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Wanted Urgently – More UK Exports Please By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

modI am grateful to one of my long time readers for bringing to my attention a hearing of the House of Commons Business Select Committee during which various trade and industry bodies expressed a view that the Chancellor of the Exchequer would miss his target of Britain exporting £1 trillion of goods and services by 2020 and that worse, he would miss it by a mile.

I am not about to argue with the above statement and it is perfectly obvious to most that we have little if any chance of coming anywhere near that now somewhat infamous target. I regret that but the answer to the problem of lacking exports and our too high level of imports lies partly in Government hands.

A nation of consumers we certainly are and not only are we failing to manufacture enough of what we consume here at home we are importing far too much and exporting far too little. With a little bit of hard work and effort what a wonderful place this could be but if we are to change and achieve objectives such as those outlined we need to have a real industrial strategy, determination energy, direction and most importantly, the will to succeed. High time then for a can do, will do approach to replace promises covered in smoke and mirrors.

I apologise for once again harping on about the need to manufacture more and to increase exports and cut our reliance on imports but it is a subject that I believe is so hugely important for our future economic stability. Top priority is to accept that we need to work harder to adjust the unfavourable and unsustainable balance of UK trade. And yes, to the point made to me by another regular correspondent and one whose views I always respect, we must in the ensuing EU membership debate take on board that Britain has a £80 billion trade deficit with the rest of Europe.

Back to export matters, views and evidence given on Tuesday to the Business Select Committee and particularly of some of those that really mattered. I would highlight Lee Hopley, chief economist of the Engineering Employers Federation of whose organisation 90% of its members are UK exporters saying that to reach the [£1 trillion] target there would need to be a 12% increase in exports in each year between now and 2020. Rubbing salt into the wounds Adam Marshall, policy director of the British Chambers of Commerce said that he did not actually expect the £1 trillion export target to be reached before 2034.

Before I am accused of being ‘negative’ let me remind that for all the seeming failure to increase exports by that much since the target was first set by the Chancellor in 2012 that we are very fortunate that we still have a mass of companies in the UK that export. I will talk about defence exports further down but, leaving aside our brilliant financial services industries and others that we frequently term as being invisible exports, our engineering, aerospace, defence, pharmaceutical, drinks and automotive industries really do a fantastic job in manufacturing and exporting a vast range of products. Where would the current export figure be without the likes of GKN, Airbus, Rolls-Royce, BAE Systems, Glaxo Smith Kline, Diageo, BMW, Jaguar Land Rover and a great number of others I dread to think! My apologies by the way for being unable to list all the fantastic companies that keep us on the straight and narrow. And before moving on yes, the rest of our automotive industry also does a very good job exporting cars that we assemble as oppose to manufacture here in the UK although how much better it would be if they made more effort to build a larger UK supply chain.

For the record United Kingdom exports amounted to around £474.4 billion in 2015, down -11.1% since 2011 and down -10% from 2014 to 2015. United Kingdom’s top 10 exports accounted for 71.4% of the overall value of its global shipments.

Something that apparently came out of the Business Select Committee hearing is how badly UKTI (UK Trade & Industry) faired in the minds of those that gave evidence. Less impressive was how one of this who gave evidence described UKTI under its new leader Dr. Catherine Raines and who I should add only became CEO of UKTI in September last year. Another factor highlighted was the sudden and unexpected resignation of Lord Maude of Horsham after little more than nine months in the job and who as Francis Maude before his peerage had been a senior member of the Cabinet Office alongside Oliver Letwin.

Lord Maude’s resignation letter to the Prime Minister makes interesting reading and I recommend that you have a quick glance https://www.gov.uk/government/news/lord-maude-resignation-letter-and-pms-response  if you have a moment. Maude admits that he was placed in the role to turn round flagging export performance but what he doesn’t tell you is that most of his time was most likely spent trying to further drive down costs at an already experience and skills depleted UKTI. Indeed, I imagine that when he wasn’t trying to bring order where there was disorder a great deal of his time was engaged in firefighting to stop the organisation imploding altogether.

In his reply to Lord Maude’s resignation letter on February 10th the Prime Minister said that “In this important role, you have helped transform the government’s export strategy; provided key leadership to help guide and expand UKTI’s responsibilities; and in doing so, you have put a plan in place to turn around our export performance, ensuring UK businesses succeed in international markets, and encouraging overseas companies to look at the UK as the best place to set up or expand their business”. Well, I am just not sure that is correct and whilst I have no doubt that the Minister tried it seems to me that others higher up the tree have a vested interest in making UKTI smaller and less effective.

One again if the above is true then this is a case perhaps of policy leading strategy rather than the other way round. If I were in charge of UKTO and if the Government was really prepared to back and support UK exporters I would for instance ensure that each industry segment had a team of maybe 50 people working in support. I would concentrate not just on the large industries but those that we are very good at and yet may represent a small part of our overall exports.

Typical of what I mean here would be defence and in which there is already an excellent organisation within UKTI under the leadership of Stephen Phipson known as UKTI DSO. Shrunken it may be by years of cuts and somewhat withered on the vine UKTI DSO remains a very important part of UK potential to increase exports. Once part of the Ministry of Defence and now as mentioned, a self-standing organisation within UKTI concentrating on assisting UK defence and security exports it is worth noting that the Government decided last year that Typhoon and complex weapons aspects that had previously been within the realm of UKTI DSO would be moved back to the Ministry of Defence. I am quite sure that this was the correct decision to make but the danger was always going to be that in taking the two largest elements of defence exports away a school of thought would emerge within UKTI that might think that the rest of UKTI DSO no longer needed to be separate.

Well it does need to be separate and what’s more, it needs to be strengthened. Hundreds of SME’s involved within or on the fringe of defence would love to export and they need the specific help and knowledge that only UKTI DSO can bring.

Just because defence and security exports represent a small part of overall UK exports does not mean we should cut them off. The proportion of UK manufacturing made up by defence is roughly 10% and there are approximately 9,000 companies engaged in defence in the UK with an annual turnover estimated by me at around £42bn. Defence exports of which we are second in the world behind the US account for approximately 55,000 jobs and a total number of 300,000 are employed in the UK defence industry overall. These are heady and very important numbers that a combination of the companies engaged in the industry, the Defence Growth Partnership and UKTI DSO are trying to increase. Jobs, and value to the economy and deserving of all the support that they can get from government.

Whilst I must accept that total UK defence exports are small in comparison (in 2014 the latest figures that we have available the UK won defence export business worth £8.5bn and security based exports of another £3.4bn) to the combination of our other exports it is worth mentioning they represented 16% of a total global export figure of £50bn ($83bn) in 2014 and that security exports have grown to achieve a 4.4% global market share.

That we are failing to get anywhere near our export target is not for the want of trying – moreover it is because some of those that are purporting to be there to assist are also being forced to cut back and take out even more cost. UKTI is an example of this. The strength of its expertise and its ability to assist industry and commerce has been seriously diminished over the years following rafts of cuts. Meanwhile our competitors, the French in particular, are doing well out of our malaise and they laugh at us for undoing brilliant organisations that we set up all those years ago and that made such a big difference to our exports such as DESO (Defence Export Services Organisation – now UKTI DSO in its much reduced form and that I shall be writing on separately in connection to this year being the fiftieth anniversary of the foundation of DESO) and also for the quite ridiculous level that we now take to believe what is and what is not politically correct.

The government might well prefer to believe that it is for industry to be competitive and to go out and win exports but the reality is that if we really do want to increase exports the government must support industry through investing not just in growth partnerships but also by investing more in research and development technology, innovation and in organisations such as UKTI and UKTI DSO.

CHW (London – 3rd March 2016)

Howard Wheeldon FRAeS

hwheeldon@wheeldonstrategic.com

Tel: 07710-779785

 

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