Trade, Exports, Innovation and Productivity

Iain Wright Excerpts

Wednesday 13th January 2016 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

It is an honour and a privilege to follow the hon. Member for Cannock Chase (Amanda Milling), who is a valued fellow member of the Business, Innovation and Skills Committee and provides real insight and personal wisdom to our inquiries.

Unlike the hon. Lady, though, I do support the motion, because, to be frank, I agree with every single word of it. It gets to the heart of the worrying structural imbalances in our economy, including our reliance on consumer spending based on debt, at the expense of investment; our reliance on domestic consumption, at the expense of potential and growing international markets; the priority given to short-term value extraction, at the expense of long-term value creation; and our reliance on the service economy, at the expense of manufacturing, which can inject real innovation and productivity gains across the country, thereby raising living standards for all of us and all of our constituents.

In addition to the points raised by the Opposition motion, I would also like to mention the geographical imbalance in our economy. As a north-eastern MP, I am here in London for half the week and back in God’s own country for the remainder of it. The economies of London and the south-east are overheating, which is in turn putting pressure on infrastructure and housing supply in the capital, at the expense of sustainable economic growth elsewhere in the United Kingdom.

I welcome the motion’s focus on productivity. The BIS Committee’s first inquiry of this Parliament was on the Government’s productivity plan and we shall produce our report, I hope, shortly. I also welcome the motion’s reference to the change of research funding from grants to loans. As has been said, that is of deep concern because it could undermine our country’s competitiveness. Capital is global, and firms will see where they will get the best return. They could leverage in public sector investment as a result of their own private sector investment. This country could lose out on foreign direct investment. It is incredibly important that when we attract foreign direct investment into this country—to be frank, this and previous Governments have been very successful at that—we make sure that we remain at the cutting edge of doing so. The measure puts that at considerable risk.

[Jeremy Quin]

The hon. Gentleman will recognise that that is all part of a package, as is 20% corporation tax, which will be reduced further. I am sure he welcomes that.

[Mr Wright]

A good, competitive tax rate is vital. Global firms consider a dashboard of different metrics—including tax rates, regulation, flexibility in labour laws and capital allowances—in a holistic manner in order to decide where they are going to put their capital investment, the returns on which they might not get back for 10, 20 or 30 years. It is important not only that we have stability, but that we make sure that, if a particular firm is putting in investment, we address what the Government are doing. Other countries recognise that and ensure that there is a partnership, but I am worried that we do not have that.

[Neil Carmichael (Stroud) (Con)]

rose—

[Mr Wright]

I will give way to a fellow Select Committee Chairman.

[Neil Carmichael]

It is an honour to participate in this debate. The hon. Gentleman’s Select Committee and mine are doing a joint inquiry on productivity and it will focus on skills. Does he agree that, given the fact that more than 50% of foreign direct investment comes via the European Union, there is a really strong case to remain in the EU to encourage even more FDI in the future?

[Mr Wright]

That is incredibly important. Firms make investment decisions not just because of the UK domestic market, but because they see the UK as a springboard into the largest consumer marketplace—500 million consumers—on earth. Japanese firms such as Nissan and Hitachi are not just here for the domestic market; they are here because we are a springboard into the whole European market. We risk that at our peril.

Trade performance is a good barometer of economic health at both the macro and micro levels. At a macro level, a buoyant trade performance contributes to economic growth and helps to provide a surplus on the country’s current account. As the hon. Member for Dundee East (Stewart Hosie) mentioned, the motion cites a

“trade deficit in goods of £123 billion in 2014”.

However, in that year, the current account deficit widened to 5.1% of national income, which was its largest in post-war history. For much of the past 30 or 40 years, the trade deficit has been offset by investment income from overseas. However, and most ominously, net primary income derived from assets abroad has fallen from 3.3% of GDP to 0.1% in 2014. The Minister should outline the Government’s view about that because they have been quiet about this crucial economic issue.

At a micro level, exporting is positive, especially for firms, and it is good for the wider economy and society, too. Evidence suggests that an exporting business tends to be successful, sustainable and socially aware. Such a company tends to employ more workers and to 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. There is a strong link between exporting and innovation. More often than not, a business with a desire to export overseas has the discipline, ambition and entrepreneurial flourish to develop new products and services that will better serve new export markets. Such companies will be sensitive and responsive to customer wishes, which is always the hallmark of a successful business. There can be a virtuous circle for exporting businesses whereby they become exposed to new demands, fresh ideas and increased competition, which in turn makes them more productive and outward looking, and better disposed towards thinking about new products and improved profitability.

On average, according to the British Chambers of Commerce, businesses that export grow 20% more than those that do not. We need to encourage such activity much more because far too few excellent British firms providing great goods and services that could be offered throughout the world export. Only one in five British firms do so, whereas the average figure for the EU is one in four.

The motion refers to the UK’s “poor export performance”, but with the greatest respect to the Scottish National party, I would go further. I think that our trade performance over the past 30 years or so has been dire and woeful. It has declined markedly over that period with no genuine prospect of improvement. The UK accounted for one in 10 of the world’s exports in 1950, but now the figure is less than 3%. Of course, with the development of emerging economies, it was inevitable that there would be a relative decline in the market share of UK goods and services, but not at the rate that we have unfortunately experienced. Given the forecast that world trade will expand by $250 trillion by 2050, there should be a co-ordinated effort—in the House, across the country and in government—to ensure that we capture as much as possible of the growth in the world economy for British firms.

[David Rutley]

The hon. Gentleman is making important points in his impassioned speech. He is right that there is a challenge for more business to step up to the plate and move into exporting, but does he agree that the situation shows that we need a real cultural change involving not only the Government, but businesses examining what they have done in previous years and moving further forward?

[Mr Wright]

The hon. Gentleman has a fantastic track record of talking about trade and investment, and how we ensure that we boost our sales of exports throughout the world. I will deal with his important point about what we can do in a moment.

In November 2015, the UK’s trade gap was £3.2 billion, while the trade deficit in goods was £10.6 billion. In 2014, UK goods exports fell by 4.1%, which represented the lowest growth rate since the recession in 2009. We were the only G7 economy to experience a negative growth in exports, although it is not all doom and gloom because the north-east still has the only consistent trade surplus in goods. However, as the hon. Member for Dundee East said, there is precious little evidence of a “march of the makers” with modern manufacturing at the heart of a rebalanced economy and providing export-led growth. That is reinforced by yesterday’s Office for National Statistics publication showing that the UK manufacturing sector is now back in recession. I fear that we are sleepwalking back to the long-standing British model, which has been prevalent over the past 40 years or so, of debt-fuelled customer consumption based on an assumption of ever-rising house prices. That did not work in the past—it never has—and it cannot be a model for sustainable and competitive economic growth.

As we have heard several times during the debate, the Government have set a target of £1 trillion of exports by 2020. I genuinely want them to achieve that because it would be good for firms and the country, and would bring about economic growth and broadening prosperity for everyone. However, it is now more or less a given that the Government will fall spectacularly short of their target. Few expect it to be achieved, including the Secretary of State when he gave evidence to the Select Committee. The Office for Budget Responsibility’s “Economic and fiscal outlook” that was published at the same time as the autumn statement forecast the cash value of exports in 2020 to be £647 billion, which is 23% lower than its March 2012 forecast and 35% lower than the Government’s ambition. It is not acceptable for the House, the Government or the country simply to shrug our shoulders and say, “Do you know what? It was a tough target and it’s unachievable, but at least we had a go.” We must be more ambitious than that, but the evidence suggests that the Government have not even had a go. A strong export performance matters, which was why the BIS Committee launched an inquiry into exports and the role of UK Trade & Investment.

I think that I speak for all members of the Committee, several of whom are in the Chamber, when I say that we all want the £1 trillion target to be achieved, but given the enormous shortfall that is forecast, we need a vigorous focus on changing course and embarking on policies that will bring about an improved performance, yet I have not seen the Government demonstrating that there will be such a step change. Will the Minister outline what is being done differently to ensure that we get as close to the £1 trillion target as possible? What active steps are the Government taking to ensure that 100,000 more companies are exporting by 2020?

To respond to the intervention made by the hon. Member for Macclesfield (David Rutley), while the Government do not control this, they can put in place a framework and facilitate the environment. We need to think about what firms are doing. They might have a good domestic market in which they feel comfortable, but how do we ensure that they can put their toe in the water of exports? Businesses will be concerned about whether they know the regulations and laws of a particular country and if they will get paid, so they might think that exporting is too much hassle and that they will stick to the domestic market. However, we need to encourage them to export, and that brings me on to the role of UKTI.

[Sammy Wilson]

The hon. Gentleman accepts that the target is challenging, but if the Government know, given the OBR forecast, that it might well be missed by 35%, we have early-warning signs four years in advance showing that something needs to be done, so action should be taken.

[Mr Wright]

The hon. Gentleman is right. Given that we will fall spectacularly short of the target, how will the Government revise their policy on trade and exports to ensure that we do not miss it by 35%, but get as close to £1 trillion as possible? Is UKTI sufficiently proactive about working with British firms to identify and navigate foreign markets? It has been affected by turbulence, with cuts in funding and disruption at the top of its management. Do the Government think that it is fit for purpose?

[Anna Soubry]

To answer that directly, I think there is much reform that can be achieved. Does the hon. Gentleman agree that the hon. Member for East Lothian (George Kerevan) was wrong when he said that the former CEO of UKTI had resigned because of the budget cuts, and that Mr Jermey moved to the Foreign and Commonwealth Office to take up a new appointment as the international counter-extremism co-ordinator? Does the hon. Gentleman agree that the new head of UKTI was appointed before there was any change in the funding? Will he confirm that the amount that UKTI received from BIS in 2014-15 was £264.1 million and for 2015-16 is £338 million?

[Mr Wright]

It is important that the right hon. Lady clarifies the reasons for the personnel changes.

The hon. Member for The Cotswolds (Geoffrey Clifton-Brown), who is no longer in the Chamber, spoke about benchmarking UKTI against other comparable trade organisations around the world to see whether we are getting value for money for the taxpayer and whether sufficient money is being provided. The Select Committee’s inquiry can look at that.

This is not an academic exercise. In the past a trade deficit was so significant that it could bring down a Government. I am far too young to remember the 1970 election. I was not born then, but I have read about it in history. Some of those present may have been in the Chamber talking about it. That is an example of how important trade performance used to be. In the modern age, and in news reporting for the 21st century, it seems to have lost that impact. We should return to highlighting the importance of trade deficits for the general prosperity of this country. Poor performance in overseas markets acts as a drag on competitiveness, productivity and rising living standards for all. The Government should focus more attention on that and demonstrate how they will change track to achieve their targets. The whole House would be behind the Government if the Minister could demonstrate that tonight.