Press Story

The UK is failing to export its way to economic recovery, according to new research published today (Monday) by think tank IPPR. Latest figures show that after growing strongly in 2010, exports stalled in the first half of 2011 and volumes in June were lower than in December.

The new report shows that less than 7 per cent of UK exports are going to Brazil, Russia, India and China - the so-called BRIC economies. IPPR argues that the UK is missing out on trading to these emerging markets and is being left behind by countries like Germany and the US because of a failure to tackle long-term structural weaknesses.

The report shows that the UK now accounts for less than 3 per cent of global exports, whereas in 1950 its share was over 10 per cent. It shows that the percentage of UK exports going to Belgium and Luxembourg - 2.9 per cent - is almost double the percentage of UK exports to China - and yet the combined GDP of Belgium and Luxembourg amounts to less than one tenth of China's.

In contrast, the report shows that German exports to China alone totalled EUR53.5 billion last year, up 44 per cent on the previous year and far outpacing the overall 18.5 per cent surge in German exports. The total value of German exports is more than double the value of UK exports despite Germany's economy being only one third larger than the UK's. The report explains that even during the 2008-9 slump German exports to China increased. The report also shows that US exports to China are proportionately greater than those of the UK and that UK foreign direct investment in China has been lower than that of Japan, the US and Germany.

The report says that while German exports tend to be manufactured goods, services make up more of the UK's exports. With the Eurozone and US economies flattering, the report argues that the structure of the UK economy means it is missing out on the export markets of the future (Brazil, India, China and Russia).

The report argues that the UK's trading weakness is the result of long-standing structural weaknesses in the UK economy and among UK firms:

The UK is bottom of the league in the G7 for investment as a percentage of GDP: behind Canada, Japan, Italy France, Germany and the US.
The UK also lags France, Germany and the US on levels of businessinvestment.
The UK is ranked 33rd out of 139 countries for overall infrastructure quality according to the latest World Economic Forum Global Competitiveness survey, placing it behind most other industrialised economies.
The UK ranks 17^th out of 28 EU member states in terms of the number of businesses classed as 'innovation active' with only 46 per cent of UK businesses undertaking some form of innovation activity - whether product or process based - compared to 80 per cent of German firms and 50 per cent of French firms. R&D intensity in the UK is below the level recorded in the US, Germany and France. Only 4.3 per cent of total turnover in UK SMEs is attributable to product innovation - the lowest share among SMEs in the twelve EU member states.
Overall productivity levels for the UK are 17 per cent below those of the US, 14 per cent lower than France and 10 per cent lower than Germany. This is despite significant improvements over the last ten years.
The UK ranks 17th out of 31 OECD countries in terms of the proportion of adults (aged 25-64) with low or no qualifications, with 30 per cent - twice as many as in Germany (15 per cent) and three times worse than the USA (11 per cent). The report says that one fifth of the UK's productivity gap with France and Germany is due to our skills deficit, despite progress over the last ten years. When compared to other countries, the UK performs below the OECD average for workplace training. The report shows that 1 in 3 UK firms provide no training at all.

Tony Dolphin, IPPR Associate Director, said:

"While the debate on the UK's fiscal deficit is important, we must also think beyond it and look to the UK's long term future. Economic success means looking to what needs to be achieved over the next few decades not the next few years. The UK economy has serious structural challenges that require an active industrial policy to tackle them. Only then will the UK survive 'the Asian Century'.

"For example, Britain needs a state investment bank, like they have in Germany and Scandinavian countries, or even a major state-led investment fund, like in France. The new 'Green Investment Bank' will support low-carbon and renewable energy industries and energy efficiency programmes. But there are many other problems that a 'British Investment Bank' - with far more than the £3 billion of public money currently earmarked for the GIB - could help to tackle, including inadequate infrastructure, low levels of innovation and large regional differences in economic performance."

"Other policies that should be considered are an expansion of the Export Credit Guarantee Scheme, greater efforts to identify and provide companies with the skills that will be needed to compete in the future and a change to Enterprise Zones policy to strategically focus on innovation."

The report argues thatthe state could be doing more to support business efforts to break into emerging markets and should expand the Export Credit Guarantee Scheme. It says that Canada, Germany and India all have more extensive and targeted export credit guarantee arrangements that are designed not just to guarantee against loss but also share information about trade opportunities, help recover debts, and promote particular sectors - including tailored guarantee schemes for service industries. The UK Export Credit Guarantee Department paid out a mere £48 million in insurance policies. The report argues that a significant expansion will cost only a limited sum to the UK Treasury.

The report says the Government should explicitly aim to identify those skills that will be relevant to the future UK economy, with its evolving business practices and new technologies. The report argues for a reformed initial formation system, long term strategic planning to connect skills supply with employer demand and strategies to improve skills utilisation.

The report argues that Enterprise Zones should be strengthened to offer more significant government support for R&D activity and start-ups in key sectors, and an environment that fosters intensive cross-industry collaboration.

The report also argues for that the shift to using public procurement as a way of helping SMEs and high-value start-ups to grow must be continued and expanded, like successful procurement techniques in Japan, Sweden and the US.

Notes to Editors

UK exports to China are approximately 2.9 per cent of total UK exports, valued at £7,609 million in 2010. UK exports to India (1.5 per cent), Russia (1.4 per cent) and Brazil (0.8%, or £2,219 million) are far smaller.

Business investment as a percentage of GDP in the G7:

Canada 22%

Japan 20.2%

Italy 20.1%

France 19%

Germany 17%

US 16%

UK 15%

Contacts

Richard Darlington, 07525481602, r.darlington@ippr.org

Tim Finch, 07595 920899, t.finch@ippr.org