Trade and Investment for Growth White Paper

John Denham Excerpts

Wednesday 9th February 2011 Commons Chamber

[The Secretary of State for Business, Innovation and Skills (Vince Cable)]

Today I turn to one of the main building blocks of economic recovery—achieving growth through international trade and by attracting inward investment. Britain makes up just 4% of the global economy, and without aligning ourselves to faster growth elsewhere, we cannot hope to prosper. But to do that, we have to do better than in the past. In the past few decades, we have consumed too much and exported too little. While our competitors were sending manufactures across the globe, we were building a property bubble. Now, with Germany exporting more than three times as much as the UK, it is vital to turn the situation round.

We have done better in attracting inward investment. We are one of the top three recipients of foreign investment in the world, and we are home to more European headquarters of overseas companies than all other European countries put together. Inward investors provide not just jobs but 30% of our research and development, but there is no room for complacency in an environment that is increasingly competitive.

The trade and investment for growth White Paper therefore sets out a strategy for creating opportunities, providing the conditions for the private sector growth through trade and investment that will help to rebalance our economy, and securing the benefits of trade and investment openness for the world’s poorest people.

The Government want to focus on small and medium-sized enterprises, which are much less engaged in trade than bigger companies. They have told us that they want to take advantage of the opportunities that exist especially in emerging markets but cannot always access the trade credit insurance or finance needed to take the risk. They have also told us that since the economic crisis, they feel that it has become much harder to get cover from private credit insurers at reasonable rates. The Government will therefore create several new schemes and extend one existing scheme, which will be launched in the coming months.

First, the Department for Business, Innovation and Skills will launch an export enterprise finance guarantee scheme offering export finance valued at up to £1 million for SMEs. The Export Credits Guarantee Department will launch several schemes, including: an export working capital scheme for those who are ineligible for the EEFG scheme, offering export finance of more than £1 million; a bond support scheme under which the Government will share risk with lending banks on the issue of contract bonds; and a foreign exchange credit support scheme, which will support banks offering foreign exchange hedging contracts to SMEs by sharing credit risk. The ECGD will also extend its short-term credit insurance scheme to cover a broader range of exporters, including SMEs. In addition, UK Trade & Investment will increase its focus on emerging markets and on helping SMEs, and launch a new online service offering access to sales leads around the world.

All Ministers have been asked to support our trade diplomacy. I have led, or supported the Prime Minister in, high-level delegations to Brazil, India, China and Russia with business representatives, promoting exports and seeking inward investment. We will be doing more of the same this year and beyond.

However, half our exports are to the EU, and consequently we have a strong interest in ensuring that the EU grows. That makes the completion of the European single market even more vital. Recent analysis suggests that trade between the UK and other EU member states could be as much as 45% below potential, largely because of significant non-tariff barriers. Completion of the single market could translate into 7% additional income per head per UK household. We therefore strongly support efforts to remove barriers to trade, particularly for SMEs, in fields such as e-commerce and low-carbon products, and in professional and business services, for which there are currently an estimated 3,000 regulatory requirements. We will also press for energy and agriculture liberalisation.

At the international level, completing the Doha round is one of our top objectives. Finishing those trade negotiations could deliver a £110 billion boost per year to the global economy. We have spent 10 years negotiating and now need urgent action to agree the key elements of the Doha deal this year, so I am glad that momentum towards a deal seems to be building again. Britain will do its utmost to get the World Trade Organisation past the finishing line this year. Doha is the top priority, but we will also pursue an ambitious programme of EU free trade agreements with our main trading partners, including India, Canada, Singapore and the south American Mercosur countries and, I hope, with Japan following the recent agreement with South Korea.

Finally, the UK is committed to assisting poor countries to take advantage of the opportunities presented by an open global trading system. International trade is one of the most important tools in the fight against poverty and research evidence shows that per capita incomes grow three times faster in countries without trade barriers than in other developing countries. We will therefore ensure that trade is a central theme across our bilateral aid programme, and promote regional integration, notably in Africa through our Africa free trade initiative. Helping the developing world in that way is the right thing to do on moral grounds, and it is in Britain’s economic national interest.

This White Paper sets out an ambitious direction for the UK and will guide the Government’s work on trade and investment. We will implement it vigorously and actively, and I urge British business to seize the opportunities that it will present. In that way, we will all benefit from the vision it sets out: an open trading system and a competitive British economy, driving jobs and growth.

[Mr John Denham (Southampton, Itchen) (Lab)]

I thank the Secretary of State for sending me a copy of the White Paper earlier today and for notice of his statement. I welcome the broad thrust of the statement so far as it goes, but may I remind him that exports alone will not deliver without a credible plan for growth across our economy? Putting new tyres on the car will not make it perform better if the engine has not been fixed.

We welcome the importance given to exports and export support, and support the increased focus on the major emerging markets such as Brazil, China and India, without neglecting our longer-established markets. We also welcome the commitment to opposing protectionism and promoting free trade. Subject to the detail, we will support the particular measures that the Secretary of State proposes to develop export support for SMEs, although I hope he can give us a timetable for their implementation. I hope the Secretary of State acknowledges that all those measures build on work done by the previous Labour Government.

Like the previous Government, this Government are committed to the completion of the Doha round of global free trade talks. Given the difficulties that those talks have had in the past, can the Secretary of State tell the House what specific new initiatives he will take in the coming year to ensure that talks are completed successfully? His predecessor and my right hon. Friend the former Prime Minister played an active and engaged role in trying to move the WTO towards agreement. What personal role has the Secretary of State played and what commitment has he gained from the Prime Minister about his personal involvement in securing an agreement this year?

Does the Secretary of State accept that the Doha round must foster development, and will he respect and build on the work of his Department and the Department for International Development under the previous Government to ensure that trade agreements support poorer, developing countries?

The White Paper recognises the potential benefits of completing European free trade agreements. What specific new initiatives will the Secretary of State take within the Council of Ministers to get things moving forward? Finally on Europe, what specific measures will he take to broaden and deepen the single market, as the White Paper puts it?

There appear to be some significant problems underlying the White Paper. Can the Secretary of State assure me that the cap of £25 million does not create a gap in export support for mid-range companies? Will he confirm that the UKTI budget will be cut by 19.5% in real terms? Given the expansion of activities in the White Paper, where and how will cuts be made without damaging support for exporters? What role will the science and innovation network play in supporting the export strategy?

Does the Secretary of State recognise that a successful export drive depends fundamentally on having goods and services to sell, and on having the companies that can provide and sell those goods and services? Does he therefore also recognise that the Government’s reckless approach to deficit reduction is damaging the prospects for growth and jobs? Can he tell the House why the strategy for growth has still not been published when he promised it in October? Does he acknowledge that the new director-general of the CBI has now joined the previous director-general in criticising the Government for having no plan for growth? Without a clear vision for the economy and a plan for growth, we will not have enough companies to export or the products to sell.

Will the Secretary of State confirm that pharmaceuticals and the life sciences are one of the knowledge-based industries by which we can hope to earn our way in the world? Last week, Pfizer announced the closure of its Sandwich plant. Is it not a chilling message that one of the world’s leading pharmaceutical companies looked at its global activities and decided that it no longer needed to be in the UK, and that it could afford to the leave the UK outside its global research strategy? How much more investment will we lose before this complacent Government produce a credible plan for growth?

The White Paper says that the Government will invest in UK infrastructure. Will the Secretary of State confirm that the introduction of universal broadband has been delayed by three years, and that there is no credible plan for fast broadband? Does he accept that those failings make the UK a less attractive place for investment by companies that support the digital economy?

Does the Secretary of State recognise that a recent report by Experian and the National Endowment for Science, Technology and the Arts concluded that there are companies with the potential to grow and export in every region of the country and in many different sectors of the economy? Does he recognise that regional development agencies often worked with UKTI to support exporters? He has abolished RDAs, but can he explain why the White Paper contains only one passing mention of regional support for exporters and support for exporters in the regions? How will he ensure that potential exporters get the right support in every part of the country?

The White Paper praises higher education as a gross export earner of £5.3 billion, so why has the Secretary of State supported changes to student visa policies that will do real harm to the country’s seventh biggest export earner and undermine our long-term trade and development interests? The White Paper speaks of investing in science, but does the Secretary of State recognise that with science investment cut in real terms and other countries increasing their science investment, we are in danger of losing world leadership in this area?

I welcome the recent performance of manufacturing exports, which have taken advantage of a competitive pound. Will the Secretary of State confirm that the strength of the manufacturing sector has been supported by the previous Government’s support for science, research and development tax credits and capital allowances, and that—in the worst of the global recession—the scrappage scheme, time to pay and flexible tax credits all helped manufacturers to retain more of their work force? Does he recognise that we now have a unique opportunity to use manufacturing exports to strengthen the supply chain companies and develop the next generation of world-beating export products? What is he doing to ensure that we take advantage of that opportunity?

There is much common sense and continuity in the White Paper and no need for artificial arguments about it, but the Secretary of State must recognise that its impact will be limited without a credible plan for growth.

[Vince Cable]

First, may I respond to the right hon. Gentleman’s positive comments? He is right that, compared with, say, the United States or France, there is a significant degree of consensus about trade policy. Probably one of the best statements on the relationship between trade and globalisation was set out by Clare Short, a few years ago when she was Secretary of State. There is a lot of common ground.

The right hon. Gentleman asked about Pfizer. As it happens, I chaired the task force this morning, which—with the leader of Kent county council and the Minister for Universities and Science—is seeking actively to try to save as many jobs as we can on that site and to mobilise other pharmaceutical companies. Its work is coming along well, but these are early days.

The right hon. Gentleman asked specifically what I have been doing in relation to international trade initiatives. In each of the major BRIC—Brazil, Russia, India and China—countries that I have visited, I have engaged with the Trade Ministers, especially the key ones in India and China, which are critical to the success of the Doha round, and tried to persuade them of the importance of making good offers. We have had useful discussions about that. I have had several meetings with Mr Barnier about how we can progress the single market, and only a week ago I was in extensive discussions with my opposite number from India about the European Union free trade agreement. These are works in progress, but progress is undoubtedly being made.

The right hon. Gentleman asked about some of the concrete measures on trade promotion and resources. He appreciates that export credit guarantees are underwriting bank lending—they are not a cash contribution and there is no resource implication. He asked about timetables, and these schemes will be introduced in the next two to three months on a pilot basis. They are, in fact, imminent.

The right hon. Gentleman rightly mentioned the fact that there is some reduction in the UKTI budget, but he should recall that, under the RDA system that he extols, there was a ludicrous duplication of resources. We had British trade ambassadors from each of the RDAs posted in overseas countries, competing with each other and wasting resources. We will get more from less when it comes to trade promotion.

On the wider issue of the state of the economy, we earlier had an extraordinary display of amnesia from the shadow Chancellor, who forgot his role in the last Government. The shadow Secretary of State now tells us about the decline in manufacturing. He may have forgotten the debate last week when we had to point out to him that the decline in the manufacturing sector in the UK economy from 20% to 12% of GDP was far in excess of any other developed country, and that is the rebalancing problem that we are now trying to address. Of course, trade by itself will not solve the problem—it is 30% of GDP—but it is important, especially for some areas such as the north-east of England. Rebalancing is about manufacturing, exports and private sector investment.