(11 years, 7 months ago)
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Baroness Liddell of Coatdyke
To ask Her Majesty’s Government what progress has been made in improving the performance of UK Trade and Investment in relation to small and medium-sized enterprises in the United Kingdom.
Baroness Liddell of Coatdyke
My Lords, I am very grateful to have this opportunity to raise the issues in this debate, which I asked for quite a long time ago. I did so after hearing the Minister address a business breakfast on UKTI. Two things struck me. First, there were great similarities in some of the things that he said in his speech to what I said 10 years previously when I was doing his job. Secondly, we do not get anything like enough opportunity to discuss this issue, particularly in the troubled economic times that we are in.
SMEs are great drivers of the economy but they are going through a particularly difficult time. From the beginning I say that I am a friend of UKTI, but I am a critical friend and am not yet 100% certain that we have the delivery mechanisms in place to address some of the issues that are essential to the growth of SMEs, both in exporting and in operating within the domestic economy.
Let me begin by paying tribute to the Government and to the GREAT campaign. I have been a great fan, to coin a phrase, of cross-government working in relation to foreign direct investment. I have often felt that we missed a trick in not bringing together the British Council, VisitBritain—in which I have a registered interest as a director—and UKTI to promote what Britain is and what Britain is good at. In the run-up to the Olympics and the Paralympics, the GREAT campaign was an enormously good showcase for the values of Britain as well as for its skills, design and capability. I should like to ask the Minister what will happen to GREAT now that the Olympics and Paralympics are out of the way. What will happen to the money? Will GREAT go on? Will the money be continued? Or, will everyone huddle back in their silos, keeping well out of the way of the traffic, in case they dare to talk to one another at any point in the future? Those of us who travelled internationally and saw the GREAT posters and material in a lot of international airports realise what a powerful advocate it is for the UK.
I have a long interest in working with entrepreneurs seeking access to international markets. I suppose that I am a poacher turned gamekeeper in that I ended up as a head of mission. I have worked directly with UKTI and have to take some responsibility for some of its failings as well. One of the big criticisms that is made of UKTI—I am not 100% certain that it is justifiably a criticism—is that it is biased towards big business. It is difficult to envisage a situation where UKTI would not get behind big business. The scale of some of the projects that are either for export potential or for foreign direct investment is so overwhelming. It is easy to work with big business because it is structured in such a way that it is easy to interrelate with it. We are always told about the great advantages to SMEs of the supply chain.
I say to the Minister that a camel can go through the eye of a needle easier than a small firm which does not have an international name can get into the procurement department of a major multinational. There is a body of work within what used to be called the DTI—it must be about 10 years old now—that looked at the supply chain in the oil and gas industry. Some of the best technology that exists in that industry has grown out of SMEs, yet the best closed shop in the world is multinational procurement. It makes the BMA and the Law Society look like a bunch of amateurs. It is critically important to get the people with the ideas and the ability to develop the business before the guys in the big businesses who actually buy those things. I think that that is an area that UKTI does not devote enough time to. Not all of it is about spending money; some of it is about knocking on doors. Some of the clever and influential people who gravitate towards UKTI, I would suggest, should turn their minds to how to make that supply chain work more effectively. I do not like the idea of SMEs taking scraps from the table, but if you run an SME—and I have run an SME—you really would do anything to get your foot in the door in that kind of context.
In this, I feel that I am criticising some of my dear friends. There are issues about the commercial acumen within UKTI. Some of it is because of the nature of an organisation whose staff rotate every four years, particularly with Foreign Office staff. You can get somebody who is a brilliant Arabist or an expert in hard languages running a UKTI operation. I know that 400 staff have had commercial awareness training but, frankly, nothing concentrates the mind more than seeing the whites of the eyes of a customer who will maybe take their business elsewhere. It is hard to teach people commercial awareness. I know that proposals have come up, year after year, about secondments into business, but it is very easy to second somebody into Rolls-Royce, BAE or GlaxoSmithKline. It is very difficult to second somebody into Joe Bloggs’ widget makers. I often think that that kind of white-knuckle experience is missing from some of the experience in UKTI.
I know that there have been considerable changes at the top. UKTI appeared before the Select Committee on SMEs not so long ago. I have never quite graduated on to a Select Committee; I am a new girl in here. However, I notice that it was pointed out that 75% of the new managing directors come from the private sector. Can the Minister tell us if any of them have ever grown a company from start-up, or if they have come from a business that is not AIM or FTSE listed? The psychology is very different. I notice from the annual report that there is great emphasis on attracting overseas venture capital. The best venture capital in the world is about six stations from here on the Jubilee line. One of the problems with accessing venture capital is that the risk profile of an SME is different. There is no opportunity to spread risk in the way that you can with a major company, as I found out when I referred to this in my maiden speech along the corridor and was summoned in by 3i. There is a venture capital gap; there is no getting away from that. The cost of administering a venture operation in a small business is sometimes much higher. It is easier to get £50 million, sometimes, than it is to get £50,000. That needs to be addressed, and we need to find a route to do so. I would like to know how this new service that would link companies is actually going to work.
I was interested in the Secretary of State, Vince Cable’s, announcement last week about a new banking facility using the Co-operative Bank and the Unity Trust Bank. That was interesting, as it is not one of the big banks. I should declare an interest as a life-long co-operator with an account in the Co-op Bank. One of the problems with the banks is that small businesses are terrified of them, first because they often do not get the money, and secondly because of the pernicious system of personal guarantees. If you want money from a bank you can put your granny up as collateral. I think of the number of deals that I have lost because a husband has gone home to the wife and said, “I have got to put the house on the line”. If my husband came home and said that to me, I would chase him. It stands to reason that if you are asking people to take significant personal risk, you are limiting the prospects that are available for them. Many people go to informal investment. I pay tribute to Business Link in bringing in business angels.
Time is running on, so I will jump very quickly to another area. Can the Minister give us some idea of how the defence and security organisation is settling in as part of UKTI? That is a very difficult area for SMEs to crack. Often they need a guy with all the gold braid on him just to get in the door of a Government who might be in the procurement business. The annual report is very coy about how DSO is doing. If the Minister can give us some information, I would be very grateful.
In my last few seconds I will say to the Minister that there is one area in which officials will say I am out of date—but I have checked and I am not. UKTI is probably the most bureaucratic organisation under the sun. I have worked in many organisations but never in one that is quite so bureaucratic. Will the department look again at the bureaucratic structures of UKTI? There are good people there trying to do a very difficult job. Let us make it as easy for them as possible.
Lord Cope of Berkeley
My Lords, I am delighted that this debate is taking place. I thank the noble Baroness, Lady Liddell, for instituting and promoting it. The timing, however it has come about, means that its chimes well with our work in the Select Committee on small and medium-sized enterprises and exports, which I have the honour to chair. Our remit is rather wider than this debate. We are concerned with all the Government’s work to support SMEs in exporting. We are interested not only in UKTI, on which this debate has focused—which is fair enough; I am not criticising it—but on UK export finance and the Government’s role in deregulation, tariff negotiations, tax issues, procurement policy and so on.
The Government can help through diplomacy over tariffs and other restrictions on trade, as well as by their purchasing policies, and by Ministers actively promoting trade, as the Minister does so energetically around the world. I hope that I am correct in saying that the promotion is for SMEs as well as for large businesses such as those mentioned by the noble Baroness.
Commentators write about the difficulty of exporting manufactured goods, for instance to India, because labour there is cheaper. They do not often mention that there is usually a 30% to 40% tariff barrier to be overcome. The same is true in Brazil with many goods. That is also a great part of the difficulty that the Government can help with by their energetic diplomacy to try to get free trade.
Our committee published a call for evidence before the recess and received a large volume of responses from organisations, companies and individuals, including academics working in the field. We and our staff are busy going through them—as the noble Lord, Lord Haskel, who is a fellow member of the committee, will confirm. We have also started taking oral evidence. We are in the middle of a series of visits to different parts of the country to meet SMEs of every size and kind, and next month we plan to visit Brussels and Germany.
Visiting companies and organisations in the recess, and looking through the evidence as it came in, I was struck again by the variety among SMEs. It is something we must always remember when we talk about them. Variety is one of the essential facts about SMEs. They come in all sizes, and very different dynamics drive them. They are in all kinds of business. We are very conscious that they are in every sector. We will not be able to ignore the food sector, for example, because the noble Lord, Lord Haskins, is on the committee and he will see to that. Nor can we ignore the creative sector because we have the noble Lord, Lord Grade, as well.
If successful SMEs have one characteristic in common, it is above all that they are problem solvers. They do not let difficulties stop them. If they do not have a can-do attitude, they simply do not succeed. That does not mean that government in its various forms cannot make life easier for them, if only by getting out of the way. Positive help by Government for SMEs has existed for a very long time—since before I was small firms Minister in the Government of the noble Baroness, Lady Thatcher, 25 years ago. These days, of course, much of it is channelled through UKTI, but it also comes from local enterprise partnerships, chambers of commerce and so on. I will not comment directly today on the work of UKTI, as we are in the middle of our evidence taking and deliberation, but we are interested in, for example, whether the criticism made by the noble Baroness—that UKTI is too big business-oriented—is valid.
Nor do I want to comment today on the role of UK export finance with respect to SMEs, which is developing once more after a period in which it was not. I look to my noble friend the Minister for reassurance that his colleagues in government take SME exports as seriously as I know he does. I hope that he will also set out what UKTI is doing to reinvigorate its pitch to SMEs. As far as I can see, too few of them know of the help that they can get from UKTI, either directly or sometimes indirectly, channelled through other organisations, such as the ones that I have mentioned.
We have to recognise that many SMEs either cannot be helped by the Government or do not want to be helped by the Government or anyone else. After all, as far as many of them are concerned, the whole point is to do their own thing. In some cases, people are trying to do something differently from what they did when they worked in large firms and so on. Nevertheless, others want reassurance that it is all possible—it is possible to create a business and to export to difficult countries around the world. The fact is that it is possible. We have already come across some remarkable stories of SMEs doing business and exporting. Britain needs SMEs to flourish and particularly to export. We need to stimulate more potential entrepreneurs and to try to help them when they want to export. UKTI has a very important job looking after the interests of the entrepreneurs, the people who work for them, their customers and, of course, the UK itself.
Lord Cotter
My Lords, I would like to start with the talk. I seem to remember a recent advertising slogan, “It’s good to talk”. How do we do that, when it comes to business? I believe that too often from the beginning of the current crisis we have heard talk about austerity and cuts. Austerity and cuts were emphasised long before they started happening. I think that that was negative talk, which had quite an impact on business. The continued talk about cuts and austerity, not balanced by talk about growth and going forward, has been a negative aspect. I hope that the Minister, whom I welcome in his role, will consider that point. It is not just for the business department to talk positively about this; it is for the Treasury and others as well. We need to correct the deficit but, as I say, we need the positives.
I congratulate the noble Baroness, Lady Liddell, on securing the debate today, which is about trade and investment. The Government have made a start with the Britain Open for Business initiative, in which there are many encouraging ideas. I hope that the Minister, later in the debate or at another time, will talk about the implementation of that. We need continual monitoring of progress.
I take on board the point made by the noble Lord, Lord Cope, about the need for publicity, so that people are aware of what help is available. A recent FSB report said that, in the case of UKTI, only 6% of small businesses were engaged. Out of those 6%—it may be wrong, but that is what was said—83% were encouraged by their contact. I take on board the point made by the noble Baroness, Lady Liddell, about concerns that too much is directed towards big business rather than small businesses. On publicity and the need for people to be aware of what is available, I know, having been in small business, how little time we have to consider, when we are thinking about how to survive, what else is available out there. I say to the Minister that, in lots of different ways, publicity is needed, direct or otherwise, to ensure that small businesses know that there is something out there that can really help them.
There is a need for us to be welcoming in this country and for Britain Open for Business to actually mean something. In this connection, I again go back to the talk, and to what is said and what happens. I hear quite often that foreign firms and investors have great difficulty in getting visas for key staff, more so than in most countries in the European Union. We need to look at that and see whether it is correct. If it is correct, we need to look at it very carefully, because it does not take much bureaucracy and red tape for someone coming from overseas to feel that this country is unwelcoming.
In this connection, I refer to a recent controversy involving the London Metropolitan University. As a result of it, there was talk of revoking the licence of the university. The implications for students from overseas were such that they could have lost their opportunity of an education in this country. It is a major area of concern. Again, a message was going out, and it is very difficult to counteract messages once they get out and to say, “No, no, that’s not the case”. That was a case where the message was quite negative for this country.
We need to talk up business. For SMEs, publicity is crucial in order to know what is available. We should not go against the need to reduce the deficit; rather, we should emphasise the need to encourage business—not just business alone but the Treasury and other departments in the Government.
I look forward to the Minister engaging with us and reporting back on what progress has been made with the various initiatives. The noble Baroness, Lady Liddell, referred to her time in the other place. When I was in the other place, I argued time and again for the need for Ministers or politicians to appreciate what a small business is all about, and for civil servants and others to have placements in small businesses. I read that the Government were doing that a lot more, but I stress to the Minister that it cannot happen enough. Having struggled myself, I know that a Minister or civil servant would have to work in a small business for only two or three days to realise what a difficult field it is and how many skills you need to run it. I strongly support what has been said by previous speakers and underline to the Minister the points that I have made about involvement and speaking up for business.
Lord Hunt of Chesterton
My Lords, I welcome this debate, introduced by the noble Baroness, Lady Liddell. I have experience with high-tech SMEs applying UK research and have had discussions with medium-tech SMEs around the world. I declare an interest as chair of a small company in Cambridge and am glad to say that we have just sold software to Beijing to predict its air pollution, which is quite a coup for the UK. It is the same software as that used in London and reported on by Ministers in May.
We have to remember that the development of SMEs was once extremely controversial politically. For example, in Cambridge, both the Conservatives and the Labour Party were dead against Cambridge turning into a high-tech town, and one of my Labour colleagues said, “My God, this is going to turn Cambridge into an inland Bournemouth”. We have moved a long way since those days. All parties now accept the importance and social value of SMEs. I believe that there is some statistic that shows that some two-thirds of UK school leavers would have their own business if they could, whereas the figure is less than one-third in France. I do not know where that statistic came from, but I heard it some time ago.
A propos the strange remarks of the Chancellor yesterday, I should add that SMEs are not here as a sort of gambling operation, they are here to set up and do tasks and to provide reasonable employment. They are not speculations. Some people speculate on them—good luck to them—but that is not the primary role of people who have set them up, including people I know.
SMEs were invented by the Victorians and are remarkable organisations. Being a limited liability company enables you to do things you cannot do as a charity or as a partnership; an SME can do them. I support the present Government in their efforts to simplify things for SMEs so that they can run better. It is very much easier for SMEs here than in France, for example, which I know because our company deals with colleagues in France. The tax regime was improved by the Blair-Brown Government, particularly in maintaining tax relief on research. The present Government had a few wobbles on that when they first came in, but now they are solid on allowing tax relief on development.
The role of women in SMEs has increased enormously. Our own software company is composed of 80% women and is thus probably unique in the world. We have a very firm No. 2 who is a woman, and she jolly well made sure of that. The important point to make is that the Government introduced regulations to ensure that companies enable women to come back into employment. This is allowing highly skilled women to stay in the SME workforce.
This debate is about the role of UKTI. One of the issues for SMEs in Europe is the question of funding for research and development. The Technology Strategy Board is an effective body, and it is gratifying to note that the present Government have maintained it. However, I did not see any reference in the UKTI document provided for this debate to its connections with the board. It is important that UKTI should work with the TSB to look at where the overseas market areas are. In my view, we are still way behind the United States, which funds research undertaken by foreign scientists. Two or three of my papers were immediately funded to do research over in America; there was no such funding over here.
The other important feature of SMEs is the matching-grants approach adopted by the European Commission. In Britain it is difficult to get this sort of funding. You cannot easily get money from the research councils, so the approach of the EC of providing a matching grant equal to the funding provided by the SME is a good one. We do not do that in the UK and I believe that we could move more in that direction.
Last year I went with the noble Lord, Lord Oxburgh, to the big water show in Singapore. It is the world’s biggest annual exhibition of water. Water does not feature much in this UKTI report, perhaps because it is a low-growth industry, but it is jolly important. We saw enormous displays of water technologies from all around the world. Britain had only a small display, and we heard grumbly representatives from British companies say that they got little support from UKTI to come to meetings such as this one. They were very vociferous. In fact we met the UKTI man who had come down from Kuala Lumpur. He listened to and recognised those grumbles. He commented on it later, when I visited the embassy and high commission, saying that there are so many trade exhibitions that there simply is not the funding available to enable small UK companies to attend.
The other important task for UKTI and the Government is the promotion of the role of governmental agencies in the UK. I used to be the head of the Met Office. At no point did my job description include anything to do with British industry. I complained about it to the then Conservative Government. They said, “Why don’t you go to the Sunday fete and help them?”. I was pretty cross and I expostulated about it. The representative, now a fine Member of the House of Lords, then said, “Well, that is the sort of thing they do in France, isn’t it”. The point is that our big government agencies could play an enormous role. However, the Environment Agency is not allowed to promote UK environmental software or technology abroad. I have spoken to the head of the agency about it. We have extraordinary limitations.
I have almost used up my six minutes. I believe that this document is helpful. Finally, there is a new point that is very interesting. As I understand it, the UKTI is now providing funding in order to bring companies into the UK, such as into the high-tech centre in east London. Doing that is fine, but the department might talk to those British companies which are working in the same area so as to make sure that it is about collaboration, not spurious competition.
Lord Bilimoria
My Lords, when I accompanied Prime Minister Tony Blair on his visit to China and India in 2005, we christened the British Airways plane that we travelled in “Blair Force One”. In his excellent speech in India, Mr Blair said that he was wearing two hats: one as Prime Minister of the United Kingdom and the other due to Britain’s presidency of the European Union at that time.
I, too, am speaking in this debate wearing more than one hat. The first is as the founder and chairman of Cobra Beer, which I founded with my business partner, just the two of us. It grew from a micro-business to a small business to a medium business—the full spectrum of an SME. The second is now as the chairman of a larger business with a global joint venture with one of the world’s largest brewers, Molson Coors, headquartered here in the UK, and a joint venture with Molson Coors in India. I am also wearing the hat of the founding chairman of the UK India Business Council, where I have had the privilege of working closely with UK Trade and Investment, which has funded and supported the UK India Business Council. In fact, the UKIBC would not exist without UKTI’s support.
Ronald Reagan is famous for saying that the nine most terrifying words he had ever heard were, “I’m from the Government and I’m here to help”. I think that that is very unfair, as government can genuinely assist business, not only in creating the right environment for business to flourish but in the way that UKTI helps British businesses go global. Yet it saddens me that when I make speeches around the country and ask an audience of, say, 200 businesspeople, “How many of you do business with India?”, just a few hands go up.
I thank the noble Baroness, Lady Liddell, for initiating this debate. The reality is that only 20% of British companies export—that goes for SMEs as well. If that could be increased to 25%, that would add another £36 billion to the UK economy. SMEs are the engine of our economy. According to the Secretary of State for Business, more than half the monetary value of the UK’s exports comes from SMEs. SMEs employ more than 60% of the private sector workforce and there are 4.4 million SMEs in the UK. In the past 12 months, UK Trade and Investment has helped more than 25,000 businesses, of which more than 90% were SMEs.
It baffles me why businesses do not make more use of the help that UKTI can offer. From my own recent experience, in 2009 we signed our global joint venture for the whole world, excluding India, with Molson Coors. Three years ago, Molson Coors was not interested in India and said, “You keep India”. A year later, as the global joint venture was progressing well, they expressed an interest in looking at the Indian opportunity. When I accompanied the Molson Coors team to India, we met with Barry Lowen, the head of UK Trade and Investment in India, who was able personally to reassure my colleagues from Molson Coors of the Indian opportunity. This helped greatly and a year later, in 2011, we signed a joint venture for India, called Molson Coors Cobra India, and bought, upgraded and expanded the only brewer in the state of Bihar.
A year later, in June 2012, the global board of Molson Coors, its enterprise leadership team, for the first time in its more than 200-year history, held a board meeting outside the United States, Canada and the UK—in India. During that visit, UKTI and the British high commission organised a high-profile event in Delhi for the board to meet key individuals who provided a variety of feedback, which gave the board the confidence not only to continue to support the Indian joint venture but, all being well, to sanction further expansion in India in the years to come. The role played by UKTI and the British high commission was absolutely instrumental.
As the noble Lords, Lord Cope and Lord Cotter, said, what more can the Government do to get this message out to British business, particularly SMEs, to take advantage of this help that is available to all British businesses? UKTI is on the ground in 96 countries. It is present around the world and can do much for British business and SMEs: it can carry out market-entry research, OMIS reports, at very reasonable rates; it can make introductions; it can help to host events; it can provide networking opportunities, host and organise trade delegations—I could go on. Why do businesses not know about this and make more use of it?
The Government have rightly woken up to the fact that Britain does not have a balanced economy. We have let things slip. In 1978, manufacturing was 26% of GDP; today it is barely 12%. In 1970, services accounted for 54% of GVA and manufacturing 40%; by 2009 it was 78% and 17% respectively. We need to encourage manufacturing. What we have not lost is the ability to be the best of the best in manufacturing in the world. In terms of advanced engineering, just look at Rolls-Royce, whether cars or aero engines. Look at Jaguar Land Rover—at our whole automobile industry in fact. At Cobra I am very proud that, first and foremost, I am a manufacturer.
What are the Government doing to encourage innovation? The noble Lord, Lord Hunt, alluded to this. It is a shocking fact that the UK Government’s investment in R and D is well below that of other advanced economies. Sweden’s investment is 3.5% of GDP; in Finland and Japan it is 3.4%; in Germany 2.5%; in the US 2.7%. In the UK it is only 1.8%. Skills development is crucial. According to the World Economic Forum, the UK workforce is 18th in the world, far behind those of Japan, Germany, Sweden and the Netherlands, for example.
The good work that UKTI does cannot operate in a vacuum. Government has to create the environment to help the capacity and capability of British businesses to excel and to be able to export and compete around the world. It needs to create the environment with a competitive tax regime and low red tape and regulation, which will attract inward investment and so help SMEs. Our taxes are too high, although I am happy to see that a survey published today says that, where red tape is concerned, we are actually far better than many other countries. Thankfully we are not in the euro, but our exports are still too dependent on the euro. UKTI must continue to encourage British businesses to look more globally, particularly to countries such as India. We are a trading nation, we are outward-looking, we are an open country and we can only succeed and compete by encouraging our businesses to go global. Otherwise the world will leave us behind.
Lord Haskel
My Lords, before I came into your Lordships’ House, I, too, was in business. Many of the points that my noble friend makes about UKTI now were also apparent back then, long before my noble friend was there.
As the noble Lord, Lord Cope, said, I am serving on the committee that is looking into this very matter. As he explained, we have started our inquiry, so what I have to say benefits from our early work. Of course UKTI was a very early port of call for this committee. My impression is that here is an organisation in the midst of change, as my noble friend Lady Liddell pointed out. There are new people in senior jobs, some from the private sector. Some local appointments have yet to be made, but in general their task seems to be to reorganise the way in which they work. I believe that we all welcome this. The proposed direction of travel seems to overcome some of the criticisms that we have heard, such as UKTI making its services known, identifying priorities and getting those parts of government such as the Foreign Office and the Home Office to share these priorities and to work more closely with UK Export Finance, the old ECGD. However, it is early days.
However good UKTI is, its work alone will not improve our balance of payments. It is the businesses that have to export and it is the SMEs that are doing more and more of this. The real task must be to find out what it is that prevents small businesses from exporting. Is it lack of finance, lack of know-how, lack of knowledge about the markets, lack of contacts, lack of confidence or just plain old lack of interest? Perhaps the most difficult of these to deal with is lack of interest. You can demonstrate that exporting provides opportunities to increase turnover and to raise productivity and profitability, but people have to be receptive to these arguments. People also have to be prepared to take the risk as well as to undertake the hard work. So UKTI will have to be selective. It is the people that make the difference—this is the can-do attitude that the noble Lord, Lord Cope, told us about—and I believe that UKTI will have to recognise these people.
The main problem for those businesses that do export seems to be finance. The banks say that they are most anxious not only to finance exports but to provide additional services such as debt collection, document preparation, insurance and seminars on exporting, yet somehow businesses say that the banks are their biggest problem. Indeed, Mr Cable, the Business Secretary, said during an interview at his party’s conference that his department’s research showed a high rejection by banks of SMEs wanting to export. There is a mismatch somewhere. I am not sure what UKTI can do about it. After all, the Government have introduced several schemes to try to put this right with what I can only describe as mixed success.
In addition, there are other organisations trying to help exporters: financial service companies that will discount invoices; organisations that will fund your customer so that they can buy your product; the Institute of Export, which provides valuable and necessary skills training for exporters; market research organisations; mentoring schemes; and some large companies that help companies in their supply chain to export. The British Chambers of Commerce and trade organisations also supply information and try to help. Then there are the European single market incentives that the noble Lord, Lord Hunt, spoke about, such as the Enterprise Europe Network and the internet’s points of single contact. There is a lot on offer. So what is the role of UKTI with all this other help available? It is certainly not to duplicate it.
That brings me back to where I started: people. From the exporters whom I have met and from my own personal experience as an exporter, I know that the one thing that really convinces small businesses to get into exporting is when they meet somebody else who has done it and done it successfully. Perhaps they got into exporting by a chance visit, through some technical, scientific or commercial meeting, or through social networking or selling on the internet. The Government, somehow, have to encourage this. Perhaps one way would be to reduce the cost of travel for exporters by allowing a rebate on the air ticket tax, as they do on VAT. I finish where I started. It is this personal aspect that is the most effective, yet it is the most difficult. This is where UKTI has to work hardest if it is going to succeed.
Lord Mitchell
My Lords, my noble friend Lady Liddell has done us a great service in securing this debate. We must thank her for that as well as the very impressive speech that she has just made. The contribution made by speakers from all parties is tribute to the importance of SMEs in the national economy.
It is no surprise that my party fundamentally disagrees with this Government’s economic policy, most particularly their refusal to moderate austerity and revert to a growth-based strategy. Yesterday, George Osborne said that there is no alternative. Today, David Cameron says that the economy is slowly healing. However, this morning, the IMF says that our economy is contracting and today’s trade figures are appalling. I wonder what planet these people live on.
In the SME world which I inhabit, the effect of austerity has been devastating. Without credit, businessmen simply cannot expand their businesses and cannot employ more people. I had guessed that by this stage of the debate every aspect of what UKTI does would have been covered, so I am going to stay away from it, at least directly, and talk about other agencies which the Government have to promote SMEs. The Government have been almost manic in introducing new programmes supposedly to help SMEs, but the results have been somewhat anaemic. The fact is that announcing a programme is one thing, making it work is something else. Not surprisingly, the Government have chosen the high street banks to deliver many of their programmes. The suspicion is strong, however, that instead of befitting small and medium-sized business as intended, the banks are directing these funds either to the more highly profitable consumer sector or else towards bolstering their own balance sheets.
The business growth fund owes its genesis to Project Merlin, which as the Minister will know was an undertaking written in blood by the banks to benefit British industry. But what do we see? We see the fund in many instances investing in companies not by funding investment or cash flow but, perversely, by cashing out managers and shareholders. The word on the street is that the business growth fund is a total failure. I would like to hear the Minister’s view on this.
I come to the business finance partnership. This is a £1.2 billion pot, of which £700 million is supposedly committed to mid-sized companies. It aims to promote alternative and non-traditional channels of finance. I am told by people who are in the know that little has happened. There is also the regional growth fund. Out of £1.4 billion earmarked for this project, only £60 million has been received by business. “Glacial” is a word I used to describe the fund. The enterprise guarantee scheme is also a flagship project. Again, I would like to know how it is progressing. There is also the export enterprise finance guarantee scheme that was launched to fund exports and is directed at SMEs. It is all good stuff, but by June of this year it had allocated only £3 million—or so I am told.
One government initiative that I fully support is the seed enterprise investment scheme introduced by the Chancellor this time last year. I am contemplating investing in various start-up companies, using this structure. It is very tax efficient. However, it seems almost like a state secret. No one I know, and perhaps very few of your Lordships, has ever heard of it. Why has it not been marketed and why does it last for only one year? Schemes of this nature need time to bear fruit. Pulling up the project by its roots after one year to examine whether it is growing is hardly the way to develop a policy geared to providing new investment in new companies. We need business angels to help fund exciting businesses, particularly in my area, which is technology. Using the tax system to help angel investment is an excellent idea. I will make a plea to the Minister that may sound strange coming from a shadow Minister. The SEIS is a very good scheme. Please leave it in place, and please market the programme seriously so that more potential angels are attracted to invest.
The programmes introduced by the Government have been woeful in their level of success. For the most part they have been ill thought through and incompetently implemented. My advice to the Government is to think deeper about projects to help SMEs, to put much more effort into marketing them and, most of all, to give them time to develop.
Lord Green of Hurstpierpoint
My Lords, I begin by congratulating the noble Baroness, Lady Liddell, on securing a very important debate on trade and investment, especially relating to small and medium-sized enterprises. The role of UKTI is complex and I will focus my remarks on the involvement with SMEs. I assure the noble Baroness that SMEs are an extremely important focus. As the noble Lord, Lord Bilimoria, reminded us, more than 90% of the client base of UKTI is SMEs. I will talk a little about how an organisation that, as the noble Lord, Lord Haskel, commented, is in transition—I agree that it is—and is attempting to make sure that it does the best possible job of support for SMEs.
The noble Baroness has long supported business, as Economic Secretary to the Treasury and Minister for Energy and Competitiveness in Europe in the first term of the previous Government, and as a successful high commissioner in Australia who was very active in supporting British business there. I checked the statistics. Whereas in most markets over the past 10 years Britain steadily lost share or had a share so low it was difficult to lose, in Australia between 2006 and 2009 we at least had a stable share and in some respects, particularly services, grew it. I am afraid that it rather declined after 2009; I wonder whether this was cause and effect.
I think that we all agree that we face a national challenge as we seek to rebalance our economy and find a stable and sustainable growth path that will create jobs. The old model that was in place in the run-up to the financial and economic crisis is, as we all know, bust. The economics textbooks state that if we cannot grow on the basis of consumers piling on debt and government spending growing larger, it will have to be on the basis of more successful trade and investment.
I shall not comment much on investment because it is a separate and complex topic, except to say that, on the whole, this country has had for a number of years a fairly good record in attracting foreign direct investment. We cannot be complacent. We need to ensure that government policies are in place to ensure that that performance continues. However, we have a big challenge in trade. We have had a weak trade position for the past 40 to 50 years—this is not a new problem. For most of those years, trade has been a drag on growth rather than a contributor to it. I have already mentioned our market share in goods, which is down and/or the lowest during the past 10 years in virtually every priority market. It is rather better in services, but when you look at our performance in places such as Brazil, China, Colombia, Indonesia, Japan, Mexico and Russia—I could go on—you see that it is lamentable, being behind not only that of the Germans, which might be expected, but that of the French and the Italians, and I can think of no good reason why that should be the case.
I share the view of so many noble Lords who have spoken in this debate that it is critical that we focus strongly on SMEs. SMEs account for more than half of all goods exports—they account for rather less of services, but they are none the less an important part of the export proposition. We are behind the European curve. The noble Lord, Lord Bilimoria, has already mentioned that only 20% of our companies export versus a European average of roughly 25%. One way of looking at our challenge is to seek to get our SME propensity to export up to that European average. If we did that, we would go a long way towards curing our trade deficit problem.
I am convinced—again, I echo the sentiments of a number of noble Lords—that we have the potential to do this. The sheer variety of SMEs is an extremely important factor. The thing that I have enjoyed most about my job during the past 20 years is going around this country—I have gone around the world a lot, of course—meeting businesses of every shape and size in every sector and every region of the country. You find examples of creative, energetic exporters, with a high profile in their local community, who are going out and taking on the world. If one ever had a moment’s doubt about this country’s ability to pay its way in the 21st century, you need only to do what I have been doing to allay those doubts.
Furthermore, the evidence is clear that there are significant efficiency gains on average for any company that gets into the export markets. Therefore, succeeding in this SME exporting campaign is not only addressing our balance of payments but strengthening the backbone of the economy while we do it.
The Prime Minister last November set a target of 100,000 extra SMEs in the export markets by 2020. There is a strong focus on emerging markets, because, as I think we would all recognise, that is where the growth is coming from now and is likely to continue to come for the next generation. The central gravity of the world’s economy is shifting from west to east and from north to south, and the emerging markets in Asia, the Middle East, Latin America, Africa—at the moment, six of the 10 fastest-growing countries in the world are African—represent opportunities.
However, we all know that this is a challenge and that the first time that an SME exports is a daunting proposition—“Where do I begin? How do I go about it?”. As a number of noble Lords have said, they do not have the administrative apparatus that larger companies have; they are often one-person bands or employ 10 or 20 people. It is a difficult task. What is the role of UKTI in this? It is many-sided, but it is critical. It is there to provide direct help. There is a public commitment on the part of UKTI to double its client base from around 25,000 now to 50,000 by the end of 2015. It should be there to provide specific services to small companies. It has two particular packages that are well targeted to their needs: a Passport to Export package, which is for a first-time exporter; and a Gateway to Global Growth package, which is for those businesses that have already moved into one market and are looking at opportunities in others. It provides market information; it helps form partnerships overseas; and it is there to help deal with the finance access question, which I shall return to shortly. It is there to nurture investors, too, but I shall not dwell much on that, if noble Lords will allow, on this occasion.
What is the present condition of UKTI? First, it has a clear strategy. We have a list of priority countries on which we are focusing—there are 19 of them, four topmost and another 15 in a second tier. You might guess three of the topmost—China, Brazil and India. The fourth is Turkey rather than Russia. There are particularly interesting strategic reasons for engaging as proactively as possible with Turkey. Russia is in the next tier.
There is a clear focus on the sectors that we should cover. There are five main groups of sectors with 18 subsectors, one of which includes water and environment technology. I believe that there is a lot of work to do to ensure that the sector competence in UKTI is up to the demands of private sector businesses going into the export markets. We have work to do on that. I can assure noble Lords that we are on the case.
A new management team is in place. The noble Baroness, Lady Liddell, asked whether any of them had a background in the private sector, and specifically whether they had worked with smaller companies. I am pleased to report that the person we brought in to take specific responsibility for the SME business of UKTI comes from the private sector. He has had a 25-year career as an MD or group executive of more than 20 different SMEs over time in a range of sectors, including pharma and automotive software. His last position before joining UKTI was as CEO of Biocompatibles International. I think that he has demonstrable and credible expertise. I am pleased to report that because it is important as regards a key leadership position in UKTI. It should not be the only position occupied by someone with clear private sector experience. We need to ensure that there are plenty of others through the system.
I am very interested in the comments that the noble Lord, Lord Cope, and others have made about the importance of getting practical secondment experience into SMEs. I shall take that thought away and see how we can make a reality of it. Although I am ashamed to say that I have never done it myself—I have worked only in big companies—I fully take the point that seeing what it is really like on the inside is important.
A new structure is in place that will give a clear focus on SMEs and on what we call high-value opportunities. They are the opportunities in infrastructure in particular in many overseas markets where very large spending is taking place by overseas Governments and where I believe that there is an opportunity to bring together on a cohesive basis the British offer, which will include not only some big companies but, critically, some SMEs as well. We have been putting our money where our mouth is.
Lord Hunt of Chesterton
In addressing that point, will the Government do more to enable SMEs to attend these very large trade shows where these jobs and this technology can be displayed? The difference between the UK and other countries is enormous in that respect. As I understand it, the Government decided to cut back on funding of that sort. Can the Minister reassure us?
Lord Green of Hurstpierpoint
I am very pleased to reassure the noble Lord, Lord Hunt. When I arrived in this position I took the view that we had cut back too much. One might debate whether some of the earlier spending was fruitful but it may have been cut back too much. We have pulled it out of the nose dive and I am pleased to report that we have just allocated an extra £3 million to trade access programme activities, which is the area of trade fair attendance that the noble Lord is calling for.
This year, out of 288 missions, 178 were specifically focused on SMEs, a statistic which I should mention. I hope to reassure the Committee that we are serious about this. SMEs are critical to the long-term success of the economy and to the export challenge for this country. They are therefore at the centre of UKTI’s objectives.
There are plenty of challenges. More than one noble Lord has mentioned awareness. At the moment, the evidence is that about 56% of companies are aware of UKTI, which is simply not good enough. There is evidence also that only 24% are aware of UK export finance, which is miles away from being good enough. The satisfaction rates for the quality of service is not yet good enough. It is not that bad but it is in the mid-70s. I think that it should be at least in the high 80s or low 90s. Therefore, there is a direction of travel that we must make sure that we get to, which is partly about the quality of the people in UKTI. We are setting up a new unit within UKTI to focus on venture capitalists, because it is important to encourage venture capital into the economy and link it up with business opportunities.
I am conscious that my time is running out fast so I will just say a word on finance. The finance issue is quite complex. It is about venture capitalists and seed money. The noble Lord’s comments about the enterprise investment scheme resonated very strongly with me. I will take them away and we will see what we can do, but we are very clear that this is an important scheme.
More generally on business banking, there is a clear need to reinvest properly in business banking. In some ways I am better placed than many to say this. The banks have disinvested—unintentionally, but none the less in fact—in their business banking capabilities over the past 20 years. We need to turn that around. We need to reskill the banks. The good news is that the CEOs are all very committed to this. The challenge is that it is going to be a bit like turning around an oil tanker—I am afraid that it will take some time and we have some work to do on that. But I can assure noble Lords that I hold regular round tables with the banks, at both CEO and head of commercial banking level. I and the Secretary of State are on this case.
I am very conscious that I have run out of time. I thank the noble Baroness for introducing this debate and noble Lords for participating. This is a challenge that I care passionately about, as I hope noble Lords can tell. We have a great deal to do but I believe that we can be successful as long as we stick at it.