UK Trade and Investment

Lord Hunt of Chesterton Excerpts

Tuesday 9th October 2012 Grand Committee

[Lord Hunt of Chesterton]

My Lords, I welcome this debate, introduced by the noble Baroness, Lady Liddell. I have experience with high-tech SMEs applying UK research and have had discussions with medium-tech SMEs around the world. I declare an interest as chair of a small company in Cambridge and am glad to say that we have just sold software to Beijing to predict its air pollution, which is quite a coup for the UK. It is the same software as that used in London and reported on by Ministers in May.

We have to remember that the development of SMEs was once extremely controversial politically. For example, in Cambridge, both the Conservatives and the Labour Party were dead against Cambridge turning into a high-tech town, and one of my Labour colleagues said, “My God, this is going to turn Cambridge into an inland Bournemouth”. We have moved a long way since those days. All parties now accept the importance and social value of SMEs. I believe that there is some statistic that shows that some two-thirds of UK school leavers would have their own business if they could, whereas the figure is less than one-third in France. I do not know where that statistic came from, but I heard it some time ago.

A propos the strange remarks of the Chancellor yesterday, I should add that SMEs are not here as a sort of gambling operation, they are here to set up and do tasks and to provide reasonable employment. They are not speculations. Some people speculate on them—good luck to them—but that is not the primary role of people who have set them up, including people I know.

SMEs were invented by the Victorians and are remarkable organisations. Being a limited liability company enables you to do things you cannot do as a charity or as a partnership; an SME can do them. I support the present Government in their efforts to simplify things for SMEs so that they can run better. It is very much easier for SMEs here than in France, for example, which I know because our company deals with colleagues in France. The tax regime was improved by the Blair-Brown Government, particularly in maintaining tax relief on research. The present Government had a few wobbles on that when they first came in, but now they are solid on allowing tax relief on development.

The role of women in SMEs has increased enormously. Our own software company is composed of 80% women and is thus probably unique in the world. We have a very firm No. 2 who is a woman, and she jolly well made sure of that. The important point to make is that the Government introduced regulations to ensure that companies enable women to come back into employment. This is allowing highly skilled women to stay in the SME workforce.

This debate is about the role of UKTI. One of the issues for SMEs in Europe is the question of funding for research and development. The Technology Strategy Board is an effective body, and it is gratifying to note that the present Government have maintained it. However, I did not see any reference in the UKTI document provided for this debate to its connections with the board. It is important that UKTI should work with the TSB to look at where the overseas market areas are. In my view, we are still way behind the United States, which funds research undertaken by foreign scientists. Two or three of my papers were immediately funded to do research over in America; there was no such funding over here.

The other important feature of SMEs is the matching-grants approach adopted by the European Commission. In Britain it is difficult to get this sort of funding. You cannot easily get money from the research councils, so the approach of the EC of providing a matching grant equal to the funding provided by the SME is a good one. We do not do that in the UK and I believe that we could move more in that direction.

Last year I went with the noble Lord, Lord Oxburgh, to the big water show in Singapore. It is the world’s biggest annual exhibition of water. Water does not feature much in this UKTI report, perhaps because it is a low-growth industry, but it is jolly important. We saw enormous displays of water technologies from all around the world. Britain had only a small display, and we heard grumbly representatives from British companies say that they got little support from UKTI to come to meetings such as this one. They were very vociferous. In fact we met the UKTI man who had come down from Kuala Lumpur. He listened to and recognised those grumbles. He commented on it later, when I visited the embassy and high commission, saying that there are so many trade exhibitions that there simply is not the funding available to enable small UK companies to attend.

The other important task for UKTI and the Government is the promotion of the role of governmental agencies in the UK. I used to be the head of the Met Office. At no point did my job description include anything to do with British industry. I complained about it to the then Conservative Government. They said, “Why don’t you go to the Sunday fete and help them?”. I was pretty cross and I expostulated about it. The representative, now a fine Member of the House of Lords, then said, “Well, that is the sort of thing they do in France, isn’t it”. The point is that our big government agencies could play an enormous role. However, the Environment Agency is not allowed to promote UK environmental software or technology abroad. I have spoken to the head of the agency about it. We have extraordinary limitations.

I have almost used up my six minutes. I believe that this document is helpful. Finally, there is a new point that is very interesting. As I understand it, the UKTI is now providing funding in order to bring companies into the UK, such as into the high-tech centre in east London. Doing that is fine, but the department might talk to those British companies which are working in the same area so as to make sure that it is about collaboration, not spurious competition.

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[Lord Green of Hurstpierpoint]

My Lords, I begin by congratulating the noble Baroness, Lady Liddell, on securing a very important debate on trade and investment, especially relating to small and medium-sized enterprises. The role of UKTI is complex and I will focus my remarks on the involvement with SMEs. I assure the noble Baroness that SMEs are an extremely important focus. As the noble Lord, Lord Bilimoria, reminded us, more than 90% of the client base of UKTI is SMEs. I will talk a little about how an organisation that, as the noble Lord, Lord Haskel, commented, is in transition—I agree that it is—and is attempting to make sure that it does the best possible job of support for SMEs.

The noble Baroness has long supported business, as Economic Secretary to the Treasury and Minister for Energy and Competitiveness in Europe in the first term of the previous Government, and as a successful high commissioner in Australia who was very active in supporting British business there. I checked the statistics. Whereas in most markets over the past 10 years Britain steadily lost share or had a share so low it was difficult to lose, in Australia between 2006 and 2009 we at least had a stable share and in some respects, particularly services, grew it. I am afraid that it rather declined after 2009; I wonder whether this was cause and effect.

I think that we all agree that we face a national challenge as we seek to rebalance our economy and find a stable and sustainable growth path that will create jobs. The old model that was in place in the run-up to the financial and economic crisis is, as we all know, bust. The economics textbooks state that if we cannot grow on the basis of consumers piling on debt and government spending growing larger, it will have to be on the basis of more successful trade and investment.

I shall not comment much on investment because it is a separate and complex topic, except to say that, on the whole, this country has had for a number of years a fairly good record in attracting foreign direct investment. We cannot be complacent. We need to ensure that government policies are in place to ensure that that performance continues. However, we have a big challenge in trade. We have had a weak trade position for the past 40 to 50 years—this is not a new problem. For most of those years, trade has been a drag on growth rather than a contributor to it. I have already mentioned our market share in goods, which is down and/or the lowest during the past 10 years in virtually every priority market. It is rather better in services, but when you look at our performance in places such as Brazil, China, Colombia, Indonesia, Japan, Mexico and Russia—I could go on—you see that it is lamentable, being behind not only that of the Germans, which might be expected, but that of the French and the Italians, and I can think of no good reason why that should be the case.

I share the view of so many noble Lords who have spoken in this debate that it is critical that we focus strongly on SMEs. SMEs account for more than half of all goods exports—they account for rather less of services, but they are none the less an important part of the export proposition. We are behind the European curve. The noble Lord, Lord Bilimoria, has already mentioned that only 20% of our companies export versus a European average of roughly 25%. One way of looking at our challenge is to seek to get our SME propensity to export up to that European average. If we did that, we would go a long way towards curing our trade deficit problem.

I am convinced—again, I echo the sentiments of a number of noble Lords—that we have the potential to do this. The sheer variety of SMEs is an extremely important factor. The thing that I have enjoyed most about my job during the past 20 years is going around this country—I have gone around the world a lot, of course—meeting businesses of every shape and size in every sector and every region of the country. You find examples of creative, energetic exporters, with a high profile in their local community, who are going out and taking on the world. If one ever had a moment’s doubt about this country’s ability to pay its way in the 21st century, you need only to do what I have been doing to allay those doubts.

Furthermore, the evidence is clear that there are significant efficiency gains on average for any company that gets into the export markets. Therefore, succeeding in this SME exporting campaign is not only addressing our balance of payments but strengthening the backbone of the economy while we do it.

The Prime Minister last November set a target of 100,000 extra SMEs in the export markets by 2020. There is a strong focus on emerging markets, because, as I think we would all recognise, that is where the growth is coming from now and is likely to continue to come for the next generation. The central gravity of the world’s economy is shifting from west to east and from north to south, and the emerging markets in Asia, the Middle East, Latin America, Africa—at the moment, six of the 10 fastest-growing countries in the world are African—represent opportunities.

However, we all know that this is a challenge and that the first time that an SME exports is a daunting proposition—“Where do I begin? How do I go about it?”. As a number of noble Lords have said, they do not have the administrative apparatus that larger companies have; they are often one-person bands or employ 10 or 20 people. It is a difficult task. What is the role of UKTI in this? It is many-sided, but it is critical. It is there to provide direct help. There is a public commitment on the part of UKTI to double its client base from around 25,000 now to 50,000 by the end of 2015. It should be there to provide specific services to small companies. It has two particular packages that are well targeted to their needs: a Passport to Export package, which is for a first-time exporter; and a Gateway to Global Growth package, which is for those businesses that have already moved into one market and are looking at opportunities in others. It provides market information; it helps form partnerships overseas; and it is there to help deal with the finance access question, which I shall return to shortly. It is there to nurture investors, too, but I shall not dwell much on that, if noble Lords will allow, on this occasion.

What is the present condition of UKTI? First, it has a clear strategy. We have a list of priority countries on which we are focusing—there are 19 of them, four topmost and another 15 in a second tier. You might guess three of the topmost—China, Brazil and India. The fourth is Turkey rather than Russia. There are particularly interesting strategic reasons for engaging as proactively as possible with Turkey. Russia is in the next tier.

There is a clear focus on the sectors that we should cover. There are five main groups of sectors with 18 subsectors, one of which includes water and environment technology. I believe that there is a lot of work to do to ensure that the sector competence in UKTI is up to the demands of private sector businesses going into the export markets. We have work to do on that. I can assure noble Lords that we are on the case.

A new management team is in place. The noble Baroness, Lady Liddell, asked whether any of them had a background in the private sector, and specifically whether they had worked with smaller companies. I am pleased to report that the person we brought in to take specific responsibility for the SME business of UKTI comes from the private sector. He has had a 25-year career as an MD or group executive of more than 20 different SMEs over time in a range of sectors, including pharma and automotive software. His last position before joining UKTI was as CEO of Biocompatibles International. I think that he has demonstrable and credible expertise. I am pleased to report that because it is important as regards a key leadership position in UKTI. It should not be the only position occupied by someone with clear private sector experience. We need to ensure that there are plenty of others through the system.

I am very interested in the comments that the noble Lord, Lord Cope, and others have made about the importance of getting practical secondment experience into SMEs. I shall take that thought away and see how we can make a reality of it. Although I am ashamed to say that I have never done it myself—I have worked only in big companies—I fully take the point that seeing what it is really like on the inside is important.

A new structure is in place that will give a clear focus on SMEs and on what we call high-value opportunities. They are the opportunities in infrastructure in particular in many overseas markets where very large spending is taking place by overseas Governments and where I believe that there is an opportunity to bring together on a cohesive basis the British offer, which will include not only some big companies but, critically, some SMEs as well. We have been putting our money where our mouth is.

[Lord Hunt of Chesterton]

In addressing that point, will the Government do more to enable SMEs to attend these very large trade shows where these jobs and this technology can be displayed? The difference between the UK and other countries is enormous in that respect. As I understand it, the Government decided to cut back on funding of that sort. Can the Minister reassure us?

[Lord Green of Hurstpierpoint]

I am very pleased to reassure the noble Lord, Lord Hunt. When I arrived in this position I took the view that we had cut back too much. One might debate whether some of the earlier spending was fruitful but it may have been cut back too much. We have pulled it out of the nose dive and I am pleased to report that we have just allocated an extra £3 million to trade access programme activities, which is the area of trade fair attendance that the noble Lord is calling for.

This year, out of 288 missions, 178 were specifically focused on SMEs, a statistic which I should mention. I hope to reassure the Committee that we are serious about this. SMEs are critical to the long-term success of the economy and to the export challenge for this country. They are therefore at the centre of UKTI’s objectives.

There are plenty of challenges. More than one noble Lord has mentioned awareness. At the moment, the evidence is that about 56% of companies are aware of UKTI, which is simply not good enough. There is evidence also that only 24% are aware of UK export finance, which is miles away from being good enough. The satisfaction rates for the quality of service is not yet good enough. It is not that bad but it is in the mid-70s. I think that it should be at least in the high 80s or low 90s. Therefore, there is a direction of travel that we must make sure that we get to, which is partly about the quality of the people in UKTI. We are setting up a new unit within UKTI to focus on venture capitalists, because it is important to encourage venture capital into the economy and link it up with business opportunities.

I am conscious that my time is running out fast so I will just say a word on finance. The finance issue is quite complex. It is about venture capitalists and seed money. The noble Lord’s comments about the enterprise investment scheme resonated very strongly with me. I will take them away and we will see what we can do, but we are very clear that this is an important scheme.

More generally on business banking, there is a clear need to reinvest properly in business banking. In some ways I am better placed than many to say this. The banks have disinvested—unintentionally, but none the less in fact—in their business banking capabilities over the past 20 years. We need to turn that around. We need to reskill the banks. The good news is that the CEOs are all very committed to this. The challenge is that it is going to be a bit like turning around an oil tanker—I am afraid that it will take some time and we have some work to do on that. But I can assure noble Lords that I hold regular round tables with the banks, at both CEO and head of commercial banking level. I and the Secretary of State are on this case.

I am very conscious that I have run out of time. I thank the noble Baroness for introducing this debate and noble Lords for participating. This is a challenge that I care passionately about, as I hope noble Lords can tell. We have a great deal to do but I believe that we can be successful as long as we stick at it.