Entrepreneurs from Ethnic Minority Backgrounds

Tuesday 20th December 2022 Westminster Hall

16:00

[Sir Stephen Timms (East Ham) (Lab)]

I beg to move,

That this House has considered support for entrepreneurs from ethnic minority backgrounds.

I am delighted to serve under your chairmanship, Mr Hosie. I am grateful to Mr Speaker for granting this debate, and I am very pleased to see the Minister in her place.

I represent in Parliament the eastern half of the London Borough of Newham, which is probably the most ethnically diverse community on the planet. Last year’s census showed that just 45% of residents were born in the UK, and that 52% identify as Asian, compared with 9% nationally, and another 14% identify as black. Some 25% identify as white, compared with 82% nationally, so ethnic minority entrepreneurship is very important for the prosperity of the community that I represent. I regret the closure of the Department for Work and Pensions support programme for self-employment, with no sign of a replacement as yet. That programme gave helpful support to a significant number of my constituents to start up in business for themselves.

Minority-led businesses have made a lot of progress. Minority Supplier Development UK, a not-for-profit membership group that champions diversity and inclusion in public and private sector supply chains, highlighted in a report last year called “Minority Businesses Matter” that of the UK’s 23 unicorns—start-ups valued at $1 billion or more—eight had ethnic minority founders, including Deliveroo. That gives a sense of the huge potential in this area, which we need to realise much more. In May, the London Chamber of Commerce and Industry published the report “Ethnic Diversity in Business”. I commend the work of Esenam Agubretu and her colleagues. That report identifies the barriers that minority-led businesses face.

In 2021, about 14% of the UK population was from an ethnic minority background, but ethnic minority-led businesses constituted just 5% of small and medium-sized enterprises in 2020, and those businesses also tend to be in lower-paying sectors. We need to be doing much better than that. The economic contribution of ethnic minority-led businesses is large, but the potential is larger still. Baroness McGregor-Smith’s 2017 review, “Race in the workplace”, concluded that

“If BME talent is fully utilised, the economy could receive a £24 billion boost.”

We need to realise that opportunity. The Social Market Foundation has found that ethnic minority-led businesses are often more innovative, with a lot to contribute to levelling up the economy, and that the economy is weaker because those businesses lack support.

I want to highlight two main points arising from the London Chamber of Commerce and Industry report: the need to address the barriers that ethnic minority businesses face in accessing finance, and the need for better data on how those businesses are getting on. The key barrier, and the focus of that report, is problems accessing finance. Black entrepreneurs in particular report bad experiences with banks, and Asian entrepreneurs struggle to access funding outside their own communities. Those who do apply for funding are far less likely to receive it. The London Chamber of Commerce and Industry quotes Ismail Oshodi describing his experience:

“we had different people dealing with us and I had to repeat myself on several occasions, even with all of that, we were unable to get the amount we needed. We weren’t given a clear reason why, we was just told we did not meet their criteria.”

The LCCI says that 44% of black African business owners and 39% of black Caribbean business owners fear prejudice from financial providers, compared with just 4% of white owners. Let us be frank: racism is part of the problem. It is not that the banks do not recognise the problem; they do, and they are trying to do something about it. UK Finance published a report in July, “Supporting Ethnic Minority Entrepreneurship in the UK”, which profiled numerous initiatives. HSBC sponsored last year’s Black Business Week and Black Business Show. Santander works with a network of women of colour in business and supports a black inclusion programme. NatWest has a racial equality taskforce and an ethnicity advisory council. Barclays has a black founders accelerator.

The initiatives that I have seen most of are those supported by Lloyds bank. It has a black business advisory committee, chaired by Claudine Reid MBE, whom I first met when I was a Minister in the Department of Trade and Industry 20 years ago. I had embarked on a tour of social enterprises and found myself at PJ’s in Croydon, set up and run by Claudine and her husband. I also know the work Lloyds does with the Black Business Network, founded and chaired by Shari Leigh, which was highlighted to me by my former constituent Shi Dolor, whom I knew when she was a teenager and whose Noir Squared branding business has worked with the network.

In September, the network published the second of three annual reports called “Black. British. In Business …and Proud!” As a Lloyds executive recognises in her foreword, it makes for “uncomfortable reading”. The report refers to a

“breakdown in trust of formal institutions”,

and reports that 67% of black business owners have been negatively discriminated against in their past entrepreneurial efforts, that 84% of business owners see racism and society’s attitude to black entrepreneurs as a barrier to their business, and that black business owners turn to their friends, black business community groups or social media groups rather than banks for advice and support.

[Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP)]

I thank the right hon. Gentleman for bringing this vital debate to the House. Does he agree that where there is intersectionality between ethnic minority groups and disability or gender, the barriers faced by people can be multiplied, and that banks and the Government should also take that into account?

[Sir Stephen Timms]

I very much agree with the hon. Member. That point is made in the London Chamber of Commerce and Industry report, and she is right to highlight it.

Over half of black business owners say that they have seen banks taking action to deal with the problem, but only 12% think that that action taken is significant. Minority-led businesses also account for very little venture capital investment, less than 2% of which went to all-ethnic founder teams in 2019, according to the London Chamber of Commerce and Industry. Black African firms are four times more likely than white firms to be refused a loan, according to the British Business Bank. Mainstream services do not seem to be working for ethnic minorities. Ethnic minority groups have less wealth than their white counterparts, and there is a strong correlation between that and business success. They have fewer savings, so they are more reliant on external financial support.

Given that, it is no surprise that minority-led businesses do less well. According to London Chamber of Commerce and Industry research, 38% of Asian and other minority business owners and 28% of black business owners reported making no profit, compared with 16% of white business owners. Thirty-nine per cent. of black entrepreneurs and nearly half of Asian and other ethnic minority entrepreneurs stopped working on their business idea because of “difficulties getting finance”, compared with a much smaller proportion—just a quarter—of white entrepreneurs.

We need to be doing better than this, for the sake of not just business owners but the wider prosperity of our society. I welcome the Labour party review of start-up funding, led by Lord O’Neill, who was a Treasury Minister in the coalition Government. The review will consider how to ensure that ethnic minority entrepreneurs can access the finance, support and networks they need. Newham-based Shpresa is a community organisation supporting self-help among London’s Albanian community. It was founded and led by the remarkable Luljeta Nuzi, a social entrepreneur I first met when she came to the UK seeking asylum from Kosovo. She went on to graduate from the School for Social Entrepreneurs, and when today’s debate was announced, she drew my attention to the school’s match trading initiative, which provides enterprise grant finance, supported by Lloyds bank; the aim is that racially minoritised social enterprises should be early adopters.

When the Minister responds, can she give us the Government’s assessment of the lending practices of financial institutions to ethnic minority businesses, and say whether she sees real progress being made? It is welcome that between 2012 and 2018, over 11,000 ethnic minority entrepreneurs received Government-backed start-up loans. The additional action that is needed is largely for the financial services industry, but there is one area where Government action is particularly needed: public procurement. A big section of the report by the London Chamber of Commerce and Industry is devoted to this area, and it calls for a Government taskforce to work on increasing public procurement from ethnic minority businesses.

The LCCI wants the Government to move beyond merely “best endeavours” to introducing, for example, minimum target percentages for procurement from minority-owned businesses, in order to simplify procurement procedures and increase public purchasing from micro-businesses. It also wants tenders to be scored, in bid assessments, on supply chain diversity, and the Government to establish prestigious awards to highlight the achievements of minority-owned businesses.

In the LCCI’s report, a quote caught my eye from Demi Ariyo, founder of a funding platform:

“It became clear to me that there was a problem to be solved upon witnessing my church’s experience and hearing the first-hand experience of other minority ethnic entrepreneurs who had tried to seek funding.”

As the chair of the all-party parliamentary group on faith and society, I would like there to be greater support for entrepreneurship among people who are coming together in faith groups. Britain’s history is replete with great businesses that have their roots in religious faith. Let us have more of them, and newer ones.

My second point is about the lack of reliable data on ethnic diversity in business, which the report describes as “a recurring theme”. Here again, we need action by Government and by business. Companies House does not record the ethnicity of company directors. There is no legal requirement for businesses to publish their ethnicity pay gap, although they are rightly obliged to publish their gender pay gap. In 2017, the then Prime Minister, the right hon. Member for Maidenhead (Mrs May), promised to ask large employers to publish their ethnicity pay gap data. It has not happened yet. Can the Minister tell us whether that 2017 commitment still stands, and if so, when it will be implemented?

The paucity of data means that there is a lot that we just do not know. Without detailed and reliable data on ethnic minority entrepreneurship, we cannot fully understand the barriers that exist, as we must if we are to remove them. In this recession, the gap between ethnic minorities and others in business may well get worse. We need to grip this issue now, so that trends can be monitored and support appropriately targeted. We cannot meet the needs of minority-led businesses without having adequate information about their characteristics and their performance.

In the LCCI report, Dr Tony Matharu, chair of the LCCI’s Asian Business Association, and Lord Michael Hastings, chair of its Black Business Association, call for financial institutions to collect data about their support for ethnic minority businesses, as they do for women-led businesses under the Investing in Women code.

The two issues that I have highlighted are part of a much bigger set of challenges. When the Minister responds, can she assure us that the Government recognise the need, spelled out by the LCCI, for strategic engagement between the business community, Government and ethnic minority entrepreneurs?

[Sir Peter Bottomley (Worthing West) (Con)]

I support the right hon. Gentleman’s efforts on faith and society. As one of the officers of the all-party parliamentary group on black and minority ethnic business owners, I am supported by Diana Chrouch. I direct hon. Members’ attention to an article in The Sunday Times of 14 February 2021, by Oliver Shah, talking to Wol Kolade, who has the initiative 10,000 Black Interns. He talks about unkinking the pipeline of black talent. It seems to me that letting people get through and do what they are capable of is what we should be aiming for.

[Sir Stephen Timms]

I completely agree with the Father of the House. I had not seen that article, but it sounds to me as though it makes exactly the case that needs to be made.

I wonder whether the Minister will commit to better engagement between the groups I mentioned, in order to boost diversity in business. Bridging this large and persistent ethnic diversity gap is not straightforward. Realising the potential to which the Father of House has rightly drawn our attention is a long-term challenge. We need to be determined to end racial and ethnic inequality across UK society, including when it comes to start-up support, and to closing gaps that have persisted for far too long.

I hope that the Minister can reassure us that the Government recognise the importance of the issue, and will set out plans to make sure that we can all benefit from the skills and contributions of all those who want to set up in business but are too often excluded by unfair and unnecessary barriers.

16:16

[The Minister for Industry and Investment Security (Ms Nusrat Ghani)]

It is a pleasure to serve under your chairmanship, Mr Hosie. First, I congratulate the right hon. Member for East Ham (Sir Stephen Timms) on securing the debate, and on raising this important issue. I do not want anyone to think I am consumed by Christmas spirit, but I very much respect him, as does everyone in the Department for Business, Energy and Industrial Strategy. We take every point that he raises very seriously.

The right hon. Member talked about his constituents, the fact that the majority of them were not born in the UK, and the challenges they face. That is me and my community. I am delighted to speak on behalf of the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who is responsible for enterprise, markets and small business, because I want to make sure that we take all the issues raised incredibly seriously.

To continue with the Christmas spirit, we can certainly agree on the importance of ethnic minority entrepreneurs and their valuable contribution to our vibrant business landscape. I will not disagree with the right hon. Member on the challenges that have been mentioned. It is testament to the dynamism and resilience of ethnic minority entrepreneurs that they continue to adapt, and that they overcome so much, especially during covid. From small retail stalls to tech unicorns, the value of ethnic minority founders must not be understated. I am pleased to have an opportunity to shine a light on this community and what they do for the broader community.

On all of the issues raised, there are no challenges from this side of the House, but let me focus on some of the barriers that were mentioned, and talk about what the Government are doing to support ethnic minority businesses and to encourage an inclusive entrepreneurship environment for all. As has been said, if we get this right, and fundamentally get finance right as well, we could make that environment incredibly dynamic, which would be a boost to all our local economies.

The economic impact of ethnic minority entrepreneurs is far-reaching, with some estimating the contribution to the UK economy to be worth up to £25 billion. However, the crucial role of these businesses is much more than just economic. Their impact reaches much further than across the business ecosystem. As was mentioned, these businesses are most likely to invest in innovation, which is critical in helping us to achieve our ambitions around research and development investment and making the UK a science superpower. With more innovation comes improvement in productivity, so building on the potential of these businesses will be crucial to improving our productivity record.

What really matters to me is that these businesses operate in every region of the UK, including the most deprived parts. I doubt that East Ham is different from where I was brought up, Small Heath—an area often overlooked and underestimated. The efforts of black and Asian businesses are invaluable to ensuring that we level up across the country. Even more excitingly, these businesses are most likely to export, which puts them at the forefront of our efforts to harness global opportunities, which include our changing how we do business and diversifying our business models, especially now that we have left the EU.

Let me respond to some of the questions raised, starting with those about opportunities to access finance. Despite the impact of ethnic minority businesses, there is evidence to suggest that there are still barriers preventing them from reaching their full potential. Access to finance is regularly raised as one of the most significant issues holding those businesses back; there are reports of ethnic minority entrepreneurs keeping reservations about accessing financial assistance from traditional lenders.

As noted in the latest “Black. British. In Business & Proud” report from the Black Business Network and Lloyds Bank, 67% of black business people state that they have experienced some form of discrimination in their past entrepreneurial efforts, with only 40% trusting banks to have their best interests in mind. That has to change. The report’s recommendations rightly focus on improving the link between financial institutions, Government and the ethnic minority community as the best way forward. I will come back to some of the points raised to show how we are supporting ethnic minority entrepreneurs in accessing finance.

The issue of data was raised. In addition to the difficulties in accessing finance, the ongoing lack of data collection continues to inhibit funding opportunities for ethnic minority business leaders. Greater information sharing is crucial for bolstering our understanding of lending patterns, and this Government are committed to securing this transparency.

[Sir Stephen Timms]

I am grateful for the case the Minister is making, and I agree with what she has said. On the point about Companies House, would it not be a welcome step if it recorded the ethnic origin of company directors, so that we had some sense of the scale of what is happening?

[Ms Ghani]

That is a very important point. As I am not the Minister responsible for that portfolio, I do not have an exact answer. Let me get through this speech; if the right hon. Gentleman is not satisfied, I will ensure that he is written to with that information.

Turning back to action 55, the Department for Business, Energy and Industrial Strategy is working with the Investing in Women code signatories and with trade associations to pilot data collection on the ethnicity of entrepreneurs applying for finance.

Trust in institutions is low in many ethnic minority communities, who often struggle to get the experience or even the exposure required, or the support that they need to run a business effectively. One way that we are trying to help is by improving the communication flow between Government and the ethnic minority business community, engaging with businesses and the organisations that represent them directly to understand their specific needs. In terms of business support, black, Asian and ethnic minority business leaders value mentors more than any other ethnic group; they are more likely to want a mentor and more likely to value the impact of having one. It is reassuring to see organisations such as Be the Business championing the role of mentoring. Furthermore, our Help to Grow Management programme, with its delegated mentorship component, offers businesses a subsidised training course designed to improve leadership and management skills and address firm-level productivity challenges.

While we should celebrate the success and impressive contributions of these businesses, we must acknowledge our role in helping to tackle the remaining barriers to growth and prosperity, which were mentioned. Off the back of the British Business Bank’s “Alone together” report, which emphasises the difficulties faced by ethnic minority entrepreneurs in accessing funding, we are working with stakeholders to understand what further interventions we can take.

Since its launch in 2012, the Government-backed start-up loans programme has issued around 20% of its loans to black, Asian and ethnic minority businesses. The future fund has also approved 1,190 convertible loans, totalling more than £1.1 billion. More than half—61.6%, to the value of £683.5 million—of the convertible loan agreements approved have been for companies with management teams consisting solely of ethnic minority team members and those with both ethnic minority and white team members. This is promising progress, but, of course, there is no denying that we have much further to go.

As previously mentioned, we are also delivering actions 55 and 56, set out in the inclusive written report, which aim to support and encourage those from less-advantaged backgrounds to thrive—this is where I am thinking of those from my community of Small Heath and the community represented by the right hon. Member for East Ham. Through these specific actions, we will support ethnic minority entrepreneurs in accessing finance more effectively and becoming more productive.

The Procurement Bill includes a new duty on contracting authorities to have regard to the barriers facing small and medium-sized enterprises. Among other things, they must consider whether there is a diverse representation of businesses in the pre-market engagements. We are always looking to engage with ethnic minority business leaders and networks to better understand the issues facing them. There was a recent opportunity to do so: the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton, was asked to speak at the third anniversary reception for the all-party parliamentary group for black, Asian and minority ethnic business owners. The Department is dedicated to continued engagement with ethnic minority entrepreneurs through valuable events, including those hosted by the APPG, as well as through the ethnic minority business group, a forum that convenes bimonthly to discuss priority issues affecting entrepreneurs from diverse backgrounds to see how we can work together to find practical solutions.

Ethnic minority leaders want to see themselves represented in the business landscape. That could be through their mentors, or through wider representation in senior leadership positions. The value of visibility and its longer-term impact on entrepreneurs cannot be overstated. Through the Parker review, we acknowledged that building a fairer economy means ensuring that the UK’s organisations reflect the nation’s diversity. The latest figures show that the number of FTSE 100 companies with an ethnic minority director on their board has increased to 89, with 42 companies having exceeded the target. The progress made so far is encouraging, but I argue that we have much further to go. We look forward to those figures increasing further, to reflect the real diversity of talent in the UK.

A question was raised by the hon. Member for East Kilbride, Strathaven and Lesmahagow (Dr Cameron) on dealing with disability and other issues—I would expect that question from her, as she is the chair of the APPG for disability. Of course, that is another issue that we need to explore. The Father of the House talked about unkinking the pipeline of black talent, and I do not doubt that the Department will now be looking very closely at the report that he mentioned.

The right hon. Member for East Ham raised the Government’s update on the ethnicity pay gap data. As the Government have set out, ethnicity pay gap reporting continues to be voluntary. We will not be legislating for mandatory ethnicity pay reporting at this stage, but good firms, obviously, will want to make sure that their data is on record.

Again, I thank the right hon. Member for East Ham for introducing this important debate. Separately, I congratulate him, in his role as Chair of the Work and Pensions Committee, on today’s publication of the “Universal Credit and childcare costs” report. Affordable, accessible childcare is key to enabling parents to work and to increase their working hours; that is linked to today’s debate on entrepreneurial activity.

I conclude by reiterating the importance and the wealth of ethnic minority talent across the UK, which we are committed to nurturing and celebrating. On the one point that the right hon. Gentleman raised that I could not respond to, I will ensure that he is written to by the appropriate Minister with a formal response. I reiterate that we want to work closely with parliamentarians across the House, and with business and financial institutions to ensure that access is equitable. We want to improve our understanding of the issues faced, and to identify practical solutions that we can offer. I remind all colleagues from across the House that we are committed to bolstering the potential of ethnic minority entrepreneurs who, in turn, will help the UK economy to thrive.

I thank the right hon. Member for East Ham for raising this issue and, if I may be so bold, I wish you a happy Christmas, Mr Hosie.

Question put and agreed to.