House of Commons Committee of Public Accounts
Supporting UK exporters overseas
Thirty-seventh Report of Session 2013–14
Report, together with formal minutes, oral and written evidence
Ordered by the House of Commons to be printed 18 December 2013
HC 709 Published on 17 January 2014 by authority of the House of Commons London: The Stationery Office Limited £11.00
Committee of Public Accounts The Committee of Public Accounts is appointed by the House of Commons to examine ‘‘the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit’’ (Standing Order No 148).
Current membership Rt Hon Margaret Hodge (Labour, Barking) (Chair) Mr Richard Bacon (Conservative, South Norfolk) Stephen Barclay (Conservative, North East Cambridgeshire) Guto Bebb (Conservative, Aberconwy) Jackie Doyle-Price (Conservative, Thurrock) Chris Heaton-Harris (Conservative, Daventry) Meg Hillier (Labour, Hackney South and Shoreditch) Mr Stewart Jackson (Conservative, Peterborough) Fiona Mactaggart (Labour, Slough) Austin Mitchell (Labour, Great Grimsby) Nicky Morgan (Conservative, Loughborough) Nick Smith (Labour, Blaenau Gwent) Ian Swales (Liberal Democrats, Redcar) Justin Tomlinson (Conservative, North Swindon)
Powers Powers of the Committee of Public Accounts are set out in House of Commons Standing Orders, principally in SO No 148. These are available on the Internet via www.parliament.uk.
Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/pac. A list of Reports of the Committee in the present Parliament is at the back of this volume. Additional written evidence may be published on the internet only.
Committee staff The current staff of the Committee is Sarah Petit (Clerk), Claire Cozens (Committee Specialist), James McQuade (Senior Committee Assistant), Ian Blair and Yvonne Platt (Committee Assistants) and Alex Paterson (Media Officer).
Contacts All correspondence should be addressed to the Clerk, Committee of Public Accounts, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5708; the Committee’s email address is [email protected]
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Contents
Report Page
Summary 3
Conclusions and recommendations 5
1 The scale of the challenge 9
2 How the FCO and UKTI support UK exporters overseas 12
Formal Minutes 16
Witnesses 17
List of printed written evidence 17
List of Reports from the Committee during the current Parliament 18
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Summary
We welcome the progress which UK Trade and Investment (UKTI) and the Foreign and Commonwealth Office (FCO) are making in supporting UK exporters overseas. In recent years, the departments have given greater attention to encouraging export growth and have shifted resources to focus more on emerging markets. However, we would want the UK’s export performance to improve relative to other European Union (EU) nations. Based on current forecasts, the UK is not on-track to meet the Chancellor of the Exchequer’s ambition, set out in the 2012 Budget, to double the value of its exports to £1 trillion a year by 2020. UKTI and the FCO have not always worked together effectively. For example, they developed separate strategies to increase exports, without stating how they would work together. They now need a more joined-up approach to increasing exports. It is difficult for FCO to evaluate the impact of its activities, but without proper evaluation it cannot assess which of its activities are most effective at promoting exports.
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Conclusions and recommendations
1. In March 2011, the government published its Plan for Growth. This set out its strategy to encourage economic growth and included a focus on increasing investment and exports. In 2012, the Chancellor set a very challenging ambition of doubling UK exports to £1 trillion a year by 2020. Achieving this ambition will depend on, at least, maintaining the current market share in advanced markets and securing greater exports to new, faster-growing emerging markets.
2. In 2012-13, the UKTI and FCO spent £420 million on promoting UK economic growth through supporting UK businesses overseas. In general terms, the FCO tries to create the conditions overseas for growth, and UKTI works directly with UK businesses to help them make the most of these market conditions. The FCO estimates that 1,000 of its 14,000 staff spend at least a quarter of their time promoting economic growth, across its international network of 270 embassies, high commissions and consulates. UKTI is a non-ministerial department of both the Department for Business, Innovation & Skills (BIS) and the FCO and nearly 1,000 UKTI staff in 160 international locations work on export-related activities.
3. From 2000 to 2012, the annual value of UK exports nearly doubled. During the same period, the annual value of exports globally nearly trebled. UKTI told us that while the share of UK total exports to key emerging markets remains low (compared to the share of UK exports to advanced markets such as the United States) they are growing faster than exports from Germany, France and Italy to emerging markets. These latter three countries have a faster overall export growth rate than the UK.
Recommendation: UKTI and FCO need to understand the reasons behind these stronger overall export growth rates of other countries and use this research to inform their future planning to close the gap.
4. UK export performance is currently not on-track to meet the Chancellor’s ambition to double the value of exports to £1 trillion a year by 2020. Current forecasts indicate that a 10% year-on-year growth in UK exports is needed to achieve the £1 trillion ambition. However, for the last two years the annual value of UK global exports has been flat. A significant step-up in performance is now needed to achieve a doubling of annual exports to £1 trillion. UKTI and the FCO still consider the ambition to be realistic, particularly as the UK’s standing and profile are built up in emerging markets. UKTI told us that progress in increasing UK exports to emerging markets will be crucial. Without a strong performance in increasing exports to these markets, UKTI emphasised that the total value of the UK’s annual exports will not increase to £1 trillion by 2020—no matter how successfully UK exporters perform in advanced markets, such as the United States and Europe.
Recommendation: UKTI and FCO need a defined joint ‘roadmap’ to support the £1 trillion annual exports by 2020, particularly focusing on what FCO and UKTI need to do to help UK businesses maximise export opportunities to emerging markets, as well as maintaining, at least, export levels to advanced markets.
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5. UKTI and FCO have not always worked together effectively to promote export growth. To meet the challenging £1 trillion exports ambition requires UKTI and FCO to take a planned approach to supporting UK businesses to export, based on an understanding of what works, and to collaborate with each other effectively. There are examples of UKTI and FCO working together effectively in some overseas locations, for example, in Colombia where UKTI and FCO staff worked together in sector-based teams. However, there has been limited joint-planning centrally and at other overseas locations. UK based businesses have told FCO that it needs to be more closely co-ordinated with UKTI. The two departments acknowledge that they could work together more effectively. They intend to create a joint overarching strategy that defines the contributions of UKTI, FCO and BIS. Planning at overseas posts will be more integrated with a single country business plan and set of metrics.
Recommendation: The proposed joint strategy between UKTI, FCO and BIS on exports, and the new joint country plans will need to be clear on roles and responsibilities, set out how the organisations will work together, and provide a single action plan for promoting UK exports centrally and at overseas locations.
6. UKTI needs to be a more effective source of intelligence on new opportunities in order to support small and medium-sized enterprises (SMEs). UKTI told us that increasing the exports from mid-sized businesses and SMEs in the UK is critical to achieving the £1 trillion exports ambition, but UK SMEs do not perform as well as their French and German counterparts. We heard that surveys by business bodies such as the Confederation of British Industry and Federation of Small Businesses indicate that many SMEs are unaware of, or do not use, UKTI’s export services.
Recommendation: UKTI needs to be a more effective source of intelligence on new opportunities in order to help make it less difficult for SMEs to export. It should actively market to SMEs the export opportunities available in different overseas markets, as well as the support it can provide to help overcome barriers to exporting.
7. The FCO would benefit from a ready means to evaluate the impact of its work to promote exports. UKTI has several metrics which help it measure the impact of its services, including the new trade growth value measure. However, the FCO does not have equivalent measures to assess the impact of its work. In particular, FCO lacks information on outcomes which it could use to judge which of its activities are most effective at promoting exports in different circumstances. This makes it difficult to demonstrate whether the FCO achieves value for money on its work to promote exports.
Recommendation: The FCO should develop measures to evaluate the relative impact of its interventions, to understand their likely costs and benefits.
8. The actions of other departments, such as the Home Office to secure UK borders, can lead to tensions with the UKTI and FCO’s work to promote UK exports. The Home Office’s measures to secure the UK's borders, for example, through setting visa entry requirements, can discourage business travellers from other countries from visiting the UK. This potentially affects export opportunities. The FCO and
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UKTI told us that they are aware of a high level of concern in some countries about the time-consuming process of getting a UK visa. They told us that expanding the priority visa service would help to address the concerns of business travellers from overseas.
Recommendation: UKTI and FCO need to identify the key problems which business travellers face in obtaining UK visas, and the impacts on export opportunities. They should work with the Home Office to minimise barriers while maintaining UK border security.
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1 The scale of the challenge
1. On the basis of a report by the Comptroller and Auditor General (C&AG), we took evidence from the Foreign and Commonwealth Office (FCO) and United Kingdom Trade and Investment (UKTI) on their work to support UK exporters overseas.1
2. In March 2011, the government published its Plan for Growth, which sets out its strategy to encourage economic growth. It aims to achieve sustainable and balanced growth and be less reliant on a few particular sectors. In the 2012 Budget, the Chancellor of the Exchequer set a very challenging ambition of doubling UK exports from £488 billion to £1 trillion a year by 2020.2 Achieving this will depend on, at least, maintaining the current share in advanced markets and securing exports in new, faster-growing emerging markets.3
3. In 2012-13, the FCO and UKTI spent £420 million to promote UK economic growth through supporting UK exporters, via their network of offices overseas.4 Nearly 1,000 of the 1,265 UKTI staff in 160 locations overseas work on export related activities. The FCO estimates that around 1,000 of its staff (out of 14,000 people in its international network of 270 embassies, high commissions and consulates) spend an average of a quarter of their time working to promote economic growth.5 Since 2010, the FCO has focused more of its efforts on this area as one of its foreign policy priorities. It does so by trying to create conditions overseas for export growth through activities such as lobbying to remove trade barriers. UKTI’s role is to work directly with British exporters to help them maximise the opportunities overseas by offering a range of services.6
4. Improving the UK’s export performance will be challenging. Along with other European Union (EU) nations, the UK has seen a decline in its share of the global export market. In 2012, the UK’s share of global exports was 3.3%—lower than that of Germany and marginally lower than France.7 In terms of the rate of total export growth, the UK is not performing as well as other EU countries.8 From 2000 to 2012, the annual value of UK exports nearly doubled, but over the same period, the annual value of global exports—and those of Germany—nearly trebled.9 UKTI considered that, in emerging markets, the UK is not producing the kind of capital goods that these countries require at this point in their development, whilst others such as Germany are doing so.10
5. Both departments pointed to some positive signs. UK exports are higher than in 2009, and the FCO told us that it hopes that exports have ‘turned a corner and are improving’. It
1 Supporting UK exporters overseas, National Audit Office, HC 732, 16 October 2013 2 C&AG’s report, paras, 1.2-1.3 3 Q 26 4 C&AG’s report, paras 4 and 1.13 5 C&AG’s report, para 1.13 6 C&AG’s report, para 1.13 7 Q 3, C&AG’s report, para 1.3 8 Qq 1-2, C&AG’s report, 1.3, figure 2 9 C&AG’s report, para 1.4, figure 3 10 Q 4
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noted, for example, that the UK automotive sector was exporting more cars than ever before. At the main China outbound direct investment conference in Beijing, involving the Chinese government, its major infrastructure companies and their developing country clients, the UK was the only developed country present. The FCO and UKTI believed this reflected Chinese endorsement of British construction companies.11 UKTI noted that while historically UK exports to emerging markets have performed less well, over the last few years there has been a stronger performance. It considers that as these countries mature they will increasingly want to consume the services and high-end retail products that the UK produces.12
6. The Chancellor’s ambition in 2012 of doubling the annual value of UK exports by 2020 is a government-wide target, but both UKTI and the FCO have important roles to play in helping achieve it. UKTI confirmed that it was primarily responsible for working out how the £1 trillion exports target will be achieved, as well as for leadership of the government’s contribution to meeting it. The FCO confirmed that it also has a role in trying to meet it, although the target itself must be achieved by the performance of UK exporter companies.13
7. The £1 trillion exports target remains challenging. Current forecasts indicate that a 10% year-on-year growth in UK exports is needed to reach the £1 trillion exports ambition. However, UK export levels were flat in 2012, affected by flat world trade.14 Therefore, a significant step-up in performance will be needed if export values are to double. Both departments considered that the target was realistic.15 While UKTI agreed that exports were not on-track to increase to £1 trillion by 2020, it argued that it is too early to tell if it is not achievable, as the results of UKTI and FCO activities will take time to materialise.16
8. As well as maintaining market share in advanced markets, the government considers that UK businesses need to pursue export opportunities in emerging markets such as China and India, which are expected to grow significantly over the coming years.17 UKTI told us these markets were important, emphasising that no matter how well UK exporters performed in Europe and the United States, the UK will not achieve the £1 trillion exports target unless it does well in the emerging economies.18 It argued that there was the potential for even greater growth in emerging markets, particularly as the UK builds up its standing and profile there.19
9. We asked about the link between exchange rates and exports. UKTI said that sterling’s devaluation had not helped UK exports as it should have done. This was because the UK exports goods which often include imported components. This is a result of the UK’s
11 Qq 4, 5, 12, 27-30, 33 12 Qq 1, 3, 4, 23 13 Qq 16-20 14 Qq 13, 23-24, C&AG’s report, para 1.7 and figure 6 15 Qq 21-22 16 Q 13 17 C&AG’s report, para 1.5 18 Q 26 19 Q 13
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domestic supply chains having shrunk or disappeared in many sectors. Consequently, the UK imported components, assembled them into goods and exported the finished goods. UKTI said that the UK needed to restore its domestic supply chains. This was already happening in the automotive industry. In addition, UK exports were often not as price- sensitive as they had been in the past because many were luxury goods.20
20 Qq 44, 46
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2 How the FCO and UKTI support UK exporters overseas
10. To meet the challenging £1 trillion exports ambition we would expect to see UKTI and FCO take a planned approach to supporting UK businesses based on an understanding of what works, as well as collaborating effectively across the world. UKTI and FCO help to achieve growth in a number of ways. The FCO seeks to create conditions for growth.21 It described the efforts made in negotiations to represent the UK’s interests. Trade policy is done through the EU, although the UK does its own trade promotion. A trade deal between the EU and Canada has been agreed but not yet ratified, and the EU has signed a free-trade agreement with Korea. The FCO said the UK is pushing hard on the proposal for an EU-United States trade and investment partnership, which could be worth £10 billion to the UK.22 UKTI drew our attention to the range of activities it undertakes, including trade missions, representing the UK at conferences, providing advice to UK companies and working with partners to develop opportunities such as the British business centres overseas.23
11. Collaboration between UKTI and FCO is essential. There are examples of overseas posts, for example, in Colombia, where UKTI and FCO staff worked together in sector- based teams. However, there was also evidence of limited joint planning, both centrally and at some overseas posts. UKTI and FCO acknowledge that they need to co-ordinate more closely when planning and implementing activities to support exports.24 The two departments published their strategies for supporting growth at the same time in 2011. However the strategies, while setting out their individual roles, did not show how they would work together to increase exports.25 This lack of alignment is repeated at some overseas posts, which have stopped producing joint action plans. The departments told us that this was because UKTI at the time had a number of targets which did not apply to the FCO. Now these targets have been reduced, the departments believe that they are in a better position to undertake joint-planning overseas.26
12. The departments pointed to recent developments in joint-working. These include the creation of a tri-lateral board with UKTI, FCO and the Department for Business, Innovation and Skills (BIS). They intend to produce a joint overarching strategy that defines the contributions of UKTI, FCO and BIS in this area and have been working to integrate planning at overseas locations.27
13. Relationships with other departments are important for UK exports. UKTI said that it is working more closely with the Department for International Development (DFID) than
21 C&AG’s report, para 4 22 Qq 54-56 23 Qq 9, 33, 86, 115 24 Q 58, C&AG’s report figure 11 25 Qq 89-90, C&AG’s report, paras 9 and 2.9 26 Q 91 27 Qq 64, 93
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in the past, and seeks to ensure that DFID makes British companies aware they can compete for opportunities overseas arising from development spending.28 UKTI described how it is arranging itself into joint teams with BIS to support UK companies - such as an investment by Bentley in Crewe, aimed at ensuring the UK offer to Volkswagen was better than alternatives.29 UKTI also reported that the Home Office, Ministry of Justice, the Department for the Environment, Food and Rural Affairs (DEFRA) and the Department of Health are also involved in promoting UK services.30
14. We asked how UKTI ensured that it got the most out of its resources and what determined where it focused its attention. UKTI told us that decisions on priorities are complex. It can provide more value to UK companies exporting to emerging markets as such markets can be difficult. It stated that it is very important that UK exporters do better in China. At the same time, advanced markets such as Germany and the United States remain very good export opportunities for SMEs, and UKTI had to strike a balance between competing pressures. UKTI said that it was undertaking a review of its presence in different parts of Africa and that it probably needed to spread resources into some countries in which it has not previously operated.31
15. Helping more of all sizes of UK companies to export is critical to achieving the £1 trillion exports ambition, but UKTI explained that, while some of the UK’s biggest companies are successful exporters as any others internationally, our mid-sized businesses and SMEs do not generally perform as well as their French, German and Italian counterparts in their export efforts.32 There appears to be a range of reasons for this, including a lack of knowledge of overseas markets amongst such businesses, and a lack of appetite for the risks involved in complex markets such as China. Others consider they have grown as far as they want, within the domestic market.33
16. UKTI described how it is trying to push more of its resources towards emerging markets to encourage SMEs to export there. It has located more than half its resources in these markets.34 It is also designing its services to try to overcome what some UK SMEs regard as hurdles to doing business in emerging markets. It has teams around England and sister organisations in Scotland, Northern Ireland and Wales which market opportunities in different countries to SMEs. They also train SMEs in what they need to do to become successful exporters, and help them to draw up an export plan. After this, UKTI told us that it can provide a more bespoke service for each market, including research and introductions to partners, distributors and potential customers.35
17. As part of its efforts to encourage UK companies to export, UKTI is also working with partner organisations, chambers, trade associations, banks, accountants and lawyers to
28 Q 58 29 Q 59 30 Q 65 31 Qq 86-88 32 Q 38 33 Qq 38, 87 34 Q 86 35 Q 40
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communicate its export services to these companies.36 Most of its services are free, but it is offering discounts for some charged-for services. Such efforts are necessary given the evidence from surveys by business bodies such as the Confederation of British Industry, Institute of Directors and the Federation of Small Businesses which indicate that many SMEs are unaware of, or do not use, UKTI’s export services. UKTI acknowledged that it had not been good enough at informing businesses about its services.37 It told us that its marketing budget is £27 million out of a total budget of £316 million and it is about to launch a nationwide marketing campaign as part of a broader programme to market its services more effectively.38
18. It is essential that UKTI and FCO understand the impact of their activities. UKTI has several metrics which help it measure the impact of its services, including the new trade growth value measure. This is a measurement of the value of UKTI assistance when UK companies secure contracts.39 UKTI reports that its figure for additional company sales that were secured with its support was £50.9 billion in 2012-13.40 It also measures the number of companies that it helps. This was 25,000 in 2011-12, and Treasury and UKTI have since agreed the target should be double this amount by 2014-15.41 However, these are UKTI measures only. The FCO does not have measures to assess the impact of its work, in particular, which activities are most effective at promoting exports in different circumstances. Such measures would help effective resource allocation and demonstrate whether the FCO achieves value for money on its work to promote exports.42
19. We asked FCO about training and skills. While more staff have undertaken commercial diplomacy training and economics courses, we were concerned that many of the heads of mission who have participated in business placements were not then assigned to emerging economies, where their experience might be of best use. The FCO said it wanted all its heads of mission to have some commercial exposure, and explained that not all of those heads of mission posts in emerging markets will have changed in recent years to make opportunities available.43 The FCO explained that all their graduate entrants are given private sector ‘buddies’, and that of the 151 graduate entrants into the FCO over the last five years, all but 10 had joined with a range of further experience gained after leaving university.44
20. The actions of other departments in seeking to achieve their objectives can be at odds with UKTI and the FCO’s work to promote UK exports. For example, visa entry requirements, and the time taken to process visas—both within the remit of the Home Office—can discourage overseas businesses from dealing with the UK. We heard examples of business travellers being reluctant to come to the UK because of the difficulties created
36 Q 40 37 Qq 40-41 38 Q 42 39 C&AG’s report, para 3.10, figure 16 40 Ev 20 Letter from Crispin Simon to PAC Chair, 8 November 2013 41 C&AG’s report, paras 15 and 3.11 42 Q 70, C&AG’s report, para 3.8 43 Q98, C&AG’s report para 2.22 44 Q 100, Ev 20 Letter to PAC Chair from Simon Fraser KCMG, FCO, and Nick Baird, CMG, CVO, UKTI, 15 November 2013
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by the visa regime, and overseas students struggling to get visas to study in the UK. While there have been some improvements, for example, expanding the priority service, visas are a frequently raised as an issue by businesses.45
21. The FCO and UKTI told us they are aware of the problems that the UK visa regime can create for business. The FCO said the Home Office has introduced measures to streamline the process. The FCO has argued for the expansion of the three to five-day service – currently available in 67 countries—to 90 countries next year. A same-day service is available in India now and will be available in China and six other countries from next year. We also asked about visas for students, which can be difficult to secure. The FCO said that it was active in discussions with the Home Office on this, pushing the argument that the imperative for growth in the economy had to be balanced against other considerations in the debate. Despite such efforts, there remains considerable evidence of problems for business travellers and other individuals obtaining UK visas, which is damaging to the development of the face-to-face relationships needed for successful business in other countries.46
45 Qq 105-113 46 Qq 105, 110-111
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Formal Minutes
Wednesday 18 December 2013
Members present:
Mrs Margaret Hodge, in the Chair
Mr Richard Bacon Meg Hillier Stephen Barclay Fiona Mactaggart Guto Bebb Nick Smith Jackie Doyle-Price Justin Tomlinson Chris Heaton-Harris
Draft Report (Supporting UK exporters overseas), proposed by the Chair, brought up and read.
Ordered, That the draft Report be read a second time, paragraph by paragraph.
Paragraphs 1 to 21 read and agreed to.
Conclusions and recommendations agreed to.
Summary agreed to.
Resolved, That the Report be the Thirty-seventh Report of the Committee to the House.
Ordered, That the Chair make the Report to the House.
Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.
Written evidence was ordered to be reported to the House for printing with the Report.
[Adjourned till Monday 13 January at 3.00 pm
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Witnesses
Wednesday 6 November 2013 Page
Sir Simon Fraser, Permanent Under-Secretary of State, Andrew Mitchell, Director, Prosperity Directorate, Foreign and Commonwealth Office, Nick Baird, Chief Executive Officer and Crispin Simon, Managing Director for Trade, UK Trade and Investment Ev 1
List of printed written evidence
1 Foreign and Commonwealth and UK Trade & Industry Ev 20
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List of Reports from the Committee during the current Parliament
The reference number of the Government’s response to each Report is printed in brackets after the HC printing number.
Session 2013–14 First Report Ministry of Defence: Equipment Plan 2012-2022 and Major HC 53 Projects Report 2012 Second Report Early Action: landscape review HC 133 Third Report Department for Communities and Local Government: HC 134 Financial sustainability of local authorities Fourth Report HM Revenue & Customs: tax credits error and fraud HC 135 Fifth Report Department for Work and Pensions: Responding to change HC 136 in jobcentres Sixth Report Cabinet Office: Improving government procurement and HC 137 the impact of government’s ICT savings initiative Seventh Report Charity Commission: the Cup Trust and tax avoidance HC 138 Eighth Report Regulating Consumer Credit HC 165 Ninth Report Tax Avoidance – Google HC 112 Tenth Report Serious Fraud Office – redundancy and severance HC 360 arrangements Eleventh Report Department of Health: managing hospital consultants HC 358 Twelfth Report Department for Education: Capital funding for new school HC 359 places Thirteenth Report Civil Service Reform HC 473 Fourteenth Report Integration across government and Whole-Place HC 472 Community Budgets Fifteenth Report The provision of the out-of-hours GP service in Cornwall HC 471 Sixteenth Report FiRe Control HC 110 Seventeenth Report Administering the Equitable Life Payment Scheme HC 111 Eighteenth Report Carrier Strike: the 2012 reversion decision HC 113 Nineteenth Report The dismantled National Programme for IT in the NHS HC 294 Twentieth Report The BBC’s move to Salford HC 293 Twenty-first Report Police Procurement HC 115 Twenty-second Report High Speed 2: a review of early programme preparation HC 478 Twenty-third Report HM Revenue & Customs: Progress in tackling tobacco HC 297 smuggling Twenty-fourth Report The rural broadband programme HC 474 Twenty-fifth Report The Duchy of Cornwall HC 475 Twenty-sixth Report Progress in delivering the Thameslink programme HC 296 Twenty-seventh Report Charges for customer telephone lines HC 617 Twenty-eighth Report The fight against Malaria HC 618
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Twenty-ninth Report The New Homes Bonus HC 114 Thirtieth Report Universal Credit: early progress HC 619 Thirty-first Report The Border Force: securing the border HC 663 Thirty-second Report Whole of Government Accounts 2011-12 HC 667 Thirty-third Report BBC severance packages HC 476 Thirty-fourth Report HMRC Tax Collection: Annual Report & Accounts 2012-13 HC 666 Thirty-fifth Report Access to clinical trial information and the Stockpiling of HC 295 Tamiflu
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Committee of Public Accounts: Evidence Ev 1
Oral evidence
Taken before the Committee of Public Accounts on Wednesday 6 November 2013
Members present: Margaret Hodge (Chair)
Mr Richard Bacon Mr Stewart Jackson Jackie Doyle-Price Fiona Mactaggart Chris Heaton-Harris Austin Mitchell Meg Hillier Justin Tomlinson ______
Amyas Morse, Comptroller and Auditor General, Gabrielle Cohen, Assistant Auditor General, Jeremy Lonsdale, Director and Ashley McDougall, Director, National Audit Office, and Marius Gallaher, Alternate Treasury Officer of Accounts, HM Treasury, were in attendance.
REPORT BY THE COMPTROLLER AND AUDITOR GENERAL Supporting UK exporters overseas (HC 732)
Examination of Witnesses
Witnesses: Sir Simon Fraser, Permanent Under-Secretary of State, Andrew Mitchell, Director, Prosperity Directorate, Foreign and Commonwealth Office, Nick Baird, Chief Executive Officer and Crispin Simon, Managing Director for Trade, UK Trade and Investment, gave evidence.
Q1 Chair: Welcome, all of you. You will be pleased Nick Baird: Overall, we are not performing as well to hear that I have half lost my voice, so other people as the EU three— will probably come in more frequently. We think that this is a very interesting Report, and there is some Q4 Chair: Okay—why? very good stuff in it. We will start by discussing the Nick Baird: There is a range of reasons for this. I UK performance on exports. There are a couple of think that in the emerging markets in particular the figures early in the Report, figure 2 and figure 3. reason is that what we produce is not what they have Figure 2 shows that the Germans are performing very required at that particular point in their development. much better than we are, and figure 3 shows that our They particularly require the kinds of capital goods performance is pretty much the worst in Europe. I do that Germany and others are good at. As we move not know who wants to take this on, but I wondered towards a more mature economy, I think that actually why. we will see that the UK will perform better in those Nick Baird: Yes, Madam Chair, it is certainly the case markets, because they will increasingly want to that, particularly in the emerging markets, in the consume the sorts of things that we produce: services growth markets of the world, we have historically and high-end retail, technology and manufacturing. performed much less well. We are seeing that because, concealed below our overall export figures in the last few years, there is actually quite a strong performance in the emerging Q2 Chair: This is not about emerging markets. It markets. Yes, we are at a lower base than others, but says global exports, so it does not focus on emerging in all the key emerging markets we are growing faster markets. It is looking globally. than the EU three—Germany, France and Italy. Nick Baird: In the developed markets of the world, the UK does pretty well. We take 3.4% of the imports Q5 Chair: One of the imperatives is to try to of the OECD markets. We take just 1.2% of the rebalance our export market, so it is not so focused imports of the top emerging markets, and that puts on the financial services sectors and other service us behind— sectors. If you are saying that growth will come because they want those goods and services where we Q3 Chair: Sorry to draw you back to it, but we have have a stronger tradition, that does not sound a lot two tables here, figure 2 and figure 3. Figure 2 shows like rebalancing. that Germany is right up at the top and we are Nick Baird: Both are important. Financial services are twiddling down at the bottom. Who is worse than us? massively important for the UK, and we must not Italy is worse. Then look at figure 3 and the UK’s neglect them. We must continue to support them and overall export performance. You may have plucked to support professional and business services and out one decent stat, but we have the worst communications services more broadly; that is true as performance in Europe in the comparisons there. You well. Those are all areas of real strength in the UK, may have one little stat which shows us to be better and we ignore them at our peril. However, at the high but, overall, according to these two tables our end of manufacturing we have huge opportunities to performance is poor. become even more competitive than we are. We are cobber Pack: U PL: COE1 [E] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Ev 2 Committee of Public Accounts: Evidence
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment beginning to see that, particularly in the automotive our big GREAT campaign a lot, and they are very sector where the UK is now exporting more cars than effective at drawing in key customers— ever before. Q11 Jackie Doyle-Price: So, the British brand? Q6 Jackie Doyle-Price: It is true that the direction Nick Baird: Yes. of travel on car exports is very positive, but in reality what has UKTI delivered to achieve that? We are Q12 Jackie Doyle-Price: But it would be difficult to talking about our global brands. Is that really an area get Jaguar and Mini—we are talking about companies where UKTI genuinely adds value? that are actually owned outside the UK, anyway. It is Nick Baird: Yes, it can. For the bigger car companies, the production that is here. So it is rather difficult for as with other big companies, there is a range of issues you to do that kind of trade promotion activity with that we can help with. Of course, they don’t need our the company, if you like, rather than with the products. classic overseas market introduction service, or Nick Baird: Yes, that’s true, but broadly speaking I research services, or help in providing promotion in a would say that in most markets where they have an particular market, but they absolutely need work in established brand, the issue is essentially around respect of Governments, in respect of regulatory regulation and regulatory issues. However, there are issues. For example, in China at the moment there markets where they haven’t got an established brand. are issues around joint venture partnerships, which are For example, we were working with Jaguar Land relevant to them. Rover in northern Iraq, where they have one of their least likely distributors, but are doing a fantastic job. Q7 Jackie Doyle-Price: Is it market access issues The police all have Freelanders in northern Iraq, and that require political engagement then, rather than the President has an armoured Jaguar. trade promotion? Jackie Doyle-Price: Okay. Very good. Thank you. Nick Baird: Yes. Political engagement for our largest companies tends to be what they need. They need Q13 Mr Jackson: Two questions. First, if we look at lobbying and door opening at the highest level, in figure 5 in the Report, it occurs to me that we should Government or in business, and they need intervention be doing better in areas such as Government services where regulation is preventing them from growing as and financial services in the emerging nations, because fast as they can. And smaller companies tend to need one would think that you would be profiling countries our volume trade promotion services. that were second world—for want of a better expression—advanced countries that were looking at the basic facets of civil society: property; law; Q8 Jackie Doyle-Price: Is that kind of market access stability; low taxes, etc. And it does not seem to me activity done by UKTI staff or by FCO diplomacy, if that, in terms of Government services, we have you like? actually done that well where we should be doing Sir Simon Fraser: That is a very good point. This is well. I guess my question is: do you profile those where the complementarity between the things we do countries and the progress that they are making, so is so important. Indeed, on the market access and the that British companies can get involved at that stage? political end of this work, it is the Foreign Office— I do not know if you want to come back to that through its embassies, Prosperity teams and question. diplomats, working with UKTI and others—that takes However, the bigger question is this. The generic the lead. For example, working on trade policy—a target is this £1 trillion exports target, and if you look free trade agreement with Korea, for instance—we at figure 6, with the best will in the world, both the would take the lead on that. But we have to be World Economic Outlook and the Office for Budget absolutely clear in our understanding of what the Responsibility are saying that you will be some access is that we are trying to create, and what the distance short. I have a straightforward question. Is it opportunities are that should flow to British businesses a realistic target? If it is, why and if not, why? from it. Nick Baird: Clearly, we are not on track but it is too early to say that we will not achieve that target. There Q9 Jackie Doyle-Price: I wouldn’t expect, therefore, are three reasons for that. First, as I have been saying, UKTI to run a trade mission to promote Minis in our overall performance masks a rather good India, but some engagement perhaps to improve the performance in the last few years in emerging access to the market? markets. As we build up our platform in those markets Sir Simon Fraser: I think, actually, you could expect and we build up our brand in those markets, I believe both, in the sense that if we create the access, UKTI the potential for even greater growth than at the should step in and exploit the access. Indeed, I think moment is absolutely there. I also think that what there are examples of exactly that. those markets will need, broadly speaking, in the next phase of development are the sorts of things that we Q10 Jackie Doyle-Price: But in practice, these are produce and are more competitive in. global brands and really the taxpayer should not be Secondly, in the bottom-up firm aspect, we have subsidising their marketing, in terms of the added issues. You can see comparatively we have issues to value that your trade promotion activity can bring. the degree that our SMEs and our mid-size businesses Nick Baird: Yes. It’s also true that they—just by are comfortable exporting to markets of that kind existing—actually help Britain internationally a great compared with French and German companies. The deal as well. So we use Jaguars and Minis as part of sorts of measures that we are putting in place to cobber Pack: U PL: COE1 [O] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Committee of Public Accounts: Evidence Ev 3
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment reduce the risk encourage active involvement in the Q16 Chair: I don’t want us to lose the issue you emerging markets for those companies. As the Trade raised, Stewart, about the £1 trillion. Whose target is Minister says, these are a marathon, not a sprint. It it? Yours? Both of you? will not happen quickly. I absolutely believe over time Sir Simon Fraser: It’s the Government’s. that this will help. Q17 Chair: Who owns it? Q14 Mr Jackson: May I just stop you there? I will Nick Baird: It is the UK’s target as a whole— preface my question by making the observation that, considering some of the disastrous Reports we have Q18 Chair: Who owns it out of you two? Who is seen, this is a very positive Report. You are to be accountable for it? congratulated on the progress you have made. I have Nick Baird: We are accountable for part of it, there is a specific question. Paraguay is one of the fastest no question— growing economies in South America. The Foreign Office Minister went there a month or so ago to open Q19 Chair: Who is accountable for it? Are you both the new embassy. Is it a top-down decision on accountable? You have a £1 trillion figure sitting out there. Who is accountable for it? somewhere like Paraguay? In other words, would the Sir Simon Fraser: It is the target that the Chancellor Foreign Office say, “We’ve opened the new embassy. set for the British Government. I think UKTI are Bring all the people on board. Let’s go hell for leather primarily responsible for working out how we should to push the boat out in Paraguay”? Or would you go get there. The Foreign Office clearly has to play its and say, “Look, we can read the figures like anyone part. else. Paraguay grew at 9% last year. Let’s get in there. Let’s open the embassy”? How does that work? Is it Q20 Chair: So who is accountable? Do we hold you top down or are you feeding into that decision- to account on that target, Mr Baird? making process? Nick Baird: For leadership of the Government’s Sir Simon Fraser: I think we both need to answer contribution to that target, absolutely. But that target this. Of course, as the Report acknowledges, the has to be achieved by British companies. Foreign Office has, since 2010, been pushing our network more into what we consider to be emerging Q21 Chair: Of course, but it is a target set by the markets both by increasing our presence in well Chancellor. Back to Stewart’s question, given the stuff established ones like China and India and in opening we have in the report about scepticism in the OBR some new posts in countries where we feel we need and OECD, is it a realistic target, or is it just a good to have a presence. Paraguay is one of those. So there figure on a press release? is a foreign policy principle about having a real global Nick Baird: No, I believe it is a realistic target. network behind this. That is the Foreign Secretary’s clear view. In the light of that, we talk to UKTI and Q22 Chair: Would you all stand by it if you were others and we say, “Well, where would the priorities here in 2020, which you are probably not going to be, be?” Then we have a discussion which leads us to the but would you stand by it? conclusion. What the Report suggests is that when we Sir Simon Fraser: Yes. started on this process in 2010 we were not as closely Nick Baird: Yes. co-ordinated in that work as the NAO felt we should be. I think that is a legitimate comment which we Q23 Chair: Then I have to say to you that we are could discuss further. We have made a lot of progress two years in since the Prime Minister first changed as we have both developed our focus in ensuring that the emphasis to make the Foreign Office increase our we really do this together. export capability. He did that two years ago and last year you spent between you £500 million on this effort. You employ 2,250 people and there is Q15 Mr Jackson: You’ve effectively answered my absolutely no shift. first point. My bigger question is whether you profile Nick Baird: That is true, but of course last year world and forward plan where for political, diplomatic and trade itself was extremely flat. We actually did better commercial reasons there are opportunities for UK in the course of last year than any of our top business. European competitors. Sir Simon Fraser: When we started in the Foreign Office our look at what we call our network shift into Q24 Chair: Did you? emerging powers, that was mainly a political decision. Nick Baird: In the two years beforehand, of course, We said, “Look, in the future we believe these we had 10% growth and what we need now for the countries will be relatively more important both next period— politically and economically than they were in the past. So we need to be there.” We accepted that the Q25 Chair: Sorry to quarrel with that, but that initial diplomatic investment there was essentially doesn’t show up on figure 3. Figure 3, right at the about building relationships and opening doors in the bottom of the page, which looks at 2000 to 2012, way we have described. Since then we have worked shows global exports went up and our market share closely with UKTI to focus more on exploiting went down. It doesn’t even look as though our decline opportunities. That is how it was sequenced. was any better than any of the other countries. In fact, cobber Pack: U PL: COE1 [E] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Ev 4 Committee of Public Accounts: Evidence
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment
France, in orange, appears to have done a little bit Q31 Chair: Globally exports have risen, but with our better than we did. share we have a little balance of payments issue. Nick Baird: In the last two years, particularly in the Nick Baird: That is inevitable, because the big emerging markets, our performance has been stronger emerging markets will take a greater share of global than that of Germany and France. trade, which they will undoubtedly do. But it is perfectly possible for us to reduce in market share— Q26 Chair: You’re doing the same thing of taking and we will—between now and 2020, but achieve £1 one stat. All we can do is take the evidence we have trillion none the less because the overall size of global before us. trade will be substantially greater. Nick Baird: Of course, that’s right, but I honestly think that it is hugely important for all of us to focus Q32 Fiona Mactaggart: In that regard, you were very much on how we perform in those markets. That saying that the emerging markets—countries such as is where the growth is going to come over the next China—are absolutely critical to our making a decent period. However well we do in Europe and the United fist of this. Will you tell us whether Britain was States, we will not achieve that £1 trillion target unless represented, and at what level, at the most recent we do really well in the markets where there is going China Outbound Direct Investment Conference in to be serious growth over the next period. Beijing? I gather that Canada sent its ambassador. Mr Jackson: On that point, obviously you are going Who did we send? up, but others are going up faster. What lessons do Sir Simon Fraser: I cannot answer that question, but, you think you need to learn from our comparator just to underline, the Chancellor of the Exchequer and countries, which I think are Germany and France. the Transport Secretary were recently in Beijing, Chair: All of them. promoting British business—
Q27 Mr Jackson: They are the closest that correlate Q33 Fiona Mactaggart: But when they have a to our maturity as a trading nation. What are the key conference on outbound investment, who do we send? lessons where they are doing well? Admittedly in It is really critical. Other countries are represented at Germany they have a better and more developed this annual conference at a high level. My information manufacturing base, for instance, but are there any is that Britain is not. generic lessons that we could learn, to improve our Nick Baird: I do not know about that particular results? conference—I will find out. However, I would like to Sir Simon Fraser: I think there are. Could I make a draw your attention to one conference that we did comment on growth? The period that we are primarily attend in Macau in May: the main annual conference concerned with and responsible for is the period since between the Chinese Government and their major 2010. The report and statistics since 2010—whatever infrastructure companies with their big, developing our traditional performance on exports, including to country clients. We were the only developed country those growing markets—show that we have been present, and it became very clear why that was the performing relatively better than we did in the past, case when they did the introductions. The introduction and indeed than our European competitors. had a video clip of the Chancellor of the Exchequer, with British infrastructure and a British Airways Q28 Chair: Show me that evidence in the report. plane. The clear message from the Chinese to their Sir Simon Fraser: It is in figure 2. If you look at the developing country clients was: we work on British trajectories of the lines, you can see that from 2010 infrastructure and we work with British construction the French line, for example—and indeed the German companies and design engineers. Therefore, you line—is descending more rapidly than the UK line. developing countries do not need to worry that the Fiona Mactaggart: The German line is twice as big quality of what you produce in developing countries as ours in the first place. is not good. That provides a massive opportunity for us, which we are exploiting. Q29 Chair: The Italian line isn’t descending as rapidly as ours. You can quarrel with us, but—sorry, Q34 Fiona Mactaggart: How many orders has that Jeremy wanted to come in. produced for us? Jeremy Lonsdale: I was going to point you to figure Nick Baird: I do not have a figure, but huge numbers. 6, which has some of the actual data on it going back Mott MacDonald, Arup and Balfour Beatty work very to 2007. It shows the figures for 2010 and 2011. closely with Chinese construction companies in Sir Simon Fraser: If I may refer to paragraph 1.4, it Africa, for example, and they do so in a way which says: “the UK has struggled to keep pace with other benefits the customer, African Governments, the European nations … although performance has people and indeed us in terms of the benefit of the improved since 2009”. What we hope is that we are contracts that we gain. turning a corner and improving. Q35 Fiona Mactaggart: I look at construction Q30 Chair: We all understand that exports have gone services in figure 5, where we seem to have a zero up, but our share of global exports has gone down. balance. So, despite all this, we do not seem to be Sir Simon Fraser: That is a different matter. doing as brilliantly as you hope. cobber Pack: U PL: COE1 [O] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Committee of Public Accounts: Evidence Ev 5
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment
Nick Baird: This of course is a balance issue. what opportunities there are for SMEs in my Fiona Mactaggart: It is. constituency. I heard there exactly what you just said. Nick Baird: And we need to get the balance right. You mentioned earlier that you are trying to change That has two sides: we need to import less and export attitudes, but it is a marathon not a sprint. Plainly, more. But I would say that our construction services there are a variety of things here that could slow companies are fantastically successful— things down, such as the cultural attitude and the willingness to go out. It was obvious to us when we Q36 Chair: We get the French and the Chinese to were out there that some people—this is a build nuclear power stations. caricature—expect the streets to be paved with gold Nick Baird: But British architects—if you go around and think they will get results instantly. Actually, a lot China, as I am sure you know, Zaha Hadid, Norman of graft is required over many years before they will Foster and Richard Rogers are the ones who are get anywhere. They do not all understand that, so building iconic buildings there. It is not just the big some give up and some don’t even go because they ones: Benoy, which was a small Nottinghamshire think the game is not worth a candle. architect that used to produce shop fronts for One of the other issues is what sort of support restaurants and shops in Nottingham, has now done companies get on the ground from HMG over the long 100 shopping malls in China and 100 shopping malls haul when they get there. Can you talk about what in India. you are doing here to change attitudes and to explain to people that exporting is worthwhile even if it Q37 Mr Jackson: If you can cast your mind back, I requires hard work over a long period, and what you asked about examples of what Germany and France are doing over there? were doing that we were not. That will be interesting Nick Baird: In this country, we have teams all around for the Committee. England and we have sister organisations in Scotland, You quoted paragraph 1.4. It occurs to me that we are Wales and Northern Ireland. They are responsible for rebalancing away from an over-reliance on financial going out and marketing the opportunities in the services, but do we have an over-reliance on the different markets to SMEs—both to those that have European Union? Clearly, one of the factors that has exported to some markets and not to others, and to led to modest export growth over the last three years those that have never exported before. They also train is the recession in the EU economies. I was struck by SMEs in the kinds of things that they need to do to trade outside of the EU. Is it time for us to consider become a successful exporter. They develop an export at Government level a rebalancing of our targets plan with them. Once that plan is developed, the outside the European Union as well? I was astonished overseas teams provide the more bespoke service they that the EU countries represent 75% of exports— need to succeed in a particular market, such as market research, finding an appropriate joint venture partner Nick Baird: It is 45%. or a distributor, introducing them to potential Mr Jackson: That go to advanced countries. You say customers or working with them to promote in that it is 45% overall. So half our exports are going to the market. European Union. The key thing—this is how we try to design our Chair: It says 75% of them. services—is to address the issues that SMEs regard as the hurdles to engaging in those markets. It is about Q38 Mr Jackson: Yes, but that’s other advanced having knowledge of the opportunities and the countries as well. My question is about comparators, services that exist to support those opportunities, and but do we need a bigger comprehensive review of our about reducing risk and cost. For example, UK Export policy outside the European Union? I declare my Finance is back in the market to support SMEs by interest as an avowed Eurosceptic, like Mr Mitchell. providing insurance against not being paid by a Nick Baird: On comparators, there are important customer and against currency fluctuations. Costs are issues about companies’ size and how we support our kept as low as possible, which is why we are companies. I would say that Britain’s biggest discounting our own services at the moment and why companies are as successful as anybody many of our services are free. You are absolutely right internationally. The issue for us is that our mid-sized that companies have to be prepared to commit over businesses and SMEs are not as successful at time. It is very unusual for them to get contracts exporting as Germany’s, France’s or even Italy’s. quickly. There is no single reason for that; there is a whole The other issue for us is that if we are going to achieve range of reasons. Some lack knowledge of the market, that target, we need to get that message across to large some lack risk appetite and some have had plenty of numbers of companies. That is why we are working in opportunity to grow as far as they want in the particular with partner organisations, chambers, trade domestic market. associations, and also banks, lawyers and accountants. SMEs have all those intermediaries, so we need to Q39 Mr Jackson: And tertiary education, culture and use them to promote the services we provide and the other issues. opportunities for exporting more generally. Nick Baird: I think that’s right. Chair: On that point, the Federation of Small Businesses says that the number of small businesses Q40 Mr Bacon: May I come in on that point? I was considering exports fell between 2010 and 2012 from in Shanghai a couple of weeks ago. One of the reasons 12% to 6% and that only 20% of their exporting I went was because I wanted to find out more about members use UKTI. The CBI says that 69% of their cobber Pack: U PL: COE1 [E] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Ev 6 Committee of Public Accounts: Evidence
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment
SME exporters are not even aware of the existence of Chair: Austin—question, please. UKTI. Those are pretty damning statistics. The Austin Mitchell: To continue the diatribe, I watched Institute of Directors claims that only 55% of their the British car industry out in New Zealand fall from SME members feel that your services support SMEs. dominance in the market to only the occasional old They think that your services are focused at larger Land Rover held by some antiquated farmer who businesses. We have the FSB, the CBI and the IOD could not afford a Japanese car. all complaining. However, the point is that—I am coming to a point— we now have, in my exchange rate theory, the most Q41 Chris Heaton-Harris: On Tuesday, I met in this auspicious moment we have had for exports for a long place the group of representatives that the Foreign time. The pound came down 25% after the financial Office has across all regions in China. I had never crisis in 2008. The euro is now up 9% since April. heard of them before, but they are an impressive Chair: Question, question? group of people who are out there trying to stimulate business for British businesses both big and small. It Q44 Austin Mitchell: The Italians are claiming that is the connection. How do you inform people in the it is far too high for them and it is too high even for UK that you are doing the things that you are doing? the Germans. That’s the best opportunity we have ever Nick Baird: It is absolutely our No. 1 challenge. We are not good enough and have not been good enough had, yet the table on figure 2 shows that, despite that historically at getting this message across. boost, which has always worked in the past in boosting exports—in 1949, 1967, the ERM Q42 Mr Bacon: What is your total budget? How devaluation in 1992—this one has not. Why? much of it do you spend on marketing in the UK? Nick Baird: Those two issues are absolutely Nick Baird: Our total budget is £316 million and our connected: your first issue about the importance of marketing budget overall is £27 million, of which investing in our industry in order to be successful about a quarter is spent in the UK. However, I should exporters, and the level of sterling. This is a BIS lead. tell you that, as of the beginning of next week, we What is being done at the moment in the 11 sectors will be launching a massive nationwide above-the-line chosen through the BIS industrial strategy is to work marketing campaign about our services, which is the with the companies to understand and to drive the first one that we have done for many years, but that is investment needed in those sectors. It is around only one part of a much broader programme to market investment in research and skills and building back our services more effectively. We now work closely the supply chain. with the big banks, lawyers and accountants to ensure I say those things are connected because there are two that every time one of their SME business advisers is broad reasons why sterling’s devaluation has not engaging with an SME, they think, “Could this SME helped us as much in exporting as it should have done. export?” and then we can market our services to them. The first is that we have a high import component in our goods exports. That is because our supply chains Q43 Chair: But you have a long way to go. in many of our sectors have hollowed out and they Nick Baird: We have a long way to go. We are on have to be brought back. We are bringing in an upward curve, but I absolutely accept that we are components from overseas to assemble here and then nowhere near where we should be. re-export. Sterling does not help us with that when it Chair: I am not going to allow anyone to interrupt goes down. now because everybody has been waiting patiently. The second thing is inevitable and a good thing: our Austin Mitchell: I welcome both initiatives. exports are not as price-sensitive as they were in the Something has to be done to boost exports and to past, because we produce high-end luxury goods. That encourage people to export, but you are working on is what we have to do. We will never be competitive one leg of the problem only. The other leg is the again in the world producing volume manufacturing failure of British industry generally, manufacturing in at low unit cost. We have to produce the Bentleys, the particular, to go in for the kind of continuous Rolls-Royces, the Jaguars— investment, upgrade and improvement that Germans, for example, have gone in for, which makes their Q45 Austin Mitchell: So it is a question about exports so strong. You have to look at the contrasts volume manufacturing, is it? that I used to make in the ’70s between the fate of the Nick Baird: Yes, it is. Morris Minor, which was a much better car, and the fate of the Volkswagen Beetle, which was crap and killed the passengers when you had a smash because Q46 Austin Mitchell: Why aren’t you there the engine was at the back. The Volkswagen sold screaming at them, “Here’s your best opportunity for millions and millions, whereas sales of the Morris 30 years and you’re screwing it up!”? Minor tailed off rapidly due to a failure to upgrade Nick Baird: What we need to do is get those supply and improve continuously in the way that the chains filled out again. That is really happening in the Germans used to. automotive sector. It is extremely impressive the way I have always partly put that down to a penchant in that the supply chain is growing back because of the Britain for a high exchange rate, because the City huge producers here, and they need local supply likes a high exchange rate. That has been a detriment chains. As that happens, so will our export figures go to and has damaged manufacturing over a long up, because we are not just supplying what we are period— assembling, having brought it in from overseas. cobber Pack: U PL: COE1 [O] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Committee of Public Accounts: Evidence Ev 7
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment
Q47 Justin Tomlinson: Going back to figure 2, there on the fact that businesses would like be is obviously a clear gap between Germany and us and communicated with a lot more. You identified that in the other comparable ones. I know Mr Jackson an earlier answer that you would. You have a £27 touched on this, but we are spending £420 million, we million marketing budget, a quarter of which is spent have got 1,265 UKTI staff and you have pledged to in the UK, so you are going to do more on that, but double the number of companies being assisted from even then, there are a large amount of businesses. 25,000 to 50,000 a year. How does that compare to Further on in appendix three, it says “the Trade Germany? When I have talked to some business Access Programme is well known and available to all colleagues, they have said that when the German sizes of business”. In Swindon we hosted a UKTI delegation arrives, it is a coach load. Is that really meet and greet, and it was fantastic, but it was a real the case? scrabble to let businesses know. I am not just raising Nick Baird: It is certainly true, as I said earlier, that this here and now; I have raised it with other at the level of mid-sized business—SMEs—we do not Government Departments in general. You don’t have perform nearly as well as Germany and France. That the budget to go and write a letter to every single is the key comparative issue that we have to address. business in the country, but we are already doing that through the business rates mailer. I have never Q48 Justin Tomlinson: Is that because they are understood why organisations such as yours, spending? You have increased the funding; you are promoting apprentices and other worthy Government doubling the number of companies you wish to assist. objectives, do not include an A5 leaflet in that, Is that based on the fact that that is what the signposting people to a website of events and things Germans do? like that. The expensive bit—the postage—has Nick Baird: The German model for supporting SMEs already been paid, because every business has to get or mid-sized businesses is in my view the best in the a business rates mailer. There are opportunities there. world. That is because if you are a German SME and There was also a comment that said: “Some you want to export, you know exactly what to do. You businesses felt that charging for the use of embassy go down the road to your local chamber, which will facilities created the wrong impression about UK provide you with a complete one-stop-shop service— support.” You say it isn’t one-size-fits-all, so everything you would need to be an exporter. It is a presumably there is actual discretion—if I am a very comforting feeling for a German SME exporting. business and I am saying, “Being in the embassy is We don’t have that, so UKTI provides most of what prestigious and could seal the deal,” I presume a an exporter would need, but it doesn’t provide higher charge for tea and cake wouldn’t be a deal everything. For example, it does not provide breaker. documentation. That is why we are working on our Nick Baird: Simon might want to mention FCO chambers initiative, which is essentially to get facilities. At the moment, what we are doing to help ourselves into a position where the chambers both in SMEs is discounting our charged-for services. Most this country and overseas are leading the activity and of our services are free, but we are discounting our support of our SMEs. We believe that is a far better charged-for services for SMEs. model. The challenge for us is that the German Crispin Simon: Yes, that’s right. chamber movement is well funded because there is Sir Simon Fraser: obligatory paying membership for all companies. We On charging for embassy premises, don’t think we could introduce that here—we don’t we think it is reasonable in cash-strapped times that think companies would take that—but we want to get companies should be invited to make a contribution as close as we can to that. for the use of our premises, but there is discretion at the moment. Q49 Justin Tomlinson: So our war chest is £420 million. I get that the German funding is different, in Q51 Chair: Would it be a deal breaker? That was that they have a levy, but how much have they got the question. compared with our £420 million? Sir Simon Fraser: Many companies are really pleased Nick Baird: It is difficult to assess exactly what they to do it. It wouldn’t be a deal breaker. do. I can tell you what their trade and investment Chair: Would it be a deal breaker? No? organisation spends, and its budget is much smaller, Sir Simon Fraser: Of course not. We are there to but it does far less than UKTI. If you tried to work support, but we also think that we want a participating out what all the chambers are doing—and what the relationship with the companies. chambers put into this is the bulk of our work—I don’t have that figure, and I don’t think we can get that Q52 Justin Tomlinson: Sometimes opportunities figure. land in our laps. One was obviously the Olympics, Chair: They’re structural. They have the regional which was a huge opportunity to showcase the very economies, and it is a much stronger regional best about Britain, in terms of sport and what a presence. tolerant, liberal country we are—people can deal with us and everybody is made welcome. The Olympics Q50 Justin Tomlinson: Building on something that proved to be a big boost. There was a lot of talk about Mrs Hodge said about paragraph 1.14, in terms of the how we were doing everything we could to impress FSB, the CBI and the Institute of Directors, and then business people during the Olympics, and how the going back to appendix three, where the NAO did games were a hook to get them in. Did we really take some very helpful research, we have already touched full advantage? What sort of things were we doing cobber Pack: U PL: COE1 [E] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Ev 8 Committee of Public Accounts: Evidence
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment during the Olympics to open doors and build on the EU budget, but that money does not go on trade opportunities? promotion. Nick Baird: We did take full advantage. We have A related point is that when you sit down in the published the economic legacy benefit figures. In the European Union to decide what your negotiating first year, we achieved £9.9 billion of economic mandate is in any negotiation, different countries have benefit for the UK—more than the £9 billion spent on different sectoral priorities. Of course, we have to the Olympics. That was in year one, and that figure ensure that our interests are fully represented in the continues to go up. negotiating mandate, so that Britain will benefit One of the things that I found really moving, actually, proportionally—or, hopefully, disproportionately in a was when we went to Rio with the Prime Minister on positive way—from the negotiations. a trade delegation straight after the Olympics, which was led for us by the two wonderful boxers, Anthony Q55 Chair: If I can just inject a bit of a pro-European Joshua and Nicola Adams. The range of companies perspective, my understanding is that the European that are involved in a large project like that is Union and Canada signed this landmark trade deal, enormous. They all have the potential to bid into that; which the Prime Minister said “will inject £1.3 billion so, we had the designer of the Olympic stadium, to the UK economy”. which is going to be the same for Rio, the company Sir Simon Fraser: Actually yes, that is very recently that made the seats, the company that put new air achieved and it is the result of prolonged negotiation. conditioning into the O2, because it needed not to It has been agreed, but has to be ratified, of course. blow the ping-pong balls around, the woman who did Previously to that, the European Union signed the free the shoes for the Spice Girls in the closing ceremony trade agreement with Korea—a very significant and and a company that did prosthetic limbs for good quality agreement. Since then, our exports to Paralympians. All of those companies were with us Korea have actually increased by 57%. and will all be doing business into these major areas. Q56 Chair: And is the US-EU trade deal on the table? Q53 Justin Tomlinson: That’s great, and that’s a Sir Simon Fraser: On the proposal for the given. What I specifically meant was that during that transatlantic trade and investment partnership, which showcase, we had all sorts of important business is the EU-US one, we are pushing very hard. people coming over to view the Olympics—the VIPs. We were told in the media that there was lots and lots Q57 Chair: And we will benefit from it? of saying to them, “Yes, you get to come and watch Sir Simon Fraser: If it goes through, the notional the football, but we will then also do a bit of hard value to the British economy is £10 billion per annum, selling to you.” Was that true? Were we doing that, so let us hope that we can take that forward. and has it made a difference? Nick Baird: We did. In Lancaster House we did Q58 Justin Tomlinson: That is all really sector-based summits for each day of the Olympics encouraging, but it would be churlish of me not to and a number during the Paralympic games. From mention the UK games tax relief. Games is one of our memory, they delivered more than £1 billion-worth 1 fastest growing export industries and 95% of the of business, just through the contact between the games we produce are exported. The unhelpful companies and the overseas buyers and investors who European Union is doing its level best to destroy our appeared. That was a terrific set of summits— industry, but we will park that to one side. Madame Lagarde said that they were better than the We are obviously having to look at joined-up thinking. French could have done, so I think we did pretty well. I welcome how the Foreign Office and BIS work together. Having two separate organisations works Q54 Justin Tomlinson: I have two small points to because there are two different priorities that go. We obviously contribute huge amounts of money sometimes overlap and sometimes do not—there is no to the EU—I am with Mr Jackson on this—which then one-size-fits-all for the country. Another area is also does trade envoys and tries to promote things for foreign aid. When people contact us about the amount the EU as a whole. Do we feel that we get a fair being spent, one of the justifications is that it can slice of the cake? Do we feel that the EU perhaps has actually open doors as well. Is there joint working favourites and goes off to some of the markets in in that area, looking particularly at emerging markets which we are trying to compete, and we then discover where we have invested foreign aid money? That can that it is undermining us, or is the EU beneficial to us? lead on to opportunities for our industries to help Sir Simon Fraser: On that point, we do trade policy those economies to grow and can also help with our through the European Union in the sense that we exports. negotiate for market access and things through DG Sir Simon Fraser: That is a very important point. On Trade and the European Union, but the European your first point, it is right that there are two separate Union does not do trade promotion. That is a organisations. I agree with the Report that we need to distinction we make. We are very clear that we do our co-ordinate more tightly when working together on own promotion. Of course, we make contributions to planning and delivery than we have been in the past. That is fine; that is FCO and UKTI. I also agree with 1 Note from witness: In July 2013, UKTI announced £9.9bn of economic benefit so far, including: £5.9bn of additional your second point about the relationship with the sales from Olympic related activity such as the British Department for International Development. There are Business Embassy Programme. ways in which we can spend our aid and development cobber Pack: U PL: COE1 [O] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Committee of Public Accounts: Evidence Ev 9
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment assistance that, because it helps development, opening Q61 Chair: But it is a non-ministerial Department. markets and creating political stability, can contribute Sir Simon Fraser: I am not quite sure how that to market opportunities. We need to be thinking in a happened in 2003 when it was set up. joined-up way about that—indeed, we are increasing Chair: So it does have a Minister? our work with DFID on that. Did you want to add something on the announcement, Nick? Q62 Meg Hillier: Does the Minister call you in, Mr Nick Baird: The Secretary of State for International Baird, and hold you to account? Development [is either currently in or has just been Nick Baird: Absolutely. in] visited Tanzania in June with a business delegation. One thing they are doing there is co- Q63 Chair: You should change it, shouldn’t you? It funding, with Unilever, a big project around tea is obviously daft because of something daft in the plantations, which is essentially to encourage greater past, but you feel accountable to a Minister, do you? entrepreneurship locally. That is what is going to drive Nick Baird: I totally feel accountable to a Minister. growth there. My current connectivity with DFID is We work incredibly closely. Stephen Green is way closer than it ever would have been in the past. effectively the chairman and I am the chief executive. Another key part of it is about DFID making sure that It is an extremely close relationship. British companies are aware of the opportunities— they have to compete for them, of course—that arise Q64 Meg Hillier: That is quite good then. So you from British development spending overseas. do have a ministerial champion who you feel very Justin Tomlinson: The key is that we are doing a connected to. That is good news, but what levers do huge amount of good in lots and lots of places. The you have? If BIS or the Foreign Office started saying, additional thing is that some of those are those “We’ve got other priorities”—there is always a emerging markets. We can go in and be proud of what tension: the Foreign Office has a lot less money than we doing and say, “We are a good country to do DFID—what levers do you have if it is not working business with.” to bang heads together? Nick Baird: The biggest lever is the Prime Minister. Q59 Meg Hillier: I have a number of questions on He is absolutely clear to all Government Departments separate topics. First, to pick up Justin Tomlinson’s that growth is their No. 1 priority. question about working with other Departments, how Sir Simon Fraser: Fortunately, I don’t think the well do you work with BIS? Is there any room for circumstance arises because we are aligned in the improvement? policy objective. Nick sits on the Foreign Office Nick Baird: With BIS I think we work well. There board, which I chair. He sits on the BIS board as well. are two focuses. One is sector expertise in the two We have a joint trilateral board at director general Departments; the other is our regional footprint. On level, which involves UKTI, BIS and the Foreign sector expertise, we are now arranging ourselves Office, so we really are knitted together. around the sectors in the industrial strategy so that we work seamlessly as a team. You will see this, for Q65 Meg Hillier: I can see that. I do a lot of work example, in recent major investments, such as the in Nigeria and I see the impact that the Prime Bentley investment in Crewe, where our teams in Minister’s visit and agreement with the president have Germany, the BIS teams and the UKTI sector teams had. No. 10 focus can always do that. That is this here worked very closely with the company to make Prime Minister at the moment. In future there might sure that the offer we presented to Volkswagen in be Prime Ministers who have other pressing priorities, Germany was stronger overall than the opportunity to domestic agendas and so on. If you did not have the produce in Bratislava, which was their first intention. Prime Minister’s backing, how would you bang heads together? What about other Departments? There are In terms of the regional footprint, we work very huge opportunities for us in health around the world closely with BIS Local, so that when we are working and in security, justice and home affairs. We can with individual companies and individual SMEs, any export education; we can export all of these things. one of our staff—whether it is a BIS Local member Do you have similarly good relations there? So first, of staff or a UKTI member of staff—will have a single what do you do without prime ministerial patronage? sheet that lists all the different things that the Secondly, what about other Departments? Government can offer an SME, whether in the Nick Baird: In terms of the other Departments, the international space or the domestic space. relationships are very strong. The Home Office Meg Hillier: That sounds good. What levers do you Ministers lead trade delegations, particularly in the have if BIS did not want to play ball? You have no security space. The Justice Ministry is very focused Minister directly—or you have, sort of, but we are a on selling British legal services internationally. With bit puzzled about how that works. the Department of Health we have a joint unit— Chair: Yes, why are you non-ministerial? We couldn’t Healthcare UK—led by a private sector specialist to work that out. promote British health care opportunities overseas. We work extremely closely with DEFRA, and the Q60 Meg Hillier: Are you non-ministerial? You are Secretary of State does a lot of promotional events strictly, but— overseas for British food and drink, which has a Sir Simon Fraser: The Minister for Trade and fantastic international brand. If we did not have the Investment is a joint Minister in BIS and the Foreign prime ministerial lever, it may well be the case that we Office who is responsible for UKTI. would need a stronger formal arrangement, but those cobber Pack: U PL: COE1 [E] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Ev 10 Committee of Public Accounts: Evidence
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment arrangements exist. The Trade Minister chairs a Q70 Mr Bacon: I was looking at paragraph 2.25, Cabinet Sub-Committee—if I have the correct term— which says that, “the FCO and UKTI spent which is a Committee of Ministers of State from key approximately £420 million on promoting UK exports Departments. That is also a driver for working out of their total spend of £2.28 billion”. I would closely together. imagine that most of this is the Foreign and Commonwealth Office and its missions doing stuff Q66 Meg Hillier: That is great, it all sounds around the world. Looking specifically at the bit that fantastic, but how do you evaluate whether these trade was on promoting UK exports, whether it had FCO missions are delivering what you intend them to? Do above the door or whether it had UKTI above the you set targets? door, you are saying that this is purely a UKTI Nick Baird: We do. As with all our other services, our number? trade missions contribute to our targets both in terms Crispin Simon: We have two measures. The measure of the number of companies that we help and in terms that I was referring to and that Nick Baird referred to of the contract value that is delivered by that help. a moment ago was for the UKTI money only. Our core targets are the companies that we help, but we are seeking to grow that from 25,000 companies Q71 Mr Bacon: And how much was that? to 50,000 companies. Our trade growth value target Crispin Simon: That is the £300 million that Nick for this year is £20 billion. That is the contract value Baird referred to a moment ago. which derives from the services we have provided. That is not our judgment. That is the judgment of the Q72 Mr Bacon: Of which £27 million is spent on companies themselves, reported through an marketing, and a quarter of that here? independent assessor, as to the benefit of the services Crispin Simon: Yes, that is right. we have produced. Q73 Mr Bacon: So, of the three numbers you are Q67 Chair: This is your new trade growth value saying that £300 million is the number I need to measurement? multiply by 22? That is what I am trying to get to. Nick Baird: Yes. Crispin Simon: Yes. Q68 Meg Hillier: We are a Committee that looks at Q74 Mr Bacon: So, £6.6 billion or whatever it is. how well the public pound is spent. So you are getting Actually it is £660 million, isn’t it? That is what you quite a chunk of taxpayers’ money, and you are are saying. No, it is £6.6 billion, is that roughly right? evaluating the number of companies and the growth That is the benefit? of their business. Are you looking at the cost- Crispin Simon: effectiveness, pound for pound, of what you put in Yes, there are two measures that we and what that then brings back? We are dealing with use. The first is that one and that is measured in the trillions, which is just too big for most people to get. billions, and I can come back and give you— How are you looking at that? Nick Baird: We do indeed assess how much we Q75 Mr Bacon: When you say “that one”, I am just produce in additional sales for companies for every trying to get—Mr Baird used this example. What is pound of taxpayers’ money. The figure is 22:1, so £22 the number? of additional sales2 for companies against £1 of Crispin Simon: Can I refer to that as the PIMS taxpayers’ money put in. Where I do think that we number, which is the performance impact and can improve—and Mr Simon is leading on this—is in monitoring system? assessing the particular benefit of each of our different services relative to the others, so that we spend our Q76 Mr Bacon: I do not mind what you call it. I am money on those which are the most effective. That is just trying to get a numeral out of you, Mr Simon. the intention. Crispin Simon: That is the 22:1 ratio.
Q69 Mr Bacon: If I could ask you to clarify, when Q77 Mr Bacon: Right. And when you multiply one you say there is £22 of benefit for every £1 of by the other what do you get? What is the number? taxpayers’ money spent, you are talking about every Crispin Simon: You get £50 billion. pound of the £420 million spent on export promotion by either you or the FCO, are you? If I multiply £420 Q78 Mr Bacon: £50 billion? million by 22, do I get to the benefit number? Crispin Simon: Yes. Crispin Simon: May I answer that question? It is UKTI only, because they are evaluating all the Q79 Mr Bacon: £50 billion? services that are produced by UKTI, whereas the Crispin Simon: Yes. Foreign and Commonwealth Office is more focused Mr Bacon: Really? on policy rather than individual company support. So Chair: Do us a note. the ratio of 22:1 relates to UKTI services. 2 Note from witness: UKTI has two measures of trade impact: Q80 Mr Bacon: Hang on a minute, this is really additional sales and additional profits (normally expressed simple. Because £300 million multiplied by 10 is £3 per £1 of taxpayers’ money) attributable to UKTI services. Additional sales reached £50.9bn in 2012–13; while billion. £300 million multiplied by 20 is £6 billion. additional profits reached £5.2bn based on trade support of £300 million multiplied by 2 is £600 million, so £6.6 £236 million. billion—which is the number I did in my head—is cobber Pack: U PL: COE1 [O] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Committee of Public Accounts: Evidence Ev 11
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment roughly where it is. You are saying that it is £50 us a big chunk of inward investment money at the last billion, not £6.6 billion? autumn statement and there is huge potential over the Crispin Simon: Yes. The number that— next period to bring in new investment, particularly from China, India, Brazil and Russia, which will be Q81 Mr Bacon: So where does the other £44 billion very job creating. come from? Crispin Simon: The £50 billion is correct. I must have Q86 Jackie Doyle-Price: I worked with your multiplied the baseline. The baseline must be wrong. previous organisation—in those days it was British Trade International—about 10 years ago, and my Q82 Mr Bacon: Where does the multiple of 22 that reflection at the time was that real added value could Mr Baird referred to come from? be brought to particular areas of the world, but much Crispin Simon: That relates to the £50 billion of total less to mature markets. In particular, many trade value generated by UKTI in terms of extra sales for missions went out to north America, but did they British companies— really generate business? I am not sure, because that is already there because of our shared culture. But, Q83 Mr Bacon: For each pound spent. But as far as particularly in areas such as the middle east, it made I understand it, it is the £300 million that are each of a huge difference, as levels of access are important. those pounds, aren’t they? If we look at figure 7, which shows how the UK Crispin Simon: I think I mis-spoke when I referred to compares with European counterparts, we see five the £300 million. I think I should have been using a markets where we are over-performing. Three of them different number. are in the middle east: UAE, Saudi and Qatar, which Chair: I am going to stop this exchange. We will have supports my thesis. Then, we have South Africa and a note from you, Mr Simon, to set that out. the US, which are based on historic cultural links. How does that inform your approach? Paragraph 2.21 Q84 Jackie Doyle-Price: I have questions on suggests that while the FCO is looking at diplomatic priorities. I want to focus on figures 7 and 12. We relationships to dictate where to put the effort, for need to remember the point that it is businesses that UKTI it is all about where the economies are growing. will generate these exports and you can really only That will not necessarily give us the bang for our add value. In that case, I want to come down on buck. priorities. As well as promoting exports, you also have Nick Baird: It is a complex picture and several things a role in bringing in inward investment. What is the must be taken into account. If I start with the balance balance in how you employ resource? between developed markets and developing and Nick Baird: In actual budget terms, we spend between emerging markets, it is of course true that we can two thirds and three quarters of our budget on trade provide more added value in emerging markets, promotion, and between a quarter and a third on because they are inherently more complex for inward investment. companies to deal with on their own and the growth is there. It is important that we move resource over in Q85 Jackie Doyle-Price: What outcome does that that direction, and we are doing that. We set ourselves deliver? Bearing in mind that you can add value a target of at least half of our resource being in those through access and opening doors, in some respects it markets, and we have already reached that target and is easier to deliver added value to inward investment will exceed it in years to come. For small businesses than export promotion. For delivering outcomes, what that have never exported before, however, it remains is most effective in terms of value for money? the case that, broadly speaking, they are more Nick Baird: They are both absolutely effective and comfortable looking first into a developed market, they both deliver in terms of contract value and jobs where there are plenty of opportunities even at the created. With inward investment last year, we moment. Germany is a very good market for SMEs. supported more than 1,500 inward investment The United States is still a good market for SMEs. It projects, which created or safeguarded about 170,000 is important that we get that balance right, but it is jobs. The UK is the No. 1 in Europe in terms of definitely the intention and the actuality with the foreign direct investment; it is actually growing that gap against the Germans and the French and I believe organisation that we are cautiously pushing more that we can do really concrete things to help that resource in the direction of the emerging markets. investment flow happen. It is massively important over the next period. Q87 Jackie Doyle-Price: Do you think we could do For China, we did pretty well on exports. We grew more in those countries where we do have established 10% last year, but we got a 95% increase in Chinese connections? Your map at figure 12 shows the investment over the last financial year. Investment priorities for staff resourcing. Culturally, one would from those big markets where they have both think the Commonwealth nations would be the kind companies that are looking to globalise and significant of partners who would look to trade with us, but that investment funds looking for major projects with is not particularly well represented. You have decent levels of certainty has huge potential to create explained that the focus is on growing markets, but jobs. that is not necessarily how we get better outcomes I am adjusting the balance we have in UKTI a little for trade. bit in the direction of inward investment. We Nick Baird: Again, it is a complex picture in which a absolutely have to do both, but the Chancellor gave number of things have to be balanced. It is absolutely cobber Pack: U PL: COE1 [E] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Ev 12 Committee of Public Accounts: Evidence
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment right that we are and have been historically pre- madness, absurd and might have more to do with eminent in the Gulf among our European competitors departmental vanity than British interests, dare I say? and we do very well there, but we are behind in China. Even when we look at the maps that Jackie was In deciding where would be the best place to put your referring to, the FCO has 29 emerging markets and resource, one therefore has to take account of the fact UKTI has 20, although we are told in the report that that we really do need to get a lot better in China and you review countries all the time to establish whether need to put resource in there. On the other hand, we or not a presence is there. We see this often—it is one also need to take account of where we genuinely have of the less good aspects of this report. All this feels added value. It is more about how you deploy the to me like it is government at its worst: governed by resources in those places, rather than the level of departmentalism rather than total, overarching resource you deploy relative to other places. With the Government interest. Just to give you a chance, you Gulf, it is about particularly focusing on established should start by responding to those assertions. companies that are relatively comfortable in Sir Simon Fraser: I recognise these comments in the developed markets and are looking for the next stage, report. I certainly do not agree that this is in any sense but that are not particularly adventurous or that do not driven by departmental pride or anything like that. I have a big risk appetite. If you go into somewhere do not accept the suggestion that the two departments like the Gulf, you are still operating in markets that are not aligned. I think we are aligned and actually, are basically friendly to the UK and in which you the two documents published in 2011, Charter for have an added advantage. China is pretty complex and pretty difficult. Plenty of SMEs have succeeded there, Business and the UKTI strategy, were published on but it is a market for those who have staying power the same day jointly by FCO and UKTI Ministers, and risk appetite. specifically to show that we are aligned.
Q88 Jackie Doyle-Price: What about your future Q90 Chair: You may feel that; businesses are critical plans for Africa? As we can see from the previous of it. You may produce strategies on the same day and figures, we are over-performing in South Africa I am delighted you do it, but I don’t know why you because of the cultural links. Africa will form the next needed two and couldn’t have had one. On page 7, wave of emerging markets and we do have cultural paragraph 9, it says that neither strategy sets out how ties. Are you able to resource anything from that post, you will work together. The report is littered with it. or would you work with the FCO post to start You may feel, sitting there in the Foreign Office, that seedcorning that work? you are aligned, but the evidence doesn’t suggest that. Nick Baird: At the moment, I am having a review Sir Simon Fraser: The document that the Foreign done of our Africa footprint, because I believe that we Office produced was intended to make clear what the don’t put enough resource into Africa and I am also role of the Foreign Office was going to be, working not sure whether it is being put in the right places. We in complement along with UKTI to support British are in 14 countries and have heavy concentrations in business. The UKTI strategy set out what UKTI’s South Africa and Nigeria, but there are several objectives were. It defines the two roles. I accept that countries where we do not have a resource but where one of the comments in the business survey review of there are significant opportunities. Of course, it being the FCO Charter for Business was that they felt that Africa, the risk-reward ratio is quite high, so we have across the Government we needed to be more closely to take that into account, but we need probably to co-ordinated in that work. That is absolutely clear and spread our resource into some of the other countries I accept that. I agree that as we now move forward in that we have not operated in, and to look at the levels this, there is a lot of scope, and indeed a necessity, in places such as South Africa. Although we are ahead for us to bring our planning, delivery, evaluation and of others in South Africa, we are struggling there at governance of this work closer together. the moment. East Africa has huge opportunities, largely driven by the offshore gas finds. That is an Q91 Chair: area where we have big opportunities and where we Good. So why did you stop doing action also work extremely closely with the Foreign Office. plans together? In west Africa, we are hubbed in Ghana for several Sir Simon Fraser: On the specific thing with the west African countries. Foreign Office staff there action plans, my understanding was—and I think deliver UKTI services in a range of countries to Andrew Mitchell can answer this in more detail—the multiply our overall impact. number of targets that UKTI had, which were specific to its work, just did not apply in the Foreign Office. Q89 Chair: I want to draw us on to another topic, So it wasn’t realistic. Now that UKTI has fewer of which is the way the two of you work together—or these volume targets, we are in a much better position not. The report is littered with examples of where you to do joint planning. Is that correct? are not aligned. On page 22, the Foreign Office Andrew Mitchell: That is exactly right. What we produces Charter for Business, UKTI produces didn’t want to do was proliferate bureaucracy of posts, Britain Open for Business. Those two reports are not such that the post’s country business plan, which is aligned and there is a quote in there that says: “neither the single home of the joint objectives of all those strategy sets out specifically how the two Departments departments working at post under the authority of the will work together to increase exports”. On page 24, head of mission, would be 15 pages long with lots of it says that you used to prepare joint action plans and detailed targets. Now we propose to fix this, and we you have stopped doing that, which seems to me can talk a little about our plans if you are interested. cobber Pack: U PL: COE1 [O] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Committee of Public Accounts: Evidence Ev 13
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment
Q92 Chair: So you are going to use this new UKTI, as the Report acknowledges, had slightly outcome target too? different criteria because it focused on key markets. It Sir Simon Fraser: Could I ask Andrew to explain tried to deliver specific commercial results against its what our plans are from now? targets in its 20 priority markets. We were working with slightly different criteria, and we have now got Q93 Chair: Okay. Then perhaps you could also take to try to bring them together. However, as the Report up that further point of why you have 28 areas, recognises on page 8, our approaches are whereas they have 20. complementary because we are focusing on the same Sir Simon Fraser: I am happy to take that, but would growth markets. It is an example of how the two you rather? organisations are now working together. We have Andrew Mitchell: Yes. What we intend to do now— realigned in the Foreign Office, and we now need to this picks up on the recommendations in the Report— ensure that we come together even more effectively in is to create a single, joint, overarching strategy that our focus. I accept that that is what we should do. defines the respective contributions of BIS, the Amyas Morse: Are you saying that you couldn’t have Foreign Office and UKTI to the export target. We aligned those targets earlier? intend to complete that in concert with a refresh of Sir Simon Fraser: Yes. As you say in the Report, the UKTI’s strategy at the beginning of the next calendar Foreign Office has a broader set of criteria. In fact, if year. At the same time, we have been working to you look at them in terms of where the growth integrate business planning at post, so the TGV form markets are, our emerging powers reflect the growth that is referred to in the Report will be expanded to markets that UKTI believes it has. But UKTI also has become a business win document that will incorporate priority volume markets, which are different from our all the contributions of the various partners at post, so emerging powers focus. That is why there was not a that it is a comprehensive picture of what we do total congruence between the two. together. Back in London, as you have heard, we have pooled Q96 Chair: The criticism of the FCO in the Report together a trilateral UKTI-FCO-BIS board. That is is that when you dropped the joint plans you allowed now working on a joint change programme that brings much greater autonomy in your local posts. I can together the existing projects we are running understand that there are different markets and together—for example, supporting strategic different interests in different countries. Nevertheless, relationship management with business—with a new from reading the Report, the balance of local set of projects that will deliver these joined-up autonomy seems to be wrong. You must know what outcomes. In that context, we are going to develop a works better centrally. Therefore there ought to be new business plan structure for posts, so there is one direction from the centre about the sort of things you country business plan and one short set of metrics that want them to engage in to improve our exports, integrates all our activities. All that is supported by inward investment or whatever it is. Local autonomy a joint communications strategy shared between the seems to have gone slightly too far. three organisations. Sir Simon Fraser: One always has to get the right This is joint, and it is important to bear in mind the balance. We have tried to be much clearer in the BIS element of the question, since the industrial Foreign Office about our overall priorities and the strategy and the 11 sectors that Nick Baird referred to outcomes we seek to achieve each year in our give us the opportunity to project that kind of different areas of work, including the economic area. approach overseas. We have overseas teams of people In a dispersed network organisation such as ours, if who are working on campaigns in individual sectors you appoint quite a senior person to be head of that we know we can grow in. Part of the work we mission you want to empower them, as they know the have been doing recently and will continue to do is local market, and trust them to operate in that market, the work of the FCO economists, who are examining as they should know best. You have to get that the opportunities where there is demand in overseas balance right. markets in 25 sectors—11 sectors for services and 14 The country business plan and process that we have for goods. They are looking for opportunities to match is in my view tighter than the Report suggests. Each strengths in the UK economy, as evidenced through head of mission submits their draft plan to London. It the strategy. is then approved by directors in London in a dialogue process, and monitored throughout the year. It is a fair Q94 Chair: You and BIS are doing that? point that we do need to ensure that our posts give Andrew Mitchell: We are doing that together under themselves very clear agreed targets that are the auspices of the trilateral board. monitored, and that they are held to account for delivering them. Q95 Chair: Why 28? Sir Simon Fraser: In the Foreign Office, when we Q97 Chair: I was going to ask Jeremy to comment looked at the so-called emerging powers strategy in and then Richard wants to come in. Then I have Meg 2010—in other words, which countries we thought and Austin again. had the most political and economic potential—we Jeremy Lonsdale: Regarding what we say in the came to a list of 29 counties. It was essentially driven Report—it is in paragraph 2.9—we talked about the by economic and political considerations. We thought change to the country plans being only for UKTI of them as growth relationships for the future for our activities. We said that the business plans were diplomacy. “variable in quality and detail, and while challenged cobber Pack: U PL: COE1 [E] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Ev 14 Committee of Public Accounts: Evidence
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment and reviewed centrally, are not validated”. It is the need to bring in people with a very broad range of consistency issue that we think is important. experience: language, history, science, economics Sir Simon Fraser: I hope that the new process that and law. Andrew has described will help us to drive that up. If I may say, I was not quite clear what the word Q101 Mr Bacon: Can you send us the total number “validated” meant in that context. of graduate recruits in each of the last five years, the Amyas Morse: Checked. degree that they had, categorised so that we can see Sir Simon Fraser: I think they are checked. Perhaps how many came from science, literature, economics that needs further discussion. and so on, and also how many of them came straight in and how many of them came in a bit later? Q98 Mr Bacon: Paragraph 2.23 talks about the heads Sir Simon Fraser: I think we should be able to of mission and how 39 of the new 108 heads of provide that information. mission have participated in business placement, yet only nine of those have been placed in designated Q102 Mr Bacon: Mr Mitchell, did you want to add emerging economies. So you have trained 30 people something? with these business placements who have not then Andrew Mitchell: Simply to say that over the course taken up a post that would enable them to get the most of the past couple of years, just to represent that shift benefit out of it. What are those folk doing instead, towards the emerging markets, we have around 25% and when will they be put somewhere where this more of our resources dedicated to prosperity and business placement will be put to best use? growth-related activity than was the case a couple of Sir Simon Fraser: The purpose is that all our heads years ago. So we are seeing a net shift in resource of mission, wherever they are posted, should be given dedicated to growth-related activity. There is also a the opportunity—more than the opportunity, the point about the proportion of our resources that is in requirement—to have some sort of commercial developed economies as opposed to emerging exposure. If you take that into account, I do not markets. As we still have a larger number of people believe that just because they have not gone to a in developed markets, proportionately a larger number designated emerging power that it is a waste or in of those who have undergone the training would be appropriate use of that investment in them. We want from those markets. all of our heads of mission to be on that agenda. The However, it is absolutely our intention to continue to other point is that the average head of mission changes develop the scheme. We also use local mechanisms every three or four years, so this is a process that rolls that are appropriate to local teams and networks. For out. Not all those heads of mission in those particular example, last week our Prosperity hub in Singapore 29 emerging markets will have changed in that time. trained something like 60 people from across south- east Asian networks on trade policy and trade Q99 Mr Bacon: I take the point, though it does say facilitation to prepare them for free trade agreements in the previous paragraph that, in addition to the 350 that are in the offing for those regions. We take a very UK and local staff who have attended economics proactive view of the need to train our people in training courses, a further 800 have attended appropriate skills. “commercial diplomacy awareness” workshops, which sounds fascinating. Yet most of them have been Q103 Mr Bacon: And is it your expectation that the put into mature economies rather than emerging shift of staff will continue so that the greater markets. preponderance of staff will end up in the emerging Sir Simon Fraser: That consists of UK-based and markets and fewer of them, by total volume of staff locally engaged staff. A total of 830 have taken the employed by the FCO, will be in the mature commercial awareness workshop. They are in both economies? mature economies and emerging ones. However, we Sir Simon Fraser: If I could take that point, under are considerably shifting the focus of our economic what we call the network shift or the network work and the relative proportion of our staff into rebalance that we have been doing. We have created those economies. 300 new front-line diplomatic jobs in the 29 emerging markets, some of which are UK-based, some of which Q100 Mr Bacon: Before you add to the answer, Mr are locally engaged. That was our target up to 2015. I Mitchell, may I just add an addendum to my question? anticipate that that trend will continue in the next The Foreign Office recruits UK staff through a spending round. Whether the preponderance of our graduate recruitment programme and also, as an active diplomats overseas will end up in those markets is a policy, employs people who are not immediate different question, but I think that the trend of graduates but are 26, 27 or 28 with a bit of experience rebalancing our diplomatic presence into those places of other things. Given that you are spending will continue. taxpayers’ money on sending some of them on economics training courses, how many of those folk Q104 Mr Bacon: That was my question, because I have economics degrees, for example? want to know where the taxpayer benefit is coming Sir Simon Fraser: I don’t know the answer to that, from by having loads of people in Paris or Washington but I can tell you that one third of our graduate or Madrid, compared with having them in Mumbai entrants last year had some previous private sector and Shanghai. experience. All our graduate entrants have private Sir Simon Fraser: If you are talking about the specific sector buddy schemes. We are making sure. But we trade and investment promotion, as Nick has said, we cobber Pack: U PL: COE1 [O] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Committee of Public Accounts: Evidence Ev 15
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment must put relatively more of our resource in those actually, 94% of visas are provided in the agreed growth markets. But of course, diplomats do a whole service period. Although people may be frustrated, the range of other things—for example, security and service is offered and the targets are met. The question political contacts—so it is not just about the of access to European markets on the British visa is economic agenda. an issue of European policy, and the fact that we are not members of Schengen and do not participate in Q105 Fiona Mactaggart: There is a series of that programme means that we have to have a separate recommendations in the Report about the ways in visa arrangement. Actually, most recently in China the which the FCO can assess the value of its Chancellor introduced some sort of limited interventions. I represent a town that generates collaboration to help to address that issue, but I substantial inward investment in the UK, often from recognise that it is a problem. Perhaps I could invite emerging markets. The message I get from the local Nick to comment from the company perspective. authority, from the LEP and so on is consistently that Nick Baird: I think being able to access a premium the UK’s immigration policies, and its visa treatment service is absolutely critical for business investors. of people such as those coming from China, are big The more we spread that out, the better. I also wanted barriers to generating investment. That must be to mention that we are actively campaigning to get something of which your overseas posts are aware. more entrepreneurs through the entrepreneur visa What have you done about it? system, and we have recently set up a competition Sir Simon Fraser: We are certainly aware of it and it called Sirius, which is for graduate entrepreneurs to is a frequently raised issue. Of course, the Home come and set up in the UK. The competition will Office is responsible for immigration policy and runs allow 100 entrepreneurs to win prizes that will be a the visa service. We are in very close contact with contribution towards the investment amount that you them and have been seeking to ensure that the need for the entrepreneur visa scheme. That will be so channels are open for people coming in to do business important over the next period. and support our economic growth. One of the absolutely critical things for us in the next A number of measures have recently been introduced period is that we start creating small businesses at the to try to streamline the process, recognising that there same speed as the United States. When I have been is a high level of concern in some countries about not over to the United States and engaged with some of only the policy but the process of getting a visa—the the people involved, it is actually quite common for sheer delay in having to give up your passport and so young people to set up businesses when they are at forth. Recent proposals that we have been arguing for university. It is happening more here, and that is very and which have been introduced include expanding good. We are creating businesses much more quickly the priority three to five-day service—currently than we were in the past, and those businesses tend to available in 67 countries—to 90 countries next year. be two kids and a laptop. That is what they are. Secondly, there is the same-day service that is now available in India and which the Chancellor has just Q107 Fiona Mactaggart: Those students aren’t announced will be available in China during next year. getting this fast visa service. They are getting the We are going to roll it out into half a dozen other torture service. countries next year. Nick Baird: Those whom we are encouraging through There are other things: there is something we call the the entrepreneur visa scheme have the potential to be passport pass-back, which means that people can hold fantastic exporters from the UK as well. These on to their passport and therefore use it while they are businesses are digital, and so they are born global: it waiting for their visa. Mobile biometric arrangements doesn’t matter where their customers are because they have been put in place in some places. Today, the do their business online. To give just one example, in Home Secretary has announced the new so-called Turkey, the value of e-commerce at the moment in Great club, whereby 100 very senior international terms of online shopping is $17 billion. It is growing investors will be invited to join a group who will be at 120% a year. The UK is actually the best per head given a sort of VIP treatment to make sure that their of population: we do the most e-commerce in the visa is— world and we also have lots of companies. Chair: They don’t pay taxes here. Q106 Fiona Mactaggart: That is going to be for Nick Baird: We have loads of companies that are existing investors. When Slough is trying generate really good at improving the platforms for big e- new investment in the UK by medium-sized Chinese commerce companies. As for accessing that sort of companies—and it is doing a pretty good job of it— opportunity in a place like Turkey, we are market the first problem it gets is, “Well, we can’t get to the leaders in this and we can do that. rest of the EU if we come into Heathrow because we have to have complicated transit visas.” It takes too Q108 Mr Bacon: Fiona Mactaggart mentioned long, as your account shows, to get their visas, so the students. The chairman of the UK universities companies say, “Why don’t we just do it with France? working party on tier 4 visas is a constituent of mine, It’s much easier.” That is what I keep hearing. Every and the vice-chancellor of the university of East time British Airways sells a ticket, that is a bit of Anglia. He regularly points out—in print in public and inward investment, but they are not selling very many in private to me—that universities are one of this compared with KLM and other airlines. country’s most successful exports. We have a very Sir Simon Fraser: Nick may want to come in on that, large number of the top 200 universities. The Prime but on the point about the length of time to get visas, Minister has made it very clear that there is no limit cobber Pack: U PL: COE1 [E] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Ev 16 Committee of Public Accounts: Evidence
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment on tier 4 visas, yet we continually find problems with Chair: To be honest, Stewart, I am not talking about students trying to come here. Part of it is because of the cost of the visas. I am talking about the fact that— the way it is counted. People are treated as immigrants Mr Jackson: When you bring the issue up it is when they come here as students, when they are important to have more than one viewpoint. plainly not immigrants. What are you doing to try to Sir Simon Fraser: There are separate issues. One alter that situation from the point of view of UKTI issue is about encouraging our people to go abroad and the Foreign Office to promote this very important and get into markets which is not to do with UK visas. export area? Part of that is encouraging other people to come back Nick Baird: Absolutely, universities in so many so that you maintain the dialogue. Our embassies different ways are critical for the UK. It is partly and around the world work as hard as they can to provide principally about the number of students that they the Home Office—UKVI—with the best possible bring into this country but they also play an absolutely service within the means available. critical part of our research base. They are a strong reason why a lot of companies locate here; they want Q112 Chair: So why did HSBC have to cancel their that engagement with the universities. The other thing Russian trip? that we are finding is incredibly important for Sir Simon Fraser: I cannot answer that. I can find out universities is establishing campuses overseas. That is but I cannot answer that specific question now. The happening quite a lot now. budget that the Home Office have to run this system has been considerably reduced so they have been Q109 Chair: Can you answer the question about forced to restructure the service. There are obviously what you are doing around the visa issue? consequences from that. Nick Baird: Obviously it is a Home Office lead. Q113 Chair: Do you know why HSBC cancelled? Q110 Mr Bacon: I appreciate that they are in the Nick Baird: I am afraid I don’t know that case. lead, but what pressure are you putting on? By the Wherever we can, wherever there is an issue that way, I agree with you about the overseas campuses. I companies let us know about, we work very closely visited one in Shanghai— with UK Visas and Immigration to make sure that that Chair: Let’s stick to the visas. sort of thing does not happen. Mr Bacon: But on the visas, I am not clear that enough is being done. It seems to be going in the Q114 Meg Hillier: I want to talk a bit about my own opposite direction. area. Picking up on the points I was making earlier Sir Simon Fraser: It is an issue, but I can assure you about working with other Departments, I am that we are active in discussion in Whitehall. We interested in how you are working with the Treasury, continually represent these constituencies and make particularly around export finance. The CBI says that the point that there is growth imperative in the a third of SMEs don’t feel they would be approved economy which has to be balanced against the other for finance. Clearly you can go on as many trade considerations. missions as you want, but if you don’t have the money to expand you cannot. What progress has been made Q111 Chair: I just wanted to add because HSBC said on the export finance facility? that one of its customers had to cancel a business Nick Baird: There are two things I should talk about. delegation—you presumably know about this, Mr The first is UK Export Finance itself and then trade Baird or you, Sir Simon—to visit Russia because they finance from the banks. UK Export Finance, having could not get visas. That seems completely against our been out of the market for providing products to growth and export policy. The outgoing president of SMEs, came back in earlier in this Parliament and the London chamber of commerce, Willie Walsh, who is now marketing actively services for SMEs. Those was probably more open about this as he was leaving, services include providing insurance against not being said, “the sad truth is that instead of helping them”— paid by your customer and fluctuations in currency, exporters—“overcome those difficulties, our help with up-front bonds and so on. It got off to a Government is actually increasing them. Despite the fairly slow start because there was not awareness in growth of video conferencing, the only way exporters the market that UKEF was back in there. We should will succeed is by going to places such as China, India have marketed it better, but we are now marketing it and Brazil and convincing people face to face to buy better and there is a very significant increase. their products and services. Business in these countries is based on building a personal relationship, Q115 Meg Hillier: Can you give figures? Or, if you especially if you are a small company without an cannot now, can you write to us with those? international brand.” The issue raised by Fiona is key. Nick Baird: About 100 companies have now been Mr Jackson: Not that we all believe that Willie Walsh helped by UKEF. In terms of amount, though, it is is the spokesman for British industry or commerce, £4.3 billion this year in export finance, compared with but rather of plutocratic self-interest, if I may say. £2.3 billion last year. That is the highest for the past Chair: He was speaking in his capacity— 12 years, so that is definitely on the up and it is a very Mr Jackson: For balance, can I just say that when we important service that companies are now using. drilled down—I know you don’t want to get into this On broader trade finance in the wider economy, there debate—with the LSE on the administrative costs of is definitely a need for a big push. The banks processing student visas it worked out at 0.028%. absolutely recognise that: what the new chief There is a lot of whingeing but not much fact. executive of RBS said, for example, showed clear cobber Pack: U PL: COE1 [O] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Committee of Public Accounts: Evidence Ev 17
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment recognition of that. And the fact that HSBC is Chinese eBay equivalent, to go around the country to reporting, as it is, on exports shows a clear awareness promote it as a potential platform: a shop window for of that. those companies that can use online shop windows in Another programme in which we are working with a China. That opportunity is massive. number of banks to help is what we call British business centres overseas. We have just set up such Q119 Meg Hillier: Okay. It would be good to know centres in Warsaw and Delhi. They provide free office if, at any point, you were to have a conversation with space for SMEs looking to launch into a particular some of the businesses that do not use you. Some of market, but the service is also designed to be a magnet those are very small—although small start-ups often for the provision of advice—whether legal, accounting start thinking big—and they find it just too or property advice—for companies that want to set up cumbersome. In Hackney, I should say, all that was in those markets. We will spread that out all over the funded by the private sector, with not a penny of world, and with very little taxpayer money, because it public money. is being done in partnership with large banks and it is To pick up on one point about trade mark registration, their property. when I deal with the fashion industry—which is also big in Shoreditch—they say that it is a very big Q116 Meg Hillier: We have service workspace problem. I wonder if you are doing anything on that, providers aplenty in Shoreditch. although not in terms of gearing and pound for pound I have talked with local businesses in Shoreditch and as you might not see the immediate benefit. The other Hackney. We have UKTI based in Shoreditch, but issue relates to the industrial strategy. When I heard they do not choose to go to you, because they find Lord Heseltine speak, he urged a merger of the major the system bureaucratic and cumbersome. To give one business bodies, of the Federation of Small example, Hackney House did good business during Businesses, the CBI, the Institute of Directors and so the Olympics but, to give you some figures, the most on. We in London have the London Business Board, recent trade mission that Hackney—one borough in but is that something that you corporately and the London—did in March over four days generated £7.5 Government are urging, in order to provide a better million of business leads, reached 760,000 people platform for business negotiation abroad? Mr Baird, through Twitter and got 58 active new leads, and this you raised the issue of Germany and how much better was only 20 companies. This was in advertising, organised they are. digital, software and apps, film and media, education, Nick Baird: I will ask Mr Simon to answer on the journalism and fashion. It seems to me that that is trade mark point, but it is undoubtedly true that we pretty well done by one borough. need to work much more closely together with big Nick Baird: It is fantastic. business organisations. For the customer, what is really important is that there is a single shop window Q117 Meg Hillier: I am glad that you acknowledge for the whole set of services that they need to— for the record that it is fantastic—I will pass that back to the borough and businesses. However, they did that Q120 Meg Hillier: off their own back, because they say it is too So working closely together, but cumbersome to go through you. What have you got to is anyone in government advocating a merger? Is that say about that? something that you would like to see? Would it be Nick Baird: First, I think it is a fantastic effort. Some better? of the companies developing around Hackney are Nick Baird: I do not think that that is necessary. The absolutely the companies of the future that will do distinction is between, for the customer, having a fantastically well. The Tech City project in particular single shop window and a single place to go, and how in Shoreditch, which has grown now to about 2,000 we work together behind that. Obviously we work companies, has fantastic, global, world-beating extremely closely together, it seems to me. companies. As I said about the e-commerce Crispin Simon: With respect to the question about opportunity in Turkey, that applies in a whole range trade marks, the Intellectual Property Office, which is of countries— part of the Department for Business, Innovation and Skills, can provide companies with advice. When they Q118 Meg Hillier: But they are not coming to you go overseas they can get advice from Intellectual for help. Property Office staff who are located in embassies. Nick Baird: Well, a lot of them are. I accept that we are still an organisation that some find difficult to Q121 Meg Hillier: Apparently it is very difficult in access, but we are addressing that as effectively as we China, particularly for fashion labels. can. Our numbers are absolutely going up. Many more Crispin Simon: It is challenging in China for sure, companies are seeking our services each year: 25,000 and they will be able to link up with people who can the year before, we came up to 31,000 last year, and help them. we are heading to go over 40,000 this year. I think it is also about the nature of the services that Q122 Meg Hillier: In this case it is stopping business we provide and making sure that those really fit export and expansion, because it freezes businesses at particular companies. We are absolutely getting more a certain point or a certain size. It seems to me that active now in providing services in the digital space— this is a huge thing. Top-end fashion in Shoreditch services appropriate to digital companies. For alone could generate millions if not billions of pounds example, we will shortly work with Alibaba, the for Britain and create jobs, but it is being stopped. cobber Pack: U PL: COE1 [E] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Ev 18 Committee of Public Accounts: Evidence
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment
Crispin Simon: It is true of trade marks and it is true market and therefore it is easier, or are they not of patents as well. When you are talking about design interested? and engineering, this is a problem, and that is why the Nick Baird: It is not in our top 20, that is true, but we Intellectual Property Office has been developing these absolutely have a very good team in Australia and services over the last couple of years. In response to there are huge opportunities for UK companies there, your question about the accessibility of UKTI which I believe they are not fully accessing. This is a services, some are more demanding to access than big, developed, English-speaking open market, which others. The more money that is provided by the public in that sense is obvious for an SME looking to purse, the more stringent the test. But in the last progress beyond Europe. It has good growth and is couple of years we have introduced some relatively also very connected into Asia. So Australia is a big low entry products. We have webinars that are freely focus for us, if not in our top 20. available to people, and we have an open-access site called Open to Export. So it is possible to jump in at Q126 Chair: I have four issues that we haven’t a very low level with no cost. covered. One, building on what Meg said, is that you have this pilot for business-led bodies. According to Q123 Austin Mitchell: I just noticed while looking the Report, there appears to be limited appetite and over Meg’s shoulder that Hackney’s efforts on trade perhaps not enough capacity for it. Do you want to promotion come with Austin included, so they must comment on that quickly? be good, they must work. My question is about Nick Baird: Yes I do. This is about following the Europe. You both have a European background—the German model, which we believe is very good. It will Foreign and Commonwealth Office is really for the take time, because the British chambers overseas are defence of the European Union—but I see that in the very varied in quality. Some are extremely good, so British Chambers of Commerce recommendations the in Hong Kong or Singapore you have a very good BCC “presses for full implementation of the EU’s business-to-business support network. In others, there Single Market Act and the Services Directive so that is literally nothing there. In South Africa there was UK businesses benefit from a deeper and wider single nothing there and we had to start from scratch. So this European market”. Where is Europe still being will take time, but we believe it will be the best protectionist? Is it just in financial services, or does model. It is better to deliver services to SMEs through that extend to manufacturing as well? business networks. Sir Simon Fraser: The single market is an incomplete single market. Whereas we have a fairly good single Q127 Chair: And are they winning? I accept that it market for goods, in some areas of services—and now will take time, but—as the Report suggests—is there for example in digital—there is still more progress to be made. The United Kingdom has consistently been really an appetite out there and is there capacity to pushing for that, but it is true that some other respond to the initiative? European member states now have differences of Nick Baird: There is an absolute appetite out there, opinion, so we have not made as much progress as even if in some cases there was early hesitation. There we want in further developing and building the single is absolute appetite to do that and we are making market. It is one of the absolutely core central tenets really good progress in those areas. In the best of our European policy that we should keep pushing places—Singapore, Hong Kong and increasingly that. India—we will be able to move quite quickly to ensure that services are delivered. That of course then Q124 Austin Mitchell: I notice that, for instance, means that the embassy teams can focus on where their railways are still inviolate. The manufacturing of Governments can genuinely help and add value. That, the rolling stock and the engines still goes on to me, is around major projects where the overseas nationally, whereas our manufacturing of railways Government is the procurer, or where there are policy engines and rolling stock has been decimated and our issues around dealing with market access. So the railways have been flogged off to European delivery of advisory services to SMEs, which is not nationalised industries. That is a form of rocket science or McKinsey stuff, is delivered by protectionism on their part, surely? people who have SME experience to other SMEs in Sir Simon Fraser: I cannot comment on individual that market seeking to come in. cases, because it depends on the competitiveness of different companies. Of course it is true that there are Q128 Chair: Okay. There are two other issues, a bit certain state interventions sometimes, and they have like the visa one. One is that the London chamber of to be ruled through the European state aid rules. We commerce identified limited air links as a big barrier, must try to make sure that those are effectively particularly to India, Singapore and Hong Kong. Have applied in all European member states, and that is you put evidence into Sir Howard Davies’s what the European Commission does. commission on airports? Nick Baird: We are certainly keen to do so. Not yet. Q125 Austin Mitchell: One more question. I notice I would say that it is absolutely the case that having in figure 12, UKTI prioritisation of staff resources, more air links— that there is nothing in Australia and New Zealand. Australia has been a rapidly growing market with 5% Q129 Chair: So you have put evidence in or you growth, which is almost on a par with China. Are we haven’t? just relying on the fact that it is an English language Nick Baird: Not yet. cobber Pack: U PL: COE1 [O] Processed: [14-01-2014 16:57] Job: 035547 Unit: PG01 Source: /MILES/PKU/INPUT/035547/035547_o001_steve_corrected transcript 06 11 13.xml
Committee of Public Accounts: Evidence Ev 19
6 November 2013 Foreign and Commonwealth Office and UK Trade and Investment
Q130 Chair: But you are intending to. Similarly somebody who could give you a phone number, but it languages. We are absolutely useless at this. I would withered on the vine. have thought they would build personal relations. Nick Baird: Yes. The English language is indeed a Q135 Chair: HSBC has suggested that you look at double-edged sword. Of course it is a great advantage the case for export tax credits for SMEs. to us that so many people speak the English language, Nick Baird: Yes, that is something on which the but it is also a real disadvantage that we do not learn Treasury would lead and we are definitely engaging other languages. with them.
Q131 Chair: The Government have just cut language Q136 Chair: We are a bit nervous about tax credits training, so are you putting any money in? in this Committee. Sir Simon Fraser: The Foreign Office in September Nick Baird: It has been an issue in the past, because opened a brand new language centre, which will my understanding is that EU law forbids it unless it is provide training. de minimis. EU law forbids subsidies for exporters. There may, however, be ways in which useful, if Q132 Chair: Where? small, subsidies can be provided, whether by that Sir Simon Fraser: In the Foreign Office, in our means or another. We are in discussions. building. It will be able to train 250 people not only full-time diplomats but other civil servants in foreign Q137 Chair: Are you likely to emerge with languages, teaching 80 languages. something shortly? Medium term? Nick Baird: I hope it will be in the context of the Q133 Chair: I am thinking of business people. autumn statement. Sir Simon Fraser: I agree, but first, in terms of being Chair: Meg has one final, short question. able to provide our services, it helps if we have people around the world who can speak languages. It is a Q138 Meg Hillier: It was about the passport pass- perfectly reasonable point that we should look at back scheme. Does it apply to entrepreneur visa whether we can make some access to that facility if applicants? there is spare capacity available—at a charge, of Sir Simon Fraser: I would have to get back to you course—to businesses that want to train people, for with the details, because it was a limited scheme. example, to learn Mandarin. I am very open to that idea. It is not yet in practice, because we have got to Q139 Meg Hillier: A limited scheme that might be see what the capacity and take-up is. extended if it worked? Many of the entrepreneurs in Shoreditch have said that this is a big issue for them Q134 Mr Bacon: What about a call-off contract with when bringing a fellow in from abroad or not being the House of Commons authorities for MPs who want able to travel when applying. to do the same? Sir Simon Fraser: Okay, can we come back to you? Sir Simon Fraser: I think we could even consider Meg Hillier: We can have a conversation offline. that, Mr Bacon. Chair: Everyone happy? Thank you. Mr Bacon: Because you apparently used to offer that. It happened occasionally. I knew somebody who knew cobber Pack: U PL: COE1 [SE] Processed: [14-01-2014 17:07] Job: 035547 Unit: PG02 Source: /MILES/PKU/INPUT/035547/035547_w002_steve_035547_w001_steve_FCO and UKTI.xml
Ev 20 Committee of Public Accounts: Evidence
Written evidence from UK Trade & Investment In Wednesday’s meeting of the Public Accounts Committee, you asked for a note in relation to Mr Bacon’s questions about the additional sales that can be attributed to UKTI’s support for exporters. I can confirm that the answer 1gave was correct. In relation to the 12 months ending March 2013, the additional company sales that were secured with UKTI support was £50.9 billion (Source: PIMS). Mr Bacon asked how this related to UKTI’s cost budget and a ratio of 22 times cost, cited a few moments earlier. The answer to this question is that the UKTI Trade support cost budget in the same period was £236 million and additional profit attributable to UKTI services was £5.2 billion or 22 times the cost. Both Mr Baird and I referred to the 22 times ratio as relating to additional sales. A correct description would have been that it related to additional profit; and this caused the problem in the hearing, with reconciling the numbers. I apologise for the error. When we see the transcript we will provide this correction as a footnote. I would also like to take the opportunity to offer UKTI’s support for any members of the PAC who would like to run Export Seminars in their constituencies. Co-ordinated with Margot James MP, PPS to lord Green, the Trade Minister, more than 100 MPs have now run such seminars and they have generally been viewed as worthwhile by local businesses and MPs. I can be the first port of call and my e-mail address is shown below. Crispin Simon Managing-Director, Trade Group 8 November 2013
Written evidence from Foreign and Commonwealth and UK Trade & Industry We would like to take this opportunity to reiterate our thanks to the Committee for the attention you have given the NAO Report. We are hopeful that last week’s proceedings will have helped to contribute to a wider understanding of the work the Foreign Office and UKTI have been doing to support British exports. The session also highlighted some of the things we need to do further to improve our performance together. We look forward to receiving your recommendations. Below are the answers to the questions you raised at the PAC hearing. We are sending the corrected transcript to the Clerk. (a) Q33 Fiona Mactaggart: UK Attendance at the China Outbound Direct Investment Conference in Beijing.
Answer There was no UK government presence at the China Outbound Direct Investment Conference in Beijing, due to competing pressures on officials’ time in the lead up to the visits of the Chancellor of the Exchequer, Lord Green, David Willetts MP, Sajid Javid MP and others. These visits were focused on trade and investment and helped to secure real commercial outcomes for the UK economy. There are many investment conferences held in China each year. During September 2013 alone, UKTI attended 15 large scale business events in China, with a focus on attracting Chinese outbound FDI, presenting on the UK’s strengths as an investment location at more than half of these. UKTI and the China-Britain Business Council are also keen to raise the profile of the UK beyond Beijing and Shanghai, and sponsored the China Global Investment Summit held in Hangzhou on 16–17 October 2013, which was particularly well attended by regional high-tech businesses. (b) Q70 Mr Bacon: Additional sales that can be attributed to UKTI’s support for exporters.
Answer Crispin Simon wrote to you on 8 November (copy attached). (c) Q101 Mr Bacon: Number and degrees of graduate recruits into the FCO over the last 5 years.
Answer We have recruited 151 graduate entrants into the FCO over the last 5 years. All but 10 joined us with further experience after University. The breakdown of the degrees over the last 5 years are: Science/Maths 10%, Politics/Economics 31%, Law 9%, Languages 14%, and Humanities 36%. cobber Pack: U PL: COE1 [O] Processed: [14-01-2014 17:07] Job: 035547 Unit: PG02 Source: /MILES/PKU/INPUT/035547/035547_w002_steve_035547_w001_steve_FCO and UKTI.xml
Committee of Public Accounts: Evidence Ev 21
2009 2010 2011 2012 2013 Number Recruited 33 21 22 39 36 Direct Entrant from 52003 University With further experience 28 19 22 39 33 Degree Subject Science/Mathematics 4 (12%) 2 (10%) 0 (0%) 6 (15%) 4 (11%) Politics/Econ 14 (43%) 8 (37%) 4 (18%) 10 (26%) 12 (34%) Law 1 (3%) 2 (10%) 2 (9%) 5 (13%) 3 (8%) Languages 3 (9%) 2 (10%) 5 (23%) 7 (18%) 3 (8%) Humanities 11 (33%) 7 (33%) 11 (50%) 11 (28%) 14 (39%) (d) Q111 Chair: HSBC’s clients having to cancel their Russian trip due to a lack of Russian visas.
Answer We are waiting for the details of this specific case from the Clerk of the PAC in relation to HSBC’s customer delegation who cancelled their visit to Russia as they were unable to get Russian visas. We will comment further when we receive more information about the case. (e) Q138 Meg Hillier: Passport Passback visa scheme for Entrepreneurs.
Answer Passport Passback is currently available in China and Russia. It has just been announced that it will be shortly rolled out in Southern India, expanding further in India if successful. Passport Passback is available to all categories of visa applicant, including entrepreneur visa applicants. 15 November 2013
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