Industry and Exports (Financial Assistance) Bill
(Limited Text - Ministerial Extracts only)
Read Full debate
The Minister of State, Department for Business and Trade and HM Treasury (Lord Stockwood) (Lab)
My Lords, this is a simple Bill, which I am honoured to bring to the House today. The Bill has two main provisions. It raises the statutory limits in the Industrial Development Act 1982 and the Export and Investment Guarantees Act 1991. These provisions ensure that the Government can continue to support British industry and British exporters with financial assistance.
This matters because we know that exporting firms grow faster. They are more productive. They offer better jobs and higher wages than businesses that sell only domestically. Yet we know that access to finance can be a major headache for these same businesses. It is particularly tough for those that want to export millions of pounds’ worth of goods. Getting the necessary financial guarantees can be the biggest hurdle to exporting abroad, but noble Lords will know that these exports hold the key to a company’s growth. Just a single deal could be what makes or breaks a company.
Export finance is having a tremendous impact on our economy. Some £14.5 billion of UK Export Finance support last year is supporting up to 70,000 jobs, including across key industrial sectors such as clean energy, advanced manufacturing, life sciences and the automotive sector. Through existing provisions in the Industrial Development Act, the British Business Bank’s northern powerhouse investment fund II has directly invested £115 million-worth of capital into over 300 small businesses. Similarly, in the Midlands, the Midlands engine investment fund II has launched a £400 million fund to drive sustainable economic growth by supporting innovation and creating local opportunity for new and growing businesses.
We want to take this further, so that we can drive more growth across even more regions. With the Bill, we will ensure that transformational levels of government support will be there for industry tomorrow. The Bill contains some technical provisions, such as changing the currency from special drawing rights to pounds sterling, and it allows the delegation of future increases to UK Export Finance to secondary legislation. I am sure that noble Lords will champion the assistance provided through the Industrial Development Act and UK Export Finance that has helped businesses to grow through trade, creating jobs and fostering economic growth. It ensures that we can go faster and further, supporting more businesses to be pioneers in the sectors that are front and centre of the UK’s economy.
In tandem with the new trade strategy, more businesses than ever before will be empowered to export with the financial firepower of the Government behind them. The Bill can mean only better prospects for those businesses, our economy and the UK, and will boost economic growth in the coming years. I am thankful to colleagues in the other place for their scrutiny of the Bill so far and look forward to the wisdom and expertise that noble Lords will bring to this debate today. With that, I commend the Bill to the House.
Lord Sharpe of Epsom (Con)
My Lords, it is pleasure to follow the Minister, and I look forward to sharing some wisdom and expertise—at least I hope so.
I am grateful to the Minister for his introduction and for the opportunity to respond on behalf of these Benches. I say at the outset that we do not oppose the Bill. Updating financial limits that have sat unchanged for decades is both sensible and necessary as a piece of housekeeping. We recognise the importance of ensuring that the Government retain the tools to support British industry and exporters, where that support is genuinely warranted—the Minister gave some very good examples of that.
However, I will use this occasion to raise some broader concerns—not about the Bill in isolation but about what it may mean for the direction of the Government’s industrial policy more widely. The question we must ask is not merely whether the Government can provide financial assistance to industry but whether the cumulative effect of doing so—repeatedly, expansively and as a matter of instinct—risks becoming a substitute for the structural reforms that our economy needs.
Subsidisation has a seductive logic; it is visible and feels like action, and the Minister just called it transformational. However, we on these Benches believe that when the state steps in to cushion risk, it does not eliminate that risk; it merely transfers it to the taxpayer, while simultaneously distorting the market signals on which businesses depend to allocate capital efficiently. The Government should recognise that the misallocation of resources that follows is not always immediately apparent, but its effects compound over time.
The most powerful industrial policy this Government could pursue is one measured not in billions of pounds of guarantees and grants but in the burdens lifted from the shoulders of British businesses. We urge the Government to focus their energies there. Energy costs—in particular, the weight of environmental levies on businesses’ electricity bills—remain a serious competitive disadvantage for British industry. Unnecessary reporting requirements consume the time and attention of managers who ought to be focused on growth. I must mention the Employment Rights Act, which the Government’s own figures suggest will impose over £1 billion in administrative costs on business—a figure that, as businesses have warned, is widely regarded as a considerable underestimate. These are the frictions that erode competitiveness quietly and relentlessly, and no amount of export finance can compensate for them. Also, as we discussed in a Question earlier this week, they impact the quantity of foreign direct investment.
I will make a more fundamental point about risk. There is a tendency in industrial policy debates to treat risk as an enemy to be neutralised, yet risk is not merely a problem but a productive signal. It is the prospect of return that draws private capital towards genuinely promising ventures. When the state steps in to underwrite commercial risk too broadly or too readily, it does not simply help good projects that the market overlooked but sustains projects that the market had rationally declined to back. We should be cautious about inadvertently engineering away the discipline that risk imposes, because that discipline is part of what makes markets work. I appreciate that this was all debated in another place, but will the Minister explain the balance that he expects to see between private capital and UK Export Finance funding and how he expects this to work in practice?
That said, we are not dogmatic. We recognise that there are strategic sectors of the economy—the Minister highlighted some—where there is a case for targeted support, and that in some cases government has an instrumental role to play in getting exports over the line. We recognise that we live in a world of intensifying geopolitical competition. The rise of China as an industrial and technological power, the fragility of supply chains that was exposed so brutally during the pandemic, and the imperative of maintaining domestic capability in defence and critical technologies create a legitimate case for a limited role for government. We do not dispute that. What we dispute is the notion that broad, expansive subsidisation should always be the appropriate or default instrument and that it can substitute for the competitive fundamentals that underpin long-term industrial strength. A strong domestic industrial base is built on competitive energy, minimal regulations, a tax system that rewards investment and a labour market that gives businesses the flexibility to grow. Financial assistance of the kind that this Bill enables should sit atop those foundations and should not be deployed in their absence.
This Bill had its Second Reading in another place on 23 February. During a debate on my honourable friend Dame Harriett Baldwin’s eminently sensible and reasonable amendment relating to reporting requirements for UK Export Finance in relation to the steel industry, the Minister there argued that it was unnecessary because the steel strategy would be published in due course—I am sure the Minister knows what is coming. The steel strategy was originally promised last year. Without reopening the entire debate, but with costs mounting daily at British Steel—up to £370 million already according to a recent letter from the Minister’s colleague, the noble Baroness, Lady Lloyd, which I think is almost certainly a dramatic understatement, by the way—I ask the Minister to be more specific. When will we see the steel strategy?
It is worth heeding the very wise words of President Reagan, who once said that the nine most terrifying words in the English language are, “I’m from the Government and I’m here to help”. We will continue to press the Government on whether their industrial strategy is truly oriented towards building competitive strength or risks drifting towards a model of managed dependency where the taxpayer bears the risk, the market loses its discipline and British businesses are, in the longer run, no stronger for it.
Lord Stockwood (Lab)
I thank noble Lords for their contributions and feedback. I am also thankful for the general support for the provisions in this small but important Bill.
As aforementioned, the Bill will ensure that the financial assistance the Government have provided through UK Export Finance and the means available in the Industrial Development Act 1982 can continue. From the £1.5 million to support a Yorkshire manufacturer, to enabling Gloucestershire’s finest truffles to be exported across the world—and, indeed, to the Stockwood household—to £20 million in support of the aviation specialists in Surrey, all the way to over £8 million in support of a Scottish manufacturing SME, UK Export Finance is supporting growth and jobs across the whole country, and the Bill will enable it to go even further.
Additionally, financial assistance under the Industrial Development Act has provided £520 million of funding to generate private sector capital investments to support the continued growth of our life sciences sector via the life sciences innovative manufacturing fund. As I discussed in my opening remarks, these provisions ensure that the Government can continue to support British industry and British exporters, putting them on the strongest possible footing to contend in today’s increasingly competitive global landscape.
I now take the opportunity to address specific points raised in the debate, starting with my noble friend Lord Pitkeathley, who asked some important questions, and I am grateful for the advanced sight of his specific interests in today’s debate. On the issue of expanded capacity of UK Export Finance translating to wider access for smaller and new exports across the country, in 2024-25, that contribution to GDP was up to £5.4 billion, supporting 496 SMEs during that year. UKEF has also recently commissioned research from Oxford Economics, which showed that there are 115,000 businesses—predominantly SMEs, by the way—in the supply chains of the businesses which UKEF supports directly. These supply chains extend to all parts and regions of the UK.
Going even further in the support of SMEs, just in January, my right honourable friend the Secretary of State for Business and Trade announced a commitment from the UK’s top high street banks for a further £11 billion package to lend more to small businesses and medium-sized enterprises supported by UKEF’s guarantee. All of this will boost UK exports and economic growth.
On the question of providing Parliament with regular reporting, to which the noble Lord, Lord Fox, also referred, UK Export Finance reports to Parliament every year through its annual reports and accounts, which are both cleared through the National Audit Office, comprising details of all the transactions supported, their impact on the UK economy, and progress against the business plan targets. This also includes statutory obligations requiring reporting on spending levels under Section 7 of the Export and Investment Guarantees Act.
In relation to the Industrial Development Act, I can assure my noble friend that nothing in this Bill will change the existing reporting requirements around the use of support under the Industrial Development Act or the regular existing reporting arrangements. Sections 11 and 15 of the IDA require the Government to provide Parliament with annual reports setting out how they have discharged these functions under the Act, and that will continue. The annual report is presented to Parliament and includes detailed reporting on the provision of funding to support businesses through numerous different schemes and funds. This covers both expenditure and commitments for a given year, as well as the total commitment to date.
The noble Lord, Lord Sharp, noted broader concerns about the burdens on business of regulations, energy costs, et cetera. Before I fully answer, I would like to say that we largely agree that the role of government is not to de-risk businesses. It is largely to create confidence in our growth prospects and set the conditions of success for the private sector. It is one of the reasons I came into government: I believe firmly in that and took my own earning potential down to zero seven months ago in order to do that. As my noble friend Lady Alexander says, it is a place where we often find much common ground and it is one of the reasons I am proud to be part of this Government, because this Government firmly believe in it.
As part of that, we have a clear industrial strategy, a trade strategy, a plan for small and medium-sized businesses, and a plan to make work pay to address long-standing barriers to growth. These are underpinned by new policy co-creation approaches, with new initiatives being developed to respond to all businesses’ top concerns. I spend much of my time on round tables, speaking to CEOs, SMEs and businesses to ensure that we get the requisite feedback to ensure we are making the right decisions.
On energy prices, last month we concluded an eight-week consultation on the British Industrial Competitive Scheme—BICS, as it is called. This scheme will reduce electricity bills for eligible manufacturing businesses by up to 25%. We are keen to ensure we go further within the macro environment for energy prices. It is absolutely critical that we remain competitive, and we are trying to do as much as we can in that area.
To the question of balance between private capital and UKEF funds and project support, UKEF exists to help UK exporters win overseas contracts, deliver them and get paid for doing them. It does this by providing competitive finance terms to prospective buyers, supporting working capital and trade finance to help exporters develop, and insuring against buyer default. UKEF does not provide grants, state aid or equity support. I reiterate: it does not provide grants, state aid or equity support. It charges a premium for its products and UKEF complements rather than competes with the commercial sector and helps crowd in private investment. It is clear to say also that UKEF remains a hugely profitable part of UK P&L.
On the question of the steel strategy and when it is coming, I recognise the importance of that question from the noble Lord. The steel strategy is imminent.
Lord Stockwood (Lab)
Thank you for your vote of confidence. The strategy is imminent. We are hoping to announce something in the coming weeks. We recognise the importance of publishing the strategy for the industry. The Government are committed to putting the industry on a sustainable, long-term footing. It is vital for our broader strategic resilience as a country over the coming years.
To the question raised by the noble Lord, Lord Empey, about whether HMG have plans to provide information to businesses on import substitution, UKEF can provide support that is conducive to exports. Its overseas support is conditional on sourcing from the UK and shifting supply chains towards UK firms. UKEF’s customers support an estimated 115,000 UK businesses in the supply chain, which shows that, when UKEF promotes UK exports, the benefits cascade throughout the UK supply chain and throughout the UK economy. The Bill is not changing policy or the mandate underpinning this reality.
My noble friend Lady Alexander asked if I could write to her about the uptake of export support by the devolved Administrations. I will be happy to follow up with her on the specific statistics following this debate. On the further question on the UK’s success in delivering on its mandate, it operates at no net cost to the taxpayer over the economic cycle and has generated more than £850 million returned to the Exchequer over the past four years. Risk is carefully managed and monitored, with regular reporting to Parliament as part of its statutory obligation and HM Treasury oversight. I firmly believe that, as part of the portfolio of assets that we have supporting UK business, UKEF is one of our strongest and most prominent capabilities.
On the question from the noble Lord, Lord Fox, on whether the numbers he referred to are correct, I can confirm that they are. I am grateful to him for his role in advertising the great work that this legislation seeks to do in supporting UK businesses. On the question about the funding applications and the sector overlay that he mentioned, UKEF operates UK-wide, supporting exporters in every nation and region. Allocation is demand-led and based on commercial viability, as noble Lords would imagine, not on geography or sector. UKEF’s business plan includes an ambition that at least 80% of the businesses it supports will continue to be based outside London. That does not mean that London is not important, but regional development and support is critical to the whole of the UK’s success. On the question about the impending pressure of the “Made in Europe” policy, I firmly agree that it is critical and we are engaged on it with alacrity and pace.
In conclusion, I hope the arguments that I have set out satisfy colleagues that the provisions in the Bill are simple and straightforward. They are necessary to improve economic growth and will provide the Government with the means to give much-needed financial support to industry and businesses up and down the country. I thank noble Lords across the House for this informed debate and for their wisdom.
Lord Baker of Dorking (Con)
Before the noble Lord sits down, can I ask him about SMEs?
Lord in Waiting/Government Whip (Lord Leong) (Lab)
I am sorry, the noble Lord should not be intervening because he is not on the speakers’ list.
Lord Stockwood (Lab)
The question was well made. I can tell the noble Lord that it is important and that there is a whole strategy with UKEF and the Government to ensure that the opportunity that the Bill creates is articulated to the SME community as well.
With that in mind, I thank noble Lords from across the House for this informed debate. It is with great pleasure that I beg to move.