Trade, Exports, Innovation and Productivity

Lord Johnson of Marylebone Excerpts

Wednesday 13th January 2016 Commons Chamber

[Amanda Milling]

The point I was trying to make is that we want to increase exports. I will highlight a few points relating to that.

The productivity plan outlines several measures that will help to meet that target, including building stronger links with emerging markets, especially China, India and Brazil. The plan also sets out a range of funds and initiatives designed to promote and encourage exporting. Let me echo the point that my hon. Friend the Member for The Cotswolds made about extending the tradeshow access programme.

Based on ATP’s experience of exporting, I want to raise a number of other issues and challenges faced by exporters that I would like the Minister to consider. They fall into three key categories—uncertainty, red tape and competitiveness—each of which presents real obstacles and barriers to exporting.

Uncertainty comes about partly because of currency markets, but the particular issue I want to focus on is that of Her Majesty’s Revenue and Customs impounding shipments for random checks. That can make it really difficult, both from an importing and exporting perspective, when a “just in time” ordering mentality is commonplace. Are there ways in which we can balance the understandable need to monitor shipments and at the same time provide more certainty to firms that are importing and exporting?

Businesses, both in the UK and abroad, regularly refer to the issue of red tape. I welcome the Government’s commitment to cut £10 billion of red tape, to back British business and put resources to more productive use. Customs warehousing is a facility for importers to delay duty and import VAT payments until the goods leave the customs warehousing facility or enter another customs procedure. According to ATP, it is an excellent service for importing parts, but the red tape associated with it is cumbersome. As such, ATP no longer uses the facility, as the amount of paperwork outweighs the benefits. That means that an excellent facility is underutilised. Will the Minister therefore review the facility and consider ways in which the paperwork could be reduced and simplified so that it can be used by SMEs, which have less capacity to deal with red tape than larger organisations?

[The Minister for Universities and Science (Joseph Johnson)]

My hon. Friend makes an important point about bureaucracy at our borders and the role of border control. I reassure her that the Government are reviewing that with their one government at the border programme. At present, 92% of consignments at customs are cleared within five seconds, but her constituents are clearly encountering difficulties. I will talk on her behalf to the Minister for Trade and Investment and look into the specific problems she faces.

[Amanda Milling]

I am grateful for the Minister’s update on the review and look forward to receiving more information over time. I will also feed back his comments to ATP, which is not using the facility at the moment but might want to start using it again.

On competitiveness, the costs and risks of exporting can be off-putting. If we are really serious about encouraging exports, surely we should be considering ways to incentivise businesses to do so, potentially through tax breaks. One tax that can be a burden to exporters is air passenger duty, which, in reality, is a tax on exports. ATP, for instance, spends thousands of pounds a year on air taxes alone. Every time it signs deals, it has to travel abroad and the costs over a year are significant.

We have to realise that ATP, like many businesses, is competing in a global market. Therefore, onerous air passenger duty makes it less competitive on contract delivery compared with other companies bidding for the same contract. With some companies actively trying to avoid the tax by booking tickets abroad, the Treasury is already missing out.

Given that APD is going to be a devolved matter and the Scottish Government have announced that they will cut it by 50%, with a view to abolishing it altogether, the need for us to consider our position is probably more urgent than ever. Will the Minister consider ways in which we could provide tax breaks on air passenger duty for those who are exporting? I appreciate that, at face value, that will cut tax revenues, but I believe that that will be overcome by the economic gains of more of our businesses exporting their goods and services.

In conclusion, given the need to address the productivity gap, and given the role that exporters play in closing it, it is important that we do everything we can to encourage businesses to consider exporting. That is why I would like the Government to consider ways in which we can address the three overriding obstacles of uncertainty, red tape and competitiveness.

I do not support the motion, because it does not reflect the current picture and the Government’s commitment to productivity and exporting.

--- Later in debate ---

[The Minister for Universities and Science (Joseph Johnson)]

In winding up this extensive and excellent debate, during which we have explored the vital themes of trade, innovation and productivity, it is worth reminding ourselves of the context of Government actions. When we came to office in 2010, the country was borrowing £150 billion a year. It had the largest deficit of any country in the OECD and unemployment had risen by half a million.

Since 2010, we have taken steps to secure the economic recovery, ensure that we are better placed to withstand future shocks, and provide security and opportunity to people across the whole of the UK. Our actions have borne fruit, and as a result the UK has been the joint fastest-growing economy in the G7. The deficit is down by more than half, there are 2.7 million more people in private sector jobs and there are 900,000 more businesses trading today than in 2010. It is because we are taking the difficult decisions to fix our public finances that we are now able to prioritise investment, boost productivity and rebalance our economy.

Today we have heard some of the ways in which our long-term economic plan is doing just that, with excellent contributions from all parts of the House, even if some were much better represented than others—the Labour Benches were particularly sparsely attended throughout this afternoon’s proceedings. I will answer as many points as I can in the limited time I have, but I want to acknowledge, at least in passing, the strong contributions from my hon. and learned Friend the Member for South East Cambridgeshire (Lucy Frazer) and my hon. Friends the Members for Cannock Chase (Amanda Milling), for Bexhill and Battle (Huw Merriman), for The Cotswolds (Geoffrey Clifton-Brown), for Macclesfield (David Rutley), for Horsham (Jeremy Quin), for Gloucester (Richard Graham), for Spelthorne (Kwasi Kwarteng) and, last but not least, for Bedford (Richard Fuller).

Let me start with productivity. Yes, of course the UK’s productivity has lagged behind that of other major economies for decades. That is precisely why the Government have set out a clear plan, “Fixing the foundations”, with a clear timetable for implementation all the way out to 2025. Recent signs are encouraging. Output per hour grew 0.9% in the second quarter of 2015, and 0.6% in the third quarter. With output per hour continuing to increase, this shows our approach is working. Indeed, the independent Office for Budget Responsibility confirmed that in its 2015 economic and fiscal outlook, which forecasts that productivity will return to trend by mid-2018.

Of course, success will not be achieved overnight, and will require a truly national effort from Government, business and working people. Key to that will be working through the plan for productivity we have set out. This means investing in skills by delivering 3 million apprenticeship starts during this Parliament, building on the 2 million of the last Parliament. It means protecting our vital science spending in real terms until the end of the decade and expanding our important network of catapult centres. It means delivering infrastructure projects such as HS2 and Crossrail and the largest investment in our roads since the 1970s. It means rolling out superfast broadband to 95% of premises by 2017. The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) will, I hope, welcome the productivity plan’s commitment to extending development rights to taller mobile masts. It also means setting out a plan for future infrastructure challenges, with the creation of our National Infrastructure Commission. The Government have a clear productivity plan; we have a plan for the whole of the United Kingdom. It is a blueprint to fix the foundations of our economy and is a vital step towards securing the prosperity and livelihood of generations to come.

The rebalancing of the economy is another central theme of this afternoon’s debate. The profound changes we want to see in the structure of our economy will not take place overnight, and there is of course much work to do. Already, however, we can see significant progress in key areas where we want to see rebalancing. Job opportunities are being spread much more evenly than before. Opportunities for people have burgeoned outside our booming capital city and the south of the country, with some of the fastest rates of growth in job creation seen in the north of England. Indeed, since 2010, three out of four jobs have been created outside London.

Scotland has been a big part of the national story. In Scotland, 178,000 more people are in employment than in 2010, with the private sector up by 150,000.

[Stewart Hosie]

The Minister has prayed in aid very heavily the productivity plan, “Fixing the foundations”, and he read out a large number of its component parts. Will he do something that his right hon. Friend the Minister for Small Business, Industry and Enterprise did not do and commit to repeating that the Government intend to double exports to £1 trillion by 2020? That is also in the plan, so can we take it that that target has now been abandoned?

[Joseph Johnson]

I shall come on to exports shortly, but we remain strongly committed to that target. It is right that we set ourselves a challenging and ambitious target for exports. The whole Government are working towards achieving that goal.

Our regions are at the centre of our plan. A crucial part of the Government’s plan is to devolve powers to local leaders and enable them to drive growth, attract investment and create jobs, as we are doing with the development of the northern powerhouse and the midlands engine. We have secured an historic city deal for Glasgow and the Clyde valley, and I am pleased that discussions are under way for Aberdeen and Inverness, too.

The manufacturing sector is a part of this renewal. While our manufacturing sector faces headwinds, as we have seen in recent statistics, from the sharp fall in the oil price, a strong pound and slowing external markets, manufacturing output since 2010 has expanded by 18.5%, and by 17% in Scotland. Quite contrary to the assertion of the hon. Member for Dundee East (Stewart Hosie), there are more manufacturing jobs, too, than in 2010. There are 90,000 more of them in our economy today than in September 2010.

While we are about it, let us not miss an opportunity to celebrate the remarkable growth in motor vehicle manufacturing. The 6.4% increase over the past year underscores an historic transformation in that key industry’s fortunes which has been under way since 2010. The Government need no lessons from Opposition parties on manufacturing generally, given that, as many know, it suffered its fastest decline on record as a share of GDP under Labour.

Business investment is increasing too. It has been growing by well over 4% a year in real terms since 2010. Specifically, investment in research and development rose to £19.9 billion in 2014, well up on where it was in 2010. The record levels of support that the Government are providing for innovative businesses through our R and D tax credit are a big part of the reason for that. Our support rose from £1.1 billion in 2010 to £1.75 billion in 2013-14, and the tax credit is helping more than 18,000 businesses to engage in innovative R and D investment.

The hon. Member for Dundee East said that there was a missed opportunity for Scotland. I disagree; the evidence shows otherwise. The hon. Gentleman should, perhaps, note that there were 1,045 successful claims for R and D tax credit from Scottish businesses in 2013-14. He should also recall that the five parties in the Smith commission agreed that corporation tax and its associated reliefs should not be devolved, on the basis of a strong body of evidence that such a move would not be in Scotland’s interests. It was striking that neither Opposition party joined businesses in welcoming our plan to cut corporation tax to 18% by 2020. Companies throughout the United Kingdom will benefit from that, just as they are benefiting now from our R and D tax credit.

The hon. Member for Livingston (Hannah Bardell) mentioned the important issue of equality. We are active in that respect as well. There are more women in work than ever before—a record 14.6 million—and the number has risen by nearly 1 million since 2010. We are also taking steps to eliminate the remaining gender pay gap through new transparency requirements, and, as part of our broader goal of achieving full employment in our economy, we recently set out our aim of halving the disability employment gap. This is not the uncaring, uncompassionate Government that the Opposition parties seek to portray.

Let me say something about the business environment. As part of our economic plan, we want to make Britain the best place in Europe in which to do business, with a business environment that supports investment, productivity, growth and job creation. When Labour was in government, corporation tax stood at 28% and national insurance was set to increase, which would have had a devastating impact on jobs. By contrast, this Government have shelved the planned national insurance increase, increased investment allowances, and introduced the most competitive corporation tax regime in the G20. While we are about it, we are deregulating too, building on the steps that have been taken since 2010. We are committed to cutting the cost of red tape by a further £10 billion during the current Parliament. It is no surprise that Britain has just leapfrogged others in the World Bank’s global ease of doing business rankings to become the top country in the G7 in which to do business.

Let me now turn to another aspect of today’s debate: trade and exports. Our long-term economic plan will enable us to move towards an economy with a stronger export performance. While we are, of course, facing real global headwinds, including a slowdown in China and continued weakness in the eurozone, we are backing British businesses with global ambitions. The number of United Kingdom companies that are exporting is growing strongly—it has increased by 18% since 2010—and Scottish companies are also exporting more. In 2011 there were 9,300 Scottish exporters; now there are 11,100. Our trade deficit is responding, and narrowed in the three months to November.[Official Report, 27 January 2016, Vol. 605, c. 2MC.]

As Members have noted, our £1 trillion export goal is rightly ambitious, and much depends on factors that are out of our control. What we can do as a Government is offer effective support for exporters, and push for ambitious trade agreements that will help them to break into new markets. That is why the Government have recently established the cross-Government exports implementation taskforce to drive a new and tough whole-of-Government approach in support of our export target and our aim to increase by 100,000 the number of UK firms exporting by 2020. The Government are also pushing hard for ambitious trade deals that will remove tariff and non-tariff barriers facing British exporters and open up new markets.

[Bill Esterson]

A number of Members have mentioned the steel industry. The Minister for Small Business, Industry and Enterprise questioned my comments about state aid rules so will the Minister confirm that the European Commission has now said that energy-intensive industries, including steel, can benefit from state aid rules, and that Belgium, France, Italy, Germany and Spain have all benefited in this way?

--- Later in debate ---

[Joseph Johnson]

The Government are working hard with our European partners to give the support that is possible to the steel industry, and are working hard with all the companies involved to assure good outcomes in line with our competition regime.

I shall return to the subject of the trade agreements. TTIP holds tremendous potential for the British economy; it is potentially worth up to £10 billion a year to the UK economy. Let me be clear in response to Members’ concerns on this point that there is no threat whatever from the TTIP deal, or any other trade and investment agreement, to the NHS and our other vital public services. The Government, the European Commission and the United States—in fact all of those involved—have been 100% clear on that point. We have over 90 bilateral investment treaties and there has never been a successful claim against the UK. There is no evidence of the kind of regulatory chill that some fear will materialise in the event that we successfully conclude TTIP. TTIP is of course just one of a number of such deals, and we are also supporting ambitious deals with Japan and China.

Members have mentioned support for science and innovation. It is precisely because we are taking the difficult decisions to fix Britain’s finances that we can now afford to prioritise science and other areas that support growth. As the Chancellor announced in the spending review, the Government will protect the science budget in real terms to the end of the decade. That means £4.7 billion in resource funding, rising with inflation, and it also means we are able to deliver on our manifesto commitment of record investment in our country’s scientific infrastructure at £6.9 billion all the way out to 2021.

I hope the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) will welcome the fact that researchers and universities across the UK will benefit from a decade of protection for science under this Government. With respect to his specific concerns for the biomedical catalyst, which is jointly funded by the Medical Research Council and Innovate UK, I am unable to comment on individual budget allocations while we are still in the middle of this process, but the MRC will of course be a big beneficiary of the fact that we have had a massively successful science settlement during the spending review.

Let me also point out to SNP Members that Scotland is punching well above its weight in getting access to this science money, securing 10% of Innovate UK funding and 11% of research council funding, much more than its 8% share of the UK population and 6% share of UK businesses. A few months ago I was pleased to open a world-class medical imaging centre in Glasgow, which has benefited from £16 million of UK Government funding through the MRC, illustrating precisely this point.

On innovation support, different businesses need different forms of financial support to innovate and grow. The lack of available financing at acceptable terms is an obstacle we want to address, learning from countries such as France, Finland and the Netherlands that use a variety of financial instruments. The hon. Member for Sefton Central (Bill Esterson) wrongly painted a gloomy picture of Innovate UK funding, which I must correct. Overall, core funding for Innovate UK has increased from £253 million in 2009 to £453 million in 2016-17, and will reach £471 million in 2019-20. It is this positive settlement that is enabling us to deliver on our manifesto commitments to protect and expand our catapult network.

Raising productivity and balancing the economy are the key economic challenges for this Parliament and are central to our long-term economic plan. Thanks to the hard work of the British people, this long-term economic plan is working: the deficit is down by more than a half, 2.7 million more people are in private sector jobs and over 900,000 more businesses are trading today than in 2010. But there can be no complacency. The Chancellor has already pointed to the dangerous cocktail of risks—

[Mike Weir (Angus) (SNP)]

claimed to move the closure (Standing Order No. 36).

Question put forthwith, That the Question be now put.

Question agreed to.

Main Question accordingly put.