Trade and Investment

Baroness Kramer Excerpts

Monday 15th June 2015 Lords Chamber

[Baroness Kramer (LD)]

My Lords, on the night of the general election, the noble Lord, Lord Maude of Horsham, and I sat for a time on the same panel for the BBC—of course, he did not yet have his title. I cried; he smiled. However, it gave me the opportunity to welcome him to this House, even though, very discreetly, he said absolutely nothing. It is a delight now properly and formally to welcome him to this House. I listened with enthusiasm to his opening speech in which he talked abut cross-party working. Many aspects of export and investment are commonly supported around this House and are areas on which we can work constructively together.

Many noble Lords talked about the importance of the WTO and bilateral free trade agreements, as did the noble Lord, Lord Maude. There has been much discussion of the EU. The noble Lord, Lord Maude, will have heard my noble friends Lord Stoneham and Lord Clement-Jones, the noble Lord, Lord Davies of Stamford, and other noble Lords talk about the importance of having an early resolution of the uncertainty that hangs over our role in the EU, given the inhibiting effect of that uncertainty on investment. However, I suspect that the noble Lord, Lord Pearson of Rannoch, does not agree with their views.

The noble Earl, Lord Caithness, spoke in support of the potential that the EU offers the UK. In my role as a Transport Minister, which is sadly over, I had the opportunity to go to Asia and meet a number of companies that have made very substantial investments in the UK, and which promised future investment. However, they are hanging back on making that decision until they are certain what role we will play. It was very clear to me that they considered it crucial that we remain in the EU. Many of these major investors have plants and operations right across continental Europe and are constantly deciding where they will invest next. We cannot be certain that it will be the UK if we decide to exclude ourselves from one of the largest and wealthiest markets on the planet.

We have heard today of many success stories. The noble Lord, Lord Kakkar, talked about extraordinary success stories in healthcare and life sciences, and urged further support. No one can match the enthusiasm of the noble Lord, Lord Bilimoria, but he underscored an issue often raised in this House—namely, the importance of allowing immigration. Home Office policy is constantly to restrict and restrain immigration to the “tens of thousands”. However, we know that such a policy starves the key industries that we require to enable our economy to grow. We look to the noble Lord, Lord Maude, to fight the corner for UK business and the economy around the issue of immigration.

I wish to take a few minutes to pick up on the issues of SMEs and exports. Like the noble Lords, Lord Empey and Lord Popat, I had the privilege of serving on the Select Committee. Indeed, the noble Lord, Lord Popat, had the idea of setting up the committee, which was brilliantly chaired by the noble Lord, Lord Cope of Berkeley. Given the work we did on the committee, it was a shock to me to recognise how crucial to UK exports the SME sector continues to be. The report states:

“Our great companies are already highly successful worldwide, but many are wholly or partly foreign owned and for a step increase in exports we must look to our SMEs”.

However, in the transport field that I know well, which I think is not dissimilar to other fields, over the last couple of decades we have lost most of our British-owned tier 1 companies. Although our SMEs are still successful in the domestic supply chain, they find it very hard to participate in projects overseas because they are not part of the natural global supply chain for companies that now own what were once UK tier 1 companies. I am sorry not to be quite clear in saying that but it is an ongoing problem that our small SMEs manage to operate in the UK supply chain but find it very difficult to then follow a company as it exports overseas and to participate in the supply chain elsewhere. The noble Lord, Lord Green of Hurstpierpoint, gave excellent evidence to the committee. He pointed out that 5 million SMEs in the UK export something like £100 billion a year and that an increase of a mere one-third would eliminate our trade deficit. So the potential with SMEs is huge.

I join others in recommending the report to the noble Lord, Lord Maude. It identifies a number of barriers and contains some important recommendations, some around skills—the noble Lord, Lord Empey, talked about the importance of skills and the lack thereof, particularly at SME level, when it comes to exports. The noble Lord, Lord Davies, talked about the importance of productivity, which, again, ties very much into the skills agenda. The noble Earl, Lord Caithness, too, addressed the lack of relevant skills to provide the basis for our SMEs to drive forward the export sector.

Some issues were not addressed at all in the debate. The lack of export finance on reasonable terms was raised over and over again by almost every SME. Our UK banks are extremely poor at providing finance to SMEs generally but when it comes to providing export finance—and dealing with foreign currency exchange rates, which small companies face; big companies rarely do—their weaknesses become even more evident. Much of the advice we heard was that a company looking for export finance should ignore British banks altogether and try to find a European bank with an outlet in the City of London because it might provide support in a way that no native bank would.

I raise this issue particularly at this point in time because we are about to divest ourselves of RBS. I have raised it before and it is one of my eternal frustrations that we have not restructured that bank in a way that meets the gaps within our own domestic banking sector, whether it is community banking, regional banking or a capacity to really deliver hard on export finance for the SME sector. I wish the Government would take the opportunity to look at that set of issues again before an opportunity is lost for ever.

The committee also looked at the UK Export Finance programme. In 2012 it was just starting to have some programmes potentially targeted at the SME sector. Perhaps the Minister can fill us in on how successful that programme has been because, quite frankly, the take-up when we looked in 2012 was virtually negligible. This area is critical if we are going to get the growth in exports that we seek.

Many people, including the noble Lords, Lord Bilimoria and Lord Risby, praised UKTI, and I join in that praise. After neglect for generations, frankly, the coalition turned it into a really effective body with some superb people, but it remained small and its reach remained exceedingly limited. The Select Committee report recommended a fund for LEPs to work with UKTI and introduce it to the relevant SMEs within their territories. I do not know if anyone has taken up that idea but it struck me as exceptionally important.

Of course, in places such as Germany, the Government can reach and talk to small companies, make them aware of opportunities, help them and support them, because they know about them because of their membership of the chambers of commerce. We have a purely voluntary system for membership of chambers of commerce, the result of which is that barely a single company joins. The example that the noble Lord, Lord Heseltine, often quotes is that a chamber of commerce of standard size in Germany will have 30,000 members; a similar one in the UK will have 400. Surely we can use the vast reach of government to try to identify SMEs so that we can at least communicate with them and make them aware of potential opportunities. Government seems to constantly operate in silos, and other government departments could assist us in trying to compile that list and making sure that we have access. Even a simple tick-box, frankly, on a tax form ought to let us know which companies are out there and give us the opportunity to get to them.

I also want to raise what I fear is the constant exhortation for small companies to focus on exporting to the rapidly growing emerging markets. I am delighted if we can help SMEs get to China. The noble Lord, Lord Sheikh, talked about the potential in Africa and the noble Baroness, Lady Mobarik, about the potential in Pakistan. It is crazy that so many companies fail to recognise that we have people with ethnic roots here who could help them to access those markets, because they have the cultural understanding, contacts and specialised knowledge to make that possible. However, it is extraordinarily hard for many SMEs to get into these more distant markets. There is everything from regulation to—let us be honest—corruption, which can be an issue. Frequently, you have to know certain families or be tied to key decision-makers. There is also the whole area of intellectual property. That is surely the reason why one in five SMEs exports to the EU but only one in 20 goes beyond it.

I have talked to a number of SME companies within the transport sector. A highly respected company engaged in accreditation told me with excitement of the sale of one of its products to China. I congratulated it on what would be a growing business but it said, “No, you don’t understand. With China, you make one sale; after that, they have the intellectual property and make the future sales. It is one product only”. I have heard that over and over. We have to tackle these issues and provide appropriate and proper support for SMEs, even when going into the US market. People at one of the companies that we spoke to during the work of the Select Committee sounded very positive about the American market but I happened, by chance, to have a follow-up meeting with them. They had decided that their only way to access their market was in a joint venture because only in that way could they afford to defend their patent. The consequence is that all future exports anywhere outside Europe will now go through that joint venture, not the UK company. We repeat those problems again and again.

Could the noble Lord, Lord Maude, talk to us about how he is reorienting the work that his department does to support SMEs? The large companies will tell him what they need, and they frequently need no help. But we depend for our growth and exports on small and medium-sized companies, which desperately need appropriate support and vigorous resource from the UK Government.