Lord Borwick
To ask Her Majesty’s Government what assessment they have made of the export potential of the United Kingdom service sector; and what steps they are taking to strengthen it.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con)
My Lords, the UK is the second-largest exporter of services globally, with services exports valued at £193 billion in 2012, accounting for 40% of overall UK exports. The Government have identified opportunities for further growth and are taking steps to strengthen exports of the service sector through trade negotiations, UKTI business support for service exporters, and through the current industrial strategy, which incorporates 11 sector strategies, including for the highly regarded professional and business services sector.
Lord Borwick (Con)
Does the Minister agree that service export figures are understated given that they are often hidden in the figures for goods exports?
Viscount Younger of Leckie
My noble friend is right: gross export data may underestimate the role of services, omitting the linkages between services and manufacturing. Services account for around 60% of the value added in the UK’s total exports, which demonstrates their importance both as direct exports and as embedded services within manufacturing exports. It is interesting to note that Rolls-Royce now earns more from managing clients’ procurement strategies and maintaining the aerospace engines itself than it does from making them.
Lord Barnett (Lab)
Despite the good export figures, is the noble Lord aware that many serious exporters believe that the strengthening pound is the serious problem? Do the Government have any intention whatever of doing anything about that?
Viscount Younger of Leckie
The noble Lord will be aware that we are very much aware of that. Like all major developed economies, the UK does not operate an exchange-rate-targeted monetary policy regime, and has not done so since 1992. The relationship also between exchange rate movements and trade flows is somewhat ambiguous, and evidence suggests that export growth is driven more by changes in foreign demand than by price competitiveness.
Lord Howell of Guildford (Con)
Does my noble friend appreciate that not only does the 40% figure probably largely underestimate the service content in all our manufactures, as well as the major element of equipment and knowledge expertise in all our exports, but that the vast majority of growth in that area is occurring in the huge new markets of Asia and Africa and in the English-speaking Commonwealth network? Will he ensure that his colleagues in all the departments concerned with promotion of services overseas, including the UKTI itself, work harder than ever to focus on that priority and to ensure that we succeed in those markets, where our future will be largely determined?
Viscount Younger of Leckie
My noble friend is right that, through the efforts of UKTI, our focus goes very much beyond the eurozone and the European economy. Despite the tough conditions, UK exports to emerging economies have increased in recent years. It is very pleasing to note that, since 2010, UK exports to the Far East—to China—have increased by 52%, to India by 24% and to Brazil by 37%. However, there is still much more work to do.
Lord McFall of Alcluith (Lab)
My Lords, with 70% of all Scottish exports going to the rest of the United Kingdom and 600,000 jobs in Scotland depending on the link with the rest of the UK, not least 200,000 financial services sector jobs, what are the Government doing to inform people of this successful entity and to ensure the continuation of what has been the most successful currency union in the world for 300 years?
Viscount Younger of Leckie
I acknowledge what the noble Lord says. As he will be aware, the UK’s position is that Scotland is stronger in the UK and the UK is stronger with Scotland in it. As part of the UK, Scotland has a stronger place in the world and is a major player on the international stage. As the noble Lord alluded to, the rest of the UK is the primary destination for Scottish exports, accounting for around 70% of Scottish exports, worth around £48 billion in goods and services. Scotland as an export destination accounts for approximately 10% of exports from the rest of the UK.
Baroness Wheatcroft (Con)
My Lords, the creative industry is thriving as never before. Could my noble friend say a bit about how the advertising and design consultancies in this country are exporting their services all around the world?
Viscount Younger of Leckie
Yes, indeed. Design is very much embedded in many of the manufacturing companies, and much work is being done on that. My noble friend mentioned the creative sector, and she will be aware that the sector employed nearly 1.7 million people in 2012, which represented 5.6% of the UK total. So it is a most important sector, and we continue to promote it. Part of that involves the Government setting up the Creative Industries Council.
Lord Young of Norwood Green (Lab)
My Lords, has the Minister had time to reflect on the impact of the Government’s immigration policies on services? This was brought to mind by a letter that I received today from one of his colleagues, the noble Lord, Lord Ahmad of Wimbledon, who tells me that,
“we do recognise that these necessary visa reforms have had an impact on perceptions overseas and that we need to get better at communicating that all genuine students are welcome here and that there are opportunities for them to both study here and work after graduation”.
We certainly need to get better, because the number of overseas students taking up places in England’s universities decreased by 4,500 in one year, the first fall in 29 years.
Viscount Younger of Leckie
My focus and the Government’s focus is on promoting the UK. The professional and business services sector is the UK’s largest economic sector, contributing 12% to UK employment and 11% of gross value added. To take up the noble Lord’s point about jobs, the PBS sector employs 3.8 million people, accounting for £147 billion to the UK economy. I do not at this stage want to get into the visa aspect, but I wanted to point out the importance of the sector.
Lord Stoneham of Droxford (LD)
My Lords, a recent report by PWC shows a 3% growth each year over the past four years in non-financial services, and the huge potential for greater growth in jobs and exports through greater liberalisation of services trade. Could my noble friend tell us what steps the Government are taking to open up the market for services trade in the EU? Are we using the clout of the EU to open up the USA?
Viscount Younger of Leckie
My noble friend makes an important point about the value of the EU. The Government have been at the forefront of championing services liberalisation, both within the EU and internationally, particularly with the US. Negotiations on the Transatlantic Trade and Investment Partnership —or TTIP, for short—were launched under the UK presidency at the G8 Lough Erne summit in June 2013. The European Union’s negotiating mandate, as endorsed by the UK, includes objectives to liberalise transatlantic financial services. TTIP could be worth up to £10 billion to the UK economy.