Small and Medium-Sized Enterprises

Lord Mitchell Excerpts

Wednesday 26th June 2013 Lords Chamber

[Lord Mitchell]

My Lords, I was a member of this Select Committee when it began its hearings. I was getting myself all fired up to contribute to a subject that means a great deal to me when the rug was pulled from under my feet. On my giddy elevation to the Front Bench, I was ordered to stand down from the committee. Of course, I had no option—the rules are the rules—but I was sad to leave.

That said, it is with great pleasure that I welcome the opportunity today to debate Roads to Success. What a tour de force it is: forensic, totally focused and clearly written. Throughout its pages the very clear fingerprints of its chair, the noble Lord, Lord Cope, are distinctly visible. From these Benches, I congratulate him and his colleagues on producing it. I have two reservations, which I would have pushed had I been on the committee. First, the digital revolution is barely addressed. Secondly, I am not convinced that it reaches out to the new, young entrepreneurs—those who dress in T-shirts and jeans, and are for ever plugged in to their music. That apart, I am much heartened by its contents.

I very much hope that the report will attract the attention it deserves within government but somehow I doubt it. The truth is that Select Committee reports produced by your Lordships’ House get scant attention in the corridors of Whitehall. I have had the honour to sit on several Select Committees. On each occasion, noble Lords are chosen to serve and have impeccable backgrounds, the witnesses are grilled and the clerks and advisers are of the highest calibre. The reports produced, just like this one, are outstanding—but what happens? They disappear into the bowels of the relevant department and eventually the Government produce their answer, just as they did for this report. It is always the same. It is obfuscatory, avoids the recommendations and sends the report back to Parliament with the clear intention of kicking it into the long grass. This is not an attack on the parties opposite. It also happened when we were in government. So often Ministers and their civil servants regard our Select Committee reports as a pain to be endured and they treat us accordingly. This is my second rant in your Lordships’ House today. Enough is enough—it is time to stop. This high horse will be ridden no more.

When I was in my 20s—light years ago—I remember an advertisement in Piccadilly Circus. The noble Lord referred to, “Export or die”. I remember, “Either exports go up or Britain goes down”. As I remember it, there was a little flashing Union Jack underneath it—nothing new there. Low exports and low productivity have been the bugbears of our post-war economic performance. Small businesses are critical to our economy; everybody is agreed on that. They employ 60% of our workforce and—a hugely important point—they are the route back into employment for many of our long-term unemployed.

Much of our time is spent looking for ways to support the UK’s small businesses; encouraging them to export is a good way of doing this. New research from the Enterprise Research Centre shows a clear correlation between exporting and growth in businesses of all sizes, and we have touched on that this evening. EU companies that export grow twice as fast as companies that do not, and internationally focused SMEs are three times more likely to introduce an innovative product. My view is that it is in the mindset of a management that is interested in new projects and developing in all areas, not just exporting.

Today, we rightly focus closely on the many important recommendations made in the report. However, we should also look at ways to encourage innovation in British companies, given this strong link between companies that innovate and those that export. The latest EU figures suggest that the UK is currently 32nd out 35 countries when it comes to innovative products and processes, and 25% of UK SMEs are innovative, compared with the EU average of 34%. Recent figures from the Big Innovation Centre, which works with government, higher education and industry, illustrates how the difficulties of getting finance stifle innovation.

More than one in three innovative firms looking for finance in the period 2010-12 received none of the credit that they wanted. There is no shortage of statistics to support the diagnosis that the lack of support from our financial institutions harms businesses in the UK. We know about this, it is discussed almost every day in your Lordships’ House and it is a big problem that we have in this country. The report shows that the three-month average rates of lending to small businesses have been negative since August 2011. Looking at the Bank of England figures, I also count only three individual months over that period when net lending to small businesses has been positive.

The lack of small business lending harms innovation and exports. We need a laser-like focus on improving access to credit for these companies. The Government’s expansion of Funding for Lending this April was a positive step, but it is clear that to resolve the market failure at the core of this issue, we need to be more radical and look at structural change. Many noble Lords will no doubt have shared my surprise on reading that between March 2011 and August 2012, UK enterprise finance helped 31 companies, of which 21 were SMEs. Noble Lords could be forgiven for thinking that a couple of zeroes had fallen off these numbers.

This cannot be enough. Will the Minister please tell us whether there are any plans to co-ordinate the activities of UK enterprise finance and the Business Bank? The case study within the report of Alderley plc, the engineering business that felt that it was being harmed by credit decisions being made in London rather than regionally, is compelling. It is a scenario that we often hear about and was mentioned by the noble Lord, Lord Young of Graffham, in your Lordships’ House yesterday. The end of relationship banking has harmed small businesses, which find that instead of local bank managers who understand them and can use judgment about whether they should have credit, decisions are now made on a centralised basis, which is often also computerised. Ticking the boxes is not the way to proceed.

I also agree with the committee’s recommendation that more attention should be paid to SMEs when the Government draw up trade agreements. The EU-US trade negotiations are critical and I would like the Minister to update the House on how these talks are proceeding. I am by any assessment a serial entrepreneur; my businesses were in IT services. To me, overseas activities were always crucial. Our customers were international, how could we provide a service if we were not international too?

Of course, you actually have to like abroad. You need a feeling for other people’s culture. My language skills are halting, but I forced myself to learn enough German to be able to stand up and make presentations in Frankfurt. Whether they understood me is another question, but they were too polite to say. Today, new technologies such as Google Translate are coming to the rescue, but nothing—nothing—replaces being with your customers and being able to talk to them.

I have to say that doing business in other countries is really good fun. It is testing, of course, but if you roll up your sleeves and are prepared to catch early planes and attempt to speak your customers’ languages, it really pays off. I have also found that taking just a little time to brush up on another country’s politics—what is the story of the day—and even talking about football works a treat.

I really enjoyed the speech of the noble Lord, Lord Teverson. I feel that I have a soulmate in him, although I have to say that when he started on the subject of speed dating, I began to keep my distance. I agree. There are many lifestyle companies out there, many of them are static and we must not confuse them with the small and medium-sized companies that are dedicated to growth.

I was disappointed that the report barely touched on the digital revolution. When I give speeches, I highlight how the world is changing and the speed of that change. If businessmen are not having sleepless nights about digital changes—if they believe that the digital revolution does not concern them and that it is just a passing phase—they are in for the chop. Ask Jessops, HMV or Blockbuster video—many more will follow them. Competitors in every country are obsessed by changes in the digital revolution, and we should be too.

My final point is about young entrepreneurs. If I were a young tech city entrepreneur, I doubt that UKTI would have much appeal to me. It is too uncool by half. Does UKTI have a branch in Shoreditch or on the Cambridge Science Park? That is where the action is. Its people need to take off their ties, get themselves personal iPads and drink skinny lattes, just like everyone else there. They need advisers in their 20s, not in their 50s.

In summary, this is an outstanding report. Despite my pessimism, I hope that the Government take serious note of its contents. One day soon, I hope that the lights in Piccadilly will read, “British exports up yet again”.