• Text size      
  • Send this article to a friend
  • Print this article

Rising exports on the horizon?

WITHOUT downplaying the importance of complex changes to personal pension rules, the key question about the 2014 Budget is simple:

will it help UK companies to sell more stuff abroad?

For earlier generations of Scots this would have been the first question asked about any government intervention in the economy, instead of the gossip about political gamesmanship that preoccupies modern commentators.

With the UK's public finances in a continuing mess - for all George Osborne's boasts - and with universal scepticism about a recovery based on consumer debt and house-price alchemy, the opinions about the Budget that matter are from those with lorries carrying shipping containers to distant warehouses, ports and airports.

The good news for the Chancellor is that manufacturers and exporters are strongly positive about last week's changes.

Bryan Buchan, chief executive of Scottish Engineering, which represents around 350 companies in a multitude of specialisms, called the Budget "the first tangible indicator of support for the manufacturing sector for a long time" and praised its range of measures that would support the 75%-plus proportion of Scottish manufacturers in the small and medium-sized category.

Help is certainly needed. As David Watt of the Institute of Directors pointed out, contemporary Scotland has a poor export record, with only 8% of Scottish companies currently trading abroad.

That relatively puny performance is in spite of an elaborate multi-million pound public-sector support system in Scottish Development International, generally well-regarded by those who use it, plus new initiatives like the Smart Exporter scheme designed to support smaller companies to venture abroad. These agencies work in tandem with UK Trade & Investment (UKTI) - whose support budget was doubled to £3 billion by the Chancellor on Wednesday - and are well-integrated into the wider UK overseas diplomatic network.

But the trouble with quangos, even effective ones, is that, although they are compelled to sell themselves as a complete solution, they can only help a tiny fraction of companies. The British bureaucratic tradition of internal targets and hierarchies prevents them from working effectively with expert foreign-trade facilitators in the private sector, and sometimes causes them to compete unfairly against them. Their impact can only be marginal compared to the kind of supply-side reforms that make exporting the logical choice for companies.

The recent appointment as Minister of State for Trade and Investment of the Scot Lord Livingston of Parkhead, 49, the dynamic former BT chief executive and Celtic FC non-executive director, is likely to define the upper limits of what public-sector interventions are capable of. Nevertheless, however effective UKTI or SDI might be, the truth is that if public agency intervention was ever going to transform Britain's exporting performance it would have done so by now.

With the OBR expecting export growth of only 2.6% in 2014 (it had previously forecast 4%), the emphasis is on measures that the Treasury can introduce to make it as easy for UK businesses, which exported £297 billion of merchandise in 2012-13, to make and sell goods abroad as it is for their European counterparts.

The peer nations doing better than us include Italy (£305bn in 2012-13), France (£342bn), the Netherlands (£393bn) and mighty Germany (£818bn). The UK does outsell Belgium (£271bn) by about 9% but with due respect to the chocolate and diamond-exporting nation it is no great boast given that Britain's population is about 80% larger.

Something is needed to put some spark into UK export performance, and to be fair to the Coalition and also to the Scottish Government, they have led from the front with blockbuster trade delegations to faraway destinations such as China, India and Brazil.

But it would take a miracle to achieve the initial Coalition goal of £1 trillion in exports by 2020, a target that implies annual growth of 10.4% for the next seven years.

As Osborne said in his speech last week: "Britain's got 20 years of catching up to do," an implicit admission of the wrong-headedness of the strategic decision to switch to services (especially financial services) over manufacturing. Margaret Thatcher is the most notorious culprit, but not the only one. The pendulum that should by now be swinging back to manufacturing has certainly taken its time.

David Watt's hopes that the budgetary measures "may provide the incentive needed to encourage companies to look more to overseas markets" must also be seen against a somewhat gloomy immediate statistical background, perhaps caused by recent strengthening of the pound against the euro. Official estimates showed manufactured exports from Scotland fell in the third quarter of last year, by 2.2% on the previous quarter (following a rise of 3.3%), and down nearly 1% over the year to September.

Even what George Osborne clumsily described in his Budget speech as "Scottish whisky … a huge British success story" performed more weakly than expected last year, falling by 8.3%, but engineering products and chemical exports also fell. Better news came from manufacturing sectors which enjoyed a second consecutive quarter of positive export growth, including textiles, clothing and leather (16.2%), and metals and metal products (16.2%).

After several years of rhetoric about the importance of exporters to the economy, last week's Budget was effectively Osborne's last shot at fixing this dripping tap of bad news and demonstrating the importance he gives to exports as a bulwark of the "resilient economy". It was also a stated aim of the Coalition back in 2010 that has embarrassingly failed to materialise, for all the deliberate weakening of the pound. And however well-received, there have been questions about why Osborne made these changes in his fifth Budget rather than his first or second.

Better late than never, the measures unveiled by the Chancellor included a £7bn package to cut energy bills both for businesses and householders. This was a useful levelling of the playing field with other European exporters. To address both the skills shortage and the challenge of worklessness, there was a doubling in the number of apprenticeships, and an extension of grants for smaller businesses to support over 100,000 more.

Support is also forthcoming in the form of business-rates discounts that will be extended for another three years, and tax-free investment allowance for companies will be doubled to £500,000.

Osborne has eased the way towards exporting in uncertain markets by doubling investment in the UK Export Finance lending scheme, cutting the rate of interest by one-third. The scheme has also been expanded to lend to overseas firms buying from UK companies. Lord Livingston is seeking further changes to allow UKEF to support supply-chain companies and others trading in intangible exports such as intellectual property and insurance.

Also significant, given the enduring need to expend shoe-leather in overseas markets, are the moves to rationalise airport passenger duty (APD), which will reduce costs on some long-haul flights, although given that the UK has one of the highest rates of tax in the world, only complete abolition would have proved the Government's seriousness in this field.

According to Bryan Buchan, this Budget is the first real evidence of a willingness to support the UK equivalent of the Mittelstand, Germany's famous SME manufacturing base.

"All in all, the benefits for [manufactured engineering] from this Budget are considerable. The Chancellor has shown that the Government is willing to help the one sector which has, throughout the recession, been able to maintain a level of growth and success," he said. "It is now up to the various stakeholders and partners to grasp the opportunities to ensure that the proposed growth prospects actually grow in 2014 from 2.4% to 2.7% as predicted."

Although the STUC is sourly sceptical that help for exporters "signals a manufacturing renaissance" or that increased allowances will lead to an investment boom ("It should be noted that many businesses are currently cash-rich but unwilling to invest"), Buchan's own experience is that Scottish companies are at last beginning to push the boat out in terms of capital investment prior to an export sales drive. The OBR has raised its forecast for business investment growth to 8%, after 1.2% decline in 2013.

"I've seen plenty of physical evidence of investment over the last 12 months on the part of some of the medium-sized companies," Buchan told the Sunday Herald. "There's a sense that we are coming out of a recession. Take Fife Fabricators in Glenrothes which invested £500,000 in four new all-electric break presses [precision metal folding machines]. The important thing was that it wasn't just a like-for-like replacement, it was made in expectation of a significant productivity gain from the investment. It's good to see that confidence go through them and other manufacturers."

No-one ever thought the UK could rediscover overnight its historic position - disproportionately supported by Scotland - as the workshop of the world.

Nevertheless, the sluggishness of the manufacturing renaissance will be remembered as one of the great disappointments of early 21st-century Britain - unless, of course, it is superseded by a far more compelling story of how the ashes of the financiers' reputation allowed the manufacturing phoenix to rise again. George Osborne may be hard to like, but if his budgetary measures help that to happen, then he will have earned some gratitude, however grudging.

Contextual targeting label: 
Business

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

221358