GSE0002

Written evidence submitted by Federation of Small Businesses (FSB)

1. The Federation of Small Businesses (FSB) is the UK’s leading business organisation representing small businesses. Established over 45 years ago to help our members succeed in business, we are a non-profit making and non-party political organisation that is led by our members, for our members.

2. FSB welcomes the opportunity to respond to the Public Accounts Committee’s Inquiry into Government support for UK exporters. We would be happy to provide further detail on any of the issues raised in this response.

3. FSB acknowledges the findings of the 15 July 2020 National Audit Office report ‘Department for International Trade and UK Export Finance: Support for exports’ and supports many of its key findings.

4. FSB enjoys a very constructive relationship with the Department for International Trade (DIT) and has welcomed the departments’ efforts to incorporate the needs of smaller businesses into its support for exporters and its trade policy work. FSB fully supported the department’s ambition of increasing exports as a proportion of GDP from 30% to 35%, and has been eager to ensure that smaller firms play a central part in attempts to meet this ambition. FSB is ready and willing to assist DIT in continuing to improve its support for smaller businesses in the future

5. DIT International Trade Advisors (ITAs) are one of the most common forms of DIT export support encountered and used by smaller firms. FSB members’ broad consensus is that ITAs play a valuable role, and smaller firms benefit from personal contact with locally-based DIT representatives.

6. Nevertheless, smaller exporters across the FSB membership have reported that ITAs can vary in quality, often between regions. There is concern that there is a lack of continuity caused by the management of these functions by different regional contractors. FSB would encourage DIT to provide better quality assurance processes across different regions for ITAs and possibly examine the merits of accreditation for ITAs. In addition, FSB feels that it would be beneficial for DIT to target ITA support at micro- and small businesses, while encouraging medium-sized or larger exporters to use private sector support where available.

7. In addition to potential improvements to the ITA network, FSB would encourage DIT to examine the merits of replicating International Manager for Hire schemes available in certain regions and devolved nations, including Scotland and Wales. These schemes, whereby companies can contract an export manager and export plan support, can help smaller firms to overcome challenges relating to limited human and capital resource. In England, a similar system to that seen in Scotland and Wales was previously trialled in Yorkshire & the Humber via an UKTI-funded scheme and received positive feedback.

8. FSB would welcome a grant scheme to support smaller businesses looking to invest in new export processes. The grant would be similar to that being offered by HMRC and PwC to support recruitment, training and IT improvements for businesses completing customs declarations, and it should be available to both new and established exporters. This could take the form of an export voucher. Smaller exporters will also welcome training support in other areas of international trade, such as on the use of Incoterms. Where such assistance already exists, smaller businesses would appreciate better promotion of the current services.

9. Smaller exporters report a lack of access to export financing as a key challenge when looking to internationalise. In this space, UK Export Finance (UKEF) is a significant potential source of finance, however many FSB members have reported being left disappointed in the support that they have received from UKEF. In 2018, 25 UKEF regional specialists arranged support for around 180 businesses, however many were larger businesses. Furthermore, many UKEF products rely on the work being underwritten by banks which has led to small loans being declined.

10. UKEF is expected to bring forward new schemes for SMEs imminently, but these schemes will have to designed carefully in order to deliver for smaller businesses. In particular, FSB would encourage UKEF to simplify the application process for any future scheme and to improve the timescale of any application process, with existing application processes often felt by members to be quite slow. Ideally, smaller firms would benefit from an export finance equivalent of a Bounce Back Loan, with a quick and simple approval process or tax relief for money spent on export activities.

11. While currently outside the remit of DIT, FSB believes that there needs to be a greater linkage between innovation funding and export finance. At present, firms can easily access innovation funding, but are often unsuccessful in accessing further funds to support commercialisation or internationalisation of their products or services. Other countries, such as Finland or the Netherlands, have combined their innovation and trade agencies for this reason and the UK should consider doing the same.

12. In our 2016 report Destination Export, FSB found that the average annual turnover of exporting smaller businesses was £935,921 per annum, compared to £390,028 per annum for non-exporting businesses.[1] Therefore, FSB feels that turnover threshold of £500,000 – above which DIT aim to provide bespoke export support – is largely well targeted and is understandable considering resource constraints. However, DIT should be careful that the overall target of total value of exports supported (£20.91 billion in 2019-20)[2] should not lead to support being aimed solely at larger firms who can more easily help reach this value target. FSB would encourage DIT to explore additional targets, such as number of business supported, to help focus support on micro-sized and small businesses of under ten and 50 employees, respectively, who may need DIT support more.

13. Trade fairs are frequently cited by smaller firms as one of the most efficient means of internationalising, entering new markets, and connecting with new customers. However, the existing system of DIT grants in this area, such as the £2500 grant available in England for SMEs to attend trade fairs, do not normally cover the cost of these endeavours and provide only limited support. This varies between the nations of the UK, however – for instance, in Wales SMEs have previously been able to apply to receive up to 50% of their costs reimbursed when attending a trade fair via the Overseas Business Development Visit Support (OBDV), whereas in England a company will only receive up to a maximum of the £2500 grant.

14. The UK should look to other successful exporting nations for ideas and best practice, and to establish a benchmark for levels of funding. For instance, schemes such as the Market Entry Programme in Germany or the exhibitions and conventions programme run by the Korean Trade-Investment Promotion Agency in South Korea provide considerable support to German and South Korean small firms, respectively, and could offer lessons in best practice for the UK.

15. Smaller businesses are disproportionately affected by trade barriers and lack the human and financial resources available to larger firms to overcome them. Therefore, FSB welcomed the creation in February 2019 of the ‘Report a trade barrier’ tool on great.gov.uk and additionally welcomed the opportunity to provide direct feedback during the planning and creation of the tool. FSB would like to see the tool promoted more effectively to smaller businesses. Additionally, it would useful for DIT to report on the volume and types of trade barriers reported and their progress in tackling them, similar to the National Trade Estimate Report on Foreign Trade Barriers (NTE Report) published by the US Trade Representative (USTR).

16. FSB welcomed the establishment of the DIT Europe Trade Hub in April 2019. As a single-entry point and back office for the regional DIT network, the Europe Trade Hub has improved the user experience for small businesses looking to start exporting to the rest of Europe. The user experience prior to the existed of the Trade Hub could be disjointed. Member feedback from those that have used the Europe Trade Hub is very positive. The Europe Trade Hub reflects the success of the existing DIT North America Export Portal, and FSB would welcome similar regional hubs being established for other regions around the world.

17. In FSB’s 2020 report The representation of SME interests in free trade Agreements: Recommendations for best practice, written in conjunction with the University of Sussex’s UK Trade Policy Observatory (UKTPO), we identified the common challenges that smaller exporters face when understanding or using the provisions of FTAs. In particular, the report noted that the utilisation rates of FTAs by smaller businesses was disproportionately low when compared to larger firms. A major means of support exporters in the future will be ensuring that smaller firms can successfully unlock the benefits of the UK’s negotiated FTAs.

18. One of the main means of tackling this underutilisation is through the inclusion of a dedicated and comprehensive small business chapter in all future UK FTAs, something that FSB has advocated for many years now. Such small business chapters would normally include provisions on the creation of information portals for small businesses to easily gain information on the provisions of the relevant FTA and how to benefit from them. FSB has therefore strongly welcomed DIT’s inclusion of the negotiation of a small business chapter in the published negotiation objectives for each of the FTA negotiations with the United States, Australia, New Zealand, and Japan, respectively.

19. Finally, FSB appreciated DIT’s and UKEF’s actions throughout the Covid-19 pandemic to introduce or expand measures to support UK exporters. This included the expansion of the UKEF Export Insurance Policy (EXIP) to cover transactions with the EU, Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland and the USA.