SMEs and the Net Zero Target

Tuesday 17th November 2020 Westminster Hall

16:32

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I beg to move,

That this House has considered support for SMEs and the net zero target.

It is an absolute pleasure to serve under your chairmanship, Ms Ghani. I draw hon. Members attention to my entry in the Register of Members’ Financial Interests on all things small business.

I am very supportive of the push to get to net zero as soon as possible. I absolutely believe that business will help to deliver that solution even faster than 2050. My principal concern in bringing forward this debate is that, in the headlong rush to get to that point, we must not treat businesses as collateral damage. We have done that in the past. When we had a change of emphasis in lending back in 2008, that happened to some good businesses, as well as to some businesses that had probably borrowed inappropriately.

I want to give an example of a business in my constituency. There is a very good business a few miles away from where I live called the York Handmade Brick company. It makes wonderful, handmade bricks, that look like old clamp bricks, for lots of houses around the country. It is a fairly small business employing about 20 people and is an award-winning company. Its processes use fossil fuels—natural gas—to fire the bricks. Now, I can see a situation where, in future, banks may look at this business and say, “That business does not sit with our ethical and sustainable goals portfolio. Therefore, it is perhaps not a business we want to support.” If that business needs to borrow some money to invest to move away from fossil fuels, for example, and move to other processes—biogas being an obvious one—what that company will need as it moves, down the line, to a different process, is money to invest. It is absolutely critical that our banking sector takes such businesses forward with us. Hon. Members might say that that is blooming obvious, but that is not always what we have seen in the past.

If we are going to get to net zero, it is absolutely vital that the private sector is taken with us. It will provide the cash and capital to invest in new processes and new techniques. We know for an absolute fact that the private sector is much better at allocating capital than the public sector—I might point to Croydon council in that regard, if Members have seen some of the recent news reports. The private sector is much better at allocating capital; in the past, the public sector has misallocated capital.

Of course, that investment will contribute towards innovation, and the solutions to climate change are about innovation. The more innovation and the more competitive free markets we have, the more our consumers get a better deal at a better price. We are seeing some interventions from shareholders in banks, who are saying, “We do not want you to invest in these kinds of industries anymore.” Shareholder action groups will get increasingly vociferous, which could be to the detriment of small and medium-sized enterprises, and even bigger companies. This is not just about SMEs: bigger companies will remember that last year, for example, there were some protests by actors from the Royal Shakespeare Company regarding BP’s sponsorship of that organisation, which led to a parting of the ways between the RSC and its sponsor. That is despite the fact that BP is working within our overall regulatory framework, and will be incredibly important in the future in making the investment we need to move from a dependence on fossil fuels to a greater dependence on renewable energy.

We have seen this with recent shareholder action in terms of things like the covid corporate financing facility, which is dispensed by the Bank of England. Again, there has been pressure from certain shareholder groups, saying that at this crucial time, when lots of businesses are in trouble because of covid, support for those businesses should have been linked to environmental objectives. How unfair would it have been, when hundreds of thousands of businesses employing millions of people are in crisis, to link those supportive measures to sustainability goals at such short notice?

My key message for this debate is that any intervention by the Government and our financiers, who are so critical to the UK economy, must be comprehensive, well considered, strategic and stable. Our interventions should be consistent over a long period of time to get to that long-term goal. Again, one example I might give is the recent news that we will bring forward the date on which we move away from fossil fuel cars—diesel and petrol cars. It was 2040; it has been brought forward to 2035, and has now been brought forward again to 2030. The motor manufacturers, of course, are gearing up for that, although it presents some real challenges for that sector during what is a difficult time anyway. What about the other businesses in that supply chain? Lots of other SMEs will have to make that change as well: those could be parts manufacturers, but they could also be forecourts. They are going to have to make massive changes over a very short period of time, so we must make these decisions in a strategic fashion.

[Andrea Leadsom (South Northamptonshire) (Con)]

My hon. Friend makes a really good point about giving sufficient notice. He also points out that businesses will always overachieve, and he might recall that back in 2015, the announcement was made that we would be taking coal off the system by 2025. It has indeed been the case that businesses have overachieved, because coal is almost off the system and it is only 2020.

Does my hon. Friend agree that there could be some merit in the UK Government doing what many G7 countries have done, which is to create a development bank that brings in some offer of Government funding to help with the transfer towards net zero that we all want to see, and from which all SMEs could benefit?

[Kevin Hollinrake]

I absolutely agree with my right hon. Friend, and commend her on the work she did when she was in the Department for Business, Energy and Industrial Strategy as energy Minister, providing a long-term framework that businesses can work within to phase out coal over that period of time: she was very far-sighted with her interventions. I am sure that my hon. Friend the Member for Grantham and Stamford (Gareth Davies) will talk about a development bank in his remarks in a few minutes.

One other area in which we need to look at a more strategic framework is that of the green homes grants. In our manifesto, we committed to about £9 billion for retrofitting, and I think we have committed about £2 billion so far through those grants, which is very welcome. One of the difficulties, as I have communicated to the Minister, is finding installers in our area. A lot of installers are thinking that £2 billion will go very quickly and, therefore, what is the point of applying?

The Federation of Master Builders has some data on that. There have been 180 inquiries to the Federation of Master Builders and only three have completed the paperwork because it was seen as too short a timescale. If we have a longer timescale, businesses will be more likely to invest in the training and the necessary other actions they need to take to qualify as a registered installer for that grant. A long-term, stable framework will encourage much-needed investment.

I will go back briefly to 2008. I am representing here, as I often do as co-chair, the all-party parliamentary group on fair business banking. Much of our work of the past 10 years—including the three years I have been involved—has been around trying to clean up the mess of 2008, when we withdrew support from lots of SMEs, unfairly and far too quickly, and did not give them the chance to transition into a different kind of business or even rebroker their finance.

We need to learn from that in terms of a timescale and a structure for that change and forbearance, in which the APPG has much experience. We need to learn from history. Warren Buffett once said,

“What we learn from history is that people don’t learn from history.”

It would be good to have a focus on that particular episode in our banking history.

With regard to banking, I mentioned before that banks are seeing some shareholder action in the businesses and sectors they will support in future. Access to capital being the most fundamental requirement of any business, this is a hugely important topic. As such, the APPG has come up with a project called Bankers for NetZero. It is engaging with the banking sector and others. It is supported by Volans, the sustainability think-tank, and Re:Pattern, who specialise in business transformation social impact. It is developing policy recommendations to lead to COP26, looking at the regulatory environment and the part banks play in financing; engaging with businesses on net zero challenges; and looking at opportunities and obstacles for banking, while trying to formulate some evidence-based, targeted policy, and to make recommendations on legislation and regulation, in accordance with the United Nations environment programme finance initiative, or UNEPFI, for short. The key objective is that no willing SME is left behind in this vital change to our economy.

One big issue over the next few years is the expected transition of lots of businesses from dependence on fossil fuels to a completely different model. That will be at a time, of course, when a lot of those SMEs are burdened with a significant amount of debt. TheCityUK recapitalisation group report said that SMEs are currently burdened with around £35 billion of unsustainable debt, which will put around 780,000 businesses at risk.

As a result of the covid crisis, it will be very difficult for the two thirds of businesses whose leadership is more focused on being greener and better to make that transition. We know how important SMEs are to our economy: 99% of all businesses are SMEs and they employ 61% of private sector employees, that is, 5.9 million businesses in total. That is a business environment that has been a huge success under this Government.

SMEs are disproportionately positively represented in our levelling-up areas. That also fits into the Government agenda. A very high proportion of SMEs are in construction; 99% of all construction businesses are local builders. They are going to be vital to retrofitting and other measures that we require to modernise our housing stock. They employ hundreds of thousands of local workers and 70% of all apprentices. Other sectors that have a high proportion of SMEs are transport and retail.

I know the Minister’s Department is looking carefully at the next few months. In terms of immediate business support, we need to think about things such as bounce back loans. Not all businesses can access bounce back loans, which is a huge issue. Lots of our businesses are with non-bank lenders, such as Tide, which do not have access to the Bank of England’s term funding scheme for SMEs and therefore do not have the capital to lend to them. Businesses already face that challenge.

Many businesses are struggling to get the new top-ups that the Department has brought forward, which is welcome. As for the businesses that can access that liquidity, many are swamped with applications or are closed to applications from new customers. We are locking some SMEs out of support right now, and we are going to need them to provide us with the solutions to our economic challenges moving forward. There are also issues with the new measures to allow businesses to pay this debt over a longer period of time—the “pay as you grow” guidance. That will be key, as it will allow businesses to pay back the loans over 10 rather than six years.

I welcome the Government’s focus on moving forward to a greener future. The Pension Schemes Bill that was before the House yesterday certainly moves us towards the net zero horizon. Last week, the Chancellor announced a taskforce for climate-related financial disclosure for large companies and financial institutions by 2025 to report on their progress in those areas. We also have the new green taxonomy and a plethora of policies in my right hon. Friend the Minister’s Department on the clean growth strategy.

In terms of where we need to go, first we need to ensure that we have diversity in finance provision. We need to solve the non-bank lender problem. However, I would also like us to invest in a new type of bank: a regional mutual not-for-profit bank that has a much more patient approach to providing finance to SMEs. During the financial crisis of 2008 and all the way through to 2013 in Germany, lending rose by 20% because of the regional banks. In the UK, lending to SMEs dropped by 20%, showing that patient capital works much better when it is provided by a diverse range of providers.

We need a sector-specific just transition road map that looks at every different sector. If some of the current provisions for hospitality, such as the VAT cut, were extended or made permanent, that would be welcome. The British Business Bank needs a role in supporting and advising SMEs. We need to standardise just-transition restructuring, so that if businesses are seen as being in a sector that banks do not want to support, there is a proven standardised process for taking those SMEs from where they are today into the greener future. The shared prosperity fund should be used to support SMEs to make the transition and we should have a fiscal policy that is conducive to allowing SMEs to make the transition, with tax breaks, for example, to decarbonise.

My final point to the Minister—and I know he gets this—is please, please, please let us have no cliff edges, but a strategic approach and a long-term stable framework towards that net zero future.

[Ms Nusrat Ghani (in the Chair)]

Contributions are limited to four minutes.

16:49

[Alex Sobel (Leeds North West) (Lab/Co-op)]

It is a pleasure to serve with you in the Chair, Ms Ghani.

I thank the hon. Member for Thirsk and Malton (Kevin Hollinrake) for securing the debate on this vital subject. In 2019, the business sector accounted for 18% of total carbon emissions. It is one of the biggest contributors of greenhouse gas, along with energy production and transportation. SMEs make up 99% of firms and 61% of the private sector workforce, and contribute £2.2 trillion in turnover, which makes them indispensable to the UK economy. They are extremely innovative, generate vast amounts of employment, and deliver economic prosperity and social cohesiveness. They are also disproportionately present in deindustrialised areas, and therefore present a unique opportunity to build back better.

Nowhere is that more evident than in Leeds, where we have a multitude of SMEs meeting social and environmental responsibilities. For example, Seagulls Paint was awarded a five-year contract by Leeds City Council for the collection, reprocessing and distribution of unwanted household paint, collecting and reusing more than 170 tonnes of paint a year. Other SMEs have been set up with the express intention of protecting the local and global environment, and they include Last Mile Leeds, Revive IT, the Phoenix Works and Revive Leeds.

It is not just a matter of businesses that have a sole environmental focus. Many are leading the way in taking steps to make their businesses more environmentally friendly. A recent opinion poll found that more than half—54%—of SMEs said that they had taken steps to green their business in the past 18 months. When asked whether the transition to a green economy would be financially positive or negative for their business, 61% were optimistic, and just 8% said that the overall impact would be likely to be negative, on balance. Participants pointed to net zero legislation, the ongoing war on plastics, climate activism movements and the green recovery movement as drivers of the transition, so SMEs are rising to the challenge. There are huge benefits and opportunities in the transition.

The hon. Member for Thirsk and Malton mentioned retrofit, and the opportunities suggest that we could create 100,000 new jobs in as short a time as 18 months if the actions in question were taken. In addition to the action that the Government have taken, there should be a reformation of the single-household approach of the energy company obligation, perhaps with the launch instead of area-based, street-by-street programmes supported and supervised by local authorities. There are areas in my constituency that still do not have external wall insulation, although it was planned more than 10 years ago. Another possibility is support for the development of community-led retrofit schemes and co-operatives, such as the Carbon Co-op in Manchester.

Those are all opportunities for SMEs, but many SMEs will come out of the pandemic burdened with debt, as the hon. Member for Thirsk and Malton said. To contribute to a net zero transition, they will require capital investment and business support. It is important that the Minister responds to my question about what support SMEs will be given to ensure that they have appropriate information, incentives and targets to be able to pull together to contribute to our collective ambition of net zero. What business support will they receive and, as the hon. Gentleman said, what financial support and investment can they receive?

As the chair of the all-party parliamentary group on net zero, I want to finish by talking about our action plan, which looks at building an expansive and ambitious covid-19 green recovery package that focuses on green job creation and workforce retooling, especially in disadvantaged areas. That includes looking at the growth of solar installers and the reintroduction of the feed-in tariff. Decarbonisation through heat pumps, electric heating or hydrogen would also present opportunities for SMEs as installers. All those things present a huge opportunity to create new SMEs and new jobs within them, but they need the business support, investment, incentives and targets, and an ecosystem that creates the opportunity for net zero for SMEs and business at large.

00:05

[Gareth Davies (Grantham and Stamford) (Con)]

It is a pleasure to speak in the debate, Ms Ghani, and I congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on securing it. I shall not repeat the statistics about how critical SMEs are to the national economy, but just point out that behind every business is someone who had an idea, stuck it out, saw it through and made it happen. As the son of a small businessman I know exactly how hard it is, so it is right to have a debate about how to support them to tackle one of the great challenges of our generation.

The debate is, of course, about support for SMEs and the net zero targets. I do not think that it is controversial to say that SMEs are both a cause of and a potential solution to climate change. The Federation of Small Businesses has said that about 16% to 18% of emissions are caused by SMEs, but also, given their might, they are a huge potential solution, with a view to our meeting the targets set down in legislation. We should be proud of that. Their role in our communities, as well as the knock-on effect on their customers and people who interact with them, can have a great impact.

Climate change is a risk and an opportunity for SMEs. As the hon. Member for Leeds North West (Alex Sobel) said, when surveyed SMEs say that they believe climate change is a significant risk, whether to the supply chain or because of extreme weather. However, it is also a huge opportunity for SMEs to show great innovation and to capture the opportunity of a changing climate. We should encourage and embrace that.

As my hon. Friend the Member for Thirsk and Malton said, much of this comes down to money. It is clear that in the UK we have a financing gap for SMEs. Only 30% of SMEs use external capital and financing. Many more would like to use it, but are unable to do so. Although the figure is a couple of years out of date, I understand that the National Audit Office has stated that there is a £22 billion financing gap for SMEs.

What should we do about the fact that SMEs need to get ready for climate change in order to mitigate the risk and capture the opportunities? How do we fix that financing gap? I have two potential solutions. First, I applaud the work of the British Business Bank. It is a great innovation as a financial institution and it works with 98,000 business in our country. It has £8 billion of financing and it has proved its worth through the coronavirus crisis. I believe that it should have more money.

The Government have shown, in their latest innovation for meeting our net zero targets, that they are willing to hypothecate the gilt markets with a green gilt. What a good idea that was. We could use the proceeds from that green gilt to help finance the British Business Bank to hypothecate its funding to help SMEs prepare for climate change and our net zero targets, and also to help them innovate and capture the opportunities.

Secondly and finally, as my right hon. Friend the Member for South Northamptonshire (Andrea Leadsom) so eloquently said, we must now look to a British development bank, rolling in the CDC as our international finance arm and rolling in the British Business Bank, to create a huge balance sheet from which we can issue bonds that will target not only regions but SMEs to help them meet the challenges of tomorrow and finance a future that is net zero.

16:57

[Scott Mann (North Cornwall) (Con)]

Thank you for your chairmanship today, Ms Ghani. I echo the thanks to the hon. Member for Thirsk and Malton (Kevin Hollinrake) for introducing this important debate.

Given that SMEs employ more than 60% of the private sector workforce, it is right that they play their role in this defining issue for our generation. I believe that our vibrant private sector businesses and entrepreneurs, with the right guidance from Government, are the key to meeting our climate change obligations. Green businesses are setting up across the UK, with the aim of reducing our climate emissions and getting them under control. Some of those products and services are playing their part in removing and stopping the release of far more CO₂ emissions than they are creating, and as parliamentarians we must bang the drum for those businesses. I will therefore shamelessly plug businesses in my constituency in this debate.

Water Powered Technologies in Bude has created the Papa pump—a pump that is lighter and smaller than the alternative options available. It uses no electricity and, with no moving parts, is probably the world’s simplest and most cost-effective water pumping solution. Balaena Offshore Utilities is creating unique solutions to island and coastal communities’ water needs. It works out of the Gaia Energy Centre in Delabole, a facility that was built to celebrate the UK’s first wind turbine firm in Delabole—a revolution in 1991.

CleanEarth Energy in Wadebridge is helping people to refit their homes to provide energy-efficient solutions. Also playing its part is the Bude ReFILL shop—a brilliant shop that is designed to eliminate the need for plastic packaging by encouraging customers to bring their own containers to refill. Bude Cleaner Seas is working on a couple of brilliant solutions to cut plastic pollution. Reuse eliminates the need for plastic packaging, which can litter our planet indefinitely, and cuts the CO₂ emissions that would have been released had the products needed to be produced.

There are other examples of great local businesses and community groups in North Cornwall that have set up to protect our climate, and I am sure that colleagues will have similar experiences in their constituencies.

The post-covid, post-Brexit period will provide an opportunity fundamentally to adjust the way in which our economy works, and I suspect that many consumers will look at products and services for the future. We can cut supply chains and ensure that local businesses are supported. A simpler supply chain will help us to cut our emissions but will require investment in new equipment and lending support for green finance investment. As my hon. Friend the Member for Grantham and Stamford (Gareth Davies) suggested, new lenders, banks, crowdfunders and other organisations can look at investment.

I should like to raise with the Minister an issue that has recently become a phenomenon in Cornwall: houses being knocked down and rebuilt. Materials have been shipped to other parts of the country, only to be shipped back down. Will the Minister look at that? If we recycle some of our aggregates in Cornwall, we will reduce our carbon footprint quite quickly and help small and medium-sized builders to reduce their emissions.

It has been a fantastic debate and a pleasure to take part.

[Ms Nusrat Ghani (in the Chair)]

That was an eloquent tour of all the SMEs in North Cornwall.

17:02

[Richard Thomson (Gordon) (SNP)]

It is a pleasure to serve under your chairmanship, Ms Ghani. I congratulate the hon. Member for Thirsk and Malton (Kevin Hollinrake) on securing the debate and commend him for the work that he does through the all-party parliamentary group.

The hon. Gentleman made a number of points about the importance of innovation in the role of banking. In the aftermath of the 2008 banking crash, a number of banks looked to rebalance their balance sheets off the back of their SME clients, and we must make absolutely sure that does not happen in the aftermath of this crisis.

The pressures on SMEs and the difficulties in ensuring they play a full part in the pursuit of the goal of net zero are well understood. The goal of many SMEs will understandably be to ensure their survival, often week to week and month to month, rather than to focus on the wider goal of net zero.

There are two roles for the Government, the first of which is to help to ensure that the businesses are still there and to help them to transform through the legislative environment, as well as facilitating change and innovation through grants and investment. On ensuring that businesses are still there, it is unfortunate that, even with the extension of the furlough, the owners of so many SMEs find themselves on the list of the excluded—those remunerated through dividends. That sends out a poor message that we are not helping them to do what they do best and grow their businesses and position them for recovery. The Minister needs to hear that, and although I am sure he has heard it many times, I make no apology for repeating it. I wish him strength in making that argument where it needs to be made.

The other role for the Government is in helping businesses to transform. It will help if there are no cliff-edges and no surprises. The Government have intervened through the bounce back loan scheme and the coronavirus business interruption loan scheme. The hon. Member for Thirsk and Malton spoke of the difficulties that businesses in his constituency faced, particularly if they operate through non-traditional lenders, in accessing CBILS and BBLS. A number of businesses in my constituency face the same difficulties and needless obstruction to what was intended by the schemes.

Croydon Council was mentioned, not necessarily in dispatches, but let me speak up for the role of local authorities. As a former council co-leader, one of the things of which I was proudest was being the first authority in the UK to introduce a carbon budget, which stood alongside the revenue budget and the capital budget so that decisions could be taken on an equal footing. What became very apparent very quickly was the difficulty, once the low-hanging fruit had gone, with some of the decisions that had to be taken to make progress and operate within the resource envelope. That was in the context of an annual revenue budget of £500 million and a capital budget of £100 million, so the difficulties for SMEs are well understood.

We have heard points made about the shared prosperity fund. I could have a debate all to myself about the bumpiness and uncertainty around devolved funding at the moment. I will not go down that particular rabbit hole at this point, except to say that it helps if there is clarity on investments and no cliff edges from the Government. That will enable the making of strategic, tailored decisions to get us to our goal.

To draw my remarks to a close, the Scottish Government have their own programme for Government, which has strategic, targeted aims to embed generational equality and regional prosperity. A part of that is about investing £100 million in a new green jobs fund over the next five years to support businesses to provide sustainable and/or low carbon products, and a £60 million youth guarantee to provide increased opportunities for green apprenticeships. That is on top of the investment that needs to go into broadband. The £600 million R100 programme will bring broadband to all parts of Scotland, which will be of particular benefit in helping SMEs in rural areas to survive and thrive, and there is also the investment of £62 million in the energy sector. Many companies, big and small, in the oil and gas sector have an enormous role to play in the big strategic transition that we need to meet, and that is important.

To wrap up, it is imperative that the Government prioritise the SME sector. We need sector-specific roadmaps with clear goals and deadlines. We need to extend the mandate for British business banks’ support for SMEs making the transition, and make specific provision for SMEs in the shared prosperity fund. We need a more expansionary fiscal policy to support SMEs, and we need to encourage the diversity of supplies to SMEs.

17:07

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

It is a pleasure to serve under your chairmanship, Ms Ghani. We always state this as a courtesy when opening our remarks in this place, but I am genuinely grateful that the hon. Member for Thirsk and Malton (Kevin Hollinrake) secured this debate, because the subject deserves far more attention in this House than it has received to date. When we talk about decarbonisation of the kind required by the net zero target, the focus is invariably on either big market trends or the action that the Government must take to drive emissions reductions across the largest emitting sectors of the economy. Although it is recognised that SMEs will be impacted by both, the assumption is always that they will simply adapt to any change made. To some extent, that will no doubt be the case, but, given that SMEs are the backbone of our economy, they need to be much more than an afterthought in our thinking about net zero, and much more thinking will need to be done about what targeted support they will need to ensure that the transition to net zero is as orderly as possible. The hon. Gentleman made very good points about the risks entailed when that does not take place and the need to learn lessons from history.

I intend to touch on three specific areas where there is clearly a need to do more to support SMEs in transitioning towards a local carbon economy. Before I do, I want to make two general points about the Government’s approach to climate action that have implications for them. The first is the need for a clear and credible net zero strategy. Setting a net zero target was an essential first step, but hitting that target requires a plan for its delivery. Despite having legislated for it more than a year ago, the Government have still not brought forward such a strategy. Indeed, core building blocks of it, from the national infrastructure strategy to the energy White Paper, have been repeatedly delayed. Although there will need to be a sector-specific component for SMEs in it, the most important thing is that the Government bring forward that comprehensive strategy as a matter of urgency to provide clarity and certainty for SMEs and other sized businesses, and a framework within which they can make investment decisions. The test of the announcement expected from the Prime Minister tomorrow will be whether it moves us forward towards that comprehensive strategy.

The second general point is that there is a real need for the Government to prioritise decarbonisation in any coronavirus stimulus package, and in particular a need to bring forward significant investment in low-carbon infrastructure. It is no good providing targeted net zero support for SMEs if the systems that they are embedded in and the infrastructure that they rely on are not transformed.

On the targeted support that SMEs require to make the transition in an orderly fashion, there are three areas, as I said earlier, that require more focus. First, SMEs clearly need more information and guidance on how to progress towards net zero. That not only means better access to tailored business, financial and legal advice; we need to do more to ensure that SMEs are persuaded of the commercial importance of planning for the transition to net zero early and the detrimental implications of not doing so.

The Government should look at what more they could do to support innovation in relation to SME business models and manufacturing processes. There are good examples of where this is happening in other countries across the world. The Dutch green new deal, for example, provides government-backed institutions to offer free technical advice to help businesses in Holland become more efficient. More could be done to augment and enhance the role of local government and local enterprise partnerships in engaging SMEs on the issue of net zero and helping them understand the business and supply chain opportunities that exist as part of it.

To date, while organisations such as the Carbon Trust and the Federation of Small Businesses have stepped in to provide SMEs with support along these lines, the Government themselves have done very little. Will the Minister outline in his response what plans, if any, the Government have to help inform and advise SMEs about how best to decarbonise their businesses? Secondly, as many hon. Members have said, SMEs undoubtedly need more help to access financing. Many have spoken about the pressure that SMEs are under as a result of the pandemic; the fact that they are struggling with high levels of debts and substantial losses of revenue. Many have also spoken about the financing gap that exists, not least the hon. Member for Grantham and Stamford (Gareth Davies) in his succinct and well-argued speech.

Other countries have created institutions to address this problem—the KfW in Germany, the Small Business Administration in the US, the Business Development Bank of Canada. I would argue that we do not have anything that does the same thing. There is a need to look again at what the British Business Bank could do, but also to establish a national investment bank with a clear green mandate—as we called for as part of our green economic recovery last week and challenged the Government to bring forward. Such a bank could provide low-cost, long-term financing to SMEs to help their transition in the way that the KfW has provided in energy efficiency loans to SMEs in Germany. Crucially, a national bank could be integrated into a network of regional outposts to ensure local delivery. We know that the Government have been discussing this for some time. Will the Minister confirm whether they have finally decided to establish such a bank? What sort of timeframe are we looking at for when it might be operational?

Lastly, SMEs need support with skills for their workforce. The Confederation of British Industry has estimated that nine out of 10 employees will need to reskill by 2030. That will require a national low-carbon skills strategy that embeds sustainability and net zero across the whole education system. We called for the Government to bring forward a national retraining strategy to deal with the immediate jobs crisis, while meeting the longer-term needs of a low-carbon economy. Much more could be done in this respect. Will the Minister explain what thinking the Government have done, if any, on a net zero skills strategy that will provide SMEs a workforce that is capable of successfully transitioning?

SMEs will be an essential component of the green transition, but to meet the challenge ahead, they need clarity, certainty, a wider package of investment and targeted support for information and technical advice, financing and skills. I look forward to hearing the Minister’s thoughts on all those areas.

00:03

[The Minister for Business, Energy and Clean Growth (Kwasi Kwarteng)]

I am very pleased to be conducting this debate under your eagle eye, Ms Ghani. I am also pleased to welcome my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who did a terrific job in outlining the issues. He has long been a champion of small businesses in this House and a very effective advocate for those interests and businesses which, as many hon. Members have pointed out, are absolutely essential to our economy. I will address a number of his points and then turn to points made by other hon. Members in this debate.

We have to make clear our absolute 100% commitment to net zero as a Government. The Prime Minister has shown many times that this is at the centre of our strategy. We also feel that, given where we are with covid, it is absolutely necessary to build back better. As my hon. Friend the Member for Thirsk and Malton said in the first part of his speech, the 2008 crisis was extremely difficult, but one of its bad features was that we did not as a global community look at climate change and think about building back greener and better in the aftermath. People in this Government, in the Opposition and in Governments across the world are much more focused on building back greener and building back better as a consequence of this covid crisis.

As my hon. Friend said, SMEs are the backbone of our economy and will have a key role in driving economic growth. He described a headlong rush to net zero; others might take a different view. However, we cannot assume that the push to net zero will be imposed on businesses. We have to take our people and our SMEs along with us. I fully accept that we should engage with SMEs. I do this fairly regularly, as I am sure he and others do as local MPs. If he has SMEs in his constituency that he wants to talk to about net zero with me, I urge him to engage with me on that. It is a two-way street, and I look forward very much to engaging with many of the excellent businesses in his constituency. My hon. Friend the Member for North Cornwall (Scott Mann) gave us a flavour of the many SMEs engaged with net zero in his constituency. He said that net zero and the covid-19 crisis would “fundamentally adjust” our economy, which was an excellent and well-made point.

On SME engagement, we have a net zero small business engagement strategy that seeks to strengthen our approach to working with SMEs, which is particularly relevant in the context of COP26 in Glasgow in November next year. I have made it a specific cause of mine to make sure that SMEs can play a part in COP26. We are also developing a small business energy efficiency scheme, which is obviously related, in some measure, to the green homes grant that we are pioneering at the moment.

My hon. Friend the Member for Thirsk and Malton will know that finance is a huge area of development. Thanks in small part to my hon. Friend the Member for Grantham and Stamford (Gareth Davies), the sovereign green bond is finally something that we will engage with. I was delighted that the Chancellor of the Exchequer announced that, and I know that my hon. Friend will be particularly happy, given his background and the campaign for that development that he promoted. Along with the sovereign bond, that clearly creates a space in which green finance is something that we are all engaged with. I speak to bankers, people in the City of London and investors, and there is huge appetite for these sort of green assets.

The fear that my hon. Friend the Member for Thirsk and Malton raises about SMEs being shut out of the market is legitimate. We can try to create a culture in which SMEs are looked on more favourably, but we cannot, I have to say, buck the trend of the market. I am afraid, for people who are not adapting, that investors are voting with their feet. It was only a few weeks ago that the market capitalisation of Ørsted, a Danish offshore wind company, was bigger than BP. That is a case of investors voting with their feet; it was not Government legislation that gave it that value in the market. My hon. Friend is a great champion of market forces, although perhaps in another context, but he will understand that if banks are keen to look at the green credentials of companies, that can make the climate more difficult for companies that are slower to adapt. However, that is definitely something that we should look at.

My hon. Friend was right to mention the British Business Bank in this context. I am keen—I have been driving this within the Department—to get a net zero remit for the British Business Bank. He will remember that the British Business Bank was set up years before the net zero legislation, so we have to do a degree of reverse engineering to ensure that the net zero challenge is at the centre of the bank’s remit.

The hon. Member for Greenwich and Woolwich (Matthew Pennycook) gave us a number of challenges. I would like to say a few words about them all, starting with his third point, relating to skills. I am very proud to have announced a green jobs taskforce. This is the first time that I, as the Energy Minister sitting within the Department for Business, Energy and Industrial Strategy, have got together with the Skills Minister, my hon. Friend the Member for Chichester (Gillian Keegan) to create something. We have come together and created a forum in which we are discussing green jobs. I am sure that the hon. Member for Greenwich and Woolwich will be pleased to learn that we have not only academics, business people and one or two small business representatives but we have trade unions coming together to discuss the immense opportunities that we have, as a country, in this space. There are something like 460,000 jobs already in the green economy in Britain, which is a figure that we want to see increase up to 2 million by 2030, so there is huge opportunity and ambition in the context of green jobs and green skills.

In the second part of his remarks, the hon. Gentleman talked very well about the need for finance and for some sort of national institution. He, as well as others in the Chamber, will know that there is plenty of discussion about that within Government. As we leave the EU, we are leaving the European Investment bank. Hon. Members have mentioned KfW Development Bank and we also have our own UK Green Investment Bank.

There is clearly an appetite in certain quarters, as well as a wide debate, for a national institution that may emerge as a consequence of our leaving the EU, focusing particularly on net zero. These are ongoing discussions, but my hon. Friend the Member for Thirsk and Malton cannot believe that I would be so naive, even if I knew the answer, to blurt out our plans in the context of a Westminster Hall debate. He can rest assured that this matter is being debated and discussed very seriously at the highest levels of Government.

The first point that my hon. Friend the Member for Thirsk and Malton made was very pertinent. If we are to try to bring people along with us on the journey towards net zero, we have to engage. Engagement means supplying information, exchanging ideas and providing guidance, as he suggested. We do that all the time and, of course, we could do more. Debates like this, dare I say it, are excellent ways in which we can broadcast and encourage our engagement with SMEs on the vital question of net zero.

There were many other remarks that I have not been able to fully address one by one. Broadly, I would say that this debate is absolutely key. Within the debate there were slightly different voices. If he will permit me to say it, my hon. Friend the Member for Thirsk and Malton is a brilliant champion of local business, but he did stress the fact that we must take people with us. There is no point in our hurtling to a net zero endpoint and leaving vast swathes of the economy and business behind. The hon. Member for Greenwich and Woolwich stressed that there is urgency, and I fully agree; there is a real need for further impetus. These are balancing arguments, and I can assure hon. Members present that the Government are taking all their remarks seriously.

We discuss the issue all the time and we are open to ideas. Ministers do not often say that, but we are open to ideas about how best we can engage with local businesses and small and medium-sized enterprises in our quest to reach net zero by 2050.

16:24

[Kevin Hollinrake]

I am really heartened by my right hon. Friend’s comments on this issue. It seems that the House is in accord. I am grateful for all the contributions. There is a lot of consensus.

I love the word “ecosystem”, which the hon. Member for Leeds North West (Alex Sobel) used in this context, to describe this whole situation. What we need is a 30-year ecosystem in order to take the business community with us. There were some great examples, such as the British development bank, through to Papa Pump and whatever else—two ends of the same scale. There are lots of banks that are supportive. There is the Bankers for NetZero project. We have Barclays, Tide, Handelsbanken and Triodos, which are all keen to have a conversation on this issue and try to take businesses with us. It is so easy to look at shiny new innovative businesses, rather than businesses that currently exist and that want to make a contribution. I am very heartened by my right hon. Friend’s comments that he wants to take business with us.

When someone is in the world of business and has their own SME, it is not just a job and a business—it is their life. It is so critical to everything they do and stand for. I urge again, and I am reassured by the Minister’s comments, that there should be no cliff edges. There should be a stable framework. If we leave no one behind here, the SMEs can lead from the front—if that is not too much of a mixed metaphor—towards a net zero future.

Question put and agreed to.

Resolved,

That this House has considered support for SMEs and the net zero target.

17:26

Sitting adjourned.