UK Inward Investment

HL Deb 31 January 1996 vol 568 cc1454-500

3.18 p.m.

The Viscount of Oxfuird rose to call attention to the level of inward investment into the United Kingdom in recent years; and to move for Papers.

The noble Viscount said: My Lords, it is a real pleasure for me this afternoon to propose this Motion, particularly when I note the array of talent from all sides of the House speaking today. I was especially pleased that the noble Lord, Lord Borrie, has chosen this occasion on which to make his maiden speech. All noble Lords will have benefited either directly or indirectly from his work over so many years at the Office of Fair Trading. I am sure that we are all looking forward eagerly to the impact that his special knowledge in the commercial field of law will bring to our debate this afternoon.

Judging from the contributions made from all sides of your Lordships' House when this matter was previously debated on 10th July last year, the need for inward investment into our country is widely accepted. In the 19th century the flow of investment capital from this country was, of course, predominantly outward rather than inward. Times have moved on and now we live in what our American cousins call a "global village". Outward investment from this country is quite rightly matched by inward investment into the country. In the 19th century we were investing outwards in terms of both the moneys and the skills that we could provide, but we were not always thanked for it. I wish to quote from Kipling who said, Take up the White Man's burden— And reap his old reward: The blame of those ye better, The hate of those ye guard.

Our debate this afternoon is about inward, not outward, investment. However, when I look back at some of the points that were made back in the 'seventies before this Government began to place emphasis on the importance of inward investment I shudder to note that the vital importance of this issue was often misunderstood and that investment from overseas was not always welcome. Indeed, some of the far-sighted industrialists from the United States, Japan and Korea who decided to invest their money here were reviled, rather in the same way as pioneering European colonists of the past. That point is worth emphasising.

A number of surveys have indicated that an important factor in encouraging Japanese companies to come to the United Kingdom rather than to locate elsewhere in Europe has been the warmth of the welcome they have received both at official and social levels in the United Kingdom. Our welcoming attitude seems to have worked, because I note that every one of Japan's top 10 consumer electronics firms has chosen the United Kingdom as its manufacturing base in Europe.

The reality is that inward investment into the United Kingdom has helped to develop and modernise our industrial base. It has created new jobs, introduced innovative new products and processes, filled gaps in our established domestic production, increased output overall and brought in valuable management and technological expertise.

If we accept the thesis that inward investment is a good thing and should be encouraged, let us begin to examine the reasons why we in the United Kingdom have, in recent years, seemed to be rather good at attracting it. The United Kingdom is the number one location for Japanese, United States and Korean investment in the European Union. We consistently succeed in attracting one-third of all inward investment into the European Union from outside.

There are a variety of reasons. One factor is, of course, the English language—a point that was well made by the noble Lord, Lord Haskel, in your Lordships' debate on 10th July last year. I understand that my noble friend Lord Geddes will have something to say on that subject this afternoon.

I contend that that is certainly not the only reason. An overriding reason is that over the past decade the United Kingdom has undergone a remarkable sea change. No longer do we suffer from overtaxation, overregulation, overmanning and uncomprehending and unco-operative trade unions. Overseas investors make commercial decisions to locate their factories here because it makes economic sense for them to do so. The culture of deregulation and competitiveness that we are progressively building in this country is not unnoticed abroad.

I have spent much of my working life promoting the export of British goods overseas—and what a soul-destroying job that was in the 1970s when the United Kingdom was seen to be the "sick man of Europe". Our goods were perceived as overpriced and of indifferent quality. Delivery promises were broken because of strikes, restrictive practices or plain poor management. How different is the picture for our exporters today, many of which are the very overseas firms which have chosen to invest here.

Overseas firms now account for about 40 per cent. of all the United Kingdom's manufactured exports, worth in the region of £45 billion in 1994. In 1995, 35,000 overseas companies in this country won a Queen's Award for Export Achievement. Success breeds on success. It helps to reinforce this country's position as the enterprise centre of Europe.

Let us look at what is being said about us abroad. On 15th October last year the New York Times ran a special feature under the rather journalistic headline: Smitten by Britain, Business rushes in". It reads: For years, much of Europe derided Britain for creating a low-wage, low-security economy—one far closer to the American model of flexible work forces and intense pressure to drive down costs than to the European tradition of high pay, lavish benefits, strong unions, restrictive work rules, generous social welfare systems and high taxes. Now, however, policy makers in other countries are looking more closely at the British experiment as they grapple with high unemployment and eroding international competitiveness".

The disastrous consequences of signing up to the Maastricht social chapter, now commonly referred to all over the world as the "European employment tax", are beginning to be seen as a cursed millstone dragging down the performance of our European partners and striking deep into the heart and very lifeblood of the competitiveness of Europe.

It is noteworthy that since 1980 the United Kingdom's fixed investment has grown significantly faster than the European Union average; a statistic which is in stark contrast with those of the 1960s and 1970s when our growth rate was much lower than that of our European partners.

Perhaps I may also say a word about the exchange rate. The competitiveness of British firms has, of course, been enhanced by the fall in the value of sterling when we left the exchange rate mechanism. It is important not to forget that that benefit is likely to be relatively short term. In the medium to long term we would expect exchange rate levels to reflect the health of the United Kingdom economy, which is stronger today than it has been for many years and has become the envy of most of our partners in Europe.

In the longer term we must look to other factors to enhance our position. Let us look, then, at what additional measures we can take to further improve the position. Speaking on this subject in your Lordships' House on 10th July last year the noble Viscount, Lord Waverley, made a plea for better integration of the various agencies promoting inward investment into the United Kingdom. English Partnerships, the economic regeneration agency for England, which was established last year, has succeeded in creating valuable links between regional and local authorities and the Department of Trade and Industry's Invest in Britain Bureau.

However, we should not overemphasise the importance of those agencies. They will achieve nothing without the availability of attractive locations and potential employees with the right skills and competitive wage rates. Siemens, the German electronics group, which announced a £1,100 million investment last year in Newcastle upon Tyne, has been quite open about the factors which influenced its investment decision. Concerning the national and regional agencies, Siemens laid great stress upon their speed of response and their ability to offer a one-stop service as soon as the company began to show a serious interest in investing here.

There may be a lesson in that for the current political debate about regional government in England. Those in favour take it for granted that a new tier of government will improve the capacity of England's regions to attract foreign investment. In reality, England's past weaknesses in this sphere appear to have been primarily due to poor national promotion and inadequate co-ordination between regional and national agencies. It is far from clear that a new tier of regional politicians, all vying to outdo their neighbours, will improve upon the status quo.

The agencies in Scotland, Wales and Northern Ireland also deserve some mention since they have each proved successful in promoting the potential of the areas they represent. We shall be considering the economy of Wales in some depth later today, so perhaps I may be permitted to dwell for a few moments on my own homeland of Scotland.

Inward investment is a great Scottish success story. The year 1994 to 1995 was a record year for inward investment in Scotland, with 97 projects attracted, involving total planned investment of £1.1 billion and the creation or safeguarding of 12,300 jobs. Late last year Scotland secured the largest inward investment project ever attracted to the United Kingdom when Chunghwa Picture Tubes, of Taiwan, announced that it would create some 3,300 new jobs in Lanarkshire, an unemployment blackspot, by setting up a factory to manufacture cathode ray tubes for televisions and computer terminals.

It is interesting to note the facts about Scotland. Scotland now produces 12 per cent. of Europe's semiconductors, over 50 per cent. of Europe's automated banking machines, over 35 per cent. of Europe's personal computers and nearly 60 per cent. of Europe's workstations. Scotland is such an attractive location for inward investment because it has one of Europe's most cost-competitive operating environments, a low rate of corporation tax, excellent communications, and an education system geared to the needs of modern industry. How sad it would be if those achievements were threatened by the proposals that have been made by the Labour and Liberal Democrat Parties to create a tax raising Scottish Parliament. The so-called "tartan tax" would destroy much of what has been achieved and would create a less favourable environment for inward investment into Scotland than any other part of the United Kingdom.

I should like to turn now to the importance that the financial skills of the City of London play in attracting investment into the United Kingdom. I am particularly grateful to my noble friend Lord Sheppard of Didgemere for briefing me on the activities of the London First Centre and the role that it plays in helping to attract foreign companies to establish their European headquarters here. I note that my noble friend Lord Cuckney will speak later in the debate; and I know that we shall hear more from him on the subject.

Of equal importance to professionalism of our City institutions in attracting inward investment is the contribution made by the science community in the United Kingdom.

I refer now to the report of your Lordships' Select Committee on Science and Technology under the able chairmanship of the noble Lord, Lord Walton of Detchant. It was published in late 1994. One of the things that the committee studied was the reason why international companies choose to invest in UK science in a whole range of sectors. It found that the English language, which has now established itself as the international language of science, was a factor, but that of equal importance was the sheer excellence of United Kingdom science coupled with its well-established capacity for innovation. I quote from two Japanese companies. Sharp states: The United Kingdom enjoys a high reputation for the standard of basic research and research training in higher education". Toshiba states: The most attractive feature of UK science which lends itself to collaborative research with multinational corporations is the strength of the basic, curiosity-orientated research and its associated infrastructure".

Time moves on. However, the message with which I wish to conclude is that the success of the Government in attracting inward investment into this country is real and tangible and has been of benefit to our whole community. Let us therefore build upon the successes of the past by continuing with much more of the same in the future. I beg to move for Papers.

3.34 p.m.

Lord Borrie

My Lords, I am most appreciative to the noble Viscount, Lord Oxfuird, for introducing the Motion. Not only is it one that has attracted so many names to speak in the debate, but I felt that it gave me an opportunity to make some comments by way of a maiden speech.

I must, first, declare an interest in that I am a non-executive director of a French owned company and of a largely American owned company, both of them investing in the United Kingdom.

I do not think that it will be too controversial in a maiden speech to say that there is much good in inward investment in terms of job creation, of added competitiveness for our country and sometimes of enhancing regeneration in some of our communities. I hope, too, that it will not be regarded as too controversial to say that sometimes we in the United Kingdom should be watchful and wary of inward investment—wary because it may be transient and footloose; wary because inward investment may mean that decision-making on important matters is taken outside this country; and wary also because it may be that inward investment distracts us from the important need to encourage and promote homegrown or indigenous investment.

During the many years that I was at the Office of Fair Trading, to which the noble Viscount kindly referred, I was less involved with inward investment by way of greenfield sites than by way of acquisition. It was my task to advise successive Secretaries of State for Trade as to whether such acquisitions should be referred for fuller investigation by the Monopolies and Mergers Commission. I can recall a number of instances of acquisitions from outside this country—for example, acquisitions or proposed acquisitions of the Royal Bank of Scotland and the Nestlé Company—when I was concerned to examine and advise on whether they would lead to something which would be adverse to the British economy because, among other things, it would lead to decision-making departing from these shores.

I recall the acquisition by Guinness of Distillers in Scotland—not, it is true, an acquisition from abroad, although many Scots seemed so to regard it. But the Office of Fair Trading was concerned to advise on whether that would be adverse to the Scottish economy because important headquarters functions and so on would be taken out of that important part of the United Kingdom. Your Lordships may recall that in order to counter that concern a distinguished Scottish banker was appointed as chairman. There were photographs of the chief executive's wife scurrying around Edinburgh allegedly house- hunting.

It is quite appropriate that the relevant authorities in the United Kingdom should consider whether, as regards acquisitions from outside Scotland or other regions, important functions are being taken away. If that is so, it seems more important still that one should be concerned if important centres of power and decision-making are removed altogether from the United Kingdom, especially, for example, if those industries are of strategic importance or the predator comes from another country whose laws may forbid takeovers in the opposite direction.

Subsequent to my leaving the Office of Fair Trading in 1992, the late John Smith appointed me to be chairman of the Commission on Social Justice, where I acquired quite a lot of positive feeling towards inward investment. Among other places, we visited Nissan United Kingdom in Sunderland. The commissioners and I were much impressed by working practices there and by the way in which workers at the company were involved in making decisions. We were impressed by the involvement with the local community, for example, through training and education at the local university of Sunderland and with the high proportion of UK-made components which were being used.

Of course, as the noble Viscount said, it is important to recognise that such investment from abroad has had great benefits to industry at large because the management techniques, the practices and the other ideas which are brought spill over, through conferences and discussions, into industry. I am well aware—but, fortunately, so are the inward investors—that, as a newcomer in an area of historically and traditionally strong industrial cultures, there has to be a responsiveness, a careful treading on the waters, in order to ensure that sensitivities are not damaged. However, most of our newcomers who involve themselves in inward investment have taken a great deal of care in such matters and have built bridges into the traditions. They have been careful to ensure good relationships with the local community.

What sours relations, and what many people in the country are worried about, is when the inward investor behaves like a predatory tourist: here one day, gone the next, leaving behind a trail of broken hearts and unfulfilled promises. The House of Commons all-party Select Committee on Trade and Industry mentioned last year in its report that not all inward investors behave in the desirable way that I have described. They do not all use a high proportion of UK components; they are not all as sensitive as we would like them to be. They do not all bring to Britain the higher value activities like research and development.

I am a member of my party's Regional Policy Commission. When we have gone round the country taking evidence in the Midlands, Lancashire and elsewhere, we have been told many times that there must be a stronger insurance that there is a balance between indigenous investment and inward investment. The Select Committee on Trade and Industry was surely right when it said in its report published in March last year: both indigenous development and foreign inward investment have vital roles in regional economic development". I hope that your Lordships will regard that as at least one useful message which can go out from this debate.

3.43 p.m.

Lord Laing of Dunphail

My Lords, on behalf of the whole House may I congratulate the noble Lord, Lord Borrie, on his maiden speech. The noble Lord has had a varied and distinguished career in law and commerce, and he and I met on many occasions during his period as a successful director of the Office of Fair Trading. I know that his wide knowledge and inquiring mind will, like his maiden speech, be much admired in your Lordships' House.

I congratulate the noble Viscount on his introduction to this important debate and thank him for giving us an opportunity to discuss the subject. As a Scot and chairman of a Scottish company—United Biscuits—for about 20 years, I shall largely confine my remarks to Scotland. Those responsible for arranging the remarkable result of inward investment to Scotland are greatly to be congratulated. Nothing that I say should detract from those congratulations. Foreign firms have located in Scotland because of the competitiveness of its workforce, some tax advantages and its excellent communications infrastructure. If, however, the so-called tartan tax is imposed, it will be a deterrent to foreign firms locating there and some Scottish companies would relocate to England.

United Biscuits employs 2,000 people in Scotland. When I was chairman, I made clear to them that, with our factories in England and throughout northern Europe, a factory in Scotland was not essential and if devolution in whatever form led to extra taxes being imposed on our employees or the company we would employ many fewer people there within a relatively short time. Indeed, our major factory in Glasgow would probably be closed.

There are great dangers to Europe if it spends too much time and effort looking inwards. The emerging countries of the Pacific Rim are those which pose the greatest threat to jobs and prosperity in Scotland or any other country in Europe for that matter. Let us not take any action that makes us less competitive. That is exactly what a tartan tax and some aspects of the social chapter would achieve.

I applaud inward investment. It is a sad fact, however, that British companies are not investing sufficiently in the United Kingdom. British companies have a vested interest in keeping Britain great. Looking to the next century, there are real dangers in relying on foreign firms investing here, as the noble Lord, Lord Borrie, said, when we should be making that investment ourselves. Too much money which should be invested in manufacturing industry is paid out in dividends and to accountants and lawyers in takeovers. I have made that point too often in your Lordships' House to labour it. There are other ways of changing inadequate managements, which are just as effective and achievable at much less cost, as has been demonstrated both here and in the United States.

Some 40 per cent. of our manufacturing industry is already controlled from outside this country by people who must surely have less interest in the UK than we have. While inward investment has undoubtedly been a boon, if we look about 25 years ahead and assume—I repeat assume—that by then we have a common currency with no control over interest rates or the exchange rate and recognise that we are on the periphery of Europe, with the major centres of population well south of Birmingham, we have to acknowledge the danger that foreign owners may well decide to move production away from, say, Scotland and nearer those centres of population. In a society which seems to look increasingly to the short term, I hope that that thought is sufficiently relevant to be fed into the equation.

With inflation at its lowest level for 30 years and clearly under control, with the unions operating within the law, with a workforce who have seen the folly of inflationary wage claims and who, when properly trained and led, are as good as, or better than, any in the world, the time has come for us to have the same faith in Britain as our overseas competitors seem to have and greatly to increase our investment in manufacturing industry in our own country.

On a minor point, it would be a considerable help if aid to small companies in Scotland were not restricted to relatively small areas. Inward investment is favoured by special tax arrangements and grants of one kind or another denied to some small Scottish companies. But it is largely to small companies that we must look for increasing employment. When my son's company, Shortbread House, whose business is located in Edinburgh, applied for a grant for a new factory adjacent to the existing building, so doubling the workforce, the only question asked was, "What is your postcode?". I find that rather a narrow view. I hope your Lordships do too.

3.50 p.m.

Lord Wallace of Saltaire

My Lords, I add my congratulations to the noble Lord, Lord Borrie, on his maiden speech. This is only my second speech in the House. I remember with a degree of nervousness the maiden speech I made not so long ago. The noble Lord made a very useful and expert contribution.

I welcome the debate. As the noble Viscount, Lord Oxfuird, remarked, we are in a global economy in which there is increasingly no such thing as a British independent economy. Investment flows in and out; global companies operate. However, there is a question of balance. I wish to add my own note of caution.

There is a question of sovereignty. I have been struck during my short period in the House by the passion which issues of sovereignty arouse when they are directed towards Brussels. I am struck also by what seems to be the complacency with which sectors of British industry become immensely over-dependent on foreign-owned companies. In that way, sovereignty slips away. We may talk with pride about the electronics sector in Scotland, almost all of which is under foreign ownership. I am not sure that that is entirely healthy. Those who talk about the problems of German control of British money may wish to reflect on the number of German companies that now own substantial parts of British industry and indeed of the City. I declare an interest. I spent five years happily engaged in a fellowship at the University of Oxford funded by Deutschebank. I came to know Deutschebank very well and to admire it.

There is, I repeat, a question of balance. It is not enough for the Government to proclaim that inward investment is a substitute for civilian industry policy. We need to spend more time promoting British industry and, as the noble Lord, Lord Laing, pointed out, encouraging British firms to invest in Britain. One very sad statistic is not often quoted. British companies invest less in Britain than do their counterparts in other OECD countries. That should give cause for thought.

I am puzzled by those who think that devolution to Scotland, and perhaps in time also to the north of England, will put companies off. I spent time in Germany and in Spain. I note the very successful partnership between the Baden Württemberg government, universities and high technology industry in promoting the economy of that region. I note the Catalan government following a similar path. The idea that German companies such as BMW, with its close relationship with the Bavarian government, will be put off from investing in parts of Britain because we also have regional government seems a little odd. Why an independent entity in Scotland, rather than simply a bureau for investing in Scotland, should worry companies already familiar with federal systems both in the United States and in Germany is beyond my understanding.

I wish the Minister who replies to reassure us that the Government, in pushing as hard as they do for inward investment, are not promoting foreign companies sometimes almost at the expense of British companies. Working, as I now do, at the London School of Economics, I am aware of the very odd occasion when a senior Minister intervened to ensure that County Hall, just across the river, was successfully sold to a Japanese company rather than allow the London School of Economics to make a bid. That was a very odd preference for foreign ownership as against a British institution which, I remind the House, won the Queen's Award for exports for the number of foreign students attracted each year from outside the European Union. We are thus an invisible exporter on a very large scale.

I note that Battersea power station is also now in foreign ownership. Nothing much has happened to it since it was bought. I look forward to seeing what happens to the palace at Greenwich. Several foreign institutions are interested in buying it. That also gives me cause for thought, as does the Invest in Britain Bureau pronouncement that this country is so competitive because our labour costs are now cheaper than those of Ireland. Is it an immense source of pride for Britain that we have managed to place ourselves below Spain and Ireland as a low-cost competitor in the European market? Professor George Bain, principal of the London Business School, has written on precisely this point; namely, failure to invest in our own country and willingness to stress that we compete on low labour costs, a good strike record and low taxes. As he said, that is not enough for the long-term prosperity of this country.

My title comes from a small village in Yorkshire, Saltaire. Like the rest of Bradford, when the great surge in the value of the pound came in 1980–8, many branches of foreign-owned companies in Bradford closed. Salt's Mill, once the largest mill in West Yorkshire, finally closed in 1983 when its American owners decided that it was no longer a profitable branch. Companies owned by people in Yorkshire stuck it out. I am very happy to say that Salt's Mill now contains Pace Electronics, a small bunch of people I recall meeting in 1983–84. It is now well on its way to becoming one of the largest local employers. Our capacity for survival at a time of rising unemployment depended disproportionately on British-owned companies sticking out those two or three years. I worry about Britain becoming too much a branch economy for Germany, Japan, Korea, Taiwan, Sweden, the United States and others.

As we look ahead and appreciate that low wage costs are a passing benefit and as the Czech Republic, Poland and Hungary open up as effective competitors to the United Kingdom, with their well-trained workforces, we are going to have to do more. The promotion of inward investment is not enough in itself. I should like to hear from the Minister what we are doing to encourage British industry to raise the level of investment in Britain. How far are we sure that inward investment and its encouragement will also be marked by encouragement for British companies? It is clear that the encouragement of inward investment in this highly competitive global market is necessary and desirable. But it is not sufficient in itself.

3.58 p.m.

Lord Haskel

My Lords, this is indeed an important topic, crucial to the economy of the United Kingdom. I am most grateful to the noble Viscount for giving us the opportunity to debate inward investment, so that we can understand it better.

As we have heard, some inward investors are world-class companies, so I welcome their inward investment for the jobs it creates, for the new technology it brings to industry in Britain, for the advanced management and production methods that we learn from such companies, and particularly for the high standards that they set for their local sub-contractors.

However, other inward investors make acquisitions, and we have been told of the problems that can arise from them by my noble friend Lord Borrie. I welcome my noble friend's experience and his remarks today.

I would also welcome any news that the Minister in replying to this debate can give us about encouraging inward investment because, sadly, it seems to be in decline. The Central Statistical Office provides figures only to 1994, but they show that the net annual overseas investment in the UK rose in the 1980s from £3 billion to a peak of £18.5 billion in 1989, but by 1994 this had declined to £6.5 billion.

I say "sadly" because, as the noble Lords, Lord Laing and Lord Wallace, told us, we need all the investment we can get. According to the OECD, we invest less per head than Spain, Portugal and Iceland. We invest £1,600 per person in the UK. In France it is £2,250, in Germany £2,600 and in Japan £3,900. Unless we invest equal amounts per head of the population as our competitors, we have little chance of becoming as competitive as them and becoming the enterprise centre of Europe. It is the unit labour costs that matter, not the hourly labour cost, and investment is crucial in bringing that unit cost down.

The noble Viscount, Lord Oxfuird, told us about the studies made in relation to encouraging inward investment into Britain. I assume that he was referring to a survey commissioned last year by the Invest in Britain Bureau of 200 manufacturing assembly and research companies which had already invested in the United Kingdom. When we last debated this matter I drew the Minister's attention to two conclusions to be drawn from that survey. The first was the importance of teamwork in attracting inward investment. The noble Viscount spoke of that when he gave us the example of Siemens. The team which attracts inward investment consists of the Invest in Britain Bureau, the development agencies, the local authorities and the local private companies on which the inward investment will depend.

The research showed how crucial was the role of the local authorities and the local development agencies both in attracting the inward investor to their areas and in providing grants and facilities. Many of them are Labour authorities, particularly in Scotland; and the research showed that the Government's attitude towards Labour-controlled local authorities had cast doubts in the minds of some inward investors.

I urge the Minister to encourage his colleagues to be generous in their praise of local authorities in attracting inward investment. In that way inward investors will not be discouraged by the thought of perhaps more Labour-controlled local authorities after the May elections and even the possibility of a Labour Government after a general election. The Government rightly welcome the good sense of overseas companies investing in Britain. But they try too hard to make political capital out of it for the Government alone.

I remind noble Lords that in the survey of 200 firms, 126 mentioned the need to be in the European Union as part of their world strategy, 32 mentioned the English language and only 12 mentioned labour costs. The conclusion to be drawn from that is that the Government's employment policies are irrelevant. They are not as important as the noble Viscount said. What is relevant are the management skills and practices of the inward investors and their long-term intentions. What is crucial is that the Government sort out their policy towards the European Union. I have no doubt that the division in the Government in relation to their attitude to Europe is one reason why inward investment is not even greater.

My final point concerns the need to disaggregate the inward investment figures so that we can understand them better. The noble Lord, Lord Wallace, referred to the problems of investment for the purchasing of assets. There is a difference between inward investment which creates a modern new car factory on a greenfield site and inward investment which buys up the shares in a factory already in existence, which is then closed down. The Minister will remember that that happened when Du Pont bought ICI's fibre business, as well as with the woollen companies in Yorkshire about which the noble Lord, Lord Wallace, told us. There must be a difference between inward investment which brings a new factory with new technology and high standards and inward investment which buys an asset like County Hall.

I urged the Minister to disaggregate those figures when he first stood at the Dispatch Box in his present job last July. My enthusiasm was reinforced recently by an article in the current Harvard Business Review by Paul Krugman entitled "A Country is not a Company". I do not know whether the Minister had an opportunity of reading that article before switching on Coronation Street, but its main theme was that it does not follow that someone who has made a personal fortune and successfully run a business will also know how to make a nation more prosperous.

Mr. Krugman explained that point by the fact that business people and economists look at the same set of circumstances differently. One example he gave was inward investment. He said that US business people will welcome as an inward investor the overseas company that buys the Rockefeller Center. However, an economist working for the Government should look upon that purchase as a way of financing the US trade deficit with Japan. The purchase of the Rockefeller Center is a way of paying for the consumption of Japanese cameras and cars imported into the United States.

As businessmen, many noble Lords are absolutely right to welcome inward investment. I welcome it too, but perhaps not as blindly as the noble Viscount. I have tried to learn from Mr. Krugman's article and to take a more balanced view. That is not running down Britain; it is understanding inward investment better and being realistic.

4.7 p.m.

Lord Wade of Chorlton

My Lords, I too thank my noble friend and congratulate him on introducing this subject. It gives us an opportunity, on the one hand, to congratulate the Government on the tremendous amount of work that they have done—the travels that they have undertaken and the teams that they have led around the world—to encourage people to come and invest in Britain. It also gives me an opportunity to tell your Lordships a little about the North West and to emphasise a point which many noble Lords will have heard me mention before—that the most important thing that this country, or any business, can do is to ensure that investment increases.

As many noble Lords have said, it is not only important to bring in investment from elsewhere, but also to ensure that we use everything we have got to encourage investment at home. It is only through investment that we can stimulate jobs and acquire sufficient wealth to provide those things that we want to provide.

I must declare an interest. I am a director of INWARD Ltd., which is our North West inward investment organisation charged with the responsibility from government by the IBB to draw in and attract as much investment as possible. We have an income of approximately £2 million a year of which £1.6 million comes from the IBB and the rest is raised locally from major companies in the North West and local authorities.

I wish to tell your Lordships a little about our successes and our constraints, because possibly the constraints apply to inward investment throughout the UK in general. Our successes have been considerable over the 10 years of our life. We have brought in approximately £0.5 billion of up-front investment which, from the follow-on investment that that generated from successful companies, has now run into around £2 billion and provided initial employment for 40,000 people, which has increased substantially over the years. Most of the companies from the time of that initial investment have grown considerably.

As a result of inward investment we have stimulated an awful lot of investment and technology—which is the keynote of that activity—throughout the North West. We have gained a lot of extra jobs and developed more local businesses. Out of major investments from abroad have come many supplying companies in the region who have been encouraged to invest also, which in turn has stimulated a general level of activity in the area. I hope that that will continue.

Things have changed slightly in recent years as a result of government policy. We are not now in competition with other regions in the way that we used to be because the IBB makes the decisions on where major inward investments will go. Whereas at one time we in the North West felt that we could compete positively with other regions of England—I refer to England at this stage—by offering better sites and opportunities and going out of our way to market the region, that is now less easy to do because of the way the IBB takes all of the initiatives. However, we are still very competitive with Scotland, Wales and Ireland, which has taken very positive views on inward investment.

One of the constraints I see in the system is that there is no regular basis on which financial support is offered to incoming companies. A major investment took place at the end of 1994 into the Chester region. It was a bank from Newark in America. It was offered different amounts of money from Ireland, from Scotland, from England and from Wales. By looking at that with the Treasury we could identify that the British taxpayer was competing against himself in the different regions to which the company might have been attracted to go because the Government were prepared to do more in one region than in another. We were actually becoming our own competitors and building up a price which it was probably unnecessary to do in the first place. Undoubtedly, that company would have benefited from an investment into it by the UK taxpayer when it would have come here for a lot less. That is a constraint on the system which the Government should look at.

The other area where we find serious constraints is the availability of the right, properly serviced, sites which are needed to attract major investors. It was interesting to hear noble Lords compare those people who want to buy a business with those who want to invest in creating a new business with new employees, new technology and new buildings. The one who wants to invest in a business will invariably go into an area where there is already activity and where businesses are already operating. Those who want to invest in new businesses and want to make major investments for a long-term future want green field sites. When one examines the major investments that have been made into Britain the companies concerned have been attracted by the green field sites that were on offer.

My noble friend mentioned the investment that had recently taken place in the North East of England. The company concerned was attracted by the special green field site on which it was able to build. In the North West we are finding it more and more difficult to find those sites. There needs to be a positive view from the Government, from the local authorities, and from what is now the greater Manchester area, and the Merseyside area to provide the sites that will attract investors who will take a long-term view.

A positive message has come out of inward investment. It has brought a great many opportunities to Britain that would not have been there before. But we need to appreciate what the customer wants. Whereas when we talk about businesses we emphasise the importance of the customer, we sometimes try to push investors where they do not necessarily want to go. One of our major companies in the North West wishes to expand very considerably. We are talking of 1,000 employees or more. It makes sense for that company to expand on the side of its existing site, where it has the skills and the opportunities. It is not in a development area. It is not in an area to which any support is likely to be given. Therefore, it is finding it very difficult to put forward a case which would enable it to get support. Yet an incoming company from, say, Taiwan could go to a site where we might want it to go, or where society felt it was more appropriate to invest, and it would get a great deal of support. It would be encouraged and the British taxpayer would be asked to foot yet another bill. That issue needs to be looked at more closely.

If we really want to encourage as much reinvestment from our own economy as we do to encourage that from outside, we have to make sure that we do not control things to such an extent that we act against our own investment and encourage someone else to come in who might not take a long-term view.

I conclude by congratulating the noble Lord, Lord Borne, on his maiden speech, which was a splendid contribution to the debate.

4.15 p.m.

Lord St. John of Bletso

My Lords, even though the noble Lord, Lord Borrie, has just moved on, I join in congratulating him on his most interesting maiden speech, coming, as he does, with all his expertise and experience, from the Office of Fair Trading. I should like also to thank the noble Viscount, Lord Oxfuird, for introducing today's debate.

In speaking in this debate, I ought to declare an interest as a financial consultant to Merrill Lynch, with particular responsibility for promoting United Kingdom stocks and shares to the Japanese market. Only yesterday I was asked to present to a leading Japanese bank the reasons for my bullish stance on why it should invest more into our market.

The noble Viscount, Lord Oxfuird, has already given a number of reasons why the United Kingdom has attracted the largest single share of inward investment into the European Union. While this debate focuses on the level of inward investment into the United Kingdom, rather than get bogged down by the myriad of comparative facts and figures, region by region, I would prefer to focus my remarks on why the United Kingdom is such an attractive market for inward investment, particularly for the Japanese, but also on what needs to he achieved to make the market even more attractive.

The main factors that have been mentioned for the attractiveness of the UK for inward investors have been our comparatively low labour costs, the comparatively low and simple corporate tax system, the relatively low levels of industrial disputes as well as the attractive financial incentives that have been given in certain regions. However, just as important is the fact that, for many international companies investing into the UK, it is an ideal entrée into the European Union. The noble Viscount, Lord Oxfuird, has already mentioned—and the noble Lord, Lord Geddes, will be mentioning it later on—the importance of English as a business language. Another positive point, particularly to the Japanese, is our comparatively stable currency and our low levels of inflation and interest rates. As well as low labour costs, there are also low levels of severance costs compared with many of our European partners.

One statistic that particularly impressed one of my Japanese investors was that last year marked the lowest number of days lost due to industrial disputes since the 1890s, unlike France which was almost paralysed by strikes last year. The fact that unit labour costs in Britain are so much lower than in Germany and that British manufacturers can produce car components of equal quality for around 60 per cent. of the cost in Germany is also noteworthy.

The influx of Japanese manufacturers has not just created much needed jobs, but has also created greater awareness of the need for world class standards of quality, efficiency and productivity in the global market place. In many cases that has resulted in the transformation of working practices in the United Kingdom.

On the point of quality of product and quality of services, it is worth mentioning that so far in Britain almost 50,000 companies have received certification through ISO 9000 quality management systems and there is an annual 10 to 15 per cent. increase in the take-up of this certification. I was interested to hear the remarks of the noble Lord, Lord Wallace, when he spoke not just about the importance of inward investment, but called for investment by British companies into their own companies here and asked what measures Her Majesty's Government will give to such companies to invest more here.

Only last week I was involved in the presentation ceremony to the Swindon Chamber of Commerce on achieving recognition to the ISO 9000 quality management systems. ISO 9000 is one of the most internationally recognised documented quality systems and has been the basis of an introduction of a culture of greater efficiency to many companies.

As my home is in Wales, I should have liked also to have spoken this afternoon to the debate, to be introduced by the noble Viscount, Lord St. Davids, on the economy in Wales and the reasons why Wales has been so successful in attracting inward international investors. International employers have commended their Welsh workforce for being flexible and stable with few industrial disputes. In fact, a survey of Japanese managers found that they liked the general working environment, the opportunities for career development—as well, of course, the sporting facilities—and the warm welcome that they were given by their Welsh friends, a point that has already been made by the noble Viscount.

However, as in many parts of Britain, with foreign-owned companies becoming more technologically advanced, there has been an ever-increasing need to upgrade the skills of the workforce. This need for improved skills training remains as urgent as ever. The perception remains widespread that the United Kingdom's skills levels are low and that it will take much more than marketing and inter-agency co-ordination to put that right. Apart from the attractions of low labour costs, low levels of industrial disputes and attractive financial incentives in some regions, there is the added requirement of a good infrastructure, transport links, green field sites and healthy living conditions.

Perhaps I may mention very briefly the financial services industry, particularly as regards the Japanese. London remains the undisputed headquarters of the Japanese banks and other financial institutions in Britain, with almost 700 Japanese firms here. London, with its many sushi and karaoke bars, Japanese newspapers, schools and other services—not to mention the many golf courses scattered around London—offers an extremely attractive location for Japanese investors.

I would have liked to have spoken more on the role of the City in attracting foreign investment, but time precludes me today from doing so. This subject was examined in an article in the Financial Times on 2nd October last year and has been extensively covered in the most interesting report that I read in September by London Economics, The City and Inward Investment: Revitalising the UK Economy.

In conclusion, it is clear that inward investment is not just a matter of the creation of new jobs, but it is also the addition of new technology, new products and, most importantly, new management. I wholeheartedly support the Government's business links programme initiative, despite its initial teething problems, in offering a one-stop shop for investment inquiries both for domestic and international businesses, of what government services are offered to them. I would also like to commend the work of the Invest in Britain Bureau established by the DTI for promotional investment in the UK as a whole.

As we know, there are a number of excellent agencies promoting inward investment. The noble Lord, Lord Wade, and the noble Viscount, Lord Oxfuird, have already mentioned English Partnership, which has been providing valuable links between regional and local agencies promoting inward investment. The improvement in co-ordination between national and regional agencies has clearly helped to improve inward investment. I shall be interested to hear from the Minister what additional plans the Government will be providing, particularly in the field of training, to promote the quest for more inward investment here in the years to come.

4.25 p.m.

Lord Cuckney

My Lords, I wish to make particular reference to the financial services area. Although I have had past involvement in banking, merchant banking and insurance, I have no current connections which call for a declaration of interest.

The growth of inward investment in the financial services area has been impressive. The number of foreign banks in London has increased sevenfold in the past 10 years and there has been a significant increase in the number of overseas companies, American, Japanese, EU and non-EU, which have chosen London as their European headquarters.

There is a tendency to consider inward investment too much in terms of the manufacturing industries. OECD figures show that nearly one half of inward investment into the UK is in the services sector, one-fifth of that in finance, insurance and business services. The growth in the importance of the City is well illustrated by the latest figures from a Bank of England survey showing that average daily foreign exchange dealings in London total 464 million US dollars a day, nearly 60 per cent. higher than in 1992 and far exceeding the turnover of New York at 244 million dollars and Tokyo at 161 million dollars. The UK still attracts the largest amount of inward investment in the European Union. Although overall investment in the European Union as a whole has declined, the largest amount of it comes to the UK. I do not believe that the Government's present European strategy is exactly putting investors off.

The attraction of the financial services sector and especially the City of London lies with the increasing globalisation of markets and in the professional skills and services which exist in the City. I personally welcome the open door policy of the Treasury and the Bank of England encouraging the growth of remote trading based in the City. For instance, the City has now become the world capital of the Eurobond market, the largest non-governmental bond market in the world. This exploits to the UK's benefit, with valuable invisible earnings, the critical mass of skills and services which are absolutely essential for an international financial centre.

It is worth recalling the definition of the International Monetary Fund of foreign direct investment, which is inward investment, as, investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor's purpose being to have an effective voice in the management of the enterprise". I welcome the presence of foreign members on both the City's supervisory bodies and on bodies promoting the City. These policies, particularly the open door policy, led in 1994 to a 30 per cent. increase to £20.4 billion in the City's contribution to our invisible earnings. Without such policies, I do not believe that London would have been able to establish itself, as it has done, as an international financial centre.

It is important that we recognise the steadily improving effectiveness of our regulatory and supervisory systems. That will further help the international respect for, and the attractiveness and competitiveness of, the City as an international financial centre.

The Treasury and Civil Service Select Committee of another place in its sixth report on The Regulation of Financial Services in the UK, published last October, makes two, among other, important points: Failures in the regulation and supervision of that industry do not simply have financial consequences for the individuals concerned; they can also threaten the balance of payments, the stability of the currency and the prosperity of the national economy as a whole, to the extent that they threaten confidence in that industry". Secondly, the committee noted that the regulators, in evidence to the Committee, pointed out that it is no longer strictly correct to talk about a self-regulatory regime as that description now fails to recognise the independence of the regulators and the statutory basis of their authority.

It is necessary, when considering the environment which encourages inward investment—low inflation, low taxation, low interest rates, good industrial relations—to bear in mind also the great importance of a supervisory and regulatory regime which must somehow strike a balance between being effective and clearly understood but not excessively bureaucratic and onerous. I believe that that balance, with some refinements, has now been struck, and I hope that my noble friend the Minister will feel able to endorse the point. There is incidentally a timely article in today's Financial Times warning against success in business depending more often on satisfying officials rather than the customer and warning against regulatory creep.

4.32 p.m.

Lord Desai

My Lords, first, I owe an apology to the noble Viscount, Lord Oxfuird, for not being here when he opened the debate. I hope that he received the apology I sent him. I missed the speech of my noble friend Lord Borrie, but the speeches I have heard have persuaded me of how much in this House we hear distinctive speeches from Members who know the different aspects of the problem. We do not just repeat or engage in party disputes. I was especially impressed by the speech of the noble Lord, Lord Cuckney. It is the first time I have heard him speak, and I learnt a great deal from him.

Noble Lords have spoken on different aspects of the subject, but I want to emphasise, first, that one must welcome inward investment, partly because if anyone gives us money, that is always a good thing so long as we make good use of it; and, secondly, that in a globalised world we will have increasingly to forget the artificial distinction between national and foreign investment. What will matter ultimately is the total volume of investment. It does not matter greatly from where it comes. I know we still have a hankering to have some of our people running our factories and for foreigners to go away, but that is wrong and increasingly irrelevant. When Honda (USA) exports more cars to Japan than General Motors, one wonders which is the American corporation and which is the Japanese corporation. But that distinction is no longer relevant.

We can point also to the remarkable revival of the British car industry. The British car industry had its last gasp in the late 1970s and early 1980s. Today, it is predominantly foreign owned, but that does not matter because the workers are British. The interesting point—the noble Lord, Lord St. John of Bletso, pointed this outߞis that foreign investment does not just bring money and technology but a distinctive style of management. It is to the credit of Japanese and American management that, while we used to hear complaints of how the British worker was lazy, recalcitrant and all that, the same British worker performs successfully for the Japanese manager.

We must ask ourselves in relation to inward investment: what is it about the quality of management that the Japanese and the American managers bring which somehow, for reasons which I do not understand, we have failed to reproduce? The paradox of course is that we send out more investment than we bring in. We have always done that. British business can be very successful abroad. It is perhaps more successful than native business abroad, but at the same time foreign business is more successful here. We should perhaps export our capital and managers and import foreign capital and foreign managers. Then the whole world would be a better place in which to live. But I do not know about that.

While we talk about numbers—it is important to talk about numbers—it is not the amount of the investment as such but what it yields that is important. Inputs count less than outputs. After all, the Soviet Union had a tremendous amount of investment, but it was low yielding. What we are looking for are investors who obtain a greater yield from the investment than just the investment. My noble friend Lord Haskel—I say this parenthetically—almost did himself out of a job when he said that just because a man can make money he need not be a good policy maker. I hope that he will not talk himself out of a job when we are in government.

My noble friend drew the vital distinction between certain kinds of investment which were merely established assets changing hands without a great deal of value added and assets to which value was added. It could be just an old factory taken over. The important distinction is whether the new owner transforms the factory, adds value, changes work practices or acts merely as an absentee landlord. A greenfield site may be better than a non-greenfield site, but whatever it is, the crucial point is what distinctive value is added.

In that respect—leaving party considerations aside—one should examine seriously not just the level of inward investment, which is high, but the fluctuations in inward investment. As my noble friend Lord Haskel pointed out, inward investment was low in 1994 but it was high again in 1995. In the first six months of 1995 we had as much inward investment as in the whole of 1994, or so I gather from a story in the Financial Times.

Inward investment here is influenced as much by what happens abroad as by what happens here. It is not just a question of our pull factor; the push factor is also important. It is not enough just to be smart, intelligent and attractive to foreign investment. We must understand their economies and their markets and what we can do to attract inward investment. It is probably the sorry state of the Japanese property market and the situation in which the Japanese banks find themselves which have led to the reduction in Japanese outward investment rather than anything particular about the British economy. That applies similarly to some European economies.

Lastly, on the problem of attracting inward investment and regional competition about which the noble Lord, Lord Wade, talked, we sometimes have regions competing against one another. With the establishment of the IBB, things will be better.

Perhaps I may raise the following question which may need an answer. Is it right that British taxpayers should enter the battle over regions, or should we not have some sort of financial mechanism whereby regions in England, Scotland and Wales have their own fund to attract investment? Some of that investment could come from local taxation with a little national subvention, but let us have competition among the regions. Regions should bear the burden and the capacity for attracting investment, and while the British taxpayers may pay something, let it be part of the general local authority or regional finance grant. I would rather have more heterogeneity, more competition and less allocation. It may lead to some interesting outcomes.

We must also bear in mind that while we are doing all that we must attract domestic investment, in part to increase the present amount and in part to attract better management to accompany that investment. That alone will ensure that we survive in the new globalised world.

4.40 p.m.

Baroness Seccombe

My Lords, I wish to add my thanks to my noble friend Lord Oxfuird for initiating this debate on a subject of such vital importance to this country. I congratulate the noble Lord, Lord Borrie, on his maiden speech. I am sure that Members on all sides of the House will look forward to his next contribution.

Over the weekend I was in Switzerland. When I said that I had to spend some time preparing for today's debate on inward investment, one of my friends immediately suggested that I should have a howl of muesli. Whether that was to ensure that my brain got into gear or whether he felt that the ultimate had happened and we were now exporting such a Swiss product as muesli, I am not sure; but whatever it was I thought it was not had advice.

The problem with having a long-lasting Conservative Government is that the memory of the situation before 1979 can fade. However, one thing is certain: what will never fade is the horror and humilation of being seen as the sick man of Europe by our overseas competitors. I am not surprised that that was so because we had record strikes, record inflation and record misery for our people, culminating in the winter of discontent. Other countries saw us as a nation almost ungovernable, the unions in control and a workforce unable to operate because it was forced to go on strike.

Let us also never forget that in those years the price of gas and electricity was controlled by the Treasury and was always spiralling upwards; and the rates bills in Labour-controlled authorities were quite out of hand. How on earth could anyone start a business with such unknown factors? Today is so different, with a stable economy and the price of gas and electricity falling in real terms since privatisation. The business rate is pegged across the country.

In marshalling my thoughts I felt that my comments could apply to both of today's debates, as the inward investment that we enjoy today is spread across the land from, for example, South Antrim in Northern Ireland, Pontypridd in Wales, Stirling in Scotland to Torbay in England; and by countries such as Japan, the USA, Germany, Korea, Belgium, Taiwan, Canada, France, Sweden and Turkey. In total there were more than 450 investment successes in the year 1994–95. They are in a wide range of industrial sectors, including automotives, chemicals, engineering, electronics and pharmaceuticals.

The world's view of Britain today as opposed to the view of the Opposition parties is of a vibrant economy, with low inflation, low tax and a workforce better paid and producing some of the best goods in the world. Of course we are seen as a haven within the EU, not affected by the dreaded European jobs tax. The Prime Minister played a master stroke when he secured an opt-out for this country so that we do not have to embrace the Social Chapter or the minimum wage and the extra tax that they would create on jobs.

Many people underestimate the impact of the minimum wage and its effect on jobs. They often fail to take differentials into account. The DTI calculated that a minimum wage of £4.15 would cost 950,000 jobs if only half the restoration of wage differentials were implemented. But if the full differential were taken into account, that figure would rise dramatically to 1,800,000. We know who would suffer; it would be the young and the unskilled.

We have only to see the effect on the countries of our European partners. In Spain total unemployment is 22.2 per cent., with youth unemployment at 40.3 per cent. In France the total is 11.3 per cent. and youth unemployment is 26.5 per cent. In this country the total is 8 per cent. and youth unemployment is 17.2 per cent. I believe that there is a realisation across the Community that some of these enforced measures are detrimental to the interests of individual countries.

The name "Social Chapter" sounds warm and friendly but it is in reality anything but warm and friendly. It is a mechanism for enforcing social policy on member states and, with the added qualified majority voting, it would impose measures on this country whether the British Government liked them or not. That would only undermine our competitiveness and make us once again unattractive to foreign investors.

Inward investment is responsible for creating and safeguarding more than 700,000 jobs since 1979. They are jobs of high quality, permanent and well paid and in projects across the whole country, often in areas where jobs are desperately needed. Government cannot create jobs; they can create only an environment in which entrepreneurs create the jobs.

This country is now seen as a place to invest if investment is to take place in the European Union, making the UK the centre of the enterprise economy. More than one-third of all such investment in the EU comes to this country. The USA heads the list with 43 per cent. of its EU investment in the UK. Of course, we must remember the effect that that investment has on our exports. Approximately 40 per cent. of our exports are accounted for by overseas firms. Whoever thought that we should see the day when we were net exporters of television and exporting more cars than ever before in our history? In Japan today a British car is much valued for its reliability and quality, which is a far cry from the days when stories abounded about the Friday car.

The Government, through the DTI, must be congratulated on their foresight and determination to attract overseas firms here. The success continues and it would indeed be a tragedy if it were stopped in its tracks by the European jobs tax. Those who flirt with such ideas should think very carefully. Fortunately, we have a Government who understand trade and its effect on the lives of our citizens. Long may they continue.

4.47 p.m.

Lord Astor of Hever

My Lords, I welcome the debate introduced by my noble friend Lord Oxfuird as it gives your Lordships' House a chance to hear just how much recent inward investment there has been to this country. For the past decade and a half British business has closed the gap against some of the best, most innovative competition in the world. In the words of Jan Timmer, President of Philips: The most competitive country in Europe today is the UK. It has a great sense of realism and a great sense of competitive spirit". One of the best indicators of competitiveness is the extent to which we are able to attract multi-national businesses which are free to choose where to invest.

The United Kingdom's car production has increased by 600,000 since 1982, over half of which is due to Japanese investment, which has directly created thousands of jobs and further substantial employment in the component sector. Japanese car plants are expected to increase production by a further 0.25 million vehicles by the turn of the century. Those investors have brought worldwide management practices to this country and have spread them to sectors that were performing badly.

Those companies, which must have very good reasons to invest in the UK, come because we have the best environment for business. This has been achieved partly through deregulation, with more than 500 measures repealed so far under the deregulation initiative. A low cost base, union co-operation and a skilled and hard-working labour force, sterling competitiveness and a stable economic environment mean that few countries present as benign an economic environment for making cars. We are inside Europe (which is a big attraction) but have rightly opted out of the social chapter with all its extra non-wage costs.

The strength of the fast-growing automotive components industry in Wales was highlighted with the announcement last year of three inward investments which will help to safeguard and create hundreds of jobs. American domiciled Ford chose its Bridgend plant to produce a new range of engines for its hugely popular Fiesta. Gillet from Gwent clinched an order from General Motors to supply 850,000 exhaust systems a year for the new Vauxhall Vectra saloon, and British Steel's Llanwern steel works, also in Gwent, is to supply steel for the new Mitsubishi Carisma. South Wales now rivals the West Midlands as the automotive capital of the UK.

Rover has gone from strength to strength since the BMW purchase. At the time, I well remember the Labour Party's fulminations over the way Britain's best volume car producer had been sold at a "knock-down price" to the Germans. The chairman of BMW now calls Britain, the most attractive country among all European locations for the production of cars". He is backing that confidence with massive investment in Rover's future.

For every new job in the expanding car factories, there are probably two more created among the other businesses which service them. As production levels in British car factories rise—both Honda and Toyota are planning to double their capacity—a virtuous circle of prosperity comes into effect, both among the manufacturers themselves and in the component industry supplying them. It becomes more sensible to make all the major parts over here, including axles and engine blocks which have hitherto been shipped in from elsewhere for reasons of economy of scale: the British-made content of British-produced cars could rise eventually to 95 per cent.

The component industry, including thousands of smaller British-owned companies, is now reaping the rewards, having sharpened itself up to meet the more demanding specifications of the car makers. This, in turn, means that British firms are now better placed to sell to continental car firms, which have been forced by cost pressures, against their nationalist interests, to source parts from abroad. The perfect illustration of this turnaround was the announcement that Lucas is to supply a billion pounds worth of electronic fuel injection systems for diesel engines to Volkswagen—a contract which in previous times could only have gone to the German supplier, Bosch.

Ford, the country's largest inward investor last year, is delighted with its purchase of Jaguar. I had the privilege of visiting Jaguar yesterday with, among others, my noble friends Lord Oxfuird and Lord Brougham and Vaux. The turnaround since Ford made its enormous investment in 1989 has been dramatic—33.9 cars per man per annum were produced in 1991; last year, the figure was 69, which is more than double. Last year Jaguar's import bill was £120 million, hut it exported £1.26 billion-worth of cars.

However, there is no reason for complacency, and I was astonished to hear that Brussels' approval for local authority grants for the new Jaguar X200 on a brownfield site in Birmingham has been so slow in coming. Brussels have been examining this matter since July last year. We are not talking about this factory going anywhere else in Europe, but if a decision is further delayed, Jaguar will build the new car in the United States, where it will be warmly welcomed and a suitable factory is already available—and who can blame it?

I have long seen the commercial benefits of being in Europe. However, in a world where investment is free to flow around the globe, I cannot see why those decisions should take so long. Are the European technicians unable to validate the level of grant? Are they really prepared to drive away a £500 million investment programme that could treble Jaguar sales? I should be grateful to hear the comments of my noble friend the Minister on this specific matter, and hope he will be able to tell me what Her Majesty's Government and the DTI are doing generally when faced with incompetence or unwarranted delays on inward investment decisions from Brussels that put at risk hundreds, and sometimes thousands, of British jobs.

4.56 p.m.

Viscount Waverley

My Lords, it is appropriate as we draw nearer to a general election that we carefully consider Government policy. The electorate will shortly have the opportunity to express its wishes and to determine what policies it wants from the next government, but does it have sufficient information to make an informed decision? The noble Viscount, Lord Oxfuird, is therefore to be congratulated on enabling serious discussion of this important subject. Government policy must continue to facilitate the United Kingdom's role as the premier location for development as a European hub.

There are two issues of fundamental concern to me. What degree of competitiveness is required to guarantee high levels of inward investment, on the one hand, and, on the other, would the professed policy of the Labour Party, to sign away our opt-out of the social chapter, enhance or hinder that position? I believe that to be a central issue of the debate this afternoon. The question has perplexed me since the short debate on inward investment last year.

I want to understand the answers to the following questions. First, will the United Kingdom be any less competitive as a result of the social chapter? Secondly. will the value of people's pay packets be adversely affected as a result of the social chapter? We know that the Germans and the French are paid more, but they have higher costs. Will UK spending power increase proportionately as costs rise? If the Labour Party signs away our opt-out of the social chapter and sets a minimum wage, whatever that rate may be, employers will surely pass the extra costs of higher salary levels on to their customers.

If the social chapter is such an attractive proposition, what is the reason for Germany having 9.9 per cent. unemployment and France having 11.5 per cent., while the United Kingdom's unemployment levels are 8 per cent. of the workforce? Would employers lay off in order to increase productivity? That would mean higher unemployment. There may be flaws in those suppositions and I would, therefore, be grateful to hear how those dilemmas would be dealt with.

5 p.m.

Lord Geddes

My Lords, as other noble Lords have already stated, we are indeed immensely grateful to my noble friend Lord Oxfuird for his initiative in tabling the Motion for debate this afternoon. My intervention will he brief and, as alluded to by my noble friend, it comes from what perhaps may be described as a different angle; namely, the increasingly dominant position of English as the language of international business. Encouraging proficiency in the English language to speakers of other languages is, if you like, an outward investment to encourage and facilitate inward investment.

Not least following the recent deadline of this House, I declare an interest as non-executive—and, indeed, non-remunerated—Chairman of Trinity College, London. It is a United Kingdom company whose principal activities are to offer training and assessment for teachers of English to speakers of other languages and practical examinations and assessments of proficiency in the English language for speakers of other languages.

I hope that it may be of interest to your Lordships if I use Trinity as an example of the way that the English language is growing in importance world-wide. Indeed, I am proud to be wearing the Queen's Award for Industry tie, the award having been granted to Trinity in April of last year.

Noble Lords

Hear, hear!

Lord Geddes

My Lords, of course it is essential to have the right environment and climate to encourage inward investment into this country. Other noble Lords have rightly concentrated on that area. My premise is that it is also important that those who do invest in this country can communicate easily in our own language. There is a certain amount of chicken and egg in the situation. Clearly those who have made the decision to invest within the UK want their non-British employees based in this country to be able to speak English proficiently. In that context, I shall cite an example in a moment.

Outside the UK it is almost as important—at one remove, if you like—to encourage proficiency in English for those for whom it is not their first language in that, I believe most strongly, such proficiency in English may well influence an overseas company to invest in the country where there is already proficiency in its language. The BBC World Service (both radio and television) continues to have a very important role in that context.

The English language, and particularly spoken English, is now acknowledged to be a most valuable invisible export. Its teaching and examination represent an annual source of income for this country which, although difficult to quantify, is certainly measured in terms of hundreds of millions of pounds. In the exploitation of the opportunities presented by this demand for English, Trinity has adopted a policy of reinvestment to finance the design and development of a whole range of products, including: graded examinations for students of all ages and levels of ability; publication of syllabus support materials; and qualifications for the certification of teachers of English to speakers of other languages.

By way of illustration on the point of reinvestment, while Trinity's revenue has grown by 21 per cent. over the past three years, its reinvestment has increased by 75 per cent. I have just two more statistics to prove the overall point. Over those past three years, Trinity has increased the number of its examiners by 44 per cent. and a number of countries in which the examinations are held by 43 per cent., including, last year, countries as diverse as Uruguay, Argentina, Mexico, Hungary, Iran and, indeed, Outer Mongolia.

I mentioned earlier that the knowledge of English overseas was itself a potential encouragement for companies to invest in this country. There is also a growing demand from companies which have already taken that decision to invest to improve the linguistic capabilities of their employees. Last year, Samsung (a multinational South Korean company which has already made huge investments within this country) recognised a fundamental need for their employees to gain greater proficiency in English. It approached Trinity to seek assistance. The response has been to initiate a project in close co-operation with the company, with the objective of developing a corporate language training programme, tailor-made to suit the specific needs of the company but designed in modular form with the capability of being adapted and modified to suit the varying requirements of other multinational companies which might recognise the need for similar services.

There is every reason to be optimistic about the continued advancement of English as the international language of communication from all areas of business and commerce. A recent survey conducted world-wide by the British Council as part of its English 2000 Project found that 95 per cent. of respondents agreed with the proposal that, English will retain its role as the dominant language in world media and communications". Companies employing a workforce which is made up, either wholly or in part, of speakers of languages other than English will need to address that problem if they are to enjoy real success in international markets. It will not surprise your Lordships that I believe that that will result in a substantial demand for corporate, English language training services. Expansion in that context and substantial growth in demand from those overseas should—it is to be hoped—encourage foreign companies to invest with linguistic confidence in this country.

5.7 p.m.

Lord Goold

My Lords, in his absence, I should like to add my congratulations to those already expressed to the noble Lord, Lord Borrie, on his maiden speech. I should also like to thank my noble friend Lord Oxfuird for initiating this debate on such an important topic. Inward investment, particularly to Scotland over the past decade, has been a real success story, with many high quality jobs created.

More than any other sector in Scotland, electronics has benefited from inward investment. Electronics is a global industry with overseas-owned plants generally highly integrated within European and global networks. Hence, the situation of the Scottish industry will continue to be strongly affected by competitive dynamics among the major players. Equally, the stability of growth of overseas-owned units in Scotland will largely depend on the importance to the parent of its Scottish facilities in terms of plant role and performance and the local operating conditions which support plant performance vis-à-vis sister plants elsewhere in its world-wide corporate network. Those local operating conditions are good at present but they may not always be so, as I shall show.

The overseas-owned sector has provided a major stimulus to productivity improvement in Scotland and is a source of relatively high-paid jobs and capital investment. There is evidence that it has also helped indigenous investment, which is vital.

In electronics, as in other areas of inward investment, Scotland has benefited significantly from the development of the European Union to date. Scotland, with a generally well-educated workforce, is a good, efficient base for entry into the European market.

The United Kingdom is the main recipient of US and Japanese investment in the European Union, with nearly three times that of Germany, four times as much as France, six times as much as the Netherlands, and seven times as much as Italy. That has had a particularly beneficial impact, especially in the central belt of Scotland.

A short time ago there was a tremendous outcry at the closure of the Ravenscraig steelworks in Lanarkshire, yet today unemployment in that area is lower than it was when Ravenscraig was operating. That is thanks, to a very large extent, to inward investment. There are, however, two matters of great concern on the horizon which could put all this at risk. This Government have opted out of the social chapter but the Opposition have committed us to it in the event of their winning the next general election. This would, I believe, be disastrous.

I should like to give just one example which illustrates clearly the cost of the social chapter. A British company which I know employs a young married man at its office in Brussels. That individual's net cash salary—his take-home pay—in 1995 was £29,415. The gross equivalent in Britain would be about £45,000. However, the cost in 1995 to the British company situated in Brussels was £82,239. That additional sum of around £35,000 is what the social chapter and Belgian social laws and taxes cost, and it is what would he added to employment costs in this country if we were to join up to the social chapter. We should have none of it.

The other concern which, like others, I wish to mention is the "tartan tax". Not being a civil servant I am allowed to call it a "tartan tax". It is what we would have if Labour's devolution policies for Scotland were enacted. Does anyone really believe that if taxation in Scotland were 3 per cent. higher than in other parts of the United Kingdom, Scotland would not suffer? Of course it would suffer. Companies would relocate, as we heard the noble Lord, Lord Laing, say earlier. Higher paid individuals would move their main place of residence south of the Border. I cannot believe that an American, or a Japanese, or indeed any company, would choose to go to central Scotland rather than the north of England if there were a 3 per cent. difference in tax in England's favour.

The actions of this Government to encourage inward investment have paid great dividends. The actions of this Government in opting out of the social chapter are fully justified by the figures I have given which show Britain with several times the inward investment of our European partners. The actions of this Government in devolving power to Scotland and Scottish local authorities—but without the monstrous, costly bureaucracy which would attach to a tax raising assembly or Parliament—are correct. If we had the social chapter and if we had a Scottish assembly, not just inward investment would suffer but every worker or would-be worker in Scotland would suffer. As we heard during the discussion on the second Starred Question earlier this afternoon, unemployment is higher, and is rising, in our European partner countries. That is what would happen here if the Opposition policies were to be introduced. This Government's record on inward investment in recent years is excellent and long may it continue.

5.13 p.m.

Lord Rathcavan

My Lords, I am grateful to the noble Viscount, Lord Oxfuird, for this opportunity to address the subject of inward investment which is of such vital importance to my region of Northern Ireland. I should declare an interest as chairman of the Northern Ireland Tourist Board and also as a director of a French owned and an Australian owned company.

The Northern Ireland Tourist Board is, of course, deeply involved in attracting—and with some success—inward investment to our tourism infrastructure. In terms of job creation we are also making level progress with our colleagues in the Industrial Development Board of Northern Ireland. As I have said to your Lordships before, new jobs and a return to economic normality arc the cement of peace.

Since the ceasefire in September 1994, and during the subsequent peace process, we can at last operate on an almost even playing field with other regions of western Europe and our neighbours in the Republic of Ireland in particular. The figures for inward investment inquiries and visits by potential investors have soared. Considering that it is a long-term process to convert inquiries into real projects, much progress and success in creating new jobs from inward investment have already been achieved in 1995. Particular tribute should be paid to the noble Baroness, Lady Denton, our Minister responsible for the economy in Northern Ireland, for her tireless efforts in travelling the world and selling the region of Northern Ireland so successfully as a cost-effective and efficient production base for the European Union market.

I hope that the noble Baroness, Lady Denton, will also keep an equally keen eye on how the peace dividend—that is, the reductions in security related expenditure—is being distributed. We see signs of the Treasury trying to get its hands on it. That is fair enough in due course, but at this critical time for Northern Ireland it is essential that the cash benefits of this peace dividend are channelled into the right places, particularly those agencies which are responsible for the pursuit, from so many angles, of inward investment, greenfield projects which we need so badly, and for which we are now well placed. Those agencies must have adequate funding if they are to remain competitive. I hope that the Minister will pass on those comments to the noble Baroness, Lady Denton.

Northern Ireland is overcoming its natural disadvantages of peripherality. One of these disadvantages is high electricity prices which are forcing some companies such as Shorts—a fine example of successful inward investment—to generate its own electricity. I hope that the proposals by the electricity regulator, which were announced this week, to change the way in which our electricity industry has been run post-privatisation, will be heeded and will lead to lower prices. However, against that, we have one of the best telecommunication systems in western Europe using a fibre optic network with much lower tariff costs than our competitors.

We have an outstanding resource in the availability of well educated and skilled employees. Only last week it was announced that Northern Ireland had the highest pass rates in GCSE and A-levels of any region in the United Kingdom, and the highest proportion of school-leavers going to third level qualifications. We also have an excellent record in labour relations and a positive contribution from our unions.

Often the key to a decision to locate in a particular region is not the level of production costs, the tax breaks or the cost of transport, telecommunications and energy, but the quality and flexibility of the labour force. The absence of the social chapter is another increasing advantage in our hands as our principal and natural competitor, the Republic of Ireland, begins to introduce legislation on the many EU directives which are involved in the social chapter.

The net benefits to the Republic of Ireland of full membership of the European Union are huge but the social chapter will add substantially to its non-wage labour costs. It will make some employers less disposed to employ women and it will prevent jobseekers from obtaining part-time work, while employers will work out ways to expand their businesses and increase production without increasing employment. That is the view of IBEC, the equivalent of the CBI in the Republic of Ireland. I believe that the measures of the social chapter will discriminate against normal and natural job creation.

It is interesting to reflect this week on the current case of the Fokker aerospace company in Holland. That situation is threatening 1,500 jobs in Northern Ireland and perhaps 20,000 jobs in Europe. It is a salutary reminder of what happens when one has a social chapter. Fokker is going down because the social chapter made it impossible for the company to shake down its business quickly enough. In the real world of the airline industry we are dominated by US manufacturers because they have a flexible labour market. One cannot compete if one cannot control one's costs. That is what happens to an employer who is unable to respond to his competitors in the marketplace, as was the case with Fokker.

In Northern Ireland we now have a unique opportunity to heal the wounds of the past 25 years. Inward investment must play a vital part in that healing process of a return to economic normality. We are, on the whole, well positioned to seize the opportunities that now exist as world companies seek to globalise their operations and position themselves for market access. I believe that, given a fair wind, we shall succeed.

5.20 p.m.

Lord Lyell

My Lords, like many noble Lords, I wish to begin my remarks by thanking my noble friend Lord Oxfuird for giving us the opportunity this afternoon to discuss a subject which is rarely discussed in your Lordships' House on a Wednesday. It is an area where politics tend very much to take second place. We are discussing jobs and we are discussing winning. In addition, my noble friend has given us the opportunity to hear an outstanding maiden speech by the noble Lord, Lord Borrie. All of us hope that we shall hear further speeches of such quality from him often in the future.

Speaking once again, with another noble friend with the same name as myself, as tail-end Charlie on the list of speakers, I feel rather like the character in the Danny Kaye song, The king is in the altogether", because all the points that I should have liked to make have been made by fellow Scots. My noble friend Lord Goold, as a typical Scottish chartered accountant should, made a very interesting point about net and gross pay which had me working with my pen rather than my calculator. He also mentioned the electronics industry. My noble friend Lord Laing represented Scotland very well on behalf of the food industry and in particular the biscuits industry. I thought that we might have heard from one of my noble friends on the subject of films, but I shall pass that by for today.

The theme which has run through the debate is the need to identify success in areas where industry and entrepreneurs in the United Kingdom do well, to build on that and to identify friends who will help us to do so. The debate last week initiated by my noble friend Lord Astor, which has been referred to today, dealt with a typical example of an industry where there has been change, namely the British motor industry. We heard from my noble friend what he saw yesterday at Jaguar. Everything that was discussed a week ago in my noble friend's debate related to an outstanding example of inward investment and the utilisation of the enormous talents of small and middle-sized companies in one particular field of motor sport in the United Kingdom. The noble Lord, Lord Wallace, will appreciate that that is one example of the British mittelstand of small companies thrusting up and building on and developing a core business of the motor industry.

Nineteen years ago, when my party was situated on the Benches opposite where the noble Lord, Lord Peston, and his noble friends are sitting, I recall taking part in debates on a Bill which completely rewrote the law on patents in the United Kingdom. As part of my studies on that Bill—which were carried on by my noble friend Lord Belstead—I became very interested in and heavily involved with the pharmaceutical industry. That is one indigenous British industry that has been immensely successful. It has also attracted a great deal of inward investment.

This morning I obtained a very interesting but lengthy document from, of all places, not the Department of Trade and Industry but the Department of Health. It is called Prescribe UK. My interest has nothing to do with the fact that for the first time in 25 years I am taking antibiotic pills as a result of skiing injuries. The document is a valuable source of information.

That booklet gives very good professional and specific advice, sources of information and useful addresses. The Prescribe UK initiative includes an advisory team to advise outside investors who may wish to come to the United Kingdom to make use of the outstanding talent, achievements, scientific knowledge and education which we have throughout the United Kingdom. The advisory team includes the chairman of the number one company in the Financial Times list of companies, which happens to be a leading pharmaceutical company. There are five members of the team from various government departments, all of whom have had considerable experience in industry, accountancy or other disciplines which are relevant to investment and to presenting businessmen from all over the world with figures, facts and almost instant advice. The team includes one investment banker from a leading Scottish firm in the City, I am delighted to see. He, too, was involved in pharmaceuticals. There are also two chief executives from the industry. With such an advisory team, all of whom can give superb and relevant advice, we see a perfect example of partnership. That is what the debate has been about.

In one chapter of the booklet, entitled Investing in the United Kingdom, it is pointed out that 98 of the 100 top companies mentioned in the American Fortune magazine have their European headquarters in the United Kingdom, and 100 of the top 200 Japanese companies have their European Union headquarters here. More than 100 have their research and development headquarters here in the United Kingdom. As my noble friend Lord Astor mentioned last week, all the development on Subaru and Mitsubishi rally cars is done in the United Kingdom.

In 15 years inward investment from all over the world has increased sevenfold. Therefore it seems that we are doing one or two things right. Is it the English language, is it the committed workforce that has been mentioned, or is it the fact that foreign executives so appreciate living in the United Kingdom, as is mentioned in the booklet? The booklet also indicates that schooling, housing and lifestyle are all relevant. All those factors are relevant in the success of a large number of companies about which we have heard today. It is also the fact that the indigenous pharmaceutical industry has attracted inward investment from throughout the world. It is a great success story. I am grateful to my noble friend Lord Oxfuird for giving me the opportunity to tell your Lordships about that today.

5.27 p.m.

The Earl of Shrewsbury

My Lords, I am indebted to my noble friend Lord Oxfuird for bringing the debate before your Lordships today. I add my congratulations to the noble Lord, Lord Borrie, on an excellent maiden speech. It is high time that such a serious subject, which impacts on the future of our industrial and commercial wellbeing for many years to come, was debated by people who have real experience and knowledge of the world outside Parliament.

It is often said that the British people are at their best when they are talking down the successes and achievements of this country. Sadly, we in the UK are often recognised as whingers. That should not be the case. We have a great deal to be proud of.

My thrust today is to sing the praises of the Black Country, Birmingham and the West Midlands in general. It is an area where I both live and work. It is a success story of some proportion. I place the Black Country first on the list because that is where, in small villages, through the skills and natural resources which were available, the first Industrial Revolution was produced. Some people think that it occurred near Telford, at Ironbridge. I can assure your Lordships that that is not the case.

I must declare my interest as Chancellor of Wolverhampton University, a very pleasant task and completely unremunerated. It means that I have a few letters after my name and, for the first time in my life, a qualification.

I have taken advice from chambers of commerce, development agencies and many friends involved at the cutting edge of day-to-day business within the West Midlands region. From the business point of view it is all too easy to carp habitually about the lack of help from government. Government are often perceived to be the providers of large grants and the cure for all ills. It is therefore interesting to hear businessmen in my area state that things are improving, that financial assistance from government is not at the top of their agenda and that interest rates are at a historically low level. It comes as a breath of fresh air.

We rely heavily in the West Midlands on inward investment. We have a number of excellent organisations whose role it is to sell our attractions to foreign business. We have, for instance, the West Midlands Development Agency, the Black Country Development Corporation, the chambers of commerce and the TECs, to name but a few. The Black Country Development Corporation is, of course, winding down its operations. It has a limited life and will come to an end in 1997, but it has done much good work.

Various areas in our part of the world have been awarded enterprise zone status and those areas have been revitalised to a great degree by private sector developers taking on substantial risks. Recently, the Prime Minister announced that he wished the UK to become the enterprise centre of Europe. We in the West Midlands have the capacity and capability to do just that. Already in Birmingham we have the National Exhibition Centre, the International Convention Centre and many other venues of international importance. We have a first rate international airport which is about to benefit from a large expansion and investment programme. I pay tribute to Sir Bernard Zissman, a past Lord Mayor of Birmingham, who had the vision to expand the attributes of the city and make it a world class venue. He has done much to promote the region to foreign companies; he is an excellent ambassador for the West Midlands.

The region has been successful over a long period in attracting and retaining international companies. In the past five years overseas companies have invested £3.2 billion in the area, creating over 17,000 jobs and safeguarding over 25,000. Those figures do not include the recent acquisition by BMW of Rover. The region is now home to 1,100 overseas companies from 30 countries between them employing 120,000 people. The largest investing countries are currently the USA, Germany and Japan. However, the West Midlands does not enjoy the high profile of other regions such as the North East for the simple reason that comparatively large numbers of foreign companies locating in our area typically generate only between 50 and 60 new jobs. That is not a large enough figure to grab the headlines. One of our problems in attracting large companies is a lack of substantial sites of quality. The failure to secure the investment by Siemens was attributed to the lack of large sites and poor quality land.

The general perception of those whose business it is to sell the benefits of locating in the West Midlands is that there is a lack of political will and a certain failure of promotional bodies, politicians and others involved in the attraction process, to sing from the same hymn sheet. That has to be addressed if the region is to build on its past success and attract more foreign investment. In addition, funding for the West Midlands Development Agency is inadequate with the result that too little has to be spread too thinly on promoting a wide range of potential sites. In short, WMDA is under-supported compared with similar organisations in other areas of the UK. A level playing field is needed.

Another factor of considerable concern to the foreign investor is the congestion on the M.6 and M.5 motorways in the Birmingham area. The motorways block up on virtually every working day. I live perhaps a 40-minute drive from Birmingham on a good day. The journey can take me three hours; that is ridiculous. Companies need first class road communications, especially since many manufacturers these days use the "just in time" method for acquiring components. Those traffic problems have to he alleviated. The cost to industry is enormous. We need the Birmingham northern relief road as a matter of some urgency.

The planning process has to be improved. The time it takes to achieve planning consents is often unacceptable, and the bureaucracy involved far too great. I am aware of a number of instances where a foreign investor has been put off coming to our region because of major delays and obstacles in planning terms. This causes frustration and considerable cost to developers. As a consequence the opportunity to create jobs and strengthen the local economy is passed by. That is not good enough.

The future success of the region in attracting inward investment depends, first, on an improved and improving product to sell, greater financial and non-financial support from both regional, public and private sector supporters, the development of a regional profile, an identity to match that of the North East, and a reduction in the fragmentation and duplication of business support organisations which so often confuse investor companies.

5.35 p.m.

Lord Hughes

My Lords, there is time to spare since previous speakers have not used all the allocated time. I intervene because of the speech by the noble Lord, Lord Laing. I have spoken to the noble Lord to let him know that I would refer to what he said. I was glad that I did so because I discovered two factors. First, what the noble Lord said was not a threat to close the Glasgow factory if devolution came to pass in Scotland. He told me that it had been said when he was chairman of United Biscuits. That speech was made five years ago. Therefore, the noble Lord, Lord Laing, has no knowledge of what United Biscuits would do today because he no longer has anything to do with the company. Consequently, no threat was made by the noble Lord, Lord Laing, today. I am glad that that matter has been clarified.

Secondly, I discovered that the noble Lord did not know that corporation tax would not be part of the so-called tartan tax. The authority of the assembly would be only to increase or reduce income tax by up to 3p in the pound, but corporation tax would remain the same throughout the United Kingdom. As the noble Lord, Lord Laing, knows, and as others ought to know, companies do not pay income tax. Therefore, there is no reason to fear, even if an income tax change were to come into operation, that it would affect the desire or the willingness of companies to locate in Scotland.

My next point has nothing to do with what the noble Lord, Lord Laing, said. As I understand it, when the Scottish parliament, assembly, or whatever it is to be called, comes into existence, the power to exercise the change in income tax is most unlikely to be made during the first parliament in Scotland. My understanding is that if the members of that assembly believe it to be desirable to have a greater income at their disposal they will wait until the next election and seek a mandate from the people of Scotland either to have higher tax and better services, or for the tax to remain unchanged. That is the main reason for my intervention.

Perhaps I may now refer to the speeches of the noble Baroness, Lady Seccombe, and the noble Lord, Lord Goold. The noble Lord did not go so far as the noble Baroness, Lady Seccombe, who seemed to indicate that it was very unlikely that companies from abroad would locate in Scotland if there were a Scottish assembly. I was a Minister in the Scottish Office for seven years. I was chairman of Glenrothes Development Corporation for three years before I became a Minister. I was chairman of East Kilbride Development Corporation after I ceased to be a Minister. I know what happened to investment in Scotland during those years. There is no reason to fear that another Labour Government would have any less success in attracting investment in Scotland than previous Labour Governments.

The point made by the noble Lord, Lord Goold, was slightly different. He mentioned investment in Scotland from abroad, especially during the past 10 years. Has he any reason to believe that it has been any better over the past 10 years than during the previous 10 years? Has he any reason to believe that it was any better than what happened under Labour Governments? I do not believe that the people of Scotland have anything to fear in relation to the location of industry from anything that may be done by a Scottish parliament.

I am in no better position to predict what will happen in the future than anyone else. The noble Baroness, Lady Seccombe, indicated what might happen in Scotland if there were a Labour Government but she is in no better position than I to make forecasts.

5.40 p.m.

Lord Ezra

My Lords, the noble Viscount, Lord Oxfuird, must be pleased at the wide-ranging nature of the speeches which have emerged during the course of the debate. Like some other noble Lords, I wish to declare an interest: I am chairman of a company which is a subsidiary of a large French group in the environmental services sector. It has given me the opportunity of understanding inward investment at first hand. I shall come back to that in a moment.

There is no doubt that the inward investment development has been on a large scale and has generally been very successful. The latest report of the Invest in Britain Bureau indicated that by the end of 1994 no less than £131 billion had been invested in Britain by overseas companies. Twenty four per cent. of net output was represented by that investment, 32 per cent. of manufacturing investment and no less than 40 per cent. of manufacturing exports. Those are remarkable figures which show great success in mounting the campaign.

I wish to he assured that we are receiving all the benefit we can out of that massive investment. I was pleased to note from the speech of the noble Lord, Lord Lyell, that the companies with which he was familiar were doing development work over here. There was a fear that when the large Japanese motor companies first established themselves in Britain all the development work would be done in Japan and we would simply become a nation of assemblers. I believe that that is not so, a great deal of development work is being done over here.

I also wish to raise the subject of the supply chain. The very big enterprises, with their massive requirement for components and services, present us with a potential double benefit. Not only do we receive the benefit of the direct investment and direct employment, but also there is the benefit that we can derive from supplying the services and components that are required on a competitive basis. I hope that we can be reassured that the Invest in Britain Bureau does not lose sight of the companies that it attracts to Britain once it has taken its decision and that it follows through with after-care service to ensure that we receive the best benefit.

Another form of benefit which I believe we should derive was referred to by the noble Lord, Lord Desai. He said that we could benefit from other management styles. Particularly in the case of the Asian countries that invest here, and in France and Germany, companies tend noticeably to take a longer-term, more strategic view of investment than we do in this country. We have much to gain from their management approach.

Here I wish to refer to my own experience. The company of which I am now chairman was at one time a medium-sized publicly quoted company in the sector of energy management. One of our shareholders was a French company which was eventually taken over by a larger French company, the Compagnie Générale des Eaux. In due course it made an approach to us to acquire my company. That was done on an agreed basis. At the time of the acquisition, the company for which I was responsible employed some 650 people and had a turnover of about £50 million. That was in 1986. This year, the group which has been based on that initial acquisition has a turnover of £1,500 million and it employs 20,000 people. That is a vast increase which shows the initiative that has been taken.

From the change in ownership I noticed immediately the impact of the company's long-term strategic thinking. As chairman of a minor publicly quoted company, I found that we were hounded from pillar to post by the analysts who forced us to have regard to only one thing: the dividend. All other longer-term aspirations took secondary place. As soon as we were acquired by the larger group, long-term thinking came into the picture. I can give an illustration of that not far from here. The company which I still chair was responsible for the building of one of the largest enterprises for converting waste to energy, the SELCHP plant near Deptford. Some of your Lordships may have visited it. The plant depends upon a steady supply of waste material and it was built to take 400,000 tonnes of waste material. It cost £100 million to build.

At the time that the decision was taken to go ahead with the project, we did not have all the waste material under contract and we took a risk; we thought that it would come in due course. The plant was built to the best specifications to conform to all the regulations from Brussels and Britain. That plant has been held up as being the most efficient and up to date in its sector. I give that as an illustration of the thinking that lies behind the actions of investors who take a longer term view.

Sometime before the French interest was shown in my company, I approached a few large British companies. I had come to the conclusion that the future for that medium-sized company, which I considered was in a growth market, could only be assured if we had a large partner. I regret that I found no interest at all. It was felt that the growth prospects were either non-existent or too small to worry about.

That leads to the next point I wish to make which concerns the anxiety expressed by the noble Lord, Lord Borne, in his excellent maiden speech. I am glad to see him among us. He is a friend of long standing and we have done much work together. The point was also mentioned by my noble friend Lord Wallace and the noble Lords, Lord Laing of Dunphail, Lord Haskel and Lord Wade. While appreciating the level of inward investment, they all expressed concern about the smaller level in relative terms of indigenous investment. If we compare the performance in indigenous investment in Britain with that of other OECD countries, we find that they are investing at a level of 22 per cent. of GNP per annum and we are investing at a level of 16.5 per cent. That is noticeably less.

I find it surprising that, having created a climate in which Britain proves attractive to foreign investors, that same climate and those same factors—flexible labour market, efficiency, lack of regulation, the large market in the UK, and the even larger market at our doorstep in Europe—apparently do not have the same impact on firms already established in Britain. The level of investment brought in is more than counterbalanced by the level of investment outside, particularly in the United States. Whereas other countries come to the United Kingdom to be near the European market, we appear to be moving further afield into the United States. That requires a bit of looking into.

I should have thought that in the long-term strategy for this country we ought to find out why it is that the factors that attract others apparently do not sufficiently attract our own indigenous industry. The Invest in Britain Bureau does not suggest by its name that it is meant only to attract investors from overseas, although that is what it does. I suggest to the Minister that perhaps it should devote part of its attention to stimulating more indigenous investment. Not only overseas investment, but indigenous investment and a better balance between the two, seems to be what is required.

5.50 p.m.

Lord Peston

My Lords, I, too wish to congratulate the noble Viscount, Lord Oxfuird, on prompting this interesting debate with so excellent a collection of speakers. I also wish to congratulate my noble friend Lord Borrie on his maiden speech. It was first-class. I echo the words of the noble Baroness, Lady Seccombe (it is about the only remark she made with which I agree) in looking forward to hearing my noble friend speak again—if only to take some of the burdens off me in all the various matters that I seem to have to deal with all the time!

I regard myself as an internationalist and a believer in free trade. I do not want to stop foreigners investing here, just as I do not wish to see foreigners preventing our people from investing abroad. Those who favour placing barriers to trade and to international capital movements (if there are any left in our country) are really announcing to the world that in a fair economic competition we cannot win. That is certainly not my view. To the question that the noble Viscount, Lord Oxfuird, puts before us—namely, whether inward investment is a good thing for this country—broadly speaking, taking the pluses and minuses into account, my answer is unequivocally yes. If that were all there was to it, this debate could have ended more or less a moment or two after it began. However, there are some sub-texts, some underlying themes, which have to do with the economic performance of this Government. I have a slight sense that some bits of politics have found their way into this debate in one way or another; I therefore feel an obligation to join in on one or two of those matters.

To get down to some serious economics, let us start with precisely the point made by the noble Lord, Lord Ezra, which I regard as fundamental. If the United Kingdom is such a good location for economic activity, and if it attracts foreign-owned multinationals, why do those same forces, whatever they are, not attract our own firms? There seems to be a paradox. The UK is attractive to foreigners for the production of, for example, motor vehicles, various forms of consumer electronics, semi-conductors and computers. But why is it not attractive to our own businessmen? One could give many examples. To take just one, in the field of non-defence electronics, there is no major UK-owned company left.

I agree with my noble friend Lord Desai that we must take a global view (to use the current buzzword) and in a sense argue that it does not matter who owns what. Certainly I agree that workers in this country require investment, and they do not in any way worry about ownership. What they want is jobs, high productivity and good pay. But the fact remains. Certainly, wearing my economics hat, I do not understand why the position is as it is. To put it in another way, which I find extremely intriguing, direct foreign investment here is largely in manufacturing. That is not entirely the case, as was pointed out, but it is to a very considerable extent.

We invest a great deal ourselves. A great deal of direct investment goes out from this country, as the noble Lord, Lord Ezra, and others pointed out—hut again, interestingly, not in manufacturing. It is typically in hotels, retail trading, insurance and all that sort of thing. It is also, as was pointed out, much more typically in the US than in the European Union. I do not have an answer to the question. I am certainly not in this sense pointing a finger at the Government. I really should like to know why, somehow, we are not good at things which I see no reason why we should not be good at.

The reason given in the textbooks as to why foreigners come here and are successful is that they have skills, especially managerial skills, and intellectual property that we do not possess. If that is true, it is a terrible reflection on our own people. I can only say that I hope it is not true. Looking at the issue that way, the facts are disturbing.

There is a related fact, to which the noble Lord, Lord Laing, first referred. I entirely agree with the noble Baroness, Lady Seccombe, that we must not forget the past. I am about to quote the past in some detail. Let us start in 1979, when a cataclysmic event occurred; namely, a change of government. Comparing the ratio of private investment (gross domestic fixed capital formation) to GDP with that of the present day, bearing in mind the enormous expansion of the private sector as a result of privatisation, we find virtually no change. If we then add to that the large proportion of investment undertaken by foreigners through direct inward investment, the reflection cast on the propensity of our own entrepreneurs to take risks is appalling. Since they tell us that on the whole they favour the Conservative Government, one wonders what they would do under a government that they did not favour in terms of having confidence in their own country.

To be slightly acerbic, I love Scotland and I thought the Scots loved Scotland. The thought that all the Scots will abandon Scotland simply as a result of 3p. on the rate of income tax is not an entirely convincing argument. I just do not believe it. They might follow Dr. Johnson's advice in terms of the high road to England, but for quite different reasons. Everyone argues about that, and we ought to have a debate on it at some time. I cannot believe that the Scots will abandon the country they love simply as a result of a couple of pennies on the rate of direct taxation.

I also offer a word of apology. A number of noble Lords made remarks with which I totally disagree, but I shall not have time to attack them. I hope that they do not regard that as a discourtesy on my part. I am not short of comments and there will be other occasions on which I shall make them, but I want to stick to the time limits of the debate. Since, as the noble Baroness, Lady Seccombe, suggested, this matter is to be viewed in a historical perspective, I shall quote just a few figures. From 1979 to 1994 our gross domestic product rose by one-third (about 31 per cent.). Those were the good days. In the bad old days, 1964 to 1979 (the previous 15 years), gross domestic product rose by 43 per cent. So I am happy to remember the past.

A more significant point that intrigues me (I have paid tribute to this before) is that manufacturing productivity has risen very distinctly since this Government came to power. There can be no doubt about that at all. I regard it as about the one achievement in economic terms of the Conservative Government. But a couple of paradoxes still remain in that connection. Despite the very considerable change in manufacturing productivity, manufacturing output from 1979 to 1994 rose by only 8 per cent.; whereas in the bad old days, as I keep repeating, from 1964 to 1979, it rose by over 25 per cent.

That certainly requires an explanation. How can we be improving our efficiency and yet not finding it profitable to sell more? How can we have moved from a surplus on the balance of trade, generally and in manufacturing, to a deficit? I do not know the answers to those questions. Again, I am not trying to make a political point; I am simply asking the Government not to make political points on areas which are—if I may be a bit snooty—perhaps slightly more complicated in terms of economic analysis than is sometimes appreciated.

The noble Lord, Lord Wallace, raised two questions. He uttered some fears in regard to foreign ownership. I am not sure that I agree with him in that regard. It is one of the things about which the Americans and the Canadians have argued, but on the whole is not the case.

The noble Lord, Lord Lyell, mentioned pharmaceuticals and I should perhaps declare an interest as chairman of the Office of Health Economics. The pharmaceutical industry, which is multinational in both directions, engages in an enormous amount of research in our country. As I understand it, the Japanese motor car firms are themselves engaging in research and development also. Therefore we do not need to have the fears that, say, the Canadians had about the Americans.

That is also beginning to be true—I should welcome the Minister's comments on this point—in regard to management. I know one or two American-owned firms in which the domestic management cannot rise above a given level. But, as I understand it, that is ceasing to be the case. I believe that in the Japanese-owned firms—and, for all I know, in the German-owned firms as well, though I am less well informed on that—there would not be a discrimination against our best people rising to managerial top positions. That would be important; it would have political ramifications and it would worry me.

I have not touched on the questions posed by the noble Viscount, Lord Waverley, and the noble Baroness, Lady Seccombe, and perhaps also those put by the noble Lord, Lord Goold, in relation to social chapters and minimum wages. It is about time we had a debate on those matters so that they can be brought out into the open; we can put our arguments forward and I can at least say where my side stands.

I ask noble Lords to reflect. Under the current Government, a few years ago unemployment rose to 13 per cent. But there was no increase in social welfare costs taking place at that time. As far as I am aware, there has been no great increase in social welfare costs recently in France and Germany to cause their rise in unemployment. Our unemployment figures fell and then rose again, but that had no connection with the points raised by those who object to the social chapter. The social chapter cannot yet have come to bite. Most of the relevant matters are not yet in action. Therefore, before coming to any definite conclusions, one ought to pause.

Finally, before sitting down I shall make a nasty remark about the DTI. It has allegedly done some research into the effects of a minimum wage, which the noble Baroness, Lady Seccombe, quoted. My view is that if that is the department's idea of research, goodness help us. Logically, if we have a minimum wage and all other wages rise pari passu, we do not have a minimum wage; we have a general wage increase. Other things being equal, if nominal demand is constant and we have a general wage increase, it will be deleterious to the economy.

If the DTI wishes to do some research—I am available at my normal extremely high consultancy fee—I shall explain how to do it. The department has not yet read the available literature (summarised in a number of easily accessible US journals), but it will discover that the matter is infinitely more complex and, to quote myself from a few weeks ago, one cannot demonstrate that a minimum wage leads to unemployment. That cannot be done on the empirical evidence and for that matter it cannot be done on the theoretical evidence. But that is a subject to which I should like to return. What I most look forward to, as always, is listening to the Minister.

6.4 p.m.

The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie)

My Lords, like all those who have engaged in this debate, I too welcome the opportunity provided by my noble friend Lord Oxfuird to debate inward investment and I join in the widespread remarks of congratulation extended to the noble Lord, Lord Borrie, on his maiden speech. We are delighted to hear his contribution and look forward to those he will make in the future.

Inward investment is one of this Government's and this country's greatest success stories. At one point during the debate there was a slightly querulous questioning of the desirability of inward investment. I am delighted that the noble Lords, Lord St. John of Bletso, Lord Desai and, latterly, Lord Ezra and Lord Peston, made it clear that they recognise that it is a valuable contribution to our economy.

The competitiveness of our economy is nowhere better demonstrated than in our ability to attract inward investment. Over 40 per cent. of all US, Canadian and Japanese investment, together with over 50 per cent. of Korean and over 55 per cent. of Taiwanese investment in the European Union comes to the United Kingdom. Our stock of inward investment is now £147 billion, up from £44 billion in 1985. Ninety-nine of the Fortune top 100 companies have chosen to locate in the United Kingdom. Our record in attracting inward investment within the EU is second to none and there is an encouraging, freshening trend to the United Kingdom from within the European Union itself.

The facts speak for themselves. Since 1979 the Invest in Britain Bureau has registered more than 4,200 inward investment projects with more than 700,000 associated jobs. In recent months we have secured investments from Ford, Siemens, Nissan, Fujitsu and Chungwa. That equals over 11,200 jobs. In the past financial year alone we won some 454 inward investment projects supporting some 91,000 jobs. Those are jobs for tomorrow's industries—highly skilled and bringing the best management standards without any bamboo ceiling or whatever it might be. The noble Lord will be pleased to hear that the managing director of Samsung is a Scot and the managing director of Nissan is also British.

Those inward investments also have the exciting potential on which the noble Lord, Lord Ezra, clearly focused. There is a potential to move down the supply chain of industry. I am only sorry to have to say that there is an extremely interesting announcement on such a project which I hope will come forward within the next 48 hours—unfortunately, 48 hours too late for my purposes, but nevertheless very welcome.

Those who invest in our country from abroad add significant strength to our industrial economy. Overseas-owned manufacturers provide one-third of all manufacturing investment; nearly one-fifth of manufacturing employment; over one-fifth of manufacturing output and around two-fifths of UK-manufactured exports—a point made by my noble friend Lady Seccombe. We are determined to maintain that enviable record. We must remain competitive if we are to continue to attract investment.

The noble Lord, Lord Borrie, advised us in some respects to be wary. If the type of inward investment we were attracting was the screw-driver assembly plant type, then I could understand his misgivings. But there has been what I see as a fundamental change not only in the quality of the job, but also in the research and development that comes with them. Samsung and Siemens are classic examples of that. It is interesting that Samsung not only brought its plant to the United Kingdom, but also intends to provide up to 500 jobs in the City of London by the year 2000, their European regional headquarters being sited here.

Britain has many attractions for the inward investor. It has a strong economy; a pro-business environment and the English language, which my noble friend Lord Geddes referred to. We have no foreign exchange controls nor restrictions on sending profits abroad. Britain offers the best available combination of a skilled and flexible workforce, low taxes and lower production costs. To pick up a point made by the noble Lord, Lord Cuckney, we now have a stable regulatory regime. It can only be tested in this way. When I have taken trade missions abroad, seeking investment in other countries, the keenest disincentive in those countries is that there is a regulatory regime that is unstable or too heavy.

Another attractive feature of the United Kingdom is its valuable research and university base. No doubt that is worthwhile. The noble Lord may be interested to know that there are now over 50 science parks which create an ideal environment in which companies can develop links with researchers. I believe that the list of inward investment successes is a testimony to the excellent and continuing work of the Invest In Britain Bureau and, I hope increasingly, Business Links. Every effort is made to ensure that the process of setting up in the United Kingdom is as easy as possible and that investors have quick access to the best advice. I also pay tribute to the work of the Foreign and Commonwealth Office, not only for their promotional work in relation to inward investment but also in relation to exports. I am grateful to the noble Lord, Lord Rathcavan, for his kind remarks about the Northern Ireland Office. Some 4,000 jobs have been created as a result of inward investment since the ceasefire. That is extremely desirable. Clearly, we are keen to see that figure rise even further.

The noble Lords, Lord St. John of Bletso, and my noble friend Lord Cuckney asked what was being done to promote London as a financial services centre. Clearly, that is equally important in terms of inward investment. There is now a new City Promotional Panel to promote our service industries, and clearly London is the jewel in the crown. That panel is an important step forward in co-ordinating the promotion of financial services and the attractions of the City of London in particular. The city's attractions as a European financial and headquarters centre are marketed actively not only by Invest in Britain but by London First Centre and the Corporation of London.

We do not stand alone in the world looking for inward investment. It is now a global activity. Increasingly, we live in an open, global marketplace. Attitudes to overseas investment throughout the world have undergone a dramatic change. Where it was once regarded with suspicion, it is now eagerly sought. I do not believe that we should resist it. The noble Lords, Lord Borrie and Lord Wallace, were concerned that we might disappear under foreign ownership. In 1994 cross-border acquisitions made by United Kingdom firms overseas amounted to over £15 billion. At the same time, acquisitions made by overseas firms in the United Kingdom were valued at just over £5 billion; in other words, our acquisitions were about three times as large as those who invested here.

The noble Lord, Lord Haskel, highlighted that there had been a fall in inward investment recently. In that he is technically correct. The figures for inward investment flows in 1994 were lower than those for 1993. However, this was due mainly to a fall in the flow from the United States. The total United States outward investment fell by about a third in that year. Notwithstanding that fall, we still enjoy about two fifths of the Untied States inward investment to Europe and about one-sixth of US investment in global terms.

Concern was expressed that there might be a degree of safeguarding of the ownership in the manufacturing sector. The noble Lord, Lord Peston, indicated that he did not regard that to be important. I share that view. Fascinatingly, last week when motor sports were discussed, it became quite clear exactly what was being invested in here by a most extraordinary range of companies from around the world. I would have thought that Ford was regarded by many people in this country as a British company. Not only do people work in it now but their fathers and grandfathers may also have worked for that company. I do not believe that ownership is that important a feature.

The noble Lord, Lord Astor, raised the specific point about Jaguar. We are fully aware of the position on the X200 project. We continue to have a close and, I trust, positive dialogue with the Commission, and we have provided it with extensive information to enable it to evaluate that project. I assure the noble Lord that Her Majesty's Government is determined to keep Jaguar within the United Kingdom.

There has not been over a period of change, as some have feared, any significant degree of disinvestment in the United Kingdom by investing companies. There are signs that existing US investors are reviewing their pan-European operations in order that they remain ahead of their competitors. As one may expect, there is a standard form of rationalisation, but we appear to be doing very well. The noble Lord, Lord Ezra, picked up a point very much at the centre of the Invest in Britain Bureau's present strategy, that we should emphasise the role of aftercare. It should be made known to those who have already come here as inward investors how welcome they are. I believe that the best proof of the success of that approach is the recent major expansion that Fujitsu have announced.

Bedevilling discussions about inward investment is the issue whether or not we have attracted investment here because labour costs are lower than elsewhere in Europe or the world. The Government do not associate themselves with any notion that the case for inward investment depends upon the concept of a low-wage economy. We are concerned to ensure that labour unit costs are low. They are probably about 60 per cent. of German labour unit costs. In that context, what is of interest is that the take-home pay of someone who works in the car industry for a company owned by a German company is probably 80 per cent. of the take-home pay of a worker in Germany, whereas the cost of living here is significantly lower. For example, in terms of real take-home pay a single person in the United Kingdom is second only to Luxembourg in terms of the European Union.

I stress that the issue of wages does not seem to he the most direct point in terms of attraction. While it is important that labour unit costs should be low, actual wages are not that important. I believe that it is the experience of anyone who has had contact with inward investors that the general pattern is that they pay at, or in many cases above, the going rate. What concerns them are the broader social costs.

Concern was expressed by both the noble Lord, Lord Laing, and Lord Wallace, that inward investors received more favourable assistance than indigenous investors. Regional selective assistance operates under the same rules and regulations both for indigenous and foreign companies to set up, expand or safeguard managing facilities, resulting in a net creation or safeguarding of jobs in United Kingdom assisted areas. Both noble Lords may be interested to know that some 60 per cent. of RSA goes to United Kingdom companies and only 40 per cent. to foreign investors.

My noble friends Lord Wade and Lord Shrewsbury were concerned that some areas of the country might not secure the same level of support as others. It is our view that we cannot promote individual locations or regions to foreign investors, since decisions on the location of investment are for the commercial judgment of the companies themselves. However, in 1995–96 the IBB made grants totalling approximately £8.8 million towards the funding of the inward investment activities of the English regional development organisations and similar activities in the east and south-east regions. That is an increase of 57 per cent. compared with 1993–94.

There may be arguments about the levels of incentives or the areas in which they are made available, but there are certainly incentives in place. What I would clearly wish to avoid is that there should be any disincentive to investment. I would be particularly concerned were there to be any disincentive north of the Border. That theme was taken up, first, by my noble friend Lord Oxfuird, and then by the noble Lords, Lord Laing and Lord Goold. I heard very clearly what the noble Lord, Lord Laing, had to say but I think it is worth appreciating that even if corporation tax were not payable by a Scottish company to a Scottish Assembly, should that folly be perpetrated on Scotland, all those who worked in Scotland within those companies might face the risk of having to pay that extra 3p in income tax, whether the managing director or someone sweeping the floors. Even if Locate in Scotland did not draw that risk to the attention of potential inward investors to the United Kingdom, I have no doubt that such a doughty fighter for his own region as my noble friend Lord Wade would make it known to them that there was that disincentive north of the Border. Being the sponsor Minister for the north-east of England, I have no doubt that those responsible for attracting inward investment there would similarly make that point. I do not believe that anyone would seriously take up the stance that extra income tax payable north of the Border would not affect the distribution of inward investment or the location of existing jobs between England and Scotland.

I leave the matter with just this observation. The noble Lord did not care for what he described as the "threat" of the noble Lord, Lord Laing, which I certainly did not understand it to be. But when he promised that the next Labour Government would be as good as the last Labour Government, I regarded that as being the one threat that has truly been issued during the course of the debate this evening.

Another area which threatens a serious level of disincentive with regard to inward investment is that of the social chapter. What we have to remember is that the United Kingdom is not only competing for inward investment and trade with other European countries but we are also competing with other countries in eastern Europe which are not members of the European Union and indeed with the United States, where statutory regulations on employer-employee relations are relatively limited.

I hasten immediately to say to the noble Lord that I shall not engage in discussion on the minimum wage. For what concerns me most about the impact of the social chapter is that if we were to lose our flexibility of hours, including shift working, there would be a serious risk of losing inward investment. If we were to accept restrictions on hours being worked, I have no doubt that the keen competitive edge that we have at the moment and which, if I may remind noble Lords, has been remarked on by the former President of the European Commission, would be lost. He accepted that Britain would remain a paradise for inward investment so long as we kept our position outside of the social chapter. All those parts of the package are more significant than even the minimum wage.

Inward investment is all about partnership. At one time I was asked to be clear that it was not just success of the Invest in Britain Bureau that brought this all about. I am ready enough to acknowledge that. It is a partnership of national, regional and local organisations, Business Links and the like. I know from my experience in the north-east of England that that has certainly come into place. Siemens is a brilliant example. It took a decision to invest in the United Kingdom in late July. By a skilful partnership in the north-east of England, it was possible to cut the sod, with all permissions granted, by the beginning of December. I do not believe that a comparable pattern could have been achieved anywhere else within Europe. That is clearly important and I am glad to pay that tribute to the partnership that brought it about.

I intended to conclude with a series of quotable quotations from foreign investors around the world. I shall restrict myself to just two. First, the chairman of BMW recently said: Structural change has made Britain by far the most attractive place to invest in Europe". Perhaps I may say to my noble friend Lord Lyell, given his keen interest in the pharmaceutical industry, that the chairman and chief executive of the pharmaceutical company Upjohn had this to say: London is the centre of the globe in terms of the pharmaceutical industry". The United Kingdom has been voted the world's most popular destination for foreign direct investment, ahead even in 1996 of China. A survey by Corporate Location showed that the United Kingdom was being considered by 27 per cent. of foreign investors for projects within the next three years. In citing these figures, I hope your Lordships do not believe that the Government are complacent. Far from it. As we have achieved this position of primacy, our task must be to ensure that we do not lose it.

6.25 p.m.

The Viscount of Oxfuird

My Lords, I am very, very pleased and honoured to have been able to facilitate this debate. I genuinely believe that the skill, experience and dignity with which this subject has been treated demand that Hansard of your Lordships' House should be available on every news-stand in the country. But unfortunately we cannot afford to do that. I thank all those who have participated in the debate. I beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.