Richard Branson: 'We should abolish income tax and make electric cars'

In the second of a series of personal articles on the key election topics, Sir Richard Branson warns that Britain is on the verge of a new energy crisis - and dishes out typically bold advice for the next Chancellor

When others look at the MG Rover plant at Longbridge, they appear to see only an ill-fated manufacturing dinosaur and national failure. But I see an opportunity that could still be seized by whoever is in power after 5 May.

When others look at the MG Rover plant at Longbridge, they appear to see only an ill-fated manufacturing dinosaur and national failure. But I see an opportunity that could still be seized by whoever is in power after 5 May.

Tony Blair and Gordon Brown have announced their £150m package to help the workers who are going to be made redundant, but to me the sight of the dormant production line suggests another way forward. The plant is one of the most fantastically modern in Europe. It has consistently made a quality, reasonably high-selling car in the Rover 75; and it could have done so much more. It simply does not make sense to see these sleek, efficient machines lying idle while their operators, all highly skilled, sit twiddling thumbs at home.

My solution is a radical one, but would help with what I see as Britain's pending energy crisis. We should steal the green mantle from the Japanese and Americans and become the first European manufacturer of hybrid cars.

These highly efficient part-petrol, part-electric vehicles (which can do up to 120 miles to the gallon) are already big in Japan and are also taking off in the US. California has recently decreed that no manufacturer will be permitted to sell cars in the state after 2010 unless at least 10 per cent of those sold are hybrids.

But no one makes them in Europe. Meanwhile oil prices are soaring, our own North Sea reserves are running out and the evidence of global warming is overwhelming.

Gordon Brown - or Oliver Letwin, if the Conservatives win - should champion a pan-European rival to the dominance of Japan and America in the hybrid car sector, based at Longbridge. After all, similar intervention has already seen the European Airbus outsell its US rival Boeing - while Virgin, other airlines and our passengers all benefit from intense competition between the plane-makers.

The EU was prepared to grant billions of pounds of soft loans to Airbus to develop the A380, the biggest ever airliner and relatively the most environmentally friendly plane ever built. I want to see the Government engineer the same sort of deal for Rover as a flagship hybrid car-maker.

As an entrepreneur, I do not believe in governments rescuing lame ducks. I was against the renationalisation of Railtrack, for instance, no matter how unpopular it was as a private company. But as a nation - and as a continent - we cannot afford to throw away an asset like the Longbridge plant and its workforce.

We can also not afford to ignore the fact that we are literally running out of gas; we need to reduce consumption. Fuel savings from the sale of hundreds of thousands of Rover hybrids would help to reduce Britain's overseas payments for oil (effectively paying for any subsidies). If we don't make this bold move, one of our neighbours will.

Britain is poised to become a net oil importer again for the first time in decades, as we can no longer produce enough to meet our needs. The next Chancellor must install effective new tax breaks to encourage further exploration in the North Sea - otherwise our economy is likely to be crippled by sky-high import costs. Our fuel bills at Virgin are already £150m higher than last year, and there is only so much we can do by cutting other costs before regrettably we have to pass on some of the increase to our passengers.

If the economic justification for the war in Iraq was to stabilise oil supplies at low prices, then it was a failure even on that front, as on so many others. Oil prices have doubled since the invasion, in large part because of it. We could have got rid of Saddam without a war.

On a different level, Labour must also take some responsibility for stifling new businesses. Big companies such as Virgin should abide by the byzantine rules on everything from health and safety to paternity leave, but these should not apply to firms employing fewer than, say, 100 people.

It is incredibly difficult to build a company from scratch - 90 per cent go bankrupt early on. When I started Virgin, we were working day and night, we were young and getting on with it. We just ignored the paperwork - you could in those days - and so could build our little acorn into an oak tree. Under the current regime, we would simply not have been able to achieve the same results.

I worry about where the future Virgins will come from, about how difficult it must be now to start off in business. Certainly, the DTI adds little, and I agree with those who say it should be restructured. It has never done anything for Virgin in 30 years.

Labour has been more sensible in areas such as foreign call-centres. In the US elections, the Democrats tried to drum up votes by saying they would ban outsourcing to countries such as India. But that was short-sighted; there is no evidence that they take jobs away from Britain. Rather, they open up the way for better-quality jobs here and in turn help to get people off the streets in Delhi.

One way of increasing government spending without increasing the tax burden on the poor would be to abolish income tax altogether in the long term. I really think you would raise more money by a very heavy tax on luxury goods, leaving food, water and medicines tax-free, of course.

With a national excellence in hybrid car production, we could even levy a higher tax at the pumps for fuel-inefficient cars. Then people could actively decide what to do with their own money, rather than hand it straight over to the state.

Ironically, the luxury tax would apply to most things I sell, of course, such as airline tickets and music. But I still think both Britain and the EU as a whole should give it serious consideration.

Next week: Dame Julia Neuberger on the NHS