Trade, Exports, Innovation and Productivity

Lucy Frazer Excerpts

Wednesday 13th January 2016 Commons Chamber

[Stewart Hosie]

If the trade deficit was simply a consequence of the deep recession, the hon. Gentleman would be right, but, as I will demonstrate, this has gone on not for five, 10, 20 or 30 years, but 50 years. We need to address that deep, underlying systemic issue.

As I said, the contribution to GDP is negative for the entire forecast period, as published in the summer Budget and again in the autumn statement. Worryingly, those figures were marked down—they were actually worse than the corresponding forecast published in the spring Budget before the election. We are not seeing a stabilisation, or a recovery that would allow us some sense of normality, but a continuing decline. That appears, as I hope to demonstrate later, in almost every metric that we look at.

[Lucy Frazer (South East Cambridgeshire) (Con)]

Does the hon. Gentleman accept that the Office for Budget Responsibility expects productivity growth to return to its historical average by the end of 2017?

[Stewart Hosie]

Yes, I have seen the OBR forecasts, and I will quote some of them later. However, I am taken by what the Chancellor said more recently than the latest OBR forecast, which is that it is no longer a case of “mission accomplished”, almost as if he is getting his excuses in first and preparing to blame other people. Despite the OBR forecasts, things are not all hunky-dory; everything in the garden is not rosy. As I pointed out, when we are looking at GDP growth over a decade worse than that of Japan’s lost decade, it would be wrong to be complacent like some of those in the hon. and learned Lady’s Government.

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[Stewart Hosie]

It is not opaque, so let me make the position really clear to the hon. Gentleman. We welcome trade agreements. We think that they are a good thing in general. However, we will not countenance a trade agreement that opens the door to the systematic undermining of our essential public services. That is not opaque; that is crystal clear.

We need rather more than words from the Government: we need action to reverse declines, particularly in manufacturing, and to ensure that the last quarter’s fall in manufacturing output—which I mentioned earlier—does not become a pattern. At least in part, that will require—again, this is a response to the intervention—more innovation.

[Lucy Frazer]

Will the hon. Gentleman give way?

[Stewart Hosie]

No. I have already given way to the hon. and learned Lady.

Innovation is as much a part of building a larger, more productive and faster growing manufacturing base as it is important in its own right. We know about the positive impact of innovation from many sources, not least the recent PricewaterhouseCoopers global innovation survey. It confirmed what it describes as a “direct link” between companies that focus on innovation and those that successfully grow faster. As I am sure the Minister will know, the UK’s most innovative companies grew on average 50% faster than the least innovative.

We also know that substantial problems need to be overcome. While 32% of UK companies saw innovation as very important to their success, the global figure was 43%, and while 16% of UK companies saw product innovation as a priority in the coming year, that was barely half the global figure. Most worryingly, although the UK—Scotland and the rest of the UK—has in many ways a clear competitive advantage in the university sector, a significantly lower proportion of our businesses planned to collaborate with academics than did their international competitors.

I want to say a little about the approach we have taken in Scotland specifically to deal with that issue. Funding has been approved for five new innovation centres in industrial biotech, oil and gas, aquaculture, big data and construction. That funding has been put in place to build on the original three centres that were launched three years ago, which covered the growing areas of stratified medicine, sensors and imaging, and digital health. There is the provision, essentially, of £78 million to help the development of 1,000 new inventions, products or services. That cash will also—this addresses the international comparison—support 1,200 businesses to work directly with universities.

The UK has Innovate UK and we have looked closely at its delivery plan. The SNP welcomes aspects of it, not least the £1.5 billion global challenge fund. However, the overall policy of changing Innovate UK’s funding model so that, by 2020, £165 million of innovation grants will be delivered as loans sends out all the wrong signals. We are concerned that it may suppress essential innovation even further compared with our international competitors. That fear was confirmed by KPMG’s head of small business accounting, who said that the measure was

“a false economy that threatens to stall the growth of small businesses across the UK.”

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[Stewart Hosie]

There is a historical disconnect here. The fight over ABN AMRO was between the board of RBS and the board of Barclays. One of them called it wrong and one of them got lucky. I suspect that my input and that of my right hon. and hon. Friends had precisely no bearing whatsoever on Mr Goodwin’s decision to persuade his board to buy ABN AMRO. The suggestion is quite extraordinary.

I have said that we need an unrelenting focus on innovation in manufacturing in relation to trade and exports. Although manufacturing has suffered the largest falls, it still accounts for 44% of all UK exports because the deficit in trading goods is so large. Any Government who are serious about rebalancing the economy and correcting the trade deficit in goods must have a laser-like focus on encouraging innovation in manufacturing, as well as on supporting existing exporting businesses.

This debate is about more than innovation, manufacturing and exports; it is about boosting productivity. That is vital because—this is undisputed—both Scotland and the UK sit only towards the top of the third quartile of advanced countries by GDP per hour worked. We are below many smaller European countries and, importantly, below major competitors such as the US, Germany, France and even Italy. I am pleased that Scottish output is now 4% higher than pre-crisis levels. That is a good thing, but clearly there is substantially more to be done, not least because UK productivity growth is at 1.3% a year, which is barely half the level of the 2% pre-crisis rate.

Scotland has an economic plan based on four principles to boost productivity: investment in education and infrastructure; internationalisation and encouraging exports; innovation, which, as we have discussed, is essential; and—in many ways the most important aspect—inclusive growth. The latter point is vital because we know from the numbers—we have all seen them—that the UK lost 9% of GDP growth between 1990 and 2010 because of rising inequality. We are concerned that that mistake is being repeated by this Government, with their arbitrary surplus fiscal rule, which is requiring them to cut far more than is necessary to run a balanced economy and denuding them of the resources that are needed to tackle inequality and maximise economic growth.

[Lucy Frazer]

The hon. Gentleman referred with positivity to the figures in Scotland. Is he aware that, according to the BBC two hours ago,

“Scotland’s economy grew slightly over the summer but continued to lag behind the UK as a whole, according to official figures.”?

[Stewart Hosie]

Absolutely. I was describing the growth since the pre-crisis level. The quarter-on-quarter and year-on-year figures are undeniable. That is why I said that we all have far more to do. I will make criticisms of the UK Government where they are valid, but I certainly will not deny the numbers. I hope that the hon. and learned Lady will welcome the fact that we are 4% ahead of pre-crisis levels, notwithstanding the difficulties we have seen in the North sea. That is a quite remarkable achievement, when the limited powers of the Scottish Government are considered. In terms of the deployment of those powers—[Interruption.] The Minister for Small Business, Industry and Enterprise is chuntering away on the Treasury Bench, as she is wont to do. She will be throwing her arms in the air and harrumphing soon. If she wants to intervene, I am happy to have the debate—maybe not.

Returning to the powers that have been deployed in Scotland, we have a Scottish business pledge, which requires firms, in return for the support of Scottish agencies, to seek to innovate, to seek and take export opportunities, and to pay the living wage. That is part of the solution to tackling inequality and delivering inclusive growth that will enable us to avoid the loss of GDP output that we saw in the 20 years to 2010. I urge the UK Government to take a similar approach.

I do that not least because our concerns about a lack of balance and the need for action to tackle the ongoing productivity challenge are shared by the International Monetary Fund, which is often prayed in aid by the Government. The IMF has spoken of the need to lessen wealth inequality and the need for increased spending on infrastructure. It has also called for an enhanced focus on decentralisation.

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[Lucy Frazer (South East Cambridgeshire) (Con)]

The motion suggests that there is a lack of a long-term plan to improve productivity and it is also critical of the Government’s approach to innovation. The motion is not only inaccurate, but unnecessarily pessimistic and bleak. Like the hon. Member for East Antrim (Sammy Wilson), I think it is important to celebrate what is good.

The hon. Member for Dundee East (Stewart Hosie) stressed the importance of innovation, and we ought to recognise the great work we are doing in Britain at the moment in science and technology. The UK is ranked fourth in the business world for business and university collaboration; it attracts more research and development funding from abroad than Finland, Russia, Canada, Japan and China combined; and the UK produces 16% of the top-quality published research findings with less than 1% of the world’s population. The Government are ensuring that we maintain this position by investing almost £7 billion in UK research infrastructure up to 2021.

I represent an area at the forefront of technology and innovation. The east of England is one of the highest investors in R and D across the UK. We have companies such as ARM, which creates the processors found in most mobile phones across the world and which in its short 26-year history has joined the FTSE 100. We have more than 100 businesses at the Cambridge science park, providing more than 500 jobs, developing our science and technology. Having spoken to many of those businesses, it is clear to me that what we need to do to continue this great work is to be constantly more ambitious and to invest in our human capital. It is fundamental that we teach children in schools the right skills, and I am delighted that we now have a commitment from the Chancellor to a fairer funding deal.

It is disappointing that, in an area of academic excellence so close to Cambridge University where we have the potential for world-class education, we have not as yet had a fairer funding arrangement. However, I am delighted that this Government have committed to creating 17,500 more teaching posts in science, technology, engineering and maths. We must ensure that our teaching is inspiring students as young as seven and eight, because research has shown that that is the age at which children decide whether technology and science are for them. We also need to ensure that, once inspired, there is advanced technical education that will enable students to have the much-needed and sought after skills for their employment.

I welcome developments such as the University Technical College Cambridge and I applaud Anglia Ruskin University for teaching an international trade two-year course. Recognised as the first of its kind, the course was developed in partnership with the Institute of Export and is taught online by university tutors and international trade experts. We need to encourage our students to learn not just technical expertise, but languages, including Mandarin. In 1990, only 500 students were studying Mandarin. That number has now grown to about 3,000, though, recently, the numbers studying Mandarin have fallen. If we are to continue to increase our exports, we need that trend to change.

I applaud the work of this Government and of our regions in encouraging innovation and enterprise, but, at the same time, emphasise that what we need to do is to continue to offer support to maximise the potential of our workforce. We need to give people the skills that they need to thrive as individuals and to ensure that productivity in the UK grows. Since 2010, we have increased exports to China by 72%. By continuing to upskill our workforce, we will ensure not only that that figure goes up, but that our exports go up elsewhere, allowing the UK economy to continue to grow and to maintain its position as the fastest growing economy in the G7.

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

It is a great pleasure to speak with you in the Chair, Madam Deputy Speaker. I am also delighted to follow the thoughtful speeches of so many Members from all parts of the House. Indeed, it has been a very fine debate, and I thank my hon. Friend the Member for Dundee East (Stewart Hosie) for securing it. Some matters have been quite enjoyable as well as enlightening. I am sorry that the hon. Member for Spelthorne (Kwasi Kwarteng) is not in his place, because I particularly enjoyed the part of his speech when he was berating our Members for harking back as far as the 1960s, and then immediately moved forward to quote Adam Smith from the 18th century. It was a remarkably fine performance.

The hon. Lady for South Cambridgeshire—

[Lucy Frazer]

South East Cambridgeshire.

[Roger Mullin]

Is it close? [Laughter.]

The hon. Lady opened her speech by mentioning the hon. Member for East Antrim (Sammy Wilson) who is also not in his place. I was going to compliment him, because what he brought to this debate was a recognition that criticism is not always a negative thing; indeed, it can be helpful. When he said that, I immediately thought of an old teacher of mine, Professor Tom Burns, who, in the 1960s, along with his colleague Graham Stalker, wrote the famous book, “The Management of Innovation”. In it, he pointed to several factors that are essential for the development of innovation, some of which are extraordinarily pertinent to this debate. For example, one was that there are two types of ideas that we need to mobilise—creative ideas and critical analytical ideas. It is the forging together of those two types of ideas that becomes very important. He also said that one of the fundamentals in driving the rise of the industrial revolution was the creation not only of those types of ideas, but of the means of disseminating the ideas. That was fundamental. We saw it in Scotland with the sharing of ideas, flowing as they did from Edinburgh to Glasgow and Glasgow to Edinburgh. It seems a small thing to say in the modern era, but at that time it was fundamental to getting the sharing of ideas going.

To move on from my teachers, a few years ago I attended a fascinating lecture by Professor Tom Stonier. He pointed out that more people worked in pure research in the last 25 years of the 20th century than did so in the entire pre-history of the world. Let us think about that for a moment—there has been huge growth in the number of people undertaking research. If we combine that with the growth in new technology, such as IT and computing power—whereby an Einstein no longer needs to take years to work out his equations by longhand, and ideas can be processed so quickly—we will see that they are fuelling huge growth in innovation throughout the world.

I shall not dwell, as the hon. Member for Gloucester (Richard Graham) likes to do, on doom and gloom, but I shall point out some of the challenges we face. On the growth in the rate of research and the ideas coming into our world, the countries that will remain in front will be those that can capture and develop those ideas, put them into play and own them for themselves. That is the key challenge, which is why I am worried about recent trends in the UK.

Some days ago, the Chancellor of the Exchequer rightly pointed to a “cocktail of dangers” in the global economy. One of the dangers is that we are not investing enough in the type of research and development and innovation needed to keep us at the forefront. My hon. Friend the Member for East Lothian (George Kerevan) pointed out in his fine contribution that this country has a problem of a lack of long-term investment in business. That is true of many sectors, and part of the problem is that, compared with some of our major competitors, we are generating less investment from the business sector than we did in the past.

I am delighted that the Minister for Universities and Science, whom I met in a previous Westminster Hall debate about science, will sum up for the Government this evening. In 2010, the previous Government froze the science budget for five years, which meant a 10% cut in real terms, at a time when it was already at a modest level compared with those of our major G8 comparators. In 2012, UK public investment in science fell to less than 0.5% of GDP. As my hon. Friend the Member for Glasgow North West (Carol Monaghan) pointed out in the debate at which the Minister was present, that is a lower rate than any G8 country has invested in the preceding 20 years. The G8 average is now about 0.8%, compared with the UK’s 0.44%.

If we look at broader measures of research and development, we see that a generation ago the UK was one of the most research-intensive economies in the world—and didn’t we benefit from that? Now, however, as with science, we are one of the least research-intensive economies. My late brother was at one time chair of the OECD committee on science and technology policy, and in recent years, before his sad passing, we would regularly discuss the failure of the UK—and his homeland of Scotland—to keep up. In terms of broad research and development measures, we have slipped from leading the OECD countries in 1979 to trailing behind all our major competitors. The US invests 2.8% of its GDP in all forms of research and development. On average, the OECD and EU countries invest 2.4% of their GDP, but the UK now spends only about 1.7% of its GDP on research and development. That is not going to keep us at the forefront or allow us to face some of the challenges and competition of the future. The hon. Member for East Gloucestershire—

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[Michelle Thomson (Edinburgh West) (Ind)]

Thank you, Madam Deputy Speaker, for giving me the opportunity to be the final speaker before the debate is summed up. I must say that I have enjoyed it immensely. The quality of speeches by Members on both sides of the House has been fantastic.

I have a little warning for the hon. Member for Gloucester (Richard Graham) on the use of the term “doom”. In Scotland, we say that facts are chiels that winna ding. The facts brought out by my hon. Friend the Member for Dundee East (Stewart Hosie) at the start of the debate stand and are very important. Such a reality check about some of the serious issues in the UK economy must be acknowledged.

Let us turn to the issue of balance. The Chancellor commented in a lecture in 2010:

We have to move away from an economic model that was based on unsustainable private and public debt. And we have to move to a new model of economic growth that is rooted in more investment, more savings and higher exports.”

How did that work out?

Such a sentiment does not extend to the present Government. During an open Business, Innovation and Skills Committee sitting, I questioned the Minister for Small Business, Industry and Enterprise about whether she regretted successive UK Governments lack of a cohesive industrial strategy. I make that point because SNP Members sometimes sit listening to the biff-boff from either side of the Chamber, but I think there has been a lack of strategy year on year, regardless of whether it has been under the Tories or Labour. One of the significant benefits in Scotland of constantly having an SNP Government, which I hope will be re-elected, is that we can see the signs of a strategy that has been put in place and acted on, and of the resulting commensurate benefits.

[Lucy Frazer]

Does the hon. Lady accept that, according to figures from UKTI, a Government body, there was a small fall in the number of inward investment projects in Scotland in 2014-15, while the number rose in England and Wales?

[Michelle Thomson]

Yes. As I said at the start, facts are chiels that winna ding, but there is a much bigger picture.

My hon. Friend the Member for Dundee East said that the downsizing in manufacturing has been going on for decades, not just for a small snapshot in time. I do not propose to go through the figures that have been quoted extensively in this debate, but I will quote an apt point that was made by the well-known economic journalist who writes in the Scottish newspaper, The National, and who, for the benefit of the House, is also known as the hon. Member for East Lothian (George Kerevan). He has referred to the issues with manufacturing as

“a full generation of stagnation.”

I want to pick up on a few comments. The first was about infrastructure. I gently point out in respect of HS2, which apparently will now cost roughly £42 billion, although I am not sure that is correct, that Scotland will pay its population share of that. We will pay roughly £4 billion, for which we will get no benefit. Indeed, a couple of years ago, Aberdeen chamber of commerce pointed out that it might cost its local industry money.

It is fair to say that probably no one in this Chamber is as focused on the importance of business in growing our economy as I am. There are still significant issues that I will personally address in the lifetime of this Parliament in the ability of businesses to get started, access capital, which is critical, and grow to a significant size. The Mittelstand model would be a good fit, but such companies are promptly sold. We need to do much more on that front.

John Longworth, director general of the British Chambers of Commerce, has made significant comments on consumer debt:

“It’s time to get real. The UK has been too reliant on consumer spending”.

That is an external body making that point. The household debt to income ratio could reach 172% by 2020. I am worried that with increased austerity and more uncertain prospects, more and more people are turning to credit as the only accessible way to plug the gap. Interest rate rises are a when, not an if, and I have grave concerns about how they will affect people who are already struggling.

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[Ms Ahmed-Sheikh]

It actually works both ways. It is not just Scotland exporting to the rest of the UK; exports come up the other way too, but I thank the hon. Gentleman for his intervention none the less.

Scotland is ready to do business with the world, but this Government are giving the impression that we, along with the rest of UK, are closed for business. What message does it give to the world when our UK Government talk a good game about our commitment to the historic climate change agreement reached in Paris, but simultaneously pull the plug on millions of pounds of investment in our renewables industry through their actions on the renewables obligation? How badly is the reputation of Scotland’s world-class universities damaged in the international market to attract the brightest and best by a regressive position on post-study visas? We seem to be moving from one extreme to another, closing the doors to some and opening them to others in the name of trade at all costs, whether that is in relation to arms that may be being sold illegally or not ensuring that human rights are at the top of the agenda when we negotiate trade deals.

[Lucy Frazer]

rose—