UK Industry: International Competitiveness

Lord Bates Excerpts

Thursday 5th July 2012 Lords Chamber

[Lord Bates]

My Lords, it is a privilege to take part in this debate and I, too, pay tribute to my noble friend Lord Jenkin for securing it and for the compelling way in which he introduced it by making the case for Britain. In listening to the debate, not least in following my noble friend Lord Sheikh, I have been struck by the deep level of expertise that exists in this Chamber to conduct such a debate. There is wide expertise at a very high level of serving on the boards of international companies and in international trade, none more so than that of my noble friend Lord Green on the Front Bench, who will respond to this debate.

I want to pick up on one point made by my noble friend Lord Sheikh in talking about making greater use of the resources within this House in trade missions. This is not a job application for me. I have spent most of my life in small and medium-sized enterprises, with a very strong emphasis on small, but I recognise that there are people with great expertise in this Chamber who really ought to be sent out there to bat for Britain. I am aware that there is sometimes just a little hesitation in diplomatic circles about having people who have rolled their sleeves up, and who have commercial expertise, engaging in this task.

I recently had occasion to walk across Europe, during which time I visited some 15 different embassies and consulates. I saw the fantastic diplomatic teams who we have there and the wonderful people working for UKTI. One of the most impressive people I met was the new consul-general in Milan, Vic Annells, who is doing a tremendous job there in securing investment. He came straight out of the private sector, having worked in trade in the Middle East, and was knocking doors out of windows, as they would say in the north-east. Sometimes we look a little sneeringly on people if they do not learn the language of the country they are in and we ask, “How can they communicate?”, but we have to remember that there is a universal language of business. People who are competent in that language are also required to make the case for Britain.

I want to divide my comments into three sections: first, on the competitiveness of UK plc and its finance, with a particular emphasis on its balance sheet and cash flow; secondly, on HR and R and D; and, finally, in terms of sales and marketing. In commenting on this debate, many colleagues have referenced the world competitiveness rankings. It is worth reading on a bit into the assessment that the World Economic Forum made:

“The United Kingdom (10th) continues to make up lost ground in the rankings … rising by two … places and … moving back to the top 10 for the first time since 2007. The country improves its performance across the board, benefitting from clear strengths such as the efficiency of its labor market … in sharp contrast to … many other European countries”.

The assessment went on to say that the UK has,

“sophisticated … and innovative … businesses that are highly adept at harnessing the latest technologies for productivity improvements … On the other hand”—

and I emphasise this point—

“the country’s macroeconomic environment”—

it is ranked 85th—

“represents the greatest drag on its competitiveness, with a double-digit … deficit in 2010 (placing the country 138th)”,

in the international league tables.

I mention that report because it is sometimes unfashionable to mention things such as controlling the deficit, which in this case is plan A, in strengthening our competitiveness but it is fundamental because unless we get the public finances under control, our AAA rating is at risk. France has already been downgraded and the only way that we are clinging on to that rating is by virtue of the fact that the Government are committed to getting that deficit down—and they have made progress on that. The deficit has reduced by about 25%, going down from £13.9 billion to £10.8 billion and is set to go down to £5 billion by 2014. That is fundamental to our success. As much as we want to herald the sales and marketing side and get excited about that, we sometimes need to remember that there is a real job of work to be done in keeping that deficit under control.

As managing director of the IMF, Christina Lagarde was absolutely right when she said that she shivers when she looks back to 2010 and considers what could have happened without fiscal consolidation in the UK. If we lost that AAA rating, the cost of our borrowing on the international markets would rise, not only for government but for corporations. The rise in those interest rates would force many firms out of business, and reduce our competitiveness on the international market. Repairing the balance sheet is obviously critical, but there is a second set of measures that need to be taken which come under the broad heading of supply-side measures. We cannot simply say, “We want to repair the balance sheet”. We need to make ourselves more competitive in the process. I believe that that is happening, most notably by reducing corporation tax rates, which now give us the lowest rate in the G7—and by the end of the Parliament we will have the lowest corporation tax in the G20; by raising the threshold of personal income tax to £10,000; placing a cap on benefits to ensure that people are always better off when they are in work; reducing taxes on jobs; reducing regulations; investing in infrastructure projects, such as £16 billion in Crossrail; the Green Investment Bank; the regional growth fund; public service reform; and by rebalancing the economy away from a dependence on financial services to manufacturing. Mention has been made of how manufacturing declined dramatically as a share of our international trade; that trend is now reversing. In my native north-east, we are celebrating the fact that we have had record exports for the second quarter in a row, and this is in the midst of a recession. It is quite phenomenal that this is happening. It is a reason to be encouraged; however, we need to reform public services and rebalance the economy. We also need to introduce rigour into the education system, enhance skills through expansion of apprenticeships and bear down on excessive regulation, despite the current legitimate outrage about LIBOR. We must remember that excessive regulation destroys jobs, and we want to be in the business of creating jobs.

On the banking crisis, there needs to be an honest conversation with the electorate. It will rightly join everybody in “banker-bashing”, as it is affectionately known in the press. The banks may well be—I am sure that they are—part of the problem and the reason why we are in this mess. However, it is only by the banks lending to small and medium-sized enterprises that we can get out of this. So we need to have a way forward. I would like to suggest that, rather than pillorying the banks, looking for fines, changing the regulations and so on—though I am sure that all that is right—it would be better for the banks themselves to come forward and say, “We realise that we have let this country down; we have let down small and medium-sized enterprises; we have not been lending as we should have been, despite our balances improving. We are going to engage in some restorative justice, by looking in the eyes of the people whose loans we have turned down and whose businesses have closed as a result, and apologising for that. We will go that extra mile to see how we can help British business export and compete in this market”.

I come to my final point, which is this. We must recognise that we have a bit of a confidence problem in this country at the present time. It is very much doom and gloom; a number of colleagues have referred to this. However, it is worth looking at the facts. The eurozone is undoubtedly in a mess; we are not doing particularly well. America is only doing slightly better. But that is not the true picture. The Office for Budget Responsibility points out that this year the economy will grow by 4.1% and next year it will grow by 6.4%. If we take world GDP as being roughly $70 trillion, 4.1% growth means that added to the world economy we will see a market for our business the size of France. Next year we will see added to the world economy, or a market for our business, an economy the size of Germany. Sure, exports to the EU may be down by 2.9% but exports to non-EU destinations have increased by 13.3%.

We will be welcoming the Olympics in a few weeks’ time and the world’s eyes will be upon this country. It is fantastic that the Government are tapping into that with their GREAT campaign, highlighting the great place that Britain is. More than 4 billion people will watch the opening ceremony. The GREAT campaign is tapping into the fact that this is still an outstanding country, despite its problems. It is a world financial centre; it is a world transport hub; it is the legal basis of international trade; it has the language of international trade; it is home to the top university, Cambridge; it has the winners of 76 Nobel prizes in science and technology—and we remember that in the week that we acknowledge the contribution of Peter Higgs, the theoretical physicist, to that list. It is the centre for the creative industries: Adele, Coldplay and Jay Sean accounted for 12% of global music sales and 23 Grammy awards. On sport, we are the home to Formula One, Wembley, Wimbledon, Lord’s for cricket, Newmarket for horse-racing, St Andrews and, of course, the birthplace of the Paralympic Games, in which we take immense pride. This is a great country and we have a lot to celebrate about the way we are going.