International Trade and Geopolitics

Andy McDonald Excerpts

Thursday 20th April 2023 Commons Chamber

[Darren Jones]

I will do so briefly so that I do not test the patience of the Chair too much, given the number of pages I have left to read before the end of my speech. My initial observations are that it is in the UK’s interest to be a global leader on the net zero transition, both because that is the right thing to do and because it is a significant industrial opportunity, and that we should be partnering with the European Union to do so through our trade deal. In my view—I have not taken evidence on this; it is just my view—that would generate a larger rate of return for the British economy and British people than some of the other opportunities that have been presented.

[Andy McDonald (Middlesbrough) (Lab)]

Does my hon. Friend share my concern that in pursuance of net zero and the decarbonisation agenda, the automotive industry, for example, faces significant challenges in ensuring not only that we have a self-contained supply chain, but that we can engage with the European Union on our doorstep given restrictions on rules of origin? Will that present a difficulty, and is there an opportunity with the review of the trade and co-operation agreement to address that issue once and for all?

[Darren Jones]

My hon. Friend is exactly right, and electric vehicles are a prime example. He and I were in Sweden last week on a Select Committee visit to look at how its electric vehicle battery manufacturing looks in comparison with the UK. If we are to continue to export cars to the European Union, we will have to hit the so-called rules of origin requirements where the components come from local or regional sources. Eventually they will have carbon embedded within them, in order to meet carbon border adjustment mechanisms and net zero targets. It is therefore crucial that the UK Government work with the private sector successfully to deliver that industrial policy outcome, or I fear we will see the near total decline of car manufacturing in the UK. While it is not for me as Chair of the Business, Energy and Industrial Strategy Committee to prejudge the conclusion of its inquiry into this issue, the contrast between what we saw in Europe last week, and what is happening in the UK, was stark.

[Darren Jones]

I have to take the hon. Gentleman’s suggestion at his word as he knows much more about his constituency and farming than I do. If there are export opportunities that is great, but the question is whether that will deliver the wholesale economic growth that we need across the whole UK economy. It will be an important piece of the puzzle, but my proposition is that there is a much broader area where there are problems, and where Government policy is lacking.

In Sweden last week, we learnt about the sheer complexity of delivering a so-called gigafactory for electric vehicle battery manufacturing. We held in our hands, physically, fossil fuel-free iron made using hydrogen, which was being turned into low-carbon steel. I finally saw, after years, a carbon capture facility working, plugged in and capturing carbon in real life. Here in the UK, we just have ministerial statements setting out our intention to be world leading, without anything real or tangible to show for it. The British people will soon realise, if they have not already, that at the end of this yellow brick road set out by the Government there are just Conservative Ministers blowing smoke. The tragedy is that this is not just a dream: it is 13 years of Conservative economic mismanagement that will take years to clean up.

This sorry story is not just about what is happening in the European Union; it is about what is happening in the United States, too. During our Committee visits last year, it quickly became clear that the US is doing what Europe is doing, but on steroids. The Inflation Reduction Act, which is really a green new deal for the United States, sets long-term, multi-decade, easy-to-access tax incentives, grants, loans and market-setting standards to not only drive the net zero agenda but reinvest in the industrial capacity of the United States. This $500 billion multi-decade initiative is acting like a magnet, pulling investment, jobs and businesses into the American economy. Access to those tax incentives, grants and state-level support is predicated on agreements to train and employ Americans in areas that have been crying out for investment for years. In some circumstances, it is even predicated on business owners investing in childcare to help optimise the economic activity of the American labour market, including women.

[Andy McDonald]

Was my hon. Friend not struck by the stark report on Sky News, I think from Ed Conway, from AMTE Power in Thurso, one of the British manufacturers of car batteries? It was indeed attracted by the Inflation Reduction Act, so much so that we risk that factory—a gigafactory we do have—being relocated to the United States. Should that not be sending a signal warning to the Government that time is not on our side?

[Darren Jones]

Once again, my hon. Friend is absolutely right. That is why the European Union has responded to what is happening in America, but what do we have here in the United Kingdom? I tried to be generous to the Government in a collegiate fashion, but the only thing I could find that allowed me to give the Government credit was the recent establishment of the Office for Investment, whose job it is to secure inward investment to the UK. But it has no budget.

As I understand it, when two American businesses looked at the UK as an investment destination, they did not know who to contact. Was it the Department for International Trade, the Department for Business, the Department for Transport, the Treasury, the regional mayor or the local council? The Germans, meanwhile, put together an inward investment package with significant incentives and the Americans presented a map with different options in different states, topped up with significant federal incentives. In the UK, we have an Office for Investment whose job it is to go around Whitehall, cap in hand, trying to put together an offer within existing budgets. The tragedy is that the reason those companies were looking at the UK in the first place was that we have great natural resources: huge potential for low-carbon fuel energy supplies, great industrial clusters, world-leading research and development, and great pools of highly skilled labour. But we just did not compete and we lost out on both investments.

Let me take another example, which we have already talked about: the semiconductor industry. The United States is securing multibillion dollar inward investments, as too are the Europeans. As my Committee concluded in its recent report, while we will never have end-to-end supply chains in the UK, we should be collaborating with our American and European allies to agree that the UK invests in the parts of the supply chain where we excel: chip design and advanced compound semi- conductors. Britain can play a crucial exporting role within a multinational supply chain. So when the Government take decisions to decline or unwind Chinese-linked investments, such as Newport Wafer Fab, they must follow through with finding new investment and new owners. Instead, we have a semiconductor strategy that is now even more delayed than it was already because, as it was reported, Ministers cannot decide who is going to announce it. Meanwhile, other countries are racing ahead of us.

It seems to me that we have Ministers stuck in the headlights of a changing world, convinced that the best thing to do is for the state to get out of the way and let the free market fix our problems, praying that someone, somewhere might find the sunlit uplands of post-Brexit Britain that Conservative Prime Minsters promised to deliver—while our competitors race ahead of us. The question, therefore, is what should we do about it? Beyond the obvious points of having a proper industrial policy, ideally a stable Government, a stable economy and a stable policy framework; beyond the obvious point that we continue to fail to highlight the importance and value of the service economy to our exports—we are the largest exporter of services in the world after the United States—and beyond the obvious point that we must improve our trade deal with the EU, what can we do that is new, global and in Britain’s interests?

We should be leading the debate about a new model of multilateral co-operation between democracies. We clearly already collaborate on defence matters, but what we define as critical supply chains or as critical national infrastructure, what we think resilient supply chains should look like to create economic security for our countries, and how we collaborate as allies and partners to show that democracies will continue to prevail over authoritarian regimes—those issues warrant a new partnership, a new model of multilateral working. It is in Britain’s interest to lead that debate and to play a central role in it.

Some will understandably say that there is a risk of decoupling the existing post-war institutional frameworks. My response is that this is already happening and that Britain can do little to stop it. That does not mean walking away from the UN, the World Trade Organisation or the G7—of course not. And it certainly does not mean Britain should play fast and loose in breach of agreed global rules. But it does mean that we must respond to lead and to influence what happens next.

If this Government had a real mission-led approach to the UK economy, we would see co-ordinated strategic action from No. 10, the Treasury, the Foreign Office, the Department for Business and Trade, the Department for Science, Innovation and Technology, and others. But we do not. We do not see that because the Prime Minister does not have an answer. He cannot tell us what our path to prosperity is, what he thinks our unique selling points as a country are, or how Britain will maintain its standing as one of the largest, most advanced economies on the planet.

I have had the good fortune, over the past few years, of being able to represent our Parliament in many countries. From Brussels to Washington, Sydney to Tokyo and elsewhere, I keep being asked, “Are you guys okay? What’s happening to the UK?” It is embarrassing and it must stop.

--- Later in debate ---

[Richard Fuller]

The hon. Gentleman reinforces my point. He is suggesting that if a company chooses to use its shareholders’ money to drive down a road that runs out, somehow taxpayers should pay for the extension of the road. The whole point of capitalist markets is that it is a business’s responsibility if it makes incorrect allocations of capital and its shareholders lose money. It is the job of business and business leadership to have the insight to understand how best to create value for shareholders in the long term.

Businesses are now coming to smart Labour Members—who are desperate to show that after years of hating business the Labour party now thinks prawn cocktails are a nice idea—and saying, “Can you spare us a few bob, mate? We’d like to support your party and we’ve got this really sexy thing we want to do, but frankly we don’t want to use our own capital because we know that the Labour party in government will be suckers enough to use taxpayers’ money to pay for it.”

[Andy McDonald]

I hope that the hon. Gentleman, as a former member of our Select Committee, will take this point in good heart. Just last week, we visited HYBRIT in Sweden, which has made some incredible advances in creating sponge iron and is on the road to creating green steel. One of its major partners in that enterprise, without which it would not have been possible, is the state-owned utility company Vattenfall. I ask the hon. Gentleman to consider that point.

This country’s version is to plough hundreds of millions of pounds of taxpayers’ money into the South Tees Development Corporation, transferring those assets to private individuals in return for options for land—for buttons—leaving the state on the hook for the environmental remediations. There could be no bigger contrast with more intelligent responses to industrial challenges. I trust that the hon. Gentleman will take that point in good heart and look at the differences in practice between the United Kingdom and Sweden.

[Richard Fuller]

Actually, the hon. Gentleman is exactly right. He and I share a concern for the defence of taxpayers’ money: if it is going to be spent, it should be spent wisely. If a strategy is not working, that is fine, but the point that I raised at the start of my speech was that we hold different points of view on whether industrial strategy per se will be an answer to the problems. My general position is that leaving the market and businesses to themselves and allowing the free allocation of capital in open and competitive markets has proven time, time and time again to be the best way to achieve progress, with better living standards for households in this country and around the free world. That is why the developed nations are the developed nations: because we have supported that approach.

--- Later in debate ---

[Richard Fuller]

The Chair of the Select Committee nods. It is nice to have an area of agreement.

Let me move on to the second area about which the hon. Gentleman spoke: the Inflation Reduction Act and the associated EU measures. As he well knows, that Act represents a $370 billion commitment of US federal funds, or their equivalent in tax credits. It followed the Infrastructure Investment and Jobs Act of 2021, which meant $1 trillion of investment, not only in infrastructure but in green energy. By purchasing power parity, the US economy is approximately six times the size of the UK’s. An equivalent response, which is what the hon. Gentleman says we need, would essentially require writing a cheque for £40 billion, £50 billion or £60 billion. If industrial strategy is not about expenditure, what are we supposed to be doing to compete, other than putting in that amount of money? There seems to be a part missing.

The hon. Gentleman also spoke about inward investment and said that we should be sharpening up our act. He is absolutely right. In countries such as Germany, which he mentioned, the package on offer to those who are interested in investing is not just a financial package, but a coherent one. When someone looks into making an inward investment, there are people to sort out all the Government intricacies for them at a single point on day one. That is how the UK did it when Margaret Thatcher was leading efforts with Lord Young, but over the intervening years we have made things a little too complicated and we have not found our way. I would be interested to hear the Minister address that point; it may not be directly in her remit, but it would be interesting for all hon. Members present to know the Government’s view. What are the Government doing to make sure people know that the UK can take a foreign company from thinking it wants to invest in this country to actually getting going and investing in this country, whether that involves, say, bricks and mortar or servers? What can we do to make that easier?

I know this sounds as though I am picking the hon. Gentleman’s speech apart. I am not picking it apart but asking questions about it, and I trust he is happy with that. He talked about economic security and collaboration. I think the short-term version of that is called friendshoring, which essentially means saying, “Let us conduct a geopolitical review of important strategic supply chains, and then let us be smart and make sure we are doing business with countries that are our allies.” That is a massive change, because there is no clarity about what the extent of friendshoring areas should be. Does this apply only to strategic industries determined by the United Kingdom, or is it imposed on the United Kingdom because other friends think we should be doing business with someone else? Are we prepared as a country to outsource the way in which British companies do business to the Government of the United States?

[Andy McDonald]

The hon. Gentleman is making an interesting point, but does he not agree that when it comes to critical areas of our economy such as energy security and the opportunities presented by carbon capture, utilisation and storage, it makes consummate sense to have strong relationships with those neighbouring countries with which we are aligned? As we face the spectre of Putin, who has caused so much damage to our energy security of late, would it not be infinitely more sensible to look to the new technologies and look to those neighbours to work together in that domain for our mutual economic benefit? Surely that makes sense.

[Richard Fuller]

There are two parts to what the hon. Gentleman has said. Is it sensible for us to ensure that our national security is itself sensible, along with some of the elements that are important for national security? I do not think there are too many concerns about that; the issue is, should we be focusing our policy on the issue of only going with our allies, or at least making that the primary consideration?

I think this will be a problem if it becomes part of the international discourse. The Chair of the Select Committee seemed to be talking about unbundling the existing international organisation, paying it respect but recognising the “reality” of what is happening, but then looking at ways in which we can make side arrangements with our friends. I fear that that will mean pooling the understanding of what is a friend and what is not among others, which is a substantial change in the way in which this country seeks to run its economy. My view is that the United Kingdom should be an open society, an open trading economy, and that we should lean primarily towards openness.

[Andy McDonald]

With Russia? With China?

[Richard Fuller]

Obviously not with Russia. We have already imposed substantial trade sanctions on Russia, and I think there is consensus in the House about what our response should be when one country invades another. However, to conflate Russia with China, which has not, as far as I know, invaded another country, is to move into a different area. My point is philosophical: the United Kingdom’s history of success has been as an open trading nation, and the current push, in this country and others, for us to engage in friendshoring strikes me as a significant change from the way in which, historically, we have created wealth.

--- Later in debate ---

[The Minister of State, Department for Business and Trade (Ms Nusrat Ghani)]

I thank the hon. Member for Bristol North West (Darren Jones) for securing this important debate. I too was on the Select Committee with my hon. Friend the Member for North East Bedfordshire (Richard Fuller) and the right hon. Member for Hayes and Harlington, so this feels like a Tuesday morning love-in all over again.

To continue that love-in, I must say that many points that the Select Committee chair made were valid, although unfortunately others were somewhat completely off the mark. As always, I will defer to my hon. Friend the Member for North East Bedfordshire; we played a good tag team on the Select Committee, so it is fantastic to have him here in the Chamber. I thank all colleagues from across the House for their valuable contributions and I will do my very best to reference all of the very important questions that they raised.

[Andy McDonald]

Will the Minister take an intervention?

[Ms Ghani]

Already? I have just said how fantastic you are, and now you are going to cut me to the quick—but go ahead.

[Andy McDonald]

I am grateful for the praise; I just want to point out that I am the Member of Parliament for Middlesbrough—my right hon. Friend the Member for Hayes and Harlington (John McDonnell) is a different guy altogether.

[Ms Ghani]

Goodness—I am no longer on the Christmas card list, so things are already going downhill. You have made it clear, Madam Deputy Speaker, that I do not have as much time to speak as I thought I had, so I will do my best to refer to all the contributions.

First, to the Chair of the Select Committee, you were such an optimist when I was on the Select Committee, but there has been nothing but negativity today. You touched on UK investment—