Small and Medium-Sized Enterprises

Lord Haskins Excerpts

Wednesday 26th June 2013 Lords Chamber

[Lord Haskins]

My Lords, I, too, congratulate our chairman on his tenacity and exuberance in guiding us through this extremely interesting exercise. I declare an interest as a director of a couple of small companies. I also chair one of the 39 LEPs that the Government have created, in one of the more difficult parts of the country.

My overall impressions of the experience we have gone through are that there are lots of success stories in the report. Clearly, there is no question about that but, at the same time, underlying it there is relatively poor overall performance by our SMEs, particularly when compared to many other countries. One country that we obviously looked at closely was Germany. In Germany, there is a strong commitment of business organisations towards the well-being of SMEs and a strong community feeling that SMEs matter and help each other. The noble Lord, Lord Heseltine, who I shall speak about later, said that he was in Mumbai recently and ran into no fewer than 150 people representing German commerce there. They were helping SMEs and larger companies to do business there.

The engagement of regional governments and regional banks has been referred to. It is very powerful, particularly in Bavaria but right across Germany. There is a supply chain made by large companies for small businesses. Seven days a week, a train leaves Munich and heads for Shanghai, over the trans-Siberian railway line. It is full of cars and components made by BMW’s small businesses. The understanding of the supply chain is great in Germany as well. The careful nourishment of SMEs generally came across. While it is certainly bureaucratic, it is effective. The Mittelstand miracle, which the noble Lord, Lord Teverson, has mentioned, was invented by Bismarck 140 years ago and is a huge driving force in the strength of the German economy. There is also a strong emphasis on localism, which I will come back to. I am in cahoots with the noble Lord, Lord Heseltine, on this agenda.

We can contrast that with Britain, where we have lots and lots of start-ups—that is not bad—but far too many failures at an early stage. That has been endemic for many years in this country because of a lack of training, engagement and understanding about what those businesses are taking upon themselves when they go into it. Sporadic government interventions are constantly changing, not just on this but right across the piece. Successive Governments have turned the course of events, which makes it difficult for businesses to follow them. There was the initiative that the noble Lord, Lord Heseltine, had with Business Links. Some of us had mixed feelings about them, but that idea has gone and something else has come in their place. The other element in our businesses is their inability to grow beyond employing two or three people. In Germany, that element is to be ambitious and grow to employ five, 10 or 20 people. That does not happen here.

I question the Government’s policy on exports, where there is a strong emphasis on the importance of making the BRICS countries a priority. That is fine for Rolls-Royce and the big companies, but is it realistic for most SMEs? They will have to tackle the tariffs and trade barriers that are there. They will have to tackle the political instability which we are seeing in Brazil, and may see in India and South Africa, and tackle the transactional complexities of dealing with those countries—never mind the corruption and bribery which exists in many of those countries, which people at least have to reckon with in doing business there, and never mind the distance or, particularly, the language, which is more acute in those countries than in Europe. There are also, of course, human rights issues.

We should contrast that with small businesses doing business within the European Union which, even if it is in the doldrums today, still shows that we have an inadequate share of that market. That is so right across the piece but particularly with SMEs. Small businesses do not have tariff problems or trade barriers to deal with there. They have one set of market regulations which, for the most part, work reasonably effectively. The rules within the EU are pretty tough on corruption, so you do not have to worry about that. There is now substantial growth in the eastern countries of the EU and an increasingly accessible infrastructure, where people can move goods around Europe with much greater ease than in the past.

Should not the EU be the ambitious target for any small business that is starting up? Is the EU yesterday’s news? I spent a day last week in Rotterdam, looking at its port, and I was humbled by the scale of the activity going on there and by the huge potential that still remains. I could take your Lordships to Antwerp, Hamburg or Amsterdam, all of which have thriving trade right on our doorstep. There is widespread dismay and disbelief among many small businesses about talk of full withdrawal from the European Union. A poll last week showed that 70% of small businesses, while they have their reservations, wanted to stay in the Union.

We found in our discussions of the Government’s support for SMEs that UKTI is well thought of, but not sufficiently widely recognised for what it is making available. Embassies are doing much better than they were—a lot better than 20 years ago. Rather than patronising business, they are beginning to think that businesses have something going for them. I suppose that they may be looking after their own careers by doing that, but it is better. However, too much attention is applied to larger businesses. It is too easy for civil servants and ambassadors to talk to the head noises in Rolls-Royce, which can look after itself. The attention should be directed more towards the smaller businesses. There is a need for more communication with small business. I certainly find this in the LEP, which has a job to improve the communication with small business about what is offered by the Government.

The noble Baroness, Lady Cohen, mentioned the finance issue. I will not say very much about it, except that it is a confusing picture. Lots of SMEs have told us that they are charged penal interest rates, that the security demanded of them is excessive and that the banks do not seem to want to do business. The banks, on the other hand, say, “Nobody is coming along to borrow money from us”. I think there is a bit of truth on both sides; not as many people want to borrow as we would like.

I have mentioned devolution. There is no question that the ideas of the noble Lord, Lord Heseltine, are widely supported by business. There is more local support for SMEs through the LEPs than anywhere else, and the LEPs are crucial in getting SMEs off the ground. It is certainly my main priority to have the relationship with the SMEs as the driver for the local economy. The banks also have to learn about devolution. We learnt in our studies that a local bank manager—at any rate, one in my area—is not allowed to authorise more than £50,000 to a small business. It otherwise has to go through the computer to the central system to make that judgment. Banks need to think about restoring the power and authority of local bank managers, to give them the discretion to make business judgments face to face with businesses, rather than relying on computers to do the job for them.

Finally, what can businesses do to help themselves in this? Time and again, we find the situation is that local authorities and businesses are saying, “What are the Government going to do for me?”. That is important, but what can businesses do for themselves? First, big businesses must look more to small businesses for innovation. That is where the innovation has come from in the past. Big business must recognise that and search out those businesses which are innovating and support them. Secondly, small businesses should collaborate much more with each other. We saw some excellent examples of collaboration in Wednesbury, which I should say is also promoted by UKTI, where high-tech small businesses in the aerospace industry that are trying to get into the American market were working together to establish a base in America. That is the only way you can do business in America, and it was working very successfully.

The small businesses that we saw being really successful had just got on with it. They had nothing to do with government. They did not even know where the Government were but they were getting on with it, mainly because they had a great idea which they believed in. They had the get up and go that is so necessary. Nothing can compare with the flair, innovation and leadership in achieving business success, whether the business is big or small. The Government must do all they can to support these policies and make sure that they do not inhibit them.