Brexit: Domestic and International
Debate between Baroness Mobarik and Lord Mendelsohn
Lord Mendelsohn (Lab)
My Lords, I thank the noble Lord, Lord Leigh, and congratulate him on securing this debate, which has been very interesting. As ever, the noble Lord demonstrated his great commitment to this House with a very interesting exposition of his views. One illustration of the way in which the debate has changed matters is that, during the course of this debate, Belgium has backed the trade deal with Canada. Many things change quite slowly in life, but it seems that in the world of international trade things that might have taken years change very quickly. Perhaps it is the power of the conversation in this House.
I also congratulate the noble Lord, Lord Gadhia, on his maiden speech, which was a truly excellent speech. I was most impressed as he read out his list of mentors and sponsors. It started to appear that it was a new board of directors of a company. One could be mistaken for taking such a view, given his distinguished career—he is now with the great behemoth, the Blackstone Group. We look forward to his contributions in this House and wish him much enjoyment and strength here.
It is also a pleasure to have the noble Baroness, Lady Mobarik, here for the first time, I believe, in her role in the department—
Lord Mendelsohn
This is her first time speaking in a debate. The noble Baroness is very well-known. She performed hugely effectively as the president of the Scottish CBI and is well-known as a champion of SMEs and family businesses. We wish her well in responding to the debate.
It has been a very useful and broad debate. We have had a number of very interesting contributions—started by the noble Lord, Lord Leigh, but there were others such as the noble Baroness, Lady Finn—that showed great enthusiasm for our prospects. Those were sensibly tempered by the wise words of my noble friends Lord Haskel, Lord Davies and Lord Hunt, who have raised a number of the issues that we have to demonstrate. The noble Lord, Lord Livingston, also made a very important point about how difficult it is to export and how difficult some of these issues really are.
The noble Lord, Lord Horam, made a very good point about the fact that there can be losers in free trade, which is important for us to recognise. I also want to associate myself with a number of questions that the noble Baroness, Lady Kramer, made in an outstanding summary speech. They are questions on which we are looking for the Government to give as much guidance as they can in the weeks ahead.
There is a new department in town. We on these Benches welcome the elevation of international trade to departmental level. It reaffirms our commitment to ensuring that Britain is seen as a great place to do business and that British products and services continue to be considered of world standard; this must be not just a means to usher in a new deregulatory agenda that is not so much about free trade as about rolling back standards on rights and protections. The department really needs to make sure that it adds power to trade promotion and works properly for the interests of SMEs as well as big business.
So the question at this stage is: what has the department been busy doing? Well, a tweet from the Department for International Trade requesting British jams has caused a major stir on social media. The department tweeted:
“France needs high quality, innovative British jams & marmalades #EXportingisGREAT #ExportOpps”.
It is linked to an advert saying:
“A fine food representative/agent, with good connections to gourmet distribution and fine food retailers on a national level, is looking for British food & drink brands which offer innovative and high quality jams/marmalades”.
It seems, however, that a few people did not take the appeal entirely seriously, with some suggesting it was straight out of “The Thick of It”, and others questioning whether the account was supposed to be a parody. I will read out some of the tweets and responses. One said:
“Tell me more about these innovative jams. Are they wi-fi enabled? Future-proof? Self-spreading? What's the future of jam?”.
Another said:
“You do realise you’re a government department, don’t you? This is international trade, not an episode of Bake Off”.
I have some sympathy for the Government, whose overriding strategy has been defined by the result of a referendum that they neither wanted nor planned for—a referendum that was a rejection of the real and an affirmation of an aspiration. The Government will be respected for their desire to be honest on the size of the challenge and the breadth of the changes needed. They will set themselves up for failure if they do not.
Some will say that Brexit helps us focus on the world beyond Europe, as if this was a sudden or new revelation. The European Commission’s trade and investment strategy, written in 2015—in which we played a significant role—is explicit in saying that 90% of future global growth will take place outside Europe’s borders and a variety of tools will be needed to ensure that Europe continues to thrive. Indeed, it is not just about commerce but also the values that we ascribe to commercial activity: human rights, sustainable development, anti-corruption, high-quality regulation and effective investment in public services. While we may not have even triggered the first steps in leaving, let alone defined our trade relationship, it does seem obvious that Europe is likely to be our most important ally in what even its most ardent detractors describe as the UK returning to leadership in free trade, competition and property rights.
We are where we are, and I hope that the Government will not mind some constructive thoughts and reasonable questions. There is only one thing more painful than learning from experience, and that is not learning from experience.
First, we have to address some of the weaknesses in our trade performance. Published data show that the UK ranks almost at the bottom of OECD countries when it comes to export growth since 2010. In dollar value, in 2015—pre-Brexit—we were the fourth biggest exporter. I think that we are two places lower now, but irrespective of that we need to do more than just recover our position; we need to excel.
Our export growth depends on a variety of factors. One of the most significant is whether the markets we are looking to export to need the goods and services that we are offering. The markets in developing and fast-developing nations have a demand for raw materials and capital goods, which are not our strongest point. They will be harder to create significant trade with, and we must focus very carefully on where we prioritise.
But it is not just about the UK’s performance. Since the late 1990s, the UK and the G7 have been in decline, as competition from emerging markets has increased. Our performance, however, has not been as good as countries such as Sweden, the Netherlands and Austria, and a very few, such as Germany, have increased their share. We have to raise the number of exporters and exporting businesses. I think that the Government had a target of moving from 188,000 in 2010 to 288,000 by 2020. But actually we need to reach around half a million to have any possibility of increasing our capacity.
I would like to know whether the Government have a new strategy for developing trade, and whether the Minister can give us some idea of it. In particular, we need a real sense of what we are going to do about our performance on goods. The UK is, I think, the 10th largest, by dollar value, exporter of goods. Naturally, China, America, Germany, Japan and France are there; we are, I believe, behind Italy, the Netherlands, Hong Kong and South Korea.
The size of the manufacturing sector has declined, but we have a couple of lagging problems. For example, UK manufacturers import 60% of the final value of their production from overseas, which makes it very difficult for us to get the full value of the drop in sterling. In the US, 30% of the final value is from imports. In addition, UK manufacturers have contracted out their offshore manufacturing rather than buying or building factories. Between 2010 and 2014, German companies invested in 165 manufacturing and 54 logistics projects a year compared to the UK’s 29 and 10 respectively. For an effective trade strategy, we will need to support overseas investment and have more effective targeting of FDI. FDI has changed: net outflows exceed net inflows, and therefore too much of just asset purchasing is insufficient to help us.
We need to plan for how we can continue our world-class performance in services. We are the number-two global exporter, with China, Germany and Malaysia hot on our tail. To remain world-class, we will need to overcome some of the issues around the fact that a lot of our services are dependent on our expertise in Europe, and the problems of finding new markets. It is important that the Government devise a strategy for that.
The country has chosen a new and difficult challenge for us, which will require all our skill—and our agreement that our past differences should be set aside for the sake of our future. We cannot take our future success for granted. I am in business and I have learned that opportunity is usually disguised as hard work, so most people do not recognise it, and I am a strong believer that hard work beats talent when talent does not work hard. We have to be prepared to work hard, to make this situation work and at times to get it wrong—mistakes are proof that you are trying. But I caution the Government that, without direction, their mistake could be that they do not show that they are serious about trying.