Today the UK’s economy is about 25 per cent smaller than it would have been if we’d continued to grow at the average growth rate seen before the 2008 financial crash. That 25 per cent equates to roughly £500 billion of growth and — alongside tackling inflation — is one of the most serious economic issues that an incoming prime minister will have to face.
This lacklustre growth has significant real world consequences for the funding of public services and the levels of taxation, which is why it has been good to see both Conservative leadership candidates address the need to tackle it.
Clearly, the pandemic and global supply-chain problems have had an impact, but this has been an issue going back for decades. The government already started to grasp the issue with the creation of the new high-risk transformational funding agency Aria, the target of 2.4 per cent of GDP being spent on research and development by 2027, creation of freeports in places like the Tees Valley and the Port of Tilbury, the £200 million in funding to Rolls Royce to lead the world in the development and deployment of small modular nuclear reactors and the forecast £600 billion of infrastructure investment over the next decade that will tackle congestion and expand port capacity.
Trade and both inward and outward direct investment are important ingredients in the success of our economy — research from the Department for International Trade shows that businesses trading internationally are about 20 per cent more productive.
While the UK’s Integrated Review was a serious attempt to think longer term and strategically about our future global relationships, there was nothing on trade, businesses’ role in Global Britain and the enabling role government can play. As a small island nation, we are the sixth largest exporter in the world — we cannot ignore the importance of actually delivering Global Britain.
At the end of last year a number of leading UK businesses came together to create the Global Britain Commission — which I chair with Professor Dame Wendy Hall as deputy — to set out a blueprint for the government on how to turn Global Britain from a largely foreign policy agenda into one of jobs, trade and investment.
The UK has 270 diplomatic missions around the world ranging from the Solomon Islands and Vanuatu to the United States and India. Some areas are fast growing and dynamic and others are relatively stagnant.
The Global Britain Commission has created a new and unique Index that looks at countries’ market scale, growth path, institutional strength and importantly a “comparative advantage” element that matches what the UK is good at to what other countries will want and need to buy from us. It’s important to remember that trade is not just about Scottish whisky and cars — important as they both are — but services too.
The Index shows that the “top ten” list (excluding China) on which the next prime minister should focus — in terms of combined trade and investment — are Switzerland, Israel, India, Ireland, Singapore, the United States, Denmark, the Netherlands, Sweden and Canada in particular.
Botswana and Ghana are also becoming increasingly important partners for the UK and some of the countries covered by the Comprehensive and Progressive Trans-Pacific Partnership agreement have significant potential for UK businesses if we can build the right relationships.
Despite the Integrated Review’s stated aim of tilt towards the Indo-Pacific, relatively little has been actively achieved, and despite government rhetoric, a comprehensive trade agreement with India is, in my opinion, a very long way off. Yet, the next prime minister should be looking to build partnerships that will have long-term future gains which the new Foreign, Commonwealth and Development Office should support.
One example, as our report shows, is that should the institutions of Sub-Saharan African countries improve to the level of, say, the United Arab Emirates (ranked 30th), all but three of the region’s countries enter into the Index’s top 30 nations, with both Ethiopia and Tanzania entering into the top 10. These countries have the ability to return huge demographic dividends for the UK with the right support. The UK has numerous goods and services to export to these growing nations that they will need in the years ahead.
If the next prime minister — working closely with business — manages to raise per capita exports of UK goods and services to the level of Germany it would mean an additional £500 billion of UK exports annually, creating up to 5.5 million export-supporting jobs. Jobs which are 7 per cent higher paying than the UK average.
The new Prime mMinister and their team need to seize this opportunity and work closely with business to make it a reality. It is, after all, business — not government — who will provide the jobs, exports and tax receipts on which the success of our country and the quality of life of our people will depend.