Call For Evidence on Trade: Submission from the Railway Industry Association
1. INTRODUCTION
1.1. This paper constitutes a submission from the Railway Industry Association to The International Trade Committee inquiry for their call for evidence into export opportunities and whether UK exporters can take advantage of them.
2. BACKGROUND TO RIA
2.1. RIA is the trade association for UK-based suppliers to the UK and world-wide railways. It now has over 350 companies in membership covering all aspects of rolling stock and infrastructure supply and a diverse range of products and services. As well as most of the Tier 1 contractors and large, multi-national companies, over 60% of RIA’s membership base is comprised of Small and MediumSized Enterprises (SMEs).
2.2. RIA’s supplier members represent the full range of UK rail disciplines, including working on renewals, enhancements, rolling stock, signalling, electrification, and retail, many of whom export their products and services.
2.3. RIA provides its members with extensive services, including:
• Representation of the supply industry’s interests to Government, regional and national transport bodies, rail clients – e.g., Network Rail (NR), HS2, TfL – and other key stakeholders;
• Providing opportunities for dialogue and networking between members;
• Supply chain improvement initiatives;
• Supporting innovation through the Unlocking Innovation programme and UKRRIN (UK Rail Research and Innovation Network);
• Provision of technical, commercial and rail policy information every week; and
• Export promotion, including organising and creating Great branded UK Pavilions at key rail exhibitions overseas and leading rail trade missions around the world.
2.4. RIA recognises that equality, diversity and inclusion drive innovation, financial performance and success. Together with Women in Rail, RIA is promoting an ‘Equality, Diversity & Inclusion Charter’ for rail, which has the potential to support social mobility, grow UK STEM skills, create local opportunities, and increase the talent pool from which the future leadership of the rail sector will be drawn. The Charter reached 200 signatory organisations last November.
2.5. The rail network remains one of the UK’s most valuable assets, with extraordinary potential to support green growth and wider social benefits for communities right across the UK. A 2021 report produced by Oxford Economics1 shows that the rail industry supports:
• £43 billion GVA in economic growth;
• 710,000 jobs;
• £14 billion in tax revenue each year; and
• For every £1 spent in rail, £2.50 of income is generated in the wider economy.
• Rail related exports have been revised downwards in the 2021 edition, with rail-related exports put at £600 million for 2019, versus the previous estimate of £800 million for 2016.
2.6. UK rail has a global reputation, so there is enormous potential to grow rail exports, boosting UK trade and increasing resilience of the UK supply chain, e.g., creating new SME jobs. The Global
1 https://www.riagb.org.uk/RIA/Newsroom/Publications%20Folder/OE_2021.aspx
Market Study conducted by the European trade association UNIFE last autumn forecasts rail markets to grow by 3% every year to 2027 from a current market volume of EUR 177 bn p.a.
3. RIA’S KEY RECOMMENDATIONS
The UK railway industry has a global reputation, so there is a great potential to grow rail exports, boosting UK trade and increasing resilience of the UK supply chain. To enable these higher export returns, RIA and our members have the following ‘asks’ of Government to enable improvement:
• Increase the level of support at overseas rail exhibitions and UK Pavilions, by helping to fund the costs of GREAT branding and networking space. This will help to create a rolling offer which is typically used by UK exhibiting companies, along with many visiting UK companies and government officials.
• Review the cancellation of the previous Tradeshow Access Programme (TAP) scheme and reintroduce or improve the existing UK Tradeshow Programme (UKTP) grant scheme to be more generous and aligned to industry needs and timings. Include companies (or their trade associations) in the initial consideration process on what exhibitions to support, as they know what exhibitions they are targeting and committing to Consider a rolling budget for the Department of Business & Trade (DBT), which would better align the department with industry needs and can provide a pipeline of future exhibition export activity linked to industry marketing, budget plannings, and initiative commitments
o London Economics 2008 study, found: “The total benefit of the programme in 2007/2008 amounted to £57.1mn. Given the programme costs of £11.2mn, the estimated benefitcost ratio is 5.1”.
o Export Partners UK, state that their members delivered 70% of the old TAP scheme and have demonstrated the scheme’s success: for every £1 invested by the Government in the TAP scheme, on average £40 returns to UK in taxable income, creating jobs around the country and supporting the Government’s “levelling up” agenda
• Where possible, produce a visible pipeline of international rail projects looking to be awarded project finance support from UK Exports Finance (UKEF). This will enable industry to better plan and be ready to support these initiatives more and get resources in place.
• Provide seed funding and initiatives to support exporters, especially for SMEs, by reintroducing or continuing the ‘Internationalisation’ fund.
• Embedded carbon, back-end production: recognise suppliers’ decarbonisation efforts in their production cycles of manufacturing, and include these in support offered under programmes such as the Clean Growth Export Programme.
• Ensure UK railways can align as much as possible with international standards (otherwise there is a risk that, in extremis, UK suppliers might require two different production lines, one for the UK market and one for overseas).
• Provide specific support to SMEs wanting to export by including an SME chapter to Free Trade Agreements, where possible.
• As part of the Retained EU Law Bill, there needs to be an assurance that the divergence risk is being accurately assessed through the exports’ lens, with unintended consequences avoided and the necessary time taken to properly appraise proposals.
4. CONTEXT
4.1. The railway has always connected communities, allowed people to access jobs, supported leisure and tourism and allowed goods to travel across the country. As referenced above, rail supports £43 billion in economic growth, 710,00 jobs, and £14 billion in tax revenue.2
4.2. The evidence base on the wider benefits of rail is growing. A 2022 Oxford Economics report3 on the economic, environmental, and social opportunities that rail brings to the UK demonstrates a number of benefits:
• Time savings: public transport generates around £1.4 billion in time saving benefits every year for commuters in six of the UK’s largest cities from reduced congestion
• Higher wages: reducing journey times between Manchester and Leeds by 20 minutes could increase wages by approximately £600 per worker per year.
• Job opportunities: a 10% reduction in regional journey times could support from 1,950- 12,600 jobs dependent on the area.
• Low carbon travel: by 2050 electric trains will produce 14 times fewer emissions than conventionally fuelled trains.
• Public health: £115 million per year in healthcare cost savings could be generated by improving public transport in six of the UK’s largest cities.
• Access to services: in addition to the economic benefits from accessibility, those with better public transport links are more likely to have access to services and participate socially.
4.3. Rail also supports the four ‘E’s of economic growth and prosperity: Enterprise, Education, Employment and Everywhere. The rail sector is a vibrant industry supporting enterprise and innovation across the UK. Rail also supports hundreds of thousands of jobs. These jobs are not only spread out across the country, but they are also highly skilled and more productive than the UK average, contributing to a higher GVA per person.4 Rail also connects people and places across the UK, contributing to levelling up The railway industry itself, and the rail services it ultimately delivers, has strong potential to boost productivity and grow a skilled workforce
4.4. Globally, the rail sector is growing, with significant export opportunities for the UK. The UNIFE Global Market Study last autumn projects rail markets will grow 3% every year to 2027 from a current market volume of €177 bn p.a. Other countries continue to invest in their rail infrastructure, particularly high-speed rail and electrification, where the UK lags with only 38% of the network electrified (compared to 57% in mainland Europe).
4.5. An even stronger performance on UK rail exports can help increase the £43 billion GVA in economic growth; support, sustain and generate jobs; contribute to Net Zero and sustainability and insulate the existing industry against any downturns in the domestic market.
4.6. The Government-commissioned Net Zero review by Chris Skidmore MP, published in January 2023, sets out a compelling case that investing in Net Zero infrastructure today will be cheaper than delaying, as well as increasing the economic and climate benefits. The UK has already shown global leadership on Net Zero and is well placed to take advantage of the opportunities. There is an international race for capital and skills: the country has to act quickly and decisively to secure these outcomes.
4.7. Right now there is huge scope to accelerate investment in greener technology – whether battery, hydrogen or low-carbon construction techniques, which could enhance our global standing in these areas and increase our exporting potential. Companies at the forefront of this innovation
2 https://www.riagb.org.uk/RIA/Newsroom/Publications%20Folder/OE_2021.aspx
3 https://www.riagb.org.uk/RIA/Newsroom/Publications%20Folder/OE_2022.aspx
need clear government commitments that the railway will use these innovations, which in turn will translate into an enabler of commercial opportunities both at home and abroad.
4.8. The adaptation to Net Zero and sustainable infrastructure are all important elements of rail and the wider capabilities of the UK rail supply sector and exporting credentials. It is important that the Government also takes into account and recognises the decarbonisation of the production cycle to reduce emissions or the carbon footprint of a manufactured product. Both production methods and/or products can be greener or more innovative in production terms, and should also be included in examples of UK expertise linked to decarbonisation.
4.9. In June 2018, RIA polled its export members and found that 50% of those polled thought the UK Government was not doing enough to support overseas exports for the railway industry; 11% thought the Government could be doing more; and 3% responded that the Government was doing enough
4.10. From this survey, a number of members said the UK could be more aggressive in promoting large international infrastructure projects and in providing financial support for UK companies to export. Germany, France, China, and Japan were highlighted as countries where more support was provided to exporters.
4.11. In October 2020, RIA then hosted an exports survey on behalf of the Rail Supply Group, linked to the Rail Sector Deal. Out of 139 companies who completed a section related to exporting, over 55% confirmed they are currently exporting, or planning to export. Of these, the top five priority markets where companies believe their rail exports has potential to be increased with assistance from the rail industry and government included, in order, Australia, United States, India, Germany and France. This means that with more focused export support, we could increase the percentage upwards.
5. DEPARTMENT FOR BUSINESS & TRADE (formally Department of Trade)
5.1. RIA works closely with the Department for Business & Trade (DBT) staff based in the UK Regions, HQ and at Overseas Posts. We get good support across the board and find officials helpful and knowledgeable with strong local overseas networks in markets that cover rail exports They are supportive of RIA’s export promotion work, at times in partnership; however, we believe there are some ways that DBT could be more effective in promoting exports in rail, if it had the right tools or worked on longer-term budget cycles
6. Overseas rail exhibitions and UK Pavilions
6.1. We welcome the Ministerial support we have seen at some key overseas rail exhibitions. The UK Government support for exhibitions could be improved and increased, as other countries’ Governments seem to support their industries at a far higher level in general. We see large national stands at exhibitions, sometimes double decked, which indicates that foreign Governments are supporting their industry with significant investment. This can lead to a ‘wow factor’ that makes their industries and nations look innovative and elevates their national brand even further.
6.2. On UK Pavilions, Trade Associations and partners typically take all the risk in reserving space, and they have responsibility over related building and construction costs, as well as reselling the pavilion space to companies to form a GREAT branded UK Pavilion, which is important to use to continue a branded theme across many exhibitions, creating national recognition and is on message for Ministerial or official support.
6.3. The Associations are typically responsible for marketing, creating the Pavilion and paying for the GREAT branding graphics and artworks, whilst seeking prior approval to use the GREAT branding. Overseas Posts and at times HQ may provide some wider support, such as hosting or part funding a
reception and helping to arrange market briefings for UK exhibitors, which is welcomed. However, having branding support would be an additional help, as would support for helping to create networking zones, which at the moment need to be purchased by the trade associations.
7. UK Tradeshow Programme (UKTP)
7.1. In 2022, the then Department for International Trade (DIT) replaced the Tradeshow Access Programme fund (TAP) with the new UK Tradeshow Programme (UKTP). UKTP falls far short of providing the same level of financial support for businesses looking to attend trade shows and capitalise on worldwide rail export opportunities via international rail exhibitions.
7.2. Under UKTP, DBT should include trade associations – as industry representatives – in the initial decision process on what exhibitions to support during the next financial year. RIA, for instance, would typically have committed to certain exhibitions or be aware of which ones it would be targeting in the interest of suppliers.
7.3. Whilst the grants of TAP were relatively small, they were highly valued by SMEs. One of the issues with the UKTP programme is that it is not aligned to the booking timelines of tradeshows, with the booking process for exhibition space normally undertaken in the preceding year and UKTP grants processes not launched until just before the start of the next fiscal year.
7.4. Previous cost-benefit analysis of the original TAP scheme, commissioned by the UK Trade & Investment (UKTI), a DBT predecessor (a London Economics 2008 study), found: “The total benefit of the programme in 2007/2008 amounted to £57.1 million. Given the programme costs of £11.2 million, the estimated benefit-cost ratio is 5.1”. This is a tangible return on investment for the UK economy. 5
7.5. Export Partners UK, a collaborative group of industry Trade Associations which includes RIA in membership, state that their members delivered 70% of the old TAP scheme and have demonstrated the scheme’s success: for every £1 invested by the Government in the TAP scheme, on average £40 returns to UK in taxable income, creating jobs around the country and supporting the Government’s “levelling up” agenda. 6
7.6. We believe that not having rolling budgets could undermine DBT’s exporting efforts linked to improving the UKTP scheme or revising TAP if this was considered. Without a rolling budget, the scheme may be detrimental to their support to industry; on the contrary, if a rolling budget was instigated (as they had some years ago), this would be a real enabler to providing a pipeline of export activity spanning fiscal years, which would be more aligned to industry planning and budgetary spending. At the time of drafting this call for evidence response in March 2023, we do not have a visible pipeline of DBT UKTP activity or rail supported events for the next financial year. Given industry commit to budget expenditure far earlier, this lack of activity or clarity hinders the ability to take advantage of this programme.
8. DBT Export Academy (EA) programme
8.1. RIA has limited involvement with the new DBT Export Academy (EA) programme. However, from early discussion with the EA Team, it seems it is a useful and helpful initiative for both experienced exporters and those new to exporting, as it provides generalist, non-sector specific export training and advice to help exporters better understand their needs and routes to market. For rail specific facts, RIA can provide this information or link the company to a related expert.
5 https://londoneconomics.co.uk/le/publications/pdf/UK_Trade_and_Investment_TAP_Report_Final_Report.pdf
6 https://exportpartnersuk.org.uk/news-events/epuk-shocked-government-closure-popular-tradefair-access-programme
9. Clean Growth Export Programme
9.1. We welcome the UK Government's strategy for both boosting the UK economy and reducing gas emissions and protecting the environment, while also encouraging the creation and production of innovative goods, services, and technologies.
9.2. It is important that the Government also considers and recognises the decarbonisation of the production cycle of a manufactured product in this initiative, thus supporting more traditional component manufacturers In other words, the lowering of the carbon footprint of the product in the production method should also be seen as being greener or innovative and it is a principal element
9.3. Internationalisation Fund
9.4. RIA understands that the ‘Internationalisation Fund’ closed for applications on 5 January 2023. The fund was a helpful scheme that offered match-funded grants to UK manufacturing exporters to prepare for export and in some cases support companies' participation in exhibitions, missions, and market development visits. We would welcome the continuation of this scheme and new funding to support it.
10. UK Export Finance (UKEF)
10.1. UK Export Finance (UKEF) can be instrumental in offering opportunities for UK rail exporters and protecting their interests via a range of innovative and competitive financing solutions Their finance offers of working capital support, bond support and credit insurance are very welcome, and the support for international projects specifically, with direct lending, has made a significant difference already to the rail sector.
10.2. For instance, UKEF provided a loan guarantee of €2.1bn to fund the construction of 503km of high speed electric railway in Turkey, which could mean UK rail contracts to UK rail suppliers in nine figure terms due to the minimum UK content conditions of the loan. This product may open the door for other UK rail suppliers via other UKEF funding loans and complements most aspects of the UK supply chain in providing opportunities. Whilst we welcome this and other future such agreements, industry would like where possible a pipeline of these funding projects in advance to be better aligned for timing and resources needs. 7
11. DEPARTMENT FOR TRANSPORT (DfT)
11.1. RIA works very closely with and gets good support from the Department for Transport and their International Rail Team on export activity, including on rail trade missions, inward visits or overseas rail exhibitions. Given the uniqueness of rail and the way it is managed by other countries, we are equally pleased to report on the high-level engagement of the DfT Ministerial team, especially UK Rail Ministers, who have frequently supported UK exhibitors in person at key international rail exhibitions, raising the profile of UK plc, engaging with the host nations and often other countries’ visiting Ministers to promote the UK and rail supply expertise.
12. FREE TRADE AGREEMENTS (FTAs) AND TRADE POLICY
12.1. RIA has been actively engaging with the Department for Business & Trade (DBT) and the Department for Transport (DfT) linked to FTA negotiations and we have some key asks for the rail sector for officials to consider during the various negotiations, namely:
7 https://www.riagb.org.uk/RIA/Newsroom/Press_Releases/UK_Turkey_Deal.aspx
• Rail to be recognised as a key export sector, for both goods and services, including through support for SMEs, in the negotiation and delivery of free trade deals;
• Access to an appropriately skilled workforce and mobility for skilled UK workers – including mutual recognition of appropriate qualifications. The rail industry needs workers at all skills levels to support its ability to compete globally;
• Consistent application of standards – RIA and our members want to see mutual recognition/ equivalence and non-discrimination as core principles in all UK trade agreements. This would support the competitiveness of the UK rail supply sector and ensure economies of scale;
• Smooth cross border trade rules – which minimise cost and delay and avoid trade distortionary tariffs;
• Public procurement – commitment to visible and accessible pipelines and reciprocal rules on market access and domestic content. As rail is primarily funded by the public purse throughout the EU and internationally, this is a key concern for the UK rail supply chain; and
• Opportunities for collaboration on rail research and development – to unlock new partnerships and support and build on UK rail supply chain and university strengths in innovation and research.
12.2. If the above asks are taken into consideration during current and future FTA negotiations, UK rail exporters will be able to take advantage of the new opportunities these deals would foster. It would also be seen as helpful to the UK industry if Government explained the benefits of a new FTA on a sectoral basis.
12.3. On the global market, the UK rail supply industry faces an increasingly restricted access to some key third country markets due to discriminatory conditions that favour local firms. Many of these countries have several measures in place to protect their own markets such as tariffs, tax on imports and technical barriers. These measures make it difficult for UK rail supply businesses to access these markets in fair conditions.
13. Tariffs
13.1. Some of the main opportunities offered to UK exporters through FTAs are in areas such as tariffs, products standards, regulation and certification, services, public procurement, and SMEs, to name a few.
13.2. More specifically, on tariffs, exporters would benefit from tariff and quota free trade for goods and services and establishment via reciprocal market access through these FTAs.
14. Standards, technical regulations and conformity assessment procedures
14.1. In order to make exports smoother, RIA also believes the Government should seek, through the negotiation of FTAs, to strengthen cooperation between the parties in the field of standards, technical regulations and conformity assessment procedures, with a view to increasing the mutual understanding of respective systems and facilitating access to respective markets.
14.2. Suppliers need confidence about the standards they are working to. If the UK and the rest of the world have different standards it can undermine UK exports, and increase costs for the UK’s own procurements.
15. Services
15.1. On services, the Government’s objective should be to make it easier for UK individuals and companies to provide services to customers in FTA party countries, and vice versa. This might include transport, design and consultancy services supplied from the UK into the FTA party, and vice versa. The UK and the FTA party should commit to ensuring fair and equal access to each other's services markets.
16. Public procurement
16.1. Public procurement is another area where exporters would benefit from opportunities offered through FTAs. Due to the nature of its products, the UK rail supply industry depends heavily on public procurement funding. UK rail suppliers have to compete in the UK market with a growing number of third countries, who sometimes benefit from competitive financing as they are, in effect, state-owned companies.
16.2. A level playing field needs to operate between UK rail supply businesses and those in third countries, and FTA parties should ensure that state-owned enterprises, monopolies, and enterprises granted special rights will not discriminate against goods, services, or investments from the other party. This will help ensure that competition between private and state-owned companies will not be negatively affected.
17. SMEs
17.1. SMEs need even more support when exporting. Small businesses in the UK rail industry play a significant role in the supply chain by providing goods and services to larger companies, such as train operators and infrastructure providers. They can be involved in a wide range of activities, including manufacturing and supplying rail components, providing engineering and maintenance services, and delivering management consultancy and design services.
17.2. SMEs make up 99% of all companies operating in the UK and provide much needed innovation and productivity, whilst contributing to economic growth across the UK and within communities. They often have innovative products or services that provide good exports opportunity, yet without support can struggle to scale up their business quickly enough to enable them to supply overseas.
17.3. RIA believe that these FTA negotiations should include an SME chapter where the FTA party agrees to its inclusion. A Government objective should be to seek to make SMEs access to public contracts for rail easier. This is because, at present, UK SME component suppliers are typically not entering tenders for large-scale overseas projects/contracts, and need support to enter overseas markets.
17.4. RIA recognises that international markets, both private and public, offer opportunities for UK companies, SMEs face particular obstacles to tapping the global market, not least when it comes to access to market information, locating possible customers and finding the right partners. They also face more complex issues, such as compliance with foreign laws, e.g. mandatory rules of contract law, customs rules, technical regulations and standards, managing technology transfer and protecting intellectual or industrial property rights. In dealing with such challenges, SMEs are usually less well equipped with in-house expertise and financial or human resources than larger enterprises.
18. Retained EU Law Bill
18.1. Alongside FTAs, another area of relevance that could affect exporters is the Retained EU Law Bill. As the bill progresses through Parliament, RIA asks that the Government takes into consideration the effects it will have not only on domestic players, but on exporters as well. This is linked to some of the areas discussed in previous paragraphs – for instance on standards, if under the REUL Bill the Government decided to sunset or alter any laws related to standards, there could be a misalignment with EU standards, which in turn would be an obstacle for UK exporters.
For further information on any of the above issues, please contact RIA Exports Director Neil Walker at neil.walker@riagb.org.uk and 020 7201 0777.