Foreign Direct Investment 2016-17

Rishi Sunak Excerpts

Tuesday 12th September 2017 Westminster Hall

[Rishi Sunak (Richmond (Yorks)) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate my hon. Friend the Member for Mid Dorset and North Poole (Michael Tomlinson) on securing this important debate. He made an excellent speech surveying the issues before us today.

We have already heard that, a year after Britain chose to leave the European Union, FDI into our country is higher than it has ever been. The good news is that that is not just the case this year: Britain is consistently one of the world’s leading destinations for inward investment. While the UK accounts for just 3% of global GDP, we are able to attract up to 15%—five times as much—of the world’s foreign direct investment. We must always remember, however, that foreign direct investment is not just some financial statistic on a piece of paper. FDI creates real jobs—some 70,000 last year alone, of which 70% were outside London. FDI raises productivity with new management practices. FDI drives innovation, which fuels our future prosperity.

Having spent my professional life before politics working with and investing in businesses from California to India, I know that while our future trading relationship with the EU will of course influence FDI decisions, it is important to put that one factor into proper context. The pages of the Financial Times may talk of little else these days, but it turns out that only 20% of FTSE 100 annual reports even mentioned Brexit this year.

Mr Gray, imagine yourself in the shoes of a CEO of a global company deciding where to make your international investment. When you look at all the factors that drive that company’s investment decisions, you will soon see that Britain is excelling in almost all the areas relevant to you.

[Mr Jack]

My hon. Friend makes a valid point. When businesses look to relocate, they pay attention to corporation tax, but they also think about the tax that their employees will pay. Does he agree that it is a mistake for Nicola Sturgeon to make Scotland the most overtaxed society in the United Kingdom?

[Rishi Sunak]

I could not agree more with my hon. Friend, who makes an excellent point. I am about to come to the various factors that drive such decisions. A competitive tax regime, particularly for employee taxation, is a key part of that.

When it comes to human capital and a research base, Britain is home to four of the world’s best 10 universities. When it comes to a competitive corporate tax regime, our corporation tax rate of 19%, as we have heard, is the lowest in the G7. When it comes to supporting entrepreneurs, our enterprise investment scheme, seed enterprise investment scheme and entrepreneurs’ capital gains tax relief are second to none. When it comes to the regulatory costs facing companies, Britain is ranked by the World Economic Forum among the best large economies in the world. When it comes to getting a company the finances it needs, Britain boasts the most liquid capital markets anywhere in the world.

Lastly, when it comes to a legal framework that people can rely on to protect their investment, a third of the world’s population lives under the security of the English common-law system. Those are the key drivers of foreign direct investment, and I am proud to say that on every measure a Conservative Government have delivered, ensuring our universities are well funded, reducing corporate tax rates while increasing tax revenues, creating the SEIS and EIS programmes to fund hundreds of thousands of new businesses, and cutting pages and pages of unnecessary red tape. We can look at the outcome of all of that. Today, almost half of Europe’s billion-dollar start-ups were founded here in the United Kingdom, and the World Bank ranks Britain as the best major economy in the world to do business in: better than in the United States, Germany and France.

Although taking Britain out of the EU on the best possible terms is, of course, an important task, more important still will be the task that lies beyond it. Just as Britain never owed its success to Brussels in the past, we cannot expect Brexit to guarantee our success in the future. Staying at the world’s cutting edge will require constant dynamism from the Government. From my own experience, I point Ministers to three areas. First, at 1.7% of GDP, our research and development investment is still below the OECD average of 2.4% and half the rate found in Germany. Secondly, our nation’s infrastructure, from mobile telecoms to runways and airports, has not kept pace with the growth of our prosperity, and, according to the World Economic Forum, deters investment. We rank very low among large growing economies.

Lastly, our skills base lacks enough young adults with technical qualifications. Only 10% of adults hold such a qualification, putting us towards the bottom of the OECD league table. It is a shame that, among 16 to 24-year-olds, literacy and numeracy are no higher today than they are among people in their late 50s and 60s. I am confident that the Government understand those three challenges. Their new industrial strategy has the potential to keep Britain on the cutting edge.

However, I remind the Minister that we do not live in a static world. Everywhere we look, countries are innovating and looking at ways to attract human and financial capital and corporations to their shores, and we ourselves must constantly innovate. We need to look at smart regulations and infrastructure decisions that hold things up. We must continue, in spite of the current climate, to support free enterprise, for it is the best way to ensure our nation’s future prosperity, raise living standards and pay for the public services that we value.

The $250 billion that overseas businesses invested on our shores last year were not brought here by Brussels decree. That capital came because international investors know that our citizens’ ingenuity, our Government’s leadership and our nation’s world-class institutions will always provide them with a return. I am confident that, under this Conservative Government, that will continue to be the case for many years to come.

[Hannah Bardell (Livingston) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Gray. I welcome the debate secured by the hon. Member for Mid Dorset and North Poole (Michael Tomlinson) and the opportunity to discuss foreign direct investment from a Scottish perspective. It has been a record-breaking year, as it has for the UK. I hear much positivity about post-Brexit, but we must remember that nothing has actually happened yet and things are very much in a state of flux.

The hon. Member for Richmond (Yorks) (Rishi Sunak) mentioned universities. I do not know whether he is aware that last week Scotland was ranked as having five of the top 200 universities in the world, which is a huge achievement.

[Rishi Sunak]

I welcome that fact, but does the hon. Lady agree that the Scottish Government could do more to improve access to those universities? She will be aware that students from poor and disadvantaged families are twice as likely to go to university in England as they are in Scotland, and that is something the Scottish Government should focus on fixing.

[Hannah Bardell]

I thank the hon. Gentleman very much for that intervention. He knows that the scrapping of tuition fees in Scotland has meant access not only to university but to employment and to college. That has been welcomed across the board. A university place is not always the full picture. Youth employment in Scotland is lower than anywhere else in the UK because of the SNP Government’s investment in a youth employment Minister—the first in these islands—and making sure that students do not leave university with tens if not hundreds of thousands of pounds’- worth of debt.

--- Later in debate ---

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Gray.

We should celebrate the United Kingdom’s long-standing success as the premier destination for EU inbound investment, but we should also be under no illusions about the scale of the challenge facing the UK in retaining current investment, let alone building on it. As research from Michail Karoglou, David Bailey and Nigel Driffield of Warwick Business School shows, of all relevant recent events only two positively affected the long-term trend for FDI: entry to the European Economic Community and entry to the single market in 1992. Only two events caused a reduction in the long-run level of inward investment flows: Britain leaving the exchange range mechanism under John Major, and Harold Wilson’s devaluation of sterling. After both those events, it took an average of four years for the level of FDI to recover. If anyone in this room or elsewhere thinks that there might be just a short-term blip or no blip at all, the evidence from history suggests that we need to think very carefully. The uncertainty caused by Brexit is cause for concern.

Let us look at some of the figures behind our FDI position. In 2016, the UK remained the premier preferred destination for inward investment projects, but despite a rise in the number of projects, the UK’s market share in Europe fell from 21% to 19%. Meanwhile, we are losing ground in emerging growth industries, high-growth markets and in the attraction of investment from emerging powerhouse economies such as China. Celebrating the number of investment projects is all well and good, but what really matters is the value of those projects and their wider contribution to the economy.

Figures from fDi Markets investment monitor suggest that in the 10 months before the referendum, investment flows were $42.7 billion, and in the 10 months after, the figure dropped dramatically to $28 billion. If we are to evaluate fully the vital work that the Department for International Trade undertakes, we need to see the economic value—really drill down into those figures and look at the value of the projects for each financial year, notwithstanding commercial sensitivities that might prevent the release of information on a case-by-case basis. It might be an idea to see exactly how the Department allocates investment projects to specific annual statistics, so we can avoid what happened in January this year, when the Secretary of State was widely ridiculed for including projects unveiled years ago.

The Government will concentrate on the success stories, but it is important to learn from the failures as well. The recent decision by Nestlé to relocate some 300 jobs making Blue Riband biscuits to Poland is a case in point—I have pointed out elsewhere that failure to find £1 million to save 300 jobs. The fall in the value of sterling has of course made it cheaper to invest here, but as Nigel Driffield and his colleagues point out, the benefits of a favourable exchange rate are set against the uncertainties of changes in our access to the EU. Their research also shows that investors like to return profits to their home countries, so a low-cost investment may be of less interest than might appear at first glance.

The UK has traditionally been seen as a relatively easy place to do business, ranking seventh in the latest World Bank Doing Business ranking. That is in part due to a skilled and educated workforce, the dominance of English as the global business language, a robust regulatory framework, a strong legal system and a wide array of supporting service industries, but the main reason in recent decades has been our access to the largest free-trading area in the world. The big challenge, therefore, is to maintain our attractiveness as we leave the EU—hence the need for strong transitional arrangements, the avoidance of a cliff edge and a seamless move to post-transitional arrangements. A link with trade policy and a robust industrial strategy are also essential.

[Rishi Sunak]

The hon. Gentleman talks about maintaining our attractiveness to international investors after we leave the EU. Does he think that Labour’s proposed 50% increase in our corporation tax rate to 26% would make it more or less likely that international investors would want to invest here in the UK?

[Bill Esterson]

The evidence is mixed on whether the fall in corporation tax since 2010 has had benefits in attracting inward investment. Under our proposals, we would still have the lowest corporation tax in the G7. Although investors like the idea of a low-tax economy, they equally dislike the consequences. Recent research by the London School of Economics shows that the downside implied by a low-tax economy of poor public services is profoundly unattractive. The approach that the Prime Minister set out at Lancaster House may be the preferred route for many Conservative MPs who want to shrink the state, but as well as continuing to damage our NHS, schools and pensions, such a policy will restrict the Government’s ability to deliver the very infrastructure and skills that foreign investors want and need.

The view of our investors is set out starkly in EY’s UK attractiveness survey. EY said that it has been a “mixed year” and that it is

“difficult to make a clear assessment of the UK’s performance attracting foreign direct investment and maintaining its appeal to investors since our 2016 attractiveness reports, because every positive indicator is offset by an equivalent negative development.”

It added that,

“the UK’s share of European R&D projects slumped from 26% to 16%, its lowest since 2011. With software projects also slipping despite a Europe-wide increase, these results raise concerns over the UK’s future performance in key growth sectors.

Europe was the leading origin for projects into the UK…Cross-border investments in Europe grew in 2016, with Central and Eastern Europe becoming an important area for higher value-added FDI such as R&D. As European value chains become increasingly integrated, investors appear concerned about the UK’s future access to these value chains.”

The EY 2017 global survey of investors’ perceptions

“reveals a split between current plans and future expectations…Some 31% of investors expect the UK’s FDI attractiveness to decline over the next three years, while 33% expect it to improve.”

Before we get too excited about the net positive figure, EY states that those figures are

“significantly worse than the long-term average, and 50% of investors based in Western Europe expect the UK to become less attractive.”

Exiting the European Union and Global Trade

Rishi Sunak Excerpts

Thursday 6th July 2017 Commons Chamber

[Dr Fox]

The hon. Lady raises a fair point about global trade facilitation. We have just signed the trade facilitation agreement, which aims to reduce border friction across the world. It is estimated that that is worth about £70 billion in the global economy. One of the biggest barriers facing Scotch whisky, however, is tariff barriers. The Department has been trying to talk to Governments such as India’s who have very high tariffs against Scotch whisky, which is not good for their own consumers because it encourages an illicit trade. I encourage all those Governments to indulge liberally in the pleasures of single malt—as I do myself.

By 2010, G7 and G20 countries were estimated to be operating some 300 non-tariff barriers to trade. By 2015, that number had mushroomed to more than 1,200. There are those who, having accrued great wealth, would pull up the drawbridge behind them. We cannot let that happen. This country’s own commitment to free trade was perhaps most clearly illustrated by the repeal of the Corn Laws in 1846. The Conservative Prime Minister Sir Robert Peel rightly saw protectionism as an attempt to preserve the wealth of a privileged few at the expense of the many. Import tariffs were all but abolished and Britain’s free trade principles were created to put bread into the mouths of the hungry majority. Now, as then, it is free trade and competition that will do most to address inequality and safeguard the interests of working people. More than ever, it is up to nations that possess the economic and diplomatic means to reassert the rationale of free trade to do so.

[Rishi Sunak (Richmond (Yorks)) (Con)]

I thank my right hon. Friend for giving way and for his powerful and optimistic speech on free trade. On reducing protectionism, does he agree that leaving the customs union will give us the ability to reduce import tariffs on many goods that we do not produce here at home, which will reduce costs for ordinary working families and benefit many developing countries by helping them trade into prosperity?

[Dr Fox]

That is an important point. At this morning’s International Trade questions, we made the argument that being outside the common external tariff will give us freedoms to help many developing countries in a way that we are currently unable to. I hope that that will act as a spur to others taking similar measures, because we will encourage poorer countries to trade their way out of poverty and become less dependent on international aid programmes. I do not think that that is a party political issue, but the question is how best to achieve it in practice.

On the progress that has been made, we have reduced poverty levels to their lowest in history. As the world’s emerging economies have liberalised trade practices, prosperity has spread across the globe, bringing industry, jobs and wealth where once there was only deprivation. According to the World Bank, the three decades between 1981 and 2011 witnessed the single greatest decrease in material deprivation in human history. It was a truly remarkable achievement.

The Leader of the Opposition has accused the Prime Minister of following “free trade dogma”. He went on to say that this has often been pursued at the expense of the world’s most fragile economies. In fact, any economist worth their salt can see that free trade has been one of the most potent liberators of the world’s poor. Let us take India as a specific example. In 1993, about 45% of India’s population sat below the poverty line as defined by the World Bank. By 2011, it was 22%—too many, but a phenomenal achievement. It is no coincidence that, in the intervening period, India had embraced globalisation and started to liberalise its economy. It is hard to imagine an international aid programme—even one as generous as our own—that would or could have been so effective on its own.

Sadly, it is also easy to find examples of where a lack of free trade has harmed the most vulnerable. If we want to see the contrasting results of open and closed economies, we should look across from China to the Korean peninsula, where so much attention is focused today. In 1945, both North and South Korea began from a very similar base, but while South Korea was more embracing of open trade and free markets, despite any shortcomings, Pyongyang turned inwards, with the tragic consequences for its citizens that we see to this day. [Interruption.] I am happy to give way to the hon. Member for Bishop Auckland (Helen Goodman) if she thinks that North and South Korea enjoy the same living standards today.