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


6  UKTI inward investment services

159. In the previous section we set out UKTI's role in supporting UK exports. Its other key role is to support inward investment to the UK. In its written evidence the Department told us that UKTI played an important role in attracting foreign investment in to the UK:

    Evidence shows that help from UKTI can have significant influence on investor decisions, resulting in a more than seven fold increase in High Value Foreign Direct Investment (FDI) over the past 4 years, helping to maintain the UK as a top location in Europe for inward investment, and globally second only to the USA. In 2009/10, UKTI played a role in securing 759 investment projects into the UK—almost half the total UK figure of 1,619 and a 26.5% increase on the previous year. These projects have helped create some 47,000 jobs (more than 32,000 new jobs created and some 14,000 jobs safeguarded), a 61% increase on 2008/09.[191]

    Over 70% of inward investors report some significant influence from working with UKTI, most often through enabling the inward investor to overcome barriers to accessing information and contacts. Within this, 49% said UKTI had influenced their decision to locate in the UK. Some 57% report significant business benefits as a result of UKTI help enabling them to overcome such barriers.[192]

160. UKTI stated its services in the area of inward investment included:

  • Segmentation and bespoke proposition development - to ensure a tight focus on the needs of high value investors in making global location decisions.
  • Access to Government and other networks relevant to the success of investment projects.
  • Targeted marketing to cover subjects such as the UK business environment, sectoral and sub-sectoral information, and bespoke sales information: key information needed to reach the final decision to invest in the UK.
  • A systematic investor development programme to ensure UKTI remains a high value-adding partner for those investors growing their business in and from the UK. Foreign-headquartered companies that have a UK presence can also avail themselves of the full range of UKTI export services.[193]

161. The Trade White Paper stated that the Government would be contracting out its inward investment delivery services. On 4 April, Susan Haird, Acting Chief Executive of UKTI, wrote to us confirming that the Inward Investment contract had been awarded to PA Consulting Ltd in partnership with OCO Consulting and the British Chambers of Commerce. No date was given for the transfer of responsibility for inward investment to the consortia, but the Department's expectation was that it would happen as early as possible in the 2011-12 Financial Year. The Secretary of State told us:

    It is a £14 million contract over a three-year period. Essentially, its remit is to replace the inward investment promotion activities of the RDAs in the English regions other than London. Because that original system involved quite a lot of duplication, we think we can deliver a perfectly good service with less resource. Incentives are built in—payment by results.[194]

162. Further details have since been released about the contract. It is a £41.7 million contract and the contractors role will be to:

  • Co-ordinate and manage foreign investment propositions on behalf of the UK with e prospective foreign direct investors, working with local partners across England, the devolved administrations and wider FDI network;
  • Provide sufficient geographically dispersed resource to support the FDI delivery arm for England;
  • Provide direct relationship management and investor development, in association with international, national and local stakeholders to nominated existing investors in England as agreed with UKTI.[195]

163. The UKTI strategy set out even more detail on the Government's plans for inward investment and the role of the contractors:

    The private sector delivery partner will be incentivised to attract high quality inward investment projects, on a "payment by results" basis, to agreed service standards. The quality of this service will be verified independently by customer surveys.[196]

In addition, the Strategy set the target of a pipeline of around 750 foreign direct investment projects per annum over the next five years, of which 500 would be characterised as "high quality" by 2014-15 (up from an annual average of 630 and 280 respectively over the last three years).[197] The Governments says that "high quality projects" are defined by "respected academic research" as benefiting UK economy through productivity spillovers, and by bringing new ideas and ways of working, as well as valuable knowledge and technologies. They are generally R&D intensive, promote growth and competition, and are focused in sectors where the UK is strong because of its comparative advantage.[198]

164. We welcome the Government's recognition of the importance of inward investment. However, we are concerned with the delay at announcing the contractor for regional inward investment services in the UK. The Government needs to be more proactive in attracting inward investment and the delay in awarding the inward investment contract following the winding up of the RDA's has not been convincing. In its response to this Report we will expect to receive a detailed update on the structures which will be put in place by the partnership arrangement with PA consulting, OCO and British Chambers of Commerce to deliver a high level service across the country.

ACCOUNT MANAGEMENT OF INWARD INVESTORS

165. The CBI argued that UKTI needed to identify and establish in-depth relationships with the highest value Foreign Direct Investment (FDI) prospects, both from within the UK and developed economies and from emerging economies. BRIC[199] countries currently account for less than 6 per cent of all global FDI; their increasing economic power makes it important to establish the UK's credentials as a prime destination for investment.

166. The Plan for Growth announced that there would be an enhanced service for major inward investors. Where the Government identifies large-scale investors, UKTI will be tasked to provide a "bespoke service" which will include "direct access to UK ministers and speedy resolution of bureaucratic obstacles to investment".[200] As Lord Green noted, Ministerial involvement is not new, and the Government's commitment to major investors is to be welcomed:

    "I certainly would not want to imply that nothing of this kind has been happening over the years. We all know it has been going on".[201]

167. The UKTI strategy noted that "enhanced, strategic relationship management of the most significant inward investors, including institutions" would be at the heart of its inward investment plans. As noted earlier in this Report, the Government is setting up a new cross-government Strategic Relations Unit based in UKTI. The strategy also stated that Ministers would "play an important part in helping to develop and sustain winning relationships with major investors, including institutions such as Sovereign Wealth Funds". The Secretary of State explained:

    For very large inward investors who could make a really big impact on the UK economy, we would like to provide what we call a bespoke service. A whole range of problems arise with planning and visas. It is not suggested in any sense that they will be given favoured treatment, but the bureaucratic obstacles could be overcome. If you approach a potentially large inward investor and discuss with them all the obstacles and make sure they are resolved quickly, that provides a better service than they are used to in other countries or that we have provided in the past. [...] Ministers will be directly involved in making sure that the obstacles are overcome.[202]

He went on to say:

    I do not want to imply in any sense that people are getting preferential treatment simply because they are big and foreign owned; that is not the point, but there are companies that make a major contribution to the UK economy. I already spend quite a lot of time meeting their representatives as they come through London. I see that as a key part of my job. In many cases, for them to be able to feel that they are speaking to a secretary or minister of state makes a difference. These are companies that often bring 10,000 or more jobs to this country. They have to be taken seriously, made to feel welcomed, and told that the country is open for business and we want their relationship to be properly managed.[203]

168. We recommend that the Government set out its "rules of engagement" in the area of Ministerial assistance to inward investors and the criteria under which companies will be eligible to receive this enhanced service. In the spirit of transparency, we also recommend that the Department sets out the form of assistance and access it provides to major investments, on a quarterly basis.

LOCAL ENTERPRISE PARTNERSHIPS

169. The UKTI's letter to the Committee regarding the awarding of the inward investment contract also stated that PA Consulting will be "working with local partners across England" and "UKTI recognises the important role that LEPs will have to play in support of FDI promotion".[204] In the previous Parliament, UKTI worked alongside the Regional Development Agencies to deliver inward investment. Early in this Parliament, the Government announced the abolition of the RDAs, to be replaced by Local Enterprise Partnerships (LEPs). In December 2010, we published our initial assessment of the role of LEPs. That Report considered the involvement of LEPs in supporting inward investment. The Government's initial position was described as follows:

    We are reviewing all the functions of the RDAs. We believe some of these are best led nationally, such as inward investment, sector leadership, responsibility for business support, innovation, and access to finance.[205]

However, the Government's Local Growth White Paper, published in October 2010, acknowledged that LEPs could have a role to play as delivery bodies:

    It is clear that effective delivery will require strong partnership working between central government and local levels. Local Enterprise Partnerships can play a key role in these partnerships and may have a role in bidding to be a delivery agent for nationally commissioned trade development support.[206]

170. It was made clear in evidence to us earlier on in the inquiry that not all business organisations welcomed this role for LEPs. The Institute of Directors argued that one of the LEPs should not be involved in international trade and investment matters and that responsibility should be retained by UKTI as it was "far and away the most well regarded of the information resources available".[207]

171. Andrew Cave of the FSB also highlighted problems with the current patchwork of LEPs which he believed would create inconsistencies across the UK:

    There will be parts of the country where businesses do not have the same access because the LEP does not take that responsibility or is not strong enough in that area.[208]

172. There have been long-standing concerns that even under the RDAs, a disproportionate number of UKTI inward investment projects went to London and the South East. Historically, London has taken around 40% of all inward investment projects. The fear of a number of our witnesses was that this disparity would only be enhanced as a result of the uneven spread of LEPs. [209]

173. However, Susan Haird asserted that LEPs could make a positive contribution to attracting inward investment:

    [LEPs] would bring a huge amount of local knowledge to the inward investor, both as the inward investor is seeking something in the UK for the first time, and as the inward investor then seeks to grow out of the UK base. The kind of things that are important for inward investors to do, and to have help with, can be very local in their dimensions. They can be to do with access roads, local transport in terms of services and that sort of thing, as well as bigger issues that also are local. We shall be working very closely with them.[210]

174. Adam Marshall, representing the British Chambers of Commerce, agreed that LEPs could provide valuable local knowledge and should be used to introduce potential investors to the local area:

    When a foreign investor does come calling in a city or town around the UK, to take that investor by the hand, show them around the area, why it's dynamic, why they should be there, etc. It's really the service on the ground here in the UK where the LEPs may have a role in making sure that a potential investor has seen the best of an area.[211]

175. The UKTI strategy stated that:

    UKTI, with the private sector delivery partner, will actively explore with each Local Enterprise Partnership how they can most effectively help to land new investments - in particular, by building relationships with investors and providing local knowledge and information on why their offer to investors is internationally competitive. They may also help investors deal with local issues, such as planning, site locations and utilities, and have an important role in sustaining relationships with investors once a project is up and running.[212]

176. Local knowledge is important and we recognise the value of involving LEPs in giving an informed local view for investors. However, until there is an established and comprehensive coverage of LEPs across England, the Government will need to ensure that valuable opportunities are not being missed by areas which have yet to establish a LEP to promote their locality. There needs to be greater clarity of what is expected of LEPs with regard to attracting inward investment and their interaction with PA consulting, the Foreign Direct Investment contractor. Although PA Consulting holds the contract, it is for Government to set the parameters for LEP involvement. We recommend that the Department sets out in its Response a detailed explanation of the level, range and extent of LEP involvement in delivering inward investment, alongside the costs and resources necessary for them to carry out this role.


191   Ev 133 Back

192   Ev 133 Back

193   Oral Evidence taken before the Business, Innovation and Skills Committee on 27 April 2011, HC (2010-12) 945-i, Q 25  Back

194   Oral Evidence taken before the Business, Innovation and Skills Committee on 27 April 2011, HC (2010-12) 945-i, Q 25 Back

195   UK Contract Awards, UK Government News, 29 April 2011 Back

196   UK Trade & Investment, Britain open for business, May 2011, p 26 Back

197   UK Trade & Investment, Britain open for business, May 2011, p 26 Back

198   UK Trade & Investment, Britain open for business, May 2011, p 26 Back

199   BRIC countries are: Brazil Russia India and China  Back

200   HM Treasury and Department for Business, Innovation and Skills, Plan for Growth, March 201, para 151 Back

201   Q 514 Back

202   Oral Evidence taken before the Business, Innovation and Skills Committee on 27 April 2011, HC (2010-12) 945-i, Q 21 Back

203   Oral Evidence taken before the Business, Innovation and Skills Committee on 27 April 2011, HC (2010-12) 945-i, Q 22 Back

204   Ev 145 Back

205   Business, Innovation and Skills Committee, First Report of Session 2010-12, Local Enterprise Partnerships: An Initial Assessment, HC 434, p 55 Back

206   Department for Business, Innovation and Skills, Local growth: realising every place's potential, Cm 7661, October 2010, p 17 Back

207   Q 108 Back

208   Q 109 Back

209   Institute of Directors, FSB, CBI and FPB Ev 28-34  Back

210   Q 438 Back

211   Q 26 Back

212   UK Trade & Investment, Britain open for business, May 2011, p 26 Back


 
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© Parliamentary copyright 2011
Prepared 11 July 2011