§ 7.30 p.m.
§ Viscount Waverley rose to ask Her Majesty's Government what new policy developments they are considering to build on the current levels of exports and inward investment.
§ The noble Viscount said: My Lords, I congratulate the Minister on his new post and wish him and his right honourable friend well. They have a crucial remit.
§ Much has been achieved in recent years. British export volumes to the rest of the world have hit new records, and the upward trend is expected to continue. Exports are driving the economic recovery and are leading the UK out of recession.
§ I have combined inward investment and export strategy into this evening's debate. There are linkages. The conditions that are essential to our exporters are what attract inward investors. Indeed, 40 per cent. of our exports is derived from foreign companies having invested in the UK. It is the stable macro-economic conditions, competitive and flexible labour markets, the adaptability of employees, and a vibrant small and medium-sized business sector introducing new technologies to British industry, stimulating new managerial and working practices, that are the key.
§ We debated this subject in part some 18 months ago. There are those who suggest that, as the prognosis is favourable, there is no need to conduct regular assessments. I cannot share that opinion. Past successes suggest that we are on the right track; but we must emphasise the need for constant evaluation of performance, and indeed be formulating a plan not just for this year but for the next five years. Does the Minister agree and, if so, will we be told about forward policy tonight?
§ Competition for the available world level of investment is now so strong that we must constantly consider new mechanisms. As other nations wake up to the opportunities, the fight to attract new investment, and retain existing investment, will become harder.
§ First, perhaps I may be allowed to turn to inward investment. I want to draw attention to four areas where I believe that our present efforts could be enhanced: the need for clarity in promotional activities; the grants regime; the tax structure; and immigration matters. The delivery of the UK's promotional activities could be improved by providing services through a single point. There are many organisations in the UK which undertake activities aimed at encouraging inward investors. That can confuse the potential investor, especially as different bodies promote the same area. 1445 Such a body would co-ordinate and disseminate all relevant information. It would also ensure that all in the business of selling the UK do not compete to the detriment of the product by confusing the inward investor.
§ That concept could be taken one step further. At present, the bodies promoting the UK are separated from those responsible for the awarding of grants, such as Regional Selective Assistance. They could, and should, be integrated. That would be a logical extension to the "one-stop shop" approach advocated by the DTI in its Business Links programme. It would also be helpful to have an effective measurement of agencies' performance. Are they providing value for money?
§ I should like to say a word on grant and tax issues. The UK is the only European country to impose a cost-per-job limit when negotiating Regional Selective Assistance applications. That should be removed. The concept of "additionality", at present used in considering grant applications, could be replaced with a less confrontational approach. Grants, for example, could be decided as part of a process of negotiation as adopted by competitors elsewhere. However, the UK tax regime generally compares well with major international competitors, although some countries have incentives aimed specifically at inward investors.
§ Steps have been taken to make the UK as competitive, but the systems introduced are often seen as complex and do not place the UK on a par with some of its European Union partners. That need not result in an overall loss to the Exchequer. The investor, without incentives, might not have come to the UK anyway. Indeed, tax incentives would he cash positive as there would be a liability to indirect taxes.
§ However, I do think that investors seek near certainty as to the tax implications of their investment decisions. Our system does not allow the granting of advance tax rulings. That leaves the investor uncertain as to the tax effects of investing here. More might be done in this area.
§ I want to touch on difficulties faced by key personnel sent to the UK to evaluate investment potential first hand. Until recently, such individuals could enter this country to establish a representative office. However, the Home Office has recently re-interpreted the rules. The practical effect is to prevent entry, unless there is a commitment at the time of arrival to incorporate a company. That is a disincentive, especially for investors from the Pacific Rim countries.
§ Countries such as Nissan and Samsung first considered a tangible presence in the UK by the use of a representative office. My fear is that potential investors might be dissuaded from considering the UK as a result of that new interpretation.
§ We need to continue to attract inward investment. I have identified a number of areas where action is required. Major inducements are not necessarily the answer. Simplification and a levelling of playing fields will enhance the UK's position. They will help not only to keep existing investors here, but also to attract others.
§ We must fully understand the reasons why investors decide to locate in other European member nations. France, for example, now attracts a similar level of investment to the UK. That was not always the case.1446
§ Of course, there is a lot on which the Government can be congratulated. I was delighted to hear at the annual presentation of the Invest in Britain Bureau last week, for example, of the aftercare initiative. I am sure that we shall hear more in detail on those points from the Minister.
§ I must move on. In my remaining minutes I shall turn to export matters. One of the UK's real advantages is the worldwide access to market intelligence, but we are failing to drive home our advantage. The export intelligence service receives from oversea posts information that could, if of high quality and disseminated and quickly distributed to British industry, dramatically increase exports.
§ Research has shown that the quality of service has fallen with users critical of the information. Who maintains the quality of that contract, and what steps are being taken to improve the service? When will the agreement be negotiated? What will be the mechanism and criteria for selection? Following on, why do we not yet have a centrally-run business database, complete with company details and products, updated annually, so that buyers around the world can receive details of companies by return which are able to offer the products and services being sought? That is long overdue. Why has it not been implemented?
§ The export promoter initiative, which was launched some two years ago, has been successful. Will the programme be allowed to lapse? Many exporter promoters have built upon strong links with major UK exporters and foreign governments in their country of specialty. That experience is being lost as the promoters leave their posts and are reabsorbed into their own companies. Can the Minister confirm that the initiative is to be extended; and what steps are being taken to ensure that the experience gained over the past two years is not lost?
§ I turn now to the Business Links programme. There are those who suggest that the initiative is in serious trouble and floundering. An audit report has criticised the medium and long-term viability of established Business Links as being uncertain. What is the situation? Can I encourage the Minister to react to the anxieties?
§ I came here this evening expecting to be critical of the cost and availability of credit guarantee insurance but I find that the UK is a competitive marketplace for short-term insurance. Will there be a commitment by the Treasury to have sufficient funds available to match our future increase in exports? I am also pleased to hear of a new product, the Compact Policy, that NCM Credit Insurance is designing to cater for companies that export sales of up to £1 million. This is evidence that credit insurers are addressing the needs of small exporters. This is important.
§ Another essential category is that of education and training. The Institute of Export does an excellent job of training those at the centre of the export trade, hut there seems to be a growing demand for a course addressing the needs of export managers. Do the Government recognise that more needs to he done in 1447 this area, and what help might be made available? The DTI must be encouraged to develop a professional career structure for export staff.
§ Time allows me to comment only briefly on trade missions. Many small and medium sized exporters are critical of the limited number of trade missions they can attend with DTI support. How successful are these missions, and what steps are being taken to ensure that the most suitable companies are selected? What are the pre-qualifying criteria for selection?
§ Finally, a recent in-depth export-related survey conducted by NCM Credit Insurance and the Institute of Export—and analysed by the Bank Relationship Consultancy—shows that despite large sums invested in services to exporters, on average only 50 per cent. of exporters use the various services. Many are simply not aware of the assistance available, The more precisely we can define and evaluate the services exporters need, the sooner the services can be improved and the better exporters will perform for the benefit of the export-led recovery as a whole. But the questions remain: are we doing as well as we should, and what needs to be done to increase our market share?
§ 7.43 p.m.
§ Lord Astor of Hever
My Lords, I also wish to start by congratulating my noble and learned friend the Minister on his new job. I hope that he will be as sympathetic to the subject on which I am speaking as his predecessor was. I also commend the noble Viscount, Lord Waverley, on his choice of such an important subject. I am surprised that more speakers from the Opposition are not contributing this evening. The export arena is crucial to the nation, and Labour policies will not help with issues such as the minimum wage. I look forward to hearing how this point and others are defended. I see from the Liberal Benches that the Liberal Party clearly is not interested in this subject!
One of the most frequent questions that I hear being asked is: why cannot we have some good news for a change? It is therefore a great pleasure to report glad tidings from the British motorsport industry, which comprises thousands of companies, large and small, providing specialist, high level, innovative technology, now exceeding aerospace technology. Annual revenue is nearly £2 billion, more than 40 per cent. of which is exported. Over 50,000 people are directly employed in this industry in this country and the motorsport sector has developed to the point where it can justifiably be recognised as an industry in its own right.
Most of the Formula 1 and Indy 500 cars and engines, with their leading edge technology, are designed and built in Britain. The tremendous growth of the British Touring Car Championship is an example of how promoters have recognised the needs of the public for a series that provides close racing in cars with which they can identify. The series is attracting record crowds and commands huge international TV viewership. In rallying, British technology and management is regarded as the best in the world. I congratulate Her Majesty's Government for providing the political environment for this industry to flourish.
1448 I have spoken to many companies involved with the motorsport industry and without exception they are highly complimentary of the DTI. This point needs to be made tonight. The DTI is supportive of the motorsport industry. Complacency is the biggest threat to the industry. The Japanese, the Americans, the French and the Germans probably dislike continually having to buy British, but in motorsport where success or failure is measured in thousandths of a second, they recognise that only the best will do. The industry is fragmented and some component companies are in an extremely parlous state. Team Lotus and Simtech have gone and others at the top are struggling for sponsorship.
We must accept the importance of the tobacco industry to motor racing and all the jobs that go with it. Benetton, Tyrrell, Williams, McLaren, Jordan, Ligier, Forti and Ferrari are all very dependent on this source of sponsorship, which is not easily replaced. Sadly and inexplicably neither Shell nor BP support a Formula 1 team, unlike other foreign oil companies and I hope the Government will shame or bully both of them into supporting British teams next year.
What new policy developments can the Government consider to help the industry build on its current success and level of exports, and to encourage more inward investment? One issue needing attention is the shortage of good engineers. This applies as much to the motor as the motorsport industry, and is a particular problem for component manufacturers. These companies, mostly employing 50 or less, many almost cottage industries, are one of the engines of future growth and employment for this country. But a recent survey by Anderson Consulting concluded that the gap to world class performance standards is still gaping in components.
There are various problems. First, unlike Germany, France or Japan, engineering as a profession does not have the respect it deserves. Why do more students not go into science engineering? One reason is that teachers do not have a good view of the industry. Schools need to visit factories and other suitable work places so that children can be talked to direct, and feel for themselves the glamour and excitement. These days they will not leave with dirty hands! Industry itself can help here. Toyota has set up an educational foundation, in which it has invested heavily in the past three years, to encourage children to take up engineering at school. The Government can help by encouraging more companies to invest in future engineers in this way.
Secondly, the education system does not prepare engineers to he ready for immediate use. In the case of the motor and motorsport industry, they need to go through significant training before they are any practical use in jobs such as the design of cars. Mechanical design should be more widely taught in engineering courses as it ultimately affects the ability of manufacturers to design and develop components to a high standard. This problem is the single most significant concern of the big multinationals such as Toyota and must be addressed as it is a vital ingredient in attracting inward investment.
How can we encourage component manufacturers to achieve higher standards so that they are better able to compete internationally? How can we address the staffing needs of component manufacturers in the motor 1449 and motorsport industry and promote the industry as a viable career option in this increasingly high-tech era£ How can the Government liaise more closely with colleges, schools and universities to ensure that the right courses are in place to meet the needs of the industry as we move into the 21st century'£ I should like to make a proposal.
The Prime Minister committed himself last week to holding conferences to hear industry's needs. With DTI assistance the Motorsport Industry Association would be prepared to organise a conference to address its problems. The DTI would be able to hear at first hand the needs of small companies operating exclusively in this important industry and receive ideas on how to make engineering more attractive and exciting to students from those businesses which will need them. In turn the DTI would be able to brief companies on the support it can offer in respect of exports and inward investment.
I declare an interest as the unpaid president of the MIA. However, I can promise substantial interest and support on the part of the motorsport industry. Autosport magazine, the leading motorsport publication in this country, and Race Car Engineering, the definitive trade publication, are both prepared to give any proposed conference major coverage. The engineering director of Cosworth would be happy to chair any conference. I suggest Silverstone or the Williams Grand Prix Engineering base as ideal venues. I look forward to a sympathetic response from the Minister.
§ 7.53 p.m.
§ Lord Ashbourne
My Lords, I begin by thanking the noble Viscount, Lord Waverley, for introducing this crucially important debate. I congratulate the Minister on his promotion, if it is promotion. If it is not I hope he regards it as promotion to a crucial department. I hope that he will stay awake while I speak because, however boring I am, I have a particular message for him and the new President of the Board of Trade. Therefore, if he should nod off I hope that he will at least read my speech in Hansard afterwards. If he could give me a friendly nod or wink I should be reassured on that point.
I have been brought up on the maxim "export or die". Like the noble Lord, Lord Astor, I am concerned about the small number of your Lordships who saw fit to put their names down for this debate. Looking around, particularly at the Benches opposite, and also the Benches behind me which are hardly bulging with noble Lords, it seems to me that there is a real possibility that we are going to die. I congratulate noble Lords in the Chamber for putting their names down to speak this evening and taking the trouble to support the noble Viscount, Lord Waverley, in bringing the matter forward.
I shall not detain your Lordships long. I shall focus on one facet of export promotion, namely, the role of the Royal Yacht in export promotion. I am happy to inform your Lordships that the inaugural meeting of the All Party Parliamentary Royal Yacht Group is due to be 1450 held at 1700 hours on Thursday, 13th July in Committee Room 3A. Any noble Lords who are interested and wish to attend will be extremely welcome.
Some noble Lords will be wondering why this chap did not put his name down to speak on this subject on Friday when there is a full-scale defence debate. The answer is simple. The Royal Yacht now has a minimal defence capability. It is true that she is funded by the Ministry of Defence, which is a curious anomaly and based on historic reasons alone. She was built as a hospital ship but cannot really fulfil that role today. She can really only be used as an ambulance. She has one operating theatre only and any sophisticated plastic surgery of the type which was so necessary in the Falklands to deal with the horrific burns as a result of napalm bombs, which our soldiers, sailors and airmen suffered, could not reasonably be dealt with on that ship.
Obviously the Ministry of Defence is not particularly concerned about the Royal Yacht. That is a great pity. Her Majesty has made it clear that in view of the changes in the pattern of Royal visits the yacht is not essential for Royal travel alone. The Government have decided to review the question of a replacement in the light of the significant contribution made to national prestige and trade promotion by the Royal Yacht in the past. The Royal cachet of the yacht and the occasional participation of the Royal Family in promotional events can act as a considerable draw for influential contacts. "Britannia" provides a prestigious venue for trade promotion through its use as a conference or event venue when berthed overseas or through sea days, which are essentially day trips from foreign ports for parties of UK and overseas businessmen, government Ministers and officials. These events are often arranged as part of a wider trade promotion campaign, the most recent ones being held in Bombay and Johannesburg. These were viewed by the business community as very successful. Possible promotional visits planned for 1996 include Pakistan and a tour of East Africa.
Any noble Lords who are geographers may have wondered how it was that the Royal Yacht managed to achieve such success in Johannesburg. I certainly raised my eyebrows when I read that in a brief from the DTI. I could understand the yacht being at Bombay. I spent many years of my working life in the Royal Navy so I know that Bombay is a port. I visited Bombay in a cruiser, the flagship of the East Indies Fleet, many moons ago and enjoyed a welcome visit there. But Johannesburg had me guessing. I rang up the department. I was told that it was true that the Royal Yacht would have had difficulty berthing in Johannesburg, a point that I had difficulty in comprehending as Johannesburg is many thousands of miles inland. Even noble Lords who do not understand naval matters will grasp that point. Apparently the visit was part of the Johannesburg trade fair, and the ship berthed in Cape Town.
I emphasise that point to show that the Royal Yacht's export promotional activities are not confined to ports, although two thirds of the surface of the globe is covered by water. She can have tentacles going thousands of miles inland through good organisation and 1451 preparatory work. That will show noble Lords that she is even more effective than perhaps they thought previously.
In conclusion, I urge the new Secretary of State to grasp the nettle while the going is good and offer to fund and run the Royal Yacht in co-operation with the Ministry of Defence. I do not for one minute suggest a civilian crew. Surely it should be possible for the crew to be leased from the Ministry of Defence. Indeed, a new Royal Yacht should be designed and built for Royal duties and export promotion. That could be a pearl in the hands of the new President of the Board of Trade. I commend the idea to him.
§ 8 p.m.
§ Lord Wedgwood
My Lords, I join my noble friends in congratulating the Minister on his new appointment. I note that he did not fall asleep during my noble friend's speech, but he still has my contribution to come. I also join noble Lords in congratulating the noble Viscount, Lord Waverley, on initiating what I consider to be a critical debate, and on his well informed and thought provoking contribution. I, too, am thoroughly surprised by the lack of presence in your Lordships' House, not only on these Benches but in particular on the Benches opposite. I can only think that everyone is recovering from perhaps another victory on the tug-of-war scene outside.
I must declare an interest, for when not present in your Lordships' House I am usually representing Wedgwood, a Staffordshire-based potmaker, in its many overseas markets. As we are just past 4th July and the celebration by Americans of their victory in achieving their independence, I feel safe to reflect on an incident which took place in Williamsburg, Virginia, as our cousins were revolting at the beginning of that war. They ransacked the town and, naturally, were particular in the destruction of anything made in England. As the looting continued, barrels containing Wedgwood products were thrown out of the merchants' windows. Needless to say, at the end of those hostilities, Josiah Wedgwood wrote, "God bless Lord North and his Stars". He was then able to resume his trade across the Atlantic, as did many other manufacturers.
Over 200 years later, as the company celebrates the genius of its founder at the Victoria and Albert Museum, Wedgwood continues an extremely lucrative business in North America. Often referred to as the melting pot of the world, the United States of America is naturally the most competitive market, not only in ceramics but in nearly every other category of product manufactured in this great country. In a global market, where price is a major factor, it is a great credit to any manufacturer to compete in such a market.
My experience in North America, the Antipodes, the Far East and, more recently, in Europe is that we can hold our heads high in the global market. Our products compare most favourably; and there are many reasons for continued success in maintaining such a high level of export. As the Minister, I am sure, will point out, export growth is at an 18-year high.
1452 In the ceramic industry, over 50 per cent. of production is exported. Less than 30 per cent. of that figure is imported. Therefore, the industry is a considerable net contributor. However, import penetration has increased from about 20 per cent. to 30 per cent. in the past five years.
We must never forget that a serious consideration of the consumer is the quality of the product. It is the element that distinguishes British products from others; and, thanks to our forebears, manufacturers in Britain have a legacy of quality production which as a whole is unequalled. The skill and dedication of workforces in surviving generations have kept that essential element alive. We must encourage wherever possible to maintain our enviable advantage.
As in the beginning, constant innovation and the use of modern technology has allowed our manufacturers to remain competitive. However, as many companies have discovered in recent recessionary periods, complacency is a very dangerous thing. Manufacturers should be constantly aware of what is happening in the world market. My right honourable friend in another place, Mr. Needham, before, sadly, he retired his post, put forward and carried out numerous projects to this end. I am sure that his successor under the direction of my right honourable friend Mr. Lang will continue to do the same. Visits to the newly developing countries around the world, like China, will pay tremendous dividends as we recognise that technology and cheap labour inevitably will teach us to maintain a high level of reinvestment in our own industries and force our manufacturers to be competitive.
There is another side to the knowledge gained by those visits. In countries with state run industries, there is far greater control of labour, energy and raw material costs. More importantly, the prices of exports are determined politically. In other words, cheap products can be made even more cheaply. The effect of dumping products that do not reflect their true value will distort the market, not only here but in our own export field. That unfair competition will be devastating leading to the closure of more companies and the demise of more than one industry.
As part of a review set up with the completion of the single European market, there has been a call by a number of countries, including Britain, to scrap import quotas. Undeniably that will increase import percentages with the devastating effect that I have just mentioned. I do not mean to be parochial, but in the ceramics industry we have a good example of that threat. There have been warnings of a potential loss of as many as 20,000 jobs in North Staffordshire alone. I am proud to say that with the initiatives of the British Overseas Trade Board, other agencies, and the natural inclination of our own industry, we have already adjusted accordingly and are prepared to do battle. Mr. Kevin Farrell, director of the manufacturers organisation, the British Ceramic Confederation, has said that fewer than 5,000 people work in the mass or volume end of the tableware industry. That would be effected, for example, by the Chinese dumping cheap products in our markets.
1453 However, the real point is that long term distortion will work its way through the higher price points and eventually kill the industry. Winning battles can be won on sound and efficient corporate policy, but to win the war we must be dealt an even hand. A free market is all very well but we must police and control it as other countries do. An unfortunate example of possible unfair play is the proposed development by a Turkish company to manufacture tiles in Liverpool. The plan to support that with considerable government funds while our own industry receives no grants even in the critical area of research is hardly a level playing field—unlike Edgebaston it is not even of our own making.
British industry has sustained through many troubled times. The companies it has spawned and the products manufactured have met the challenge. I urge the Minister to use his very considerable influence in encouraging even further export promotion programmes, such as my noble friend Lord Ashbourne put forward. As I said, the British Overseas Trade Board plays a vital role for which industry must be most grateful.
The British Overseas Trade Board financial report quotes an estimated cost for 1994–95 as £199.8 million. It is estimated that £144.3 million is the cost of staff, man hours including staff time in FCO posts in overseas offices, and other overheads, leaving £55.5 million for gross direct expenditure. Whichever way one breaks that down, it seems a small price to pay for an area so central to our economy.
Not only must our manufacturers be given every encouragement to compete in world markets, but even tougher directives must be given to staff in FCO posts with commercial sections. All too often it has been my experience that those offices will participate with fine representation at social gatherings where we subtly, or sometimes not so subtly, present our products for sale. It is extremely painful to hear a comment such as, "With products like yours you don't really have to sell them, do you?" The level of naivety is astounding. Representing a company that has an Irish sister, I witness at first hand how officials from the Emerald Isle support their own. They are committed and they are very effective. It would be helpful to us to have more creative and aggressive support from these offices.
It is most reassuring to learn about the success of the inward investment programme as presented by the Invest in Britain Bureau. The number of investment decisions, the great percentages of important countries like the United States and Japan investing in Britain as opposed to elsewhere in Europe and the incredible achievement of 11 out of 12 investments from Taiwan, all indicate a tremendous endorsement of the programme.
But I fear that we can be lulled into a false sense of security. Too often I hear the complaints from potential overseas investors who have enjoyed the hospitality of our regional offices but have discovered that they are sometimes poorly staffed and poorly funded, leaving open the opportunity to invest elsewhere. Again, we must provide the bullets to maintain a winning edge.
Much of what I have to say is about competition. Our forefathers saw it clearly. Through great innovation they produced products of indisputable quality, they identified their market and set about selling their wares 1454 at a competitive price. For a country that depends heavily upon a high level of exports, we must compete more. We must encourage manufacturers to even higher levels of quality. We must help more to identify potential markets. Government must he even-handed in their approach to those problems. Our manufacturers have a responsibility to themselves to be competitive. Individual companies are not holding out their hands, although support is always appreciated. Competition, however, must be fair.
I am sure that if other noble Lords had been present they would have been able to offer a better case in the field of macro-economics, but with so few speakers I would hazard saying that the general recovery from the recession, based on even and relatively stable growth and currencies not fluctuating wildly is going fairly well. At least, as we know, our core manufacturers are contributing to a healthy export situation.
However, in the high street we are suffering from what I call bumps and starts. There is no consistency to consumer spending which makes retailers very uneasy. I realise that my point is slightly wide of the Question, but it wiil have an effect on many industries involved in exporting their products. The health of the home market affects our order books and in turn production as a whole.
In closing, I congratulate the magnificent work forces up and down the country; their managers for their tenacity, dedication and ability in many cases to adapt to an ever-changing world. To the world we remain Great Britain. It is thanks to those men and women that we can hold our heads high, with products to match.
§ 8.12 p.m.
§ Lord Haskel
My Lords, I too begin by congratulating the Minister on his appointment. I welcome him to the Dispatch Box. I also ask him not to be deterred by a seeming greater interest in the tug of war going on outside than in trade and industry matters in your Lordships' House. The work is in fact very important. It affects the standard of living of all of us in this country.
The Minister may be aware that almost a year ago the noble Viscount, Lord Waverley, introduced a similar debate on exports. I am most grateful to him for introducing the subject again this evening because it gives us an opportunity to review the past year and look forward to the future. The Minister may well feel cheerful this evening as we are perhaps dealing with one of the happier sectors of his new responsibility. Our performance on exports and inward investment seems to have been quite good over the past year.
What are the reasons for that? It seems to me that there are half-a-dozen reasons which vary in importance from industry to industry and firm to firm. The first reason is that some of our companies have simply become more competitive. Quality has improved, unit labour costs have gone down by 3.4 per cent. during the past year, and our products have been better marketed, better designed and better produced.
Secondly, because of devaluation our goods have become cheaper. Thirdly, we have had a stagnant home market. Lack of demand in the UK has forced 1455 businesses to seek new opportunities of selling abroad and, to their credit, many companies have risen to the challenge. Fourthly, there has been better support from government. The Minister can take some comfort that his department is starting to develop a partnership with industry by preparing a marketing strategy for different countries and different industries. The noble Viscount, Lord Waverley, referred to that and asked whether the initiative would be extended. We look forward to the reply. Government Ministers have travelled many thousands of miles on trade missions with business people and the Minister has all that to look forward to.
Fifthly, improving world trade has helped and we have been able to cling on to our share of it. Finally, we have started to benefit from the European single market, even though it is both a threat and a challenge.
Despite all that, we are, however, still showing a deficit in our balance of trade in manufactured goods. The deficit was £7.5 billion in 1994, compared with a deficit of £8.1 billion in 1993. I hope that those figures are correct. They come from the Central Statistical Office, but I am sure that the Minister will join me in showing some concern about our trade statistics. A surplus of £0.6 billion for the last quarter of 1994 has now been revised down to a deficit of £0.5 billion. The current account deficit for the whole of 1994 has been revised upwards from £0.2 billion to £1.7 billion. I hope that the Minister will ensure that we are at least measuring our performance correctly. He will quickly learn the art of selective statistics, but it is important that the selective statistics are accurate.
However one selects the statistics, it is true that our improved export performance sucks in more imports, particularly capital goods such as machine tools, printing machines and plastic moulding machines, because we produce too few of those and similar products. As the Financial Times said recently:Investment spending tends to suck in more imports than consumer spending, because Britain has a relatively small capital goods industry to satisfy demand".That is one reason why, on these Benches, we have been calling for measures to increase investment in producing capital goods so that we can make the equipment here instead of importing it.
So much for the past. What about the future? It is certain that our exporters will face strengthening international competition in all markets. Other noble Lords have spoken about that. How can we maintain and improve our position? Certainly not on the back of a weakening currency. Both the Chancellor and the shadow Chancellor have emphasised their determination to maintain financial rectitude. Anyway, Germany, Japan and the USA have all, in the last few days, started to reduce their interest rates. Also, our customers are insisting more and more that we sell in their currencies or in European currency units. We can only maintain and improve on our position in world markets by improving the performance of our businesses and improving the performance of the DTI in supporting them.
When speaking to the Institute of Directors recently, the President of the Board of Trade complained that we had too many inferior companies being dragged along 1456 by too few world-class companies. I agree. What we have to do is to increase the number of world-class companies that we have in this country. The noble Lord, Lord Wedgwood, and the noble Viscount, Lord Astor, spoke of that.
Any company can aspire to be world class. It has to have the will to follow the process of achieving quality of product and technology and low unit costs, and to embrace continuous improvement, mobilise its management and empower its employees. But in today's global market the end product is usually a combination of components from many suppliers. A company will not be world class if its suppliers and its suppliers' suppliers do not share the same aspirations. The end product will succeed only when they are all world class.
In Japan, because of the web of interdependence that grows naturally, there is an integrated approach. Our culture is different, and these relationships have to be encouraged. To do that, I should like the Minister to concentrate on his department's world class manufacturing programme. The companies that adopt the programme will be the companies that will sustain our export performance in the future. The programme is particularly suitable because it takes the training, the work and the information direct to the companies and their executives and employees. It is not just a subsidised consultancy. The programme is designed to deliver and encourage standards of customer care, service, quality, technology and manufacturing equal to those existing in the best international companies, and to continue the improvement. The programme can apply to all sizes of businesses, with tens, hundreds or thousands of employees. It is self-selecting. The noble Lord, Lord Astor, referred to that when speaking of the motor industry.
There is a very good home grown example. In 1990, British Steel started the joint training of managers whose only link was that they worked for a company involved in the supply chain for British Steel. It was pioneering work and I urge the Minister to encourage more of it.
An added advantage of this world class benchmarking is that it gives businesses a framework within which to invest. I spoke earlier about the importance of investment. Companies are much more likely to invest within this framework than they are as a result of simply being exhorted to do so.
I spoke about improving the performance of the DTI. I join the noble Viscount, Lord Waverley, in referring the Minister to the recent survey of international services provided to exporters commissioned by the Institute of Export. I recommend the report as important background reading. Ten thousand companies which are already exporting were surveyed. It was found that one in eight exporters are unaware of the services provided by the department, and another 50 per cent. do not use those services. It is not as if the services are poor. Those who use them consider them to be good. Therefore the task of the Minister is not to introduce more services, but to make sure that the existing ones are better used. As the noble Viscount, Lord Waverley, reminded us, export and inward investment are interconnected. On 1457 4th July the Invest in Britain Bureau reported that almost half of our exports were made by foreign owned companies, and the trend seems to be rising.
So how can we encourage inward investment? First, we must understand it better. The raw figures show that inward investment is dwarfed by outward investment, but we need to disaggregate the figures because there are different types of inward and outward investment. The largest part of both is simply buying shares in existing companies. I hope that the Minister will take steps to disaggregate the figures, because the important inward investment is the kind made by many of the world's better businesses whose investment brings new jobs, new technology, new products, new management and a general air of optimism.
But it is expensive. Regional grants and special grants are required to attract this investment; and the investing companies know that there is a lot of competition for their presence and they drive a hard bargain. Also, how long-term is this investment£ We all hope that it is long-term, but let us remember that Du Pont closed down the fibre business that it bought from ICI within a couple of years, with a loss of 525 jobs. Raytheon Jets closed down one of the most advanced production facilities in the aerospace industry less than 18 months after buying it from British Aerospace.
There is a lot of myth as to why companies invest here. The noble Lord, Lord Astor, referred to the minimum wage. Ministers and Members opposite often use the success of inward investment as proof of the success of the Government's employment policies. I advise them against doing so, as it is an exaggeration. The Invest in Britain Bureau commissioned a survey of 200 manufacturing, assembly and research and development companies which have already invested in the United Kingdom. They were asked their main reasons for investing in Britain: 126 mentioned the need to be in the European Union as part of their world strategy; 32 mentioned the English language; and only 12 mentioned labour costs.
I hope that the Minister will take note that, on the basis of the survey, the Government's employment policies are pretty irrelevant. What is absolutely clear is that investment in this country is seen as an investment in Europe; and if we are to continue to attract inward investment, the first priority is for the Government to sort out their policies towards Europe. That helps to explain why half our exports emanate from those companies.
The research also showed that another important factor in attracting inward investment is teamwork and continuity. The noble Viscount, Lord Waverley, spoke of confusion created by the lack of such teamwork. The team consists of the Invest in Britain Bureau; the development agencies; the local authorities; and the local private companies on which the inward investor will depend. Each has a role to play.
Bearing in mind that virtually all the local authorities and regional development agencies are Labour controlled, I urge the Minister to emphasise that, in order to put a stop to suggestions that there would be a lack of commitment towards inward investment if there were a change of government. The actions of those 1458 Labour authorities prove that the commitment would he just as great, and by emphasising that continuity the Minister would be helping to encourage inward investment.
Every encouragement is required because attracting inward investment is becoming more and more difficult. Competition for such investment is coming not only from other European Union countries; it now comes from eastern Europe too. Countries such as the Czech Republic are managing to come up with very attractive packages. Also, the inward investment scene is shifting to Asia. In his department the Minister will find recent figures published in Japan showing that we are ninth on the list of receivers of Japanese investment. Of the eight countries ahead of us, the United States is in third place and all the others are in south east Asia. China heads the list.
So what is our message for the Minister? First, encourage the creation of more world class companies, which will improve our export performance and also attract inward investment. Secondly, sell the services of his department more effectively. Thirdly, encourage the Invest in Britain Bureau to range far and wide and emphasise teamwork and continuity. Fourthly, be positive towards the European Union.
I hope that the Minister finds these suggestions helpful. They are offered in that spirit. I look forward with interest to his response, not only now but also in the future.
§ 8.23 p.m.
§ The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie)
My Lords, perhaps I may begin by thanking the noble Viscount, Lord Waverley, who introduced this debate, and others, including the noble Lord, Lord Haskel, for the kind words of welcome that they extended to me on taking up this portfolio within the Department of Trade and Industry. I say to my noble friend Lord Ashbourne that I have no intention whatever of nodding off to sleep during debate on this particular set of issues. I am hound to say that there are debates on some issues in this House during which the desire for sleep can be overwhelming, but on this occasion that is certainly not the case. My noble friend arrested my attention entirely when he seemed to suggest that the Royal Yacht was steaming into the port of Johannesburg.
The one point that has clearly emerged from this very important debate is that we are all in agreement. It is of vital importance to the United Kingdom and international trade that there should be proper cross-border investment. Export growth is at a record 18-year high, as my noble friend Lord Wedgwood remarked. The current account deficit, as corrected, was indeed £1.7 billion in 1994, but it was the lowest since 1986. The invisible trade surplus of £8.9 billion in 1994 was the highest ever.
In the first quarter of 1995 exports are up a further 9 per cent. on last year, with imports up only one half per cent. At the same time, the CBI reports the strongest growth in export optimism since 1973. Forty per cent. of those manufactured exports are accounted for by international investors in the United Kingdom. The 1459 inward investment story is one of success. The competitiveness of our economy is nowhere better shown than in our ability to attract inward investment. Over 40 per cent. of all United States, Canadian and Japanese investment—and over 50 per cent. of Korean investment—in the European Union is located here.
Further, 1994–95 was another record year for inward investment. A record 434 overseas companies announced their intention to invest here, bringing with them over 88,000 associated jobs. I hope that the noble Lord, Lord Haskel, will agree that what was particularly encouraging was the fact that there were 28 research and development projects, and 245 projects were expansions of existing investments.
The Government's policy to encourage inward investment has brought enormous benefits to our economy. Since 1978–79 it has created or safeguarded nearly 700,000 jobs. The expertise of those companies has had a knock-on effect throughout United Kingdom industry, strengthening competition and innovation and boosting the productive capacity of our own companies. Our recent record is one of which we can be proud. My noble friend Lord Astor and others were entirely right to point out that, even now, this was not a time to be complacent. We cannot afford to stand still in the face of international competition, and we must continue to seek ways to improve our efforts. That goes for increasing the quality of our export promotion work and the level of investment in the United Kingdom.
The noble Lord, Lord Waverley, began by asking me to look forward. Perhaps I may refer him to the White Paper on competitiveness launched in May of this year. There the Government set out their long-term strategy for export promotion. They have committed an extra £40 million over the next four years which will be spent on enhancing the professionalism of staff in the overseas trade services—a theme that emerged from a number of contributions—reinforcing and improving the delivery of services at business links, increasing the number of trade fairs from 334 in 1994–95 to 400 in 1996–97, mounting a number of British excellence fairs and increasing the number of outward missions to 280.
The noble Lord, Lord Waverley, was particularly concerned that there were too many different organisations promoting inward investment. As a Scot, I clearly recognise that all areas have a legitimate interest in promoting the most positive image of themselves. In many circumstances local organisations are best placed to market their products. It may seem that there is some duplication, but the organisations co-operate with each other in order to market themselves most effectively overseas. The Invest in Britain Bureau of the DTI is responsible for the promotion of inward investment to the United Kingdom as a whole. Overseas posts also liaise with local offices of the territorial and regional agencies to minimise duplication.
As far as the United Kingdom tax regime is concerned, at 33 per cent. the United Kingdom has one of the lowest corporate tax rates in Europe. At the same time, the new rules on advance corporation tax and the reduction of the overall rate to 20 per cent. should increase the United Kingdom's attractiveness as a 1460 location for headquarters operations. We are confident that these are the right measures to maintain the United Kingdom's attractiveness within the Union.
I believe that the noble Lord is mistaken in his belief that as far as regional selective assistance is concerned the United Kingdom is unique in the imposition of a cost per job limit; nor is it something that the Government are likely to drop. One of the key criteria of the scheme is that it should create jobs. That is an important measure by which we can gauge the scheme's value for money. Similarly, the scheme is selective in that grant is given when there is a proven need. The noble Lord also alluded to the recent re-interpretation of the Home Office rules on entry into Britain. I understand his concerns that potential investors should not be dissuaded from investing in the United Kingdom, but the Invest in Britain Bureau has no evidence that these changes have had any adverse effects on inward investors, nor on the attractiveness of the United Kingdom as an investment location. Nevertheless, he is right to raise this and other issues. I hope that he will be reassured that we constantly monitor our inward investment organisations to minimise duplication and ensure value for money.
I believe that our performance on inward investment speaks for itself. Of course, other European countries are sometimes successful in attracting inward investment, but I believe that we need to look at long-term trends, not simply one-off comparisons. It is reassuring that in 1994–95 57 per cent. of investment in the United Kingdom recorded by the IBB was reinvestment or expansion by companies already established here. If I may say to the noble Lord, Lord Haskel, I do not believe we need to trade whether or not minimum wages have an effect. I invoke, as so many of my colleagues have in the past, President Delors' comment that the United Kingdom was potentially a paradise for investment. I have not seen that recently contradicted. I was also asked whether or not there would be a commitment on the part of the Treasury to match future increases in exports. There is already such a commitment. In 1994 the amber zone budget, which controlled the new level of ECGD exposure in markets where the risk was high, continued to rise over the financial period in question.
I turn to the issue of exports and the comments made on the export intelligence service. This is monitored regularly by in-house staff, and it is intended that regular reviews should continue. I was also asked why we still did not have a centrally-run business data base. The Government do not regard it as part of their role to duplicate the information already available on a number of private sector data bases. A recent review within the DTI recommended that commercial sources could be enhanced if some non-competitive data held by the Government for regulatory purposes was made available to the private sector. We are looking into these matters.
I agree with my noble friend Lord Wedgwood that the export promoter initiative has been successful. I hope that he and others will be glad to learn that there are no plans to wind down the scheme. Industry continues to be supportive by offering high calibre people for secondment to the department. It is true that 1461 in their two years many export promoters build strong links with United Kingdom exporters and buyers in foreign markets. There may be some concern as to what happens to that accumulated experience. We are confident that it is not lost. Where appropriate, new export promoters pick up where their predecessors leave off, and dedicated desk officers who work alongside the export promoters are also well-placed to maintain the export strategy relating to the market.
I turn to the business links initiative. There have been some teething problems. However, the initiative is nothing short of a revolution in the delivery of government services. We believe that it is the right way to proceed. Delivery through business links meets our objective of getting closer to customers, and it adds an extra dimension to government services and is now offered as part of a wider range of support to meet business needs. Inevitably, there has been some disruption in the early stages, but the benefits are emerging. Leicestershire business link is an excellent example of co-operation in action. DTI staff work closely with staff from chambers, the European information centre and the export development counsellor to produce a joint export strategy. I am fully aware of the concern that we must make more businesses aware of, and get them to use, these services. That very role of the business links initiative is to reach more companies which are developing their business and export strategies and to introduce them, through government support where appropriate, to new markets.
As far as outward missions are concerned, it is true that many small and medium-sized exporters are critical of the limited number of trade missions that they can attend with DTI support. Following a formal evaluation of the outward mission scheme, it was agreed that with effect from 1st April 1993 assistance would be limited to 10 missions per company, with a maximum of three to any one country. So far no company has been turned down because it has exhausted its limit of 10. Even after a company has received assistance for 10 missions it is not precluded from attending future missions.
Between 1993 and 1995 we have annually supported around 150 outward missions, with something like 2,700 annual participants. I want to emphasise that we realise the importance of those missions and are set to increase the figure for 1995–96 to 250. That should lead to around 3,500 participants. The importance was also noted in the increased funding going from £1.7 million to £2.9 million next year. The success can be seen in the £150 million worth of contracts reportedly won by the companies.
1462 I am conscious that there are a number of detailed points that I shall not be able to follow through. I was dismayed by the observations of my noble friend Lord Wedgwood with regard to the professionalism of those who make a contribution. I can assure him that within the overseas trade services we shall seek further ways in which to increase the professionalism of our staff both in the DTI and the FCO. A programme of secondments between DTI and FCO staff involved in commercial work and with the private sector will help us make the most of trading opportunities. I warmly welcome the commitment of the FCO to trade promotion work and the increased resources promised for the years to come.
I turn to the particular point made by my noble friend Lord Astor on engineering and the vehicle components industry. I know that the motor sports industry association is well known to the vehicles division within DTI, which is responsible for sponsorship of the vehicle industry. I am sure that it would be prepared to consider favourably the association's suggestion of a conference on the industry's needs. We are also aware of the problem of engineering skill shortages and we announced an action for engineering initiative in the 1994 competitiveness White Paper. That is a joint initiative between industry and academia supported by the Government. The Engineering Council has already announced higher standards for educating, training and developing engineers and technicians. The work of that initiative is set to continue through 1996.
I share the interest of my noble friend Lord Ashbourne in the Royal Yacht. I am aware of the value that it has provided for us in export promotion. I noted what he had to say. It is a difficult issue, as I am sure he appreciates. The question of a replacement is being considered by the Government and a decision will he announced in due course. I regret that this evening I am not immediately able to give him the assurance that he sought from me. However, I very much understand his interest and commitment to this matter.
If I have failed to answer any detailed points, I shall be grateful if noble Lords will let me know. I certainly want to ensure that clear attention is paid to the detail of all these important efforts that we are making. It is not just because it has indeed been a success story in recent years. There is little contradiction in your Lordships' House that, if we do not maintain that effort to the very best of our ability, it will indeed undermine the prosperity on which the nation is founded.
§ House adjourned at a quarter before nine o'clock.