Written evidence from the TUC
EXECUTIVE SUMMARY
— The role of BIS within the economic landscape
must be to champion the creation of high skill, high value, sustainable
industries.
— Government must ensure that its dialogue
with industry, through bodies such as Innovation and Growth Teams,
includes dialogue with trade unions.
— There is a strong case for horizontal
government support, in policy areas that affect all growing industries,
such as skills training, and vertical support where specific industries
are particularly valuable to growing our economy in the future.
— The TUC supported the Strategic Investment
Fund, introduced by the previous Government as part of "New
Industry, New Jobs", as well as support programmes that were
a specific response to the economic downturn, such as the Automotive
Assistance Programme and the Working Capital Guarantee Scheme.
— The TUC calls for a new Strategic Investment
Fund, with a budget of £5 billion, modelled on the French
Fonds Strategique D'Investissiment.
— The TUC looks forward to forthcoming
proposals for a green investment bank.
— The TUC recognises the value of a body
such as UK Trade and Investment. The positive role of trade unions
should be among the reasons promoted by UKTI for investing in
the UK.
INTRODUCTION
1.1 The TUC is the voice of Britain at work.
Representing more than six million workers in 58 unions, our overall
objectives are to raise the quality of working life and promote
equality for all. With one worker in every four belonging to a
TUC affiliated union, we seek to be a high profile organisation
that campaigns successfully for trade union values, assists trade
unions to increase membership and effectiveness, and promotes
train union solidarity.
THE ROLE
OF BIS WITHIN
THE ECONOMIC
LANDSCAPE
2.1 The TUC believes the most important
priority facing the Coalition Government is to entrench economic
growth. The engine of growth will be the creation and success
of viable and sustainable industries. With a clearer understanding
of the value, but also the limits, of the financial services sector,
there is renewed interest in the role that wider industries, including
high value manufacturing, can play.
2.2 The TUC believes the UK must create
industries that provide wealth for UK plc and jobs for its workforce,
millions of whom are or could become trade union members. But
it is clear that the UK cannot succeed in all industries and sectors.
Most obviously, some industries are based on low skills and low
value, which means that a major source of their competitiveness
is low labour costs. The UK clearly could not compete with the
wage levels paid in many developing countries, even if we wished
to do so. Instead, we must compete on the basis of high skills
and high value. Moreover, demand will increasingly shift towards
sustainable products. Countries have been set challenging targets
to reduce CO2 emissions, in treaties such as the Kyoto protocol,
and consumers, ever more environmentally conscious, increasingly
wish to buy less polluting products. This does not mean that people
will stop driving cars or flying on occasion; it does mean that
they will wish to driver cleaner cars and fly on cleaner aircraft.
The TUC believes, therefore, that the UK should focus on the creation
of high-skill, high-value, sustainable industries.
2.3 In the TUC's view, the role of BIS within
the economic landscape must be to champion the creation of such
industries. These are the surest way to entrench and sustain economic
growth in the years to come. It is through this prism that we
make this submission to the Select Committee.
"A STRATEGY
FOR SUSTAINABLE
GROWTH"
3.1 To this end, the TUC welcomes the statement
by the Business Secretary, Vince Cable, in A Strategy for Sustainable
Growth, that "Setting out the path to balanced and sustainable
growth is at the heart of what BIS is here to do".[9]
3.2 The section of this paper entitled Investment
in our capacity to drive growth is important. This describes
how public investment can tackle sources of market failure and
states: "Common examples are when the public sector supports
infrastructure, higher education, science and innovation—all
of which are of crucial importance for our growth potential."[10]
3.3 A Strategy for Sustainable Growth
identifies an important challenge when it describes the UK's need
for as much as £40-£50 billion per annum of investment
in key infrastructure such as better transport links, information
communication technologies, green energy, water and waste, while
at the same time managing down public spending. The TUC believes
meeting this challenge while cutting public spending may be impossible.
3.4 A similar problem exists regarding a
skilled workforce. Companies can and should make a contribution
to the upskilling of their workforces, but there is also a major
role for government, not least in developing the skills of so-called
"NEETs", ie those not in employment, education or training.
Impending public spending cuts must not impact on the role of
government in investing in the skills of our workforce or aspiring-workforce.
3.5 The TUC supports the arguments put forward
in favour of scientific excellence. We fully support the recognition,
advanced by the new Science Minister, David Willetts, that both
applied and blue-sky research have important roles to play. We
are, of course, very concerned about reports, such as that in
The Guardian on 26 August 2010, which suggest that science
could take a 25% funding cut later this year. If that happens,
a major science facility may have to be mothballed, which could
have a knock-on effect in terms of young people studying science
in schools and universities.[11]
We hope this concern is addressed in the outcome of the Comprehensive
Spending Review in October.
ENCOURAGING ENTREPRENEURISM
3.6 One important section of A Strategy
for Sustainable Growth is contained in the following passage,
from the section entitled Encouraging Entrepreneurialism:
"The Automotive Council, the Space Leadership
Council, and the Low Carbon Construction Innovation Growth Team
represent the type of relationship government needs to have with
industry—a relationship based on partnership to identify
the main barriers and identify remedies that work with the grain
of the market."
"There is a role for government, not only
in supporting this interaction, but also in making sure we have
the right policy framework in place through developing and delivering
horizontal policies with a clear sense of their vertical impacts.
We need to understand where and how horizontal policy has differential
impact on different sectors so that we can minimise deadweight
and focus our activities where the economic gains are likely to
be greatest. This means understanding whether growth will be driven
through increased productivity or through significant levels or
employment."[12]
3.7 This is an important statement for two
reasons. First, when it describes "the type of relationship
government needs to have with industry", industry must be
taken to mean trade unions as well as employers. Following the
discontinuation of the Ministerial Advisory Group on Manufacturing,
on which trade unions were represented, the Coalition Government
must consider how it carries out a dialogue with trade unions
about industrial matters. Trade union members are represented
on the Automotive Council, the Aerospace Council and the Marine
Industries Leadership Council. Consideration must be given to
dialogue with trade unions in other industries, where they represent
the interests of thousands of members.
3.8 Second, with regard to how industries
are supported by government, the TUC believes there is a place
for both horizontal and vertical support. Clearly, ensuring a
sufficient supply of skilled workers is a key issue facing industry
and skill support is a clear example of a horizontal policy that
the government must pursue. However, some sectors are particularly
important and growing those sectors must be a government priority.
To do this, vertical support is necessary.
3.9 The previous government belated committed
itself to the concept of active industrial policy, most notably
through the policy paper, New Industry, New Jobs. The TUC
had been calling for such an interventionist strategy for many
years previously.
3.10 A useful list of industries on which
to focus can be found in The Race to the Top, Lord Sainsbury's
review of the government's science and innovation policies, published
in October 2007. This document was valuable in that it was one
of the first to highlight the high-skill, high-value, innovative
sectors that are particularly important to UK plc. Among those
sectors, the Sainsbury review spoke of "new industries in
areas as diverse as aerospace, pharmaceuticals, biotechnology,
regenerative medicine, telemedicine, nanotechnology, the space
industry, intelligent transport systems, new sources of energy,
creative industries, computer games, the instrumentation sector,
business and financial services, computer services and education."[13]
"FINANCING A
PRIVATE SECTOR
RECOVERY"
4.1 Published jointly by HM Treasury and
the Department of Business, Innovation and Skills, Financing
a Private Sector Recovery considers some of the main challenges
facing businesses of various sizes in accessing financial support
since the economic downturn.
4.2 According to this paper, SMEs have generally
found access to finance more difficult, as they rely particularly
on bank lending and many have no significant credit history or
track record. To address this, the Government has announced an
extension of £200 million to the Enterprise Finance Guarantee
Scheme this year, enabling additional lending of £700 million
for around 7,000 SMEs to March next year. June's Budget also announced
the creation of a Growth Capital Fund, to help established SMEs
to grow.
4.3 Larger companies, defined as having
a turnover of over £500 million per annum, of which there
are only around 760 registered in the UK but which account for
around a fifth of private sector employment, have had much more
limited problems accessing finance, not least because they have
access to debt capital markets through private placements, commercial
paper or corporate bonds, as well as bank lending.
4.4 The TUC supports plans for a Growth
Capital Fund. We believe that the UK faces a challenge growing
smaller into medium sized firms. Indeed, we have some concern
that the UK excessively indulges a "small is beautiful"
philosophy.
4.5 Financing a Private Sector Recovery
does not rule out government intervention to improve access to
finance, but sets out a number of criteria that must be met for
any proposal for government intervention, including that any such
intervention should:
— reflect a realistic expectation that
it will successfully address a clearly identified market failure;
— represent value for money for the taxpayer,
and be affordable within the Spending Review envelope set out
at the June Budget;
— be timely and time-limited, with appropriate
sunset clauses and a clear exit strategy;
— be compliant with state aid rules;
— not crowd out private provision or market
solutions; and
— avoid introducing distortions elsewhere
in the economy.[14]
4.6 The TUC believes it is useful to consider
this section of Financing a Private Sector Recovery alongside
another statement from paragraph 4.19 of the same paper: "In
his report Ingenious Britain—Making the UK the leading
high-tech exporter in Europe, Sir James Dyson recognised that
it was important that bank lending flowed to innovative companies".
4.7 The TUC believes that our proposal for
a new Strategic Investment Bank, based on the French model, which
is described in greater detail below, meets all of these criteria,
as well as being able to target the innovative companies that
were correctly identified by Sir James Dyson.[15]
FINANCIAL TRANSACTION
TAX
4.8 Elsewhere, in paragraph 4.8 of Financing
a Private Sector Recovery, the Government seeks views on what
actions could be taken to underline banks' commitment to supporting
economic recovery. Whilst it is probably outside the scope of
this inquiry, the single most important way that banks can help
to support the recovery would be through the introduction of a
Financial Transactions Tax, which would have a very limited effect
on banks' profitability, but would make a major contribution to
cutting the deficit, allowing some current spending to continue
and thereby putting less pressure on the economy through spending
cuts that, the TUC fears, are larger than can be handled without
threatening the economic recovery.
4.9 Finally, the TUC supports proposals
set out in paragraph 4.37 of Financing a Private Sector Recovery
to support start-ups and established businesses in disadvantaged
communities. We look forward to contributing to more detailed
consultations on this when the White Paper on sub-national growth
is published. We are also on record as supporting the establishment
of a Green Investment Bank, as described in paragraph 4.47 of
Financing a Private Sector Recovery and we describe our
ideas on this in more detail below.
EXISTING GOVERNMENT
ASSISTANCE PROGRAMMES
5.1 The terms of reference of this inquiry
highlighted three programmes under which loans and grants have
been provided to industry. Those were: the Strategic Investment
Fund; the Automotive Assistance Programme; and the Working Capital
Guarantee Scheme.
5.2 There is, in fact, an important distinction
to be made between the Strategic Investment Fund and the other
two programmes. The Strategic Investment Fund, with an initial
budget of £750 million (to which a further £200 million
was later added) was set up to support the active industrial strategy
contained within New Industry, New Jobs (NINJ). The Strategic
Investment Fund was not, in a direct sense, a response to the
economic crisis. By contrast, both the Automotive Assistance Programme
and the Working Capital Guarantee Scheme were aimed specifically
at the automotive industry and SMEs in particular as they grappled
with problems brought by the recession.
STRATEGIC INVESTMENT
FUND
5.3 The TUC supported the establishment
of the Strategic Investment Fund in Budget 2009. What is distinctive
about this programme is that it was targeted, largely, at high
skill, high value sectors. It was, therefore, a good example of
vertical policy in action.
5.4 In media terms, whilst there has been
little discussion of the role of otherwise of the Strategic Investment
Fund, there has been much commentary on the cancellation of some
of the previous Labour Government's loans and loan guarantees
by the Coalition Government, some of which were to be funded by
the Strategic Investment Fund. Most controversially, this has
included the cancellation of the loan to Sheffield Forgemasters.
The TUC is on record as arguing that the government is moving
too far, too fast with its deficit reduction programme. More generally,
we believe there is a role for government in supporting an investment
fund for strategic industries. In our view, therefore, the cancellation
of the loan to Sheffield Forgemasters was regrettable.
AUTOMOTIVE ASSISTANCE
PROGRAMME AND
WORKING CAPITAL
GUARANTEE SCHEME
5.5 The Automotive Assistance Programme
and the Working Capital Guarantee Scheme were specific initiatives
in response to the economic downturn. The TUC supports the principle
of such schemes. We are aware of reports, including a previous
report from the BIS Select Committee with regard to the AAP, highlighting
delays in the release of money. That is regrettable at times when
businesses need support urgently, but it is a different argument
to whether such a programme is a good idea in principle. Of course,
schemes set up at a time of economic recession and designed to
help companies through that recession should not continue after
economic recovery has taken place. Other, permanent structures
are required at such times.
A NEW MODEL
OF INVESTMENT
SUPPORT
6.1 In March 2010, the TUC called for a
new investment fund for strategic industries, with a £5 billion
budget.[16]
This £5 billion could come either from direct state funding,
private investment, grants from bodies such as the European Investment
Bank, or a combination of the three. The aim of this new fund
would be to provide the kind of long term investment that many
UK companies have struggled to attract.
6.2 The TUC proposal was modelled on the
French Fonds Strategique D'Investissement (FSI), set up
in January 2009 with a budget of 20 billion euros. The FSI has
two shareholders—the Government and the Caisse des Depots,
a long-term investment body. It invests in companies of all sizes
for approximately eight to 10 years. FSI funds are managed through
a board of seven people, four from Government and three from the
private sector. A governance body, comprised of 20 people from
unions, MPs and business associations, is asked to advise on investment
strategies.
6.3 In its first year the FSI invested 800
million euros directly into 21 companies and a further 600 million
euros were invested through funds. Crucially, the FSI associates
itself with entrepreneurial risk, rather than simply offering
subsidies. All of the companies invested in are currently profitable.
6.4 In France, the FSI takes a seat on the
board of companies in which it invests, thereby having a say in
its investment strategies. It is always a "friendly"
investor and when it eventually leaves the company, it does so
in a way the does not disrupt the operation of the company. However,
through the FSI, the French Government can champion the industries
of the future. It can invest in those sectors where France can
remain or can become a major player in the global economy. In
this way, France's industrial interests are protected.
GREEN INVESTMENT
BANK
6.5 The TUC welcomes proposals for the establishment
of a Green Investment Bank. We have long advocated the setting
up of such an investment bank, specifically to support low carbon
industries. We have raised questions concerning the potential
client group of the GIB, which must be able to respond to a wide
range of investment requests, from major national power projects
to regional and local green initiatives. We have also asked what
investments would qualify as "green"? A key test, in
our view, would be projects that support the carbon budget objectives
of the Committee on Climate Change.
6.6 In terms of funding, one potential source
of income could be the National Employment Savings Trust (NEST),
the new low cost pension scheme, effective from 2010. Another
is to hypothecate revenues from the EU Emissions Trading Scheme
to the Treasury, estimated at £2 billion from 2013-14.
6.7 The creation of a green investment bank
is, in the TUC's view, one of the most important policy commitments
of the Coalition Government. It is vital that stakeholders are
consulted on the creation of this bank and also that they are
represented in governance structures of the bank when it is operating.
THE ROLE
OF UKTI
7.1 Finally, the TUC recognises the value
of a body such as UK Trade and Investment (UKTI) in supporting
exporters and encouraging inward investment.
7.2 The TUC commented on the role of UKTI
in an earlier submission to a Trade and Industry Select Committee
inquiry into the Future of UK Manufacturing in 2007.[17]
At that time, we highlighted the UK's impressive record of winning
inward investment. We noted in our evidence that the UK has a
good record of inward investors working well with trade unions.
For example, when world-class Japanese inward investor companies
such as Toyota and Nissan came to the UK, they chose to recognise
a union, in spite of being under no obligation to do so, and have
never sought to derecognise that union. We understand that positive
industrial relations exist at these companies.
7.3 The TUC notes a page on the UKTI website
that lists top reasons to invest in the UK.[18]
These include: the easiest place to set up and run a business;
access to the world's largest market; a strong science base; a
flexible workforce; most attractive destination for inward investment;
transport; and Olympic opportunities.
7.4 Whilst these are excellent reasons,
we would wish to highlight the positive role of trade unions among
the reasons to invest in the UK.
CONCLUSIONS
8.1 It is clear that the UK and, indeed,
the world economy face a formidable challenge as we emerge from
recession and move towards recovery. The TUC believes that future
UK economic success will be built on developing high skill, high
value, sustainable industries for the future. In our view, there
is a strong case for a new strategic investment fund based on
France's Fonds Strategique D'Investissiment, where government
takes minority stakes in key strategic companies, allowing the
development of industrial sectors in which the UK is or could
become competitive in the age of globalisation. We also look forward
to government proposals for a Green Investment Bank, as described
in the Coalition Agreement and reiterated in Financing a Private
Sector Recovery.
Trade unions are a major stakeholder in industry.
Following the discontinuation of the Ministerial Advisory Group
on Manufacturing, government must give consideration to the way
in which it conducts a dialogue with trade unions about economic
and industrial matters in the months and years to come.
23 September 2010
9 A Strategy for Sustainable Growth, Department
for Business, Innovation and Skills, p 2. Back
10
A Strategy for Sustainable Growth, Department for Business,
Innovation and Skills, p 8. Back
11
UK Scientists on Collision Course over UK Research Cuts,
The Guardian, 26 August 2010. Back
12
A Strategy for Sustainable Growth, Department for Business,
Innovation and Skills, p 14. Back
13
The Race to the Top: A Review of Government's Science and Innovation
Policies, Lord Sainsbury of Turville, October 2007. Back
14
Financing a Private Sector Recovery, HM Treasury/BIS, Cm
7923, July 2010, p 27. Back
15
Financing a Private Sector Recovery, HM Treasury/BIS, Cm
7923, July 2010, p 30. Back
16
http://www.tuc.org.uk/extras/strategicinvestmentfund.pdf Back
17
http://www.publications.parliament.uk/pa/cm200607/cmselect/cmtrdind/161/161.pdf Back
18
http://www.ukti.gov.uk/investintheuk/whytheuk/topreasonstoinvest.html Back
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