Freeports in Wales shouldn’t be cynically viewed as just a “rearranging of the deck chairs” exercise by taking jobs and investment from elsewhere while any prospect of the UK rejoining the EU or single market will not emerge for at least five years, says the president of the CBI Brian McBride.
The former chief executive in the UK for e-commerce giant Amazon and chair of online fashion brand Asos was speaking before the employers organisation last week sacked its director-general Tony Danker with immediate effect - replacing him with former chief economist Rain Newton-Smith - for inappropriate workplace behaviour. It has also suspended three other employees pending further investigation including claims of rape. The future of the CBI has even been questioned.
However, he has since said: “The first thing I want to say is really a deep apology on behalf of me and the CBI for what’s happened and to the people who were involved in this.”
According to research from the Office for Budget Responsibility the UK economy will be 4% smaller over the long-term than if the UK had remained in the EU.
While the CBI vociferously campaigned to remain in the EU, Mr McBride said the focus needs to be on reducing trading frictions with what remains the UK’s biggest export market within the existing UK-EU trade and co-operation agreement.
He said: “In trade it is important that we get it booming again. We clearly lost momentum over the whole Brexit thing, but I think the Windsor framework (recent UK and EU deal reducing trading frictions between the UK mainland and Northern Ireland) is really important. I recently went to Paris (part of a delegation) with the Prime Minister for a meeting with French president Macron. Although France is part of the EU each country has different nuances, so I think it is still important that we do some bilateral activity and that the French one is quite important. I don’t think it would have happened under Boris Johnson and there is clearly a much better relationship. That doesn’t mean that trade is going to get fixed, but I do think a lot of the friction that has been in the system over the past two or three years has disappeared and made things easier.”
He said that the EU market for UK exporters remains a challenge He added: “If you look at the overall trade numbers they haven’t reduced very much if you look at pre-Brexit to now. However, the issue is the cost and it now takes more people and paperwork to process that trade. So, firms are telling me we are still getting the revenue from the EU market, but it is just clunkier to make it happen and the paperwork is horrendous. I think over time, as trust builds up again, and that is what it is going to need, there will be less detail and they will be inspecting less as at the moment they are virtually inspecting everything. It will get better.
Under Sir Keir Starmer the Labour Party currently is not advocating seeking to rejoin the EU or gain access to the single market, potentially via a European Economic Area agreement.
Mr McBride said: “Neither of them (Labour and Conservatives) want to touch anything to do with re-admission or a customs union and certainly not in the next General Election, which says the earliest it is going to be on the agenda is five years from now. So, the reality is what we have today we are going to have for a while and we can make it work better by hoping that relationships smooth things a bit. The UK now has to work at doing these bilateral deals and with these other trading blocs as well.
"The reality is though that as far out as we can see is the EU will continue to be our biggest trading partner, the US is number two and China number three. If you are looking for upside the Windsor framework will also unlock a bit more warmth with US negotiations, but to get a US trade deal done, and we are not even at the front of the queue, takes years.
"What that is saying to me is that you still have to work hard to make the EU a good trading relationship and around the edges you have got Switzerland and other countries. Australia and New Zealand are nice, but they are not going to change the game. So, if we can find other ways of making that relationship with the EU smoother, better and warmer, we would be open to listening to anything. People can make it harder in an agreement and put friction in there, but we are hoping for the friction to get removed and back to a more trusting relationship.”
Freeports and investment zones
Wales is to get two freeports with the Port of Holyhead and a multi-site offer covering the ports of Milford Haven and Port Talbot. Both will get £26m in funding from the UK Government to set up and then a series of tax breaks and lighter planning regimes. Rishi Sunak, when announcing freeports as Chancellor, positioned them as being a key benefit of leaving the EU. However, the UK established four freeports in the 1980s when it was a member of the EU.
With limited economic impact, and some evidence that they just displaced jobs and investment from elsewhere, they were quietly disbanded back in 2012. The UK Government said it also wants to see one investment zone in Wales, for which there are 12 planned across the UK with each receiving £80m. They will aim to create clusters around research institutions such as universities aimed at driving growth in the key sectors of technology, creative industries, life sciences, advanced manufacturing and the green economy.
On freeports and investment zones, Mr McBride he said: “If all it does it rearrange the deck chairs by companies that are already here moving across a line because it is cheaper tax wise for them, that will not really change anything for us. It has to either be attracting additional or incremental investment either from governments or other countries, or it has to give an engine of acceleration to that already existing, but under different rules.
" Our view on freeports is of them being a catalyst for building economic clusters in an area and bringing together small and large businesses with academia. So, I do think the vision for freeports is a good idea and if we can reduce the friction and make it easier for companies to come in from abroad and set up here, and take away some of the redtape and be part of a broad community, I think that is a great idea. We have to see how they work out, but I am not at all cynical about them.”
Welsh Government tax powers
While the Scottish Government has introduced a new higher personal tax band, the Welsh Government has yet to use powers to vary the rate of the three bands of income tax, where it currently has scope to put up or down by 10p.
Asked if he would be supportive of a Welsh Government reducing the top 45p tax rate as a part of a package of measures to attract more high net worths and related business investment into Wales, Mr McBride said: “We don’t (CBI) take a view on personal taxation, but I have personally never heard of any high net worths saying I want the top rate of tax to come down to 40p. So that (cut by Liz Truss but quickly reversed) was unnecessary. You could think of the economic argument that says if you have got more high net worths coming in and paying less tax they will spend more money in their local community. If you look at a country like Portugal, which has become a tax haven because, it wants British retirees and ex pats to go there and pay no tax but spend the money with the multiplier effect in the local economy, but that is not an argument for us (CBI).”
AI
Asked if he would support the devolution of corporation taxes, speaking again in a personal capacity, he said: “If the purpose of that raising and moving of tax rates is allow them (Welsh Government) to have a different pot of money to invest in business around Wales that would be fine, but what we would hate to see is someone just using a corporation tax increase to spend it on a bunch of other things.”
A recent report by Goldman Sachs said that advances in AI (artificial intelligence could see 300 million jobs lost or diminished globally. However, as a leading figure in the UK’s digital sector, Mr McBride said he sees huge upside potential, while recognising ethical and governance concerns.
Scotsman Mr McBride said: “I am a huge believer in the upside of it, but there is wariness like what it means for exams and stuff like that. Generally speaking though, it is a force for good. If you take something like brain scans you now are able to train a machine that is more accurate than a human being and is much faster. It is not the machine’s job to determine the treatment a patient is going to get, but to take a 100 scans and serve up to a consultant these three need further investigation. So, you are making the consultant, and all the humans in the process, much more productive.
" We don’t think machines are going to take over the roles of humans, but humans working with machines will allow us to be much more productive than working without them. The jobs that will disappear, and have been for the last ten years, in digital is the grunt work at the bottom of the food chain. AI will allow humans to ask more intelligent questions. It will also serve up data and analytics to make decisions, like on pricing and business strategies or a new product etc, much faster and more effectively instead of having 50 people in a back office playing around with spreadsheets and bits of paper.
"I think the jobs that go will be the ones that were not very attractive anyway. But I don’t think the number of jobs will go down, as we are still screaming out for roles like in the service and hospitality sectors that AI is not going to touch. So, I think some people take an overly gloomy view on AI and it will be a force for good, but its introduction will have to be carefully handled and monitored.”
UK plc and unicorns
He said that the UK economy remains a world leader for start-ups in areas such as fintech. The president said that while higher valuation potential in the US has always been an attraction for some UK tech firms to float, a London listing remains a strong bet.
Mr McBride said: “Britain is still a great place to start a business. I have been involved with Scottish Equity Partners for 12 years and been involved with Lazard and private equity, so I see funding for start ups all the way up to big stuff. I think there is nothing wrong with the UK market and we still attract more start-ups and deploy more venture capital money than in France and Germany combined, or anywhere else in Europe.
" Businesses still like to start-up in the UK and we have a great skills base and English is an international language. Where we have an issue is that we have created more unicorns than any other country apart from China and the US, but we get them to that $1bn turnover or value level, but in getting them from one to ten there are just more roadblocks along the way. It is also about the UK market just not being big enough, so they really have to internationalise and expand abroad where you can come up against regulatory hurdles.
"We have Admiral here in Wales which is an example of a great unicorn, but we need to make more of it (unicorns generally). However, if you leave the US and China aside we stack up very well compared to the rest of the world, so there is nothing inherently wrong with the UK and its market.
“I helped to keep Asos here and AO and Trainline go public and in both of those cases, and despite the fact they are both tech companies, the London market was the right place to be. If you are going to the US for a slightly higher valuation becoming a tiny fish in a huge pond doesn’t necessarily help you. So, I think there is nothing structurally or fundamentally wrong about creating the conditions for a growing business here, but we have to find some way of helping them to continue to accelerate once they hit that $1bn size.”
Economic outlook
On the outlook for the economy he said: “My view is we are certainly through the worst of it. There may be one more notch up on interest rates, but you can see that it is slowing down and ditto with inflation and the Prime Minister has been quite clear that the number one priority is to half inflation by the end of the year. But you have to remember if we get inflation back to 2.5% you still have a bunch of prices that have moved up and you need deflation to see prices actually coming down. We will avoid a technical recession, but it is still a very tough climate for individuals and businesses. So, we have still got a tough year or two ahead.”
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