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.

My Lords, the leading Cambridge historian, Dr Clare Jackson, says that politicians on both sides of the Scottish independence debate could learn from King James VI of Scotland, who also became King James I of England. He dedicated his life to creating a truly united kingdom that would see Scotland, England—including the Principality of Wales—and Ireland share more than just a crown. The main thing is that he engaged in a huge public relations exercise using emotive rhetoric, and he knew how to compromise. He made the first attempt at creating a new flag. Dr Jackson said:

“It shrinks the tendency to assume that everything happening now has never been thought of before”— a point made by the noble Lord, Lord Forsyth. She added:

“Now exactly 300 years after Queen Anne’s death, the 2014 referendum will decide if the settlement she made will last or if Scotland will once again become an independent country sharing a monarch with England, just as it did throughout the Stuart century”.

I thank the noble Lord, Lord Lang, for his excellent speech in leading this debate. We have heard all the arguments so far and we will continue to hear them. We have heard about Alex Salmond and his SNP’s wish list and the serious consequences. As the noble Lord, Lord Robertson, said, Scotland is tiny. It has 8.4% of the population of Britain and contributes 8.1% of the GDP. From the noble Lord, Lord Forsyth, we heard about the famous Scots in every field imaginable, not just today but historically, always doing brilliantly. Scotland has so much that we need and it has so many hidden gems. Wearing my Cobra Beer hat, Heriot-Watt University very kindly gave me an honorary doctorate. The university has the International Centre for Brewing and Distilling, one of the three finest in the world, and it must remain not just Scottish but British.

Alistair Darling clearly pointed out that Mark Carney, the Governor of the Bank of England, had said that,

“the failings of the Eurozone show that to have a successful monetary union you require fiscal and political union”.

I have said that time and time again. Mr Darling said that,

“the Governor’s judgement on currency unions is devastating for Alex Salmond’s currency plans. Why? Because the whole point of independence is to break the fiscal and political union that makes monetary union possible”.

Of course, Scotland has always had its own bank-notes—and long may they keep them.

Let us remind Alex Salmond about 2008. I have just returned from my annual week at the Harvard Business School. In March 2008, Alex Salmond made a speech at Harvard University and spoke about the “arc of prosperity” through Ireland, Iceland and Norway. He referred to,

“the lesson we draw from our neighbours in Ireland—the Celtic Tiger economy”.

He went on:

“With RBS and HBOS—two of the world’s biggest banks—Scotland has global leaders today, tomorrow and for the long-term”.

We are discovering the strength of that Scottish financial sector—but look at what London has done.

Let us keep this in perspective. In a currency union, Scotland has 10% of GDP and Britain has 90%. If it ever breaks up, we know who will call the shots. Losing the strength and security of the UK pound would have a profound impact on the Scots. The noble and learned Lord, Lord Wallace, as Advocate-General for Scotland, sent us a letter which clearly stated:

“The UK Government’s position is clear—Scotland benefits from being part of the UK, and the UK benefits from having Scotland within it”.

The letter gave a list of the “Top 20 Benefits of the UK”. He very clearly spelled out the Government’s stance on the matter.

One prediction following the assumption made by the House of Lords Select Committee on Economic Affairs was that it would result in Scotland accruing around 90% of oil revenues. Its report described this as the,

“economic bridge over which Scotland would pass to independence”,

and expected it to make up for all the loss of finances allocated by our Treasury under the Barnett formula. However, as has been said, the impact of prices in the oil market could just throw this, as could the length of time that oil will last. It would be a very unpredictable source of revenue.

Looking ahead, the university sector in Scotland is strong and we are proud of it. The Scottish Government are maintaining free access to higher education for Scots and people from the EU—except for people from England and Wales. In research funding, to this day, 15% of research for Scottish universities comes from UK charities. If Scotland breaks away, that will not last.

The Prime Minister has assured Mr Salmond that the reform of the Barnett formula, which gives Scots £1,364 per head more spending than the UK average, was “not on the horizon”. He did not say that it will never happen but Scotland has the assurance that that is not on the horizon. On 27 November 2013, YouGov published a poll which asked British citizens how they would vote—if they were able to—on whether Scotland should be an independent country. The response, by political party, was: Conservative, 65% no; Labour, 60% no; Liberal Democrat, 62% no; and even UKIP respondents voted 55% no. The response by gender was: males 57% no and females 54% no. It is overwhelming that the people of Britain, let alone the people of Scotland, do not want this.

Let us look back at history. Adam Smith, the great economic theorist and moral philosopher, never saw himself as Scottish. He was north British. Edinburgh, the Athens of the north, was a great centre of learning and at the heart of the Scottish Enlightenment. The wonderful Balmoral Hotel, where I have stayed, was known as the North British Hotel until the 1980s.

I will draw on my experience in India. The partition of India into India and Pakistan was a huge mistake. It did not last. My father fought for the liberation of Bangladesh. The united India of 1947—despite many attempts by parts of India to break away—has stayed united, and it is stronger united. Scotland today has the best of both worlds, being an independent country but being part of the United Kingdom.

Any Government will have many priorities, but the top four are: first, the security of citizens, both external and internal. If Scotland breaks away, we have heard that defence will go for a six. The second and third priorities are health and education, which the Scots have anyway. The fourth is the economy, and Scotland would be far weaker by being outside the UK.

The key issues are not just practical but the emotional. King James played on the emotional to get unity, and the noble Baroness, Lady Goldie, in her excellent maiden speech, said that she was equally proud to be both Scottish and British. My father’s regiment, the 5th Gurkhas shared battle honours with the Cameron and Gordon Highlanders. As a colonel, he made a pilgrimage to Inverness to visit the regiment because it meant so much. These are emotional identities.

In conclusion, my friend Amartya Sen, the Nobel laureate, speaks of identity. We have multiple identities. I am proud to be a Zoroastrian Parsi; I am proud to be an Asian in Britain; I am proud to be Indian; and I am really proud to be British. In the same way, I think that the Scottish are proud to be Scots and proud to be British. David Torrance published a book entitled The Battle for Britain: Scotland and the Independence Referendum. This is not about Scottish independence; this is a battle for Britain and a battle for the United Kingdom, which must stay united.

The noble Lord, Lord MacGregor started with the complexity of the UK tax regime. He spoke about multinationals and the infamous example of Starbucks which, from 2006 to 2011, had UK revenues of $18 billion yet paid UK corporation tax of only $16 million. As the noble Lord said, there is a serious issue of avoidance. The Select Committee on Economic Affairs—I am proud to have been a member of the Finance Bill sub-committee every year—has produced a thorough report, Tackling Corporate Tax Avoidance in a Global Economy: Is a New Approach Needed? The report says right up front that the present system is not working and urgently needs reform. It says that it is confident that the Treasury will bear this in mind as it conducts its proposed review. However, we have heard that the Government have not really listened to the report, and will not be taking much of it into account.

The report highlights that UK corporation tax, having come down to 20%, is the lowest in the G20. The German rate is 29%, France’s is 33% and the United States’s is 40%. This is wonderful news. On the other hand, the report also highlights something which is not understood by the public: a significant feature of the UK’s corporation tax regime is the low rate of allowances for capital spending. Our regime does not encourage investment. In fact, within the OECD and the G20 countries, only one country, Chile, has a less generous allowance than the UK. We must look at this as a whole.

The other major point which has not yet been highlighted in today’s debate is how much corporation tax yields as a percentage of GDP. Again, the report lays this out clearly in a table comparing us with other countries such as France, Germany and the United States. Our UK share of corporation tax receipts has held up pretty well in spite of falling headline rates. As a percentage of GDP, in 2005 corporation tax was 3.2%; today it is 2.7% in spite of rates having fallen. The nub of it all is that, of the contribution by tax to total HMRC receipts, corporation tax stands out in that it is only 8.7%. It is dwarfed by income tax at 32.2%. National insurance contributions constitute 21.8% and VAT constitutes 21.4%. This clearly shows that, yes, everyone is getting upset about corporation tax not being paid by certain companies, but are people talking about all the other taxes that these companies are generating, predominantly through creating employment. Employment generates a far greater proportion of taxes than corporation tax. We are not quite getting the context of and perspective on this. I will come back to that point at the end of my speech.

In fact, 81% of UK corporation tax is paid by the top 1% of companies. Here we are getting upset about 1% of companies; 99%—SMEs have been mentioned—are paying the full rate of corporation tax in many cases. We are losing a sense of perspective. The report says:

“In total, PwC say that Hundred Group members contributed around £8 billion in corporation tax in 2012 and a further £16.8 billion in other taxes borne”.

A multinational company is not taxed as a single entity but as a number of legally distinct, individual companies all over the world. The present tax system around the world encourages multinationals to move their profits around the world. That is the reality. We are trying to stop that. The report recommends ways of stopping it. When I was on the sub-committee for the previous Finance Bill, we focused on the GAAR. As the noble Lord,Lord Hollick, said, when he came up in the business world he was taught the distinction between evasion and avoidance. To a chartered accountant it is very simple: evasion is illegal; avoidance is allowed. Now we are going one step further and saying “abuse” as well. However, it is clear that the GAAR will not catch everything. It is narrowly focused. It will not, for example, catch the Starbucks situation at all. That needs to be communicated. I am glad that the Government have listened and that the GAAR will be communicated to the public.

I am proud to be a fellow of the Institute of Chartered Accountants in England and Wales. The report says:

“The ICAEW offers advice to its members that appears to go well beyond the Code of Conduct. It states, for example, that

‘Although tax avoidance may be legal, whether something is within the law isn’t the only thing that matters. You are under a duty to take into consideration the public interest and at all times to comply with ICAEW’sCode of Ethics … The boundary between legal tax avoidance and illegal tax evasion is not always clear and there’s a danger that what starts out as legal tax avoidance may slip into illegal tax evasion’”.

Who is competent to catch all of this? The noble Lord, Lord Lawson, raised the point of the structure of HMRC, this merged entity. Is it fit to deal with this? What about the relationship between the Treasury and HMRC? A lot of the policy is formed in the Treasury and HMRC is meant to execute it. Can the Treasury make this policy properly?

Then there is the question of reputation. In my business, our most valuable asset is our brand. The threat of naming and shaming companies is serious. We, as companies, are all very concerned about our brands. Much more can be done in this area by naming and shaming companies.

The Government actively promoting the implementation of the G8 proposals on the movement of funds between companies is very good. We need to continue to do this. Again, however, it will not solve everything. A unitary tax system, treating multinational companies as single entities in the global economy, is attractive in theory, as the report says, but is quite frankly utopian. In practice, we cannot even get the EU to agree on corporation tax rates. How on earth are we going to get the whole world to agree on something? We have to realistic and practical about this.

The setting up of a Joint Committee to supervise and oversee this matter is a great idea. The expertise of the House of Lords in this area is far greater than the expertise in the other place. This expertise is used in the Finance Bill sub-committee. If it could be used on a permanent basis, that would be great. Will the Ministerconsider forming such a committee to oversee the issue on a general basis? I think that the confidentiality argument is absolute nonsense, as was said by noble Lords earlier.

I now come to the points made by the noble Lord, Lord Lawson, which I thought were excellent. He hit the nail on the head. He said that corporation tax in the modern world is inequitable between multinationals and SMEs and that, in the way it is structured at the moment, it has had its day. He has summed it up. The noble Lord,Lord Browne, talked about a tax gap of £32 billion and said that the tax gap is going up. I want to refer to a friend of mine, Vindi Banga, who is a former head of Unilever in India and was then on the main board of Unilever here in the UK—companies do not get more multinational than Unilever. He wrote an excellent article earlier this year in the Telegraph, headed, “Tax compliance should be judged by rules and not morals”. This was when the Starbucks issue was at its height, when it was being bashed by politicians—the noble Lord, Lord Hollick, referred to this. The Prime Minister, David Cameron, at the World Economic Forum in Davos, said:

“Companies must wake up and smell the coffee”.

One cannot get more specific than that. Vindi Banga then talked about IP royalties; the way companies move profits around the world, perfectly legally. One

way, of course, is to charge royalties from where the IP is headquartered. Let us say that the IP is headquartered in a country outside the UK; royalties are charged and paid, reducing the tax here in the UK. However, what we overlook is that the UK is also a recipient of royalties and we encourage IP. We encourage the innovation of IP, the generating of IP and the holding of IP. In net receipt terms, the UK receives more royalty income than we pay out. So it will go against us if we stop that in trying to address tax evasion.

The other point that Vindi Banga made—this is my main point—is that our tax system has to be competitive because we, as companies, operate in a really competitive environment. In fact, while evasion is immoral, avoidance, if it is legal, is a duty: companies almost have a duty to try to pay as little tax as possible in order to be as competitive as possible and to survive and compete in the global environment. However, there is something that could and should be done. Could the Government bring in even more regulation for companies to disclose all the tax that they are paying in one simple table? Every company would disclose how much it generates as a result of its operations in terms of PAYE paid, employer national insurance paid, employee national insurance paid, VAT collected as a result of sales, and corporation tax. In my company’s case, there would also be the excise duty generated as a result of the company’s existence. That would put into perspective how much tax a company is generating.

The noble Lord, Lord Leigh of Hurley, made a very valid point about the legislation that exists because our tax code is so complex. In spite of all the efforts of the noble Lord, Lord Lawson, we still have such a complex tax system and legislation is constantly plugging holes. The noble Lord, Lord Leigh, said, very correctly, that it is not fit for purpose and that we must continue to try for a global solution. He spoke very clearly about SMEs, which are paying too much tax, in relative terms, unfairly. As a country, we do not have a competitive tax regime overall. Our corporation tax rate may be one of the lowest, but our capital allowances, on the other hand, are not good enough and our top rate of income tax, at 45%, is still very high. The overall tax burden on the consumer and on companies is actually very high. Do the Government have the guts to address the overall situation?

I conclude by getting to the crux of all this, which is that we should not really be focusing on corporation tax, although we must address that. My dream is for us to have a simpler, fairer tax system that is competitive, attracts investment and promotes spending, saving and growth.

The link to the article can be found here (subscription required.)

The tax gap has been estimated at around £32 billion. Within that tax gap, it is estimated that the annual cost of tax avoidance is around £5 billion and the annual cost of tax evasion about £4 billion. The official definition of tax avoidance is “bending the rules of the tax system to gain a tax advantage that Parliament never intended. … It involves operating within the letter but not the spirit of the law. Tax avoidance is not the same as legitimate tax planning”.

Tomorrow an event will be held by the All-Party Parliamentary Group for Social Science and Policy entitled, “What can policy makers do to reduce tax avoidance by large companies?”. The invitation letter to the event states:

“Tax avoidance by multinational companies such as Google, Starbucks and Amazon has sparked a public outcry. A recent poll commissioned by ActionAid found that 80% of people want the government to take tougher action. In 2012 Amazon paid just £2.4m of UK corporation tax on UK sales of £4.2bn—less than the £2.5m it received in government grants. Thames Water paid no corporation tax and pocketed a £5m credit from the Treasury. Every pound lost through tax avoidance could have been spent on protecting public services—yet last year HM Revenue & Customs wrote off £5bn in tax as uncollectable. It estimates the ‘tax gap’ at £32bn”— as I said—“while many tax experts believe the figure is twice that”.

I thank the noble Lord, Lord MacGregor, and the Economic Affairs Committee, of which I was proud to be a member, and all the officials—Bill Sinton and the team. It was a tremendously constructive and pro-active committee in which to take part.

In his opening speech, the Minister said that the objectives are to improve competitiveness, tackle tax avoidance and help hard-working families. The noble Lord, Lord MacGregor, made the very important point that, for the first time, we as a committee were able to meet in advance of the Finance Bill being published and look at a draft version. I congratulate the Government on allowing us to do this and thus take advantage of this House’s expertise.

There is no question that the intentions of the GAAR—the general anti-abuse rule—are good. However, does the Minister accept that it is too narrowly targeted and focused through the double reasonableness test, and therefore will not catch the Googles, the Amazons and the Starbucks? Do the Government accept, as the noble Lord, Lord MacGregor, said, that they need to communicate very clearly to the press and public that this will not happen, although the intentions are very good, given that people have the expectation that now that the GAAR is there, all this tax avoidance—tax abuse on a large scale—will disappear?

As the noble Lord, Lord MacGregor, said, the important point is that this needs to be tackled on internationally. Are the Government confident that they will be able to do that on an overall basis? Furthermore, I do not think that the public understand clearly where the tax that is generated comes from or the composition of the tax pie. Will the Government confirm that they will publish tax information to enable everyone to understand where the tax they are paying is going so that they understand clearly that corporation tax actually makes up a very small proportion of the tax that is generated in this country? The companies that are being attacked should pay more corporation tax but are they being sufficiently congratulated on the employment they are generating, the taxes generated through that employment, the innovation they are generating and the business they are bringing to this country? Are things being looked at in proportion? However, as the noble Baroness, Lady Kramer, said, there is no question that the GAAR should at the least be a deterrent and send out a signal that tax avoidance which becomes abuse is not acceptable.

The cap on income tax reliefs was not consulted on properly by the Government. It was ill thought through and I agree with the noble Baroness, Lady Wheatcroft, that it risks restricting reliefs for genuine trading and other losses. In fact, she described it as perverse. I request that the Government do a more detailed review to get a better understanding of the effect of the cap because it could hamper business investment. The Government did very well in consulting on the GAAR, but unfortunately I do not think that they consulted adequately on the caps and reliefs. The noble Lord, Lord MacGregor, spoke about simplification and the noble Baroness, Lady Wheatcroft, spoke about Tolley’s Tax Guide getting bigger and bigger. Surely the Minister would agree that the Government should be working towards simplifying tax. Could he confirm that?

President Clinton spoke here in London a few years ago and I remember him clearly saying that, increasingly, we live in a world that is more interconnected and integrated. Now the time has come to work together to tackle this tax abuse on a global scale. Better transparency is the only way that we can deal with it. The noble Lord, Lord Wakeham, as a fellow chartered accountant, summed it up beautifully when he talked about being true and fair. That is what we were brought up to do. Audit reports had to reflect a true and fair view. We have to aim for that.

Once again, I thank the committee, the noble Lord, Lord MacGregor, and the officials. I also thank the Government for consulting and allowing us to meet in advance so that the House of Lords can play a role and use our expertise, even though we have no power whatever over financial matters. Here is an opportunity for us to give our views in advance, and to have them listened to and taken into account by the other place, so that, as the Minister said, we have a tax system that will tackle avoidance, is fair and, most importantly, is competitive, transparent and simple.

It struck me that few cities in the world—the report did not really touch on this—are a political capital, a government capital and a financial business capital. London is one of them: think about Washington, New York, Delhi and Mumbai. We have a huge advantage. But for London to develop I think that autonomy would help. Although Crossrail is going ahead and will make a huge difference to London and the country, we still have the problem of the third runway at Heathrow being delayed and delayed. Our airport infrastructure is creaking. We are losing our competitiveness.

Although tourism brings in well over £100 billion to the economy of Britain and London brings in a huge proportion of that, the most photographed building in the world is the Eiffel Tower. The second most photographed building in the world is our wonderful Houses of Parliament. Why is that? Is it because we do not belong to the Schengen scheme, which would advantage this country so much? Does the Minister agree that we should join the Schengen scheme? That would bring into this country even more tourism, business and investment which would benefit London.

The other aspect that the report did not really touch on was the whole relationship between the City of London and London. Of course, we all know the joke that the lord mayor of London makes the money and the Mayor of London spends the money. We have the richest and most important square mile in the world. Even after the financial crisis, the City of London is still the number one financial centre in the world and we are proud of it. But are the Government really clear about the relationship between the City of London and London? Is that a fair relationship? The report does not address that and I would be very interested in the Minister’s view.

As regards devolution, the future of London and its success is a prize for the whole country. However, in the latest results on productivity, when London was compared with other countries in Europe for example, its productivity was average at £58,000 per worker. Cities such as Paris, Frankfurt and Brussels were higher. Stockholm was number one on the list. Yet London’s productivity is 44% above the UK average. That is a serious issue. We really need to get the productivity of this country up in a big way and London’s productivity could be so much more.

The other point is that cities are the engines of growth for an economy. The noble Lord, Lord Patten, said that we are the most dominant city. In the United States, the Olympic Games did not take place in Washington or New York. Another city was chosen. Here, the Games took place in London and we are very proud of that.

We have not spoken about Europe and the European Union. In my role as the founding chairman of the UK India Business Council, I always see Indian businesses looking on the UK as a gateway into Europe, although in fact they are looking upon London as a gateway to Europe. Again, that would help London in its competitiveness. We must remember that outside London there are other great cities in Britain. Recently, I was in Liverpool where I spoke at the Accelerate Conference. Next year, the International Festival for Business will take place in Liverpool, showcasing the whole of Britain. It is important that in promoting London and giving autonomy—I will come to that later—there is also autonomy for other cities, which will unlock the UK’s economic potential.

The other thing that the report does not really emphasise enough is that we have the best of the best in the world in professional services in London when it comes to lawyers, accountants, insurance and banking. We need to enhance that competitiveness. However, the Financial Times states:

“The Greater London Authority has just one tax—the council tax—from which it receives a precept alongside the other local authorities within its boundaries, while Tokyo raises 16 separate taxes and New York has an array of levies, including property, sales and income taxes. Berlin wields a wage tax, among others, while Frankfurt receives a share of VAT. The drive by London’s authorities for greater leeway on tax is taking place amid a wider devolution movement in Britain”.

City deals are about to take place and incentives will be given to eight large urban centres in Britain. Can the Minister say why those incentives have been given to all those cities? Should they not also be given to London?

I chose London as the headquarters for my business because I think it is the best place in the world to have a global headquarters. I think what the London Finance Commission suggested would without doubt help London and our whole country. More flexibility and more autonomy would unleash London’s potential.

The spending review is about to come along. Are the Government on target, given that, as the noble Lord, Lord Forsyth, said, our borrowings are increasing and will double to £1.5 trillion? We have to bring government expenditure as a proportion of GDP down. Is there a target of 40% of GDP for government spending? Could the Minister confirm that?

With regard to priorities, immigration has reared its head again. I am really worried about this. The gracious Speech mentions dealing with illegal immigration, the bad immigration that harms our country, and yes, we need to deal with that. Unfortunately, though, the signals that are being sent out, reinforced by highlighting immigration in the gracious Speech, are about discouraging and deterring the immigration that we benefit from. The number of Indian students has gone down by more than 40,000. In fact, recently we had a former head of immigration from Australia in the UK, and he said that every day in Australia they pray and thank God for the existence of the UK Border Agency. It has been proven unfit for purpose; that is why it is being dismantled. We are harming our competitiveness. If students do not come here, they go to Australia, Canada and the United States. It is one of our biggest strengths. We need to send out a very clear signal that we want immigration to benefit this country and that we appreciate the good immigration that has benefited it.

On infrastructure and High Speed 2, the noble Lord, Lord Forsyth, hesitated, but in his fantastic speech moving the Motion for an humble Address, the noble Lord, Lord Lang, spoke about High Speed 2 being a good investment in infrastructure from which our grandchildren will benefit. It is high speed being delivered at slow speed. Will the Minister confirm exactly when this project will be completed? It is an example of long-term thinking, which is great. The Minister spoke about Crossrail. I congratulate the Government on Crossrail. It is a fantastic initiative, started by the previous Government, which will benefit our economy, but nobody has spoken about Heathrow and the desperate need to improve our air services. We need that third runway at Heathrow. Why are the Government just postponing it?

What about a balanced economy? There is nothing in the gracious Speech about a balanced economy. When I am asked about my business, I say with pride that first and foremost we are manufacturers. Are the Government keen on promoting manufacturing? What are they going to do about that? We should be maximising our competitive strengths.

The tourism industry brings more than £115 billion to this economy. Expanding Heathrow would help tourism, but the most photographed building in the world is the Eiffel Tower. The second most photographed building in the world is our wonderful Palace of Westminster. The reason it is second is because we are not in the Schengen scheme for visas. There are so many people, particularly from China, who come to Europe, come as far as the channel, but do not come to the UK because a Schengen via for 25 countries is cheaper than a UK and Ireland visa. We should join Schengen. Anyone who has a Schengen visa should be able to come into this country. The reason we do not join Schengen is that we are worried about our border security. I have just spoken about the UK Border Agency. Why are the Government continually postponing imposing exit checks at our borders? They need to be brought in soon. We know who is coming into our country, but we do not know who is leaving. We need to have those exit checks. Will the Minister inform us of when they are going to be introduced?

Another of our competitive strengths is higher education, but there was not one mention of it in the gracious Speech. Earlier this month it was mentioned in this House that the University of Cambridge has achieved more Nobel Prizes than any other university. That is something of which we should be proud. That is in spite of the fact that we spend less as a proportion of GDP on R&D and innovation than the OECD or the European Union. We spend half the proportion of GDP on R&D that South Korea spends. When it comes to higher education funding, overall we spend less as a proportion of GDP than the EU average or the OECD average and way below countries such as the United States. Why is it that the United States always bounces back quickly? Why is it so competitive? Why is it so productive? Why it is so innovative? It is because it invests more than we do as a proportion of GDP in innovation and higher education. Why do the Government not do more of this?

Will the Minister confirm that we are going to be promoting clusters? There are three big clusters in the world: Silicon Valley, Boston-Cambridge in Massachusetts and Cambridge in the UK. We need to promote more clusters. Birmingham, for example, is a prime location for a manufacturing cluster. Will the Government promote clusters more proactively?

The noble Lord, Lord McFall, spoke about the financial sector. I remember speaking in the debates about Northern Rock. That was six years ago. The nationalisation of Northern Rock was rushed through in six months. It has taken us six years to get to reforming our banking system. That is scary. I am very hopeful, and I congratulate the Government on appointing Mark Carney, a Canadian, to come in and head our Bank of England. Can the Government confirm that, apart from inflation targeting, they will now encourage the Bank of England to also have nominal GDP growth targeting as well? On SMEs, which other noble Lords have spoken about, I keep hearing that they cannot raise finance. In fact, I have heard that the enterprise finance guarantee scheme loans are falling. Can the Minister confirm that? They should be increasing at times like this, when businesses desperately need finance.

On a positive note, I am delighted with the efforts that the Government are putting in through UK Trade and Investment to promote British businesses doing business abroad. I am delighted to hear that the UK India Business Council, which is funded by UK Trade and Investment and of which I am the founding chair, is now to be opening up within India. The British high commission in India has opened up two new deputy high commissions in Hyderabad and Chandigarh and will increase the number of people on the ground helping to promote British business in India. This is fantastic. As the noble Lord, Lord Forsyth, concluded, we must promote and encourage our businesses not just in doing business with Europe, but in doing business with the emerging markets such as India-the BRIC nations.

The Government are doing a fantastic job through their marketing campaign, “Great Britain“. The “Great Britain” campaign tries to promote Britain with confidence aboard. I suggest that we need a “Great Britain” campaign to promote Britain within Britain. We do not appreciate enough the amazing strengths that we have as a country. We have the best of the best in the world in just about every field you could imagine, whether it is the creative industries or the legal and accounting professions, and manufacturing including beer, automobiles and aerospace, as well as sport, film and theatre. Our universities are, along with America’s, the best in the world. London is the greatest of the world’s great cities. I could go on.

We may be bumping along the bottom as an economy, but we should never take for granted the amazing strengths that I wish the Government would get behind-strengths which we should spread with confidence throughout our country. Then we will be able to generate growth with confidence.