Trade and Investment

Lord Mendelsohn Excerpts

Monday 15th June 2015 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I draw attention to my registered business interests in roles connected to being an inward investor and an exporter who is involved with government agencies. It was a real pleasure to witness the maiden speech of the Minister, the noble Lord, Lord Maude of Horsham. He is an excellent addition to the Government’s Front Bench and I wish him well in his duties. He has certainly shown that he is an effective and canny operator, and many achievements are to his credit. The rise of David Cameron to lead the Conservative Party was hugely guided by the noble Lord’s careful management of the leadership process. He guided his party to the candidate who embraced the “No change, no chance” lessons of an election defeat. I think there is a demand for such a role in a number of other places at the moment, but I am sure the Minister is very pleased that he has chosen this duty.

I am also pleased to be able to acknowledge the Minister’s work in reforming the Civil Service and upgrading the capability of the UK Administration by tapping into a pool of talent, including his excellent decision to involve individuals of the calibre of Dr Martin Read and others. As someone who has been involved in business turnarounds and restructurings, I can only admire anyone who is able to change the direction of the Civil Service. Looking at what the noble Lord has done and how it operates, there is a real sense of accomplishment in achieving such great results. His exhortation to make sure that we keep attentive—that more can always be done—is also a very modest way to look at his achievements. He takes on a hugely important brief and I hope that in this task, he can show some of the skills he has shown in other areas. In a very impressive maiden speech, as one would have expected, he covered many areas—including the broadest possible effort to support trade and investment, which I think this whole House responds to. I hope the Minister enjoys this House as I have. Debate and discussion in your Lordships’ House provides sometimes critical but usually constructive and useful perspectives that can serve to clarify one’s thinking.

We on these Benches are firmly committed to open, competitive and dynamic markets and to a very strong approach to exports and encouraging inward investment. We have had a very interesting and wide-ranging debate, with a great deal of honesty from all sides. I will make a number of points that I hope highlight some of the current key concerns on this side of the House.

First, we are also committed to finding ways to establish a firm recovery and to ensure growth and the conditions for our long-term competitiveness, as well as the right sort of capability and adaptability to ensure that we are ready to capitalise on the future shape of business technology, markets and trade. In this regard, we hope that the Minister uses his considerable reputation and ability to fashion a new strategy for the Government to follow.

Our future is at risk, and trade and investment are at the heart of many of the challenges we face. Growth is better than austerity as a policy for bringing debt under control. In business, we cut hard so that we can grow, but government can certainly adopt different approaches, not least through their ability to reform markets and make interventions. I agree with the view that the recovery is too weak to allow for a normalisation of monetary policy. Focusing on the latter would leave us weak and unprepared for any downturn, whether here or in Europe, and very exposed if the growing emergence of highly leveraged instruments were to cause even a small shock. We need to add lustre and sustainability to our economic recovery.

Britain’s widening trade deficit dragged down growth for the first three months of the year. The data show that net trade took a chunk out of the economic position. Imports surged by 2.3% and exports fell by 0.3%. The performance reflected a rise in imports of oil, machinery and transport equipment which knocked almost 1% off growth. Recent published data identified that the UK ranks almost at the bottom of the OECD countries in respect of export growth since 2010. I note the comments from all sides of the House, including the very thoughtful ones from the noble Lord, Lord Popat, and the noble Viscount, Lord Hanworth. The data from the Office for National Statistics show that the deficit is still strong and now in its 18th year.

The 2011 government paper, Trade and Investment for Growth, was a useful attempt to synthesise an effective operating strategy, but it urgently requires renewal—in fact, it requires change. The Government have grasped one very important nettle, but the UK regions will not become the powerhouses of growth and trade unless they are powered up by investment in skills and growth, which is a hoped-for benefit of the northern powerhouse. From that point, they can help to encourage exports, imports, investment and growth.

I hope the Minister takes the support he has received in this debate as licence to think more broadly, deeper and harder about what we can do. In this context, his comments about the UK-Israel tech hub being a new pioneering method are warmly welcomed. I hope that when he responds, he will further set out his thoughts on how he can make some changes.

Secondly, an effective trade and industry strategy is critical given the need to deal with our productivity crisis. A profound area of concern and one very relevant to the trade and investment debate is the huge problem with our foreign direct investment. I have previously clearly stated that our foreign direct investment is a great source of pride to us, but in recent years we have started to see some significant challenges, which the noble Lord, Lord Davies of Stamford, spoke about. Foreign direct investment may well have reached a tipping point where, as an aggregated measure, it does not provide us with greater productive capacity for the economy.

There is a long-standing concern that the size and scale of financial and asset purchases make our FDI numbers look more flattering for the UK economy. We have long trailed the levels of actual job-generating investment by other companies, including in the UK. Recently, there has been not just the idea that deals and high-end property are not hugely significant, but a growing concern that levels of foreign ownership have started to affect the productivity of investment itself. If the general and standard investment in public utilities is done by foreign companies, is it really the same measure of foreign direct investment as a similar investment in France and Germany? If we strip out this type of investment, do we really have more manufacturing projects than Germany? Do we have more jobs created or preserved?

We also believed and always said that much of the benefit of the asset sales was that the jobs could not go overseas. Can we now properly distinguish between business and corporate development locked into the UK and the investment we use to generate new growth in new areas? It is perhaps time for some revision of the measure of FDI. I am sure that the Government agree too that the long-term approach to earn and grow our way to higher living standards is through a high-productivity, high-skilled, innovation-led economy. To get there we need more British-based businesses creating good jobs, investing, innovating and, of course, exporting. Does the Minister support evolving our approach to reporting and monitoring FDI to ensure that we support this aim? In the next few years, might we develop a plan to help increase not just the quantum size of FDI but its quality? Not all investment is the same and not all of it will help growth and our productivity challenge.

Thirdly, we are firm believers in the principle that if you do what you have always done you should expect the results that you always have had. We embrace change, experimentation and innovation. Undoubtedly having a branding campaign, such as the GREAT campaign, is a useful and modern approach. It has many advantages and I thought that the National Audit Office report provided a useful series of suggestions for its future work. However, the National Audit Office was very sceptical of the methods used to suggest the return. The Cabinet Office’s numbers suggested a £1.2 billion return on £113 million layout. I, too, am sceptical of the return. I believe that there are a variety of data deficiencies, not least that much of it was the expectation of what overseas students would be able to bring in, when we have before us the proposal to require our overseas students to go home as soon as they graduate. I urge the Minister to look at this carefully. If direct economic impact of investment can be 10:1 then we should expect the Budget to raise the amount we are spending on this into the many billions. I suspect it will not. However, it is important that we report these things openly and sensibly so that we can all really help to start looking at how we can do things better. I urge the Minister to consider a new evaluation of our strategy and to provide a greater degree of reporting and scrutiny of the performance of the whole of the Government’s approach to the trade and investment framework for action, and especially the country and region-specific actions. Many noble Lords across this House have raised a number of very good initiatives, ideas and suggestions of where we should focus and it would be very helpful to emphasise those.

Fourthly, we are broadly supportive of the Transatlantic Trade and Investment Partnership, provided that the benefits flow to consumers and to employees of the companies involved. Our position has always been that these are the benefits of open and competitive markets. It will be the biggest trade agreement of its kind and the negotiations to cut tariffs and lower regulatory barriers to make trade easier between the two markets can lead to great benefits. However, the negotiations must make sure that those things that require preservation are preserved. We have already made clear our views on the NHS and the objectives of the United States negotiators. A recent peer-reviewed research paper from Tufts University made tough predictions about the impact of TTIP on Britain and, tellingly, it predicts a shift in GDP of 7% from labour to capital with all the likely consequences for inequality, wages and jobs. This would be hugely challenging for us but it is not a reason to stop our support for open markets and free trade, more a reason to improve discussions to a speedy conclusion. We need progress on this but not at any cost. I would be very grateful if the Minister could outline how he sees the development of the negotiations, where he feels the key issues are and what the Government’s current predictions are for its opportunity or impact.

Finally, the Minister honestly addressed our weaknesses in our export performance. There is considerable concern that we are not where we need to be on this. Major exporters do not report a universal story of support and frequently point to the better service they perceive international competitors to get from their Governments. I am not sure that all these issues are justified and we have heard a number of very powerful stories from noble Lords of where our agencies have been highly supportive. It is very important that we get business as a whole engaged in this mission and that we approach this as a very strong pro-business mission. It was good to hear the noble Lord, Lord Risby, again championing the cause of taking this strong, business-focused approach.

I was encouraged to hear that the Minister had taken an interest in the Cole commission—an independent commission established under the leadership of Graham Cole to galvanise industry to develop ideas about how we can improve exports. Its interim report was a very useful addition to the debate and had some good ideas. The report showed that we had a lot to celebrate—cars, planes and pharmaceuticals. As the noble Baroness, Lady Kramer, said, it identified that many firms do not always make the most of the supply-chain opportunities that our major exporters present. Submissions to the report made clear that riding on the coat-tails of major exporters can be a road to exports for smaller firms, and we need to find ways to add to that and support it.

In addition, the report suggested that we should look at whether public authorities could set a lead in developing local supply chains by making an export plan mandatory—including for SMEs—in all public procurement bids that have export potential.

I urge the Minister also to champion the existing potential of our education and health areas, and our services sector, including of course our legal services sector, which was raised by the noble Lord, Lord Clement-Jones, and to champion and redouble the work of our creative industries.

The Government’s commitment to reach a target of £1 trillion in trade now falls on the Minister’s shoulders. It is a big task which I suspect no amount of journeys, air miles, calories or dinners will make it possible for him to achieve alone. I look forward to hearing of his future progress in developing strategies to reform and galvanise all parts of government in this crucial mission. As he said, this is a cross-party effort. I can assure him that we will respond positively and work with him if he continues in the manner in which he has started.