Why are we so shy of celebrating British achievements? Cameron must learn from Modi

 

The surprise majority achieved by David Cameron’s Conservatives in this week’s General Election will have allayed the worst fears of business owners about an Ed Miliband and SNP government. Like many in business, I was critical of Labour’s anti-enterprise attitude and apparent eagerness to interfere in markets. Moreover, the prospect of higher taxes and spending risked wrecking the economic revival that has been so hard won in the aftermath of the 2008 crash.

Just as in last year’s Indian election, when Narendra Modi and the BJP defied the polls to earn a majority, we have seen a party of business win through against expectations. For Modi, majority government has meant the chance to enact far-reaching reforms that coalition would have made impossible. We can hope that the new Conservative government is similarly liberated to offer its full support to entrepreneurs and businesses, not least by maintaining the competitive corporate tax environment we enjoy in this country, with 20% being one of the lowest in the world.

Yet this election marks not the end, but the beginning, of the battle to safeguard and enhance Britain’s commercial culture. For now, the productivity of the UK economy lags behind the bulk of the developed world, owing to a shortfall in investment in research and development, innovation and higher education, areas in which we spend a very modest proportion of GDP by comparison to the United States, the EU and the OECD.

In the next two years, we face a referendum on Europe, something that is causing understandable concern among businesses who rely on the Common Market. I believe that Britain will vote to stay in the European Union, but it will be a drawn-out campaign and creates potentially damaging uncertainty.

With the SNP’s huge presence in parliament the Prime Minister is going to have a challenge in maintaining the unity of the UK and in taking the initiative to promote England’s interests in what is increasingly emerging as a federal united kingdom with the possibility of an English parliament in due course not being unrealistic.

I do believe that if the continued cuts that are going to take place, the Conservative Government is going to have to be realistic. Rather than reducing spending to 36% GDP, they should target a more realistic 40% of GDP, which is achievable.

If they can continue the low inflation, low interest rates, high employment and high growth trajectory, the tax revenues should approach 40% of GDP, thus eliminating the deficit and, of course, borrowing, which has been increasing over the last parliament and needs to be reduced. Our borrowing costs and our debt amounts to 2.5% of our GDP, more than our entire defence budget.

The other, lesser-appreciated, risk resides at Westminster. After the minor miracle of a majority government, you might be forgiven for thinking that the Conservatives will have a reasonably free rein to pursue their legislative programme. Yet, among the roughly 760 members in the House of Lords, only 224 are Conservative peers, against 214 for Labour and over 100 for the Liberal Democrats, an unheralded legacy of five years of coalition government. The challenge of piloting legislation through an Upper House whose composition has changed markedly, is something that should not be underestimated.

If the immediate threat posed by a change of government and a lurch to the left has been averted, that does not mean it will be plain sailing for business in the years ahead. While it is encouraging that the electorate has rejected Ed Miliband’s 1970s rhetoric about business, there is still some way to go in enshrining the importance of wealth creation in the national debate. While the Coalition Government had a good story to tell about the increase in entrepreneurship and business creation under its watch, the subject merited hardly a mention in any of the campaign debates or set-piece occasions. To pay for the public services that politicians are much fonder of debating, you need businesses creating jobs and paying taxes that fund the expenditure. Governments never stop talking about how to spend taxpayer money, but generally say far too little about how it is created in the first place.

A failure to recognise the essential role of business is part of a wider malaise that manifests itself in a sometimes-negative attitude to Britain and its achievements as a nation. Around the world, Britain is respected and admired, a country with less than 1% of the world’s population but which boasts world-class talent in almost every field you could name. The Made in Britain marque still carries real clout on the global stage, something that the government’s GREAT campaign has done much to support, as I was able to witness when speaking at the recent Milan Expo.

Yet domestically there is still a reticence to big up Britain, and the uncertain public relationship with business plays some part in that. We need to celebrate how good Britain can be, and there is a greater role for business in being assertive about its own achievements, and more ambitious too in trading internationally.

While the decisive election result means anti-business rhetoric may go into abeyance for the time being, that does not mean the private sector can afford to take a back seat. Only by ensuring that Britain remains open to the world around us, and celebrates its thriving business culture, can we ensure that the economic progress of the last five years is sustained and furthered as we enter this new Parliament.

Lord Bilimoria’s full article is available here

My Lords, in his first Budget in 2010, the Chancellor said that the Government would,

“have debt falling and a balanced structural budget deficit by the end of this Parliament”.

—[ Official Report , Commons, 22/6/10; col. 168.]

Despite the Chancellor’s tough talk about austerity and cutting public expenditure, the reality is that public expenditure as a percentage of GDP has continued to increase. I thank the noble Viscount, Lord Younger, for leading this debate.

Yesterday, it was announced that the Government will spend £746 billion in 2015-16, rising to £765 billion in 2018-19, compared with £692 billion in 2010. Government spending is increasing and, as a percentage of GDP, our national debt is rising. According to the OBR, it will now peak at 81% of GDP in 2015-16. This means that the Chancellor will completely miss his target to ensure that net debt is falling relative to GDP by 2015-16.

We have a perception of austerity that has simply not been matched by reality. Yesterday, the Chancellor acknowledged that we are at least another four years away from that target. To build on what the noble Lord, Lord Skidelsky, said, if we are borrowing £300 billion more than the Chancellor said he would in 2010, why should anyone believe him this time around? The OBR has predicted that public expenditure is going to have to fall to 35.2% of GDP by 2019-20—the lowest level since the 1930s. Let us remember that the 1930s were pre-welfare state days. Can the Minister confirm that that is really achievable?

In order to achieve those cuts, it is predicted by the OBR that the defence budget, which is already negligently too low, will have to be cut by 60%. Can the Minister confirm that that might have to happen, although it is hoped that it never will. However, I was delighted to hear that the Government will be giving money to veterans, including £2 million for the Gurkhas. I was privileged to have been brought up with the Gurkhas. My late father, Lieutenant-General Bilimoria, was commissioned to the 2nd Battalion, Fifth Gurkha Rifles (Frontier Force), and was president of the Gurkha Brigade when he was commander-in-chief of the Central Indian Army. I was privileged to have been brought up with two Victoria Cross holders from birth—they were living legends. Therefore, I thank the Government for doing that.

However, it is the low level of interest rates for a prolonged period, at the level of 5% that led to the financial crisis from which we suffered. Yet today we are being propped up by interest rates that are 10 times lower—at 0.5%. Government borrowing has been increasing year on year and expenditure on debt interest has contributed to it. It is more than £1.27 trillion and is costing us £1 billion a week—more than the entire defence budget.

Does the Minister agree that interest rates might have to rise? The Governor of the Bank of England made a ridiculous statement that he would start increasing interest rates when unemployment fell below 7%. Unemployment is at 6% now and interest rates have not gone up, but they will go up at some stage, and if they do the debt interest levels will go up. The SNP made the mistake in its budgets with the oil price and its budgets are shot to tatters at the moment. Will the Minister give his views on future interest rates?

Wearing my hat as chancellor of the University of Birmingham I have seen that our higher education sector is one of the jewels in our crown. I am delighted that the Government are about to announce loans for postgraduate studies. On the other hand, we highly underinvest in higher education as a proportion of GDP compared with the OECD, the EU and America. On R&D and innovation, the patent box is all very well—it is stored—but if we invested the same proportion of GDP as countries such as America, the OECD and the EU, we would help our productivity hugely. Our current account deficit has reached 5.2% of GDP, which is worse than Italy and France. Our fiscal deficit of 5% is almost double that of the United States, let alone Germany which has just 0.2%.

As the noble Lord, Lord Adonis, said, skills are so essential. I am proud to be an ambassador for Studio Schools. Last month I opened the Vision Studio School in Mansfield. That is the sort of initiative that I am glad the Government are backing. Tax breaks to apprentices are excellent but, on the other hand, the word “entrepreneurship” was completely missing from the SME Bill. Entrepreneurship should be the cornerstone of our future growth. I launched the 10th anniversary of the Cambridge University Centre for Entrepreneurial Learning this week. That is what we should be backing. The Sirius campaign, backed by UKTI, bringing young entrepreneurs to Britain to develop their businesses, is a great initiative that the Government should be doing.

The Government are doing a lot, but are they doing enough on the big things? We have a tax system that is so complicated that the tax code is now 17,000 pages long. The Office of Tax Simplification is an oxymoron. Our corporation tax rate is low but our income tax rate is too high. Capital gains tax is too high. The Indian restaurant industry which we supply and the Bangladesh Caterers Association UK are constantly complaining about VAT and asking for it to be reduced. Our hospitality and tourism industries say that VAT is far too high. We do not have a competitive tax system.

The noble Lord, Lord Rose, in his excellent speech, spoke about confidence. We need confidence, productivity, and a better educated and more entrepreneurial workforce who think globally. Government expenditure should be at a believable rate: 35% is unachievable; 40% would be a realistic rate. We could then balance our books and have an educated, productive, confident and enterprise-based economy so that, even as 1% of the world’s population—that is all we are—we can continue to punch above our weight.