CBI boss Rain Newton-Smith on EU ties and the challenges facing universities

Looking back to the arguments made to remain in the EU are not helpful, believes director general of the CBI Rain Newton-Smith, while saying an honest conversation is needed around a new financial model for the challenged university sector.

On a visit to Wales, the CBI boss said while the business membership organisation had campaigned to remain in the EU, the democratic will of the British people to leave – although nearly a decade ago – had to be respected.

Exiting the European Union and its single market, according to the vast majority of economists, has been damaging by reducing trade and investment flows.

Read More: The stark labour force figures in Wales

Read More: The financial crisis facing Welsh universities

A recent analysis by investment bank Goldman Sachs claimed the UK economy is 5% smaller than if it had voted to remain in 2016. The EU is the UK’s biggest market.

Asked whether the CBI in its general election manifesto would back the UK joining a custom union with the EU or the single market, she said: “During the referendum campaign we reflected the views of our members and business who could see some of the challenges for our economy because Europe remains our biggest trading partner, but I think almost from the day after [the referendum result] you had to respect the democratic process.

“Thinking back to where we were is not relevant and helpful as we have a new relationship with the EU and the rest of the world.

“What is incumbent on us as a country is to make the best of that relationship. From the businesses we speak to, what they want to see is for the UK Government at all levels to make it easy for businesses to trade across borders, whether that is the EU, the US or the rest of the world.

“Despite some of the challenges the UK economy has faced as a whole we still see many businesses thriving and you see that with the compound semiconducter cluster in south Wales. The UK has some of the world’s leading technologies that are exported around the world and going forward we should always be thinking how do we make sure the UK is a great place to invest and a great place to trade with the rest of the world.”

Asked whether the UK could enter into a new customs union arrangement with the EU or rejoin the single market without the need for a referendum, she said: “Those are political choices and they are not on the table.

“What businesses are interested in when looking at our relationships with the EU, the US, and we are in the process of negotiating a trading agreement with India, is what are we doing to facilitate trade across borders.

“Now some of that is thinking around how we trade in services and about mutual recognition of professional qualifications.

“That is something the UK Government can work on, both in our relationship with the EU and also with the US, including at a state level. Businesses are quite pragmatic and want to see things that are achievable and that really focus on our economy and how we create jobs and investment here in the UK, and trade is an important part of that.”

University sector

The UK’s university sector is facing significant financial challenges, with a model which has seen it seeking to drive higher fee paying international students to subsidise what are often loss-making domestic students with a maximum £9,250 undergraduate academic year tuition fee – a level which the Welsh Government recently introduced to align with the rest of the UK.

With a stricter visa regime from the UK Government curbing international students from bringing family members with them, the sector said it is deterring overseas interest.

With costs increasing faster than income and a funding system that no longer covers the cost of teaching home students or research and innovation, a wave of UK universities are making redundancies, including voluntary schemes confirmed at both the University of South Wales and Swansea University.

Ms Newton-Smith said: “There are absolutely concerns around the university sector and also around further education colleges. Higher education is the jewel in the crown of the UK and its capabilities.

“The UK is also the second largest exporter of trade and services and a really important sector in that is higher education and we are so lucky that here in Wales, but across the UK, there isn’t an area where we don’t have a world leading university.

“It is not just about the students, but the impact of research and development and innovation... and even just for tourism, whether in Cardiff or Aberystwyth.

“It is really challenging for the sector and what neither main party really wants to speak enough about is around the funding model for universities over the medium-term. And it definitely needs looking at and addressing.”

Speaking at the offices of Bute Energy in the centre of Cardiff, she added: “One of the things we have heard from universities and businesses is the government even just consulting on the post-study work visa has caused some of those international students to drop off because often they will come here to study to work and then finish their PhDs and then do research or other applied research in local businesses.

“It is very important that we offer that opportunity to work and contribute to local economies. I do think we need to be more honest about what international students have contributed to our economy and it is not a choice between domestic and international students, both allow universities to thrive and we need a funding model that is really sustainable.”

Freeports and net zero

In Wales two freeports are in the process being established at Holyhead and the Celtic Freeport – covering the ports of Milford Haven and Port Talbot. Two enterprise zones are also being established in Wales.

The UK has had freeports previously with mixed economic results, leading some commentators to claim they just move investment and jobs from outside freeports into them – a process of zero-sum game displacement.

Ms Newton-Smith said: “They can play a role and I think there is some amazing stuff happening in the port of Milford Haven and the role that can play in how we decarbonise our energy mix.

“One of the challenges of freeports is always looking at them as brilliant ideas that are working in certain areas, but maybe looking at how those ideas can be used through the UK.

“They do give a chance to experiment a bit and see what works, but if the policy is good enough to drive investment in a freeport then maybe we should have that nationwide.”

With the new licence round from the Crown Estate for floating offshore wind farms off the south-west coast of Wales in the Celtic Sea, she believes Wales is well placed to play a key role in helping to decarbonise the UK economy – a process that will require significant private sector investment.

She added: “While the UK economy was effectively flat last year the net zero economy grew by 9%. There is huge opportunity within green growth and particularly here in Wales.

“We have looked at how net zero companies map across the UK, and Wales has the fourth largest in percentage of net zero firms.

“So, I think there is so much capability here and when we think about offshore floating wind there is huge potential in Wales for us to be world leading and the UK is lucky in that five of the world’s biggest wind farms are off our shores.

“Some of the components in those supply chains may come from other countries, but I think what is important is that we make the most of the capabilities that we have in some of those technologies. Manufacturing is part of that, but also the services alongside.”

The CBI is supportive of UK Government measures, backed by the Labour Party, to get more pension funds to invest in infrastructure and high-growth potential private companies in the UK, although decisions will ultimately be made in the interest of investors and pension holders by fund managers.

Ms Newton-Smith said: “I think what the Chancellor set out in terms of the Mansion House reforms is an important step forward, but there is a lot more that needs to be done.

“On reforms that focus on liquidity that sits within pension funds and how that is invested, particularly in long-term assets, I think there is a lot the UK can learn from other countries and how they help to incentive that.

“So, whether that is thinking in Canada, the US or parts of Europe, we need to stay best in class around that, but more broadly if you think of the transition to a net zero economy we know we need to increase the total amount of investment going into net zero technologies from £10bn now to around £50bn over this decade.

“Now the majority of that has to come from the private sector, so we need to see more of a net zero investment plan that sets out across the whole economy what amount of investment we need to see across different sectors, but also what are the financing models that help to crowd in some of that private sector investment and help de-risk some of investments whether that is in sustainable aviation fuel or the built investment.”

Economic outlook

On the outlook for the UK economy she said: “We take a more positive view of the UK economy and this is partly reflected from speaking to business leaders, including those here in Wales.

“Yes, there are undoubtedly challenges for the UK economy as there are for the world economy, but actually what we are seeing this year is a period where inflation is coming down.

“Of course in the longer term it is important that we still get investment going across the UK and that is what we want to see, but it is true that the overall debt to GDP for the government means there is less room for manoeuvre so that any policies really have to be focused on our long-term growth and productivity.”

On the UK’s growing debt position she added: “Where financial markets get concerned is where you are on a path that isn’t sustainable.”

On the UK’s overall debt to GDP ratio she said there isn’t one specific level that needed to be targeted, with different levels amongst G7 nations.

However, she added: “But it is sensible to have some fiscal rules that are credible.”

As part of her time in Wales she visited the new £80m headquarters and manufacturing operation for KLA in Newport.

The company provides processing solutions to semiconductor and microelectronic device manufacturers. It also forms a key cog in the wider south Wales compound semiconductor cluster.

Ms Rain-Smith said: “What is happening in this cluster is amazing and world leading.

“KLA’s new facility is an incredible piece of engineering and design and will be a really nice place to work and they have used local suppliers to kit the whole place out.

“It really will be a beacon in the Welsh economy. They put in extra capacity for future investment and that is already full.”

Figures from the ONS last week showed a reduction in employment and a rise in economic inactivity levels across the UK.

While the ONS is overhauling how it collates its labour force data, Wales has the unenviable record of having the lowest employment rate and highest level of economic inactivity at 28% in the UK.

There are 535,000 working age adults in Wales not seeking to be part of the labour force.

Ms Newton-Smith said: “It is a huge challenge and the UK is not alone in rising economic inactivity, but it is particularly acute and more pronounced in Wales than other parts of the UK.

“It is a real challenge that needs addressing and I think there are different routes on policy, but also businesses can play a role.

“We know we are facing an ageing population, and what people want from work is changing, so I think having flexible workplaces and opportunities that provide for people is important.

“But I also think there is a role for policy and there are a couple of areas we have been working on with our members and some of that is around childcare and how we support working parents to stay in work, but also work more hours.

“The other area, where we are working with all parties, is how we support occupational health in the workplace. We think there is also work to be done around the tax system to make it simpler for employers to provide occupational health, but also employee assistance programmes, so essentially mental health support, both for individual employees and their families.”

On the relationship between the UK Government and Welsh Government, she said: “We want to ensure that civil servants in Westminster and politicians understand devolution and the financing models, but also have good working relationships.

“As a United Kingdom in working with the devolved nations we need to do everything we can to promote growth.”

Welsh Government and CBi membership

With CBI director for Wales Ian Price, she met the new First Minister Vaughan Gething. Mr Price said: “We unfortunately had a situation where the previous First Minister [Mark Drakeford] was less focused on the economy. The new incumbent has focused a change on that and I think we will see a much more proactive government in respect to where the Welsh economy fits in.”

Following allegations of sexual misconduct within the CBI last year, the organisation was hit by an outflow of members. For a period of time it was shut out of conversations with the UK Government and devolved administrations.

Ms Newton-Smith said: “It has been brilliant over the last few months being back talking to politicians on both sides of the House and across the devolved nations.

“I think it reflects the really hard work that teams and leaders having been doing over the whole of the past year, including here in Wales with Ian and his team who are a shining example of that.

“I think we have a really important voice. Just since the start of the year we have had three dozen new members and some of them have never been members of the CBI before and some are those who left. We speak on behalf of more than 1,100 businesses and 170,000 through our confederation and it is a real privilege.”

Asked when the CBI is anticipating getting back to membership and fee income levels prior to the controversy, she said: “I am ambitious for us as an organisation and I am absolutely confident that we can get back to that.

“But is that going to happen overnight? No. We need to show we are best in class in terms of having a workplace that really supports men and women and we have been re-accredited by the Good Business Charter and they have been so impressed by the scale and depth of what we have done over the last year.”