Business: International Competitiveness

Lord Green of Hurstpierpoint Excerpts

Thursday 16th January 2014 Grand Committee

[Lord Green of Hurstpierpoint (Con)]

My Lords, I join in thanking my noble friend Lady Neville-Rolfe for tabling this important debate. International competitiveness is a function of many things, as we would all recognise: there is tax, regulation, infrastructure, education and the skill base. The two previous speakers have covered those. I want to focus on why it is so important for UK business to enhance its international competitiveness and on some of the implications of success in the international arena for policy and action by both government and business.

First, on why it is so important, I draw attention to the balance of payments. The current account deficit in 2012 was nearly 4% of GDP. That is a substantial deterioration on 2011, although that is partly—but only partly—the result of a fall in profitability on outward investment, which may be an aberration. The broader truth is that we have had a weak balance of payments position for the working careers of us all in this Room, and that trade has recovered only rather modestly since the 25% or so devaluation of sterling which happened five or six years ago. That is perhaps the slowest recovery ever, or at any rate since the war. The first decade of this millennium was the worst in terms of balance of payments and recent numbers show that we are, to say the very least, not yet out of the woods.

Why does this matter? Time was when a market fundamentalism had it that it did not really matter what the balance of payments did because the market was self-regulating and self-stabilising, and whatever current trade position we had, the market would take care of it and make the appropriate adjustments seamlessly. We now know that that is not true. Indeed, there is some reason to fear that future devaluations of sterling will be less effective than they have historically been because there is a rising share of imports in exports. About 70% of the value of some of our major exported manufacturing products is now in fact in imported components, which of course blunts the effect of any sterling devaluation.

Even more fundamentally, a weak and weakening trade position is a drag on growth. We all know that we need to rebalance the economy to shift it away from the old growth model, which depended too much on the domestic consumer taking on debt to drive growth. We know that we need to find other sources of growth and that means stronger investment performance—another story—but also, importantly, a stronger trade performance, because that way lies sustainable growth.

That is the macroeconomic perspective. The microeconomic perspective is that international involvement is clearly good for companies. There is compelling evidence from both government surveys and academic and private sector surveys that companies which get into the export markets become materially more productive and efficient than those which do not, and that those effects are very quick. Unfortunately, the evidence is that fewer British companies are engaged internationally than is the case with our natural competitors. For the sake of discussion, I will treat those as being Germany, France, Italy and such countries. A challenge for both the Government and the business community is to encourage and support more companies to get into the international arena: first, because we need it from the balance of payments perspective; and, secondly, because it is good for their productivity and we thereby strengthen the backbone of the whole economy.

What do we need to do to encourage and support this? There is the role of the Government themselves of course, and we have already talked about the importance of the tax and regulatory framework. I want to dwell briefly on the role of trade promotion. I might be regarded as parti pris in so saying, but I think that the role of UKTI and UKEF is important. The key themes of work in progress in both cases are obvious to us all—more private sector experience in their leadership, more ability to operate flexibly and to market their services to British companies up and down the land, and adequate budgetary resourcing. Can the Minister assure us that the work that has been put in hand over the last two to three years will be continued? This is, I might add, a marathon and not a sprint. We need to continue it, not merely through the next spending review, but probably for the next 10 to 20 years, if we are to put this right.

My final point is that this is a national challenge. Even if the Government get everything right, and we score the Government 10 out of 10 on all criteria, there is a job for business in this, and in particular, an important role for overseas business groups and chambers. In recent months, we have begun to work with the chambers overseas to upgrade their activities. My impression, from my previous role, is that there is a growing recognition among them of the importance of this, and a growing readiness to step up to the plate. Again, I invite the Minister to confirm that the work that has been put in hand will continue, because as I say, this is a marathon and we have to keep this up, probably for a generation.