Businesses: Small and Medium-Sized Enterprises

Tuesday 6th May 2014 Lords Chamber

Motion to Take Note

17:08

Moved by

[Lord Cope of Berkeley]

That this House takes note of the actions which have been taken following the publication in 2013 of the Report of the Select Committee on Small and Medium Sized Enterprises (HL Paper 131).

[Lord Cope of Berkeley (Con)]

My Lords, I welcome particularly the former members of the Select Committee which produced the report which is the subject of this debate—the members of the old comrades association, if I may say so, of the Select Committee. Our committee report had a good reception from the Government and others last year. We were particularly glad that the Government agreed to report again on developments a year later, which my noble friend the Minister did on 27 March, and to facilitate this further debate.

The theme of our work was government help for SMEs—small and medium-sized enterprises—to export. Exporting is obviously good for SMEs and essential for the prosperity of our country. Government help for this purpose is not controversial between the parties or, for that matter, within the coalition but it is also supported and assisted by many outside bodies. The Government’s support is of course shown by the appointment and excellent work of the Ministers concerned, particularly, until not long ago, by my noble friend Lord Green of Hurstpierpoint and now by my noble friend Lord Livingston of Parkhead.

Our report was very strong about the need to improve awareness of UK Trade & Investment and UK Export Finance—UKEF—among businesses. It is after all no use for UKTI to make excellent services available, as it does, if not enough SMEs know about them. The Federation of Small Businesses, among others, emphasises that increasing awareness of the services available is the most pressing need. It is of course not always easy to get through to SMEs. They are very busy and self-reliant, almost by definition. They are used to working out problems for themselves. They have a lot to think about and their dealings with government and their many agencies are usually about taxing and regulating them. So the message “We are here from the Government to help you” does not immediately switch on the “Welcome” sign. I hope that my noble friend the Minister can tell us a little more about the progress and effects of the effort, mentioned in a recent paper, to contact all the 8,900 medium-sized businesses by this summer. The Bank Holiday weather has encouraged me to believe that summer—that most flexible of dates—is about to arrive. How, too, are they getting on with the “Exporting is GREAT” campaign?

A real shock to us on the Select Committee was the tiny number of firms, or at any rate of SMEs, being supported by UKEF. We were told of UKEF’s new marketing campaign, which of course I welcome; that three new schemes had been introduced in 2011, particularly to help SMEs; and that UKEF was recruiting additional staff. In the recent Budget, some further proposed improvements to UKEF’s terms were announced, whose purpose included trying to ensure that smaller companies could benefit. Can my noble friend the Minister tell us what is now expected to be the level of UKEF support to SMEs in the coming period?

On SME finance generally, we were, like many others, critical of the banks. Recent figures suggest that the borrowing environment for smaller businesses has improved. Certainly, when one goes into branches of the large clearing banks one sees trays of leaflets encouraging SMEs to approach them and start-ups to come and see them. However, I have also seen recent evidence that decisions are still made well above the branch level and take a long time to gain approval, longer sometimes than the timetable that export sales require. Captain Mainwaring of Walmington-on-Sea is dead—replaced, one feels, by distant computer watchers.

One of our points was that businesses can borrow from a much wider range of sources than just the clearing banks. This has been widely discussed since, with much talk of challenger banks and so on. SMEs can and should look around. There are many ways to access finance and the clearing banks have lots of competition in this field nowadays. Some of it was formally considered novel but is now thought normal, such as internet banks, crowd funding or peer-to-peer lending—a term that can be misunderstood in your Lordships’ House. SMEs have a vitality that needs to be matched by flexible financial backing, and that is available.

We did not deal separately in our report with the effects of technology on SMEs, although the amazing changes that it continually makes ran like a thread through much of what we did. My noble friend Lord Livingston has great expertise in this area, not least from his period as chief executive of Dixons plc and PC World. As technology connects the world at an ever faster rate, it changes markets radically. You can find and reach customers much more widely across continents. The English language is helpful in this. After all, it is so often the language that computers use to speak to humans. But retail customers in particular need to be spoken to in their own language and with regard for local customs. Finding customers by technology is one thing, but selling also depends on how easy it is to deliver to your customers in distant places. More and more can be delivered electronically—books are the obvious example—and other products of the creative industries, which are so important in this country.

We have always been an innovative and outward-looking country, and IT gives us so many extra chances both to innovate and to reach out to the world. SMEs, with their flexibility, are in the forefront of all this. However, IT also makes the world more complicated. It is partly responsible for the increase in regulations and forms of every kind in all countries. That is one reason why the Government need to help SMEs to export through UKTI, the FCO and other bodies such as the chambers of commerce.

I particularly want to mention two more detailed matters that we referred to in our report. The first is intellectual property. As we learn with morbid fascination of the latest developments in that great lawyers’ feast, the titanic intellectual property struggle between Samsung and Apple, which I think is now in its third year, we should remember that for SMEs such things can be an existential challenge. How can you protect your idea or special product in foreign markets in many countries? I am not going to go into all the aspects, but I ask the Minister how the new IP attachés in our overseas embassies are doing in China and elsewhere. Is there any recent progress to report on international negotiations on IP? China at least is said to be realising that it has intellectual property to lose these days as well as to gain from.

I also want to mention bribery law. The definitions of what precisely constitutes a crime remain only partially understood by SME exporters despite 40 pages of careful legal guidance from the Ministry of Justice. We on the committee worried that the Government were waiting for case law to remedy this deficiency—in other words, that some businesses may suddenly find themselves the specimens being pinned down for examination in the courts while lawyers and judges work out in their confrontational way, in ever higher courts, what this Parliament intended the legislation to mean in practice.

The International Chamber of Commerce wrote after our report saying what was needed was not more parliamentary scrutiny or change in the law or guidance, but more efforts to promote awareness of the present guidelines, particularly by our embassies in relevant countries. We agree about awareness, but we thought that further consideration in a Lords committee might help both awareness and clarity.

All are agreed that the Government should, through their agencies, help SMEs to export in whatever ways are effective. I welcome the appointment of Dominic Jermey as chief executive of UKTI. He has unusually wide experience, including in both UKTI and the FCO, recently as ambassador to UAE.

I pay tribute to my noble friend Lord Green of Hurstpierpoint for his unceasing efforts while he was in the Government. He invigorated the whole process, and UKTI in particular. He proved once again the case for people of energy and expertise to be appointed to the House of Lords specifically to be Ministers. I am delighted that he is here today to speak. His successor, my noble friend Lord Livingston of Parkhead, has brought his own successful high-level commercial and financial experience, as well as his vigour, to the job over the past few months. It is essential work for our national prosperity. We wish him well and look forward to his speech today. I beg to move.

17:21

[Baroness Cohen of Pimlico (Lab)]

I thank the noble Lord, Lord Cope, for securing and introducing this debate on a subject so vital to our economy. Indeed, our report goes on giving. This is effectively the second debate that we have managed to have on it, and I very much welcome it. I also thank the noble Lord, Lord Livingston, for feeding as many of us as could be assembled in a hurry to discuss the report when he was appointed.

Britain Open for Business sets out an impressive range of services and improved delivery of those services, but it still does not seem to me to be directed towards the smaller end of the market—the smaller medium-sized companies, if I may so describe them, the really small companies and, above all, the problem of start-up. At one level, that is fair enough. In the short term, the big wins in increased exports must come from concentrating on larger and medium-sized companies. However, we need to look beyond them. In any case, they are reasonably well placed to access the information they need, once you prod them into action. We heard many views that smaller companies may not be able to spare a hand from the day-to-day business to put in the effort to export, and it is there that we need to concentrate.

Since our report was completed, and after reading the Government’s formal response, Britain Open for Business, I have been thinking about how the national goal of increasing exports can be achieved. Let us be clear that at the moment it is not a success story. Our balance of payments on manufactured goods is worsening. We must improve. I believe that means putting in the hard, long-term slog to get smaller companies into exporting.

In this context, when we think about concentrating on larger companies, the example of the proposed takeover by Pfizer of AstraZeneca stands as a kind of living, breathing horror about what can happen to your larger companies. As an ex-director of the London Stock Exchange and a director of many companies in my time, I say that fine words about carefully considering takeovers by foreign companies do not really come to much when you find yourself faced with a bid of 30% more than the existing stock market price. That tends to overrule any amount of careful consideration, partly because not to take account of such a stock market price increase would be damaging to the interests of shareholders. The Government—and we, when we are once more the Government—will have to think about how we protect jobs and vital national infrastructure in a reasonable and measured way.

For the moment, however, I am thinking about developing some more vital national infrastructure. I come to the report’s particular concerns and targets. The whole committee was started at the request of the noble Lord, Lord Popat, then a Back-Bencher in your Lordships’ House. He won the right to set up the committee that we are still discussing.

Small and very small companies need lots of encouragement and advice and access to finance at reasonable prices if they are to export and grow. We indentified a critical role in the advice and support for the LEPs and chambers of commerce. There is almost nothing about LEPs in Britain Open for Business, but I will not have a go at that one because my noble friend Lord Haskins will be speaking later in the debate. He chairs a large LEP and will be able to tell us.

We are not yet offering enough help, both advisory and financial, and we lack the culture to provide it. The noble Lord, Lord Heseltine, in another report, identified this gap and noted that is was filled in other European countries by the chambers of commerce. There is work to be done here. We were told on our travels that some chambers were inactive or unwelcoming. There is nothing in Britain Open for Business about how they might be revitalised. They could indeed be given funding to improve. Like everyone else, they need competent central organisers, which many cannot afford. I recommend this and wonder whether the Minister will comment on this in his reply.

We could also think more carefully about how small companies get started. This has been a lifelong interest for me. Although two of the companies that I have helped are restaurants and have never exported a thing, I could have done better if I had thought about it. That is also particularly true of whether we can find a way to help our immigrant business men and women, who can see a market in their countries of origin for goods made here. We met a couple of such businesses in our travels, one exporting curries and chutneys to the Indian subcontinent. Of course, this business had none of the obvious difficulties in exporting: it knew its markets, what to sell and to whom. There were none of the usual problems of language barriers. It would be well worth while for UKTI to consider zeroing in on such companies as a particular sector and helping them to grow. We noted that the owners of these businesses were careful people, only using such finance as could be generated within immediate family and friends. I have been there. This is how I worked but, with better information and advice, we could have grown faster.

In fact, the incentives available to friends, family and investors in general to invest in start-ups have been immeasurably improved by the introduction of the small enterprise investment scheme which allows top-rate taxpayers a concession of 50% on any investment after the enterprise in question has been trading for a few months. This last was introduced after our report and the Government are to be congratulated on it. When we are once again the Government, we should keep it.

Small businesses have difficulty servicing debt. When I was in the start-up business, like the careful Indian businessmen we met, I tried to depend as little as possible on a bank. However, if you have to take on debt, the new government scheme, which allows small companies to borrow up to £10,000 at about half the rate that any bank would offer, provides a welcome and timely piece of help and encouragement for start-up companies.

In conclusion, we do not yet do enough to encourage very small businesses and small business start-ups. Our report recommended several measures that would help, including working through LEPs and chambers of commerce, which are not yet happening. The SEIS and the government loan scheme are of real value on the financial side, but they are necessary rather than sufficient. We and UKTI could do more, possibly by concentrating more attention in this sector, particularly with people who have a natural route to exports to the countries from which they come. Start-ups are difficult and so are very small companies, but they are the medium-sized and larger businesses of the future. I ask the Minister what the Government’s further plans are to provide increased services to this most critical area.

17:29

[Lord Storey (LD)]

My Lords, I thank my noble friend Lord Cope for securing this important debate. His chairmanship of the Select Committee on Small and Medium Sized Enterprises, of which I have the pleasure of being a member, was exemplary.

When my noble friend secured the debate in June last year on the Select Committee’s report, we had high hopes of an export-led recovery. Sadly, those prospects seem far less certain at the moment. The trade deficit has remained high, and the value of exports fell by 2.5% between August and November. I am glad to see that the trade deficit has been gradually reducing since imports have reduced. However, that demonstrates how precarious the situation can be, exacerbated by the fiscal situation of the eurozone. I suggest that we need to ensure that we look to the future and are thoroughly prepared for what it holds.

Britain may be the sixth-largest exporter in the world and number one for e-commerce in Europe, but we have a massive trade deficit and therefore need to double our exports to £1 trillion by 2020. Only 17% of mid-sized businesses generate revenues outside the European Union, compared with 25% in Germany and 30%—I stress—in Italy. While we have thousands of great exporters, others balk at doing business in countries embraced by our competitors. The CBI has reported that if mid-sized companies maximised their potential they would deliver an extra £20 billion to £50 billion to the economy. The House of Lords Select Committee’s report clearly and cogently identified what needs to be done and we can clearly see a number of very important initiatives coming forward. The International Festival for Business in my home city of Liverpool should be a must for every businessman and businesswoman, and I am sure that our Minister will be there as well.

I will give an example. The expansion of UK Trade & Investment has been vitally important. I will give noble Lords a local example of its sterling work, because it is on many occasions an unsung hero. It held an export week in the north-west that reached 400 businesses, with free events that explored opportunities that ranged from Africa and Europe to southern Asia and Japan. The challenge was for existing exporters to make this the year that they expand into at least one new market. In the weeks before it achieved its target of creating 1,000 new exporters in the north-west, the north-west UKTI director, Clive Drinkwater, said that if every current exporter in the region rose to the challenge,

“we could increase the GDP in the north west by an estimated £2 billion, significantly aiding economic recovery and giving a boost”,

to the competitiveness of the north-west itself.

On support, large companies have a knack for prospering, with their intangible assets and intellectual capital—Pfizer’s recent bid for AstraZeneca is a prime example. Meanwhile, budding SMEs struggle to gain any funding. Figures suggest that 57% of those innovative firms struggled to find funding in 2012, which represents a steady increase from 38% in 2007. Why am I voicing such concern? SMEs are particularly vulnerable: should unlucky circumstances befall them, they may have to sell their shares quickly at knock-down prices and lose the prospect of scaling up. What is worse, if they find themselves having to sell off their enterprises to foreign companies, the UK economy will face losses. If we solve this problem, the returns could be huge.

Take the following example from my city of Liverpool. Focus Commercial is a commercial finance house situated in the heart of Liverpool which aims to provide SMEs with funding without depending on high street banks. However, its support for SMEs does not stop there, as it also attempts to provide a plethora of financial options, with its remit extending to the property and construction sectors. Such co-operation is important, and the flexibility and tailored support that growing SMEs require depend on them not being boxed into a financial corner. Who knows—such support might just fulfil the premonition of the Centre for Economics and Business Research, which says that the UK could be the largest economy in Europe by 2030 if we continue to create businesses and jobs at our current rate.

SMEs are in disagreement about the precariousness of the exports market at the moment. Some feel that niche products are needed to tap into markets that have never been targeted before. It would be less difficult for more SMEs to make the most of those markets with a raised awareness of what UKTI can offer them. If 100,000 new exporters are required to double the value of exports by 2020, this support will be required. I am very glad that the report has raised the issue of awareness from both UKTI and SMEs. Enterprise is, after all, the driving force for economic growth.

I turn to education, an area of great interest to myself. It has been said for years that SMEs need to, and indeed should, invest in apprenticeships. In fact, ICM figures suggest that 20% of SMEs plan to take on at least one apprentice in the next year, with forecasts suggesting this figure will grow the year after. The Prime Minister has already made the step of subsidising workplace training and giving £1,500 grants to SMEs to take on their first apprentices, but this needs to be developed further. In Germany, apprenticeships generally last for three years; they consist of eventually assessed classroom learning for one day a week. While big companies can afford to do this, most enterprises cannot. As sanguine as it may sound, we need to make sure that the Government put in place a means of making sure that the terms, conditions and schedules of apprenticeships are clear from the outset. This is important for both the apprentices and the SMEs that hire them.

My noble friends will be aware that Madeleine Atkins, chief executive of the Higher Education Funding Council for England, recently expressed her desire for universities to improve their interaction with SMEs. The money that universities obtain could be put to good use by boosting knowledge exchange with SMEs. This proactive attitude is already evident. For a number of months now, Cambridge Regional College has been offering completely funded training to SMEs as part of a £2 million European Social Fund programme to improve professional skills at work. This initiative has been hailed as a good stepping-stone to formal qualifications such as apprenticeships, and these developments can be amplified only with a can-do attitude from Ministers in Parliament, SME owners and youngsters.

It is easy to see how young people can benefit from an apprenticeship; it is an alternative to further or higher education and is tailored to their vocational needs. It can also help SMEs, which reap benefits from apprentices; it is important that they make sure their business is sustainable and that they train those apprentices to understand the idiosyncrasies of that particular field of work.

I want to mention another opportunity, which I believe that we have not really thought through. I happen to be a member of the advisory committee of the Regional Growth Fund, which has given almost a £1 billion in grants and growth fund money to encourage business growth, particularly in the least prosperous regions outside the south-east. Businesses are encouraged and helped through the process, and the straightforward criteria are used of leverage ratio and job creation in areas too dependent on the public sector for jobs. It has been very adept at supporting business growth, but would it not be wise to consider whether we should look at targeting those businesses that have the capacity and will to export or those that want to expand their exports? Perhaps the Minister might consider taking up this issue with the noble Lord, Lord Heseltine.

I can only hope that the support objectives outlined in the report are fully achieved—and the sooner the better. We must never ignore the fact that SMEs are the driving force behind the sustainable growth that this country sorely needs.

17:38

[Lord Green of Hurstpierpoint (Con)]

I add my thanks to my noble friend Lord Cope for securing this important debate, and I add my congratulations to him and his Select Committee on a report that highlights the critical importance of ensuring that SMEs—and I am always conscious that that means small as well as medium-sized businesses—get as smooth a pathway and as effective a helping hand as possible on their journey on that path. I well recall appearing before the committee and being grilled closely on the details of the Government’s approach to the reform of UKTI and UKEF.

I shall make one general economic comment and three specific points about the continuing task. First, the economic point is in two halves, one a macro point and one a micro point. At the macro level we are clearly seeing a real economic recovery, continuing evidence of which was evident in the latest, first-quarter growth data. But it is also clear that we have to make a lot of further progress in rebalancing the economy if we are to achieve the ultimate objective of a more sustainable growth model for the British economy. None of us believes that growth is sustainable when it is driven too much by domestic demand and fuelled by debt. The fact is—we are all aware of this but we need to remind ourselves of it—that the trade account and, indeed, the current account more broadly, is still weaker than it should be. This has been the case for something like the past 40 to 50 years. Trade is not yet contributing properly and consistently to economic growth. In fact, it is still at best neutral and, more often than not, a drag on growth. So far we have not had a problem with financing that deficit but it would be folly to assume that that is always the case.

Therefore, at the macroeconomic level, there is a real, high-priority imperative to address this question of exports, particularly the role of smaller companies in the export performance of the country, to remove the vulnerability of our current account position and to achieve a more balanced approach to growth in the economy. I know that the Government recognise this and that they also recognise the importance of what might be described as the microeconomic imperative—that is, to get more companies, particularly smaller ones, into the international markets.

The evidence is clear and compelling. I used to cite it and make no apologies for calling attention to it again. A very impressive BIS study was done some two years ago but private sector studies also essentially demonstrate the same point—namely, that companies of all shapes and sizes in almost every sector which get into the international markets enjoy higher profitability, last longer, grow more and create more jobs. In other words, whether we look at this from a macroeconomic point of view or a microeconomic perspective, the conclusion is the same—we need to encourage more companies into the export markets.

I turn to my three specific points on the strategy. First, it is sometimes argued that all our focus should be on the emerging markets and on building the UK’s position and share in organisations such as ASEAN and in places such as China, the Middle East and what we might call the African lions, in recognition of the fact that six out of the 10 fastest growing countries in the world today are African. That is clearly undoubtedly important but it is wrong to conclude therefore that the EU somehow does not matter. We need to remind ourselves that the EU is a market of 500 million people. It may be growing relatively slowly but it is prosperous. As an aside, I think that it will surprise us by emerging on the upside in the coming year or two. Indeed, not all of it is slow- growing. Some of the east European markets in particular have many emerging market characteristics. Last but not least, the EU is near at hand and getting into it involves lower costs. It is also easier to navigate than many of the emerging markets and is often the best place to start for a smaller company exporting for the first time. In other words, this is not a question of either/or, as it is sometimes presented, but of both/and.

That leads me to stress the importance of the single market and of broadening and deepening it. This complex topic is perhaps worthy of a debate in its own right on another occasion in this House. However, a quick stocktaking suggests that good progress is being made in goods. You can export a car to 28 markets without making any adjustments because of the standardised EU regulations applying to goods in the single market. On the other hand, I think we all recognise that we have a long way to go on services, and on the digital single market we are barely off the starting blocks with regard to EU-wide broadband, roaming charges, consumer rights across borders, collective rights negotiation and so forth. I strongly suggest that the task of strengthening the single market and making its development, management and governance more efficient should be very high on the list of priorities for the reform of the EU. That is an interest, by the way, which all members of the EU share; this should not be presented as just a piece of British exceptionalism. I hope that my noble friend the Minister will comment on some of the key milestones on this important journey which has so much direct relevance to SMEs and their export opportunities.

My second point is that whether we are looking across the channel or further afield, proactive and high-quality support for SMEs is clearly essential. We should recognise that UKTI now stands reasonable comparison with many of its peers in the relevant countries; I think particularly of countries such as Germany, France and Italy. What does not stand comparison is the quality of business support for business. The role of chambers of British business groups around the world is critical, and their performance has been varied. At their best they stand comparison, but they are too often little more than lunch clubs providing no meaningful support for incoming British small businesses. Yet, at their best, they can provide a really welcoming environment providing mentoring and buddying, sectoral working groups and office space. They can showcase that country back at home to small business here, and so on. This is what the Germans do. We should not always shamelessly imitate the Germans but in this case we should. We began a journey some 18 months ago to work with business groups to upgrade these presences around the world, and I know that the British Chambers of Commerce is very active in developing an international programme to this effect. There is a lively interest in linking up among the more energetic domestic chambers and a rising interest among their members in exporting—so we have some good traction. I should be grateful if my noble friend the Minister can comment on progress, the way in which the Government have been supporting that initiative, how he expects it to pan out over the coming years, and the implications for UKTI as it is enabled to move into a more strategic role in those overseas presences.

Finally, much, though not all, of exporting requires effective financial support. The Government have begun over the past couple of years to rejuvenate UKEF, broaden its project range, make it better known to SMEs, strengthen its marketing, strengthen its presence around the country, and provide advice to banks—I am sorry that it has to provide advice to banks, but it is none the less there and it does and should do so—and, of course, to its clients. Anecdotal evidence is that progress is being made but I am sure we all recognise that there is a long way to go. Again, I ask my noble friend to comment on progress in developing UKEF’s offering to small businesses up and down the land.

My final comment is one that may well provoke a wry smile on the faces of the civil servants in the Minister’s office, because it is one that I made often when I had the honour to be in his position. We have lived with a weak trade position for many decades, we have lagged behind our obvious peers, we have fewer companies engaged in exports than should be the case and we leave great export opportunities on the table. There are many good stories as well, though. Many companies in many sectors in all parts of the country have their tails up and are exporting energetically around the world. Achieving more balanced growth with stronger trade performance is critical to us all and is a major task for us all. Furthermore, I believe that it is a task that is non-party political and that we have to stick at, probably for the next 20 years. It is a task that is collective because it involves government, of course, but also businesses and business representatives—and we need to keep at it. As I said—to the point where my civil servant colleagues were, I suspect, bored with hearing it—this is a marathon, not a sprint.

17:48

[Lord Giddens (Lab)]

My Lords, let me congratulate not only the noble Lord, Lord Cope, but all noble Lords involved in the production of this report. I speak as someone who was not on the committee. The report is wide-ranging, authoritative and packed with interesting ideas and proposals. As a social scientist, I particularly like the comparative parts of the report, including the well documented section on Bavaria. The Bavarian successes with small business start-ups are relevant not only to the UK but to other parts of Germany, some of which lag well behind that area. I also echo what the noble Lord, Lord Green, said about the importance of Europe to our export markets and the single market. I welcome his sort of “hmm, hmm” comments on Germany because I do not think that the way to go for Britain is just to copy Germany. That country was the sick man of Europe only about 10 years ago, it still has structural weaknesses alongside its strengths, and we should therefore be a bit careful about that and develop our own model.

I shall concentrate here on only a few issues among the many powerful points made in the report. One is the core question of finance. It is disturbing to see in the report that:

“Lending had dried up even to SMEs with full order books and strong collateral and strong cash flow”.

What interventionist measures would the Minister suggest for breaking through this somewhat disastrous situation over and above those contained in the response already made? Would he not agree that it reflects structural factors, not just the hesitancies of the banks in the aftermath of the financial crisis? The economy has become dominated by finance-to-finance lending, often on the large scale, and lending to small productive enterprises comes very low down on the list. Microfactors are very important too. Does the Minister not agree that the demise of relationship banking, to which the report quite rightly draws attention, needs to be put into reverse? Speaking as someone who has studied the German economy quite intensively, the comparison with Germany, or at least the avant-garde sectors of the German economy, is quite telling here. What policies would the Minister propose to revive relationship-based banking in a speedy way? It seems to me that what one needs here is a new combination of high tech and low tech: on the one hand burgeoning processes of automation and, on the other, a distance between the banking system, the finance system and customers, including productive enterprises. I think that some structural reorganisation is needed here.

The report mentions that many SMEs are “born globals” in the internet age but I am not sure that this thought is followed up in the detail needed. To me, the advent of the internet, the coming of the internet of things and the transformations in manufacture linked to this are absolutely extraordinary. I do not think that there has ever before in human history been a period of transformative change of such an intense kind, and it is very important that we surf the wave of these changes. Even tiny start-up firms, through using internet-based collaboration, can produce and sell around the world, and indeed they are doing so. They come into existence one day and, almost the next, sell on a global level.

Tiny companies can now make use of facilities once available only to very large enterprises. McKinsey estimates that in the United States one-third of all SMEs now make extensive use of cloud technologies. That is a quite remarkable statistic. Whole departments were once needed to harness facilities that are now available either for free or at very low cost. Some cloud computing services cost only 10 cents an hour to utilise gigantic computing capacity. We have quite a range of microstudies which indicate that SMEs in this country are on average well behind those in the US and in some of the leading European countries in making use of these facilities. I ask the Minister what more can be done to get this country more into the forefront of these extraordinary transformations. Of course, many small businesses are local but we are seeing the fusion of local and global in a way that has never been seen before, and this is where enormous productive and export capacity will lie in the future.

The report does not discuss import substitution. I understand why but I think it is a pity. I do not think, as has been conventional wisdom up till now, that we should accept the inevitability of offshoring and deindustrialisation. A feature of history is that it does not move in a unilinear way—it quite often goes into reverse. I think that active policy should be engaged to try to push some of these trends into reverse, no matter how dominant they have been over the past 20 or so years. In this country we should actively seek to reverse these trends, both in manufacture and in the service industries. 3D printing is just the cutting edge part of what looks to be a thoroughgoing revolution in manufacture—perhaps even bigger than the original Industrial Revolution because of its global scope. Not just 3D printing but digital production more generally will be an enormous boon to SMEs, even tiny enterprises, and at the same time will serve to relocalise production.

Does the Minister agree that we should seek to reverse some of these trends that have previously been so dominant? It is not stupid to talk about the possibility of a partial reindustrialisation of the British economy. It is not stupid to suppose that the service industries will become massively more productive as a result of these emergent trends, and that policy should therefore follow and support them. What are the Government doing to help accelerate these trends of such potentially massive significance?

17:55

[Lord Cotter (LD)]

I thank the noble Lord, Lord Cope, for initiating this very important debate. It is very important for our country’s growth and it is so essential that the committee has addressed the issue of exports.

SMEs in particular need every possible help they can get to enable them to negotiate such a difficult and challenging path of business growth. There are many issues to raise and I shall quote from the Federation of Small Businesses which made four key points. It called for more effective sign-posting of existing export support and said that finance is important for small businesses. It talked about more effective targeting of support to microbusiness exporters and said that UKTI should perhaps consider setting up a microbusiness first-time exporter desk in each region so that businesses starting out had an accessible place to go for advice. It also wanted more readily available advice on export finance at local level with the UK export finance regional advisers.

A number of colleagues have already raised the issue of financing. It is a continuing issue for SMEs generally. The business bank was mentioned in the report. In practical terms, will the Minister say how the business bank is operating, in particular with regard to exports? How is it bedding down and doing the work that it needs to do? When it comes to finance for SMEs, in times past there used to be a strong local focus, whereby the local branch manager generally had a good understanding of local businesses. I can attest to that as back in the 1980s and 1990s I was managing director of a small plastics manufacturing company of tubing, cables, and such like, which went to the aircraft and defence industries. We were able to export successfully, but it was very much with the help of a local bank and a local bank manager. The importance of regional finance is just as important today.

Perhaps I may raise a general point on the issue of late payment, which particularly affects small businesses. It comes to quite a point of concern when many small businesses have to wait for 30 or even 60 days to get paid by big contractors, some of which have been given contracts by the Government. This is a general issue, but of course if a small firm has difficulty in financing, it will have difficulty in being able to export.

Will the Minister look into a specific issue that came into the report about UKTI and the Overseas Market Introduction Service? Concern about the Government’s discount scheme, which is covered by OMIS, has been raised because until recently the Government had a discounting scheme whereby 50% was taken off the charge by OMIS to small businesses with their first order. I understand that will not continue after 31 March because the Government say that discounting is not sustainable. But it is really helpful as a doorway for those firms that need this help to get it. Has there been any assessment of how discounting has helped in the past in increasing exporting? It is so important for businesses and this country. Has an examination been done about how the discounting, which will no longer be available, has helped?

Many points have been made by colleagues and we look forward after this debate to the Minister and the Government looking to address the many issues that have been raised. In passing, I would like to ask the Government whether they feel that the local enterprise partnerships have a strong enough focus on export towards the firms in their areas. This debate has been very worth while and I hope that it will encourage more and renewed efforts to help SMEs to export.

18:01

[Lord Leigh of Hurley (Con)]

My Lords, I too thank my noble friend Lord Cope for initiating this welcome debate. The report by the Select Committee was published before I was introduced to the House. Accordingly, I have had the advantage of looking at it from the outside. As a relative new boy, it is sometimes easier to make observations. I have observed that the House has had relatively few debates and questions on the area of finance and enterprise. As the noble Lord, Lord Cotter, has just said, nothing can be more important to the well-being of our country than a flourishing economy from which everything else is generated.

Our success as a society stems from the ability of government to raise money from the domestic population and, essentially, other than mineral extraction, this relies on businesses growing, employing more people who pay taxes, generating revenue on which people pay VAT, generating profits and dividends on which tax is paid, and helping entrepreneurs to build businesses, which eventually leads to capital gains tax being paid. It is therefore vital that everything possible is done to help and encourage SMEs which, of course, are typically not multinational, but domestic. As they grow, they are more likely to pay taxes in this country than in other jurisdictions and employ more people in this country. In this context, I welcome the tremendous focus on business growth by a number of government departments. The Treasury has created an environment in which investment into the UK and UK business is proving to be extremely popular and attractive, which is something that I see regularly in my day job. The Department for Business, Innovation and Skills is helping business and young people to gain employment through apprenticeships and, as a result, according to a recent CBI survey, growth expectations among SME firms is the highest since 2003, with manufacturing growing at its highest rate.

There is a feeling in the country that the Government are providing a joined-up approach to promoting business, which has not been seen in the UK for many years. Undoubtedly, the recruitment of my noble friend Lord Livingston as Trade Minister was a real coup for the Government. Having someone with tremendous business expertise and experience leading UKTI sends a message to international business that the UK Government understand what needs to be done and are urgently seeking to promote our businesses. I saw UKTI action at first hand when I accompanied the Prime Minister and Ministers on the trade trip to China in December. However, despite my praise and admiration for UKTI, I have a number of observations and, I hope, helpful suggestions to make in three main areas.

The first is in many ways a function of our own success. There is a plethora of schemes available to SMEs to finance their growing businesses for export. In fact, last week I attempted to put myself in the shoes of such an SME businessman and visited the government website to seek help. As your Lordships may know, the new entry portal for all government help is www.gov.uk and on the very front page there is a link to business. Within two clicks I reached a page that enabled me to read about government-backed support and finance for my imaginary business. This in itself is incredibly impressive. However, unfortunately the clarity ended there. To my horror, the next page offered a choice of 791 different schemes to assist me. Equal prominence was given to the somewhat parochial Barking Enterprise Centre and the Crofting Counties Agricultural Grant Scheme in Elgin. While undoubtedly very worth while, they were given the same prominence as the perhaps more relevant export credit guarantee scheme. There is of course the opportunity to filter down your requirements, and I did then select finance for a business based in London with up to 250 employees in the service sector at the growth stage, and this managed to narrow the schemes down to 42, although surprisingly no filter was offered for people looking specifically for export finance. Accordingly, I would like to suggest providing a very early help button in the government website so that potential SME exporters can have short but direct conversations with experienced UKTI advisers about the route through the maze that is offered to them—because the help is actually there. I believe that this was included in Recommendations 11 and 12 of the Select Committee report, but I have not found any real evidence of their being implemented.

My second point relates to the excellent work being done by the Foreign Office to help SMEs export, and while not strictly on the point of finance for SMEs, it is part of the road to success. Many large UK corporates have consistently mentioned to me that they have noticed a dramatic change in the approach by the Foreign Office in parts of the world where they are seeking to do business. Perhaps it reflects a change in the role of diplomacy abroad, but more likely it reflects the commercial approach to life taken by the current Foreign Secretary to ensure that UK plc benefits from our existing foreign service facilities. Perhaps I may encourage my noble friend the Minister to publicise these enormous benefits that are of value to both the large corporates and SMEs. They are able to obtain advice from UKTI representatives in our embassies abroad and, of course, from Foreign Office personnel. It seems to have worked for large corporations and there is no reason why it should not work for SMEs.

Thirdly, and finally, is the issue of the relationship between the large retail banks and SMEs, which I believe needs further examination. It is a large topic so I will not take too much time here, but even last week the Treasury Select Committee heard that some of the banks really did not cover themselves in glory during the last recession, and there needs to be a realisation that they may not be the long-term answer for SME lending. I therefore welcome the initiatives that have been started to encourage new entrants to the market.

18:08

[Lord Haskel (Lab)]

My Lords, I, too, congratulate the noble Lord, Lord Cope, on arranging this debate. It is nice to know that someone has listened to us and has read our work, and that the Government have kept their promise to report back. I also thank the Minister for his letter of 27 March. He told us what has been and is being done in response to the matters we have raised. From his letter, it seems that quite a lot is happening: refocusing the work of UKTI; building more partnerships and working with intermediaries in order to create more awareness and confidence; and focusing on medium-sized businesses. All this is very positive and a welcome response to our report. So, like the noble Lord, Lord Cope, I have to ask: does UKTI have the resources and back-up it needs for all this increased activity? Are adequate staff with business experience available, especially to satisfy the needs of medium-sized businesses, which will be more demanding?

As we have not taken any evidence, it is only indirectly that we can find out how effective all this work has been. For instance, the noble Lord, Lord Leigh, spoke of the various finance schemes. Parliamentary Questions last month in the House of Commons revealed that the export refinancing scheme has still not helped a single business. The direct lending scheme has not helped a single firm. These schemes were designed to replace the export enterprise finance guarantee scheme, which was abandoned after it assisted only five firms. Yes, the number of transactions by UK Export Finance has increased, up to a not very impressive 370, but how many of these deals apply to SMEs? Judging by the briefing received from the Federation of Small Businesses, not many do.

The point is that, as many noble Lords have said, this is a long-term project and it will take time. There will be mistakes, which have to be put right. While working on our report, we went to Bavaria, which interested my noble friend Lord Giddens. The state of Bavaria exports more to the UK than the whole of the UK exports to Germany and we wanted to find out why. Of course, having Mercedes there helps, but the real point is that the state of Bavaria has been supporting exporters for 60 years. There has been unbroken political support, whoever was in power.

That is why I was rather disappointed that the heading on page 9 in the Minister’s document Britain Open for Business: The Next Phase spoke about:

“Sustaining the many good initiatives of the last three years”,

as if it all started when the coalition came to power. The Minister is misinformed. There was government help for exporters when Labour was in power and before that. Many noble Lords have spoken about the need for continuity. For that, Ministers have to show that we are building on the past, not blaming previous Governments as this Government seem to like to do. This is what will help to convince small businesses that government is and will be serious about exports.

To give credit where it is due, I welcome the Minister appointing trade ambassadors from all the political parties and none. Do the ambassadors work with SMEs, or do they concentrate on big deals in special countries? Does that mean that the staff are organised on a sectorial or a geographical basis? I hope that the Minister will listen to other noble Lords, and take politics out of the equation and keep commitment and cross-party continuity in.

We also have to move with the times, which means looking at exports more broadly—perhaps more broadly than in the Minister’s report. The noble Lord, Lord Storey, mentioned intangible assets. On 31 March, the Minister’s own department told us that intangible investment,

“continues to outstrip investment in tangible assets”.

Perhaps this different kind of investment explains the success of many of our younger and newer rising SMEs. Is UKTI doing enough to encourage exports by this business sector? Events such as Export Week and the Liverpool festival that the noble Lord, Lord Storey, told us about are very welcome. They must help many business sectors, but do they help the knowledge sector?

Last month we won a contract to run 16 FE colleges in Saudi Arabia—yes, helped by a government unit designed to boost exporting education. Great—it is a welcome sign of co-operation between government departments and of using exports to assist building capacity. Were SMEs and UKTI involved? Education and intangibles are all part of the knowledge economy, requiring the best brains. So why does the Home Office put barriers in the way? The Minister does not need me to tell him of the problems between the Home Office and BIS over visas for students, technicians and engineers. We need them if we are going to build our exports of knowledge. Indeed, the Minister’s report speaks about this. It is no use saying, as the Minister does in his report, that because this is part of the cross-government industrial strategy there are no longer any problems. Every businessman or researcher’s day-to-day experience tells him or her otherwise. This is where there is growing export potential for SMEs, so let us have a unity of purpose over this.

In our report we emphasise the importance that SMEs attach to working with local organisations. The Minister hardly mentions this. There seems to be little in the Government’s report about the softer or more technical skills of exporting that are so important to SMEs—language and culture, licences, training, signposting. The noble Lord, Lord Cotter, got the same briefing as I did from the Federation of Small Businesses, which speaks of their absence. These are serious barriers and will become more so as normality returns.

At the IMF spring conference the Chancellor said that normality is returning—normal interest rates, normal rates of inflation and normal growth. This is already affecting our exchange rate and the price of our exports. How does UKTI see this affecting our export performance and what advice is it giving to SMEs to prepare for this?

At the same time lots of negotiations are going on under the auspices of the WTO. How are these going to affect our SME exporters? Are their interests being taken into account? Most importantly, how does UKTI respond to the promise of an EU referendum and the uncertainty that that creates, bearing in mind the importance of the European single market that was stressed by the noble Lord, Lord Green? I assume that UKTI has answers to these big questions because all exporters, large and small, must be thinking about them if they have not started asking already.

Finally, last month we were told that from September the Office for National Statistics is going to overhaul our national accounts. All our R&D, knowledge and intangible business are now going to be included in our GDP instead of being seen as a cost of production. Of course, this will bolster our GDP numbers. Leaving aside that this usefully coincides with the run-up to an election, and that there is more to life than GDP, what about exports? Will this reform bolster our export figures as well, to show that really we have been doing better than we thought and are getting closer to the admittedly very testing targets mentioned by the noble Lord, Lord Storey? If so, I hope the Minister will assure us that in no way will this reduce the commitment, hard work, energy, investment and support that UKTI and Ministers from other departments will put into encouraging SMEs to export. Whatever the new figures say, more exports will remain an essential part of balancing our economy in the general economic interest, as the noble Lord, Lord Green, explained, not just for business but for our common good. That is why we have to continue with our efforts, and I wish the Minister every success.

18:20

[Lord Grade of Yarmouth (Con)]

My Lords, I join those who have thanked my noble friend Lord Cope for securing this debate and for chairing the committee—but, most particularly, I want to thank him for allowing me to participate in that committee and for listening to me drone on during the many hours of debate. Speaking this late in a debate, you always have that sinking feeling that everything you wanted to say has been said. That is not particularly true in this case, although I have great difficulty in disagreeing with any of the points made by so many distinguished Members of this House.

The issue that I want to raise is by way of the tradesman’s entrance into this debate: I want to talk about salesmanship, a word that has not been used during the past hour or so. Behind every successful company is a successful salesman or saleswoman. That was graphically illustrated to the committee by a wonderful woman from Harrogate who came in and told us that she had been to a conference organised by Goldman Sachs. She had a small speciality cake company and had decided that she was going to export her speciality cakes to the most difficult and competitive market in the world: the United States. So what did she do? She did not go on to a website; she did not seek help. She bought herself a cheap ticket to New York, smuggled in a few tins of cakes from Harrogate and did what everybody has done in their time: pounded the pavements until she had sold some cakes—which she did to some high-class hotels and establishments. Her business is now thriving. I rest my case.

The importance of salesmanship was drummed home to me by my late and beloved uncle, Lord Grade of Elstree, who is probably one of the greatest salesmen that this country has produced. He was into the American market, selling television programmes to the Americans in the 1950s and 1960s, which was unheard of. He valued his salesmen; he loved a good salesman. He was a great salesman himself, if not the greatest. He was asked to give a final interview to somebody who was more or less the successful candidate, subject to his sign-off, for the new head of advertising sales in his media empire, which included a commercial television contractor. The salesman came in and Lew said to him, “They tell me you know how to sell, young man”. He said, “Yes, Lord Grade, I think I do, sir”. Lew was smoking a 10-inch Havana cigar—he was on about his fifth, because it was 7 am. He picked up the jug of water on his desk and said, “Young man, sell me that jug of water”. The guy scratched his head and he got up and went behind Lew’s desk. He picked up the waste-paper basket, which was full of paper, put it on the desk, picked up Lew’s matches, dropped a lighted match into the basket and said, “How much will you give me for this jug of water?” The point of the story is lost in this country in a whole history. We have used the word “salesman” in the past as a term of abuse—“Oh, he or she is just a salesman”. My goodness, how the world has changed. In the world of casual work, the kids in the schools have got to learn to sell themselves into jobs; they have got to learn how to sell themselves.

My noble friend Lord Leigh alluded to the Foreign Office and the wonderful prosperity agenda. Diplomats in embassies around the world are trying to help our exporters. What training has the Civil Service had in selling and salesmanship, or even in recognising who is capable of selling? Where is the training to back up the prosperity agenda of the Foreign Office? It is a very important initiative to go to a new country and to have the support of the British Government locally. It can open many doors that pounding the pavements would not. It is terribly important, but the training is very important.

My noble friend the Minister has many issues to deal with here. I am absolutely convinced that he understands the issue. The initiatives coming forth from the Government, not least in their response to this report, are hugely valuable and demonstrate beyond doubt the importance that they attach to the SME exporting agenda. If I could ask him to do one thing, it would be to have a word with his colleague in education to see what can be done in schools to teach children the importance of learning how to sell themselves. Anybody who is selling a product has to sell themselves first; then they can sell the product if they believe in it.

Salesmanship is at the heart of everything we do in business. Without it, we are going to be lost, and we need to recognise that. The Government’s assistance through all their initiatives—UKTI, banking and export credit guarantees—is invaluable, but in the first instance somebody has to make a sale. They have to eyeball somebody and say, “Here’s a product—will you buy it?”. To have exports, somebody has to import. It is a two-way deal and that takes salesmanship, so my last word is to implore the Government to try to move the art of salesmanship up the curriculum a little. We should celebrate and not denigrate people who are great salespeople.

18:25

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the noble Lord, Lord Cope, for securing this debate, which has been very interesting. It is obviously just my luck to follow the best speech. I seem to have a habit of finding myself in the list immediately after the noble Lord, Lord Grade of Yarmouth. This time I am going to turn it back on him, as he did not tell us whether the guy got the job, and without that I think that his story lacks a certain amount of credence. Nevertheless, he made a very good and important point which had not been made before—that somehow in our British make-up, we do not yet recognise that salesmanship ethic. I do not believe that this is a political point. We do not really understand what it is that people who trade do, nor do we embrace them. We also have problems with engineers and others who are at the heart of what we can make out of our society in terms of the growth, jobs, employment and prosperity that we hope will flow from that. That is a good context for what we have been listening to today.

I thank the noble Lord, Lord Cope, for getting us into the debate, although I understand that the earlier credit has to go to the noble Lord, Lord Popat, for suggesting this proposal. As my noble friend Lady Cohen said, this seems to be a report that gives and gives—which is nice as we have had a second chance to come back and look at the issues that were raised. They are important and I agree that they are not party political; these are issues that we can all get behind and support. The original report had a government response, and what we are looking at, in a sense, is that response. What have the Government made of the original report and how much has changed since then? We are grateful to the Government for doing that and particularly to the noble Lords, Lord Green and Lord Livingston, whose work in this field we all applaud because they have put a huge amount into it. Having done his stint the noble Lord, Lord Green, is now able to reflect and give us the elder statesman-like view, which was very nice, while I am sure that the noble Lord, Lord Livingston, has much more to give us.

However, one of the themes that comes through is that we do not really focus enough on SMEs—and it is “S” and “MEs”, because there are differences. As my noble friend Lord Haskel said, some of the original recommendations have not really picked up on some of the particularities in the report. In many cases, there is not quite enough detail on what we are doing. We are a trading nation and we cannot survive in the modern world without generating a much greater level of exports than we currently have. It is important, as the report makes clear, that attention is paid to small firms. That is not just because they export less while larger firms export more, which is obvious from both the macroeconomic and microeconomic side, but because of the potential that they have, being smaller, to grow and employ more—and to generate more wealth.

My noble friend Lord Giddens mentioned the different world that we are in: the age where we have the internet of things as well as the internet of ideas. As we know, in that world there are often real opportunities for small to be big without having to go through some of the difficulty with growth and the other difficulties in earlier traditions of the way in which the world of commerce and business works. I think we are agreed that there is a need for strong government intervention, working with partnerships and existing business organisations. As I have said, it is not a party-political point and we support that.

There are perhaps four areas which I would like to pick up because the list that the noble Lord, Lord Livingston, has to respond to is very long and covers a wide range of things. I would not want to particularly burden him but it might help him if I signposted the areas where there is some need to make points.

The noble Lords, Lord Cotter and Lord Green, and my noble friends Lady Cohen and Lord Haskel picked up on the need for more integration at a local level between SMEs, local enterprise partnerships, chambers of commerce, UKTI and UKEF—a point that was picked up originally in the report by the noble Lord, Lord Heseltine, No Stone Unturned—to ensure that the whole group of people who are involved in the process of getting exporting happening has a fructifying base of activity within those groups. It would be interesting if we could understand a little more about that, so perhaps we could have a comment from the Minister on what UKTI has been able to do with UKEF, the chambers of commerce and LEPs in relation to that work.

There is a point related to that which has been touched on only a couple of times but it is important: there has been a growth in the number of international trade advisers. My noble friend Lord Haskel asked for a bit more information about that. I tried to look this up beforehand—I keep bumping into people who say, “I’m off being a trade ambassador these days”, and, as has been said, they are from all parties and none—and it would be useful to have a list of them but I could not find one anywhere. I wonder if in fact it is published and perhaps it is just me who cannot find it. What exactly is the task that those ambassadors have and what performance indicators are they measuring up to? I am sure that they are a good thing but I lack some detail, and this subject was picked up in the report as something about which more information would be available.

The bulk of the comments received today have been on recommendations 5 to 8 about access to appropriate finance. It is a point that reaches way beyond the main focus of the report, which is about export, because it is also about import substitution, which my noble friend Lord Giddens spoke about, as well as general activity within the domestic market. Why are we so bad at financing those who seem to be able to generate wealth, who have full order books and who want to grow, in a way that will allow them to do that? The latest report that I was able to find was the NAO report on the combined Treasury and BIS work in relation to SMEs. It is interesting that that report comments that there have recently been reports about the flow of new bank term lending to SMEs. The latest figures show that it fell by 23% between 2009 and 2012; that 70% of SMEs whose loan applications are rejected can find no alternative finance, and the younger and smaller firms are obviously the worst affected by that; and that—this is quite an important figure—the funding gap, which the NAO defines as the difference between the funding required by SMEs and the funding available, is about £10 billion to £11 billion, and it may reach about £22 billion by 2017. The point being made by the NAO is that there are significant problems in this area. Not surprisingly, it concludes that there are a lot of data on SMEs seeking finance,

“and there has been a renewed focus on research into SME financing. Many of the individual schemes have been delivering against their individual targets. But BIS and HM Treasury have not managed the range of initiatives sufficiently as a unified programme, and have not clearly articulated what the schemes are intended to achieve as a whole, given the resources available. As a result … at present, value for money has not been demonstrated”.

That is a fairly critical point. Time has moved on since that report in 2012, but I would be grateful if the Minister could pick up on that point because I think we need a new fix on some of it.

It is easy to be critical about that, although clearly there is good work going on in UKEF, but maybe we need some new initiatives—perhaps more support for bodies such as the British Growth Fund, which seems to have been doing good work in getting companies from an early stage of development up to the next phase where they are developing greater coverage domestically and exporting. What about, as has been suggested in some areas, a tax break for those who wish to export? We currently have tax breaks in the entertainment industry, for instance, which is a good thing for film, high-end television, animation and now for games, but there is no tax break for exporting. I wonder if that is something that the Government might look at. I am sure that the Minister will say that that is a matter for the Treasury and not something that he could possibly dare comment on, but I hope that it might feed into thoughts in those areas.

The point made in recommendation 14 about language and cultural differences is one that often throws up problems for the relevant bodies. My noble friend Lady Cohen mentioned this and had a solution for how perhaps to get people up to the first stage of this, but there is a point in the original report asking for a language management strategy. I wondered how much progress had been made with that.

The noble Lord, Lord Storey, talked about skills training and particularly about apprenticeships. It is always important to ensure that the training elements that are required to see the current generation supported but also to help future generations to grow are in place, whatever the size of the organisation, so perhaps we could have some comments on that.

The final item in my list—although, of course, there are many others—is intellectual property. It was originally raised by the noble Lord, Lord Cope, and is something that I have had to spend some time on as it falls within my brief in my BIS activities.

There has been a significant number of changes in the way that the Government have approached intellectual property in the UK, and there are limited opportunities to make changes because we are subject to substantial international agreements, particularly European ones. That is not necessarily wrong, but what is wrong is the feeling that there is a lot you can do on this. I suspect that the grounds for movement are very small. However, I worry that the changes that are being brought forward are largely changes for change’s sake rather than part of a coherent approach. Given what has been said about the future of IP and the internet of things as well as of individuals’ thoughts, we need to get intellectual property right. I do not think that it needs a root-and-branch review, because there is limited scope, but it would be helpful to think again about the balance between innovation, the premium that you need in order to get people to innovate, the IP framework that is required to protect that innovation and the reward that comes from it. I wonder whether life plus 70 years is the right tariff for that equation. That is a big question. The original arrangements for design rights, which limited them to a more patent approach, have a lot going for them. It is a pity that we have seen government proposals moving away from that in the past couple of years. This is not an easy area, but we have to get our thinking absolutely right on IP and the way forward if we are to make a success of the new world.

There are a number of points that I am sure the Minister will want to cover in the brief time available to him. If there is not time for him to respond to them all, perhaps he will write to us, because this debate has been so good that it would be helpful to have more detail. I look forward to hearing from him.

18:36

[The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Livingston of Parkhead) (Con)]

My Lords, I thank my noble friend Lord Cope for initiating this important debate and I thank all noble Lords for their contributions, particularly those who were members of the committee which produced such an excellent report last year. I particularly thank my noble friend Lord Popat, who not only initiated the report but chose to keep me company on the Front Bench.

It is clear that those who have spoken this evening understand the challenges small and medium-sized businesses face and the advantages to be gained from trade not just for them but for the UK economy more widely. Many good points were made, and I will try to pick up as many as I can. Noble Lords will understand if I focus particularly on exports rather than on wider economic policy, given the time available.

The noble Lord, Lord Grade, raised sales and salesmanship. I can assure him that in the Government I have seen a huge focus on selling the UK and UK trade around the world. In fact, the Prime Minister is one of the best salesmen for Britain, and the reason I am standing here doing this job today is that he is such a good salesman. We note the need for very good salesmen. I come from a family background of sales, a bit like the noble Lord does.

UKTI recently issued Britain Open for Business: The Next Phase. It was called The Next Phase because it builds on the very good work of my predecessor, my noble friend Lord Green, who spoke in the debate today. We are seeing progress. We are seeing more companies than ever being helped by UKTI. That means that more companies are receiving advice on how to enter new markets; more companies, particularly small ones, are being helped to go to trade shows; and more are using UKTI to improve their digital presence around the world—again, particularly small companies. Indeed, in the current year, we are looking to double the numbers of companies assisted four years ago. It will be a substantial improvement, and that means more small and medium-sized companies are getting help.

The noble Baroness, Lady Cohen, asked about overseas chambers of commerce, and my noble friend Lord Green highlighted the point. We are supporting chambers of commerce around the world to improve the services they offer to exporters. As part of this initiative, I have been travelling around the world. In the past few months, I have opened British business centres where British businesses, particularly small businesses, can go, meet people, use the facilities and get advice. I have been to Mexico City, Dubai and Budapest, to name but three. We will continue to work with the chambers of commerce and see the overseas business networks as very important. We will encourage those chambers which do not exist to exist and those which do exist to be better, and those which are good to become real champions of exporting for UK companies.

My noble friend Lord Leigh stated that Britain’s diplomatic network overseas is now a real asset to British business. Our diplomats and UKTI officials are helping new businesses export every day. I have had so many unsolicited comments from companies of all sizes about the help they receive from embassies or people in post. Of course there is more work to do, but the improvement over the past five years has been outstanding. We are also seeing a positive impact from some of these changes. We have seen surveys from the CBI and chambers of commerce showing a high degree of confidence among manufacturers in exporting.

A number of noble Lords raised the point about recent falling exports. This is of course one of the impacts of the high pound. Just translating goods sold in foreign currencies into sterling has an impact. For instance, in dollar terms, in February our exports actually rose by 8%. Certainly, a 10% increase in the value of the pound will have an impact on the translation of foreign currency exports, which many of them are, into sterling. Indeed, despite all the improvements, I recognise, as many noble Lords in the House have said, that there is a lot more to do. That is what I want to talk about.

Before I get into the details, I want to make an important distinction. We talk about SMEs but, actually, medium-sized companies—the “M”—are different from the small. Medium-sized companies are typically small versions of large companies rather than large versions of small companies. They have to be treated differently. They are also the area, as was highlighted by some noble Lords, where the UK underperforms our competitors. This is what the CBI calls “the forgotten middle” and focusing on them as a country, the CBI believes, could be worth to our economy overall somewhere between £20 billion and £50 billion.

That is why I recently wrote, as was mentioned by a number of noble Lords, to the 8,900 MSBs in the UK to raise awareness of how UKTI can assist them. A UKTI team will then contact each and every one of them, as long as they can get through on the phone, and find out, first, if they are exporters, and, if they are not, whether they could be exporters. If they can, they will offer them a tailored programme and a named account manager. Simply, there should not be a medium-sized company in the UK that does not fulfil its potential as an exporter because it is unaware of the help that government can provide. That named adviser will also be able to point them to other government assistance; the noble Lord, Lord Leigh, raised this point. That may be relevant to their business, because they will get to know them as salesmen and account managers do. They will also form a first point of contact for many government issues for these businesses.

Moving more generally to companies of all sizes, I say that the issue of awareness is very important. It was raised by my noble friends Lord Cope and Lord Cotter, among many others. We are very much revising our marketing strategy, first to ensure that we understand what smaller, often first-time, exporters need, and improving our communications to make them, frankly, more relevant for businesses. We will also be significantly improving our use of the internet. The “Exporting is Great” campaign, of which many noble Lords will be aware, will raise awareness of the benefits of exporting and of the support available. Export weeks continue to bring in new customers. Last year, we held two export weeks which brought in 8,600 customers to UKTI. Our latest export week took place just a few weeks ago and reached over 3,000 companies on its own.

We are also working with intermediaries, whether they are business representative bodies—such as the CBI, the Engineering Employers Federation, the FSB or the British Chambers of Commerce—professional service firms and even the banks, to increase awareness of UKTI among their members or customers. We are also co-ordinating with other government bodies to ensure that this is a cross-government effort to raise the profile of our export efforts.

My noble friend Lord Storey kindly advertised some of the conferences we are holding. I echo his comments on the Liverpool International Festival for Business: noble Lords should visit it. I will be speaking there, but there will be other, better speakers. The noble Lord advertised Liverpool, and if he does not mind, I will advertise Glasgow. At the Commonwealth Games we will have the British Business House and a business conference which will encourage both inward investment and exports. Also, so Yorkshire does not feel left out, I mention that the Tour de France is leaving from Yorkshire—Le Grand Départ. I was up there recently and we will shamelessly use this as an opportunity to sell the UK around the world.

As my noble friend Lord Leigh highlighted, government could generally simplify the business assistance proposition. I can assure him that senior BIS Ministers are currently engaged in a Star Chamber process to look at how we can improve matters. UKTI itself, however, talks directly to companies and tries to provide a tailored service which depends on what they need rather than trying to sell them individual products.

On the question of access to finance, availability of finance is a topic that arises whenever the issue of companies—in particular our smaller companies—is debated. That issue was raised by many noble Lords, including the noble Lords, Lord Giddens and Lord Stevenson. While there is some improvement in the position, bank lending remains muted at best. The Government have introduced a number of schemes to assist with this, such as Funding for Lending, the Start-Up Loan Scheme and the establishment of the British Business Bank. We are also trying to encourage a number of challenger banks and non-traditional sources of finance. Unfortunately, to discuss all those initiatives in depth would take a full debate on its own, so I hope noble Lords will excuse me if I concentrate on what UK Export Finance is doing to help exporters.

Our aim is to make UK Export Finance one of the most competitive export credit agencies in Europe and to substantially increase the numbers of companies it supports. It is a reasonable criticism that it concentrates on the large companies, but we are seeing some improvement in that position. The number of companies that UKEF helped last year has risen by 50%. However, there is more to do. We have doubled UKEF’s lending facility to ensure that more businesses are able to take advantage of it. We have improved and widened UKEF’s product range to better support exporters and their customers who want to buy British. We are doubling the number of export finance advisers that are available to UK companies. They will not only advise on what UK Export Finance can do but will also provide advice to smaller companies on how to structure their help from banks, which is very important.

We also have a marketing campaign to raise awareness of UK Export Finance, which is, unfortunately, somewhat lower than UKTI—which in turn needs to improve its awareness. Further, we hope to introduce new legislation next year that will enable UKTI to lend to exporters rather than just supporting individual contracts, which it cannot currently do under the law. It will also widen the type of exports that can be covered by UKEF in future. We are consulting with businesses and business groups such as BExA on further improvements to both products and processes within UKEF and are in close contact with the banks to ensure that they are geared up to play their part in expanding our activities.

My noble friend Lord Cope raised the issue of intellectual property. UKTI works closely with the Intellectual Property Office. There is a significant amount of joint working both with the UKTI regional network of international trade advisers and the geographical desks. IPO trains business advisers through its IP Master Class, which is integrated into UKTI programmes. UKTI posts overseas also provide help locally through our IPO advisers in key markets and the regions around them such as Brazil, China and India and south-east Asia. They work with local IP enforcement agencies to protect British products, alerting companies to IP exposure and supporting UK businesses with IP issues. Indeed, they helped over 200 companies in the last year alone.

Many noble Lords highlighted the issue of confusion among companies around the Bribery Act; I can provide some help on that. The MoJ and BIS are currently engaged in a project which seeks to obtain feedback from small companies on the impact of the Act and the MoJ’s guidance on it. I hope that that will provide some guidance to us on our next steps to make matters clearer for smaller businesses.

I turn now to the digital economy, which is becoming more and more important for exporters. We should be proud that the UK is the leader in the whole of the EU in online selling, but we should note that we can build on that position. That is why UKTI has launched the Grow Online, Expand Worldwide campaign, which delivers training and advice to exporters and provides funding to help to improve their web capability and capitalise on the rapid growth of mobile technology and social media.

In addition, UKTI’s digital acceleration programme is designed to enable companies to exploit the opportunities in the world’s online shopping malls. For example, the Prime Minister and I, on our trip to China in December mentioned by the noble Lord, Lord Leigh, announced a partnership with the massive online shopping platform Alibaba Tmall, which will support UK brands and have a UK channel. In doing that, we see a great opportunity; in just a few months since we announced the deal, 100 companies have applied to join the scheme and roughly a quarter have their products online.

I turn to free trade agreements, which this Government are championing between the EU and its trading partners around the world. One of the most important of these would be with the US. TTIP, as it is known, is a huge opportunity, but there is often a misconception with it, in that people think that it is about large companies—and that is the same for free trade agreements more generally—but, actually, it is the smaller companies that cannot cope with regulatory differences between countries, non-tariff barriers or the impact of tariffs on their businesses. Our role in championing free trade agreements is most important for small businesses, and that is what we will continue to do.

My noble friend Lord Green pointed out that completing the single market was a very important part of that. Again, this will help small businesses. Often the UK is painted in terms of what it is against with regard to the EU; I would like to state what it is for. It is championing the single market, free trade and competiveness for EU companies, and we will continue to do that for companies of all sizes.

A number of noble Lords mentioned languages. Of course, the English language is used around the world, but we need to improve the language capabilities of our exporters to give them an edge in competitive markets. UKTI recently commissioned an academic report to review the impact of language skill deficiencies on UK exports. I have to tell noble Lords that it was significant. We have provided funding to each English region to create language and culture adviser posts, which will deliver advice to small and medium companies who are exporting. UKTI also provides small companies with an export communications review, a bespoke report that will look on how they can overcome language and cultural barriers when working overseas. Over 700 companies are expected to take advantage of this service in 2014-15.

In direct response to this report and debates in this Chamber, we have recently announced the launch of the Postgraduates for International Business scheme. This aims to improve language capacity for smaller and mid-sized businesses by placing postgraduates with language skills, who usually have come from other countries, in companies to undertake project work, either during or shortly after their degree. I also remind noble Lords that we have a large number of locally engaged FCO and UKTI staff in posts around the world who are expert in the local language and business culture and who offer day-to-day practical advice to new companies on doing business in the countries that they are based in.

I shall pick up a number of other comments that were made. My noble friend Lord Storey raised the issue of LEPs and the RGF. It is up to LEPs to bid for funds, and we will continue to work with them to raise the funds that they need to improve exports and inward investments. The LEPs, the chambers of commerce and UKTI regional staff work together very well in a number of regions. However, I will not pretend that it is uniform or effective in all places; we are certainly looking to bring the best as a model and bring the others up to that standard.

The noble Lord, Lord Giddens, raised the issue of reshoring. The Prime Minister announced at Davos that we would establish Reshore UK, a one-stop shop, as part of UKTI and the Manufacturing Advisory Service, to enable UK companies to come back to the UK and set up again. I believe that, with the attractiveness of the UK as a market, this presents a real opportunity to reinvigorate our manufacturing and supply base.

The noble Lord, Lord Cotter, referred to OMIS, which is a heavily subsidised service. The cost is usually about £1,000 to £1,500, which I think is reasonable for a very valuable service. As always, we have to balance priorities. We will continue to review its use, and our support for it, along with the many other services we support, virtually all of which are done on a subsidised basis.

The noble Lord, Lord Haskel, and, I think, the noble Lord, Lord Stevenson, mentioned business advisers and trade envoys. I should clarify that we have business advisers who are usually business experts who travel round the world on behalf of their companies. They tend to be the CEOs and chairmen of large companies. When they do so, they raise the profile of British businesses free of charge, particularly in the sectors they represent, whether that be professional services, automotive or whatever, and do an excellent job. The trade envoys are geographically based. In fact, many of them are Members of this House and also do an excellent job. They seek to promote the UK in countries which do not get the level of ministerial visits that others do. I would be very happy to provide a list of them, as requested by the noble Lord, Lord Stevenson, and take this opportunity to thank all of them for the very difficult work that they do. It is unpaid and sometimes thankless but is very important.

A number of noble Lords raised the possibility of introducing some sort of tax credit for exporters. As anticipated by the noble Lord, Lord Stevenson, of course I would say that this is a matter for the Treasury but I know that it is aware of this suggestion. There are challenges with such a scheme, not least that of people exporting and reimporting but, as I say, I know that the Treasury is aware of this suggestion.

I apologise if there are any matters that I have not covered. I have tried to pick up the main issues and will follow up any others in writing. I end as I began by thanking my noble friend Lord Cope and his committee for the report. I also thank all noble Lords who have taken part in the debate. I thank noble Lords for their continued interest and for being salespeople—that seems to be the phrase of the day—for our export effort and ask them to continue to be so.

I echo what my predecessor said. I expected him to say that this issue is not a sprint but a marathon, and, sure enough, he said just that. We have suffered for decades from a weak trade performance over a number of Governments and it will take some years of sustained effort to change this. I assure the noble Lord, Lord Haskel, that we will continue with this effort and work tirelessly. Irrespective of what the figures may say, we will continue to push to make exports and our export efforts for companies of all sizes, but particularly for small and medium businesses, a key priority of our Government.

18:58

[Lord Cope of Berkeley]

My Lords, I thank everyone who has contributed to the debate. I thank particularly my noble friend the Minister for a clear and encouraging speech, for which we are grateful. I am grateful to all those who complimented the Select Committee’s report, particularly those who were not on the Select Committee.

I am excited about the prospects for Britain in the digital revolution, which I think are as great as they were in the Industrial Revolution all those years ago. That is partly why I worry about IP and issues of that sort.

The Minister spoke about “salesmanship” being the word of the debate, as it were—at least following the speech of my noble friend Lord Grade. After all, if the House of Lords cannot confer respectability on salesmanship, who on earth can? It is our job to try to do that, and I would add engineers to the list—as was suggested from the opposite side. By the way, if anyone wants to look up the exquisite hand-made cakes, the reference is on page 65 of the report. One can follow up from there, and I believe that the cakes are delicious.

Also mentioned was my noble friend Lord Green’s reference to the task of rebalancing the economy as being a marathon, not a sprint. That may also prove to be true of debates on SMEs and exports. I feel sure that we will contrive further debates to monitor the progress of UKTI in particular and rebalancing the economy in general. My noble friend Lord Popat started something when he godfathered the creation of the committee. This will run and run until the economy is rebalanced.

Motion agreed.