Small and Medium-Sized Enterprises

Lord Green of Hurstpierpoint Excerpts

Wednesday 26th June 2013 Lords Chamber

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

My Lords, I begin where everyone else has by congratulating my noble friend Lord Cope on securing what I believe passionately to be an important debate on trade and investment relating to small and medium-sized businesses. My noble friend has long supported British business and British exports, as, of course, have all the committee members. He and his committee undertook the inquiry thoroughly and asked searching questions not only of my officials and of businesses and business support bodies but of me and my colleague and friend the Business and Enterprise Minister.

Of the 23 recommendations in the report, I think that I can say truthfully that we agree. We have essentially fully accepted all of them, with one or two exceptions where we may not agree with the specific recommendation but absolutely share the intent behind what is proposed. Above all, on recommendation 1, which concerns a report back next year and the year after, I am happy on behalf of the Government to endorse and accept that.

This is an important topic for us all. More than one noble Lord has called attention to past advertisements saying “We export or we die” or, “Exports go up or Britain sinks”. Briefly, I go back even further than that, prompted by the recent Diamond Jubilee of the Queen’s coronation, to remember that in 1953, the UK’s total exports were just £3.6 billion. Last year, they were £488 billion. More importantly than the nominal figures is that in 1953, the value of exports to UK GDP was about 10%; it has now risen to 30%, which reflects how Britain is participating more in an increasingly international economy. The bad news is that Germany’s percentage is more than 40%, so we may have come some way since the 1950s, but we still have some way to go.

A number of noble Lords have referred to the various targets and challenges that we have set ourselves: those of doubling trade exports by 2020, getting 100,000 new SMEs into international markets, again by 2020, and doubling the client base of UK trade in investment from 25,000 to 50,000 by 2015. We are well on track with the last of those. The client base of UKTI is growing rapidly. The target of doubling exports by 2020 is a challenge. Frankly, if we got somewhere near it we should feel extremely pleased. It would involve increasing exports as a share of GDP to over 40%, which is where, as I have just mentioned, the German economy now is. This is not a completely unfeasible challenge, but it is certainly a demanding one.

I assure the noble Lord, Lord Mitchell, that we shall take this report very seriously. I am not going to allow it to gather dust. There are a number of important suggestions in it. There is repeated reference in it, and in comments by noble Lords, to the awareness issue. UKTI gets good satisfaction ratings. They are not as good as they could be and could be better, but they are in the mid to high 70s. I would like to see them at around 90%. Dissatisfaction levels are low, at around 6% or 7%. This is clearly a case of “good but could get better”.

The level of awareness is not satisfactory. For UKTI this is in the mid 50s. For UKEF it is in the 20s. This is not good enough. It is a priority for me and the Government to ensure that we raise awareness of these important services that are available. In particular, as we speak we are running a pilot marketing programme in the north of England to raise awareness of UKTI and UKEF. I will be analysing carefully the results of that pilot when they are complete in the next few weeks. If we get encouraging figures, we will consider extending that advertising campaign to the rest of the country.

In the short amount of time available to me, I will try to cover a number of issues that have come up in your Lordships’ comments, especially language, intellectual property and the reference that my noble friend Lord Cope made to the Bribery Act at the start. I say to the noble Baroness, Lady Coussins, that I share her passion for languages. I am a linguist by origin. This was admittedly a long time ago, but I strongly believe that not only do we need to invest more in languages, but that investing in languages improves your English. To paraphrase Rudyard Kipling, what does he know of England who only England knows, or what does he know of English who only English knows?

This important area is quite complex. It is unrealistic to expect an SME, unless it has a Chinese speaker, to be able to gear itself up in Mandarin to the point where it can speak business Mandarin in pursuit of business opportunities in China. We must be realistic about what is achievable. We have recently updated a brochure on language management strategy. We will continue to work on it. I would like to write to the noble Baroness on some of the complexities of the language issue. There are some long-term issues about the teaching of language in schools, and noble Lords are aware that the Government have recently focused much more attention on this. That will take quite a long time to pay dividends. In the mean time—and I do not just mean in the mean time—we need to celebrate the fact that, because of the diversity in this country, we have a terrific language base on which to draw, in terms of skills that can be brought in for marketing, for example, with an appropriate language attached to it. I assure the House that we take the issue of languages seriously.

Finance is quite properly of concern to a number of noble Lords. The noble Baronesses, Lady Coussins and Lady Drake, made a detailed analysis of some of the issues that we face. Given my former career, I am perhaps better placed than many to reflect on the weaknesses of commercial and business banking in this country. From that experience and from my experience going round this country in the past two and a half years and meeting businesses of all shapes and sizes, there is indeed an issue. It is quite plain that there are circumstances where companies with legitimate financing requirements cannot get financing because the normal templates are being required and inadequate imagination is being applied to the topic.

What I think has happened over not just the past three or four years of the financial and economic crisis but over the past 20 years is that the skill base of business banking in high street banks has been deteriorating. This has happened partly because average career bankers with a reasonable dose of ambition have wanted to head either for the excitements of corporate and investment banking or for the sexy end of the retail banking market and did not see themselves spending the rest of their career in a relationship management role in, let us say, Rotherham. The central functions have responded by disempowering those relationship managers, so we have the result that the noble Baroness, Lady Coussins, commented on. If I have some good news, it is that all the CEOs with whom I have regular dialogue and the heads of commercial banking are focused on this and are determined to address the problem. I hold regular round tables with the banks under the auspices of the British Bankers’ Association. The general problem, I have described. In international trade, in particular, there is even more of a problem with the skill base. They are focused on that. The challenge is that it will simply take time to turn the supertankers.

In the mean time, we need to be doing two things—first, to ensure that as it gets going the business bank is able to challenge them on the way in which business lending is provided and, secondly, to encourage new challengers. There are some new challengers. There are a number of new challenger banks, and a number of noble Lords referred to the various other techniques for financing that are gaining some traction, although I do not believe that those other financing sources can ever be an adequate alternative to, or substitute for, a properly run business banking presence on our high streets. This is an important issue, and we will continue working at it.

Specifically with regard to UK export finance, I can report, first, that there is an awareness issue, to which I have already referred, and secondly, that new products are beginning to get more traction. Like noble Lords, I have been extremely disappointed by the take-up. I put it down to a considerable extent to lack of awareness. We have therefore put export finance advisers in every English region and in Scotland, Wales and Northern Ireland. We had one in place in each of those areas by the end of last year, and I have just authorised a doubling so that it will go from one to two in each of the regions, plus in each of the devolved Administrations. I have also started putting export finance advisers in key locations overseas. We have one in Singapore, we are going to have one in Dubai, and I have authorised the recruitment of further EFAs in other markets of importance to us around the world, in Brazil and in Africa, where I think we need one in the Francophone part and one in the Anglophone part, on the ground at that end, whose job is, first, to help incoming British companies, and secondly, and very importantly, to negotiate sponsor credit lines with the sponsors of big infrastructure projects around the world so that British companies can get access to finance as they seek to win business as part of those infrastructure projects. So we are on that case.

It is early days to tell what quantitative results this is going to have, but there is anecdotal evidence. The most recent was at lunchtime today when I was with the Suffolk Chamber of Commerce, which reported that the presence of the UKEF financial adviser is making quite a lot of difference to a number of its members. I hope that we will have more specific hard evidence when we report next year.

My noble friend Lord Cope raised the important issue of intellectual property. The British Government will continue to work hard at lobbying in international fora for better protection and recognition of intellectual property. As I think the House is aware, we have started putting intellectual property attachés in some of the key markets—China and Brazil—and will look at how that is working in the course of this year. We will consider expanding this coverage at the end of this year if it looks as though it is delivering value to British companies that are worried about theft of intellectual property as they go into those markets.

Finally, I assure the House that I take this report very seriously, as do the Government, and that this is a long-term commitment. If there is anything in public policy which needs to be treated with a sort of apolitical consistency over the years, this is it. As a number of noble Lords have mentioned, we have lived with a constant weak trade position in all of our working careers—I can safely say that. It has not got any better of late; again, one or two comments have been made about the first quarter, which was not good. We suffer from the headwinds from the eurozone. Roughly speaking, our exports are still growing quite nicely to the emerging markets, but they were down in the eurozone. We have a long way to go.

I find myself saying regularly to my ministerial colleagues, to my official colleagues, to the media and to anyone who will listen, that this is a marathon, not a sprint, and we have to stick at this as a national collective effort over at least the next 20 years. The good news is that we can do it. I mentioned that I travel round this country a great deal—I visit each English region and the three devolved Administrations at least twice a year. I have seen businesses from every sector, of every shape and size—some of them the mid-cap companies—and I see companies that are taking on the world. As the noble Lord, Lord Mitchell, said, it is fun to do that. If you are not the kind of person who finds other countries and cultures fun and interesting, you will never be a successful exporter. You find these people across the range of the sectors of our economy. This is not just about high-tech or manufacturing but about all sectors.

Finally—another finally—I say to the noble Lords, Lord Haskel and Lord Mitchell, that clearly the digital economy is becoming more important. We are obsessed with making sure that the support that we provide to small businesses takes into account the increasing importance of digital trading. That is partly about ensuring that they know how to use online trading and that they think about language in the design of their websites—all those kinds of things. It also involves participating in the negotiations within the European Union about the implementation of a digital single market. There are still too many barriers to cross-border digital commerce in the single market and we need to work hard at that.

On international trade negotiations, the noble Lord, Lord Mitchell, asked about the state of play on the US-EU negotiations. The truth is that we have only just started. Clearly, it is as important to SMEs as it is to the rest of the economy that we do our best to complete a successful free trade agreement with the US, as well as with Japan—another major country with which negotiations are under way. This will be a difficult and, I suspect, quite long haul, even though we are publicly committed to achieving heads of agreement by the end of next year if we possibly can. We all know that the prize is huge, and the prize for SMEs is very significant. We should never forget the linkage between that and the importance of realising a full single market within the European Union. If we are to complete a deal with the Americans, they will demand a deal that covers the full single market, so we have a job of work to do, not only to negotiate with the US but to see through the full implementation of the single market.

I close where I started, by thanking my noble friend Lord Cope and his committee for a report that will not gather dust. I am happy to commit the Government to giving a report on what we have done and on further progress in the course of next year.