HC Deb 22 January 2004 vol 416 cc1455-7
3. Richard Ottaway (Croydon, South) (Con)

What assessment she has made of changes in the profitability of UK companies since 1997. [149733]

The Secretary of State for Trade and Industry (Ms Patricia Hewitt)

The severe global downturn of 2001 and 2002 has inevitably affected the profitability of UK companies. With the global economy now on the path to recovery, UK profitability has started to improve, increasing for each of the last four quarters and taking profits to their highest level for almost four years.

Richard Ottaway

I agree that there may have been a short-term upturn, but is it not correct that corporate profitability is at its lowest level for 10 years and that the lack of competitiveness is a key factor? Does the Secretary of State agree that, if we are to turn things around, we need a sustained period of economic growth at more than 2.5 per cent. per annum, but that, with interest rates set to rise and consumer spending set to fall, it is pretty unlikely to happen?

Ms Hewitt

I do not agree with anything that the hon. Gentleman has said. He is wrong about his facts. In the last 10-year period for which we have full figures, profitability for the business sector was 9.6 per cent. in 1992—one of several Conservative years in which profits fell to single digits. In 2002, however, business profits were up to 11.4 per cent., and in the latest quarter of 2003 for which we have figures—the third quarter—profits were at an almost four-year high at 12.6 per cent. In fact, profits are well above their long-run average of 9 per cent. We are seeing a recovery in business investment and I believe that we shall soon see a recovery, especially in manufacturing investment, which will make more of British business even better placed for the global recovery.

Richard Burden (Birmingham, Northfield) (Lab)

If we are to boost competitiveness, which is obviously an important element of profitability and in building for profitability, does my right hon. Friend agree that it is essential that we continue to set up mechanisms and networks that allow firms, especially those in the supply chain of manufacturing industry, to improve their processes? Will she comment on initiatives such as the accelerate programme, pioneered in the west midlands, which has done so much to boost competitiveness among motor manufacturing suppliers?

Ms Hewitt

My hon. Friend is absolutely right. The accelerate programme has done a wonderful job with supply companies in the automobile sector, particularly in the west midlands, and I thank my hon. Friend for the work that he has been doing with groups in the motorsports industry—where, again, we have a world-class cluster of businesses. We are backing them and ensuring, through Government support, that we will get skilled people into our manufacturing industry, which is the best source of our future competitiveness.

Mr. Stephen O'Brien (Eddisbury) (Con)

The Secretary of State's answer a moment ago to my hon. Friend the Member for Croydon, South (Richard Ottaway) was worryingly complacent. She knows that the relative reversal in the decline in profitability of UK companies primarily reflects the improvement in just two sectors—construction and the utilities—so against the background today of independent forecasters predicting rising interest rates, of consumer spending being set to slow, of productivity growth halving under this Labour Government compared with the last Conservative Government and foreign direct investment halving according to the latest figures—2002 against 2001—and of the latest available figures produced by the Engineering Employers Federation showing manufacturing investment at a new low in terms of capital expenditure as a percentage of value added, will the Secretary of State undertake to do something to help UK business that is within the Government's and her direct control: take action now to reverse the Chancellor's catastrophic raid on pensions, which UK companies are having to try to replenish by diverting moneys from investment in their businesses that would have boosted future profitability?

Ms Hewitt

I am very sorry to hear the hon. Gentleman, once again, talking down British business and the British economy at a time when we have record levels of employment, low inflation and historically low interest rates. We can see business investment growing rapidly. We have seen manufacturing output expanding and forecast growing confidence in the manufacturing sector, which will be followed, I believe, by a growth in manufacturing investment, which is badly needed now that profitability and output are recovering. It is this Government who have created the economic stability and invested in innovation, skills and infrastructure, which give all our businesses—manufacturing and services alike—one of the best economic and business environments in the world. I can assure him and the House that we will continue to do so, and to ensure that we create the jobs and the prosperity for all our people in the future.

Mr. O'Brien

There was not a word about pensions, which the question was about—so no joy from the Government for UK business. Let us try again. We know from the latest Office for National Statistics figures, released just nine days ago, that UK manufacturing fell a further 0.7 per cent. in November—its biggest decline in more than a year. With the CBI warning that another 50,000 manufacturing jobs are likely to be lost this year, does the Secretary of State recognise that the British Chambers of Commerce's burdens barometer, alluded to by my right hon. Friend the Member for North-East Hampshire (Mr. Arbuthnot) during the first question, which tracks the total cost of the burdens of regulation on UK business—again, an issue directly under the right hon. Lady's control—now estimates that the cost on UK businesses, eating away at their profitability, doubled to an eye-watering £20.6 billion last year? Will she now undertake to put a freeze on introducing yet more regulations on business, start promoting business and stop her burgeoning £8 billion Department being the arch regulator-in-chief against business?

Ms Hewitt

Again, the hon. Gentleman completely ignores what we have done to simplify regulations and reduce the cost of red tape. In the 1990s, an entrepreneur needed 28 separate licences, certificates and registrations to start a business. We have slashed that; we have made it far easier to start a business in Britain and, in part as a result, we have seen an increase of nearly 100,000 small businesses in our country since 1997.

Michael Fabricant (Lichfield) (Con)

How many?

Ms Hewitt

That is net increases in businesses. We have simplified VAT, we have taken nearly 750,000 small businesses out of VAT and we have cut their audit costs. We have raised the qualifying threshold for investment allowances, so more small businesses are benefiting. When the hon. Gentleman talks about sweeping away regulations, does he want to get rid of the regulation that raised the capital gains tax allowance, or the one that prevents money laundering, or those on disease control? Does he want to get rid of paternity leave, maternity leave or family friendly working—

Mr. Speaker

Order. I must say to the Secretary of State that I want to get to Question 4.