked repeatedly today, and we have asked the Conservatives repeatedly in the past year, what their position now is on the national minimum wage. It is not good enough for the hon. Gentleman to say that he supports the Conservative policy on the issue when no one knows what that is. I invite him to intervene to give us an inkling about that policy. It is not a hard question—would the Conservatives keep the national minimum wage or abolish it?
We have heard much criticism of the national minimum wage because, it was claimed, it would lead to wage inflation and unemployment. I do not know whether Conservative Members have had time to reflect on those predictions of doom and gloom, but we still have low levels of inflation and of unemployment. I accept that unemployment levels are still too high, but we are working to bring them down, and they are at a 20-year low. Will the Conservatives now admit that their gloomy predictions about the national minimum wage were wrong?
The Conservatives also predicted that the new deal would not work and would cause economic disaster, but we heard only this week that 100,000 young people have benefited from it. Youth unemployment has been halved. We had a five-year plan to reduce youth unemployment and to achieve it in two years is a better performance than that of any Government in history. The Government should be given the respect and credit they deserve for that.
Mr. Gareth R. Thomas: My hon. Friend is right to say that the new deal is helping to combat youth unemployment. He will also be aware that it is beginning to combat the huge skills gap that hinders enterprise and innovation. We need to continue to focus effort on that skills gap, because the 1998 London employer survey revealed that some 83,000 people are considered by their employers to lack skills, especially in computer literacy.
Mr. Murphy: My hon. Friend's point illustrates the difficulties that the Government inherited 100 or so short weeks ago. We are trying to meet the challenge of upskilling and the new deal is achieving that for those who have been vulnerable and neglected in the past. A generation was forgotten and ignored. Many hon. Members have experienced unemployment, and, when I was a teenager, I was unemployed for two years. What was offered to me was a very poor relation—if it was a relation at all—of the new deal. Young people felt alienated from what the Conservative party was offering them as an opportunity. It was not a pathway to a skill to get them out of unemployment.
I know that from first-hand experience. I went to college as a mature student with many people who had been unemployed and they took that route because the
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schemes offered by the Conservative Government—unlike the new deal—were not worth the investment of their time and energy. Many young people went to college to gain the formal qualifications that they were not able to get the first time. Social justice is the partner of enterprise and innovation, although Conservative Members seem to think that it is their competitor.
I am delighted that the working families tax credit—another aspect of our social justice policy—will benefit 1.5 million working families throughout the UK, increasing the income and support available to 3 million children. Add that to the record increase in child benefit, and we can see how much has been done to help working families.
I do not want to be too party political, but it is incumbent on the Opposition to say whether they will abolish WFTC or whether they will, when they meet working families in their constituencies who used to receive a poor deal, remind those constituents of Conservative opposition to WFTC, which gives an average £24 more to every working family. Will they tell their constituents that they voted against that, and that they think that it a bad idea? I shall certainly remind mine of Labour's view.
Social justice is a cornerstone of domestic enterprise, but our social justice agenda can also help international innovation and enterprise, particularly by helping to write off more than £100 billion of international debt through the G8. We can help to free countries to provide opportunity and to benefit from innovation and enterprise.
I have spoken about the great Scots inventions of the past. We all know, however, that invention is not always as creative or as helpful as it might be. In some cases, Governments or enterprises may even be too supportive of inventors. Governments must support science and innovation, but they must be careful. Some unusual grants have been handed out, and we have all read that the Institute of Food Science and Technology received £200,000—£100,000 of it public money—to investigate why cornflakes become soggy when milk is poured on them. I am not interested in that, even when I am having breakfast, and the grant was perhaps not absolutely sensible.
In comparison with some international examples, however, that project equates in importance to Einstein's theory of relativity. A Scandinavian research grant was given to scientists examining the impact of wet underwear on thermo-regulatory responses and thermal comfort in the cold. Perhaps the Minister can tell me what that was all about. I mean no slight to our Scandinavian counterparts in saying that we should not become involved in aiding such research. The university of Minnesota was given funding to investigate patient preferences for waxed or unwaxed dental floss, another debate that excites me not at all.
Many challenges face enterprise, and much necessary research can be done. We must provide finance and seedcorn support if we are to remain at the cutting edge of world invention. We should learn from international experience. We should seek to turn today's school children and students into the entrepreneurs of tomorrow. Some 50,000 young people set up in business every year, although the proportion of women who run small businesses is lower than it should be, perhaps because support has not existed in the past.

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Analysis of the attitudes of young people is revealing. More than 40 per cent. are willing to work 60 hours a week, undercutting oft-quoted criticism of the youth of today. Many felt that they were not taken seriously because of age discrimination and the view that young people should work at junior jobs in business rather than owning one.
I pay tribute to the Prince's Youth Business Trust, which provides seedcorn finance and professional support for those aged 18 to 25. In Renfrewshire, more than 300 young people have established businesses with that support. Nor have those businesses proved short-term operations: 83 per cent. of them remain in business after a year, and more than half are still in business after more than three years. The PYBT enables young people to put down lasting roots in the business community. The average age of the people involved in my constituency is 23, and just over a third of them are women. Many people may just have left university at that age, and it is remarkable that they are in successful business.
Before those people received the support of the PYBT, 80 per cent. of them were unemployed. It has provided them with a pathway out of poverty and unemployment into work, but, far more, a pathway towards ownership of their own businesses. Some 20 per cent. of those people had no formal school qualifications, but they have set up and run their own businesses.
The Government are providing, I think, £50 million in matching funding for the Prince's Trust over the next five years to support 30,000 young people who are setting up their own businesses. My right hon. Friend the Minister for Employment, Welfare to Work and Equal Opportunities has said that the Prince's Trust is remarkable in providing support for people who had not previously had economic breaks, perhaps coming from families with lower income backgrounds. The Government have undertaken several initiatives in Renfrewshire. Renfrewshire Enterprise is supporting families from poor backgrounds, particularly in Barrhead, a town famous principally for one business—Shanks and Co., the world-renowned producer of toilets. Indeed, when I first mentioned that business in the House, I almost prompted an unprecedented intervention in a maiden speech. Unfortunately, Shanks no longer produces toilets, but we are trying to reignite the entrepreneurial spirit in that industrial town.
Renfrewshire Enterprise is doing much through the Leven Valley Partnership, which is aimed at motivating children about what is possible in the world of business. One of the most interesting initiatives, for me and for people in Barrhead, is the involvement of Watt Nicol as a motivational speaker for those youngsters. Perhaps not everyone would recognise the name, but if I say that she was the successor to Eileen Drewery, the English football team guru, it may seem more relevant. Eileen Drewery was used by Glenn Hoddle in his period of failure as England manager and Kevin Keegan enlisted the support of Watt Nicol. Renfrewshire Enterprise is doing the same. Since the News of the World revealed Watt Nicol as Kevin Keegan's secret weapon, England have not won a match. I hope that my young people are more successful than the England football team.
Mr. Dawson: Hear, hear.
Mr. Murphy: My hon. Friend may say that, but it is not every day that I wish the England football team well. In its current predicament, my best wishes are appropriate.
The Government's White Paper "Targeting Excellence: Modernising Scotland's Schools" identified the need to encourage the involvement of young people in the world of enterprise. It stresses that we must invest in our youngsters to invest in our future. Much is being done, but I believe that more can be done. There are some good examples throughout the country and in my constituency.
The education for work initiative, piloted and supported by East Renfrewshire council and Renfrewshire Enterprise, has provided many opportunities for young people. I would be interested to hear whether hon. Members have had similar success with that initiative in their constituencies. The achievers international initiative is about setting up companies in schools so that young people can experience the spirit and responsibility of enterprise. St. Luke's and St. Ninian's schools are involved. I attended the launch at St. Ninian's. It set up a trading company for jewellery, exporting Charles Rennie Mackintosh jewellery to Nigeria and importing ethnic Nigerian jewellery. It did well and led to a thriving business in the school. Learning from that experience, 11 primary schools in my area have signed up to achievers international next year. I look forward to visiting primary schools to watch, listen and perhaps learn from young children aged 9 to 11 with the responsibility and opportunity to run their own company. That will be a liberating experience.
Under the education for work initiative, all senior pupils will be given a chance of work experience. There will be industry awareness days. Many schools in my constituency have been successful with the young enterprise initiative.
A key factor has been teacher placements in industry. I want continued Government support for that initiative. It is crucial that young people experience industry and enterprise, but it is imperative that teachers and, in some parts of the country, classroom assistants, get first-hand experience—if they do not have it already—of business and enterprise to pass on to pupils. We all pay tribute to the vast majority of teachers, who work diligently and hard. If we expect schools to become involved in the initiative to any great extent, we must support the teachers. I know that, in my authority, that is already happening. We expect nearly 4,000 teachers to be involved over the next three years.
I am keen on the agenda of encouraging young people to become involved in business and I am proud of the Government's efforts so far. The schools enterprise programme in Scotland operates under the banner "From Primary to PLC". Eighty per cent. of primary schools and 60 per cent. of high schools in Scotland are becoming involved. Seven of Scotland's universities offer modules in enterprise and entrepreneurship, regardless of faculty. They are trying to imbue the entrepreneurial ethic into our students. The programme has led to a 35 per cent. increase in the number of people interested in starting their own business in Scotland. It involves not only students with a marketing background, but engineers, social scientists and arts students.
So much is happening within this agenda. There is good news about what young people are doing, when given the opportunity. It is incumbent on any Government,

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particularly this one, to provide the economic opportunity in the community and the business world by providing a stable economic environment. We have done much to achieve that nationally, but we must also provide support locally in community and youth groups and schools.
We talk about lifelong learning. Rightly, we are turning that slogan into a policy and, beyond that, into a reality. Lifelong learning does not mean only literacy and numeracy. We accept that the weakness has been that we did not encourage young people to become literate and numerate early enough. That is not a controversial point of view, and we are now building on that. If we are to deliver enterprise success in lifelong learning, we have to start early by involving primary and secondary schools and universities.
For me and the new Labour Government, enterprise and opportunity are equal partners with social justice. We deliver economic opportunity simultaneously with the achievement of social justice.
11.37 am
Mr. David Chidgey: The hon. Member for Eastwood (Mr. Murphy) gave us a thoughtful and detailed view of life in his constituency, for which I am sure we thank him.
I am pleased that we are having this debate. We spend much time in this Chamber passionately debating how much or how little we should spend on the great things in our society such as health, education, social support and welfare. Although we can argue at length about how much or how little we should tax and spend, we must first generate the revenue, however. We have to be able to raise taxes. I suggest that taxes should come from highly skilled and highly paid workers, and from highly successful and profitable businesses. There is not much point in arguing about how much, how little or how well we should distribute wealth unless we have first created it.
The Government's role in business is straightforward. It is not to impose the centralist command and control structures that have failed dramatically in other parts of world. Nor is it their role entirely to ignore business by taking a libertarian or laissez-faire view relying totally on market forces. Any Government who are serious about creating wealth must concentrate on the key areas in which they can create the right framework. We could start by looking at the skills gap, and the need for Government to help nourish and nurture the essential seedcorn of human resources. Government must consider investing in research and development, the green shoots of innovation for our industry and commerce. Most importantly, we need to support our growing companies—our small and medium-sized enterprises. We need to develop a climate in which expertise and enterprise can flourish. Only then will we start to reap the benefits of sustainable economic growth; we can then start to improve—perhaps beyond any conceivable measure—the investment that we need in health, education and social services.
As the trade and industry spokesman for the Liberal Democrats, I have the opportunity to meet many company managers in different types of organisation throughout the United Kingdom. There are many shining examples of successful enterprises in our aerospace and pharmaceutical industries—both are world—class industries. However, at the other end of the scale, there are many small firms—often employing
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fewer than 50 people—tucked away in the corners of industrial estates, creating and producing advanced products. From seemingly small beginnings, those products are capturing world markets. However, the basic problem is that there are not enough of such enterprises to create wealth sufficient to sustain the level of economic growth that will meet the aspirations of the people whom we represent in all the corners of the kingdom.
To date, the Government's macro-economic policy has not been of particular help. In yesterday's Financial Times, it was reported that the United Kingdom's traded goods deficit widened from £1.91 billion in March of this year to £2.18 billion in April. The first quarter of this year is looking pretty disastrous. Further analysis of those figures reveals that, in April, the deficit in our trade with the European Union rose to £812 million. That is double the level at which it stood six months ago, and is the worst figure since August 1990.
In response to those figures, the chief economic adviser to the CBI said that those data highlighted one of the consequences of staying out of monetary union. She stated:
"Exchange rate volatility is the price you pay for being out of the euro."
That is a salient point in our continuing argument as to the benefits of EMU.
Mr. Butterfill: Will the hon. Gentleman give way?
Mr. Chidgey: I thought that that might raise some interest from the Conservative Benches. I am delighted to give way to the hon. Gentleman.
Mr. Butterfill: Does the hon. Gentleman think that the euro, which has fallen by about 11 per cent. since it was launched at the beginning of this year, has been an example of successful monetary integration to date, or does EMU still have some progress to make?
Mr. Chidgey: I know the hon. Gentleman well enough to realise that he makes a serious point, so I shall give him a serious answer. On reflection, I am sure that he will acknowledge that, over time, there are significant changes in currency exchange rates—one finds examples of that with the dollar and with sterling, both of which have moved in value by about 50 per cent. over a 20-year period. One has to consider the euro in a longer-term context. Yes, 11 per cent. is a significant change, but that is not a serious problem if we take a long-term view of the fluctuations in exchange rates.
As a further response to the hon. Gentleman's intervention, I point out that, since August 1996, the pound has risen by 23 per cent. on a trade-weighted basis. That has been a disaster for UK exporters. It is no good blaming that problem on the crises in the economies of Asia, Brazil and Russia. It is important to remember that the UK exports more to the Netherlands than to those three trade areas put together.
We should pay close attention to the Treasury's own forecasts of business opportunities for the UK. According to the Treasury's figures, opportunities to get more business for the UK in our key markets overseas are growing at 6 per cent. a year, yet the take-up of those business opportunities by UK businesses is growing at

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only 0.5 per cent. That is most worrying; it illustrates the problems faced by our business and commerce. We are not grasping the opportunities that exist in our key, strong markets.
The Government have to take some of the blame for allowing the pound to rise to the levels to which it has risen during the past few years, and for the growing trade deficit that we are experiencing this year. However, we must be fair. The problem did not start with the Labour Government; it can also, in quite large measure, be laid at the door of the previous Conservative Administration. Figures produced by the Library in relation to trade deficits over the past 25 years show that, since 1974, our balance of trade has been in surplus for only seven years. That has resulted in a net deficit in trade that is in excess of £80 billion at current prices. If that is merely part of the economic cycle—as we often hear when we discuss trade deficits and surpluses in this place—25 years must be the longest trade cycle recorded in history. That legacy reflects the lack of understanding of previous Administrations, over a long period, of the importance of innovation and enterprise to our economy's ability to achieve sustainable growth. Long-running trade deficits underline the long-term ills of the UK economy, the long-term problems for UK trade and Britain's failure to match our competitors in innovation and enterprise.
In relation to the problem of innovation shortfall, an interesting survey was produced for the European Commission. I am sure that the Minister will have seen it. It is a survey of 12 countries in the European economic area entitled "Eurostat Statistics in Focus, Research and Development, No. 2/99—Community Innovation Survey 1997/98". I am sorry to be so pedantic, but I am sure that the Hansard reporters will want that in detail. The survey shows that the largest proportion of innovative enterprises is in manufacturing. It offers the following definition:
"An innovative enterprise has either introduced new or improved products on the market or introduced new processes during the last three years."
The survey found that large enterprises—those with more than 250 employees—were the most innovative. That illustrates the point that, although we realise that the engine for growth in our economy is the small to medium-sized enterprise—the smaller firm—such firms have huge problems in grasping opportunities to be innovative, to show enterprise and to succeed.
The real point of mentioning the survey is that, in its results, it is apparent that the UK is behaving and performing poorly in relation to our competitor nations in the EU. We came a poor fifth for innovation in both the manufacturing and the service sectors. When it came to spending on innovation—innovation intensity, to use the phrase in the survey—the UK again came fifth in manufacturing. However, there was a ray of light in respect of services where we came first in innovation intensity, so we are getting something right.
Mr. Butterfill: The hon. Gentleman should consider other comparisons with the EU, such as unemployment levels and the rate of growth in the economy. In those matters, the UK appears in a rather better light.
Mr. Chidgey: I do not disagree with that comment for one moment. However, as I develop my speech, I shall
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illustrate my concern that we shall not be able to achieve growth in our economy unless we grasp the key issue that we must be more innovative and more enterprising. It is important to make comparisons with other nations with which we compete, not just in Europe but elsewhere. I shall come to that as I develop my point.
The survey showed that the key indicator of impact on innovation was the relative share of turnover in new or improved products. In that respect, the UK could manage only eighth place out of 12. That shows the scale of the problem. We in the United Kingdom are chugging along behind most of the European Union in innovation, but even the best in the EU lag far behind Japan. For example, for every 1 million ecu spent on research and development in the EU, Japan files twice as many patents as European industry. That is a measure of the lack of development of innovation in our economy and that of the EU, compared to our major competitors in the world marketplace.
Since 1985, the level of production in Europe has risen by only 10 per cent., whereas in Japan it has risen by 80 per cent. That is a severe handicap to business and employment, especially to the high-tech businesses, as the links between innovation, competitiveness and employment are becoming ever closer.
Finally, the survey confirmed that the companies that invested most in research were the ones that created the most jobs over the past 20 years. There is a pressing need, therefore, to step up innovation in this country.
From research, it is clear that we need to take action in three areas. The first is the promotion of a genuine innovation culture. The second is the establishment of legal, regulatory and financial frameworks that support innovation. The Government have been making noises this morning about how they hope to tackle regulation and set up a Small Business Service. I hope that that will go further than helping small business to understand and unravel the new legislation on the working families tax credit which, as the Minister for Small Firms, Trade and Industry knows, has not exactly been received with rapt enthusiasm in all corners of the House. We need a little more than that if we are to make regulations that help rather than hinder commerce. The third area that the Government must look to is how to gear research more to innovation, products and outcomes.
I shall deal briefly with the UK's business scenario and investment in research and development. The "Today" programme this morning quoted from a report from the Department of Trade and Industry that highlights the problem. If I understood what was being said at that early hour, it was reported that the UK's competitors were investing some 5 per cent. of GDP in research and development, whereas we invest only 2 per cent. of GDP in R and D. Worldwide, a quarter of all investment in research and development is in information technology, but in Britain very little is invested in IT, because we have very few firms that are still active in that sector. That is a cause for major concern.
Statistics provided by the Office for National Statistics "Business Monitor" for 1996 showed that, relatively speaking, only a small proportion of total investment in research and development is made by our smaller firms. That is extremely worrying. For example, 9 per cent. of investment in R and D is made by companies with fewer than 100 employees. For firms with a work force of 1,000 to 5,000, the level of investment is 38 per cent.

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That is an interesting difference. We clearly need to take action to nurture small and medium-sized enterprises so that they spend more on research and development. I recognise that the Government's proposals for tax credits will help, but we must do far more.
To Britain's cost, the vital role of science and engineering has been neglected. Within limits, levels of research and development expenditure remain the best overall measure of innovative activity. Figures from the Organisation for Economic Co-operation and Development show that over the past 20 years, at a time when most advanced industrial countries have been increasing their commitment to R and D, in Britain investment has been falling.
The fall in investment is widely based. Government support for academic research in science and engineering fell from 0.4 per cent. to 0.3 per cent. of GDP. The Government's own spending on research and development has been cut, and many departmental research facilities have been closed. Even more damaging, spending on innovation—the take-up and development of new technologies in industry—has been reduced. The DTI's innovation budget has fallen by more than three quarters, from £280 million in the mid-1980s to £66 million at 1996–97 prices.
The biggest failure to invest in research and development lies with industry. Whereas in most industrialised countries there has been an increasing commitment from industry to invest in R and D, the contribution made by British industry has fallen to 0.9 per cent. of GDP, lower than at any time since 1975.
Above all, there has been no clear-cut political strategy for investment in R and D over the years. The previous Administration's attempt in 1992 to provide a strategy through the appointment of a Cabinet Minister responsible for an Office of Science and Technology withered on the vine, apparently amid departmental wrangles. That office has been incorporated into the DTI. Despite the present Government's rhetoric about competitiveness and innovation, we are still not clear where the responsibilities lie and what the strategy is.
Mr. Butterfill: Will the hon. Gentleman give way?
Mr. Chidgey: Just one more time.
Mr. Butterfill: The hon. Gentleman has been extremely generous. Does he agree that, given the Government's rhetoric and their claim to be increasing research funding, it is extraordinary that last year, grants to the research councils were cut massively, to the point where many universities could not take on students taking masters degrees or PhDs in research-based subjects because the research councils' budgets had been cut so savagely?
Mr. Chidgey: I cannot confirm the hon. Gentleman's suggestion that student places have been cut, but I take issue with the Government on the way in which science and research funding has been cut across the board.
Although I welcome the commitment in the comprehensive spending review for an additional £1.4 billion over three years to be spent on research and development in the science base, that sum is not as great as it may seem. The £600 million to be spent on capital
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projects, of which half is to come from the Wellcome Trust, will begin to make good part of the backlog in re-equipping our universities, but we should not rely on the largesse of the private sector to make good what should be primarily a Government responsibility. Claims that the new money will provide £200 million extra each year for the science budget are wildly exaggerated. Once we adduce the allowance for inflation for the whole budget—approximately £60 million a year—we are left with £140 million of new money in the kitty.
Even after that injection of new money, United Kingdom science is still poorly funded compared with that of our competitors. Moreover, a good part of the money is directed to such schemes as the university challenge scheme, which is aimed not at pure research, but at encouraging industry and university links and other initiatives. I welcome those schemes, which are all good, and I am not criticising them, but I am worried about the fragmentation of effort, and that the process will do little to tackle the fundamental problem of industry's poor research and development performance. I am worried that the Government have yet to show my hon. Friends that they have a perceptive, pragmatic and progressive strategy for science.
I listened to the Minister of State with great interest. Much of what he said is welcome, as his words of enthusiasm often are, but I am still concerned about how far that will take us down the road that we need to take if we are to improve our competitiveness and enterprise. I refer Ministers to the statement made by the Secretary of State in the House on 10 March, in which he set out a raft of measures that would be introduced by the Government. Although I listened carefully to the Minister of State, I had difficulty in discovering whether the list outlined by the Secretary of State was being ticked off three months later—perhaps because of the Minister's accent, of which he is so proud.
Mr. Bercow: Is not part of the problem that, although the Minister of State—sadly, he is not in his place—stuck loyally to the Government line, he displayed not a smidgen of enthusiasm for the cause of deregulation? Does that not differentiate him, at least rhetorically, from the Secretary of State?
Mr. Chidgey: It is not for me to pass judgment on that analysis. I recall that the Minister of State showed great enthusiasm for deregulation, although I do not recall his being too specific about what he will do about it.
I do not want to delay the House for too long, although this is an interesting debate and a welcome opportunity to look at the real issues. For the benefit of the Minister, and if he will tolerate it, I shall outline a checklist. I may have missed something in passing—and if I have, I apologise—but we want to know how far the Government have got with their programme.
We were promised a strategy to encourage
"knowledge transfer"
and
"stimulate the flow of scientists and engineers into industry".—[Official Report, 10 March 1999; Vol. 327, c. 368.]
We are still waiting for that strategy. We were promised a Small Business Service. I shall return to that point, because we have made some progress this morning.

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Moving down my list, we were promised a study into international price comparisons, a framework for utility regulation, a modernised merger regime and a consumer strategy, to be published before the summer. We have recently had the longest day of the year, so we can declare that summer is truly with us. The Secretary of State's statement was long on what the Government would do, but we are still rather short of things that have been done. The House deserves a little more information and a progress report on how well the Government are doing.
The Small Business Service is a good idea and I welcome the Government's proposals, but I want more detail—something I can get my teeth into. We need to follow the American model and establish a national network of genuine one-stop shops. An alarming situation was revealed in the community innovation survey, which took in 5,000 firms of different sizes throughout the country. It asked about their involvement—[Interruption.] I hope that the Minister will listen to this point. I know that he has other things to do, but I hope he is taking this on board.
I repeat the point for the Minister's benefit. The survey asked 5,000 firms about their involvement with Government programmes aimed at encouraging innovation. Only 6 per cent. were participating in those programmes. We need a genuine one-stop shop based on the American model, which has 900 small business development centres across America serving more than 500,000 small firms in partnership with federal, state and local government and community and private sector groups. That ensures that small businesses get a fair share of Government contracts and, through working with banks and investment companies, that they have access to affordable finance. We can learn a lot from that practice and I hope that we will see some action from the Government, not merely a shopping list that is yet to be delivered.
There are many key issues with which we need to be concerned in respect of innovation and enterprise, but let me emphasise a few of them. We need to promote a genuine innovation culture. That will call for creativity, an enterprising spirit, a taste for risk-taking and a willingness to be socially and geographically mobile. We need innovation and enterprise in our manufacturing industry.
What action will the Government take to promote best practice, to encourage the development of efficient supply chains, to promote application of new technology and to develop beneficial regional relationships? The Secretary of State spoke of those intentions in March. I want to know how far we have got.
For small and medium-sized enterprises, we need to create a climate of easy mobility for key workers, such as researchers and engineers. Young researchers and engineers must be able to work and gain experience in other countries—initially, perhaps, within the European Union. I welcome the Government's promise of new availability of finance for SMEs, but what SMEs really need are fewer hidden taxes, less regulation and lower business transport costs. In that context, hiking up the national insurance contributions of the self-employed is especially unhelpful.
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What can the Government do? They can establish a legal, regulatory and financial framework that is conducive to innovation. They can seek improvements to the European patent system to reduce confusion and to prevent conflicting decisions being taken by different national authorities. The Government must really get their teeth into that.
The Government can extend help to enterprises and to researchers to protect intellectual property and combat counterfeiting. The opening arguments of the Minister of State were going the right way. I also welcome his comments on easier financing of innovation and encouraging venture capital funds to invest in the early stages of investment and innovative projects.
We also need robust information services to help individuals and enterprises to find out about sources of financing. I was horrified to find from the European Commission survey that only 6 per cent. of the firms surveyed in this country were taking part in Government programmes. If that is the best that we can do, what a waste of money and effort.
Finally, and most fundamentally, the Government can gear research to innovation. Too often in this country we develop a good idea, but never get it embodied into a product. The Government must find ways to step up research carried out in business; to encourage the setting up of technology-based businesses; and to intensify co-operative projects involving public research bodies, universities and industry, encouraging spin-off activities locally, regionally and nationally. The Government must address those key factors.
I have been speaking for more than half an hour. That may have become customary in this debate, but I believe that other colleagues would like to contribute, so I shall try to keep my closing remarks fairly short.
The Liberal Democrats have long recognised the importance of science and engineering in promoting competitiveness. In a world of global competition, the development of science-based industries is essential. Continuous adaptation and change are vital. When products quickly become out of date and skills and machinery become obsolete, we must adapt; we must change. The application of science and technology are integral to the search for sustainability. New technologies not only are more often research and energy efficient, but can be harnessed to develop more sustainable processes. We have a chance in this country to take a lead in developing such products and engineering processes.
We all know that high-quality education and training are essential to our competitiveness if we are to be part of the group of knowledge-based economies of the 21st century. However, we must put in the investment. As the Minister said, we must ensure that members of the work force—our human resources—have the skills to provide them with the opportunity to work for life.
We must support academic research as well as the bid-based research that seems so popular at the moment, because leading-edge research is not only the source of new ideas, but a training ground for those who can translate those ideas into innovative products and processes, and a strong science basis is an essential underpinning for the industries of the future. Governments should not shirk their funding responsibilities for science research.

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The Government should make a commitment to aim to increase the science budget for the United Kingdom, so that we again invest in science research to the same level as our industrial competitors in other parts of the world. We have sadly fallen behind in the past few years.
The evidence is clear: we are lagging behind in innovation and enterprise, and we have done so for at least the last quarter of the century. We are creating and developing an ever-deepening trade deficit. We need to address the key issues, and to promote genuine innovation in our industrial culture. We need to establish a legal, regulatory and financial framework that helps and does not hinder business. We need to gear research to innovation, so that ideas develop into products.
The Government have promised us action in these areas. Some of their proposals are welcome, but we shall reserve judgment until the promises and proposals are turned into policies that are in place and working to embrace fully the challenge of improving innovation and enterprise. No Government, whatever their political complexion, can afford to ignore that challenge any longer. The Government at least realise that there is a lot more to do. They will be judged on how well they do it.
12.11 pm
Barbara Follett: I welcome the opportunity to speak in this debate, but I must apologise because I shall have to leave before its conclusion. A long-standing constituency engagement calls me.
It is not often that the House has the chance to debate issues such as enterprise and innovation, which are more often the subject of academic debate. When I was at university studying economic history, we spent a lot of time learning about enterprise and innovation. Those concepts baffled and fascinated economic historians, who wanted to recreate circumstances similar to those that occurred in this country in the mid-18th century and gave the world its first industrial revolution. At that time, enterprise and innovation came together and were combined with an unusual run of good luck, which for Britain included good weather—highly unusual at any time in this country.
In the 20th century, there has been no lack of innovation in Britain. As my hon. Friend the Member for Eastwood (Mr. Murphy) reminded us, we owe much of today's technology to the British talent for innovation. Listening to my hon. Friend, one would think that all that talent was confined to the northern part of these islands rather than spread throughout them. In the past 60 years, Britain has given the world the computer and antibiotics, and has pioneered the life-changing work on the DNA helix.
Unfortunately, that innovative genius has not always had sufficient entrepreneurial follow through. That is why Europe's largest pharmaceutical research and development facility, which is situated in my constituency, is not British owned. That is why the huge computer defence and satellite companies, which are also housed in my constituency, are only partially British owned. We are good at innovation, but not very good at creating the climate of enterprise in which innovation can flourish. As the hon. Member for Eastleigh (Mr. Chidgey) emphasised, that is the challenge that we face today.
Only once in this century in Britain have we seen the cluster of circumstances that allows innovation and enterprise to combine to create a British-based boom. That
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was the boomlet in the 1960s, when innovative young people in the music and fashion industry transformed this country and its capital: it went from being lethargic to swinging. For a brief moment, they made the economy swing. Despite that mini boom, for Britain, the 20th century has been a century of relative decline. The challenge facing us is to reverse that decline by raising the sustainable rate of growth in the economy.
As my right hon. Friend the Minister pointed out, if we are to do that, we must foster innovation and encourage enterprise by creating macro-economic stability and an entrepreneurial culture. That is Government's role. I do not agree with much that is said by the hon. Member for Buckingham (Mr. Bercow), but I do not think that, in this instance, Government can do more than provide a stable framework in which that entrepreneurial culture can develop.
So far, the debate has concentrated on what is happening nationally. Let me say a little about the progress that has been made in my region, which is in the east, and which is one of the most prosperous and densely populated parts of the country. Over the past two years, there has been a change in its macro-economic stability. As any economist will confirm, such changes result from a combination of good luck and good management. I believe that we have had the good management, along with a certain amount of good luck.
The economic indicators for the eastern region show the results of both factors. We have the lowest interest rates for the past 22 years, employment is rising steadily and unemployment is continuing to fall. In January 1999, 73,000 people were unemployed in the region. Although that figure is still bad, it is 87 per cent. lower than the figure that obtained at the peak of unemployment under the last Government—573,000. Eighty thousand more people are in jobs than at the end of last year, and 100,000 people have been helped into jobs, work experience or training under the new deal. That is good for my region and particularly good for Stevenage, where unemployment has fallen by 60 per cent. over the past two years.
We must create an entrepreneurial culture. In the eastern region, we have pockets of terrible deprivation, some of which are housed by my constituency. We must give people the opportunity to innovate, and we must make the investment to back that innovation. I join my hon. Friend the Member for Eastwood in praising the work of the Prince's Trust; but the new deal has made a huge difference to the mood and the economy of my constituency. In Stevenage, 1,126 young people have already embarked on jobs, work experience or training.
Mr. Bercow: I note what the hon. Lady says about participation in the new deal and, presumably, the benefit derived from that participation. Given that people who take part in the training and education option are twice as likely not to find a job as to find a job, and given that youth unemployment has risen in every quarter since the introduction of the new deal nationally in April 1998, why cannot the hon. Lady admit that this flagship has sunk?
Barbara Follett: Because it has not sunk—particularly in my constituency, where most of those who took advantage of the new deal needed a great deal of training and work experience. Those people were very unlikely to

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obtain jobs without the new deal; they are now very likely to obtain jobs as a result of it. Indeed, many have already obtained jobs.
The entrepreneurial culture in the east of England has been greatly helped by several Government initiatives, some of which came from the last Government. The East of England development agency has been particularly helpful in developing a vision of the eastern region as one of the leading knowledge-based areas in Britain. The Business Link in Hertfordshire has helped firms to become internationally orientated, information technology-literate and innovative. That strategy has been developed within the framework of the strategy of the regional development agencies.
In my constituency, the Stevenage business initiative—which was established by Hertfordshire university, Hertfordshire county council and Stevenage borough council—has provided a wealth of information to small businesses. Each year, it helps between 50 and 100 businesses to set up in Stevenage and north Hertfordshire, bringing employment to the region and providing the mentoring that so many entrepreneurs need.
The Stevenage business initiative has also started a business incubation project, in which we are helping—with help and money from the Department of Trade and Industry—small businesses to develop their businesses on premises owned by Stevenage borough council. We are helping people to learn how to manage their businesses. Britain's main failure has been that, although people may be sufficiently innovative to develop a new product, they probably will lack the managerial skills necessary to ensure that the product is manufactured. In Stevenage, we are doing a great deal to counter that.
The Stevenage business initiative also makes annual enterprise awards to businesses that succeed. This year, I was lucky enough to present an award to 30 young people who had succeeded in a variety of businesses, making a difference not only to their lives, but to the life of their communities.
Innovation and enterprise are vital to our country's future. For far too long, we have derided those who have taken risks—taken their lives in their hands—by not only inventing new and wonderful things, but showing the courage to take their products into the marketplace, to try to sell them.
Britain has very few statutes dedicated to entrepreneurs, just as we have very few statutes honouring engineers. I hope that one consequence of the change in our entrepreneurial culture will be an end to some of our stuffy traditions and ways of looking at enterprise, so that we can start to honour some of those who have helped to make Britain great.
12.22 pm
Mr. John Bercow: It is a pleasure to be called to speak in this debate. I am particularly delighted to follow my hon. Friend the Member for Rutland and Melton (Mr. Duncan), whom I should like to congratulate both on his appointment to the shadow Trade and Industry team and on his outstanding opening speech for the Opposition.
My hon. Friend is a formidable and forensic critic of the Government, and an equally formidable exponent of the Conservative case. I think that both Government Front
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Benchers and Government Back Benchers will discover that, to their cost, in the months ahead. He flayed them this morning. If precedent is anything by which to judge, he will flay them before breakfast, before lunch, before tea, before dinner and before he consumes his cup of Horlicks or Ovaltine before retiring to bed at night. I am also delighted to follow the hon. Member for Stevenage (Barbara Follett).
It is essential to put the debate in context, not least for small firms—which is why the presence of the Minister for Small Firms, Trade and Industry is so welcome. We talk about small firms, and everyone says how critical they are, but none of us adequately emphasises their centrality to enterprise and innovation.
Specifically, we should recognise that companies employing fewer than 100 people constitute 99.6 per cent. of British firms, employ 50 per cent. of the private sector work force, and produce two fifths of the nation's output. That is the measure of their centrality within the British economy. They are the key engine of economic growth, the major source of new employment, and the seedcorn of our current and future prosperity.
The second point that needs to be understood about small firms is that they are in difficulty. Lately, there has been an exponential rise in business failures, which must be a source of concern to hon. Members on both sides the House.
The Minister will be aware that in the first quarter of this year, relative to last year, based on the findings of the respected credit information agency Dun and Bradstreet, there has been a 9 per cent. rise in company liquidations. That in itself is a matter for anxiety, but when the House reflects on the fact that for small businesses the increase in liquidations is 32 per cent.—three and a half times the rate of increase in liquidations generally—the serious plight of small companies becomes abundantly clear. On one hand they are important because they employ so many people, are the engine of growth and are crucial to our future prosperity; on the other, they are suffering disproportionately from a general increase in liquidations. Therefore it is important for us to focus not just on what the Government can do to assist small businesses by active measures, but on what they can refrain from doing and thereby assist the development of small businesses.
I want to focus on one particular aspect of public policy that has been touched on by other hon. Members. I shall elaborate on that feature, namely regulation and the burgeoning over-regulation of British small and medium enterprises.
Conservative Members differ fundamentally and conceptually from Labour Members. The Conservative party takes the view best expressed by my right hon. and noble Friend Lord Lawson of Blaby that the business of government is not the government of business. That is the fundamental distinction.
As my hon. Friend the Member for Rutland and Melton so appositely observed, the trouble with Ministers is that they mouth the words, but they do not understand them; they utter the sentiments, but they do not will the means to translate those sentiments into practical policies of benefit to the enterprises on which our prosperity depends. That is the problem. My hon. Friend characteristically, with that self-effacing charm for which he is renowned, understated his case. I have had words with him before about his unfailing tendency to understate his case, to be

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a little on the modest side and a trifle too generous to Ministers. I hope that I do not have to upbraid him again on this point—I do so now in front of the whole House—but his gentle instincts got the better of him again and he was a bit soft on Ministers.
The problem seems to be that many Labour Members do not believe in anything in respect of enterprise, innovation and small businesses. Some of us entered public life because we have passionate beliefs, intellectual convictions and gut instincts. None of that is evident from Labour Members and that is part of the problem. Because they do not know quite what to do, they tend to go back to what Labour Administrations have always done in the past.
I draw attention to two aspects of regulation: the rhetoric of Ministers and the reality of policy. I should like to dwell on the rhetoric of Labour Ministers. That rhetoric is important; we have to understand it and see whether policy matches up to it or contravenes it.
The first statement to which I draw attention is in the form of a foreword to Labour's business manifesto entitled "Equipping Britain for the Future" and published on 11 April 1997, pretty well at the start of the general election campaign. It was composed or at least signed by the Chancellor of the Exchequer, the right hon. Member for Dunfermline, East (Mr. Brown), then shadow Chancellor. For the delectation of my hon. Friends, I shall quote him. He said:
"We will not impose burdensome regulations on business, because we understand that Successful businesses must keep costs down."
We are grateful for that. The right hon. Gentleman is a sinner who repenteth. He underwent an apostolic conversion, suddenly discovering what the Conservatives had been saying for a long time. We must not be narrow, ungracious or unwilling to recognise the possibility that Labour Members can see the light, change their minds and chart a better course for the future. My hon. Friend the Member for Rutland and Melton was ready to acknowledge that and so am I. I took that statement at face value and waited to see whether it was put into effect.
On 7 November 1997, the hon. Member for Hornsey and Wood Green (Mrs. Roche), who was then the Minister for Small Firms, Trade and Industry—the predecessor of the hon. Member for North Swindon (Mr. Wills)—said:
"We are moving purposefully and very speedily to bring about simpler government and cut red tape, which is a real barrier to growth for small businesses."—[Official Report, 7 November 1997; Vol. 300, c. 483.]
That was an unexceptional comment that many of us could have made some years earlier, but I welcomed it. The problem is that it was not in accordance with what the Government were doing.
The right hon. Member for Hartlepool (Mr. Mandelson), the former Secretary of State for Trade and Industry, who unfortunately is not favouring the House with his presence, made a similar statement almost 19 months into the term of office of this Administration. In one of his last pronouncements from the Dispatch Box, on 25 November last year, he said:
"we have no intention of introducing any legislation that presents a burden on business and reduces the competitiveness of British firms."—[Official Report, 25 November 1998; Vol. 321, c. 214.]
The trouble is that the Government have been burdening business with additional regulations, costs, legislation and red tape since they came to office.
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Approximately 2,500 additional regulations have spewed forth from the machinery of government in that time. That is a classic illustration of the point that my hon. Friend the Member for Rutland and Melton made earlier that Ministers mouth the words, but do not will the means. Worse than that, they do not merely leave a vacuum, but directly contradict those words.
I would like to be charitable and think that the right hon. Member for Hartlepool was blissfully ignorant of the fact that his words were contradicted by the reality. That would be charitable in one sense, because it would mean that the right hon. Gentleman was innocent of bad motives, but it would be uncharitable—and probably inaccurate—in another respect, because it would imply that he was stupid. There are many sins of which I accuse him, but political stupidity is not one of them. He must have known that what he said was not true and that the Government were implementing measures that directly contradicted the reality.
The second feature of the debate is the reality of the Government's record. My hon. Friend the Member for Rutland and Melton dissected the record earlier. I should like to develop that dissection.
The first example is the working time directive, which will cost British businesses approximately £2 billion a year. British businesses received from the right hon. Member for Hartlepool 45 days' notice of the requirement to implement that directive. If that was not a calculated insult to small and medium-sized enterprises in the United Kingdom, it is difficult to know what is—a mere six and a half weeks' notice of implementation, and wholly inadequate consultation on the regulations.
Moreover, the regulations accompanying the measure, and necessary to give effect in British law to the working time directive, took up 71 pages of A4 paper. It is frankly abominable that a Labour Minister should commit that folly in 1999, and then have the chutzpah to talk about believing in the cause of enterprise, innovation and the growth of small businesses.
The second example is the national minimum wage. That will cost British businesses approximately £2.7 billion a year. British businesses were given three weeks' notice of the requirement to implement the national minimum wage. The regulations governing the implementation of that wage took up fully 112 pages of A4 paper. Small businesses were expected to contend with, and give effect to, those regulations with only three weeks' notice. We all know that regulations are disproportionately burdensome for small companies—in terms of compliance with tax regulations, for example.
Mr. Dawson: Is the hon. Gentleman saying that he would advocate strongly with his party that the Conservatives should go into the next election calling for the abolition of the national minimum wage? Does he support the cowboy economy that has been so graphically described to me by one of my business constituents, where people are exploited at work?
Mr. Bercow: No, I do not support exploitation at work. Regrettably, I did not have the pleasure of the company of the hon. Member for Lancaster and Wyre (Mr. Dawson) during the Committee's consideration of the National Minimum Wage Bill. It would have been a delight to welcome him. Had he been on the

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Committee—I accept that it was not his fault that he was not—he would have heard me explain at some length how, when I was in the private sector, I took great pains to ensure that a colleague who was wrongly denied a bonus by her employers, and was too cowed to pursue the point, got what she was entitled to receive. Some of my hon. Friends went so far as to suggest that I was a champion of the under-privileged. It is not for me to overstate my case to the House. However, most good employers who can afford to do so pay decent wages and afford their employees decent conditions, and that is right.
It was the specific point about the enormously burdensome application of the minimum wage and the poor notice of the imminent burden on which I was focusing. I understand the eagerness of the hon. Member for Lancaster and Wyre, eagerness to know how the Conservative party intends to fight the next election but, with great respect, we are only two years after the last election. The hon. Gentleman is a person of good intentions, but it is a bit rich of him to expect us to provide him with an advance copy of the next Conservative election manifesto. If that is what he is requesting, I am afraid that I must politely decline.
Mr. Wills: We want to know the Conservative party's policy on the national minimum wage. I am sure that the hon. Gentleman knows what he thinks about the national minimum wage. Would he repeal it if the Conservatives ever came back to power?
Mr. Bercow: I am disappointed. I thought that the Under-Secretary had got the point the first time, but he did not. The Conservative Opposition have made it clear that we thought that it was unwise to introduce a national minimum wage of a statutory character. We were joined in that by the Federation of Small Businesses, the Forum of Private Business, the Confederation of British Industry, British Chambers of Commerce and the Institute of Directors. If the Under-Secretary wants to know now what we intend to say at the general election, he is inviting me to do something that it is not reasonable to expect me to do.
We will make clear our intentions at the next election. The Under-Secretary is ordinarily a patient fellow, but I know that there are beads of sweat upon his brow in eager anticipation of discovering what we intend. However, I hasten to assure him that, if he is patient, Pandora's box will be opened in due course. He need not be concerned on that point. We will have a policy, clearly set out, to appeal to the electorate, to business and to all reasonable-minded people who know the cost of what the Government are doing.
The Minister sought to assuage the concerns of the House about works councils by saying that there is no proposal on the table. He and the Under-Secretary ought to know of the enthusiasm of Padraig Flynn and others in the European Commission for introducing proposals for national works councils. It has been variously suggested that such councils would apply to firms with fewer than 50 or even as few as 20 employees.
It is no good the Minister implying that the Government would successfully fight works councils by use of the veto, as I hope that he is sufficiently well informed to
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know that they do not have a veto, because they foolishly signed up to the social chapter, the opportunity to do which the previous Government wisely eschewed. Much of the legislation arising from the social chapter is determinable by qualified majority voting, so we have no veto.
The first President of the Board of Trade in this Government, now the Leader of the House, told the Select Committee on Trade and Industry that she was opposed to national works councils. She then went into the lions' den and appeared on the BBC's ""On the Record", where she was interviewed, if memory serves me correctly, on 9 November 1997 by Jonathan Dimbleby.
There was a most interesting exchange. Mr. Dimbleby pressed her on works councils and she reiterated her opposition to the plans being mooted in the Commission. He asked what she would do if the Commission pressed ahead and she was outnumbered, given that the matter was determinable by qualified majority voting. It is only right to record for posterity her legendary response. She said, "Well, er, we shall see how things go."
Mr. Wills: The hon. Gentleman has just said that about the national minimum wage.
Mr. Bercow: I thought that my answer was a little more lucid, and it did not include an "er".
The right hon. Lady had no idea what she would do. The concern that my hon. Friend the Member for Rutland and Melton raised about works councils remains very real and very worrying for businesses the length and breadth of the United Kingdom.
The administrative regulations relating to the working families tax credit will have a damaging impact on small businesses. Then we have the child care credit, the disabled persons learning credit and the student loan repayment administration regulations. Whatever the intrinsic merits or demerits of those measures as public policy, they all entail a shuffling off of responsibility from Government agencies to beleaguered small businesses.
On top of everything else with which those businesses have to contend—including the macro-economic climate, international trading conditions and local employment markets—they are faced with damaging imposts from a Government who are insensitive to, and usually unconscious of, their needs.
Even if firms do relatively little cross-border trade, they have to comply with the regulations on self-assessment for transfer pricing, and the perverse manner in which the Inland Revenue operates is such that the normal principle that one is innocent until proven guilty does not apply. It is necessary for small firms to demonstrate compliance with the regulations and they are assumed to be guilty unless they are able to demonstrate that they are innocent to the satisfaction of the bureaucrats.
I have mentioned several serious issues and there are many others with which I could favour the House if only there were time to do so.
Mr. James Gray: Go on!
Mr. Bercow: My hon. Friend is cheekily encouraging me to dilate upon those matters, but that would be unfair. I had an exchange with the hon. Member for Croydon,

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Central (Mr. Davies) earlier, and he was perturbed about whether he would have the chance to contribute to the debate. I would like him to do so and I would also like to hear from my senior colleague, my hon. Friend the Member for Bournemouth, West (Mr. Butterfill), so I will not focus on those other issues.
I have given practical examples of measures that are injurious to small businesses. There is an extraordinary mismatch between what Ministers say in their speeches and the truth about what is happening.
Mr. Gray: I had hoped that my hon. Friend would address a damaging press release—IR 35—put out by the Inland Revenue, which bears down heavily on contractors in the information technology and telecommunications industries. It will put most of them out of business on the assumption that, as contractors, they are merely trying to avoid national insurance. Interestingly, that policy was announced in a press release, not announced by a Minister in a speech. Is that how the other measures that my hon. Friend mentioned were announced?
Mr. Bercow: That is a growing tendency, and Madam Speaker has expressed concern about it on several occasions. I would not seek to take the name of Madam Speaker in vain, because that would be improper, but I do not need to look into a crystal ball when I can read Hansard. Madam Speaker has many times said that it is grossly unsatisfactory that Ministers disclose policy intentions via press conference, written answer or leak to favoured journalists, instead of paying this elected House the respect of announcing policies in the House and subjecting themselves to interrogation on them. That practice is emblematic of the arrogance, the presidentialism and the sneering disdain for alternative viewpoints that is regularly exhibited by Ministers and, not infrequently, by Labour Back Benchers.
Mr. Butterfill: I was until recently a director of the Delphi Group, which is this country's largest placer of information technology contractors, and I can confirm that the damage that is being done to industry is incalculable. The United Kingdom used to be the largest suppliers of IT contractors in the world, apart from the United States of America, and what is happening is driving those people abroad to Europe or the USA. The UK economy is losing an important source of talent, energy and innovation.
Mr. Bercow: My hon. Friend is right to underline how serious the situation is. When Ministers talk, as they regularly do, about encouraging exports, it is horrifying to think that that is what they mean. We want to export products to make money, to keep staff, to increase employment opportunities and to generate wealth to make UK plc more successful and better able to provide the quality of public services that a civilised community is entitled to expect. We do not want to export talent. We do not want a brain drain or to find that businesses cannot operate here and choose instead to go elsewhere. The fact that that is happening on a significant scale in an industry with which my hon. Friend is closely acquainted is very serious and I ask the Minister to guarantee—a simple nod of his head will suffice—that he intends to deal with that point in his reply to the debate.
Mr. Wills indicated assent.
Mr. Bercow: I am grateful to the Minister for that confirmation.
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I attempted, as a modest Back-Bench Member, to improve the situation by introducing a ten-minute Bill on regulation on business. I wanted to call it the Lifting Burdens from Small Firms Bill, but was advised by the esteemed officials of the House that that would have been too evaluative a title. Those in a position to advise me suggested that it should be the Regulations on Small Businesses (Reduction) Bill, and I had the great pleasure of introducing it on 27 April.
The Bill was intended to be constructive and reflected many constituency representations. It made six proposals to improve the regulatory situation. First, it requested, for the benefit of enterprising and innovative businesses, that there should be an annual statement to Parliament of the cost of regulation on business and of the Government's plans to reduce the cost in the following year. I was horrified to learn from a written reply from the Parliamentary Secretary, Cabinet Office that the Government made no such statement in any form, and had no intention of doing so. I therefore emphasised the first point in my eminently reasonable Bill with particular force. Clearly, we need to know what the costs are, whether or not the Government plan to reduce them, and if they do, by how much.
Secondly, I asked that Parliament should be apprised every six months of the progress of any deregulatory initiatives, the steps taken by the Government and their calculation of the effect of those steps. Thirdly, I requested a review of existing regulation to see where gold-plating of European directives and regulations was taking place and where there might be scope to remove or simplify regulations. Fourthly, I suggested exemption from the most burdensome regulations for the smallest firms.
Fifthly, I proposed a system of sunset regulation under which regulations would automatically expire after a given period—three or five years—if they were not of sufficient merit to be re-enacted by Parliament. That proposal was based on the American model, which applies successfully at state and federal level. I drew the House's attention to the basis of the American model—the Regulatory Flexibility Act 1980 and the Small Business Regulatory Enforcement Fairness Act 1996.
Sixthly, my Bill proposed a minimum of three months' consultation on proposed regulations, and a minimum three months' notice of a requirement to implement them. The proposals were sensible, and I received warm support in my constituency and encouragement from a range of business organisations. Members of the public who had listened to the presentation of the Bill wrote to say that it was good sense and that it should not be a matter of party political dispute. I had addressed a problem and proposed a solution. People hoped that the Government would accept it as a non-partisan solution.
There was no frothing at the mouth in my proposals. The Minister of State regularly portrays my hon. Friend the Member for Rutland and Melton and me as right-wing firebrands, but my hon. Friends know that we are consensually minded figures who hold relatively middle-of-the-road views on many matters of public policy. We were simply seeking to identify a problem in detail and propose an effective solution. I hoped that I would get a helpful response.
Regrettably, the signs have been confusing. On 25 March, the Minister wrote to me in response to queries that I put to him in the Employment Relations Bill

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Committee about the American model. He described it somewhat dismissively as "highly prescriptive", and talked about the importance of rooting British policy in British traditions. That is so vague as to be largely meaningless. He inferred—I put no more strongly—that the Government did not propose to adopt my model.
Mr. Wills: Implied.
Mr. Bercow: I thought that the Minister inferred it, but if he wants to say that he implied it, I am happy to accept that. Moreover, a month later, on 27 April, after the presentation of my Bill, I had a brief chat with him. He said to me, "Right diagnosis, wrong prescription." That was explicit. It seemed obvious then that Ministers did not intend to heed my words or apply the measures recommended in my Bill.
Since then, the situation has become curiouser and curiouser. We have now had pronouncements on this important matter from the Secretary of State for Trade and Industry. My Bill was commended to him by my right hon. Friend the Member for Wokingham (Mr. Redwood) and, in the course of a parliamentary exchange, the Secretary of State invited me to send him a copy of my Bill and the speech accompanying its presentation with a view to him considering its proposals. It is now 36 days since I wrote to him and, while I have not yet had a response, I feel sure that one is winging its way to me. I shall soon be put out of my misery and learn whether he was impressed.
We have had some anecdotal evidence in the interim that is important for the future of small and medium-sized enterprises that want to prosper and seek to innovate. To his credit, the Secretary of State has admitted that the Government have not got it right on regulation. He gave an interview to The Daily Telegraph or The Sunday Telegraph on the subject and repeated the point on 20 April to the Select Committee on Trade and Industry, of which I happen to be a member. He admitted that the Government have not got it right and would have to do better.
I have still had no response to my letter of 20 May. I then chanced upon the Secretary of State's seminal speech to British Chambers of Commerce on 3 June. Whether it is indicative of a likely improvement in Government policy, we do not yet know. It would be premature to say that Government policy has changed for the better because, although there were encouraging words, they were only words. We do not know whether action to match them will follow. Interestingly, he said that, too often, regulations had been introduced with too little consultation and too little warning. I felt vindicated. A mere Back Bencher discovers that his words are echoed by one of the mightiest men in the land. Suddenly, the Secretary of State says with all the authority of his high office to a large audience at British Chambers of Commerce conference what I have been saying for some time to a not-always-packed House and to other audiences. He went on to say that we had to think small first—I must emphasise that I think that he was referring to small businesses rather than to my hon. Friend the Member for Rutland and Melton (Mr. Duncan) or to me. We had to think of small businesses first.
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I was supremely encouraged when he said that he found the idea of sunset regulation attractive. At the meeting of the Trade and Industry Committee on 4 November last year, in response to questioning from me, the right hon. Member for Hartlepool (Mr. Mandelson), then the Secretary of State for Trade and Industry, somewhat pooh-poohed the notion of sunset regulation. Indeed, I am sure that the Under-Secretary will not mind if I point out that, in the first instance, the right hon. Member for Hartlepool did not even know what sunset regulation was. I was astonished. I was flabbergasted. I was under the impression that he knew all about the American model. He talked regularly about his visits to the United States. A few days before his appearance before the Select Committee, he had made a speech in which he talked about US enterprise and dynamism. I asked him about sunset regulation, to which he replied, "By which you mean?" I had to explain to the most illustrious representative of new Labour exactly what sunset regulation meant.
One cannot accuse the present incumbent of such woeful ignorance. The Secretary of State knows what sunset regulation is. In his most recent speech on the subject, he said that he found the idea attractive. That is most confusing, because the Under-Secretary gave the distinct impression—obviously not inadvertently, but deliberately—that the Government did not intend to emulate the American model. There is a split between the Under-Secretary on one hand and the Secretary of State on the other.
Mr. Wills rose—
Mr. Bercow: I readily give way to the Under-Secretary. I can see that he is in a state of some perturbation.
Mr. Wills: I hate to see the hon. Gentleman suffering in this way. Let me try to put him out of his misery. Perhaps that will enable him to move on to something else in his most interesting speech. To clarify the point, I suggested that we were not going to adopt American legislation in this country, for the reasons already cited by the hon. Gentleman. Let me make that quite clear: American legislation in this country—not.
Mr. Bercow: I fear that the hon. Gentleman digs himself deeper in. He is wobbling. The idea that American legislation could be directly implemented in the United Kingdom is patently absurd. We are not talking about the transposition of European Union directives and regulations into British law. The issue was whether we would follow the American model. I counsel the hon. Gentleman—for whom I have considerable affection, because he was immensely courteous during the Committee proceedings of the Employment Relations Bill—to take note of the old adage: better to remain silent and look a fool than speak and remove any lingering doubt. The hon. Gentleman is on weak ground; he knows perfectly well that he was against the American model. The Secretary of State is now making noises that give the impression that he is in favour of that model. What we do not know is whether the words about the American model will be translated into practical reality. That is what we want to know.

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The second, potentially fatal, split in the Department of Trade and Industry is between the Secretary of State and his Minister of State. I mean no disrespect to the Under-Secretary when I say that it is one thing for the Secretary of State to have a minor tussle with his junior Minister—I do not suppose that the right hon. Gentleman takes umbrage at that; he probably feels that he can contend with the fact that a junior Minister in his Department holds a different view to his own—but to have as his Minister of State a left-wing troglodyte, who is fundamentally opposed to the deregulatory initiatives that the Secretary of State now claims to support, is grave indeed. It is not clear what progress we can make in those circumstances.
We hear words from some Ministers about enterprise, deregulation and the minimising of burdens. We do not hear those words from other Ministers.
Mr. Geraint Davies: In relation to the minimising of burdens, the hon. Gentleman assured me earlier that he would be brief. So far, he has spoken for more than 40 minutes, so, in respect of burdens, perhaps he would like to bring his comments to a close before we fall asleep.
Mr. Bercow: I thank the hon. Gentleman for his intervention. First, I did not say anything of the sort to him. It is characteristic of new Labour to twist and turn and misrepresent in every conceivable fashion. Secondly, although I have the highest regard for the hon. Gentleman, I was not aware that he had yet reached the lofty height of either Speaker or Deputy Speaker. If he will forgive me, I shall take my cue from the Deputy Speaker in the Chair. I am not inclined to be guided by the hon. Gentleman's benevolent counsel about the length or content of my speech.
I am concerned about reducing regulations on businesses. The Government are lacerating small businesses. I and my right hon. and hon. Friends want to liberate small businesses. My ten-minute Bill on 27 April this year was a small step in a positive direction at an opportune time. The Government should have supported it. They should not be dithering. They should be introducing their own practical and detailed proposals.
Are the Government blissfully unaware of the sheer scale of the anger of British businesses about the imposts upon them? Do they not know that, on 3 November last year, the president of the Confederation of British Industry, Sir Clive Thompson, described the regulation flowing forth from the Government as a "creeping paralysis", and that he went on to say that, unless action was taken to arrest and reverse the phenomenon, regulation would be the only growth marker in the British economy in 1999?
Is the hon. Member for Croydon, Central (Mr. Davies) proud of the fact that the president of the CBI so strongly disapproves of the anti-business, anti-enterprise and anti-profit-making culture that is being spawned by a combination of errors of commission and omission by the Government? If he is proud of it, let him defend that stance in front of his electors.
I am not proud of such a stance. I intend to carry on criticising it. I favour a better stance, a Conservative stance, a deregulatory stance, an enterprise-oriented stance—a stance that offers the prospect that small businesses will continue to be, and increasingly be,
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the engine of economic growth, increased employment and enhanced prosperity for all our people long into the future. At present, the Government do not offer that prospect; the Opposition assuredly do.
1.7 pm
Mr. Geraint Davies: I thank the hon. Member for Buckingham (Mr. Bercow) for completing his comments within 45 minutes. He seemed to speak not so much about business as about regulation and deregulation. I shall deal with some of those points.
My background is in multinational business; I then started a number of businesses myself. I mention that in response to some of the Opposition comments about Labour Members not having a business background.
I shall not spend a great deal of time speaking about the general economic environmental benefits that have allowed enormous growth in small and medium-sized enterprises in the British economy since the present Government took power. Hon. Members are aware of the extra 400,000 jobs, the lowest inflation in six or seven years, the lowest long-term interest rates in 40 years and the low short-term interest rates, all of which have come about under this Government. The overall environment of stability and job creation has been extremely successful.
Enterprise is in the mind of the entrepreneur. The Government have taken numerous structural and fiscal steps to encourage entrepreneurial activity in small business. When people leave school or university, they should not ask, "Who will give me a job?" They should be thinking actively about how they might become involved in creating new jobs, products and opportunities, rather than walking into a job. We have not quite cracked that problem, but the Government are moving quickly towards resolving it.
The attitude towards risk in Britain is not as ambitious as in the United States. There, on average, every millionaire has gone bankrupt three times. The Government are rightly encouraging responsible risk-taking, which is what we need. However, people are still reluctant to move from a cushy environment to one in which they are taking risks and creating wealth.
The financial situation for small businesses in Britain has historically been difficult, because they have tended to rely on high street banks, which want the collateral of the business man's house, and pull the rug if anything goes wrong. The banks will not consider orders to be guarantees of future cash flow income and have often forced small businesses into bankruptcy on that basis. That is not the situation in continental Europe, where banks often take equity in small businesses.
Fortunately, the Government have been responding to that agenda by trying to establish and encourage venture capital funds, but the difficulty is that venture capital in Britain tends to be focused on big re-engineering—management buy-outs and the like—and not on small business start-ups, which are seen as irrelevant to getting the big bucks. We need to confront the issue of making that culture change, especially if we are to avoid competition from the United States for venture capital opportunities in the single market.
Mr. Butterfill: I must declare an interest. For many years, I have been an adviser to the British Venture Capital Association. The hon. Gentleman is not exactly

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correct. Although funds are used predominantly in larger businesses, this country's venture capital industry, which is the second largest in the world, supports a much greater number of small businesses in respect of the number of transactions—that is what should be looked at—and that trend is increasing.
Mr. Davies: My point is that the share of cash invested is biased enormously to the larger transactions and the re-engineering of big corporations. There is a great difference between the situation here and that in the United States. The expertise that has been built up in the venture capital industry to enable start-ups is not as developed as that in the United States, although it is growing and the Government are increasing it. We want that expertise to be targeted regionally on the strategies emerging from the regional development agencies.
It is important that the Government consider getting rid of regulations as well as introducing them, and my right hon. Friend the Secretary of State rightly made a big play of that in his speech to British Chambers of Commerce. In a sense, regulation is a poll tax on all businesses. Although big businesses such as Asda, which has been mentioned in many of our debates, have been progressive in introducing regulation, which is all well and good for them, the administrative burden is small compared with that for a small operator.
We should all bear that point in mind, because big retail and manufacturing operators often want to get rid of small competitors. One way to do that is to encourage more regulation. Although that sounds peculiar, it is the case.
Mr. Bercow: Will the hon. Gentleman give way?
Mr. Davies: I will take a brief intervention, even though the hon. Gentleman gave us a 45-minute monologue.
Mr. Bercow: The hon. Gentleman should be grateful that the substance of his speech is such that it has inspired an intervention from me. I am listening to him intently. I have two points to make. First, will he confirm that he accepts the calculation that the smallest firms—those employing one to four people for the purposes of compliance with tax legislation—face an annual cost of £288 per employee, whereas the largest firms, with 5,000 or more employees, face a cost per head of only about £5?
Secondly, can the hon. Gentleman clear up a smidgen of confusion resulting from the Minister of State's contribution? Given that the Secretary of State said in his speech to British Chambers of Commerce on 3 June that he intended to make three significant statements on deregulation in June, and that that speech was the first of the three, what were the other two? Have we had them yet, did we miss them or have we a treat awaiting us next week?
Mr. Davies: I must confess that, unfortunately, the Secretary of State has not disclosed his particular intention to me. I am not in a position to answer that question, as the hon. Gentleman may have guessed.
Mr. Wills: Perhaps I can give the House two other examples. First, we have launched a consultation
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document on the automated payroll service which, as the hon. Member for Buckingham (Mr. Bercow) will be aware, will help small firms with one of the most onerous burdens on them—administering a payroll. Secondly, as he will also be aware, next week we are launching the consultation document on the Small Business Service, which is specifically tasked with helping small firms to cope with regulations. Those are but two examples.
Mr. Davies: The Small Business Service, which we are all about to enjoy, is of paramount importance in focusing the eyes of civil servants and others on the needs of small business in terms of the overhead of regulation. I do not want to take too much time because I have criticised the hon. Member for Buckingham for taking a great deal of time, but I want to cite as an example of regulation what happened when I started a tour operating company.
In VAT law, there is something called the tour operators' margin scheme. The tour operator would receive some money from people who were going on holiday. After deducting the cost of flights to leave the gross margin, one would pay VAT on that part of the gross margin associated with accommodation. That was fine. Then, suddenly, it was decided that a company must pay VAT on both the accommodation and the flight element of the gross margin unless it owned an airline. That was unfair to small businesses without an airline. Small business responded to that effect. The advice from Customs and Excise was, "In that case, start up your own airline company."

So, I then had to start another company—an aviation company—which simply bought from the people from whom I was buying flights in the first place. The new company sold to the original one with a margin, then paid back a management fee to equalise the impact on VAT. The costs of that process, and the fact that entrepreneurial and management time is being diverted into that, are ridiculous.
That is a simple example of structures that can come from Europe, or from the Government—that change took place under the previous Government—which can have a very difficult impact on small businesses that are competing internationally against very large operators. Such problems are now well known to Government, which is why the issue has risen to the top of the agenda—hence the statement made by the Secretary of State to British Chambers of Commerce.
Inward investment, which tends to be from larger companies, has a direct spin-off effect on small and medium-sized enterprises servicing them. Recently, I attended a meeting of Japanese industrialists and financiers in Britain. They discussed the prospects for future investment and the fact that, increasingly, they were looking for added value in Britain rather than mechanical assembly work. That emphasises the need, of which the Government are aware, for our focus on education, education, education, to be about adding value to the things that we do in this economy and generating decent wages in a competitive way. We are not competing on a very low skill basis with the developing world, which would be in no one's interests.
Europe and the euro have been alluded to. As is known, the Government's position is that we should move forward as and when the conditions are right for Britain to enter. That is an important point, because although

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Japanese investors are happy to invest in Britain as a platform into continental Europe, if they thought that we would never join the single currency—which is the view of some people—they would simply move their investment into continental Europe. In the meantime, those people who feel more risk averse about our eventual intentions are hedging their bets, and some of their production is going over to the euro.
A similar process is evident in the financial markets. Institutions such as the Industrial Bank of Japan must decide where to site their administration—Frankfurt, Paris or London. We need to think about that in the context of innovation and enterprise, which cannot simply be about small business. We are talking about enterprise and innovation in large business, and the relationship between large and small business. Investors are attracted by the English language, access to the European markets, and the more flexible and less-regulated market in Britain. To be competitive, we need to preserve that.
Training and added value are key issues. The difficulty for any company in the business culture in the United Kingdom and the United States, which is different from that in Japan, is that people do not stay all their working lives in one company, so it cannot freely invest enormous amounts of money in human capital and productivity in the knowledge that people will stay for life and it will not lose that investment. In Britain, companies invest in management and productivity, but people then go to another company. There is a danger of poaching, which is a disincentive for companies to invest in higher productivity.
We must devise strategies for transferring the training risk. We have already begun to create links between universities and industry so that the risk is shared. More productive people will emerge from that, which will be good for the economy and the Exchequer, and will create additional jobs. That is to be welcomed. I was involved with the university for industry in its infancy, and it is good that the Government have such high ambitions for the success of that idea.
Hon. Members have not mentioned the internet as a means of generating more prosperity for small business. Small businesses, by their very nature, tend to trade in a small area, not internationally. The internet offers a new opportunity for small businesses in Britain to find market niches anywhere in the world. The single currency will make that easier. We have sterling, but there is a single currency in Europe, so there is no need to have many transactions.
Complementary products and compatible markets can be found on the internet. That will enable small businesses to grow. There are new opportunities to generate products by sourcing products from foreign markets. There is an argument for import substitution. People buy products that are exported to Britain and are not produced in this country. Why are they not produced in Britain? Could they be produced here? Do the Government have a role to play in helping to facilitate the production of competitive products? Perhaps the regional development agencies could be involved. I should be interested in the Minister's thoughts on that.
Products emerge in other markets that are not yet prospective imports into this country. If we were quick enough, we could create similar products and establish export businesses in that market. Does the electronic age provide partnership opportunities to enable us to do that?
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The Government have created the conditions for success in Britain: a stable environment, stable interest rates, and an increase in the number of people in work. They are committed to containing regulation so that it is not a hindrance to successful business, and are creating an enterprise and innovation culture. As we approach the millennium with new confidence, Britain can be proud to be leading the field.
1.23 pm
Mr. John Butterfill: I shall follow the example of my hon. Friend the Member for Rutland and Melton (Mr. Duncan) and declare my interests as recorded in the register. I am a partner in a family firm of consultancy on finance, corporate affairs and real estate. I am a director of Miller Non-Marine Ltd., which is one of the leading Lloyds insurance broking companies. I have a residual interest in Curchod and Company, a firm of chartered surveyors of which I was a senior partner before I entered the House. I have for many years been the parliamentary adviser to the British Venture Capital Association. I hope that, in some small way, I have contributed to the growth and success of the venture capital industry.
I have listened with great care to the speeches of Labour Members. Not everything that the Government have done to encourage industry and commerce has been entirely bad—some of their proposals have been helpful in principle. The changes to the capital gains tax regime are a step in the right direction. However, the abolition of indexation and the introduction of a 10-year taper will mean not just that an entrepreneur will be locked in for far longer, but that in most instances he will end up paying more tax. The taper is far too long, and the definition of business assets is far too narrowly drawn. I welcome the principle of a taper for capital gains, but I hope that the Government will look at the length of the taper, because it is not encouraging new investment at present. That is the view of the British Venture Capital Association, and the view of all other serious commentators.
I am worried about the general direction of policy in other respects, and I shall expand on that shortly. First, however, I think it worthwhile to consider the direction in which the country has moved since the last Labour Government. At that time, the British economy was largely a command economy. Huge swathes of industry were nationalised and in public hands. That economy was regarded as the sick man of Europe. Trade unions had massive power, and at the same time we had appalling industrial relations. We had one of the worst strike records among the western economies.
As a result of all that, our economy was steadily going down the tubes. If we had continued with the policies that were being pursued then, we would still be in that sorry state now. Fortunately, even this Labour Government no longer believe in most of those policies, but there are worrying signs that they are turning back in that direction.
The last Conservative Government changed everything. We reformed trade union legislation. We now have the best strike record in Europe, and the lowest levels of unemployment in Europe. We have privatised all those massive state industries. Who would want to return to the days when telephones were obtained from the Post Office? We could have any phone we liked, as long as it was black and had a funny circular dial. Today, we have an industry that is a world leader.

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Who would want to return to the days of the old BEA and BOAC? The service was appalling, and the cost of the subsidy from the taxpayer was massive. Today's modern, dynamic industry boasts not just British Airways—probably the world's leading airline—but plenty of deregulated competitors, such as Virgin Airways, British Midland and easyJet. They have been an enormous success, and they have liberated the British economy.
The last Government's abolition of exchange controls, which was vehemently opposed by the Labour party, was probably the most important deregulatory step that could have been taken. No one would reverse that today. Indeed, all the deregulatory reforms undertaken by the last Government are being earnestly emulated throughout the world, even in the former Soviet bloc countries. In fact, many of those countries are deregulating rather more quickly than we are under the present Government.
I must confess, as a long-time enthusiast for the European Union, that my initial enthusiasm was born of two things. First, I felt that the EU's political objectives were highly desirable, in that they combined the free economies of Europe and would prevent our ever going to war again. The vision of people such as Mr. Schuman was outstanding in that respect. Secondly, during the days of the Labour Government—I have described the position of our economy under that Government—we saw the countries of the European Union, as it is now, as a bastion of free enterprise, innovation and harmonious working relations. We did not have that in this country. One therefore thought that, by joining the European Union, we could perhaps prevent the slide into state socialism that we were experiencing and, by that association, improve our economy.
Sadly, the situation in the European Union has rather changed. In various European countries, profoundly interventionist legislation has followed the election of a succession of socialist Governments. Those countries maintain very large parts of their economy within state control, andregulation has grown and grown. Today, a comparison between the European Union and the United Kingdom is not such an attractive prospect—certainly not the one that it was 20 years ago.
The change is perhaps exemplified by the non-wage costs imposed on employers in the European Union. In the United Kingdom, non-wage costs are 19 per cent. of wages, but, in France, they are 44 per cent.; in Spain, 35 per cent.; and, even in Germany, they are 27 per cent. Such costs are making the economies of those countries increasingly less competitive, which would not be totally disastrous were it not for the regulatory burden being imposed on European Union employers.
Year after year, more regulations are dreamt up by the Commissioners and imposed on industry and commerce across the EU. Now, the United Kingdom has adopted the working time directive, a minimum wage and the parental leave directive; and the Government are increasing trade union rights and enacting their Employment Relations Bill. All those changes are designed to increase the burden on employers, making industries less competitive.
If Labour Members do not believe that that is true, they have only to consider what has happened to United Kingdom inward investment—which has surpassed inward investment to all the other European Union
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countries combined. Why have we received so much inward investment? It is not because we have an especially low-wage economy, or a particularly attractive climate, but because we offer a business climate that is far more attractive than that of the other EU countries.
Mr. Wills: I wonder whether the hon. Gentleman is aware that, last year, under a new Labour Government, we had the best year ever for inward investment. Is he aware that that shows that those inward investors do not share his concerns?
Mr. Butterfill: No, I am not aware that they do not share those concerns, because many of them say that they do share them, as do many leaders of British industry. Of course we are continuing to receive inward investment. The golden legacy that the Government inherited from the previous Conservative Government has created conditions that still make United Kingdom inward investment extremely attractive. I am concerned that the Government's actions are making it increasingly less attractive to invest here. If they continue down that road, they will achieve the end result of making it very unattractive to invest here—which is not their objective, I hope.
If the Minister doubts that, he has only to consider what has happened in the other countries of the European Union. German manufacturers, for example, are moving their manufacturing progressively out of Germany. Volkswagen is establishing itself in the Czech republic; BMW is investing in the United Kingdom and in the United States; and Mercedes-Benz is creating new plant capacity in the United States. French industries are acquiring British companies in ever growing numbers. Indeed, the French centres of learning such as ENA—Ecole Nationale d' Administration—and Science Po are extremely concerned. In the past, their brightest and best graduates used to go into French industry and commerce, now increasing numbers of them go to work in the United States or the United Kingdom. One has only to look around the City of London to see how many graduates of the prestigious French academic institutions are employed here rather than in France. The French Government are extremely worried about that.
I hope that Labour Members will heed those warning signals, because if they take us ever further down the road that certain people in the Commission, the European Union and certain political leaders in EU countries are advocating, they will achieve their objective of making us all suffer equally the misery suffered by employers in the EU. As a result, we shall become increasingly less competitive and lose the enormous advantage that the previous Conservative Government bequeathed to the country.
One particular measure that is especially worrying is the energy tax that the Labour Government intend to impose on British industry. The climate change levy is unnecessary as Britain has already done more than any other leading economy to reduce emissions. Of course I am sympathetic to the idea that we should continue to reduce emissions worldwide, but not unilaterally or in a way that will damage the British economy.
The United States has no intention of making serious moves in that direction—as was confirmed to me by an American business man only yesterday. Most of our

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competitors are doing far less than we have already done. We need to look at the burdens that the proposed measure is likely to impose on British industry. According to British Steel, it will mean fuel price increases of 49 per cent. for coal, 40 per cent. for gas and 20 per cent. for electricity.
According to the CBI, the tax will add 8 per cent. to electricity prices for small users and 15 per cent. to gas prices. For larger uses it will add 15 to 20 per cent. to the price of electricity and 40 per cent. to that of gas.
The statistics are enormously worrying because they mean that critical industries such as British Steel, which is going through a difficult time because of world market conditions, will become increasingly and unilaterally less competitive at a time when it needs to be ever more competitive if it is to survive in the current world environment.
Mr. Bercow: I recognise the figures that my hon. Friend has just given to the House. Am I not also right in thinking that British Steel calculates that its costs will increase as a result of this measure by something in the order of £200 million? I believe that that is an annual figure, but perhaps my hon. Friend knows better than I do.
Mr. Butterfill: My hon. Friend, in his customary way, is extremely well informed and accurate. Those are the figures that were quoted by British Steel.
I really do not see how, at this very delicate time for British Steel, the Government can realistically contemplate increasing its costs by £200 million a year. It is enormously difficult to see how the company can make savings in other areas to compensate for that level of imposition. It is not just British Steel, of course. The director of policy at the Engineering Employers Federation is immensely critical and has said:
"This is more than a bit of a scare. If you end up with an asymmetric position on energy taxation you will find that either UK based companies will move their production facilities to other countries or they will simply close down."
That is a fairly apocalyptic prediction from such a person as the director of policy at the Engineering Employers Federation. Can the Government really contemplate that sort of action when they claim that they are particularly supportive of engineering and manufacturing industry? It just does not add up.
There will be odd regional effects. Representatives of Transco and some of its partners in the energy industry in Northern Ireland came to express their concerns to me yesterday. They said that the programme of modernising the energy production industry in Northern Ireland that they are committed to would be severely prejudiced by the measure. The fine margins that they calculated for their investment would be almost entirely eroded. Under the rules that the regulator has to follow they would not be permitted to recover a significant proportion of the cost from their consumers. They estimate that the increased burdens placed on Northern Ireland businesses as a result of the levy would make them increasingly uncompetitive, particularly in comparison with their rivals in the Republic of Ireland.
We are trying to increase prosperity in Northern Ireland. There are sensitive negotiations about the future and economic prosperity is probably the one factor that can help to bind the parties together in a common
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objective. Destroying that burgeoning prosperity would cause profound damage and may be a considerable contributory factor if the Government's political efforts—which I praise—fall apart.
It is mad to impose a unilateral burden on British industry that will not fall on our competitors. I urge the Government to think again.
1.41 pm
Mr. Hilton Dawson: It is good to join in the debate at this late stage. I have very much enjoyed the past four hours of discussion. There have been some worthy contributions from hon. Members on both sides. The hon. Member for Bournemouth, West (Mr. Butterfill) has just made a balanced and interesting speech.
In just under 12 hours' time I shall still be out at a rather nice do in Lancaster. When I am celebrating with my constituents, I shall enjoy an extra little frisson at the thought of the hon. Member for Buckingham (Mr. Bercow) sitting up in bed with his Ovaltine learning copious amounts of Hansard so that he can quote it back at us on another occasion.
Mr. Bercow rose—
Mr. Dawson: It is only a joke. I shall not give the hon. Gentleman further opportunity to entertain us. He has done so for long enough.
I particularly want to talk about Lancaster and the opportunities for business development of research expertise and ideas from higher education. That is the most important development that the Government are trying to introduce. For decades under successive Governments, British industry has failed to make anything like the most of the opportunities presented by some of the best and most innovative and inventive brains in the world. I greatly welcome the range of Government initiatives, including partnership with the Wellcome trust, increased investment in scientific research, the new round of the foresight programme and the new opportunities for investment created by the provision of capital for small business innovation.
The key concepts of enterprise and innovation, taken with the opportunities presented by the Government, will galvanise Lancaster's economy. We can establish Lancaster as a regional centre at the heart of the north-west, but with potent economic links to the world, to attract business investment to our superb environment. Our communications links to the north and south are important, and those to the west—to Northern Ireland and the Republic of Ireland—are increasingly important. We have excellent educational resources, particularly—but not solely—the world-class university of Lancaster, the engine for the future of Lancaster.
I profoundly believe that the small and beautiful city of Lancaster has the potential to build a great knowledge-based economy. The university has first-class resources across the board, but the resources in applied science, computing, biochemistry and management are world class. Academics and students are attracted from around the world to study in Lancaster.
I am talking about a knowledge-based and environmentally sustainable economy. Enterprise, innovation, development and investment in our

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knowledge, expertise and skills could provide a good model on a small scale for the whole country, and could certainly transform the economy of Lancaster, which is important to the north-west, but which needs transforming in many respects.
We have heard much today about the golden economic legacy, but I have not seen that in Lancaster over the past 20 years. Lancaster once led the world in the manufacture and production of floor and wall coverings. However, only about 10 per cent. of people in employment in the city are now employed in manufacturing.
Lancaster has pockets of high and endemic unemployment and is being denied the investment that it manifestly needs for its transport infrastructure. The city requires radical measures and major investment to deal with congestion and to develop integrated and sustainable transport. Lancaster has large areas of industrial dereliction.
Frankly, Lancaster was comprehensively failed by the Conservative party which, for 27 years, exerted political dominance in the city and represented it in this House. The Tories took the place for granted and let slip our assisted area status. They had no ambition for the area and allowed it to run down. I believe that, with our resources, our local people's ability to work together and the opportunities provided by the Government, we have a chance to put all that behind us.
Last week, I was at Lancaster royal grammar school to witness innovation and enterprise at first hand. There is unique collaboration between that school, one of the country's best; Lancaster university; British Energy, from Heysham nuclear power station; Linklaser, a software firm; and an extremely bright ex-student, John Fawcett. They are using the national grid for learning and have developed a programme that makes live data about the operation of the power station immediately accessible to schools on the internet.
I quit physics as soon as I could, but even I can see that that could transform science education. The knowledge, experience and skills at Lancaster university and in local colleges, schools, business and the local authority can produce business innovation and enterprise and the skilled well-paid jobs of the future.
At a recent business breakfast, we considered a vast range of Government initiatives to develop science and enterprise and incubate business from higher education research, encouraging investment and innovation in small business. There are plenty of bright ideas that can be transformed into future opportunities. That is the great hope for the city of Lancaster and for the national economy.
I have witnessed the development of robots at Lancaster university and heard of small businesses setting up all along the coast around Morecambe bay, from Lancaster up to Sellafield. There is the embryonic network of a mechatronics coast, linking innovative industry with business and university research and development, developing new applications and pioneering the use of robots under the sea and in hostile industrial environments.
There is a growing initiative in applied sciences, with engineering students being placed in local companies and gaining experience of the real working world. In a few
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short weeks, there has been a complete revamping of the IT systems of a small local firm, DMS Meters, which from humble beginnings—in someone's shed, I think—is ploughing into worldwide electric metering markets in the middle east and Asia.
My favourite example is of two local farmers, Ken and Colin Newsham, who, with intelligence and courage and through their sheer willingness to engage with people, listen and learn, are linking with one of the best management schools in the country, at Lancaster university, to turn a traditional north Lancashire family farm into a management training centre and a model for sustainable development and diversification in the countryside.
Those are but a few examples of how the university can be the engine of the new economy in Lancaster. That is where our competitive future lies. We are building the knowledge-driven economy and transcending the devastation that was bequeathed to us in the 1980s. That is not an easy process. Although all sides are willing to work together to grasp the many opportunities being provided by the Government, we have a long way to go. The cultural differences between the academic and business worlds can be profound and we need to marry them together to achieve a change. As Professor Richard Davies of Lancaster university has said, we need to put the D firmly back into R and D.
We are also struggling with decades of under-investment. We have not had objective 1, objective 2 or assisted area status to help with technology transfer. We have the land for the business park, the ideas and the enthusiasm for the knowledge-based economy, but we need real resources to push it on. We need time, commitment and people, as well the opportunities to build and develop. The Government are dealing with the big issues of higher education, and we need more students, especially women students, to study technology, science and mathematics. We need more bright people, perhaps from backgrounds without a tradition of further and higher education. In Lancaster, we are developing good access arrangements and we can make progress from there.
We desperately need the Government to sustain their initiative and drive and ensure that all the benefits of their excellent policies make a difference at the grassroots. I have a vision for Lancaster that incorporates ideas, innovation and enterprise into our glorious historic setting and beautiful city, freed from traffic congestion and offering real opportunities to those who have been denied them for so long. We can provide a dynamic setting for research, imagination and enterprise in the heart of the north-west, in green countryside between the dales, the lakes and the sea, and a resource for the world that will draw people in. I am pleased that the Minister is replying to the debate, because we are hoping to draw him to Lancaster soon. We have a good tale to tell, and we would appreciate some special help with innovation and enterprise so that we can grasp the future that is not so very far away.
1.58 pm
The Minister for Small Firms, Trade and Industry (Mr. Michael Wills): We have had an interesting debate today on an important subject and I thank all the hon. Members who have taken part. The hon. Member for

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Rutland and Melton (Mr. Duncan), whom I welcome to the Front Bench, gave a fascinating display of ideological zeal. I look forward to hearing more of his interesting visions in the coming months.
My hon. Friend the Member for Eastwood (Mr. Murphy) highlighted the importance of the minimum wage and spoke of the need for seedcorn support for R and D. He also spoke passionately about the need to support young entrepreneurs. The hon. Member for Eastleigh (Mr. Chidgey) agreed that the role of the Government was to find a third way between the old-fashioned interventionism of the post-war period and the crude laissez-faire approach that the Conservative party seems still to espouse. He spoke eloquently of the importance of R and D and mentioned the trade deficit. However, he omitted to mention that, in the late 1980s, the deficit was 4 per cent. of gross domestic product and is now down to 1.5 per cent. of GDP, but perhaps that would have ruined his argument. The hon. Gentleman also inquired about various policies and I am delighted to say that they are either on their way already, or they will be shortly. I welcome his support for the Small Business Service, consultation on which will be launched next week.
My hon. Friend the Member for Stevenage (Barbara Follett) spoke of the British genius for innovation and of the need to continue to combine it with entrepreneurial talent and drive. She gave a compelling picture of how her constituency shows the need to give everyone the opportunity to innovate and to grow a business.
We heard a remarkable 45-minute monologue from the hon. Member for Buckingham (Mr. Bercow), who began with effusive congratulations for the hon. Member for Rutland and Melton. I noticed that the hon. Gentleman used no notes, and I congratulate him on that. He gave a sparkling defence of zealotry. He was against the right to a decent minimum wage, against the right to paid holidays, against help for children and against help for child care. He has not yet written his manifesto, but I look forward to reading all that again.
Mr. Bercow: I feel sure that the Minister's misrepresentation of my speech is entirely inadvertent, but I challenge him to identify in Hansard on Monday morning the column at which I object to paid holidays. If he can do so, I shall happily donate £100 to charity. If not, I hope that he will do the same.
Mr. Wills: I had misunderstood the hon. Gentleman, and I now understand that he favours the working time directive.
Mr. Bercow: No.
Mr. Wills: The hon. Gentleman is not in favour of the working time directive. I look forward to continuing this discussion with him.
Mr. Gareth R. Thomas: The hon. Member for Buckingham (Mr. Bercow) mentioned Hansard on Monday morning, so I would take him up on his bet, because we were not sitting then.
Mr. Wills: I thank my hon. Friend.
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The hon. Member for Buckingham spent a lot of time rehearsing the arguments of his ten-minute Bill. I am happy to agree that regulations can be burdensome for business. Indeed, the Government led by the right hon. Member for Huntingdon (Mr. Major), whom the hon. Gentleman supported, added 10,000 regulations in their final three years. With the greatest of respect to the hon. Gentleman, I have to say that his remedies are either mere debating points or already on their way. I shall not delay the House now, but shall happily explain later to the hon. Gentleman which of his remedies fall into which category.
My hon. Friend the Member for Croydon, Central (Mr. Davies) rightly drew attention to the needs to encourage responsible risk taking and to develop regional venture capital funds, as we are doing. I was pleased to hear him highlight the central importance of new information and communication technologies and the importance of the internet to the growth and prosperity of small businesses.
The hon. Member for Bournemouth, West (Mr. Butterfill) offered welcome support for Government policy, and I am pleased that he shared his views on the European Union. He mentioned the climate change levy—the so-called energy tax—on which I should like to reassure him. We are aware of competitiveness issues, but we must take every measure to produce sustainable development and preserve the environment. First, the new levy will entail no overall increase in the burden of tax on business. Secondly, we intend to set significantly lower rates for the energy-intensive sectors. We are in negotiation with the sectors involved, including steel. I hope that the hon. Gentleman can take some comfort from all that.
Mr. Butterfill: The Minister says that there will be no overall increase, and I assume that he is referring to the offset from national insurance changes, but British Steel estimates that only 4 per cent. of its costs will be met by the national insurance reductions.
Mr. Wills: I can only repeat what I have said. There will be no overall increase in the burden of tax on business. To take one company as a negation of that point is to miss the point.
I welcome the support of my hon. Friend the Member for Lancaster and Wyre (Mr. Dawson) for Government policy on science, innovation and enterprise. He gave a glowing description of his beautiful constituency. I was interested by his cogent analysis of how what the Government are doing will help his constituency.
The most interesting feature of the debate was the way in which it revealed a stark dividing line between the Government and the Conservatives about how best to promote innovation and enterprise. They are motherhood words; we all accept that they need to be encouraged. The difference is about how to do it. The Conservatives still rest on their record in government. They hanker after a largely mythical 19th century vision of laissez-faire. That was encapsulated in the contemptuous rejection by the hon. Member for Rutland and Melton of the idea of partnership. I was surprised by his scorn for something to which I thought that we could all subscribe. It reveals the extremism rooted in the Conservatives that they can reject partnership as incompatible with their laissez-faire vision.
Mr. Duncan: Does the Minister accept the Conservative view that innovation and enterprise in commerce are predominantly private sector phenomena?
Mr. Wills: I am happy to enlighten the hon. Gentleman about our view of the respective roles of Government and the private sector. We differ on the role of Government. We all agree that business must do what business does best, but we believe that there is a role for Government.
Some Conservative Members mentioned IR35 but they did not mention that it is a measure to tackle tax avoidance. I would have hoped that Conservative Members could have joined us in agreeing that we should try to reduce the scope for tax avoidance—indeed, that is the job of Government. When taxes are levied democratically through this House, we should all agree that people should pay them. Nor did Conservative Members mention that there is nothing in IR35 to stop agency working or individuals setting up service companies, which lies at the root of their objections. I am happy to be corrected, but they appear to be against any Government action to reduce the scope for tax avoidance. That is typical of their dogmatic, extreme approach.
Mr. Duncan rose—
Mr. Wills: If the Conservatives are prepared to support us in trying to reduce the scope for tax avoidance, I shall happily give way.
Mr. Duncan: We are against the Government deeming something to be tax avoidance to make people pay more tax.
Mr. Wills: I am not sure that I am wholly clear about the hon. Gentleman's position on tax avoidance. We will return to the subject in the months ahead.
The fundamental dividing line between us is the role of Government. The hon. Member for Rutland and Melton has intervened on that already. We believe that the Government have a clear and necessary role in supporting business and promoting innovation and enterprise. The Government cannot absent themselves from the field. They must underwrite the essential conditions for growth and prosperity and tear down the barriers to growth that inevitably arise in any market. They must help create the conditions in which business can flourish.
The Government must first create the essential platform for innovation and enterprise: a stable and supportive economic environment. Under the Conservatives, Britain was probably the most volatile economy in Europe, as a Lloyds bank survey showed before the last general election. Interest rates rocketed to 15 per cent. in the early 1990s and inflation to 10 per cent. Boom and bust is the worst possible environment for business to plan ahead.
The hon. Member for Rutland and Melton mentioned investment. Between 1990 and 1993, business investment fell by 18 per cent. That is the worst possible environment for innovation and enterprise. This Government have taken the tough action needed to create the stable and supportive environment that business needs.
We have given the Bank of England operational independence to set interest rates. As my hon. Friend the Member for Eastwood so cogently pointed out, the Tories still cannot make up their minds whether they support that
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or whether they will reverse it. Over the past two years, we have reduced public borrowing by £32 billion. As a result of the measures that we have taken, inflation has remained at, or around, the Government's target of 2.5 per cent. for the past 11 months. Base rates are now at 5 per cent.—that is the lowest level for 22 years. Mortgage rates are now at their lowest level for 33 years. Last year, business investment rose by 7 per cent.
We have also acted to give back to business the resources needed for innovation. The hon. Member for Rutland and Melton mentioned tax. As my right hon. Friend the Minister of State, Department of Trade and Industry pointed out, the hon. Gentleman omitted to mention the fact that corporation tax has been cut to 30 per cent.—its lowest ever level. The starting rate for small firms has also been cut to its lowest level ever—10 per cent. The ratio of tax to gross domestic product is lower this year than it was last year; over the next two years, it will be lower than it is this year. The total corporate tax burden on business in this country is lower than in most EU countries.
Of course, Government must do more than that. We must help to create the essential infrastructure of knowledge and skills. The value placed on that by the Conservatives is demonstrated by the fact that, when we came into office, we inherited a science budget—the underpinning for innovation—that was due to fall by 5 per cent. over the following two years. We took the necessary action. We made available for the science base an extra £1 billion over the next three years. By 2001–02, the science budget will be about 15 per cent., in real terms, above its value in 1998–99.
The hon. Member for Eastleigh spoke about DTI support for innovation. I am glad that he raised that issue. We have given a £100 million boost to the smart scheme for small and medium-sized enterprises to undertake research and development and technology development. The research and development tax credit that we are introducing will underwrite almost one third of R and D costs for SMEs. That will give a crucial boost to innovation in a sector that Members on both sides of House will agree is a critical motor for our future economic development.
Mr. Chidgey: I welcome the hon. Gentleman's comments. Does he share my concern that, in our economy, over time, the amount of investment in R and D as a proportion of GDP has fallen compared to the nations with which we compete? Is the Government's policy to try to restore, over time, the level of R and D investment as a proportion of GDP to one that at least equals that in our competitor nations?
Mr. Wills: The hon. Gentleman is right. We inherited a desperate situation when we came into office. I agree with him on that point. We are taking the necessary measures to put right that situation. There is now a Labour Government and we are moving forward—at last. We are investing in the skills of our people—the crucial underpinning for the enterprise economy. We are providing £21 billion new money for education; we are setting up the university for industry to encourage lifelong learning. By 2002, we shall give every school in the country access to the unique learning opportunities afforded by the internet—95 per cent. of those schools

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will be connected by a high-speed ISDN line. We are using the best technology that is available; we shall carry on doing so for our children's future.
Mr. Bercow: I suspect that the hon. Gentleman's compendium of knowledge on that latter point is not as comprehensive as it might be. Does he think that it is right that Gawcott county first school, a very small school in my Buckingham constituency, should pay the same for line rental, for the purposes of internet access, as a large comprehensive? That is the current position.
Mr. Wills: As always, I am astonished by the hon. Gentleman's knowledge of his constituency. If he gives me details about that school, I shall be happy to look into it.
In relation to the general point about line access, we realise that, if we are to build the essential electronic infrastructure, it is a fundamental goal that we must roll out those technologies as quickly as possible; that means considering the whole question of internet access.
Oftel—the Office of Telecommunications—published a consultation on the matter and is digesting the results. We await Oftel's proposals. I assure the hon. Gentleman that these matters are close to my heart and to that of the Government.
We have launched the £20 million reach-out fund which will help to foster closer links between universities and business. We are also increasing the DTI's innovation budget over the next three years to some £230 million.
We all agree that small firms will be the crucial motor for growth and prosperity in the years ahead. We are launching the Small Business Service to create a ladder of opportunity for all small businesses, to help people move from employment or unemployment into self-employment, to help them over that critical stage in self-employment when they take on their first employee, and all the way up the ladder.
When small firms face critical barriers to growth, the Government will offer help if they want it. We are not thrusting it down their throats. We are leaving them to get on with it, but sometimes businesses need help and support, because markets do not always work perfectly. With his in-depth knowledge, the hon. Member for Rutland and Melton knows that the markets can be lumpy and patchy, and small firms often face particular barriers to growth. The Government will be there to help them if they want.
One of the most onerous administrative burdens that small firms face is administering the payroll. We will help them with the automated payroll service. We will help them with the burden of regulation, in the way that has already been discussed. We will help small firms with access to appropriate finance. There is a critical equity gap for many small firms—
Mr. Chidgey rose—
Mr. Wills: I will make progress, if I may.
We will help small firms with the critical equity gap by rolling out regional venture capital funds, which will help with the smaller packets of venture capital that are so lacking at present. [Interruption.] I know that Opposition Members are talking among themselves and are not very
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interested in what we do for small firms. They should be more concerned than they are. It is all very well talking the talk now, but when they were in government, they did not walk the walk.
I remind Opposition Members that the average net loss of small businesses in every year of the 1992 to 1997 Government—that is, the surplus of companies closing over companies opening up—was 72,000. In 1992, more than half a million companies closed down. That represents half a million heartbreaks for the people who risked everything, worked hard and were let down by the Government.
By way of contrast, in the first full year of a Labour Government, there was a net gain of 36,000 businesses opening up. That is the difference between us and them. There was a net loss, on average, in every year of the John Major Government, with 72,000 companies closing. Under new Labour, there has been a net gain of 36,000 companies opening.
Mr. Duncan rose—
Mr. Wills: I give way.
Mr. Deputy Speaker (Mr. Michael Lord): Order. Before the hon. Gentleman intervenes, I remind the Minister that he must refer to hon. Members by their constituency.
Mr. Wills: Indeed, Mr. Deputy Speaker. I apologise.
Mr. Duncan: What concerns us is that the Minister's long litany of action that the Government will take—he got quite animated when he was citing it—smacks of Government intervention and Government intrusion. Is he saying that the regional venture capital funds will be state funds, or will they be entirely private enterprise funds?
Mr. Wills: The hon. Gentleman should recognise the difference between intrusion and support. I hope that, as the months unfold, he will grow to learn and appreciate the distinction between them. On regional venture capital funds—
Mr. Chidgey rose—
Mr. Bercow rose—
Mr. Wills: I will deal with that point, if I may, and then give way to the hon. Gentlemen, who are obviously desperate to intervene again.
Regional venture capital funds will be a private-public sector partnership. We are putting in public funds to lever in considerably greater sums of private sector capital. We have been working closely with the private sector on the matter.
Mr. Chidgey: I have listened with great interest as the Minister has expressed enthusiastic support for small business in particular. Will he address a particular issue? A recent survey has shown that there is only 6 per cent. take-up of Government programmes by business. What, precisely, will he and the Government do to improve that?
Mr. Wills: I again make the point that we are there to offer support for business if and when it wants it. We are

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providing that support and make no secret of it. We intend constantly to improve the quality of that support. We are not thrusting it down the throat of business, as the hon. Member for Rutland and Melton seems to be suggesting, nor should we do so, as the hon. Member for Eastleigh seems to be suggesting. We are providing support for businesses when they want it—the support that they need and deserve.
Mr. Bercow: In waxing lyrical about the fortunes of small firms under the Government, the Minister exudes alarming complacency. Does he accept the findings of the Dun and Bradstreet survey, which shows in the first quarter of this year a 32 per cent. increase in small company liquidations relative to the same period last year? In particular, does he acknowledge that the percentage increase in his—[Interruption.] I do hope he is attending to the point; it is of the utmost significance. The increase in small company liquidations in his own south-west region is 40 per cent. Does he accept that? Is he worried by it? Will he show a bit of concern? Above all, will he do something about it?
Mr. Wills: I had hoped that the hon. Gentleman knew me well enough by now to know that I am never complacent about anything. Governments can always do better and we will not take things for granted, which is the trap that the previous Government fell into. Businesses, too, can always do better and everything the Government have done shows that we are not complacent.
One reason for rolling out the Small Business Service is that we think that business support can be made better still. We will welcome all views on that, including those of the hon. Member for Buckingham. We want to make sure that mechanisms are in place to provide business with the support that it deserves and needs. If he wants to come up with further suggestions, I can assure him that they will be gratefully received, if not necessarily acted on.
If I may, I shall move on to Europe. Given the visceral instincts of the Conservative party towards the European Union and the European single market, it was perhaps inevitable that a debate about innovation and enterprise would somehow end up on that issue. Labour Members believe that the innovative genius and enterprise of our people could run to waste unless this country is actively engaged with our trading partners to ensure that our companies can sell as easily overseas as they can at home.
We are a great trading people. [Interruption.] Does the hon. Member for Rutland and Melton disagree?
Mr. Duncan: So far, so good.
Mr. Wills: I am delighted that, from a sedentary position, the hon. Gentleman has agreed with that proposition. We are a great trading people and we need to engage actively with our trading partners overseas, so I am unclear why Conservative Members lash out at the EU and at the single market, where we do more than 50 per cent. of our trade. [Interruption.] The hon. Member for Rutland and Melton disagrees with me that the Conservative party is opposed to the European Union, the European single market and everything that goes with them. Would he like to clarify his position?
Mr. Duncan: I am perfectly happy to confirm that the Minister is wrong when he says that we are opposed to the European Union and the single market.
Mr. Wills: I am grateful for that. The hon. Member for Buckingham said that he deplored politicians who speak rhetoric, but do not deliver the means to deliver on the rhetoric. Perhaps the hon. Member for Rutland and Melton will explain in a little more detail how the constant carping about and sniping at Europe, the constant removal of Conservative Ministers from any discussion on European issues when they were in office, opting out of the social chapter and the contempt that Conservative Members so often show for the policy measures put forward by our European partners will further the integration of the single market.
Mr. Duncan: Because we wish to be in Europe, but not run by Europe, and because we wish to preserve the right to make our own law, we urge the Government to discuss more widely the dangers of the single currency, on which the electorate recently delivered a damning verdict.
Mr. Wills: I wondered when we would get to the soundbites; I have now found out. I believe that the most recent opinion poll suggests that the verdict in the European elections had absolutely nothing to do with anything except the low turnout. The Conservative party managed to mobilise its core support with a rather extreme manifesto based on a misunderstanding of what is going on in Europe, but that is a matter for that party. At the general election, we shall see what verdict the British people place on our respective policies towards Europe.
Mr. Bercow: The hon. Gentleman seems to labour under the misapprehension that he has a strong case on the subject of the European Union. First, it is important that he should not exaggerate the figures and get them wrong. Will he now acknowledge that he was wrong to say that more than 50 per cent. of our trade is conducted with the European Union? That is simply factually wrong; the figure is below 45 per cent. Secondly, will he acknowledge that the share of Britain's trade with the European Union is declining and that the share of Britain's trade with countries outside the European Union is rising? Will the hon. Gentleman conduct an honest debate and stop giving credence to untruths?
Mr. Wills: I am baffled about how the hon. Gentleman thinks that this will advance the argument. Even he must concede that the European Union is a crucial trading partner of this country. The single market is a key part of our economic future.
I still have not received an answer to my basic question. How does the hon. Gentleman think that the co-operation and partnership that are necessary to make that single market work, and to enable our companies and businesses to take advantage of the single market, to be in Europe, to shape Europe and to reform Europe, while not being run by Europe—[Interruption.] No, we are not being run by Europe. How is all that helped by standing on the sidelines and shouting, as the previous Government did, and as the Conservative party is threatening to do,

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should it ever return to government? If any Conservative Members want to try to illuminate that point, I shall be happy to give way again, but they—
Mr. Bercow: I am obliged to the hon. Gentleman for wanting me to favour the House with my further views on this matter. I should have thought that it was abundantly clear. It is what the late Enoch Powell would have said was a point so obvious that only an extraordinarily clever person could fail to see it. The answer is that we have a conviction about the nature of the relationship that we should enjoy with the European Union, and believe that the policy of the Government should be to fight for being in Europe and not run by Europe, whereas the Labour Government just believe in supine acquiescence and me too-ism. That is the difference. They believe in being told what to do; we believe that if we have self-respect and fight our corner, we have a better relationship with the European Union. That is the distinction between us.
Mr. Wills: I am not absolutely sure that that is the difference between us. The hon. Gentleman talks about having a conviction about the approach to Europe. With the greatest respect to him, I would categorise it differently. I would describe the Conservative position as a visceral antipathy to Europe. I believe that the Conservative party is embarking on a slippery slope towards withdrawal.
One question that the Conservatives have not yet answered in their new European policy—they have had several European policies since 1997; there may be more to come—is what will happen if the European Union does not accept their plans to renegotiate and only to take part in things pertaining to the single market. It is interesting that the Conservatives think that they will be able to confine their activities to that. However, leaving that point aside, what will they do when the rest of the European Union refuses to have anything to do with the fantasies that they are currently promulgating?
It being half-past Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Denbighshire County Council (Funding)
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Hanson.]
2.30 pm
Mr. Gareth Thomas: Denbighshire county council is one of the smaller unitary authorities in Wales. It is a creature of the Local Government (Wales) Act 1994 and local government reorganisation. Its birth and early years have been particularly difficult as a result of local government reorganisation, and the disastrous legacy of debt that Denbighshire inherited from one of its predecessor authorities, Rhuddlan borough council.
Many of my constituents live within Denbighshire county council's area. It is a diverse county embracing a large rural hinterland, which includes the historic markets towns of Denbigh and Ruthin, the latter being in my constituency. It also has a populous coastal belt centred on the seaside town of Rhyl, so vigorously represented by my hon. Friend the Member for Vale of Clwyd (Mr. Ruane), who unfortunately cannot be present today. However, I know that he would support fully the case that I propose to put on behalf of Denbighshire county council. My colleague, the Assembly Member for Clwyd, West, Mr. Alun Pugh and Mrs. Ann Jones, the Assembly Member for Vale of Clwyd, would also wholeheartedly support my case, as would the Chairman of the Select Committee on Welsh Affairs, my hon. Friend the Member for Clwyd, South (Mr. Jones), part of whose constituency includes an area of Denbighshire.
I am sure that the Minister will know that my hon. Friend the Member for Vale of Clwyd and I have been actively involved in this vexed issue since we were elected in 1997. He will also know that the Rhuddlan legacy has been the subject of an inquiry by the Select Committee on Welsh Affairs. Minutes of evidence of that inquiry have been published, and the report is awaited. The subject has also been dealt with by the district auditor on a number of occasions. A public interest report has been produced in view of the grave public disquiet about the matter. That report has, itself, been subject to a review.
I have met the Minister several times to discuss this matter. He has given a positive and helpful response to the crisis—I call it a crisis—with which Denbighshire has had to deal. However, a bad position has got markedly worse in recent weeks.
The purpose of this debate is, first, to spell out just how serious Denbighshire county council's financial position now is, especially in the light of fresh evidence of mismanagement of European regional development funds by Rhuddlan borough council.
Secondly, on behalf of my constituents, I shall underline the practical effect this problem has and will have on the services that Denbighshire county council provides, particularly in relation to schools, highways and other essential features of the work of a local council. Thirdly—I suppose that this was my main purpose in raising the issue—I invite the Government, in the form of both the Welsh Office and the Welsh Assembly, to give renewed and urgent attention to the need to devise a long-term solution to the county's problems, so that its finances can be put on a sustainable basis. I emphasise "long-term".

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The problem concerns the allocation of capital, rather than revenue. There is concern in Wales about what is described as the formula for allocation of revenue support grant, but I am not concerned with that today. The council has inherited what its chief executive, Mr. Huw Thomas, has rightly described as a "crushing and unexpected" burden of debt.
I am not talking about Denbighshire's position in absolute terms, or its position in the league table of local authority debt that the Minister may have in his possession, which might put a rather less damaging gloss on the situation. I am talking about the position of what, on any view, is a small county with a small capital base: a county that is experiencing serious repayment difficulties. I am just as concerned about the manner in which the debt is expected to be repaid as I am about the size of that debt.
At present, it seems that the debt inherited from the predecessor authority may well be as much as £10.7 million. It is unrealistic to suppose that that will not have a disastrous effect on the council's functions. This is how the debt is made up: Rhuddlan's capital deficit in 1995–96 was £3.9 million, and the carry-over payments for its capital schemes amounted to £3.3 million; Ffrith beach's clawback in regard to the European regional development fund—the amount that is now due—is £0.8 million. A further amount of £0.3 million is likely to be payable on the scheme. According to a report produced by Deloitte and Touche the accountants, at the behest of Denbighshire county council, there is likely to be further ERDF grant clawback totalling £2.3 million. The total inherited debt therefore amounts to £10.7 million.
Those figures should be seen in the context of Denbighshire's basic credit approval and its power to raise and spend capital: about £6 million per annum. However, when ring-fenced elements such as housing revenue accounts and housing improvement grants have been taken into consideration, the general element of the basic credit approval—in other words, what is available to finance capital expenditure—is £3.29 million. That is the starting point.
From that amount, Denbighshire must find money to finance highway repairs, school refurbishments, council house repairs and so forth. Moreover—crucially—it must find money for an increasing array of schemes provided by various grant agencies that are in a position to give the county much-needed capital resources, but only if the council can match the funding. That is an increasing feature of the way in which capital is provided for county councils. A small local authority unit with a modest BCA—on any view, even without inherited problems—would be hard pushed to maintain an adequate capital programme.
I commend to the Under-Secretary the minutes of evidence of the Welsh Affairs Select Committee's inquiry into the Rhuddlan legacy for a fuller account of the funding gap that arose shortly after the reorganisation, when it became apparent that Rhuddlan had overspent to the tune of £3.9 million—which is the first element of the legacy.
About two years ago, after lobbying by my hon. Friend the Member for Vale of Clwyd and me, the Welsh Office responded to the gap by devising a package through a
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special credit approval enabling Denbighshire to borrow an extra £2.5 million. The important point is that this money is repayable from Denbighshire's basic credit approval—its core capital and spending power—at the rate of no less than £500,000 per annum for five years, commencing in 2001–02. That is the major concern.
In the light of subsequent events, the repayment schedule is untenable. I ask the Minister, most earnestly, to take on board that fact. I should also add that Denbighshire county council has dealt with the balance of the overspend by recyling housing grants and by other action.
The second element of the legacy is what has been described as the carry-over of excess capital liabilities inherited from Rhuddlan, amounting to £3.3 million, and representing bills due that were incurred by Rhuddlan—which had led Denbighshire officials to believe that they would amount to no more than £400,000. As time wore on, however, the full scale of the carry-over became apparent.
I pay tribute to the officers of Denbighshire county council, particularly its chief executive, Mr. Huw Thomas, and its finance director, Mr. Nigel Thomas. I have no quarrel at all with them, but am entirely supportive of their efforts to do the best of a very bad job. They have sought to regularise Denbighshire county council's accounts, and have taken valiant steps to do so by devising ingenious methods of diverting capital resources, maximising resources and managing payments. The £3.3 million carry-over is being dealt with by such methods. Consequently, however, Denbighshire has had to forgo pursuing many of its objectives, and to concentrate largely on servicing its inherited capital commitments.
The third element of the legacy—as if all that were not serious enough—is the dire problems that have arisen as a result of the gross mismanagement of ERDF funds by the predecessor authority, putting Denbighshire in the invidious position of having to repay moneys to the ERDF by way of grant clawback. In the light of the new circumstances, the real fear is that unless there is a creative package of aid or—quite frankly—debt relief, that grant clawback will have to come out of basic credit approval.
Denbighshire county council needs to be able to repay the clawback from its revenue accounts through a special credit approval, payable not through the BCA over a short period, but over a much longer period, thereby putting its affairs on a much more sustainable basis.
The Minister is well aware of the problems associated with the Ffrith beach development. The council now considers it likely that the full extent of the grant—£1.1 million—will be repayable. I spoke to the chief executive recently and he feels that that is almost inevitable. However, the Deloitte report was referred to in Denbighshire's evidence to the Select Committee. It indicated that further steps would be taken to assess the size and extensiveness of the problem of the mismanagement of EU funds. The report was published last month. It is likely that no fewer than three schemes are not capable of being signed off or certified as conforming with the original grant claims. I refer to the children's village, the Rhyl station gateway and the Rhyl high street pedestrianisation. Consequently, there is a very real prospect that £2.3 million will have to be paid back by way of grant clawback.

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In my view and that of the chief executive, this latest development puts the council in a critical position. There are issues as to how the predecessor authority could ever have got itself into a position whereby EU funds and grants from other agencies were mishandled, misspent and abused. I shall not pursue it now, but in my view there is certainly a moral and political case that the Welsh Office should be held liable to Denbighshire because it can reasonably be argued that inadequate control was exercised over the manner in which Rhuddlan and other councils in Wales administered ERDF funds. I may wish to pursue that point at a later stage, but at the moment I am more interested in the way forward.
It is important for the public to know that Denbighshire finds itself in an invidious and difficult position not as a result of its own actions, but as a result of actions taken by the predecessor authority, because in law the successor authority stands in the shoes of the predecessor authority. I am asking the Minister—and the National Assembly—to give the most sympathetic consideration to that point.
The size of the capital debt problem is beyond what is reasonable for an authority to manage alone, especially when it is not responsible for its inheritance. I am not expecting the Minister today to give me any firm indications as to what he or certainly the Welsh Assembly would propose to do. First, I am seeking an indication that the Government realise the exceptional nature of Denbighshire's predicament. As far as I am aware, no other authority in England or Wales has experienced similar problems. Secondly, in due course I hope to have meetings with the First Secretary and other Secretaries of the National Assembly, together with fellow Members of Parliament and Assembly Members representing Denbighshire, to discuss the issue. I seek a way forward to relieve the pressure on Denbighshire's basic credit approval by allowing a flexible package whereby an SCA could be granted to cover the debt, particularly in relation to the clawback.
The original rescue package is totally inadequate in the light of the new evidence. I am making a plea on behalf of my constituents. I have been provided with a long list of capital projects that the county would like realised. It amounts to £26 million of much needed work. There is an enormous backlog of highway repairs and council house repairs. I am particularly concerned about the state of the fabric of Brynhyfryd school in my constituency. The pressures on its resources are greater because it is a bilingual school. It does excellent work, but the physical environment is disgraceful. Little can be done for the school unless the pressure on Denbighshire's capital budget is relieved. I hope that my hon. Friend the Minister will take that on board and will carry the message to Cardiff and the National Assembly.
2.51 pm
The Parliamentary Under-Secretary of State for Wales (Mr. Jon Owen Jones): I congratulate my hon. Friend on securing the debate. Today was almost his last chance to raise the subject here, because within six days it will be a matter for the National Assembly for Wales.
I recognise the importance of the issue. From the moment that it became evident, after the reorganisation of local government in 1996, that Denbighshire county council would be facing financial difficulties as a result of the capital spending of the former Rhuddlan borough
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council, the Welsh Office began to work closely with the council. By early 1997 it was clear that the council had inherited a substantial, unanticipated debt, although its precise level is still unclear.
On the basis of the figures that I have looked at, the outstanding loan debt of Denbighshire is in the lowest third of all Welsh unitary authority debts. All Welsh unitary authorities inherited debts. That relative position takes into account the council's relative size. It is difficult to accept that the problem is particularly acute in Denbighshire in an absolute or a relative sense. However, I sympathise with my hon. Friend on the potential and uncertain increase that could confront the authority as a result of possible clawback that may be required by the European Commission owing to the apparent poor control exercised by the former Rhuddlan borough council.
Those problems are highlighted by the fact that the district auditor had considerable difficulty in tracing papers relating to the accounts. Denbighshire was offered a financial package that helped the authority to service its capital debt and to minimise the effect on service provision and the level of council tax. The package allowed the council to use £1 million of supplementary credit approval, originally issued for home renovation grants, for unfinanced capital expenditure. The package also gave the authority an additional SCA of £1.5 million towards unfinanced expenditure. That SCA was issued on the understanding that the authority would repay it by accepting a reduction of £500,000 a year in its basic credit approval over three years, starting in 1998–99.
In August 1997, following the publication by the district auditor of a public interest report, the then Under-Secretary, my hon. Friend the Member for Bridgend (Mr. Griffiths), authorised an enhanced financial package, which included a supplementary credit approval of £2.5 million, with a repayment period of five years beginning in this financial year.
Because of the particular circumstances surrounding the financial position of Denbighshire and the public interest that it evoked, the Welsh Affairs Committee has been investigating the problems caused by the inherited debt, and has sought to establish what lessons could be learned for the future. The Committee is expected to issue its report in a few weeks' time.
In giving oral evidence to the Committee, Denbighshire's chief executive took a positive approach, saying that now that the authority has
"brought the Rhuddlan accounts into Denbighshire's and obtained assistance from the Welsh Office, we can actually put this behind us and create something new for Denbighshire."
The district auditor, in summarising his evidence, said:
"Given Denbighshire's positive approach, the assistance provided by the Secretary of State and the Council's position relative to other Welsh authorities, if further problems do not arise, with careful planning and monitoring, Denbighshire should be able to manage its financial position."
The financial packages had been offered against a background of uncertainty as to the precise extent of the debt. Earlier this year, my right hon. Friend the Secretary of State issued Denbighshire with a further supplementary credit approval to enable the council to complete a review of its capital programmes, and particularly the capital projects that it had inherited from Rhuddlan. This review,

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conducted by Deloitte and Touche, has recently been completed, and highlighted various matters that needed to be addressed.
Among those matters—as my hon. Friend the Member for Clwyd, West (Mr. Thomas) has indicated—are certain issues concerning four European regional development fund projects sponsored by Rhuddlan borough council. My officials have already held informal discussions with chief officers of Denbighshire about these projects, and are now urgently considering in greater detail the various options that might be open to us to handle the apparent difficulties.
The Commission has also become aware of the review and the possible implications for its ERDF investment, and has been sent a copy of the report. Arrangements have been made for my officials to meet the Commission on Monday to discuss the report and its possible implications.
This is not the only ERDF-related issue facing the authority. In October 1997, the European Commission informed the Welsh Office that it was considering, under article 24 of the co-ordination regulations, reducing, suspending or cancelling assistance to the Ffrith beach project on the basis that there had been a significant modification of the conditions on which the grant was awarded to it.
Having consulted Denbighshire about this approach, the Welsh Office responded to the Commission that, as action by the authority to attract private investment to the site was continuing, it was not unreasonable to expect substantial progress towards meeting the project outputs by 31 December 1999 so action under article 24 was inappropriate.
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The Commission does not at this stage appear to be convinced by that response and is currently seeking the repayment of £768,000 of ERDF grant, with the caveat that it is prepared to leave the remaining £357,000 with the authority until 31 December 1999—the programme's closure date. At that point, it will wish to consider whether the original outputs have been achieved. The Commission will decide at that time whether or not to seek repayment of the £357,000 from Denbighshire.
Both we and the authority are continuing to resist the Commission's demands over Ffrith beach, but whether we will ultimately be succesful is impossible to predict. To provide the authority with the wherewithal, if necessary, to make any repayments, we have agreed with Denbighshire that if the Commission reclaims grant, we will reduce the amount of supplementary credit approval that the authority has to repay.
I trust that it will be evident to my hon. Friend the Member for Clwyd, West that I fully recognise the gravity of the financial position confronting Denbighshire and that we have done all that is possible and reasonable to assist the authority either to avoid potential repayments or, where those are inescapable, to assist, as far as we can, with the necessary resources to facilitate the repayments. My hon. Friend will realise that the Welsh Office has to be seen to act fairly with Denbighshire, but also with other local authorities.
From next Thursday, these responsibilities will pass to the National Assembly for Wales, which I am sure will continue to work closely with Denbighshire to help it resolve its problems.
Question put and agreed to.
Adjourned accordingly at Three o'clock.