Oral evidence: The work of the Department for International Trade, HC 16

Oral evidence, 30 November 2022.

Witnesses

Kemi Badenoch and Crawford Falconer.

Chair

Welcome to this afternoon’s meeting of the International Trade Committee. Today we have the Secretary of State, Kemi Badenoch, and the interim permanent secretary of the DIT, Crawford Falconer. The meeting is ostensibly about the work of the Department for International Trade. Some of our questions have been informed from Twitter under #AskKemi. The main themes that have come through have been trade shows, support for exporters, and the Energy Charter Treaty. Some other contributions will be used later to inform some of the stuff that we might be doing going forward. Secretary of State, I understand that you want to make a short statement. After your statement has finished, we will start the clock for our two-hour session, so the floor is yours for however long you want it, and then for two hours the floor is ours.

Kemi Badenoch

The statement will not be two hours, you will be pleased to hear. Thank you very much for the opportunity to set out my stall. This is not just my first time at DIT; it is my first time as a Secretary of State. I am particularly grateful to the Committee for swapping the times around, because of course I am also the Minister for Women and Equalities and we had orals this morning. I am very grateful for that flexibility. I know that the Committee has a history of being a critical friend to the Department, and we are very grateful for that. I am somebody who believes that scrutiny improves legislation and policy. As much as is possible, given the travel schedule that I and other Ministers have, we will always want to talk to the Committee, either formally or informally. I will start by saying that my imminent key priorities include concluding accession to CPTPP. FTA negotiations with India are ongoing. We are still working towards a free trade agreement with India, but more broadly my approach is going to be different from that of previous Secretaries of State, in that I would like us to move away from the DIT being seen as the Department for free trade agreements and back to the Department for International Trade.

Chair

Thank you very much, Secretary of State. It is 1.32 pm, so we will finish at 3.32 pm. It was important for your Women and Equalities role to give you that time this morning, so the Committee was glad to do that. You have just taken the reins at the new Department. You may have hinted at some things there, but could you tell us two things that are going well at the DIT and two things that you would like to see change?

Kemi Badenoch

Why don’t I start with what I would like to see change, which picks up on what I said in my opening statement? One of the things that I have found going into the DIT is that everybody is focused on free trade agreements. If you have heard any of the speeches that I have given, I emphasise that free trade agreements are like the motorway, but trade is the exports and investment. Leaving the EU meant that for the first time we had an independent trade policy, so of course getting the roll-over continuity agreements and new FTAs demonstrating that independent trade policy was critical, but at this point, using them and making sure that they are working and are more efficient, and so on, is going to be my approach. That is certainly something that I would like to see change. I would also like to have a new perm secretary as soon as possible. That is something that has made running the Department a little more challenging. I am very grateful to our interim perm sec, Crawford Falconer, who I think the Committee knows very well, who has been stepping in. Having a dedicated permanent secretary will be critical to make sure that the Department’s voice is heard across Whitehall. In terms of things that are going well, the reduction of market access barriers is something that is going well. You will know about the steel tariffs that we had lowered with the US—the section 232. We had barriers lifted for the first time in such a long time for Welsh lamb into the US, for example. Those are things that the Department is doing very well. When I was in Edinburgh, I talked about announcements for countries such as Morocco, Algeria and so on, where we are slowly removing loads of tariffs and non-tariff barriers and improving market access. That is something that is going very well.

Chair

Thank you. I wonder whether you paid much attention to the recent speech by the former DEFRA Secretary of State, George Eustice, on trade negotiations. Did he have a point in what he said in the Commons? It was during a general debate that threw two trade negotiations together in what seemed a tick-box exercise by the Government, but anyway, on the thrust of George Osborne’s point—

Kemi Badenoch

George Eustice.

Chair

Indeed.

Kemi Badenoch

I don’t know anything that George Osborne has said.

Chair

He probably agrees. But let’s be frank: George Eustice was scathing about what was going on and what has been happening, such as setting up timetables to basically undermine. Do you have any thoughts?

Kemi Badenoch

Yes, many. First of all, I would like to put on the record that I disagree with George’s view.

Chair

Which parts?

Kemi Badenoch

Almost all of it. There is one small bit that I did agree with, which I will come to, but I disagreed with what he said about it not being a good deal for the country—that is absolutely not true. I also strongly disagree with what he said about Crawford. I do not know how the Department would have coped without Crawford during this period. I have known him now for two months, and many others have known him for much longer. He is an invaluable asset to the Department, and I think everything that George said about Crawford was wrong. I would like to put that on the record.

Chair

That sounds like you might be tempted to make Crawford Falconer the permanent secretary.

Kemi Badenoch

Would you like to be permanent secretary, Crawford?

Crawford Falconer

I have been delighted to do it on an interim basis, and I will be even more delighted when somebody is appointed full time.

Kemi Badenoch

There’s your answer.

Chair

Whether it is a he or she, we will have a new permanent secretary at some point going forward. George Eustice said that the TRQs in beef and sheep were very liberal, and that Australia and New Zealand would have settled for much less, but the UK, being so keen to have a trade deal, basically set a timetable. The Trade Secretary asked her opposite number “what he would need in order to conclude an agreement by the time of the G7”, and the Australian trade negotiator wisely asked for the kitchen sink, which “eventually shaped the deal”, said Mr Eustice. That is damning.

Kemi Badenoch

It is, but I think it is incorrect. When I asked the—

Chair

Sorry, did the previous Trade Secretary not ask her opposite number “what he would need in order to conclude an agreement by the time of the G7”?

Kemi Badenoch

The Trade Secretary did not ask her—

Chair

Did the then Trade Secretary ask or not ask “her Australian opposite number what he would need in order to be able to conclude an agreement by the time of the G7”?

Kemi Badenoch

I am not aware of any such question being asked.

Chair

Could you find out?

Kemi Badenoch

I could, but as far as—

Chair

That seems crucial.

Kemi Badenoch

As far as I know, that sounds like a standard negotiating question, where we ask, “What is it that you want?”, and the other team ask us the same thing. But in terms of, “Tell us what you want and we’ll give you everything,” I think that question is ambiguous in how it is framed.

Chair

With respect, it is a slightly different thing, because it puts a time schedule on this. When you have put a time schedule on it, you change the dynamics of the negotiation, because if the other side see that your ask is not a trade ask but a timing ask, they then trade your timing for their trade ask, which is effectively what Mr Eustice said had happened. Then they are in the driving seat, because you are anxious to get the agreement in “by the time of the G7”.

Kemi Badenoch

You asked if there was anything in George’s comments that I agreed with. I do think deadlines can be incredibly unhelpful in negotiations—we saw this with Brexit—but if the other side know that you have a deadline, they are able to hold out or be more difficult, which creates an incentive to create more concessions. As far as I am aware, there was no conversation like that that took place beyond the general rounds of what you ask in a negotiation, and I suspect that if that had been the case, George would have been in the room. If he wasn’t, I think this is probably speculation. He has not told me that, and I think that that is more speculation than anything else.

Chair

I am just taking it from his speech in the Commons, which you may or may not have seen. He also said that the “full liberalisation” on beef and lamb access did not need to be given. It was such a generous offer—it was so big that “neither Australia nor New Zealand had anything to offer in return for such a grand concession”. He goes on to say that “Australia remains one of the few countries left in the world that maintains an absolute ban for British beef,” using the spurious “sham” of BSE. They must have thought Christmas was coming when they saw the UK negotiators.

Kemi Badenoch

Well, I think it also shows a fundamental misunderstanding of the UK and the Australia and New Zealand economies. The fact is that we are 70% services-based. There is no outright ban on British beef. What they have done is set standards, which are uneconomic at the moment for our farmers to comply with. I think you would be very shocked if, all of a sudden, we decided to lower our quality and SPS standards because of a trade deal. Australia is doing exactly what we would be doing. We got significant barriers in other sectors, separate from agriculture. Of course a DEFRA Secretary will be looking at this solely within the realms of what DEFRA is concerned about. As Trade Secretary, I have to be looking across the entire economy, and that means looking at what other sectors are asking for, but also remembering that we are doing trade deals not just for producers but primarily for consumers.

Chair

I am just trying to tease out the difference between the ancien régime and the current regime. You are telling me that if you were negotiating the Australia and New Zealand trade agreement, nothing really would change. You would do the same thing. You wouldn’t ask for a TRQ; you would just give it away. Is that what you are telling us?

Kemi Badenoch

We haven’t given anything away. A trade agreement—

Chair

Quite obviously, the UK has, in the trade agreements. It is in black and white.

Kemi Badenoch

That is not giving things away. People need to stop looking at trade agreements as if it is a zero-sum game. It’s not a tit-for-tat where you pay for something and get something else.

Chair

It’s not?

Kemi Badenoch

No. A trade agreement is far more complex than that. When you have comprehensive trade agreements, you are looking across multiple sectors. You are looking at a range of issues that actually go very far into the future. For instance, you talked about—

Chair

So you would have done the same thing.

Kemi Badenoch

You talked about full liberalisation. That is just wrong. We haven’t fully liberalised. It is staged, so there are 15 years.

Chair

Yes, and then you are fully liberalised.

Kemi Badenoch

In 15 years’ time, I think that we will first of all have given farmers time to adjust. If things do look like they are becoming less competitive—remember, this is all speculation; the deal isn’t even in place yet and we are already talking it down. One of the things I have found particularly challenging is having my counterparts abroad listen to Members across the House, not just Opposition Members, talk about their countries in such a disparaging way, as if we are dealing with authoritarian or despotic regimes. Australia is a country that has high standards. We have a very good relationship with them. They are our allies. They are in Five Eyes. We have the AUKUS deal. This is a country that we need to be working more closely with and not talking about as if it is going to ruin our economy. It simply is not the case.

Chair

It is rather grand to say that it would ruin the economy. What is—

Kemi Badenoch

Or will ruin the economy for farmers, which is something that has been put to me, and is categorically not true.

Chair

And the food security aspect as well. I think we have established that you would have negotiated the same deal.

Kemi Badenoch

Can I come back to you on food security? Food security is something that we need to diversify as much as possible. We do not grow all the food that we need in the UK for ourselves.

Chair

Do you want to grow more or less of it?

Kemi Badenoch

We need to make sure that we are getting it from as many places as possible and reduce the points of failure. One of the problems that we saw with supply chains during covid was that getting everything from one particular country, even if it is your own, means that when things go wrong, they go very badly wrong.

Chair

I don’t want to go much further on this, but if beef production was to go down in the UK, you would be happy enough because we could get it from Australia.

Kemi Badenoch

We already get lots of beef from all over the world. I think we should ask consumers what they want. People will always buy British beef. If what you are saying is that we don’t want to buy anything from other countries, then why would they buy our products?

Chair

So then just have full liberalisation.

Kemi Badenoch

We have talked about a staged liberalisation. Again, a free trade agreement cannot be a situation where we want to sell but we don’t want to buy anything. That is just not credible.

Chair

So we have established that you would have the same trade deal as in the past. In the year to June ’22, as reported in The Observer last Sunday, UK exports to Japan fell. Why is that? We have a UK-Japan trade agreement that, your predecessor Liz Truss said, “goes significantly beyond the EU-Japan deal”. In that last year, EU trade with Japan has risen, while UK-Japan trade has fallen. Why?

Kemi Badenoch

For two reasons: one, covid; and the second one, unbelievably, is covid.

Chair

Covid was a year ago.

Kemi Badenoch

Yes, but the trade deal was signed in 2020. First of all, lots of changes took place, as you know, in terms of what businesses were doing—businesses that were exporting stopped doing so—but supply chain issues have also had an impact. It is very easy to say that EU trade with Japan has increased, but the EU is 27 countries. I do not have the figures to hand, but I would not be surprised if there were one or two particular countries that are making the difference there. The figures I have seen show that lots of EU countries have had trade fall as well.

Chair

So it’s covid, it’s supply-chain issues and, perhaps, one EU country is making up the difference—that is why the EU trade with Japan looks so good?

Kemi Badenoch

Also, our free trade agreement was not something that was going to change everything overnight. This independent trade policy is one not just for now but for the future. We will see improvements. What I am not going to say is, “Oh, everything was just because of covid and so it’s fine.” One of the reasons we have an export strategy, and an Export Support Service, is that we recognise that we cannot just sit on our laurels and be complacent. If there are things that people are finding that make trade difficult, then we are looking to address them, but there is no reason at all for a free trade agreement to reduce trade. That is clearly something that is happening at the same time as the free trade agreement, and not because of it. Correlation is not causation. We should look at what the drivers are, and those are completely separate to the free trade agreement.

Chair

It looks like the UK-Japan trade agreement did not go significantly beyond the EU-Japan deal, when trade has fallen. There is something going on.

Kemi Badenoch

I think that again makes the assumption that the cause is the free trade agreement, and I would dispute that. I don’t think it has anything to do with that at all.

Chair

Nothing to do with the free trade agreement—so the free trade agreement has nothing to do with UK-Japan trade at the moment, which is falling. Mr Falconer, during the UK-Japan negotiations—you were around at the time—did you ever seek full liberalisation in dairy and cheese products?

Crawford Falconer

We didn’t succeed in it, but of course we would have been happy to have negotiated it. But you have to recall that that negotiation was done on the basis of the existing agreement that we had had with Japan. Therefore, there was no way in which we were going to be in a position—

Chair

So you didn’t ask?

Crawford Falconer

No, no—of course we always ask, but you have to be able to trade and reach a bigger outcome. We had a very narrow window of about two or three months after we had left the EU for that agreement to get through the Japanese Diet, and we were not in a position to renegotiate parts on our side of the agreement for Japan. What we got an agreement out of Japan to do was to do as much as we possibly could in that short period of time, and that was to create a world-class digital novelty part to the agreement, which didn’t exist anywhere else, and to have a continuity agreement with them to agree to allow us to negotiate into CPTPP. In other words, it was an arrangement with them for a staged further negotiation, which, in the CPTPP context, we are now in the position of trying to fulfil. If it is successful, it will lead to improved agricultural access for Japan. So yes, of course, we absolutely sought that in the negotiation, but we did not get anything that was overly significant out of Japan in those areas, although we did get very specific, country-specific arrangements for the United Kingdom that did not exist before.

Kemi Badenoch

Exactly.

Chair

I assume from that you did not seek a larger TRQ for dairy products with Japan either. Why do you think they did not agree to any of those asks?

Crawford Falconer

It is quite clear that we did seek additionality for dairy products. As I said, we are currently continuing our negotiation with Japan precisely on that, where we are seeking further additionality on it. The reason we did not achieve it is because they have one of the most protectionist dairy industries in the world. That does not mean to say that we won’t still try in our negotiations to secure improvements in access for that.

Chair

Did you ever ask Australia for an enduring TRQ on beef and lamb? Given that the TRQ area went badly with Japan, did you try to employ the Japanese tactics when you went to speak to Australia? Was it part of your original mandate?

Crawford Falconer

We wouldn’t have sought an enduring TRQ for beef with Australia, because Australia already has an open market for beef. The situation with Australia is not a question of a restrictive TRQ; it is because they have what they consider to be a sanitary and phytosanitary regime in place that ensures that, for health and safety reasons, they do not consider that imports from the UK are appropriate. So it is not a market access barrier for negotiation. It is something that we would be able to contest—DEFRA would be able to contest if they chose to do so—on SPS grounds, but there was no pressure for us to do so. It would not have been a part of the negotiation. You would not, in negotiating terms, seek to pay for something that you would consider you are entitled to have, if you had thought the Australian measure was illegitimate.

Chair

Was an enduring TRQ on beef or lamb part of the original mandate?

Crawford Falconer

No.

Chair

You walk in with the intention of full liberalisation after 15 years.

Crawford Falconer

Absolutely not. As far as we were concerned—

Chair

Just to clarify, which one was it? Did you have a mandate for an enduring TRQ on beef or lamb, or did you walk in there with the intention of giving it all away in 15 years?

Crawford Falconer

I can try to be a bit clearer. If I wasn’t clear enough, I will say it again. We would not have gone for an enduring TRQ, because we would have the right to access the market. You are not going to pay for something that you have already got.

Chair

I am asking what was in your original mandate. There was no enduring TRQ in the mandate to start with.

Crawford Falconer

You would have the commitment that you would have access to the Australian market, which we do, without tariffs, and that was the mandate.

Chair

But what was the mandate?

Crawford Falconer

The mandate was to secure liberalisation of the Australian tariffs across the board to the extent we could in the negotiation, but you would not have had a TRQ because a TRQ is a restriction. It would have been less than full liberalisation.

Chair

I am not asking as an offensive interest, but as a defensive interest. In your mandate, did you ask for an enduring TRQ or not?

Crawford Falconer

It would not be appropriate for me to comment on what the Government chose to do at stages in the negotiation on the defensive side, but I can certainly say that in general terms the mandate that we had throughout the negotiation was a mandate that was agreed by the Government at all steps of the way by the normal ministerial processes. Like any mandate during the course of a negotiation, Ministers make decisions as to whether they want to modify it, alter it, make it more demanding or make it less demanding.

Chair

To those watching, that is an evasive answer because you have been asked whether you had an enduring mandate for TRQ for beef or lamb originally or not. You said you cannot say. People need to scrutinise and understand what was going on. Do you know if you had a mandate, or are you refusing to divulge that you had a mandate that might have said you needed an enduring TRQ?

Crawford Falconer

I am saying that, as an official, it is a matter for Ministers to maintain their decisions about what they are going to reveal in public about a live negotiation.

Chair

Australia is not now a live negotiation. I am asking you about Australia. Did you have a mandate or not? What did the mandate say about a TRQ? Yes or no? Was there an ask for an enduring TRQ, or—

Kemi Badenoch

Can I come in on that point?

Chair

Sorry, Secretary of State, I am asking this witness. Was there an ask for an enduring TRQ in the mandate?

Crawford Falconer

What I can say to you is that in the course of the negotiations there were periods of time when of course the United Kingdom said, “We wish to have TRQs, and no more than limited TRQs for Australia.” It was a negotiation. For considerable periods of time, we were in a position of having TRQs of certain sizes in the lifetime of that negotiation. But like any negotiation, it moves during the lifetime.

Chair

Lloyd Russell-Moyle, do you want to come in at this stage? I will come back to these points.

Lloyd Russell-Moyle

Earlier on, you said that you would not negotiate something that you thought was legitimately ours—free access for the Australian market—and you said that if we believed the sanitary protections were illegitimate, we would not negotiate them. Are you saying we believe that the Australians are putting illegitimate thresholds on our imports?

Crawford Falconer

I think that’s a decision that the scientists would have to make as to whether they consider that that is something they wish to contest or not, or whether, on the basis of their assessment, that is something they would want to pursue with the Australians.

Lloyd Russell-Moyle

But surely you would need to make an assessment before you go into the negotiations about whether it was legitimate or illegitimate.

Crawford Falconer

There was no decision taken that it would be pursued at that time.

Lloyd Russell-Moyle

Is it routine that you do not raise what the Government might believe are illegitimate tariffs or non-tariff barriers on goods when we are in negotiations?

Kemi Badenoch

Can I come in on that point? Just going back to tariffs generally, the Australian deal, as I understand it, lifts tariffs on all UK goods, but when it comes to standards it is different. If we are asking a country to lower its standards, we are also creating a precedent for other people to ask us to lower our standards, which is not something that we want to do. In terms of what Crawford is saying, within a negotiation, let us sort out whether there are tariffs or no tariffs. In terms of standards, that would be aside from a negotiation. There would be ongoing negotiations, which even countries within the EU and so on would be having anyway. A lot of that would be led by DEFRA. We are not SPS experts; DEFRA are, so that would be a matter for them. In terms of what is happening on tariffs, the Australia deal, as I understand it, removes tariffs on all UK goods.

Lloyd Russell-Moyle

The question is whether we consider it legitimate or illegitimate.

Kemi Badenoch

If what is legitimate?

Lloyd Russell-Moyle

Restrictions on British imports of beef into Australia. If we believe that that is a legitimate standard—the Australians just have a higher standard than us—that is fine. If we believe that Australia is implementing an illegitimate standard and is effectively using non-tariff barriers to prevent the import of our goods, that is a DEFRA question, but it is also a trade question because it is using non-trade barriers.

Kemi Badenoch

Yes, of course, but that is something we do anyway, even within the WTO, when we think things are unfair on safeguards and so on.

Lloyd Russell-Moyle

Exactly, so it is for your Department to raise when you believe that.

Kemi Badenoch

But the request would have to come from elsewhere.

Lloyd Russell-Moyle

Has the Department entered into discussions with DEFRA about the legitimacy or not of the Australian non-tariff barriers?

Kemi Badenoch

As far as I am aware, DEFRA has not raised this as an issue. As I said previously, we focus overly on agriculture. As far as I am aware, it is not in our top 10 exports. The Australia deal and the Japan deal, which you were referring to earlier, are primarily sector-driven. Financial services, digital and data—that is what this country does. We do not make enough beef for our own country. We need to be able to look at these deals within the context of what we are trying to do overall. It is not tit for tat—Australia is doing this and we are doing that. We are looking at it in the round, and in the round it is a good deal.

Lloyd Russell-Moyle

On the Japan deal, we have seen reduced exports, and some of that might be down to uncertainty. We did have TRQs put in, but they were contingent on what the EU used up, which meant that no exporter taking orders for the next year would know what Britain’s tariff level would be because it would depend on whether French exporters, for example, had exported over or under the tariff. That creates uncertainty in pricing, and in trade uncertainty is often worse than a tariff, which can be scheduled in. You say that the Australia deal is a good deal, but we heard in evidence to the Bill Committee that the wording of the procurement sections deviates from the wording of the general protection on procurement in the WTO, and in some areas could provide less protection than, say, France, which signed the Government procurement agreement. Again, that uncertainty could lead to trade being diverted on services with Government procurement via other members of the GPA. Do you recognise the criticism that the Australia deal might create more uncertainty? It might be resolved in the courts, but the fact that the wording is different creates uncertainty. Do you recognise that?

Kemi Badenoch

No, I don’t. First, I don’t recognise the uncertainty. I was not the Secretary of State in place when these deals were done. I would not expect everything to be a copy and paste of pre-existing agreements. I also think you can’t really go below WTO standards.

Lloyd Russell-Moyle

The experts said that it did go below WTO standards.

Kemi Badenoch

If you write to us and point to the detail of that, I am sure we can come up with a comprehensive answer, but from what you are saying I suspect it is not quite the case.

Chair

Thank you. Just before I move on to Mark Garnier, let me ask a question about George Eustice’s views. George Eustice thought that responsibility for agrifood negotiations should go out of the DIT and into DEFRA, which understands it better and has to make three-yearly reports on UK food security. DEFRA probably feels that it has been undercut by DIT. What do you make of Mr Eustice’s opinion that the Trade and Agriculture Commission should be placed under DEFRA instead of the DIT? Where are we? Is that a departmental turf war? Finally, what role does the Cabinet Office have in trying to resolve the very clear tensions between DEFRA and DIT?

Kemi Badenoch

There are no tensions between DEFRA and DIT. I get along very well with the current DEFRA Secretary. I think what we are having is a—

Chair

Have there been tensions?

Kemi Badenoch

Let me finish my answer, Chair. There are no tensions between DEFRA and DIT. DEFRA officials were in the negotiating team. What we have are tensions between different sectors of the UK that want different things, and it is our job as DIT to manage them. When two Departments want different outcomes, the Cabinet Office facilitates, but we manage these things quite well across Government. I remind the Committee that, when this was done, George Eustice said that it was a good deal. He may have said something different, but he is disagreeing with himself as much as he is disagreeing with any other Department. I am here representing DIT. George Eustice is not the current DEFRA Secretary. Thérèse Coffey is, and I believe that, when she was asked, she said that she did not agree with George Eustice.

Chair

We have had a Minister from DEFRA and a Minister from DIT together in front of us. In fact, they put on a display, told us how harmonious things were and hugged in front of the Committee. It was quite a display. What we subsequently discovered was that, at the very moment of the hug, daggers were drawn and knives were going into backs. The presentation is continually that all is rosy in the garden, but it really isn’t, is it, Secretary of State?

Kemi Badenoch

That is a fantastically dramatic portrayal of what are actually the usual disagreements within Government. At the end of the day, the principle that we abide by is collective responsibility, and that is all that matters.

Chair

You made a point earlier about not rushing into these negotiations. If they had taken their time and could still be negotiating—they are not in play at the moment—they might have had better deals.

Kemi Badenoch

If they had taken their time, you would probably be saying, “Where are these deals that you promised?” There is a tension there between people saying that they want to see things now and us taking the right amount of time.

Chair

That takes us on quite sweetly, because there are many problems, and I will come back to that very point of view. There was a cracker of a point about the damaging effects of what has happened in the last few years. I cannot wait; I am looking forward to Mr Garnier’s contribution.

Mark Garnier

Congratulations on your appointment, Secretary of State. I do not think anybody has managed to make that point yet.

Kemi Badenoch

Thank you.

Mark Garnier

How does collective responsibility work in practice? The previous two Prime Ministers—I know that they did not cover a particularly long period of time—were accused of back-seat driving in these negotiations. This is a two-part question. One part is about where the negotiating position is set. There is still an ongoing discussion about what the UK’s trade negotiating position is. Where is the trade policy being set? Is it DIT, the Cabinet or the Prime Minister? The second part is to do with the style—how you go about the negotiations. Partly, this is to do with whether Prime Ministers are interfering in terms of that style. Are they saying, “Crack on,” “Be a bit tougher,” or “Be a bit softer”? Those are the two questions. To what extent are the Cabinet and collective responsibility involved in trade negotiating objectives? Is there any interference—perhaps that is a question for you, Crawford, because you lead on negotiations—by the Prime Minister, whoever he or she may be?

Kemi Badenoch

I would not use the word “interference”. The Prime Minister sets the mandate. On my appointment, both Liz Truss and Rishi Sunak would outline what it was that they wanted to see. All Government policy starts with the Prime Minister. I think the challenge occurs when a Prime Minister wants something to happen sooner. Then there is a tension with what a Trade Secretary can do within the mandate that they have been given. For what it’s worth, having seen what happened on the India FTA, where I definitely wanted a lot more time looking at it—the previous Prime Minister, having been a Trade Secretary herself, had a different view. Obviously, I had to defer to her. I would not call that interference; I would call that my boss giving me my instructions, but I have an opportunity to feed back. What I would say is that the current Prime Minister does not do that. I have spoken to him about deadlines, and he agrees with me on that: he says it is about the quality, not the speed, of the deal.

Mark Garnier

It is a really interesting point you make about the previous Prime Minister, and I think she found a deadline earlier than she was expecting in her own career. The important point on that—I think you made this point a little earlier—is that the last thing you want to do is to have a timed deadline. The fact that the Prime Minister, whoever it was at the time, was able to try to put a deadline on a negotiation with India, which is a huge country, is quite worrying, isn’t it? We can see what happened to that particular Prime Minister because she took some very, very bad decisions at many—multiple—levels. I think we have to be honest about that.

Kemi Badenoch

I am not commenting.

Mark Garnier

There’s a 15,000-word essay in there somewhere.

Chair

Not this afternoon, please.

Mark Garnier

But it is an important point. Again, I am looking to Crawford on this, because he is well known as being one of the world’s greatest trade negotiators, which is why he was brought to the Department in the first place. If you have a Prime Minister who has the wrong objectives, that can hinder the very, very good work of the officials who are doing these trade negotiations. How do you push back? As I say, I don’t for a moment think that Rishi Sunak will fall foul of this, but it may be that at some point you do have to—

Kemi Badenoch

I can provide an explanation for how it does happen. One thing I don’t want the Committee to take away is that we shouldn’t have deadlines. The public deadline is the problem. Internally, we will know we should be able to get this done by March or September, and so on. What can happen inadvertently is an internal deadline becoming public, which can create some of the issues where a Prime Minister may have said something and then we need to work to it. Flexibility is the key thing—always being very honest and ensuring that even if a deadline has been set, it can be flexible, so that the other negotiating party doesn’t get the upper hand. But the truth is that even with, perhaps, an internal deadline that I have set, sometimes things will change during the process of a negotiation. With countries like India, if they have elections, for example, their political environment can make it tricky to talk about certain things or announce other things, and we need to be respectful of that as well. A deadline can create a problem also for the other side. It just goes to show what a moving feast a trade negotiation is. But internally, we will have a fixed time by which we expect to conclude things.

Mark Garnier

It would be quite useful, on something as important as the European Union, to know how the relationship is between DIT and the Cabinet and the rest of Government in terms of how the trade relationship with the EU is handled. Is DIT the lead Department for all the potential trade problems that we have with the European Union—the stickiness at the borders, and all that kind of stuff—or is that each individual Department where that is appropriate?

Kemi Badenoch

The trade and co-operation agreement is different from all the other ones. We don’t lead on the TCA, but we lead on what I would call the operation of it. In terms of who sets the regulations, the agreement was not done by DIT as such; it is an FCDO lead. But if you are having a problem exporting to France, that would be us. The bread and butter of trade and investment is still DIT—we lead on that—but on the agreement itself and if we want something changed, that would be FCDO.

Mark Garnier

But if we wanted something changed on the Australian trade deal, that would be DIT.

Kemi Badenoch

Yes.

Mark Garnier

So it is unusual in that?

Kemi Badenoch

Yes, it is unusual, but I think—

Mark Garnier

Is that a healthy unusual?

Kemi Badenoch

It is different. Obviously, in the empire power grab, I would probably want to be in charge of every single thing that had to do with trade. The reality is that that is not realistic, and FCDO has its own specialists and expertise, so the key thing is making sure that we work well together. But in terms of trade policy from an exports and investment perspective, given that that is where I want to focus, I don’t mind that the TCA sits with another Department.

Mark Garnier

I will just quickly ask this, if I may. As you know, I used to be a Minister in the Department, and there was always a little bit of an interesting tension between DIT and FCDO—or FCO as it was then. Do I sense that that tension has not quite disappeared?

Kemi Badenoch

No, it’s not so much a tension between the two Departments—I obviously get on well with James Cleverly, and many of the FCDO Ministers are friends of mine. It is a hangover for me from the nightmare Brexit Parliaments in 2017 and 2019, where we ended up doing something in a particular way, and that is just the way it is. It means that things are different, but they are not unhealthy, which was the question you asked, or bad. Obviously, when it comes to trade policy, we feel that we have the expertise from a negotiating perspective, but we also recognise that the FCDO brings a lot to the table, so the key thing is making sure that the two Departments work well together.

Mark Garnier

And that it is one Government overseas.

Kemi Badenoch

Exactly.

Chair

I have a quick question on the current Prime Minister. Which of his two views on the Australian trade deal is he currently deploying? Is it the one that it is a bad deal or the one that it is a good deal, because we know that in the Conservative party leadership contest he described it as a bad deal? Is that still his position?

Kemi Badenoch

As far as I am aware, the Prime Minister and I agree that the Australia deal is a good deal. I think that if he were here, he would be saying, “Of course, there is always more that we want to do, and the Australia free trade agreement is not set in stone forever and ever, but actually we need to work within—"

Chair

Do you—

Kemi Badenoch

I am still answering the question. We live in a world of constraints. Asking for the perfect deal every single time will not be possible because what other countries will want from us and vice versa is not necessarily realistic, but is it a good deal? Yes. As I said, there are no tariffs on UK goods and there is all the services sector stuff on where the UK wants to be in 10, 20 years’ time. Yes, it is a good deal.

Chair

So the deal was unchanged from both his views. Why did he say one thing to the Conservative party membership and another thing to the UK at large?

Kemi Badenoch

I cannot comment on his comments during Conservative party leadership—I actually didn’t pick that up. What I know is what he has said about the deal as Prime Minister—as Secretary of State, that is the statement I am here to make.

Chair

So Opposition MPs pay more attention to the Tory party leadership than Tory MPs.

Kemi Badenoch

The Secretary of State and the Prime Minister are of one mind.

Chair

In your experience, Crawford Falconer, were any Prime Ministers pushing, encouraging or setting deadlines for Trade Ministers to get on planes, get things signed or get things done, in that very boosterism kind of way? Can you think of any Prime Minister who might have done that? I am particularly thinking of the Vietnam trade deal. Does that ring any bells?

Crawford Falconer

In my experience, Prime Ministers who have been present and in charge of decisions by their colleagues want to see them implemented, and they want to see them implemented effectively. I think that is a pretty uniform experience with Prime Ministers.

Chair

Does it ring any bells—“Get on a plane, get it done, get it negotiated, get the paper, get it signed”?

Crawford Falconer

I don’t hear any literal echoes of that kind, because Prime Ministers very rarely directly address me or are in my hair.

Chair

So you were not aware of it. Ministers were telling me at the time, but they were not telling you—that is interesting.

Lloyd Russell-Moyle

This split between FCDO and DIT—is there a case to just merge them?

Kemi Badenoch

No.

Lloyd Russell-Moyle

Why not?

Kemi Badenoch

Because, given everything that has happened since we left the EU, DIT is very much a Department that is focused on business. It is investments and exports. It is a business-focused Department. FCDO is more about relationships. It covers far more regions and countries, and what we have seen is people who want to work specifically on trade come to DIT. It has created a brand of its own, and I think that is working well. It is also what we see across many other countries, so I have counterparts whom I am speaking to. I think the standard thing is actually for trade to be separate from foreign affairs.

Lloyd Russell-Moyle

You said in your visit to Washington last month that we “shouldn't get too hung up” on the idea of negotiating free trade agreements. You mentioned it even in your opening statement. Kemi Badenoch: I did.

Lloyd Russell-Moyle

Could you tell me what you mean about that? Does that mean that the Department will move away from counting the deals to actually supporting businesses for once?

Kemi Badenoch

Apart from the “for once”, I agree with that statement. It is changing the emphasis. What I find is that people rarely ask me about exports or about investments. They just ask about free trade agreements, which are fantastic—they will be helpful in facilitating trade—but a trade agreement in and of itself is not trade. On the trip to Washington, for example—and the US is a place where I really want to emphasise that— we wanted a US free trade agreement. When we made those statements, we had a President who wanted to do a free trade agreement, but there is now a new President who does not want to do any free trade agreements with any countries—it is not about the UK. I have been to the US twice now. If a country doesn’t want to do an FTA, that doesn’t mean that we walk away and don’t do anything. Without an FTA, the US is still the single biggest investor in the UK. I mentioned the market access barriers that we have been able to remove. DIT still has a lot of work to do in the less sexy areas of getting tariffs removed and so on. That’s basically what I was driving at with that statement.

Lloyd Russell-Moyle

I agree with you that that is what the Department needs to focus on. Would it not then be better to have a Department for business and trade, and allow the negotiations to go to the FCDO? As you said—in your own words—it is the one that develops the relationships. When we were in the Gulf states, the ambassador in Dubai who leads on trade wasn’t even involved in the ongoing negotiations with the GCC, even though he is the trade lead for the whole of the GCC. Is there not a problem that, even though we might say we are one nation abroad, it would actually be better if the negotiations were just under one Department, and you could focus on the bits that you were really passionate about?

Kemi Badenoch

What you’ve just described is a machinery of government change, which we often hear. Actually, it’s a process thing. I try not to get involved in the renaming and the moving bits and pieces here and there. We had this exact debate with DFID and the FCDO. I remember people on the other side of the House saying, “Don’t merge the Departments; it needs to be separate”, so it is quite interesting hearing the other side of it.

Lloyd Russell-Moyle

I’m just trying to seek consistency—either you are separate or you’re together.

Kemi Badenoch

These things will always depend on where a Prime Minister wants to focus. This is well above my pay grade. I will say that we are not there yet with GCC; the discussions are still at very early stages. That is probably why that is happening. I have met—at least I believe I have met—the ambassador and I regularly meet representatives from other countries. When the time comes, when we have moved past the ones that we are currently negotiating—CPTPP, India and so on—I think you will find that things are in a better place. It is probably more of a function of the pipeline than of which Department is carrying out negotiations.

Lloyd Russell-Moyle

Businesses, I suspect, will be jumping with joy at your statement that you are going to focus on building up businesses in Britain and trade promotion, because it has been a bit of an abject failure in the Department so far, hasn’t it? DIT’s Export Support Service helpline was outsourced to Hinduja Global Solutions and ended up costing £270 per call; it has now been scrapped, costing more than £2 million in total. How on earth do you think this was allowed to happen, and how will you ensure that the kinds of disasters that your predecessors have overseen will never happen again on your watch?

Kemi Badenoch

First of all, it was not a disaster, but it was obviously something that wasn’t working. I think we need to be very careful about hyperbole. If a support service is too expensive and not efficient, and we change it and close it down, that is not a disaster. We need to remember where we were when the support service was created—leaving the EU, concerned that there were going to be loads of companies that were worried about trade and not necessarily knowing how to follow the new regulations, we needed something to do that. Actually, the Export Support Service came into its own during the early days of the Russia-Ukraine war. I have some stats here saying it responded to over 4,000 inquiries related to Russia, Ukraine and Belarus. We have brought it in-house now, as it wasn’t working. That is actually a testament—

Lloyd Russell-Moyle

And have you scrapped the £270-per-call charge?

Kemi Badenoch

It is no longer that expensive, but that is actually a sign of a Department that is working—we look at how a service is being delivered and, if it’s not efficient, we change it around, rather than leaving it.

Lloyd Russell-Moyle

Why is there a charge at all? If we are really into the business of promoting—

Kemi Badenoch

I don’t think there is a charge. I think that’s just a cost. I don’t think we charge people for the call.

Lloyd Russell-Moyle

That’s good to hear. How can you say that that service was successful when we have seen reduced trade with Japan?

Kemi Badenoch

Well, the Export Support Service was primarily around the EU. That is where it was promoted and set up. It has been brought in-house. Like I said—

Lloyd Russell-Moyle

Ukraine and Belarus wasn’t, and Russia wasn’t EU.

Kemi Badenoch

That is what I mean—it was set up for that. The fact that it was there meant that it could then be repurposed for something else. We are not repurposing it again for Japan. I don’t think that that would be the right thing to do. We have to look at what the drivers are for exports falling. It doesn’t necessarily mean that people don’t know how to export to Japan, or don’t know what the regulations are. That is not where I would look to. It is something where I want to get to the root cause, but supply chains, covid and probably a little more work looking at what is driving that will be critical.

Lloyd Russell-Moyle

But export support is important for businesses, wherever they are exporting to.

Kemi Badenoch

Yes, so we still have an Export Support Service—it is just in-house, and it is digitised now, which will bring down costs as well.

Lloyd Russell-Moyle

But is it just focused on Ukraine and the EU, or will it focus globally?

Kemi Badenoch

No, it is still a general Export Support Service.

Martin Vickers

Returning to the negotiations, or non-negotiations with the USA, are talks continuing with the individual states and are they a realistic alternative to a full-scale FTA?

Kemi Badenoch

They are incredibly helpful. We are signing memoranda of understanding with the different states. What they will help do is provide a foundation should we have a change of approach with the current US Government or a new US Government—there is something to build on. Greg Hands, the Minister for International Trade, is going to the US to sign one of those MOUs. When I was in Washington, I had very productive conversations with a Congresswoman from another state where they are very keen to do this with the UK. They already have quite a lot of UK-US trade. What I am finding is that much of what we are trying to do is relationship-based. It is not enough just to send officials with requests and try to do it that way. When they know who you are, have seen your face and recognise what you are about and what you are trying to do, it facilitates a lot more in terms of being able to solve problems. For instance, when I was there, I was raising the issue of the Inflation Reduction Act, which is going to impact not just us, but also the EU, South Korea, Japan and so on. They are actually very pleased with our engagement; they think we are leading on this and are doing very good work. Those are the sorts of things which we are doing with the US. Again, it is not all about FTAs. The MOUs are fantastic because it means we are learning a lot more about the country that is the size of a continent and building stronger relationships there. I am very pleased with how that is going.

Mick Whitley

Secretary of State, my question is about advisory groups and civil society engagement. None of DIT’s 11 trade advisory groups include trade union representation, despite your predecessor telling us in April that she wanted “to see trade union membership on as many TAGs as possible” and was “working with the TUC” on this. What would you do to address this issue?

Kemi Badenoch

My understanding is that there are trade unions on the advisory groups. Am I—is that correct?

Crawford Falconer

There have been, yes. There still seems to be some persisting uncertainty about this. I can try to put the record as clear as I can on it. We have had the TUC on the STAG—the Strategic Trade Advisory Group—and we have our own trade union advisory group dating back some way, where we did engage with the TUC, but they were unhappy that we didn’t have more union representatives on the TAGs, which are the sector-specific advisory groups. They wanted trade union representation on all of them. The Government took the decision that it would seem appropriate in terms of the balance of interests that that would be on five of those TAGs. But because the TUC felt that that wasn’t sufficient, they stopped meeting in the trade union advisory group with us. We had quite a lot of to-ing and fro-ing to try to reach agreement on who would go on the TAGs, if you like. Essentially, the unions decided they wanted six and the Government’s decision was that five would seem appropriate. Finally, we reached an agreement in the middle of last year that it would be five. But lo and behold, at that point in time, the inbuilt date for the expiry of the review of the membership of all the TAGs kicked in. We have to resolve the review, but I believe, on the basis of the understanding that we have at the moment, we will have resolved it, that we will have the trade unions on five of the TAGs, and that they will agree that that is sufficient going forward. I think we are in a position to resolve it. We have to let the review take its course but, going into the review, that seems to be a basis on which we can proceed.[1]

Mick Whitley

I welcome those comments. However, when we discussed this with Liz Truss in April, she was wary, although she wanted trade union representation on the TAGs. My understanding is that it was in line with the EU policy of having advisory groups and that there would be no diminution of the 11 groups. Why are we trying to divide the trade unions? They are part of our society.

Kemi Badenoch

Obviously, I am a different Trade Secretary. What I actually want to do is just carry out an overall review on how the TAGs and STAGs are operating. I will certainly bear that in mind and look at what I think is going to work best, but I take your point.

Chair

I don’t think it will be long before we see the Secretary of State again, and perhaps there will be trade union representation on the TAGs by then. You can chalk that up as a win, Mick.

Kemi Badenoch

That was not a commitment to do every single thing that Mick wants. It was a commitment to review and look at what works best.

Chair

You cannot take the win away from Mr Whitley at this stage. You cannot give him the gift and then draw it back.

Lloyd Russell-Moyle

Would it be possible for you to write to us with a list of the TAGs you are accepting when the deal is done? There are 11 TAGs, and there is only one that I cannot see would be appropriate.

Kemi Badenoch

It is public information, is it not? I think it is on our website.

Lloyd Russell-Moyle

On your website, there are 11 TAGs listed; there are no unions listed yet. When you finalise the agreement with the unions on which ones—

Kemi Badenoch

We will update the website.

Lloyd Russell-Moyle

But rather than us going and checking, and working out which five those are, it would be helpful if you could just write to us. It would be useful if you could put in an explanation note about your views on why the other six are not appropriate for trade unions. I can understand that investment is probably less appropriate, but I would have thought that all the others would be appropriate, so it would be good just to know the rationale behind why those five have been chosen.

Kemi Badenoch

We can do that when we have carried out a review.

Chair

Thank you very much. That is fantastic, Secretary of State. The great Mark Menzies—I think you are standing for the IPU today, Mr Menzies.

Mark Menzies

I am. Secretary of State, welcome to your role. It is a very interesting and challenging Department, but your appointment comes at a time when Government Departments are facing real pressures on their budgets. How do you propose to find the savings and efficiencies that have been committed to in the autumn statement?

Kemi Badenoch

I think from memory that our spending review settlement is not changing. Am I right?

Crawford Falconer

Yes.

Kemi Badenoch

This is where getting a perm sec in very quickly is going to be helpful, because we are doing a lot of the departmental administration without a perm sec. I think the spending review settlement is unchanged, but we have a business planning cycle where we understand the economic environment that we are in. Every Department has to look at efficiencies, so we will be doing that in the usual way. It is a challenge. The bigger challenge for us is around pay. We had a good settlement on pay recently, because I remember signing off the request for that, and the Cabinet Office has approved it. In terms of pay, we are not doing quite as well as other Departments—it is a younger Department, for example. We need to balance all that in mind and make efficiencies. Our costs are mainly around staff, so we have to make sure that we strike a balance whereby people are being paid properly, especially overseas, and that we are keeping in good balance with the other Departments across Whitehall. That would be our biggest challenge.

Mark Menzies

That is great. I have a brief supplementary question. When we travel abroad and see what some competitor countries do, in terms of big export pavilions supporting UK exports, there is no doubt that we have got much better at this in recent years, but sometimes stuff is left on the table. What plans do you have further to increase relationships with UK private sector companies to get more sponsorship and so on from people who would benefit from the UK succeeding overseas? Rather than that burden falling entirely on the taxpayer, that would get more private sector money in to support export events. That all happens at the moment, but how can we expand it further?

Kemi Badenoch

A good example of one thing we did was the Green Trade and Investment Expo in Gateshead last month. Barclays was one of the sponsors. We got people from all across the world, looking at clean energy investment in particular. There was a lot of interest. The Department does quite well in its relationships with the private sector. UKEF, for example, delivers quite a lot of its funding—I think probably all its funding—through retail commercial banks, so that is one relationship. It is mainly about building on existing relationships. I do not know—I should look into this shortly—what new plans we might have to strengthen private sector sponsorship for things like trade promotion. There is quite a lot of interest when it is something that is very much in the sphere of what an organisation is looking at, but everyone is tightening their belt, so it is becoming more and more of a challenge. However, we are not being complacent.

Mark Menzies

Thank you.

Chair

Thank you, Mr Menzies. You are, of course, No. 1 on this Committee for the IPU vote. I call Mr Girvan.

Paul Girvan

Congratulations on your appointment, Minister.

Kemi Badenoch

Thank you.

Paul Girvan

On that, what is your full complement of trade negotiation staff and how many vacancies do you have?

Kemi Badenoch

Crawford, do you know about staff numbers?

Crawford Falconer

I do. I have them written down here somewhere. I will dig them out.

Kemi Badenoch

Bear with us. I do not know the staffing numbers in specific teams; I know them more in general.

Paul Girvan

It is the vacancies that we want. Are there vacancies within that complement?

Crawford Falconer

There are a few vacancies that we still have to fill, but we are getting close to filling our target for the moment. We have something like 500 people for negotiations at the moment, so I think we are very close—much closer than we have been—to onboarding them now.

Paul Girvan

How many vacancies have you not filled?

Crawford Falconer

I would have to check the exact numbers, but I think we have about 60 whom we are trying to onboard at the moment. They are going through a process of onboarding. We are probably looking at about 70 or 80 more getting their feet well and truly on the ground.

Paul Girvan

In doing so, as has been mentioned in relation to efficiencies, is there an indication of additional staff or a reduction in staff? We know how efficiencies will be pushed in the next financial year with the difficulties that we are going to encounter. How will that impact on the Department’s staffing levels?

Crawford Falconer

That remains something that we have to work through. In the abstract, it does not necessarily have to affect staffing levels. Staffing is a large component of our costs, but there are other ways in which to reach efficiencies: going about our business a different way, taking other sources of cost out, and natural attrition, which we can align with our objectives. At the moment, that is precisely what we will do over the next little period, to figure out how we can meet the need basically to cover inflation in our existing vote. As the Secretary of State said, that has its challenges, but it is quite healthy: we should be looking at whether we can have efficiencies, so it will just accelerate the process. I don’t think there will be any draconian change in the period of the current spending review, but we will need to look at whether we can do things a bit more effectively. I hope the answer will be that we can, but I do not operate on the assumption that it will lead automatically to a decline in numbers. It might, if we cannot find a better way of doing it, but the best way to do it is to seek other efficiencies in overheads, prioritisations and systems, which I think we are capable of doing.

Paul Girvan

Just as an add-on to that, I appreciate that some of your staff have focused primarily on international trade, but there are regions within the United Kingdom where international trade becomes a barrier. I am being very local on this, because it is extremely important—the protocol and the difficulties that it causes for businesses in Northern Ireland, primarily regarding the supply chain from the United Kingdom, to being able to actually export. We have one major company in Northern Ireland that buys up a lot of steel because it manufactures for the quarry industry. It may ultimately end up with steel tariffs, which will hit it very badly. That is simply because of the Northern Ireland protocol. What focus will the Department have on ensuring that those sorts of issues are also being looked at in the round in relation to raw trade within the United Kingdom, as well as the international aspect of it?

Kemi Badenoch

It is a really good question, and, again, it is one of those areas where, as we were talking about with FCDO, the Northern Ireland Office leads on a lot of it. So, what have we done as DIT?

Paul Girvan

I am afraid that I have very little confidence in the Northern Ireland Office, by the way.

Kemi Badenoch

I think that it is in good hands, but I will tell you what we are doing. We established a trade and investment hub in Belfast in March this year, and that is specifically to provide a lot of that technical support. I am not going to sit here and pretend that everything is easy or fine; businesses do need additional help. That is a team of nine people who are trying to make sure that businesses in Northern Ireland have the same access to DIT services as elsewhere in the UK. We have the export academy, which does training, and we have export champions. That is one thing we are doing. We do want to grow that as well. We are talking about staffing numbers and making sure that there are enough people to provide that service. I also know that HMRC supports traders who move goods in and out of Northern Ireland through the trader support service. I do not cover that, but I am told that that is something that we assist with as well.

Paul Girvan

It is all additional costs—

Kemi Badenoch

Yes, it is. I wouldn’t deny that.

Chair

I will not say that we are happy, but we are finished on that point. We are just over halfway, time-wise. We are getting through probably most of what we need to, but we have votes likely at 3 o’clock, which, of course, will pause this session. We can pick up the pace quite markedly and maybe get through an awful lot of it so that we do not have as much to do after the votes. Mr Garnier, you can set an example, or not, with the Secretary of State, who can also set an example, or not.

Mark Garnier

I think proper scrutiny is important, Chair. We would not want to skip over it.

Chair

Well said, Mr Garnier.

Mark Garnier

Back when I was a Minister, Secretary of State, we did staff surveys on happiness and contentedness, and they were not very good. That was back in 2017-18. They are still not very good. I think that in the latest one, the pay and benefit satisfaction score was at just 28%. Clearly, you have just arrived, but do you recognise that there is a problem with staff satisfaction within DIT?

Kemi Badenoch

It is mainly pay satisfaction, and I do absolutely recognise that. As I said, we are below par compared to other Whitehall Departments. We have made a request to try to improve and increase that. I am somebody who really believes in morale and in people being happy to be where they work, and the truth is that a lot of the DIT staff are not based in the UK, but they all respond to those surveys. In some countries, I think that morale—I will not name which specific countries, because I do not want to create more news headlines than necessary, as I am sure you can imagine—

Chair

Oh, go on!

Kemi Badenoch

In some countries, it is actually becoming very difficult because of increasing tensions between the UK, generally, and those countries. If you can imagine, there are places still implementing zero covid, and being a staff member working in that kind of place—there is a lot that is feeding into why people are unhappy, and we are doing what we can to provide support, especially for those people who are overseas. Overall, in terms of how people feel about their team, inclusion, fair treatment and so on, I think we are doing quite well on those numbers, but pay definitely is an issue, and inflation is going to make that even more challenging.

Mark Garnier

When the Investment Minister, Dominic Johnson, was on his brief sabbatical while a reshuffle was going on and he was not in government, he made the point that it is an interesting Department—it is very much a commercial Department that has commercial objectives, and yet a lot of the staff who are trying to promote commercial objectives are being paid as civil servants. There is a disconnect between the very good role of a civil servant who is delivering a job for Government and that of selling the country, which is a sales job. He made the point that those who are on the frontline selling Britain should be sales-type people and paid accordingly. What do you think of that?

Kemi Badenoch

So commission on free trade agreements, perhaps?

Mark Garnier

Well, I do not think he meant that, but you can put targets on boosting exports and deals won. It is possible to do it.

Kemi Badenoch

It is an interesting idea. I am not sure how it would fit within our current civil service framework if people were effectively getting commission and bonuses on performance, because I do not think you can always isolate exactly what impact an individual has had in a space when we are talking about Government work and Government activity. That would be challenging. Yes, we do pay civil service rates, but many people want to work in public service. I was speaking to the outgoing chair of UK Export Finance, who is a former investment banker. The people who run UKEF, for instance, are on broadly very high civil service pay, and these are people who earned far more. The way he explained it to me was that it is about wanting to give something back and do something different. If we can fish in that pool—not necessarily the young salesperson who wants to get a big commission, but probably somebody who does not need to pay a mortgage or does not need the money in the same way but is bringing a lot of experience. That is certainly a pool we can fish in, because people want to give back, so we should encourage those sorts of people. The broader problem is civil service pay within DIT; that is what we need to look at.

Chair

Secretary of State, you will be delighted to know that we are moving on to the export area. Multiple tag teams will be going on as we pick up the pace, and Mr Mick Whitley is first.

Mick Whitley

Do you think that the UK should be an export-led economy, and if so, what exactly do you understand that to mean, and how would you know if it had been achieved?

Kemi Badenoch

“Export-led economy” is a phrase I heard as something that had come from a statement made by a previous Secretary of State. I think it is probably true in some respects, if we can make sure we are talking about not just goods exporting but also services exporting. We have a very, very large services export market. I think we are the second largest services exporter in the world and the seventh largest exporter overall. Exports is us selling to other countries; that is the simple fact of it. Do we want our economy to be led by that? I think so. We have had lots of conversations for multiple years across several Governments about global Britain. There was an ambition for us to reach £1 trillion-worth of exports by 2030, and that is an ambition that we should continue to work to. If that is what we mean by an export-led economy, absolutely, but a lot of people think that an export-led economy is us doing more agriculture and so on, which is extremely competitive and is not where the UK has comparative advantage. While we want our farmers to be successful and to know that we have their backs, exports more broadly will be where we have our expertise, and that is the services sector.

Mick Whitley

Where do you sit on manufactured goods?

Kemi Badenoch

On manufactured goods, we do well. As I said, we are the seventh largest exporter in the world, but manufactured goods are not specifically services; they might support services. We can do a lot more digital trade, for instance, but an export-led economy, for me, means selling to other parts of the world, not just our own. It is a challenge that we need to stay aware of. Because we have such a large domestic market, many people in the UK do not think about exporting their goods and services, which is why we have the export champions and Export Academy programmes. They may not sell as much, but small companies are often nimbler because they do not have a big enough market, so they know how to do a lot of things that people in the UK do not. We want to ensure that we are creating new exporters every year.

Chair

I think two days ago, Secretary of State, you said that Scottish businesses—on this St Andrew’s day—are playing a key part in making the UK an export-led economy. If you stripped out Scottish businesses, what would that figure be?

Kemi Badenoch

Sorry, I did not hear the question.

Chair

If you stripped out the contribution of Scottish businesses, with the probable advent of Scottish independence in the next few years, where would that leave the UK export economy?

Kemi Badenoch

You are asking if Scotland went independent, where would that leave UK exports?

Chair

Where would that leave the rest of the UK’s export-led figures?

Kemi Badenoch

I am not sure that I have those figures to hand. What I do know is that Scotland is a very valuable part of the UK when it comes to exports.

Chair

I would imagine that you think that.

Kemi Badenoch

Obviously you are speaking to a Unionist, and I have spoken to Scotch whisky producers many times. It is not just a great export, but one of our flagship exports. What people look at in the UK is quality, rather than the volume of goods, so we do not want to split our United Kingdom at all. We are doing everything—

Chair

That is not surprising when you need those exports.

Kemi Badenoch

Well, one of the things that Scotland does benefit from having is the expertise that the wider UK brings. You will know that the trade promotion, the trade expertise and the links are all in the centre. I had a good meeting with Ivan McKee not that long ago, and we spoke about what he was doing.

Chair

Put him in charge.

Kemi Badenoch

No. But it goes to show that we can work well together. It does not all have to be done in London; we had the Board of Trade meeting in Wales just this Monday. We need to ensure that it is all joined up. Scotland is an integral part of the UK, but Scotland’s success comes from having links within the UK. We do so much in order to support Scotland, and we will continue to do so.

Chair

It makes me wonder why Ireland, Iceland, Norway and Denmark have a better GDP per capita when the rosiness in the garden that you have just presented apparently exists, in your view.

Kemi Badenoch

I cannot speak for why Scotland and Norway—well, certainly Norway—

Chair

Iceland and Ireland, which left the UK.

Kemi Badenoch

We know exactly why Norway has that, and it is because of its phenomenal fossil fuels legacy. In terms of GDP per capita, I do not have the figures in front of me, but I am sure—

Chair

I will accept a letter on that.

Kemi Badenoch

We can send a letter to explain. The UK is a very diverse country and there is a lot more going on—

Chair

You can tell me about the GDP per capita of the UK versus those four countries in the letter. I look forward to that.

Mark Garnier

You are going to be writing a lot of letters.

Kemi Badenoch

Yes.

Mark Garnier

I will just carry on with this export data. The UK now has significantly lower goods export volumes than other advanced economies. When you look at exports overall, you see that in the period 2020-2021 there was an 8% increase—the global average was an 8.2% increase in exports. Other advanced countries were averaging a 5% increase in exports over that period. The UK saw a 14% decrease, so it seems that we are going in the wrong direction. There are lots of arguments about why that could be. It could be the TCA with the EU making it sticky, but the reality of it is that irrespective of whether you are talking about goods or services—I am more interested in goods here—we are not doing very well, are we?

Kemi Badenoch

No, we should be doing better, and it is clear that we should be doing better. We have an export strategy that will be focused on trying to address those issues. As I said before, we cannot just be complacent and think that because things have been okay, they will always be okay. We have had supply chain bottlenecks and the covid backlog, which has had a significant impact. Looking at what we are doing on supply chains more broadly, that is something that BEIS would be doing. Even from a security perspective, it is absolutely critical that we ensure that we are diversifying as much as possible. In terms of Russia and Ukraine, we have been—

Mark Garnier

There is a global problem. We must focus on the fact that we are in a competitive marketplace, and if we are not winning this—it ultimately comes back to this great Brexit argument, which I am certainly not proposing to reopen. We are all bored to death with it.

Kemi Badenoch

Thank you.

Mark Garnier

You are welcome. But DIT’s function in the world and in Government since 2016 has been to deliver the Brexit dividend, which is boosting trade and all the rest of it. You are taking on this challenge, but the evidence suggests that it has not really worked.

Kemi Badenoch

I would go back to first principles. What are we trying to do? A lot of DIT trade policy stems from the integrated review, in which there was a very clear statement about an Indo-Pacific tilt. I am not going to pretend that everything is fine now, but there was a reason why we left the EU, and it was not due to the scaremongering and some of the nonsense that we saw. In the future, 40% of the middle class will be coming from the Asia-Pacific, and we need to reorient our economy to deal with that. We cannot pretend it is not happening. Europe—the EU in particular—is getting a lot older and demographics are changing, so what are we going to be specialising in? Where is our comparative advantage coming from? That does not mean that tomorrow we are going to swap everything around and everything is going to be okay. What we are doing is planning for the future. Have there been difficulties? Yes. There always were going to be difficulties. I am not one of the Brexiteers who said, “Everything is going to be fine as soon as we leave.” This was a very difficult decision for people like me, and it was making a play for the long term. The Indo-Pacific tilt means CPTPP, an India FTA and so on. We have to be realistic about what we are trying to do. We cannot just sell beef today or export a technology that may not be worth keeping tomorrow. We have to think about the future and about what we specialise in—R&D and science. We are a life-sciences superpower. The strategy will focus on all those things.

Mark Garnier

In the interests of full disclosure, I ought to reveal that I am a Prime Minister’s trade envoy. That is relevant to the performance of DIT.

Chair

Done and disclosed. I want to pick up Mr Garnier’s figures. He mentioned that everybody else’s exports are up 5%, and the UK’s are down 14%. That fits with the Japan profile that I gave you at the beginning. You said that it is maybe something internal in the EU, but Japan is not an outlier; this is what is happening to UK trade everywhere. UK trade is going down, and everybody else’s is going up. You said that you need to orient yourself to the Asia-Pacific, but isn’t the EU orienting itself better to the Asia-Pacific, given that its trade is up and the UK’s is down?

Kemi Badenoch

Are we talking about services trade or goods trade?

Chair

We are talking about general trade—goods trade.

Kemi Badenoch

There will always be anomalies because we are a 70%—

Chair

Sorry, we are talking about exports in general.

Kemi Badenoch

Yes, we are talking about goods exports.

Lloyd Russell-Moyle

And services.

Chair

Goods and services, yes.

Kemi Badenoch

We are talking about goods and services. The UK is very much oriented towards services. It is a lot harder to capture services trade in the same way that we measure the goods trade.

Chair

So we can expect that to go up in a year or so, so it will be fine.

Kemi Badenoch

One of the things I want to do is get the data and find out more. Why is this happening? It cannot just be about leaving the EU; it is not just happening to us. The EU does not have a very simple story.

Chair

Okay, but what is the GDP hit to the UK from leaving the European Union?

Kemi Badenoch

Angus, you and I have this conversation—

Chair

It is a simple question. I just want the figure.

Kemi Badenoch

I am not going to relitigate Brexit. The fact is that—

Chair

It is a 4.9% hit.

Kemi Badenoch

We have left the European Union, we have had a global pandemic—

Chair

So has everybody else.

Kemi Badenoch

We also have a war in Ukraine, which we are leading on. All those things are going to impact GDP, so disentangling which one of those things may or may not be Brexit is not helpful for us to do in this Committee.

Chair

Okay. You said you were not one of those who said that everything was going to be fine immediately, but did you tell people it was going to be worse? UK exports to the EU for companies like DHL have plummeted.

Kemi Badenoch

Like I said, this is something we have done for the long term. We have not said that there are not going to be any changes in the interim. What we are doing is creating an independent trade policy that works for the future and secures the prosperity of the UK. Will there be difficulties because of changes? Yes, all change is difficult. You advocate for Scottish independence, and if you think that leaving the EU is difficult, I assure you that Scotland leaving the UK will have far more of an impact.

Chair

Ireland has done what you talk about there in the last few decades, and it is thriving. Its exports have not been going down.

Kemi Badenoch

Ireland still has a very, very close relationship with the UK. That is one of the reasons why it is thriving.

Chair

Thank you, Secretary of State. That is what happens after independence: you have good relations with your neighbours. I will quote that later. There is an elephant in the room here that has to be addressed. We cannot close our eyes to the pay cut the UK has given itself at the time of a cost of living crisis and everything else—over 4.9%. Some say it is 4% and some say it is as high as 8%—between 2% and 8% are the various ranges of the pay cut the UK has given itself. What have trade deals managed to give the UK back from that pay cut? You are the Secretary of State for International Trade, and I cannot let you just brush the Brexit effect to one side. I need to know what your understanding—

Kemi Badenoch

Sorry, I do not follow the question. What have trade deals—?

Chair

What have trade deals recouped from that GDP damage that Brexit has done to the UK economy?

Kemi Badenoch

Again, let us go back to what a free trade agreement is. A free trade agreement is not trade. A free trade agreement is an opportunity to do more.

Chair

So you are saying nothing.

Kemi Badenoch

No, I am not saying nothing.

Chair

I know what a free trade agreement is. I am looking for the figures from that free trade agreement. What have they given? What compensation have they given? You do accept that Brexit damage—

Kemi Badenoch

Which specific—

Chair

Sorry, Secretary of State—just a second.

Kemi Badenoch

I thought you had asked a question. Are you re-asking the question?

Chair

I am asking a question because I need an answer. Secretary of State, the OBR and the Government have come up with the figures of damage to the UK economy from Brexit. I assume that you accept those figures from your Government and the OBR. I am asking you about the 4%, 4.9%, maybe even 5% damage to the UK economy. What are trade deals doing to recoup that damage that has been done to the UK economy? You are the International Trade Secretary. Can you tell me?

Kemi Badenoch

First of all, the figures that you are giving are not ones that I recognise, so I cannot give an immediate rebuttal here. What I would do is refer to the comments that I made before. Trade deals are not a zero-sum tit for tat: we are stopping this and we are going to do that, and everything is going to add up. We are making a tilt to the Indo-Pacific. Many of the trade deals that you are talking about have not even been done yet. We have not signed the India FTA. We have not acceded to CPTPP. We are barely getting through the Australia trade deal with all of the negativity that we are getting not just on the Floor of the House, but even, as we have heard, in the Committee. I am here to make sure that people understand the opportunities that are there when we create free trade agreements. Those benefits will come. As I have said, we cannot disentangle Brexit from covid and Russia-Ukraine, but there is a lot of good work going on in terms of supporting exports. We have a fantastic story to tell on investment, for example. Those are the things we should be looking at in the round. I can come back to you when I have the OBR figures. If you want to ask about very specific OBR things, I need you to send me the questions in advance so that I can have those sorts of stats.

Chair

You might not be able to disentangle covid, Brexit and the war in Ukraine, but many other people can. Many professional auditors can, and they can give you figures. The figure I am asking you about is not the news you seemed to get today about the Government’s own figures on damage from Brexit. The figures I am asking you about are: what will trade deals yield for the UK? Do you know those figures, or are you negotiating blindly without any knowledge of the GDP gain from these trade deals?

Kemi Badenoch

I think what you are asking is a philosophical point.

Chair

No, I am asking for numbers. It’s not philosophy; we want numbers.

Kemi Badenoch

Well, in that case I challenge the premise of the question. Asking for a number for something that is not a number question will not work. It will not work for this question.