UK: Competitiveness

Baroness Noakes Excerpts

Tuesday 8th June 2010 Lords Chamber

[Baroness Noakes]

My Lords, I congratulate the noble Lord, Lord Levene, on securing this important debate so early in this new Parliament. As we would expect, his speech was masterly and one with which I am in almost complete agreement. It is a great pleasure to take part in a debate on economic matters from the relative calm of the Back Benches, but it is an even greater pleasure to take part in a debate which features the first appearance at the Dispatch Box of my noble friend Lord Sassoon.

Usually a maiden speech is followed by other speakers who are able to say what a marvellous maiden speech has been made. But my noble friend has chosen to make his in a debate in which he will speak last. However, I know that he will make a marvellous speech and therefore have no hesitation in congratulating him on that in advance and on being a marvellous Minister.

Back in 1997, the UK was a competitive place to do business. We were seventh in the World Economic Forum's competitive league table. Last year’s report, the latest, shows that we have slumped to 13th. The UK will not lift itself out of the economic mess which the previous Government created unless our competitiveness is restored. It is as simple and as complicated as that. Growth and jobs are essential to our recovery and they will not come without a big improvement in our competitiveness.

I would like to focus my remarks on two aspects of competitiveness—tax and regulation, to which the noble Lord, Lord Levene, has also referred. Again back in 1997, the World Economic Forum ranked us fourth in the world for tax and regulation. The last report shows that we had slumped to 84th and 86th for tax and regulation respectively. This shows the scale of the task facing our new Government.

The Institute of Directors recently estimated that the administrative costs alone of regulation are now nearly £80 billion a year, which is not much short of 6 per cent of GDP. I welcome the coalition's plans for a one-in, one-out rule on new regulations and sunset clauses for both regulations and regulators. These initiatives should help to stem the tide of regulation but they may not involve a significant reduction in the burden of regulation. I hope that the Government will look again at whether there should also be a downward ratchet on the burden of regulation—for example, through the use of regulatory budgets, which decline year on year.

The EU is the source of most of our new regulations and those regulations typically offer low cost-benefit ratios. The Commission has never embraced the goal of reducing the burden of regulation as opposed to the administrative costs of regulation. What can my noble friend tell the House about our Government’s determination to make a difference on EU-sourced regulation?

Turning to taxation, I welcome the fact that the Government are committed to not implementing Labour's tax on jobs. I also welcome the corporation tax reforms where simplifying reliefs and allowances will allow the headline rate of corporation tax to come down. But while reducing the headline rate of tax is a good thing, if it is achieved only by shifting around reliefs and allowances, in the short term it merely creates winners and losers, and in the long term it is not enough to make the UK a more competitive place for business. We need a commitment to much lower business taxes as well, and the Government’s aim to create the most competitive tax system in the G20 is a good first step. But we must not take our eye off the nimbler fiscal regimes of the emerging economies because they will be the ones wooing inward investment away from our shores.

We have an inordinately complicated tax system which is a drag on the UK’s competitiveness. Our party had a clear commitment to an independent office of tax simplification, building on the excellent work of my noble and learned friend Lord Howe of Aberavon. Can my noble friend say whether the Government will press on with this? Do our Liberal Democrat partners share our aims in relation to tax simplification?

A competitive tax environment has to go beyond business taxation; it must embrace personal taxation too. Top rates of taxation and national insurance of 52 per cent have no part in a competitive tax system. I hope that my noble friend will confirm that the Government understand that our personal tax system can be as important as our corporate tax system in terms of encouraging enterprise within the UK and attracting businesses from abroad. I hope he will agree that a tax system is not a fair one for the UK as a whole if it actively discourages business and enterprise.

That brings me to my last point on tax; namely, capital gains tax. My noble friend will be aware that the coalition’s adoption of the Liberal Democrat’s policy on capital gains tax has no popular support in our party or with the business community. I shall do no more today than quote from Arthur Laffer’s article in last week’s Spectator:

“Raising the capital gains tax rate does an inordinate amount of damage to an economy … Raising tax rates on the rich and especially on capital gains is about as bad an idea for the UK as I could imagine”.

I do not expect my noble friend to reveal what will be in the Budget planned for later this month, but I hope he will confirm that our Government will have the competitiveness of the UK at the very heart of that Budget.