Exports: Government Support

Lord Hunt of Chesterton Excerpts

Thursday 29th January 2015 Lords Chamber

[Lord Hunt of Chesterton (Lab)]

My Lords, I welcome this debate, introduced by the noble Baroness, Lady Wheatcroft, who was a distinguished editor of Wall Street Journal Europe. It is an innovative if rather right-wing paper, but it kindly published some of my articles on environmental policy.

I liked the noble Baroness’s remarks, but they reminded me slightly of a rather irate Minister in this Government at some meeting getting more and more heated and saying, “Well, the UK just should be the corner shop of the world”. My vision is that it should be somewhat bigger. A bit of corner shopping is all very well, as the noble Baroness, Lady Wheatcroft, said, but there are some big issues. We should also remember her remark about the Prime Minister going to Asia. As noble Lords will recall, when the Prime Minister went to China the word “Boeing” was above his head as he came down the steps of the aircraft. He should have gone in an Airbus, like all the leaders of Europe do.

I declare my interests as a director of a small, high-tech company. I had a much bigger role as head of the Met Office.

For the UK to increase its exports, which is vital for the economy, it requires collaboration between the Government, business and everyone who provides services to foreign customers, whether they are in the UK or abroad. The first job of government is not to make it more difficult for UK organisations to contribute to visible and invisible exports. A simple point that this Government have forgotten, of which Indian universities reminded the Prime Minister when he visited India, and as the noble Baroness, Lady Wheatcroft, just emphasised, is that enabling foreign students to come to the UK is a very important invisible export. It is also important for them to be able to work in the UK. I am glad that there are now schemes for that to happen, but they are not widely known. When one goes around the world and meets students, they say that they will not come to the UK to study because it is so difficult to get a job afterwards.

The Government’s second own goal that I would like to point out was in the Daily Telegraph—not my usual reading—in “Business Club”, which is even less so. It had an interesting online article yesterday on the uncertainty about the UK leaving the EU, which is damaging invisible and visible exports. The article says that that is making it more difficult for UK businesses to get contracts in Europe. This uncertainty also inhibits some inward manufacturing investment and is driving some businesses abroad.

What is extraordinary about this threat to leave Europe is that UK business and government will be much less able to influence the EU’s setting of technical standards of saleable products. I read the New York Times from time to time; these EU standards are regarded as the world standards and affect business the world over. If the UK is not to be in the EU but be like Switzerland or Norway, it would simply have to receive the standards that are set by committees and other countries in Europe. Doubtless helping UK business would not be first in their mind.

The UK science and technology sector has developed standards from its great experience. I have worked with EU institutions; they help European business. In future, the UK will be less able to have this influence. In the 1980s I helped set up a European network called Ercoftac—a rather funny name—to enable universities and industries to work in the aerospace and automobile sector. The way we have managed to get standards, data and test cases for industry is the envy of the world. Of course, we will still be able to participate if we leave the EU, but the way that this kind of network will be able to work with British industry will be diminished.

The previous Labour Government and this Government have introduced, through BIS, some new, greater support for science and technology, which contributes to UK exports. I endorse many of the remarks made by the noble Baroness, Lady Wheatcroft, on that. For example, last week I learned about the Satellite Applications Catapult, which provides extraordinary business opportunities. It is not just about business; being effective in business enables the provision of more information about health and well-being for communities around the world. We are talking about using business as an efficient method of providing services.

The difficulty facing the building up of UK exports is that many of the major world-leading high-tech companies are no longer here in the UK. This is something that happened over 20 or 30 years, but it was gratifying that one of our major high-tech companies, AstraZeneca, was not taken over by the United States company Pfizer. In fact, one might note that, despite the City of London gagging at the possibility of more M&A scavenging, that company is here thanks to our continental colleagues who are on the board of that company. As a result of those takeovers, large companies from Germany, the United States and Japan are operating in the UK, but their R&D is often done abroad. This has had an effect on UK employees. For example, there are fewer engineers in some big electrical companies in the UK than in their home countries.

This Government have done better than the Labour Government in improving manufacturing industry. That is to be welcomed. This has led to substantial imports, such as offshore wind and nuclear plant; we did not have this capacity before. The question is whether UK manufacturers can build themselves up so as to reduce the UK’s sizeable and growing balance of payments deficit. I look forward to hearing from the Minister on this point.

Of course, even the most successful countries import technology. It should be obvious that the UK needs to do that because we provide 8% of the world’s science, while 92% is abroad. I am pleased to see that BIS is now following the practice, well established in the United States, of employing staff to import commercial innovations. In the past I have been critical of the fact that there was no strong element of technical work on that area within BIS, but I believe that it is growing. For example, there was an advertising session at the London Olympics to bring foreign companies from abroad to demonstrate what they were doing. An Italian environmental company using social media came and we hope that it will be working in the UK.

Many small UK businesses complain about the lack of support that they receive from the UK Government, compared with that provided to competitor businesses by foreign Governments. Some British businessmen are quite demoralised by the unfairness of this competition. In principle, everybody should play cricket and follow the level playing field approach of the UK. However, this is not the case. Despite its propaganda about free and open competition, the United States is one of worst offenders in the way in which it restricts the import of foreign software and spends vast sums on technological support at its embassies. I have seen this in Beijing and in other countries. They are overtly using their technical knowledge to advise and support American consultancies and technologies.

Other European countries use their financial assistance to developing countries to promote their own basic exports. There is an article in a newspaper today about how this is happening through World Bank programmes. One hopes that high-tech companies in the UK may benefit from the Newton programme, introduced by the Prime Minister when he went to China. This should make some contribution, although I suspect that it is more about science and technology than about business.

Many business commentators have noted that one of the most effective ways in which the UK Government can help business is via the Government’s whole or partial ownership of exporting organisations. This started, of course, with Rolls-Royce. The Government rescued it from bankruptcy back in the glorious days of Ted Heath. It obtained City funding but the Government retained their golden share, so Rolls-Royce is still here. If that had not happened, one wonders whether it would still be here.

Recently, we have read ominous remarks in the newspapers about Rolls-Royce. Although it has been remarkably successful with its aerospace engines selling to about half the global wide jet market, typically, the moment there is the whiff of a problem, the City pages slaver at the possibility of more M&A scavengers breaking it up. I hope that the Minister will clarify the position. Rolls-Royce is still a top, world company and should have all the support that the Government can provide.

Many government agencies were set up as quasi-commercial organisations. It began under the Wilson Labour Government and continued strongly with the Thatcher Government. Such organisations have worked at the highest technological and commercial level and have greatly helped UK exports. As the noble Baroness, Lady Wheatcroft, said, more could be done to support British companies in overseas markets. The underfunded National Health Service is another example.

[Baroness Williams of Trafford (Con)]

My Lords, this is a time-limited debate. Speeches are limited to nine minutes. When the clock says nine, it means that noble Lords are into their 10th minute. Therefore, when the clock says 10, they are into their 11th minute. I would remind noble Lords to give the Minister sufficient time to respond.

--- Later in debate ---

[Lord Leigh of Hurley (Con)]

My Lords, I thank my noble friend Lady Wheatcroft for instigating this debate. She is of course a well known commentator for the Wall Street Journal, an excellent publication, and business editor of the Times. I refer noble Lords to my various interests as declared in the register of interests.

Since new year’s eve 1600, when the East India Company received its Royal Charter from Queen Elizabeth I, Britain has been a nation of exporters. At our zenith, Britain was responsible for half of all the world’s trade. Since then, of course, we have had globalisation and the entry of a few competitors, so I would not see a return to those dizzy heights as a viable target. However, we can still aspire to see Britain’s goods and services exported the world over. We are, after all, an island nation, necessarily open and outward-looking.

It is not just for soft power and prestige that exports matter, though; they are of course vital for economic growth. With government spending rightly curtailed by the nightmarish inheritance that was the state of our public finances in 2010, and uncertain consumers paying down debt or increasing savings, exports have been and remain a key driver of growth in our successful economy. It is worth noting that in 2014 the UK had the fastest rate of growth of any major economy, thanks to the sterling work of the Government and the long-term economic plan.

I am pleased that the Government have recognised the importance of exports, with strong leadership matched by concrete measures to support business. As my noble friend Lady Wheatcroft has said, the Government have set very bold targets of doubling UK exports to £1 trillion a year and getting 100,000 more UK companies exporting in that time. To achieve this, the Government must support businesses looking to access markets abroad by offering guidance, with networking opportunities at trade shows and other events, and of course with direct financial support. I join my noble friends Lord Risby and Lord Lang of Monkton in recognising the work done by the Foreign Office to make overseas trade a specific part of its mandate. As well as our ambassadorial consular services, businesses operating abroad will find unprecedented support awaiting them from our embassies and UKTI offices.

Unlike previous Administrations, this Government are proud of the exploits of our business leaders, which are so important. This Government are willing to put them front and centre of our soft-power diplomacy. I have therefore been very pleased to see many British leaders accompany the Prime Minister on his trips abroad, which have been mentioned by both my noble friend Lord Cope and the noble Lord, Lord Hunt of Chesterton. In fact I was on that delegation to China, if that is the one that was being referred to—we did not go to Hong Kong—and I believe that the noble Lord, Lord Hunt, is correct that it was not an Airbus but a Boeing. I inquired as to the choice of transport, particularly the carrier, which was not British Airways, and was told that a tender had been put out and the most cost-effective plane had been selected in order to minimise the cost to UK taxpayers.

[Lord Hunt of Chesterton]

Is this a defence or an attack?

[Lord Leigh of Hurley]

I confess that one of the benefits of the delegation, as the noble Lord, Lord Cope, said, was that nearly all the delegates there were SMEs. Fortunately, it was not an Airbus, because a Boeing has the advantage, particularly on the carrier we were travelling with, of a bar in the centre of the plane. It was a memorable trip, as my noble friend Lord Livingston will recall, if only because virtually all the SMEs on the plane that had signed contracts while we were out there pushed themselves towards the bar in the middle of the flight, to the point where the pilot put on the seatbelt sign, even though there was no turbulence whatever, to get them all back again.

These delegations have a number of important missions, including helping medium-sized businesses that lack the brand value and network of their larger cousins but have growth potential if they can globalise their operations. The Prime Minister’s personal commitment, as my noble friend Lord Risby has said, must be welcomed. It is worth commenting that he has visited 19 out of 20 of the G20 countries—Argentina, understandably, is on hold—and we have seen significant increases in the budget of UKTI, even at a time when many UK government departments have understandably had to cut back. Indeed, the recent spending review at the department for business for 2015-16 established a baseline increase of £70 million a year, with a view to assisting 500 new medium-sized businesses annually. These measures show the priority status that exporters have been afforded under this Government. Whereas the previous Prime Minister led the world in accumulating the biggest budget deficit of any leading economy and discouraging business activity with higher rates of corporation tax, this Government have made the UK a leader in attracting global investment.

I see this in my personal and professional life, acting for SMEs in the UK. There has been a huge pick-up of interest from overseas, particularly from China. This approach is paying dividends in extending the reach of UK companies from domestic or European to truly global. For example, it is relatively easy and straightforward to export to Ireland: it is close and we speak the same language. The real challenge—but also the gain—is in trying to export to the BRIC countries and other emerging economies. In 2008, at £19 billion, the UK exported more than twice as much to Ireland as it did to China. Pleasingly, in the last quarter of 2013, for the first time ever, exports to China finally overtook those to Ireland. The Prime Minister said that he wanted more exports to the BRIC countries and UK business has responded.

This does not mean that the EU is not a very important market: of course it is. For example, it remains very important in my field of activity, financial services. Many international finance companies, from banks to funds to traders, set up in London to access the EU, but it is not perfect. Our success in truly globalising our export market should encourage us to demand some reform in Europe. This means completing the single market in all services. I commend our own commissioner, my noble friend Lord Hill, in his endeavours to deliver a capital markets union. This will help further with the export of UK financial services throughout Europe and bolster our competitive position in this field.

Despite the many advantages referred to of our membership of the EU, we must ensure that British exporters to the EU are not disadvantaged by EU regulation. I am thinking of the vote by the European Parliament Committee on the Internal Market and Consumer Protection to recognise further “EU safety tested” markings. These are yet another burden for manufacturing, particularly European manufacturing. Parochially, I know of one manufacturer who manufactured his product in full compliance with the relevant European standards—which in his case was EN1888—only to discover, when he tried to export his product to France, that the French unilaterally sought to apply their own particular safety standard, which was called an LNE. In the face of that protectionism in the French market, it was essentially impossible for him to export his product to France, despite complying with the EU regulation.

We need London to act as the trading capital of the BRICs and increase our exports to these fast-growing nations still further. With the help of the world’s leading financial services industry, I am confident that we can do so. Closer to home, we need the UK to continue to lead Europe out of its comparative economic malaise and into competitiveness through increased trade. Initiatives such as TTIP—the much hoped for trade agreement between the EU and the US—will be vital in achieving this. I believe that the UK will continue to act as a broker between the US and the EU in facilitating that. I therefore commend my noble friend Lady Wheatcroft for staging this debate today to highlight the importance of exports to the UK economy.