New report finds closing export gap in nations and regions key to UK's services superpower status

Tue 5 Sept 2023
Posted by: Press Office
IOE News

Global Horizons report on a bench at Churchill Room in Westminister

A new report has been launched yesterday (4 September) looking to investigate and address regional disparities in the export of services throughout the UK, and has found that significant improvements in connectivity, education and immigration policy are needed to close regional gaps across the country.

Global horizons: realising the services exports potential of UK nations and regions, created by the Institute of Export & International Trade (IOE&IT) in conjunction with Flint Global, was unveiled at a Parliamentary event on Monday evening, hosted by Martin Vickers MP.

Services – including legal, financial, creative, architectural and engineering – contribute significantly to the UK economy, accounting for half of our global exports and making the UK second in the rankings of global services exporters, and first in Europe.

Services export ranked

However, these are concentrated disproportionately in London and the South East, which in 2021 accounted for 60% of all UK services exports.

The report found that Cumbria, Lincolnshire, Cornwall and the Scilly Isles were the lowest performing regions, accounting for only 0.37%, 0.28% and 0.26% of total UK services exports.

It also investigated the difference in each region between their actual services exports (ASE) and services exports potential (SEP).

When ranking the 33 English regions’ SEP against their ASE, the report finds that 12% are currently underperforming against their potential, including South Yorkshire, Merseyside, and Devon.

Underperformance

Four key regions were highlighted as significantly underperforming in comparison to their potential: Outer London (South), Outer London (East and North West), East Riding and North Lincolnshire, and Bedfordshire and Hertfordshire.

Four areas were used to quantify actual and potential services exports in each region: economic complexity, education and skills, connectivity and higher education R&D. The report advises that improvement in any of these areas would lead to an increase in regional services exports and, therefore, regional economic prosperity.

The need for policymakers at a national and regional level to increase regional services exports is underlined by the fact that global growth being fueled by trade in services trade, with the WTO recently reporting that it outpaced growth in trade in goods in 2022, growing by 15% compared to 2.7%.

The UK government has predicted that technological advances and a growing global middle class will continue to propel services trade, estimating it will represent 28% of total UK trade by 2035, up from its pre-pandemic share of 25%.

Recommendations

The report concludes with recommendations for policymakers at a national and regional level.

Nationally, it recommends creating an environment of policy stability, striking new international trade agreements and easing immigration and mobility rules to ensure the UK remains competitive, collaborative and attractive for international trade.

At a regional level, investment in digital and physical infrastructure, encouraging economic complexity and sector specialisation, increasing levels of education, and training and boosting higher education R&D is recommended to address regional inequalities.

Marco Forgione, IOE&IT director general, said: “The UK is a services superpower, but we’re facing an array of economic and geopolitical challenges which could threaten the prosperity of our British businesses in the coming years. 

“It is vital that we do not become complacent, and maintain our global advantage as an exporter of services. This report has identified a clear pathway to continue this success: by focusing on our nations and regions and closing the gap in London dominance. The UK thrives best as a trading force when all its component parts thrive individually.

“We’ve identified clear, practical areas – from investment in broadband and transport infrastructure to creating regional sector specialisations – which, if implemented, will improve regional outputs and, therefore, local and national economic growth. With forecasts predicting services will be the driver of growth across the world, policymakers must ensure that they are creating an environment which allows businesses throughout the UK’s nations and regions to take advantage of this opportunity and ensure we remain a services powerhouse.”

Sam Lowe, partner at Flint Global, added: “Our research demonstrates that there are many domestic opportunities for UK policymakers to improve the regional services export potential of the UK.

“Or, to put it another way, you cannot expect UK services firms to sell into global markets if they suffer from poor international and digital connectivity, have trouble hiring qualified staff, struggle for funding, and don’t have the local economic infrastructure to support such an endeavour.

“The more the government can do to address these impediments at the regional level, the greater the chance services firms across the entire country will benefit from global exporting opportunities, with a subsequent boost to the local and UK economies.”

The report can be viewed here.