Foreign Ownership of UK Assets — Motion to Take Note

Part of the debate – in the House of Lords at 4:47 pm on 19th November 2015.

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Photo of Baroness Falkner of Margravine Baroness Falkner of Margravine Chair, EU Financial Affairs Sub-Committee 4:47 pm, 19th November 2015

My Lords, I, too, thank the noble Viscount, Lord Hanworth, not just for bringing this important topic to us today but for having covered such a wide expanse in his opening speech. When I was a student at the London School of Economics—I should add hastily that I was a mature student, so the age difference between me and the noble Lord, Lord Desai, is not as great as it might appear when I say that—I used to pop in to listen to the noble Lord’s lectures. They were not part of my major—I was doing international relations—but as a Marxist, which is what he was known as at the time, he presented a clear world view that was entirely contemporary and understood what was happening in the world around us. I wish that he and I were still there, because those were much more interesting days than we find ourselves in today, where there is a much broader consensus in economic theory than there was

25 years ago. In that sense, the noble Viscount, Lord Hanworth, has made us think about things that in our discussions we almost take for granted and never seem to consider any more.

Let me add my few thoughts on this topic—I am not an expert by any means. The noble Lord, Lord Desai, is right to say, and the noble Viscount, Lord Hanworth, acknowledged it, that we live in a globalised world—we live in an interdependent, globalised world. The EU was quite insightful in the 1950s in seeing that four freedoms were vital to making the single market work, those being labour, goods, services and capital. The underlining issue in this debate is that of capital. I subscribe to the view that the productive use of capital is a common good that underpins all our modern economies. It is so desirable that when we see less developed parts of the world doing less well than they might do given their human capital and resources, it is a dearth of financial capital—investment in infrastructure and so on—that holds them back. Therefore, it is not entirely correct to say that national ownership matters, but rather that it depends on a case-by-case basis on what we are talking about.

For me, there is no reason why the ownership of a company should be an overarching issue, other than—I would add here advisedly—the interests of national security. I interpret national security as including, to some extent, economic security as well. The noble Viscount mentioned the Chinese investment in Hinkley Point, announced only a few weeks ago. That deal will allow for 33% of Hinkley Point to be owned by the Chinese. However, the agreement goes wider because, eventually, Chinese nuclear technology will be approved for use at Bradwell in Essex. In this area, foreign ownership matters because this is not just passive investment. If it were just passive investment and they decided to disinvest, they would sell their ownership in international markets and that would not be a cause for concern. However, there is a cause for concern because the United Kingdom will be the testing ground for Chinese nuclear technology and its regulatory approval in the West. That is a matter of concern. The Chinese have built their nuclear capability sector at breakneck speed. We do not know their sector well enough—there is little transparency in it—and we do not know that we can have complete faith in their safety standards because they are less than entirely transparent. I am not concerned about them coming in with EDF at Hinkley Point but I would be concerned about being the first country in the West to give regulatory approval when it comes to Bradwell in Essex.

On the broader question of ownership, I do not understand why United Kingdom ownership gives more back to a community or a country than foreign ownership. The noble Lord, Lord Desai, mentioned British Leyland versus Nissan, Tata and BMW. I will go further and mention British Airways and its ownership in the past few years of the International Airlines Group. British Airways is the third biggest carrier in Europe and the sixth biggest in the world, and, knowing how the international airline industry has seen consolidation, if it had not made that move I wonder where our national carrier would be. One has to look only at Lufthansa and the parlous state of Air France to know where it might be if it had not made that rather bold move. It is also important that British Airways’ International Airlines Group is registered on the London Stock Exchange. So it is not a lose-lose scenario.

In the City of London, this small island has arguably the world’s—the Americans might contest this—biggest financial sector. It has not come about by accident—as the noble Lord, Lord Desai, said, it has been 350 years in the making—because there are things that give the United Kingdom its special place in the financial services industry. These include the rule of law, the reputation of our judicial system, the English language, schools, the good quality of housing, overpriced though it may be, and also culture. It is the cosmopolitanism of London—with its foreign owners, foreign migrants such as myself and so on—that make the City such a success. When I speak to people in the City, I always say to them that the idea they have that they are masters of the universe is completely flawed. It is the enabling environment of London and the United Kingdom—particularly the rule of law—that makes it so attractive.

I have sympathy with the issue of hostile takeovers of our strategic industries. The noble Viscount, Lord Hanworth, is right to raise that. We have to think about what are our strategically important companies. I would say that they are more about intellectual capital, technology and some areas of national security, where I agree with the noble Viscount. When we live in such an interdependent world, it seems rather curious that we are harking back to an era where we, as Brits, would run things better than other people.

I want to push back against the idea that the financial services sector trading in arbitrage, which was selected for particular condemnation by the noble Viscount, Lord Hanworth, is entirely worthless. The extent of our regulation has clearly been insufficient, and I would remind him of who was in government when most of that disaster happened. But a humbling experience for us to reflect on is the daily diet of scandals that are still happening in our financial services industry. The Financial Times today has a story about Barclays and algorithmic trading. We have seen LIBOR, forex and all the other scandals. But again I would say to the noble Viscount that this is not just about United Kingdom financial services companies. Société Générale, Deutsche Bank and a whole lot of others are involved: foreign owners have been right in there with their fingers in the till while British companies may have been as well. I myself worry when our big flagship companies such as HSBC and others think that they might relocate abroad because there may be an environment which is more conducive than having their headquarters here. I am extremely glad that the Government are looking at what needs to be done to keep our flagship companies here.

I also want to touch on the decline of manufacturing, and I agree with the noble Lord, Lord Desai, who said a great deal of what could be said in this debate about how perhaps it is the strength of the pound that is the issue, or the fact that our technology is not good enough so that people do not want to buy our goods. I suggest that the problem we have in the UK is that of a very low savings rate. If you want more investment in the UK, you have to change the culture. We have such a low savings rate because we invest so much of our personal wealth in bricks and mortar, so we have a distorted economy. That is probably something that we need to change.

In conclusion, the world is changing and the future lies in technology, robotics, artificial intelligence, and innovations in healthcare, energy and so on. What we should do is not hark back to an era of golden ownership by UK plc, but invest more and more in education, which is the key; in innovation, which is the future; and, where possible, of course, in good ownership of our assets.