Session 2010-11
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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 735-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Business, Innovation and Skills Committee

Rebalancing the Economy: Trade and Investment

Tuesday 1 FEBRUARY 2011

Nick Fry, Sir Roger Bone, Lord Charles Powell and Paul Skinner

Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE

Evidence heard in Public Questions 133 – 225

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Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Tuesday 1 February 2011

Members present:

Mr Adrian Bailey (Chair)

Mr Brian Binley

Paul Blomfield

Katy Clark

Rebecca Harris

Margot James

Simon Kirby

Gregg McClymont

Ian Murray

Nadhim Zahawi

________________

Examination of Witnesses

Witnesses: Nick Fry, Chief Executive, Mercedes GP, Sir Roger Bone, President, Boeing UK Ltd, Lord Charles Powell, Chairman, Asia Task Force, and Paul Skinner, Chair, Infrastructure UK, gave evidence.

Q133 Chair : Good morning and thank you for agreeing to speak to us today. Just before we go into the formal questions, in order to check on transcription levels and so on, would you like to introduce yourselves, starting from the left?

Nick Fry: Good morning, my name is Nick Fry, I am the chief executive of the Mercedes Formula 1 team, based in Northamptonshire.

Sir Roger Bone: I am Roger Bone and I am the president of Boeing UK.

Lord Powell: I am Charles Powell, chairman of the Asia Task Force.

Paul Skinner: Paul Skinner, chair of Infrastructure UK, within the Treasury, and I was previously involved with Shell and Rio Tinto.

Q134 Chair : Thanks very much, I appreciate you coming. Before I go into the questions there is one particular question that I should ask Sir Roger. Comments have been made that you represent Boeing, which has been involved in lawsuits against a British company, or British interests. Is there not a conflict of interest in you being an ambassador?

Sir Roger Bone: Chair, I have two points to make to that. The first is that we are very much a British company. We are onshore in the United Kingdom. We are a British subsidiary of an American company, we do an enormous amount of business here and we are heavily dependent on the UK aerospace supply chain. We spend billions of dollars on business here and therefore I am in a good position to comment on the supply chain. We are also growing our footprint here; we have recently signed a contract with the Ministry of Defence, whereby we will be taking between 250 and 300 MOD civil servants onto our books, who will become Boeing employees. So we belong to the UK in a very big way. The second point I would make is this: speaking as the head of the British subsidiary of a huge American company perhaps adds to my credibility when I talk positively, as I can, about the UK aerospace industry.

Q135 Chair : Has the Boeing legal action helped or hindered the development of your British footprint?

Sir Roger Bone: That is a highly complex issue, which is running its course with the WTO at the moment. It is an intergovernmental issue at this stage, rather than an inter-company issue. There are very strong views on both sides of the fence on that; I don’t want to go into all the detail of that now, although I am happy to if you wish, Chair. I think the best course is to let that run its process through in the WTO, and for both sides to respect whatever judgment the WTO comes to, to listen to it, to respect those judgements, and then to move on.

Q136 Chair : We will watch that with interest. Can I move on to more general questions? I would stress that not every member of the panel needs to feel obliged to answer all the questions. If you feel that your particular response has already been covered by another speaker, please, in the interests of brevity, move on. Can I just start with a very general question? Since the start of this inquiry we have heard that the UK has lost its "mercantile spirit": that it gives the impression it does not have the capacity or interest in exporting. What do you see as your role, as British business ambassadors, in reversing this?

Lord Powell: Shall I start, Chair, as a volunteer? It is not true that Britain has lost its mercantile spirit. I think that is absolutely wrong. I would, however, say that its mercantile spirit needs to be liberated; I think it has become rather submerged sometimes by regulation and tax, and I think reforms in the economy are strongly needed to set it free again. Secondly, I think when we talk about our mercantile spirit, which is a term of which we were very proud in the 18th and 19th centuries, we have to remember that the competition globally is very much stronger these days. Therefore, the idea of Britain as virtually the only trading nation out there is a bit dated, so we are up against it. What do we do? In my view, we work alongside companies and the Government in promoting what Britain and British companies have to offer in world markets. We use the access that we have through our own business activities, and the networks that we have built up, to advance the British cause. Above all, we talk up Britain; we don’t play down Britain, as the media so often does.

Q137 Chair : Anybody wish to add to that?

Paul Skinner: Just a small point. I think that one of the issues we have, in relation to Britain’s export performance and capability, is that there is a general unawareness of the data. The car industry is an excellent example; we are a very large manufacturer of automotive vehicles in this country. We export a huge fraction of the number produced. That does not have the transparency or visibility that would help to dispel concerns that we may have lost our appetite for global trade and manufacturing. So I think one of the things we need to focus on is lifting the transparency of hard data like that. I do agree with Charles Powell’s comment that there is a tendency to talk ourselves down in this area, when I think we have every reason to talk ourselves up. That is one of the primary roles of business ambassadors, given the opportunity on public platforms in overseas markets.

Q138 Chair : Could I just follow that point in the context of the motor industry?

Paul Skinner: In which I am not an expert.

Chair : Because we have foreign-owned, British manufacturing of cars, there is a domestic perception that we don’t produce cars any more. Is that reflected abroad as well? Does that impact on the ability of our British-based manufacturers to export even more cars than they do?

Paul Skinner: Well, I think it is a positive point because if you flip the argument, the reason that a number of these foreign owned car manufacturers are here is because we have created the conditions for them to come here, invest, create jobs and export value.

Q139 Chair : I agree with that, but it is not really the point of my question. What I am trying to get at is: does this prevailing perception that we no longer actually produce cars in this country affect our potential for foreign purchases of cars made in this country, albeit by foreign-owned companies?

Paul Skinner: Personally I don’t think so, but there is certainly clarity to be added to explaining why a number of our major manufacturers in this country are foreign owned. I don’t think that diminishes the economic value of their presence here.

Nick Fry: As the car guy, maybe I can add a little bit? Regarding your first point, I think we have severely underestimated what I consider to be the competitive threats. Maybe the penny is now dropping that there are a lot of countries out there that are winning a lot of business, notably in Asia. Hopefully, with initiatives like this, we can up the ante in doing something about it. Regarding the car business and a more general point about advertising what we are good at, I think there are a lot of untold stories. Not many people seem to realise that last year we made about 1.2 million cars in this country. The majority of Ford’s diesel engines globally are made here. A large percentage of their gasoline engines-about a quarter, I think-are made here. Not many people in or about my business seem to realise that Michael Schumacher’s MercedesBenz is made in Northamptonshire, as is the engine. That is a point that we made last week to the Prime Minister. There are a lot of good stories. Going back to the question you asked, because we don’t tend to talk ourselves up enough and we tend to be a bit self-deprecating, it does reflect on how people perceive us. The brand of the UK is extremely strong, and we are the ones that need to get out there and talk it up, because a lot of people do think very well of us and, in many ways, we seem to be our own worst enemy.

Sir Roger Bone: I would endorse that, Chair. The area of British industry that I know most about is the aerospace sector. That is still very much a jewel in our crown; we have something like 16% of global markets for exports in the aerospace sector. That is an extraordinary achievement for industry here. Certainly from my own company’s point of view, we still come to the UK for the cutting edge of high technology that we find here. We are just launching the new 787 Dreamliner aeroplane, and there is a very substantial contribution to that by British industry. The issue that confronts us is how we go forward, and whether we can maintain the levels of investment in research, development and human resource, to enable us to maintain that cutting edge.

Q140 Chair : Thank you. Lord Powell, did you indicate? No? That’s fine.

You have spoken about talking up British business excellence, and I don’t think anybody could quibble about that. Is there anything more specific that you feel defines your role as a British business ambassador? Perhaps if you have done something particular you could tell us about it. Lord Powell?

Lord Powell: Sorry, I keep holding up my hand-I will stop. Yes, I think there are very special things that all of us can do. In a sense I feel that I have been doing what needs to be done for quite a few years, even though I have only been a British business ambassador for a few months. First of all, we can focus on our areas of particular expertise and knowledge, and I have tried to do that in Asia. In Asian markets I have been preaching the China message for 20 years now-the potential of China’s growth and its markets. I have been engaged in setting up the Singapore British Business Council, I have been chair of the ChinaBritain Business Council for about 11 years. I now chair this Asia Task Force and that I think is a role for a British business ambassador, because it is really trying to get more British companies out there, to export in the market. So in one sense it is an inward facing role. It is getting out the message, and we have been doing it through organising a series of events right round the UK, which usually a senior Minister and I will address. Then we organise what are called country clinics. We get our Ambassadors or High Commissioners from the Asian region, or the Trade Advisers from the Embassies and High Commissions if they are back in the UK, to come and run these clinics. Companies can go there for 45 minutes and get real first-hand expertise about the markets. They can ask questions and get knowledge about what help is available. That is a very specific role that one can play, and I try to do that.

Of course, abroad there are many other roles you can do: lobbying on behalf of British companies, lobbying for better market access and for overcoming specific business problems. I was down in Indonesia last week for three days and saw several Government Ministers. There are a lot of obstacles in Indonesia to British, and other, companies. It is telling the Indonesian Government, and making them recognise these sorts of problems that I think is a helpful role for business ambassadors to do.

Q141 Chair : That is interesting, because I would have thought that was a political role as well.

Lord Powell: I don’t think one has to distinguish in this case; it is a political role, and Ministers do it as well, but I think it does not hurt at all to have businessmen doing it alongside them.

Q142 Chair : Any other comments on that?

Sir Roger Bone: Chair, I look back over the last 15 to 20 years of my professional activities, and before I went into the private sector eight years ago I had a decade as a British Ambassador overseas. Much of what I do now I see as a kind of continuation of the work that I was doing with UKTI in its infancy, 10 to 15 years ago. It is a mixture of advocacy, of targeting potential inward investors, as well as helping, in a handson way, potential exporters overseas. In my own case, as an ambassador for British business, I have both interacted with business men on the west coast of the United States, potential investors here, and spoken at a forum of SMEs at Loughborough University in the West Midlands, preparing to invest overseas in emerging markets for the first time.

Q143 Chair : You talk collectively about lobbying and making connections and so on. Can you give any evidence of where there is a definite, measurable impact of something you have done as ambassadors? Or maybe something one of the other ambassadors you know may have done?

Lord Powell: I think the question of specific impact is always very hard to measure in the whole trade field. This applies not just to business ambassadors, but to UKTI and to Ministers too, because at the end of the day, we don’t do the business. It is the companies that do the business and that is where the impact is felt. I would say that yes, I think I have contributed to raising awareness of Asian opportunities across the UK, particularly amongst SMEs. That is quite specific but you cannot measure it in pounds gained in export orders. You can see export figures for Britain go up, and you can think "Maybe I helped with that", but you cannot give anyone credit for that, other than the companies that actually make the sales.

Q144 Chair : Have you actually had any companies tell you that, arising from your advice, they have managed to do this?

Lord Powell: Yes, comments come in two ways. One is through our Embassies and posts in the area, who say they are getting many more inquiries from smaller British companies now and they are seeing more coming out of trade missions and so on. In terms of specific company comments, again, yes, through things like the ChinaBritain Business Council you do hear that these efforts are helpful and supportive. Are they ever clinching in a deal? Very rarely.

Nick Fry: I have only been involved in this for one month, so maybe I could just comment on what I hope should be the case and what I hope we can achieve. I think we do need very specific targets; I think the business ambassadors need a clear mandate, and to be given objectives. The way we run our business is with an almost laserlike focus on achieving results, and if this initiative is to be a success we do need to follow through from general advertising about how good we are, to setting out the things we hope to achieve with very clear targets. Then we can get back to measuring whether we achieved these and if not, why not. Possibly it has not been the case in the past, but we need to be a lot more focused about this and be clear on what we are trying to achieve and measure whether we do it or not. If we don’t, then we need to improve the situation for the future.

Paul Skinner: I have a brief addition to the points that have been made. In periods where I have been in a leadership role in a global corporation hosted in the UK, there have been occasions where, in overseas markets, it has been possible to get a public platform because of the recognition of the company I have been associated with at the time. That has been a helpful supplement to local diplomatic or trade representation, who might otherwise have found it more difficult to pull a large gathering of local businesses and other interested people together. That is something that I think our larger companies can do. Also, I think there is a role for our leading global corporations, hosted in the UK, to play a supportive role towards small and medium-sized enterprises, who are trying to get more involved in overseas markets. The larger companies are perhaps going to have a better understanding of the ways those markets work, and they will probably be operating supply chains from which smaller UK-based companies can benefit, all other things being equal.

Chair : Just before I go on to my final question, Nadhim Zahawi would like to come in.

Q145 Nadhim Zahawi: I just want to pick up on Nick Fry’s point. I completely get the idea that it is hard to measure the work of the ambassadors, and I also understand the narrative-that we should talk ourselves up not down. However, there is a bit of a rude awakening in what is happening elsewhere in the world because of competition. What I would like to ask the rest of the panel is whether they agree with the newcomer, i.e. that there should be real targets based on outcomes? We have heard in previous evidence sessions that most of these targets are about how many people you can get to a particular conference, rather than outcomes of real deals on the other side. What are the views of the rest of panel on the point Nick Fry has raised?

Sir Roger Bone: I agree with the comments Nick has made. I think one should always try to be as specific as one can about the achievements. As a business man too, I am very focused on concrete achievements, concrete targets-how you meet those targets and how you don’t. If I could recall my time as an Ambassador overseas, it was actually much easier to set specific targets and to measure your achievement in that role because you were there the whole time and you could follow through a process that you might initiate. You could actually see on the ground the consequences of what you were doing. The role of British business ambassadors is slightly different, in the sense that we dip in and out of the process. We give of our time as and when we are somewhere, and when we can add value to an ongoing process. Looking back on it, I sometimes feel that it is difficult for us to get a feel as to how much our personal contribution has been to the process or target. So, more feedback from UKTI on how we have done would certainly be welcome.

Lord Powell: I do not think you can set specific financial targets for something you are not in control of. I am not in control of selling motor cars in a specific market. If I was in my own business I would be able to set a target, but you cannot if you are just a business ambassador. So, I think in terms of specific targets, you cannot do much more than the number of visits you have made to a market, the number of events you have spoken at or chaired and that sort of thing. That may sound a little amorphous but it is quite useful. I do not think it is feasible to have specific financial targets. You cannot do it in Government in this sort of role.

Paul Skinner: Just one point. I think what the group of business ambassadors does constitute is a resource available to Government and UKTI to shape the priorities for trade and investment policy as a collective. I think perhaps this is something that, in my experience, has not been particularly well utilised in the past. Within the ambassador network there is quite a lot of useful opinion that could be a valuable input into the policy formation.

Q146 Nadhim Zahawi: So do you need to structure that?

Paul Skinner: You do.

Q147 Mr Binley: We have had the great privilege of going to a sizeable number of countries looking at UKTI, and if I hear the word "process" again I shall go mad. They are for ever giving us figures about the numbers of people that attend this and that, and the number of exhibitors they have. When I say "Okay, what is the outcome?" they haven’t got a clue. I must tell you that process is only a part of the game, and Nick Fry is absolutely right-and I am delighted that he mentioned Northamptonshire, my home county. We are interested in outcomes, and there are ways of measuring outcomes. One of the things I hoped you would do is inject into UKTI the concept that, although process is fine, it is not the be all and end all, it is only the start of the game; outcomes are the real game. How can we do that, recognising your experience?

Lord Powell: Well as you heard from my last answer I am sceptical when it comes to very specific outcomes for people fulfilling the sort of function we are asked to do. We would all like to see exports increase; we know that in some markets there is a definite target. For instance, when the Chinese Premier met the Prime Minister in Beijing, they agreed to set a target for two-way trade between Britain and China of $100 billion by a specific date. That is a general target, it is not one that we find in many countries, and it is very much related to the nature of the Chinese system. To say that every business ambassador should be able to deliver $5 million or $10 million worth of contracts, is something I think you cannot make work.

Q148 Mr Binley: Forgive me Lord Powell, that is not what I said. I said how can you, using your expertise, get UKTI and the Government to recognise they need to monitor outcomes? We need to be aware of how successful we are being; otherwise this is simply an accolade bestowed upon you, a sort of honour in another way.

Paul Skinner: I would like to go back to the response I gave to an earlier question, if I may? I think there is scope for more dialogue, not only in policy and strategy formation, but the way in which UKTI itself, which is the accountable agency in this case, goes about the business of setting sensible priorities and, perhaps, targets. However, they are the prime accountable organisation. We can and should help them in that, but we do need to arrive at some kind of more structured engagement with them in order to deliver that. I think we could do that.

Sir Roger Bone: To echo a point I made earlier, we do need more feedback from UKTI as to how effective our own contribution has been. I can assure the Committee that that is a point I have raised with Ministers.

Q149 Chair : That is just the cue I want to move on to the relationship between the business ambassadors, UKTI, BIS and No. 10. It has been put to me that some of the ministerial visits happen at the conclusion of what may have been a lengthy round of negotiations, in effect to crown contracts that were going to happen anyway. In comparison, Angela Merkel and President Sarkozy will dash out to a foreign country in order to facilitate a deal, not just to crown it. First of all, do you think there is something in that? Secondly, as ambassadors, do you feel that you have a role in your interaction with BIS and No. 10 to set a foreign business agenda that may benefit from a political intervention, in some cases from the most senior level? Lord Powell?

Lord Powell: I think the answer to your last question is yes. I don’t think there is a great difference between what British Prime Ministers do and what other countries’ Heads of Government do. Part of it depends on the nature of the market you are dealing with. In China it is still the habit to sign contracts at the time of senior visits; in other markets it is not at all a part of a prime ministerial visit just to be there to sign deals. In my experience, different Prime Ministers have done it in different ways. I worked for many years for a very active Prime Minister in the contract field, who was very keen to know, everywhere she went, what the specific British companies that were trying to win a contract were. She would belabour the Governments concerned to make sure that we did win them. Others, perhaps, have not been quite so active. My impression, from the breakfast that all of us attended at No. 10 the other day, was that this Government seems very committed to help British companies and make supporting British companies in winning contracts a major part of all its foreign visits. They want to be briefed every time they go to markets, as do we, on what are the pending negotiations that could lead to a successful contract. I have lived and worked in Germany and I see quite a bit of France these days, in a business sense, and I do not think there is a great difference between what is done there. In fact, in some ways I think we are actually more effective in the process-I know Mr Binley doesn’t like the word; it’s the first time I’ve used it-but maybe not in the results. That is more down to the sort of products where agreements are being signed than it is to the nature of the political effort.

Q150 Chair : Is there anybody who wishes to add to that?

Nick Fry: Regarding the first part of your question, I don’t know enough about it to make any accurate comparisons, so that is for others to comment on. I think the meeting we had with the Prime Minister a couple of weeks ago was very good as what I would consider a kick-off meeting. I think the scene was set very well. Subsequent conversations with Lord Green were promising in following up on that. The important thing is what we do next, and putting in place a very structured plan to come back with clear objectives as to what we are supposed to achieve.

Q151 Chair : You talk about a structured plan, is there any formal process of interacting with senior Ministers and the Prime Minister?

Sir Roger Bone: Chair, there is no formal process at the moment for that. We interact with Ministers as and when we do so as part of our normal activities, and where there is a specific point to discuss in relation to our trade ambassador role. There is no formal structure for doing that, as such.

Lord Powell: There are some exceptions. With the Asia Task Force we meet with Ministers two or three times a year.

Paul Skinner: I think in the meeting that took place recently with the Prime Minister he made it very clear where his expectation level sat in relation to the activities of this network, and that he would expect to be engaged at intervals with the network to understand what they were managing to do.

Q152 Nadhim Zahawi: I want to ask you about the meeting itself. Before I get to that, I think you raised an important point about the attitude of the Prime Minister to business development, Lord Powell. You gave the example of Margaret Thatcher wanting to know every deal that was on the table with a particular country, and then badgering the other side to make sure that deal got signed. One of the things that we have been aware of, and I think the Chair alluded to it, is that we are very good as a nation when it comes to the service industries and selling those abroad, yet we have been much weaker when it comes to manufacturing, construction and so on. The French certainly have been much more proactive in pushing other sectors beyond just the service industries. Aerospace is probably the only exception to that rule. Do you think it is a trickledown effect from the Prime Minister downwards, and that it is the attitude of saying, "I want to know every deal" which makes the difference?

Lord Powell: I think it is a very important influence. If Government servants and business know what the Prime Minister’s priorities are, and they are clearly expressed, then they tend to follow that lead. It seems clear that this Government has said that commercial diplomacy is right at the top of its list of priorities, so I would expect the machine to fall in behind that, and rightly so. Your first point is a very important one. The French have a much bigger and better nuclear power industry than we do. Big deals tend to get signed because they tend to be GovernmenttoGovernment or have a high Government component. Germany, obviously, in the machine tools and automobile industry is extremely strong. Those are things that many of the main markets are looking for at the moment, particularly in Asia. If you look at China, Korea and markets like that, those are the big-ticket items that you will see. Ours often tend to be less headline-catching deals, outside the aerospace industry and Rolls-Royce in which I am heavily involved-we do get very large orders in the aero-engine business and perhaps we don’t make enough of them publicly as we should. I would not denigrate what the City of London and our services sector do, but it is not just financial services: our engineering specialists, our consultants and so on do very good business. It is not as visible, you cannot have such a big contract signed under the glare of the television lights, but it is there underneath. I cannot escape the overall point that yes, our export performance is not as good as it should be, we need to improve it and they are quite right to make this a very high priority.

Q153 Nadhim Zahawi: Thank you for that. Returning to the meeting on the 11th, I just want to go further into the detail about what was discussed and your impressions, specifically Lord Powell. Is this Prime Minister like Margaret Thatcher or is he like other Prime Ministers?

Lord Powell: Well he was certainly very vigorous in expressing himself at this meeting, in setting the priorities. I was with him on his visit to China in October or November and he certainly seemed to give a very high priority to business there. He travelled with the business delegation and spent a lot of time with us on the aeroplane. He took us to his meeting with the Chinese Premier, he attended a reception and he spoke at the ChinaBritain Business Summit. So the evidence I have is that he is very strongly committed to supporting British business. I don’t think anyone would pretend to emulate the precise style of Margaret Thatcher. I notice that you used the word that she would "badger" foreign Governments-I think that is a very diplomatic term for what used to happen.

Q154 Nadhim Zahawi: Just on that point-Paul Skinner, you mentioned that the Prime Minister outlined the details of what he expected from the ambassadors at the meeting. Can you just shed a bit of light on that expectation, or more detail on that?

Paul Skinner: Well, he opened the meeting and spoke with intensity and passion about delivering superior trade and investment performance, and made it very clear that he was relying on this network to help facilitate this. Lord Green, who had only been a day in office at the point of this meeting, was also able to demonstrate that from experience. The key point, for me, was that the Prime Minister made it very clear that he expected all our overseas representation to start to develop an increasing trade and investment bias, and that he was going to show regular interest in the progress that was being made. I don’t think you could have wished for a more enthusiastic expression of intention in this area.

Q155 Nadhim Zahawi: Thank you for that. Could I move on to the role of UKTI when it comes to you fulfilling your role? Are you briefed by UKTI before you go on a visit? When you give an answer to that question could you also shed some light on how helpful you find those briefs from UKTI, and say if there is anything else that you would like from them. What is the level of administrative support that you are getting from BIS? How are you funded? Is adequate funding there for you to carry out the role?

Sir Roger Bone: Perhaps I could go first on that? Every time we undertake a commitment, UKTI produce a brief on the issues that they think might come up. In my case they produce a background brief on the current state of play within the UK aerospace supply chain, and any issues currently arising that I might need to know about. I am given good administrative support. The understanding is, with the commitments that we undertake, that they are done in the margins of our existing travel and our existing diaries. So the onus really rests with us to tell UKTI where we are going to be at any particular point, and it is then for them to decide and to advise whether there is anything we can do for them, as part of our regular travel and as part of our business in the UK. So in that context we find the administrative support quite sufficient. On funding-there is no specific funding for us on this. We give of our time free. We receive no payment for this; very occasionally a minor expense might be incurred, for example an additional night in a hotel in order to undertake a commitment, but that is the extent of it.

Lord Powell: Could I just amplify that in one small way? When you are talking about briefing by UKTI I think you also have to comprehend it as briefing by UKTI staff in our posts overseas. That is a very important part of it. I find it absolutely essential and invaluable to go to the Embassy or High Commission and get briefed there, when I am in the country. They are really up to date on how matters stand, trade obstacles, progress with specific contract negotiations and so on. So UKTI in the wider sense, I would say, are very good about briefing.

Paul Skinner: I would agree that the briefing received more than meets the requirement. I think the challenge for this network, and the way it will become effective, is if it can personalise the messaging. That is the merit of having people from various fields active in this way, so it is a question of taking the core messaging as to the UK position and intentions, but somehow packaging it in a way that will add to the credibility and impact of the message by virtue of the people who are delivering it so that they are not, as it were, from the mainstream Government organisations; they have come from the side with a special, experienced point of view, which, hopefully, will add to the credibility of the message.

Nick Fry: To add to what has just been said, my experience so far is that all the admin, support and briefing is first-class; there is no issue with support. As to what has just been said on budget, I do not think I have called for anything so far. I think they would be extraordinary circumstances if one had to ask for something special because it fits into our normal schedule. My only "could do better", which we have to move towards, from what I have seen so far, is that briefings need to be taken down to an absolute focus, which comes back to: what are we trying to achieve here? In my business I am used to very specific objectives. When we go out to get sponsorship or do business it is very focused indeed. When we go to a reception obviously we target certain individuals to whom we need to speak with a certain outcome in mind. From what I have seen, at the moment the briefings could probably be honed a little more towards, "This is the mission. What do we want to come out of this with?"

Q156 Nadhim Zahawi: I think that is coming through from the responses we have had up to now, i.e. it would be helpful to have a bit more structure using all the experience and backgrounds. Last week we heard from the CBI that the previous ambassador scheme had worked very well but had tapered off. How can we avoid that tapering off and continue the momentum of this scheme? Everything we have heard up to now is incredibly positive, but the danger is that obviously these things fade away and nothing really is achieved.

Sir Roger Bone: My only comment is to say that I joined the scheme halfway through 2009, so I was not one of the original members of the group but I did do this with the previous Administration. We came to a point early last year when I suspect the Department felt it was not quite sure what would happen on the political scene and whether there would be an appetite to continue this through any change. I undertook one commitment for UKTI in July of last year which was pretty soon after the election, but it had been in the diary for some time and was linked to the Farnborough Airshow. There was a slight hiatus while the new Administration got to grips with exactly how they would like the scheme to continue.

Paul Skinner: I think you have to put in place a regular set of interactions between the trade interests in Government and this network, which is something that happens regularly. Perhaps not everybody can participate every time but at least to maintain the currency of the arrangement and its vibrancy is critically important. The only way to do that is to make sure you have things happening with a regular drumbeat.

Nick Fry: I believe Lord Green is planning to set up a follow-up meeting every two or three months. It is imperative that that happens to keep the momentum going.

Q157 Rebecca Harris: Lord Powell, from your experience what has been your advice, and perhaps was at the meeting on the 11th, to the Government on how to improve both our trade exports and inward investment? We talked earlier about the brand but I mean beyond that.

Lord Powell: The first point must always be that in exports it is the domestic base that counts. Exports will happen as a result of how companies are performing in this country and the conditions in which they operate, so it is getting the economy right, reducing the burden of regulation, improving education, vocational education, training and all these things which make companies more effectively generally and which can also contribute to making them more effective exporters. In that sense that is a very broad bit of advice but it is probably one that we would all tender to Government of whichever political party. Beyond that, the second point is that the political backing is very important. We have just been discussing that. This kind of campaign does not work unless the Government are wholeheartedly, visibly and audibly committed to it and giving a lead in it, that Ministers travel to markets and when they are there they are thoroughly briefed to raise issues of interest to business and perhaps take business delegations with them and so on. That also helps the effort. Over the years it has rather fluctuated. It has not always been as good as it should be, so the standard of that needs to be kept up. Following on Mr Zahawi’s point, it is very easy for momentum to flag after a bit. Any Government perhaps tires towards the end of an electoral period, but it must keep up the pace. That is another bit of advice we would give them. Then there are more specific points but I think it would be tiresome to go into all the details. To give just one example, I think very large trade delegations do not really work because so much effort is devoted to shepherding them, getting them onto coaches and saying who is going to which meeting and so on. I experienced several very large delegations and I thought their effectiveness was much less than a high level but quite small business delegation supporting a Prime Minister or Minister.

Paul Skinner: For me, the overriding consideration is to ensure that between Government and the business community and the network of ambassadors there is real clarity as to what the priorities are, certainly in export markets. One thing we have not talked about at all in this conversation is inward investment, which is another important dimension in this. Currently, I am working in the field of infrastructure where we have a potential investment gap and where encouraging inward investment is critically important but also in manufacturing. For me, it is: how do we make the priorities clearer so that everybody across our business community in the UK is clear about what we want to do?

Q158 Rebecca Harris: What have we been getting wrong? Why is there an investment gap?

Paul Skinner: In terms of inward investment?

Q159 Rebecca Harris: Yes.

Paul Skinner: I think we have had remarkable success. Let’s not view this negatively, but in certain areas, of which infrastructure is a good example, there is potentially a significant investment gap as a result of the requirement to renew large tracts of our energy and transport systems, for example. We need to ensure that the opportunities which are there are widely understood in international markets. If we do not do that we are at some risk of a shortfall occurring.

Chair: Can I just bring in Margot?

Margot James: My question was rather general.

Chair: Okay, we’ll finish with yours then, and then we’ll give you a chance.

Sir Roger Bone: If I may come at this in a rather specific way through the aerospace industries of which I know, as has been acknowledged already we have a first-class UK aerospace supply chain. Companies like mine continue to do enormous business with the UK aerospace industry. If I am frank, I worry about how it will look in four or five years’ time. By that I mean that the aerospace industry is a hugely competitive global marketplace. The reason why in the past we have come to the UK is because of the cutting-edge technology we have found here. We are an industry that works in huge cycles, so the key thing is what happens the next time we launch a new generation of products or build a new aircraft. Perhaps that will be the replacement for the single-aisle aircraft. I do not know. That might be in a number of years’ time. I would like to think that when we get to that point UK industry will be as competitive as it has been in the past in winning contracts with big companies like mine. If UK industry is to be in that position the absolute priority at this stage is investment in the research and technology base and the human resource to ensure that those standards are maintained. As a UK citizen sometimes I worry as to whether we will maintain that cutting-edge position. I like what I see in terms of the new Government’s policies in this area; I like the emphasis they are putting on investment in research; and I like the ideas of technology innovation centres with which no doubt the Committee is familiar. I am also personally familiar with a number of excellent, world-class research centres in the UK. For example, at Sheffield university there is an absolutely first-class advanced manufacturing research centre with which we are very proud to be associated. Therefore, we can do it. There is progress there, but it is absolutely vital that that should be sustained as we go forward.

Nick Fry: I think that success or failure of the initiative will come down to consistent leadership from the top and keeping up the level of energy and keeping things going. The other important thing is availability of senior people to break down barriers when they occur. From a business point of view sometimes one can easily get bogged down. When one asks for help it is very dependent on whom you get. Sometimes it is very successful if an individual takes up the cause and pushes it through; at other times a lot of people get involved and nothing happens to the point where business tends to give up asking for support. When there are issues and we have objectives, if there are barriers they need to be addressed in a very timely fashion.

Q160 Gregg McClymont: This is also a broad, general question. Reference was made to our manufacturing capability. Do you think we have a problem in this country with the breadth and depth of our manufacturing base? Supply chains have been mentioned. Obviously, in aerospace we have that scale and capacity, but is there a problem? Do we have enough sectors of that kind that can support the supply chain?

Sir Roger Bone: I can talk only about the sector I know about. Nick may be able to talk about the automotive sector a little more.

Nick Fry: If I take advanced engineering, which I guess is what I represent, we have 4,500-odd companies, all small and medium-size, that operate in the sector. It is of a reasonable size: I think it has a turnover of about £6 billion of which about £4 billion is exported, so it is quite important. The slightly worrying thing is that although a lot of the companies involved in the sector continue to exist, from our perspective there has been a noticeable shrinkage in their capabilities. When we go out to our supply base this year versus last year or previous years, it is noticeable that they have fewer people and less capability to cope. We need to reverse that and encourage those businesses somehow to get out there, win more business and employ more people. At the moment it is tending to slip in the opposite direction.

Paul Skinner: I would like to comment on opportunity. I remember very well the way in which the UK developed the North Sea as a hydrocarbon basin and created a supply chain which is still printing value for the UK in global markets. It is diminishing a bit but it is there. I think that in the energy transformations ahead of us we have the opportunity with very large levels of expenditure in prospect to create new supply chains in renewable energy and parts of the nuclear industry if we choose. Those opportunities do not come along very often, so we should think very hard about how we seize the opportunity to create new economic platforms that will be valuable to us for a long time. But they need skills. The point made earlier, which I endorse, is that the flow of science and technology skills into our economy is something about which we should be very concerned. We had better not miss that as something that will influence the outcome.

Q161 Gregg McClymont: Has the flow been disrupted, or is this a longer-standing problem?

Paul Skinner: I think we have seen an erosion of the number of those engaged in science, technology and engineering, not only graduates but at different levels of professionalism, flowing into UK industry in recent years. A lot of people have switched their ambition towards services activities. In some way we have to recreate the enthusiasm for those core technical skills on which so many of our great industries in the past have been built.

Q162 Gregg McClymont: How do we go about doing that if, as I understand what you say, a lot of our better graduates in these fields now migrate towards the City and financial services? What practically do we do to redirect that talent?

Paul Skinner: Ultimately, the market will determine those flows. In some way we as employers have to create careers that are attractive in price for people who aspire to them. That is where we have to start our thinking.

Sir Roger Bone: I referred earlier to the technology innovation centres, which the Government are keen to promote. I think that is one way to encourage developments in the industrial base to which you refer, but private industry too is doing its bit. For example, just two weeks ago I was privileged to attend the opening of an advanced forming research centre at the University of Strathclyde which will be absolutely state of the art in that aspect of advanced manufacturing. That is a very encouraging sign. We and a number of other big companies are certainly participating in that.

Chair: We are moving slightly away from the role of ambassadors. Perhaps we can refocus it. Nadhim, Brian and Margot have indicated that they want to ask questions on this section, but first I ask Rebecca to conclude her questions.

Q163 Rebecca Harris: Nick Fry said at the outset that the UK plc brand was quite strong. I just wonder whether everybody agrees with that. From your travels how do you feel we compare with our competitors in terms of our brand and the effort we put into inward investment and exports?

Lord Powell: Broadly, our brand is still pretty strong but not as strong, particularly in the manufacturing sector, as the German brand. There is no point in ducking that. The German manufacturing industry, particularly engineering, is very strong and exports hugely across some big product sectors and is very respected. But I do not think that should make us disheartened. Our brand is still a very recognisable one. A lot of progress has been made in recent years in getting away from Beefeaters, red London buses, processions and that sort of thing. The brand has been refocused quite successfully on what we are actually doing in advanced materials, information technology and so on. To give you one example, in the World Expo in Shanghai the British pavilion won the golden award for being the best and showed very much the sort of brand that one would want Britain to have. I have a terrible memory of the 1980s of going with Margaret Thatcher to various expos and the British pavilions were awful. The prime exhibit was usually a cardboard model of Concorde with a rather bent nose and it did not really tell you very much about what Britain was really offering. I think that side of things has improved greatly.

Nick Fry: My view would be that we need to do more work to hone what we actually are. I think the brand is reasonably strong but, looking at it from the marketing perspective, it needs to be defined better than it is at the moment. What are we good at? What are we going out there to sell? Almost in advertising terms, what is the elevator speech about what we are good at? I do not think we have honed it down to that level. As Lord Powell says, there is a bunch of things from which we have moved away. But what are we? The only other observation I make is that, with all due respect to everyone, possibly we are a little too polite. We go back to places with our Grand Prix schedule every year. It is quite a nice cadence because you can see the level of change, which in most parts of Asia is immense. The people are very young, enthusiastic and committed to commercial success.

Q164 Rebecca Harris: We are not pushy enough?

Nick Fry: We are not pushy enough, absolutely; we are a little, "After you." I think that has changed but-I refer to it again-compared with what the competition are doing, we are not focused enough.

Q165 Rebecca Harris: What should we be learning from the competition?

Nick Fry: I come back to the point I have made several times. I think we need very clear objectives of what we are trying to achieve. We cannot be good at everything. Quite a lot of business analysis needs to be done of our strengths and weaknesses. Where do we need to focus? Then we should lay out clearly what we are trying to achieve. I come back to measuring it. As Mr Binley said, we need some measurable objectives.

Paul Skinner: We have underlying brand strength, but our brand identity has become a little blurred. There is confusion in the minds of a number of our international trade counterparties about what the UK economy is all about these days. Have we lost our manufacturing base? The answer is that we have not, but there is a perception that it has gone. Therefore, there must be something about the way the brand is being projected for that confusion to endure.

Q166 Rebecca Harris: My last question is about SMEs. In our session last week we talked about some of the difficulties SMEs had in exporting or attracting inward investment. Some of those were possibly down to their own lack of confidence or knowledge about the possibilities. How are you as ambassadors able to relate to them and promote them? What kind of relationship do you have with, for example, different trade bodies and that kind of thing?

Paul Skinner: I made the point earlier that our larger global companies with big international networks and that typically have extensive experience of operating in many countries can be more helpful to small and medium size-enterprises than historically they have been. That can be good business in the sense that the more a large company is creating a supply chain and partnership opportunity for small businesses the better that will be for all concerned. That is one priority I would have for this network. How can it positively help our smaller and medium-size enterprises that aspire to play a role in international markets?

Sir Roger Bone: I am very conscious speaking from the point of view of a large multinational company that we are wholly dependent on SMEs for our business. In this country we have links with more than 250 companies altogether that feed into our supply chain, so whenever I speak about the aerospace community here I am very conscious that I speak on behalf of all those SMEs whose livelihoods depend upon our success.

Q167 Rebecca Harris: Is it more about big businesses bringing in others in their wake rather than directly helping them import or export?

Sir Roger Bone: I am not sure I heard all of that, but perhaps it comes to the same thing in the sense that when we are successful it helps the export potential and actuality of those SMEs.

Q168 Rebecca Harris: Lord Powell?

Lord Powell: On the last point, I do not think we have done as well as we should. For many years I have heard about how big companies were bringing in SMEs in their wake. They do not, or almost never, or certainly not in a targeted way, in that they bring in whoever is the most sufficient supplier or the people they believe are best adapted to the particular contract. Generally, I think SMEs are great users of Government services through UKTI and the various business councils and things like the Asia Task Force. At our events over the past two years we have had close to 3,000 companies of which 98% will be small and medium-sized companies. We certainly interact with them. Of course, they need different help from the big companies. First, they need to have their eyes opened to the opportunities, through just telling them about the opportunities in Asia for instance which are not always very apparent; second, it is telling them about the kind of help they can get in accessing the market: trade missions, various little financial grants and advice through UKTI and others that they can get. Lastly, it is a matter of supporting them when they get out into the area. For instance, the China-Britain Business Council has offices in 11 or 12 cities in China where a small company trying to get started in China can set up for the first two or three months and can have a desk, telephone, access to a secretary, advice and so on. We can give them very specific kinds of help and that needs to be done. The interesting question is: however many SMEs you help, in the end will it make a huge difference to British exports? The honest answer is that British exports depend predominantly on the very big companies; those are where the real figures come from.

Q169 Mr Binley: I put two questions just to mop up. The first relates to Sir Roger’s comments about the state of technology in four, five, six or seven years’ time, which is vitally important in the aerospace and motorsport industries. We did a review of both industries, which are becoming increasingly allied-I suppose that was one of our surprises when we did the review. But we were under the impression that quite a lot was happening. For example, the Composites Centre at Bristol was important. Where are our weaknesses? Can you point to specific weaknesses in this respect? We still have time to pick those up and your advice on it would be very helpful.

Sir Roger Bone: In my view, it is not so much a question of spotting where the weaknesses are but those areas into which research should be put at this particular point to ensure we maintain that cutting edge in four or five years’ time. Composites is one very good example. I am absolutely delighted that we have that emphasis at the Bristol centre. In my business, any aspects of research on improving performance in aerodynamics, environmental impact, fuel consumption and emissions are the touch-points that matter to us. In many of those areas there is excellent research under way in the UK. I would not want you to conclude from what I have said that there are necessarily huge, glaring weaknesses. My concern is that those efforts should be sustained in the period ahead.

Q170 Mr Binley: I think that is a helpful message we can pass on to the Minister from this Committee. My final question is about the make-up of the ambassador team. You will know that there has been some criticism, not least from the British Chambers of Commerce, about the fact that genuine SME creators are not properly represented. Do you agree with that? If you do, how can we improve that? They tend not to be the stars in the way that you are, gentlemen.

Lord Powell: One simple point is: if they are very small SMEs will they have time to do this kind of thing?

Paul Skinner: I am very supportive of the role that SME companies can play in our domestic economy but also in our export markets. As a matter of pure practicality, I guess that they will perhaps not have the resource available to them and the corporate recognition to enable platforms to be created through which the ambassadors can become effective and amplify the UKTI messaging. That is just the way life is, I think. For this network to lose sight of the importance of SMEs would be to miss a beat. As to whether or not the network should be more populated by SMEs, I think you come down to some very practical considerations.

Nick Fry: Perhaps a way of achieving a good result in this area would be to engage rather better through some of the trade associations. In motorsports we are blessed. We have the Motorsport Industry Association which represents a large number of companies. I think that engaging with them as a vehicle to get to those smaller companies, which probably do not necessarily have the time to deploy personnel first hand on this, might be a way to achieve the objective.

Chair: I think Margot’s question has been covered, so I will bring in Nadhim.

Q171 Nadhim Zahawi: Very quickly Chairman-thank you very much-I want to pick up the point about inward investment. Part of the new world in which we exist, certainly in the motor industry, is to attract inward investment so we can export more through the companies investing here. Paul Skinner, you picked up this point earlier. In the league table of inward investment we have fallen from second to fifth. One area of which you will be very aware is that when you travel around the world, as many of us have done, the competition is now not necessarily from the usual suspects, i.e. there are new entrants who are building infrastructure to be able to attract that kind of inward investment, certainly in transport infrastructure. There are lots of good things happening on transport but I would love to hear your view on airport infrastructure. I was staggered to see the new airport being built outside Dubai. It has five runways on top of what they currently have. I refer to Singapore and other places. If we are to attract that kind of inward investment-we have real advantages in terms of language, time zone and so on-what is the panel’s view on infrastructure?

Paul Skinner: It is an area in which I am currently working. I do think that it is a very important driver of economic growth and competitiveness. When you talk to potential foreign investors, whether they are corporates, sovereign wealth funds or institutions, the quality of infrastructure, and the infrastructure investment opportunity, is rising on the agenda. I think we have to be very mindful as a country that we maintain competitive economic infrastructure if we want to attract investment in the wider sectors of the economy and not fall behind our competitors. To some extent, we have slipped a bit behind the curve. I think there is a serious attempt in energy, transport, water, waste, digital-across the whole spectrum-to reestablish our position, and I think the spending review recently reflected those priorities, relatively speaking. It is important and we had better not lose sight of it.

Chair: Thank you very much. It has been a good session. I thank you for your attendance. Again, if there are any comments you would like to make that you have not had the opportunity to make please feel free to send us further evidence, and if we feel there is a question that for some reason we have not asked but would like to we will do likewise.

Examination of Witnesses

Witnesses: Graham Chisnall, Managing Director, Commercial Aerospace and Operations, ADS, Stephen Phipson CBE, Vice-President of Security, ADS, and President of Smiths Detection, Bob Keen, Head of Government Relations, BAE Systems plc, and Katherine Bennett OBE, Vice-President, Airbus, gave evidence.

Q172 Chair: Good morning, and thank you very much for agreeing to speak to us. Will you just introduce yourselves for transcription purposes and voice levels?

Graham Chisnall: My name is Graham Chisnall. I am managing director of ADS, which is the trade association that covers aerospace, defence, space and security.

Stephen Phipson CBE: I am Stephen Phipson, president of Smiths Detection and vice-president of security within the ADS trade association.

Katherine Bennett OBE: I am Katherine Bennett, vice-president and head of political affairs for Airbus worldwide.

Bob Keen: I am Bob Keen, head of government relations for BAE Systems.

Q173 Chair: Thank you very much. Perhaps I may start off with the reverse of the question I asked the representative of Boeing. Given the lawsuits flying around internationally between Boeing and Airbus, how does Airbus feel about having a Boeing representative as a British business ambassador?

Katherine Bennett OBE: I have to say it caused a few raised eyebrows in our factories in Bristol and Broughton. On Friday I spoke to our Unite convenor in Bristol. There was some surprise but, listening to Sir Roger, I could not really disagree with a lot of what he said about the importance of promoting technology and aerospace. We shall have to be very careful in any briefings we provide to UKTI on Airbus sales campaigns, but it was an interesting appointment and we look forward to working with all the business ambassadors. There are three others from aerospace and defence as well, so we are used to working together on a lot of these issues.

Q174 Chair: You have hinted that there might be some difficulties for you.

Katherine Bennett OBE: A lot of the time in our work with UKTI, when the Minister goes abroad we provide briefings on sales campaigns. Therefore, if Sir Roger is on a particular trade mission where there is a big sales campaign going on obviously we would not particularly want him to be involved. Aside from that, developing aerospace SMEs, British technology etc., etc., is a message we would share, but maybe we need some levels of secrecy, careful briefing and so on.

Q175 Chair: It would be unfortunate, given the ambassadorial role to sell British manufacturing, if a key British manufacturer could not provide, if you like, the necessary briefs and back-up to enable the ambassador to do that.

Katherine Bennett OBE: We would provide briefings on sales in terms of supplier relations, but we would not be providing briefings on any sales issues.

Chair: This is not a criticism of Airbus; it is just a comment on the situation, which is less than satisfactory.

Q176 Mr Binley: This concerned me right from the beginning, quite frankly. I think that your interests need to be protected. Maybe our Great British civil service has missed a point here. Would it be helpful to you if this sensitivity, particularly in relation to sales to overseas markets, is highlighted? I think there is a degree of sensitivity, which perhaps has been missed and it might be useful if we highlighted that.

Katherine Bennett OBE: I am treading carefully because there’s an element of "She would say that, wouldn’t she?"

Q177 Mr Binley: I agree with you.

Katherine Bennett OBE: Frankly, as I said, Sir Roger is a very able business man and former diplomat; he has a lot of strengths. It is no particular comment on that, but if the Committee would like to highlight it then, yes, we would welcome it.

Q178 Chair: Before I bring in Graham Chisnall, yes, you would say that, but it is fair to say so would we.

Graham Chisnall: There is nothing really unusual about that in the industries in which we work. For a long time now we have got well used to competing on certain programmes and partnering and co-operating on others. There are fairly well established practices about how to keep Chinese walls between these kinds of arrangements. I think it could be overplayed as an issue in that regard.

Q179 Mr Binley: Well, that is our judgment, is it not?

Graham Chisnall: Yes.

Q180 Gregg McClymont: Together you represent a British success story, it would be fair to say. First, what is the secret of your success?

Graham Chisnall: I think we are an outstanding British success. We represent about 20% of the advanced engineering and manufacturing sector by value in the country; we turn over about £60 billion a year; we have about 500,000 employees; the average salaries in our sector are higher than the manufacturing average, and so on. These successes are not built overnight. For example, the commercial aerospace field sailed through the recession and grew employment and salary levels all the way through and is now growing very rapidly again, but it is building and delivering products that depend upon investments that go back 25 years or more. I think that Sir Roger in his evidence tried to indicate quite strongly that the research and technology investment that led to this outstandingly successful set of sectors needs continuous replenishment. Aerospace is, probably more than any other manufacturing sector, truly global. The large companies choose their suppliers on a global basis almost without regard. If we are to maintain our share of that future prosperity and growth we have to do the research and development now that captures the next programmes. Therefore, it is research and development. We have good skills. There are concerns about skills which I am sure we will talk about in due course, but we are an educated, highly skilled population and we have some very good, big companies. As you heard from the previous testimony, a lot of this sector is driven by the success of big companies that go out there and capture long-term big contracts. This is a very long-term business. It is about capturing large-scale contracts which, certainly for aerospace programmes, can then run on for 30 years in terms of the manufacturing and support afterwards.

Stephen Phipson CBE: If I may add a point from the security perspective, it is a relatively new sector in terms of defining a sector for ADS and industry as a whole. I think three things underpin our success in a rapidly growing market. One is innovation, which is our preserve: we are seen as a world leader in terms of security technologies in this country. That takes me to the second point. We have a long track record in counter-terrorism and experience industrially as to how to cope with that. Third, something to be recognised here is our very strong counter-terrorism strategy, as produced by the Home Office, CONTEST, which is seen as a world-leading model for how to deal with this in many countries around the world. Therefore, they look to British industry to supply the technology to support that and it really does help. It is a fantastic export tool for us.

Q181 Gregg McClymont: Perhaps I can ask Katherine and Bob what the basis is of our success in this field.

Katherine Bennett OBE: I will not repeat it, because I agree with what has been said. Engineering is the crown jewels: the aerospace engineering in this country, whether it is BAE Systems, ourselves, GKN or Spirit, the aerodynamicists or the very clever fuel integration experts. Why are they here in the UK? It is a historical thing. The most important thing is that we need them to remain here by supporting them through infrastructure, investment, etc. It is hard to create new aerospace engineers. They are educated at our universities but also abroad. There is a core base of them. We have a slight fear, as Graham said, that perhaps it is slipping away. We need to maintain it and keep the momentum going.

Bob Keen: To look at some of the specifics of the defence sector, BAE Systems is the largest manufacturing-based employer in the UK. We employ about 40,000 people here, about half of whom, to reinforce Katherine’s point, are engineers. Engineering is absolutely at the core of our company. Of course, you do not succeed without terrific products, and we think we have terrific products. In the export market the defence sector is different from the commercial one, in the sense that all of your customers are Governments. Therefore, it is not just good enough to have terrific products, absolutely necessary though that is; you also require absolutely joined-up support of the British Government because the overseas customer is buying into the relationship with the UK Government. The key to our success has been strong political support; it has also been strong support from the UK Armed Forces, the reputation of which is absolutely a key discriminator for the UK in the defence market. Therefore, in addition to all the stuff that the other panellists have said I would highlight those key issues as being important for our success in the export market.

Q182 Gregg McClymont: Finally, is it fair to say that this British success story across these sectors involves a closer, entwined relationship between the state and the industry relative to other sectors of the economy?

Graham Chisnall: Absolutely. There really is not a completely open, pure market in that sense with any of these sectors. They are either heavily influenced by Government or Government is the market. That is clearly so in defence products, but even in the field of commercial aerospace the Chinese Government centrally procures its airliners and allocates them to the airlines. Therefore, it is impossible to access the growth prospects and maintain the prosperity we currently generate without working very closely with the Government.

Bob Keen: One additional point is that in the UK defence sector the Government is also our customer. For us, our future exports are absolutely predicated on sustaining capability in the UK; in terms of military aerospace, making sure that we have UK-based products that we can take into the export market is absolutely crucial. For the long term the key objective for us is to have, in the maritime sector, Royal Navy ships that we can take into the export market in a way we have not really successfully been able to do in the past. For us it is an absolutely symbiotic relationship with the UK Government.

Stephen Phipson CBE: If you look at the security sector the majority of our export customers are related to the Ministries of the Interior in foreign Governments, so that relationship is a key part of how we sell. It is about products and innovation but also the relationship with those government agencies is very important going forward.

Katherine Bennett OBE: I once heard a great quote, Gregg: aerospace is politics with wings on it. The two parts are totally interlinked, whether we like it or not sometimes. Before joining Airbus I worked in the automotive sector and there was nowhere near the amount of involvement. The most important thing for us in the industry is to work with that the right way. Sometimes it can get in the way but it is usually beneficial. Therefore, the two are definitely interlinked.

Q183 Gregg McClymont: You may have heard at the beginning of the previous evidence session a reference to our loss of mercantile spirit, but mercantilism as properly defined seems to be exactly what this sector has been doing for many years.

Graham Chisnall: I think that is true. We have a track record of being very proactive, taking a very long-term view, developing well in advance of others key technologies and spotting market opportunities that generate very long-term pay-offs.

Q184 Margot James: What would you say is the main hurdle that holds back exports in your field?

Graham Chisnall: We export very successfully. 70% by value of aerospace products out of the UK is exported. I think we have a very strong track record. One could always do more, and some of the evidence you took earlier pointed to some of those issues. It would be nice perhaps to have a bit more of a joined-up plan that brought together the various facets of ministerial visits to countries, efforts going on by members of the industry within those countries and so on. We are working hard at that. There is a reference in your questions to ambassadors’ packs and so on. I think we are improving on that as we go along. Inevitably, there is an issue about finance aid. This is a global business with global competition and everything must be looked at relative to what other countries are doing in offering their own domestic suppliers and so on. We have some very good organisations in place. UKTI does a super job. We work very closely with them. There are concerns about the future funding of some of these enabling organisations with which we work closely and on which we depend.

Q185 Margot James: We saw in the written evidence that there was a fear about theft of intellectual property essentially in exporting to some markets. China was a market mentioned often in this context. To what extent is that a problem for your industry? Is there anything that the Government can do to help you deal with it?

Graham Chisnall: We are a very high technology industry. All companies that work in this area have very strong IPR protection policies. It is a very rapidly moving feast on the technology side. I think the first thing to say about IPR is that if you are trying to protect IPR you generated 10 or 15 years ago you have probably lost the plot because your future business is not coming from it. Therefore, staying ahead of the game in this global technology race is absolutely vital. Future business is driven by your R and T programmes that you are now engaged in, not your R and T that you had in the bank for 10 years or more. On the defence side, I hand over to my British Aerospace colleague to talk about that in particular and the security side.

Bob Keen: From a defence perspective, exporting to any new customer obviously gives rise to a risk that you will lose intellectual property. In defence particularly the Government have an interest in ensuring that any intellectual property does not give rise to concerns about national security. We have been pretty good at managing that and making sure we address the needs of our overseas customers while we ensure that the UK Government are happy with what we are doing. If you look at our record in comparison with others, our ability to transfer technology to new markets has been a key discriminator for the UK. For example, if you look at what we as a company have done in Australia, the Kingdom of Saudi Arabia and the United States, our ability to transfer technology has been a key issue in achieving export success. There is a risk, which in the defence field certainly needs to be managed, and for us that requires a close relationship with the Government to make sure that their interests are properly protected.

Q186 Margot James: Mr Keen, perhaps I may ask you a follow-up question as you represent one part of the defence industry. Some of us sit on the Committee on Arms Export Controls. We had a session at the end of last year with representatives of your industry who were very critical of the export licensing system of BIS. What is your view of that? We heard a lot about bureaucracy, delays and all sorts of things. Would you like to comment on that?

Bob Keen: Export licensing is a perennial issue. The targets which BIS have in meeting export licences have varied over time and there have been varying degrees of success or otherwise. For us, at the moment we are managing it and it is not an overriding issue in achieving success in the export market, but the process is a pretty cumbersome one and involves the MoD and other organisations. Therefore, managing that process is a difficult task. It is not an overriding issue for us but we have to keep our eye on it constantly and keep pressure on the organisations involved to ensure that our customer-facing requirements-getting bids in and exhibiting equipments-are properly met.

Stephen Phipson CBE: If I may add a comment from the security sector, we are a rapidly growing sector. Our sector is due to double in size over the next 10 years. Looking back over the past 12 months, we have seen approximately a 14% increase in exports from the UK most of which have to go through export control. The Export Control Organisation within BIS is critical to that. We need to realise that if this continued pace of expansion and export is to be maintained we must ensure they have sufficient resources to be able to service these export control requests in a timely fashion, and that is something that concerns us.

Q187 Chair: Just on that point, you said there had been an expansion of about 14%. Was the licensing system an impediment to even greater expansion? Is this in spite of or because of that?

Stephen Phipson CBE: My sense is that we are reaching absolute capacity in the system we have. If we are to continue our export drive we need to make sure they have resources to be able to do it properly. Export control is very important to the country but we need to make sure that those resources do not start to hinder the drive for exports.

Q188 Chair: What you are saying-I do not want to put words into your mouth-is that in effect this an expanding market that is potentially huge and we have reached the limit of our ability to process applications in time to capture the full potential of it. Is that reasonable?

Stephen Phipson CBE: That is a reasonable statement.

Q189 Nadhim Zahawi: Before I ask my question I want to pick up Stephen’s point with a particular example where the end user licence was delayed for a UK manufacturer to deliver a security product to the Ministry of Home Affairs in Iraq; the Germans provided the same equipment because their end user licence came through quicker and the customer was under time pressure. Is that your experience?

Stephen Phipson CBE: It is. If you look at the differences between defence and security one of them is time. We need to respond quicker to these types of inquiries, particularly for Ministries of the Interior in those sorts of examples. We need to keep that in mind and have a system that is responsive. Sometimes there are very good reasons why we do not grant export licences or there needs to be further investigation before we do. We need to make sure, however, that the resources are there, and our fear is that we are now at maximum capacity.

Q190 Nadhim Zahawi: I think Katherine has already mentioned it, but in your submission, Mr Chisnall, you highlight the importance of a skilled worker base to create the products that are worth exporting. How much of a concern is this for you? Are you worried by the proposed changes to the immigration rules?

Graham Chisnall: It is a worry. We are worried about the changes to immigration rules. We are a high-tech business and depend upon a high level of skills at both graduate and technician level. We do not have enough of those in the industry, and it hampers growth prospects to a degree. In our submission we said that 6% of those who graduated last year from British universities were engineering graduates; in Singapore it is 40%. 25% of graduate engineering positions in companies last year went unfilled. This seems to be a system that is not in balance with need and demand. We also have the issue of ageing in the sense that a lot of our critical skills depend upon people who will retire in the next 10 or 15 years. There is concern about skills and the capability of the skills that come out of the education system these days, and we have also made submissions on that.

Coming to the issue of immigration, in an ideal world it would be wonderful if all our needs were supplied within the UK through the UK education system. We hope that effective measures will improve the numbers and quality of students who come through the system, but if the prospect of improvement is there it will take quite some time to generate the numbers we need. We depend greatly on highly-skilled people. We use both intra-company transfers and those who come in to do particular specialist jobs. Changing the rules on that and significantly reducing the number of those in a very short period of time causes skill shortages.

Katherine Bennett OBE: I absolutely agree with what Graham says about engineering skill shortages. It is a duty on all of us within aerospace and defence to do our bit to show that engineering is a great job. God, I wish I could have done it. The engineers I work with love finding solutions; they are very clever and creative. My colleagues from other parts of Airbus in other countries admire British engineers because they are very pragmatic and are good at being diplomatic. Sometimes you need that in international companies. We do our bit working with what is called the Pegasus universities, which are those that specialise in aerospace. I know lots of other members here. We do competitions with university students to promote aerospace and engineering. Last week there was the launch of an advanced manufacturing strategy at which the Deputy Prime Minister said that perhaps people did not realise engineering was quite well paid. You do not always have to go to the City. Therefore, we need to do our part to promote it. As Graham said, there is a problem with the highly skilled, perhaps those people who have two or three years’ experience.

Leading on to the issue of immigration, it is a really big problem for us. The immigration rules have been changed. The problem is that we have made offers to people and the Home Office are not answering calls. We have written a letter to the Border Agency which has not replied for seven weeks; we have made representations to Ministers. They are listening. I appreciate the issues about immigration but it is really affecting us who need highly-skilled people. There are only one or two lightning experts in the world and sometimes we have to bring them in to work on our wing issues. Don’t get worried about that, but it is something which we have to get engineers to help on. We talked about composites earlier, which is a very specialist area, and we do not always have composite stress engineers at home, much as we would love to. We spend £3.5 million a year on training our UK engineers. As to immigration, I have never had our HR director on my back as much as I have in the past few weeks on this issue, so we would really like the Committee to look at this.

Q191 Nadhim Zahawi: To probe it a little further, it is worrying that the Home Office does not respond to Airbus for seven weeks. Is there no discrimination in terms of applications, i.e. those that come from bona fide corporates like yourselves?

Katherine Bennett OBE: Maybe they are just inundated with applications because of the changes. We are not talking here about massive numbers, but it goes back to what we are all talking about today: the perception of the UK overseas. Are we a really burdensome bureaucratic place in which to do business? This is just not helping. We are happy to continue to make representations in the usual way, and we will get through it. BIS have been listening and Vince Cable has been supporting us word-wise, but we need some action because we want people to do work on Airbus products whom we just cannot bring in.

Bob Keen: To say a word about our position, generally speaking in the short term perhaps we have less concern about skills in our company than perhaps others, largely because we grow our own. We have 1,000 apprentices and 400 graduate trainees in the UK in BAE Systems at any one time. We run the largest apprentice school in Scotland and the North West. Therefore, we have a pipeline of youngsters coming through. The concern is about the long term. As to Katherine’s point about doing our bit, clearly we have a responsibility. We are out there with schools roadshows on a regular basis. We sponsor the Big Bang. In general terms, working with universities for example, we have been trying to shape the diploma of engineering to make sure it meets the long-term needs of industry. But there is a long-term concern about skills in the UK. We have to find a way to enthuse youngsters about engineering, science and technology. We have a collective responsibility to do that and I think the Government have to set the right education framework to make sure we have the right people for the long term.

Q192 Nadhim Zahawi: Just to push you a little further on that, you mentioned the Big Bang. Do you think BIS has the right STEM strategy in place?

Bob Keen: Broadly speaking, I think so. The Big Bang is obviously a good example; thousands of kids in Manchester last year had an opportunity to see what engineering could offer. But constantly pressing the education point is something we have to do. I do not think they are far wrong. Others, perhaps Graham, might have a different view.

Graham Chisnall: I should like to make a point that is related to that. There are people who work in this space to encourage youngsters to consider STEM-based careers. I chair the largest national charity that does this. It brokers relationships between companies and schools and has a fantastic uptake of girls. 40% of girls go onto these schemes, and 90%-odd of these students go on to do a STEM-based career. There are some very effective mechanisms. One thing of which we would like a bit more recognition in this space is to build on what is already working there rather than, as seems to happen so often in this space, reinvent the wheel. The newest bicycle is always the most attractive. There are things that can be built on in that space. It is not a completely hopeless situation in that case. We can enthuse youngsters when we show them what engineering really is: that it is creative, exciting and very well remunerated these days in this country. We just have to do it on a much broader scale.

Q193 Nadhim Zahawi: I absolutely concur that there is no point in having just another new initiative, but learning from experience of what works and what does not and supporting things that work is probably right. What is the charity to which you referred?

Graham Chisnall: Thank you for the question. The charity is called EDT. You will not have heard of it, but EDT stands for Engineering Development Trust. Its website is etrust.org.uk. It runs a number of programmes for different age groups. The one you may have heard of is Year in Industry, which is the programme it does for gap year students.

Stephen Phipson CBE: Just a small point. If you look at the security sector in particular, we have about 8,000 companies in the UK involved in it, the majority of which are innovative SMEs. The support for new people coming into those industries is vital for the lifeblood and growth of those going forward. We have seen an increase in companies trying to invest in their own apprenticeship schemes as well over the past couple of years. We have just heard of the BAE example, but, on a much smaller scale, many of these companies are trying to do those training programmes themselves as well. Of course, the funding and support of those is also vitally important to stimulate this innovation going forward. Therefore, the point about SMEs is important.

Katherine Bennett OBE: To add one thing on apprenticeships, it is interesting how they are developing, especially some of the challenges presented by university tuition fees. Last Saturday in our factory in Broughton in North Wales we had an open day. 4,000 youngsters and parents came. Maybe they wanted to look round the fantastic factory, but they were interested in engineering and manufacturing as a career. 4,000 people came to our factory on Saturday, so some good messages must be getting through.

Chair: Nadhim, just before you continue, Katy Clark has to leave soon, so I invite her to ask a question then we will come back to you.

Q194 Katy Clark: The question I wanted to ask is about finance. We have been told that Airbus is calling on the Government to press commercial banks to provide financing for airlines so that the percentage of the export credit agency’s support that is required is reduced. Can you comment on that and outline whether you think there is a greater role for private finance particularly for exports?

Katherine Bennett OBE: To be clear, ECGD is a guarantee to bank loans to our airline customers. The rates at which we used ECGD for our airline deals last year went up considerably because of the economic issues. Airbus would much prefer it if our customers were able to go to the banks directly. We sometimes support them as well. Sometimes the demand goes up when there is an economic crisis in world finance as there has been. If you are asking about other sectors and why they do not get more support, we would not have a problem with that. I believe that the chief executive of ECGD, Patrick Crawford, is to come before you soon, and that is a question to put to him. From the perspective of Airbus, we are very pleased with the support we get from ECGD. 34% per cent of our deliveries last year were through export credit and the procedure went well. We have had some challenges, but other sectors should apply, as I said. I also understand from ECGD that other sectors went down last year because of exactly the same problem-the economic crisis-so maybe some of the big infrastructure problems like dams in overseas countries that construction firms in the UK would apply for just have not happened. Therefore, it may arise just because of the present economic situation.

Q195 Katy Clark: Do you think that it is just to do with the economic situation we have been through, or is there a general issue about commercial banks being unwilling perhaps to back aviation projects whereas other sectors might find it easier?

Katherine Bennett OBE: I cannot put everything down to the economic crisis, but we work very closely with the banks; we keep them informed of aerospace business. Maybe Graham has some comments on private finance looking at aerospace. As we have all said, it is a very long-term industry. Our products take 10 to 12 years to design, so lots of venture capital funds or private investors will say, "Oh, that’s a long payback time. We won’t bother with that. " It is a message we have to get over. We have talked a lot to the Treasury about the need to remind people that Airbus and aerospace is a good bet; it is a risk worth taking, but maybe it has a longer-term payback.

Chair: Nadhim Zahawi wants to come back.

Nadhim Zahawi: I am pretty much done. The way the panel was animated over the skills agenda leads me to believe that that is an area for us to focus upon.

Q196 Simon Kirby: I am very interested to listen to the four of you today. You share a lot of common ground. We understand that defence and security have their own separate part of UKTI, which is conveniently called the Defence and Security Organisation, but aerospace sits outside within advanced engineering. Surely, that is not sensible, or is that the best way forward?

Graham Chisnall: For us, the question is: who is the end user and customer? It works fine. The defence and security customer base is a very different one from commercial aerospace, so from that point of view we see no problem with that separation. One aspect of which we would like more recognition is that defence very often gets overlooked in terms of its advanced manufacturing and engineering contribution to that sector. Therefore, some recognition that defence is in itself of very advanced manufacturing value and a contributor and generator of high-value jobs would be a step forward from that point of view.

Q197 Simon Kirby: Perhaps I may ask it from the other side: aerospace.

Katherine Bennett OBE: I have to declare an interest. I sit on the advanced engineering board of UKTI. We talk about defence quite a lot in the board meetings I go to. Airbus is owned by the defence company EADS, so I see a lot of defence issues on the table. My defence colleagues in EADS work closely with DSO. There is a bit of interconnectedness, although we once made the general comment that there could be better coordination. As to advanced engineering, I sit round the table with crane manufacturers and high-end automotive engineers like the gentleman from the motorsport industry earlier. There are lots of common issues, as we talked about before. Composites are used by all sectors, so it makes sense for us on the civil or commercial side to sit round the table with those people. As to UKTI, they have aerospace experts based in Glasgow to whom I talk regularly. They follow the sector and issues. They ring me up and sometimes tell me things that I do not know are happening within my own company. They do make an effort to follow the issues in the right way, but I appreciate that having two separate organisations may bring some challenges. I will let Bob answer on defence.

Bob Keen: From our perspective, to echo Graham’s point, defence and security is very different from the aerospace sector. The overseas customers are Governments. For all the reasons I outlined earlier, the kind of support we need is different from the needs of the civil aerospace companies. I think there is perfect logic in keeping the two organisations separate.

Q198 Simon Kirby: That is quite clear and once again unanimous. We have common ground even when we do not have common organisations. ADS says in its submission that there is concern that a reduction in BIS’s budget could pose risks to the UK’s export agenda. What do you mean by that? Can you elaborate on the risks that are posed?

Graham Chisnall: They fall into two areas. First, we have a national aerospace technology strategy that has been in place for about five years. It is a very thorough piece of work which has been adopted by both BIS and industry and is funded jointly by them. These days the BIS funding tends to be via the Technology Strategy Board. As you heard in the previous session of evidence, we have to maintain that R and D funding in the sector if we are to win a similar market share on the next programmes. There are obvious concerns in the current climate given the state of the Government’s finances about how we maintain that momentum, which we consider absolutely vital. The second area of concern is about the enabling mechanisms that BIS has in place like the export credit organisation, ECGD funding mechanisms and so on, because we all want to grow our exports but we have to will the means as well as the end. It will hamper our growth prospects if the cuts come through in the way we touched on earlier in terms of getting timely export approvals in place and so on.

Q199 Simon Kirby: Therefore, if the Department is not careful there are specific areas that are more risky than others?

Graham Chisnall: Yes.

Q200 Simon Kirby: It is not the concept of cuts per se that presents a risk but where those cuts fall within the Department?

Graham Chisnall: Yes, absolutely. We understand that these are straitened times and resources are not necessarily all that we would wish them to be, but that just emphasises the need to make sure that you put your resources where they contribute the most. If export is one of the highest priorities then one has to pay attention to those enabling mechanisms.

Q201 Mr Binley: One concern that I have pursued since I came into Parliament is the SME sector. You are pretty much dependent in your supply chains on that sector. It tends to have great difficulty in opening up new markets. It is reasonably well established in the EU and North America, but the emerging markets are a real problem to them and yet you are there. How can those SMEs be helped to move away from the safety zone and open up those new markets to allow them to grow and provide the jobs that will justify the growth agenda, quite frankly? How can you help them? Can you piggyback? Can you do other things and, if so, are you doing them? In what areas can you work to help them in that respect?

Graham Chisnall: We are doing a lot of things. The first thing I want to get across is that the supply chain within aerospace and defence is the best outside the United States and it is a national competitive advantage. I firmly believe that we get business from the big global primes because we have such a strong supply chain in the country. To maintain the health of that is an absolute priority. We are doing a number of things. There is a strong impetus to try to help SMEs cluster together so they can group their natural capabilities and be able to do larger jobs, and there is inexorable pressure on them from their customers and their customers’ customers to group together, be more efficient and have one contract rather than five and so on. Therefore, clustering is an important thing. We in ADS on behalf of our members have submitted proposals and requests to the regional growth fund that BIS has set up aimed specifically at putting in place mechanisms to allow SMEs to develop and exploit technology to capture more market share. One part of that would be more export business through those mechanisms. The other thing is that within the sectors in which we work the supply chain must be seen as an entity in itself. No one part of the supply chain can operate independently of the rest. Therefore, enabling the big, medium-sized and small companies to extend themselves overseas will be vital going forward. Funding is an issue. The further you go down the supply chain and get to the SMEs, funding still hampers their ability to make the investments necessary to extend themselves offshore.

Q202 Mr Binley: Perhaps I may pursue that point a little further. Are you talking about working capital to sustain growth? Is that a problem for them?

Graham Chisnall: I think it is working capital and investment in new products and processes and also in opening up new markets. It costs money. If you are a small company, £50,000 just to try to open up a business line in Brazil or somewhere, particularly at this point in the cycle, is something you shy away from. I think it is all of those things.

Q203 Mr Binley: Forgive me for my final point on this issue which is vital in this place. Are you saying that despite all the fine words our banks do not understand the need in real terms?

Graham Chisnall: We have gone on record a number of times in a lot of different forums as saying that access to appropriately priced funds is still an issue for our SMEs.

Q204 Mr Binley: Let me push the two large companies on the whole point about helping people in their supply chain to open up new markets that are there and we can exploit but need some help. How can you do that?

Bob Keen: I should make a general point. Using Katherine’s earlier point-"I would say this, wouldn’t I?"-the reality is that our success in the export market benefits our supply chain hugely in the UK, so that is not to be overlooked in all of this. We can and do help our supply chain to develop relationships in a number of our markets particularly where we have an established indigenous position. We are already doing that. Although this is perhaps not quite your point, I also believe that UKTI can help smaller companies with some of the entrées to markets that they need. Some of this is pretty simple; it is understanding the marketplace and local industrial scene and putting them in contact with the right people. I see some of that happening. It might not be to the degree that you or I would want, but ultimately it is for the SMEs to make the risk/reward calculation of whether or not they want to invest to develop a position in a new market. From our point of view, the marketing costs of developing a position in a market in which you have not operated can be very significant even for a company the size of BAE Systems, so ultimately it must be for the SMEs to decide.

Katherine Bennett OBE: From the perspective of Airbus, we have 2,000 suppliers in the UK. That is probably not as many as BAE Systems, but 2,000 is a lot to look after in terms of helping all of them to get into emerging markets. I agree with Bob that our success reaps success for them, too. We are very supportive of the new supply chain development initiatives that Graham has outlined. A good example is China. We have built a final assembly line in China. The UK took wing work to China. These are wings that will go on Chinese aircraft, so you can see some of the politics at play there. But we encouraged UK suppliers whom we desperately needed alongside us to develop in China as well. Therefore, when we are working on a particular project we do all we can to help them. To take a step back and forget the subject of the inquiry for a minute, for SMEs to get business from Airbus they need to be run efficiently and have top-level management. So many times my procurement colleagues say to me, "Please say to Government we need to help SMEs have better management; they need to study more about balance sheets, etc." That is where they often lose out with companies abroad. We have some very strong first-tier suppliers in the UK and we need them to continue and grow.

Q205 Mr Binley: You raise a very important point about the basic need to have a monthly P and L, aged debt analysis and cash flow analysis. I understand that all of those things are absolutely vital, but should not the banks be playing a much more active role in this and they are not doing it?

Katherine Bennett OBE: I tried to mention that earlier. I have noticed it also in the automotive sector. We often need investment in our SMEs to help them win business from big companies like us and encourage them to get them into partnership with each other, perhaps by means of more consortia, etc. The R and D process in the UK encourages that now; lots of bids are being put in by companies working jointly. Some of the UK companies are so small that they are often like third-tier suppliers to us. Maybe conglomeration and more business management can help, but we do not have a particular point to make about banking and finance here.

Q206 Mr Binley: I was talking about banking and education.

Katherine Bennett OBE: Yes.

Stephen Phipson CBE: From the security perspective Smiths provides a lot of the security systems to the US Government. You see it in all the airports and DoD. In many of those arrangements increasingly companies like ours team with SMEs and take them into those programmes. In particular, the US Government is a large funder of R and D in the security sector. We have been able to benefit a number of SMEs in this country by bringing them into that programme. It helps us as a company and helps the SME base. That teaming arrangement and the role played by the trade association in making sure the rules of engagement around that are clear is important. Another point I make is about UKTI. If you look at DSO and security in particular over the past two years of focus, bearing in mind it is a new focus and new sector, there has been a high degree of focus on encouraging SMEs in export markets, being able to provide for them the right kinds of facilities. As we have said numerous times here, it is very difficult and expensive for an SME to go to India to try to get a major contract from the Ministry of Home Affairs there. DSO has been working through some very good tools to enable SMEs to be successful in those environments. A number of trade shows and relationship building events are tailored specifically to those small companies. It is important to encourage that to go forward.

Q207 Mr Binley: You are producing ambassador packs. You have not sent them out yet.

Graham Chisnall: Not yet, but I have one you can have a look at.

Q208 Mr Binley: That would be very helpful. In my travels I have found that the whole issue of the effectiveness of UKTI in a given country is almost entirely dependent on the quality of the individual staff in that operation. I have found tremendous differences in quality. One connecting point is that where people have had business experience they are usually better at the job than those who have not had that business experience. Is that your view? How can we encourage more business people to get into UKTI, and when will you send out the packs?

Graham Chisnall: The packs are going out as we speak. We are doing them by priority country. They will go through a series of information, such as what are the opportunities in that country and who within our supply base would benefit from those opportunities and so on; and there is some information about who the actual agents are in that country who would be holding those opportunities. Therefore, the aim is to encourage a much broader campaign of joining up all the dots on this, which I think was touched on in the previous conversation as well as this. We think that a lot is to be gained by getting a plan in place country by country which is specific about the objectives we seek to achieve in that country, and then focusing ministerial visits through that process where industry gets a good view of the ministerial visit rather than one at short notice. We have a joined-up programme between industry, UKTI and the main Government Departments, so there are clear objectives. There is a pack of information about those objectives and what we are trying to achieve jointly through those various initiatives, and we can see ahead by, say, 12 months as to who is doing what around those objectives. I think that is achievable and would be a significant step forward.

Q209 Chair: Before we move on, can I pick up two things? First, you compiled these ambassador packs. Do you think it would be helpful if ambassadors had business packs?

Graham Chisnall: Basically, these are business packs; they are exactly that.

Q210 Chair: To clarify what I mean-I put it in shorthand-as I understand it, you are assessing what your industry has to offer a particular country. What I am trying to get at is: would it not be helpful if ambassadors, the Diplomatic Service and UKTI had a pack demonstrating the business opportunities in the particular country and proactively tried to get British business to meet them?

Graham Chisnall: It would certainly be highly beneficial if we could achieve a joint view of the opportunities in a particular country and both contributed to that view.

Katherine Bennett OBE: They do do that. I was in Brazil last year and contacted the São Paulo consulate which sent me brilliant information, often on SMEs actually. It contained useful things that I did not know about and was very useful. The point I would really like to make to the Committee in this Inquiry is the importance of ambassadors working together-so, the French, German, Spanish and British ambassadors: the four Airbus home countries-on sales campaigns, because that is so powerful. As you said, Mr Bailey, we need eyes and ears as to what is going on in that country.

Q211 Chair: In a way, you are making my point. You contacted the embassy. Is there a role for embassies to identify market opportunities and then proactively look to get British businesses to meetings?

Katherine Bennett OBE: Yes, and to a certain extent they are doing that. In two weeks’ time there is an event in Mexico which a high-level Government Minister is to attend working with Airbus. That came about as a result of the Monterrey consulate contacting us, which is great. I have been going on and on to the British Government about how they need to be a little more aggressive and proactive. Therefore, they do it but certainly more of it should be encouraged.

Bob Keen: On your point about people, if you get the right people in an embassy the extent to which they can help British industry in that market is huge. There is also the trickle-down point. You talked to Lord Powell earlier about the extent to which government emphasises trade as a key part of a foreign mission. It is absolutely essential that ambassadors see that role as being just as important as their traditional diplomatic one. I think that is absolutely crucial, but in the end people are the medium through which industry, particularly SMEs, gets access.

Q212 Mr Binley: Would your company consider secondment to UKTI? Do you do that?

Katherine Bennett OBE: Yes.

Q213 Mr Binley: That happens quite regularly. Is it working well?

Katherine Bennett OBE: Yes. I know that when BAE Systems owned part of us there was a gentleman, with whom I have worked quite a lot, who worked in the embassy in Japan for a year and then went back to BAE Systems. UKTI really liked working with him. We have been looking at other opportunities.

Bob Keen: To be honest, it is not as easy as it sounds. My experience over the years is that it has been quite difficult to get the kind of interchange between government and industry that most of us collectively would believe was beneficial, but it does happen.

Q214 Paul Blomfield: I want to explore the role of UKTI in a little more detail particularly in relation to larger companies. It follows on the view expressed to us by the CBI that UKTI needs to move beyond the work it does with SMEs to provide better support to larger companies. If I may turn first to Katherine Bennett, Airbus has told us that it has a sophisticated network of sales people across the world and in a sense it does not need the kind of support that UKTI can offer. Does that mean it should move away from the focus on supporting larger companies or that it need to develop a more sophisticated role?

Katherine Bennett OBE: As to the focus on the larger companies, I talked about the people in Glasgow who were aerospace experts. They are based in the UK and we keep them informed of things going on, but in embassies around the world there are commercial attachés who spend their lives dealing with all sectors; they do not focus just on aerospace. Maybe moving up a level, we want ambassadors, as Bob said, to fight their corner and realise that they also have a role in promoting trade and business as well as a diplomatic one. I was interested that the CBI said that perhaps there should be account managers. Maybe we do already in aerospace. I deal with the guys in Glasgow, and we also have an account relationship with BIS as well in the aerospace team. Therefore, it is already there and maybe it could be spread across other sectors.

Bob Keen: Certainly in the defence sector we have a formal key account management process with the DSO, but beyond that we have a very good, constructive, integrated relationship which goes from the top of the organisation through to the sort of people we have been talking about: the UKTI representatives in the markets who have a good relationship with our people but based there. That is the sort of support we want from UKTI. One other thing is to assure the interests of the industry across Whitehall and some of the stuff I talked about earlier: the extent to which we make sure Ministers get around to markets and we can offer training packages to overseas customers; and also the extent to which we get ECGD support, which we will probably come on to. All of that is debated within Whitehall, and to have a champion in UKTI to recognise the importance of these issues to industry is an important aspect of our relationship with them. Therefore, it is both external facing but also internal facing in Government.

Stephen Phipson CBE: It is probably important to keep in mind the direction of travel with UKTI. There has been a lot of improvement over the past couple of years with Andrew Cahn and Richard Paniguian running DSO and UKTI and being able to differentiate between the large companies with key account management, on which they have clearly focused and to which they provide a lot of support, and the whole raft of support measures that go to support SMEs. Therefore, there is clear differentiation about how they support those two different sectors. If you look at it from the industry’s perspective over the past couple of years, there has been a great deal of improvement in the way UKTI manages that.

Q215 Paul Blomfield: I guess that the issue behind the CBI’s comment was a concern that perhaps there was a need for greater support for larger companies and greater focus on SMEs-I would not want that to be reduced in any way-but to offer an enhanced and different kind of support for larger companies beyond their specific comments about account managers. I wonder whether you agree with that. Can you suggest any more that could be done?

Stephen Phipson CBE: We are looking at it through the lens of DSO, are we not? Our sector is looking at DSO and the improvements it has made. Perhaps CBI’s comments are on a wider basis.

Q216 Paul Blomfield: I am sure they were, and I wonder whether all of you would respond on that wider basis.

Graham Chisnall: We feel we have that sophistication in the relationship and that it works well. There is little point in our commenting on other sectors that sit outside our immediate expertise, but the implication seems to be that other sectors might benefit from the kind of sophisticated relationship that we think we enjoy with UKTI.

Katherine Bennett OBE: If the question is more about what we can get from UKTI, it is really the co-ordination of ministerial visits abroad which I think is alluded to in the ADS submission. UKTI said to me the other day that they did not know that so and so from the Foreign Office was to go to some foreign country. In my new job I deal with the French and German Governments, who open their diaries to us. We know when Christine Lagarde is going to the Middle East. To get that information out of our Government is a nightmare. I know we have security issues, but we ought to know well in advance. We can then provide the briefing. That is where joined-up thinking is perhaps not working as well as it could.

Q217 Chair: That is an interesting point which ties into a question I put to the previous witnesses about the coordination of ministerial visits and business agendas in other countries. I gather there is room for improvement.

Graham Chisnall: Yes.

Q218 Margot James: I want to ask about the Export Credit Guarantee Department. We understand that 90% of its work is to the benefit of the aerospace industry, which must please some of you. How do the defence and security industries fare by comparison? Obviously, there is something wrong in the operation at the moment.

Stephen Phipson CBE: To start on the security side, the industry is a relatively new one; it is growing very rapidly, and it is a certain size of contract for which we need the support of ECGD. That is not quite there yet but it is coming. Therefore, we can see that coming towards us. Although it is not an immediate issue for the industry now, I think that in another couple of years as the contracts with these different Ministries of the Interior around the world grow substantially it will be important to have an efficient and competitive ECGD agency in place to support that growth as well. I will leave my colleagues to comment on the aerospace side. I think there are specific reasons why it looks as though it is dominant in the aerospace industry at the moment.

Bob Keen: As far as concerns defence, ECGD support is absolutely essential to BAE Systems in a number of markets. Many of our customers require it both from the perspective of straightforward financing issues but also from the point of view of the extent to which it demonstrates the British Government’s commitment to the deal that is being done. From BAE Systems’ point of view we need it, first, to meet our customers’ requirements but, second, to be able to offer competitive packages that compare well with overseas export credit agencies which are aggressive in the marketplace. Over the past few years when the capacity in the commercial insurance market has been less because of the credit crunch ECGD support has been particularly important. If you look at what we have done over the past 10 years, bearing in mind there is a degree to which this is cyclical, we have paid premiums significantly in excess of £100 million to ECGD for the kinds of support we have had from them. What I am absolutely clear about-perhaps the past couple of years have been unrepresentative in that sense and there has been less ECGD support for defence-is that in terms of some of the major prospects we are pursuing at the moment for all the reasons I have described we will absolutely need ECGD support.

Q219 Margot James: Why do you think that support has been falling off in recent years?

Bob Keen: Partly it is because we have not made the applications we have made in the past. Also, there are examples of deals we have done, for example one we did in Chile, where the customer did not require it and it made more sense for us to use the commercial market. Therefore, it is partly a cyclical thing. There are some issues; I think that when she gave evidence to you Susan Ross spoke about the impact of NGOs on ECGD. It is certainly our sense that ECGD is concerned in the defence sector that NGOs may mount legal challenges to any positive decision they might make in the defence sector. We have to be sensitive to that. We also have to work with ECGD as we go through the major prospects I am talking about to make sure that between us we follow the approved and appropriate policies and processes so that the scope for legal challenge is minimised. We have a joint responsibility to make sure that works.

Q220 Margot James: That is very useful. Does anyone else want to say anything? I have one further question on this issue. The CBI has suggested that there is a review of the governance of our export credit guarantee function. Would you support that? If so, what kinds of terms would you like to see in such a review?

Graham Chisnall: Things can always be improved. We would not have any issue at all with a review of the arrangements. Our chief input would almost certainly be to ensure that the available funds are used in the most efficient way possible and if they are extended to new sectors or deployed in different ways that is not done in a way that hampers our sector’s growth prospects. We think that at this particular point in the business cycle backing the winners with scarce funds seems to be a sensible policy. Therefore, we would be happy to support and contribute to a review of that nature, but we would have concerns if that took away some of the benefit to our sectors that deploy good value on the back of those ECGD arrangements.

Q221 Chair: Can I conclude with a couple of questions? First, regarding the Bribery Act, the CBI is very concerned about the guidance and implications this might have for British business. Do you share these concerns?

Graham Chisnall: We are a very strong supporter of the need to be seen to be taking a lead position in this area, so we support the legislation. First, we share the CBI’s concerns that the definitions within the legislation are too wide and do not offer sufficient guidance to industry. We would welcome greater clarity on those definitions. Second, there is a nervousness that this is very leading-edge legislation; it is probably tighter than anywhere else with which we are in active competition, and we seek reassurance that as we comply with this legislation, as obviously we will, people who come from overseas to trade within the UK are also subject to the same rigour.

Q222 Chair: Are there any other comments?

Bob Keen: I echo a couple of points. Certainly we from the BAE Systems perspective have supported the Bribery Act. We made clear that we supported the Bill in its progress through Parliament. We gave evidence to the Joint Scrutiny Committee and made clear our support. From a company perspective, for reasons you will understand we have done a huge amount over the past few years to put in place robust and, to use Graham’s term, leading-edge anti-bribery practices. If the Committee has not read it I would commend the Woolf report. A few years ago we commissioned Lord Woolf to do a review of our business practices and the ethical nature of them. That set out the kind of stuff we had been doing over the past couple of years. As to Graham’s point, there is an issue around the clarity of the guidance. For us, we are already well in advance of what the Act requires. The concern we expressed to the Committee, which we still have, is that for SMEs there is a need for absolute clarity in guidance in a general sense. We think there is more to be done when there is ambiguity about a particular issue on which they want help, but we are absolutely committed to the Act and will continue to be in that respect.

Q223 Chair: That triggers my next question. What do you think needs to be done going forward on this?

Bob Keen: There are some aspects of the guidance that need to be tightened. We think that the whole issue of adequate procedures could do with some clarification. Probably some tinkering is to be done in relation to things like gifts and hospitality and, from a big company perspective, our responsibilities for our supply chain in particular markets. It is also in a sense an ongoing issue. It is not just establishing guidance up front; it is being able to help small companies in particular to know where the boundary between what is and what is not acceptable behaviour within the Act actually lies. That is what we would say, but for us as a company we are very confident that we are already ahead of the Act.

Q224 Chair: Perhaps I may finish with something entirely different. I go back to some comments made by Katherine Bennett about immigration and the Home Office. First, she said there had been no response from the Home Office. In a subsequent response I think you said that perhaps there had been an overwhelming number of applications. Is there a problem with the actual process or are there too few places available for the number of people who want to come in?

Katherine Bennett OBE: The answer is yes to both questions. You are allocated a quota.

Q225 Chair: Can I interrupt? Am I right that you would be affected by the tier 1 quota, which I think is 1,000?

Katherine Bennett OBE: We are talking about tier 2 now. They have reduced the quota and then abandoned it altogether, so we have no visa allocation at all. They have told us that we must apply each time. We are applying each time and not getting any answers.

Chair: That is very helpful indeed. We will make representations about this. I thank you all for your contributions which have been very helpful. I repeat what I said to the previous panel. If you feel our questions have not enabled you to cover anything please submit further evidence to us. Thank you very much indeed.