Businesses: Small and Medium-Sized Enterprises

Lord Green of Hurstpierpoint Excerpts

Tuesday 6th May 2014 Lords Chamber

[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.