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Industrial Development Bill

February 24, 2003

Industrial Development Bill

I never cease to be amazed at the fundamental lack of understanding that government in general has of the essential economic engine of wealth creation. I must confess that in Department of Trade and Industry-speak, I suppose I am a keen proponent of initiative underload, if such a thing exists. It is a pleasure to speak after my hon. Friend the Member for North-West Norfolk (Mr. Bellingham) and the hon. Member for Twickenham (Dr. Cable). There was a lot of sense in much that the hon. Gentleman said. It is also a pleasure to speak after my hon. Friend the Member for Sevenoaks (Mr. Fallon), who presented a tour de force of some of the historical underpinnings involving financial assistance.

It is probably the case that the Government have formerly had some hostility towards the engine of wealth creation to which I have referred. However, it is now recognised that the DTI talks the language, but I suspect that all too often in its actions its ignorance is betrayed.

My background before coming to this place was in business. I know that that is increasingly unusual, even on the Opposition Benches. The Bill recognises the importance, in the Government’s mind, of regional development outside assisted areas, which are tightly drawn on a geographical basis. Therefore, for example, objective 1 funding areas would not be included in this context.

One or two examples include the British Film Commission, whose affairs have been subject to tightening up within the Finance Act 2002. As my hon. Friend the Member for Sevenoaks rightly said, perhaps all too often there is something of a conflict between the DTI and the Treasury in the operation of much of this type of legislation. Although the film business is primarily based within my constituency, there is a fundamental question to ask: is it really the business of government to interfere in any way in these matters?

As has been mentioned already, the increase in the total budget is more than threefold, from a figure of £1.9 billion rising to £3.7 billion. Thereon, we have the option of four additional tranches of £600 million apiece, up to a total of £6,100 million. As my hon. Friend the Member for North-West Norfolk pointed out, there has to be a large question mark over such expenditure. Where is the accountability for that vast envisaged expenditure?

The tradition of financial assistance has been referred to by my hon. Friend the Member for Sevenoaks. I shall look back even further in history to the chambers of commerce that existed. It all began with the London chamber of commerce in my constituency as long ago as 1882. It was led by my predecessor, Sir Robert Fowler, who lobbied for foreign policy to be geared primarily towards business and the global expansion of trade. That is an important lesson today. There is an understandable fear of parochialism rather than an appreciation of global trade in much of what is put forward regarding the financing and the assistance that is proposed in the Bill.

One only has to look at parochialism within the European Union, for example. It is often said that 57 per cent. of our trade is with the EU, which means by definition that 43 per cent. is outside that area. Very often that trade is with some of the fastest growing global nations. Some of those nations will be the key global trading partners of future decades. We should always remember that.

In my view, there are too many smaller pots of locally oriented government cash assistance, and much of this lacks focus.

Prior to entering this place, I was a local councillor in the Royal Borough of Kensington and Chelsea. In that role, I was the director of a local business centre. There was little doubt, as the hon. Member for Twickenham pointed out, that much good work was done in that micro-context of Government funding, but it was not clear how many businesses funded in that way remained in business over a period of time. Notwithstanding the weekly, monthly and quarterly statistics that were published, one had to ask whether a number of those businesses would have thrived without such aid. I hope that we will be able to examine the issue of accountability, and that the Minister will take on board the concerns that consideration by a Standing Committee on Statutory Instruments on a variable basis will not provide the sort of accountability that we need to ensure that moneys are not wasted.
There is little doubt that the concept of regional aid in this country is based on the historical wealth and political power of London and the south-east, as the hon. Member for Luton, North (Mr. Hopkins) noted. That is partly due to the climatic advantages of the south-east, compared to the far north of Scotland. Since the industrial revolution, political and economic strength has tended to be based in London and the south-east. The political implications of the north-south divide have enabled the Government at times to play to the gallery. They were happy to play to the gallery while in opposition, but now that they are in government, with such a large majority, their marginal seats are no longer in the Lancashire mill towns, but in the southern England new towns, and it is less easy for them to play the deprived northern card.

I am concerned that all the proposals for new layers of government, whether through expanded regional development agencies or more formal regional autonomy, will not be the answer. We wait to see what will happen, and whether we are to have referendums. That may be successful in the north-east of England, but one of the grave concerns is that it will lead to ever more demand for power in the hands of RDAs and for further financial assistance arising from the Bill and through various other means. [Interruption.] The hon. Member for East Carmarthen and Dinefwr (Adam Price) suggests from a sedentary position that the City of London may qualify. It may qualify all too soon for regional development assistance, but that is another matter.

In recent speeches, the Deputy Prime Minister has espoused the cause of sustainable communities. That seems to me to be a superficial absurdity. After decades of Government interference, as my hon. Friend the Member for Sevenoaks rightly said, why will more initiatives now lead to the nirvana of no regional divide in the future? The Deputy Prime Minister’s view is that we must tackle the fundamental problem of high demand in the south and the collapse of housing demand in some of our most deprived communities. One is tempted to point out that if central Government relocated to the north, we might see some progress, [Hon. Members: "Hear, hear"] but until that occurs, it is merely words. I am glad to hear that my fan club from Wales and Scotland is present.

Under DTI policy as a whole, regulation is slowly but surely and perceptibly drowning business. Many of the regulations may seem superficially designed to protect consumers and employers, but the risk is that the regulations will be subject to the law of unintended consequences. There have been huge additional costs, which make business uneconomic and kill innovation, creativity and originality. If small businesses are to thrive, innovation must be encouraged, not discouraged. I fear that all too often, aid will have the opposite result to that which was intended.

Regulation of all types leads to a lowest common denominator mentality, which in a global marketplace is potentially fatal. Hon. Members will understand that during the recent constituency week, I would want to escape from my constituency. I escaped briefly to Germany, where I was on a lecture tour. It was very interesting to speak to individuals who were leading lights in political circles or local chambers of commerce in cities in the old East Germany, particularly Leipzig and Schwerin. Notwithstanding the enormous sums that have been pumped into those regions in the 12 years since German reunification, employment opportunities are getting worse, the economy is diminishing, and the young and innovative are voting with their feet by moving from the east to the west, or getting out of Germany all together.

Mr. Hopkins: The hon. Gentleman mentions East Germany. I hoped that he would mention West Germany, which in the post-war era had the strongest and most successful economy, and the most managed economy, in western Europe.

Mr. Field: I am glad that the hon. Gentleman raises that matter. Indeed, I also spent a day in Essen and a day in Bonn. Bonn was, of course, the home town of Konrad Adenauer, whose Finance Minister in the first few years of the history of West Germany was Ludwig Erhard. He realised that one of the reasons why Germany thrived and why the economic miracle of the 1950s occurred was that planning did not work. That was the key insight of Ludwig Erhard and the CDU in Germany during that period.

The economy may have been managed at a macro level, but not at a micro level. I expect that that comes to a number of the points that the hon. Gentleman made. Planning was not the way forward. That was the lesson of West Germany, which has largely been forgotten in dealing with large-scale expansion of that territory following reunification. I fear that it is one of the reasons why that country now has 4.6 million unemployed which, as I am sure the Minister will be happy to confirm, compares unfavourably, even in proportional terms, with the UK.

The Bill is a further, albeit small, example of a trend towards market distortion and political interference by means of political risk. Every business man in the UK, especially in the areas likely to be affected by the money, will have to second-guess before making investment decisions. Stamp duty rises and exemptions, a refusal to end stamp duty on shares as a whole, caps on stakeholder pensions, and windfall taxes on the oil industry and pension funds are all examples of large-scale and high-profile distortions, but the Bill will introduce a range of other distortions and political interference. Trade associations, chambers of commerce and regulators will need to have an eye not just to the market, but to the super-regulator in the form of the Minister and his right hon. Friend the Chancellor of the Exchequer. That will lead to uncertainty, above all, and to ever more form-filling and second-guessing, which will affect business growth and confidence today and have a negative effect on profits tomorrow.