Small Business Commissioner

Lord Popat Excerpts

Monday 22nd January 2018 Lords Chamber

[Lord Popat (Con)]

My Lords, I, too, thank the noble Lord, Lord Mendelsohn, for initiating this important and timely debate. Small businesses have always been the backbone of our economy. As we prepare for life after Brexit, they will be key to our economic success. More than 99% of businesses are small to medium-sized. That is much more than just a statistic; it is the future.

Having spent 30 years in SMEs, I want to talk generally about what support the Government can give to help SMEs in the UK. Since 2010, progress has been made in making life easier for them, including the appointment of a Small Business Commissioner. It was somehow three years late, but better now than never. In the past seven years, a large number of reforms have taken place, including initiatives such as the new enterprise allowance, which will help unemployed people start their own business. There has been a reduction in the rate of corporation tax and a number of other good initiatives taken by the Government. My noble friend Lady Rock described them so well, so I shall not repeat them.

For my part, in 2012 I initiated the House of Lords Select Committee on Small and Medium Sized Enterprises, chaired by my noble friend Lord Cope, to see what the Government could do to help SMEs export more. The committee published an extensive report. Since then, there have been two debates in the House, but the Government have not updated us on their progress since 2014. I ask the Minister whether the committee’s recommendations are still being monitored.

As I said, there has been progress. The number of SMEs has doubled to 5.7 million and we are recognising more and more that if we want businesses to thrive we need to cultivate a climate that is favourable for them to succeed. However, I am going to be frank: we have not gone far enough; we have not been creative enough; and we have not been outward-looking enough. Businesses continue to face a number of obstacles with which we are all familiar. They suffer from late payment and banking support is limited, especially when it comes to opening a bank account, which can take as long as two months. Essentially, underwriting a loan application is also time consuming. Our planning system is simply appalling. We are too heavily regulated. The previous Chancellor, George Osborne, had a one-in, two-out policy on regulations. Is this still in place?

There are other problems too. For the past four decades, we have run a trade deficit because, quite simply, we do not have enough exports to pay for our imports. As I have said in this Chamber many times, our export base is too weak, particularly within SMEs. Our economy’s reliance on services is too strong, and our manufacturing sector is weak and leaves a lot to be desired. While the Government have spoken of rectifying the imbalance, the statistics do not make happy reading. Only 5% of our companies manufacture, compared to the service industry which accounts for 74% of businesses. Only 10% of our SMEs export, compared to a country such as Germany which exports in excess of 30%. Productivity is poor—it takes us five days to produce what Germany can do in just four. Against this backdrop, it is no surprise that exports account for 28% of the UK GDP compared to 46% for Germany. This is not good enough. If we do not produce, we cannot export. If we cannot export, how can we expect to place Britain at the heart of the global economy, as we have repeatedly professed to want to do? Ambitious words are not enough; we need bold actions.

In about one year, we are leaving the European Union. We will be entering uncharted territory. In order to foster the global exporting culture that will be so vital for our future economic stability and strength, businesses must be able to forge new partnerships, make new links and gain access to new and diverse markets in untapped parts of the world, not least in Africa. This is where the UK falls desperately short, not because we lack the connections or the abilities but because our world views are not keeping up with the pace of change. I admit that, like many of my colleagues and friends, I was trapped in a Eurocentric bubble for the longest time, but since Brexit and since I started my work as the Prime Minister’s trade envoy to Uganda and Rwanda, that bubble has burst. My eyes have opened to the tremendous opportunities that are out there.

Of course, being Ugandan-born, Africa holds a special place in my heart, but I am also a businessman. I know a good opportunity when I see it. I recently took an oil and gas delegation to Uganda to explore $15 billion-worth of opportunities. Two of those British companies, Fluor and CB&I, have been shortlisted to build an oil refinery to the value of $2 billion. Another British company, Colas UK Ltd, has secured a deal to build a new international airport in Uganda with the largest UK Export Finance loan to Africa. Africa is a continent brimming with potential. In fact, I believe Africa is the emerging continent. Six out of 10 of the world’s fastest growing economies are African. The continent is rich in natural resources, innovative cities and, importantly, a fast-growing, young, educated population. It is more democratic, more self-sufficient and more prosperous than ever before.

However, instead of refocusing our energies in Africa, the UK is sitting idly by, allowing countries such as China to have the upper hand. Worse still, not only has trade deteriorated from 25% only a few decades ago to less than 4% today, but we have seen an exodus of British brands, such as British Airways and Barclays, from some parts of Africa. What kind of message are we sending out? The irony is that we should be first in line. We have an historic advantage, given our deeply rooted bonds with the continent. Furthermore, we have fantastic soft power in Africa, but what good is that soft power if we have no hard cash coming in?

First, we need to change the story we tell about Africa to our SMEs and large corporations. Historically, we have focused too much on aid and not on trade. Until we see it as a continent of promise rather than poverty, we will not stimulate the interest and investment that is needed.

Secondly, trade and export needs to be at the heart of the Government’s strategy. This will require a joined-up approach across many policy areas, from trade to transport. It is essential to have the right infrastructure in place. We could start by overhauling our aviation policy, which is decades behind where we need to be. Everywhere I look, countries around the world are building airports; we cannot even build an extra runway at Heathrow or Gatwick—ideally, we should do both. In an age of global connectivity we are projecting insularity and inefficiency. There used to be a bridge between the UK and Africa; now we can barely catch a direct flight to a capital city. How are SMEs supposed to pursue links in Africa if they cannot travel with ease? Although I have helped secure one direct route to Kigali, one swallow does not make a summer. We need more routes, more landing slots and greater aviation capacity to allow our SMEs to take off.

The challenges facing the SME sector are very different from those in the larger corporations, but the rewards are potentially much greater. As my right honourable friend Dr Liam Fox has pointed out, businesses that start exporting will grow on average by a third in two years.

As we shift our gaze from Europe to our Commonwealth family and indeed the rest of the world, our strategies must shift too. I hope the upcoming CHOGM will help us kick-start the overdue process of re-engaging the business community—and in particular the SMEs—with our Commonwealth partners. With vision, audacity and openness, we can do it. There is no time to waste.