Examination of Witnesses (Questions 160
- 179)
TUESDAY 16 JANUARY 2007
CBI
Q160 Mr Wright: Do you think UKTI
is doing enough to try to exploit the new and emerging markets?
Mr McCafferty: I think there is
a new emphasis on that, but I would say that it is perhaps work
in progress on the back of the new strategy. We are less than
six months in. Andrew Cahn, as far I am aware, has fully recognised
the need to move towards that, and we will look to see that develop.
As I say, I think the issue is one of ensuring that you have the
right skills sets and the right organisation within the UKTI so
that we have people who do understand in some detail the nature
of these markets; they are very different in terms of the way
they operate from any of the more traditional markets. You do
therefore have to have regional or country specialists providing
some of the advice.
Q161 Mr Wright: We have talked briefly
about the inward investment into the UK and obviously when we
are talking about UKTI, they have very limited resources in that
particular area because obviously a lot of it is concerned with
the tax and the regulatory regime such as skills and infrastructure
as well. What value do you think UKTI can add in encouraging inward
investment to the UK outside those areas?
Mr McCafferty: I would say two
things. One is to come back to what we were suggesting earlier,
which is to provide a role as a national champion providing the
visible support and championing of the UK as a place to do business
and to point out the significant benefits and advantages that
the UK economy has for inward investment. The second would be
to ensure that that message is made clear. I have members who
have told me anecdotally of stories of visiting large prominent
motor shows aboard where there is a stand saying, "Invest
in France" or a stand saying, "Invest in Germany"
and we have five stands saying, "Invest in Cornwall",
"Invest in the West Midlands" and so on. There is a
role for the RDAs but the danger is that the message about the
UK becomes diverse and rather confused if we do not get the balance
between the regional dimension and the national dimension right.
Chairman: You have foreshadowed some
of the questions that Mike Weir was going to ask you but he has
others.
Q162 Mr Weir: You talked earlier
about UKTI being previously unbalanced between inward investment
and trade promotion. Do you think that the current split of one-third
and two-thirds between inward investment and trade promotion is
a sensible one?
Mr McCafferty: I think it is an
improvement on where it was before and certainly looking at the
statistics before, they were very different. Certainly the emphasis
on inward investment in terms of the monies allocated I think
is an improvement. Given the nature of globalisation and the way
in which the world economy is integrating, I do think we need
to make sure that the money that we spend on export development
is well targeted and well focused because the rate of growth in
some of the export markets that we are going to see is clearly
going to be much greater than that of the traditional ones, and
we need therefore to target those new markets in order to provide
support for our exports. That is not to say that we should, as
it were, shift it all. There is a balance to be struck here. We
do need to ensure that we promote the UK as a place to do business
as well.
Q163 Mr Weir: Where do you feel that
the balance should be struck? Do you think there is a case for
UKTI perhaps charging business for some of the services?
Mr McCafferty: I think there is
an element of public good in some of these services. Where there
is perhaps a market failure and where there is very specific advice
to specific companies that otherwise could be obtained in the
private sector, I do think that maybe there is a small role for
charging at the margins. I do think that the fact that export
support can be demonstrated to have significant multiple benefits
to the economy over and above the original expenditure—and
the latest assessment suggests that for every £1 million
spent on export support, the economy derives some £17 million
of benefit as a result—does suggest that there is a public
good to this and that therefore the degree to which business needs
to be charged for this should be very limited. I would not argue,
for example, that broad trade promotion—ambassadors' time
for example—necessarily needs to be charged out. That is
part of the function of government, I would argue. In the same
way, I would argue that high level negotiations on trade issues
should be part of the function of government and therefore should
not be charged out on an individual basis. Where there is information
on individual countries, that may well be more of an interesting
issue to look at, where there is the right level of charging and
where it should be provided, as part of the role of government
in stimulating trade more generally.
Q164 Mr Weir: In your evidence you
have criticised UKTI for having contact with too few companies
and being excessively bureaucratic. Could you elaborate on that?
Could you say if this is because companies are simply not aware
of UKTI's existence? What specifically would you do to make the
UKTI less bureaucratic?
Mr McCafferty: The evidence for
the degree of bureaucracy comes anecdotally from our members who
have had experience of UKTI. If there is a generic lesson from
that evidence, it is essentially that the culture within UKTI,
the understanding of those who were operating on behalf of UKTI
of business methods and business practices, of quite what business
is looking for and the sort of information and advice that it
needs is not as good as it should be. In that sense, I would look
at the skills set of UKTI and as it were make the individual advisers
more understanding of business or businesslike, if you want, and
that will solve a lot of problems of bureaucracy.
Q165 Mr Weir: Is that bureaucracy
at the UK end of UKTI or is it in the UKTI offices in other countries?
Mr McCafferty: I am not sure I
have a great deal of evidence to give you a strong answer to that
question but I would say, just thinking of the anecdotal evidence
that I have, it applies across the board.
Q166 Mr Weir: You have also been
critical of the split in UKTI activities, and you mention it again
today, between central government and the RDAs. Could you expand
on where you see the problems lying in that respect?
Mr McCafferty: The problem arises
because of the way in which the links and the coordination between
the centre and the RDA is perhaps not sufficient. I cited the
example of individual RDAs going to foreign trade fairs and promoting
their individual regions. That may be appropriate but I think
that we do have to take a view as to what is the appropriate level
for individual export promotion, whether it is at a national level
when we are competing against other national promotion organisations
or whether it is down at that more regional level. The fact that
RDAs have the autonomy that they do without necessarily the coordination
amongst themselves or with anybody in the centre is, as I say,
a cause for confusion.
Q167 Mr Weir: Do you get the same
split in other countries represented? For example, you may go
to a trade fair and see different German Lander there or
indeed American states in, say, the oil industry?
Mr McCafferty: There is certainly
that but the impression that we have from observation of where
this works in practice is that the coordination between the Lander,
the coordination between US states, is in some cases greater than
it is where the real benefit is as a promotion at the national
level—"Come to the UK"—and then you can
talk about which is the best location within the UK. Where we
are competing against "Come to Germany" or "Come
to France" or "Come to the United States", perhaps
that is the first stage, at which point you need coordination
between the organisations before you get to the point of competition.
Q168 Mr Weir: In your view of a changed
relationship, say UKTI says "Come to the United Kingdom",
who takes the next step as to which part of the United Kingdom
that company would be best to go to? Is there not a role for the
RDAs and the national agency involved in administration to be
in at the initial step and not at the later step once they have
decided to come to the UK, which is a very diverse place?
Mr McCafferty: I do think there
is a role for the RDAs, even at an early stage, but I do not think
that should be at the expense of that higher level message.
Q169 Chairman: I think the Committee
is very sympathetic with that view about the RDAs. How would you
cope, though, with the Scottish and Welsh problem, as it were?
No one is going to be brave enough to abolish the Welsh Development
Agency or put it back in its box.
Mr McCafferty: No, and I am not
suggesting that we should. I am suggesting that actually all of
the agencies should try to coordinate their activities rather
more and where there is collaborative activity that can be profitably
achieved, and it may well be that it is the RDAs together that
go to the Detroit Motor Show in order to promote the UK as well
as their individual interests, that that should be encouraged.
Q170 Chairman: The English RDAs,
the Welsh Development Agency and the Scottish Enterprise altogether?
Mr McCafferty: Yes,
Chairman: That is a nice thought.
Q171 Mr Weir: But they have different
interests in different areas of the country for particular industries.
I do not see how that is going to work?
Mr McCafferty: But there are existing
examples of coordination with the devolved nations and the English
RDAs. Certainly in the way in which the RDAs as a block, both
the nations and the regions, work with business, it has been devolved
that there is a lead RDA, in this case it is Yorkshire Forward,
in terms of relationships with business. If the nations and the
regions can work together when it comes to providing that coordination
in order to speak to particular stakeholders, there is no reason
why they cannot develop that coordination, with some encouragement
perhaps from the DTI and other bodies in the centre on other issues.
Q172 Miss Kirkbride: I want to ask
you quickly, on that particular point, have you any evidence that
that you can draw to our attention whereby competition between
the RDA,s and mixing therefore the message about what it is that
we are trying to do, has actually lost us a major contract or
a major piece of inward investment?
Mr McCafferty: I have no data.
All I have is comment from people who have been visiting trade
fairs around the world and looking at the different stands, opportunities
and offers made by different countries that the offer, as it were
from the UK, in some cases comes across as confusing and divisive,
and that then perhaps loses ground to some that are better organised.
Chairman: We will change tack, if we
may, and Lindsay Hoyle will get the charge on public procurement.
Q173 Mr Hoyle: Let us talk a bit
about public procurement. Do you think British taxpayers' money
should actually go to supporting UK jobs?
Mr McCafferty: Only indirectly;
I think the role of government procurement is to provide the highest
value, best quality service for the UK population. To the extent
that you can then combine that primary role with others, and we
do believe you can combine that role with other roles in terms
of providing support in a qualitative sense to industry and hence
to UK jobs, then that we believe is the way forward.
Q174 Mr Hoyle: I will just give you
an example. Do you think we should buy Peugeot cars now that they
have pulled out of the UK or do you think we should buy British-built
cars?
Mr McCafferty: I think it depends
on which is the best car for the job required by the Government
and the price and value of that car.
Q175 Mr Hoyle: Excellent. So it is
jobs for Europe at the expense of British jobs. Great! Let us
move on.
Mr McCafferty: I did not say that.
You did.
Q176 Mr Hoyle: No, but you did not
say you did not say that either. How should the public sector
create and sustain competitive supply markets and what exactly
is it doing wrong at present? Are some sectors better than others
and, if they are, which is the best example?
Mr McCafferty: I think in terms
of how do we develop competitive supply markets, we need to do
two things. The first is to make sure that the system for public
procurement is as efficient as it can be. Certainly evidence from
our membership suggests that the current system is over-bureaucratic;
it involves significant up-front cost in a way that other forms
of private sector procurement does not and therefore prejudices
particularly the role of small firms. I think in one sense it
is simply getting the system right. There is a number of detailed
examples of that involving the skills of public sector commissioners,
the distinction that is currently made in the public sector between
a commissioner of public services and then those that deem themselves
to be involved in procurement. It is quite surprising that a distinction
is made amongst civil servants between those two activities. We
would argue that those need to be better coordinated. I think
other elements of the system itself involve perhaps having a responsibility
on the part of an individual senior level manager within the procurement
commissioning side for the delivery of a project. One of the areas
that we have discovered is that there is such turnover in terms
of those responsible for individual projects, and of course the
more complex and more lengthy the project, the more that is the
matter. Then that is when delivery and value for money starts
to suffer in those cases as it does. There is a number of issues
to do with the current system. I also think there are some ways
in which the broader system could be improved. Perhaps the most
obvious one is to develop a much greater dialogue between those
doing the commissioning and the purchasing and potential suppliers.
If we look at other countries (and this is a specific example
that I think does have lessons for broader government procurement
activities) and at the United States for example and at the way
in which the body that tries to specify in strategic ways where
government needs in terms of procurement will be going forward,
and then try to describe in terms of what government needs to
potential suppliers, there is a dialogue about the needs over
a number of years. That allows business to plan, to innovate and
to invest into that government space, if you like. This comes
back to your original question; as well as providing best value
for money at least cost, it then provides indirect support for
business by allowing them to plan far better for the future.
Q177 Mr Hoyle: I suppose a good example
would be in the case of some of the contracts on, say, Typhoon,
where it is a lifelong programme, not only in manufacturing but
in servicing right through to the end of its life.
Mr McCafferty: I think the Defence
Industrial Strategy is now starting to try and take that approach
and we welcome that. You asked which sectors are doing well and
which are not, as I say, the Defence Industrial Strategy is starting
to take that approach in a much more detailed fashion and is very
welcome. One area where I would say it perhaps has not worked
quite so well is the rolling stock industry for the rail industry
where we have seen significant changes in demand over the last
ten years. The underlying demand of rolling stock in this country
is roughly £500 million a year, but because of uncertainties
over that period we have seen rates of demand over relatively
short periods from half that to five times that which does not
allow the industry to plan and protect its capacity, it does not
allow it to deal with the future. We can send a graph, if it is
of interest, to demonstrate that, but certainly over the course
of the recent past the demand of the industry has been significantly
higher than average, that will be followed by a long period in
which there would be next to no demand for rolling stock for the
UK rail system which means that employers will have to close down
their plants and will have to lay off workers simply because of
that unpredictability in the level of demand.
Q178 Mr Hoyle: Mr McCafferty, I could
not agree more except it does not quite add up, does it? That
height of contract has been awarded, we found not only did Alstrom
close a plant up in Lancashire but we found that they closed Birmingham
as well. What we have seen is a downturn in production capability
in the UK at the highest level of orders being placed and in fact
the orders were then moved abroad at the expense of UK jobs. That
is what worries me. I agree with you that will be a worry in the
future, but it is too late, we have seen the closures already.
Mr McCafferty: My understanding
was that the closure of the capacity in the UK was done prior
to the latest round of ordering and came about to a large extent
because of the dearth of orders in the mid-1990s as a result of
the uncertainty around privatisation issues.
Q179 Mr Hoyle: We can disagree but,
just to give you the facts, we do know that there were orders,
in fact, when the height of the orders were coming in some of
those contracts were moved over to Spain to give work to Spain
when they had no work, but when it was coming the other way there
was no work coming back. What I am saying is we knew there was
a whole glut of orders about to come but instead we saw Alstrom
reduce their footprint in the UK and allow that expansion capability
to take place in other parts of Europe, that is the part that
worries me and, quite rightly, I think we do agree it is about
how do we guarantee the future.
Mr McCafferty: It is clear that
one cannot provide a flat line in terms of rates of demand, there
is going to be increase and decrease, but I think more strategic
planning and more information provided to the sector so that it
can plan and manage its capacity against those swings in demand
would be helpful.
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