International Trade Opportunities

Lord Bhattacharyya Excerpts

Thursday 7th July 2016 Lords Chamber

[Lord Bhattacharyya (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Mobarik, for the opportunity to focus on the future of British business. Trade is the lifeblood of the British economy, but the significance of trades goes far beyond the boardroom or the factory floor. As they choose their next leader, noble Lords opposite might remember that from the corn laws to imperial preference and the EU, trade policy has put them on these Benches much more effectively than my own party.

Why is trade so central to our national psyche? Britain has always been a trading nation, from the plantations of the West Indies to the tea clippers of the east. For many of us, trade is the fountainhead of our Britishness. I came to the UK as a graduate apprentice because of Britain’s manufacturing base. When I came to Birmingham, British products represented one-sixth of the world’s manufacturing exports. Manufacturing represented one-third of our economy and one-third of all jobs. With the rest of the world expanding their capabilities and technical skills, it was obvious that manufacturing exports would play a smaller role in the UK economy. Yet the contrasting performance of Germany and the UK during the financial crisis shows that it is essential to have a strong, stable manufacturing base.

Clearly, leaving Europe will cause major issues for manufacturers. Losing our voice on regulation, increased barriers, limits on recruitment and sheer uncertainty will have a depressing effect. These may be dealt with in the Article 50 negotiations. I hope that they are, although I fear they will not be. But I do not wish to focus on potential negatives today. The choice is made. To be positive, we can still increase trade while outside the EU, but it will require us to reform not merely Brussels, but ourselves. In many ways, that is a far harder challenge. It demands that we not only stay competitive in Europe, despite being on the outside, but become competitive far beyond the EU. The challenge is to improve what we offer the world’s consumers. That requires investment in innovation. We do not do nearly enough. R&D spending in Germany is 2.9% of GDP. Across the whole of Europe, R&D spending is more than 2% of GDP, but in the UK it is stuck at 1.7%. Outside Europe, the comparison is even less flattering. Compared to America, we spend a third less on innovation as a share of GDP, only half of what the Japanese spend and just a third of what the South Koreans spend. We need to match their innovation if we want to sell to the rest of the world. To achieve this, the CBI says we need to spend 3% of GDP on R&D. I believe it is the right target, but it is not enough.

That innovation also has to be outward looking and collaborative. We cannot research new technologies in a little bubble and expect to impress the world. For example, at the start of the millennium, most experts thought that our automotive manufacturing capability would more or less vanish, and we gave up. They thought that all that would survive was the assembly of foreign-designed vehicles as a stepping stone to Europe. That itself is now in trouble. The huge talent, skills and flexibility of British designers and engineers were ignored. We have outstanding technical innovation, product designers, digital technology and a science base that is the envy of researchers around the world, but decades of poor management had created a short-term mindset while failure to invest in innovation and R&D meant that that talent was wasted. Saving the neglected capability of the British car industry was the reason I asked my friend Ratan Tata to consider buying Jaguar Land Rover. We did that on a Sunday morning from my breakfast table because I knew the talent was there and we could make it a success. I had seen weak leadership and short-termism almost destroy the sector, but I believed that strong, stable leadership and a long-term approach could restore it. Even I was nervous at the beginning, but 10 years later we have one of the most profitable manufacturing industries in the country, exporting 80% of production.

We can make it in this country. How has this been achieved? It has been achieved by adopting the sort of long-term, innovation-led, collaborative industrial strategy we have lacked for more than 30 years. I stress “collaborative” because we must work with the rest of the world as equals. The arrogant language of “moving up the value chain of digital technologies” undervalues the advances made by others, fails to appreciate their consumers’ needs and underestimates what their innovations offer us. Instead, we must build partnerships with firms and universities around the world. We must invest in understanding the Indian, Chinese and Indonesian consumer, as well as our own, because we know what happens if we do not. British Steel faced the fall in global steel prices carrying a legacy of underinvestment and low innovation. I know this because it is another company I made my friend buy. I am hopeful that we can still find a solution that will secure the future of the steel industry. It was all because of underinvestment and poor management. Yet the truth is that the root causes of the steel crisis should have been dealt with well before the glut. We need a level playing field for domestic steelmakers against overseas competition, including competitive energy, labour and tax policies—mainly infrastructure. However, to grow trade we cannot merely subtract cost; we must add value. A strong trade policy, especially in manufacturing, will require an effective industrial strategy. That means not picking winners but ensuring that where an industry or technology has the potential for growth, we maximise the chances to succeed.

A strategy on its own is not enough. Attention to detail and sustained commitment are the keys to success. We must continue to push business and academia to look outward. We have to reach out to create new global partners and stand beside them in the tough times as well as the good. This matters because trade is not simply the purchase of goods but the building of relationships. So all industrial policies need to be built on a dialogue between British industry and the world. Most of all, we need to develop a mindset of competitiveness, to which the Government should always respond.

That is especially true of immigration policy. An outward-looking industrial strategy is essential for improving British trade and should be at the centre of our post-EU trade strategy. Investment from firms such as JLR and the UK motorsport industry has massively grown exports. Considering the key people who work in those companies, I would suggest that a lot of them are top-quality immigrants. The results are clear: record levels of production and thousands of new jobs.

So why is that the exception, not the rule? Because the US, Korea and Japan invest two to three times more than the UK on public sector applied science. As a result they have a private sector that invests in commercial research, whether in nanomaterials or in microprocessors. This is the engine of innovation that pushes forward their trade. By backing bodies such as Innovate UK and listening to groups such as the CBI and the Automotive Council, the Government can use our strength in science to get the private sector to invest in innovation, and that will drive trade. That is how we drove trade in the past.

So I ask the Minister to assure the House that innovation will be a key priority in our planning for a post-EU Britain. To succeed, we have to be competitive, we need the mindset to collaborate with the best, we need the resources to innovate with the smartest and we need the partners to invest for the long term. Investing here will increase our national wealth, spread prosperity more widely and build a broad-based, growing economy, instead of what happens now. If anyone goes to the Government for anything they are told, “It’s against EU rules” or, “It’s against state aid”. They will use every excuse under the sun, and then no one will be welcome in this country because of all these problems.

The secret to a strong trade policy is simple. Ultimately, it is simply making products that people in the rest of the world do not have and find that they want. That is how Britain led the first Industrial Revolution, even outside Europe, and it is still the key to success today.