UK Trade & Investment

Iain Wright Excerpts

Thursday 12th September 2013 Westminster Hall

[Daniel Kawczynski]

My hon. Friend refers to the lack of interest in this debate from the Labour Benches. I must say that we have double the number of Labour MPs for this debate that we had for my previous debate, because at least there is one.

[Mr Iain Wright (Hartlepool) (Lab)]

Two.

[Daniel Kawczynski]

Well, there is only one apart from the shadow Minister. Last time, there were zero.

--- Later in debate ---

[Mr Iain Wright (Hartlepool) (Lab)]

May I begin by saying what a pleasure it is to serve under your chairmanship again, Sir Roger? I thank the hon. Member for Shrewsbury and Atcham (Daniel Kawczynski) for his hard work in producing his important report. It is well researched, with significant real-life observation of the difficulties businesses have experienced in securing help to export, and it provides astute and telling recommendations.

As the debate is on trade and investment, let me also take the opportunity to thank the outgoing Minister for Trade and Investment, Lord Green. In all his dealings with me, he has been the epitome of courtesy and decency. He has been admirably non-partisan in his approach, wanting only what is best and most advantageous for Britain and its businesses. I have not heard a single business man or woman speak ill of Lord Green—quite the reverse: they are unanimous in their praise and admiration of him. Opposition Members will sorely miss him, and I hope the Minister will pass on our best wishes to Lord Green as he reacquaints himself with his grandchildren.

I mentioned the non-partisan approach being taken to this topic, and there is not much dissent from the notion that the House—indeed, the whole country—would like to see an export-led recovery. There is a huge world of opportunity for British business. The global economy is expected to double in size within a dozen years. The number of middle-class people in the world, with higher consumption and higher disposable incomes, will triple to 5 billion, and they will all be eager to buy iconic British brands and fantastic British products. As has rightly been said several times this afternoon, the British brand is strong and well respected in international markets. Every constituency has businesses that are dynamic, productive and eager to sell abroad. Given its mercantile history and current strengths, this country should be at the forefront of modern exporting nations, but it often feels as though that is not the case.

Exporting is good for business. Actually, it is beneficial not just for individual companies’ short-term bottom line, but for the prosperity of the wider economy and society in general. All the evidence shows that an exporting business tends to be a successful, sustainable and socially aware business. An exporting company tends to employ more workers and offer better wages than an equivalent non-exporting company. Companies that export have been shown to be more productive and to invest more in research and development, thinking more about the long term, and they are anxious to capture and maintain international competitiveness. I want to concentrate on that point, because there is a strong link between innovation and exporting.

Export discipline can demonstrate whether a firm or a product can move away from the often insular domestic market and navigate the harsh seas of the global marketplace; it will demonstrate how competitive a business or a product actually is. A business with a desire to export overseas has the discipline and the ambition to develop new products and services that will better serve the new export markets. It will be sensitive and responsive to customer wishes—always the hallmark of a successful business. We therefore have the possibility of a virtuous circle for exporting businesses, whereby they are exposed to new demands, fresh ideas and increased competition, which in turn makes them leaner, more productive, more outward-looking and better disposed to thinking about new product development and improved profitability. We should all encourage that as much as possible.

In that general context, there is a lot of political agreement over the current strategy on trade: we should emphasise the need for an export-led recovery; move attention away, although not entirely, from the low-growth, traditional markets of the EU and the developed world; and consider the emerging, high-growth areas, by which I do not necessarily mean the ones that are often trotted out, such as the Brazils, Russias, Indias and Chinas—we may have missed a trick on that—but the next 11 countries, such as the Nigerias, Thailands and Vietnams of this world. Those countries—in Africa, the middle east, south-east Asia and Latin America—will experience very high growth. Britain has historic links with all those regions, so we should be exceptionally well placed to take advantage of them and to seek deep, long-lasting trade relationships with the growing markets in those countries.

However, the key point, and the central charge of the hon. Gentleman’s report, is this:

“There remains a gulf between the target set, and the tangible progress made thus far”.

An export-led recovery, with a greater proportion of our trade coming from high-growth markets outside the EU, simply has not materialised. Last week, the Office for National Statistics published data showing that the UK trade deficit was £3.1 billion in July, compared with £1.3 billion the previous month. That is the largest trade deficit since October 2012. The value of non-EU exports fell last month by £2.2 billion, to £11.8 billion.

The Minister will undoubtedly say that one should not make judgments based on one month’s data, and he would be right. However, the fact is that, based on longer-term trends, we have not made the substantial progress everybody wants to see in growing our way towards sustainable recovery through trade. The value of exports to non-EU countries is more or less where it was two years ago, when the UKTI strategy was launched. We have run a substantial trade deficit for many years—some Governments have fallen as a result of adverse balance of trade announcements—and the trade gap in the past four or five years has, more or less consistently, been about £8 billion. Despite the Government’s rhetoric, which the Opposition support, they have essentially failed to change that trade position. As the ONS said of UK trade performance,

“annual growth has slowed considerably since 2010 and 2011 when growth was seen to accelerate as part of the global recovery from the financial crisis in 2008 and 2009.”

Given the recent fall in sterling’s value, we could and should, as the hon. Member for Windsor (Adam Afriyie) said, have had a boost to our exports, as the pound’s fall made our products cheaper to the rest of the world. Does the Minister share the disappointment of the House and the Bank of England over Britain’s trade performance? Does he concede that Britain should be doing better on exports than it is?

In their White Paper and the UKTI strategy, the Government announced the objective of doubling British exports to £1 trillion by 2020, which is quite commendable, and we would support that. However, as the report by the hon. Member for Shrewsbury and Atcham says, the Government are expected to fall significantly short of that target—by about £150 billion. Does the Minister accept that forecast? Does the doubling of UK exports to £1 trillion remain a Government objective, and is it still achievable? Will he take this opportunity to reaffirm or revise the value of UK exports the Government are working towards for 2020?

As has rightly been said several times, the way in which UKTI interacts with companies and their products is vital to our success, or otherwise, in boosting exports. Companies in every constituency will be at different stages. Some will never even have thought of exporting, and they need to hear—often at a very basic level—of the real potential benefits for their business. Some will already appreciate the value of exporting and will be seriously and actively considering it, but they need to make that first step, so they need practical help with making contacts and mitigating risks. Others will be well versed in exporting, and they will be familiar with, and confident about, supplying overseas, but they may need help to identify potentially lucrative new markets and territories. Identifying what stage a company is at and ensuring that UKTI’s service is meaningful to it at that stage are the hallmarks of whether UKTI is successful in boosting exports.

The hon. Member for Shrewsbury and Atcham’s report rightly makes clear the need for UKTI to provide tailored services that are relevant and applicable to businesses at their particular point in the export cycle. Is the Minister therefore confident—this point is raised in the report—that UKTI is proactive enough and has the right skill set, processes and individual product lines to achieve the objectives we all share on boosting exports?

I want to think about things from the viewpoint of a company in Hartlepool or Shrewsbury with a great product that it wants to export. The hon. Member for Wealden (Charles Hendry), who was a great Energy Minister, knows that we are a centre of excellence for energy and for oil and gas companies. If a small company in Hartlepool was thinking about supplying the Kazakhstan oil business, what on earth would be the right way to help with that? What on earth should the company do to learn about exporting—especially if, given that it was a small firm, it was juggling many other things? Those running the company would worry about lack of contacts, possible language barriers, regulatory and taxation problems in a foreign land, and the fear of not being paid from halfway around the word. How would UKTI identify such a company in my constituency or any other constituency as a potential exporter? How would it get the astute understanding to know what the business was about, and provide, at the time it was needed, a bespoke service to help it navigate through the challenges of exporting?

The hon. Member for Shrewsbury and Atcham referred to skill sets in his report. I do not want to disparage the skills and expertise of UKTI staff. The hon. Member for Wealden said that they were lean and thinly spread—if only I were that lean and thinly spread. However, I want to ask the Minister a question on an important aspect of the issue, which we hear a lot about with respect to more general Government support and advice for business. What proportion of UKTI staff have practical, tangible experience of running a business and exporting? Are there staff in a position to offer tailored, relevant advice so that firms will respect their opinion, because they have been there, done it and, probably, exported the T-shirt to prove it?

Communication and dissemination of information seems to be a particular weakness. The hon. Gentleman’s report cites another report, from the Federation of Small Businesses, stating that only one fifth of small firms export, and that that rate has not changed since 2010. That statistic causes me concern, because on that basis the penetration of UKTI’s message to small firms has not materialised.

The hon. Gentleman’s report also cites the conclusion of the Institute of Chartered Accountants in England and Wales, of which I am a member, that knowledge of UKTI in the business community is “worrying”. Some 68% of small and medium-sized firms and—this astonished me—81% of large firms are not familiar with UKTI. What can be done to address that big weakness? Will the Minister take the opportunity—with what I think would be the full support of the House—to make sure that the export week coming up in early November will be strongly communicated in every constituency and media outlet? That would show that Britain is open for business and the world wants to trade with us, and it would give British-based companies the opportunity to do so.

[Daniel Kawczynski]

I am grateful to the hon. Gentleman for giving way. He has hit the nail on the head. I am delighted to have heard a Labour spokesman make those comments, and I hope I was right in understanding that he agrees it would be better for UKTI staff—and would enhance their credibility—if they had direct previous experience of running companies and exporting. One of the biggest problems is that historically many people in UKTI have come from the civil service and have not had experience of running small businesses or trying to export. Does the hon. Gentleman also agree that those staff need a salary structure geared around targets, so that there is an incentive to go the extra mile for additional business?

[Mr Wright]

I agree with a lot of what the hon. Gentleman says. The Hartlepool company wanting to export its products to the oil sector in Kazakhstan would respect UKTI if the official could say, “I’ve been there; I know exactly what you are going through. These are the problems that I had to overcome when I was running my own businesses, and you may want to consider them.” When companies feel that there is relevance, there is immediate buy-in. I shall come on to the question of how UKTI staff are remunerated. It is an important point that the hon. Gentleman covered in his report, but at this stage I would say the emphasis on quality as opposed to quantity in UKTI is vital and needs to be attended to.

I want to return to the question of how UKTI can be more meaningful and provide a more bespoke and tailored approach, as well as how the Government can adopt a more co-ordinated approach across Whitehall and central and local government. I am interested in the Minister’s thoughts on what happens when a firm must interact with the state on some formal point such as registering for VAT for the first time, filing a tax return or paying business rates. How can we make sure that the state can recognise that firm as a potential exporter and be proactive about outlining UKTI’s offer to it, understanding that the firm has reached a certain stage in its business life and growth and asking “Have you thought about overseas markets as the next step?”? Can we nudge that to happen when businesses must interact?

UKTI has a target to contact 50,000 firms annually by 2015, which seems to me at once ambitious and far too low. Given current trends, I do not think it is likely to be achieved. The Minister may correct me on the precise, up-to-date figures, but I think that we have reached about 32,000 firms, with two years to go. Is the Minister confident that he will achieve his target, and, if so, on what does he base that confidence? On the other hand, if British ambition is to increase and British firms are to export at the EU average rate of one in four, UKTI needs to make meaningful contact with about 250,000 extra firms, based on the country’s company base of about 4.8 million enterprises. I am interested in finding out from the Minister how the figure of 50,000 was arrived at, and whether UKTI should be stretched more with respect to its active involvement in seeking out firms.

I want to investigate further what a contact is. Is it a passive, single phone call? Is it saying, “We have a website; please have a look at it”? Is it a visit to the firm, actively delving, and saying, “What are your ambitions? What do you want to achieve? How can we help you do that?” The report, as I mentioned, says that the emphasis is on quantity over quality, and I think that is a fair point. My central question, therefore, is how UKTI provides meaningful engagement and contact with firms, and how that contact is maintained and deepened over time. Crucially, instead of contact being reactive and passive, how are leads and contacts followed up? The report is full of examples of a lead or inquiry not being followed up. I was particularly dismayed to read about a national trade association giving UKTI a list of about 300 members that were export-ready and seeking help with their first step, so that UKTI would pursue them.

[Daniel Kawczynski]

indicated assent.

[Mr Wright]

The hon. Gentleman is nodding as he recalls what he said in his report, which is that after four months, no contact had been made by UKTI with any of those companies. If that is what is going on, this country is undoubtedly missing lucrative commercial export opportunities, so what sort of meaningful engagement and follow-up is being carried out?

What work is done after trade delegations? The aftercare is the crucial bit to ensure that leads are picked up and vital relationships maintained. The hon. Member for Stafford (Jeremy Lefroy) mentioned Germany. France and Germany are masters of maintaining long-term relationships overseas, for the purpose of starting and developing export markets. What are we doing to achieve the same? He also talked about financing exports. Many companies struggle to get the necessary finance to export, whether that is loans to expand production or research new markets, finance to pay for the order, or insurance against bad debts in overseas markets.

A report on finance and exports by the House of Lords Select Committee on Small and Medium Sized Enterprises said that banks were not interested in helping with export finance, and that they demanded that directors put up their home as security. The report refers to Steel Services Direct Ltd, an exporter, which stated that

“trying to expand in an overseas market whilst worrying about losing your home would put off most people”.

I agree. That is part of a wider context in which bank lending to businesses has contracted in 21 of the last 24 months. I appreciate that UK Export Finance has introduced new products with the intention of addressing the issue, but the hon. Member for Stafford is absolutely right in what he said about scale and penetration when it comes to ensuring that firms have export finance available.

Will the Minister tell the House how many small and medium-sized firms have benefited from each of the new products—the bond support scheme, the export working capital scheme and the foreign exchange credit support scheme? What was the result of the review of those products a year after their launch, and what variations are being planned? Crucially, will he outline what role the business bank will play in encouraging exports when it is finally up and running properly? What sort of time scale are we talking about, and what, if any, new products will be launched?

I keep referring to the hon. Member for Stafford, and I do not want to embarrass him by agreeing with him all the time, but he rightly mentioned the link between inward investment and exports. In my region of the north-east, over the past 20 years or so, and certainly over the last five years, there has been great work from Nissan, which has produced new developments, become ever more productive, and has a focus on exports—some 85% of Nissan cars made in the north-east are exported. Nissan is not seen as a foreign company; it is seen as a north-eastern company that is exporting to the rest of the world. The hon. Gentleman’s point about inward investment having a virtual loop into export markets is well placed.

Does the Minister share my concern that we are slipping in the rankings when it comes to competitiveness and attracting foreign direct investment? Ernst and Young’s attractiveness survey this year said:

“The UK slipped behind Germany…for the first time in new projects…In another first, Germany”

now outperforms

“the UK in attracting Sales and marketing investments, a traditional area of UK”

strength and leadership. Those are concerns. We must always be vigilant to ensure that we maintain our competitiveness and attractiveness, and Germany is snapping at our heels. What is the Minister doing about that?

The report from Ernst and Young also states that investments in England, outside London, were 24% below their 2010 level and that it

“appears that the abolition of the RDAs may be starting to undermine not only the regions in which they operated, but also the UK’s ability to sustain its overall leading position for inward investment.”

It goes on to say that if it continues,

“The weakness of the English regions could damage the UK’s overall ability to attract FDI, in comparison to countries such as France and Germany, which have much more balanced regional portfolios.”

Is the Minister worried about that?

There has been discussion about ensuring that industrial strategy can have a co-ordinated approach to attracting foreign direct investment and exports. I do not want duplication, but is the Minister worried that with abolition of the regional development agencies there seems to be a real loss in confidence in the regions? We have been lucky in the north-east and have attracted Hitachi to help with train production, but that started with One North East. Could it happen again with the loss of the RDAs and their replacement with local enterprise partnerships?

I want to refer to points raised by my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr Clarke), and by my hon. Friend the Member for Islington North (Jeremy Corbyn), who made a characteristically passionate speech. He referred to the defence and security export business, but I want to widen that to include the wider export licensing process. The Minister is obviously aware of reports that surfaced earlier this month showing that his Department, the Department for Work and Pensions, granted export licences for chemicals to Syria in 2012. Those chemicals could have been used in the manufacture of chemical weapons. Does he accept that there should be a full explanation of why the export of those chemicals was approved, especially when there were real concerns about the regime before those licences were granted?

We must make sure that we have absolute confidence in the export licensing process and can ensure that Britain is a world leader in fairness and honour when selling products around the world. Is the Minister looking again at the process to ensure that we do not sell to regimes such as Assad’s? What is being done in response to those concerns?

At a time of rapid and irreversible globalisation, there are huge opportunities for British export companies. It has already been said that much of this country’s historical wealth, whether in Elizabethan or Victorian times, was based on using this country’s skill, imagination and talent to sell our goods to the rest of the world. I passionately believe that in the 21st century, there is greater opportunity than ever before for export markets to provide scope for greater profits for British firms and higher skills and higher wages for British workers.

The role of the state is to offer a sustained, long-term, proactive, tailored and co-ordinated approach to help British-based firms to achieve their potential. We are missing an opportunity to achieve all that we could at a time when other countries—our rivals—are eagerly jumping on those same opportunities. The report of the hon. Member for Shrewsbury and Atcham is an honest, balanced and fair account of where improvements need to be made to help boost exports. We all share the sentiments and passion that he has expressed today. I hope that the Minister will act on a lot of what the report says.

--- Later in debate ---

[Mr Iain Wright]

I thank the Minister for citing those figures, but am I right in thinking that UKTI’s annual report sets a target for satisfaction levels of 80%, yet it has consistently failed to achieve that? What active steps will the Minister take to ensure that it hits its targets on customer satisfaction?

[Matthew Hancock]

It is indeed important to have a target for satisfaction, and if three quarters are satisfied or very satisfied, that shows we are heading in the right direction, but more can always be done. For instance, since 2011, a realignment of UKTI has taken place to ensure that it can better serve the needs of UK plc. The process has included: the introduction of stronger senior management with private sector experience; new private sector delivery of trade services in England, with incentivised contracts, which my hon. Friend the Member for Shrewsbury and Atcham asked for; improving performance overseas and strengthening teams in key growth areas, such as China and India; and reviewing targets to ensure that they incentivise the behaviour of individuals on the ground. The right balance is having strong direct accountability to Ministers, which is appropriate, alongside the right incentives to give individuals on the ground the autonomy to be able to promote trade.

Several hon. Members mentioned—favourably or otherwise—the fact that UKTI reports to two Departments. I am a Minister in two Departments, and it is true that it is necessary to have co-ordination between the two. It would not be right to remove accountability for UKTI from either the Foreign Office or the Department for Business, Innovation and Skills, because UKTI is precisely about the link between business and our international relations. This is about, on the one hand, strengthening links between UKTI and domestic business, for which the Business Department is responsible, and, on the other hand, strengthening links between UKTI and our diplomatic service, which has happened a great deal over the past two or three years. Both those are valuable and necessary if the service is to perform, so it is therefore right that UKTI reports to a Minister who sits in both Departments but, of course, it is accountable to one Minister—my noble Friend in the other place—so there is a clear line of sight for ministerial accountability.

Several hon. Members talked about the links between UKTI and the Department for International Development. UKTI has an aid-funded business service that works with DFID to try to ensure that opportunities for procurement through DFID, not least from SMEs, are valuable. UKTI holds seminars with businesses, including SMEs, and it will hold another seminar in November to ensure that SMEs and domestic British companies have the opportunity to make the most of procurement through DFID, which these days, of course, bears the Union Jack.

My hon. Friend the Member for Stafford (Jeremy Lefroy) talked about the importance of inward investment and the business bank. It is vital to ensure that finance is available for exports, and funding for lending and strengthening the domestic private banking system are important parts of that. We are also seeing the growth of challenger banks, which are increasingly providing business finance. We will, of course, have the first ever British business bank, which is being set up precisely to look at the sorts of investments that he talked about. It is right that the British business bank does not take direct instruction from Ministers for each loan because, quite properly, they have to be made on a commercial basis.

--- Later in debate ---

[Matthew Hancock]

Well, there you are. It sounds as though it works in practice in Shrewsbury as well as in Haverhill, and I am sure that there are other parts of the country to which it can also reach.

There was a brief discussion about trade figures. I gently point out to the hon. Member for Hartlepool that the Opposition cannot have it both ways. They cannot blame the fact that growth has been slower than was forecast in 2010 on the Government’s domestic policies and then complain that growth in exports has not been as strong as we would have liked. In the past three years, there has been a massive crisis in the eurozone; I do not know whether he has been watching TV. One of the Government’s arguments has been that that has had a negative impact on the British economy. That argument is supported by a huge range of independent and international experts.

It is great to hear a Labour Front Bencher come to his senses and make the argument that, partly owing to the eurozone, export performance has unfortunately not been as impressive as we had hoped and that that has had a dampening impact on the UK economy. I will report back that the Labour party seems to be getting the message that that has been one of the main problems, as was set out in reports by the Office for Budget Responsibility, the OECD and other organisations. That is absolutely terrific.

Exports to India have risen 13% on the year and exports to non-EU countries rose by just over one fifth between 2010 and 2012. The move has been gradual, but for the first time in my adult life, exports to non-EU countries have become bigger than exports to EU countries. It shows the importance of rebalancing trade institutions such as UKTI around the world, in the EU as well as outside it.

[Mr Iain Wright]

The Minister selectively quoted the growth in non-EU exports between 2010 and 2012, but he will recall that I mentioned the £2.2 billion drop in non-EU exports last month. Given sterling’s performance and declining value, how does he explain that and what is he going to do about it?

[Matthew Hancock]

We will pursue the strategy on which we have set out, which is ensuring that the UK economy is strong at home by dealing with our debts, making it more competitive, doing everything that we can to win what we have called the global race and ensuring that UKTI plays its part, not least by delivering a UKTI budget increase over the past couple of years, so that it can reach the target of doubling exports to £1 trillion, as the hon. Gentleman mentioned.

The Government’s ambition of doubling exports to £1 trillion by 2020 also involves getting 100,000 more UK companies exporting. The hon. Gentleman asked how we are doing on that. As he said I would say, the monthly figures fluctuate, but UKTI is on track to achieve its target of supporting 32,000 businesses for the 2012-13 financial year. Some 90% of those 32,000 businesses are small and medium-sized enterprises. That support has helped generate additional sales of more than £33 billion. I would say that that is money well spent.

My hon. Friend the Member for Gloucester (Richard Graham), who is no longer in his place, discussed the importance of encouraging small businesses to export. He particularly mentioned chambers of commerce and other business groups. We are piloting the use of chambers of commerce; as non-governmental organisations, they can play a different role and fill a niche. There are 20 pilots, including in Brazil, India, Hong Kong, Russia and Singapore, using chambers of commerce as well as UKTI. He also mentioned one of my personal passions: Education UK—a specific unit within UKTI to help our education exports.

I will also come to the point about the link with the British Council. My hon. Friend mentioned the West Kowloon cultural district project, which has been supported by both UKTI and the British Council working together. That is an example of those two organisations working collaboratively to very good effect.

The good news on languages is that, although entries to A-level were down, entries to GCSE rose sharply. I hope that after a long period of decline, the increase in GCSE entries this year shows that people in English schools who take languages are coming through the pipeline. Let us hope that that is an early indicator of better things to come.

The hon. Member for Islington North (Jeremy Corbyn) asked about defence exports. Of course, as he said, the end user certificate system has been in place for a long time—more than 20 years—and the Government have confidence in the export licensing system, which we think is thorough and robust enough to address human rights issues that might arise from individual sales to individual countries. Any application for an export licence is considered against consolidated criteria in the light of circumstances in that country.

That brings me to the point raised by the hon. Member for Hartlepool about exports to Syria specifically. He mentioned two licences issued in 2012. I can confirm that those licences were never used to export chemicals and were revoked under the new EU sanctions. I hope that that addresses his question.