Foreign Direct Investment 2016-17

Alister Jack Excerpts

Tuesday 12th September 2017 Westminster Hall

[Michael Tomlinson]

I am very grateful for that intervention. I will mention Northern Ireland in relation to the “Britain is great” project. The hon. Gentleman is absolutely right. As I said earlier, I am optimistic about the future of our country in a post-Brexit world.

Foreign direct investment is important for a number of reasons. It is important for job creation, which I have touched on, and for growth. Businesses in receipt of FDI have been shown to be more productive. All those things raise living standards, and they are why I challenge and invite the Minister to ensure that all regions across the United Kingdom—the south-west in particular—benefit. It is right and proper that London and the south-east attracts FDI—it is to be expected that our capital city should be the largest recipient of FDI—but I ask the Minister to ensure that all regions are attractive.

I declare an interest as chairman of the all-party parliamentary group on youth employment.

[Mr Alister Jack (Dumfries and Galloway) (Con)]

Although foreign direct investment into Scotland has been increasing, the Scottish National party’s constant pursuit of a second independence referendum creates economic uncertainty, and businesses are loth to go into such an environment. Does my hon. Friend agree that if the SNP were to drop that desire, we would see more inward investment into Scotland?

[Michael Tomlinson]

My hon. Friend is absolutely right. We are always hearing about business certainty. What do businesses want? They want to be able to anticipate what is going to happen, to know about the future, and the prospect of another referendum hanging over Scotland creates uncertainty. We have heard comments in exactly that vein from businesses across Scotland, so I am grateful for that intervention.

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[Rishi Sunak (Richmond (Yorks)) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate my hon. Friend the Member for Mid Dorset and North Poole (Michael Tomlinson) on securing this important debate. He made an excellent speech surveying the issues before us today.

We have already heard that, a year after Britain chose to leave the European Union, FDI into our country is higher than it has ever been. The good news is that that is not just the case this year: Britain is consistently one of the world’s leading destinations for inward investment. While the UK accounts for just 3% of global GDP, we are able to attract up to 15%—five times as much—of the world’s foreign direct investment. We must always remember, however, that foreign direct investment is not just some financial statistic on a piece of paper. FDI creates real jobs—some 70,000 last year alone, of which 70% were outside London. FDI raises productivity with new management practices. FDI drives innovation, which fuels our future prosperity.

Having spent my professional life before politics working with and investing in businesses from California to India, I know that while our future trading relationship with the EU will of course influence FDI decisions, it is important to put that one factor into proper context. The pages of the Financial Times may talk of little else these days, but it turns out that only 20% of FTSE 100 annual reports even mentioned Brexit this year.

Mr Gray, imagine yourself in the shoes of a CEO of a global company deciding where to make your international investment. When you look at all the factors that drive that company’s investment decisions, you will soon see that Britain is excelling in almost all the areas relevant to you.

[Mr Jack]

My hon. Friend makes a valid point. When businesses look to relocate, they pay attention to corporation tax, but they also think about the tax that their employees will pay. Does he agree that it is a mistake for Nicola Sturgeon to make Scotland the most overtaxed society in the United Kingdom?

[Rishi Sunak]

I could not agree more with my hon. Friend, who makes an excellent point. I am about to come to the various factors that drive such decisions. A competitive tax regime, particularly for employee taxation, is a key part of that.

When it comes to human capital and a research base, Britain is home to four of the world’s best 10 universities. When it comes to a competitive corporate tax regime, our corporation tax rate of 19%, as we have heard, is the lowest in the G7. When it comes to supporting entrepreneurs, our enterprise investment scheme, seed enterprise investment scheme and entrepreneurs’ capital gains tax relief are second to none. When it comes to the regulatory costs facing companies, Britain is ranked by the World Economic Forum among the best large economies in the world. When it comes to getting a company the finances it needs, Britain boasts the most liquid capital markets anywhere in the world.

Lastly, when it comes to a legal framework that people can rely on to protect their investment, a third of the world’s population lives under the security of the English common-law system. Those are the key drivers of foreign direct investment, and I am proud to say that on every measure a Conservative Government have delivered, ensuring our universities are well funded, reducing corporate tax rates while increasing tax revenues, creating the SEIS and EIS programmes to fund hundreds of thousands of new businesses, and cutting pages and pages of unnecessary red tape. We can look at the outcome of all of that. Today, almost half of Europe’s billion-dollar start-ups were founded here in the United Kingdom, and the World Bank ranks Britain as the best major economy in the world to do business in: better than in the United States, Germany and France.

Although taking Britain out of the EU on the best possible terms is, of course, an important task, more important still will be the task that lies beyond it. Just as Britain never owed its success to Brussels in the past, we cannot expect Brexit to guarantee our success in the future. Staying at the world’s cutting edge will require constant dynamism from the Government. From my own experience, I point Ministers to three areas. First, at 1.7% of GDP, our research and development investment is still below the OECD average of 2.4% and half the rate found in Germany. Secondly, our nation’s infrastructure, from mobile telecoms to runways and airports, has not kept pace with the growth of our prosperity, and, according to the World Economic Forum, deters investment. We rank very low among large growing economies.

Lastly, our skills base lacks enough young adults with technical qualifications. Only 10% of adults hold such a qualification, putting us towards the bottom of the OECD league table. It is a shame that, among 16 to 24-year-olds, literacy and numeracy are no higher today than they are among people in their late 50s and 60s. I am confident that the Government understand those three challenges. Their new industrial strategy has the potential to keep Britain on the cutting edge.

However, I remind the Minister that we do not live in a static world. Everywhere we look, countries are innovating and looking at ways to attract human and financial capital and corporations to their shores, and we ourselves must constantly innovate. We need to look at smart regulations and infrastructure decisions that hold things up. We must continue, in spite of the current climate, to support free enterprise, for it is the best way to ensure our nation’s future prosperity, raise living standards and pay for the public services that we value.

The $250 billion that overseas businesses invested on our shores last year were not brought here by Brussels decree. That capital came because international investors know that our citizens’ ingenuity, our Government’s leadership and our nation’s world-class institutions will always provide them with a return. I am confident that, under this Conservative Government, that will continue to be the case for many years to come.

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[Hannah Bardell]

I thank the hon. Gentleman very much for that intervention. He knows that the scrapping of tuition fees in Scotland has meant access not only to university but to employment and to college. That has been welcomed across the board. A university place is not always the full picture. Youth employment in Scotland is lower than anywhere else in the UK because of the SNP Government’s investment in a youth employment Minister—the first in these islands—and making sure that students do not leave university with tens if not hundreds of thousands of pounds’- worth of debt.

[Mr Jack]

Will the hon. Lady give way?

[Hannah Bardell]

If the hon. Gentleman does not mind, I want to make some progress.

Scotland has performed well in terms of FDI, so I will indulge in talk about some of Scotland’s unique opportunities. The combination of natural resources, a highly skilled labour force and a long-standing reputation for innovation make Scotland a prime destination for foreign direct investment. The SNP Scottish Government have taken action to grow our economy and ensure that Scotland remains an attractive destination for business, boosting investment to record levels. As a result, 2016 was a record-breaking year, and, outside of London, Scotland is the best place in the UK for FDI. Places such as Aberdeen, Glasgow and Edinburgh are in the UK’s top 10 cities for attracting FDI. Our attractiveness to international investors is recognised through investments in recent years from the US, with 43 projects; France with 14 projects; and Germany with seven.

The latest annual survey on the attractiveness of locations to international business by Ernst and Young shows that Scotland now takes more than one in 50 of all investment projects based in Europe. That is a clear indication that Scotland in Europe is vital, and that Scotland is firmly established as a location of choice for global investors.

[Hannah Bardell]

I think we have to acknowledge that the Government are taking Scotland out of Europe against its will, which will be a wrecking ball not only to Scotland’s economy, but to the rest of the UK’s economy. When we have these debates and discussions in one or two years’ time, I will be interested to see where we are. It is important that Governments work together on things such as foreign direct investment. That is not to say that there has not been support from the UK Government—of course there has—but we also have to recognise the flipside of the coin. The hon. Gentleman spoke about his own constituency in Northern Ireland. He must surely recognise the challenges and issues that will come down the line for Northern Ireland as we go through the Brexit process, especially as Northern Ireland relies so heavily on foreign direct investment. Recent research suggests that people will look less favourably on the UK because of the message it has sent as a result of Brexit. That is surely a concern for him.

[Mr Jack]

The wrecking ball was not the Brexit referendum; in Scotland, where the hon. Lady and I live, the wrecking ball was the independence referendum. Law firms went out of business, conveyancing stopped, the housing market slowed dramatically and businesses stopped moving to and investing in Scotland. I know people who were planning to come to open branches of their business who stopped immediately. People do not like the uncertainty and they see our being part of the United Kingdom as a strength, not a weakness.

[Hannah Bardell]

I thank the hon. Gentleman for that intervention, but he will not be surprised that I completely disagree. The Scottish independence referendum in 2014 was one of the most open and engaging democratic processes that Scotland has ever gone through, in complete contrast, unfortunately—I know we digress, Mr Gray— to the Brexit referendum process, which was squashed into a short time period, with no proper engagement and no proper information. I am now talking to businesses across my constituency and across Scotland that are increasingly turning to the notion of Scotland as an independent country within Europe, because of the mess that this Government are making of the Brexit process, and the absolute devastation that it will cause to the Scottish and UK economy.

Global professional services firm Genpact plans to create more than 300 jobs in Glasgow over the next five years, following a decision to expand its European operations in Scotland. Those roles will encompass digital solutions, risk management, insurance claims, business process transformation and customer services. I recently met members of the insurance sector who were extremely concerned that, if they cannot remain in the single market and customs union and retain the ability to passport their services, services such as aviation and even household insurance will be under threat. Unless we have clear detail from the Government about their plans for a transitional arrangement, there is a real threat to the insurance sector, which will have a significant knock-on impact on businesses and sectors across the UK.

Welcome news on FDI comes with the caveat that many of those decisions were taken up to three years before last summer’s vote to leave the EU. A senior EY partner in Scotland has voiced caution over the longer- term outlook, saying:

“The research suggests that the EU Referendum vote and its aftermath may be having an influence on global perceptions of the UK’s medium to long-term attractiveness. Western European investors are twice as negative as Asian and North American investors.”

That should be of concern to us all. He continued:

“Decisions on the majority of investments made in 2016 would have been made up to three years ago, which helps to explain the UK’s solid performance last year, but signs of a slowdown are on the horizon.”

The Scottish Government released their programme for government recently. It is important to recognise the work that they are doing. The SNP Scottish Government have established a board of trade and are setting up innovation and investment hubs in Dublin, London, Brussels, Berlin and Paris. They are investing in Scotland’s future by setting up a multi-billion pound infrastructure plan and a £500-million Scottish growth scheme targeting growth, innovation and export-focused SMEs, and start-ups by young people.

Much has been made of youth unemployment. The low rate of youth unemployment in Scotland—only 8.2%; one of the lowest rates in Europe—is absolutely fantastic. It is good to see the rest of the UK following suit, but we have to ask ourselves what that will look like in one, two or three years’ time, as we go through the Brexit process.

The programme for government presented by the First Minister last week included bold initiatives to boost the Scottish economy, such as the creation of a Scottish national investment bank and the doubling of business enterprise expenditure in research and development, from £871 million in 2015 to £1.7 billion in 2025. The Scottish Government and Nicola Sturgeon are taking real, decisive action, but they are doing it with one hand tied behind their back. Foreign direct investment will continue to be hugely important to Scotland and the rest of the UK, but we need real answers on what this Government will do to support not only Scotland, but the rest of the UK as we leave the EU.