Trade, Exports, Innovation and Productivity

Bill Esterson Excerpts

Wednesday 13th January 2016 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

Let me begin by conveying apologies from the shadow Business Secretary, my hon. Friend the Member for Wallasey (Ms Eagle), who is in Brussels today meeting members of the European Commission and the European Parliament to discuss, in fact, many of the issues that we are discussing here today.

In her speech, the Minister indulged in something of a history lesson about what happened in 2010. I fought that election as a candidate for the first time, and I well remember making the case that in 2010 we faced half the levels of unemployment, repossessions and business failures that we had faced during the comparable Tory recessions of the 1980s and 1990s. The Labour Government had a record of protecting jobs, businesses and people’s homes. The economy was recovering in May 2010, when the coalition took office, but that recovery was choked off by the Chancellor’s emergency Budget in June. I am afraid that ever since then, as other Members have pointed out and as we know from the figures that were discussed earlier, the recovery has been the slowest on record. That is the true record of this Government when it comes to the economy. The Conservatives blew the growth that was steadily happening when they came to power as part of a coalition.

[Kwasi Kwarteng (Spelthorne) (Con)]

The hon. Gentleman is making some quite bold statements, but how do those statements tally with the fact that Britain is now the fastest-growing country in the OECD?

[Bill Esterson]

Of course, after the slowest recovery on record, growth is going to be the fastest in the world at some point, is it not? That comes as no surprise.

[Jeremy Quin]

Will the hon. Gentleman give way?

[Bill Esterson]

I am not going to give way too many times, because mine is the second Opposition party in this debate.

As was pointed out by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams), the Government have failed in their own terms to eradicate the deficit. The Chancellor promised that it would be gone by last year, but the Government have borrowed more in five and a bit years, and had borrowed more before the election, than Labour did in its 13 years in office. So, in their own terms, they have failed.

If the Minister wants Opposition Members—from whichever party—and members of the public to be reassured that she is not just producing warm words on TTIP, she can exempt it from public services and we will then be sorted.

[Robert Jenrick]

I thank the hon. Gentleman for giving way. He is very generous. Will he acknowledge that the United Kingdom has signed 110 other bilateral investment treaties with other countries around the world, none of which excludes public services, and all of which include the investor-state dispute settlement mechanism? I do not believe that it is the policy of either the Labour party or the SNP for Britain to withdraw from any of those important bilateral investment treaties.

[Bill Esterson]

And, as I have said, the Minister and the Government could relieve the concerns of many people in the country, not just in the Chamber, by undertaking to exempt TTIP from public services.

When it comes to boosting productivity and growing our economy, the interests of workers and the ambitions of businesses are not at odds with one other. Workers do well when there are successful businesses to give them secure employment; businesses do well when they can draw on a skilled workforce, and when they are selling products and services in a high-wage economy. We have many fine businesses which are making some of the best products in the world, delivering some of the best services, and developing many of the best new ideas. Those successful businesses have highly committed and skilled workers who are competing with the very best, but too many of our 5.2 million businesses face headwinds that make business more difficult than it should be, and too often lead to closures and job losses that are entirely avoidable.

We can learn from the success that exists in this country, in science, in digital, in engineering and in our universities, and we can learn from other countries as well. Success leaves clues. As for the countries that are outperforming us, one striking reason for that is the relationship between Government, business and workforce. What often works in successful countries, and in successful companies, is a three-way partnership for growth and productivity. That means secure, skilled, well-paid workers, businesses working with the infrastructure and the workforce that they need in order to expand, and a Government who build the stable foundations on which the partnership between business and workers can grow.

The Business Secretary is unwilling even to utter the words “industrial strategy”, but that is what is needed. An industrial strategy is nothing more than a Government's willingness to enter into a partnership with business and workers, matching their ambitions by looking beyond election cycles and investing in the infrastructure and training that they need in order to flourish. Businesses are clear about what they need from the Government. They want the Government to take a long-term approach to capitalising on new technology, and to nurture sectors that will boost exports, create jobs, and generate sustainable growth.

From green and renewable energy to high-end manufacturing and digital technology, the United Kingdom is not short of opportunities. It is not short of innovative entrepreneurs who want to put it at the global forefront of those emerging sectors. Under this Government, however, the UK spends less on research as a share of GDP than France, Germany, the United States and China. It has embarked on real-terms cuts to Innovate UK; it has axed the Business Growth Service, including the Manufacturing Advisory Service and the growth accelerator programme; and it is stifling game-changing innovation by converting grants for bold start-up companies to loans.

Those are not the actions of a Government who are committed to playing their part in the creation of opportunities for the next generation of entrepreneurs. The growth accelerator programme alone assisted more than 18,000 businesses. A great deal of the £100 million in finance that the programme helped SMEs to raise went into the development of innovative new products and services: products and services that create jobs and boost productivity. If the Government had wanted a partnership with business, they would not have completely shut down the long-term dividends to the economy that those schemes were already beginning to deliver, for the sake of scraping together short-term cuts for the Chancellor. The decision to axe these schemes is not just a knee-jerk reaction to departmental cuts; it speaks volumes about the Government’s real lack of long-term vision and commitment to businesses. Productivity cannot improve and sustainable growth cannot be secured as long as this Government’s message to entrepreneurs and innovators is “You’re on your own.”

Businesses want a trained workforce and a steady supply of skills to expand their operations. In a recent survey by the EEF, the manufacturers’ organisation, half of manufacturers pointed to a skilled workforce as the single most important factor in boosting growth and productivity. ManpowerGroup UK says that more than 30% of the largest construction companies have had to turn down work due to a shortage of skilled labour. For all the Chancellor’s talk of skills, more than two thirds of businesses say they are badly in need of more high-skilled staff. The engines of growth in the UK—construction, manufacturing, science, engineering and technology—all face chronic and growing skills shortages. Once again, there is a gulf between the Government’s rhetoric and action; their £360 million in cuts from the adult skills budget would dampen the ambitions of people hoping to learn the skills they need to enter the workforce and take skilled jobs.

While we on the Opposition Benches agree with the principle of an apprenticeship levy to increase funding to tackle the skills shortage, we will be carefully examining the details. It is vital that the policy is used to drive up the quality, as well the quantity, of apprenticeships. It is important that it meets the ambitions of learners, as well as the needs of employers. It is also important that it does not become, as Seamus Nevin of the Institute of Directors, puts it, a “payroll tax” that hits medium-sized businesses. The payroll threshold laid out by the Government could mean that the cost spills over from larger companies, so the details need to be watched carefully as they emerge, to ensure smaller companies are exempted.

Businesses want decent infrastructure, strategic road networks, improved broadband and cheaper energy supplies. These businesses will create jobs, boost productivity and generate growth, but Government’s role in that partnership is to build the physical infrastructure they need to operate in. A recent CBI survey of businesses showed that nearly two thirds are worried about the slow progress of infrastructure projects, and they are right to be concerned. The gulf between the Government’s rhetoric and the projects they have actually delivered is widening. The quality of our infrastructure is now the second worst in the G7. Capital spending has more than halved as a proportion of GDP since 2010.

The Government seem to be missing two simple facts. We have world-beating innovators and businesses that want to expand and create jobs. They cannot do that without roads, broadband and good rail and air links. That is the Government’s responsibility, and they are failing to deliver. If the Chancellor still claims to be leading a “march of the makers,” I am afraid the evidence over the last five and a half years shows he is leading in the wrong direction entirely.

Goods exported last July reached their lowest levels since September 2010. In the three months to November 2015 the trade deficit stood at £7.7 billion. The truth is the trade deficit is a problem that this Government and the previous coalition Government have said a number of times they would address.

[Anna Turley (Redcar) (Lab/Co-op)]

Will my hon. Friend join me in welcoming the fact that in the north-east the balance of trade is positive, and a large contributory factor in that was the steel industry on Teesside? Does he share my disappointment—in fact, my anger and frustration—that the Government failed to do anything to step in to save steelmaking on Teesside? Looking forward, will he also help to put pressure on the Government to ensure that China does not get market economy status, which could put the final nail in the coffin of the national steel industry in this country?

[Bill Esterson]

This is the first opportunity I have had to congratulate my hon. Friend and her colleagues from the steelmaking areas on the fine work they have done in representing, and attempting to save, the steel industry. I will talk about the steel industry in more detail later, but I completely agree with the point that she makes.

The Chancellor said he wants to double exports to £1 trillion by 2020. Office for National Statistics forecasts show that he is set to miss this by more than £350 billion—in other words, he will be 70% short of his target. In 2011 the Prime Minister said that he intended to increase the number of UK exporters by 100,000 by 2020, and in its annual business survey the ONS found that the number of UK exporters actually fell by 8,600 last year.

The risk to long-term growth and productivity of failing to increase exports is stark. Failure to boost exports means slower long-term growth, depressed wage growth and an even more depressed rise in living standards. As David Kern, chief economist at the British Chambers of Commerce, said last year,

“unless radical measures are taken to strengthen our export performance, our trade deficit will continue to be a threat to the country’s long-term economic performance”.

But just as serious is the threat posed by a Government divided over whether or not to pull the plug on UK businesses’ main trading partner. Trade with the EU was worth £227 billion to the UK economy last year. It is a lifeline for many businesses, and for many workers. The risk we face is from a Government that fail to unite in wanting to honour a partnership with those businesses and workers who rely on EU trade for their livelihood. Instead they are divided over whether to kick the legs out from under UK business, not least in respect of relationships that account for almost half of UK trade and which are especially important for many SMEs.

The problem of UK exports is compounded by our lagging productivity. ONS statistics show that, as of 2014, productivity as output per hour worked in the UK was 21% lower than the average for the rest of the G7 countries. According to the ONS last year,

“the absence of productivity growth in the seven years since 2007 is unprecedented in the post-war period.”

Productivity has been revised down next year, the year after and the year after that, and the gap between UK productivity and that of the rest of the G7 is now the widest since 1991.

A long-term strategy to boost productivity, trade and innovation is a partnership. That partnership cannot ignore the workforce; on the contrary, they can be one of our most powerful assets. A partnership between workers, businesses and Government to boost productivity is a long-term vision that requires a commitment to long-term investment from Government—one that stretches over many Parliaments and one that requires a large degree of political, as well as industrial, consensus.

If we truly want to boost the UK’s productivity, manufacturing is a good place to focus our attention for a number of reasons, not least because the productivity benefits of industry reach far beyond itself, to benefit growth, skills and productivity in the UK as a whole. Manufacturers improve efficiency at a pace and intensity that outstrip almost any other sector. In fact, they currently inject three times the amount of their output share of the economy into improving machinery. An EEF survey conducted in 2015 showed that 80% of its members intend to invest in machinery with the aim of increasing productivity. That technology, again, filters out. The investment and innovation of one manufacturer becomes a tool to boost productivity across a host of sectors and in the wider economy as a whole. Investment in processes and systems improves efficiency and accelerates the diffusion of technology.

Generating sustainable growth, raising skill levels, and dispersing opportunity to every corner of the country: prioritising manufacturing should be the cornerstone of a strategy for increasing productivity. But this Government’s track record shows that they either do not understand this or else they are simply not willing to do what is necessary to support the industry. As my hon. Friend the Member for Redcar (Anna Turley) said, the tragic situation that unfolded in the steel industry is a case in point. The UK steel industry ran a trade surplus in all but three of the last 17 years. Steel exports were worth £6 billion to the UK in 2014, not to mention the 20,000 families the industry supported. Serious challenges coalesced: a glut of global supply, energy costs, a strong pound. These were difficult challenges, but surmountable for a Government.

[Anna Soubry]

Does the hon. Gentleman accept that the fundamental problem was that the price of steel has almost halved and no Government can change that?

[Bill Esterson]

Of course the Minister is right that the price has halved, but other countries in the EU chose to intervene while we said we would not. I am afraid the Government’s record on this has been woeful.

[Anna Soubry]

Will the hon. Gentleman send me details of other EU Governments who have intervened to save their steel industries? If so, I will pass them on, because they must be in breach of the state aid rules.

[Bill Esterson]

We have debated this so many times. The Minister knows that some countries choose to operate the state aid rules far more beneficially than we do. It is about time the Government chose to do the same.

The industry needed the Government to play their role in what should have been a partnership. The situation demanded that the Government see the long-term strategic value of steel production and do what other EU Governments did: move swiftly to protect their industries. Instead, they have lacked a strategy and shown themselves unwilling to make strategic interventions to support the industry with practical steps well within their capabilities, such as tackling business rates through the supply chain, dealing with electricity costs and ensuring better procurement practice to favour British steel. They failed to step up to the plate as a partner of industry, and in doing so turned a temporary, toxic mix of challenges into a permanent gap in our industrial make-up.

We have to take that lesson seriously. UK productivity will continue to lag as long as Governments sit on the sidelines and wash their hands of responsibility for safeguarding key industries. The aspiration is one that everyone in the House will agree with: an economy with high-skilled, well-paid jobs in which businesses can grow, export and invest to boost productivity. Agreeing on the aim is one thing, but how we go about it is another. It requires a long-term partnership championing the workforce and business; investment, not cuts; an industrial strategy, not laissez-faire dogma; and an economy that creates wealth, instead of relying on consumer borrowing. We need a strategy in which workers, business and the Government work together for Britain. The Government’s role is not that of an observer but to make sure our exporters get the help they need; to take action to boost productivity; to tackle the skills emergency; to safeguard key industries; and to build the infrastructure that growing businesses need.

The Minister and the Government have failed on each point. They cannot deliver and they will not be an active part of that partnership because they do not believe in intervening. Their empty rhetoric will get our economy nowhere. Only a long-term industrial strategy will deliver the high-value economy we all want. We need a strategy of partnership that is both pro-business and pro-worker.

--- Later in debate ---

[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?