Speech by the Financial Secretary to the Treasury.
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Thank you and good morning everyone.
Throughout its long history… from its beginnings as a small group of coffee-houses with a sideline in commodity and stock prices… to today’s high-tech trading platform… the London Stock Exchange has provided the capital to grow and develop businesses both at home and abroad.
And like the economy, the LSE has had to change; adapt; and branch out into new and exciting markets.
AIM, of course, being an excellent example of this.
Where in a little over 15 years it’s gone from a small exchange, with a focus on domestic SMEs, to an international marketplace that’s raised over £70 billion pounds worth of capital investment.
To steal a phrase from your Budget submission Xavier, AIM is one of the important rungs on the equity funding ladder…
…but I know that there’s much more we need to do to finance growth in our economy.
Limited access to finance is one of the barriers to business development we identified in our Plan for Growth, which we published yesterday.
Our Plan is also rooted in the recognition that the ‘success’ we enjoyed in the run up to the financial crisis was neither stable nor sustainable.
That growth was fuelled by debt - both public and private.
And it was too heavily concentrated here in London and the South East.
Which is why we need a new model for growth.
One that builds on our strengths.
Ensures our economy is more sustainable.
And tears down the barriers that are preventing SMEs and mid-caps from being the engines of domestic success.
Plan for growth
In pursuit of this, we’ve set out four key ambitions that will guide economic policy for the years to come.
To create the most competitive tax system in the G20.
Encourage investment and exports as a route to a more balanced economy.
Create a more educated workforce that is the most flexible in Europe.
And make the UK the best place in Europe to start, finance and grow a business.
So I’ll take each in turn.
Starting with a competitive tax system.
Competitive tax system
Since coming to power we’ve already made great strides towards delivering on this ambition.
Having committed to cutting corporation tax in each and every year of this Parliament.
Reforming the process for making tax policy… through greater consultation and the publication of draft legislation.
And having set up the Office for Tax Simplification - whose work has enabled us to scrap over 40 tax reliefs and look at options to merge the operation of income tax and National Insurance Contributions.
But as part of the Growth Review we’ve gone a step further.
While in June’s Budget we announced a one per cent reduction in the headline rate of CT for every year to 2014…
…Yesterday’s Budget announced a further reduction in the main rate of CT… Taking it down to 26 per cent this year, and just 23 per cent by 2014.
Yet lower tax rates are just one part of the story.
In a global economy we need the right tax framework to retain and attract multinationals…
…So we’ve also set out our plans for Controlled Foreign Company rules, to make them more competitive, and more territorial.
And to ensure that the UK remains a world-leader in innovation, we’ve introduced a new 10 per cent rate of corporation tax on all income from patents… while increasing R&D tax credit for small businesses to 200 per cent… Subject, of course, to State Aid approval.
Taken together these measures will not only make the UK a more attractive place to locate…But also support higher levels of investment across the whole economy.
Creating a more balanced economy by encouraging investments and exports
Yet supporting investment is one thing, but we also have to ensure that growth is more sustainable, and certainly more balanced than we’ve seen in the past.
We need an economy that benefits everyone, with growth in every part of the country - not just London and the South East… and an economy that exports high-quality, high-tech goods to the rest of the world.
This is our second ambition.
As it’s no secret that Britain has become too reliant on a small number of sectors - based in an even smaller number of places - to help support the rest of the economy.
Which is why the Chancellor announced the creation of 21 new Enterprise Zones across the country.
Where businesses who choose to locate in these regions will benefit from lower business rates.
And the rates they do pay will be invested directly back into that area - not siphoned off by the Treasury.
These measures will help realise the potential of communities from Weybridge to Tyne Bridge, and Manchester to Winchester.
They are designed to help develop places that demonstrate a wealth of untapped potential.
So that every region has the opportunity to build on their strengths, and take advantage of local opportunities.
Britain is no longer the workshop of the world.
We have instead become increasingly reliant on imported goods as our exports have fallen.
And we’re yet to take advantage of opportunities in new markets… which is why we still export more to Ireland than to Brazil, Russia, India, and China.
We’re determined to address this.
And we see small and mid-cap firms as a key part of the solution.
Across Government - and in partnership with our banks - we are putting together a package of support to help SMEs and midcaps break into new markets and access the finance needed to encourage trade.
A better educated and more flexible workforce
But if we want a high-tech economy; with higher exports; and businesses that are able to compete on an international stage, then Britain needs workers with the right skills to help make this a reality.
Which is why our third ambition is to create a better educated and more flexible workforce.
To help make this a reality the Chancellor announced that we’re allocating £180 million to deliver 50,000 additional apprenticeship places.
The demands of technology mean that we must work with small and mid-cap firms to help them take on some of the extra 8,500 advanced and higher apprenticeship schemes we announced yesterday…
…This will enable us to compete with the best in the world.
This comes on top of our longer term reforms to education - championed by Michael Gove - to raise overall standards in our schools.
But while the quality of our workers has held businesses back, so has the increasing burden of red-tape.
Where employment laws have undermined recruitment.
And planning regulation has discouraged much needed building - whether it’s new homes, new infrastructure, or new commercial premises.
Our radical reforms to regulation will set businesses free - allowing you to create jobs, instead of battle bureaucracy.
Which is why we’ve announced a moratorium that will exempt all micro and start-up businesses from new measures for the next three years.
And it’s why we are launching a public consultation to identify the most burdensome regulations, with the presumption that regulation should be cut, unless there’s a good reason for it to stay.
Creating the right business environment
But on the path to sustainable growth, SMEs still face considerable challenges when compared to their larger counterparts.
This is something that I know has been a real concern for businesses during the past few years.
Yet while the financial crisis has seen lending conditions deteriorate, access to finance has always been a major factor holding growth back in the UK.
The LSE recognise this with its championing of AIM and also of Order book for Retail Bonds, which improves firms’ access to debt markets.
And while this is already helping to address some of the funding gaps that exist…
…it’s a fact that if we want to create one of the best business environments in the world, then we need to go further.
The finance needs to be there to help businesses grow from a bright idea through to a successful mid-cap business and beyond.
Which is why we’ve announced:
• an increase in income tax relief, to 30 per cent, under the Enterprise Investment Scheme for equity investments in small companies and start-ups.
• A doubling of the lifetime limit on capital gains for Entrepreneurs’ Relief to £10 million - for the serial entrepreneur.
• And reached an agreement with our largest banks to increase the size of their Business Growth Fund to £2.5 billion - to grow established small businesses to mid-caps.
Proper financing will help businesses climb the ladder of equity funding.
But creating the conditions for investment requires work both here in London, but also across Europe as well.
And on this front, we’re being equally vigilant.
We know that raising capital can be expensive.
We want to reduce the costs so more of the money you raise can be invested in your business.
So you asked for an increase in the threshold for securities at which Prospectus is required… under the new proposals this will double to €5 million.
You wanted to see an increase in the number of investors needed before a Prospectus is required… well this has been raised from 100 to 150.
And in Britain we’re bringing forward the implementation of these measures and launched a consultation last week… So you can keep more of the money you raise.
We want to see deeper and more liquid markets for SME, mid-cap, equities… and the future of those markets will be determined by a review of MIFID.
Now I know that the Company CEOs in this room no doubt find MIFID very dull and equally dry.
But that’s no reason for ignoring it.
Because the Review could have a profound affect on how easy it is for you to raise capital in the future.
And that’s why I’d encourage you to work with the Government, the LSE and others to create the right market framework for small and mid-cap firms.
And it’s why I hope you’ll continue to work with the Government to develop solutions to problems you’re facing.
Over the last few months we have listened to UK businesses.
We’ve held over 1,000 meetings to find out what you want from this Government.
Many of the proposals announced yesterday are a direct consequence of your requests.
You asked us to free you from red tape - we’ve done that.
Said you needed a more competitive tax system - we’ve done that.
Said that more needed to be done to train our young people - and we’ve done that too.
We’ve responded to your challenges.
So today I’d like to set you a challenge.
We’ve created the framework for growth… Now you have to build on it.
It’s now your turn to invest in Britain’s future.
Your time to recruit new workers.
And your opportunity to export goods and services the world over.
That is how we will drive growth in this country.
That is how we will create the jobs of the future.
And that is how we will build the more dynamic, prosperous and sustainable economy that this country deserves.