Economic Environment: Growth and Jobs

Baroness Fairhead Excerpts

Thursday 11th July 2019 Lords Chamber

[Baroness Fairhead (Con)]

My Lords, I congratulate my noble friend Lady Neville-Rolfe on raising this important issue and thank her for her many contributions to UK business over her impressive career.

In terms of being a good place for business, we perform well internationally. We are number 9 out of 190 countries and, as my noble friend Lord Leigh of Hurley said, our unemployment rate is at its lowest since 1974, and employment is increasing. A lot of this success is due to initiatives by government, and by government and businesses together, of which we should all be proud. Just recently, the industrial strategy, with its £37 billion for productivity investment, support for R&D and sector deals, is creating real excitement. It is now supported by the export strategy and the productivity plan led by Sir Charlie Mayfield, which is giving practical checklists to SMEs.

We need to be balanced in our criticism, but that is not to say that there is not more to be done. I will concentrate on access to finance, with a particular focus on SMEs and scale-ups, because they are most keenly affected. It is worth calling out the success of two government schemes: the enterprise investment scheme and the seed enterprise investment scheme, which were begun a couple of decades ago. My noble friend Lord Flight, through his chairmanship of the association, has helped to ensure the strong and continued government commitment, including its endorsement as part of the patient capital review. As regards enhancement, SMEs want to applaud the continuity but also welcome ongoing efforts to simplify the process.

The British Business Bank has been another important addition. It now has a range of programmes, including the Start Up Loans Company, having backed over 50,000 companies, with an average loan size of £6,500. In fact, HMT has just boosted its funding by an extra £2.5 billion as a result of the patient capital review, and that is to be welcomed.

Yet challenges remain. They are particularly acute for high-growth, innovative companies that are seeking to gain access to long-term financing. While the UK has a lot of sources of financing, we are still some way behind the US in terms of the depth of our markets. First, therefore, it is important that, as we leave the EU, we replace the European Investment fund post EU exit—I will return to that message.

Secondly, there is a need to spread access to growth capital across all regions of the UK. As my noble friend Lady Neville-Rolfe referred to, London and the south-east receive the lion’s share of equity investment in SMEs, despite high-growth companies being much more broadly spread across the country. The British Business Bank has established regional funds with the northern powerhouse, the Midlands Engine, and with the Cornwall & Isles of Scilly Investment Fund, but they too rely on European funding. It is therefore important to understand how the proposed UK shared prosperity fund would replace this European funding to allow further regional access to finance funding in the future.

Thirdly, we need to improve access to information for growing companies so that they can better negotiate what remains a complex landscape of financial choices. Again, the British Business Bank launched a national finance hub with online information, better signposting and better referral processes. However, it is important that this is co-ordinated nationally and controlled through the LEPs and growth hubs.

A final area of access to finance that I would like to highlight is our export credit agency, UK Export Finance. That is a key pillar of our UK export strategy from last year. Evidence shows that companies which export are statistically more profitable, employ more people with higher skills levels, are more innovative and endure longer. UKEF is 100 years old, but it is considered today as the best in its class by its export finance agency credit agency peers. During my time as a Minister, it was described to me as, variously, “the game-changer in exporting”, as well as “our best kept secret”. The DIT and UKEF have clearly embraced this challenge to improve awareness, partnering with high-street banks to make access easier, but the success of this agency means that competitors are chasing at our heels. In particular, a number of countries, such as France and Malaysia are providing support in that critical early stage of exporting where you are exploring and investigating and beginning opportunities. One suggestion, therefore, is to look at our programme, to build on the trade access programme, which is currently relatively small, and both increase the funding available and extend the range of areas that can be covered.

Scale-ups is an area of rich opportunity. Although the UK comes third in the OECD rankings as a great place to start a business, when it comes to growing a business we fall to 13th, and these scale-ups really matter. According to the ScaleUp Institute, these 37,000 companies generated £1.3 trillion of turnover to the UK economy. They create three times as many jobs per week as the FTSE 100, they are 42% more productive than their sector peers and they are more likely to export. The challenges that they have faced for many years are well articulated. These challenges predate Brexit and within our power as a country to solve. We have a Scale-Up Taskforce and a Minister to champion them. However, the tax landscape and finding the right finance are important factors, and this is where outstanding questions remain about post-EU exit funding. Notably, of the 219 programmes mapped by the institute, one in three is currently co-funded by the ERDF and scale-up initiatives have substantial support from the EU. We need to avoid a scale-up void when we leave the EU.

Finally, I shall touch on the annual investment allowance. In its 2019 survey, the British Chambers of Commerce found that more than a third of its companies are planning to use the allowance in the next two years. The allowance is valued, but the BCC suggests two improvements: expanding it to include investment in people and removing disincentives.

I ask my noble friend for reassurance on these matters regarding funding to ensure that we build on the progress that we have made in recent years.