Businesses: Small and Medium-Sized Enterprises

Lord Storey Excerpts

Tuesday 6th May 2014 Lords Chamber

[Lord Storey (LD)]

My Lords, I thank my noble friend Lord Cope for securing this important debate. His chairmanship of the Select Committee on Small and Medium Sized Enterprises, of which I have the pleasure of being a member, was exemplary.

When my noble friend secured the debate in June last year on the Select Committee’s report, we had high hopes of an export-led recovery. Sadly, those prospects seem far less certain at the moment. The trade deficit has remained high, and the value of exports fell by 2.5% between August and November. I am glad to see that the trade deficit has been gradually reducing since imports have reduced. However, that demonstrates how precarious the situation can be, exacerbated by the fiscal situation of the eurozone. I suggest that we need to ensure that we look to the future and are thoroughly prepared for what it holds.

Britain may be the sixth-largest exporter in the world and number one for e-commerce in Europe, but we have a massive trade deficit and therefore need to double our exports to £1 trillion by 2020. Only 17% of mid-sized businesses generate revenues outside the European Union, compared with 25% in Germany and 30%—I stress—in Italy. While we have thousands of great exporters, others balk at doing business in countries embraced by our competitors. The CBI has reported that if mid-sized companies maximised their potential they would deliver an extra £20 billion to £50 billion to the economy. The House of Lords Select Committee’s report clearly and cogently identified what needs to be done and we can clearly see a number of very important initiatives coming forward. The International Festival for Business in my home city of Liverpool should be a must for every businessman and businesswoman, and I am sure that our Minister will be there as well.

I will give an example. The expansion of UK Trade & Investment has been vitally important. I will give noble Lords a local example of its sterling work, because it is on many occasions an unsung hero. It held an export week in the north-west that reached 400 businesses, with free events that explored opportunities that ranged from Africa and Europe to southern Asia and Japan. The challenge was for existing exporters to make this the year that they expand into at least one new market. In the weeks before it achieved its target of creating 1,000 new exporters in the north-west, the north-west UKTI director, Clive Drinkwater, said that if every current exporter in the region rose to the challenge,

“we could increase the GDP in the north west by an estimated £2 billion, significantly aiding economic recovery and giving a boost”,

to the competitiveness of the north-west itself.

On support, large companies have a knack for prospering, with their intangible assets and intellectual capital—Pfizer’s recent bid for AstraZeneca is a prime example. Meanwhile, budding SMEs struggle to gain any funding. Figures suggest that 57% of those innovative firms struggled to find funding in 2012, which represents a steady increase from 38% in 2007. Why am I voicing such concern? SMEs are particularly vulnerable: should unlucky circumstances befall them, they may have to sell their shares quickly at knock-down prices and lose the prospect of scaling up. What is worse, if they find themselves having to sell off their enterprises to foreign companies, the UK economy will face losses. If we solve this problem, the returns could be huge.

Take the following example from my city of Liverpool. Focus Commercial is a commercial finance house situated in the heart of Liverpool which aims to provide SMEs with funding without depending on high street banks. However, its support for SMEs does not stop there, as it also attempts to provide a plethora of financial options, with its remit extending to the property and construction sectors. Such co-operation is important, and the flexibility and tailored support that growing SMEs require depend on them not being boxed into a financial corner. Who knows—such support might just fulfil the premonition of the Centre for Economics and Business Research, which says that the UK could be the largest economy in Europe by 2030 if we continue to create businesses and jobs at our current rate.

SMEs are in disagreement about the precariousness of the exports market at the moment. Some feel that niche products are needed to tap into markets that have never been targeted before. It would be less difficult for more SMEs to make the most of those markets with a raised awareness of what UKTI can offer them. If 100,000 new exporters are required to double the value of exports by 2020, this support will be required. I am very glad that the report has raised the issue of awareness from both UKTI and SMEs. Enterprise is, after all, the driving force for economic growth.

I turn to education, an area of great interest to myself. It has been said for years that SMEs need to, and indeed should, invest in apprenticeships. In fact, ICM figures suggest that 20% of SMEs plan to take on at least one apprentice in the next year, with forecasts suggesting this figure will grow the year after. The Prime Minister has already made the step of subsidising workplace training and giving £1,500 grants to SMEs to take on their first apprentices, but this needs to be developed further. In Germany, apprenticeships generally last for three years; they consist of eventually assessed classroom learning for one day a week. While big companies can afford to do this, most enterprises cannot. As sanguine as it may sound, we need to make sure that the Government put in place a means of making sure that the terms, conditions and schedules of apprenticeships are clear from the outset. This is important for both the apprentices and the SMEs that hire them.

My noble friends will be aware that Madeleine Atkins, chief executive of the Higher Education Funding Council for England, recently expressed her desire for universities to improve their interaction with SMEs. The money that universities obtain could be put to good use by boosting knowledge exchange with SMEs. This proactive attitude is already evident. For a number of months now, Cambridge Regional College has been offering completely funded training to SMEs as part of a £2 million European Social Fund programme to improve professional skills at work. This initiative has been hailed as a good stepping-stone to formal qualifications such as apprenticeships, and these developments can be amplified only with a can-do attitude from Ministers in Parliament, SME owners and youngsters.

It is easy to see how young people can benefit from an apprenticeship; it is an alternative to further or higher education and is tailored to their vocational needs. It can also help SMEs, which reap benefits from apprentices; it is important that they make sure their business is sustainable and that they train those apprentices to understand the idiosyncrasies of that particular field of work.

I want to mention another opportunity, which I believe that we have not really thought through. I happen to be a member of the advisory committee of the Regional Growth Fund, which has given almost a £1 billion in grants and growth fund money to encourage business growth, particularly in the least prosperous regions outside the south-east. Businesses are encouraged and helped through the process, and the straightforward criteria are used of leverage ratio and job creation in areas too dependent on the public sector for jobs. It has been very adept at supporting business growth, but would it not be wise to consider whether we should look at targeting those businesses that have the capacity and will to export or those that want to expand their exports? Perhaps the Minister might consider taking up this issue with the noble Lord, Lord Heseltine.

I can only hope that the support objectives outlined in the report are fully achieved—and the sooner the better. We must never ignore the fact that SMEs are the driving force behind the sustainable growth that this country sorely needs.