(9 years, 10 months ago)
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Baroness Wheatcroft
That this House takes note of the Government’s support for British exports.
Baroness Wheatcroft (Con)
My Lords, I am delighted to be opening this debate on such an important subject. We all know that exporting is good for the country and I hope that we will all be able to agree that the Government are making great strides in getting their act together to help British companies boost their overseas sales. My noble friend Lord Livingston, who will reply to the debate, has had an impressive business career before joining this House and taking on the role of Minister of State for Trade and Investment. I know that he is working tirelessly to ensure that British businesses flourish in world markets.
I am sure that today we will hear a lot of statistics—I will be guilty of coming out with some myself—but I want to begin not with numbers but with a true story of what the Government can, and do, do to support British exporters. Stage One is a company which started life in Tockwith, near York. It is a company which can do extraordinary things. It made the amazing cauldron that was the centrepiece of the UK Olympics and produced some of the most exciting elements in the Sochi Olympics. This is obviously no shrinking violet in the business world. Nevertheless, it felt that it needed support in venturing overseas and is very pleased with the export services and the help that they have provided.
Stage One was invited to join the Creative Industries High Value Opportunity Task Force, a collection of the UK’s top 100 creative businesses. The Government believe that these companies can represent the creative businesses that are flourishing in this country and win big contracts overseas. Stage One’s performance director, Alan Ellis, says that in his business, and surely in any business:
“It is critical to get in front of the right people at the right time. And this is where UKTI really excels”.
Those are his words, not mine.
UKTI trade advisers introduced the company to opportunities in Hong Kong and Macao. It had not contemplated venturing that far afield. They helped the company plan visits and provided £3,000 to help with funding. A UKTI trade mission in February last year enabled the company to build on the contacts it made on its first visit. Membership of the task force has enabled the company to form alliances with businesses it had never met before. That enables them to go together to prospective clients and make an overall business proposition, which to big clients is much more impressive. Stage One now says:
“Working with UKTI is a key part of our strategy over the next five years”.
One story does not make an export boom, but Stage One’s experience is not unusual. Even the CBI, not renowned for lavishing praise on government schemes, voices enthusiasm for the way that the export promotion services are working.
The Government have been clear about their export ambitions. Shortly after he became Prime Minister, David Cameron boarded a flight to India to reignite that special relationship. In his 2012 Budget, the Chancellor of the Exchequer set out his aim that UK exports would hit £1 trillion by 2020. That was, indeed, a big ambition. No doubt we will hear one or two people say that it was perhaps too big an ambition and we are not likely to get there. I have not given up hope yet, and I do not suppose that the Chancellor has, but we should look at the economic background with which our exporters are grappling. While our Government are working to support business by strengthening the economy, who would have foreseen that other Governments might be rather less responsible, and that our major trading partner in the European Union would find itself in dire disarray? Many of us did fear exactly that, but it is still sad to see it come to pass. The plunging euro and the straitened circumstances of many European citizens mean that it is much harder for us, with our stronger pound, to sell our goods to them.
For several decades, we have relied too much on our relationship with our European neighbours and not ventured far enough afield. That was understandable given that the EU constituted the biggest marketplace in the world, but such reliance is dangerous, as we are now finding. We have to work harder to permeate deep into the emerging markets. Those who listened to the radio earlier this morning will have heard a Diageo spokesperson say just what scope there is in those emerging markets, with 1.43 billion members of the middle class likely to emerge over the next decade. Of course, Diageo hopes that they will all be alcoholics—sorry, I mean drinkers. We should have advantages in many of those markets and need to be careful to build on that rather than jeopardise it, an issue I will come back to.
Despite our great trading history, our failure to maximise our export potential has left us with a balance of trade deficit—that ominous trade gap. We like our German washing machines, our French cheeses and our cheap, throwaway textiles too much. The last full-year figures available for 2013 showed exports of £516 billion and imports of £550 billion. If we could bridge that trade gap, the benefit to the economy—and to all of us living here—would be remarkable. There is plenty of scope. Currently, under 3% of our exports go to China.
The problem is not new. By 2006, the current account deficit was more than 3% of GDP, putting us, in absolute terms, behind only two countries: the US and Spain. In 2000, the UK’s share of world exports of goods was 4.4%, but by 2009 it had fallen to 2.8%. Our share of services exports is much healthier but even that has taken a bit of a jolt after the financial crash. Clearly, we need to get better at exporting.
The good news is that the Government are on the case. In 2011, that dynamic duo, William Hague and my noble friend Lord Green of Hurstpierpoint, were in charge at the Foreign and Commonwealth Office and UKTI, and together they launched A Charter for Business. It was a tacit acknowledgement that, while the Foreign Office has many strong points, it had not perhaps always been the greatest supporter of British business overseas. I would not argue that the charter produced an overnight change, but there have been huge improvements in how the Foreign Office and UKTI now work together for the benefit of British business. With a Foreign Secretary, Philip Hammond, who used to run his own business and my noble friend Lord Livingston heading UKTI, those improvements continue.
There were hiccups in getting the two organisations aligned. They had, of course, overlapping objectives, but their objectives can never be entirely the same; the FCO has to bear security in mind. But in autumn 2013, the National Audit Office examined our help for exporters. While it voiced some qualms, it had to report that 78% of those it surveyed—users of export services—felt that the FCO and UKTI were working together better to help exporters than they had in the past. The current chief executive of UKTI, Dominic Jermey, is well placed to continue these improvements, having been our ambassador in the United Arab Emirates before taking up his post. In an early interview, he suggested that the challenge for the Government went beyond the FCO and UKTI and that every government department should feel that part of its brief was to help British exporters—for example, the Department of Health with pharmaceutical companies and the Department for Transport with transport infrastructure developers. He intimated that more could be done on that front. Perhaps my noble friend could comment on that point when he makes his speech.
There are still qualms about the number of different schemes available to help exporters. Head to the UKTI website and, if you did not have an enormous amount of time on your hands, it might be quite difficult to decide where to go first. It lists:
“Passport to Export Service … Gateway to Global Growth … Medium-Sized Business Programme … Trade show Access Programme … Sell online with the UKTI e-Exporting programme … Export Marketing Research Scheme … Export Communications Review … Overseas Market Introduction Service … Aid Funded Business … High Value Opportunities … Market Visit Support … Postgraduates for International Business”.
It is a little confusing, perhaps. There is an easy answer, and those who visit the website might find it:
“Talk To A UKTI Export Adviser”.
UKTI has gone out of its way to make sure that the middle-sized businesses that we need to thrive as exporters know about this. It has written directly to all those middle-sized companies that could do more on the export front. However, I suggest that not everybody knows that there is a UKTI export adviser ready and willing to help them. From what I have learnt from businesses, those who contact a UKTI export service adviser really do get help.
Perhaps they get some help to figure out exactly what we are exporting, because the statistics continue to puzzle me—I have voiced this qualm in this House previously. Her Majesty’s Revenue and Customs breaks down exports into a huge number of categories, but to a modern person looking at the list, it could be confusing. For instance, category 42 encompasses:
“Articles of leather; Saddlery and Harness; Travel goods, Handbags and similar containers; Articles of animal gut (other than silkworm gut)”.
I think that there are large differences between a bit of saddlery, let alone some gut, and the sort of handbags that fetch premium prices these days. I wonder whether our statistics are missing a trick in not breaking things down a bit more. That view is reinforced when I get to category 44:
“Wood and articles of wood; Wood charcoal”.
I think that David Linley would contend that there is a huge difference between the wooden objects that he sells and wood charcoal. Category 61 comprises:
“Articles of apparel and clothing accessories, knitted or crocheted”.
The fascination with crochet is something about HMRC that has long puzzled me and I remain somewhat confused. Then we get to category 96, which I feel will not help many exporters in working out where their market should be:
“Miscellaneous manufactured articles”.
I am sure that there is a big market for miscellaneous manufactured articles, but I would be hard pressed to tell you what it was. One of the keys to successful exporting is research and knowing your market. I just wonder whether we could be doing a bit more with our statistics to help those who are seeking to export. I wonder whether the Minister could address that.
Perhaps there is more, even now, that we could do in the way of incentives—I know that money is tight. The Food and Drink Federation, which represents one of our biggest export sectors, has looked at what rivals do and found that we come pretty low down the scale. For instance, there is help if you are French or German on a much more significant scale than we offer to attend trade shows. There are tax deductions for people who are working overseas for companies to promote business. There are lots of small financial incentives which might yield dividends which perhaps we could investigate doing a little more of.
Finally, I mentioned that I would come back to cultivating our old friends, particularly India—but China also comes into this category. I fear—and it is the rhetoric rather than fact—that we are disillusioning those countries because of our insistence on people coming to our universities and then going straight home. I know, as do your Lordships, that if such people achieve a job they can stay for two years, but that message has not got through to the Indian High Commission and to the people that it talks to. I fear that the same message is hitting China. We need to welcome people who could help our businesses to export.
Lord Hunt of Chesterton (Lab)
My Lords, I welcome this debate, introduced by the noble Baroness, Lady Wheatcroft, who was a distinguished editor of Wall Street Journal Europe. It is an innovative if rather right-wing paper, but it kindly published some of my articles on environmental policy.
I liked the noble Baroness’s remarks, but they reminded me slightly of a rather irate Minister in this Government at some meeting getting more and more heated and saying, “Well, the UK just should be the corner shop of the world”. My vision is that it should be somewhat bigger. A bit of corner shopping is all very well, as the noble Baroness, Lady Wheatcroft, said, but there are some big issues. We should also remember her remark about the Prime Minister going to Asia. As noble Lords will recall, when the Prime Minister went to China the word “Boeing” was above his head as he came down the steps of the aircraft. He should have gone in an Airbus, like all the leaders of Europe do.
I declare my interests as a director of a small, high-tech company. I had a much bigger role as head of the Met Office.
For the UK to increase its exports, which is vital for the economy, it requires collaboration between the Government, business and everyone who provides services to foreign customers, whether they are in the UK or abroad. The first job of government is not to make it more difficult for UK organisations to contribute to visible and invisible exports. A simple point that this Government have forgotten, of which Indian universities reminded the Prime Minister when he visited India, and as the noble Baroness, Lady Wheatcroft, just emphasised, is that enabling foreign students to come to the UK is a very important invisible export. It is also important for them to be able to work in the UK. I am glad that there are now schemes for that to happen, but they are not widely known. When one goes around the world and meets students, they say that they will not come to the UK to study because it is so difficult to get a job afterwards.
The Government’s second own goal that I would like to point out was in the Daily Telegraph—not my usual reading—in “Business Club”, which is even less so. It had an interesting online article yesterday on the uncertainty about the UK leaving the EU, which is damaging invisible and visible exports. The article says that that is making it more difficult for UK businesses to get contracts in Europe. This uncertainty also inhibits some inward manufacturing investment and is driving some businesses abroad.
What is extraordinary about this threat to leave Europe is that UK business and government will be much less able to influence the EU’s setting of technical standards of saleable products. I read the New York Times from time to time; these EU standards are regarded as the world standards and affect business the world over. If the UK is not to be in the EU but be like Switzerland or Norway, it would simply have to receive the standards that are set by committees and other countries in Europe. Doubtless helping UK business would not be first in their mind.
The UK science and technology sector has developed standards from its great experience. I have worked with EU institutions; they help European business. In future, the UK will be less able to have this influence. In the 1980s I helped set up a European network called Ercoftac—a rather funny name—to enable universities and industries to work in the aerospace and automobile sector. The way we have managed to get standards, data and test cases for industry is the envy of the world. Of course, we will still be able to participate if we leave the EU, but the way that this kind of network will be able to work with British industry will be diminished.
The previous Labour Government and this Government have introduced, through BIS, some new, greater support for science and technology, which contributes to UK exports. I endorse many of the remarks made by the noble Baroness, Lady Wheatcroft, on that. For example, last week I learned about the Satellite Applications Catapult, which provides extraordinary business opportunities. It is not just about business; being effective in business enables the provision of more information about health and well-being for communities around the world. We are talking about using business as an efficient method of providing services.
The difficulty facing the building up of UK exports is that many of the major world-leading high-tech companies are no longer here in the UK. This is something that happened over 20 or 30 years, but it was gratifying that one of our major high-tech companies, AstraZeneca, was not taken over by the United States company Pfizer. In fact, one might note that, despite the City of London gagging at the possibility of more M&A scavenging, that company is here thanks to our continental colleagues who are on the board of that company. As a result of those takeovers, large companies from Germany, the United States and Japan are operating in the UK, but their R&D is often done abroad. This has had an effect on UK employees. For example, there are fewer engineers in some big electrical companies in the UK than in their home countries.
This Government have done better than the Labour Government in improving manufacturing industry. That is to be welcomed. This has led to substantial imports, such as offshore wind and nuclear plant; we did not have this capacity before. The question is whether UK manufacturers can build themselves up so as to reduce the UK’s sizeable and growing balance of payments deficit. I look forward to hearing from the Minister on this point.
Of course, even the most successful countries import technology. It should be obvious that the UK needs to do that because we provide 8% of the world’s science, while 92% is abroad. I am pleased to see that BIS is now following the practice, well established in the United States, of employing staff to import commercial innovations. In the past I have been critical of the fact that there was no strong element of technical work on that area within BIS, but I believe that it is growing. For example, there was an advertising session at the London Olympics to bring foreign companies from abroad to demonstrate what they were doing. An Italian environmental company using social media came and we hope that it will be working in the UK.
Many small UK businesses complain about the lack of support that they receive from the UK Government, compared with that provided to competitor businesses by foreign Governments. Some British businessmen are quite demoralised by the unfairness of this competition. In principle, everybody should play cricket and follow the level playing field approach of the UK. However, this is not the case. Despite its propaganda about free and open competition, the United States is one of worst offenders in the way in which it restricts the import of foreign software and spends vast sums on technological support at its embassies. I have seen this in Beijing and in other countries. They are overtly using their technical knowledge to advise and support American consultancies and technologies.
Other European countries use their financial assistance to developing countries to promote their own basic exports. There is an article in a newspaper today about how this is happening through World Bank programmes. One hopes that high-tech companies in the UK may benefit from the Newton programme, introduced by the Prime Minister when he went to China. This should make some contribution, although I suspect that it is more about science and technology than about business.
Many business commentators have noted that one of the most effective ways in which the UK Government can help business is via the Government’s whole or partial ownership of exporting organisations. This started, of course, with Rolls-Royce. The Government rescued it from bankruptcy back in the glorious days of Ted Heath. It obtained City funding but the Government retained their golden share, so Rolls-Royce is still here. If that had not happened, one wonders whether it would still be here.
Recently, we have read ominous remarks in the newspapers about Rolls-Royce. Although it has been remarkably successful with its aerospace engines selling to about half the global wide jet market, typically, the moment there is the whiff of a problem, the City pages slaver at the possibility of more M&A scavengers breaking it up. I hope that the Minister will clarify the position. Rolls-Royce is still a top, world company and should have all the support that the Government can provide.
Many government agencies were set up as quasi-commercial organisations. It began under the Wilson Labour Government and continued strongly with the Thatcher Government. Such organisations have worked at the highest technological and commercial level and have greatly helped UK exports. As the noble Baroness, Lady Wheatcroft, said, more could be done to support British companies in overseas markets. The underfunded National Health Service is another example.
Baroness Williams of Trafford (Con)
My Lords, this is a time-limited debate. Speeches are limited to nine minutes. When the clock says nine, it means that noble Lords are into their 10th minute. Therefore, when the clock says 10, they are into their 11th minute. I would remind noble Lords to give the Minister sufficient time to respond.
Lord Lang of Monkton (Con)
My Lords, I begin by declaring my business interests as per the Register of Lords’ Interests in case any of them should be thought relevant. I thank my noble friend Lady Wheatcroft and congratulate her not only on securing this very important debate but on opening the debate in such an effective and informative manner.
I believe that exports are a very important component of our economic performance. The environment for them to expand and grow is beneficial because the economy itself overall is performing so well at present, with growth in the last year of 2.7%—the highest in the G7. How different that is from the eurozone, which of course accounts for half our exports and creates certain headwinds for us.
It is notable that volumes of imports and exports tend to move broadly in tandem, with imports apparently exceeding exports by quite a margin. Our deficit in goods is long established and well recognised, but the substantial surplus in our services sector, which accounts for a far higher proportion of GDP, is less well known and is indeed potentially more important in the longer term. There, we face headwinds from the EU not just because of its poorer economic performance but because of the kind of regulations that threaten to impede the success of our financial sector in developing further there.
Overall, the last three months of 2014 produced a good trend, with exports up by £2 billion and the deficit in goods down by £2.5 billion. However, I know that one should not read too much into short-term figures. When we think of exports, we should remember that quite a proportion of our imports consists of components and commodities that subsequently find their way into exports and are re-exported. So, again, the picture is never quite as simple and straightforward as it sometimes appears, and that is one of several factors that impinge on our debate today.
We should not think of exports as a separate world detached from the overall economy; they are part and parcel of our overall economic activities. Exchange rates have an important effect. At present, there is almost a currency war going on in some countries, with attempts to help their own export performance by manipulating their rates down. That is not a sensible policy. Currencies have minds of their own, and estimates of what can and cannot be done can be very sadly mistaken.
During the last few years, the pound has risen against a basket of currencies and is now trading up against the euro, increasing the problems that we have in exporting into flat economies. However, the pound is falling against the dollar. The dollar is an interesting case because overall it has risen by 20% against all currencies since May this year. That creates exporting problems for the US but its productivity record, by contrast, is unrivalled, and the US consumer confidence index is at its highest for seven years. That confidence and that exchange rate create major opportunities for us. The US market is our largest single export market, worth £40 billion a year. The dollar exchange rate also helps the UK in the matter of repatriation of profits, although it is obviously less good for the United States, with those from the US going the other way. It is perhaps not very widely known that United Kingdom companies have huge investments in the United States—even larger, it is sometimes said, than those of US companies over here. That benefits our balance of payments and points to the fact that overseas investment, whether inward or outward, has an important role to play in exporting.
To give one very obvious example, from the inward investment wins by the United Kingdom of recent years, from overseas missions, car manufacturers have come here—Nissan, to name but one. Cars are now among our biggest export commodity: hundreds of thousands of cars leave our shores every year, mainly to Europe, where, despite the economic slow-down, sales continue to hold up. So it makes sense to handle, as UKTI does, inward investment and overseas trade within the same body.
I mentioned productivity in the context of the United States, and that is another factor vital to exporting success. In turn, it relies on business investment. With the revised and highly encouraging recent business investment figures now comes a clear improvement in manufacturing productivity—up more than 5% in the last year. It is not enough after years of being in the doldrums but it is an important start. The Government’s unprecedented development of apprenticeship schemes should also feed into further gains in both productivity and indeed manufacturing employment in due course.
I hope that my noble friend will say a word later, in winding up the debate, about the progress, if any, on international free trade negotiations. There are still too many obstacles, overt and hidden, to unrestricted trade within the EU as well as globally. With Doha seeming to fade into history, one cannot but reflect that almost 20 years ago this country was pushing hard for progress on free trade. To be briefly autobiographical, I attended the World Trade Organization annual get-together in Singapore when the momentum seemed to be really taking off. On returning, my department launched a campaign with a target of global free trade by 2020—“2020 vision”, we imaginatively called it. It seemed almost attainable then, but sadly one has to admit that it looks less attainable now. When I asked the Trade Minister in the incoming Labour Government a year or two later in this House about how the 2020 vision was progressing, it was plain from what he said that he had never heard of it. That is unfortunate because momentum and perseverance are vital if one is to secure new markets and develop them.
I welcome the Government’s continuing commitment to UKTI as a way of encouraging and helping our exporters and traders in overseas markets, boosting trade opportunities—particularly for small and medium-sized businesses, to which my noble friend Lady Wheatcroft referred—and helping to identify particular high-value opportunities globally. The budget increase this year to £70 million is being well focused and that, too, is something that we should welcome—concentrating on high-value opportunities and on the emerging markets. I have always had a paternal feeling towards UKTI because it flows from a joint initiative that my right honourable friend Sir Malcolm Rifkind and I developed—he as Foreign Secretary and I as Trade and Industry Secretary—in about 1995 or 1996, when we published a White Paper on combining the resources of the DTI and the Foreign Office on these matters. It was based on something that I had already initiated in the Scottish Office, combining inward investment and trading activities. Since then, UK exports have doubled, despite the serious decline in our manufacturing base, which is good. However, globally, exports from countries around the world have trebled so there is no room at all for complacency—quite the reverse.
I noted that the Public Accounts Committee in another place a couple of years ago urged UKTI and the Foreign Office to examine the reasons behind that difference in success. It also made a number of other useful recommendations, and perhaps my noble friend will have an opportunity to update us on the response to those. Analysis, focus and follow-through are all important in exporting. So, for exporters, is persistence and indeed courage, particularly for SMEs, because exporting is a risky business. It is a lonely business and they need the kind of help that is now being put in their direction. I sometimes think that our embassies around the world are not taken sufficient advantage of. There are people there who are skilled, committed and only too willing to help people on the ground. I have personal experience of that.
Conditions at home are favourable: low inflation, low interest rates, high employment, expanding apprenticeships, strong business confidence, low business taxes, focused assistance and advice from government. These are the many positive reasons—and there are more—for businesses, large and small, to broaden their ambitions into the global marketplace and for the Government and our embassies to continue to refine and promote assistance to exporters whenever they can.
Lord Stoneham of Droxford (LD)
My Lords, I am very pleased to speak in this debate, initiated by my friend and colleague, the noble Baroness, Lady Wheatcroft. She has initiated several debates on business subjects in the past couple of years while we have been in the House together, and I have been pleased to speak in a number of them.
The coalition Government are committed to rebalancing the economy. The aim is threefold: it is about reducing the deficit; ending our dependence on short-term, consumer-led growth based on excessive household credit; and, fundamentally, it is about strengthening our role as a trading nation and widening and diversifying our export base.
We have a lot to do. Looking back over the past decade, we see a situation in which import growth has outstripped export growth, so net trade has acted as a drag on UK growth. UK share of world goods and services has actually been declining. We have been underperforming in emerging markets and 50% of our trade is still based in the EU, which has been stagnant for most of the past five years. This perhaps emphasises why we have such a strong interest in getting that economy moving again alongside the British economy’s movement.
The coalition has provided continuity in its industrial strategy. I was impressed when we had a debate on the industrial strategy a few months ago, by the agreement across all parties on the work that Vince Cable has been doing, based on the foundations left by his predecessors in the Labour Government. He has led a ministerial team that has largely been in place for five years. I pay particular tribute to David Willetts, who did so much in the university sector and on our skills-based economy. We have had a focus of support for exporters through improvements in the Foreign Office and UK Trade & Investment. Although I agree fundamentally that the leadership, intelligence and support that they give is essential, we must also realise that we are talking about only 2,000 people in those organisations who are specialising in this work. They cannot possibly do the scale of work that we need to improve our exports and our trade.
The coalition has also concentrated on providing extra finance and credit guarantees for exporters. We have the British Business Bank starting up and we are trying to make the UK a really good place to do business, through a competitive tax regime, protection for patents, improving infrastructure and skills, and encouraging inward investment—all things that a Government must do. I believe that there has been a strong partnership between industry and the public sector as well, which has helped improve relationships and improve work on the industrial strategy. However, to get successful export-based strategies we have to build fundamentally on solid competitive advantage and it takes time to show results.
In my career, I have been involved in transforming companies. In my view, one could improve the figures in one to two years, but to get genuine transformation took five to seven years as a minimum and to do this across an economy, as we have to do in our export sector, will take 10 to 20 years. We can learn the lessons of some of our success stories. The noble Lord, Lord Lang, talked about the automobile industry. I worked on the fringes of that sector in the 1970s and I would not have touched it with a barge-pole as a career in management. It was a complete nightmare. However, we went through the 1980s and 1990s and it has been transformed, largely because of foreign investment, through Nissan, Toyota and Honda, with foreign management techniques, and now with Range Rover and Jaguar, under foreign ownership, agreed, but building on the skills of the Midlands economy.
To sustain that competitive advantage has required huge investment in R&D and skills as technologies in that sector are being transformed. Fortunately, we also have the entrepreneurial base of the Formula 1 competitors, all based in this country, as an example to spur us on. The combination of university knowledge, the catapult centres and inherent engineering skills, combining manufacturing with knowledge of computerised systems, which is the future of motor technology, are all important now for the future of that industry. A major part of that recovery has been based on the fact that we are a member of the European Union.
Moving on to the aerospace manufacturing sector, in 1995 20% of passenger aircraft were made by European manufacturers. The rest were made in the USA. Today 50% are made in Europe, principally by Airbus, and we have 10,000 direct employees of Airbus in the UK, with 100,000 employed by suppliers. That has happened because we have concentrated on a high-skilled, high value-added, huge R&D, with government financing and support to make that happen through the Airbus company and the suppliers in the UK that are part of that very successful operation.
What do the Government have to do to help exports? They might just start on import substitution because if we can improve the supply content in some of those manufacturing and services sectors that are already successful in the export sector, we will reduce our import content. There is a big initiative in the car industry where, until recently, 60% to 70% of the components came from abroad. We have to improve on that.
We could do more in public procurement and we are beginning to get on to that. It takes time but we have seen the problem we had earlier in the Government with the rolling stock in the railway industry and the missed opportunity to improve domestic manufacture. We are now beginning to get on top of that.
We must also give huge encouragement to R&D. I mentioned earlier that where we have been successful is where we have concentrated on competitive advantage. We have to exploit that, particularly in the knowledge economy. R&D as a percentage of GDP in this country is half that of the USA, Germany or France. R&D is too concentrated in too few sectors. Six out of 33 business sectors provide the majority of our R&D in this country; 25% of that is in pharmaceuticals and 50% is done by foreign-owned companies. The best performers—and this is the secret to it—are pharmaceuticals, aerospace and automobile manufacture. Interestingly, these are the places where we are most successful in exports. A very prominent scientist told me recently that R&D expenditure in Volkswagen was more than the whole UK science budget. That probably is the underlying reason that it is so successful in that market.
We have to maintain an international trading outlook. We have to have stability in our exchange rate. We have advantages of geography and language but sometimes we are too complacent. We must resist the island mentality in our economy. Future membership of the EU is tremendously important. By all means, let us seek reform but we must end the uncertainty and retain a firm commitment to our place in Europe in the years ahead.
Lord Cope of Berkeley (Con)
My Lords, I, too, am grateful to my noble friend Lady Wheatcroft, both for this debate and for her speech.
Some colleagues and I worked hard a couple of years ago on the Select Committee on SMEs to look into the assistance that the Government were giving for SMEs to export. Of course, your Lordships’ House debated that report; indeed, it has done so a couple of times. It is a crude summary of our report to say that we were favourably impressed by the progress of UKTI but were more concerned about the financial assistance available. Since we did that work, there have been very positive signs of improvement in both aspects, largely along the lines that we hoped for.
It is always difficult to be precise about the scale of exports by SMEs or the number of companies involved, but we all know that we need SMEs to export more. That is indeed a large part of the efforts of UKTI. It does a very good job in that respect. But the problems of exporting for SMEs include difficulties of local knowledge of one’s potential market. This includes languages and customs, as well as knowing what goods they want to buy. In a recent survey, for example, the habit of late payment in many markets came out as one of the problems. We have discussed late payments in the UK in recent debates on the small business Bill, for instance, but of course no Act of Parliament can help with overseas markets where there are very long payment periods. The first thing is knowing where the opportunities lie for one’s particular business. The UKTI and, particularly these days, the overseas posts of the FCO, have much improved their work in identifying opportunities and introducing UK companies to potential customers. All companies, including SMEs, benefit from improved services available in that way.
As my noble friend Lord Lang said, a strong pound is a problem for exporters where price is an issue—as it so often is. We all know about the troubles of the euro. It is not only the rate of exchange that is the problem, it is also the uncertainty involved when making plans. That applies in other fields. The suddenness of the drop in oil prices made it a mixed blessing. Of course, we all like lower petrol and diesel prices, but if you are supplying the oil and gas industries—particularly in exploration and development—that is a problem.
As for uncertainty, I read that some prudent airlines bought large quantities of fuel forward before the oil price dropped, and now find themselves facing severe price competition from apparently less prudent airlines, which did not buy forward.
The UKTI and Ministers, from the Prime Minister downwards, have been working hard at trade missions and boosting our exports in all sorts of ways—particularly my noble friend who will reply to the debate. We have already been reminded of the PM’s visit to India. He took with him 100 companies, including 30 SMEs. Similarly, many went to China. China is a very important market, and UK exports there are at a record level and have more than doubled, I believe, since 2009, growing faster than France and Germany—although obviously they have done better than us in the past.
That reflects the emphasis that there has been on newly emerging markets, which is clearly very important to counteract the eurozone’s problems. When we were doing our work, there was much emphasis on the BRICs—Brazil, Russia, India and China. Russia is now on the—how should I put it?—“more difficult” list. On the other hand, to South Korea, for example, with a new trade agreement in 2013, exports are showing 82% growth. Perhaps we should talk not about BRICs but about BICSKs.
The next big trade deal is of course the Transatlantic Trade and Investment Partnership. Perhaps my noble friend can give us an update on progress on that.
Returning briefly to export finance, since we reported, I am glad to say that there has been a lot more progress from the Government’s point of view. I am told that we have doubled direct lending for small business exports to £3 billion. UK Export Finance—better known to some of us as the ECGD—has been able to expand its services, but it needs to grow faster. The banks are criticised but, as we pointed out, there are hundreds of banks in the UK, not just the handful of clearers whose names are well known. There are also other providers of finance to draw on. The current small business Bill is intended to make it easier for SMEs to draw on that.
My noble friend Lord Lang and the noble Lord, Lord Stoneham, spoke of the car industry. I find it interesting that British luxury cars, such as Rolls-Royce and Bentley, are selling fantastically well in China and the USA. Both of them are made here, despite their companies being German-owned. It is difficult to think of a better tribute to British engineering and design.
In all this talk about what the Government are doing, one good thing is that they are working with various other organisations which exist in the private sector. Let us not forget the work done by the chambers of commerce or by the sectoral organisations for specific industries or parts of the world, such as the task force on the creative industries, mentioned by my noble friend Lady Wheatcroft. Many businesses are more inclined to go to this sort of organisation than to expect help from government but they should not be. They are wrong to do that these days because UKTI and the FCO are much more focused on practical help than they used to be.
The Government’s new trade ambassadors are opening opportunities, too. They are all appointed from among people experienced in business and knowledgeable about the countries that they cover. Some of course are Members of your Lordships’ House and across parties, including my noble friend Lord Risby, who I hope is about to tell us about it. They seem to have excellent backing from the FCO and UKTI. All this helps SMEs to overcome the problems of lack of local knowledge and contacts, which feature so high on the list of factors which inhibit SME exports. The Government are working hard and imaginatively on building the UK’s export performance, but we need that. We have always lived by trade and we still do.
Lord Risby (Con)
My Lords, it is a great pleasure to follow my noble friend Lord Cope, who has always been such an admirable advocate for small businesses over so many years. I also warmly congratulate my noble friend Lady Wheatcroft, who introduced this debate so effectively.
Our trade surplus, or more likely our deficit, has historically affected the fortunes of Governments from time to time. Happily, this is not the case today. Nevertheless, we have struggled to enjoy the export success of others over the years. The financial crisis that we suffered has been a real wake-up call. We as a country were particularly hard hit, but what the crisis told us loud and clear is that financial services had become disproportionately important as an engine for growth in our overall economic landscape, yielding substantial tax revenues which then vanished, with all the adverse consequences for us. What we suffered in the financial crisis left its mark on all of us in public life and in consequence, rebalancing and reorienting the economy has taken on a fresh and vital significance.
In fairness, successive Prime Ministers have for many years sought to promote exports and, more latterly, enormous efforts have been made to encourage exporting and finding new markets. However, by any objective standards, the personal role in this of this Prime Minister has been remarkable—as have the efforts of other senior Ministers, most notably the Chancellor of the Exchequer. Politicians are often criticised for having insufficient knowledge of the real world but we have been hugely fortunate with two exceptional Ministers in this House who have restructured and spearheaded UKTI to promote this export effort, based upon an incomparable personal understanding of how the private sector works, namely my noble friends Lord Green and Lord Livingston.
Regrettably, the performance of the eurozone economy has been anaemic. If we were to look at our top 10 markets, the USA would lead the way but if we take out China and the UAE, the seven remaining export destinations are all in the eurozone, which still accounts for nearly half of our exports. In December, UKTI published its 2020 Export Drive, focusing on new sector and country opportunities. It has the objectives of doubling our exports by 2020, embracing a series of key tasks to help our exporters, and building on the immense success that we are seeing in sectors as diverse as car and food production, both of which offer products of the highest quality and are brilliant success stories.
In 2013, I was appointed as one of the Prime Minister’s trade envoys: a cross-party group of 14 from both Houses of Parliament, most of us with private sector experience. I have therefore seen at first hand the high levels of professionalism and support which UKTI now offers. In recent years there has been a considerable change and the Department for Business, Innovation and Skills now works very closely with the Foreign and Commonwealth Office to promote exports and attract inward investment. There certainly was a time when some of our diplomats may not have endorsed this part of their role; now it is the reverse. I pay unreserved tribute to the two ambassadors I have worked with in my role in Algeria and to the UKTI support there. All my trade envoy colleagues would express the same sentiments. As it happens, we have increased business in Algeria, but other trade envoy colleagues cover areas as diverse as South Africa, Vietnam, Indonesia, Tanzania and Mexico. These are countries with which, in the past, we have had either insubstantial or insufficient commercial contact but where new opportunities most certainly lie.
In Algeria, there is a massive $280 billion social and infrastructure programme in place. Any day now, we will sign a double taxation agreement and finalise a hospital contract worth some $1 billion. What has become a really important force in this new bilateral partnership is the most welcome and much enhanced role of UK Export Finance, which can offer guarantees in support of export projects. In Algeria alone, there is currently a capacity of some £1 billion to support such investments and this is truly transforming. Also, Ministers fully understand the importance of these new country relationships and I am most grateful to Foreign Office Ministers, from the Prime Minister downwards, who have made the time to go there and welcome their ministerial counterparts here. This is where the cultural and organisational change is clear, with BIS, the FCO, UKTI and UKEF working together in export promotion.
Despite the financial crisis, this country has the finest brains in the world engaged in insurance, banking, the law and accountancy and not only in the square mile. Our Stock Exchange, with its outreach programme, is very much part of this but I also acknowledge the positive role played by the City of London Corporation and the sheer energy and commitment of successive Lord Mayors—which I have seen myself—in promoting UK plc abroad. Our reputation and competence is enormously admired internationally. Our financial services and their ancillary activities are increasingly part of our export topography. It is said that we benefit from our time-zone position, and we do. We are also in an open society and much has been done to encourage business start-ups which are so attractive to young people from many countries, as we see in Tech City, for example.
Additionally, we have something precious that the world really wants: the English language. At the British Council’s Hammamet conference in Tunisia last year—at which the noble Baroness, Lady Prashar, played a leading role—I learnt that the intense desire to learn English extends beyond Algeria to its neighbours. It is said there that this is a window on the world of modern business activity and technology, and it is. I applaud the British Council for responding so positively to this. Huge numbers of young foreign students and adults simply want to learn English. Training programmes for this for civil servants, teachers of English and others are now in place. So many want to study here and this cements irreplaceable personal relationships and contacts which are all, ultimately, in our business interest.
Recently, President Obama generously said of the British economy that we must be doing something right, but our export performance has insufficiently contributed to that perception. However, the structures, objectives and priorities have now been firmly put in place to change that. All of this is now well recognised by our business community and fully supported by the Government, as I have seen. As comprehensive new support and awareness strategies have been introduced, I am confident that our export performance will improve markedly in the years to come.
Lord Leigh of Hurley (Con)
My Lords, I thank my noble friend Lady Wheatcroft for instigating this debate. She is of course a well known commentator for the Wall Street Journal, an excellent publication, and business editor of the Times. I refer noble Lords to my various interests as declared in the register of interests.
Since new year’s eve 1600, when the East India Company received its Royal Charter from Queen Elizabeth I, Britain has been a nation of exporters. At our zenith, Britain was responsible for half of all the world’s trade. Since then, of course, we have had globalisation and the entry of a few competitors, so I would not see a return to those dizzy heights as a viable target. However, we can still aspire to see Britain’s goods and services exported the world over. We are, after all, an island nation, necessarily open and outward-looking.
It is not just for soft power and prestige that exports matter, though; they are of course vital for economic growth. With government spending rightly curtailed by the nightmarish inheritance that was the state of our public finances in 2010, and uncertain consumers paying down debt or increasing savings, exports have been and remain a key driver of growth in our successful economy. It is worth noting that in 2014 the UK had the fastest rate of growth of any major economy, thanks to the sterling work of the Government and the long-term economic plan.
I am pleased that the Government have recognised the importance of exports, with strong leadership matched by concrete measures to support business. As my noble friend Lady Wheatcroft has said, the Government have set very bold targets of doubling UK exports to £1 trillion a year and getting 100,000 more UK companies exporting in that time. To achieve this, the Government must support businesses looking to access markets abroad by offering guidance, with networking opportunities at trade shows and other events, and of course with direct financial support. I join my noble friends Lord Risby and Lord Lang of Monkton in recognising the work done by the Foreign Office to make overseas trade a specific part of its mandate. As well as our ambassadorial consular services, businesses operating abroad will find unprecedented support awaiting them from our embassies and UKTI offices.
Unlike previous Administrations, this Government are proud of the exploits of our business leaders, which are so important. This Government are willing to put them front and centre of our soft-power diplomacy. I have therefore been very pleased to see many British leaders accompany the Prime Minister on his trips abroad, which have been mentioned by both my noble friend Lord Cope and the noble Lord, Lord Hunt of Chesterton. In fact I was on that delegation to China, if that is the one that was being referred to—we did not go to Hong Kong—and I believe that the noble Lord, Lord Hunt, is correct that it was not an Airbus but a Boeing. I inquired as to the choice of transport, particularly the carrier, which was not British Airways, and was told that a tender had been put out and the most cost-effective plane had been selected in order to minimise the cost to UK taxpayers.
Lord Leigh of Hurley
I confess that one of the benefits of the delegation, as the noble Lord, Lord Cope, said, was that nearly all the delegates there were SMEs. Fortunately, it was not an Airbus, because a Boeing has the advantage, particularly on the carrier we were travelling with, of a bar in the centre of the plane. It was a memorable trip, as my noble friend Lord Livingston will recall, if only because virtually all the SMEs on the plane that had signed contracts while we were out there pushed themselves towards the bar in the middle of the flight, to the point where the pilot put on the seatbelt sign, even though there was no turbulence whatever, to get them all back again.
These delegations have a number of important missions, including helping medium-sized businesses that lack the brand value and network of their larger cousins but have growth potential if they can globalise their operations. The Prime Minister’s personal commitment, as my noble friend Lord Risby has said, must be welcomed. It is worth commenting that he has visited 19 out of 20 of the G20 countries—Argentina, understandably, is on hold—and we have seen significant increases in the budget of UKTI, even at a time when many UK government departments have understandably had to cut back. Indeed, the recent spending review at the department for business for 2015-16 established a baseline increase of £70 million a year, with a view to assisting 500 new medium-sized businesses annually. These measures show the priority status that exporters have been afforded under this Government. Whereas the previous Prime Minister led the world in accumulating the biggest budget deficit of any leading economy and discouraging business activity with higher rates of corporation tax, this Government have made the UK a leader in attracting global investment.
I see this in my personal and professional life, acting for SMEs in the UK. There has been a huge pick-up of interest from overseas, particularly from China. This approach is paying dividends in extending the reach of UK companies from domestic or European to truly global. For example, it is relatively easy and straightforward to export to Ireland: it is close and we speak the same language. The real challenge—but also the gain—is in trying to export to the BRIC countries and other emerging economies. In 2008, at £19 billion, the UK exported more than twice as much to Ireland as it did to China. Pleasingly, in the last quarter of 2013, for the first time ever, exports to China finally overtook those to Ireland. The Prime Minister said that he wanted more exports to the BRIC countries and UK business has responded.
This does not mean that the EU is not a very important market: of course it is. For example, it remains very important in my field of activity, financial services. Many international finance companies, from banks to funds to traders, set up in London to access the EU, but it is not perfect. Our success in truly globalising our export market should encourage us to demand some reform in Europe. This means completing the single market in all services. I commend our own commissioner, my noble friend Lord Hill, in his endeavours to deliver a capital markets union. This will help further with the export of UK financial services throughout Europe and bolster our competitive position in this field.
Despite the many advantages referred to of our membership of the EU, we must ensure that British exporters to the EU are not disadvantaged by EU regulation. I am thinking of the vote by the European Parliament Committee on the Internal Market and Consumer Protection to recognise further “EU safety tested” markings. These are yet another burden for manufacturing, particularly European manufacturing. Parochially, I know of one manufacturer who manufactured his product in full compliance with the relevant European standards—which in his case was EN1888—only to discover, when he tried to export his product to France, that the French unilaterally sought to apply their own particular safety standard, which was called an LNE. In the face of that protectionism in the French market, it was essentially impossible for him to export his product to France, despite complying with the EU regulation.
We need London to act as the trading capital of the BRICs and increase our exports to these fast-growing nations still further. With the help of the world’s leading financial services industry, I am confident that we can do so. Closer to home, we need the UK to continue to lead Europe out of its comparative economic malaise and into competitiveness through increased trade. Initiatives such as TTIP—the much hoped for trade agreement between the EU and the US—will be vital in achieving this. I believe that the UK will continue to act as a broker between the US and the EU in facilitating that. I therefore commend my noble friend Lady Wheatcroft for staging this debate today to highlight the importance of exports to the UK economy.
Lord Kirkwood of Kirkhope (LD)
My Lords, it is a pleasure to follow my noble friend Lord Leigh of Hurley. I am also pleased that this debate is happening at this time. The way in which it was introduced was excellent, and we are fortunate to have colleagues such as the noble Baroness, Lady Wheatcroft: her speech will repay careful study.
I want to acknowledge that we have made substantial progress in the United Kingdom in terms of extra growth in the recent past. It is therefore an appropriate time to continue the coalition Government’s important attempts to improve the rebalancing of the United Kingdom economy. It might sound old-fashioned, but I want to support the increased support that manufacturing exporters need, particularly small and medium-sized enterprises.
I hope that in his wind-up the Minister will be able to reassure us that there will be an opportunity to help people rebalance away from increasing activity in the property, services and shopping fields, so that we can rely more on driving growth from exporting potential rather than the manufacturing industry having to rely on domestic demand, as in the past. It is 10% of our economic output, and it will be a hugely and increasingly important area of our economic activity in the future. I hope that we can get some additional support, particularly at this time, when a lot of manufacturers are at a disadvantage in the eurozone because of the recent changes in the two currencies.
In my view—and I do not need to tell my noble friend Lord Livingston about this, because he knows it much better than any of us—the new digital economy is beginning to develop in a way that stops it being sensibly referred to as a digital economy. It is everything we do now. No matter what exporting businesses do, few of them will not have an important element of digital and internet-based activity. That is a huge exporting potential, not just as regards the products and the outputs, but it is an opportunity as regards the individuals that we can export—if I may put it that way—because of our knowledge and expertise in the area.
As a final recent example of that, I was very pleased to see the recent announcement by the Hut Group. The Chancellor of the Exchequer was up there, rightly, acknowledging its £100 million investment in Warrington, which has an online retail dimension, but also a manufacturing development dimension. These things are hugely important for businesses in the future. We should not forget the digital economy as we go forward, because it will become more, not less, important to our economy and our exports.
I will first pick up a little on our relationship with the United States. It was interesting to notice that at the back of the Prime Minister’s visit to the United States to talk about security matters was a series of very important announcements about trade. A £1.1 billion trade agreement was signed between President Obama and David Cameron, which is a significant achievement, but you have to look quite deeply into press reports before you can find any evidence of that having being reported. That £1.1 billion is a significant amount of money. In the course of researching this, I discovered that the Americans are in favour of British cheese, gin and salmon. I do not know what happened to whisky—I resent that, and I am sure that the Minister is on my side here—but we need to do more work with our American friends to get them to change their tastes for the better. These are all significant things. I want to use that as a way of backing up what other colleagues, including the noble Lord, Lord Risby, said about the role of our ministerial teams, lord mayors and public officials, who work their socks off, to some great effect. As I said a moment ago, I am disappointed that we do not hear more about those successes.
A couple of colleagues made an important point earlier: can the noble Lord, Lord Livingston, give us some reassurance about the Transatlantic Trade and Investment Partnership? I think we are now in the eighth round of negotiations. I am in favour of that agreement, because it is a huge opportunity. It is easy to sit on the sidelines and carp but Her Majesty’s Government have not been properly selling its advantages. This is an invaluable opportunity, but some press reports came out in the last 24 or 48 hours saying, perfectly correctly, that we need some further guarantees and that further work needs to be done to ensure that it is absolutely in the United Kingdom’s interest as regards jobs, consumer rights and environmental protection. I hope that the Minister will be able to say a bit about that, because it is of fundamental importance to our country.
Moving on to the eurozone bailout, I understand what other colleagues are saying about China and India, the brave new world and emerging markets, but in the immediate future we really need to concentrate on helping exporters who are struggling in the short term. The ECB bailout may not work. The Russian economy is flat on its back, and the Japanese economy is not in good health. Even in China, there is some evidence of slowing down. There are headwinds all over the place, if I may put it that way. Can there be headwinds all over the place? Maybe there can. There are difficulties, and we should not underestimate the fact that we sell 40% of our exports to the European Union. I support what my noble friend Lord Stoneham said about the importance of that. We must not forget the difficulties that people face there.
I want to talk about some of the excellent work that Tobias Ellwood, the Trade Minister in the other place, has been doing. For instance, in the past few weeks he has taken a trade mission to Egypt, and we have had the third UK-Pakistan trade and investment conference and the Britain in Kuwait exhibition. We struggle to hear about these things, but they are all good news and that work is very important.
However, visas are still a very serious problem for students and trade missions. I know that I probably have the noble Lord, Lord Livingston, on my side in this matter, but we really need to talk to UKVI. We should give ambassadors, who know their territory well, more discretion over who gets visas, so as to prosecute better trade and student relationships. David Willetts was absolutely correct to campaign as vigorously as he did about students being forced to return to their country of origin on graduation; I think that the noble Lord, Lord Cope, referred to this. Those people have valuable potential to be of assistance to us in the future when they go back to their own countries.
There are opportunities in the UK, with the strength of our local economy, and we should be doing everything we possibly can, including giving extra support to UKTI and the ambassadors who act in the Queen’s interest in this business in other countries.
I end with a simple political message: we should be saying to the electorate not only that we need political stability and economic certainty after the election, but that this is no time for people to be voting for parties that have no experience of Westminster government. From these Benches, I would add that this is no time to vote for parties that would put at risk our membership of the European Union. I hope that the Minister will be able to reply to some of the points that have been made in what has been a good and important debate.
Baroness Hooper (Con)
My Lords, I, too, welcome the opportunity to debate this important topic. I thank my noble friend Lady Wheatcroft for giving us that opportunity and for the thorough way in which she introduced her Motion. Exports can be said to be the lifeblood of a country—a measure of its economic performance and growth. They are certainly to be encouraged as a route to a more balanced economy. A plan for growth, such as the plan published in 2011, is a good thing but it is how it is implemented that counts. This debate, and the response from the Minister, which we all eagerly await, will go a long way towards showing what has been achieved and may even emphasise what remains to be done. I was startled to learn recently that 31% of world imports come to Europe, while the figure for the United States is 12%, and for China 10%. I have not yet been able to find comparable figures for exports, and I hope that the Minister may be able to enlighten us.
My own experience lies chiefly in Latin America. I have led trade missions there and, as president of Canning House, worked with LATAG—the Latin American Trade Advisory Group, which was funded by the then DTI—to stimulate interest in the region and, particularly, to encourage and support SMEs. At the time, the British Chambers of Commerce also played an important role, leading government-funded missions on a regular basis, and commercial departments in embassies were expanding their activities and influence. In saying all this, I am going back to the late 1980s and early 1990s, when Latin American countries, rich in commodities, were establishing that they could have stable democracies and provide many commercial and investment opportunities.
However, the government funding then all sadly dried up, because of the emphasis being redirected towards trade with China. I always argued that the good will towards the United Kingdom which exists in Latin America because of our historic links and the established major companies which operated there gave us an advantage. However, embassies were closed or downsized and the British banks, which had been evident and much respected throughout the region, pulled out one by one. Now the only British bank to be found in the whole region is HSBC in Brazil and Mexico. The consequences of that, especially for SMEs, are obvious. Now, of course, Spanish banks have replaced the British banks, although I hope that this trend may be reversed with time.
The noble Viscount, Lord Montgomery, and I waged a sometimes lonely battle to wave the flags and lead the protests, to little or no avail. Following the comments of my noble friend Lord Risby, I must also mention that successive Lord Mayors of the City of London have also been loyal to the region. Therefore, it was a great relief to hear my right honourable friend William Hague, in his early days as Secretary of State in the Foreign Office, deliver the Canning lecture and say that all that was going to change. We have now seen multiple visits by members of the Royal Family, Ministers and even the Prime Minister, accompanied by high-level trade delegations. We have seen the reopening of embassies, new consular offices, and the development of UKTI activities and, indeed, UK Export Finance activities. We have also seen the appointment of a trade envoy—of which my noble friend Lord Risby is an example—to Mexico in the shape of my noble friend Lady Bonham-Carter. There is a much needed emphasis on energy, health and education—where the British Council comes in—as priority areas and sectors to promote. There has also been agreement on trade treaties on both a bilateral and, via the European Union, multilateral basis.
All this comes at a good time. Most Latin American countries are considered to be middle-income countries, with burgeoning middle classes with increasing expectations. It could be said that Latin America is entering a new economic cycle, and I am glad that the United Kingdom is now better placed to take advantage of that. Scotch whisky has always been a winner—I think that it is the biggest single export to Venezuela, for example. As another example, we have seen this in both motor car exports, to which my noble friend Lord Lang referred, and the automotive parts industry, which, in turn, helps to grow the motor car assembly plants which flourish in the region. That is a good balance of interests. The digital economy, which has been referred to, can also play an important role in the future.
Nevertheless, things still need to be done. Languages have been mentioned. The importance of even a basic knowledge of the language and, therefore, the customs of the country where a company wishes to operate is of immense value. I hope that the Department for Education and those who consider the national curriculum will take note of that.
The implementation of trade treaties, as well as their ratification and monitoring, is important. It was drawn to my attention recently that the trade agreement between the European Union and central America, which I think was entered into a year ago, has not yet been ratified by the United Kingdom. Indeed, only 12 of the 28 European Union countries have so far ratified it. I hope that my noble friend will be able to give us some good news on that score.
The third thing that needs to be emphasised, about which my noble friend Lord Cope spoke eloquently, is of course the need to help and support SMEs. There are important opportunities in central America, where there are small countries but many opportunities. I declare an interest as the honorary president of the Central American Business Council, which last year organised a very important conference, UK-Central America—New Business Opportunities, which led to a number of new companies entering central American markets. With the opening up of Cuba and the re-establishment of relations between the United States and Cuba, I hope that we will not lose our place, given that we have nurtured our relationship with that country and that our Foreign Office Minister visited very recently.
I end with a plea for consistency and follow-through of policies, which are clearly now moving in the right direction. Whatever Government emerge after the election, I hope that they will keep up the good work.
Lord Selsdon (Con)
My Lords, I am most grateful to my noble friend for giving us this opportunity to look at trade from a wider point of view. I should probably declare my interest although I am always confused by it. I was working happily in the building materials industry when suddenly my father died and I was told immediately that I should go to the House of Lords.
I did not know any Lords. I waited to be invited but no one wrote to me. I then realised that I had to prove who I was, which was quite difficult. My father was called Lord Selsdon and I was Malcolm Mitchell-Thomson. I came to the House and met Lord Jellicoe and Lord Shackleton, who became two of my great heroes. I was then made to give up my job in the manufacturing sector and go into economic consultancy—although I was not good enough—dealing with trade. Then Lord Shackleton grabbed me and said, “I would like you to be involved with my East European Trade Council because things are going to happen over a long period of time and by the time that things do happen that are beneficial for the United Kingdom I will probably be dead, but you will still be alive”. At the same time, Lord Jellicoe said to me, “You are joining an economic consultancy company. I am sure they will let you take time off in the afternoon as long as you work at weekends”. I was to deal with export and trade finance.
Our first clients were the Japanese, who wanted to know about motor cars. Somehow, I did not believe that the Japanese made motor cars or were any good at that. We did a research project for them on opportunities in the United Kingdom automotive market. I did not know that one of the main reasons for this was that they drove on the same side of the road as we did. That led in due course not so much to the marketing of Japanese cars but to looking at what products and services they could sell to the automotive industry. Later, we organised a trade mission to Japan and Bentleys and Rolls-Royces arrived there. I did not believe that the Japanese would drive those cars. The manufacturers sent left-hand drive cars by mistake, so we had to explain to the Japanese that, if you were a gentleman, you could drive your own Bentley as well as having a chauffeur, but that if you had a Rolls-Royce, you must have a chauffeur, and having a left-hand drive car meant that the chauffeur could open the door on to the pavement and help the customer. These were little things but I watched the Japanese logically and seriously develop and expand this area over time. The automotive sector has done extremely well. My own interest in it is that my father spent his life motor racing, but that is another story.
From there I moved on to do trade research. I was put on the East European Trade Council and then one day I met a charming lady called Patience Wheatcroft—now the noble Baroness, Lady Wheatcroft. She interviewed me and more or less took me apart by asking me questions which I had no idea how to answer, but I continued on the trade front. Then Lord Jellicoe said to me, “We are going to put you on to this European lark. We will put you on the Council of Europe”. I was not quite sure what that was. However, he continued, “Ask your employers to let you take some time off and you can go and see what we can do with Claude Chaisson’s money and develop opportunities in Africa using the European Development Fund”. Before I knew it, I was shoved into an aeroplane with His Royal Highness the Duke of Kent, Lord Jellicoe and others, and off we went to explore the French territories. I have to say that I did not know where the French territories were, nor did I know the historic relationship. So we were going down the west coast of France and almost not realising where we were, but it was a great experience.
I found something that worries me today. I received from the Office for National Statistics a release of 23 January exploring the deterioration in the United Kingdom’s current account in recent years. The first lines read:
“The current account deficit widened in Q3 2014, to 6.0% of nominal Gross Domestic Product GDP, representing the joint largest deficit since Office for National Statistics … records began in 1955”.
I am not sure that things are as bad as that makes out. We may indeed have a current account deficit. In general, our biggest trade deficits have been with Germany, China, Norway, the Netherlands, Hong Kong, Italy, Japan, France, Benelux, Canada, Russia and Turkey. Our surpluses, surprisingly, have been with Ireland, the United States and, in general, Middle East countries. It is a difficult thing to look at because one thing that has happened in the internationalisation of the United Kingdom in recent years is that we have had a high level of immigration and of people from overseas countries wanting to work and contribute to the UK economy. We have probably the best international relations of any nation. I refer again to the situation relating to the Commonwealth—a remarkable collection of nations which are coming together, but we do not have any trade surpluses with them.
As I said, our two greatest trade surpluses are with Ireland and the United States. I find that quite interesting. Can we finance a trade deficit? Are we going to have trade surpluses? With which countries should we or could we operate? I return always to a map of the world. Historically, we have no raw materials or resources other than coal. Everything that we got came from overseas countries, where we managed to create added value. At the moment, the deficit that we have on manufactures can perhaps easily be supported by income flows. The Office for National Statistics document stated that there was also a record deficit in 2014 of 2.8% of nominal GDP,
“a figure that can be primarily attributed to a fall in UK residents’ earnings from investment abroad”—
I had forgotten about the earnings from investment abroad that was so significant to our economy—
“and broadly stable foreign resident earnings on their investments in the UK”.
Perhaps the Government can give us some idea of what the foreign residents’ investments are in the United Kingdom at present, and how significant they are to the economy.
Over my years in trade finance, I have never been quite as confident as I am now. I realise that I was completely wrong to feel negative about the balance of payments and trade of this sort. We are, without doubt, the world’s most favoured country—regardless of how, why and when we got there. It seems that interest in the United Kingdom—whether it be for education, training or security—is considerable. I congratulate those who have spoken today and am very grateful if somehow from this debate we can give increased confidence in the United Kingdom.
The Earl of Shrewsbury (Con)
My Lords, I congratulate my noble friend Lady Wheatcroft on securing this important debate today. I declare an interest, which is non-remunerative—sadly.
My noble friend Lord Bamford is currently overseas and is very disappointed that he is unable to participate in this debate on a subject that is, naturally, very close to his heart. He is out there promoting exports. He has asked me to represent his views as well as my own to your Lordships today and to make the case that, while much has been done by the Government to support UK exports, more still needs to be done.
As noble Lords will be aware, my noble friend’s family business, JCB, is one of Britain’s leading exporters. In fact, around 75% of the company’s UK production is exported to more than 150 different countries every year. To give this some context, more than 26,000 JCB diggers left our shores through the ports of Southampton, Felixstowe or Bristol last year. As a result, the group secured export revenues of well in excess of £1 billion, making a very healthy and positive contribution to the nation’s trade balance. So congratulations to JCB and to other UK-based manufacturers like it. For example, in the UK car industry, of the 1.5 million cars manufactured here last year, nearly 1.2 million were exported. In terms of value to the British economy, the wholesale value of car exports was £26 billion last year. That is an astonishing performance from our automotive industry, which has been well supported by this Government.
Construction equipment and cars are just two examples of British export successes; there are many more—in industries as diverse as fashion, pharmaceuticals and, close to where I live near Stoke-on-Trent, the ceramics industry, with major exporters and famous names such as Steelite, Churchill, Dudson, Wedgwood and Portmeirion. Even closer to where I live are some top-class SMEs, such as JBMI Group Ltd, which recycles aluminium, much of it from the automotive industry, and other waste products from the smelting industry. Instead of sending such waste materials to landfill, it follows the encouragement from Brussels directives to produce worthwhile products from waste, and they export. Yet Her Majesty’s Government could help more companies such as this one by the reduction of red tape and a quicker, more positive action and decision-making process by the Environment Agency.
Your Lordships may be aware that UK television exports were worth nearly £1.3 billion in 2013. It seems that “Downton Abbey” and “Top Gear” are as highly regarded in overseas markets as JCBs and Jaguars. My noble friend Lord Bamford is justifiably proud of his company’s export successes. JCB has been exporting for several decades, and in many ways, as a leading player in its sector, exporting comes easily to this giant in manufacturing.
However, as a leading and innovative businessman, my noble friend is acutely aware that, for many smaller companies, making that first step into export markets can be extremely daunting, and that, having made that first step, achieving growing export sales can be most challenging. From the safe haven of British soil, the intrepid businessman or businesswoman has to navigate the labyrinth of different languages, different cultures, payment terms, credit lines and complex distribution channels. This Government have done much to assist SMEs, for whom the export challenge is probably the greatest. Both my noble friend and I pay particular tribute to our noble friend Lord Livingston, who, just 12 months ago, started out in his role as Minister for Trade and Investment on a promising path to help our small and medium-sized companies.
In his report on UK manufacturing, published in 2012, my noble friend Lord Bamford recommended that UK Export Finance expand its activities to assist exporters, and he is pleased with the wider range of products that it now has to offer. My noble friend has been most keen for our embassies and consulates to support British businesses in overseas markets. Recent experience shows that they have become much more commercially focused, which is a positive step forward. However, my noble friend would be the first to admit that more needs to be done to promote exports in an increasingly difficult trading environment, with BRIC economies having slowed and ongoing troubles in the eurozone.
In my noble friend’s opinion, much of the effort needs to take place here in the UK to convince and reassure businesses that developing and growing export sales is a worthwhile task and not to give up at the first hurdle. This Government have established an excellent framework, with UKTI offering the support of trade advisers and UK Export Finance providing help through its wide network of export finance advisers. But there needs to be a step change in how we market these services to UK-based companies, particularly to those in smaller companies for whom the perceived risks of exporting will be considerably higher. I know that my noble friend the Minister understands the need to do more.
When I asked my noble friend Lord Bamford what advice he had to offer any company contemplating exporting to overseas markets for the first time, his reply was, quite simply, “Don’t necessarily start in Europe. Think also of the Commonwealth”. This view mirrors the UK’s trade situation, in that the value of exports from trade outside the EU is greater than it is from trade with EU countries. The latest available statistics from the ONS for the year to November 2014 state that the value of non-EU exports was £149 billion compared with EU exports worth £136 billion. My noble friend’s point was this: although France is closer geographically, it may be easier and more worth while to sell to India, Canada or South Africa, where language is not an issue and where we share the bonds of history. The EU is an important market for JCB and many other manufacturers, but the bulk of that company’s revenue comes from India, the Americas, Russia—though not at the moment—and the Middle East. Our country’s sights need to be set further east and more to the west.
The Minister will recall that when he attended the “Meet the Mittelstand” conference held in JCB’s Staffordshire headquarters just over a year ago, he announced that UKTI,
“will be contacting every mid-sized business in the country … to find out if they want to start exporting … Or, if they are a current exporter … whether they are looking to expand into new markets”.
My noble friend’s stated aim was that,
“there should not be a mid size firm who does not export to their potential, due to a lack of awareness of the support government can provide”.
Might my noble friend the Minister update your Lordships on the progress made in contacting those 8,900 mid-sized businesses, and on the extent to which they have taken up the government support being made available through UKTI and UK Export Finance?
My family motto is “Ready to accomplish”. My noble friend Lord Bamford’s family motto is “Jamais content”—“Never content”. Perhaps UKTI should adopt these mottos for itself.
Lord Sherbourne of Didsbury (Con)
My Lords, it is a great pleasure to follow my noble friend Lord Shrewsbury. I want to begin by quoting from a debate in this place in 1961, when the Earl of Bessborough said that,
“we live or die by our international trade”.
He went on to call for,
“a national crusade to excite the spirit, to revivify and stimulate every facet … of the export drive”.—[Official Report, 22/3/61; col. 1155.]
It is quite clear from today’s debate that that crusade goes on. I want therefore to congratulate my noble friend Lady Wheatcroft on having secured this debate.
My noble friend Lord Selsdon referred to the balance of payments deficit. In the 1960s, that was the great, dominating economic factor. Today, the economic debate is dominated much more by the national finances and the deficit, which this Government have to bring down. However, there is a considerable balance of payments deficit, so this debate is very important.
I want first to acknowledge the tremendous effort made by our exporters and the success they achieve. I say this because I am always conscious of how easy it is for people who, like me, are not in the business of exporting to encourage and exhort other people to go out there and sell. I remember Mrs Thatcher when she was Prime Minister reading a speech of one of her Trade Ministers in which he had said that we needed more people to go into business, into manufacturing and into exporting. She said, “Well, if you think it’s so important, why didn’t you?” It was a very fair point.
Exporting is hard work. There are many challenges. Other speakers have referred to the juddering growth in European countries, to the volatility of the exchange rates and in particular to the recent plunging of the euro which makes our exports to eurozone countries less competitive. This is just one of the many reasons why it is important to look to markets outside Europe. I was especially struck by what the Institute of Directors found in a recent survey: that its members export more to Spain than to China and more to Belgium than to India.
I want therefore to say just a few words about the importance of understanding and speaking a foreign language, which my noble friend Lady Hooper mentioned. Although my noble friend Lord Risby was right that it is a tremendous asset for Britain that so many countries speak English, it is important that more of our people have a foreign language.
In October last year, a survey by the British Chambers of Commerce showed that 35% of firms reported a skills shortage in languages. It called for more of a “global mindset”. This is where foreign languages can help. It is not just a matter of speaking another country’s language; it also opens the door to an understanding of their culture. I was shocked when I discovered last year that of all A-level subjects passed in state schools, only 3% were in modern languages. I therefore welcome the steps taken by the Government to ensure that modern languages are taught in our schools. We are beginning to make real progress there.
I was looking the other day at who attended the World Economic Forum in Davos this year and the sectors they represented. The vast majority of attendees came from the various service sectors. By far the biggest cohort, by a mile, came from what Davos defined as the public sector, civic society, arts and academia. Then came media, information and entertainment. Then came banking and professional services, and comparatively few from manufacturing. There are two striking conclusions. One is that those who are in the hard business of exporting probably do not have the time to go to Davos. Secondly, it reminds us that the exporting of services is very important, and there is a great success story here in banking, insurance and financial services. But we also have in Britain some of the most creative talents and companies in the world. The export successes of our television companies have already been referred to. The BBC exports “Planet Earth”, “Top Gear”, “Doctor Who”, “Strictly Come Dancing” and “Sherlock”. ITV sells “Mr Selfridge”, “Agatha Christie’s Marple”, “Agatha Christie’s Poirot” and “Lewis” in more than 150 countries. So there is a great success story there.
Another extraordinary success story, referred to by other speakers and in particular by my noble friend Lord Stoneham, has been that of car exports. Five million cars have been exported during the past five years.
As I said, companies do not need exhortation from government but they do need help. I hope that we will hear from my noble friend the Minister on what the Government are doing. I know that our embassies, which have huge reserves of understanding of local languages and culture, have been reinforced with commercial expertise. How far is that providing the assistance and intelligence that companies need? Are they providing enough information about export opportunities? Is that information getting through to the right people? I know that there is more co-ordination between the FCO and UKTI; is that working well? We know about the many trade missions, often led by the Prime Minister and by my noble friend the Minister. Is he satisfied that there is sufficient and effective follow- through?
On UK Export Finance or ECGD—my first job as a trainee in a merchant bank was in the bank’s export finance department—can the Minister tell us what progress is being made to extend the availability of export credit and to increase awareness and utilisation of ECGD? I look forward to hearing from him.
Lord Trefgarne (Con)
My Lords, I beg leave to make a short intervention at this point and to apologise to your Lordships for not having placed my name on the speakers list earlier.
I want to ask my noble friend about the position of departmental support for defence and security-related exports. As my noble friend will recall, responsibility for this work transferred from the Ministry of Defence to UKTI in 2008, if my memory serves me right. It was not always obvious why that was done. Defence exports need the support of the Ministry of Defence and the Armed Forces, which I am sure they still have, but it is less easy to do so when it is a cross-departmental matter. The present head of the UKTI Defence & Security Organisation, Sir Richard Paniguian, does a terrific job, but he is in UKTI and not the Ministry of Defence. I hope the possibility of reviewing these arrangements can be kept alive.
I apologise to my noble friend for not having given notice of this matter. If he prefers to write to me with his thoughts, I would be happy to receive them.
Lord Stevenson of Balmacara (Lab)
My Lords, I thank all speakers for a very interesting and informative debate. It has been very wide-ranging and has drawn on history as well as current practice. That is all thanks to the noble Baroness, Lady Wheatcroft, who tabled the debate. We are very grateful to her for that. As other noble Lords have said, she has spoken in many economic debates in your Lordships’ House. I am sure that I am not alone in enjoying the way that she smiles as she damns with faint praise.
The title of the debate is intriguing. We are asked in this debate to “take note” of the Government’s support for British exports—not to judge it, to praise it or to revile it, just to note it. That is obviously easy to do. I noticed a few criticisms in the noble Baroness’s speech. I thought she gave the Government a bare pass mark on progress so far and particularly enjoyed her little riff on the difficulties that SMEs must have in accessing the UKTI and UKEF websites. We have heard that before from the noble Lord, Lord Leigh of Hurley, who indulged us with the attempts that he has made to try to get down to any sensible source of finance for these areas. We are aware of that. The noble Baroness picked up on it, and I hope it will also be picked up by the Minister in his response. In the last quarter of her speech she was a bit critical about some other areas of activity, including the impenetrable way that we report our trade statistics, which must make this very difficult. Handbags may not be the only issue about which we have to get further and better information before we can understand where that trade is going.
The noble Baroness was right to pick up on the fact that many Governments across the world support exports, including that of the United States of America. Why are our Government not doing more than they currently are doing? Why are they not picking up that special tax deductions and financial incentives are available in some of our competitor countries? Like many noble Lords, she also picked up on the visa problems in India, China and many other countries, and on this absurd proposal to require our overseas students to go home as soon as they graduate, which is doing so much damage across the world.
I also welcome the noble Lord, Lord Livingston, back to the House. He is a rare but very welcome visitor, but that is of course because he is doing such good work outside the House. We pay tribute to that—not only to him but to his team of trade envoys. We have heard a bit about them today, and they are also doing great work.
We on this side of the House of course accept that improving trade will be vital to growing the UK in the coming decade. Boosting exports must be a national mission and we must support the Government in their work. The world is changing faster than we can comprehend, with global economic forces moving south and east. This is creating huge opportunities in a world where, as the noble Baroness, Lady Wheatcroft, said, the global middle class is expected to treble to some 5 billion people in the next two decades, offering huge opportunities.
The 2008-09 crash exposed long-standing structural problems in our economy, which was unbalanced by sector and by region and short-termist in its corporate culture, leading to low levels of business investment and low productivity. It had a dysfunctional finance system at its heart and a stubborn and increasing trade deficit, which many noble Lords have mentioned. Although some growth has finally arrived, which is welcome, it is not the balanced and sustainable growth that we need. Prices are still rising faster than wages and the continuing cost of living crisis for many means that individuals are, on average, £1,600 a year worse off compared with 2010. A “business as usual” recovery is not good enough. To set the foundations for future success, we need to take a different approach.
We on this side have a long-term plan to earn and grow our way to higher living standards. Our goal is a high-productivity, high-skilled, innovation-led economy. To get there, we need more British-based businesses creating good jobs, investing, innovating and, of course, exporting. Our plans include radically reforming vocational education and apprenticeships by putting employers in the driving seat, creating a higher-skilled workforce with greater foreign language skills, driving up productivity and underpinning higher wages. We plan to support lending to businesses by creating a proper, independent British investment bank, and a network of regional banks with a responsibility to boost lending in their areas. We plan to support green growth by backing the 2030 decarbonisation target and giving the Green Investment Bank borrowing powers. We plan to establish a small business administration to champion small business at the heart of government. We plan to devolve powers to cities and regions to boost growth and rebalance the economy, allowing local knowledge to solve local problems, and to encourage a longer-term decision-making culture in business and government, through rules and incentives for business that reward a longer-term focus and an ambitious industrial strategy to support long-term growth. However, this debate is focused on exports. I will concentrate on that for the last part of my speech.
The noble Lord, Lord Lang, in a good speech, warned us about relying on short-term statistics, but the news is not good. The headline news from the Office for National Statistics, in its latest report, is that the value of goods exported is the lowest since October 2010, while the goods deficit—excluding oil and items such as precious stones and aircraft—has widened from £8 billion to £8.5 billion. For these statistics to improve, Britain’s small and, in particular, medium-sized businesses, which are the right focus for this activity, will need to up their game on exports. They will look to government for that support, and key to that is ensuring that they have access to the finance they need to export. That is why the performance of the Government’s two flagship export schemes—the export refinancing scheme and the direct lending scheme—are crucial.
Last month, the ONS said that UK exports have “remained largely flat” in the last four years. Last month, it downgraded the UK’s trade forecast for this year, last year and each of the next four years. Despite what the noble Baroness, Lady Wheatcroft, feared we might say about this, we support the ambition behind the Prime Minister’s suggestion that exports need to go up to perhaps £1 trillion a year—what we complain about is the lack of success in achieving that. I think she might share a little of that. Where are we on these plans? Can the Minister in his response give us a sighting shot of where he thinks the target will be? I think it will be less than £1 trillion—I may bet on that, although I am not a betting person—but it is also important to understand whether we will get the 100,000 new firms involved. I would be grateful for his comments on that. It has also been reported recently that the £5 billion export refinancing facility, launched two years ago, has still not helped a single business. Can the Minister explain where we are on that?
We have fantastic, innovative business groups in our country, and many important advantages on which we can build up our exports. We have a strong British brand; our language, our legal system, and our time zone work in our favour. As was mentioned, we should be drawing on the rich cultural tapestry of Britain, building on the links with our diaspora communities to strengthen trade links with emerging markets and exploiting our potential. To grasp these opportunities, the Government need to act and support them. Governments can help by doing what, left to their own devices, markets cannot. Markets cannot set strategic direction; government can. The automotive industries mentioned earlier are a good example of that.
Early stage, fundamental research is often too risky for businesses. It is important to recognise the role that the US Government played in financing and operating many of the innovations behind the digital economy. Silicon Valley venture capitalists took the plaudits, but they were standing on the shoulders of federal government investment and support over many years.
Taxation has a role to play. The re-emergence of the British film industry was largely due to the tax breaks which the previous Government introduced. To their credit, this Government have continued and extended them, so there is now good support for cultural and creative industries in high-end TV drama, animation and live theatre. We need more, perhaps in the craft, design and related sectors, but this has been a great start.
Government can regulate to improve things. Government can also foster clusters and other institutions that help pre-market co-ordination and support. When all this comes together, the Government can put it into a package. I hope the Minister can reassure us that the Government are on track on some of the issues that have been raised during this debate. These include the Select Committee report, Roads to Success, as mentioned by one noble Lord, and the NAO criticism about the lack of clarity and focus between BIS and HMT. There is also the potential failure of the export funding schemes and the real concern about the way in which UKTI and UK Export Finance are helping small and medium-sized businesses. Perhaps he could make particular reference to the correspondence we have exchanged about the cuts in the support for SME attendance at trade shows. We also heard worries about TTIP, and we need to think about how we are going to gather all this together in a policy. I look forward to hearing what the noble Lord has to say.
The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Livingston of Parkhead) (Con)
My Lords, I am extremely grateful to my noble friend Lady Wheatcroft for initiating this important debate. It seems only a few years ago that we were both in the retail industry. She was then editor and part-owner of Retail Week and I was a mere finance director at Dixons group. We have aged not at all since then. I am also encouraged to hear so many positive interventions in support of UK exports.
As my noble friend Lady Wheatcroft said, this is a difficult time to try to grow our exports. In the UK, we have seen a strong economic recovery, reflecting a good long-term economic plan, but the economies of many of our closest trading partners who have followed different paths continue to struggle. As my noble friend Lord Lang commented, the strong pound has had an impact. Imports and exports of precious metals, diamonds and oil have led to a muted export performance.
My noble friends Lord Selsdon and Lord Sherbourne both raised the issue of the current account or balance of payments deficit. I should clarify that this is different from the balance of trade. We have seen a worsening of the current account deficit, reflecting greater investment in the UK in areas such as gilts. The UK has run a high trade deficit over a number of years and that is one of the reasons for it. As a Government, we are at the forefront of reducing that deficit and returning to surplus, which will, in turn, improve the current account.
The trade deficit element of the current account is a better story, although there is still more work to do. In past years, when the UK grew faster than its competitor countries, we sucked in imports and the trade deficit worsened. This year the deficit is running at about 2% of GDP. By contrast, under the previous Government, it ran at 2.5% of GDP. In the past three months, we have seen further improvement still. Last month’s numbers were the best for 17 months.
We should also not forget that the UK is the world’s sixth largest exporter. I can reassure the noble Lord, Lord Kirkwood, that manufacturing is hugely important and we are very proud of it. We are also proud that we are the second largest exporter of services in the world. I do not see these as alternatives; in fact, they support each other. We are also the second largest aerospace exporter in the world. Many noble Lords have mentioned our car industry, which is now the second largest in Europe, with the vast majority of what it produces being exported.
Despite problems in the eurozone, we are seeing strong growth in many new markets, with exports to China having doubled over the past four years. So we should not talk down our export capability, as some of our detractors do. When I go around the world promoting trade, I increasingly find that people have a positive image of British products and services. We are seen as innovative, cutting-edge and high-quality. We need to do much more; but we should do it by building on these strengths, not by ignoring them. I make no apology for our ambitious targets in doing so.
The Government have tried massively to enhance the support and advice available to UK companies to help them export. This is not a short-term role. UK Trade & Investment has increased the number of businesses we support each year from 27,000 in 2010 to 50,000 now—a near doubling in the support provided. For instance, we have substantially increased support to trade shows, events, missions and programmes. The noble Lord, Lord Stevenson, asked about this. The Tradeshow Access programme has increased by one-third since the previous Government. It is a bit lower this year than last, but last year was a record year. This is not just about helping companies to attend roadshows but about providing pavilions and assistance to make sure that those attendances are productive. This year alone we expect to help more than 50,000 companies at international events and trade shows, rising to 60,000 next year. We are working closely with trade associations to plan next year’s events well in advance.
We have also run a number of major festivals. We were heavily involved in the Liverpool International Festival for Business and I commend the city of Liverpool for its efforts in creating the largest single business festival in the world last year.
We also held the Commonwealth Games in Glasgow. We invited a number of Commonwealth countries and had two days of business events around it.
The NATO summit at Celtic Manor was also a wonderful event. It was not just a meeting of Prime Ministers and Defence Ministers but also an opportunity to show our defence industry exports.
This year, we will have a major exhibition of the UK’s creativity at the GREAT festival in Shanghai. We will also have an impressive presence at Milan Expo, which will highlight the UK food and drink sector and innovation in particular. I commend it to all noble Lords to try to attend that event.
We have also been targeting our efforts on the projects that are worth most to the UK. Our High Value Opportunities programme has delivered more than £20 billion of business for the UK over the past three years. It has won business for large companies and for small companies in their supply chain as well. Railways, healthcare and oil and gas are but three sectors where this has happened.
As my noble friend Lord Cope stated, smaller businesses need particular help. Last month the Government announced an additional £20 million of funding to help smaller companies become first-time exporters. Export advisers will give them access to a new incubator service, insight visits to markets and an expanded programme of trade fair and events support. For those small companies, online is often a good first step into new export markets. As part of our e-exporting initiative we have signed partnerships with major e-marketplaces from China to South America to Japan. We also provide specialist advice on how to set up websites for overseas markets and a databank of more than 400 international e-marketplaces. I believe this is a world first.
My noble friends Lady Hooper and Lord Sherbourne mentioned languages. We recognise that companies need help, to overcome not just language barriers but also cultural and localisation barriers, to succeed in their export efforts. We have supported more than 700 companies through our innovative service, including the e-commerce for international trade master classes, which take place throughout the UK. Our new language and cultural advisers are helping hundreds of companies. We are piloting a number of events and services that take advantage of the ability of the foreign students we have in the UK. We create temporary placements for graduates and postgraduates in companies to help with both language and cultural understanding. I was recently in Sheffield, launching such a scheme with Chinese students to help local companies.
Finance is an issue for businesses. I am grateful for the many positive comments that noble Lords have made. UK Export Finance has launched new products to meet the needs of smaller companies. It has recruited 24 new specialist export finance advisers to guide them through the increasingly difficult and complex world of export finance. Our progress has been recognised by the British Exporters Association. In 2010, it rated the UK for its product set at five out of 10. Last year, the rating was nine out of 10. Our export credit agency was voted as the best in the world last year—a really strong achievement.
Last year, UKEF supported 55% more companies than in the previous year and it is on target to do so again this year. I hope that with the changes introduced by the Small Business, Enterprise and Employment Bill we can look forward to a substantial increase in help for small companies.
The noble Lord, Lord Stevenson, asked particularly about the export refinancing facility. It was launched last year and its role is to support banks with long-term loans. It is a stand-by facility if there is a lack of liquidity in the market. Fortunately, a number of the efforts that this Government have made are supporting liquidity for long-term loans. So far it has not been called upon by the banks but it is absolutely in our locker.
There is also great potential among our medium-sized businesses. My noble friend Lord Shrewsbury raised this very issue. Only one in seven medium-sized businesses generates revenue outside the EU, whereas in Italy the figure is one in three and in Germany it is one in four, so we need to improve that. As I promised, I have written to every single MSB in the land to invite them to take up our offer of export support. They will get a named adviser and an export plan, and they will receive assistance to work in areas such as intellectual property and export finance. I am pleased to report that almost one-third of MSBs have taken up that offer, which is a pretty impressive achievement in less than a year.
My noble friend Lady Wheatcroft is correct in saying that this is not just about UKTI; there has to be a cross-government approach. We very much share that view. Together with the Treasury, for example, we are promoting UK financial services—which are very important for our export effort—with the newly created Financial Services Trade and Investment Board. Healthcare UK, together with the Department of Health, is another example of cross-government working. It has helped Britain to win overseas business worth more than £1 billion since 2013.
My noble friend Lord Leigh commented on our embassies. I echo the view that the support provided by embassies and the ambassadorial network has improved substantially. Many, many businesses comment on the positive support that they receive. A few months ago when I was in Japan, 50 British food and design companies were in the ambassador’s residence receiving support, and the event attracted 500 distributors in Japan. Similarly, when I was in France, we had French special forces at the ambassador’s residence buying equipment from small defence manufacturers from the UK. The FCO and the Department for International Development are two other departments that are working together. We are also developing a joint Africa framework, which will increase our presence in African markets. Indeed—this really goes to the question about the Commonwealth—UKTI has recently added resource to 13 of the fastest-growing economies in Africa, most of them Commonwealth countries.
I was in India just a couple of weeks ago and met Prime Minister Modi, among others. I went with 60 UK companies. I am sure that my noble friend Lord Bamford will be pleased to hear that many Indians think that JCB is an Indian company, so strong is its presence in India. That is great, because I feel much the same way about Tata—that it is a British company—and I welcome it here in the same way that JCB is welcomed in India.
I have said a lot about what the Government are doing, but clearly we do not work in isolation. The Government are working with major retail banks, professional services firms and trade associations to support the trade agenda. We have now established more than 20 overseas business networks with the chambers of commerce to complement UKTI’s international reach. If you are a small businessman going to Mexico City, Dubai, Bangalore or Warsaw, to name a few places, you will find a British business centre where you can set up, have meetings and get advice to help you with your export efforts.
The UK is a free trading nation. Many of my noble friends, including my noble friends Lord Lang and Lord Leigh, asked about progress with free trade agreements. Perhaps I may give a little bit of historical context. Korea was mentioned. Since the EU-Korea agreement came into force, our exports to Korea have more than doubled. We now have a trade surplus with South Korea of more than £2 billion. We did not have any trade surplus before that agreement. That highlights the success that free trade agreements can bring to a free trading nation such as the UK.
Last year, the EU concluded provisional agreements with Canada and Singapore, and we will be encouraging UK exporters to see these as an opportunity to take their products to new markets. The UK remains one of the strongest proponents of free trade both in and with the EU. We will be pressing continually for great progress to be made this year with TTIP—the agreement with the US, and indeed with Japan, as we must not forget. We are also supporting proposals to restart talks with India and to begin agreements with China. That is in addition to our work with the WTO and on international agreements such as TiSA and the trade in green goods. Free trade helps to bring down prices, so it is good for consumers, it helps small businesses—I highlight that TTIP will have a special small business chapter—and it is good for British jobs. I know that I have the backing of the majority in this House in my strong support for these agreements.
Perhaps I may pick up a few miscellaneous issues. My noble friend Lady Wheatcroft, among others, asked about the classification of exports. This is a challenge, particularly in the area of services. I think that the way in which we look at services is somewhat stuck in the past. Not only do services form the greatest part of our economy but many of the products that we sell come with services. Rolls-Royce was mentioned earlier. I believe that when it sells an aero engine, close to 50% of the value of the sale is a service. Yet the way that we report on services is stuck in the past. In fact, we are discussing with the ONS what we can do to improve the presentation of a number of these areas.
The noble Lord, Lord Hunt, and my noble friend Lord Kirkwood raised the issue of visas. To be clear, there is no limit on the number of visas available for students to come to the UK for proper courses. They are unlimited. Also, if those students take a graduate-level job, they can continue in the UK. However, I accept that there are perception issues, as is clear from comments in the papers. One of the discussions that I had with people from newspapers and so on when I went to India was about that very issue, and it has had an effect in India. However, overall it has not had an effect. First, students recognise that the UK has four of the top six universities in the world, the other two being in Boston, and, secondly, we are now getting record numbers of overseas students coming to the UK. Next year, we expect a new record in that number, and those students will get a very warm welcome.
Another issue raised was the EU. It is of course this Government’s policy to stay in a reformed Europe—a Europe that focuses on free trade, competitiveness and the single market. That is the Europe that we know UK manufacturers and exporters want to see. The noble Lord, Lord Hunt, also raised a question about Rolls-Royce. There is no change in the position; it is included in Rolls-Royce’s articles of association.
I also welcome overseas companies. We have talked previously about Jaguar Land Rover, which has been a rather better success under Tata than I recollect it being when it was owned by the British Government. Many British companies buy other companies abroad—for example, Rolls-Royce and AstraZeneca. The Astra in AstraZeneca is of course a Swedish company. Those sorts of companies, as well as long-term investment in areas such as R&D, are, I believe, very important.
My noble friend Lord Lang of Monkton made some excellent points about investment into the UK. Because of the right conditions that this Government have created, we are now the number one investment destination in Europe. We are increasing our lead over Germany and everyone else. An important part of that is helping the supply chain, which assists our companies in exporting. A number of months ago, the Prime Minister announced an important initiative, Reshore UK, to encourage companies to bring their manufacturing and other activities back to the UK. There is a one-stop shop within UKTI for doing just that.
A question was also raised about our progress in achieving the goal of £1 trillion of exports. Given the time, perhaps I may commend to noble Lords the 2020 Export Drive report, which I am pleased was mentioned by one or two speakers. This is a recent document in which we set out how we intend to make the next leap in our export performance. I thank my noble friend Lord Risby, in particular, for reading it, as well as for his wonderful work as a trade envoy. I share in the comments of the noble Lord, Lord Stevenson, about the work done by Members of this House as trade envoys. They are very much appreciated and very effective.
My noble friend Lady Hooper asked about Latin America. I cannot give her an update on the central America agreement but I can tell her that the Colombia BIT agreement was agreed a few months ago. We are making great strides in Latin America. I was in Mexico not so long ago with a major trade mission, and 2015 will be the year of the UK in Mexico and Mexico in the UK, which will include a state visit by the Mexican President. We have also recently established a British business centre in Mexico City. All those things will help and it will be an important market, particularly among the countries of the Pacific Alliance, which are embracing free trade and all the benefits it brings.
My noble friend Lord Sherbourne of Didsbury asked whether there is enough follow-through on trade missions. The answer is: we are doing better but could still do more. We will be looking to do just that. My noble friend Lord Trefgarne asked about DSO. I believe that the Defence and Security Organisation being in UKTI has been a major benefit. More importantly, defence companies tell me that, and a new head will be joining from the Home Office shortly. It is important to recognise that it is not just about selling aircraft, although that is important; it is about cybertechnology and security. We are working very closely with industry—I was at a reception for DSO just last week—and DSO’s performance has been extremely strong and the industry supports it very strongly.
To pick up on some of the later points, the noble Lord, Lord Stevenson of Balmacara, raised the question of the UKTI website. I echo the comments of my noble friend Lord Leigh and other noble Lords on the issue. It is very simple to contact your local ITA. Its job is to help to guide you through. I hope that all noble Lords will give that advice to many people.
The UK has great potential to build on its strength as an exporter. It needs a step change in effort, and we are delivering one. The challenges of the eurozone are not helping but we need to continue to be imaginative and ambitious. It needs to be not just a government effort but a UK-wide effort. I am grateful for the support of the whole House in this endeavour, and together we will be successful.
Baroness Wheatcroft
My Lords, I thank my noble friend for his reply. It was as thorough and thoughtful as I would have expected. I thank all noble Lords who have taken part in today’s debate, demonstrating and sharing such wide knowledge and experience. Because it has been such an upbeat and positive debate overall, I should like to end on a very positive note. When President Obama took tea with Prime Minister Modi he was wearing a quite extraordinary suit. The cloth was manufactured in this country and the suit was made by a London tailor.