Examination of Witnesses (Questions 40-59)
ANDREW CAHN,
SUSAN HAIRD,
ASIF AHMAD
AND IAN
FLETCHER
6 DECEMBER 2006
Q40 Andrew Mackinlay: Okay. I do
not want to labour that point. That is very kind of you.
Changing gear all together, I think all
MPs were sent a note from the Remembrancer of the City of London,
raising issues about changes contemplated in the European Union
on a range of financial matters. I wanted to bounce this off you:
the Commission is looking at some major changes that could affect
our financial regulatory sector. Is that a matter for you? Do
you have any views on it? Can I invite you to "look Europe"
for a moment?
Mr Cahn: Of course I have views,
but I run a service delivery organisation not a policy-making
organisation. My responsibility for policy making is to ensure
that the views of my clients, the British companies and the potential
inward investors, are fully reflected in policy making, and that
is what I seek to do. That is why we are also initiating a mechanism
for feeding in those views on a more structured basis by means
of a regular, senior-level and official committee.
We have already achieved a lot over the
last few months in developing a financial services strategy and,
indeed, I am rather proud of the fact that the first meeting of
the financial services sector advisory group is next Monday—11
December. Eight months ago that did not exist; it was not a gleam
in the eye. Now it will meet for the first time. It is charged
with marketing the financial services and ancillary services industries
of Britain and promoting the City of London, defined rather broadly.
The City of London is a global financial centre, and we are working
very closely with the Corporation of London, which you mentioned,
the Lord Mayor and the officials who work with him, and indeed
with many of the banks, commercial organisations and trade associations
in the City. I think we have already achieved quite a lot in the
financial services sector, and there is a lot more we will achieve.
Q41 Chairman: You referred to the
strategy that you are developing for the City of London and its
financial services. Is that document available and, if it is available
or ready or finished, can the Committee have a copy please?
Mr Cahn: There are various documents
that are going to the financial services sector advisory group
on Monday, including an action plan and a promotional strategy.
I am sure that I can make those available to you.[3]
Q42 Chairman: That would be very
helpful because, clearly, I am wearing two hats here. I am the
Chairman of the Committee, but also a Member of Parliament, and
40% of my constituents travel into central London to work, many
of them in financial institutions, and therefore I think the future
and the vitality of the City of London and its financial services
sector is a major issue for the UK economy and the London economy.
Mr Cahn: I will make those documents
available and put them in the Library of the House.
Q43 Chairman: No. Send it to our
Clerk.
Are you worried about the long-term sustainability
of the UK financial services sector, given the globalisation and
the challenges from elsewhere, and the role and importance of
the financial sector for the UK economy as a whole?
Mr Cahn: No. I am not worried.
We have an extraordinarily vibrant and effective financial services
sector, which I think will be successful in the future. The reason
for putting some emphasis and some resource into promoting the
financial services sector is threefold. First, there is a competitive
threat out there. Other financial centres really are upping their
game. You saw Mayor Bloomberg announcing a few months ago that
he was worried about the status of New York as a financial centre
and that he was going to put very substantial resource into promoting
New York. Dubai is working hard to promote itself. Singapore is,
Hong Kong is, Shanghai I think will. There are lots more competitors
out there in the marketplace and we therefore need to do what
we can to protect and shore up the position of the City of London.
The second reason for putting some effort
into it is that the financial services industry is growing at
twice the rate of the general economy. In other words, not only
does it contribute around 10% of GDP, if you define it broadly,
but it is growing at twice the rate. Therefore, you get a very
good return if you put some effort into that sector.
The third reason for looking after it is
simply that it is a great success story and even success stories
can do with just a little Government attention.
To answer your question: am I worried about
it? No. I am not worried about it at all. I think it is a tremendous
British success story—quite an extraordinary one if you
think back 30 years and where we are in global terms. It is a
fantastic achievement. But we must make sure that we continue
to achieve as much in the future.
Q44 Chairman: Is the level of growth
that you referred to sustainable? The big bang and the various
consequences of that clearly led to a change and the pre-eminence
of London. There were lots of predictions in the past about other
European cities and so on. Is this level of growth that we have
had sustainable?
Mr Cahn: Well, you can never sustain
a disproportionate rate of growth for ever. It is true that London
had a head start with the big bang. It also has had a head start
with an excellent regulatory regime. The Financial Services Authority
has been a very good regulator, and when I go around the world
I hear it said that other financial centres envy the fact that
we have a principles-based, light-touch but effective financial
regulator.
Those are real comparative advantages,
but they get worn away over time because others catch up. The
key now is to stay ahead. For my part, my organisation is seeking
to promote the City of London; and the Treasury, led by the Chancellor
of the Exchequer, is ensuring that the architecture, the regulation
and the legislation, is right to continue with that rate of growth.
Q45 Chairman: What about problems
of perception following the terrorist attacks in London? Has that
caused any concern internationally?
Mr Cahn: I feel that I should
touch wood heavily before answering that question. These things
always have some effect, but it has not been as substantial as
many feared. I hesitate to give a strong view on that. For the
moment, London remains an extraordinarily attractive location
for foreign banks, foreign law firms, foreign accountancy firms
and foreign insurers, because of the concentration of talent that
is here. It is rather like the middle ages, when all the goldsmiths
went into one street; they clustered together. Well, financial
services cluster together, and they are now clustering in London.
It will take more than a few terrorist attacks to discourage that.
Q46 Chairman: Did you have to do
any specific promotion or reassuring publicity, or engage in other
activities, as a result of that?
Mr Cahn: I was not at UKTI at
the time, but I am told that we did not do anything as it was
not our responsibility. Other Government agencies were responsible
for that.
Q47 Chairman: Finally, I bring in
David Heathcoat-Amory.
Q48 Mr Heathcoat-Amory: You mentioned
the Chancellor and regulation. Personally, I think that he understands
the need not to strangle this golden goose, but he is no longer
in charge of it.
You may be aware of a recent report stating
that the EU financial services action plan will cost the British
financial services industry £23.5 billion by 2010. A lot
of that will be done by majority voting, so there is little that
we can do to stop it. Do you think it is part of your job to act
as an advocate for these problems, or at least to pass on those
concerns?
You mentioned an advisory group, and I
am glad that you are setting it up. If it believes that we might
be losing our place in the world through excessive European Union
regulation, do you think it should be your task to defend us?
Otherwise, your other advocacy role will simply be swamped by
excessive regulation.
Mr Cahn: The important people
in the City of London have the strength of character and the necessary
knowledge—and access to the Chancellor—to make those
points to him directly. Indeed, I have been present when they
have made their views known to him about the appropriate amount
of regulation and other such issues. I do not think that it is
necessary for me to try to get between them. They are more than
able to make their views known, whatever their views may be.
My responsibility is much more to make
known the views of potential inward investors, because they may
not be able to get to Ministers or Departments as effectively.
I see it as my job to hear the views of potential and actual inward
investors, and to pass them on to policy makers.
Q49 Mr Heathcoat-Amory: Let us be
specific. If you did hear that your entreaties to relocate to
London were in vain and that business was being diverted to more
lightly regulated jurisdictions, would you not think it your job
to ring alarm bells—not necessarily doing so publicly, because
that might conflict with your advertising role internationally?
I would be very disappointed if, having got close to the industry,
as you should, you did not act as a warning board.
Mr Cahn: I certainly see
it as part of our job to ensure that Britain remains an attractive
country for both exporters and potential inward investors. We
have a variety of ways of doing that. I mentioned that we are
establishing a group, which my Minister, Ian McCartney, and I
will head up. It will listen to business men and women, primarily
British ones, and give them the chance to feed in their views.
We also have separate machinery for listening to inward investors.
We will pass on those views.
We also have a series of sector advisory
groups, including the financial services sector advisory group,
which I mentioned. They are effective in allowing us to hear what
business people have to say about their preoccupations and concerns.
We feed that information into policy making. As I have said, sometimes
there is a formal machinery; we were asked to feed in to the various
reviews that have reported recently, and we did so. We will continue
to feed in to such reviews in future. There are also more informal
ways of doing it. When it becomes clear that a particular issue
is significant, we feed it in. As you say, Mr Heathcoat-Amory,
I prefer to do that privately, because I see my job as being a
salesman for Britain. I am lucky that I have a rather good product
to sell.
Q50 Chairman: Paul Keetch.
Q51 Mr Keetch: Can I turn to your
representation abroad, particularly that in two areas—the
United States and India? British businessmen in Seattle have said
that the closure in Seattle was an odd decision. The United States
is a fantastic trading partner, yet we are reducing our offices
in New York, Chicago and Atlanta, and we are closing the one in
Seattle. Given that the United States is such an important trading
partner for the UK in terms of direct trade and financial services,
why are we not looking after the client, as Malcolm Moss put it?
Why are we reducing our staff there?
Mr Cahn: If I may, I would ask
Mr Fletcher to respond to that question.
Mr Fletcher: The United States
consumes, in resource terms, about 16% of the UKTI share of the
Foreign Office overseas network. The task we have been facing
over the past few months has been to deliver on the strategy commitment
to move resources from elsewhere in the UKTI overseas network
to China, India and the other emerging markets that had been identified.
That has been done in the context of a situation where the overall
resource envelope open to us was fixed; it was a kind of zero-sum
game.
The additional resources in China, India
and other emerging markets had to come from somewhere. As you
say, they have come from the United States. In addition to the
cuts that you pointed out, we have also closed a small office
in Denver. I say that for completeness. We have made some quite
significant reductions in the amount of resource that we have
available in western Europe and Japan, as well as in Australasia.
That has been the wider picture.
The judgments we came to in the United
States reflected, first, a process of pretty close consultation
with the people on the ground, whose view it was that closing
the office in Seattle, which employed just three people, as well
as a two-person operation in Denver, reducing the size of the
headquarters operation in New York, leaving some vacant posts
unfilled in Chicago—there were no actual cuts there—and
reducing the size of the Atlanta operation by two or three people
was the best way to make the contribution that we had asked them
to make. Although the staff in Seattle have gone, that has been
compensated for by the reinforcement of our Los Angeles team,
which sits beside a very important creative industries cluster,
which is particularly significant for some of our wider sectoral
work.
Those were the choices that we felt we
had to make. It was the judgment of the people on the ground that
that was the most effective way we could make them. The background,
as I said at the outset, was the zero sum game. The cuts are always
unfortunate in the place where they have to happen. It is our
judgment that, overall, this was the best way in which we could
free up the resources that we had to, in order to move available
staff to China, India and so on.
Q52 Mr Keetch: But you are reducing
your staff in India.
Mr Fletcher: No, we are actually
increasing our staff in India. From memory, I think that we have
about 70 members of staff there, and we are adding quite a lot
more, although Asif may have the details.
Q53 Chairman: Mr Ahmad.
Mr Ahmad: We currently have 74
members of staff—a combination of UK-based staff and staff
whom we employ locally. Over the next 12 months or so we will
be adding 12 more members of staff in the India network. That
is based on what we see as perceived need. If the demand is greater
in those pressure points, there is certainly scope and appetite
in UKTI to devote more.
Q54 Mr Keetch: We were told in Mumbai
last week by a British bank that we visited that there is a great
appetite to extend financial services. There is an expectation
that the Indian Government are going to free up some of the regulations
concerning insurance activity, wider banking activity and so on.
Is UKTI getting ready for that move? If that happens—we
were told last week that it could happen in the next year or so—there
will be a huge opportunity for London to get into that Mumbai
market and do some good business out there, so presumably UKTI
staff are gearing up for those changes.
Mr Ahmad: This very week, we are
advertising in the FCO and the wider Whitehall network the job
in Mumbai that was recently created at first secretary level to
do nothing other than concentrate on the financial services industry.
Q55 Mr Keetch: Fantastic.
Q56 Chairman: I think that we need
to move on, because I am conscious of time. We have about 15 minutes
and about seven subjects to touch on.
Q57 Andrew Mackinlay: When I was
in Australia, I noticed that the British consul in Melbourne had
responsibility for trade matters for the whole of Australia and
New Zealand. He is very good, but the stretch is quite big—indeed,
demonstrably so. I met people there who were frightened that the
UK might take the market in Australia, and in New Zealand for
that matter, for granted.
Mr Fletcher: I will try to use
the right accent in my answer. On a point of detail, the consular
general in Sydney, not Melbourne, is responsible.
Our network in Australasia consists of
teams in Sydney, Melbourne, Perth, Brisbane, Auckland and Wellington,
so it is a fairly comprehensive network. As part of the SRO4 process,
under which we had to make some quite significant cuts to our
overheads, we had to move to integrated management for the two
markets. We chose to make the director in Sydney responsible for
both of them. That enabled us to make some savings in the management
resource in New Zealand, which seems to have worked reasonably
well.
We have localised—in other words,
we have only locally engaged staff in Auckland, Brisbane and Perth,
although there are UK-based staff in Sydney and Melbourne. We
took that process of localisation very seriously. I am delighted
that we were able to attract really top-notch applicants and recruit
some skilled, capable and committed people, so that process seems
to have worked well.
It is clear that UKTI will remain very
committed to both the New Zealand and Australian markets, not
least because they turn out to be extremely fruitful sources of
companies wanting to invest in the UK. We recently identified
more than 120 New Zealand companies who have invested in the UK
which, per capita, is a fairly astonishing number. What that means
is that our network there is certainly in place for the long haul;
we are making a connection between the work we do there and the
work that is done elsewhere in the Foreign Office by the science
network to improve our connections with the academic institutions
in both countries. We are looking further at the extent to which
we can localise some of the management so that we can keep as
much front-line presence in both markets as we can.
Q58 Chairman: Thank you. Ken Purchase,
please.
Q59 Mr Purchase: Thank you. I want
to link to recent statements, one from the CBI, which says that
many companies remain unaware of UKTI services—you are aware
of that—and your own organisation's statement, "We
seek to achieve long-term relationships with high-value investors."
Earlier, you mentioned you could do more with more. Have I just
uncovered a little problem here, in that on the one hand you are
working very hard with a very small number of people, and on the
other hand the CBI find it problematic that you are not well enough
known? Given that Britain notoriously has some very good, high-performing,
high-value companies and some excellent investment, but a very,
very long chain of under-performing companies who may well benefit
from your expertise, how will you get the balance right between
those two apparently competing statements?
Mr Cahn: That is a very good question,
Mr Purchase, and it is a very difficult thing to achieve. I know
the CBI takes the view that we could be better known. It is quite
difficult sometimes to brand ourselves because an awful lot of
our activity, an awful lot of our success, is attributed to the
Foreign Office. A company gets an ambassador to effect an introduction,
overcome a regulatory hurdle or give a dinner party and the company
comes back and says, "The FCO did a great job for us."
But it was UKTI, actually, that did that great job, so perhaps
we need to brand ourselves a bit more.
We work with a large number of companies—more
than 20,000 on the trade side—so I do not think it is true
that we are unknown. However, the balance you are talking about
is an issue: how far do we focus on small companies whom we can
help to grow and how far do we try to focus on fewer, higher-value
companies—sometimes they will be bigger and sometimes they
will not—that we can perhaps do more with if we offer them
help?
Our strategy is to commit ourselves to
continuing to offer services to the generality of companies. We
have our flagship services like passport to export, which is an
excellent programme and is available to huge numbers of new-to-export
companies. We are also developing new programmes which are focused
on research and development-intensive companies, on companies
exporting to high-growth markets and to a few FTSE 100 companies.
We are trying to do both things. We are trying to be available:
our website, passport to export and Overseas Market Introduction
Service are open to all, but we are also trying to target some
particular high-value companies where we can use our resources
to best effect.
3 See Ev 14. Back
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