UK Industry: International Competitiveness

Lord Stevenson of Balmacara Excerpts

Thursday 5th July 2012 Lords Chamber

[Lord Stevenson of Balmacara]

My Lords, we are grateful to the noble Lord, Lord Jenkin of Roding, for giving us the opportunity for an economic debate this afternoon.

The eyes of the public may well be on the Commons and the ongoing question of how best to review the latest banking scandal, but the issues raised in the Motion are very important. It will be in all our interests as a nation if we can improve the international competitiveness of UK industry, stimulate more inward investment, grow our exports and create jobs—and thereby end this double-dip recession made in Downing Street.

We have had a very good debate, with strong contributions from all sides. As has been mentioned, there is great expertise in your Lordships’ House. Much of that has been on display to great effect today. Any debate containing an erudite, literary and amusing contribution from the noble Lord, Lord Brooke of Sutton Mandeville, has to be cherished.

The noble Lord, Lord Jenkin, asserted that there was a growing consensus that technology and innovation would be the key driver in an export-led recovery by our manufacturing companies. I assume that in saying that he was echoing, at least in part, the recent remarks of the Secretary of State for BIS when he complained to the Prime Minister that this Government have no,

“compelling vision of where the country is heading”,

that their actions were piecemeal, and that they had no,

“clear and confident message about how we will earn our living in the future”.

After all, reading from a Library note which was prepared for this debate, and which contains a lot of very useful information, the situation is far from being satisfactory. The ONS reports that the deficit in net trade was £3.7 billion for quarter 1 of 2012 compared with £2.2 billion in quarter 4 of 2011, and that the month-by-month changes to the balance of trade provide a challenging outlook for the health of UK trade. On FDI, the ONS says that 2010 was a “relatively quiet year”, with,

“flows of both outward and inward at their smallest for several years”.

Generally on the state of the UK economy, the OBR said in March 2012 that it expected UK exports to continue to be supported by the depreciation of sterling which began in 2007. Of course, however, that beneficial situation has now reversed, largely because of the euro crisis.

The OECD describes the recovery of UK exports after 2008 as “disappointing”, particularly in light of the depreciation of sterling. On job creation, unemployment is now 2.61 million, or 8.2%. As the noble Lord, Lord Sheikh, said, it is over 20% for 16 to 24 year-olds; and the headline figure is up 0.5% over the year. As my noble friend Lord Liddle said, we seem to have wasted the opportunity created by our ability to devalue our own currency, so as to grow our exports. We have stifled domestic demand, and we have massively increased social costs because of increased unemployment. It is not a pretty picture.

We are also living through a period of seismic, rapid, global and technological change. The Government, as outlined in the last Budget, seem to be relying on a single policy, one of increasing exports,

“as companies capitalise on global opportunities”.

This will be tricky if, as the last OBR report predicted, there is lower than expected growth in the world economy. So what can we do? There needs to be a twin-track approach, boosting the UK’s capacity to export goods and services, which we would all like to see, with an active government approach, as outlined by my noble friend Lord Liddle, and—this is also very important but rarely discussed—focusing on reducing our dependence on imports.

As many noble Lords have said, our chances of success in the global economy will not come from being quite good at lots of things. There is a premium on being the best. We must develop our areas of existing strength—sectors, technologies and services—where we are already world-class, such as the advanced manufacturing, aerospace and automotive industries, business services, life sciences, the creative industries, higher education, and, yes, financial services. Do the Government accept that they need to get behind these sectors, and do whatever they can to ensure that they prosper and can sell their goods and services abroad? Can the Minister update us about the current BIS schemes which support and underwrite our exports? Also, in response to the question from the noble Lord, Lord Jenkin, can he let us know what the department are doing to help SMEs in particular export more?

Other countries are already pursuing active government approaches. We need to match the best of what is out there. Just because the Americans preach a gospel of free markets does not mean that their Government have not made huge interventions in markets through vehicles like DARPA, the Small Business Innovation Research programme and the National Institutes of Health. Look at Germany with its national investment bank, KfW; its centres of technical and vocational training and research, the Fraunhofer institutes; and its network of 426 local banks providing credit to businesses, the Sparkassen. Look at SPRING Singapore. Can we not match these activities? Institutions like these support business development and growth, provide stable finance, allow for information to be shared, foster innovation and encourage its dissemination, and develop the skills base on which businesses can build. We do not seem to have these institutions in the UK, and BIS does not deliver these services at present. That is why we on this side are looking at plans for a British investment bank.

This is not only about getting individual parts right. It is about the whole. It is about competition policy being reinforced by procurement policy. It is about taxation and regulation reinforcing the strategic direction agreed with business. It is about ensuring that the finance, education, training and skills and infrastructure are there for businesses of all sizes. I hope that when he comes to sum up, the Minister will reassure us that he shares this vision of an active Government working together with businesses large and small across the country. In so doing, he will want to pick up on a number of the points raised by noble Lords in this debate. I have a long list here. I would like him to focus on four or five; perhaps he can deal with the others in correspondence.

The noble Lords, Lord Paul and Lord Jenkin, have also mentioned this: our training problems are long-standing and have never been resolved. There is no coherent plan, particularly for the 50% of people who leave school and do not go on to university. Where are the integrated procedures, and who is responsible for ensuring that these people move forward to proper jobs and have a training for life?

There have been a lot of comments about UKTI, many of them complimentary, but there were questions asked about whether it could do more in-country work. There was also a question about whether it would move away from the point-of-sale promotion which it currently engages in, towards bringing new companies and their products to world markets. There is also an issue I would like the Minister to respond to at some point if he can, which is whether we could build more concern for human rights in business into the work which UKTI does.

We heard a lot about the need to stimulate innovation; we also heard some good stories of work going on, both from the noble Lord, Lord Kakkar, and from my noble friend Lady Warwick. Again, this needs more government support and activity, particularly as we think about the way e-commerce can help. We were all impressed by what the noble Lord, Lord Kakkar, said about telemedicine. The noble Lord, Lord Paul, and many others, talked about the finance requirements for SME growth, and there was a general concern about the way in which money was not flowing yet from the banking system to support our industries.

We also heard about the need for spending on infrastructure to support our work across the various activities that have been referred to. These are matters which we hear a lot about, but again there are no plans coming forward.

Finally, I argue that we also need to focus on activities on which the UK has an opportunity to reduce its import dependency, and in so doing assist the development of a more equal society, as mentioned by my noble friend Lord Haskel. According to a recent report from the Centre for Research on Socio-Cultural Change, the pigmeat supply chain is going through a prolonged and unresolved crisis. The size of the national pig herd has declined by around 50% over the past decade, while over a similar period the UK has gone from 80% self-sufficiency in pigmeat to less than 50% self-sufficiency. Clearly, this worsens the UK’s trade deficit and diminishes UK employment. This is a classic example of UK failure in tradable goods against north European competitors. The UK’s growing volume of pigmeat imports come not from low-wage eastern Europe or from Asia, but from northern European countries, which now provide more than 50% of the UK’s bacon, despite their wages being almost double and their labour market being much less flexible.

The authors of the CRESC report argue that because the UK Government take a narrow “competition is best” policy, UK policy interventions have always been limited to a series of unsuccessful voluntary initiatives that did not recognise that the form of competition being practised in this market is, in fact, the problem. In Denmark and Holland we find that government support for the creation of co-operatives and assistance with marketing for artisanal producers has transformed the capacity of their producers to negotiate with the supermarkets, and has stimulated them to export to other markets like the UK. Changing the food processing industry in the ways suggested increases margins and reduces costs, and society gains through reduced import dependence, higher wages and more stable employment. I hope that this morality tale about restoring the great British bacon sarnie commends itself to the Minister. I look forward to his response.

The noble Lord, Lord Paul, called for a common cause on this issue and I agree. We can surely all get behind a sustainable initiative in this area because the prize is a UK economy that is richer, fairer and more productive, positioned to succeed in the growing markets of the future with the right capabilities to do so.