Foreign Direct Investment (Hansard, 7 October 2003)

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)
My Lords, inward investment responds to world economic growth. When that slows down, so do flows of investment. A global decline in mergers and acquisitions and the flat US market are the major factors. Against those global trends, it is not possible to identify whether non-membership of the euro is also a factor in the decline in inward investment flows.
Stock figures are a more complete measure of inward investment than foreign direct investment inflows. These show that the United Kingdom has retained its number one position in Europe, with 22.5 per cent of total EU accumulated stocks.

§ Lord Taverne
My Lords, do the Government agree that this is a matter of grave concern? The role of foreign investment in this country has been disproportionate in improving productivity. Is not the decline in investment in this country, as one can tell from warnings given by the heads of foreign companies, something clearly related to the Government's prevarication over the euro?

§ Lord Sainsbury of Turville
My Lords, as I sought to indicate, the best figures for measuring foreign direct investment are those for the accumulated stock of inward investment rather than inward flows. The arguments in support of that are simple and set out on page 52 of the Treasury's report on its study of EMU and the business sectors. I am sure that the noble Lord has read it; indeed, he may be the only noble Lord in the House to have done so.
Inflows are a poor measure of foreign direct investment. On the basis of accumulated stock, we increased that stock by £86.5 billion in 2002. As a result, our accumulated stock for that year, as a percentage of the EU total, was 22.5 per cent, the highest figure since 1991 other than the figure for 2001. Those figures do not indicate that there is yet any reason to attribute our performance in any way necessarily to the euro.

§ Lord Hunt of Kings Heath
My Lords, is my noble friend aware that some companies continue to be concerned about the activities of animal rights terrorist groups and that this is having an adverse impact on certain inward investment decisions, in particular within the pharmaceutical industry? Will my noble friend redouble his worthy efforts to ensure that we take all possible action against these groups?

§ Lord Sainsbury of Turville
My Lords, I totally agree with my noble friend. There is not yet a great deal of evidence that this issue is being taken into account in 139 investment decisions because it represents only one factor. However, that such activities are taking place is a matter of great concern to the Government. We have spent much time seeking to provide further protections and, indeed, legislation is to pass through both Houses to ensure even more protection. I confirm that it is a matter of great concern and we shall continue to provide as high a level of protection as possible.

§ Lord St John of Bletso
My Lords, given that the growth of GDP in the United Kingdom is likely to be four times faster than that in the rest of the euro-zone, while there may be a reduction in direct investment from the United States, surely one of the greatest attractions for inward investment to this country is our flexible labour market. Can the Minister give an assurance that that is likely to remain the status quo in this country?

§ Lord Sainsbury of Turville
My Lords, today a whole range of factors are taken into account by companies when they look at inward investment. The general economic climate is one of those, as is flexible labour which we intend to keep that way because it is important. However, many other considerations are taken into account. The science and technology base has become increasingly important, along with the availability of skilled labour at both graduate and intermediate levels.

§ Lord Willoughby de Broke
My Lords, in order to assist the noble Lord, Lord Taverne, can the Minister confirm whether the figures for unemployment are higher in the principal economies of the euro-zone than in this country, which is outside the euro-zone?
Lord Sainsbury of Turville: My Lords, we have a very low unemployment rate. Indeed, at the moment, the majority of our macro-economic indicators are stronger than those for most European countries. Clearly, when considering the whole question of entry into the euro, it is of the greatest importance that we do not put in jeopardy any of those factors. That is why the Chancellor of the Exchequer made the announcement that he did on 9th June.

§ Lord Brookman
My Lords, at the time of a most important debate in June, my noble friend the Minister was in America trying to obtain inward investment. Was his visit successful? In other words, has there been an improvement in inward investment, not only from around the world but from America in particular?

§ Lord Sainsbury of Turville
My Lords, only once on any of my inward investment visits have I been able to point to a direct result within a few months of such a trip. That involved establishing relationships with some high-tech clusters in America, where we see opportunities to make arrangements whereby they would put high-tech investments into the UK when they want to expand into Europe. It is a very important area which will yield important results in due course. It has not yet done so and, given the present climate, 140 we shall not see a rapid change in that situation. However, it is significant that the latest Office for National Statistics balance of payments figures, released on 27th June, show that foreign direct investment stock in the first quarter of 2003 was at a record level of £398.8 billion, an increase of 6.8 per cent on the same quarter last year. So there are some signs that it is going the right way.

§ Baroness Miller of Hendon
My Lords, apart from the decline in inward investment—for which the Minister and other noble Lords have given reasons— does the noble Lord agree that there has been at the same time a great increase in outward investment, which has resulted in many UK large industrial organisations taking their operations overseas into more business-friendly regimes? That has meant a greater number of job losses in this country.

§ Lord Sainsbury of Turville
My Lords, I had hoped to indicate that, if one looks at the stock of inward investment, there has not been a decline. In fact a very considerable increase has taken place. As regards outward investments, there are all kinds of reasons for companies taking their operations abroad. Quite often it has to do with wanting to export to other parts of the world; quite often today it has to do with low labour costs. It is not possible to say which of those are affected by the business climate in the UK. There will be good reasons for some companies taking jobs abroad in terms of exports or labour costs, but it is impossible to separate that out from their view of the general economy.