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Taken before the Business, Innovation and Skills Committee
on Tuesday 8 March 2011
Mr Adrian Bailey (Chair)
Mr Brian Binley
Examination of Witnesses
Witnesses: Dr Razeen Sally, London School of Economics, Professor Jim Rollo, Sussex University, and Vanessa Rossi, Senior Research Fellow, International Economics, Chatham House, gave evidence.
Q350 Chair : Good morning and thank you for agreeing to give evidence to the Committee. To start, it would be helpful if you could give your names and titles for voice levels and transcription purposes.
Vanessa Rossi: Vanessa Rossi, Senior Research Fellow at Chatham House in economics.
Professor Rollo: Jim Rollo, Professor of European Economic Integration at Sussex and an Associate Fellow at Chatham House.
Dr Sally: Razeen Sally; I am Director of the European Centre for International Political Economy and Senior Lecturer at the London School of Economics.
Q351 Chair : I will be opening the questions. Can I make it clear that all of you are not obliged to answer every question? Some will be pitched at a particular person for usually obvious reasons. If you feel that you need to add something, please do, but do not feel obliged to as we have a lot of questions and not much time to get through it. First of all, could I start with a very general question? I am a politician and I am answerable to my electorate. How I would explain to a constituent who may have lost his job due to the factory that he is working in closing in the constituency because of competition from China that this is actually very good for him and Britain?
Dr Sally: That is not directed at any one of us.
Chair : Who wants to lead on that?
Vanessa Rossi: Sorry, can I just be precise? You mean how can you tell him that the fact he has lost his job is good? You are not talking about how this White Paper illustrates that policies are nevertheless going to help him to find a better solution? You are not relating your question to the White Paper?
Chair : Not specifically. I just want to know how in effect you see the changes that are taking place ultimately bringing benefit to the people of this country. You may say, "Well that is your department," but it is helpful to have your insight to see how we, as politicians, can best handle this in our engagement with constituents, who may not have the insight that you have.
Vanessa Rossi: The typical arguments that I suppose economists have made and you have heard are that, in the greater realm of things, increasing world trade and comparative advantage and economies of scale help to give us greater productivity in the world economy, lower consumer prices overall than would otherwise be available, and that over a long term the overall indications are that this is beneficial to all parties.
I think the difficulties arise in periods of fast turbulence, when there are very rapid changes, and therefore this can create some dislocation effects. Unfortunately those dislocation effects can be prolonged, particularly in periods where we have economic recessions or weak growth. The difficulty we face is to tide over people who are on the dislocation end of this process to move them on to a better place. The people who are benefiting from this process, of which there are a large number in our economy, are obviously not waving the flag to tell everybody that they are benefitting in circumstances where somebody else is losing their job; nevertheless, that will be the case. There are wide numbers of consumers with jobs in our economy who are all benefiting from having lower prices for the goods they are buying. Even through the recession, many of the people who have retained jobs with good incomes have had, if you like, a good recession. It is not very easy to explain that fact to people who have not had a good recession.
I think the same thing applies to the problem of China as has applied to the recession. The people who are benefiting tend to be rather quiet and the people who are unfortunately on the brunt of it have to bear the pain. As a Government there is perhaps some obligation to consider how you alleviate that-how you reduce the timescale of dislocations and reduce the effects. What one would hope for is that people will move on to higher value-added activities in which they will have gainful and better employment in the future as we change the patterns of our industries and trade. Those opportunities will return as growth returns to the economy.
Q352 Chair : You have outlined an academic argument. You did point to one thing that enables us as politicians to demonstrate this, and that is lower prices in certain areas. Could you just amplify that by telling us where you think consumers have benefited in particular from?
Vanessa Rossi: If we just take the issue of the trade with emerging markets, clearly many of the goods that have come into this country from emerging markets-this is not just China but a wide swath of emerging markets-have helped to provide lower priced consumer goods: for example, clothing, other light manufacturers and so forth. We can also look at electronic equipment, and the decreases that we have seen in prices for equipment such as TVs and DVDs over the years, or overall at manufacturers’ prices over the last decade, which have actually been fairly flat or even declining in some cases. These are all benefiting those people who are in employment and able to buy them because they are buying them at lower prices than they would otherwise do.
I think, particularly in these areas of trade, there will be quite big benefits not only to the consumers but also to some extent to the retailers of these goods, who have then been able to continue sales and continue businesses, which they may not otherwise have been able to do.
Professor Rollo: I just want to try and nail this thought that this is a purely academic argument. The story of the British economy from the Middle Ages has been one of increasing competition. Most of that competition has been generated domestically. Competition has been one of the things that has driven productivity growth in the long term, which has driven living standards and pushed them up. It is clear that this is a shortterm/longterm issue.
The short term is there are adjustment costs and these can be quite severe. I was born and brought up in Greenock, so you cannot tell me anything about the effect of a declining industry on a rather small and concentrated area. I did one of the things that people do to adjust-I got out. Not everyone can get out but you have to think about things like that. You have to think about retraining. You have to think about how you can ameliorate the short-term effects-that is why we have a welfare state-and so on. Those flanking policies have to be there to make this work. In the 19th century we did not have that in the same way and that is the power of the 20th century revolution in welfare states in particular.
I think that is the set of issues, and we must allow productivity to grow and the most efficient firms to grow, and what exporting does is it effectively selects the most efficient firms. We have got a long tail of low productivity firms in this country, but the exporters are not among them. One of the reasons we export is to buy imports. So we have to be efficient at that level. I think that trade in the long term is one of the things that improves the effectiveness of the economy; it improves living standards, employability and employment.
Q353 Mr Binley: Adrian rightly describes himself as a politician; I would not dream to go that far. I am primarily a businessman and have been proud to be so for most of my life. You are very influential people in terms of your advice and reports on trade, and yet I read only thumbnail sketches of your background and I do not see a lot of commercial activity in there, although Ms Rossi’s thumbnail sketch does not allude to it in any sense-they are just bullet points. Can I ask you whether you think a role out in the big wide world of commerce and industry would help you do your job better?
Professor Rollo: Can I just make one point on this? I am the finance director of a micro-company.
Mr Binley: I noticed that. Started in?
Professor Rollo: I do that. The second thing I would say is that while I was at Chatham House and while I have been an academic I have had to live in a pretty commercial world in looking for consultancy contracts and business to keep my colleagues employed over time. The disciplines there are quite sharp-quite sharp indeed. In fact, departments close down all the time in universities because they cannot get money in that way. Universities are one of the biggest services exporters in this country. My own university gets about £5 million a year from attracting overseas students. That is a business.
Q354 Mr Binley: So the answer is no, from your perspective. I understand that. Any other comments?
Vanessa Rossi: From my side in terms of my own background, I have worked in consulting companies where a larger proportion of the income has been generated from services sold abroad. We also, relatively similar to James’ business, have had to go out to other countries and discuss potential research projects, contracts and sell services that have counted as part of the UK’s exports of services. It is perfectly true that it was not manufacturing but I think we should be very careful about drawing distinctions. If we are generating jobs and trade, whichever way it comes, from whichever goods or services it comes-
Q355 Mr Binley: I am not drawing distinctions; I am simply asking for your response to the question.
Vanessa Rossi: In that context, in the sense of what would help, certainly there have been times when introductions have been useful, and also the backing of having the UK business, where you see that your own people, your own Government and so forth are prepared to help back your company and projects. That gives a boost to confidence and also the prestige when you are presenting your case to other people outside the UK, which is also helpful. I think there is a realm of helpful things that are being proposed, partly because of the White Paper, that are also ongoing in terms of export credits and help with finance for small- to medium-sized enterprises trying to go abroad and seek business there; these are all extremely helpful things.
Dr Sally: I am an academic. I would not pretend to have had anything like full-time business experience, let alone political experience. I also happen to run a think-tank that depends primarily on funds from businesses and foundations, so that is a sort of entrepreneurial activity.
Let me say something in defence of the academic and the analyst. We all have our specialisations with their strengths and weaknesses. I have come across rare individuals who have managed to combine different backgrounds and retain a sharp analytical sense for the big picture. What I think the analyst brings to bear on this is a sense of the bigger picture and how different things relate to each other. With respect, Sir, with your background, and with a politician’s background, you bring your strengths to the table but perhaps you have not had time to reflect on some of these bigger interrelationships, which is what we are talking about today, just as I would not dream to assume that I have the entrepreneurial skills that you have.
Q356 Chair : The Trade White Paper does emphasise the importance of free and open markets. In the light of that, do you think we really should have a UK trade promotion body or Government supported export finance?
Dr Sally: I think the White Paper presses a lot of the right buttons. It emphasises the importance not just of exports but also of imports, of inward investment, of having an open door-a non-discriminatory trade policy. Most of our trade policy is conducted in Brussels and it is a pretty centralised operation. In that sense the UK does not have a trade policy. Rather we have an input into EU trade policy made in Brussels.
Can we do things on the flanks, like trade promotion and having export guarantees? To some extent, perhaps. I think in this White Paper, as in previous White Papers, there is an overemphasis on trade promotion with SMEs in mind, as well as with big corporates in mind and perhaps on export guarantees as well, one of the arguments being that others are doing it and so have we. Up to a point perhaps, but I do not think one should-to use former President Bush’s famous words-mis-overestimate the importance of these things. Their track record in most countries is that they create extra bureaucracy, they cost money and they support certain interests who lobby in their favour. You would expect organisations representing small- and medium-sized enterprises, as well as of course big multinationals, to lobby for Government favours here and there. I think it would do us well to put these things in perspective and keep a lid on them while concentrating on bigger priorities.
Q357 Chair : That is a very interesting point because it runs counter to an enormous amount of evidence that was put to us, particularly from manufacturing but from other sectors as well. Can I clarify: you are saying that the perceived benefit that other countries, particularly European countries, have, from perceived better backing from Government and the finance market, is essentially illusory?
Dr Sally: I think it is to a large extent illusory and that these perceptions are distorted, just as the former Secretary of State for Business’ perceptions-I am of course referring to Lord Mandelson-that industrial policy worked in France and some other places, and that we have some lessons to learn to promote manufacturing here or there, are also distorted.
I think there is a much more important link, which the White Paper does mention but could be emphasised more. What is really important to attract quality imports and quality inward investment, as well as promote our exporters and the reach of our multinationals around the world, is competition and efficiency in the domestic and wider European markets. In other words, trade policy is inextricably linked to getting economic conditions right at home. That is much more important than specific trade promotion activities or export finance.
That leads to a whole domestic agenda of reconstructing our public finances, of slimming down the public sector and of creating better conditions above all for our private sector, which leads to an agenda of deregulation. All of these things are linked to trade, and I think that is, as I said, a much more important link than fixes here and there on trade promotion and so on.
Q358 Chair : Would you do away with UKTI or export credit guarantee finance?
Dr Sally: I am not sure I would go that far. I think there is a role for something like UKTI. There is a role for commercial offices in our embassies and high commissions around the world. But I think we have to draw a line somewhere, because when we go beyond that line, not only do we create extra bureaucracy and spend unnecessary money but we also create conflicts of interest.
Do we really want prime ministers, the Duke of York and others going around the world batting for particular companies when some companies clearly have more influence on public policy than others? Who are they representing? Are they representing an individual company’s interest or the national interest? It is very easy in these circumstances to conflict the interest of one particular company with the national interest, just as it was said that the interest of General Motors was the interest of the United States-well, look at GM today.
Professor Rollo: I would agree with all of what Razeen has just said. I would just say that, for export promotion in itself, I think there are two sides to this where there is clearly room for the state to be involved. One is when British companies are bidding for big projects that are essentially public sector or heavily public sector influenced in foreign markets; then it may be necessary to have some Government-to-Government contact and the embassy may be a useful source of information and indeed influence because, to be blunt, that is what matters in these contexts. It is about giving yourself credibility in it all, and often for places where state procurement is an important issue, particularly for infrastructure, they want to see the involvement of the state in the supplying country as an element of credibility.
Q359 Chair : So Prince Andrew may have a role in that?
Professor Rollo: It is not impossible that he may have a role in that. Clearly that depends on effectiveness. The other side of it is there are beachhead costs of exporting. You need to learn quite a lot about foreign markets. Heaven knows, domestic markets are hard enough to understand. The market penalises you very quickly and very sharply for mistakes. It is much easier to make mistakes in foreign markets than it is in domestic markets, and it is easy enough-and I know because we have made some-to make mistakes in domestic markets. It is useful to help those small firms in particular that do not have the infrastructure to do that investigative work easily and quickly. Now, where you draw the line on that is a very interesting question and is something that Razeen has pointed to.
The other end of it is also that it is about the competiveness of the domestic economy, and I think that focuses very much on what economists call, rather crudely I think, human capital-training and skills. At the heart of it, going back to your original question, Chairman, this is about employment, the incomes of our citizens and raising them to the maximum we can given what resources we have. For the life of me, I cannot imagine why we should think that British workers are less capable than workers anywhere else in the world, but it seems to me we are not getting the best out of them at this point. I would rather we spent a lot more time thinking about that set of issues. I do not think they are easy issues by any stretch of the imagination, but I think that is a key element in all of this.
The other thing is that competition sharpens the responses of management and so on. There is some very interesting research around at the moment that points, with quantitative backing, to the importance of competition and sharpness of competition in particular markets in making firms more effective and raising their game on the management side, therefore raising their profitability, productivity and their overall effectiveness. I think that is the sort of area we need to be looking at very closely in all of this.
Q360 Chair : Vanessa, have you anything you wish to add?
Vanessa Rossi: I would only add that, to a large extent, these arguments have come to what I would see as the heart of what I did not really like about the White Paper. I feel it is treating a very broad range of topics, perhaps with some muddle as to what is really a UK business issue of how you develop business and competition in a very general sense, other issues to do with development of developing countries and trade with developing countries, and then issues to deal with the broad mainstream of trade. Personally, if this was intended to be about openness and trade and cross-border investment, I would have felt there could have been more focus on very particular issues to do with that, which are some of the points that have just come out. I would also emphasise that I think there are some very specific points here to be treated. Similarly to Jim’s plea, for certain scales of companies it can be very costly and risky to move abroad. If we are looking at the risk factor, increasingly if you take the step to try to move abroad, you may need some assistance to get over those first hurdles.
There are also issues such as economies of scale. Certain types of businesses simply cannot survive on the domestic market alone and be competitive; it is simply not possible. For example the German car industry would not survive that way if it had to survive only off its domestic market. However successful it was in the domestic market and however competitive, it has to be global and it has to sell globally. There are issues with specific industries that therefore need attention, and the reason why they are focused on in areas such as trade policy and competition internationally is because you need to have that extended market and be successful there to be successful at all. I think there is a whole range of reasons why you come back in with strategies for trade, which we need in order to pay our way in the world for what we would also like to import. I do not think I would throw out the whole idea of having trade policies, but I feel that they need to be far more focused than I see here.
Q361 Nadhim Zahawi: I think it is a very good point, to pick up Dr Sally’s point of view, about the emphasis of trade policy. Before I ask my question about the relationship with the European Union, let me just push you a little bit further on your point about how far you would go, because I get your argument; i.e. if we focus on competition and deregulation there is a Darwinian effect to make us that much sharper and better than the rest of the world and therefore improve our ability to export and do better in terms of our international trade. But how far would you go? You said you would not go as far as getting rid of UKTI and the idea of bidding for particular industries. There are some industries, for example the defence industry, where it is those political relationships that are actually the pivotal factor between winning and losing. Where do you draw the line?
Dr Sally: I have no exact answer to your question here. I would agree with Jim’s qualifications. I think that trade promotion bodies have a role in providing some market intelligence, not to big multinationals-they do not need it-but to smaller and medium-sized players who have that potential of entering or expanding in international trade, particularly in faraway markets.
Now that is not to presume that bureaucrats and politicians have superior intelligence of the market place. That is clearly not the case in nearly all circumstances, although the conventional wisdom might be otherwise. If one can have a reasonably bounded area of these activities, preferably with some kind of horizontal spread where you are not furthering the interests of particular companies, that would be ideal. In certain circumstances, and you mentioned one particular sector, defence, it is of course impossible to think of these things in a horizontal, non-discriminatory way. That is unfortunately my "on the one hand, on the other hand" answer.
Q362 Nadhim Zahawi: Just going back to your point about the European Union and the single market, in what sense can the UK really have its own trade policy? I think we have heard from you that it almost cannot in the sense that it is a contributor to a greater machine of trade policy. With the increased powers now of the European Parliament, which has now an equal say to the Council, how does that affect our trade policy?
Dr Sally: The first thing to say is that our hands are tied. We are members of the European Union; therefore we are part of a common commercial policy. We have a common external tariff and we now have new areas of pooled competence, such as investment, intellectual property and services in particular. Our priority should be to lead on setting certain priorities for the single market and external trade that are of interest to us as well as the other Member States, and build coalitions with like-minded members, who are mainly in the north, with some in Eastern Europe. This sounds like commonsense, but the reality is that under the last Government and previous Governments as well Britain was punching well below its weight. By default we left the field open to the French and others to take trade policy and some aspects of single market policy in the wrong direction. Our priorities should be to be much more active in a much more targeted way in Brussels in setting our policy priorities and building those coalitions.
What should those priorities be? For the single market-some of them are mentioned in the White Paper-there should be an agenda of further deregulation of services in particular. A lot has been done in manufacturing, much less in services; for example, on digital economy issues. We need a common set of rules on intellectual property. That is not quite the case in Brussels. We need to deregulate our energy markets. There is a whole lot to do on single market policy. Some of it is defence. There are some regulations going through the pipeline in Brussels on financial regulation that probably over-regulate. We have to be careful on that score.
On external trade there are a whole host of priorities in terms of key bilateral relationships with our main trading partners, with the United States, China, Japan and some others; there is the WTO and there are FTAs. On a whole host of these issues, Britain as a Member State should be leading because some of these issues are natural issues for us, like single market deregulation and making Europe more open to the wider world. But we are not playing that leadership role as we should be.
Professor Rollo: Again, I agree with much of what Razeen has said. I think I would nuance it a bit more, however, because one thing you have to reckon is that the EU is not internally an obviously liberal and liberalising place, by instinct, for a large number of countries. Take agriculture, which has been the bugbear of our relationship on trade and on various other things with the EU for a very long time. The last enlargement of the EU brought in a large number of agriculturally intensive countries. The French President can find 14 other Member States who do not want to reform the CAP at this stage and are not interested in a big liberalising agenda in Geneva on tariffs on agriculture, which are huge in some cases-in some cases over 200% and 300%. It is the last bastion of that very heavy protectionism. So there is that element in it.
There is also the whole question of the fear of globalisation, which is not absent in this country either, which in France particularly was expressed as a fear of the extension of the single market, particularly on services. What looked like an agenda that was going forward quite fast suddenly came to a grinding halt over a referendum in France in particular. The politics of this are really quite complicated. Later this month I am going to Warsaw to talk about the EU budget, which for a Brit is like going into the lion’s den on this sort of issue because the Poles have exactly the opposite set of priorities to us on that particular thing and part of that is about agriculture. I think there is a lot of difficult stuff.
The other thing I would say is that the Commission, the Trade Directorate and the UK have been much closer together. This is the Directorate to which the UK is actually closest, I would say. The instincts of the Commission and the UK are much the same on this. To some extent it is slipstreaming behind and supporting the Commission, because it has got more of a liberal instinct than certainly the French, Italians or Spaniards in this context, but it is a very complicated game that is being played.
Q363 Nadhim Zahawi: Should companies then not focus on lobbying here but focus on lobbying over there?
Professor Rollo: They have to lobby everywhere. They are going to have to lobby in the European Parliament, they are going to have to lobby in the Commission, they need to get in there early and talk to people before policy is determined. They need to lobby here; they need to lobby other Member States where they have important interests and presences. You cannot deny it. That is the truth of the matter.
Dr Sally: If I may come back quickly on the issue of the European Parliament: you are right. The European Parliament as a result of the Lisbon Treaty has much more power in trade policy. There is a potential problem here. The Parliament now has powers to block. It has got to be taken into account in terms of trade policymaking. Globalisation-sceptical constituencies find support amongst certain members of the European Parliament, and some of them are actually on the International Trade Committee. Actual knowledge about international trade is sadly lacking, and that is also true of many members of the Trade Committee. I think it is important for the British Government and for companies and indeed for parliamentarians to have much closer contact with the European Parliament and, on these issues, with the International Trade Committee in particular, partly to educate them as to the facts of the world and to have trade policy go in the right direction, and not be derailed by this or that often non-trade issue that might hijack a trade agenda.
Chair : We have got 10 minutes and we have five questions that we need to cover in that. I am asking for both questioners and respondents to be as brief as they can. I am sorry because there are a number of issues that I would really love to explore further but perhaps you may wish to send further information to us in a written form.
Q364 Nadhim Zahawi: How important is the Doha round and how difficult will it be for us if it is not concluded in 2011?
Dr Sally: The world is not going to fall off a cliff if Doha is not completed this year. I think the odds are still against completion, partly because it is not considered important enough by the major capitals. It is worth having a go to complete it this year. Next year is going to be next to impossible. Even if completed, and contrary to some of the talking up, it is not going to deliver big bucks. In other words, the conclusions of this round, the results of this round, will be modest. The main thing is to do a deal and get it out of the way so that the WTO can finally tackle 21st century trade business realities.
Professor Rollo: The reality of the WTO is that it always lags what is happening in the real world. The market always moves faster than any political institution you can think of. Again I agree. I think the importance at this point, if we could complete it this year, would be psychological, not least because implementation would take at least another five years after that. It is not going to hit anyone’s pocket anytime soon. I think the gains, I agree again, look pretty feeble in current terms. I think they probably underestimate some of the gains that are there, but I think the doing of it is more important than anything else.
I must admit, I am puzzled as to whether it is simply deep-frozen or it is actually dead and we cannot smell the corpse because it is deep-frozen. It has been absolutely frustrating. I was an official during the time of the Uruguay round and I recognised that boilerplate. Every year for G7 summits we used to write this paragraph about how we needed to make progress on the Uruguay round and then complete the Uruguay round. For four years we wrote that we needed to complete the Uruguayan round very soon, and it is much the same except it is going on for even longer. The question is, once we get there, is it worth it?
Vanessa Rossi: I think it is very important to keep hold of this idea, though, that the numbers could all be wrong. I think this is something that has stood out to me over many years about the estimates that people give you for the importance of trade rounds. For example, the figures quoted as being the annual benefits of the Doha round were about £110 billion, and I have seen similar types of numbers in the past from completed trade rounds. Really, when you think how important we see trade and the growth that has been in trade, the size of trade, the potential trade over the future, I think these numbers are way too small.
It reminds me of an important point to come to, which is on a slightly different track and that will perhaps move us into a slightly different area, which is that numbers and analysis can be important. If you want a single piece of evidence, just look back at how poor we can be at understanding what is going on in the world of trade. It does not just have to be from my own remarks; you can easily see the evidence that was provided by OECD studies. Following China’s WTO entry they did a very good survey of all the material that was submitted as evidence on what the effects of China joining the WTO would be in trade liberalisation. Of the large numbers of studies, hardly any got it right. Most of them blithered on about all kinds of problems with import and export prices, which were never a factor of the problem in the end. Most of them missed the big rise in exports from China that actually came through.
Chair : I think we have got the message.
Vanessa Rossi: Just my final point, and it brings me back to numbers being important and not getting too wedded into complicated stories when you can see the blindingly obvious coming for you. On trade issues, in spite of the fact that we have problems about the way Europe works or the way Doha is working and so on, look at the numbers that have been emerging in the last year. Why is it that Germany has been able to increase its exports to China and emerging markets at rates of 50% or 60%, outstripping most of the rest of Europe-not just the UK, but other parts of Europe? They have been able to do it under more or less the same conditions, at least at the umbrella level for world trade agreements and European trade agreements. There may be some specific things that German Governments do, although I think we probably know those and do a lot of them ourselves. The answer to what is going on here, and how you can be successful when there is a very large growth in world trade going on and you are not having a share of that, is that we have to come back to issues that are not necessarily about those other points of the trade agreements in Brussels.
Q365 Paul Blomfield: Not withstanding your reservations and interesting position, the Government has set the conclusion of Doha this year as their overarching strategic priority. Putting aside your reservations, given that this is their objective-perhaps one point from each of you-what could they effectively do to achieve that objective?
Professor Rollo: Let me say the first thing: they do not sit at the negotiating table for completing Doha. The EU commission sits there, albeit with the Council sitting on its shoulder like 27 parrots trying to whisper in its ear. Nonetheless, that is the issue in all of this. We can go around and talk to people; job owning is always a good thing to do if you want something to happen in a political sense, but the bottom line is it is not within our gift to complete this. It is only in our gift to try and influence the people who are at the negotiating table in that direction. It sounds like-I am sorry, I am showing my Foreign Office background-old fashioned diplomacy is what is at work here. And engaging the private sector: I think the private-sector voice in this over a long haul on Doha has not been as loud as I think I would have liked it to be or as it was during the Uruguay round.
Q366 Mr Binley: As I understand it, the whole of an Airbus is a part of German statistics. Up to 50% can actually be British, but of course they take the credit. That is not surprising; they always do. How do we change that?
Professor Rollo: Sorry, we get the money. Their imports reflect our bit of the Airbus that is sent to them or France or wherever.
Q367 Mr Binley: But world trade figures have an input in terms of perception. Do we need to change it? Is it that important?
Professor Rollo: I frankly do not think it is that important. Someone will tell you that by and large the Chinese get $3 out of every $150 that an iPod costs, and most of the money actually goes on marketing and design and all that side of stuff, which actually all resides in the US. That is what is happening in the modern world. We have now integrated supply chains; basically we have just-in-time production chains, which used to be localised but have now been internationalised. The bottom line is if you are exporting you are doing well in all of this. The Germans could not export anything without our wings, they pay us money for our wings, and in fact there is a transfer across the exchanges on that, and it shows up on our balance of payments. Our balance of payments would be worse if we did not get that. We can boast about these things; there is no reason to stop us doing that. I do not think the statistics are the problem.
Dr Sally: I think it is important in this sense. We talk a lot these days about global imbalances, particularly about the Chinese current account surplus, measured along the lines that you indicated. That of course gives no indication of the often minute value added that is contributed in China to a lot of these products, like the mobile phones we are carrying around with us. If you factor that into account, the Chinese current account surplus would probably shrink considerably because half of China’s trade is this kind of trade in global supply chains.
The Americans in particular, when they look at this Chinese current account surplus, talk about fixing it, limiting it and threatening trade sanctions on the basis of a misleading perception of how large this surplus is. In that sense, yes, our current ways of measuring international trade may lead to wrong diagnoses, and wrong and sometimes dangerous policy conclusions. Is there a quick-fix alternative in terms of measurement? No there is not because it is much more difficult to trace and measure value added across a whole range of products and come up with aggregate numbers.
Professor Rollo: In my view in all of this, the global imbalance is a diversion. That is a macro-economic problem; it is not a micro-economic problem. It is not a problem of what we are talking about today. If there is a problem with statistics, I think it is the lack of statistics on services trade. We do not have any detailed numbers on that bilateral, by type of output and so on. That absolutely undervalues what is going on in a tremendous way, because services, just like manufacturing, provides a lot of high value-added jobs.
My own industry, Higher Education, heavens, you would like to think we are the most highly skilled people in the economy in the universities overall. I will leave you to answer that question in this context. Or the legal profession-alright, maybe I will take that one back as well. There is real ground there. I always get a bit worried when people start to say, "It is manufacturing or services." It is the traded sector. Anything that can be traded we have to look to make sure we have got the skills and we have got the effective markets that will allow us to prosper in that context.
Chair : We have got several more questions that in reality I have got very little time for. What I am going to do is ask the Members to ask the questions and then if you could pick out those issues that you think you need to, just to speed things up for a bit.
Q368 Nadhim Zahawi: What advantage does UK plc get from UKTI helping companies such as Tesco go into emerging markets like China for example? Considering that companies like Tesco have a budget that is bigger than the whole of the Department for Business, Innovation and Skills, what is the advantage for UKTI doing that sort of work?
Chair : If you can log that, I will bring in Rebecca.
Q369 Rebecca Harris: It is sort of a bit of a round-up question here really, which is, with your analyst viewpoints, people who have had time to look at the bigger picture, how do you view Britain’s position in the global trading arena? How do we compare? Our relative position perhaps. What could we be doing to improve? Where have we perhaps fallen down against our competitors? Perhaps we could have your concluding comments on the Trade White Paper? You have already touched on what you perhaps think some of the strengths and weaknesses are, but where do you think the Government has got it right and wrong there?
Chair : Do not feel free to answer every one, but again, if you feel on reflection after you have left here that there is something that you would like to add to it, please feel free to write in.
Professor Rollo: Can I just start on the whole question of the general policy context? I think if there is one area where we really do need to up our game in a big way it is education-not the higher education sector, but actually the middle education sector in some sense. What happens after school and at school that allows people in other counties to provide children who can speak more than one language, children who have some sense of the technical world out there and can engage with it in straightforward ways? The Scandinavians speak four languages, and we are basically one of the Scandinavian languages at the end of it all. Why can we not speak more languages? That sort of thing is the real lack of ability to engage with the world either as competitors or as salespeople in that sense, going out there and doing things. I think that is the key set of issues here. We need to have a better workforce at the end of all this.
Vanessa Rossi: I will just come back to something we have not mentioned as much as I thought we might, which is the investment side in foreign investment. I should remind you of the contribution to the UK’s economy growth in the last decade from external demand, both investment and exports: around about a third of the growth of our economy has come from that and two-thirds from our domestic demand-a third of our growth in business that is. This roughly divides a third, a third, a third between manufacturers’ exports, services exports, and FDI, with actually the services export component being particularly prominent and the growth in overall business services being particularly prominent. I think to me this should have been the initial focus of what the motivation is. These are the really crucial statistics and this is why we need to look at those different areas and give them each a fair weighting and a fair airing as to what we think is happening and what we can do about it.
When it comes to issue of what we do about these areas, I think it falls into different categories. There are some short-term issues that we can try and tackle. There are the nuisance-value problems-some of the issues I think your questioning earlier in the year brought out from businesses about the difficulty of rules. For example, there are some issues over visas and so forth, which are irritating to business because the rules are not very easy to work with and somehow interfere with what would otherwise be sensible plans. Some of this can simply be in the way.
It is particularly an issue, I would say, in the FDI area when I have been looking recently at the trend for FDI to Germany versus the UK for example, within Europe. We know we are the two big competitors for FDI into Europe, and many of the comments I have heard back are that businesses have been tending to privilege Germany over the UK, particularly businesses coming from emerging markets in China, because once you have a visa within Germany you are within the Schengen area and you can travel across Europe easily without any other questions or problems with visas. From the UK we have a problem that even though somebody has the visa and lives here, they then have to apply every time they want to visit another country and it is a huge irritant. I would give that enormous prominence as a relatively short-term issue that can be tackled in that particular area and we can get on with it.
The same things apply in these other areas, I think, for services and manufacturers, as to why we do need to look at the areas of export credit and guarantees so forth. Much of this need not cost Government a lot of money in actual out-payments; it is about guarantees or agreements with banks and help in that sense of being constructive about how businesses can go about taking those extra risks that are involved in going abroad and doing business. We can help companies over those hurdles. I am all in favour of those issues.
Then we need to think more so of this broader context of these big three areas in which we see UK business developing and the meaning in the economy. We need to be quite rational as well about how we see the linkage of the FDI coming into the country to what may be foreign operations perhaps in some ways displacing the imports, because some of these operations may bring businesses to the UK that then develop into manufacturing operations. For example, we have seen this in the past with the car industry and I think that model can apply in certain other areas, perhaps in electronics and so forth. There are emerging signs that that can happen. We have to be aware that there is also this import substitution methodology that can take place in conjunction with FDI and it is important. I thought there should be a bit more prominence perhaps given to some of those ideas and the importance of those, along with the idea of what we have to go out and do in the rest of the world to pay our way in the world.
Professor Rollo: Can I just say one thing about visa regimes in all of this? We have to be careful not to do harm for other reasons. I think we have a real problem coming up on the treatment of overseas students. Overseas students are customers but the regime is about to start treating them as if they are potential criminals. That is not a good way to get business in any sort of general sense.
Chair : You will not be aware, but we are actually painfully aware of this and going to take this up.
Nadhim Zahawi: Very seriously.
Q370 Chair : Dr Sally, is there anything quickly you want to add?
Dr Sally: I will just take the general question on the role of the UK in global trade. On policy, I think the emphasis has to be on as non-discriminatory a trade policy as possible and tackling regulatory barriers both at home and abroad. As to the future of the UK and its businesses in global trade, I think if we move in the right direction both on trade and domestic policy-and, by the way, I think domestic policy should be as non-discriminatory as possible, especially between manufacturing and the other parts of the economy-we will see UK business flourishing in the world in certain high-value areas of manufacturing-certain niches. Much more importantly, that will be in a whole range of present and future services. That is where our future lies, both at home and abroad.
There is a danger, and this is more about domestic policy, if we go for ideas on promoting manufacturing here and there that we will cause all sorts of distortions in the economy. That will be to the detriment of our services potential, not just at home, but also abroad. The next wave of Chinese opening up should actually benefit British businesses more than other businesses in Europe because it is about the opening up of the services economy in China, where our companies are strongest and stronger than German companies; they or course have greater strengths in certain parts of manufacturing. They have benefited from the first wave; we should benefit much more from the second wave.
Chair : Thank you. I am sorry I had to rush you at the end, I was a bit self-indulgent at the beginning, largely I may say because of the challenging nature of one or two of the comments that you made. That has been enormously helpful, not least because it does actually challenge some of the other lobbying and other evidence that we have been given. Can I thank you for your contribution? As I say, if you wish to send further evidence we will be very pleased to receive it.
Examination of Witnesses
Witnesses: Susan Haird, Acting CEO, UKTI, Patrick Crawford, CEO, ECGD, and David Frost CMG, Director for Europe, Trade and International Affairs, BIS, gave evidence.
Q371 Chair : Can I welcome you and thank you for agreeing to give evidence? I do apologise that it is slightly delayed. You may or may not have heard the contributions previously; they were somewhat challenging and provoked quite a bit of discussion. I will try to lead by example and be a bit more concise in my questions to you than I was with the predecessor panel. Before we start, just for transcription purposes, could you introduce yourselves before we get into the main body of the questions?
Susan Haird: I am Susan Haird. Thank you for inviting us here today. I am the Acting Chief Executive of UK Trade & Investment.
Patrick Crawford: Patrick Crawford; Chief Executive of the Exports Credits Guarantee Department.
David Frost: I am David Frost, Director for Europe, Trade and International Affairs, Department for Business, Innovation and Skills.
Q372 Chair : I am getting straight in: Susan, why is UKTI’s strategy so delayed?
Susan Haird: We have been preparing a strategy for the last few months but we wanted to set out the strategy in the context, first of all, of the Trade and Investment for Growth White Paper, which was published in February this year, and also in the context of the Growth Reviews; we have been feeding strongly into both of those processes. There will be announcements relating to the Growth Reviews in the budget and our own strategy will follow shortly after that.
Q373 Chair : You have possibly pre-empted my next question, it was not published at the same time as the Trade White Paper because you wanted to delay until the Growth Review, is that correct?
Susan Haird: It was partly that we wanted to set the strategy in the context of the White Paper so we wanted to await publication, but yes, the reason for the further delay was primarily the need to work alongside the Growth Reviews.
Q374 Chair : Would it be a joint strategy with ECGD?
Susan Haird: It won’t be a joint strategy with ECGD, but ECGD have been very much involved in the process of our preparation of the strategy. As you will know, we are beginning to work much more closely with the Export Credits Guarantee Department. As Patrick will tell you, they have launched four new products and these products are very relevant to many of our exporters. So we are making joint presentations to groups of exporters around the country, giving them information about the new products, and our frontline staff are being trained in the new products so they can bring them to the attention of exporters. One of my colleagues now sits on the ECGD board, and Patrick Crawford sits on the UKTI board. We are planning to co-locate in 1 Victoria Street when that becomes possible-when space is free there. We are also doing joint marketing of the new products.
Q375 Chair : We will come on to ECGD in a minute, but will the new strategy actually state targets for UKTI?
Susan Haird: Yes, it is our plan that the new strategy will state targets for UKTI.
Q376 Mr Binley: Let me just pick up on the Chairman’s question, because I read your paper with interest. I am sure that you will know that I have been very concerned that many performance indicators have relied upon process rather than outcomes, and that has bothered me. I have seen evidence of late to suggest that you are starting to realign that view and think much more about outcomes, but in your briefing paper you said that the work you do represents £19 of benefit for every pound of Government money spent, but you do not give any examples of how that figure is arrived at. Could you give us a little flavour of how it is arrived at?
Susan Haird: Yes, I shall be glad to. First of all we have something called the Performance Impact Monitoring Survey, which since it was introduced about four years ago, has always contained qualitative measures as well as measures to do with the number of exporters helped. So we have had a targeting framework that required us under the previous spending review to help 20,000 companies on the trade side, of whom 12,000 could be innovative companies; the reason for the focus on innovative is they benefit more from exporting and from our assistance. There was a further target that 50% of those companies should see a business impact as a result of working with us. We further measured, though we did not target, the benefits that companies acquired in terms of increased productivity and competitiveness. The figures that we obtained for that are just under 70% of companies that we helped do increase productivity and competiveness as a result of working with us.
We have further sets of targets around 80% quality and satisfaction scores that we should achieve from our customers. This is measured quarterly by going back to a sample of our customers and each year we ask about 4,000 of our customers. We go back six months at about 18 months after our interventions. The interview lasts about 20 minutes and we ask a whole set of questions, which include questions relating to the additional profit that the customers expect to realise as a result of working with us. That additional profit figure, which has gone up from £2.5 billion four years ago to just over £5 billion now, reflects the additional profits the customers tell us about divided by the money that we spend. It has been audited by the National Audit Office and they have endorsed it as an appropriate method of evaluation.
Q377 Mr Binley: Just to pursue this a little further. If a large corporate goes, for instance, to China and their normal activity would engender a given amount of turnover or profit in a given year, do you take that whole lot or do you just take the bit that your help achieves? How is that measured? As a businessman I find that figure particularly difficult to arrive at. How specifically is that measured?
Susan Haird: We ask the customer what additional profit they would expect to achieve as a result of working with us. I do not think that evaluation of business support can ever be a totally exact science because we are not ourselves measuring directly; we are measuring through the views of our customers.
Q378 Mr Binley: And yet, w ith respect, you quote, "For every pound spent , £19 return. " You are using quite a precise figure there and it seems to me that the formulation of that figure has to be equally precise, and I have doubts about it. Could you write to us about this and let us know exactly how you arrive at those particular figures. I would be grateful.
Susan Haird: I would be happy to write to you. I would just like to add that the methodology has been endorsed by the National Audit Office.
Mr Binley: I am sure it has, but that does not give me very much confidence at all.
Q379 Simon Kirby: I am very interested in this particular issue, and I wonder sometimes whether it is just a tick-box exercise. We can talk about numbers that companies help, but surely the only two things we should be concerned about as the UK are employment and also tax revenue in this country. If we help a company overseas, they pay tax overseas, they employ people overseas. There is no tangible benefit other than perhaps more stability for that company. There is no tangible benefit in this country, which at the end of the day is what our taxpayers pay their money for. Would I be wrong thinking they would be the kind of measurable targets we should try and measure?
Susan Haird: In our targeting we do not differentiate between the sorts of help the company wants us to give them. About 7% of the companies that we help are seeking assistance with outward investment; the remainder are seeking help with exporting. So the vast majority of the companies that we help are seeking help with exporting goods and services out of the country. About 90% of our companies are SMEs and they are less likely than bigger companies to be seeking help to do with outward investment; they are more likely to be in the exporting market. But outward investment does generate benefits for the UK economy. Either it adds to the stock of wealth of the country and/or profits and dividends are repatriated back to the United Kingdom.
Q380 Simon Kirby: That assumes the ownership is in the UK, which in the case of large global companies is not necessarily the case.
Susan Haird: We help any company that has a base in the UK. As far as we are concerned, if the company has invested here, obviously they are a huge benefit to the economy in inward investment, and we view them as a UK-based company and we would give them help.
I was going to go on to say, if I might, that when a company invests overseas it does so for very good reasons to do with its business. For example, it might be because it reduces its costs and makes it a much bigger producer and global company. What you tend to find in those situations is that the company grows and you can end up back in the UK with more jobs than you started with, even if some jobs have been created overseas as well, and higher value-added jobs in the UK-for example, research and development or the headquarters functions of a much bigger company. It is not an easy thing to say that there are not benefits from helping companies’ outward investment and there are benefits from helping exporters. Both are well worth the Government helping.
Mr Binley: I would just like to come back at some stage, and I think there is an opportunity to do so, on this whole way of helping, because if we are going to concentrate on SMEs, there is help over in China, for instance, but I am concerned about the lack of help in the UK before they make the leap. Perhaps we can come to that a little later.
Q381 Paul Blomfield: Almost building on that point, the Trade White Paper has a number of very specific initiatives in terms of driving trade. For example, there is the new prize for successful first-time exporter. Is that an evidence-based decision? It seems to me that those sorts of prizes are easy to put in place. Does that actually drive motivation of potential exporters?
Susan Haird: I think one set of evidence that we have is the Queen’s Award for International Trade, which does generate a lot of interest from companies and a lot of applications. I think it is a symbolic thing to do. We are very keen to encourage more companies to export. I think prizes are motivating: they generate a lot of interest, they generate a buzz and they generate publicity. I think it will be a helpful thing to do.
We have a product called Passport to Export, which is delivered by our frontline staff in the English regions working with our overseas posts. This brings me back to your question. We have over 300 international trade advisers in the English regions, and they work with our companies to take them on a journey. We call it "Bradford to Beijing" for short, but wherever you are in England you can work with us and go on a journey to any one of our 96 markets. We work obviously very closely with the devolved administrations for Scotland, Wales and Northern Ireland as well. To come back to your question, regionally we have quite frequently held award ceremonies for the best company that was a Passport to Export customer, and again they generate interest in the region and they generate press coverage. I believe they do drive new customers to us.
Q382 Paul Blomfield: Developing on Brian’s point, there is something that I am sure would be welcomed by businesses that I have talked to, which is the peer-to-peer trade service. I just wondered if you could develop that concept a little bit more. What is being planned? What is the timeline for launching it? Is it replacing something that is already there or building on the existing services that, for example, Business Link provided?
Susan Haird: What we are developing is an SME-to-SME networking site that will enable them to share their experiences of exporting and comment on how to do things in particular markets. It will be introduced later this year. It is not replacing anything that we offer at the moment; it is new.
Q383 Paul Blomfield: New in the sense of what sort of value- added function ?
Susan Haird: We have a website already that companies can use to draw down information on particular markets or sectors. That website also includes something called Business Opportunities, whereby our staff overseas will hunt out and identify opportunities for exporters-particular projects, particular requirements of overseas importers. They put them on the website and, if you are a company, you can preselect if you are interested in a particular sector or product or markets, and an email alert comes through. Several thousand of those kinds of opportunities are put on our website every year, and they are used by our customers. That is drawing down or being pushed particular information in a kind of static way. This enables the SMEs to network one to one, or indeed many to many, and learn from one another’s experiences. That is what is new about it.
Q384 Paul Blomfield: I can see that that is hugely valuable. However, how are you going to harness the engagement of both the UK diaspora working in those markets at the moment and those within this country from the potential market? It is a great concept, but how are you bringing it to life?
Susan Haird: There is something else that the Minister, Stephen Green, launched yesterday, which we are calling Catalyst. Again, this was trailed in the White Paper. Catalyst will be similar to something called Global Scots, if you have heard of that. The Australians and New Zealanders, for example, do something similar. It will be a network, a kind of diaspora, if you like, of people in the UK and around the world. They may be people who were born here, are British and are now expats, or people from overseas who are well disposed towards the UK. They will form a network of people who can work as ambassadors for the UK, and they will do two things: they will market the UK overseas and in the UK as the international business partner of choice, and they will mentor SMEs. They have been drawn very widely from the field of successful international business people. Catalyst will sit alongside the Business Ambassador scheme. We now have just over 30 Business Ambassadors, appointed by the Prime Minister, again, going around the world, often using their existing business travel plans, but sometimes at our behest. They are speaking at events, promoting the benefits of the UK as the international business partner of choice. These are ways in which exporting has been brought to life, and the UK has been promoted.
Q385 Mr Binley: Can I pursue this? It really is about the detail at the coalface that matters. We can talk in overarching terms, but it does not really get to the point of the coalface. We have just got back from China, as you know, and it was a very successful visit. It was incredible. We were told by almost everybody out there, "For God’s sake, we are not doing enough to prepare people in this country to be able to make the decision about whether they should go out to China or not." It is the research of a market, the detail here, before the decision is made to go out, that is important. I am perfectly welcoming of peertopeer and clearly Catalyst, but we would like to know about that specific detail. I am not sure that we are giving enough money and help. It is alright having a mentor saying, "Relationships are very important," in those rather broad terms. However, it is the actual detail of market information that concerns me, because without that an SME that does not have a big organisation to gather it cannot make a proper decision. Some will go seriously wrong, and that will be bad for the whole project. Could you perhaps write to us to tell us about that detail?
Susan Haird: Yes. Can I just comment very briefly now, as well?
Mr Binley: Of course. Of course.
Susan Haird: We have, as I said, frontline staff in the English regions, and there are parallel frontline staff in Scotland, Wales and Northern Ireland. They basically offer a strategic consultancy role to small businesses. They will meet them many times, and they will give them advice on whether they are ready to export, and if so what markets they might go to. They will put the full range of our services at their disposal, which includes Passport to Export, which builds capacity to export. It includes Gateway to Global Growth, which helps more experienced exporters to diversify into new markets. That would include, perhaps, commissioning market research through our chargeable service OMIS in any one of our 96 markets. It might include a trade mission or a grant to exhibit at a trade fair overseas. We are definitely not aiming to let companies loose without having done a lot of research and work with them in the first place.
Q386 Mr Binley: Let me push this further, because I am a founder and nonexecutive chairman of a company employing 140 people, which is in the service industry and provides services to a number of companies in the States, Australia, France and Germany. Not once have we had such an approach-not once. The lack of outreach is perhaps concerning, but equally we are fining the gap between RDAs and LEPs is creating a big hole. I am concerned that the stuff that looks good on paper in reality is not working at the coalface.
Susan Haird: Our trade services have always been delivered by a contractedout service in the English regions, so it is not particularly affected by the abolition of the RDAs. On the inward investment side, the RDAs did deliver some services for us, and those are being replaced by an outsourced contract. But I would like to rise to the challenge that you have set me, and if you can give me the name of the company, I shall-
Q387 Mr Binley: BCC Marketing Services, Wellingborough. I am happy to have you come back.
Susan Haird: I shall set somebody straight away on to offering our services to you.
Mr Binley: I will be interested to see it.
Q388 Nadhim Zahawi: I want to talk a little bit more about the staff that you currently have, and the training, and their background. Could you shed a bit more light on what the training procedures are, and what the backgrounds are? For example, do they read the financial papers? Do they have business backgrounds? I would echo my colleague’s comments as an exbusinessman, who built an international business. Not once were we approached by UKTI for the any kind of help at the business that I built up. I also sit on the board of a FTSE 250, and again, it is international, but all our research is done inhouse without that outreach coming from UKTI. We heard from an earlier evidence session how hard it is to collect evidence, and I know that personally from my own experience. At the coalface, as Brian mentioned, what is the training that you have for your own staff, so that they are really good at picking up this stuff?
Susan Haird: Just very briefly on the outreach, we do a whole host of events right around the county encouraging companies to export to, for example, the markets of Asia and the Middle East. We work with banks and similar intermediaries to reach their customers. We have had a very big marketing campaign: I do not know whether you can recall the big "Take it to the World" banners from a year or so ago. We also advertise through the regional papers, and have done a lot of that in the past. We do a lot of outreach, but I accept that we do not reach all of the companies. In terms of staff training, if I could talk briefly about three sorts of staff. Overseas, about 15% of our staff are diplomats from the Foreign Office.
Q389 Nadhim Zahawi: 15%?
Susan Haird: Yes, 15%. Some 85% are locally engaged staff, engaged for their market knowledge. Many of them will have business backgrounds. In the English regions our services are contracted out to organisations such as Business Links and Chambers of Commerce. The majority of the international trade advisers, our frontline staff in the English regions, are people from business. In headquarters we are civil servants, who are, in the main, drawn from the Department for Business, Innovation and Skills and the Foreign Office, but we also make use of a large number of business specialists. For example, our R and D scheme has a business specialist running it. Our sector champions are drawn from business backgrounds. The staff working on our new highvalue opportunities were aimed at bringing back really high-value opportunities and matching them proactively with the capabilities of British companies. These are all business specialists. We are a mix.
In terms of training, our staff in the English regions work through formal accreditation processes through the Institute of Export and other bodies. We run a lot of our own training, which has been developed for our own particular purposes. For example, we do a course in building successful client relationships, which is delivered for us by a training provider. That has been taken to our staff around the world, and we can actually see improvements in our performance against the qualitative targets once the staff have had the training. There is more training on the investor journey for staff on the inward investment side. There is a lot of training that is done that is very specific to our own needs.
Q390 Simon Kirby: Is it not the case that you are just picking the low-hanging fruit? Once again, the easy wins, the big companies-Tesco with its £2 billion planned investment in China, BP, BT-all of these companies would be there anyway. Should you not be focusing your effort on the smaller and mediumsized businesses more than you currently do?
Susan Haird: 90% of our customers are SMEs, and that reflects their representation in the economy. The customer base that we have is quite appropriate. Bigger companies tend to use us when they think they need us. I would say that most of our proactive marketing is designed to get into the net, as our customer base, SMEs who we think really would benefit from working with us. They may be companies who perhaps have not exported before, or have exported only reactively, responding to enquiries, which is quite common, or have exported only to developed markets and could benefit from taking steps into Asia or Latin America. We do help big companies, and the value that they add to the British economy is considerable, and they will often bring supply chains in behind them.
Q391 Simon Kirby: We spoke to BT, and we were very interested in China and the concept of piggybacking small and mediumsized enterprises onto the bigger corporates. BT were quite clear that they had no interest in doing that at all, and they wanted to deal with local companies to establish themselves further in the China market. It is easy to get carried away with the rhetoric, but I put it to you that the reality is somewhat different.
Susan Haird: I think it is for individual companies to decide what suits them best. We do a lot of work, particularly for example in the oil and gas sector, in helping the supply chain to form part of the bid. I have mentioned that in our new strategy we are launching this High Value Opportunities scheme. It is designed to find the top 50 opportunities around the world that we think Britain has the right capability to deliver. There we will very proactively identify the companies who will want to bid, including not just the primes, if I can call them that, but the supply chain. We do a lot, but ultimately it is the companies’ decision what they want to do.
Q392 Chair : Before we go on to the UKTI budget, just a very quick question. Earlier, in a response to Paul Blomfield, you mentioned the UKTI website. Can you tell me whether there is the facility on that website for feedback?
Susan Haird: Yes, there is a facility for feedback.
Q393 Mr Binley: When will you be publishing the UKTI’s future budget for overseas posts?
Susan Haird: The Spending Review set the totals for the overseas network for the next four years, so those figures are available. In terms of the amount available to individual overseas posts, that will be coming out shortly, jointly between the Foreign Office and us. I am wondering if have missed the question slightly.
Q394 Mr Binley: No, you have not, because we are looking to spend in given countries, from the UK’s perspective. That seems to us to be very important to relate to your targets, quite frankly. I repeat the question, when will that budget be published?
Susan Haird: I do not think that we formally publish the budgets at the level of individual countries, but there is no reason for it not to be made available to the Committee, if you would find that helpful.
Q395 Mr Binley: I think that we would find it very helpful, and I think that we would like to know when that would be available.
Susan Haird: Within the next few weeks. I would estimate by the turn of the financial year, but I am slightly in the hands of the Foreign Office.
Q396 Mr Binley: Could you kick the Foreign Office? I understand that they have a number of things on their minds at this moment. But could you kick them? I think we do need to see that to include that information in our thinking when we draw up our Report, to be quite honest.
Susan Haird: I will certainly make it available. Perhaps I could just add that the way we set our targets is that they are set proportionate to the number of staff in markets. We have a concept of productivity per full-time equivalent, and we set the targets to match that. We allocate budgets in line with the activity that we expect to see in the market, as well as in terms of the type of events that they will be having. There is an opportunity for them to bid for money held centrally and devolved out to the overseas posts. They receive that money in accordance with the number of events that they are planning to hold over the year, which they have agreed with us. If we find that posts are not performing well against their targets, then we would move money away and put it where it could be used more productively.
Q397 Mr Binley: Then your answer gives me even more reason to think that it is important to us in our thinking.
Susan Haird: That is fine, I am very happy to make the information available to you.
Q398 Mr Binley: We look forward to that. When will you be making the cuts in UKTI to allow for the £11 million cut to your own programme, and the £6 million cut through BIS Vote, which was announced as part of the 2010 Spending Review?
Susan Haird: We are making cuts as they fall upon us, so we have a gradual decline over the Spending Review period. We go down, for example, £16 million in 2011/12 compared with 2010/11. The answer is that we already have those cuts in mind to enable us to meet the spending total for 2011/12, and we will be in a similar position next year for 2012/13.
Q399 Mr Binley: Can you share those with us, too?
Susan Haird: Yes, no problem.
Q400 Mr Binley: We think that that would be helpful. Finally, it was reported in The Guardian last month that the UKTI received a £20 million "fine" from the Treasury because of comments made by, I think, this Committee and your predecessor, Mr Cahn. Those comments were to the effect that an email went out saying, "Please spend the money, because the budget round is coming to an end." How true, if at all, was the report?
Susan Haird: There is no truth in the suggestion that that £20 million was a fine. The allegation was that the Foreign Office had been fined £20 million. In fact, the Foreign Office had applied to draw down some money in the spring supplementaries, I believe it was, and was allocated by the Treasury less that the amount of money for which they had bid. This is not an uncommon occurrence.
In terms of the email to which you refer, I would like to put the record straight. In fact, in the end, no money was drawn down against any endofyear underspend that might have been available, but what was being thought about was more businessfacing activity by UKTI staff.
Q401 Mr Binley: I assume it is a practice that you would not endorse.
Susan Haird: I would never endorse spending Government money in a way that was not good value for money. At no time did Sir Andrew Cahn, or myself, or anybody else in UKTI, think of any ways of spending money that would not give value to the taxpayer. We are very attached to our £19 for £1.
Q402 Mr Binley: I will push you further. I will push you further. You simply would not endorse the old county council habit of saying, "For God’s sake, spend your money before the budget year ends"?
Susan Haird: I would not endorse spending any money at any time of the year, unless it could be shown to provide good value.
Q403 Mr Binley: That is bureaucratspeak, isn’t it? Will you simply say yes or no to my question?
Susan Haird: I am a bureaucrat, so I am going to rest on the bureaucratic answer.
Q404 Ian Murray: We are all heading towards our yearend budgets. It will be very interesting to see what Members of Parliament do with their particular budgets that they have left, but never mind-let us leave that statement alone. You are going to write to us in response to Mr Binley’s comments about what cuts you may have to make in terms of the Comprehensive Spending Review settlement you have. Will you be making cuts directly to services, or will you be refocusing services? I asked a question pretty much along the lines of Mr Kirby’s question about whether you should be helping multinationals or should be completely focused on the SME sector, which requires the most help to get into emerging markets.
Susan Haird: If I could just start by explaining what our funding is, we have three funding streams. We have a vote from the Department for Business, Innovation and Skills, which essentially pays for staff in our headquarters in London and Glasgow. Most of them are drawn from the Department for Business, Innovation and Skills. We have a Foreign Office budget that pays for our people overseas in our 96 markets, and we have a programme budget.
The programme budget is essentially the money that is spent directly with customers. For example, it includes the grants that are given to companies to exhibit at trade fairs overseas and the grants given to companies going through Passport to Export. It includes provision for our frontline staff in the English regions, who are paid for out of programme. It includes the money that used to go to the Regional Development Agencies, and will now be spent on the National Contract for delivering inward investment services in England, minus London. Those things paid for out of programme spend are indeed frontline spend on customers, and they are being cut because our programme budget is being cut. There is nothing that can be done about it.
Obviously we are seeking to minimise the impact of cuts on our customers. We have, over the last four years, dramatically driven up productivity in the organisation, so we are now helping many more customers and bringing in many more inward investment projects than we used to. We will seek to continue to do that, but I cannot deny the fact that programme money has been cut.
Q405 Chair : Just before we go on, I am conscious of the fact that this, so far, has been a oneperson show.
Susan Haird: So am I.
Chair : Not because you are hogging it, but because the questions, obviously, have been specifically targeted at your department. I can assure the other members of the panel that your time will be coming very shortly.
Q406 Simon Kirby: Very quickly, will the cuts change the emphasis between inward investment, outward investment and exports? Will there be a shift of priority?
Susan Haird: No, there will not be a shift of priority. We have specific targets for inward investment, and we have something similar on the trade side. I wanted just to make clear that there has never been a specific target on the trade side for outward investment. We help a certain number of customers, and if some of those customers want help with outward investment then we give them that help, but there is no target.
Q407 Simon Kirby: No, but there must be a cost attached to it. That is my point.
Susan Haird: There is a cost attached, of course, yes.
Q408 Ian Murray: The Comprehensive Spending Review itself made reference specifically to the FCO with regard to increasing its focus on championing British companies to win exports and secure jobs at home-working closely with UKTI, obviously-and to increase business links and market information for UK exporters. That really is pushing you towards a refocusing, isn’t it, in terms of purely exports and creating jobs here. That would be a slightly different focus from what you just suggested to Mr Kirby in terms of the threepronged approach
Susan Haird: I do not think that there has been any shift in focus. We are reactive in the help that we give, according to what the customer wants. If the customer wants to go to China, we do not suddenly say, "You ought to be going to India." We might well point up the opportunities in India as well, but it is not for us to say to a company, "Do not invest overseas, you should be exporting." For many companies-take someone like Tesco-the natural way of expanding is to open stores overseas. That does generate wealth for the UK. There has been no refocusing as between trade and investment, or as between exports and outward investment.
I think we understand very well in UKTI that both trade and investment are extremely important jobs. When exporters begin to export, they experience a 34% boost to productivity. That obviously makes them a more competitive company. As they go into export markets they also gain economies of scale. They are exposed to new ideas. As they become more globally competitive, they tend to grow. We are planning to focus our attention, to a greater extent than before, on high-growth companies, and again that will be very instrumental in generating jobs. On the inward investment side, inward investment obviously generates a large number of jobs every year, and it also safeguards jobs. Jobs are very important. They are really important spinoffs from both trade and investment.
Q409 Ian Murray: Okay. We will give you a rest-
Susan Haird: Thank you.
Ian Murray: -and see whether Mr Crawford would like to answer a couple of questions. The Financial Times reported recently that ECGD would not be receiving any further funds to help implement some of the specifications following the publication of the Trade White Paper. Is this correct, and how will we achieve more with the same level of funding-again, particularly looking at any refocusing of activities that may be taking place?
Patrick Crawford: The Financial Times article was not correct. We are an unusual Department because we cover our costs from our premium income. Those are costs of risk and our administrative costs, but we are equally under the Departmental expenditure rules. The DEL settlement, for us, in the Comprehensive Spending Review, defined that spending through to 2014/15. Underlying it, however, was an understanding with Ministers that, while we had put forward assumptions on our business volumes, and derived costs from that, we were not in a position to predict demand. However, we were in a position to say that if demand grew, then our income would grow, and we would be able to go back and justify an increase in the settlement.
The basis on which we are operating is that we can revisit that settlement, particularly if business levels grow or we introduce new products, or we have an increase in claims. Since then, as you know, the Trade White Paper announced that we would be introducing new products, and to the extent that we generate higher levels of income, we then have the ability to go back and make the case for more resources. This could, in fact, mean a greater headcount.
Q410 Ian Murray: But you would have to make the case for it? It would not be automatic?
Patrick Crawford: We would have to make a case, but I think it is quite clear that Ministers have recognised that there could be such a case. Papers issued by the Treasury last year, in July and October, both contained statements that the Government recognised that demand for ECGD support was going up, and that the Government would ensure that it had adequate resources with which to respond. The general context has been set by those statements, which give comfort that if we had a good case, it would be looked at favourably.
Q411 Ian Murray: Okay, thank you. Finally, it is crystal-ball time. What do you expect in terms of new announcements in the Budget? Has there been any discussion directly with the Treasury about how your organisations require additional funds to take forward the Government’s programme for growth?
Patrick Crawford: I am not in a position to comment on what may or may not be in the Budget. The Trade White Paper was very clear that we would be introducing three new products and extending an existing product. But we have to both deliver those and secondly determine the amount of demand to which they give rise, with the associated resource implications.
Finally I would say to the Committee that, alongside the announcement of new products and their delivery, there has to be a very active exercise to reintroduce ECGD to exporters, particularly smaller firms. The 1991 privatisation of our shortterm products was a long time ago, and there is a whole generation of exporters for whom ECGD is not known, not recognised, or for whom its products are not thought to be relevant. The announcements have changed that fundamentally, and ECGD has to reintroduce itself to the exporting community. Susan has paid tribute to the way in which UKTI and ECGD will be going about doing that. But we will also be seeking to work with private sector partners across the board. We want to ensure that, when we make these announcements, they are followed up by increased understanding in the exporting community as to what these amount to and how they can assist exporters.
Q412 Nadhim Zahawi: Mr Crawford, we have heard throughout this inquiry a large amount of criticism of ECGD. It has been described as "not fit for purpose", "stuck in a rut", and "not really sure what its function is". How did this situation occur?
Patrick Crawford: I do not accept the criticisms that have been made to the Committee that you cite. ECGD has been fit for purpose in delivering the purposes set for it by Ministers, and that has meant that historically our products have been limited to medium- and longterm products. These have been of greatest interest to larger exporters, although available to SME firms and sometimes used by them. The announcement in the Trade White Paper indicated a fundamental change in our role, which is to deliver additional products, which we ceased to deliver in 1991. These will be of much greater interest to smaller firms.
Q413 Nadhim Zahawi: Do you think that ECGD is fit for purpose when 90% of what is does is just with the aerospace industry, and the additional 10% with the rest of the business community has been falling by 40%?
Patrick Crawford: The figures that you cite reflect the particular conditions that prevailed in 2009/10.
Q414 Nadhim Zahawi: Does that make them fit for purpose?
Patrick Crawford: We were fit for the purpose that we were asked to deliver at that time. Can I explain briefly? In the downturn we found civil projects falling away very rapidly. Investment decisions were postponed or delayed, or projects were cancelled. By contrast, in the aircraft-manufacturing sector, Airbus, in our case, enters into longterm contracts to deliver aeroplanes, with dates certain. Throughout the downturn, financial markets were strained, finance for aircraft was very limited, and the export credit agencies were turned to for extra support, which was what we delivered. That resulted, that year, in 90% of our business volume just being limited to Airbus.
The situation has changed fundamentally since then. Our best estimate for this year, 2010/11, is that we will be delivering about 62% for civil aerospace, a very small percentage for defence, and the balance will be for civil business. Our pipeline as far as we can assess it for 2011/12, will be an increase in our civil volumes and an increase in our total volumes. It is quite possible that for 2011/12 we will be supporting civil aerospace for, say, 50%, and civil for 50%. That is in accord with the balance before the downturn. It takes no account of volumes from the new products and is not out of line with other export credit agencies. I have in mind the US one, which supports Boeing and which, over recent years, has supported somewhere between 50% and 75% of their business volume for Boeing aircraft.
Q415 Nadhim Zahawi: Going back to that specific period, and you mentioned specific circumstances, why do you think that equivalent organisations in Europe were increasing their support for civil business?
Patrick Crawford: There was a very significant defence order that France obtained from Brazil, which meant that their numbers in 2009 were exceptionally large by historic standards. Secondly, in France and Germany they introduced interventions to support shortterm credit insurance in what are called "marketable risk" countries, which essentially means the EU and most, but not all, OECD markets. We did not do so, but that generated additional demand, particularly in Germany. It reflects the different trading patterns, different manufacturing sectors, and different responses of financial markets in those countries, but what we are seeing is a return to a much more balanced portfolio of activity, for the reasons that I have mentioned.
Q416 Nadhim Zahawi: So it is nothing to do with the behaviour of your own people in going for the lowhanging fruit?
Patrick Crawford: Absolutely not.
Q417 Nadhim Zahawi: The easy deals, or the easy big deals.
Patrick Crawford: Absolutely not. We were charged with supporting capital and semicapital exporters. That is what our products were designed for since 1991, and that is what we did. When we did it, we saw increases in volume from £1.46 billion in 2007/08 to £2.21 billion the following year. This year our estimate, and it is not certain, even on the 8th of March, is that it will be roughly £3 billion. We have more that doubled over that period. It is a substantive response, even with our existing and standard products, without any regard for the new ones that we have announced.
Q418 Nadhim Zahawi: Let me just push a little bit further. Do you believe that there is a perception gap between businesses and their representatives? The SMMT, EAMA, and all these other organisations have come here and told us the remarks that I have just quoted to you. Is there a perception gap between what you do and what they think you do?
Patrick Crawford: I think there is.
Q419 Nadhim Zahawi: And how are you going to bridge that gap, if you believe there is one?
Patrick Crawford: It is absolutely correct that our products have not been designed or available for shortterm credit insurance and shortterm working capital, which have been the interests of the members of those organisations. That is changed by the announcements in the Trade White Paper, and we need to change the perceptions, which I accept are that ECGD is not relevant to many sectors and many small firms. We intend to change that perception, and we intend to change it in the ways that I have already mentioned.
Q420 Nadhim Zahawi: What happened to the business that was sold off to the Dutch company NCM?
Patrick Crawford: That business is now part of Atradius, which is a Dutchbased insurance company but majority owned now by Spanish companies. That business that went to NCM has been subsumed. NCM was bought, and it is now part of the Atradius Group.
Q421 Nadhim Zahawi: Do you think that the Government has learnt any lessons from this?
Patrick Crawford: The privatisation, in its own terms was, I think, highly successful, in the sense that it helped to create a private market for credit insurance. It demonstrated that you did not need state agencies providing that shortterm credit insurance. For 17 years, British exporters benefited from more competition in the provision of shortterm credit insurance, more choice and lower prices. The 2008/09 downturn showed that there was a price to pay. ECGD no longer had the systems, the resources or the skills to deliver shortterm credit insurance directly. In responding to the downturn, from the spring through to the summer and autumn of 2008 and into the first half of 2009, SME exporters, and indeed larger firms, were concerned at the abrupt withdrawal of cover from the private insurers. That presented quite significant challenges to smaller firms, particularly where they might have been overdependant on one buyer on whose cover there was a withdrawal of a limit. It certainly had difficult consequence.
The Government is certainly much more aware now of the potential volatility in the credit insurance market, and the effect that that may have on smaller firms. What I can say is that the credit insurers say to us that they are in no doubt that conditions stabilised in their market by early 2010. Capacity has returned to the market, and they believe that they are meeting all creditworthy demand. That is not our perception and that is not the perception of exporter representative bodies, which have made the case to us that there is unsatisfied demand out there.
We intend to put that to the test. In extending our shortterm credit insurance policy to a much wider range of goods in emerging markets, we will be testing whether there is creditworthy demand that should be being met by the private sector but is not finding its way there, and where it is perfectly proper for ECGD to step in and provide cover. To the extent there is no takeup of our product, despite our best efforts in making sure that there is awareness, then the taxpayer will not be put at risk. It will be evident that what the credit insurers state, which is that they are meeting all reasonable demand, is in fact true. But there is a body of opinion that says that that is not correct, and we have heard that from credit insurance brokers and from the British Chambers of Commerce and other parties. The Government devised that if there was possible market failure, it should be tested, and we should introduce an extension of our product accordingly.
Q422 Chair : That brings us on to a couple of questions that I have. It does seem to me that in effect there are echoes of the issues surrounding the banking and financial services industry and manufacturing. On the one hand you have the provider saying that everything is okay and they have the money. On the other, you have the business community saying that their products are not fit for purpose, if indeed they are available at all. On the basis of this, and going back to the very strongly worded criticisms of ECGD from the business community, do you think that what you are offering is going to silence the business community? Do you think that in effect it will meet their demand?
Patrick Crawford: Two points, if I may. The first is that we are addressing product gaps that exporter representative bodies have said to us exist. We will be testing them with these new products. We are introducing them on a basis that is intended to be additional to that already available, not a substitute for that available from the banking sector. We are intending to add value. We intend to learn by experience. If in fact the design of these particular products needs to be improved, to make them more effective or respond better to market failure, then we are very open to doing so. But we will not succeed in changing those perceptions if we do not work very hard to ensure that there is as full a market awareness of these products as possible. I can only give you that assurance at a time when we have tested both the market and the design of the products on the one hand, and we have demonstrated that we work hard to ensure that there is awareness amongst the business community about these products, alongside private-sector products, I might add.
It is not only a function of ECGD inserting itself with new products. It is a matter of making sure that exporters, both existing exporters and companies new to exporting, are made aware of the full panoply of products available from the public sector and the private sector. They can then make an informed choice about what best suits their risk mitigation needs and their export strategy. We will be trying to ensure, through our work with UKTI and other parts of Government, and with the private sector, that exporters are made fully aware of the full range of products, including our own.
Q423 Chair : You are making reassuring noises. I understand that you are actually working with the British Insurance Brokers Association to, in effect, develop products that will be appropriate. First of all, how is that work going? Secondly, are you working with organisations like the British Exporters Association to ensure that you do not come up with products that may seem safe and to meet demand in terms of perception, but are not tailored to what business needs?
Patrick Crawford: First of all, in the design of our products, we have sought to introduce them on a basis that is genuinely additional to that already available. We intend to learn from experience to make sure that the design makes a difference in practice. In doing so, we will always have to take into account the interests of taxpayers as much as exporters. There has to be a balance between accepting risk, setting a price for that risk that is attractive to exporters on the one hand, but also protects the interests of taxpayers.
Q424 Chair : Are exporters involved in the design of these products?
Patrick Crawford: We have talked informally to the British Exporters Association, BExA, and their response is that they believe our bond support product and our working capital product are both designed in principle to meet real needs. To be fair, until we have made these available and they have been tested in practice, it is difficult for us or for representative bodies to make a judgment, which is why I put the stress on improving and adapting as we go.
You made reference to the British Insurance Brokers Association, BIBA. The answer is that in the extension of our shortterm credit insurance policy we have sought to simplify the policy wording, and we have actively engaged with them to get their views of whether that is consistent with their experience of market practice. But equally, the Association of British Insurers have concerns about us extending our activity into the market, which they argue that they are fully meeting. We have an active discussion with both the brokers and the credit insurers to try to ensure that, where we intervene, we do not do so in a way that competes with market providers but complements them.
Q425 Nadhim Zahawi: Mr Crawford, I just wanted to come back on a point that you made earlier, that you waited until the announcement by the Secretary of State for you to change within the Department. Was that at the behest of your people going to the politicians and saying, "We need to change," or was that forced upon you by the Ministers?
Patrick Crawford: Ministers encouraged us, towards the end of last year, to respond to concerns over access to finance, and to respond to expressed concerns about difficulties that some exporters were finding in relation to shortterm credit insurance. We accordingly developed these products that were announced on the 9th of February, and we very much look forward to delivering them.
Q426 Nadhim Zahawi: Were they developed proactively by your Department, or topdown, with the Minister saying, "You are not fit for purpose"?
Patrick Crawford: We were invited to come up with suggestions as to how we could improve the product slate. We developed the products. We engaged with the banks prior to the announcement to road test what we were doing, because they depend, in three instances, on the banks delivering them. The banks were enthusiastic and supportive, and I am pleased to say that we have every reason to expect the bond support product to be delivered on time and by the 31st of March. They were not forced upon us.
Q427 Nadhim Zahawi: So your Department proactively said to Ministers, "We do not think that we are doing a good enough job here. We need to change like this."
Patrick Crawford: Ministers have sought to respond to the difficulties that the private sector was expressing about access to finance and about credit insurance.
Q428 Nadhim Zahawi: So it came from Ministers?
Patrick Crawford: The context was set by Ministers in seeking to respond to what the economy needs, and the need to support exporters and grow exports in 2011 and beyond.
Q429 Nadhim Zahawi: My point is that you did not proactively come up with the red light, saying, "We have a problem here." Which way did it go? My question is, which way was the direction of flow?
Patrick Crawford: There was a mutual understanding that there were difficulties of access to finance, that an export credit agency could be an instrument for responding in part, and the result has been the announcements that were made.
Q430 Nadhim Zahawi: So which way was it? Was it proactive by your Department, or the Minister suggesting it first?
Patrick Crawford: I think it was a combination of both. If you want to do something, we have provided the means of achieving that.
Nadhim Zahawi: Okay, so they wanted to do something.
Q431 Chair : Can I just come in here? Mr Frost has been waiting very patiently, and as a member of the Department for Business, Innovation and Skills, he may well be able to shed some light on this. Could you just outline what your engagement has been with the British Exporters Association and other bodies that have highlighted this issue? Why has it taken so long for BIS to take this up and, if you like, work with the ECGD in order to develop a set of products?
David Frost: Thank you, Chair. To be honest, I do not have a lot to add to what Patrick was saying. I only came into the Department for Business, Innovation and Skills towards the end of this year when some of these discussions were already under way. My team, because of our interest in promoting market access overseas for British companies, works closely with ECGD and UKTI. It was aware, when I arrived, of the beginnings of the discussions that have culminated in the announcements in the White Paper. My understanding is, as Patrick said, it was a kind of mutual process of realising that something needed to be done, and beginning to put in place the sinews to get it done.
Q432 Chair : Can I just finish off with this? ECGD has been described as a rogue Department that acts with impunity, fuelling human rights abuses and environmental destruction. The Jubilee Debt Campaign has described it as "the Department for Dodgy Deals". How would you respond? From my perspective, as the Chair of the Business, Innovation and Skills Committee, I am concerned that this body, which is so potentially strategic to Britain’s business interests, is being portrayed in this way. How can you respond to counter that?
Patrick Crawford: What the critics say on ECGD does not take into account fundamental changes that have taken place in Government policy and in the rules for export credit agencies since 2000. The Jubilee Debt Campaign indeed issued a report on ECGD as "the Department for Dodgy Deals", but the examples cited in that report are highly selective and very dated.
Since 2000, the OECD has introduced a whole set of new standards and agreements with which export credit agencies must comply, and ECGD takes those agreements very seriously and does comply with them. They cover environmental, social and human rights impacts. They cover sustainable development for poorer countries, and they also cover antibribery rules. We take these rules very seriously and we apply them in all our business. That is not properly recognised by some of the special interest groups that focus on ECGD. I very much hope that they will continue to pay attention to the facts of our current activities and the current standards that we use in conducting our business.
Q433 Rebecca Harris: We touched on the abolition of RDAs earlier today. We have had quite a lot of concerns throughout the inquiry about the impact that this will have. You have already said that you have 300 representatives in the region, who will be largely unaffected by the end of Regional Development Agencies. Perhaps I will bring in David Frost at this point, again, to give him a bit more of an opportunity for an airing, and to ask him what the current situation is. Where do you think companies in the regions who have previously relied on RDAs for support, either inward investment or trade support, will be turning to in the future?
David Frost: It is kind of you to ask to bring me in, but I am afraid that the question is probably better addressed to Susan. I will come in at the end.
Susan Haird: On the trade side, as I explained, the services are contracted out to Business Links and Chambers of Commerce. While we used to work with Regional Development Agencies to develop regional and international trade strategies, and while they did top up funding that we provided, there is not a fundamental problem with our continuing. The funding that they used to top up is gone, of course.
On the inward investment side, the RDAs did provide a service in the English regions for us, and that service-outside London, which has separate arrangements-will be provided by an outsourced contractor. There is a procurement under way at the moment to identify a contractor to do that. Our absolute aim is to ensure continuity of service on both the trade and the inward investment side despite the abolition of the RDAs, and we believe we are well placed to do that.
Q434 Rebecca Harris: There is also a loss of the finance that was coming from the RDAs. Is the funding for these roles, which came from the RDAs, a net loss?
Susan Haird: It is a net loss; on both the trade and the inward investment side, it is a net loss. There can be, I believe, some scope for efficiency savings on the inward investment side, because instead of nine regions offering inward investment service, we will have a national offering for England, minus London. That will enable us, for example, to have fewer specialists in particular sectors, because they won’t be bound by geography. They will be able to travel and help the inward investor outside the area where they live or are based. But there is a net loss in terms of money available.
Q435 Rebecca Harris: Did you get direct funding from the RDAs?
Susan Haird: It did work that way. On the inward investment side we used to put money from the UKTI programme into the socalled RDA "single pot". We have got that money back, subject to the spending cuts that were imposed as part of the Comprehensive Spending Review. But the RDAs used to top up the money we gave them with money of their own, and that money has gone. On the trade side, we fund these contracts that deliver our international trade advice in the English regions, and the RDAs used to put more money into the delivery partners that we have there. That money also has gone as a result of the abolition of the RDAs. We will be working with the Local Enterprise Partnerships.
Q436 Rebecca Harris: So do you envisage that financial support from the LEPs can be used in some way?
Susan Haird: I do not believe that is that likely.
Q437 Rebecca Harris: Would Mr Frost like to add anything?
David Frost: No, I think that covers it all.
Rebecca Harris: Okay. Thank you.
Mr Binley: He is learning very quickly.
Q438 Chair : Just to develop this, how are you going to work with the LEPs?
Susan Haird: That is to be worked out in detail, obviously, once they are fully up and running. We would envisage that on the investment side, for example, they would bring a huge amount of local knowledge to the inward investor, both as the inward investor is seeking something in the UK for the first time, and as the inward investor then seeks to grow out of the UK base. The kind of things that are important for inward investors to do, and to have help with, can be very local in their dimensions. They can be to do with access roads, local transport in terms of services and that sort of thing, as well as bigger issues that also are local. We shall be working very closely with them.
Q439 Chair : Can I just ask: at the moment, in effect we have got a patchwork quilt of coverage from LEPs. How are you going to work with potential opportunities in those areas that are not covered by LEPs?
Susan Haird: A number of LEPs, something over 30, have been set up already, and more will be in the pipeline. We will be working in the first instance with our post overseas and the outsourced contractor for the English regions. As and when there are LEPS available, we shall bring in that extent of local knowledge. The idea is that the outsourced contractors in the English regions will be able to do a lot of what inward investors need at the regional level. They will work with whatever local partners there are.
Q440 Mr Binley: We have already talked about the import of RDAs in partnership working with you in the UK, not least in that early briefing of potential exporters to China and people who potentially wish to set up businesses in China. There is a lot of joint working there. I just wonder whether you are concerned about what appears to many to be an unhelpful gap between their demise and LEPs not only having good geographical coverage but also becoming effective. We seem to be taking quite a bit of time to set them up and get them moving. Does that bother you?
Susan Haird: I think it will be good for the country when the LEPs are up and running and fully functioning. However, regarding our own trade delivery, and working with customers, as you have described it, wanting advice on going to China, for example, those same staff are there in the English regions. Our frontline staff, the international trade advisers, are there, 300 or so of them, under this outsourced delivery function. That was not dependent on the Regional Development Agencies.
Q441 Mr Binley: I understand. My point is slightly deeper. My point is about whether you are really happy that potential businesses are getting the help that they need on the whole project of exporting, of overseas aid-all that sort of stuff. There does seem to be a lengthening gap between the demise of RDAs and LEPs really becoming active.
Susan Haird: But the RDAs were not part of the trade offer to customers.
Q442 Mr Binley: No, I understand that, but they are a wider part of the whole wellbeing of trade in the UK, on which export is dependent.
Susan Haird: The Government has taken a decision-
Q443 Mr Binley: Ah, now you are playing that game.
Susan Haird: -which was to abolish the Regional Development Agencies, and it wishes to have Local Enterprise Partnerships. We shall look forward to working with the LEPs when they are fully up and running
Mr Binley: I admire the way you did it, but I am not sure that I am happy with the answer.
Q444 Nadhim Zahawi: One final question, just on that point. I know that certainly in my patch, in Coventry and Warwickshire, we have a very dynamic LEP up and running. Did any of you attend the conference yesterday on the LEPs, with the Prime Minister, the Secretary of State for BIS and the Secretary of State for DCLG in the Ricoh Arena yesterday, where they had all the LEPs together?
Susan Haird: I did not, and I am not sure whether anybody did, I am afraid. I cannot answer that question.
Q445 Nadhim Zahawi: Mr Crawford?
Patrick Crawford: No.
Q446 Nadhim Zahawi: Mr Frost?
David Frost: No.
Q447 Nadhim Zahawi: No one attended the conference for the LEPs?
Susan Haird: None of the three of us.
Q448 Nadhim Zahawi: Or anyone from your Department?
Susan Haird: That I do not know.
Q449 Chair : Can I just go back to the point that you made about the outsourced contractor to provide advice to LEPs and other regions?
Susan Haird: Advice to inward investors? Yes.
Q450 Chair : Yes. Where are you with the appointment of the outside contractor?
Susan Haird: We expect the appointment to be made later this month.
Q451 Chair : Right. Okay.
Q452 Mr Binley: Do you have any inside information on that?
Susan Haird: I have not.
Q453 Chair : I am tempted to press you further, but I realise that obviously there is a limit to what you can say on that. Later this month is when we can expect an announcement?
Susan Haird: Yes, there need to be interviews, and then, as I understand it, there is a cooling off period.
Q454 Chair : Can I just finish with a question that refers back to some comments you made about the value for money that UKTI provides? I believe the quote that you gave me was that for every £1 invested in UKTI, it is estimated that there was a £19 return. What calculations have you made on the amount of money lost on that reduction by the reductions in UKTI’s budget? By definition, if you are going to get a chop in your budget, then it is reasonable to assume that it will be that times 19.
Susan Haird: I think that would be a reasonable assumption, if one simply did the maths. If you build in our aspiration of increased productivity, you might hope for less of a reduction.
Q455 Chair : I was rather expecting that response, but can you just elaborate on how you might increase productivity?
Susan Haird: I know that targets are controversial, but we have found the setting of targets to be helpful in encouraging staff to focus on things that are important, and encouraging our teams to reach out and seek to help more customers. I think that the better use of edelivery will also help. The website is now improved and we are seeking to encourage our posts to make more use of the Business Opportunities scheme, which is the webbased system that I was describing earlier. You post the opportunity, and it goes out by email to people who are interested. They can then either go direct, or they can come via the post if they want more help. The SMEtoSME networking site that I mentioned is another way of extending our reach in a lighttouch way. Those are the kind of ways in which we are seeking to drive up productivity.
Q456 Chair : We will see. Can I thank you all for your attendance and contribution, and reiterate what I said the previous panel: if you feel there is anything that you want to add in response to any of the questions that we have given, and that you did not respond, then please feel free to send us some further written evidence. Thank you very much.
Susan Haird: Thank you.
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