Lord Levene of Portsoken
Main Page: Lord Levene of Portsoken (Crossbench - Life peer)UK: Competitiveness
Lord Levene of Portsoken Excerpts
Lord Levene of Portsoken
To ask Her Majesty’s Government what factors they take into account when making sure that the United Kingdom maintains its competitiveness.
Lord Levene of Portsoken
My Lords, I am very glad to introduce this short debate this afternoon, not least because it will mark the maiden speech of the noble Lord, Lord Sassoon, who is now Commercial Secretary to the Treasury. The issue of competitiveness has particular resonance for me since I served in two government posts in previous Administrations, the first in the Ministry of Defence with responsibility for defence procurement and the second working for the then Prime Minister with responsibility for a programme called “Competing for Quality”. Both posts were essentially based on the premise that competition brings with it efficiency and profitability.
For quite some time now, we have been living in an atmosphere of doom and gloom. The purpose of this debate, however, is more positive. It is to explore what policies will allow us, as a country, to export more goods and services and to attract investment—in short, to stop our morbid fascination with the financial crisis of 2008; to stop acting like carrion birds picking over what happened and who was to blame; and to start working out how we are going to make enough money to pay off our enormous debts. The time has come to stop wallowing in our condemnation of a group of greedy and unscrupulous bankers. Everybody enjoys the view from the moral high ground, but the new Government must tear their eyes away from the past and get to work fixing the economy.
The Prime Minister has said that he intends to reopen Britain for business. However, I would argue that Britain has never been closed for business. I am chairman of Lloyd's—an interest which I declare this afternoon—and in 2009, we made a record profit. Lloyd's is not the only business in the United Kingdom that has shown prudence and perseverance in facing up to the financial crisis. For example, in 2008, the insurance industry contributed £8.2 billion to the Exchequer. There are millions of men and women working up and down the country who are exporting goods and services. The starting point for this debate is to ask the Minister what his Government can do to help those exporters to operate in a competitive environment.
It is clear that the UK must grow its way out of debt, and the primary way to do this is both to sell our goods and services to the rest of the world and to encourage foreign capital into this country. The World Bank has described Britain as among the easiest places to set up and run a business. We need to decide once and for all: is this description of the UK as a place for international business to thrive and prosper a point of pride, is it something that we fear or is it even a point of shame?
I firmly believe that if we are to derive the enormous benefits of living in a globalised world, the UK must engage fully with the international economy. We cannot deal in half measures and mixed signals. For example, while immigration controls remain absolutely necessary, we should not throw the baby out with the bathwater by preventing experts from businesses outside the UK who want to set up here bringing their key staff with them or by excluding students, who are the lifeblood of a huge industry.
There are two areas to consider. The first is how we promote UK exports and offer practical assistance to help those exporters plug in to overseas markets. Here I pay particular tribute to the work of UK Trade & Investment. Lloyd’s, which is one of the leaders in this country of invisible exports, has received outstanding support from the staff of UKTI in the UK, and even more so from its staff, who are based in our embassies all over the world.
The second essential component is to ensure that we have a business environment in which people want to trade. Many factors make the UK attractive, but the most hotly contested at present are what our tax rates should be and what business regulations we should set. This is where the Government must once and for all take decisive steps to prove that they are on the side of business. When I served as lord mayor of the City of London in 1999, I was able to travel around the world saying that we had one of the most competitive tax regimes anywhere. This is no longer the case, and the totally spurious arguments that increasing direct taxation has little effect on retaining the best talent in this country, or in attracting new talent to come here, must be corrected.
Businesses today, even British businesses, do not have to trade in the UK if they are offered a better deal elsewhere. This is particularly true of financial services, which require no factories, warehouses or heavy industry, and can move easily from one jurisdiction to another. We have experienced this first hand at Lloyd’s, where only nine out of the 53 businesses that operate in the market remain domiciled in the United Kingdom. They are re-domiciling not only in the traditional tax havens but within the European Union, so it is critical that the Government take urgent steps to re-establish the UK as the most competitive location in the European Union.
The previous Government's levy on bonuses accrued a £2 billion windfall for the Treasury, but this kind of sudden taxation is playing with fire. One day there will be no bonuses, and no bankers left to tax, and you do not need a team of Treasury accountants to tell you that 50 per cent of nothing is nothing. I am becoming very concerned that the phrase “re-balancing the economy” is a sort of code for shrinking the financial services sector. That would be a mistake of huge proportions. If we want to boost manufacturing in this country, that is one thing, but we should not view a thriving world-class financial services sector as a barrier to this ambition. This is an industry that we happen to be very good at. It is an industry that has driven our economy and created hundreds of thousands of jobs. The hand wringing and recrimination that we have seen directed at the entire sector of more than a million workers in this country would not happen in other countries. Have noble Lords noticed the Germans castigating their car industry? Have any of your Lordships noticed the French castigating their wine industry? Not only does the financial services industry suffer in this way; so too does the other industry with which I was closely associated: the defence industry—another huge earner of foreign exchange and an employer of hundreds of thousands of people.
The domestic criticism of our financial services industry is being noticed overseas. One leading international banker very recently described the tax and regulatory environment in the UK as scary. In tax terms, the financial services punch above their weight. Last week, the lord mayor set out in a speech that UK financial services accounted for £61.4 billion in the tax take for the fiscal year ending in 2009. This equates to 57 per cent of the health budget, 75 per cent of the education budget and 150 per cent of the defence budget.
Today we need to move on, to be confident that we have learnt from our mistakes and to start once again building on what we are good at. I hope that the Minister and all noble Lords here today can send a clear message that we are proud that the City of London, and the whole of the UK, is a place where the world comes to trade.
The new Government find themselves at a crossroads. We can be ashamed of our success in certain sectors or we can celebrate it. We can pursue a path where we spend the next few years poring over the post-mortem of the financial crisis or we can take a pragmatic path—one that leads to jobs and money for British people. This decision needs to be taken now. The Government need to put business out of its misery rather than add to it. I hope that the Minister will be able to reassure us that this will be a feature of his department's forthcoming Budget.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, I rise with considerable trepidation to address this most august of Houses for the first time. First, I thank the officials of this House, who have been so helpful and supportive in easing me into your Lordships' House. Last week, I listened to the well merited tributes paid to the noble Lord, Lord Myners. I know that he will indeed be a very hard act to follow, and I am very grateful to him for his kind words this afternoon, as well as to my noble friend Lady Noakes, who so ably carried the Treasury portfolio on the opposition Front Bench. I was tempted to remain sitting and just leave the two of them to get on with it, but I will carry on.
I am also particularly grateful to the noble Lord, Lord Levene of Portsoken, because the topic of this debate resonates with so much in my background. My great-great-grandfather came to this country from Bombay in 1858 as an inward investor to build trading links with the cotton mills of Lancashire and to establish a financial base for our family in the City of London. So it is absolutely in my blood to want our financial sector to grow and prosper and that it should support the needs of the UK’s industrial base. Whether this makes me a Swiss/Indian/Iraqi banker I do not know, but I am not a pure Swiss banker.
In the first part of my career as a banker, I advised on the privatisation programmes of the UK and many other countries—privatisation programmes that were so central to the structural reforms and growing investment flows of those countries. When I moved to the Treasury in 2002 as a civil servant, I was responsible for competitiveness issues. I made it part of my business to travel regularly to the major Asian economies, the Gulf states and to other countries to listen to the concerns of inward investors, to explain UK competitiveness policy and to argue for open markets for our exporters of goods and services. I am tempted to talk about other aspects of my time in the Treasury, but I shall stick to the convention of making this a non-controversial speech and perhaps respond to the noble Lord, Lord Young of Norwood Green, on another occasion.
In my new role as the first Commercial Secretary to the Treasury, I combine in my responsibilities both financial services and wider business policy, so the UK’s competitiveness is again a central concern of mine. I am therefore delighted that we are discussing how this Government intend to maintain the UK's competitiveness. However, we are here not simply to maintain our competitiveness; we are here to improve it.
This means, first, recognising those drivers of competitiveness where the UK is a leader but where we must work ever harder to preserve our advantages. I am thinking of the UK’s flexible labour market, of our pool of highly skilled talent, of our competitive markets and of our openness to inward investment and investors. On the other hand, the UK suffers from some long-standing structural weaknesses. The challenge here will be to set a clear medium-term policy direction while cutting our cloth in line with the new economic realities. In this category I put our infrastructure and energy policies, dealing with lower skills and planning policy, and translating our science base into profitable enterprise.
In terms of immediate action, we need to look at two drivers of competitiveness that have been much talked about today: tax and regulation. High taxes damage business and hamper investment. We need lower, simpler and more predictable taxation. For this reason, the Budget will set out reforms on corporation tax. We will set out a road map for the creation of the most competitive corporate tax regime in the G20. We also need to keep a hawkish eye on regulation. We will introduce a one-in, one-out rule, and sunset clauses will be imposed both on regulations and regulators so that the need for each regulation is regularly reviewed.
I should turn to some of the specific points raised in this important debate, but I recognise that if I addressed only half of the questions put by the noble Lord, Lord Haskel, we would be here all night. Your Lordships will perhaps forgive me, therefore, if I pick out just a few major points; I shall write on some others. With a couple of weeks to go before the Budget, a number of macroeconomic points, made particularly by the noble Lord, Lord Myners, and tax points, made by, among others, my noble friends Lord Patten and Lord Northbrook, we shall just have to defer for now. However, I shall try to respond to some points, starting with the questions put by the noble Lord, Lord Levene of Portsoken, about helping exporters, which I regard as critical. As I have said, I did a certain amount of that in my previous role. I believe that we must continue to work with UKTI and ECGD to ensure that their support continues to be targeted where it can most help our UK exporters.
The noble Lord, Lord Haskel, asked a number of questions about choice, of which I shall pick up on one or two—one of my answers responds to a point made by the noble Lord, Lord Levene of Portsoken. When it comes to the state versus the private sector, we advocate neither a laissez-faire model nor state control of the market. Regulation must at all points be proportionate and targeted and must help the aims of businesses and households.
Having said that I cannot talk much this afternoon about taxation, I want to answer a question asked by my noble friend Lady Noakes about tax simplification because it is not just a matter of rates. The noble Lord, Lord Young of Norwood Green, referred to headline tax rates. They are very important, but we also need a tax system that is certain, flexible and proportionate, so I can confirm that the Government will set up an office of tax simplification to suggest reforms to the tax system.
I talked about the need for putting downward pressure on UK regulation. The question of European regulation was raised by a couple of noble Lords. Yesterday, I was talking to Professor Mario Monti, the former commissioner, who has recently written a key report on how to drive forward the single market. Although not everything in that report would be endorsed by the Government, there are some critically important things, including a welcome approach that he suggests for the European Commission to put its own house in order for better targeted and better enforced regulation.
There were one or two questions and comments about skills and questions about savings being made in expenditure, including a question asked by the noble Lord, Lord Haskel. To indicate the importance that the Government attach to skills and to dealing with cuts in expenditure in a sensible and responsible way, within the recently announced £6.2 billion savings in 2010-11, there was a plan to reinvest £200 million in improving Britain’s growth potential, £150 million in funding 50,000 new apprenticeships and £50 million in capital investment in FE colleges most in need.
The noble Baroness, Lady Coussins, drew our attention to the important question of languages. It is easy to be complacent about this. Every time I go to China, I am reminded that the Chinese leadership is increasingly speaking English, and I feel very inadequate. I take the noble Baroness’s general point to heart, and I will feed back to colleagues the specific point she raised.
Another important issue raised by a number of noble Lords was public sector cuts and public sector workers. I admire and respect the contribution of public sector workers. Of course there will be savings from lower-priority schemes within the programme of spending cuts that is coming, but key front-line services will be protected, and we respect the public sector workers who provide those and all other services.
Finally, the noble Baroness, Lady Valentine, talked about the need for a new dialogue between banks and industry. All I can say is that I have policy responsibility for both banks and industry in my new portfolio, which is probably an indication that our Chancellor exactly takes her points.
I am embarrassed that the necessity for brevity in my speech this afternoon makes my comments seem no doubt both superficial and rather trite. However, we have highlighted some key factors that affect the UK’s competitive position, and they will certainly very much help me as I work on this agenda in the months ahead.
Lord Levene of Portsoken
My Lords, I am sure that the Minister is about to sit down, but I hope that I may be permitted to congratulate him on his incisive maiden speech. He has spent much of his career advocating and critique-ing the work of the financial services industry in the City. As we heard from the noble Lord, Lord Young of Norwood Green, he has done so wearing many different hats and serving a number of different political masters with equal effectiveness and irrespective of their political affiliation. Now that he not only is a Member of your Lordships' House but bears the heavy responsibility of a Minister of the Crown, I am sure that he will fulfil those responsibilities with great distinction and that we can look forward in this House to his very perceptive insight into the future. I apologise for my interruption.
Lord Sassoon
I am very grateful to the noble Lord. That is the sort of interruption that I can take. I am particularly grateful to be thanked afterwards as well as in advance. I end simply by saying that the prize, if we get all this right and can restore the UK’s position as the most competitive economy, is very clear.