Businesses: Small and Medium-Sized Enterprises
Lord Green of Hurstpierpoint Excerpts(9 years, 12 months ago)
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Lord Green of Hurstpierpoint (Con)
I add my thanks to my noble friend Lord Cope for securing this important debate, and I add my congratulations to him and his Select Committee on a report that highlights the critical importance of ensuring that SMEs—and I am always conscious that that means small as well as medium-sized businesses—get as smooth a pathway and as effective a helping hand as possible on their journey on that path. I well recall appearing before the committee and being grilled closely on the details of the Government’s approach to the reform of UKTI and UKEF.
I shall make one general economic comment and three specific points about the continuing task. First, the economic point is in two halves, one a macro point and one a micro point. At the macro level we are clearly seeing a real economic recovery, continuing evidence of which was evident in the latest, first-quarter growth data. But it is also clear that we have to make a lot of further progress in rebalancing the economy if we are to achieve the ultimate objective of a more sustainable growth model for the British economy. None of us believes that growth is sustainable when it is driven too much by domestic demand and fuelled by debt. The fact is—we are all aware of this but we need to remind ourselves of it—that the trade account and, indeed, the current account more broadly, is still weaker than it should be. This has been the case for something like the past 40 to 50 years. Trade is not yet contributing properly and consistently to economic growth. In fact, it is still at best neutral and, more often than not, a drag on growth. So far we have not had a problem with financing that deficit but it would be folly to assume that that is always the case.
Therefore, at the macroeconomic level, there is a real, high-priority imperative to address this question of exports, particularly the role of smaller companies in the export performance of the country, to remove the vulnerability of our current account position and to achieve a more balanced approach to growth in the economy. I know that the Government recognise this and that they also recognise the importance of what might be described as the microeconomic imperative—that is, to get more companies, particularly smaller ones, into the international markets.
The evidence is clear and compelling. I used to cite it and make no apologies for calling attention to it again. A very impressive BIS study was done some two years ago but private sector studies also essentially demonstrate the same point—namely, that companies of all shapes and sizes in almost every sector which get into the international markets enjoy higher profitability, last longer, grow more and create more jobs. In other words, whether we look at this from a macroeconomic point of view or a microeconomic perspective, the conclusion is the same—we need to encourage more companies into the export markets.
I turn to my three specific points on the strategy. First, it is sometimes argued that all our focus should be on the emerging markets and on building the UK’s position and share in organisations such as ASEAN and in places such as China, the Middle East and what we might call the African lions, in recognition of the fact that six out of the 10 fastest growing countries in the world today are African. That is clearly undoubtedly important but it is wrong to conclude therefore that the EU somehow does not matter. We need to remind ourselves that the EU is a market of 500 million people. It may be growing relatively slowly but it is prosperous. As an aside, I think that it will surprise us by emerging on the upside in the coming year or two. Indeed, not all of it is slow- growing. Some of the east European markets in particular have many emerging market characteristics. Last but not least, the EU is near at hand and getting into it involves lower costs. It is also easier to navigate than many of the emerging markets and is often the best place to start for a smaller company exporting for the first time. In other words, this is not a question of either/or, as it is sometimes presented, but of both/and.
That leads me to stress the importance of the single market and of broadening and deepening it. This complex topic is perhaps worthy of a debate in its own right on another occasion in this House. However, a quick stocktaking suggests that good progress is being made in goods. You can export a car to 28 markets without making any adjustments because of the standardised EU regulations applying to goods in the single market. On the other hand, I think we all recognise that we have a long way to go on services, and on the digital single market we are barely off the starting blocks with regard to EU-wide broadband, roaming charges, consumer rights across borders, collective rights negotiation and so forth. I strongly suggest that the task of strengthening the single market and making its development, management and governance more efficient should be very high on the list of priorities for the reform of the EU. That is an interest, by the way, which all members of the EU share; this should not be presented as just a piece of British exceptionalism. I hope that my noble friend the Minister will comment on some of the key milestones on this important journey which has so much direct relevance to SMEs and their export opportunities.
My second point is that whether we are looking across the channel or further afield, proactive and high-quality support for SMEs is clearly essential. We should recognise that UKTI now stands reasonable comparison with many of its peers in the relevant countries; I think particularly of countries such as Germany, France and Italy. What does not stand comparison is the quality of business support for business. The role of chambers of British business groups around the world is critical, and their performance has been varied. At their best they stand comparison, but they are too often little more than lunch clubs providing no meaningful support for incoming British small businesses. Yet, at their best, they can provide a really welcoming environment providing mentoring and buddying, sectoral working groups and office space. They can showcase that country back at home to small business here, and so on. This is what the Germans do. We should not always shamelessly imitate the Germans but in this case we should. We began a journey some 18 months ago to work with business groups to upgrade these presences around the world, and I know that the British Chambers of Commerce is very active in developing an international programme to this effect. There is a lively interest in linking up among the more energetic domestic chambers and a rising interest among their members in exporting—so we have some good traction. I should be grateful if my noble friend the Minister can comment on progress, the way in which the Government have been supporting that initiative, how he expects it to pan out over the coming years, and the implications for UKTI as it is enabled to move into a more strategic role in those overseas presences.
Finally, much, though not all, of exporting requires effective financial support. The Government have begun over the past couple of years to rejuvenate UKEF, broaden its project range, make it better known to SMEs, strengthen its marketing, strengthen its presence around the country, and provide advice to banks—I am sorry that it has to provide advice to banks, but it is none the less there and it does and should do so—and, of course, to its clients. Anecdotal evidence is that progress is being made but I am sure we all recognise that there is a long way to go. Again, I ask my noble friend to comment on progress in developing UKEF’s offering to small businesses up and down the land.
My final comment is one that may well provoke a wry smile on the faces of the civil servants in the Minister’s office, because it is one that I made often when I had the honour to be in his position. We have lived with a weak trade position for many decades, we have lagged behind our obvious peers, we have fewer companies engaged in exports than should be the case and we leave great export opportunities on the table. There are many good stories as well, though. Many companies in many sectors in all parts of the country have their tails up and are exporting energetically around the world. Achieving more balanced growth with stronger trade performance is critical to us all and is a major task for us all. Furthermore, I believe that it is a task that is non-party political and that we have to stick at, probably for the next 20 years. It is a task that is collective because it involves government, of course, but also businesses and business representatives—and we need to keep at it. As I said—to the point where my civil servant colleagues were, I suspect, bored with hearing it—this is a marathon, not a sprint.
United Kingdom and China
Lord Green of Hurstpierpoint Excerpts(10 years, 5 months ago)
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The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint) (Con)
My Lords, I am very grateful to my noble friend Lord Dobbs for tabling today’s debate and for his very informed and insightful comments. Indeed, I thank all noble Lords for their very wide-ranging contributions. I pay especial tribute to my noble friend Lady Neville-Rolfe for her extremely insightful maiden speech, which focused particularly on conditions in China, as did the noble Lord, Lord Stevenson. I also pay tribute to my noble friend Lord Whitby for his insightful comments on what it is like at this end as Chinese investment transforms British economic conditions.
This is an extremely important topic for us all and a very complex one. We have covered a lot of ground in this debate and I will find it something of a challenge to respond to all the questions and summarise all the themes in the allotted time. I like to think that I have come and gone to China over a long time but I am humbled by the fact that the noble Lord, Lord Watson, first went there in 1977 and the noble Lord, Lord Haskel, who first went there in 1978. I am a mere newcomer, having first gone there in 1983. However, I think the thought resonates with all of us that this is a society and an economy that is changing rapidly and profoundly, and will continue to do so. The challenge posed by this enormous, sophisticated and cultured country, and our engagement with it, is of profound importance to British society and the economy.
As China continues to grow, so do our shared interests and responsibilities. Our relationship is broader and deeper now than at any time in our history. As I say, China is changing fast. I could go on at length but one manifestation of that change is that Chinese companies are increasingly going global and are on their way to establishing global brands rather in the way that the Japanese did after the war and South Korea more recently. China will be next.
China is also becoming more sophisticated in its own research and development. It now files the largest number of intellectual property patents of any country in the world. Interestingly, there are more cases of IP theft going through Chinese courts than in any other country in the world—some 84,000 in 2012, only 2% of which involved foreign companies. .In other words, China has got to the stage where IP is an issue for Chinese businesses dealing with Chinese businesses, which I think means that we can take some comfort that the authorities mean what they say and intend to create a robust environment which protects intellectual property and stamps out corruption and fraud.
China is changing in other ways, too. The international role of China is changing profoundly, as my noble friend Lord Howell of Guildford so articulately explained. This is a country that is taking its place on the world stage. We often talk about an emerging power. It is not an emerging power; it is re-emerging, or retaking its place on the world stage. I like to remind my colleagues in business that in 1820 China had the largest economy in the world and, 200 years on, it will be the largest economy in the world again.
China is also a country with a deep cultural past. As the right reverend Prelate the Bishop of Guildford reminded us, and others echoed, this is a country with a long-standing philosophical and religious perspective. I have met some of the characters mentioned by the right reverend Prelate and they are very remarkable people. The authorities are very keen to see a harmonious development of Chinese society and recognise the role that faith groups can play, particularly in an urbanised environment.
That brings me to my next point. China is not merely changing fast but urbanising fast. The figures are enormous. A number of speakers cited figures in relation to aspects of China’s growth. China has the most of almost everything these days, and the challenge posed to it by urbanisation over the next 20 to 30 years will be the biggest for any country, except possibly India. Something like 50% of its population live in cities now, but this will increase to 60% in as little as 20 years’ time. The implications for urban infrastructure, urban planning and the whole economy are profound. The rapid transformation presents enormous challenges for the Chinese authorities. Sometimes I think that the popular impression of China is that the authorities sit in Beijing smiling quietly as more and more Chinese companies invest and take over the world. That could not be further from the truth. The authorities are very conscious of the significant challenges of developing a very complex and large society, and of the need to rebalance. They are well aware that at the moment the Chinese economy is too dependent on investment and exports and needs to rebalance itself.
They are also well aware of the issues in the rural areas: poverty, issues of land ownership, the flow of immigration into the cities, which it is increasingly difficult to control, and so on. Demand for products and services like healthcare and education is expanding very rapidly and will continue to do so for the next generation. On the plus side of these challenges, a middle class is developing with the same sort of appetite for branded goods that we all take for granted. It is, therefore, no surprise that, as has been quoted, Jaguar Land Rover now finds China to be its largest market. Some 80,000 vehicles were sold there last year, and the number is growing rapidly. It is the second largest exporter of cars to China after BMW. So there are lots of challenges and plenty of opportunities, too.
Two important themes have dominated this debate and I will touch on both of them. The first is education and culture. My noble friend Lord Dobbs spoke about Chinese language tuition in schools and universities. I share his view of the importance of increasing the sensitivity of the younger generation in this country to Chinese, which is about both Chinese studies and Chinese languages. I am very pleased to report that my grandson is, almost exactly at this moment, doing a presentation on the warring kingdoms period of Chinese history. So he is being made to learn something about that great country.
The Government are committed to the learning of languages, including Chinese, in schools and universities. We undoubtedly start from a low base in the case of Chinese, but in 2013 the number of students entering for a GCSE in Chinese increased by 20% compared to the previous year and there were more than 3,000 A-level entries. It is a low base, but at least the direction of travel is right. In higher education, language study is about choice. We have seen some shifts towards languages that will better support employment outcomes in growth economies, including Chinese. In 2011-12 the number of students at UK higher education institutions taking Chinese studies was 1,870: a small number, again, but the direction of travel is good. It is important to note that there are many students not studying Chinese who increasingly get a component of Chinese studies as part of more multidisciplinary programmes. There are Chinese centres at Sheffield and Nottingham, to name but two.
There is plenty of work to do. My noble friend Lord Lexden and others, including the noble Baroness, Lady Dean, also pointed out the importance of education, not just at university but at school level. We recognise the importance of schools introducing children to Chinese at a young age and also the importance of being open to Chinese students wanting to come here at secondary and tertiary level. Another aspect of this is the importance of the engagement of British universities and other colleges in China. The noble Baroness, Lady Dean, referred to the work of Nottingham Ningbo. There are a number of other British colleges and universities: Dulwich College in Shanghai is just one of them. There are now some 230 research partnerships between British educational institutions and Chinese ones. We cannot be complacent about this. The noble Lord, Lord Stevenson, reminded us that the Chinese are rapidly upping their game and the old-fashioned notion that we have all the expertise and they have all the need is, frankly, behind us. We should recognise these as joint experiences: partnerships where we learn together about matters of importance to both our economies and societies.
There is plenty of competition in the English-speaking world. As the noble Baroness, Lady Warwick, said, the Australians have learnt the lessons of some of their mistakes. We must make sure we have a supportive approach to letting Chinese students, and others, into the British education system. We need to minimise the impact of immigration rules on universities. I have been asked in this House before whether I would take up the question of excluding students from the immigration numbers. In response to that suggestion, I have taken it up and am happy to have another go.
Another theme that came up repeatedly, not entirely unrelated to education, is visas. The noble Baroness, Lady Valentine, and others, drew attention to the ease with which you can get a Schengen visa. There is some mythology around the numbers of these visas and where people actually go. In his opening speech, my noble friend Lord Dobbs said that seven times as many Chinese visitors go to France as to Britain. This is actually quite difficult to verify. One hard figure we do have is the number of visas issued. In 2012, the French issued 277,000 visit visas and we issued 210,000. So they issued one-third more than us rather than seven times more.
Chinese exit data on first destinations for Chinese travelling abroad show that the UK was the top European destination in 2010 and second to Italy in 2011. My general point is not that we should be complacent but that the numbers are quite hard to pin down. It is plain that we need to expect more and more Chinese visit visas over the coming years, both for tourism and for business and educational purposes. Specifically, we expect the number of visa applications to top 1 million by 2017. To facilitate that, and the processing of this very large increase in the number of applications, we introduced a number of measures.
Last month, in Beijing, the Chancellor of the Exchequer announced measures to streamline and simplify the visa process for Chinese nationals who want to visit the UK for business, study or pleasure. This includes plans to open a 24-hour visa service and streamlining the UK and Schengen visa application process. As the noble Baroness, Lady Valentine, pointed out, the Schengen process itself is moving—or so they claim—to biometrics, which will level the playing-field. I hope that we will increasingly be able to provide, in effect, a one-stop-shop service for Schengen and UK visas. We will, of course, always be left with the greater flexibility of Schengen. I suspect there is no one in this House who would argue for us joining the Schengen accord at the moment.
We will do our best on visas and I assure noble Lords that the Government recognise the importance of ensuring that the process works as seamlessly as possible. The forms are now in Mandarin, which was a good start. We now have more offices around China: more than the Schengen area does. Progress is being made in discussions with Schengen about how to converge the two processes as much as possible. I noted comments from a number of noble Lords on the importance of ensuring that the visa entry rules for both students and business are as business-friendly and education-friendly as we can make them. I am always happy—and so is UK Trade and Investment, the office which I oversee—to discuss any problems that specific institutions or firms have with getting people in, within the context of the overall policy. We are plainly not going to throw the whole policy up in the air but we need to make sure that, in practice, it works for business as seamlessly as possible.
I turn to inward investment, which is a very important topic for the economy in general. It is a great and long-standing competitive strength of this country that we are open for inward investment from all countries in the world. It is very difficult to imagine a number of our obvious competitors being as sanguine as we are about investment in, for example, the water supply of the national capital. Some 9% of Thames Water is owned by the Chinese sovereign wealth fund, as is 10% of Heathrow. We welcome these investments. We also welcome the deal announced by EDF in respect of Hinkley Point C, which is a good deal for this country. The entire nuclear industry, irrespective of who is investing in it and who is building it, needs to be properly regulated, for all the obvious reasons, but we are committed to the importance of nuclear as part of the energy mix. We have to invest substantially over the next 10 to 20 years in nuclear rebuild and we should welcome the involvement of foreign direct investment—including from China—so long as it is properly regulated and overseen.
The noble Lord, Lord Haskel, mentioned Chinese banks in London. The fact that we offered to allow them to operate through branches, as opposed to subsidiaries, does not mean that we are not going to regulate them, although they are, of course, regulated by the authorities in Beijing—not in Shanghai, incidentally—which would be the case whether or not they were subsidiaries or branches. They will also be regulated by the Prudential Regulatory Authority, whether they are subsidiaries or branches, according to the highest standards that the PRA thinks fit. I am very happy to assure the noble Lord on that point.
Huawei has already been discussed and I am not sure that I have anything useful to add to the exchange that has already taken place. I know the managers of that company, both here and in Shenzhen. I believe that they are committed to doing good business in this country and are certainly investing and building up the skill base in the way that my noble friend Lady Wheatcroft mentioned. All Members of the House will be aware of the security arrangements that are in place and are currently subject to review, following the report from the Intelligence and Security Select Committee.
I turn to exports, which are the other side of the coin. Every speaker has referred to the fact that we have a long way to go on this. We start from a low base and market share. I have always found completely unacceptable the notion of being behind not merely Germany, which is possibly understandable, but France and Italy. The good news is that we have now overtaken Italy. The good news is also that we have grown faster than all three of those countries for the past three years, but this is a long journey and we have to keep at it.
The importance of building relationships and making long-term commitments is something that everyone has underscored. It is true everywhere but it is certainly true in a country like China. Businesses need to spend time and need help. When it comes to small businesses, which were referred to by a number of noble Lords, it is important for the British Government to ensure that the role of UK Trade and Investment, working in partnership with the China-Britain Business Council, is as effective as possible in supporting those who make that journey by de-risking the decision for them and helping them to attend trade fairs. I am pleased to report that we have increased the number of resources we have on the ground in China, not merely in Beijing but around the country. We have increased the amount of money available for attendance at trade fairs and, by the way, we have increased the number of trade advisers in this country.
In respect of finance, we have substantially revamped UK Export Finance; it is not now the case that as few companies have been able to access UKEF as the noble Lord, Lord Stevenson, referred to. Indeed, its business is growing rapidly and I have asked it to triple its book over the next two or three years. I am afraid that I shall not be in office to see this happen but will be cheering from the sidelines. UKEF is now on the way and the momentum is clearly there. It now has more than £1 billion of support for small businesses, compared with almost nothing three years ago. So the direction of travel is there. We need to keep at this. It is a long journey, and we need to keep investing. I have mentioned UKTI and UK Export Finance.
In response to the noble Lord, Lord Wilson, I should like also to refer to the capabilities in the Foreign Office. We have 60 new staff working across the network in China, a third of them focused on less well known provinces and second-tier cities. I was recently in Wuhan, a city that we the British have neglected; the French are the dominant foreign presence there and we need to put that right. What is true of Wuhan will, frankly, be true of dozens of other cities. We have a long way to go. We have been investing in language training in the Foreign Office. I have some numbers somewhere that I cannot find, so I will write to the noble Lord, Lord Wilson, with the details. We have substantially increased the amount of Mandarin training in the Foreign Office because we fully endorse the notion that its officials are at their most effective if they can speak the language.
I will respond explicitly to some of the points made by the noble Lord, Lord Stevenson. I do not have the time to discuss Britain’s industrial strategy, except to say for the record that we the coalition believe that it is a coherent strategy that is bearing fruit, and we need to stick at it. We need to invest in the skills that equip the next generation to succeed in a competitive world. There is no turning back from this globalisation. There is no turning back from the challenge of ensuring that education and apprenticeship systems work correctly, that we connect up research and development at university level with businesses and that we invest in appropriate partnerships in key sectors. The sectors involved for the British economy are very wide—all the way from advanced manufacturing and aerospace, through IT, the creative industries and practically every sector in between.
Perhaps I may conclude with just 30 seconds on Hong Kong, as my time is up. Hong Kong remains extremely important to the British relationship with China generally, as well as being important in its own right. I had the great honour of living in Hong Kong when the noble Lord, Lord Wilson, was governor there, and I have seen it change rapidly over the years. The closer economic partnership agreement is in place between Hong Kong and the mainland, which means that a company operating in Hong Kong can do business in the mainland without further restrictions, and several hundred British companies in Hong Kong have the opportunity of building their business in the mainland through the Hong Kong gateway. It is a very important asset in terms of the competitiveness of British businesses in China, when compared with that of our European counterparts and others.
Finally, I come back to the importance of this debate. No country is strategically more important to us than China. This is a long journey forwards in the relationship. It is a complex country and there are massive opportunities. Of course there are many political and economic challenges on the way through. The dialogue needs to be open, honest and continuous. Given that two or three of your Lordships quoted Mao’s saying that the longest journey begins with a single step, I should like to add another: this journey is a marathon, not a sprint.
Small and Medium-Sized Enterprises
Lord Green of Hurstpierpoint Excerpts(10 years, 10 months ago)
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The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint)
My Lords, I begin where everyone else has by congratulating my noble friend Lord Cope on securing what I believe passionately to be an important debate on trade and investment relating to small and medium-sized businesses. My noble friend has long supported British business and British exports, as, of course, have all the committee members. He and his committee undertook the inquiry thoroughly and asked searching questions not only of my officials and of businesses and business support bodies but of me and my colleague and friend the Business and Enterprise Minister.
Of the 23 recommendations in the report, I think that I can say truthfully that we agree. We have essentially fully accepted all of them, with one or two exceptions where we may not agree with the specific recommendation but absolutely share the intent behind what is proposed. Above all, on recommendation 1, which concerns a report back next year and the year after, I am happy on behalf of the Government to endorse and accept that.
This is an important topic for us all. More than one noble Lord has called attention to past advertisements saying “We export or we die” or, “Exports go up or Britain sinks”. Briefly, I go back even further than that, prompted by the recent Diamond Jubilee of the Queen’s coronation, to remember that in 1953, the UK’s total exports were just £3.6 billion. Last year, they were £488 billion. More importantly than the nominal figures is that in 1953, the value of exports to UK GDP was about 10%; it has now risen to 30%, which reflects how Britain is participating more in an increasingly international economy. The bad news is that Germany’s percentage is more than 40%, so we may have come some way since the 1950s, but we still have some way to go.
A number of noble Lords have referred to the various targets and challenges that we have set ourselves: those of doubling trade exports by 2020, getting 100,000 new SMEs into international markets, again by 2020, and doubling the client base of UK trade in investment from 25,000 to 50,000 by 2015. We are well on track with the last of those. The client base of UKTI is growing rapidly. The target of doubling exports by 2020 is a challenge. Frankly, if we got somewhere near it we should feel extremely pleased. It would involve increasing exports as a share of GDP to over 40%, which is where, as I have just mentioned, the German economy now is. This is not a completely unfeasible challenge, but it is certainly a demanding one.
I assure the noble Lord, Lord Mitchell, that we shall take this report very seriously. I am not going to allow it to gather dust. There are a number of important suggestions in it. There is repeated reference in it, and in comments by noble Lords, to the awareness issue. UKTI gets good satisfaction ratings. They are not as good as they could be and could be better, but they are in the mid to high 70s. I would like to see them at around 90%. Dissatisfaction levels are low, at around 6% or 7%. This is clearly a case of “good but could get better”.
The level of awareness is not satisfactory. For UKTI this is in the mid 50s. For UKEF it is in the 20s. This is not good enough. It is a priority for me and the Government to ensure that we raise awareness of these important services that are available. In particular, as we speak we are running a pilot marketing programme in the north of England to raise awareness of UKTI and UKEF. I will be analysing carefully the results of that pilot when they are complete in the next few weeks. If we get encouraging figures, we will consider extending that advertising campaign to the rest of the country.
In the short amount of time available to me, I will try to cover a number of issues that have come up in your Lordships’ comments, especially language, intellectual property and the reference that my noble friend Lord Cope made to the Bribery Act at the start. I say to the noble Baroness, Lady Coussins, that I share her passion for languages. I am a linguist by origin. This was admittedly a long time ago, but I strongly believe that not only do we need to invest more in languages, but that investing in languages improves your English. To paraphrase Rudyard Kipling, what does he know of England who only England knows, or what does he know of English who only English knows?
This important area is quite complex. It is unrealistic to expect an SME, unless it has a Chinese speaker, to be able to gear itself up in Mandarin to the point where it can speak business Mandarin in pursuit of business opportunities in China. We must be realistic about what is achievable. We have recently updated a brochure on language management strategy. We will continue to work on it. I would like to write to the noble Baroness on some of the complexities of the language issue. There are some long-term issues about the teaching of language in schools, and noble Lords are aware that the Government have recently focused much more attention on this. That will take quite a long time to pay dividends. In the mean time—and I do not just mean in the mean time—we need to celebrate the fact that, because of the diversity in this country, we have a terrific language base on which to draw, in terms of skills that can be brought in for marketing, for example, with an appropriate language attached to it. I assure the House that we take the issue of languages seriously.
Finance is quite properly of concern to a number of noble Lords. The noble Baronesses, Lady Coussins and Lady Drake, made a detailed analysis of some of the issues that we face. Given my former career, I am perhaps better placed than many to reflect on the weaknesses of commercial and business banking in this country. From that experience and from my experience going round this country in the past two and a half years and meeting businesses of all shapes and sizes, there is indeed an issue. It is quite plain that there are circumstances where companies with legitimate financing requirements cannot get financing because the normal templates are being required and inadequate imagination is being applied to the topic.
What I think has happened over not just the past three or four years of the financial and economic crisis but over the past 20 years is that the skill base of business banking in high street banks has been deteriorating. This has happened partly because average career bankers with a reasonable dose of ambition have wanted to head either for the excitements of corporate and investment banking or for the sexy end of the retail banking market and did not see themselves spending the rest of their career in a relationship management role in, let us say, Rotherham. The central functions have responded by disempowering those relationship managers, so we have the result that the noble Baroness, Lady Coussins, commented on. If I have some good news, it is that all the CEOs with whom I have regular dialogue and the heads of commercial banking are focused on this and are determined to address the problem. I hold regular round tables with the banks under the auspices of the British Bankers’ Association. The general problem, I have described. In international trade, in particular, there is even more of a problem with the skill base. They are focused on that. The challenge is that it will simply take time to turn the supertankers.
In the mean time, we need to be doing two things—first, to ensure that as it gets going the business bank is able to challenge them on the way in which business lending is provided and, secondly, to encourage new challengers. There are some new challengers. There are a number of new challenger banks, and a number of noble Lords referred to the various other techniques for financing that are gaining some traction, although I do not believe that those other financing sources can ever be an adequate alternative to, or substitute for, a properly run business banking presence on our high streets. This is an important issue, and we will continue working at it.
Specifically with regard to UK export finance, I can report, first, that there is an awareness issue, to which I have already referred, and secondly, that new products are beginning to get more traction. Like noble Lords, I have been extremely disappointed by the take-up. I put it down to a considerable extent to lack of awareness. We have therefore put export finance advisers in every English region and in Scotland, Wales and Northern Ireland. We had one in place in each of those areas by the end of last year, and I have just authorised a doubling so that it will go from one to two in each of the regions, plus in each of the devolved Administrations. I have also started putting export finance advisers in key locations overseas. We have one in Singapore, we are going to have one in Dubai, and I have authorised the recruitment of further EFAs in other markets of importance to us around the world, in Brazil and in Africa, where I think we need one in the Francophone part and one in the Anglophone part, on the ground at that end, whose job is, first, to help incoming British companies, and secondly, and very importantly, to negotiate sponsor credit lines with the sponsors of big infrastructure projects around the world so that British companies can get access to finance as they seek to win business as part of those infrastructure projects. So we are on that case.
It is early days to tell what quantitative results this is going to have, but there is anecdotal evidence. The most recent was at lunchtime today when I was with the Suffolk Chamber of Commerce, which reported that the presence of the UKEF financial adviser is making quite a lot of difference to a number of its members. I hope that we will have more specific hard evidence when we report next year.
My noble friend Lord Cope raised the important issue of intellectual property. The British Government will continue to work hard at lobbying in international fora for better protection and recognition of intellectual property. As I think the House is aware, we have started putting intellectual property attachés in some of the key markets—China and Brazil—and will look at how that is working in the course of this year. We will consider expanding this coverage at the end of this year if it looks as though it is delivering value to British companies that are worried about theft of intellectual property as they go into those markets.
Finally, I assure the House that I take this report very seriously, as do the Government, and that this is a long-term commitment. If there is anything in public policy which needs to be treated with a sort of apolitical consistency over the years, this is it. As a number of noble Lords have mentioned, we have lived with a constant weak trade position in all of our working careers—I can safely say that. It has not got any better of late; again, one or two comments have been made about the first quarter, which was not good. We suffer from the headwinds from the eurozone. Roughly speaking, our exports are still growing quite nicely to the emerging markets, but they were down in the eurozone. We have a long way to go.
I find myself saying regularly to my ministerial colleagues, to my official colleagues, to the media and to anyone who will listen, that this is a marathon, not a sprint, and we have to stick at this as a national collective effort over at least the next 20 years. The good news is that we can do it. I mentioned that I travel round this country a great deal—I visit each English region and the three devolved Administrations at least twice a year. I have seen businesses from every sector, of every shape and size—some of them the mid-cap companies—and I see companies that are taking on the world. As the noble Lord, Lord Mitchell, said, it is fun to do that. If you are not the kind of person who finds other countries and cultures fun and interesting, you will never be a successful exporter. You find these people across the range of the sectors of our economy. This is not just about high-tech or manufacturing but about all sectors.
Finally—another finally—I say to the noble Lords, Lord Haskel and Lord Mitchell, that clearly the digital economy is becoming more important. We are obsessed with making sure that the support that we provide to small businesses takes into account the increasing importance of digital trading. That is partly about ensuring that they know how to use online trading and that they think about language in the design of their websites—all those kinds of things. It also involves participating in the negotiations within the European Union about the implementation of a digital single market. There are still too many barriers to cross-border digital commerce in the single market and we need to work hard at that.
On international trade negotiations, the noble Lord, Lord Mitchell, asked about the state of play on the US-EU negotiations. The truth is that we have only just started. Clearly, it is as important to SMEs as it is to the rest of the economy that we do our best to complete a successful free trade agreement with the US, as well as with Japan—another major country with which negotiations are under way. This will be a difficult and, I suspect, quite long haul, even though we are publicly committed to achieving heads of agreement by the end of next year if we possibly can. We all know that the prize is huge, and the prize for SMEs is very significant. We should never forget the linkage between that and the importance of realising a full single market within the European Union. If we are to complete a deal with the Americans, they will demand a deal that covers the full single market, so we have a job of work to do, not only to negotiate with the US but to see through the full implementation of the single market.
I close where I started, by thanking my noble friend Lord Cope and his committee for a report that will not gather dust. I am happy to commit the Government to giving a report on what we have done and on further progress in the course of next year.
EU: United States Free Trade Agreement
Lord Green of Hurstpierpoint Excerpts(11 years, 4 months ago)
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The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint)
My Lords, the European Union-United States high-level working group on jobs and growth, which is tasked with examining the options for enhancing the transatlantic economic relationship, is expected to release its report in the coming weeks. The UK Government look forward to receiving the conclusions of this report and to working with other EU member states and the European Commission to take forward this important agenda and achieve—if at all possible—an EU-US free trade agreement.
Lord Anderson of Swansea
My Lords, following the failure of the Doha round of global trade negotiations, does the Minister agree that the focus will increasingly be on regional arrangements and where better than the EU-US following the EU summit with the US last year, which accounts for half of the total GNP of the world and one third of world trade? Will he give an assurance that the conclusions of this working group will be speedily worked upon? What steps does he see following that?
Lord Green of Hurstpierpoint
I agree with the noble Lord that this is an extremely important negotiation. It is indeed the case that in the wake of the stalling of the Doha round, regional arrangements of this kind is the inevitable way forward in practice for free trade. The EU has a heavy agenda; a couple of weeks ago, it agreed a mandate for negotiating with Japan—obviously another major economy. The EU-US deal will be the most important one for the reasons that the noble Lord has indicated—the importance of the two blocks in world trade—and I assure him that the British Government will pursue every avenue that we can to encourage, support and cajole others into working to get this deal done.
Baroness Falkner of Margravine
Is my noble friend aware of the United States’s concerns about its influence with both the United Kingdom and the European Union should the United Kingdom seek to distance itself from the current arrangements it has as a serious partner in the EU? Will he consider, in the light of the US-UK free trade agreement what the implications might be if we proceed to distance ourselves from within the European Union?
Lord Green of Hurstpierpoint
My noble friend asks a very important question which embraces the wider issue of the British relationship with the European Union. I think it is appropriate for me to stress that as far as trade and the single market are concerned, Britain’s role in the EU is extremely important, both to it and to the EU. Our chances of a good trade agreement that is of interest to the US are much greater in the context of a European Union negotiation.
Lord Peston
My Lords, I speak as an ardent free-trader. I hate to sound cynical, but is the noble Lord aware that, if by free trade you actually mean free trade—namely, free trade in all goods and services, which on the one hand must certainly include agriculture and on the other hand must certainly include financial services—there is not the slightest chance that the Americans will agree to anything resembling free trade as understood by most people, including Adam Smith, who believed in it?
Lord Green of Hurstpierpoint
The noble Lord has pointed out a number of the issues which will indeed be points of difficulty in the negotiations. Agriculture will clearly be a significant demand on the part of the United States. On the part of the European Union, and indeed so far as the UK is concerned, freer access to the services market in the US is an important demand. The complexity at that end lies in part in the fact that some of the regulations are at state level not at federal level in the US, and this just points to the general theme that this is going to be a difficult, long and painstaking process. It would be naive of any of us to believe that it will take merely a few months to get a deal done.
Baroness Hooper
My Lords, given the recently concluded treaty between the European Union and the region of central America and the ongoing negotiations with the Mercosur countries—Uruguay, Paraguay, Argentina and Brazil—is there any scope for going one step further and, once the bilateral agreement with the United States is completed, having an EU-NAFTA treaty?
Lord Green of Hurstpierpoint
My noble friend asks an important question about the wider ramifications of a US deal. Indeed, NAFTA is the first consideration here. The EU already has an agreement with Mexico—I think I am right in saying that it was signed in 2000. It is a deal which covers only tariffs and not non-tariff barriers, and Commissioner De Gucht has publicly mused on the value of updating that agreement in time. The EU is in the midst of negotiations with Canada and is hoping to conclude them within the first few weeks of the coming year. As far as Mercosur is concerned, I think that there is a lot further to go. At the moment, the negotiations are rather stalled, but a recognition of their importance is the fact that we will keep going, not least because of the importance of the Brazilian economy.
Lord Harrison
My Lords, is the Minister aware that, under the Irish presidency, Dublin hopes to host a meeting for the promotion of the European Union- United States free trade area agreement? However, does he believe, as I do, that, while there may be resort to plurilateral, bilateral and indeed regional meetings, we still require, for the most efficient purposes, multilateral agreements along the lines that Doha proposed?
Lord Green of Hurstpierpoint
I completely agree with the noble Lord. The ideal position is a completed Doha round, but I am afraid the reality is that that has stalled. However, we do not conclude that there is therefore nothing that we should do, and we will be encouraging the Commission to work to complete a trade facilitation agreement in the context of the WTO that we hope can be improved at the next ministerial meeting of the WTO in about a year’s time.
UK Trade and Investment
Lord Green of Hurstpierpoint Excerpts(11 years, 6 months ago)
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Lord Green of Hurstpierpoint
My Lords, I begin by congratulating the noble Baroness, Lady Liddell, on securing a very important debate on trade and investment, especially relating to small and medium-sized enterprises. The role of UKTI is complex and I will focus my remarks on the involvement with SMEs. I assure the noble Baroness that SMEs are an extremely important focus. As the noble Lord, Lord Bilimoria, reminded us, more than 90% of the client base of UKTI is SMEs. I will talk a little about how an organisation that, as the noble Lord, Lord Haskel, commented, is in transition—I agree that it is—and is attempting to make sure that it does the best possible job of support for SMEs.
The noble Baroness has long supported business, as Economic Secretary to the Treasury and Minister for Energy and Competitiveness in Europe in the first term of the previous Government, and as a successful high commissioner in Australia who was very active in supporting British business there. I checked the statistics. Whereas in most markets over the past 10 years Britain steadily lost share or had a share so low it was difficult to lose, in Australia between 2006 and 2009 we at least had a stable share and in some respects, particularly services, grew it. I am afraid that it rather declined after 2009; I wonder whether this was cause and effect.
I think that we all agree that we face a national challenge as we seek to rebalance our economy and find a stable and sustainable growth path that will create jobs. The old model that was in place in the run-up to the financial and economic crisis is, as we all know, bust. The economics textbooks state that if we cannot grow on the basis of consumers piling on debt and government spending growing larger, it will have to be on the basis of more successful trade and investment.
I shall not comment much on investment because it is a separate and complex topic, except to say that, on the whole, this country has had for a number of years a fairly good record in attracting foreign direct investment. We cannot be complacent. We need to ensure that government policies are in place to ensure that that performance continues. However, we have a big challenge in trade. We have had a weak trade position for the past 40 to 50 years—this is not a new problem. For most of those years, trade has been a drag on growth rather than a contributor to it. I have already mentioned our market share in goods, which is down and/or the lowest during the past 10 years in virtually every priority market. It is rather better in services, but when you look at our performance in places such as Brazil, China, Colombia, Indonesia, Japan, Mexico and Russia—I could go on—you see that it is lamentable, being behind not only that of the Germans, which might be expected, but that of the French and the Italians, and I can think of no good reason why that should be the case.
I share the view of so many noble Lords who have spoken in this debate that it is critical that we focus strongly on SMEs. SMEs account for more than half of all goods exports—they account for rather less of services, but they are none the less an important part of the export proposition. We are behind the European curve. The noble Lord, Lord Bilimoria, has already mentioned that only 20% of our companies export versus a European average of roughly 25%. One way of looking at our challenge is to seek to get our SME propensity to export up to that European average. If we did that, we would go a long way towards curing our trade deficit problem.
I am convinced—again, I echo the sentiments of a number of noble Lords—that we have the potential to do this. The sheer variety of SMEs is an extremely important factor. The thing that I have enjoyed most about my job during the past 20 years is going around this country—I have gone around the world a lot, of course—meeting businesses of every shape and size in every sector and every region of the country. You find examples of creative, energetic exporters, with a high profile in their local community, who are going out and taking on the world. If one ever had a moment’s doubt about this country’s ability to pay its way in the 21st century, you need only to do what I have been doing to allay those doubts.
Furthermore, the evidence is clear that there are significant efficiency gains on average for any company that gets into the export markets. Therefore, succeeding in this SME exporting campaign is not only addressing our balance of payments but strengthening the backbone of the economy while we do it.
The Prime Minister last November set a target of 100,000 extra SMEs in the export markets by 2020. There is a strong focus on emerging markets, because, as I think we would all recognise, that is where the growth is coming from now and is likely to continue to come for the next generation. The central gravity of the world’s economy is shifting from west to east and from north to south, and the emerging markets in Asia, the Middle East, Latin America, Africa—at the moment, six of the 10 fastest-growing countries in the world are African—represent opportunities.
However, we all know that this is a challenge and that the first time that an SME exports is a daunting proposition—“Where do I begin? How do I go about it?”. As a number of noble Lords have said, they do not have the administrative apparatus that larger companies have; they are often one-person bands or employ 10 or 20 people. It is a difficult task. What is the role of UKTI in this? It is many-sided, but it is critical. It is there to provide direct help. There is a public commitment on the part of UKTI to double its client base from around 25,000 now to 50,000 by the end of 2015. It should be there to provide specific services to small companies. It has two particular packages that are well targeted to their needs: a Passport to Export package, which is for a first-time exporter; and a Gateway to Global Growth package, which is for those businesses that have already moved into one market and are looking at opportunities in others. It provides market information; it helps form partnerships overseas; and it is there to help deal with the finance access question, which I shall return to shortly. It is there to nurture investors, too, but I shall not dwell much on that, if noble Lords will allow, on this occasion.
What is the present condition of UKTI? First, it has a clear strategy. We have a list of priority countries on which we are focusing—there are 19 of them, four topmost and another 15 in a second tier. You might guess three of the topmost—China, Brazil and India. The fourth is Turkey rather than Russia. There are particularly interesting strategic reasons for engaging as proactively as possible with Turkey. Russia is in the next tier.
There is a clear focus on the sectors that we should cover. There are five main groups of sectors with 18 subsectors, one of which includes water and environment technology. I believe that there is a lot of work to do to ensure that the sector competence in UKTI is up to the demands of private sector businesses going into the export markets. We have work to do on that. I can assure noble Lords that we are on the case.
A new management team is in place. The noble Baroness, Lady Liddell, asked whether any of them had a background in the private sector, and specifically whether they had worked with smaller companies. I am pleased to report that the person we brought in to take specific responsibility for the SME business of UKTI comes from the private sector. He has had a 25-year career as an MD or group executive of more than 20 different SMEs over time in a range of sectors, including pharma and automotive software. His last position before joining UKTI was as CEO of Biocompatibles International. I think that he has demonstrable and credible expertise. I am pleased to report that because it is important as regards a key leadership position in UKTI. It should not be the only position occupied by someone with clear private sector experience. We need to ensure that there are plenty of others through the system.
I am very interested in the comments that the noble Lord, Lord Cope, and others have made about the importance of getting practical secondment experience into SMEs. I shall take that thought away and see how we can make a reality of it. Although I am ashamed to say that I have never done it myself—I have worked only in big companies—I fully take the point that seeing what it is really like on the inside is important.
A new structure is in place that will give a clear focus on SMEs and on what we call high-value opportunities. They are the opportunities in infrastructure in particular in many overseas markets where very large spending is taking place by overseas Governments and where I believe that there is an opportunity to bring together on a cohesive basis the British offer, which will include not only some big companies but, critically, some SMEs as well. We have been putting our money where our mouth is.
Lord Hunt of Chesterton
In addressing that point, will the Government do more to enable SMEs to attend these very large trade shows where these jobs and this technology can be displayed? The difference between the UK and other countries is enormous in that respect. As I understand it, the Government decided to cut back on funding of that sort. Can the Minister reassure us?
Lord Green of Hurstpierpoint
I am very pleased to reassure the noble Lord, Lord Hunt. When I arrived in this position I took the view that we had cut back too much. One might debate whether some of the earlier spending was fruitful but it may have been cut back too much. We have pulled it out of the nose dive and I am pleased to report that we have just allocated an extra £3 million to trade access programme activities, which is the area of trade fair attendance that the noble Lord is calling for.
This year, out of 288 missions, 178 were specifically focused on SMEs, a statistic which I should mention. I hope to reassure the Committee that we are serious about this. SMEs are critical to the long-term success of the economy and to the export challenge for this country. They are therefore at the centre of UKTI’s objectives.
There are plenty of challenges. More than one noble Lord has mentioned awareness. At the moment, the evidence is that about 56% of companies are aware of UKTI, which is simply not good enough. There is evidence also that only 24% are aware of UK export finance, which is miles away from being good enough. The satisfaction rates for the quality of service is not yet good enough. It is not that bad but it is in the mid-70s. I think that it should be at least in the high 80s or low 90s. Therefore, there is a direction of travel that we must make sure that we get to, which is partly about the quality of the people in UKTI. We are setting up a new unit within UKTI to focus on venture capitalists, because it is important to encourage venture capital into the economy and link it up with business opportunities.
I am conscious that my time is running out fast so I will just say a word on finance. The finance issue is quite complex. It is about venture capitalists and seed money. The noble Lord’s comments about the enterprise investment scheme resonated very strongly with me. I will take them away and we will see what we can do, but we are very clear that this is an important scheme.
More generally on business banking, there is a clear need to reinvest properly in business banking. In some ways I am better placed than many to say this. The banks have disinvested—unintentionally, but none the less in fact—in their business banking capabilities over the past 20 years. We need to turn that around. We need to reskill the banks. The good news is that the CEOs are all very committed to this. The challenge is that it is going to be a bit like turning around an oil tanker—I am afraid that it will take some time and we have some work to do on that. But I can assure noble Lords that I hold regular round tables with the banks, at both CEO and head of commercial banking level. I and the Secretary of State are on this case.
I am very conscious that I have run out of time. I thank the noble Baroness for introducing this debate and noble Lords for participating. This is a challenge that I care passionately about, as I hope noble Lords can tell. We have a great deal to do but I believe that we can be successful as long as we stick at it.
UK Industry: International Competitiveness
Lord Green of Hurstpierpoint Excerpts(11 years, 10 months ago)
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The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint)
My Lords, I thank my noble friend Lord Jenkin of Roding for initiating this important debate and raising the issues with such clarity. Strong trade and inward investment are of course vital to our economic success going forward—on that the whole House seems to be agreed. I thank my noble friend, too, for his kind comments about my role. It is perhaps worth noting that I have spent a fair amount of time in recent weeks and months travelling to 40 different countries as well as continuously around this country. This is not just industrial tourism; this is about understanding the issues that businesses face at this end and at that end in order that we can plan appropriate support going forward.
One lesson we all learnt from the 2008 crisis was that the old growth model is bust. In the run-up to the crisis there was too much growth based on domestic consumption fuelled by debt, and we know that we cannot continue to drive growth in that way. We also know that we cannot rely on government spending also fuelled by debt to drive growth either. The economics textbooks tell you that there are only two other sources of demand in any economy that can drive growth and create jobs—they are, of course, investment and net trade. I would like to talk briefly about each of those.
First, on investment—and focusing especially on foreign direct investment, which plays a key and strategic role in the UK economy—nearly half of total output in this economy is supported by foreign direct investment, a figure which is significantly higher than in France, and much higher than in Germany, America and elsewhere. It is a clear source of competitive advantage to us that the UK is, and has been for many decades, so open to foreign direct investment. It is a cultural orientation which has enabled—famously—the regeneration of the UK automotive industry since the 1980s by Japanese, German, American and now Indian investment. Iconic British brands such as Jaguar Land Rover, the Mini, the Rolls-Royce and the Bentley have been strengthened and revitalised by investment from Germany and India. Innovative cars are being developed and built in Britain now and exported around the world. One-quarter of all of Ford’s engines are built in the UK. The Japanese investor Nissan builds cars in Sunderland and exports some of them to Japan. An impressive 83% overall of cars built in the UK are now exported. The link, therefore, between foreign direct investment and exports is clear.
It is important, however, to remember that it is not just the automotive industry that we can use as an example here—the aerospace industry is another case in point. Airbus and Bombardier, to name but two examples, play a part in an industry that has a 17% global market share. Another recent example of a different kind of openness to foreign direct investment is the China Investment Corporation’s investment of 8.7% of Thames Water. The interesting point about that investment is that it has caused so little comment or nervousness in the British public domain. Can you imagine the same being true if a Chinese sovereign wealth fund invested in the water supply of either New York or Paris?
It is important that we remain an attractive destination for FDI, which means ensuring that our tax regime is attractive, that we minimise unnecessary red tape and that we have a planning regime that is fit for purpose. I know that the whole House will agree with me when I say that a lot of work needs to be done, and is in hand, under those three headings. The headline rate of corporation tax is the most visible sign of how competitive a country is and we are cutting that to 22% by 2014. That will be the lowest in the G7. We are supporting innovation through the patent box and R and D tax credits, and high-growth companies with programmes such as the enterprise investment scheme.
A crucial area where we need to attract FDI is not only in productive activity but in the public economic infrastructure. A number of noble Lords have referred to that issue. The kindest friends of this country would not accuse it of having a world-class public economic infrastructure. Infrastructure UK, a body started by the previous Administration and continued and developed by this one, has been developing increasingly specific project-based plans for investment in transport, energy, water and broadband networks which we will need if we are to compete effectively in the 21st century. It is estimated that around £250 billion of investment will be required between now and 2015, the bulk of which will, of course, have to come from private sector capital working in harness with the Government. That capital will come from foreign institutions, from domestic institutions and also from sovereign wealth funds. A lot of work is being done on that. This is a long-term programme that we have to keep at.
Our regulatory environment is another important signal for overseas investors in this country. We are often, quite rightly, very critical of ourselves, but actually we have a strong reputation overseas for transparency, predictability and the rule of law, and we must never lose this. According to the World Bank, the UK ranks seventh in the world for the ease of doing business and second only to Denmark in the EU. The UK has the fewest barriers to entrepreneurship of any country in the world. It takes 13 days to set up a business here, which is two days fewer than in Germany and almost a third fewer than the international average and a fraction of the time that it takes in some of the fastest-growing, emerging markets around the world.
We have to do much more especially to tackle bureaucracy that is holding businesses back. I note the point made by a number of noble Lords that this bears down particularly on SMEs. It is a continuous challenge. I suspect that if we are standing here in 10 years’ time we will still be pleading for an attack on unnecessary regulatory bureaucracy on behalf of small businesses. But we are working on it. That is why we have introduced the Red Tape Challenge and are seeking to simplify planning procedures—one in, one out on red tape; and the new National Planning Policy Framework creates a presumption in favour of sustainable investment, reducing some 1,000 pages of planning guidelines to just 52.
Secondly, I should like to comment briefly on trade. Historically, our performance has been weak. In fact, since the 1960s, trade has tended to be a drag on growth rather than a driver of growth in this economy. We also have had a burgeoning balance of payments deficit, although that seems to have stabilised in the past year or two or three. The fact, however, is that over the long term we have to find a way of paying our way in the 21st century. We have therefore set an ambitious target of doubling exports to £1 trillion by 2020, which requires growth of a little over 8% per annum compound. Last year we achieved 10.5%, so we are on track, but we have to keep that up, not merely to 2020 but beyond that. To achieve this, we need to look at where we stand in terms of market share. In most markets we lag behind Germany; in many we lag behind France, and in some we lag behind Italy too. I mention those three countries because in some ways they are our most obvious direct competitors.
The rise of the global middle class is a huge opportunity for all of us. As the emerging markets take their place on the world stage—or, in some cases, retake their place on the world stage—what you notice is that everywhere the appetite for the sort of goods that we take for granted is exactly the same, and as strong, as ours. So the opportunities are there. But if our exports do not keep pace with the rates of growth of those emerging markets then we will fall behind the competition. Our challenge is to get more companies exporting and to increase the amount that we export outside of the European Union.
Central to implementing this strategy is UK Trade and Investment. I would like to spend a few moments discussing how UKTI has been reorganised and refocused to meet the challenges we face. We have appointed a new chief executive and renewed the top management team, bringing in people with strong private-sector enterprise. Our UK-based trade advisers now work on incentivised contracts and so do our inward investment services.
In overseas priority markets we have set up a new group to identify so-called high value opportunities—contracts for major infrastructure projects, whole new cities and so forth, which create opportunities so long as we showcase the British offer cohesively and effectively. This is methodical work. We have identified in particular 60 top priorities. For each one of those we have an action team led by someone from UKTI, drawing in industry representatives from the relevant sectors. In some cases they are helping consortia to form; in others they are providing a cohesive offering, in particular creating the framework within which SMEs can access these enormous project opportunities which can seem so daunting to an SME working on its own. As just one example, in Malaysia, UK firms, including some small ones, have won business designing train stations and providing engineering consultancy for the country’s largest infrastructure project, worth over £10.5 billion, in mass rapid transit.
We have also introduced best business practice by strategically managing relationships with our leading exporters and leading investors so that they no longer feel that they have to run from pillar to post when trying to deal with government. This is beginning to produce benefits, although I am confident that this is, again, something that we have to keep up over the long haul if we are really to gain the benefit of providing a cohesive presence for inward investors and large British exporters to deal with. It is showing benefits.
Perhaps our most important task is to help more and more SMEs into the export markets. We have set a target for UKTI of doubling its client base from around 20,000 currently to 50,000, between now and 2015. Of course the vast bulk of that client base is already, and will continue to be, SMEs. We have a new team in UKTI headed by a new executive with strong personal business experience leading the charge on this. We have put in new programmes, and I am pleased to report—because this struck me almost from day one when I got into the job—that we have reversed the downward decline in trade access programme support. We have pushed the budget up this year, and if I get my way we will push it up next year too.
We have introduced new programmes of e-connectivity designed to help SMEs talk to each other and share experiences, because there is nothing so powerful as an SME talking to another SME about the practical challenges of getting into the international markets. We have introduced a new, more flexible approach to charging for market introduction services. I believe that there was too much of a confusion of ends and means, as the budgets for selling these services became the end. No, they are a means and not the end itself: the end is to serve clients and help them get into the export markets.
UKTI is also working much more closely with UK Export Finance, formerly known to many of us as the Export Credit Guarantee Department, which can now for the first time in 20 years offer services to companies of all sizes. For the past 20 years it has in effect been providing services only in the form of big-ticket, long-term credit guarantees for the defence and aerospace industries. We now have a range of products in place which are relevant to an SME in the smallest possible denominations.
Moreover, we know that exporting helps companies to grow. We know that businesses that export do better with the help of UKTI and UKEF. We know that on average companies that work with UKTI go on to win overseas sales of over £100,000 within 18 months. We know that this is value for money from the point of view of the taxpayer. However, I think that it is important to stress a theme that has come through this debate already on several occasions; that is, that the Government cannot do this alone. You will no doubt hold the Government to account for the quality of the services they deliver through UKTI and UKEF and through the Foreign Office and its work through the missions and posts overseas. However, even if you scored us 10 out of 10 on all of those dimensions, it still will not be sufficient.
There is a key role for the supporters and networks of SMEs to play as we help small companies face the often daunting challenge of getting into the export markets for the first time. I am working as closely as I can with, for example, chambers of commerce, including the British Chambers of Commerce, the Confederation of British Industry, the FSB; and also with banks, lawyers and accountants—all of whom are clearly critical to the prosperity and growth prospects of small companies—as well as with trade bodies such as the Energy Industries Council, which my noble friend Lord Jenkin mentioned and with which we do indeed co-operate on many levels, just as we do with a number of other such institutions representing industry interests and needs. The sector groups include the aerospace, defence, security and space industries; the BBA; the Law Society; and the Institute of Chartered Accountants, which I believe is playing an extremely valuable role in helping its members—who have so many SME clients—understand the opportunities.
I have also been working with honourable Members from the other place in a cross-party initiative to encourage them to seek out businesses in their constituencies. If you divide the target that the Prime Minister set of 100,000 new companies into the export markets over the next few years by the number of constituencies in the UK, it works out as just two or three dozen businesses per constituency per year. Put like that it does not seem as daunting as the figure of 100,000. The critical point is that this is a collective effort. Again, a number of noble Lords have raised the possibility of the roles that Members of this House can play, and one or two Members have already referred to missions led by Members of this House. I would be delighted to work with any of the noble Lords in this House who have links to business groups or know particular places well, to find ways of engaging them in what I believe is a collective challenge.
Turning to the various comments made in the extremely interesting and very wide-ranging interventions by noble Lords, I have to say that I will not have time to do justice to all of them. This was a very wide-ranging debate covering many of—essentially all—the issues in the economy today. I will attempt to focus on some of the major themes and commit to writing to noble Lords where I am not able to address particular points.
My noble friend Lord Jenkin mentioned three things in particular. The first was the issue of the awareness of UKEF and, come to that, UKTI. There is work to be done on this. It is clear that not enough of their potential customer base knows of their services and how to get to them. We need to work hard on that. We are putting a lot of effort into this. In particular, in the case of UKEF we are appointing representatives into all of the UKTI offices around the region. I have regularly, as I mentioned, been around the regions meeting with businesses, holding events and so forth. This is continuous work and we have to keep at it.
My noble friend also mentioned the question of life sciences, the importance of the life sciences initiative and the need to ensure that we showcase what we are seeking to do, as well as the need to get on with it— I think that that was really the thrust of the point. I resonate with the point that we need to make sure that the world beyond our shores understands what a telling proposition we have to offer. This is simply one of the best centres for life sciences development and investment anywhere in the world and we need to work to showcase that as effectively as we can. I would like to take away the thought of having some form of group of ambassadors from the industry to work with us in showcasing these opportunities. I believe that we have done that increasingly successfully in healthcare services, a related area where, for example, the noble Lord, Lord Darzi, has led both missions and a working group for us in helping us to showcase UK healthcare services more effectively.
I will move on, if I may, to comments from other noble Lords. The noble Lord, Lord Liddle, made a number of points about the importance of skills investment and the linkage between research in the universities and commercialisation thereof. A number of other noble Lords made similar points. The role of catapults will be extremely important in this.
The term “pea shooter” was used to suggest that we were not doing enough. This gives me the opportunity to make a general statement in response to a number of comments, including those of the noble Lord, Lord Stevenson. It would not be fair to characterise what the Government are doing as merely using a pea shooter. Extensive investments are going on, for instance in apprenticeships. The Government will spend £1.4 billion on start-ups, which this year will involve something of the order of 450,000 new apprenticeships. What we are doing was started by the previous Government and has been continued and ramped up by this one. We are rebuilding an apprenticeship system that fell into disrepair in the 1970s, 1980s and 1990s. We need to rebuild it. I will repeat something that I have said once or twice already. We must stick at this over 10 or more years before we get back to where we should be—with a skilled industrial base for this country. Along with all noble Lords in the House, I look forward to the report of the noble Lord, Lord Heseltine, on the competitiveness of the UK economy.
A number of noble Lords raised the question of Europe. I will dwell on that for a moment or two. It is clearly the case that, whatever the uncertainties about the way forward for the eurozone, we are involved in Europe. We are a member of the European Union, 45% of our exports go to the eurozone and half of them go to the European Union. We are impacted by the European Union. It is absolutely in our interest to continue to press for full implementation of the Single Market Act. The services directive and the digital single market are areas that will make a huge difference to Europe’s competitiveness globally, and to the opportunities that our companies will have in global markets. The Government are fully committed to arguing continually and loudly for Single Market Act implementation.
I am reminded that we are running out of time. This reflects the extensive nature of the debate. We have covered many topics. I would love to have had more time to talk about energy reform and its implications, and to respond to the point of the noble Lord, Lord Paul, about the importance of getting energy policy right for industry, for consumers and for long-term security. This is a difficult and complex area. As noble Lords will know, a Bill on this is being scrutinised in the other place at present.
In general, the message is clear. This is a collective effort. We need to work away at encouraging more companies into international markets. This is not a one-year fix. It is not a programme that we can conceive of implementing only for the lifetime of one Parliament. We will be living with this for a generation as we rebalance the economy away from excessive reliance on domestic consumption towards international engagement.
I will make one final comment. I promise to write to noble Lords whose points I have not been able to address. The more we succeed in this, the more we will not only repair our balance of payments position but contribute to growth. Very important research shows that SMEs in particular that get into international markets enjoy very considerable productive efficiency gains quite quickly—something like 30% gains in the first year or two of taking the first steps into the international market. That goes on as they spread their wings into new markets. It leads to higher profitability, greater longevity, further job creation and, in summary, to the strengthening of the backbone of the economy.
My final point is therefore that what we are talking about is not simply the balance of payments. It is not simply the need that we have to pay our way in the 21st century. It is about the regeneration of the economy that is core to the growth strategy that this Government have in place alongside the deficit reduction strategy and the strengthening of the macroeconomic environment.
Finally, I thank the noble Lord, Lord Jenkin of Roding, for introducing an extremely important opportunity for us collectively to talk about an issue that is central to all of us who have concerns about this country’s future economic potential.
Lord Haskel
The Minister spoke warmly of reducing corporation tax. Of course, what he forgot to say was that the Government are also reducing capital allowances by an even greater amount. What impact will that have on our competitiveness?
Lord Green of Hurstpierpoint
Corporation tax must be seen in the context of an overall tax package. We have a number of new measures in place. I referred to the patent box, whereby we will tax revenue from intellectual property at 10%. We have very generous R and D tax credits. We have introduced enterprise investment allowances. It would be very difficult to do anything other than recognise that the overall tax framework contributes to a very business-supportive tax environment. It needs to be competitive. The goalposts are moving internationally as other countries seek to create competitive tax regimes. We need constantly to watch what others are doing if we are to go on being an inward destination that foreign investors find attractive.
Manufacturing
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Lord Bates
To ask Her Majesty’s Government what assessment they have made of the United Kingdom’s international competitiveness in manufacturing, in the light of the recent investment by Nissan in north-east England.
The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint)
My Lords, the United Kingdom has an internationally competitive manufacturing sector, with companies across a wide range of activities. The automotive sector is a great example of that. We were delighted to see the unveiling of Nissan’s new concept car in Geneva this week. We welcome the news that the production model will be built at the Sunderland plant next year, creating about 2,000 new jobs at Nissan and in its supply chain.
Lord Bates
I am grateful to my noble friend for that Answer. It is indeed very good news. Does he recall that three years ago the confidence of the north-east was shattered by three simultaneous announcements: the lay-off and mass redundancies at Nissan, the closure of the Corus steel plant and the shelving of plans for a £5 billion investment in new high-speed trains? Does he recognise that over the past year we have seen the reopening of the Corus steel plant, the go-ahead for the Hitachi investment in new trains, and now the thousands of new jobs coming through Nissan’s investment? Does he agree that this demonstrates restored confidence in manufacturing in Britain and also in the policies pursued by the Government?
Lord Green of Hurstpierpoint
Before I answer that question, I am sure that the whole House would like to join me in congratulating my noble friend on just completing a 3,000-mile walk around Europe in support of the Olympic Truce initiative.
Yes, I agree with my noble friend that this is a sign of confidence in the British economy and in the north-east in particular. There is recent evidence of inward investment into this country in a range of sectors—not just cars but also rail, as my noble friend mentioned, renewable energy and steel. The investment comes from a range of countries—Japan, India, Thailand, China, as well as the more traditional sources of Europe and the United States. This is a welcome sign of the rejuvenation of the British economy.
Baroness Armstrong of Hill Top
We in the north-east are very pleased that Nissan, in my home town of Sunderland, is investing even more. It is a real tribute to the quality of the workforce and to the support that Nissan has had—it is proud to acknowledge it—from One North East, which has been so important in getting this investment. One North East is not there any more. What is also not there is a lot of jobs. Sunderland now has an unemployment rate of around 11 per cent and many young people feel that their opportunities have gone for another generation. What will the Government do to make sure that those lives are not written off?
Lord Green of Hurstpierpoint
The noble Baroness points to the significant challenges that we still face in many parts of the country. The north-east is a graphic example of an area that has become overly dependent on the public sector, where youth unemployment is at unacceptable levels and the role that foreign direct investment can play is significant in rejuvenating the economy and creating new job opportunities. Of course that is not the only thing that we need to see but it is a key part of it.
Lord Bilimoria
My Lords, as a proud manufacturer in one of the world’s brewing capitals, Burton-on-Trent, I wonder whether the Government agree with the Leader of the Opposition that British manufacturers should proudly mark their products “Made in Britain” rather than “Made in the EU”, as many of us do at present? Furthermore, what are the Government doing to help improve productivity in UK manufacturing and to learn from the United States, which has bounced back from recession? One of the key drivers there is the United States’ impressive track record of ramping up its productivity.
Lord Green of Hurstpierpoint
The noble Lord makes two very important points, one of which is about “brand Britain”, if I may use that phrase. I have travelled to over 30 countries in the past 12 months and, wherever I go, I find that brand Britain is extraordinarily well appreciated. In the next breath, people will often say, “Where are the British businesses? We would like to see more of them”. I absolutely agree that we should be proud of the “Made in Britain” brand.
We have a continuing task of upgrading productivity. This is about a number of things, including the new Catapult centres and apprenticeship schemes. We need to continue to invest because we are behind the curve in productivity in a number of sectors.
Lord Razzall
My Lords, in this burst of Sunderland euphoria it would perhaps be unkind to ask the Minister whether he agrees with the recently leaked letter from Vince Cable to the Prime Minister on the subject of growth. However, perhaps I may ask whether the Minister believes that the Government are seriously considering the possibility of breaking up the Royal Bank of Scotland, which would, of course, lead to increased lending to the manufacturing industrial sector?
Lord Green of Hurstpierpoint
On my noble friend’s first question, I believe that my right honourable friend the Secretary of State made an important point about a strategy that looks at the various sectors of this economy and identifies the appropriate measures that government can take to support them. It is of course true that while deficit reduction and fiscal consolidation is the most urgent challenge, we need to find a path of growth for this country that is more balanced and stable. On the question of the Royal Bank of Scotland, the answer is clear: we do not believe that breaking up the RBS is the right answer to addressing the financial issues in this country.
Lord Barnett
My Lords, before the Minister sits down, could he tell us what specific strategy his department has to deal in this area of manufacturing with the Chinese, if we are ever to hope to be able to compete?
Lord Green of Hurstpierpoint
The noble Lord raises a very important question. The Chinese are becoming more and more formidable competitors across a range of sectors, and we have to assume that that will continue. For the next generation, they will continue their fast growth and become more and more international. There are two answers to that question. One is to make sure that we are as innovative as we can be—that we move up the value chain, in short. Secondly, we need to be open to Chinese investment in this country. A key priority of my own brief is to encourage and nurture Chinese investment in this country, because they bring capital and, in some cases, expertise, which is valuable to this economy.
Export Control (Amendment) (No. 2) Order 2011
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Lord Green of Hurstpierpoint
That the Grand Committee do report to the House that it has considered the Export Control (Amendment) (No. 2) Order 2011.
Relevant documents: 18th Report from the Joint Committee on Statutory Instruments, 24th Report from the Merits Committee.
The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint)
My Lords, the order was laid before Parliament and came into force on 2 March. It was made using powers under Section 6 of the Export Control Act 2002. It imposed export controls on unissued Libyan bank notes and unissued Libyan coins. As a result, the export to any destination of such notes and coins is prohibited unless a licence has first been obtained from the Secretary of State for Business, Innovation and Skills. The order revoked and replaced the Export Control (Amendment) Order 2011 which, for reasons of urgency, was made and came into force on Sunday 27 February and was laid before Parliament at the earliest opportunity on Monday 28 February. This order had imposed controls on the export of unissued Libyan bank notes.
I will explain the background to the orders. On Friday 25 February, the Government became aware that a commercial printer in the UK had a contract with the Central Bank of Libya to print Libyan bank notes. The Libyans had asked for urgent delivery of the entire stock of outstanding notes, valued at nearly £900 million. Given the worsening situation in Libya and the imminent imposition of United Nations sanctions against that country and its regime, the Government judged that there was a risk that regime members would attempt to move state assets with the intention of keeping them for their own benefit if the regime failed, against the interests of the Libyan people. There was also a risk that the assets might be misdirected through corruption. In both cases, we assessed that the movement of these funds would constitute money laundering.
There was an urgent need to prevent the supply of the bank notes in order, first, to mitigate the risk that the money would be used by Colonel Gadaffi and his associates to support further violent repression of the civilian population; secondly, to prevent Colonel Gadaffi and his associates misappropriating the money for personal use if and when forced from office; and thirdly, to ensure that the money was kept safe for future legitimate use by Libya when the risks I referred to no longer exist.
We needed to act quickly. The printer had told us that contractually it had no grounds for delaying the shipment. We considered a number of ways in which we could prevent the supply of the notes. We were working hard at the UN for a Security Council resolution that would impose, among other things, an asset freeze. We did not know at the time whether this would include the Central Bank of Libya, or how long it would take. We also considered whether it would be possible to take action under the Proceeds of Crime Act 2002.
However, the Export Control Act 2002 allows the Secretary of State to make provision, by order, for or in connection with the imposition of export controls in relation to goods of any description. The Libyan Bank notes were not in circulation and therefore did not constitute legal tender, but because they were paper notes they were “goods” that could be controlled under the powers of the Export Control Act. We decided that the use of these powers offered the quickest and most robust method of preventing the supply of the notes. Officials in my department worked closely with HM Treasury and others to draft the legislation. Work continued on this on the Friday night and into the weekend. Because the notes could be shipped at any time, it was essential that the order came into force as soon as possible. This meant bringing it into force on Sunday 27 February, before it could be laid before Parliament.
In compliance with the requirements of Section 4 of the Statutory Instruments Act 1946, my department wrote to the Speakers of both Houses setting out the reasons. The Export Control (Amendment) Order 2011 was laid before Parliament at the earliest opportunity, on Monday 28 February. Soon after this, the Government became aware that a further contract existed with another supplier, in this case for the supply of unissued Libyan coins. Although the value of the coins was much lower, we judged that the same risks of money laundering and of the misappropriation of state assets existed. We therefore made the Export Control (Amendment) (No. 2) Order which imposed export controls on unissued Libyan coins as well as bank notes. This order was made, laid and came into force on 2 March. At the same time, the original order was replaced and revoked by the new order. The order was laid before Parliament pursuant to the procedure in Section 13 of the 2002 Act and, unless approved by a resolution of each House within 40 days, it will cease to have effect. Orders made under Section 6 last for a maximum of 12 months.
The situation in Libya and the international response to it is and has been changing rapidly. We are keeping the need for this order under review. If it becomes clear that it is no longer required, it will be withdrawn. On the basis of the facts that I have outlined, I commend the order.
Lord Young of Norwood Green
My Lords, I also welcome the noble Lord, Lord Green. I was not there on the previous occasion. I must admit that I did not expect to be involved in the Libyan situation, but one never knows what happens in these circumstances. The noble Lord answered most of the questions I had. The question of why we did not include coins as well as notes in the first one was satisfactorily answered when he pointed out that there was a first contract for £900 million and then another in relation to the coin contract.
Can the noble Lord say whether he thinks there will be an impact on these businesses? I do not question the need to do this—I agree with the noble Baroness, Lady Falkner, that this is a smart sanction and, indeed, a necessary one, although I concur with the further points that she made. The noble Lord also gave a general indication which answered a question I wanted to pose as to what happens to the seized assets. I saw a figure of up to £2 billion worth of seized assets and he indicated generally that they would be kept until such time as they could be transferred. Will he expand a bit on that? Other than that, I also welcome this legislation.
Lord Green of Hurstpierpoint
My Lords, I would like to close this debate by thanking noble Lords for their attention and for the contributions of my noble friend Lady Falkner and the noble Lord, Lord Young. In response to my noble friend Lady Falkner’s questions, I can confirm that the Libyan Investment Authority is covered by the assets-freeze requirements of Resolution 1973. I cannot confirm whether we have clarity on the value of the assets held with the banks; I will have to look into that. I am pretty sure that I can confirm, or ought to be able to confirm, that the banks are co-operating, but I will look into the value of the assets held. As for specific individuals, we will, of course, apply sanctions to any named individual and, as the UN updates its lists, we will make sure that those are complied with. Again, I will have to look into the question of stakes in companies; it is clear to me that it ought to be covered, but I will confirm that to my noble friend.
We will certainly work with others to ensure that gold reserves do not get illegally sold in a way which creates a back-door access to assets that they should not be able to get hold of. On the question of the impact on businesses, I do not think that we have any clear information; it is one of those things that those businesses will have to reckon with. It is not yet clear what the ultimate outcome will be and therefore it is not possible at this stage to make any meaningful assessment of the implication for those businesses, but the Committee ought to know that it was those businesses that came to us and said, “We have this issue. We have no contractual right to refuse. We would like your help, please”. I am very pleased to report that this was a very responsible and swift action by the company concerned.
As for the eventual outcome, the money is being held securely by the Bank of England; it will be delivered at a time when there is an appropriate resolution of the Libyan situation and it becomes clear that there is a legitimate recipient of these banknotes, but at the moment, the situation is grave and unclear. I think that I have dealt with all the questions that were tabled. I commend this order.
Arms Trade: Libya and North Africa
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Lord Alton of Liverpool
Lord Alton of Liverpool to ask Her Majesty’s Government whether they will review their policy on the sale of arms and military equipment in the light of events in Libya and north Africa.
The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint)
My Lords, we continue to believe that the assessment of all export licence applications on a case-by-case basis against the consolidated EU and national arms export licensing criteria is the right approach. In the light of the rapidly changing events in Libya and north Africa, we acted to revoke licences where there was a clear risk that the equipment might be used for internal repression or human rights abuses.
Lord Alton of Liverpool
My Lords, I welcome the Minister to his first appearance at Question Time. What are the Government doing to prioritise a legally binding arms trade treaty, and will they now support the enactment of my Re-Export Controls Bill, the provisions of which have been endorsed by three separate Select Committees in another place and supported throughout proceedings in your Lordships’ House? It has also been reintroduced as a Bill in another place by Mr Tony Baldry MP. Have not recent events in north Africa and the Gulf demonstrated that we have a clear duty to do all we can to prevent British weapons and munitions being used to crush dissent, to attack unarmed civilians, to destabilise whole regions, and to kill and maim those who are trying to give birth to democratic institutions?
Lord Green of Hurstpierpoint
My Lords, I think the whole House shares the instinct that lies behind the noble Lord’s questions. It is absolutely imperative that we conduct our defence and security sales business on the basis of high standards and under strict controls. Those controls are in place, but we always need to make sure that we take account of new experience. As for the proposal on the re-export of arms and control of that, the difficulty is that it is always the case that once arms have passed from this country to the buying country, there is no jurisdiction for any law passed in this country. We therefore remain concerned that any such Act would remain effectively null and void. We should continue to base our approach on careful pre-licensing scrutiny of export sales.
An arms trade treaty is a priority of the Government. We are committed to agreeing a strong and comprehensive arms trade treaty. We have a unit in the Foreign and Commonwealth Office that provides official support. We are working with key partners, such as the European Union, the United States and the co-authors of the treaty proposal—Argentina, Australia, Costa Rica, Finland, Japan and Kenya.
Lord Judd
Does the Minister agree that the real issue of concern is the underlying drive in policy? Armaments should never be another useful export unless there is some specific reason for not exporting them. Surely the culture in the unstable world in which we are living, with all the recent experience, should be that arms are an extremely dangerous export to promote, and should be exported only when there is a specific strategic purpose that can be monitored and held to account in the context of our relationship with the people who are receiving those arms. At the moment, we need to bring the emphasis in that direction, instead of the one that has prevailed.
Lord Green of Hurstpierpoint
I thank the noble Lord, Lord Judd, for that question. It is important to keep a balance. Every country has a right to self-defence. We live in an imperfect world; if it were a perfect world we would have no need of defence industries, needless to say. It is clearly extremely important that sales of defence and security equipment are conducted to the highest possible standards, and that we work with recipient Governments to ensure the proper use of such equipment and services. We must also make sure that we learn from experience. We would all acknowledge that we have some things to learn from the terrible events in Libya.
Lord Razzall
My Lords, does the Minister agree that the question goes slightly beyond the sale of military equipment and arms referred to in the Question asked by the noble Lord, Lord Alton? Will he confirm that the sale of such items as Taser guns, tear gas and other material, which are clearly being used in north Africa and the Middle East to suppress legitimate democratic uprisings, will be banned by this Government?
Lord Green of Hurstpierpoint
I thank my noble friend but, as I said earlier, we believe that the right approach to defence goods is a case-by-case one. There are legitimate uses of many defence products and services. Some we do not market or manufacture in compliance with international restrictions, but in general the right thing to do is to follow a case-by-case approach.
Lord Mackay of Clashfern
My Lords, is there any harm in the Bill to which the noble Lord, Lord Alton, referred? It seems to me that it could do good. When the Bill was being debated here, I could not understand on what basis it was suggested that it could do any harm, if enacted.
Lord Green of Hurstpierpoint
I thank my noble and learned friend for the question. The point is not whether it could do any harm but the fact that there is real concern about whether it could do any good as it is effectively unenforceable. We do not want any distraction from the important focus on thorough pre-licensing scrutiny.
Lord Elton
My Lords, a question at the back of many minds, which we do not much like to ask, is this: if we are going to be engaged in a no-fly zone and in enforcing it, is there any prospect that British pilots will face air defences supplied by British companies?
Lord Green of Hurstpierpoint
I thank my noble friend. This is clearly a very difficult position. The situation is evolving from day to day. It is tragic; civilians are being killed and the outcome is unclear. The right thing for Her Majesty’s Government to do is to work with the international community to try to find a way forward that protects the citizenry of Libya.
Trade and Investment
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The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint)
My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Business, Innovation and Skills.
“Today, I turn to one of the main building blocks of economic recovery: achieving growth through international trade and by attracting inward investment. Britain makes up just 4 per cent of the global economy. Without aligning ourselves to faster growth elsewhere, we cannot hope to prosper, but to do this we have to do better than in the past. In the last few decades, we have consumed too much and exported too little. While our competitors were sending manufactures across the globe, we were building a property bubble. Now, with Germany exporting over three times as much as Britain, it is vital to turn this around.
We have also done better in attracting inward investment. We are one of the top three recipients of foreign investment in the world and are home to more European headquarters of overseas companies than all the other European countries put together. Inward investors do not just provide jobs, they also provide 30 per cent of our R&D. However, there is no room for complacency in an environment that is increasingly competitive. This White Paper therefore sets out a strategy for creating opportunities, for providing the conditions for private sector growth through trade and investment that will help to rebalance our economy, and for securing the benefits of greater trade and investment openness for the world’s poorest people.
The Government want to focus on SMEs, which are much less engaged in trade than bigger companies. They have told us that they want to take advantage of the opportunities, especially in emerging markets, but cannot always access the trade credit insurance or finance to take the risk. Since the economic crisis, they feel that it has become much harder to get cover from private credit insurers at reasonable rates, so we will create several new government schemes and extend one existing scheme. These will be launched in the coming months.
First, BIS will launch an export enterprise finance guarantee scheme that offers export finance valued up to £1 million to SMEs. Secondly, the Government’s Export Credits Guarantee Department will launch an export working capital scheme for those not eligible for the export enterprise finance guarantee scheme, which will offer export finance in amounts of over £1 million. Thirdly, the ECGD will launch a bond support scheme under which the Government will share risk with lending banks on the issue of contract bonds and, fourthly, it will launch a foreign exchange credit support scheme that will support banks offering foreign exchange hedging contracts to SMEs by sharing the credit risk. Fifthly, the ECGD will extend its short-term credit insurance scheme to cover a broader range of exports, including those of SMEs. In addition, UK Trade & Investment, or UKTI, will increase its focus on emerging markets and on helping SMEs. It will launch a new online service offering access to sales leads around the world.
All Ministers have been asked to support our trade diplomacy. I have led or supported the Prime Minister in high-level trade delegations to Brazil, India, China and Russia with business representatives promoting exports and seeking inward investment. We will do more of the same this year and beyond.
However, half our exports are to the EU, and consequently we have a strong interest in ensuring that the EU grows. That makes the completion of the EU single market even more vital. Some recent analysis suggests that trade between the UK and other EU member states could be as much as 45 per cent below potential. This is largely because of significant non-tariff trade barriers. Completion of the single market could translate into 7 per cent additional income per capita per UK household. We therefore strongly support efforts to remove barriers to trade—particularly for SMEs in fields such as e-commerce and low-carbon products and in professional and business services, where there are currently an estimated 3,000 regulatory requirements—as well as pressing for energy and agriculture liberalisation.
At the international level, completing the Doha round is one of our top-level objectives. Finishing these trade negotiations could deliver a £110 billion boost per year to the global economy. We have spent 10 years negotiating and need urgent action now to agree the key elements of the Doha deal this year, so I am glad that momentum towards a deal seems to be building again. Britain will do its utmost to get the WTO past the finishing line this year. Doha is the top priority, but we will also pursue an ambitious programme of EU free-trade agreements with our main trading partners, including India, Canada, Singapore, the South American Mercosur countries and, we hope, Japan, following the recent agreement with South Korea.
Finally, the UK is committed to assisting poor countries to take advantage of the opportunities presented by an open global trading system. International trade is one of the most important tools in the fight against poverty, and research evidence shows that countries without trade barriers have growth in per capita incomes three times faster than in other developing countries. We will therefore ensure that trade is a central theme across our bilateral aid programme and promote regional integration, notably in Africa through our Africa free-trade initiative. Helping the developing world in this way is the right thing to do, both on moral grounds and in Britain’s economic national interest.
This White Paper sets out an ambitious direction for the UK and will guide the Government’s work on trade and investment. We will implement it vigorously and actively, and I urge British business to seize the opportunities it will present. That way, we will all benefit from the vision it sets out: an open trading system and a competitive British economy, driving growth and jobs. I commend this White Paper to the House”.
My Lords, this concludes the Statement.
Lord Green of Hurstpierpoint
I thank the noble Lord, Lord Young of Norwood Green, for those comments and for his recognition that there is a great deal of common ground on what it takes to enhance British trade performance and to ensure that we remain an attractive place for inward investment. We all recognise that British trade performance has been inadequate for a very long time. That goes back many years, if not decades. As we look for ways to achieve stable growth going forward—we are coming out of a crisis which itself followed a period of clearly unbalanced growth—we all recognise that we need to rebalance the UK's growth model. It is clear that trade and investment will have to play a key role. It is no longer possible to grow the economy by consumer demand fuelled by excessive borrowing. It is plain that government spending will not drive growth for all the reasons of which we are well aware. Therefore, it is inevitable that those sectors of the economy which contribute the rest of the demand—for example, investment and the external sector—will have to drive growth.
I absolutely agree with the noble Lord that manufacturing will play an important role in this. Although the trade statistics at the moment are not good and show that we have plenty of work to do, there are some encouraging signs about manufacturing’s contribution to exports. There is much work to be done. I say as someone who is relatively new in the job but who has spent some time going round the country meeting exporters—large and small, big companies and SMEs—that I am confident that there is a great deal of talent and energy raring to go. The measures that we have announced in today's White Paper, in particular the measures concerning the ECGD on the one hand and the UKTI on the other, will provide very useful support to those companies as they seek to achieve their aspirations.
The noble Lord raised a number of other questions about pharmaceuticals. There is no question but that the news about Pfizer is very sad for Sandwich. All the indications are that it is not a reflection on Britain but is part of Pfizer's global strategy and dealing with its specific issues. I assure him that Ministers and the Government are taking this issue very seriously and that my colleague—one of the Ministers in the department for business—has been down to Sandwich and is in discussion with a number of entities that are making contributions to getting the site partly used and possibly saving some jobs. It is early days yet on that but we are working hard on it.
It is clear that the Government have credible plans for growth. It is interesting to note that Sir Richard Lambert’s speech referred to a couple of things that he considered to be very important in terms of growth. One was providing better finance for SMEs, which we have done, and one was ensuring that UKTI focused more on SMEs and we have done that. Indeed, the warm welcome for today’s White Paper from the present director-general of the CBI reflects the way in which we have responded to an obvious gap in the support for SMEs.
I believe that we are making progress. As we say in the White Paper, this is absolutely a marathon and not a sprint. A weak trade performance is something that this country has lived with for a long time and it will not be cured by waving magic wands. If there were any magic wands to be waved, they would have been waved by now. However, what we have set in place now will, over time, make a serious contribution to enabling more businesses to get involved in international trade.
Lord Razzall
My Lords, I thank the Minister for repeating the Statement made in another place and congratulate him on what I suspect is his first Statement in your Lordships' House. I count eight Ministers who are present. I do not think that they are here to monitor the noble Lord’s performance; I suspect that they are here for other reasons.
I wish to ask the Minister two questions. First, having listened to the banking Statement by the noble Lord, Lord Sassoon, and this Statement—both of which I welcome—I am concerned about the practicalities of what is being suggested. This Statement indicated that there would be a significant increase in grant to the SME sector and the banking Statement indicated that the Project Merlin agreement would produce an increase in lending to SMEs of £66 billion to £76 billion. However, given the present culture of the banks, I worry that they will not be able to deliver that increase in lending, however much the Government aspire to that in the agreement. Those of us who have dealt with the clearing banks as SMEs know what actually happens. You go to your relationship manager—it does not matter whether it is Barclays, RBS or who owns the bank—and he or she says, “Yes, that is fine. I think we’ll recommend that loan”. Then the matter is passed to a credit committee, the members of which you have never met, and they often turn it down or come back and say, “It’s got to be 7 per cent over LIBOR”. How will the Government deal with the change in culture that will be necessary on the part of all the clearers if they are to deliver the loans and the business for the SMEs that are necessary to achieve the growth that the Minister, and indeed all of us, wish for?
My second point relates to UKTI, which is definitely within the Government’s control. In practical terms, if an SME wants to use UKTI to generate sales overseas, it gets in touch with it and someone at UKTI says, “Fine, I’ll let you know what sales expertise we can provide you with and what possibilities there are so long as you pay us £3,000”. Will the Government ensure that UKTI does not charge people for that element of expertise? That is an important point as that matter is under the Government’s control.
Lord Green of Hurstpierpoint
I thank my noble friend Lord Razzall for his comments. I absolutely agree with his first point about the practicalities. As I said, this is a marathon, not a sprint. One of the reasons why that is true is that the production of a White Paper is not the culmination of a process but the beginning. The next step is to translate the White Paper into a large number of action steps, assign responsibilities, time lines and all the rest of it, and drive it through. One of the most important aspects of what we have announced today in the White Paper—this may seem a rather bureaucratic point but I absolutely underscore its importance—is the creation of a new interministerial committee. It is, in fact, a sub-committee of the Cabinet Economic Affairs Committee and the Prime Minister has asked me to chair it. The committee will bring the Ministers in different departments involved in this whole project together on a monthly basis to drive these actions forward. It is in that context that we will review how well it is all going and make any adjustments as we go along.
My noble friend raised some particular issues about banks. For reasons that the House will understand, I am slightly nervous about commenting on banks, but I think there will be considerable recognition in the banking community engaged in commercial banking in this country of the force of a good deal of what my noble friend said. For example, he spoke of the need to ensure that in the context of businesses where there are credit committees and so forth—and rightfully so—nevertheless there is a real relationship that we need to keep alive with individual firms, even small ones, so that there can be a real understanding of the needs of the business.
I do not think anyone in this House would want to go back to some of the culture of lending prevalent in the go-go years in the early part of the previous decade, when lending was carried on as if it was going out of style. There is a need to introduce some prudence and credit control into banks’ business if we want to ensure that banks themselves are stable and profitable. But that must be balanced with an appropriate understanding of the real needs of businesses. We need to monitor that. The Merlin agreement that was announced by the Chancellor of the Exchequer in another place this afternoon includes agreements by the banks on this front, and the Government will hold the banks to account on it.
I have had the opportunity in recent weeks of meeting a number of UKTI people both here and overseas and my experience is that on the whole it is a good institution. There is always scope for improvement, certainly, and in any institution employing some 2,500 people you will find those who are average in quality and those who are very good. But coming at this from the outside, I am impressed by the dedication, hard work, commitment and enthusiasm of UKTI people in the many offices that I have had the opportunity of visiting.
On the specific question of whether to charge for its services, the Government believe that it is appropriate to charge for some UKTI services, but there are plenty of services that are not charged for. OMIS—I am afraid that I cannot remember what that stands for—is a service that is charged for, but generally the feedback is that it is widely welcomed.
Lord Lang of Monkton
My Lords, I warmly welcome the well focused nature of my noble friend's announcement. I suggest that the key to growth in the long run is surely increased productivity, as the example that he gave of Germany indicates, though rather to the detriment of Germany's unfortunate partners within the eurozone. Against the background of the sad decline in productivity growth during the period of the previous Government, will he indicate the extent to which he believes the announcements that he has made this evening will stimulate further productivity growth and thus lead to the creation of more jobs and prosperity?
Lord Green of Hurstpierpoint
I thank my noble friend Lord Lang for that question because it is an important one. Productivity is indeed something of an Achilles’ heel, at least in parts of the British economy, and we need to work at that. It is a complex matter that involves the whole question of the skills base. There is one very interesting fact about exports that is extremely important to this question. Research shows that as small companies get engaged in the international markets, they not only tend to be the more efficient ones, they tend to get more efficient as they do so. In other words, an enhanced trade performance engaging more SMEs in the international markets has the effect of strengthening the backbone of the whole economy. That is an extremely important consideration that leads me to underscore again the very centrality of this trade agenda to the growth strategy for this economy for the next few years.
Lord Hunt of Kings Heath
My Lords, perhaps I may follow up the question raised by my noble friend about the pharmaceutical industry, particularly the decision of Pfizer. Is the Minister aware of a Department of Health consultation on value-based pricing, which essentially changes the way in which the health service will compensate the pharmaceutical industry for the cost of drugs?
Under the current system, the PPRS, companies have great flexibility in setting a price within an overall profits cap. The advantage of that is that price sets a benchmark for at least 25 other countries and probably many more than that. That is one of the attractions for the industry of investing in the UK. When I was responsible for the pharmaceutical industry at the Department of Health, the UK had 4 per cent of global turnover in pharmaceuticals and 10 per cent of global R&D investment.
The Department of Health’s concern is to control the cost of pharmaceuticals to the NHS but, frankly, there is a much greater issue: the strength of our pharmaceutical R&D investment. I therefore urge the Minister to make sure that we are looking at pharmaceutical prices from the point of view of UK plc. I should say to the House that I have a number of health interests which are declared in the register.
Lord Green of Hurstpierpoint
I thank the noble Lord, Lord Hunt of Kings Heath, for that suggestion. I have to say that, as somebody relatively new to my role, this is not an area with which I am very familiar. However, his idea is very interesting and I am happy to undertake at least to inform myself more about the issues.
I am aware that Britain has been a very attractive site for R&D in the pharmaceutical industry. I think that we are all aware of the way in which the pharmaceutical industry is changing, with an increased tendency for the major companies to look at whether primary R&D is better contracted out to smaller operations. There is a need to think through the implications of that for the strategy of attracting and retaining inward investment in that sector.
Lord Burnett
I welcome the Statement and my noble friend’s appointment. Some of our major banks execute transfers of money rather more swiftly than others. It would be of great help to small and medium-sized businesses if money transfers took at the most, let us say, 24 hours rather than three or perhaps even more days. Will my noble friend encourage dilatory banks to speed up the system? Will he also take steps to encourage large companies to pay their suppliers without delay?
Lord Green of Hurstpierpoint
I thank my noble friend Lord Burnett for those suggestions, which are both important. I am happy to undertake that the Government will ensure in their dialogue with the banks that money transfers, particularly for small businesses—but, frankly, for anybody—are done as rapidly as is reasonable. I also agree that we should encourage large companies to ensure that they settle bills with their smaller suppliers as promptly as possible.
Lord Northbrook
My Lords, I congratulate the Minister on the White Paper. I applaud the strengthening of the ECGD scheme and the focus on improving important emerging markets such as India, China and Latin America as well as on existing trading partners. I also agree with him on the importance of the Doha round. However, I have a problem with the coalition’s measures for restricting capital allowances for manufacturing companies. If we are to try to refocus the UK economy on manufacturing, surely we need to encourage our manufacturing companies to reinvest and thus not restrict these capital allowances.
Lord Green of Hurstpierpoint
I welcome my noble friend Lord Northbrook’s support for what is proposed in respect of the ECGD and the commitment that the Government have given on Doha. The Government are clear that they want the most competitive corporate tax environment of any of our major competitor countries. As the noble Lord is aware, the headline rate of corporation tax is coming down by one percentage point between now and 2014. When it reaches its final level in 2014, it will be the most competitive rate among the G7 economies. From the many comments received from many companies, we have also recently announced the introduction of what I know is important to them; namely, a patent box to enable them to benefit from the fruits of research and intellectual property.
Overall, the sense is that we have got the balance about right. In recent weeks, as I have visited small and larger companies in the regions of this country, I have found that tax does not register as one of the regular issues where they are looking for enhanced government support. I think that they recognise the intent and the substance of what policies have already been announced.
Baroness Hooper
I also welcome the Statement and the White Paper. Because of my interest in Latin America, I note in particular and with pleasure the references to promoting trade and investment with that continent—in particular, Brazil and Mexico with their large and vibrant economies. I note also that the White Paper states:
“Our Embassies and High Commissions overseas are uniquely placed to advise on the complex political, economic and cultural factors that affect trade and investment opportunities in other countries. They can help facilitate access for UK business, help overcome barriers to market entry, secure a better in-country operating environment”.
Will my noble friend therefore assure us that the previous policy of closing, down-sizing and placing severe budgetary constraints on our embassies and overseas missions will be reversed?
Lord Green of Hurstpierpoint
I thank my noble friend Lady Hooper for drawing attention to a very important region, Latin America. Brazil is one of the most exciting countries in the world and I think that we all recognise that British business has not paid that part of the world as much attention as we probably should have in recent years and decades. That is now beginning to change. The Deputy Prime Minister is visiting Latin America next week, which follows a visit by the Secretary of State for Business, and I will be going later in the year. We are paying Latin America a great deal more attention.
With regard to embassies, I make two points. Embassies play a crucial role in this trade and investment strategy. The Government have defined the key priorities of the Foreign Office as being, first, commercial diplomacy and the prosperity agenda; secondly, security; and, thirdly, the consular function. The priority attached to commercial diplomacy is extremely important.
In terms of the deployment of resources, there is an intention to gradually shift resources in diplomatic terms to the faster growing countries, the emerging markets. Without being precise about the plans at this stage, I think that noble Lords can expect to see the sorts of countries that are of concern to them being beneficiaries of this process.
Lord Risby
I warmly congratulate my noble friend on his White Paper. Does he agree that the desire to learn English and to be educated in the English language produces a huge and lucrative opportunity for us, and that the work of the British Council and the arms of our universities abroad can play a critical role in trade development policy?
Lord Green of Hurstpierpoint
I thank my noble friend Lord Risby for that intervention, because I agree completely. The role of British educational institutions as export earners in their own right and, importantly, as in some sense ambassadors for what Britain is around the world cannot be prized highly enough. All indications are that those who come into contact with the British educational experience end up taking with them a warm experience of Britain for the rest of their working lives. They are all the more keen therefore to engage with us, whether as investors or as traders later in life. I think that this is extremely important.
The Archbishop of York
My Lords, I too am very thankful for the White Paper. I am particularly grateful at how this Government are committed to assisting poor countries to take advantage of the opportunities presented by an open global trading system. I am also grateful that when the Secretary of State for International Development addressed the General Synod of the Church of England he reaffirmed what the Prime Minister has said; namely, that deficit reduction will not be achieved on the backs of the poor and that the 0.7 per cent will be retained to be given to those poor countries.
To have more joined-up thinking between that department and the Minister’s department, will the Minister ensure that they do not simply support poorer countries? As some people have said, it is one thing to give a poor man a fish, but it would be better to teach the poor man how to fish.
Lord Green of Hurstpierpoint
Trade is at the heart of what it takes to achieve successful economic and social development. Yes, the Government are committed to their plans to move towards the 0.7 per cent target for official development assistance. As my right honourable friend the Secretary of State said in the other place earlier today, we will commit to ensuring that our support for trade facilitation as part of our official development programmes remains at least at the current level. There is ample evidence that helping countries to improve border controls, regulatory environments and communications of all kinds has an enormous effect on trade, which in turn has an effect on people’s ability to earn their own livelihoods and find their way into the economic and social mainstream. So we are completely in agreement with the instinct that the most reverend Primate calls for.