Exports: Government Support

Lord Stoneham of Droxford Excerpts

Thursday 29th January 2015 Lords Chamber

[Lord Stoneham of Droxford (LD)]

My Lords, I am very pleased to speak in this debate, initiated by my friend and colleague, the noble Baroness, Lady Wheatcroft. She has initiated several debates on business subjects in the past couple of years while we have been in the House together, and I have been pleased to speak in a number of them.

The coalition Government are committed to rebalancing the economy. The aim is threefold: it is about reducing the deficit; ending our dependence on short-term, consumer-led growth based on excessive household credit; and, fundamentally, it is about strengthening our role as a trading nation and widening and diversifying our export base.

We have a lot to do. Looking back over the past decade, we see a situation in which import growth has outstripped export growth, so net trade has acted as a drag on UK growth. UK share of world goods and services has actually been declining. We have been underperforming in emerging markets and 50% of our trade is still based in the EU, which has been stagnant for most of the past five years. This perhaps emphasises why we have such a strong interest in getting that economy moving again alongside the British economy’s movement.

The coalition has provided continuity in its industrial strategy. I was impressed when we had a debate on the industrial strategy a few months ago, by the agreement across all parties on the work that Vince Cable has been doing, based on the foundations left by his predecessors in the Labour Government. He has led a ministerial team that has largely been in place for five years. I pay particular tribute to David Willetts, who did so much in the university sector and on our skills-based economy. We have had a focus of support for exporters through improvements in the Foreign Office and UK Trade & Investment. Although I agree fundamentally that the leadership, intelligence and support that they give is essential, we must also realise that we are talking about only 2,000 people in those organisations who are specialising in this work. They cannot possibly do the scale of work that we need to improve our exports and our trade.

The coalition has also concentrated on providing extra finance and credit guarantees for exporters. We have the British Business Bank starting up and we are trying to make the UK a really good place to do business, through a competitive tax regime, protection for patents, improving infrastructure and skills, and encouraging inward investment—all things that a Government must do. I believe that there has been a strong partnership between industry and the public sector as well, which has helped improve relationships and improve work on the industrial strategy. However, to get successful export-based strategies we have to build fundamentally on solid competitive advantage and it takes time to show results.

In my career, I have been involved in transforming companies. In my view, one could improve the figures in one to two years, but to get genuine transformation took five to seven years as a minimum and to do this across an economy, as we have to do in our export sector, will take 10 to 20 years. We can learn the lessons of some of our success stories. The noble Lord, Lord Lang, talked about the automobile industry. I worked on the fringes of that sector in the 1970s and I would not have touched it with a barge-pole as a career in management. It was a complete nightmare. However, we went through the 1980s and 1990s and it has been transformed, largely because of foreign investment, through Nissan, Toyota and Honda, with foreign management techniques, and now with Range Rover and Jaguar, under foreign ownership, agreed, but building on the skills of the Midlands economy.

To sustain that competitive advantage has required huge investment in R&D and skills as technologies in that sector are being transformed. Fortunately, we also have the entrepreneurial base of the Formula 1 competitors, all based in this country, as an example to spur us on. The combination of university knowledge, the catapult centres and inherent engineering skills, combining manufacturing with knowledge of computerised systems, which is the future of motor technology, are all important now for the future of that industry. A major part of that recovery has been based on the fact that we are a member of the European Union.

Moving on to the aerospace manufacturing sector, in 1995 20% of passenger aircraft were made by European manufacturers. The rest were made in the USA. Today 50% are made in Europe, principally by Airbus, and we have 10,000 direct employees of Airbus in the UK, with 100,000 employed by suppliers. That has happened because we have concentrated on a high-skilled, high value-added, huge R&D, with government financing and support to make that happen through the Airbus company and the suppliers in the UK that are part of that very successful operation.

What do the Government have to do to help exports? They might just start on import substitution because if we can improve the supply content in some of those manufacturing and services sectors that are already successful in the export sector, we will reduce our import content. There is a big initiative in the car industry where, until recently, 60% to 70% of the components came from abroad. We have to improve on that.

We could do more in public procurement and we are beginning to get on to that. It takes time but we have seen the problem we had earlier in the Government with the rolling stock in the railway industry and the missed opportunity to improve domestic manufacture. We are now beginning to get on top of that.

We must also give huge encouragement to R&D. I mentioned earlier that where we have been successful is where we have concentrated on competitive advantage. We have to exploit that, particularly in the knowledge economy. R&D as a percentage of GDP in this country is half that of the USA, Germany or France. R&D is too concentrated in too few sectors. Six out of 33 business sectors provide the majority of our R&D in this country; 25% of that is in pharmaceuticals and 50% is done by foreign-owned companies. The best performers—and this is the secret to it—are pharmaceuticals, aerospace and automobile manufacture. Interestingly, these are the places where we are most successful in exports. A very prominent scientist told me recently that R&D expenditure in Volkswagen was more than the whole UK science budget. That probably is the underlying reason that it is so successful in that market.

We have to maintain an international trading outlook. We have to have stability in our exchange rate. We have advantages of geography and language but sometimes we are too complacent. We must resist the island mentality in our economy. Future membership of the EU is tremendously important. By all means, let us seek reform but we must end the uncertainty and retain a firm commitment to our place in Europe in the years ahead.