Business: International Competitiveness

Lord Bhattacharyya Excerpts

Thursday 16th January 2014 Grand Committee

[Lord Bhattacharyya (Lab)]

I thank the noble Baroness, Lady Neville-Rolfe, for securing this important debate, and I declare my interest as chairman of Warwick Manufacturing Group at the University of Warwick.

Much of the Government’s role in making business competitive is essentially passive: keep corporation taxes down, do not over-regulate and do not impose unreasonable bureaucracy. I have no quarrel with this: competitive taxation and sensible regulation are essential in a modern economy. In Britain we have outstanding finance and services companies that rely on these principles. However, this is a minimum, not a maximum, strategy for being competitive. To go further, we must actively support the creation of a strong product base in a wide range of sectors. We cannot rely just on banking or on our aerospace industry, because the global market is changing. The Prime Minister found this to be so in China. Economies such as China and India know their consumers are very attractive to global businesses. Understandably, they want to keep more of the value of their growing markets in their economies.

What does that mean for Britain? In population terms, we are a relatively small country. For our businesses to grow they must succeed in export markets as well as at home. The first step to achieving this is a competitive exchange rate. For many years, British exports were strangled by high sterling, and we must not let that happen again. The Bank of England has a major role to play by not rapidly increasing interest rates. Stable exchange rates clear the way for government to help create an innovation framework that helps businesses develop their product base. This is the key to sustainable growth. For proof, look at the export data by region. In most of Britain, exports were flat in 2013, but in the West Midlands exports were up a staggering 14%. Why? It cannot be the exchange rate, or tax rates, or regulation. No, the reason is that one company, Jaguar Land Rover, is enjoying huge success, now accounting for almost a quarter of all British exports to China. This is no accident. When the global market was in crisis, JLR spent billions of pounds on researching innovative new products. It spends £100 million a year in my place on R&D. Now it is reaping the rewards. Naturally, the companies which export so successfully will need to build factories in their biggest markets. Crucially, however, the benefits of this expansion will also be felt at home.

How can we spread this success more widely? First, we must help more businesses invest in Britain for the long term. We are beginning to do this with the UK Business Bank. However, compared to our competitors our help is insignificant: less than 1% of the assets of the German KfW. It is no wonder that German investment in both R&D and fixed capital is far higher than ours. The Business Bank must be greatly expanded. Secondly, we must encourage industry sectors to work together to identify the scientific challenges that will shape global markets, and fund the R&D that will solve them. The UK Automotive Council shows how this can work, developing research road maps and co-ordinating investment in areas such as battery technology. This is especially vital in building our supply chain, so that the success of a single company also supports broader growth.

Next, we must increase investment in workforce training and skills. The best people to identify the skills needed in the economy are businesses and workers themselves, not government. I welcome the approach of Vince Cable in encouraging apprenticeships and employer-led skills training. We have a university technical college because the noble Lord, Lord Baker, asked me to set it up. Within a year, we had 200 students joining us, long before it had even started. However, this must not be a free lunch for businesses. The quid pro quo must be greater business funding for skills training. A return to the training levy system would be supported in many sectors, as it would remove free riders.

Finally, if you want to attract investment, do not get in the way of businesses hiring talented people. The current visa policy is, if not causing a problem, creating a sentiment that Britain does not welcome talent. If we want to be competitive, we must encourage the best and brightest to come to Britain. British business has invested in the automotive sector to create innovative products, skilled people and efficient processes. That sector was in the dumps five years ago but, as a result of that investment, it is succeeding in the global market. Our challenge is to increase the number of industries where this is happening and to spread growth down the supply chain. This will take time and it is a task for many Governments, not just the current one, but the prize is surely worth the effort.