Competitiveness

HL Deb 16 December 1998 vol 595 cc1378-94

4.43 p.m.

The Minister of State, Department of Trade and Industry (Lord Simon of Highbury)

My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Trade and Industry. The Statement is as follows:

"The White Paper I am publishing describes the Government's strategy for modernising the United Kingdom economy. Overall our industrial performance still lags well behind the United States and our European partners, despite all the privatisations and trade union reforms of our predecessors' 18 years. Yet a new economic landscape beckons, radically changing the terms on which businesses compete with each other. As a government, we have to create the conditions for an economic step change in this country. This White Paper is a wake up call to the nation to do just that.

"The starting point for the Government's analysis is that knowledge and its profitable exploitation by business is the key to competitiveness. An advanced industrial nation like ours cannot sustain the growing prosperity we want by producing standard products and services made with pedestrian methods and commonplace technology. Others can do that just as well and more cheaply. We will only win by developing innovative goods and services that customers want to buy and that use world-class production systems and the most sophisticated technology to keep us ahead of our rivals and by ensuring we have the best environment for business in the world here in the UK but also in the rest of Europe which is our home market.

"The bedrock of that business environment is macro-economic stability. Business hates uncertainty. That is why this Government are so determined to steer a stable course through the world's current economic turbulence. We fully understand the difficulties that this turbulence can cause.

"The Government have no illusions that they alone can transform Britain's economic performance. Of course they cannot. It is not government's job to second guess boardroom decisions. Nor is the hidden hand of market forces sufficient to secure our competitive success. The false hopes of planning in the 1960s and 1970s, and the obsession with laisser-faire in the 1980s, both failed. This Government steer a new path: to work with the grain of markets; to use our regulatory powers to promote competition as the single most important spur to innovation; to encourage businesses to collaborate with each other to compete more efficiently; and to invest in the capabilities of the economy, including its skills and technological awareness.

"Within this framework there are three key roles for my department. First, we must invest in our world-class science and knowledge base. Secondly, we will step up our efforts to convert the fruits of this vital resource into hard commercial success. Thirdly, we will lead a crusade to develop in Britain the spirit of enterprise so characteristic of the United States so that we seize the new business opportunities that are before us.

"The quality of the UK's science and engineering base is the foundation on which the knowledge economy is built. It is the mainspring of innovation. Yet university research has been the victim of long-standing under-investment. This Government have acted to reverse the decline. With the Wellcome Trust, we are investing an extra £1.4 billion in British science and engineering. We also need the private sector to increase its commitment to research and development. That is why my right honourable friend the Chancellor will be consulting business on supplementing the current tax system with an R&D tax credit for small business. And that is why we will back strong participation by UK business in the EU's research and development programme.

"But research by itself does not generate wealth. We must ensure that more research is transformed into commercial success; that new ideas lead to successful innovation and new products. My department will therefore switch resources to increase its support for innovation by 20 per cent. An expanded teaching company scheme will pay for 200 technology champions every year from among our best science and engineering graduates to help businesses innovate and to exploit the latest technology. In addition the Government will offer a range of new incentives to reward universities which work effectively with business. Our target is to increase by 50 per cent. the number of innovative start-up businesses each year from the public sector science and engineering base by 2002.

"Exploitation of science and business development is often strongest when businesses cluster together, creating a critical mass of investment, skills and co-operation. Government cannot create clusters out of nothing, but they can help emerging clusters to grow. In a new initiative I regard as of fundamental importance the Government will for the first time set up teams, each led by a Minister, to tackle barriers to growth of nationally significant clusters, co-ordinating action across government and with business. The first of these teams will concentrate on biotechnology and will be led by the science Minister, my noble friend Lord Sainsbury.

"Boosting enterprise will be given the highest priority in what the Government say and do. We must encourage more people of all ages and backgrounds to start their own business, and we must help those businesses to grow.

"I have no magic wand that can create an enterprise culture in Britain. But government can play a role in changing attitudes, in facilitating finance, in offering networks of support and enabling businesses to learn from each other, in improving technological awareness, especially access to the new digital technologies, and in promoting at every opportunity liberalisation and competition without which an enterprise culture cannot flourish.

"First, attitudes. We will back a business-led campaign to promote enterprise in every part of the country. We have asked the Qualifications and Curriculum Authority to consider how best entrepreneurship skills can be introduced to teaching in school. This year the Government are spending £15 million to promote links between education and business and are co-sponsoring, with the private sector, the expansion of the young enterprise scheme into higher education, helping students to run their own businesses. This will build on the measures the Government have already taken to invest in and reform the education system at every level.

"Second, finance. The financial community needs to be as entrepreneurial and innovative as the business community. This Government have already introduced a much needed cut in capital gains tax. Today, I can announce the creation of a new £150 million enterprise fund to bring together public and private finance for high growth businesses. The fund will help financial providers develop the expertise to understand and back growth businesses and new innovative technologies. It will help create in the UK a far-sighted financial community capable in future of taking risks alone.

"Thirdly, support for innovative business start-ups. To help them through their crucial early stage of development I have set the Business Links network a target of support each year for 10,000 new growth businesses across the UK.

"In a modern, enterprising economy, businesses need to learn from each other. The Government can play a crucial role and we are full partners in the CBI's Fit for the Future best-practice campaign. My department has helped the Motor Industry Forum to bring master engineers from Japan to advise and train vehicle component suppliers on world-class practice. This has produced truly outstanding improvements in performance. My department will fund up to 10 similar programmes in other industrial sectors.

"To help the regional development agencies in England promote innovation and competitiveness we shall provide them with an extra £10 million. We have decided to re-focus regional selective assistance on high-quality, knowledge-based projects which provide high value jobs.

"Fourthly, access to new digital technologies. These provide the nerve system of the knowledge economy. Electronic commerce will be among the most revolutionary changes to markets since the Industrial Revolution. However, I recognise many smaller firms find it difficult to make the leap into electronic trading. I am therefore launching a new programme to ensure we achieve a target of one million small businesses exploiting the Internet to the full by 2002. The Government will invest £20 million in new comprehensive advisory services to ensure that this target is achieved. My ambition is that Britain should, by the end of this Parliament, have the best environment worldwide for electronic trading. I have today published a document that benchmarks our performance in the digital economy against our main competitors. I will introduce an Electronic Commerce Bill later in this Session to bring our laws into the electronic age and reinforce confidence in electronic trading. I will appoint an e-envoy to help lead for the UK in international discussions on electronic commerce. The performance and innovation unit in the Cabinet Office will conduct a study to build on this. I am also developing proposals to liberalise further communications markets.

"Finally, if enterprise and innovation are to flourish in the UK, we need greater competition in markets and those markets need to modernise. For 18 years our predecessors preached free markets but took fright at big business. We have already passed the new Competition Act, and we will use it to attack anti-competitive practices, strengthening the OFT so that it can expose all corners of the economy to the stimulus of competition. I will also consult next year on the case for reform of merger policy to ensure this too promotes competition.

"The White Paper sets out 75 commitments to boost business capabilities, to promote business collaboration and to strengthen competition, all aimed at closing the performance gap against our main competitors. But in addition we need to measure how well we are doing. I have also decided therefore to develop and publish indicators to track the country's progress—a new competitiveness index. Each year the Government will review Britain's progress against these indicators and agree what further action is required. A new competitiveness council, drawn from across business, will advise the Government on the action needed.

"In one respect only this is a modest White Paper. It is a mere 67 pages compared with the 634 pages of the three competitiveness tomes published by the last administration. The right honourable Member for Henley was thoroughly dedicated in his goals and I commend him on giving Britain some home truths. But still Britain slipped behind. The growl was there but not the bite. In contrast, our White Paper charts a realistic and attainable way forward. For too long, a dignified retreat from economic success has satisfied us. Britain has played on half the pitch: inventing but not selling; competing but not working enough with others. Now we are going to do things differently: government and business in partnership, with focus, with energy and with enterprise. I commend the White Paper to the House".

My Lords, that concludes the Statement.

4.57 p.m.

Baroness Denton of Wakefield

My Lords, I thank the noble Lord for repeating the Statement. There is much to welcome in the White Paper. That is not surprising because, as was said this morning by my noble friend Lord Young of Graffham, he could have written it some years ago. I also ask the Minister to convey to his right honourable friend in the other place my thanks for the briefing he gave me just after eight o'clock this morning. I thought that the honeypots would then come in the Statement but, unfortunately, it seemed that the full briefing was on the "Today" programme.

I was in the DTI under the leadership of my right honourable friend Michael Heseltine. I have memories of the three-volume competitiveness White Paper and work which he brought forward. I hope that the Minister does not criticise us for being conscientious about the detail. It certainly moved matters forward and brought home to people what was needed at that time.

In this case, the principles and the theory are there but I worry about the pragmatism. I am delighted that there will be measures, indicators and benchmarks which we can use. I suspect that we shall ask for a quarterly review, even if by way of a Question in the House, of what is happening.

I am worried that noble Lords opposite have the wrong image of small firms. The White Paper puts great emphasis on electronic trading, information and knowledge. That is great. It is wonderful. But many people who run small firms do not get round to reading the newspapers. How does the Minister propose to persuade people under pressure and with limited time to take on board the proposals? My definition of a small firm is a place where the end of the day comes before the end of the work and there is no one to do it for you the next day. We will find great treasure in such companies if there is a practical way in which they can participate in these services.

In the past, small firms were located next to accountants and solicitors and the owners knew their bank managers. Now they start from scratch, often with innovation, which we all want to see, but more often having to learn by mistakes. We cannot afford that in the present economy.

Another problem is the difficulty of attracting graduates into smaller firms. They will flock to the big firms with reputations, although some reputations have changed in the past four months. Is there not some way in which the Minister can bring forward the opportunity for smaller firms to share in graduate skill and knowledge? That is very important.

We need industry heroes, not just service heroes, and I hope that the Minister will bring that about. We all miss John Harvey-Jones who showed that business and industry are fun. That attracts people. I see nothing wrong with it.

The Statement declares that the bedrock of the business environment is macro-economic. I hope that that does not mean tax harmonisation because there could be nothing worse for our economy. I say that with some feeling. I watched so much enterprise and industry slide south from Northern Ireland because of tax issues. The corporation tax of 10 per cent. is a frightening example of what will happen.

The Government have stated that we will use our regulatory powers to promote competition. I hope the Minister will explain that. It appears to be a contradiction in terms. Competition is what you have openly; it is not achieved by regulation.

We have a world-class science and knowledge base. I should be grateful if the Minister would explain why in that case about 13 per cent. of pharmaceutical manufacturing in this country has moved to the Far East in recent months. We can rightly be proud of the industry, with its limited subsidy, but already parts of it have gone to Taiwan and Vietnam. I should be grateful to hear what the Minister believes are the reasons.

I also approve of the university-industry links. Such links did not occur in the past because universities believed that industry was not for them to spend time on. I suggest that the Minister discovers how the successful links worked. They worked because people met each other at school sports days and not because the department brought them together by identifying possibilities. I look forward to the Minister's assurance that incentives to the universities apply to industrial processing as well as to innovation and research.

I note that the first of the teams to come forward on the critical mass of clusters will be on biotechnology. I am sure that the Minister will agree with me that Friends of the Earth made some fairly serious allegations on Monday. I hope that he will be able to come to the House and dispute them. A statement from the Department of Trade and Industry yesterday indicated that the Minister is not responsible for the £185 million budget of the Biotechnology and Biological Sciences Research Council. If the Minister is not responsible for the budget, who is? I hope that in BSE enterprise the Government will include the Prince's Trust because it has the advantage of using businessmen.

Facilitating finance is absolutely key to the proposals. What arrangements have been made with the banks not to pull the plug when the going gets tough? How can one stop them saying that there is no profit in business from small businesses? I hope that we can encourage the banks to "stay with it" if the rest of us are working to make things grow. I heartily endorse the expansion of the young enterprise scheme. I have seen it change people's lives enormously.

Many proposals in the Statement need more detail which we might not receive today. As regards the enterprise fund, who chooses which enterprises are involved? Is it on a smaller scale than that related to industries? Who guarantees the loan? Who stays with it to make sure that it does not leave them?

I worry about using Business Links because if those who advise in Business Links are skilled in entrepreneurship they would be out there as entrepreneurs and not advising in Business Links. Perhaps we could look at another area alongside if not instead of that. Can the Minister explain why, when motorcar quality of Japanese manufacturers is greater in England, it was felt necessary to bring master engineers from Japan? Could not more engineers from Gateshead and Derby have been employed?

The greatest need will be training to allow the knowledge to be utilised. The Statement mentions the decision to refocus regional selective assistance on high quality, knowledge-based products. Does that mean that the areas with the greatest need will therefore be neglected? Does it mean that one is picking those with the greatest skills rather than the greatest need? I should be interested to hear the Minister's view.

The Government, rightly, are keen to ensure that people who are bankrupt are not written off as entrepreneurs. There is no quicker way to learn than to make mistakes. That is how I learnt about working capital. When it is £2 million above where it should be, you never let it happen again. I hope that we will see protection against the revival of phoenix companies where the car is transferred to the wife and the company is set up again within a few weeks.

We never took fright at big business. If there was one thing the President of the Board of Trade knew it was that if you are to be globally competitive you have to have large businesses, otherwise the Germans, the French and the Americans will move in over you. That is important. I hope that the Minister will reassure the House that competition policy accepts that there need to be many big companies.

We debate the Statement in a climate in which the number of bankruptcies and late payments is rising—and that after the Government put forward the policy, "If you won't pay £500 you might £550." I should be grateful to hear what is to be done about that.

I should like the Minister to comment on two further issues. The IMF, in its Korean restructuring, is moving the tables. The Minister shrugs. I do not expect an answer today. It is telling the Koreans what to do and is about to move Daewoo Electronics out of here in favour of Samsung, which is not interested in "here". We are going to lose jobs by accident. I should like to know whether the Government intend to investigate that wearing their IMF hat.

Secondly, and it is for me to say this, there is sound evidence that the companies which survive best in tough times are run by women. What input to the paper was from the women's group in the Cabinet Office? If there was none—I may be being sceptical—can we have the Government's opinion as to how we obtain more women entrepreneurs? They start from scratch and develop companies which stay, I suspect because the Porsche does not appear on the books in the first year.

I conclude with those queries which I hope the Minister does not feel are too detailed. Industry—getting it right and getting the sums together—is a matter of detail.

5.10 p.m.

Lord McNally

My Lords, one of the benefits of recent skulduggery on the Conservative Benches is the happy return of the noble Baroness, Lady Denton, to the Front Bench. That is most welcome.

My appearance today is because of the non-availability of my noble friend Lord Razzall. It is therefore appropriate that I declare an interest. I am president of the British Radio and Electronic Equipment Manufacturers' Association—BREMA to its friends—though it is not in that capacity that I want to put forward a few points. However, I suspect that the members of BREMA will welcome the emphasis on digital technology. They are convinced that the British-based electronics industry is well equipped and well poised to take benefit from the digital age.

The White Paper once again identifies, as it seems to have done ever since I became involved in politics over 30 years ago, that Britain is a low pay, low skill, low tech and low productivity economy. As has been pointed out, there have been a number of attempts to cure that malaise. The Secretary of State calls his paper "A Wake Up Call to the Nation". But there is a need for more than clarion calls. Resources must match intent; the means much match the ends; and the words on the cheque need to match the numbers. That is why, though I see some of the glamorous figures quoted, I shall await the expert comments from some of the sectors involved as to just how generous the Government's initiatives will be and what impact they will make.

I am in a little difficulty in that I know that the Secretary of State for Trade and Industry raises high emotions, both for and against. I admit at once therefore that I am a Mandelson fan, just as I was a Heseltine fan in the last government. I rather suspect that the present Secretary of State sees himself as the natural successor of Mr. Heseltine rather than of Mrs. Beckett.

I agree that the Government cannot back winners. But the Secretary of State is surely right that his role cannot be wholly passive. That is why I welcome the assurance again that efforts will be made to make our competition policy truly effective. The Minister and I spent many months going through the Competition Bill—now the Competition Act. We welcomed it onto the statute book. But the jury is still out as to how effective we will make our competition law. It is too easy to allow it to slip back into listening to hard cases instead of making sure that our competition law favours those who are truly competitive.

The matter of university funding is extremely interesting. Almost at the same time as the Secretary of State's Statement landed on my desk came a statement from the Association of the British Pharmaceutical Industry announcing its study of similar issues called The UK Pharmaceutical Industry at the Crossroads. Again, though I have not had the chance to study either document in detail, it is interesting—certainly from the chapter headings—to see how much shared analysis there is. On the question of university funding the pharmaceutical report says: Given limited resources, such funding should be targeted to key areas and focused on a relatively small number of leading institutions". I wonder whether the Government agree with that. If they intend to put a large amount of money into university research, will it be spread thinly or targeted—as the pharmacists recommend—on a relatively small number of leading institutions?

I share the anxiety of the noble Baroness, Lady Denton, in relation to small and medium-sized enterprises. There is a whiff of big business, which is probably the first love of the Secretary of State, when there is need within his department to keep an eye on small and medium-sized enterprises. There is also a need for co-ordination and co-operation between departments. This cannot be just an initiative of the DTI. That is why we welcome the announcement today of the committee of the noble Lord, Lord Sainsbury. This initiative will touch education, the Treasury, and the Department of the Environment, Transport and the Regions, and they must pull together. That is why I hope we hear for the last time these ridiculous briefings and counter-briefings between the DTI and the Treasury. The spinning really must stop if the Government are to be treated seriously on this matter and if we are to be clear that the Treasury is on board for this initiative.

I noted the visit of Professor Michael Porter, of Harvard Business School. It was said that he made a great impact on the Secretary of State. Among Professor Porter's strong recommendations was a much friendlier tax regime and deep cuts in capital gains tax. Is that the shared analysis of the DTI and the Treasury in approaching these matters?

I do not see many of the usual suspects on the Benches and I do not want to promote a diversion, but the Statement does not seem to fit with the Government's policy on the euro. The Conservative policy of waiting 10 years is positively barmy if we are talking about giving industry some kind of stability in which to make plans. Therefore, on these Benches, in welcoming much of the Statement, we say that it only makes sense if there is an early rather than a late decision on our membership of the euro.

The White Paper has a lot of the fizz we would expect from the Secretary of State. He is right to point out that the privatisation and trade union reform of the 1980s, though taking us so far, still left us with many of the problems which this Statement identifies. It will need not just a government effort, but also a national effort. It is interesting—perhaps the Minister can enlighten us in these news days—that the paper mentions discussions with the CBI but does not mention whether discussions have taken place with the TUC. I should like to know whether there have been such discussions and whether the TUC will be playing a part in seeing the proposals through.

We welcome the targets; we welcome the measurement. The real test will not be a test of the Secretary of State; it will be a test of us all as to how willing we are to change attitudes that have been entrenched too long and that rightly need to be changed now.

5.20 p.m.

Lord Simon of Highbury

My Lords, I join the noble Lord, Lord McNally, in welcoming the noble Baroness, Lady Denton of Wakefield, to the Opposition Front Bench. It is a pleasure to see the noble Baroness there. This is our first debate together and I have looked forward to it. It was also a pleasure to hear the noble Lord, Lord McNally, speaking about digital technology as it is one of the key frameworks of the document.

As I listened to what I thought were two generous responses from the Benches opposite, I heard understanding and support for the requirement to invest in Britain's capabilities, in the areas of the science base, the skills base and communications technology, and an understanding of the whole of the supply chain.

A number of detailed questions were asked, some of which I shall address now; I shall address others in the fullness of time, because of the time constraint. Many detailed comments were raised which, I agree, is the right way in which to approach micro-economic planning as opposed to macro-economic planning. However, we must not forget that a stable macro-economic background, with low interest charges, low cost of money and sound government finance, is an essential pre-condition. As I said in the Queen's Speech debate, for the past 20 or 30 years it has been difficult for any government to achieve that background stability although we all need to work hard to do so.

I return to the key points. Where I saw and heard the support was, as I say, in regard to investing in the capabilities of our country. The second, strong feature where there is common understanding is the need for government to act as a catalyst and for industry to collaborate. In saying that, I can immediately answer one of the questions asked by the noble Baroness about how we allow small businesses to enter into the modernisation of competitive capacity. I believe that one must drive this forward through collaboration in the supply chain. We have started that in the automotive supply chain and I have personal experience of it from my own career in the North Sea supply chain. Efforts have been made in the food industry supply chain, driven by the larger, lead companies. In key terms, that is how one drives knowledge and the use of knowledge through to small companies within the system.

In such areas as investing in our capabilities and catalysing collaboration throughout the system, there is a strong resonance in the Chamber that that is good micro-economic policy which we must all encourage.

I sensed uncertainty about the third key area of government's role in the micro-economic strategy, which is regulation to ensure open and competitive markets. I thought there was a doubt in the question of the noble Baroness about the role of regulation in ensuring competitive markets. I join the noble Lord, Lord McNally, in saying that the first tool is the Competition Act itself. That is the framework for competition and it is different from anything that we have had before in this country because it is not about form based competition. It is about removing obstacles and allowing freedom to compete to the hilt unless one infringes the two classical prohibitions.

That is a regulatory structure, but it gives business much more freedom to compete. I can illustrate what I mean by "regulation to achieve better competition" by the overall structure of the Bill. In developing new markets, regulation is totally appropriate to achieve competition. When we discussed the Bill, we talked about the regulatory process for privatised new marketplaces in which state monopolies were turned into new companies. One needs a regulatory framework to ensure that competition grows in those areas of privatisation.

In the immensely interesting new marketplace of electronic commerce and the Internet, I would argue that unless we set the correct regulatory structure, which protects consumers, harnesses the technology and gives an international framework, we shall not take full advantage of the new marketplace or give our companies the opportunities that they should have to become leading-edge competitors in a new technology or a new marketplace in the next millennium. Therefore, we are convinced that the regulatory framework has a positive role to play in encouraging the correct spirit of competition.

Interesting questions were also asked about the quality of scientific investment, the issue of how funds would be put into science, and the role and responsiveness of the research councils in ensuring that excellence is the outcome of the dialogue in the bidding process between the scientific institutions and the fund providers. We shall use the well-known process of the research councils, but we shall attempt to ensure that excellence is focused through the bidding process which, as we have learnt, is the best way; through the Foresight programme and in the research councils; and through increased links between business, its aims for good scientific investment and the academic capacity to produce new technology.

Much was made of Michael Porter's visit to this country. I can only believe that he was "in search of excellence". It appears to me that he came here because he wanted to find out exactly how we are positioning ourselves as regards competencies within the new European market structure and in order to take advantage of that marketplace. That is an interesting part of the debate. It is a point that the noble Lord, Lord McNally, raised and I certainly would not want to avoid it. I advise the noble Lord to look carefully at the text. We recognise Europe as the home market. That is the first great underpinning of a positive attitude towards the European adventure. Without doubt, this paper looks at the capacity to grow, whether through electronic commerce, the Internet, the European research programmes, entry into the marketplace or our competitive regulatory process. The axis is our capacity to exploit and develop in the single market. That is absolutely as it should be and it is vital for the competitiveness of our country.

Finally, I agree with the noble Lord, Lord McNally, that this is truly a test for us all. It is not government's solution to competitiveness: it is an industry partnership solution to competitiveness, involving government and the people of the nation. The noble Lord asked whether the TUC was involved in preparing the document. Like others, the TUC was deeply involved in the 10 working parties over the 18 months of close counsel with members of the business community, who themselves underwrite and underpin the report as the direction for progress. It made a very strong contribution through the working parties to the development of what, I agree, is a test and a responsibility for us all which we should not fail.

5.30 p.m.

Lord Howell of Guildford

My Lords, much of what the Minister said when repeating the Statement is extremely welcome and encouraging, but I have two worries that I should like to put to him. First, at the beginning of the Statement he asserted that Britain was well behind its competitors in performance and productivity. He implied—I thought a little implausibly—that that is because nothing has happened in the past 18 years to improve our performance.

That contrasts with the reported comments in this morning's paper of his own Secretary of State who said that the attack on state monopoly during the Tory years and the privatisation programme was entirely right and that the then Labour opposition was utterly wrong to oppose it in almost every single case. We should like to be reassured that the Secretary of State is setting the mood and it is the continued attack on state monopoly and increased competition that is the theme rather than "bad mouthing" everything that has happened in the past 18 years.

My second point concerns productivity. As I understand the Government's analysis, much of the argumentation rests on some of the Mackinsey reports—the recent observations on sagging productivity in this country. Has the Minister noted the comments of Ted Hall? He is the head of Mackinsey's global research team in America, although he had a hand in preparing that report here. He explained that nowadays productivity cannot be measured in traditional terms because the productivity gains—the gain in product—are in the quality, innovation and "connectivity", if I may use that word, between people and machines and people and people. He explained that those matters do not show up in the traditional productivity modes. When we add to that the fact that the comparison between ourselves and America appears to ignore the length of working hours applied, it seems a slightly weak basis on which to build up a whole thesis about productivity in this country. Perhaps that should be looked at more carefully before we plunge ahead.

Lord Simon of Highbury

My Lords, I assure the noble Lord that it was never my intention to bad-mouth policies of the previous government. In looking at the competitiveness report, I was trying to explain the fact that they were long on analysis and relatively weaker on solution. What was undertaken was certainly a reconstruction of competitive markets in areas where we had had state monopolies. That is a pre-condition for a competitive marketplace, as has been said by my noble friend in another place. We believe that very strongly. However, where we failed—and this refers to the second part of the noble Lord's question—is in understanding how value was created through the system.

While we could create the conditions for competitive markets in the newly-freed areas where there had been monopolies, we did not have the same capacity as in the previous government to create higher value added through the private sector chain as well. It is clear that on the basis of the statistics—whether we take GDP per capita or, more conveniently, as the noble Lord mentioned, GDP per hour worked—we are producing less than our major competitors.

To back that weakness even further, we are certainly investing less per capita in the industrial and service system than our competitors; sometimes in the region of 40 to 50 per cent. less. The congruence of less value per capita produced and less investment per capita is indeed ensuring that we are not as competitive as others. Whether we talk of connectivity or value across chains, the final output is not as competitive. That is an issue this paper is trying to address. As I have said, I believe it is the responsibility of all within our country to understand that and to work to improve it.

Lord Barnett

My Lords, I begin by declaring an interest as chairman of an SME as well as of a larger company. I recognise that my noble friend's business experience was not in an SME. However, I should like to take up the point raised by the noble Lord, Lord Howell, on productivity. Would my noble friend accept that improvement in productivity frequently results in a reduction in jobs rather than an increase?

Often we hear great announcements from major companies, but as my noble friend will know, the way they improve productivity is by slicing away a fair number of jobs. In the past, small companies have been helped by the DTI under both governments. but the help has been dependent on the number of jobs created. Can the Minister tell us whether the new enterprise fund, other grants and finance referred to in the documents rather than the Statement, would also be dependent on jobs being created?

Lord Simon of Highbury

My Lords, in response to the first part of my noble friend's question on whether productivity essentially always results in job losses, I am sure that there is some connectivity, but I should like to return to the point I made previously. Concentration on adding value through investment and in the process in the workplace is an important feature of productivity and one which may not result in having fewer workers. A company may find itself with exactly the same or a greater workforce because it has understood the methodology for creating value in a new way. That is what we should be concentrating upon.

However, as has been said, in certain sectors of industry new technologies result in fewer jobs. In asking the question as to whether the new methodology for regional aid and grants will be looking at the number of jobs at stake or to be gained, all we have said in the Statement is that we wish to refocus that policy to take into account the value that will be created through jobs. Therefore, we are looking at the quality of the jobs and the quality of the future value capacity of the investment in perhaps a rather newer way than we have done in the past.

Lord Baker of Dorking

My Lords, I suspect that when the commentators get their hands on this paper tomorrow, or at the weekend, they will find it to be something of a damp squib. It seems to me to contain very little that is new. The schemes announced today have their predecessors in schemes of the mid and early 1980s; that is, the enterprise schemes in support of small businesses and schemes of that sort. I was glad to see that the Minister recognised in his response to the last question—not in the Statement—that the prosperity of the country, which this Government inherited, was due to the policies of privatisation, deregulation and liberalisation, all of which his party, of which he was a member, voted strongly against. I hope that there has been a genuine acceptance by the Government that these policies have proved effective for our country.

When the Government took over in May 1997, we enjoyed fifth position in the competitive table. I do not think that Britain has been as high in the competitive table for nearly 100 years. Can the Minister hazard a forecast, as a result of this White Paper, on whether we are likely to improve upon that position? I do not expect him to jump up and say "Yes" because when the figures are eventually announced and measured, he may not be around to take blame or credit. However, my point is that we had a considerable measure of success and that should be recognised. That success came from liberalisation.

The most job-positive area in our country at present is that of telecommunications and the Internet, as the Minister correctly stated. I have some interests in that area. As regards electronic commerce, perhaps I may suggest that the Minister looks at Finland. That country leads the world in electronic commerce on the Internet. Thirty per cent. of all commercial transactions in Finland are now conducted over the Internet. They have achieved that not by government regulation but by aggressive marketing and aggressive deregulation. I believe that that should be the way forward.

Lord Simon of Highbury

My Lords, I thank the noble Lord for his views about the effectiveness of Finland in exploiting the new digital technologies. I share those views strongly. We are delighted that so many of its companies wish to invest in the UK because they find it to be the appropriate environment for the development of that technology. They no doubt see the moves we are making to "Europeanise" our capacity to compete as being very good.

I should like to venture a comment on league tables. The noble Lord reminded me somewhat of those football discussions that we have about the competitiveness of the Premier League and how brilliant, competitive and fast it always is until we actually go away and play games against the opposition abroad, when we find that the results are slightly less attractive. My feeling about the noble Lord's fourth place in the league is that he was not very careful about saying which league it was; indeed, it sounded to me a little like the Premier League. Although we may be fourth in whatever league the noble Lord invented in his mind, I look at 18th in the OECD league table, which seems to be the international one, and wonder to myself whether, when we go abroad, we are quite as fit, quite as athletic and quite as successful as the noble Lord may have thought.

Lord Craig of Radley

My Lords, there is much in the Statement to be welcomed. As a member of the Select Committee that looked at the information society some three years ago, I am especially delighted to see the emphasis which has been given to increasing electronic commerce and other applications of information technology. There are also a number of sums which appear to be new money for a variety of research work. However, I believe that I detected the use of the verb "switch" at one stage; namely, that some new money for innovative research would be found by "switching" it. Therefore, in order to get a better balance, can the Minister indicate where the losses, or the lack of support which the Government now feel is necessary in the fields of research, will fall? At present, we seem to be getting just the positive side and not necessarily the negative side of the Statement.

Lord Simon of Highbury

My Lords, when I used the terminology "switching", I did not want to give the impression that we had already defined that we were moving research funds out of one area and into the other. I do not believe that that would be for the Government to predetermine. As I explained, the process whereby the funds are actually directed would be by agreement and discussion with a number of interested parties, whether that be the universities, private research centres or industry. As I said, the research councils will play a strong role in that respect. My use of the word "switching" was truly more related to moving DTI innovation budget funds from one area to research. We are moving funds out of some areas which we might have favoured in the past and putting more, net, into research to make up that £1.4 billion total with the help of the Wellcome Trust, which has already been announced.

Lord Ezra

My Lords, I am pleased to welcome the Statement and the White Paper, which I look forward to reading, just as I was pleased to welcome the White Papers produced by the previous government. It is very important that successive governments should continually take this subject very seriously.

One of the major points that strikes me about today's Statement is the number of positive and practical measures proposed. Indeed, one of the measures which I believe to be of great importance and which, of all the measures supported, could yield the quickest results, is the best practice campaign. Here we can translate that practice very quickly into improved results. I hope that the Government will soon be announcing the sectors to which this campaign will address itself. I hope that they will include in that the energy sector with which I am personally involved, especially the energy efficiency sector.

The reason I make that point is that we now have all the environmental pressures to get greater improvements in energy efficiency, but we have a market situation in which there is no incentive to save energy. Indeed, as the noble Lord will be aware from his past connections—and perhaps he is pleased that he is not in the oil industry at the present time—there is also the way in which prices have fallen. Further, there is a great overseas potential for efficiency in the environmental sector. I hope, therefore, that that will be one of the sectors which will be included in the list.

Lord Simon of Highbury

My Lords, I thank the noble Lord, Lord Ezra, for his welcome for the Statement and his support for the focus on the bench-marking and best practice areas. Indeed, the noble Lord will be aware—and he will certainly see this when he reads the White Paper—that we have worked very closely with the CBI in its campaign development. I cannot say how much I would like to emphasise the point that the noble Lord has made. I believe that the process of bench-marking and best practice sharing through the supply chain is one thing which will bring small businesses into closer awareness of what this whole challenge is about for the future, based on the knowledge economy. Moreover, through the White Paper, we shall make it clear that everyone is involved in this challenge. I refer not just to high technology businesses but also to traditional businesses, like construction, engineering, banking and, as the noble Lord said, the energy sector.

I turn now to the issue of the lower oil price. I should point out to the noble Lord that it was totally fortuitous that I chose to change careers at this particular time. However, one of the interesting features of the nine dollar oil price, or thereabouts, is that the industry regarded itself as sophisticated, despite the fact that it seemed to drill vertical wells for 80 years. That was always surprising when the thought that you might drill them horizontally was perhaps more appropriate for developing a reservoir. However, I leave that thought with the noble Lord. We are talking about a truly technological application of a new process to change the terms of an industry. So it could even happen in the oil industry.

The point that I wish to make is that that industry, sophisticated as it is, will have totally to rebench-mark its performance capacity to flourish in a nine dollar oil environment. The demands that will be made on that industry are quite extraordinary, but I am sure that it will face up to them. Indeed, we may find many parts of the industry thinking that alternative investment in energy saving projects is probably quite a good way of increasing their return on capital in this current phase. Therefore, there may well be hope for that sector of industry which I know the noble Lord has long cherished and supported.

Lord Desai

My Lords, although I welcome the extra money for research in universities, can my noble friend the Minister assure us that blue skies research, which is high risk/high return research, will be protected and that it will not be discouraged in favour of more applied research? Further, does my noble friend agree that the best use of competition is getting prices down for the consumer? Indeed, I do not see any mention made of the consumer in the document, but I hope that my noble friend agrees with me that consumers must benefit from competition.

Lord Simon of Highbury

My Lords, I can assure my noble friend that the terms and conditions for blue skies research in so far as the government are involved with its encouragement—indeed, I believe that that should be so, as do the Government—will not be changed by anything in the Statement. I also agree that the main beneficiary of competitiveness should be the consumer. After all, the drive is to give the consumer better and more choice; in other words, better quality at a lower price. That is entirely the spirit with which our competition policy is framed and which applies to this challenge to industry to improve the value of its output for the benefit of future markets.

Lord Williams of Elvel

My Lords, can my noble friend give us a definition of what a "cluster" is in terms of the Statement that he has just repeated?

Lord Simon of Highbury

My Lords, perhaps the easiest response would be that well known expression, "I can't explain it but I know it when I see it". The best definition of a "cluster", in terminology that we currently understand, derives from Silicon Valley, which is the strip of road running south from San Francisco through Menlo Park and past the Stanford complex down to San Diego. It is known to be the greatest centre of the exploitation of digital technology in the world. We are now developing southwards from Cambridge with much the same intent: to create a digital centre of excellence in a "cluster", which is a joint availability of academic excellence, small businesses and large businesses to create an area where the trade-off of ideas, knowledge and technology in partnership creates more value for all within the system.