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Economy: Private Capital Investment

Volume 733: debated on Tuesday 20 December 2011


Asked By

To ask Her Majesty’s Government what additional fiscal measures they will take to encourage private capital to invest in manufacturing or tradable services in the United Kingdom.

My Lords, the Autumn Statement announced several measures which encourage private capital investment: an above-the-line research and development tax credit from 2013, ensuring that the relief continues to attract large-scale investment in innovation; 100 per cent capital allowances for six enterprise zones; and a new seed enterprise investment scheme in 2012 to help early-stage companies. The draft Finance Bill also set out further steps in wider corporation tax reform.

I am sure that the Minister will agree that the best way of achieving long-term financial and strategic security for the United Kingdom is to strengthen our international trading position. A significant increase in our manufacturing capability is one of the best ways of achieving this. Can the Minister tell the House whether the Government have any plans to offer increased fiscal incentives to encourage businesses, especially SMEs, to invest in R&D spending? Can he further advise whether any additional fiscal incentives are being considered that will create sufficient confidence in the private sector to boost investment in manufacturing?

My Lords, the first thing to remind the House is that the changes already made in corporation tax and the capital allowance regime will in total, in 2015, contribute an extra £700 million in reduced taxes to the manufacturing sector. For example, £1 billion of R&D relief was claimed in 2009-10, including by 7,400 SMEs. So this Government are indeed taking considerable targeted action to support our manufacturers, including SMEs, whether by way of encouraging R&D or through other aspects of the corporation tax regime.

My Lords, the Question asked what additional facilities the Government have provided. In practice, would the Minister agree that there are no additional facilities outside the deficit reduction plan? Indeed, the measures that he has already mentioned were well taken care of when the OBR reported that growth will be down to 0.7 per cent, which is hardly helping. In the light of the current economic situation, will the Government consider real, additional facilities outside the deficit reduction plan?

My Lords, to be clear, the three measures that I mentioned in my opening Answer were indeed new and additional measures, the costings of which are given in the Autumn Statement.

Does my noble friend expect that the important changes in the relationship with the Royal Bank of Scotland that the Chancellor of the Exchequer announced yesterday might lead to more lending by the Royal Bank of Scotland to small and medium-sized enterprises?

My Lords, that is a very interesting question. The board of RBS has made it clear that it is going to concentrate its business on its corporate and personal banking and therefore, certainly relative to its total business, it will indeed achieve that.

My Lords, the Minister will be aware that the banking industry is not serving this aspect of investment particularly well and that barriers to entry are limiting new banks. Is he therefore observing the growth of peer-to-peer lending and will he give us some assurance that those new lenders entering the market will be appropriately regulated but not to the point of being stifled?

My Lords, we are very interested in anything that keeps credit flowing. However, although my noble friend is very good at reminding us of that issue, we are getting a bit far away from fiscal measures.

My Lords, I am sure that the Minister will agree with the noble Lord, Lord Empey, that, however low interest rates may be and whatever fiscal incentives may be in place, ultimately investment is determined by business confidence. Is he aware that the Institute of Chartered Accountants in England and Wales produces an index of business confidence? In its latest report, it says:

“The Confidence Index has suffered its largest quarterly decline since the survey began”.

The survey began in 2004. Is it not clear that the destruction of business confidence is the main outcome of the Government’s economic policies?

My Lords, the best measure of the expected effects of the fiscal measures that I outlined in my first Answer is what business organisations have had to say. For example, the EEF, the engineering employers organisation, has said that the R&D tax credit,

“will send a powerful signal that government intends to make the UK the number one choice for R&D investment and is another step on the road to making the UK the most competitive tax system in the G20”.

I could give the noble Lord similar quotes from the CBI and others.

My Lords, large companies are sitting on almost unprecedented amounts of cash rather than investing it. Would the Minister consider means of encouraging those companies to invest in smaller companies and nurture them?

My Lords, we are always open to new and imaginative suggestions. Large companies have been talking to us positively about how to develop the supply chain and encourage their smaller suppliers.

As one of those turkeys not voting for Christmas, I ask the Minister to put to bed for ever a comment made to me some years ago. I come from manufacturing, as many of us on these Benches do, but I was told that it was dead and we were going to sustain our future by banking, the service sector and finance. Will the Minister confirm that manufacturing has a future in this country?

Indeed, and I am very happy to say it and say it again. We have a manufacturing sector in the UK that is close in size to that of France. We have exporters that have grown their exports by 15 per cent since the election. Manufacturing and exporting are alive and well in this country.