Exports: Government Support

Lord Lang of Monkton Excerpts

Thursday 29th January 2015 Lords Chamber

[Lord Lang of Monkton (Con)]

My Lords, I begin by declaring my business interests as per the Register of Lords’ Interests in case any of them should be thought relevant. I thank my noble friend Lady Wheatcroft and congratulate her not only on securing this very important debate but on opening the debate in such an effective and informative manner.

I believe that exports are a very important component of our economic performance. The environment for them to expand and grow is beneficial because the economy itself overall is performing so well at present, with growth in the last year of 2.7%—the highest in the G7. How different that is from the eurozone, which of course accounts for half our exports and creates certain headwinds for us.

It is notable that volumes of imports and exports tend to move broadly in tandem, with imports apparently exceeding exports by quite a margin. Our deficit in goods is long established and well recognised, but the substantial surplus in our services sector, which accounts for a far higher proportion of GDP, is less well known and is indeed potentially more important in the longer term. There, we face headwinds from the EU not just because of its poorer economic performance but because of the kind of regulations that threaten to impede the success of our financial sector in developing further there.

Overall, the last three months of 2014 produced a good trend, with exports up by £2 billion and the deficit in goods down by £2.5 billion. However, I know that one should not read too much into short-term figures. When we think of exports, we should remember that quite a proportion of our imports consists of components and commodities that subsequently find their way into exports and are re-exported. So, again, the picture is never quite as simple and straightforward as it sometimes appears, and that is one of several factors that impinge on our debate today.

We should not think of exports as a separate world detached from the overall economy; they are part and parcel of our overall economic activities. Exchange rates have an important effect. At present, there is almost a currency war going on in some countries, with attempts to help their own export performance by manipulating their rates down. That is not a sensible policy. Currencies have minds of their own, and estimates of what can and cannot be done can be very sadly mistaken.

During the last few years, the pound has risen against a basket of currencies and is now trading up against the euro, increasing the problems that we have in exporting into flat economies. However, the pound is falling against the dollar. The dollar is an interesting case because overall it has risen by 20% against all currencies since May this year. That creates exporting problems for the US but its productivity record, by contrast, is unrivalled, and the US consumer confidence index is at its highest for seven years. That confidence and that exchange rate create major opportunities for us. The US market is our largest single export market, worth £40 billion a year. The dollar exchange rate also helps the UK in the matter of repatriation of profits, although it is obviously less good for the United States, with those from the US going the other way. It is perhaps not very widely known that United Kingdom companies have huge investments in the United States—even larger, it is sometimes said, than those of US companies over here. That benefits our balance of payments and points to the fact that overseas investment, whether inward or outward, has an important role to play in exporting.

To give one very obvious example, from the inward investment wins by the United Kingdom of recent years, from overseas missions, car manufacturers have come here—Nissan, to name but one. Cars are now among our biggest export commodity: hundreds of thousands of cars leave our shores every year, mainly to Europe, where, despite the economic slow-down, sales continue to hold up. So it makes sense to handle, as UKTI does, inward investment and overseas trade within the same body.

I mentioned productivity in the context of the United States, and that is another factor vital to exporting success. In turn, it relies on business investment. With the revised and highly encouraging recent business investment figures now comes a clear improvement in manufacturing productivity—up more than 5% in the last year. It is not enough after years of being in the doldrums but it is an important start. The Government’s unprecedented development of apprenticeship schemes should also feed into further gains in both productivity and indeed manufacturing employment in due course.

I hope that my noble friend will say a word later, in winding up the debate, about the progress, if any, on international free trade negotiations. There are still too many obstacles, overt and hidden, to unrestricted trade within the EU as well as globally. With Doha seeming to fade into history, one cannot but reflect that almost 20 years ago this country was pushing hard for progress on free trade. To be briefly autobiographical, I attended the World Trade Organization annual get-together in Singapore when the momentum seemed to be really taking off. On returning, my department launched a campaign with a target of global free trade by 2020—“2020 vision”, we imaginatively called it. It seemed almost attainable then, but sadly one has to admit that it looks less attainable now. When I asked the Trade Minister in the incoming Labour Government a year or two later in this House about how the 2020 vision was progressing, it was plain from what he said that he had never heard of it. That is unfortunate because momentum and perseverance are vital if one is to secure new markets and develop them.

I welcome the Government’s continuing commitment to UKTI as a way of encouraging and helping our exporters and traders in overseas markets, boosting trade opportunities—particularly for small and medium-sized businesses, to which my noble friend Lady Wheatcroft referred—and helping to identify particular high-value opportunities globally. The budget increase this year to £70 million is being well focused and that, too, is something that we should welcome—concentrating on high-value opportunities and on the emerging markets. I have always had a paternal feeling towards UKTI because it flows from a joint initiative that my right honourable friend Sir Malcolm Rifkind and I developed—he as Foreign Secretary and I as Trade and Industry Secretary—in about 1995 or 1996, when we published a White Paper on combining the resources of the DTI and the Foreign Office on these matters. It was based on something that I had already initiated in the Scottish Office, combining inward investment and trading activities. Since then, UK exports have doubled, despite the serious decline in our manufacturing base, which is good. However, globally, exports from countries around the world have trebled so there is no room at all for complacency—quite the reverse.

I noted that the Public Accounts Committee in another place a couple of years ago urged UKTI and the Foreign Office to examine the reasons behind that difference in success. It also made a number of other useful recommendations, and perhaps my noble friend will have an opportunity to update us on the response to those. Analysis, focus and follow-through are all important in exporting. So, for exporters, is persistence and indeed courage, particularly for SMEs, because exporting is a risky business. It is a lonely business and they need the kind of help that is now being put in their direction. I sometimes think that our embassies around the world are not taken sufficient advantage of. There are people there who are skilled, committed and only too willing to help people on the ground. I have personal experience of that.

Conditions at home are favourable: low inflation, low interest rates, high employment, expanding apprenticeships, strong business confidence, low business taxes, focused assistance and advice from government. These are the many positive reasons—and there are more—for businesses, large and small, to broaden their ambitions into the global marketplace and for the Government and our embassies to continue to refine and promote assistance to exporters whenever they can.