UK Trade and Investment

Baroness Liddell of Coatdyke Excerpts

Tuesday 9th October 2012 Grand Committee

Asked By

[Baroness Liddell of Coatdyke]

To ask Her Majesty’s Government what progress has been made in improving the performance of UK Trade and Investment in relation to small and medium-sized enterprises in the United Kingdom.

[Baroness Liddell of Coatdyke]

My Lords, I am very grateful to have this opportunity to raise the issues in this debate, which I asked for quite a long time ago. I did so after hearing the Minister address a business breakfast on UKTI. Two things struck me. First, there were great similarities in some of the things that he said in his speech to what I said 10 years previously when I was doing his job. Secondly, we do not get anything like enough opportunity to discuss this issue, particularly in the troubled economic times that we are in.

SMEs are great drivers of the economy but they are going through a particularly difficult time. From the beginning I say that I am a friend of UKTI, but I am a critical friend and am not yet 100% certain that we have the delivery mechanisms in place to address some of the issues that are essential to the growth of SMEs, both in exporting and in operating within the domestic economy.

Let me begin by paying tribute to the Government and to the GREAT campaign. I have been a great fan, to coin a phrase, of cross-government working in relation to foreign direct investment. I have often felt that we missed a trick in not bringing together the British Council, VisitBritain—in which I have a registered interest as a director—and UKTI to promote what Britain is and what Britain is good at. In the run-up to the Olympics and the Paralympics, the GREAT campaign was an enormously good showcase for the values of Britain as well as for its skills, design and capability. I should like to ask the Minister what will happen to GREAT now that the Olympics and Paralympics are out of the way. What will happen to the money? Will GREAT go on? Will the money be continued? Or, will everyone huddle back in their silos, keeping well out of the way of the traffic, in case they dare to talk to one another at any point in the future? Those of us who travelled internationally and saw the GREAT posters and material in a lot of international airports realise what a powerful advocate it is for the UK.

I have a long interest in working with entrepreneurs seeking access to international markets. I suppose that I am a poacher turned gamekeeper in that I ended up as a head of mission. I have worked directly with UKTI and have to take some responsibility for some of its failings as well. One of the big criticisms that is made of UKTI—I am not 100% certain that it is justifiably a criticism—is that it is biased towards big business. It is difficult to envisage a situation where UKTI would not get behind big business. The scale of some of the projects that are either for export potential or for foreign direct investment is so overwhelming. It is easy to work with big business because it is structured in such a way that it is easy to interrelate with it. We are always told about the great advantages to SMEs of the supply chain.

I say to the Minister that a camel can go through the eye of a needle easier than a small firm which does not have an international name can get into the procurement department of a major multinational. There is a body of work within what used to be called the DTI—it must be about 10 years old now—that looked at the supply chain in the oil and gas industry. Some of the best technology that exists in that industry has grown out of SMEs, yet the best closed shop in the world is multinational procurement. It makes the BMA and the Law Society look like a bunch of amateurs. It is critically important to get the people with the ideas and the ability to develop the business before the guys in the big businesses who actually buy those things. I think that that is an area that UKTI does not devote enough time to. Not all of it is about spending money; some of it is about knocking on doors. Some of the clever and influential people who gravitate towards UKTI, I would suggest, should turn their minds to how to make that supply chain work more effectively. I do not like the idea of SMEs taking scraps from the table, but if you run an SME—and I have run an SME—you really would do anything to get your foot in the door in that kind of context.

In this, I feel that I am criticising some of my dear friends. There are issues about the commercial acumen within UKTI. Some of it is because of the nature of an organisation whose staff rotate every four years, particularly with Foreign Office staff. You can get somebody who is a brilliant Arabist or an expert in hard languages running a UKTI operation. I know that 400 staff have had commercial awareness training but, frankly, nothing concentrates the mind more than seeing the whites of the eyes of a customer who will maybe take their business elsewhere. It is hard to teach people commercial awareness. I know that proposals have come up, year after year, about secondments into business, but it is very easy to second somebody into Rolls-Royce, BAE or GlaxoSmithKline. It is very difficult to second somebody into Joe Bloggs’ widget makers. I often think that that kind of white-knuckle experience is missing from some of the experience in UKTI.

I know that there have been considerable changes at the top. UKTI appeared before the Select Committee on SMEs not so long ago. I have never quite graduated on to a Select Committee; I am a new girl in here. However, I notice that it was pointed out that 75% of the new managing directors come from the private sector. Can the Minister tell us if any of them have ever grown a company from start-up, or if they have come from a business that is not AIM or FTSE listed? The psychology is very different. I notice from the annual report that there is great emphasis on attracting overseas venture capital. The best venture capital in the world is about six stations from here on the Jubilee line. One of the problems with accessing venture capital is that the risk profile of an SME is different. There is no opportunity to spread risk in the way that you can with a major company, as I found out when I referred to this in my maiden speech along the corridor and was summoned in by 3i. There is a venture capital gap; there is no getting away from that. The cost of administering a venture operation in a small business is sometimes much higher. It is easier to get £50 million, sometimes, than it is to get £50,000. That needs to be addressed, and we need to find a route to do so. I would like to know how this new service that would link companies is actually going to work.

I was interested in the Secretary of State, Vince Cable’s, announcement last week about a new banking facility using the Co-operative Bank and the Unity Trust Bank. That was interesting, as it is not one of the big banks. I should declare an interest as a life-long co-operator with an account in the Co-op Bank. One of the problems with the banks is that small businesses are terrified of them, first because they often do not get the money, and secondly because of the pernicious system of personal guarantees. If you want money from a bank you can put your granny up as collateral. I think of the number of deals that I have lost because a husband has gone home to the wife and said, “I have got to put the house on the line”. If my husband came home and said that to me, I would chase him. It stands to reason that if you are asking people to take significant personal risk, you are limiting the prospects that are available for them. Many people go to informal investment. I pay tribute to Business Link in bringing in business angels.

Time is running on, so I will jump very quickly to another area. Can the Minister give us some idea of how the defence and security organisation is settling in as part of UKTI? That is a very difficult area for SMEs to crack. Often they need a guy with all the gold braid on him just to get in the door of a Government who might be in the procurement business. The annual report is very coy about how DSO is doing. If the Minister can give us some information, I would be very grateful.

In my last few seconds I will say to the Minister that there is one area in which officials will say I am out of date—but I have checked and I am not. UKTI is probably the most bureaucratic organisation under the sun. I have worked in many organisations but never in one that is quite so bureaucratic. Will the department look again at the bureaucratic structures of UKTI? There are good people there trying to do a very difficult job. Let us make it as easy for them as possible.