Foreign Ownership of UK Assets

Lord Haskel Excerpts

Thursday 19th November 2015 Lords Chamber

[Lord Haskel (Lab)]

My Lords, my noble friend is concerned about what is happening as the Government withdraw from investing in our essential services and infrastructure, leaving foreign investors and foreign Governments to take their place. What happens when our financial system leaves foreign investors free to acquire our companies? He is concerned about the effect on the balance of trade, on our exchange rate, the security of our strategic services and products, and the development of our own economy. I think he is right to be concerned. He is right because it has got out of balance. I say to my noble friend Lord Desai that it is affecting our economy.

As my noble friend said, our strategic infrastructure is foreign-owned. Ten of the regional water companies in England and Wales are foreign-owned, as are four of the six big energy companies, including much of our nuclear industry. As he told us, so are many British sea ports, airports and, in particular, railway franchises, along with many of our financial institutions, particularly the banks. Some of these strategic utilities are virtual monopolies, with our consumer interests protected only by regulators. Surely foreign ownership must make this a bit more difficult.

Brands are an important national asset. Many have a national identity. Yes, many of our best-known brands are also foreign-owned. In some ways this is fortunate, of course, particularly in the car industry, where most of our well-known brands have survived thanks to Tata Motors of India, and BMW and VW of Germany. Nielsen Research reported last year that of the 150 biggest grocery brands in the UK, only 44 are home owned. As my noble friend said, there was a time when we owned other people’s family silver. Net income from our foreign direct investments used to be 3% or 4% of our gross domestic product. It now looks as though the outflow from foreign-owned utilities and businesses is just about equal to the inflow.

Why is there so much foreign ownership here? The answer lies partly in the Government’s preoccupation with our deficit and the resulting inability to invest in our own strategic infrastructure. The Government of Britain can borrow for decades ahead at low or even negative interest rates to build our own infrastructure and invest in long-term energy projects on extremely favourable terms. But this has been sacrificed in favour of the Government’s economic policy, leaving the deficit to be carried by private sector debt and inward investment.

With a high proportion of publicly listed companies, it is easy to buy British companies. John Kay, in his report in 2012 and recent book, Other People’s Money, explains why—how most shareholders are short-term and ready to sell out at a profit; and how most share trading is high-frequency and automatic, or on the own account of the investment banks. They are all traders whose purpose is to drive their short-term expectations into the boardroom so that there are high returns for the shareholders—the culture that the noble Baroness, Lady Falkner, spoke about.

John Kay explains that our financial system tends not to reward management for investing. Management is rewarded for the high share price. There is a good example of this going on right now as we do our weekly shopping. Research has shown that a typical shopping basket in one of the big four supermarket chains can be undercut by up to 20% by the German retailers, Aldi and Lidl. Why? Because they are privately owned and can price more keenly.

Another current example is our aerospace industry—the kind of high-tech industry that the noble Baroness spoke about. It is a vital export business. A Civitas report, mentioned by my noble friend, tells us that the number of companies in this industry whose owners are based abroad has jumped from 14% to 41%. As its report points out, British expertise is being lost overseas and this is reducing the chance of British companies growing into world-class players. They are cherry picked before they have the chance to reach their full potential. Surely this must be damaging to our economy.

As an excellent economist, my noble friend Lord Desai, in the abstract, thinks that this does not matter. It is just the globalised market working. To people working in industry and business, it does because ownership explains why the performance and productivity of many foreign-owned companies in Britain are often much higher than the performance of many British-owned counterparts. Their longer-term strategies have brought a higher order of management skills, more thorough training and better pay for employees than many of their British equivalents. They have introduced know-how and technology that would not have been available to us otherwise. Without them there would have been no volume motor manufacturing industry here.

Then there is the question of ownership of our strategic services and infrastructure. Ownership does matter. The noble Baroness spoke of Hinkley Point. It matters so much that the Chinese participation in Hinkley Point is conditional on the Chinese state being the majority shareholder in subsequent nuclear power plants. Do the Government not recognise this when they see it? No, they are blinded by their perceived need for cash, even when there is a strategic argument for blocking a deal.

My noble friend mentioned the proposed takeover of AstraZeneca by Pfizer, mainly for tax advantage. It was stopped only because of the efforts of the Dutch and Swedish parts of AstraZeneca.

What is the answer? While welcoming foreign investment, how can we achieve a better balance and feel more secure? The real solution of restructuring the finance industry is, of course, too difficult because it will disturb too many vested interests—the influence of the financial industry’s money on politics is too well entrenched. Because the finance sector is much used as an instrument of economic policy its interests and opinions take precedence in economic decisions. This has to change. I do not agree with my noble friend Lord Desai. It has become too unbalanced, and equal regard must be given to the interests and opinions of other sectors—of business, of industry. This will help to encourage UK ownership of our strategic assets and their long-term development. Many regulatory agencies seek to pursue the public interest, but their work is limited by a too-prescriptive rulebook. This has to be reviewed, bearing in mind foreign ownership.

The answer also lies in more enlightened business governance. For 20 years, Tomorrow’s Company has promoted the principle of stewardship. These ideas are slowly becoming more accepted. By coincidence, I hosted Tomorrow’s Company’s annual reception here in the Cholmondeley Room yesterday. Several noble Lords were present. We heard how many of our more successful and more progressive businesses are adopting the stewardship form of leadership and governance. I put it to the Minister that if foreign investors were urged, perhaps by regulators, to adopt this form of governance, then we may not only benefit from their management performance, their technology and productivity; we would also feel more secure with the clear purpose, values and collaboration that stewardship brings, and the long-term attitude towards investment and risk. You never know: this culture may bring more British investors and, yes, a Labour Government back into the market.