UK Industry: International Competitiveness

Lord Flight Excerpts

Thursday 5th July 2012 Lords Chamber

[Lord Flight]

My Lords, I congratulate the noble Lord, Lord Jenkin, on introducing this debate and on raising a mixture of extremely important issues. I am particularly pleased that the noble Lord, Lord Green, will respond and I look forward to hearing what he has to say on the excellent work that he has been doing globetrotting and promoting Britain. His was a very important appointment by the coalition Government.

My interests are those declared in the register. Some of those companies are significant exporters of services. To me, services and manufactured goods are all the same pot. Quite where the division lies, I am not quite sure. Is software a manufactured item or a service?

It is clear that we are doing okay and have more to offer in the life sciences—as the noble Lord, Lord Kakkar, pointed out—in the software industries, in business services, in quality goods and services, and in education both in this country and about the world.

We have not done too badly in continuing to attract inward investment. It is particularly interesting that we are one of the most successful car manufacturers in the EU—I believe that car exports have risen to their highest ever level quite recently. We can make good cars here at competitive prices if the management is up to managing it properly.

It is true that sterling was overvalued for too long and that devaluation has made it more competitive, but it has arguably not made it competitive enough. Unlike Germany, I think that, broadly, the exchange rate should be used to adjust for differences in competitiveness rather to than to put countries through the agony of internal devaluations that wreck their economies.

The noble Lord, Lord Jenkin, mentioned one of the Bank of England’s usual understatements. To me, the economic facts of life are very simple: if this economy is going to pick up and grow, it can do it only through rising exports and capital investment. There is little or no scope for growth to continue to come from rising consumption. We had nearly 20 years of living above our means and of growth based on rising consumption and financed by debt and selling the family silver. We had a massive cumulative balance of payments deficit—to use old-fashioned language. That has come to an end. If we are going to grow, we have to export more. No range of government measures will achieve higher growth unless they achieve higher exports. While I remain a strong supporter of the Anglo-Saxon model, its one weakness is that it leads to the savings rate being far too low, with investment being far too low as a result. It is clear that Germany’s success, apart from its organisational brilliance, has been the amount of its capital investment in modern industry.

However, there is huge opportunity, as I and others have variously described it. The fast-growing economies, the BRICs, are the ones that have the potential to import more. As others have mentioned, we have the blessing of our own particular club in the form of the Commonwealth, which is now, collectively, a fast-growing part of the world and one that has language, culture and businesses practices in common with us. In my experience, it is only too happy to do business with us as far as there is scope. It has been a mistake to concentrate on the EU as our main export market. Our exports to the EU are shrinking as a percentage of our overall exports and, sadly, it is clear that EU is going to be a very flat, depressed economic area for several years to come as it sorts out the currency problem one way or the other. It is crucial, therefore, that we go for the new economies.

I met an individual who runs the Azerbaijan society in the UK. He mentioned that it was unfortunate that Germany had sent its President there but that we had not sent anyone. I needless to say wrote to the noble Lord, Lord Green. Even in Azerbaijan, there is considerable scope to add to our involvement in the oil industry. There is also interest in our education institutions and in our quality goods. What Azerbaijan really wants is a lift in its relationships with the UK.

I shall focus briefly on what I will call our quality goods and services. I am very interested to see that Hamleys is going to go international. It is a fantastic brand name; it is the best toy shop in the country. There are masses of scope for internationalising that. Even Fortnum and Mason is going to do the same thing. I sat back and thought, “Well, Burberry started it. Think of all the fantastic British brands for which there is much greater potential now that there are parts of the world that can afford these things, potentially more than we can ourselves”.

I broadly praise the Government’s efforts. I was very pleased that the Prime Minister shot off to India. India is my pet project. The scope to export to it and to do a great deal more business with it is huge. India, as the Prime Minister of India keeps saying whenever he comes back to Cambridge, would like a special relationship with this country. Well, I would like a special relationship with India.

However you call it, “City” is now a bad word—even worse than “politicians”. I use the phrase “business services”. Our overall business service exports run at £60 billion to £70 billion a year. They are not just financial products and services; they are lawyers and consultants. There is substantial scope about the world, as the rest of the world grows faster and advances, for our business services.

Some negative issues were raised by the noble Baroness, Lady Nicholson. The London Chamber of Commerce has raised the problems of visas and passports. I have had letters from friends in Hong Kong and Sri Lanka complaining that they now have to send their applications back to London. As a result of a rather foolish economy being made by the Foreign Office, the places where they had them processed locally are being closed down, which is causing them a nightmare—others have referred to that. We have to make it easy for businessmen around the world who want to come here to do some business to get their visas or, if they are Hong Kong passport-holders, to get their passports renewed. We simply have to sort out the ridiculous situation of the excessive queues that people have to face after landing at our airports. I am not going to cast blame, but it seems ridiculous that that should have been allowed to happen. It is depressing to note that the destinations served out of Heathrow have reduced by about 50 over the past decade. We clearly need to have the best European hub available as fast as possible. UK passenger duty is far too high. It makes it uncompetitive from a holiday perspective.

There are issues to be addressed, but we should look to British history. We were the first great exporters. What was the East India Company about? It was about trading with the whole of Asia. What did it do? It stimulated manufacturing here. Britons went about the world when it was often highly dangerous and the ship they were on might have found itself embarking on warfare with the Portuguese, but we went about and built a commercial empire that became a physical empire. We have it in our history and in our national character to be about the world doing things. I see a lot of that now reviving. At least half of my son’s generation is somewhere else in the world—maybe in Shanghai or America—busily doing things that ultimately involve British exports increasing.

Towards that end I am very keen on the new technical colleges. A friend of mine has a business that has a unique niche in producing aircraft safety devices down in the depths of Hereford. With 95% exports, it is a hugely successful business. It has grown because Hereford has always had a good technical college and he could get the people he needed trained there in a way that was required for the business. I greatly welcome the expansion of all that.

I congratulate the Foreign Office, as others have, on its much improved services on the ground. However, 18 months ago I went to the Expo in Shanghai. There was a fantastic Italian exhibition of goods and services. You wanted to buy the lot. And what did we have? We had some clever cut-glass work of art and no mention of our goods and services. I wrote to the Foreign Secretary William Hague after he had just arrived to say that this seemed daft and I got a letter back saying that it had won some award as a work of modern art. I thought it was a classic example of how not to be promoting this country’s exports.

We have a great history and we have great potential. We want more young people to get into their planes and to go about the world and do things. I have always thought that in today’s world JCB is a wonderful model of what this country can be about successfully. Let us have many more of those.