The UK: Much To Admire

Saturday, December 14, 2013 - 20:36
British Consul-General, New York

The Editor interviews Danny Lopez, British Consul-General, New York, and Director-General, UK Trade & Investment USA.

Editor: Welcome back to these pages. Perhaps you might clarify your dual role as Consul-General in the Northeastern U.S. and your role as Director-General, UK Trade & Investment USA.

Lopez: As British Consul General in New York, I have responsibility for promoting the UK’s economic profile, foreign policy and national security priorities in New York, New Jersey, Pennsylvania, and Connecticut’s Fairfield County. In this role, I report to the British Ambassador to the U.S. in Washington. I’m also on the board of UK Trade & Investment (UKTI), which is the foreign commercial arm of the UK government, and I lead its operations across the U.S. UKTI has a presence in nine cities: New York, Boston, Washington, Atlanta, Miami, Houston, Chicago, Los Angeles, and San Francisco. The balance of trade and investment officers in each city is based on the sectors prevalent in their regions, for instance the UKTI financial services team is based in New York, the life sciences sector leads are mostly in Boston, and our energy leads work in Houston. To give you a sense of scale, last year we helped over 3,000 British companies do more business in the U.S. and supported 250 U.S. companies either setting up or expanding in the UK.

Editor: Please bring us up-to-date on any new developments in the area of the UK economy and business development.

Lopez: The week of December 1, 2013, the Chancellor of the Exchequer delivered the Autumn Statement, in which he presented the latest forecasts from the independent Office for Budget Responsibility. He explained that, for this year, the growth forecast has more than doubled since the spring and now stands at 1.4 percent. Next year, instead of growth of 1.8 percent, the UK is forecast to grow by 2.4 percent. While this is encouraging, the Chancellor also made clear that the job is not done, and growth is not yet as strong as we want it to be. The government’s economic objective is to achieve strong, sustainable and balanced growth that’s more evenly shared across the country and between industries, and there’s still work to be done to achieve the levels of growth we want.

Our economic goals are outlined in the UK government's ongoing Plan for Growth. In short, we aim to create the most competitive tax system in the G20 by making the UK the best place in Europe to start, finance and grow a business; encouraging investment and exports as a route to a more balanced economy; and creating an educated workforce that is the most flexible in Europe. These goals would be significantly assisted by the success of the Transatlantic Trade & Investment Partnership (TTIP), launched this year and currently in its third round of negotiations.

Editor: Both Prime Minister Cameron and Foreign Secretary William Hague have given strong backing to the Transatlantic Trade & Investment Partnership (TTIP) as being of vital importance to the economic health of the UK. As Director-General of UK Trade and Investment, how do you think this new bilateral treaty will affect the British economy? When will it be in final draft for signature of all parties?

Lopez: The TTIP negotiations are a once-in-a-generation opportunity for our countries’ economies. TTIP has the potential to be the largest bilateral trade agreement in the world, and bring significant economic benefits in terms of growth and jobs to both sides of the Atlantic. It could add as much as £10bn annually to the UK economy in the long term (£100bn for the EU and £80bn for the U.S.). The UK has long championed an EU-U.S. trade deal. Gaining approval from EU trade ministers for beginning the talks and their subsequent launch at the G8 summit in Northern Ireland were big successes for the UK.

As far as timing is concerned, U.S. officials say they want to reach a deal on “one tank of gas,” and we support this. The first negotiating round took place in July in Washington, and good progress was made, with a framework for negotiations agreed and an initial exchange of views on ambition and approach across each dossier. The second round of negotiations took place in November in Brussels; the third is the week of December 16. The next 12 months will be crucial in delivering a significant package, which we hope can be agreed upon by early 2015.

Editor: Do you feel that by signing the TTIP the UK will no longer consider withdrawal from the EU?

Lopez: An outward-looking EU with Britain as a member is in the best interests of the UK, the EU, the United States and the world. We want to stay in the EU, and we want to play a leading role within the EU, especially on trade (both within the single market and between the EU and third countries, especially the U.S.), energy, climate change, development assistance, foreign policy and other global challenges. Part of that means concluding ambitious deals like TTIP, which will significantly increase trade and investment activity.

Editor: Recent surveys of manufacturing, construction and services show a decided uptick, and the economy is expected to grow at a full 1 percent in the fourth quarter. Standard & Poor’s has continued to give the UK an AAA rating. What accounts for the UK’s continuing prosperity?

Lopez: Growth is in our forecast, and we remain cautiously optimistic for the months and years ahead. It is heartening that, for instance, the Centre for Economic and Business Research ranked the UK in 2012 as the sixth largest economy in the world, with GDP of  $US 2.44 trillion. Additionally, the UN Conference on Trade and Development reports that the UK recorded a 21.5 percent increase in the value of FDI inflows to $US 62 billion in 2012, the highest increase in Europe. The UK also increased its market share in global FDI inflows by half, from 3.2 percent to 4.8 percent in 2012.

Employment figures continue to be strong. Unemployment is forecast to fall from 7.6 percent this year to 7 percent in 2015, before falling even further to 5.6 percent by 2018. The private sector has added 1.4 million jobs over the past three years – three jobs for every one that has been lost from the public sector. The government has taken some difficult decisions to bring that deficit down, but they’re paying off. From 11 percent back in 2010, the underlying deficit will fall to 6.8 percent this year – instead of the 7.5 percent forecasted back in March. It then falls to 5.6 percent next year, then 4.4 percent, 2.7 percent, and, in 2017-18, 1.2 percent.

These are some of the reasons why the UK is the number one destination for companies setting up European headquarters, which is fantastic. As I mentioned earlier, though, we remain cautiously optimistic: there’s still much to be done to achieve a clean bill of health for the UK economy. But we feel we're on the right track.

Editor: The UK has embarked on a new infrastructure plan. Would you fill us in on some of the details?

Lopez: We believe that infrastructure networks form the backbone of a modern economy and are a major determinant of growth and productivity. And while the UK has extensive and sophisticated infrastructure that’s been developed over hundreds of years, continued expansion and modernisation is critical to meeting the needs of a growing population and for the UK to remain globally competitive. Our comprehensive National Infrastructure Plan sets out action to deliver 550 projects and programmes worth £330 billion to mobilise the capital required to deliver these projects and to ensure they are delivered efficiently.

Around two-thirds of this infrastructure investment will be directed towards achieving a secure, diverse and reliable energy supply for the UK. The UK’s already been highly successful at attracting foreign capital investment for infrastructure developments, and we are developing innovative solutions to attract a steady stream of new investors.

This is another area where we lead the pack: the UK is actively exporting its expertise in infrastructure development globally, and there are many sub-sectors where we feel we have an exemplary offer. We have pace-setting business and academic talent in all the elements that can support innovation in transport systems. UK businesses are well positioned to sell their products and expertise in the low-carbon energy supply, operating from market-leading positions in renewable energy technologies including wind and marine. The UK’s strength in the field of civil nuclear decommissioning is respected worldwide, and leads to high-value opportunities for British companies around the world.

The UK’s aptitude for creating world-class infrastructure was vividly demonstrated in 2012 with the construction of our fantastic Olympic facilities. The Olympic Park remains one of the most ambitious regeneration projects in Europe, and a major factor behind the success of the project has been the commitment of the 1,600 firms – 98 percent of which are registered in the UK – that made this vision a reality.

Editor: Technology has won great acclaim as an engine for growth. Please tell us what the government is doing to foster technological development. How did Tech City come about?

Lopez: The tech sector is one of the biggest generators of wealth in the modern global economy, and in the UK it’s been one of the fastest-growing sectors over the last decade. Additionally, the tech sector’s output plays a vital role in every other industrial sector in the UK, so its effects are felt across a multitude of industries. Consequently, technology is at the forefront of UK policy.

In order to spur growth in hubs like London’s Tech City and other clusters around the UK – like Cambridge, Cardiff, Bristol and Brighton – the government has introduced in the last three years a number of tech-friendly policies to make the UK the number one choice for entrepreneurs and investors. They include:

  • Fast-track visas for international tech stars.
  • The “entrepreneur visa,” introduced in April 2011, which makes it easier for the best entrepreneurs from outside the EU to set up and run a business in the UK. This means that successful entrepreneurs will be able to settle in the UK more quickly (after three rather than five years) if they have created at least ten full-time jobs or generated an income of at least £5m.
  • The Seed Enterprise Investment Scheme (SEIS), introduced in April 2012. SEIS is the most generous early-stage tax break in the world, providing 50 percent tax relief for the first £100,000 seed investment. This also means capital gains tax relief on up to 50 percent of the investment can also be claimed for gains realised in the 2013/2014 tax year.  
  • Reduction of corporation tax rates: previously at 24 percent, the rate of corporation tax in the UK was reduced to 23 percent in April 2013. It will be reduced to 21 percent by 2014 and to 20 percent by April 2015.
  • Special R&D tax credits: in April 2012, the rate of R&D tax credit for companies with fewer than 500 employees increased to 225 percent. Companies carrying out R&D in technology are entitled to tax credits, paid as a cash sum. Loss-making companies can exchange tax losses attributable to R&D relief for a payable cash credit at a rate of 11 percent.
  • The patent box scheme: coming into force from April 2013, the patent box scheme lowers corporation tax to 10 percent on profits from the development and exploitation of patents and certain other intellectual property in the UK.  
  • Expanding government procurement: the government has committed to ensuring that 25 percent of government procurement spending ends up with SMEs.

Tech City itself, located in Shoreditch in East London, is a thriving tech ecosystem, home to a fast-growing number of tech and digital companies. It grew naturally at first – the UK has a very strong heritage of creativity and innovation, which makes it an attractive location for digital media and tech companies. Plus, the UK is an excellent strategic location for large companies doing business in Europe. These elements, combined with easy access to the financial centre of the UK, made the Old Street Roundabout, or “Silicon Roundabout,” an ideal location to grow an international business. And the government took notice. In 2010, the Tech City initiative was launched by Prime Minister David Cameron and London Mayor Boris Johnson to support the growth of the technology cluster in East London. At the time of the launch, there were approximately 200 digital companies in East London. Today, there are over 1,300 digital companies in the area. So that gives you a sense of its vitality and potential. A staggering 27 percent of all job growth in London now comes from the tech/digital sector, so in terms of promoting continued growth, we mean business.

Editor: Britain has made alternative energy projects a priority for developing homeland sources of energy. Please describe some of these green energy projects, including the recent development of fracking in certain parts of the country.

Lopez: The UK is making solid progress in its drive for increasing green energy generation. We saw increases in electricity generation from the majority of renewable technologies last year, including offshore and onshore wind, biomass and solar PV. London Array, the world’s largest offshore wind farm, was officially opened last summer, and New Earth's Advanced Thermal plant in Avonmouth began to produce electricity at commercial scale in May 2013. These are just two examples of green energy projects underway in the UK. 

The government has been explicit about its support for exploring shale gas in the UK, and we want to ensure the right framework is in place to support industry and local areas as this exploration and, in some cases, production moves forward. The government wants to see any growth potential realised to enhance our energy security, and it wants to safeguard the environment and public safety in the process. The Chancellor announced in the Autumn Statement a new onshore oil and gas tax relief, which will support investment in the UK’s emerging onshore shale gas industry by applying a halved rate of tax to initial profits from projects. In 2014, we plan to launch a new round of onshore licensing where we expect a great deal of interest. 

Editor: London has long been a center for financial services. In what respects does it offer more benefits to its members in terms of listings, etc.?

Lopez: The UK is the single most internationally focused financial marketplace in the world. It has an unrivaled concentration of capital and talent, as well as a regulatory system that’s effective, fair and principled. This means that more overseas financial institutions and investors choose to do business in – and with – the UK than any other country. Our financial services industry continues to offer a number of compelling reasons for overseas firms to invest, including the UK’s expertise and skills base, its robust legal and regulatory framework, its liquid capital markets, its transparency in financial reporting and its geographic position and language. London, the UK’s financial centre, falls between the U.S. and Asian time zones, allowing London-based financial services firms to work virtually around the clock. London also has a great tradition of welcoming foreign firms, with high-quality professional and support services, substantial and modern office accommodation and efficient telecommunications infrastructure. As a result, the industry continues to attract investment from a broad range of domestic and international investors.

Editor: Do you have any closing thoughts for our readers?

Lopez: One area we haven’t touched upon is UK creative talent, which inspires the world and produces a stream of brilliant individuals and creative teams who are hugely influential in global media, entertainment and the arts.

February 9, 2014, will mark the 50th anniversary of The Beatles’ game-changing performance on “The Ed Sullivan Show,” which kickstarted Beatlemania across the United States. They remain the bestselling musical group of all time and are loved the world over. But their breakout in the U.S. was their seminal moment, and the pictures of the band as they arrived at John F. Kennedy Airport in New York capture them at their most iconic: fresh-faced, bursting with talent and enthusiasm, ready for greatness. 73 million people watched their performance on “Sullivan” that night, a staggering 60 percent of American television viewers. The Beatles were the most influential group of their era and inspired musicians all over the world to emulate their sound and style. My colleagues at the British Consulate and I are excited to celebrate 2014’s golden anniversary of America’s “British Invasion” here in New York – the city where it began.