Rebalancing the Economy: Trade and Investment - Business, Innovation and Skills Committee Contents

Examination of Witnesses (Questions 49-84)

Q49 Chair: Could I welcome you all and go through the procedures I went through with the previous panel? If you could introduce yourself for transcription purposes, that would be helpful.

Melanie Leech: I am Melanie Leech. I am the Director General of the Food and Drink Federation, which is the trade association for food and drink manufacturing in the UK.

Paul Everitt: My name is Paul Everitt, and I am the Chief Executive of the Society of Motor Manufacturers and Traders, the trade association for the motor manufacturing industry in the UK.

Graham Dewhurst: I am Graham Dewhurst. I am the Director General of the Manufacturing Technologies Association, representing companies that supply into the major engineering end-user markets.

Graham Hayes: I am Graham Hayes. I am the President of EAMA, the Engineering and Machinery Alliance, which represents nine trade associations.

Q50 Gregg McClymont: May I address this first of all to Graham Hayes? EAMA's submission states that the Government's "tentative approach" reinforces the impression that the UK isn't really serious about exporting. Can I ask you to expand and elaborate on the reasons you believe the Government to be tentative in its approach?

Graham Hayes: Yes, absolutely. As a sector, we export 70% of the product, which is worth about £27 billion, and I think the support we get in the export market is very poor. The image we get into the market is very poor. You go to exhibitions and you see the German, French, Italian and American stands. They are the ones that I would particularly point out. There seems to be more life to them than ours. That attitude has also got into the market-place, where potential customers see the UK as tentative as well.

Q51 Gregg McClymont: I see from the evidence about mechanical engineering exports that they grew 42% in the last six years. Does that cut across what you are saying? What is the evidence for the notion?

Graham Hayes: In our particular sector, we have a lot of small companies. In fact, the majority are very small but they are in very niche businesses. Their products allow them to export. When you are breaking into new markets, that is particularly where you need help.

Gregg McClymont: This is an impression you are gathering strongly from your members?

Graham Hayes: From our members, yes.

Gregg McClymont: Is there any way to measure that impression?

Graham Hayes: We do surveys on a very regular basis of our members, on all areas, and I guess we have done several surveys on export, and I am sure we could give you the results of that.

Graham Dewhurst: Perhaps I could pick up on that. We have an office in Yekaterinburg in Russia, in the Urals. About 18 months ago, I was invited to the Urals by the Economic Minister from the regional Government. His main reason for doing that was that they had recognised that the UK companies were under­represented in the area, and that what he wanted to do was find out from the UK exactly what we have to offer and what our capability is. I then went out there and met them and, at the same time, went to the Foreign and Commonwealth Office there, only to find that there was no relationship between the posts on the ground and the Economic Ministry of that regional Government, which I found appalling. I just felt as if I were in a foreign country with no way of having contact. That is the point that we are making through EAMA; the MTA is also a member of the EAMA group. In the general knowledge of people outside the UK, the impression is that the UK is no longer a big exporter, with the exception of things like aerospace. It just is not true. What we have got to do is to dispel that by being very active in these areas and promoting UK capability. Only if an SME is going out there, into a friendly environment, is it going to encourage them to take that opportunity.

Q52 Gregg McClymont: Can I put the same question to Paul and Melanie?

Paul Everitt: I guess we would see it slightly differently. The UK motor industry is probably one of our leading exporters. We export 70­75% of all the vehicles and engines we manufacture in the UK. For us, these are global businesses in the main that are operating here. For us, the key is the very strong signals that we have had, admittedly from both the previous and the current Administration, about the need to rebalance the economy, focus on manufacturing as a key part of a more balanced economy and, as part of that, the need for us to do more designing, developing and selling goods and services abroad. The strategic direction that we have is very clear. There are a range of issues about how that is actually transmitted on a day-to-day level, and the various support measures that might be there.

Melanie Leech: I guess my take is, again, slightly different in that, although we are the largest manufacturing sector in the UK and the world's eighth largest exporter for food and drink, we have not historically had much of a focus in terms of working with Government strategically on exports. I start from the position of there is not a long history of engagement and involvement. In that context, I would say absolutely there is a huge opportunity to do more to promote UK food and drink, and to grow export markets. Food and drink exports are growing, but it is incremental growth and we see huge opportunity to do better.

Q53 Gregg McClymont: Are the differences in posture to do with the differences in markets? Would that be a fair explanation—that engineering has got smaller scale as well?

Graham Dewhurst: We are selling capital goods anywhere from £100,000 up to multi­millions of pounds per article—to be involved in those markets for an SME is a huge investment in time and energy, in gaining trust and being able to show your technological as well as your commercial capabilities.

Q54 Gregg McClymont: It is not like bringing a car to the market; in that sense it is a longer­term process.

Graham Dewhurst: I think Paul would probably say it is more difficult to bring a car to market. I think it is a question of the size of the individual product. People take a lot more persuading on capital investment if they are going to be investing £1 million. They take a lot more time to make those decisions. It is a lot more technologically driven perhaps than the purchase of a commercial vehicle. We do have slightly different issues.

Q55 Gregg McClymont: What are your recommendations or suggestions? What would you like to see happen to improve the situation from an engineering perspective?

Graham Dewhurst: Basically, I think our members would like to feel that the Foreign and Commonwealth Office is adopting a much more commercial view in promoting UK capability. In the previous session, there was a discussion about the level of cultural influence versus the commercial influence. We would like to see the commercial side of things put to the forefront, and the cultural things will follow.

Q56 Gregg McClymont: How do you imagine that process could change?

Graham Dewhurst: I think it is a question of language, of the posts in the field understanding what the capability of the UK is. I know that UKTI in Glasgow and in London has been working for the past few years to develop and understand that capability, so that it can translate it into the FCO. It is a question now of delivering that.

Q57 Gregg McClymont: Can I ask Paul and Melanie for their thoughts?

Paul Everitt: Perhaps we are looking for the focus that the Government and its agencies bring to the task and the priorities that they set. You cannot prioritise every sector or every size of firm or every commodity; you have to work out what the strategy is going to be and then you have to try to find the most impactful measures that you can deliver. For the best of reasons, what tends to happen is that there is a limited amount of resource, and it is spread as widely as possible to keep as many people as possible happy, which is a strategy, but not necessarily the strategy that is going to deliver the most economic growth and the most prosperity and jobs in the UK, which is where we would want to be focused.

Q58 Gregg McClymont: That sounds to me, as we have heard often over the years, as if we have to get better at picking winners. Would that be a fair way to put it and, if so, how do you go about picking winners?

Paul Everitt: Picking winners becomes very difficult, because there are certain areas where we are not looking for Government to say, "This particular business is the one we want to support and not that particular business". There are ways and means of saying that there are some successful sectors in the UK; there are clearly sectors that are internationally competitive and which, if they are successful, will generate a huge amount of business not just in their sector, but across sectors. As an automotive sector, we are successful in exporting. If we were to increase the level of exports from the UK, the demand that we would provide, for a whole range of other sectors, would be quite significant. I am not saying that it is only the automotive sector that should get priority, but you understand: there are some key sectors that can generate a wide level of demand. It is in our interest, as a nation, if we can be successful, to be more successful in those areas.

Q59 Gregg McClymont: From the food and drink point of view, what can be done to improve performance?

Melanie Leech: I completely agree with what Graham and Paul have said. For our sector, we are currently world-class in the UK in food and drink, in all sorts of areas. Partly that is because we are a very mature market, so we are a demanding market. Tastes are ahead of the global norm, so people have to invest here if they want to stay competitive in the UK. That brings all sorts of strengths and creates a virtuous circle, because that then creates a value­added proposition, which is attractive not only to the UK market but, increasingly, to overseas markets. If you think about the global trends in food consumption, that gives us an edge not only in mature markets, but in emerging markets, where the diet is changing and the appetite is growing exponentially for the western diet. There are absolutely huge opportunities there. Although I agree with Paul's point that it should not be Government's business to pick winners, you can clearly see that there are sectors where the opportunities are there, where the capability is there, and there needs to be a strategic approach, which is a joint Government­industry approach, which says, "Okay, we have the capability. How do we keep the capability and how do we harness that, not only for the UK market but also overseas markets?" We think that is the right approach.

  May I just give you one anecdote? I do not know if it helps to illustrate the points that Graham was making. As well as all this grand strategic stuff, we are missing opportunities day in, day out, and letting ourselves, as the UK, down. I was given one anecdote by a colleague overseas. This is not a European Union political point. There was a food fair in Brussels last autumn, the EU 27 On Your Plate food fair, and each member state had a stand to promote its food and drink industry. There were 26 bustling stands, dragging people in, showcasing the best of their products. There was an empty cardboard box on the UK stall. We are missing opportunities. It would not have taken a great strategic push by UKTI or the local embassy to have just been there, had a presence, promoted the UK. Someone had written on the cardboard box, "UK n'est pas dans l'Union européenne."

Q60 Mr Ward: I ask the two Grahams to be pretty frank, because the "whys" are as important as the "whats". I think we have some idea about what the position is, but "tentative" is a strange word. It suggests there is a willingness, but we may be unsure. I do not get the feeling that is what you were saying—unwilling, unable?

Graham Hayes: I think they are capable of doing it. I do not know what it is. They seem to be frightened to fly the flag. Getting it right is like anything in this world; it is getting the detail right, isn't it? It is making it look right, having the right people visit an exhibition, doing the work before the exhibition, making sure people know you are going to be there, getting the right exhibitors there. I go to some exhibitions and I see, for example, a guy trying to sell Sellotape in America, and I think, "Christ, it is like taking coals to Newcastle. He has got no hope of doing that." You have to make sure that you are going to get on a stand the companies that will attract the visitors. As they attract the visitors, the visitors will look at other things on those stands. It is a whole host of things. It is professionalism, let's put it that way.

Graham Dewhurst: There are four or five international machine tool shows around the world every two years. One is in Beijing; one is in America; one's in Japan; one is in Europe at EMO. At each of those, over the past four years whilst I have been in this position, and in previous years when I was actually out there exporting machine tools, I have watched the Swiss delegation have support from their Ministers. I have watched the Germans have full support from their Ministers with ministerial visits, and similarly with the Spanish and the Italians. We have had, I think in the past four years—so that would be about ten of these shows—Lord Jones at EMO, and that was the only ministerial and/or FCO presence that we have had at those shows. Bearing in mind that the machine tool industry is at the heart of every engineering­based manufacturing country, I think that is really a question of what you want to do, rather than what you are doing.

Q61 Mr Binley: You are collectively making a very, very important point. I recognise the supply chain element of the car manufacturing and assembly industry, but it is a relatively easy industry to get at, very easily identifiable, with a small number of major players. You say you are getting a sizeable amount of attention from Government, and I am delighted. The food industry, of which 99% is made up of SMEs, seems to have little connection with Government on promoting, exporting and so forth, and EAMA seems to be quite concerned about the lack of quality support it gets. We are back to that differential between UK plc and the SME market, aren't we? That is what is emerging from all this. Can you tell us how we can get Government and the bureaucracy that supports Government to recognise that they really need to take a more vigorous, more creative and different approach in outreach terms to dealing with the SME sector? Can you help us in that respect?

Graham Hayes: I think in the earlier session—I came in at the end of it—they talked about getting professional people in the right places. I think that is what it is; you need commercial people. They talked about career diplomats in some of the areas where there should be commercial people. You asked where we get those people from. I would have thought at the moment, with so many unemployed in this country in some sectors, you could very easily get people who would go into those jobs. It is a nice job; you can be abroad. These people will know the sectors they are in. It is no use having somebody there who has got too wide a knowledge. In some of the overseas places that you go to, the guy has far too much—he probably looks after aerospace, maybe automobiles and engineering as well. Many sectors have engineering in them, but they are very different things you are selling and very different things you are trying to market. If someone's phoning a company or talking to a company in a particular country, if they cannot get to the basic questions and the basic understanding of what they are trying to discuss, they will not get the answers back that say that company is one that should be visited, or that agent is the type of agent that we should be talking to. It is back to having the right people. It is true of anything in life: having the right people in the right place.

Q62 Mr Binley: Ms Leech, if you might respond?

Melanie Leech: I agree with that. I should slightly qualify my portrayal of my sector as neglected, in the sense that it would certainly be true for UKTI, but we had our own dedicated Food From Britain, supported by DEFRA until about three or four years ago. So there was a place where SMEs in the food and drink sector could go to get advice, help and be part of a bigger grouping that could then market UK food and drink. It was a matter of regret to the sector, I think, that the decision was taken to stop that support. Really that left the food industry a little bit high and dry because, having had our own dedicated organisation, understandably at that time we were not a priority for some of the broader effort and have never recovered from that position. I guess I would start by saying that I am not here at all to argue for replacing a quango; I do not think that would be sensible. However, I think it would be worth looking at the functions that that organisation provided and asking: how can we make sure that that valuable support continues to exist? Some of that was picked up by the RDAs, Yorkshire Forward being a good example. There are strong RDAs that have focused on food and drink, and made a success of that. There were others where, understandably, there were other competing priorities and that didn't happen.

I think it is about going back to see what worked, to the extent that that is still there, and building on that. I do not think that is a lot of money, but I think it is a lot of, as has been said, people in the right places understanding. It is about the language. That has to sit within a big­picture framework. We have some concerns about the impact of the localism agenda, not just because there are not huge opportunities there in terms of LEPs to build the kinds of partnerships we are discussing, which are essential to promote locally. It needs to be within a framework that has some common language and some common understanding of big objectives for UK plc. I think it is about stitching the narrative together, from the UK plc central-Government narrative right through to LEPs and very local activities and partnerships, making sure we are also pulling in the same direction.

Graham Hayes: I think it would help to let you know that I ran a business in Germany as well as the UK and America. I used Germany to find out an awful lot of information about other markets to which I was exporting.

Q63 Mr Binley: I take that point totally. Can I ask you about piggy­backing as well? It seems to me there is a real opportunity. I know Volkswagen piggy­back quite well with smaller companies, helping to introduce their suppliers to a wider market.

Paul Everitt: That is very true. I just wanted to pick up on one point, which goes back to how things can be improved. It is very hard for organisations to improve, if there is not a very clear strategy with a clear set of objectives and a way in which you monitor success that actually means something. One of the issues we might talk about in relation to UKTI is that their measure of success is how many people turn up, not how much business is done. Unless you have got a clear strategy, you will not know who the right people are, whom you need to employ in the right places. It means taking a step back and saying, "This is something we want to do and want to do well. Therefore, we should have a clear strategy as to how or what it is we want to do." Then you have got a chance of being able to deliver something.

Q64 Margot James: You say that trade shows are essential to your industries. Would you all agree on that? Why is Government support required for trade shows and delegations? We heard from the evidence in the previous session that trade shows were felt to be very important, and that, particularly for small businesses, Government help was important. What about for the larger companies?

Paul Everitt: From a vehicle manufacturing point of view, clearly when we run shows at a vehicle manufacturing level, these are consumer events. That is a different market. For companies in the supply chain, the B2B trade shows are important, and certainly being part of a UK presence is seen to be very productive and beneficial. Colleagues will also comment, but for us, it seems to be a very strange set of circumstances, whereby there is support for a limited number of companies, which are in the early stages of perhaps trying to break into a new market and therefore there is some funding available, which is good, but once they are familiar with the territory, if you like, there is not a great deal that can be offered in help and support to ensure that they can progress their business. Whilst I do not think I would underestimate the importance of trade shows, they are one part of a mix that we need to look at in order to generate long­term growth and jobs here in the UK. We have to think about not just welcoming people to a particular market, but what the strategy is for those companies and businesses, or what we need to do as a country to support those businesses over the longer term.

Graham Dewhurst: Perhaps I could give a bit of context to our particular kind of trade shows. The EMO trade show in Germany, for example, is around 150,000 square metres, and it runs across 26 different halls with 2,000 exhibitors. Over a week, they will get about 125,000 to 150,000 visitors, each of whom is going there because he wants to buy something. In terms of SMEs and even larger companies, which are taking anywhere between a nine­square­metre stand right the way through to maybe 100 or 200 square metres, it is vital that they are able to get some recognition as UK capability. Otherwise, you become lost in this huge village that descends for a week.

  The Chinese have recognised this and created, at their own show, a Chinese­only area. If a Chinese customer wants to buy from a Chinese company, he knows that he goes straight to the Chinese area. If he wants to import goods, then he knows to go anywhere else. If the Chinese have recognised this absolute need to promote their indigenous products, I think we have to recognise the same thing: that we should be promoting our products overseas for export. The only way to do that is by encouraging the larger companies to come under the UKTI/UK capability banner. The only way that is going to happen, if you want them to work to your agenda, is to give support of some kind.

Incidentally, the Italian pavilion at the last major show was 3,500 square metres. We did take a UK pavilion, but the most that we could manage to undertake was 500 square metres. Many of our larger companies chose not to go under the UK banner, because it was not well enough supported to give the right image. If we had been able to bring some of those companies into our area, we could have been up at maybe 1,000 or 1,500 square metres. To our people, it is really very, very important that support is there. It is often the best way into the market to show a working machine.

Q65 Margot James: Do you all agree that this would be a very good use of UKTI's budget—supporting these shows and providing this UK plc umbrella?

Graham Hayes: I grew a small business into a £50 million turnover business by exporting; 80% of my output was exported. I could not have done it without shows. Just as people who buy food want to taste, engineers want to see, touch and look at the equipment. Exhibitions are extremely important for putting your goods out on display. They can do that. People say that you only have to exhibit once, but you are developing machinery all the time. You have to keep developing it and you have to keep showing your latest developments to the marketplace. You do not just develop in developing markets, if you understand me, where you are trying to look for new markets, you also have to look after your existing markets. They are two different types of exhibits, two different types of approaches, but you have to do that, and they are absolutely the most important thing in our sector.

Q66 Margot James: Thank you, that was very illuminating. Could I just follow up, Ms Leech, with the evidence you presented? You said that, on a recent Chinese mission, the Chinese had said that Italian and French brands are much better known in China than British brands. Aside from what we have heard about the importance of trade shows, is there anything else you think UKTI and the various other bodies that represent British businesses abroad could do to make our brands better known?

Melanie Leech: I am sure there is, from showcasing our brands within their own facilities to just awareness—it is not a huge new strand of activity necessarily. It is just having at the forefront of the mind, the philosophy of asking, "Where are there opportunities to raise the profile of brands?" For the food and drink sector certainly, the huge potential is around brands, particularly in emerging markets. Because the retail market is so concentrated in the UK, some of the SMEs' best opportunities to grow their businesses to scale and be competitive in the UK are overseas. There are some examples of companies that have done exactly that: they started very small in the UK, went straight to export, grew a sizeable business and only then became able to engage in the supply chain in the UK at scale, because they have now got the bargaining power and the commercial ability to do that. The brands for us are central, although there are other opportunities too, and I am not denigrating those. Brand awareness is absolutely critical to us.

Paul Everitt: If I could reinforce that from a slightly different perspective, UK automotive brands are quite attractive, but in some of the faster­growing markets like China and India, there is an awareness, but there does not seem to be quite the same focus on trying to promote in those markets in the same way, and yet the opportunities are huge.

Margot James: Why do you think that is?

Paul Everitt: Again, I think it is because automotive companies are perceived to be big companies that therefore do not need any help. Bentley, Rolls­Royce, Aston Martin, or Jaguar Land Rover are big businesses; they have infrastructure in those countries because they are trying to sell actively in those countries. There is a perception in some of the embassies and indeed in UKTI that, "It is okay, they do not need any help." Actually, what we want is not financial help but profile help with showing to the senior administrators or the senior business figures in those areas that British brands are exciting, interesting products that should be aspirational.

Melanie Leech: There is a virtuous leap right back to inward investment, because the more you have that positive image for British brands, the more likely it is that the big companies will be saying, "Okay, this is the place we need to be if we want to be at the leading edge in this particular industry." It is not only about exports and penetrating markets; there is a loop right back to drawing in inward investment from global players.

Q67 Margot James: How important do you think the British Business Ambassadors are?

Melanie Leech: We have not got one for food and drink, which you might think was a notable omission given our size and our potential.

Margot James: A very good point.

Paul Everitt: I am not aware whether there is one for the automotive industry, so take that as you like.

Chair: Have you made representations to the Government about this?

Melanie Leech: We are making representations, yes. We are in discussion with them about the growth strategy at the moment, and that is certainly one of the points we are making to them.

Q68 Nadhim Zahawi: One of the things that Ministers tell us that we are doing very well in is education—export of our universities. Some of our best universities have opened their doors in China, India and elsewhere. Do you link up with the educational sector to promote British brands?

Paul Everitt: From an automotive perspective, we are very much focused on selling the services and expertise that we have. As a consequence, we link very heavily with the key centres of excellence in our industry and work with them trying to generate a presence in the marketplace, with a reasonable degree of success. There is a slightly different market aspect though. For us, we are trying to sell our services to those countries. I suspect that the universities and others are encouraging those students to come to the UK, or certainly they were—maybe not quite so much now.

Q69 Nadhim Zahawi: My thinking was the other way round—i.e. we are told by one of our Foreign Office Ministers that Nottingham University, for example, has opened a campus in China. Are there links the other way around, i.e. you being in the campuses that are in those countries that you are trying to sell to?

Paul Everitt: No, not that I am aware of.

Graham Dewhurst: Our sector's links have tended to be in the UK. They have centred on probably six or seven of the major universities, and some have been about putting equipment in; some have basically been about having relationships with the manufacturing technologies seats, so that we get the right students coming out with the right qualifications. It is really been about the skills side of our workforce, rather than about marketing our product overseas. Maybe that is a bit remiss.

Nadhim Zahawi: I was thinking that you have got a captive audience; you can brand build. Some of our best schools have opened their doors in those target countries, and perhaps your members should be looking at working with them. If education is one of our great exports, why are we not utilising it to brand build?

Q70 Chair: Could we go on to trade finance? I believe that you would have been present at the back when we had a lengthy discussion on this earlier, but I am sure that you will want to make your own points on this. Can I just ask you, I suppose, almost the no­brainer question? Are trade finance providers holding back British businesses?

Paul Everitt: In general terms, finance is still tough for us as an industry and certainly for companies in the supply chain. As heard in your evidence earlier, as a sector I am not aware we have any use of ECGD. As we heard earlier, that's because 90% of it is going to aerospace, very good for them, and because, by and large, the people who are likely to want to use it would not be necessarily the sort of companies that people like ECGD would do business with.

The financial situation and the approach of banks to manufacturers and to people accompanying the supply chain remain extremely difficult. It is a cultural rather than a risk issue. We have been through one of the deepest recession that most of us can recall and not many supply chain companies in our sector went bust, mainly because they have been supported by the vehicle manufacturer, for which they are a key component, not because they found finance from elsewhere. The challenge is now, as we come out of the recession, that vehicle manufacturers themselves are under constraint, so they cannot continue to do that. It would be nice to see a more enlightened view from the finance community, which was taking a longer­term view of investments in businesses—about the long­term return rather than short­term.

Q71 Chair: At the end there, you touched on an issue, I think, which goes far wider than export trade finance. There is a financial cultural issue linked between banks and industry, and manufacturing in particular. I was very interested in your point that the SMEs in your sector would not deal with the ECGD, and the ECGD would not deal with companies in your sector. The phraseology was very interesting. Is that basically because you have got quite a successful exporting record? Most of those companies would not be bothered with ECGD because they do not need them, they can succeed without them; or is there, if you like, an aversion within ECGD towards the motor industry supply sector and basically you have give up on it?

Paul Everitt: It is difficult to comment. I cannot find anyone in our sector who has had much or any contact with ECGD, nor have I had too much contact with ECGD wanting to get access to our supply base.

Graham Dewhurst: I was astonished when I looked on the website. They did £2.21 billion backings last year and, when you think that the mechanical engineering sector exports more than £30 billion, it tells me that ECGD is not fit for purpose. It is not doing what it needs to do—and if 90% of that £2.2 billion is in aerospace, that leaves £200 million. They are not interested. The other thing that I found really interesting was that division one was aerospace, and there was a nice picture of a gentleman; division two was civil and defence; and division three didn't have anyone as a director. That again tells a story about being fit for purpose.

On a personal basis, I exported machine tools for 20 years in the 1990s and between 2000 and 2007. We had a lot of large blue­chip companies as customers—people like United Technologies in the USA. When we approached the ECGD to find out how best we could reduce our risks in Russia and China, which were our other two big markets apart from the USA, they insisted that we insured all our turnover, which at the time was about £18 million, with them. All our turnover had to be insured with ECGD, although the contracts that we were probably taking in Russia and China, in the main, would have been around £3 million to £4 million of our turnover. They insisted on that, and the rates were so high at that time that we felt that, basically, we might just as well take the risk with the debt in the foreign country as pay all this money over to the ECGD. Whether that's changed, I don't know, but that's how it used to be and this was after the privatisation, I think. We found other ways of insuring our debts. Basically what I'm saying is that ECGD wasn't fit for purpose and still isn't. That will be why there's very low take­up.

Graham Hayes: We turned them down for exactly the same reason. We are dealing with Unilever, Nestlé, and doing a lot of business with them, but ECGD insisted that they all had to come under the same scheme, so you had to insure everything. It's just crazy. It meant an additional cost of 6%, I think it was at the time, on our overall business, which we didn't need. That was the first thing. Secondly, their paperwork was designed for an aerospace job or a hydroelectric dam. To be honest with you, you needed to employ people to fill it out. It was absolutely ridiculous.

  I would just like to give you an example of this. We had a job in Russia, interestingly, for a tea company. It was about four years ago. It was a fairly large contract for us; it was five tea packing lines. Our competition was from Germany and Italy, and the customer liked our equipment best, but he required finance. We took it to ECGD for cover. They again said they wanted all our business, but they also said, "We'll give you a quote." It took them ages to do the quote, and in the meantime we went to Germany. We used the Hermes bank and we got the order. We made it in Germany and we laid off the people in the UK.

Mr Binley: You shock me but, in a way, don't surprise me. It seems to me that you're simply saying the organisation doesn't understand your market from a commercial perspective.

Graham Hayes: It's not fit for purpose. It doesn't work, and that's why its business is dropping. I wasn't surprised when I heard it was dropping. It just doesn't suit anything under the £1 million—our orders were £1 million, maximum probably £2 million, and the lowest orders were down at £200,000 for equipment. Most of our members will be in a very similar situation, and you just can't use ECGD. We would like to use it for some of the orders to some of the developing markets, such as Russia and China. The other thing we found was that it was very difficult to get a sensible credit rating on a customer. Again, on a couple of occasions we got turned down on the basis that the company that we were dealing with did not have credit worthiness and yet again, the German Hermes bank went ahead with it. Their way of assessing the credit worthiness of the customers we were dealing with is obviously not right, either. I don't know how they do it, but it's not right.

Paul Everitt: There's a point here about what the organisation thinks it's there for. We've seen, because this organisation has been around a long time, that it's gone through a number of different iterations. What should be there is a governmental institution to assist where there is clear market failure. What has happened over time is that it has seen itself as part of a competitive landscape with other organisations that are wholly in the private sector. Therefore, it has a tendency, one, to be highly risk­averse, because it's public money and we don't want to be lending public money to things that might go horribly wrong, but equally, it doesn't have the same appetite as a commercial entity to bring some products to the marketplace that would be beneficial. It's not really sure what its function is. It's very clear that it's understood that its function is, by and large, to support aerospace projects around the world. As a former employee in the aerospace industry, I think that's a fabulous thing, but it could probably do a bit more for others as well.

Chair: It has fallen between two stools and, if you like, they take the safest most risk­averse area to demonstrate they are doing a job when we know they are not.

Graham Dewhurst: One thing we would not want them to do is to say, "We will not do aerospace now. We will go somewhere else."

Chair: This is not a complaint about their support for aerospace.

Graham Dewhurst: Absolutely not.

Q72 Chair: I was going to ask you whether ECGD's Sovereign Star Trade Finance facility was used by your members. On the basis of the evidence we have so far, I do not think I really even need to ask. If there is any comment that you want to make, I will hear it.

Graham Hayes: It shows how active they are. We did not know about that until this week, when somebody told me about it. They are obviously not very active out in the market-place. Could we comment on bonds as well? It was mentioned earlier. Typically in our business our terms and conditions are 30% down with the order. That is obviously to make sure the customer's committed, but also that money should be used to help you finance the early part of the machine, which is normally doing drawing work or buying in some of the bought­out items. That was the original idea of it.

Companies will say, even the bigger companies, "We would like that 30% guaranteed." That is particularly common in recessions. You go to your bank and you get a guarantee from them and they take that off your overdraft facility, so you have no way of using that 30% for what it was actually intended for. Overseas, they do it of course, as the lady previously told you, through bonds. I think nearly every country in Europe does this. I talked to the BBA about it, and they told me that it's something to do with aid. If we go down this route, we are breaking the European state aid rules or something, and I do not understand that. If other countries in Europe are all doing it and they are not breaking the rules, are ours different from theirs?

Chair: I have to say that this is a conundrum that has exercised me, and I know that applies to other members of the Committee. We will be asking these questions in due course.

Graham Hayes: I know that some letters have gone from Angela Knight to this Committee about that, because I have copies of them.

Graham Dewhurst: We have companies that are refusing orders because they cannot actually finance the working capital.

Q73 Chair: Do you think we could adapt the Enterprise Finance Guarantee scheme at all to help?

Graham Dewhurst: To include export?

Chair: Yes, that is basically it, because at the moment that is precluded.

Graham Dewhurst: Again, as I understand it, it is a loan of last resort, in that you have to have put up every element of your own collateral to take that as a loan for working capital within your business. There will be very few companies that will have taken up every piece of their asset base, still wanting to expand into export markets, would be my view. There would be very few companies that would be so cash­restrained in terms of availability of finance that they would want to go to that point of putting every asset against these kinds of bonds to continue going into the export market. That would be our view.

Graham Hayes: I recently applied for an Enterprise Finance Guarantee scheme here in the UK, and I can tell you, again it is very complicated. There seem to be more reasons not to give it to you than to give it to you. If we get on to banking, then we will be here all day.

Q74 Chair: There has been a significant take­up of this particular scheme. It is generally considered to be successful, and of course the Government is actually putting more money into it, but it cannot be used for exporting. Again, there is a feeling that other European countries managed to do this and stay within the state aid rules. I was wondering if you felt there was any potential there.

Graham Dewhurst: Sorry, I may have misunderstood your question. I thought that you were asking whether it should be put towards export finance. If you are talking about a company that predominantly exports and, therefore at the moment, is excluded from being able to get that aid—

Chair: That's what I was talking about, yes.

Graham Dewhurst: In that case, I would say we should definitely extend it, because the fact that you are a predominant exporter should not mean that you can't get state aid in these difficult times with working capital.

Q75 Chair: With the bonfire of quangos, the Simpler Trade Procedures Board was withdrawn. Is that going to have an adverse effect on your members at all, in any area?

Graham Dewhurst: I believe it will, because in the 20 years that I worked in a small company, I used the SITPRO documentation. It allows a small company to know that the documents that they're completing fulfil all the requirements overseas so, therefore, you're not going to get your documents refused at a bank when you're waiting for an LC to be paid over. If it wasn't taken up in the private sector, I think smaller businesses will have nowhere to go to get these best practice documents. They are very simple to use, but I think it should be taken up somewhere else, possibly in the private sector.

Melanie Leech: I think our members would have a similar view. Certainly I think that there is concern about losing a one­stop shop, where you can go to find out what you need to know and that you think is independently batting on your behalf in terms of trade facilitation and so on. It is always going to be a matter of regret, I think, to an industry when something like that disappears. For us, the concern would be to make sure that the things that it did to encourage trade facilitation in particular, some of which we believe BIS is supposed to be taking on board, to make sure that actually happens and doesn't get sucked into the Department and lost. That is clearly a very important role. As Graham says, more realistically it's going to look to the private sector to pick up that service function. I hope that someone will do that. Our concern would be around ensuring that those bits that have gone back into Government in terms of facilitation, and batting on the UK's behalf in those discussions, don't get lost.

Q76 Mr Binley: You can have the function without the Board, can't you?

Melanie Leech: It is not an argument necessarily for maintaining the status quo.

Mr Binley: Get rid of the Board and have the function.

Melanie Leech: The important thing is the function, not the structure.

Q77 Chair: The issue is how best that function is to be preserved. The FDF suggests that finance providers should distinguish between different manufacturing industries. The feedback I am getting is that they do already. What perhaps is the opinion of the others here, SMMT and EAMA?

Paul Everitt: Again, as I have explained, our concern is that there is already a reluctance in the finance community generally to see automotive as part of the long­term future. We take a rather contrary view, and would certainly like to see how we can work with Government to try to change some views on how the sector is perceived. We see ourselves as being 1) successful, and 2) very firmly fixed on the future, particularly around the low­carbon agenda and the success of ultra­low­carbon vehicles and technology. To be as successful as we need to be, we need investment and that will require help from the finance community.

Q78 Chair: Can we move on finally to Government's role in world trade negotiations? Just in very general terms, what do you think the priorities should be for the UK Government and BIS in world trade?

Paul Everitt: From our perspective, the motor industry is a global business, and a business dedicated to free trade. We think the highest priority should be on progressing that agenda, particularly restarting, and a successful conclusion of the Doha Round and the Doha activities. We have concerns that, in its absence, what we're seeing are bilateral agreements between the EU and a variety of countries. Our experience of that process has not been a happy one.

Q79 Chair: In your evidence you said that you were very unhappy with the EU­South Korea Free Trade Agreement. Can you just tell us what went wrong and what was the role of the UK Government in this, or what role might it have had to prevent it going wrong?

Paul Everitt: In our view, the Free Trade Agreement between the EU and Korea traded between sectors in order to arrive at the ultimate agreement with Korea. That's to say, access to the European automotive market was made easier to ensure that other sectors got easier access to the Korean market. We did not get easier access to the Korean market. There were certain aspects of the arrangement, which are around a complex area—duty drawback and other things—that effectively mean that the Korean vehicle manufacturers operating in Korea can import parts from China and then send those complete vehicles to Europe, which is fine, except that, if we were to source from China and manufacture in the EU, then we would face significant tariffs for importing those same parts. Therefore, that puts us at a significant disadvantage, not that I'm suggesting that we should be importing lots of parts from China. I'm merely highlighting that we are allowing the goods and services into the EU at a much more advantageous pricing level than we would be allowed to do by manufacturing here in the EU which, in my view and our view as an industry, puts at risk our sector in a way that is not reciprocated by us being able to export more into the Korean market.

Q80 Chair: Which sector has benefited from the use of you as a sacrificial lamb?

Paul Everitt: We believe that finance and other services were the priority. Respecting that, this was a free trade agreement that was developed over a long period of time. I think it was developed in a world that was pre­recession, where it was seen to be in the UK's interest that financial services were better able to access this important market. Therefore, it was felt that it was an acceptable trade­off. The danger is we are, in the UK and the UK auto industry, heavily reliant on inward investors. We are beginning to be quite good at winning inward investment from some of the fast­emerging markets, but Japan would like a free trade agreement with the EU; India would like a free trade agreement with the EU; and a whole range of other countries would. If we go through the same sort of process, then something that is prized in the UK and in the EU will begin to be diminished.

Q81 Chair: Interesting, because you have an uncanny ability to pre-empt my next question. The EU­India free trade negotiations, what can BIS do to prevent this happening?

Paul Everitt: It's less to do with what they can do to prevent it, but it is about making sure that it is an equivalent agreement, so that access to the Indian market for all sectors is improved in return for easier access to the EU market. We are intrinsically free marketeers, and that is what we want to see: the elimination of trade barriers and an opportunity to compete on a level playing field. For us, that is what is important, and it is very important from a UK perspective that they ensure that that is what the EU does. Again, our disappointment was that there were a number of European Governments with concerns about the Korean Free Trade Agreement; the UK was not one of them and, therefore, some of the other major vehicle­manufacturing countries, which could have come together to have done something slightly more productive on that Agreement, did not have all the support that they might have required.

Q82 Chair: Could that have been because this country benefited disproportionately from the financial benefits?

Paul Everitt: I believe that that was potentially the thought process at the time when it was originated.

Nadhim Zahawi: Timing is everything.

Q83 Chair: I appreciate, in effect, that these questions have been directed mainly at yourself but, just before I come to my final question, is there anything any of the other speakers would like to say in this area?

Graham Dewhurst: We partake in an organisation called CECIMO, which is the European machine tool and manufacturing technology industry. Because they're responsible for 40% in Europe of the world production, they take a very strong view on the Doha Agreement and would prefer, rather than slicing and dicing with these individual nations, to see a proper level playing field from Doha. I know that that is what they've been driving for, for the past three to five years.

Q84 Chair: You too are anticipating. My final question, in conclusion: how important do you think Doha is for manufacturing?

Melanie Leech: From a food and drink perspective it is absolutely critical. In general terms, in the UK food and drink industry, we want to buy globally traded commodities at a competitive price. We want to export value­added products into global markets, so a multilateral trade liberalisation has to be the priority for us, so Doha is absolutely critical, certainly from our perspective.

Paul Everitt: I agree wholeheartedly with that; we are in exactly the same position.

Chair: Good. Thank you very much for your contribution. This inquiry has got off to a fairly interesting and meaty start. We have got plenty that we can pursue. I want to repeat what I have said to other representatives in the past. If you feel that there is additional evidence that you would like to give because, for one reason or another, it was not covered at this meeting, do feel free to do so. Of course, it may well be that we will think of a question that we did not think of before, and we will be in touch with you. Thank you very much again. I appreciate your contributions.

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Prepared 11 July 2011