A new agenda for UK trade

Emily Khan

Welcome to the latest episode of our business in focus podcast. I am Emily Khan, a director at PwC, and I am your host for today’s episode. Normally, in this podcast series, we talk about the wide-ranging implications of the COVID 19 pandemic. While this is still the biggest thing on most of our minds at the moment, we shouldn’t forget that there is another big show in town. On the 31st of December 2020, the UK left the European Union behind, creating a huge shift in the global order, and bringing big changes to British businesses and people.

At PwC, we’ve been examining this issue for some time, translating and moving political and policy picture, into implications for UK and European businesses. Most recently, at our virtual trade summit in November, we convened people from across the public and private sectors to discuss the future challenges and opportunities we are now facing as a country.

Having had the great pleasure of being the host of that event myself, I am excited to welcome my long-term colleague, Matthew Alabaster to today’s episode. Matt is our international trade lead partner her at PwC. He works with clients in trade, investments, strategy, and growth, across the public and private sectors.

We are going to discuss today what we heard at the trade summit and the public calling we’ve doing to inform our upcoming report on the new agenda for UK trade. As we have, now been for few episodes, we are both working at home today, now with the extra hazard of having small children here, who I hope won’t be making a guest appearance in my side.

Hi Matt, how are you today?

Matthew Alabaster

Hi Emily, honestly, I am a little bit bored of my home office, but apart from that, can’t complain, thank you.

Emily

It is very nice to see you virtually and nice to be recording with you again, it feels like a long time ago you and I were discussing the future of trade on our Beyond Brexit Podcast series. Whilst a lot has changed since then, that future we were talking about has really only just started. You and I talked about this before, but bringing everybody else back up to speed, why should we be refocussing on this area now?

Matthew

Thanks Emily, yeah it’s really about us all collectively focussing back on to the medium and long term rather than the herein now, raising our eyes up from all the news flow that we are around at the moment around all sorts of complications happening as a result of the Brexit process, about ham sandwiches being confiscated at Rotterdam or lobsters not making it to Paris. We need to remember that trade and investment is a long-term game, its fundamental to our collective prosperity. We need to restart this strategic debate about where we are taking this, and how we might all work together to make it a success.

Emily

Thanks Matt, as you know this is an aspiration that I share, and actually important, as you say, in these times when we are locked down at home and maybe feeling a bit bored with the home office as you said too, to have something on the horizon to aim for. One of the things that you and I have talked about before and you know is really important, to a lot of us here at PwC is the concept of working together on this, you mentioned briefly then. I am struck by the fact that Brexit has been powerfully divisive topic actually over the last few years. There is some very strong views on both sides. There is a lot of talk in the news about time for healing in society, particularly in the US, but also here in the UK.

At the heart of that debate is the question about what the UK stands for internationally. We’ve been grappling with that on and off for centuries, and for some time the EU was the answer to that, but it feels very much like we are at the point of needing to evaluate that again, I don’t know if you’d agree with that. What does that trigger in you in thoughts and what we need as we move forward in terms of common goals and shared aspirations?

Matthew

Yeah that’s right and it has been divisive, hasn’t it, and we do need to think about how we then pull it together and bring some sort of agreement and some common objectives back into the debate. The start of that is, exactly as you say, what does the UK stand for in international markets, what are we known for, when people overseas think about the UK and think about doing business with UK companies, what is the narrative that underpins that? As you mentioned, for quite a long time, we’ve been member of the European single market and that was really first on the list of selling points for many people, and clearly that’s not the case anymore, but I am also thinking that Brexit process that we have been through, has also damaged some of the other perceptions of the UK that people used to hold.

In the past, and I worked abroad for four years in the Middle East. When I would ask people what they thought about the UK, I would generally get a straightforward, quite consistent, and not particularly nuanced answer. It was generally about pragmatism, it was about the rule of law, it was about stability, common sense, and definitely strong dose of tolerance and openness. Now, since the referendum and with all the complications and debate that we’ve had since then, when I ask people the same question, they have to pause for thought a little bit more, and think harder to themselves, about what they are actually going to answer.

Key moment, just to share with you, was when I was in Beirut at the backend of 2019, back in the days when we were actually allowed to travel. I was working with a client out there. I joined their board meeting, and as I walked in, they all turned to me, and frankly laughed, and they were laughing amongst themselves, and one of them shouted out, ‘your country is in a bit of a mess, isn’t it?’

I thought, well coming from Lebanon, which has been complex and volatile for many years, that was quite a punch in the teeth actually as a Brit abroad. Our traditional strengths may well be under threat and have been damaged a bit by the Brexit process, but the good news is that we have plenty of others, but we need to think about that now and bring that together into a vision that we can all get behind, play to our strengths, perhaps.

Emily

That’s a really powerful story, and it reminds me that the trade summit that I mentioned in my introduction that you and I jointly hosted, one of the things I really took away from that was from the international contributors to those discussions, and how much they talked about emotional goodwill in seeing the UK with the fondness and a place that people wanted to be associated with, wanted to do business with. Some of the exports that, maybe we don’t think about as exports, tourism, higher education, some of are more creative things, David Attenborough, for instance, are all key to that feeling of goodwill and wanting to do business with us and playing an important role in the perception that you just described there.

Matthew

That’s exactly right, you might call it the emotional business case, right, people run the number, it is about whether they should be working with UK companies or investing in the UK, but actually all business decisions are made by people. It is actually what Dan Ramsey, from the government’s great campaign, called being a soft power super power, power, it’s a phrase that resonated with me.

Emily

Yeah, I know that.

Matthew

He mentioned educated more overseas leaders than any other country, and he mentioned that the UK is constantly heralded as everyone’s favourite second home. You can have a conversation about Manchester United and the Premier League pretty much anywhere in the world.

Emily

You might be able to, I don’t think I can.

Matthew

I can try. That creates an emotional connection, doesn’t it? Those industries have a benefit over and above the direct economic contribution that they make and to our balance of payments, and that’s definitely something that we should be building on going forward.

Emily

What basically is important, is probably something else we’d agree on, the government and businesses have got quite a lot to deal with at the moment. We are dealing with the huge challenges of getting a global pandemic under control, recovering the economy, levelling up, net zero targets, and some might argue, and indeed do argue, that there are more pressing and urgent priorities and this can wait for a bit. I’ve certainly explored those on previous episodes of this podcast, the connections between some of those issues, and how we are covering the economy post COVID, enhance further levelling up, gender, for instance. I will be interested in your view on connections between trade and investment piece that we’ve been talking about now, and some of those other things that government and businesses are grappling with, what do you think?

Matthew

Absolutely, firstly in response to that, I would say that trade and investment drives prosperity. It is not a nice to have, it’s not symbolic, it’s not a general abstract concept, it drives growth, and jobs, and employment across the country. The idea of leaving it to later isn’t really an option, its critical for all our sakes. Secondly, I’d also say that there could and should be a nice symbiosis between the trade agenda and many of the government’s priorities. In fact, I would argue that the government should be looking at its priorities through a trade lens, and how can a priority drive trade and investment, and how in return can trade and investment help realise one of those priorities.

Emily

I can tell you’re home schooling there, using words like symbiosis in normal conversation, Matt. Bring that to life a bit for us, how do you see that working in practice?

Matthew

Excellent, let me give you an example. Tis thing about net zero, is on a lot of profile at the moment, and we need a huge range of technology, systems, solutions to deliver on our target as a country to be net zero by 2050. Those technology assistance and solutions come from the private sector. I was thinking what a great outcome it would be, if we combined the ambitious decarbonisation policy that we’ve already got set out, with an equally ambitious and joined up strategy for making sure that the technologies that we need are born, nurtured and commercialised in the UK. We could then export those technologies to help the rest of the world decarbonise and secure our financial prosperity at the same time.

Emily

Sounds good.

Matthew

It does sound good. Obviously, it’s a theory, but let me give you a counter example, of when it didn’t work and an opportunity that we missed. The UK is the largest market for offshore wind in the world. We have more and larger offshore wind farms than any other country, and despite our relative small size, but we don’t have any major UK manufacturers of wind turbines. The largest one in the world is Vestas from Denmark; the second Siemens Gamesa, from Germany and Spain; then one from China; and then one from the US. Where are we on that list? The answer is, we are not on it at all. In fact, the list of top 15 wind turbine manufacturer in the world doesn’t contain a single UK company.

That was an example where we set a very effective policy for encouraging investment in the wind farms themselves, but we forgot about the industry that we would like to mobilise behind it, we left it to market forces, and we missed that opportunity, so let’s not make that mistake again.

Emily

That makes a lot of sense to me, and that ties back to the point that you made back at the beginning about playing to our strengths, which I certainly have heard a lot of people talking about. This is the time now to confirm what our strengths are and really play to them. We have got a lot going for us. We are still a member of NATO, the G7, the G20. We’ve still got the soft power super power, the phrase that you used, that I really like, that comes from our art and culture exports. Now I spent couple of years recently, traveling around different countries, talking about Brexit, and talking about what that meant. Hearing really powerful incentives, people wanting to still work with the UK, that it’s a desirable place to live and raise a family. There are lots of things about us, perhaps not our weather, that attract people to want to do business with us. I am interested in your views on what those strengths are, and what business can be doing in that context, to play those strengths.

Matthew

It is a really important point, and it’s one of those phrases gets banded around, but you’ve got to put some meat on the bones, and so that you know what you are talking about. Let’s think about it in terms of sectors. There are some sectors where we are, as a country, exceptionally good, Premier League, to bring that, which sectors are we Premier League at, and which sectors are we more league division 3 standard.

We are exceptionally good in financial services, in media, you mentioned the creative industries, certain parts of the aerospace and defence sector, professional services, healthcare, life sciences, there are whole range of sectors where the UK is a global leader, one of the top countries in the world. Just on that last healthcare point, the AstraZeneca Oxford vaccine, what an amazing story that is about UK scientists and industry, and indeed government, working together to develop the vaccine quickly, bring it to fruition and out into the population quickly, so very proud of everyone involved in developing that vaccine. As I just mentioned, there is plenty of other sectors where we are very strong. My sense is that we should be thinking about building on those strength, which means doubling down on those sectors which are already real generators of wealth to this country, maybe supplemented it by some selective bets on industries of the future.

As we both talked about earlier, Greentech could be a huge opportunity, there’s also cyber, there is fintech, there is AI and bigdata, all of those technology driven sectors that we know are going to be high growth. They might not employ that many people, but we know they are going to be high growth and high value sectors of the future. That’s what I mean by the strength. The challenges become, when you are going to be prioritising one thing, it implies you are going to deprioritising something else. Politically coming down on the side of certain industries, and therefore almost affecting, less so on the side of others, might be a difficult thing. That’s some of the trade offs and choices that we need to make, because certainly I am working with companies, Emily as you will know, we have to talk to companies about doubling down on their strengths, on their core competencies and making the most of what they are really good at.

I can’t help thinking that we need a bit of a dose of that as a country as a whole, because I don’t think we can be good at everything. It is not realistic to assume that we can be good at everything going forward.

Emily

Yeah, you are right and I am reflecting on the conversations that we had at the summit, and very similar calls of action from a lot of the business participants in that, but also recognising the challenge of doing that in the current climate, when we have some very short term challenges, but needing to play the long game to those areas of strength that might need some investment and indeed might mean, as you say, we move away from things that are maybe employing people today herein now, but without the long term potential that new areas might have.

I am struck that in that answer you used the phrase work together again, and something that I want us to come back to. I know here at PwC that’s our strongly held view that this whole agenda is something that we need to work together and across industry boundaries, across different organisations, and certainly I have heard a lot about government and business needing to work together. Whilst there are things that the government is uniquely placed to do, and negotiating deals with the EU, obviously being high up among those. There is also a big role for businesses that really starts now in promoting the UK overseas and setting out our stall as it were. I know we talked about that in the report that I mentioned in my introduction that’s coming out soon. Tell us a little bit more about your views on that Matt, and what do you think we could be doing together to move that forward?

Matthew

Collaboration is absolutely key to this, and I would really love to see trade and investment become a team sport in the UK, which my sense is, is more of in some other countries than we have traditionally done. I will give you an example on that. If I think back to 2007, I co-authored a report called the future of manufacturing in the UK, and I asked a number of leaders of UK manufacturing businesses, whole bunch of questions, but one of the question was, what do you want government to do to support you, what can government do to help secure your prosperity? The answer was pretty much, leave us alone, and that reflected the prevailing environment that we had in the UK, probably for the 30 or so years leading up to the financial crisis. It was laissez faire market economy, wasn’t it, it was the hands off governments, just providing the environment, rather than getting too stuck in, that’s changing.

That financial crisis, 2008-2009, the increasing inequality that we’d seen in the decade or so since the financial crisis, definitely the pandemic, and if we look to the future, threat of automation, which is a threat that’s waiting for us in the wings. All of those things to me say, we need a bit more of a joined-up effort between the public and private sector. Those challenges require a government hand, and let’s say fair policies. I mentioned, some of the other countries, if you think, many other countries tends to have a much closer working relationship between state and industry than we do in the UK. China is the obvious example, then Korea likewise, and even more close to home, Germany and France, are probably more used to teaming up across public and private sector and even across different businesses in the private sector itself than we are. I am not sure this comes easily to us, Emily, but I would love to see it, as I said, more a team sport.

Emily

In that vein, and we are almost out of time here, but we like to finish these podcasts with a call to action, something that people can take away for themselves to think about. In the spirit of team sport, what are some practical ways that people can engage with this agenda, things that clients of yours are thinking about, talking to you about the moment that you would encourage people to have a think about after listening to this.

Matthew

Absolutely, I would firstly urge companies to look again at their export strategies, and use that longer-term lens, not the short-term lens about paperwork changes and border processes. As I said at the start, exporting is a long game, and there are plenty of opportunities out there, so we shouldn’t lose heart or lose sight of those. Secondly, I would also urge companies and their associations to engage in this debate about how we make this a team sport, what would make a difference to a company’s export success or the companies that you represent, if we would be able to help you with that, a little bit about collaboration across public and private, but it’s obviously more complex than that, more multidimensional that that, we have universities, we have research institutions, and we have major employers, small businesses, there is a whole range of different sections of the economy out there that has a part to play in this.

I would urge people to think about, what institutions or what organisations are there out there that you could work with, that you could help with, what you expect from them, or would you like to see from them, and how might we make that a reality.

Obviously, look out for our report on trade and new agenda. Clearly we want to help businesses and indeed the government look beyond the short-term challenges and have a constructive debate about this and what the UK stands for, and how we might work together to deliver on it, and our report is a small contribution into that debate, but we are clearly open to all opinions and feedback.

Emily

Thank you so much Matt, that was a fascinating discussion. Of course, thank you to everyone for listening.

Like many of the issues we discussed on this business in focus podcast series the challenges and opportunities we’ve explored in this podcast are really just the beginning of a larger conversation. We would love for you to join us to create a shared vision for the future of the UK as a trading nation.

Please do look out for ways you can get involved in our website, pwc.co.uk/uktrade and of course don’t forget to subscribe to keep up to date with our business in focus podcast series.

Thanks everyone, stay safe, see you next time.

Participants

• Emily Khan, Director, PwC
• Matt Alabaster, International Trade Lead Partner, PwC