Economic Security
Debate between Liam Byrne and Greg Smith
Liam Byrne (Birmingham Hodge Hill and Solihull North) (Lab)
Let me first express my gratitude to the Backbench Business Committee for making time for this short statement today as the Business and Trade Committee publishes the Government response to our flagship report on economic security, which was published in the summer last year.
I want to start not with Committee papers but with people—with workers and businesses. It was just in April last year that we found ourselves in this place on an unusual Saturday sitting to ensure that British Steel was kept alive. Not long thereafter, our agencies were supporting the high street retailer Marks & Spencer as it suffered one of the worst cyber-attacks in our country’s history. Not long thereafter, the Exchequer was required to underwrite the Jaguar Land Rover supply chain to the tune of a billion pounds as it suffered a cyber-attack of unprecedented proportions. All of that took place while our allies in Holland were battling over Nexperia chip supplies and our allies in America were battling China over rare earth restrictions.
Five shocks but one message: economic security threats are now a concern to this country’s security. The message from our Committee is that those threats are going to multiply significantly in the years ahead. The combination of AI-powered weapons, the advent of hostile states, the reality of unpredictable allies, and the need for us as a country to mobilise something like £100 billion of new foreign direct investment means that the threat surface confronted by our businesses is about to multiply exponentially.
That is why we need new economic security defences. If we have learned one lesson from Russia’s illegal invasion in Ukraine, it is that economic security is the foundation of national security. Just as we need a whole-of-society approach to defence, so too do we now need a whole-of-society approach to our economic security.
That is why the Business and Trade Committee undertook its review last year. Our conclusions were stark: we found that the institutions, policies, posture, funding, laws and regulation that we now have in place means that this country does not have an economic security regime that is fit for the future. We set out to provide a blueprint for how the Government can overhaul the system that we have in place.
We recommended, like our allies, putting our regime on a statutory basis with a cross-Government Minister for economic security and a proper centre for economic security at the centre of Government. We then made a number of recommendations, including on how we can improve the diagnosis of threats that we confront, how we develop the sovereign capabilities that we need as a country, how we diversify our supply chains and sources of critical minerals, how we defend our critical national infrastructure against new perils, how we deter those seeking to damage us economically, and—crucially—how on earth we are going to dovetail the efforts of His Majesty’s Government, the private sector and the work of this country and our allies around the world. Those were the recommendations that we made to Government, and today we published the Government’s response to our report.
Let me start by saying to the Under-Secretary of State for Business and Trade, my hon. Friend the Member for Halifax (Kate Dearden), on the Front Bench that we welcome the constructive tone that the Government took in response to our report. We realise that this is a novel, fast-moving field of policy, and where we end up at the end of this Parliament will be very different to where we are today. The Government have clearly accepted four of our recommendations and partially accepted 11. But I lament that they rejected 10 of the recommendations. For the benefit of the House, let me canter through them very quickly.
What we felt was good about the Government’s response was that there are some clear principles that will guide our economic security policy for the future. We had lacked those until today, so I am glad that we now have them in black and white. We welcome the commitment that the Government have made to stronger alliances. We welcome the promise of tougher deterrents to bad actors, particularly from Companies House, and we welcome the slightly half-hearted commitment to parliamentary scrutiny of this field of policy in the future.
In some areas, the Committee concluded that the Government have made some progress but not gone far enough. First, although there is a promise to improve forecasting of future threats led by the Department for Science, Innovation and Technology, we felt that the commitment was a little too vague for our taste. Secondly, we are sorry that the national exercising programme does not have a clear commitment to bring together the public and the private sector to wargame the kind of threats that we know will come together. We are not going to face one threat after another; they will compound and hit us all at once. That is why we need business and Government to be working together to scenario-plan for the future.
We welcome some of the progress on critical minerals, but frankly we do not think that the money or strategy put in place is up to scratch, so the Committee concluded in a report it published earlier this week that one of the inquiries we undertake this year will be an inquiry into critical minerals security. In the field of cyber-security, we do not think that the recommendations on software and cyber-security standards were really heard, and we would like to see more progress on mandatory reporting of cyber-ransom attacks. We did not feel that the Government have yet made a clear commitment to developing anti-coercion systems or instruments. We welcome what the Ministers have said about the need to get something in place. Our allies already have that infrastructure in place. We welcome Ministers’ recommendation that they will listen to us in this House and our Committee, but we would like a little more specificity from them.
Finally, we simply do not think that there has been enough progress on controlling foreign subsidies. The Competition and Markets Authority has been endlessly consulting on that for the last two years. At a time when Chinese industry is six times over-subsidised compared with European industries, we do not think that there is a strong enough regime for policing a level playing field in competition and that imperils our manufacturers. We do not think that the Trade Remedies Authority is fit for the modern day and we believe that significant reform will be needed.
We most lament the instances where the Government rejected our recommendations. As a cross-party Committee, we felt that we had some common-sense proposals for Ministers to consider. We regret that there is no clear plan to overhaul Government co-ordination and leadership, as there was for counter-terrorism policy after 7/7 and, indeed, for economic security policy back in the 1920s and 1930s.
There is a resistance to publishing a clear list of the sovereign capabilities that we will need as a country. I understood from Defence Ministers at the time of the defence industrial strategy that there would, indeed, be a clear list of sovereign capabilities that we as a country would need to develop. Today’s Government response says that no such list will be published.
We regret that the managing public money framework will not be updated to take into account the need for investments in resilience. The Government response said that the current regime was adequate. That is clearly a nonsense. When ministerial directions are needed to ensure the subsidies that were delivered to British Steel or the underwriting that was delivered to the Jaguar Land Rover supply chain, it is quite clear that the managing public money framework does not give Ministers or officials the right framework for balancing the security needs of our country and the growth objectives of the Chancellor and the Prime Minister.
We remain concerned that the tax incentives for improving the resilience of small business are not adequate. We lament that there is no backstop for the cyber insurance market and we regret that there is no extension of the brilliant Pool Re to provide that insurance for the future. It is also quite obvious to us that the pay scales for our frontline specialists in the war on economic crime are simply not adequate.
We look forward to continuing the dialogue constructively with Ministers and I welcome the tone that they struck and the progress that we have made. However, let me conclude with this. Over the last year, as we have set about our work, we have heard consistently from our allies fears and concerns about the economic security regime in this country. We have heard loud and clear from them that they worry that the UK is the weak link in the western defence when it comes to economic security. If we believe, as I think we should, that economic security is the foundation of national security, that is not a position that can go on. The fact that our allies tell us on the Committee that they worry that we are the weak link is not something that our country should put up with, and it is not something that this House should ignore.
Greg Smith (Mid Buckinghamshire) (Con)
The right hon. Gentleman, with his Committee, has given a thoughtful series of recommendations. On his specific point about trade remedies and countries that are over-subsidising, such as China, and the electric vehicles flooding our and European markets, how much of that is being led, in terms of joined-up Government, by a foreign policy that just does not recognise economic security and which prioritised, as in the Prime Minister’s recent trip to China, trying to reset relations with some countries while regarding economic security as an inconvenient truth?
Liam Byrne
It is an open secret in this House that every day, every week, there is some controversy between the growth Departments and the security Departments in government. If we are to stand on our feet in the years ahead, we have to make sure that our industry is fighting fit and not undermined by unfair foreign competition.
We were grateful to the OECD, whose representatives met the Committee in Paris last week. They set out in black and white the sheer scale of over-subsidies in China—that Chinese industry is subsidised six times more than industry in Europe tells us that the playing field is not level. Yet the CMA has been consulting, without conclusion, on control of foreign subsidies for almost two years. We heard loud and clear from allies in Europe that the divergence of UK policy on China from that of Europe may indeed confound the ambitions of some of us to draw closer to the European Union in future. I know that is not a view that is shared across the House, but it should give Ministers pause for thought.
Industrial Strategy
Debate between Liam Byrne and Greg Smith
Liam Byrne
My hon. Friend is absolutely right. The evidence base we were able to assemble was an awful lot stronger because of her connections with small businesses in her constituency and the insights she was able to bring from the world of labour. The point she makes is absolutely right. Past industrial strategies have sometimes conjured up images of corporate Britain calling the shots, but this country’s real potential is actually in abundance in smaller firms. Unless we can make sure that on our islands it is easier to start a business, easier to scale up a business, easier to hire people and easier to give people a pay rise, we are not going to unlock our full potential, and that is what this report sets out to do. We have clearly in our minds the richness and potential of our smaller firms, and we want our economy to be a bigger and better place for them.
Greg Smith (Mid Buckinghamshire) (Con)
I congratulate the right hon. Gentleman on his statement and his Committee’s report, which is welcome. The summary clearly says:
“Britain’s economic institutions and markets—especially in public procurement, energy, skills”
and, critically,
“the diffusion of innovation and finance—must be modernised for new times.”
In the spirit of the partnership he spoke of between the public sector and private sector, he will no doubt have been glued to the debate on the Sustainable Aviation Fuel Bill yesterday, when I pointed out that most of the Government’s advanced fuels funding is going on foreign-owned technologies. How does he think, and did his Committee consider, the way that the approach to Government grant schemes for innovation needs to change to ensure that we keep talent and innovation here at home?
Liam Byrne
The hon. Gentleman makes a really important point. We have heard time and again—we heard it in relation to life sciences, defence and clean energy—that we have some of the best thinkers in the world, but they often struggle to get the start-up finance or the scale-up finance they need to turn those ambitions into new businesses. As someone who spent four years building a business before I was in the wrong place at the wrong time and got elected to this House, I know that what small businesses need to grow are sales. That is why we need to be doing a much smarter job of marrying public contracts with access to scale-up finance, but that will take the institutions we have today working very differently in the future.
Perhaps our most shocking evidence session was on the subject of public procurement, when the chief commercial officer of His Majesty’s Government was just not clear how many jobs, how much economic growth and what levels of wages were driven by £1 of GDP. That is simply not good enough. I hope that there is cross-party consensus about these reforms because, ultimately, this is a once in 50 years moment. Our recommendations should command cross-party support, because that is how we ensure that they are sustainable for the long term.