Industrial Strategy: British Business Bank

Lord Stoneham of Droxford Excerpts

Tuesday 8th July 2014 Lords Chamber

[Lord Stoneham of Droxford (LD)]

My Lords, it is a pleasure to take part in the debate initiated by the noble Baroness, Lady Wheatcroft, and to have her tour d’horizon of the Government’s industrial strategy from her perspective of experience in the business world and business journalism.

As the noble Baroness said, there are very good and encouraging signs of recovery as the economy starts to rebalance and growth resumes. When Vince Cable first started to refer to the term “industrial strategy”, I must say that I had certain concerns about that terminology, because I always associated it with the Government’s failed ventures to intervene in industry in the 1970s. However, the work at BIS over the past four years matches the Treasury in providing the essential components of recovery and the hope for sustainable growth. The brand “industrial strategy” is clearly being restored and reinvigorated, and it looks like a winner. I want to explain to the noble Lord, Lord Haskel, that there are components of an industrial strategy here. They are very clear, have been set out very clearly by the Secretary of State for Business, and a lot of them build on the good foundations left by the previous Secretary of State for Business, the noble Lord, Lord Mandelson.

There are four key components of this strategy. The first is the partnership activity concentrated on the key strategic sectors. We have seen the recovery in the automobile sector: it is remarkable. We are now one of the leading producers of motor cars in Europe. Now we have to concentrate on making sure that the component supplies are provided in the UK and not simply imported. This weekend in Silverstone we saw the spotlight on the specialist engineering companies which are behind the development of Formula 1, and all the reforms that they have introduced, particularly on energy conservation. Many of these SMEs are based here in the UK.

Two weeks ago, I visited Airbus in Toulouse, another example of where partnership between Government and industry has been remarkably successful. In 1995, 20% of passenger aircraft were made in Europe by European manufacturers; the rest were made in America. Today, more than 50% of those planes are made in Europe, largely through Airbus and its suppliers, and we have 10,000 employees in Airbus and 100,000 working in the supply chain of this company. It is impossible to see how success would be possible in that sector without a partnership between the Government on research and development and a vision of what a European industrial strategy could achieve in this sector. Any idea that a partnership with the German and French aviation sectors could take place so successfully outside the EU is, in my view, ludicrous.

The second key component of the strategy is the promotion of key technologies, particularly based on the partnership with universities and the development of catapult centres. The role of universities has been recognised as essential to economic growth. They are building on the competitive advantages in research, which we must now exploit in a successful industrial strategy, whether it is in energy storage, robotics, regenerative medicine or the other sectors and technologies that they have identified as part of the strategy.

The third component—and where the coalition has had great success, although I will not go into the detail tonight—is addressing skill shortages and unemployment through the growth of the apprenticeship scheme and a refocus on the importance of technical education. The provision of skills in these technical areas is vital for our industrial strategy.

The fourth component of the strategy is to provide financial support, particularly for small and medium-sized enterprises. We know that SMEs are a major provider of jobs and have been over the past couple of years—remarkably so as we have recovered from recession. There is great potential now through more start-ups and more growth from these companies. It is remarkable that until 2012 this country was the only one of the G8 countries without a specialist institution seeking to intervene and provide finance and advice for SMEs. Germany has its KfW bank; the USA, despite moves in Congress, still has the Small Business Administration. These are bodies with vast resources and expertise which all help with financing and advice for small businesses. I hope that our British investment bank, once it is approved by the European Union’s competition authorities in the autumn, will be a further force for us in this competitive market.

We are grappling with market imperfections in respect of financing small businesses. At a time when bank choice is down to four, with many withdrawing from high-risk, high-cost, more risky finance for small businesses, we needed to do something to fill that gap. It is long overdue. It is a problem that has existed in this country since the 1930s and when markets do not work then the Government have to help make sure that they do. There has been a lack of provision for debt and equity financing for these companies and there has been demand weakness as well. There has been a lack of awareness of business potential and of the benefits of raising finance at cheaper rents. Without the funding, these companies will not fulfil their potential. The first step is to develop the local networks, through investment partners, to form a strategic plan, which we have now seen published by the business bank, and then to develop the key partnering to help private finance think longer term and take advantage of government backing to lever lower borrowing costs. We have seen substantial progress in the first year of the bank: £282 million lent to 30,000 businesses; and the formation of 80 financial partners, with the aim of increasing this investment to £10 billion by 2018.

For the country to make its mark and to gain competitive advantage we have to see some continuity in these policies over the next four to 10 years. It is important to recognise that we will not see the benefits of some of these policies until the next Government or the Government after next—these policies take time to emerge—but we have got to see ongoing work to simplify financing schemes and to finesse them in different markets. We have to develop the bank to match the best of our competitors in other countries, particularly in Germany.

There are two final elements to the industrial strategy. The Government are making moves to ensure that government procurement is aimed at helping small businesses, particularly with the success of the Olympics in 2012. In the regional economic partnerships we have the basis for encouraging growth in the regions, and I hope that these organisations will be used to help promote financial opportunity for small businesses.

Just as the Treasury’s determination and focus on the financial and economic policy of the country are showing signs of working, so the industrial strategy, led by BIS, is ensuring that the firm foundations for industrial recovery and export growth are built on a genuine partnership between the Government and key industrial sectors: knowledge, the strength of our universities; firm initiatives to improve skills; government procurement policies; and, at last, the establishment of a heavy-weight, specialist organisation, the British Business Bank, to assist and advise SMEs on financing, which is long overdue.