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The Earl of Lindsay: My Lords, the noble Lord is quite right to say that the use of CS sprays should be treated, and undertaken, with care. That is why we have operational trials starting in March in England and Wales, and that is why we are not pre-empting the results of those trials. Decisions will be made after the trials have been analysed. As the noble Lord pointed out, protective vests cost around £350.

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The deployment of police resources and the deployment of the budget is a matter for the police authorities and the chief constables. We in the Scottish Office would not seek to dictate to them how they should deploy those resources. However, I can tell the noble Lord that police resources will increase by 7.7 per cent. in this coming financial year as compared with the current financial year. Since 1979 expenditure on the police has risen by 57.3 per cent. in real terms.

We are committed to law and order in Scotland and we are determined to see more police officers on the beat. We have a commitment over the next three years to put an extra 500 police officers on the beat in Scotland.

Lord Orr-Ewing: My Lords, can my noble friend give the previous occasion when we really considered using water sprays as a cheap and effective way of discouraging violence? That would be particularly effective in the current cold weather.

The Earl of Lindsay: My Lords, I cannot tell my noble friend exactly when that matter was previously considered. However, we are especially anxious that the police authorities and chief constables have as much discretion at their disposal as possible to respond to the need as they think best.

Lord Merlyn-Rees: My Lords, is the Minister aware that I agree with him that the use of CS sprays, body armour and other such materials is a serious matter? I seek knowledge on it all the time. Is the Minister saying that this is only an operational matter and that it is not something for the Secretary of State for Scotland?

The Earl of Lindsay: My Lords, it is up to the chief constables and the police authorities, who best understand the challenge with which they have to cope in their areas, to consider what resources to deploy and what equipment to supply to their police officers. Our job is to make sure that they have the necessary financial resources with which to meet that challenge. As I have said, since 1979 financial resources for the police have risen by 57.3 per cent. in real terms. We now have 15 per cent. more police officers on the streets. We have a commitment to increase that number yet further in coming years. Protective clothing poses special practical problems. To have a protective vest, which is both knife resistant and bullet resistant and light and flexible enough to wear for any length of time while on operational duty, demands a material which has not yet been properly developed

Shellfish Transportation

3.12 p.m.

Lord Palmer asked Her Majesty's Government:

    Whether they intend to revoke the Welfare of Animals during Transport Order 1994 (S.I. 1994 No. 3249) in respect of shellfish.

Lord Lucas: No, my Lords. We plan in the course of 1996 to remake the Welfare of Animals during Transport Order 1994. We expect that the new order

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will continue the present requirements that shellfish should be transported appropriately and with basic documentation.

Lord Palmer: My Lords, I thank the noble Lord for that Answer. Could he perhaps confirm whether, unlike other animals, shellfish do not have to travel with a passport?

Lord Lucas: My Lords, the noble Lord is perfectly correct.

Lord Campbell of Croy: My Lords, as it is advisable that most shellfish be alive at the point of retail sale, as Molly Malone clearly knew with her cockles and mussels, does my noble friend agree that it is in the interests of fishermen and fish merchants to handle and treat shellfish with care but that those who initiated this interpretation would have difficulty in making a commercial business of running a store for selling whelks?

Lord Lucas: My Lords, on my noble friend's first question, the answer is indeed yes. That is why we have experienced no trouble at all with these regulations since they were first brought in, in 1977. I think in this case, as in many others, the aspersions which my noble friend casts upon the European Union and the Commission are entirely inappropriate. This is a sensible regulation sensibly interpreted.

Lord Carter: My Lords, while it is extremely reassuring that the Government intend that oysters, mussels and other molluscs can travel around the European Union in the style to which they are accustomed, will the Minister assure the House that the Government will use their best endeavours to ensure that this order is interpreted with the maximum of common sense, and that each species, be it large or small, is treated in a way which is appropriate to that species? Although my next question is a little wide of the Question on the Order Paper, will the Minister comment on the problems affecting the transport of day-old chicks, for example?

Lord Lucas: My Lords, as regards the first part of the noble Lord's question, I entirely agree that that is exactly what the directive says. But the connection between oysters and day-old chicks escapes me!

Lord Strabolgi: My Lords, is the noble Lord aware that the British oyster--our oysters--have been considered the best since the time of the Romans? Is he further aware that during the past century they were plentiful and reasonably priced, unlike now, although in France they are still plentiful and much more reasonably priced than ours, and many millions are eaten every year and they are available in every brasserie? What, therefore, are the Government doing to encourage our own oyster industry to expand to what it was 100 years ago?

Lord Lucas: My Lords, I think this is entirely a matter for commercial oyster growers. As the noble Lord says, British oysters have an excellent reputation

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and they are well appreciated on the Continent and in this country. We in this country eat many fewer oysters than we used to. That may be a matter of national taste; I do not believe it is the fault of the fishermen or the Government.

Lord Walpole: My Lords, is the Minister also aware that under the same order a goat is a sheep--a concept that I feel the right reverend Prelate may have a problem in accepting?

Lord Lucas: My Lords, I suppose the question also arises under the order of whether shellfish have souls? The right reverend Prelate may have views on that, too.

The Lord Bishop of Chelmsford: My Lords, does the Minister accept that as far as the Church is concerned, sheep are sheep and goats are goats, and that any regulations for the transportation of shellfish will have no effect whatsoever upon the teaching of the eternal verities?

Lord Lucas: My Lords, it is a long time since we heard the Church of England in such firm voice.

The Countess of Mar: My Lords, is the noble Lord aware that this new order is an improvement in that just after the war goats were classified as poultry?

Lord Lucas: My Lords, the noble Countess always knows more than I do.

Business of the House: Debates this Day

The Lord Privy Seal (Viscount Cranborne): My Lords, I beg to move the Motion standing in my name on the Order Paper.

Moved, That the debate on the Motion in the name of the Viscount of Oxfuird set down for today shall be limited to 3½ hours and that in the name of the Viscount St. Davids to 2½ hours.--(Viscount Cranborne.)

On Question, Motion agreed to.

UK Inward Investment

3.18 p.m.

The Viscount of Oxfuird rose to call attention to the level of inward investment into the United Kingdom in recent years; and to move for Papers.

The noble Viscount said: My Lords, it is a real pleasure for me this afternoon to propose this Motion, particularly when I note the array of talent from all sides of the House speaking today. I was especially pleased that the noble Lord, Lord Borrie, has chosen this occasion on which to make his maiden speech. All noble Lords will have benefited either directly or indirectly from his work over so many years at the Office of Fair Trading. I am sure that we are all looking forward eagerly to the impact that his special knowledge in the commercial field of law will bring to our debate this afternoon.

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Judging from the contributions made from all sides of your Lordships' House when this matter was previously debated on 10th July last year, the need for inward investment into our country is widely accepted. In the 19th century the flow of investment capital from this country was, of course, predominantly outward rather than inward. Times have moved on and now we live in what our American cousins call a "global village". Outward investment from this country is quite rightly matched by inward investment into the country. In the 19th century we were investing outwards in terms of both the moneys and the skills that we could provide, but we were not always thanked for it. I wish to quote from Kipling who said,


    "Take up the White Man's burden--


    And reap his old reward:


    The blame of those ye better,


    The hate of those ye guard."

Our debate this afternoon is about inward, not outward, investment. However, when I look back at some of the points that were made back in the 'seventies before this Government began to place emphasis on the importance of inward investment I shudder to note that the vital importance of this issue was often misunderstood and that investment from overseas was not always welcome. Indeed, some of the far-sighted industrialists from the United States, Japan and Korea who decided to invest their money here were reviled, rather in the same way as pioneering European colonists of the past. That point is worth emphasising.

A number of surveys have indicated that an important factor in encouraging Japanese companies to come to the United Kingdom rather than to locate elsewhere in Europe has been the warmth of the welcome they have received both at official and social levels in the United Kingdom. Our welcoming attitude seems to have worked, because I note that every one of Japan's top 10 consumer electronics firms has chosen the United Kingdom as its manufacturing base in Europe.

The reality is that inward investment into the United Kingdom has helped to develop and modernise our industrial base. It has created new jobs, introduced innovative new products and processes, filled gaps in our established domestic production, increased output overall and brought in valuable management and technological expertise.

If we accept the thesis that inward investment is a good thing and should be encouraged, let us begin to examine the reasons why we in the United Kingdom have, in recent years, seemed to be rather good at attracting it. The United Kingdom is the number one location for Japanese, United States and Korean investment in the European Union. We consistently succeed in attracting one-third of all inward investment into the European Union from outside.

There are a variety of reasons. One factor is, of course, the English language--a point that was well made by the noble Lord, Lord Haskel, in your Lordships' debate on 10th July last year. I understand that my noble friend Lord Geddes will have something to say on that subject this afternoon.

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I contend that that is certainly not the only reason. An overriding reason is that over the past decade the United Kingdom has undergone a remarkable sea change. No longer do we suffer from overtaxation, overregulation, overmanning and uncomprehending and unco-operative trade unions. Overseas investors make commercial decisions to locate their factories here because it makes economic sense for them to do so. The culture of deregulation and competitiveness that we are progressively building in this country is not unnoticed abroad.

I have spent much of my working life promoting the export of British goods overseas--and what a soul-destroying job that was in the 1970s when the United Kingdom was seen to be the "sick man of Europe". Our goods were perceived as overpriced and of indifferent quality. Delivery promises were broken because of strikes, restrictive practices or plain poor management. How different is the picture for our exporters today, many of which are the very overseas firms which have chosen to invest here.

Overseas firms now account for about 40 per cent. of all the United Kingdom's manufactured exports, worth in the region of £45 billion in 1994. In 1995, 35,000 overseas companies in this country won a Queen's Award for Export Achievement. Success breeds on success. It helps to reinforce this country's position as the enterprise centre of Europe.

Let us look at what is being said about us abroad. On 15th October last year the New York Times ran a special feature under the rather journalistic headline:


    "Smitten by Britain, Business rushes in".

It reads:


    "For years, much of Europe derided Britain for creating a low-wage, low-security economy--one far closer to the American model of flexible work forces and intense pressure to drive down costs than to the European tradition of high pay, lavish benefits, strong unions, restrictive work rules, generous social welfare systems and high taxes. Now, however, policy makers in other countries are looking more closely at the British experiment as they grapple with high unemployment and eroding international competitiveness".

The disastrous consequences of signing up to the Maastricht social chapter, now commonly referred to all over the world as the "European employment tax", are beginning to be seen as a cursed millstone dragging down the performance of our European partners and striking deep into the heart and very lifeblood of the competitiveness of Europe.

It is noteworthy that since 1980 the United Kingdom's fixed investment has grown significantly faster than the European Union average; a statistic which is in stark contrast with those of the 1960s and 1970s when our growth rate was much lower than that of our European partners.

Perhaps I may also say a word about the exchange rate. The competitiveness of British firms has, of course, been enhanced by the fall in the value of sterling when we left the exchange rate mechanism. It is important not to forget that that benefit is likely to be relatively short term. In the medium to long term we would expect exchange rate levels to reflect the health of the United

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Kingdom economy, which is stronger today than it has been for many years and has become the envy of most of our partners in Europe.

In the longer term we must look to other factors to enhance our position. Let us look, then, at what additional measures we can take to further improve the position. Speaking on this subject in your Lordships' House on 10th July last year the noble Viscount, Lord Waverley, made a plea for better integration of the various agencies promoting inward investment into the United Kingdom. English Partnerships, the economic regeneration agency for England, which was established last year, has succeeded in creating valuable links between regional and local authorities and the Department of Trade and Industry's Invest in Britain Bureau.

However, we should not overemphasise the importance of those agencies. They will achieve nothing without the availability of attractive locations and potential employees with the right skills and competitive wage rates. Siemens, the German electronics group, which announced a £1,100 million investment last year in Newcastle upon Tyne, has been quite open about the factors which influenced its investment decision. Concerning the national and regional agencies, Siemens laid great stress upon their speed of response and their ability to offer a one-stop service as soon as the company began to show a serious interest in investing here.

There may be a lesson in that for the current political debate about regional government in England. Those in favour take it for granted that a new tier of government will improve the capacity of England's regions to attract foreign investment. In reality, England's past weaknesses in this sphere appear to have been primarily due to poor national promotion and inadequate co-ordination between regional and national agencies. It is far from clear that a new tier of regional politicians, all vying to outdo their neighbours, will improve upon the status quo.

The agencies in Scotland, Wales and Northern Ireland also deserve some mention since they have each proved successful in promoting the potential of the areas they represent. We shall be considering the economy of Wales in some depth later today, so perhaps I may be permitted to dwell for a few moments on my own homeland of Scotland.

Inward investment is a great Scottish success story. The year 1994 to 1995 was a record year for inward investment in Scotland, with 97 projects attracted, involving total planned investment of £1.1 billion and the creation or safeguarding of 12,300 jobs. Late last year Scotland secured the largest inward investment project ever attracted to the United Kingdom when Chunghwa Picture Tubes, of Taiwan, announced that it would create some 3,300 new jobs in Lanarkshire, an unemployment blackspot, by setting up a factory to manufacture cathode ray tubes for televisions and computer terminals.

It is interesting to note the facts about Scotland. Scotland now produces 12 per cent. of Europe's semiconductors, over 50 per cent. of Europe's

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automated banking machines, over 35 per cent. of Europe's personal computers and nearly 60 per cent. of Europe's workstations. Scotland is such an attractive location for inward investment because it has one of Europe's most cost-competitive operating environments, a low rate of corporation tax, excellent communications, and an education system geared to the needs of modern industry. How sad it would be if those achievements were threatened by the proposals that have been made by the Labour and Liberal Democrat Parties to create a tax raising Scottish Parliament. The so-called "tartan tax" would destroy much of what has been achieved and would create a less favourable environment for inward investment into Scotland than any other part of the United Kingdom.

I should like to turn now to the importance that the financial skills of the City of London play in attracting investment into the United Kingdom. I am particularly grateful to my noble friend Lord Sheppard of Didgemere for briefing me on the activities of the London First Centre and the role that it plays in helping to attract foreign companies to establish their European headquarters here. I note that my noble friend Lord Cuckney will speak later in the debate; and I know that we shall hear more from him on the subject.

Of equal importance to professionalism of our City institutions in attracting inward investment is the contribution made by the science community in the United Kingdom.

I refer now to the report of your Lordships' Select Committee on Science and Technology under the able chairmanship of the noble Lord, Lord Walton of Detchant. It was published in late 1994. One of the things that the committee studied was the reason why international companies choose to invest in UK science in a whole range of sectors. It found that the English language, which has now established itself as the international language of science, was a factor, but that of equal importance was the sheer excellence of United Kingdom science coupled with its well-established capacity for innovation. I quote from two Japanese companies. Sharp states:


    "The United Kingdom enjoys a high reputation for the standard of basic research and research training in higher education".
Toshiba states:


    "The most attractive feature of UK science which lends itself to collaborative research with multinational corporations is the strength of the basic, curiosity-orientated research and its associated infrastructure".

Time moves on. However, the message with which I wish to conclude is that the success of the Government in attracting inward investment into this country is real and tangible and has been of benefit to our whole community. Let us therefore build upon the successes of the past by continuing with much more of the same in the future. I beg to move for Papers.

3.34 p.m.

Lord Borrie: My Lords, I am most appreciative to the noble Viscount, Lord Oxfuird, for introducing the Motion. Not only is it one that has attracted so many

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names to speak in the debate, but I felt that it gave me an opportunity to make some comments by way of a maiden speech.

I must, first, declare an interest in that I am a non-executive director of a French owned company and of a largely American owned company, both of them investing in the United Kingdom.

I do not think that it will be too controversial in a maiden speech to say that there is much good in inward investment in terms of job creation, of added competitiveness for our country and sometimes of enhancing regeneration in some of our communities. I hope, too, that it will not be regarded as too controversial to say that sometimes we in the United Kingdom should be watchful and wary of inward investment--wary because it may be transient and footloose; wary because inward investment may mean that decision-making on important matters is taken outside this country; and wary also because it may be that inward investment distracts us from the important need to encourage and promote homegrown or indigenous investment.

During the many years that I was at the Office of Fair Trading, to which the noble Viscount kindly referred, I was less involved with inward investment by way of greenfield sites than by way of acquisition. It was my task to advise successive Secretaries of State for Trade as to whether such acquisitions should be referred for fuller investigation by the Monopolies and Mergers Commission. I can recall a number of instances of acquisitions from outside this country--for example, acquisitions or proposed acquisitions of the Royal Bank of Scotland and the Nestle Company--when I was concerned to examine and advise on whether they would lead to something which would be adverse to the British economy because, among other things, it would lead to decision-making departing from these shores.

I recall the acquisition by Guinness of Distillers in Scotland--not, it is true, an acquisition from abroad, although many Scots seemed so to regard it. But the Office of Fair Trading was concerned to advise on whether that would be adverse to the Scottish economy because important headquarters functions and so on would be taken out of that important part of the United Kingdom. Your Lordships may recall that in order to counter that concern a distinguished Scottish banker was appointed as chairman. There were photographs of the chief executive's wife scurrying around Edinburgh allegedly house- hunting.

It is quite appropriate that the relevant authorities in the United Kingdom should consider whether, as regards acquisitions from outside Scotland or other regions, important functions are being taken away. If that is so, it seems more important still that one should be concerned if important centres of power and decision-making are removed altogether from the United Kingdom, especially, for example, if those industries are of strategic importance or the predator comes from another country whose laws may forbid takeovers in the opposite direction.

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Subsequent to my leaving the Office of Fair Trading in 1992, the late John Smith appointed me to be chairman of the Commission on Social Justice, where I acquired quite a lot of positive feeling towards inward investment. Among other places, we visited Nissan United Kingdom in Sunderland. The commissioners and I were much impressed by working practices there and by the way in which workers at the company were involved in making decisions. We were impressed by the involvement with the local community, for example, through training and education at the local university of Sunderland and with the high proportion of UK-made components which were being used.

Of course, as the noble Viscount said, it is important to recognise that such investment from abroad has had great benefits to industry at large because the management techniques, the practices and the other ideas which are brought spill over, through conferences and discussions, into industry. I am well aware--but, fortunately, so are the inward investors--that, as a newcomer in an area of historically and traditionally strong industrial cultures, there has to be a responsiveness, a careful treading on the waters, in order to ensure that sensitivities are not damaged. However, most of our newcomers who involve themselves in inward investment have taken a great deal of care in such matters and have built bridges into the traditions. They have been careful to ensure good relationships with the local community.

What sours relations, and what many people in the country are worried about, is when the inward investor behaves like a predatory tourist: here one day, gone the next, leaving behind a trail of broken hearts and unfulfilled promises. The House of Commons all-party Select Committee on Trade and Industry mentioned last year in its report that not all inward investors behave in the desirable way that I have described. They do not all use a high proportion of UK components; they are not all as sensitive as we would like them to be. They do not all bring to Britain the higher value activities like research and development.

I am a member of my party's Regional Policy Commission. When we have gone round the country taking evidence in the Midlands, Lancashire and elsewhere, we have been told many times that there must be a stronger insurance that there is a balance between indigenous investment and inward investment. The Select Committee on Trade and Industry was surely right when it said in its report published in March last year:


    "both indigenous development and foreign inward investment have vital roles in regional economic development".

I hope that your Lordships will regard that as at least one useful message which can go out from this debate.

3.43 p.m.

Lord Laing of Dunphail: My Lords, on behalf of the whole House may I congratulate the noble Lord, Lord Borrie, on his maiden speech. The noble Lord has had a varied and distinguished career in law and commerce, and he and I met on many occasions during his period as a successful director of the Office of Fair

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Trading. I know that his wide knowledge and inquiring mind will, like his maiden speech, be much admired in your Lordships' House.

I congratulate the noble Viscount on his introduction to this important debate and thank him for giving us an opportunity to discuss the subject. As a Scot and chairman of a Scottish company--United Biscuits--for about 20 years, I shall largely confine my remarks to Scotland. Those responsible for arranging the remarkable result of inward investment to Scotland are greatly to be congratulated. Nothing that I say should detract from those congratulations. Foreign firms have located in Scotland because of the competitiveness of its workforce, some tax advantages and its excellent communications infrastructure. If, however, the so-called tartan tax is imposed, it will be a deterrent to foreign firms locating there and some Scottish companies would relocate to England.

United Biscuits employs 2,000 people in Scotland. When I was chairman, I made clear to them that, with our factories in England and throughout northern Europe, a factory in Scotland was not essential and if devolution in whatever form led to extra taxes being imposed on our employees or the company we would employ many fewer people there within a relatively short time. Indeed, our major factory in Glasgow would probably be closed.

There are great dangers to Europe if it spends too much time and effort looking inwards. The emerging countries of the Pacific Rim are those which pose the greatest threat to jobs and prosperity in Scotland or any other country in Europe for that matter. Let us not take any action that makes us less competitive. That is exactly what a tartan tax and some aspects of the social chapter would achieve.

I applaud inward investment. It is a sad fact, however, that British companies are not investing sufficiently in the United Kingdom. British companies have a vested interest in keeping Britain great. Looking to the next century, there are real dangers in relying on foreign firms investing here, as the noble Lord, Lord Borrie, said, when we should be making that investment ourselves. Too much money which should be invested in manufacturing industry is paid out in dividends and to accountants and lawyers in takeovers. I have made that point too often in your Lordships' House to labour it. There are other ways of changing inadequate managements, which are just as effective and achievable at much less cost, as has been demonstrated both here and in the United States.

Some 40 per cent. of our manufacturing industry is already controlled from outside this country by people who must surely have less interest in the UK than we have. While inward investment has undoubtedly been a boon, if we look about 25 years ahead and assume-- I repeat assume--that by then we have a common currency with no control over interest rates or the exchange rate and recognise that we are on the periphery of Europe, with the major centres of population well south of Birmingham, we have to acknowledge the danger that foreign owners may well decide to move production away from, say, Scotland and nearer those

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centres of population. In a society which seems to look increasingly to the short term, I hope that that thought is sufficiently relevant to be fed into the equation.

With inflation at its lowest level for 30 years and clearly under control, with the unions operating within the law, with a workforce who have seen the folly of inflationary wage claims and who, when properly trained and led, are as good as, or better than, any in the world, the time has come for us to have the same faith in Britain as our overseas competitors seem to have and greatly to increase our investment in manufacturing industry in our own country.

On a minor point, it would be a considerable help if aid to small companies in Scotland were not restricted to relatively small areas. Inward investment is favoured by special tax arrangements and grants of one kind or another denied to some small Scottish companies. But it is largely to small companies that we must look for increasing employment. When my son's company, Shortbread House, whose business is located in Edinburgh, applied for a grant for a new factory adjacent to the existing building, so doubling the workforce, the only question asked was, "What is your postcode?". I find that rather a narrow view. I hope your Lordships do too.

3.50 p.m.

Lord Wallace of Saltaire: My Lords, I add my congratulations to the noble Lord, Lord Borrie, on his maiden speech. This is only my second speech in the House. I remember with a degree of nervousness the maiden speech I made not so long ago. The noble Lord made a very useful and expert contribution.

I welcome the debate. As the noble Viscount, Lord Oxfuird, remarked, we are in a global economy in which there is increasingly no such thing as a British independent economy. Investment flows in and out; global companies operate. However, there is a question of balance. I wish to add my own note of caution.

There is a question of sovereignty. I have been struck during my short period in the House by the passion which issues of sovereignty arouse when they are directed towards Brussels. I am struck also by what seems to be the complacency with which sectors of British industry become immensely over-dependent on foreign-owned companies. In that way, sovereignty slips away. We may talk with pride about the electronics sector in Scotland, almost all of which is under foreign ownership. I am not sure that that is entirely healthy. Those who talk about the problems of German control of British money may wish to reflect on the number of German companies that now own substantial parts of British industry and indeed of the City. I declare an interest. I spent five years happily engaged in a fellowship at the University of Oxford funded by Deutschebank. I came to know Deutschebank very well and to admire it.

There is, I repeat, a question of balance. It is not enough for the Government to proclaim that inward investment is a substitute for civilian industry policy. We need to spend more time promoting British industry and, as the noble Lord, Lord Laing, pointed out,

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encouraging British firms to invest in Britain. One very sad statistic is not often quoted. British companies invest less in Britain than do their counterparts in other OECD countries. That should give cause for thought.

I am puzzled by those who think that devolution to Scotland, and perhaps in time also to the north of England, will put companies off. I spent time in Germany and in Spain. I note the very successful partnership between the Baden Wurttemberg government, universities and high technology industry in promoting the economy of that region. I note the Catalan government following a similar path. The idea that German companies such as BMW, with its close relationship with the Bavarian government, will be put off from investing in parts of Britain because we also have regional government seems a little odd. Why an independent entity in Scotland, rather than simply a bureau for investing in Scotland, should worry companies already familiar with federal systems both in the United States and in Germany is beyond my understanding.

I wish the Minister who replies to reassure us that the Government, in pushing as hard as they do for inward investment, are not promoting foreign companies sometimes almost at the expense of British companies. Working, as I now do, at the London School of Economics, I am aware of the very odd occasion when a senior Minister intervened to ensure that County Hall, just across the river, was successfully sold to a Japanese company rather than allow the London School of Economics to make a bid. That was a very odd preference for foreign ownership as against a British institution which, I remind the House, won the Queen's Award for exports for the number of foreign students attracted each year from outside the European Union. We are thus an invisible exporter on a very large scale.

I note that Battersea power station is also now in foreign ownership. Nothing much has happened to it since it was bought. I look forward to seeing what happens to the palace at Greenwich. Several foreign institutions are interested in buying it. That also gives me cause for thought, as does the Invest in Britain Bureau pronouncement that this country is so competitive because our labour costs are now cheaper than those of Ireland. Is it an immense source of pride for Britain that we have managed to place ourselves below Spain and Ireland as a low-cost competitor in the European market? Professor George Bain, principal of the London Business School, has written on precisely this point; namely, failure to invest in our own country and willingness to stress that we compete on low labour costs, a good strike record and low taxes. As he said, that is not enough for the long-term prosperity of this country.

My title comes from a small village in Yorkshire, Saltaire. Like the rest of Bradford, when the great surge in the value of the pound came in 1980-81, many branches of foreign-owned companies in Bradford closed. Salt's Mill, once the largest mill in West Yorkshire, finally closed in 1983 when its American owners decided that it was no longer a profitable branch. Companies owned by people in Yorkshire stuck it out.

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I am very happy to say that Salt's Mill now contains Pace Electronics, a small bunch of people I recall meeting in 1983-84. It is now well on its way to becoming one of the largest local employers. Our capacity for survival at a time of rising unemployment depended disproportionately on British-owned companies sticking out those two or three years. I worry about Britain becoming too much a branch economy for Germany, Japan, Korea, Taiwan, Sweden, the United States and others.

As we look ahead and appreciate that low wage costs are a passing benefit and as the Czech Republic, Poland and Hungary open up as effective competitors to the United Kingdom, with their well-trained workforces, we are going to have to do more. The promotion of inward investment is not enough in itself. I should like to hear from the Minister what we are doing to encourage British industry to raise the level of investment in Britain. How far are we sure that inward investment and its encouragement will also be marked by encouragement for British companies? It is clear that the encouragement of inward investment in this highly competitive global market is necessary and desirable. But it is not sufficient in itself.

3.58 p.m.

Lord Haskel: My Lords, this is indeed an important topic, crucial to the economy of the United Kingdom. I am most grateful to the noble Viscount for giving us the opportunity to debate inward investment, so that we can understand it better.

As we have heard, some inward investors are world-class companies, so I welcome their inward investment for the jobs it creates, for the new technology it brings to industry in Britain, for the advanced management and production methods that we learn from such companies, and particularly for the high standards that they set for their local sub-contractors.

However, other inward investors make acquisitions, and we have been told of the problems that can arise from them by my noble friend Lord Borrie. I welcome my noble friend's experience and his remarks today.

I would also welcome any news that the Minister in replying to this debate can give us about encouraging inward investment because, sadly, it seems to be in decline. The Central Statistical Office provides figures only to 1994, but they show that the net annual overseas investment in the UK rose in the 1980s from £3 billion to a peak of £18.5 billion in 1989, but by 1994 this had declined to £6.5 billion.

I say "sadly" because, as the noble Lords, Lord Laing and Lord Wallace, told us, we need all the investment we can get. According to the OECD, we invest less per head than Spain, Portugal and Iceland. We invest £1,600 per person in the UK. In France it is £2,250, in Germany £2,600 and in Japan £3,900. Unless we invest equal amounts per head of the population as our competitors, we have little chance of becoming as competitive as them and becoming the enterprise centre of Europe. It is the unit labour costs that matter, not the hourly labour cost, and investment is crucial in bringing that unit cost down.

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The noble Viscount, Lord Oxfuird, told us about the studies made in relation to encouraging inward investment into Britain. I assume that he was referring to a survey commissioned last year by the Invest in Britain Bureau of 200 manufacturing assembly and research companies which had already invested in the United Kingdom. When we last debated this matter I drew the Minister's attention to two conclusions to be drawn from that survey. The first was the importance of teamwork in attracting inward investment. The noble Viscount spoke of that when he gave us the example of Siemens. The team which attracts inward investment consists of the Invest in Britain Bureau, the development agencies, the local authorities and the local private companies on which the inward investment will depend.

The research showed how crucial was the role of the local authorities and the local development agencies both in attracting the inward investor to their areas and in providing grants and facilities. Many of them are Labour authorities, particularly in Scotland; and the research showed that the Government's attitude towards Labour-controlled local authorities had cast doubts in the minds of some inward investors.

I urge the Minister to encourage his colleagues to be generous in their praise of local authorities in attracting inward investment. In that way inward investors will not be discouraged by the thought of perhaps more Labour-controlled local authorities after the May elections and even the possibility of a Labour Government after a general election. The Government rightly welcome the good sense of overseas companies investing in Britain. But they try too hard to make political capital out of it for the Government alone.

I remind noble Lords that in the survey of 200 firms, 126 mentioned the need to be in the European Union as part of their world strategy, 32 mentioned the English language and only 12 mentioned labour costs. The conclusion to be drawn from that is that the Government's employment policies are irrelevant. They are not as important as the noble Viscount said. What is relevant are the management skills and practices of the inward investors and their long-term intentions. What is crucial is that the Government sort out their policy towards the European Union. I have no doubt that the division in the Government in relation to their attitude to Europe is one reason why inward investment is not even greater.

My final point concerns the need to disaggregate the inward investment figures so that we can understand them better. The noble Lord, Lord Wallace, referred to the problems of investment for the purchasing of assets. There is a difference between inward investment which creates a modern new car factory on a greenfield site and inward investment which buys up the shares in a factory already in existence, which is then closed down. The Minister will remember that that happened when Du Pont bought ICI's fibre business, as well as with the woollen companies in Yorkshire about which the noble Lord, Lord Wallace, told us. There must be a difference between inward investment which brings a new factory with new technology and high standards and inward investment which buys an asset like County Hall.

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I urged the Minister to disaggregate those figures when he first stood at the Dispatch Box in his present job last July. My enthusiasm was reinforced recently by an article in the current Harvard Business Review by Paul Krugman entitled "A Country is not a Company". I do not know whether the Minister had an opportunity of reading that article before switching on Coronation Street, but its main theme was that it does not follow that someone who has made a personal fortune and successfully run a business will also know how to make a nation more prosperous.

Mr. Krugman explained that point by the fact that business people and economists look at the same set of circumstances differently. One example he gave was inward investment. He said that US business people will welcome as an inward investor the overseas company that buys the Rockefeller Center. However, an economist working for the Government should look upon that purchase as a way of financing the US trade deficit with Japan. The purchase of the Rockefeller Center is a way of paying for the consumption of Japanese cameras and cars imported into the United States.

As businessmen, many noble Lords are absolutely right to welcome inward investment. I welcome it too, but perhaps not as blindly as the noble Viscount. I have tried to learn from Mr. Krugman's article and to take a more balanced view. That is not running down Britain; it is understanding inward investment better and being realistic.

4.7 p.m.

Lord Wade of Chorlton: My Lords, I too thank my noble friend and congratulate him on introducing this subject. It gives us an opportunity, on the one hand, to congratulate the Government on the tremendous amount of work that they have done--the travels that they have undertaken and the teams that they have led around the world--to encourage people to come and invest in Britain. It also gives me an opportunity to tell your Lordships a little about the North West and to emphasise a point which many noble Lords will have heard me mention before--that the most important thing that this country, or any business, can do is to ensure that investment increases.

As many noble Lords have said, it is not only important to bring in investment from elsewhere, but also to ensure that we use everything we have got to encourage investment at home. It is only through investment that we can stimulate jobs and acquire sufficient wealth to provide those things that we want to provide.

I must declare an interest. I am a director of INWARD Ltd., which is our North West inward investment organisation charged with the responsibility from government by the IBB to draw in and attract as much investment as possible. We have an income of approximately £2 million a year of which £1.6 million comes from the IBB and the rest is raised locally from major companies in the North West and local authorities.

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I wish to tell your Lordships a little about our successes and our constraints, because possibly the constraints apply to inward investment throughout the UK in general. Our successes have been considerable over the 10 years of our life. We have brought in approximately £0.5 billion of up-front investment which, from the follow-on investment that that generated from successful companies, has now run into around £2 billion and provided initial employment for 40,000 people, which has increased substantially over the years. Most of the companies from the time of that initial investment have grown considerably.

As a result of inward investment we have stimulated an awful lot of investment and technology--which is the keynote of that activity--throughout the North West. We have gained a lot of extra jobs and developed more local businesses. Out of major investments from abroad have come many supplying companies in the region who have been encouraged to invest also, which in turn has stimulated a general level of activity in the area. I hope that that will continue.

Things have changed slightly in recent years as a result of government policy. We are not now in competition with other regions in the way that we used to be because the IBB makes the decisions on where major inward investments will go. Whereas at one time we in the North West felt that we could compete positively with other regions of England--I refer to England at this stage--by offering better sites and opportunities and going out of our way to market the region, that is now less easy to do because of the way the IBB takes all of the initiatives. However, we are still very competitive with Scotland, Wales and Ireland, which has taken very positive views on inward investment.

One of the constraints I see in the system is that there is no regular basis on which financial support is offered to incoming companies. A major investment took place at the end of 1994 into the Chester region. It was a bank from Newark in America. It was offered different amounts of money from Ireland, from Scotland, from England and from Wales. By looking at that with the Treasury we could identify that the British taxpayer was competing against himself in the different regions to which the company might have been attracted to go because the Government were prepared to do more in one region than in another. We were actually becoming our own competitors and building up a price which it was probably unnecessary to do in the first place. Undoubtedly, that company would have benefited from an investment into it by the UK taxpayer when it would have come here for a lot less. That is a constraint on the system which the Government should look at.

The other area where we find serious constraints is the availability of the right, properly serviced, sites which are needed to attract major investors. It was interesting to hear noble Lords compare those people who want to buy a business with those who want to invest in creating a new business with new employees, new technology and new buildings. The one who wants to invest in a business will invariably go into an area where there is already activity and where businesses are

31 Jan 1996 : Column 1468

already operating. Those who want to invest in new businesses and want to make major investments for a long-term future want green field sites. When one examines the major investments that have been made into Britain the companies concerned have been attracted by the green field sites that were on offer.

My noble friend mentioned the investment that had recently taken place in the North East of England. The company concerned was attracted by the special green field site on which it was able to build. In the North West we are finding it more and more difficult to find those sites. There needs to be a positive view from the Government, from the local authorities, and from what is now the greater Manchester area, and the Merseyside area to provide the sites that will attract investors who will take a long-term view.

A positive message has come out of inward investment. It has brought a great many opportunities to Britain that would not have been there before. But we need to appreciate what the customer wants. Whereas when we talk about businesses we emphasise the importance of the customer, we sometimes try to push investors where they do not necessarily want to go. One of our major companies in the North West wishes to expand very considerably. We are talking of 1,000 employees or more. It makes sense for that company to expand on the side of its existing site, where it has the skills and the opportunities. It is not in a development area. It is not in an area to which any support is likely to be given. Therefore, it is finding it very difficult to put forward a case which would enable it to get support. Yet an incoming company from, say, Taiwan could go to a site where we might want it to go, or where society felt it was more appropriate to invest, and it would get a great deal of support. It would be encouraged and the British taxpayer would be asked to foot yet another bill. That issue needs to be looked at more closely.

If we really want to encourage as much reinvestment from our own economy as we do to encourage that from outside, we have to make sure that we do not control things to such an extent that we act against our own investment and encourage someone else to come in who might not take a long-term view.

I conclude by congratulating the noble Lord, Lord Borrie, on his maiden speech, which was a splendid contribution to the debate.

4.15 p.m.

Lord St. John of Bletso: My Lords, even though the noble Lord, Lord Borrie, has just moved on, I join in congratulating him on his most interesting maiden speech, coming, as he does, with all his expertise and experience, from the Office of Fair Trading. I should like also to thank the noble Viscount, Lord Oxfuird, for introducing today's debate.

In speaking in this debate, I ought to declare an interest as a financial consultant to Merrill Lynch, with particular responsibility for promoting United Kingdom stocks and shares to the Japanese market. Only yesterday I was asked to present to a leading Japanese bank the reasons for my bullish stance on why it should invest more into our market.

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The noble Viscount, Lord Oxfuird, has already given a number of reasons why the United Kingdom has attracted the largest single share of inward investment into the European Union. While this debate focuses on the level of inward investment into the United Kingdom, rather than get bogged down by the myriad of comparative facts and figures, region by region, I would prefer to focus my remarks on why the United Kingdom is such an attractive market for inward investment, particularly for the Japanese, but also on what needs to be achieved to make the market even more attractive.

The main factors that have been mentioned for the attractiveness of the UK for inward investors have been our comparatively low labour costs, the comparatively low and simple corporate tax system, the relatively low levels of industrial disputes as well as the attractive financial incentives that have been given in certain regions. However, just as important is the fact that, for many international companies investing into the UK, it is an ideal entree into the European Union. The noble Viscount, Lord Oxfuird, has already mentioned--and the noble Lord, Lord Geddes, will be mentioning it later on--the importance of English as a business language. Another positive point, particularly to the Japanese, is our comparatively stable currency and our low levels of inflation and interest rates. As well as low labour costs, there are also low levels of severance costs compared with many of our European partners.

One statistic that particularly impressed one of my Japanese investors was that last year marked the lowest number of days lost due to industrial disputes since the 1890s, unlike France which was almost paralysed by strikes last year. The fact that unit labour costs in Britain are so much lower than in Germany and that British manufacturers can produce car components of equal quality for around 60 per cent. of the cost in Germany is also noteworthy.

The influx of Japanese manufacturers has not just created much needed jobs, but has also created greater awareness of the need for world class standards of quality, efficiency and productivity in the global market place. In many cases that has resulted in the transformation of working practices in the United Kingdom.

On the point of quality of product and quality of services, it is worth mentioning that so far in Britain almost 50,000 companies have received certification through ISO 9000 quality management systems and there is an annual 10 to 15 per cent. increase in the take-up of this certification. I was interested to hear the remarks of the noble Lord, Lord Wallace, when he spoke not just about the importance of inward investment, but called for investment by British companies into their own companies here and asked what measures Her Majesty's Government will give to such companies to invest more here.

Only last week I was involved in the presentation ceremony to the Swindon Chamber of Commerce on achieving recognition to the ISO 9000 quality management systems. ISO 9000 is one of the most internationally recognised documented quality systems and has been the basis of an introduction of a culture of greater efficiency to many companies.

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As my home is in Wales, I should have liked also to have spoken this afternoon to the debate, to be introduced by the noble Viscount, Lord St. Davids, on the economy in Wales and the reasons why Wales has been so successful in attracting inward international investors. International employers have commended their Welsh workforce for being flexible and stable with few industrial disputes. In fact, a survey of Japanese managers found that they liked the general working environment, the opportunities for career development--as well, of course, the sporting facilities--and the warm welcome that they were given by their Welsh friends, a point that has already been made by the noble Viscount.

However, as in many parts of Britain, with foreign-owned companies becoming more technologically advanced, there has been an ever-increasing need to upgrade the skills of the workforce. This need for improved skills training remains as urgent as ever. The perception remains widespread that the United Kingdom's skills levels are low and that it will take much more than marketing and inter-agency co-ordination to put that right. Apart from the attractions of low labour costs, low levels of industrial disputes and attractive financial incentives in some regions, there is the added requirement of a good infrastructure, transport links, green field sites and healthy living conditions.

Perhaps I may mention very briefly the financial services industry, particularly as regards the Japanese. London remains the undisputed headquarters of the Japanese banks and other financial institutions in Britain, with almost 700 Japanese firms here. London, with its many sushi and karaoke bars, Japanese newspapers, schools and other services--not to mention the many golf courses scattered around London--offers an extremely attractive location for Japanese investors.

I would have liked to have spoken more on the role of the City in attracting foreign investment, but time precludes me today from doing so. This subject was examined in an article in the Financial Times on 2nd October last year and has been extensively covered in the most interesting report that I read in September by London Economics, The City and Inward Investment: Revitalising the UK Economy.

In conclusion, it is clear that inward investment is not just a matter of the creation of new jobs, but it is also the addition of new technology, new products and, most importantly, new management. I wholeheartedly support the Government's business links programme initiative, despite its initial teething problems, in offering a one-stop shop for investment inquiries both for domestic and international businesses, of what government services are offered to them. I would also like to commend the work of the Invest in Britain Bureau established by the DTI for promotional investment in the UK as a whole.

As we know, there are a number of excellent agencies promoting inward investment. The noble Lord, Lord Wade, and the noble Viscount, Lord Oxfuird, have already mentioned English Partnership, which has been providing valuable links between regional and local

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agencies promoting inward investment. The improvement in co-ordination between national and regional agencies has clearly helped to improve inward investment. I shall be interested to hear from the Minister what additional plans the Government will be providing, particularly in the field of training, to promote the quest for more inward investment here in the years to come.

4.25 p.m.

Lord Cuckney: My Lords, I wish to make particular reference to the financial services area. Although I have had past involvement in banking, merchant banking and insurance, I have no current connections which call for a declaration of interest.

The growth of inward investment in the financial services area has been impressive. The number of foreign banks in London has increased sevenfold in the past 10 years and there has been a significant increase in the number of overseas companies, American, Japanese, EU and non-EU, which have chosen London as their European headquarters.

There is a tendency to consider inward investment too much in terms of the manufacturing industries. OECD figures show that nearly one half of inward investment into the UK is in the services sector, one-fifth of that in finance, insurance and business services. The growth in the importance of the City is well illustrated by the latest figures from a Bank of England survey showing that average daily foreign exchange dealings in London total 464 million US dollars a day, nearly 60 per cent. higher than in 1992 and far exceeding the turnover of New York at 244 million dollars and Tokyo at 161 million dollars. The UK still attracts the largest amount of inward investment in the European Union. Although overall investment in the European Union as a whole has declined, the largest amount of it comes to the UK. I do not believe that the Government's present European strategy is exactly putting investors off.

The attraction of the financial services sector and especially the City of London lies with the increasing globalisation of markets and in the professional skills and services which exist in the City. I personally welcome the open door policy of the Treasury and the Bank of England encouraging the growth of remote trading based in the City. For instance, the City has now become the world capital of the Eurobond market, the largest non-governmental bond market in the world. This exploits to the UK's benefit, with valuable invisible earnings, the critical mass of skills and services which are absolutely essential for an international financial centre.

It is worth recalling the definition of the International Monetary Fund of foreign direct investment, which is inward investment, as,


    "investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor's purpose being to have an effective voice in the management of the enterprise".

I welcome the presence of foreign members on both the City's supervisory bodies and on bodies promoting the City. These policies, particularly the open door policy,

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led in 1994 to a 30 per cent. increase to £20.4 billion in the City's contribution to our invisible earnings. Without such policies, I do not believe that London would have been able to establish itself, as it has done, as an international financial centre.

It is important that we recognise the steadily improving effectiveness of our regulatory and supervisory systems. That will further help the international respect for, and the attractiveness and competitiveness of, the City as an international financial centre.

The Treasury and Civil Service Select Committee of another place in its sixth report on The Regulation of Financial Services in the UK, published last October, makes two, among other, important points:


    "Failures in the regulation and supervision of that industry do not simply have financial consequences for the individuals concerned; they can also threaten the balance of payments, the stability of the currency and the prosperity of the national economy as a whole, to the extent that they threaten confidence in that industry".

Secondly, the committee noted that the regulators, in evidence to the Committee, pointed out that it is no longer strictly correct to talk about a self-regulatory regime as that description now fails to recognise the independence of the regulators and the statutory basis of their authority.

It is necessary, when considering the environment which encourages inward investment--low inflation, low taxation, low interest rates, good industrial relations--to bear in mind also the great importance of a supervisory and regulatory regime which must somehow strike a balance between being effective and clearly understood but not excessively bureaucratic and onerous. I believe that that balance, with some refinements, has now been struck, and I hope that my noble friend the Minister will feel able to endorse the point. There is incidentally a timely article in today's Financial Times warning against success in business depending more often on satisfying officials rather than the customer and warning against regulatory creep.

4.32 p.m.

Lord Desai: My Lords, first, I owe an apology to the noble Viscount, Lord Oxfuird, for not being here when he opened the debate. I hope that he received the apology I sent him. I missed the speech of my noble friend Lord Borrie, but the speeches I have heard have persuaded me of how much in this House we hear distinctive speeches from Members who know the different aspects of the problem. We do not just repeat or engage in party disputes. I was especially impressed by the speech of the noble Lord, Lord Cuckney. It is the first time I have heard him speak, and I learnt a great deal from him.

Noble Lords have spoken on different aspects of the subject, but I want to emphasise, first, that one must welcome inward investment, partly because if anyone gives us money, that is always a good thing so long as we make good use of it; and, secondly, that in a globalised world we will have increasingly to forget the artificial distinction between national and foreign investment. What will matter ultimately is the total volume of investment. It does not matter greatly from

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where it comes. I know we still have a hankering to have some of our people running our factories and for foreigners to go away, but that is wrong and increasingly irrelevant. When Honda (USA) exports more cars to Japan than General Motors, one wonders which is the American corporation and which is the Japanese corporation. But that distinction is no longer relevant.

We can point also to the remarkable revival of the British car industry. The British car industry had its last gasp in the late 1970s and early 1980s. Today, it is predominantly foreign owned, but that does not matter because the workers are British. The interesting point--the noble Lord, Lord St. John of Bletso, pointed this out--is that foreign investment does not just bring money and technology but a distinctive style of management. It is to the credit of Japanese and American management that, while we used to hear complaints of how the British worker was lazy, recalcitrant and all that, the same British worker performs successfully for the Japanese manager.

We must ask ourselves in relation to inward investment: what is it about the quality of management that the Japanese and the American managers bring which somehow, for reasons which I do not understand, we have failed to reproduce? The paradox of course is that we send out more investment than we bring in. We have always done that. British business can be very successful abroad. It is perhaps more successful than native business abroad, but at the same time foreign business is more successful here. We should perhaps export our capital and managers and import foreign capital and foreign managers. Then the whole world would be a better place in which to live. But I do not know about that.

While we talk about numbers--it is important to talk about numbers--it is not the amount of the investment as such but what it yields that is important. Inputs count less than outputs. After all, the Soviet Union had a tremendous amount of investment, but it was low yielding. What we are looking for are investors who obtain a greater yield from the investment than just the investment. My noble friend Lord Haskel--I say this parenthetically--almost did himself out of a job when he said that just because a man can make money he need not be a good policy maker. I hope that he will not talk himself out of a job when we are in government.

My noble friend drew the vital distinction between certain kinds of investment which were merely established assets changing hands without a great deal of value added and assets to which value was added. It could be just an old factory taken over. The important distinction is whether the new owner transforms the factory, adds value, changes work practices or acts merely as an absentee landlord. A greenfield site may be better than a non-greenfield site, but whatever it is, the crucial point is what distinctive value is added.

In that respect--leaving party considerations aside--one should examine seriously not just the level of inward investment, which is high, but the fluctuations in inward investment. As my noble friend Lord Haskel pointed out, inward investment was low in 1994 but it

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was high again in 1995. In the first six months of 1995 we had as much inward investment as in the whole of 1994, or so I gather from a story in the Financial Times.

Inward investment here is influenced as much by what happens abroad as by what happens here. It is not just a question of our pull factor; the push factor is also important. It is not enough just to be smart, intelligent and attractive to foreign investment. We must understand their economies and their markets and what we can do to attract inward investment. It is probably the sorry state of the Japanese property market and the situation in which the Japanese banks find themselves which have led to the reduction in Japanese outward investment rather than anything particular about the British economy. That applies similarly to some European economies.

Lastly, on the problem of attracting inward investment and regional competition about which the noble Lord, Lord Wade, talked, we sometimes have regions competing against one another. With the establishment of the IBB, things will be better.

Perhaps I may raise the following question which may need an answer. Is it right that British taxpayers should enter the battle over regions, or should we not have some sort of financial mechanism whereby regions in England, Scotland and Wales have their own fund to attract investment? Some of that investment could come from local taxation with a little national subvention, but let us have competition among the regions. Regions should bear the burden and the capacity for attracting investment, and while the British taxpayers may pay something, let it be part of the general local authority or regional finance grant. I would rather have more heterogeneity, more competition and less allocation. It may lead to some interesting outcomes.

We must also bear in mind that while we are doing all that we must attract domestic investment, in part to increase the present amount and in part to attract better management to accompany that investment. That alone will ensure that we survive in the new globalised world.

4.40 p.m.

Baroness Seccombe: My Lords, I wish to add my thanks to my noble friend Lord Oxfuird for initiating this debate on a subject of such vital importance to this country. I congratulate the noble Lord, Lord Borrie, on his maiden speech. I am sure that Members on all sides of the House will look forward to his next contribution.

Over the weekend I was in Switzerland. When I said that I had to spend some time preparing for today's debate on inward investment, one of my friends immediately suggested that I should have a bowl of muesli. Whether that was to ensure that my brain got into gear or whether he felt that the ultimate had happened and we were now exporting such a Swiss product as muesli, I am not sure; but whatever it was I thought it was not bad advice.

The problem with having a long-lasting Conservative Government is that the memory of the situation before 1979 can fade. However, one thing is certain: what will never fade is the horror and humilation of being seen as the sick man of Europe by our overseas competitors. I

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am not surprised that that was so because we had record strikes, record inflation and record misery for our people, culminating in the winter of discontent. Other countries saw us as a nation almost ungovernable, the unions in control and a workforce unable to operate because it was forced to go on strike.

Let us also never forget that in those years the price of gas and electricity was controlled by the Treasury and was always spiralling upwards; and the rates bills in Labour-controlled authorities were quite out of hand. How on earth could anyone start a business with such unknown factors? Today is so different, with a stable economy and the price of gas and electricity falling in real terms since privatisation. The business rate is pegged across the country.

In marshalling my thoughts I felt that my comments could apply to both of today's debates, as the inward investment that we enjoy today is spread across the land from, for example, South Antrim in Northern Ireland, Pontypridd in Wales, Stirling in Scotland to Torbay in England; and by countries such as Japan, the USA, Germany, Korea, Belgium, Taiwan, Canada, France, Sweden and Turkey. In total there were more than 450 investment successes in the year 1994-95. They are in a wide range of industrial sectors, including automotives, chemicals, engineering, electronics and pharmaceuticals.

The world's view of Britain today as opposed to the view of the Opposition parties is of a vibrant economy, with low inflation, low tax and a workforce better paid and producing some of the best goods in the world. Of course we are seen as a haven within the EU, not affected by the dreaded European jobs tax. The Prime Minister played a master stroke when he secured an opt-out for this country so that we do not have to embrace the Social Chapter or the minimum wage and the extra tax that they would create on jobs.

Many people underestimate the impact of the minimum wage and its effect on jobs. They often fail to take differentials into account. The DTI calculated that a minimum wage of £4.15 would cost 950,000 jobs if only half the restoration of wage differentials were implemented. But if the full differential were taken into account, that figure would rise dramatically to 1,800,000. We know who would suffer; it would be the young and the unskilled.

We have only to see the effect on the countries of our European partners. In Spain total unemployment is 22.2 per cent., with youth unemployment at 40.3 per cent. In France the total is 11.3 per cent. and youth unemployment is 26.5 per cent. In this country the total is 8 per cent. and youth unemployment is 17.2 per cent. I believe that there is a realisation across the Community that some of these enforced measures are detrimental to the interests of individual countries.

The name "Social Chapter" sounds warm and friendly but it is in reality anything but warm and friendly. It is a mechanism for enforcing social policy on member states and, with the added qualified majority voting, it would impose measures on this country whether the

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British Government liked them or not. That would only undermine our competitiveness and make us once again unattractive to foreign investors.

Inward investment is responsible for creating and safeguarding more than 700,000 jobs since 1979. They are jobs of high quality, permanent and well paid and in projects across the whole country, often in areas where jobs are desperately needed. Government cannot create jobs; they can create only an environment in which entrepreneurs create the jobs.

This country is now seen as a place to invest if investment is to take place in the European Union, making the UK the centre of the enterprise economy. More than one-third of all such investment in the EU comes to this country. The USA heads the list with 43 per cent. of its EU investment in the UK. Of course, we must remember the effect that that investment has on our exports. Approximately 40 per cent. of our exports are accounted for by overseas firms. Whoever thought that we should see the day when we were net exporters of television and exporting more cars than ever before in our history? In Japan today a British car is much valued for its reliability and quality, which is a far cry from the days when stories abounded about the Friday car.

The Government, through the DTI, must be congratulated on their foresight and determination to attract overseas firms here. The success continues and it would indeed be a tragedy if it were stopped in its tracks by the European jobs tax. Those who flirt with such ideas should think very carefully. Fortunately, we have a Government who understand trade and its effect on the lives of our citizens. Long may they continue.

4.47 p.m.

Lord Astor of Hever: My Lords, I welcome the debate introduced by my noble friend Lord Oxfuird as it gives your Lordships' House a chance to hear just how much recent inward investment there has been to this country. For the past decade and a half British business has closed the gap against some of the best, most innovative competition in the world. In the words of Jan Timmer, President of Philips:


    "The most competitive country in Europe today is the UK. It has a great sense of realism and a great sense of competitive spirit".

One of the best indicators of competitiveness is the extent to which we are able to attract multi-national businesses which are free to choose where to invest.

The United Kingdom's car production has increased by 600,000 since 1982, over half of which is due to Japanese investment, which has directly created thousands of jobs and further substantial employment in the component sector. Japanese car plants are expected to increase production by a further 0.25 million vehicles by the turn of the century. Those investors have brought worldwide management practices to this country and have spread them to sectors that were performing badly.

Those companies, which must have very good reasons to invest in the UK, come because we have the best environment for business. This has been achieved partly through deregulation, with more than 500 measures repealed so far under the deregulation

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initiative. A low cost base, union co-operation and a skilled and hard-working labour force, sterling competitiveness and a stable economic environment mean that few countries present as benign an economic environment for making cars. We are inside Europe (which is a big attraction) but have rightly opted out of the social chapter with all its extra non-wage costs.

The strength of the fast-growing automotive components industry in Wales was highlighted with the announcement last year of three inward investments which will help to safeguard and create hundreds of jobs. American domiciled Ford chose its Bridgend plant to produce a new range of engines for its hugely popular Fiesta. Gillet from Gwent clinched an order from General Motors to supply 850,000 exhaust systems a year for the new Vauxhall Vectra saloon, and British Steel's Llanwern steel works, also in Gwent, is to supply steel for the new Mitsubishi Carisma. South Wales now rivals the West Midlands as the automotive capital of the UK.

Rover has gone from strength to strength since the BMW purchase. At the time, I well remember the Labour Party's fulminations over the way Britain's best volume car producer had been sold at a "knock-down price" to the Germans. The chairman of BMW now calls Britain,


    "the most attractive country among all European locations for the production of cars".

He is backing that confidence with massive investment in Rover's future.

For every new job in the expanding car factories, there are probably two more created among the other businesses which service them. As production levels in British car factories rise--both Honda and Toyota are planning to double their capacity--a virtuous circle of prosperity comes into effect, both among the manufacturers themselves and in the component industry supplying them. It becomes more sensible to make all the major parts over here, including axles and engine blocks which have hitherto been shipped in from elsewhere for reasons of economy of scale: the British-made content of British-produced cars could rise eventually to 95 per cent.

The component industry, including thousands of smaller British-owned companies, is now reaping the rewards, having sharpened itself up to meet the more demanding specifications of the car makers. This, in turn, means that British firms are now better placed to sell to continental car firms, which have been forced by cost pressures, against their nationalist interests, to source parts from abroad. The perfect illustration of this turnaround was the announcement that Lucas is to supply a billion pounds worth of electronic fuel injection systems for diesel engines to Volkswagen--a contract which in previous times could only have gone to the German supplier, Bosch.

Ford, the country's largest inward investor last year, is delighted with its purchase of Jaguar. I had the privilege of visiting Jaguar yesterday with, among others, my noble friends Lord Oxfuird and Lord Brougham and Vaux. The turnaround since Ford made

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its enormous investment in 1989 has been dramatic--33.9 cars per man per annum were produced in 1991; last year, the figure was 69, which is more than double. Last year Jaguar's import bill was £120 million, but it exported £1.26 billion-worth of cars.

However, there is no reason for complacency, and I was astonished to hear that Brussels' approval for local authority grants for the new Jaguar X200 on a brownfield site in Birmingham has been so slow in coming. Brussels have been examining this matter since July last year. We are not talking about this factory going anywhere else in Europe, but if a decision is further delayed, Jaguar will build the new car in the United States, where it will be warmly welcomed and a suitable factory is already available--and who can blame it?

I have long seen the commercial benefits of being in Europe. However, in a world where investment is free to flow around the globe, I cannot see why those decisions should take so long. Are the European technicians unable to validate the level of grant? Are they really prepared to drive away a £500 million investment programme that could treble Jaguar sales? I should be grateful to hear the comments of my noble friend the Minister on this specific matter, and hope he will be able to tell me what Her Majesty's Government and the DTI are doing generally when faced with incompetence or unwarranted delays on inward investment decisions from Brussels that put at risk hundreds, and sometimes thousands, of British jobs.

4.56 p.m.

Viscount Waverley: My Lords, it is appropriate as we draw nearer to a general election that we carefully consider Government policy. The electorate will shortly have the opportunity to express its wishes and to determine what policies it wants from the next government, but does it have sufficient information to make an informed decision? The noble Viscount, Lord Oxfuird, is therefore to be congratulated on enabling serious discussion of this important subject. Government policy must continue to facilitate the United Kingdom's role as the premier location for development as a European hub.

There are two issues of fundamental concern to me. What degree of competitiveness is required to guarantee high levels of inward investment, on the one hand, and, on the other, would the professed policy of the Labour Party, to sign away our opt-out of the social chapter, enhance or hinder that position? I believe that to be a central issue of the debate this afternoon. The question has perplexed me since the short debate on inward investment last year.

I want to understand the answers to the following questions. First, will the United Kingdom be any less competitive as a result of the social chapter? Secondly, will the value of people's pay packets be adversely affected as a result of the social chapter? We know that the Germans and the French are paid more, but they have higher costs. Will UK spending power increase proportionately as costs rise? If the Labour Party signs away our opt-out of the social chapter and sets a

31 Jan 1996 : Column 1479

minimum wage, whatever that rate may be, employers will surely pass the extra costs of higher salary levels on to their customers.

If the social chapter is such an attractive proposition, what is the reason for Germany having 9.9 per cent. unemployment and France having 11.5 per cent., while the United Kingdom's unemployment levels are 8 per cent. of the workforce? Would employers lay off in order to increase productivity? That would mean higher unemployment. There may be flaws in those suppositions and I would, therefore, be grateful to hear how those dilemmas would be dealt with.

5 p.m.

Lord Geddes: My Lords, as other noble Lords have already stated, we are indeed immensely grateful to my noble friend Lord Oxfuird for his initiative in tabling the Motion for debate this afternoon. My intervention will be brief and, as alluded to by my noble friend, it comes from what perhaps may be described as a different angle; namely, the increasingly dominant position of English as the language of international business. Encouraging proficiency in the English language to speakers of other languages is, if you like, an outward investment to encourage and facilitate inward investment.

Not least following the recent deadline of this House, I declare an interest as non-executive--and, indeed, non-remunerated--Chairman of Trinity College, London. It is a United Kingdom company whose principal activities are to offer training and assessment for teachers of English to speakers of other languages and practical examinations and assessments of proficiency in the English language for speakers of other languages.

I hope that it may be of interest to your Lordships if I use Trinity as an example of the way that the English language is growing in importance world-wide. Indeed, I am proud to be wearing the Queen's Award for Industry tie, the award having been granted to Trinity in April of last year.


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