Government Support for Business - Business, Innovation and Skills Contents

3  Exports and manufacturing support schemes

UK Trade and Investment

30. UK Trade & Investment (UKTI) "is the UK's international trade and inward investment promotion organisation".[83] It is a non-ministerial government department, the aim of which is to help "businesses understand how to trade successfully in international markets".[84] In 2013-14 UKTI stated that it "provided significant support for more than £20 billion of exports".[85] UKTI has also achieved successes in the so-called BRIC countries (Brazil, Russia, India and China), where UKTI stated that:

    Exports of goods and services to high growth markets are at an all-time high. Since 2010, exports have increased by 52 per cent to China; 24 per cent to India; 39 per cent to Russia; and 37 per cent to Brazil. Over the same period, exports to established markets such as the USA and the EU have continued to increase.[86]

An outline of UKTI's 2013-14 performance against its key performance measures is given in Table 2.Table 2 Performance of UKTI in 2013/14[87]

31. We heard that "awareness of UKTI has increased significantly over the past 4 years, from an average of 51 per cent in 2010 to 65 per cent in 2014".[88] However, awareness of its work and the support on offer was inconsistent, with significant regional variations. Simon Moore, the International Director of the Confederation of British Industry, told us that it was "difficult for businesses, particularly outside London, to access UKTI if they do not have access to people".[89]

32. It was suggested to us that UKTI could be more effective in terms of outreach and awareness if it worked more effectively with trade associations, which could form a "bridge" between businesses and the Government.[90] For example Dr Marshall, Executive Director of Policy and External Affairs at the British Chambers of Commerce, told us that:

    There is certainly a role for increased partnership between UKTI and various trade associations and business organisations. […] You have quite a lot of exporters who want the security of being able to access help either through a Government front door or through a business or trade association front door. Working in partnership allows you to do that.[91]

33. One of the most eye-catching Government objectives, in terms of trade and exports, is for the United Kingdom to be exporting £1 trillion of goods and services per year by 2020.[92] When it came to UKTI's role in achieving this target, the Department stated that:

    UKTI has a unique role to play in helping the UK meet the Chancellor's challenge of achieving one trillion pounds of exports by 2020. This is a motivating aspiration for UK plc, which requires every Government department to play its part.[93]

The Minister and his Officials told us that, while the target "originated from the Treasury",[94] it had been endorsed "at the highest level".[95]

34. At present UK exports are worth "around about £500 billion".[96] It therefore seems that significant progress is required to achieve the £1 trillion target. Despite having such a way to go, Nicola Bolton, the Acting Managing Director at UKTI, told the Committee that the organisation was "committed" to the target and "we are doing everything that we can do. It is an energising aspiration".[97] She assured us that UKTI was:

    Working very hard and joining up across Government, working with the private sector and businesses, focused by markets and by sectors, towards the 2020 ambition.[98]

35. The Department further explained that UKTI had been set four targets to ensure it contributed to the "UK's ambitions" in this sector, as part of a new performance framework.[99] These included:

·  To assist 50,000 businesses a year by 2015;

·  To help generate "business wins"[100] of £20 billion this year, £25 billion in 2015-16, £32 billion 2016-17, £39 billion in 2017-18, £45 billion in 2018-19 and £50 billion in 2019-20;

·  Ensure 80 per cent of our customers report positively on the quality of UKTI services; and

·  Ensure 70 per cent of our customers report significant business benefit.[101]

The full framework is outlined in Table 3 below.Table 3: UKTI Performance measurement framework[102]

Given that the £1 trillion target has been endorsed "at the highest level", we were surprised that it was not included in UKTI's performance measurement framework.

36. We were pleased to review generally positive evidence about the performance of UKTI. For example the Federation of Small Businesses wrote to us and said that:

    Government export support is generally recognised as being effective by FSB members who have used them, with 57 per cent of FSB members who have accessed Government export support assessing it as quite of very effective.[103]

37. The performance of the UKTI should be judged against impact as well as awareness, with the long-term benefit to the UK economy being a fundamental driver for this organisation. We welcome the Government's ambition for UK exports to reach £1 trillion by 2020. However, we are not convinced that this is a target the Government expects to meet. The Government should provide clarity about whether this is an "energising aspiration" or a serious objective. If the latter, it should provide projections for how we should expect exports to grow over the next six years, given current predictions for the broader economy. It should then report progress against these projections each year in its annual review.

UK Export Finance

38. UK Export Finance (UKEF) is the UK's "export credit agency",[104] which supports exports by assuming financial risks on behalf of British businesses when they export.[105] For example, amongst other products, UKEF sells insurance to exporters to mitigate the risk of overseas buyers failing to pay them for supplies.[106] This results in "a risk transfer from the private to the public sector".[107] Mr Garner, the Chief Executive Officer of Norton Motorcycles, explained his first-hand experience of using UKEF:

    The way that works is that, if we have £100,000 worth of motorcycles going to Australia. […] The banks are unwilling to lend against that, because they do not have the security of the motorcycles. The Government have enabled UKEF to underwrite that individual invoice, or the individual export contract, to give the bank the confidence to lend against the invoice when it does not have the asset of the invoice.[108]

This, he explained, enabled businesses to move away from relying on banks as the "first port of call" for export assistance.[109]

39. The Department stated that there had been "a steady rise in the numbers of companies directly supported over the last five years, up to 130 in 2013-14 from just 10 in 2009-10".[110] Of those 130 companies, 92 were SMEs, however more than 50 per cent contracts, by value, was awarded to the non-SME sector, as shown in Figure 2.Figure 2: Cumulative value of all contracts by size of business supported[111]

40. UKEF also highlighted that, by supporting an exporting company, it could have a positive impact on other supply-chain companies. For example, it told us that, when guaranteeing the sale of an Airbus aircraft, it "indirectly supports around 1,700 UK companies in the Airbus supply chain and an additional c. 3,000 if Rolls-Royce Trent engines are fitted to the aircraft".[112] Despite this increasing activity, the number of SMEs supported by UKEF constituted tiny fraction of the total 4.9 million SMEs in the UK.

41. UKEF received broadly positive feedback from the witnesses we spoke to as part of this inquiry. For example, Lloyds Banking Group told us that UKEF played "an important role in supporting businesses".[113] However, we heard some concerns about the reach and awareness of this facility. For example, the Engineering and Machinery Alliance told us that the fact that UKEF's products were principally made available through mainstream banks rendered them inaccessible to some businesses.[114] Similarly, Lloyds Banking Group concluded that "UKEF should be simplified and SMEs made aware of its benefits".[115]

42. David Godfrey, the Chief Executive Officer at UKEF, assured us that he was aware of these criticisms and was working to improve the UKEF's effectiveness. He told us that he believed closer working with the British Business Bank could help improve awareness of the UKEF:

    There are ways in which we think we can work more closely together. We can learn from them through their delegation model to delegate some of our authority to banks and brokers so that they can get more quickly and more efficiently into the private sector.[116]

43. There is no doubt that UKEF's activity is increasing. However, this increase is measured from a low baseline. In 2013-14 only 94 SMEs were supported through this scheme, out of a population of 4.9 million. There is a risk that SMEs, the very businesses that the support of UKEF could be most beneficial to, may be those which are excluded by the apparently complex nature of its products. There is potential for UKEF to engage more effectively with SMEs. We recommend the Government undertakes an assessment of potential demand and review how this scheme is marketed to SMEs, which should include consideration of the role of trade associations in raising awareness of this facility. In addition, we would expect the support offered via the UKEF to be included in a menu of financial services developed by the British Business Bank and Growth Hubs.


Manufacturing Advisory Service

44. The manufacturing sector is vital in creating highly skilled jobs, supporting innovation, and contributing to the desired increase in UK exports.[117] The industry employs around 2.6 million people in the UK[118] and its work accounted for 10 per cent of the UK's economic output in 2013. The Secretary of State has described the significance of manufacturing to the UK as "incontrovertible",[119] yet some of our witnesses told us that Government support for the sector had tended towards "grandstanding", with the sector getting "second-best" in terms of support or attention.[120]

45. The Manufacturing Advisory Service (MAS) was set up to help manufacturing companies improve their productivity and competitiveness through the provision of professional advice and expert support.[121] It aimed to create and safeguard jobs in the manufacturing sector, in addition to producing a measurable return in terms of gross value added.[122] The Government has described the Manufacturing Advisory Service's performance to date as follows:

    MAS has performed strongly over the past three years, recording consistently high levels of client satisfaction and exceeding all its contractual targets. Manufacturers using the service have increased profitability by around 25 per cent on average based in sampling evidence. Since January 2012, MAS has helped over 17,250 manufacturers with the overwhelming majority (nine out of ten) saying that it represents good value for money and time invested and would recommend it to other firms. It has provided funding for around 9,000 in-depth business improvement projects which are forecast to help deliver £1.8bn of economic growth (Gross Value Added) and create 24,800 new jobs against targets of £1.2bn GVA and 23,000 new jobs.[123]

A summary of the Manufacturing Advisory Service's work with businesses of different sizes and progress towards achieving its targets is given in Figure 3 below.Figure 3 Achievements and targets of the Manufacturing Advisory Service[124]

46. Despite the Manufacturing Advisory Service having exceeded its contract-specified outcomes, we heard a number of criticisms of its support for manufacturers. In particular, we heard that, although the Manufacturing Advisory Service can help improve business productivity in the short-term, it lacked the capability to provide the type of strategic advice that could drive significant future growth in the manufacturing sector. Dr Julie Madigan MBE, Chief Executive of the Manufacturing Institute, said that the Manufacturing Advisory Service's work was driven by productivity, or "getting the project out the door at the right quality, at the right cost and on time".[125] She agreed that, while this was an important "strength", the focus on the short-term was also its "weakness".[126] Peter Templeton, Director and Chief Executive Officer of the Institute for Manufacturing, described the type of support that manufacturers needed to grow as follows:

    For manufacturing firms to grow, they really need to do three things in parallel. One is to execute the current business model and continuously improve that business model. Secondly, they need to have a clear vision of their chosen future state, bearing in mind the changes in external context and drivers and changes in technologies. Having selected their chosen future state, they need to build the capabilities […] over time, which requires investment. Where MAS is strong is in improving the current capabilities within the current business model, such as around production and so on. Where it has not focused, I would say, to date is on helping firms to really understand what markets they should be in, what product groups they should focus on and how they compete, and then on helping those firms to identify a chosen future and how they are going to get there.[127]

Similarly, Malcolm Evans, Chief Executive Officer of Manufacturing Accelerator, told us that "MAS shuffles a plant around and draws white and yellow lines on the floor" and it was "nowhere near multi-skilled enough" to manage the complexity involved in scaling up operations.[128]

47. The Minister described some of the criticisms of the Manufacturing Advisory Service as "a bit unfair",[129] and highlighted positive feedback from Manufacturing Advisory Service clients:

    97 per cent of those companies that use MAS say that their advice was valuable, so that is a pretty impressive response rate, so we know that those who use it value it, and so think that it is good value for money and time invested.[130]

He further explained that ongoing work to integrate Government support schemes aimed at manufacturers with those aimed at growing businesses or supporting exports could help address concerns regarding the Manufacturing Advisory Service's ability to help manufacturer's scale up their operations.[131] Regarding this integration, the Department stated that:

    With MAS now part of the Business Growth Service, manufacturers with the most potential will receive expert advice on a broader range of key strategic issues, including access to finance, innovation and leadership and management as well as the current MAS offer. Referrals to UKTI, Innovate UK and other specialist providers will also be improved. This will address concerns about ensuring manufacturers get the right strategic and operational advice to scale-up and grow, when they most need it.[132]

48. The Department cited the GrowthAccelerator as a service which targeted "small and medium sized enterprises that have the potential to achieve high and rapid growth".[133] It explained that the GrowthAccelerator advised businesses in "raising finance, commercialising innovation, leadership and management, and strategy development and execution".[134] While this support was not tailored to manufacturing companies, the Department stated that GrowthAccelerator provided "the expertise, insight and networks firms need to achieve sustainable growth".[135]

49. We agree with the Minister that reducing organisational barriers between business support organisations such as the Manufacturing Advisory Service, GrowthAccelerator and UKTI would help manufacturers access a better quality advice offer. In the response to this report, the Minster should set out the practical measures he is undertaking to achieve this, alongside an explanation of how progress bringing these two organisations together will be monitored. This merger should be carried out in a manner that ensures continuity of service to the businesses using UKTI and MAS.


50. The Advanced Manufacturing Supply Chain Initiative (AMSCI) was set up "to improve the global competitiveness of UK advanced manufacturing supply chains".[136] It provides funding for equipment, research and development work to improve manufacturing equipment or processes, and training or skills development.[137]

51. We heard some concerns that this initiative was not reaching small businesses in the way that it should. For example, Julie Madigan, Manufacturing Institute, told us that the scheme seemed "big-company-driven".[138] When we put this to the Minister, he told us that 44 per cent of the scheme's total £276 million funding had been allocated to SMEs.[139] However, he acknowledged that engaging effectively with small businesses was "difficult" for Government schemes.[140] He further told us that:

    We are doing an evaluation, which we will publish. The evaluation is specifically going to look into the impact on supply chains and test whether we have met the goals that we set, in terms of ensuring that the benefits cascade down the supply chain.[141]

This evaluation is due to be published in March 2015.[142]

52. The Minister should report back to us with the results of his evaluation of the Advanced Manufacturing Supply Chain initiative when it is published in March 2015. This evaluation should pay particular attention to the extent to which the programme has supported SMEs. Lessons learned as a result of this process should be fed into the design of forthcoming supply chain initiatives. The Minister should write to us with an action plan when the review is published.

83   Department for Business, Innovation and Skills (GSB 22) para 6.1 Back

84   Department for Business, Innovation and Skills (GSB 22) para 6.2 Back

85   UK trade and Investment, Annual Report and Accounts 2013-14 (March 2014), p 4 Back

86   UK trade and Investment, Annual Report and Accounts 2013-14 (March 2014), p 8 Back

87   UK trade and Investment, Annual Report and Accounts 2013-14 (March 2014), p 31 Back

88   Department for Business, Innovation and Skills (GSB 22) para 6.18 Back

89   Q261 [Mr Moore] Back

90   PLASA (GSB 03) para 14 Back

91   Q258 [Dr Marshall] Back

92   Department for Business, Innovation & Skills, Foreign & Commonwealth Office, UK Trade & Investment, UK Export Finance and Lord Livingston, 'Increasing the UK's exports and attracting inward investment', accessed 4 February 2014 Back

93   Department for Business, Innovation and Skills (GSB 22) para 6.7 Back

94   Q374 [Mr Warrington] Back

95   Q374 [Mr Warrington] Back

96   Q284 [Ms Batchelor] Back

97   Q316 Back

98   Q316 Back

99   Department for Business, Innovation and Skills (GSB 22) para 6.14 Back

100   In Q328 Nicola Bolton, the acting Managing Director of UKTI, defined business wins, as "the amount of business [companies] win as a result of working with UKTI" that would not have been achieved without UKTI's support. Back

101   Department for Business, Innovation and Skills (GSB 22) para 6.14 Back

102   UK trade and Investment, Annual Report and Accounts 2013-14 (March 2014), p 88 Back

103   Federation of Small Businesses (GSB 18) para 7.3 Back

104   Department for Business, Innovation and Skills (GSB 22) para 7.1 Back

105   Department for Business, Innovation and Skills (GSB 22) para 7.1 Back

106   Department for Business, Innovation and Skills (GSB 22) para 7.1 Back

107   Department for Business, Innovation and Skills (GSB 22) para 7.1 Back

108   Q170 Back

109   Q172 Back

110   Department for Business, Innovation and Skills (GSB 22) para 7.9 Back

111   UK Export Finance, Support for SME Exporters (October 2013), p 11 Back

112   Department for Business, Innovation and Skills (GSB 22) para 7.9 Back

113   Lloyds Banking Group (GSB 25) para 6.2.1 Back

114   Engineering and Machinery Alliance (GSB 07) para 7(i) Back

115   Lloyds Banking Group (GSB 25) para 6.2.2 Back

116   Q339 Back

117   Government Office for Science, The Future of Manufacturing (October 2013) Back

118   Manufacturing: statistics and policy, Standard Note SN/EP/1942, House of Commons Library, November 2014 Back

119   Government Office for Science, The Future of Manufacturing (October 2013), p 8 Back

120   Q291 Back

121   Manufacturing: statistics and policy, Standard Note SN/EP/1942, House of Commons Library, November 2014 Back

122   Manufacturing: statistics and policy, Standard Note SN/EP/1942, House of Commons Library, November 2014 Back

123   Department for Business, Innovation and Skills (GSB 36) extract Back

124   Business, Innovation and Skills Committee analysis of data provided in Department for Business, Innovation and Skills (GSB 22) annex B Back

125   Q296 [Dr Madigan] Back

126   Q296 [Dr Madigan] Back

127   Q296 [Mr Templeton] Back

128   Q294 Back

129   Q372 Back

130   Q372 Back

131   Q373 Back

132   Department for Business, Innovation and Skills (GSB 36) extract Back

133   Department for Business, Innovation and Skills (GSB 22) para 1.4 Back

134   Department for Business, Innovation and Skills (GSB 22) para 1.7 Back

135   Department for Business, Innovation and Skills (GSB 22) para 1.7 Back

136   Department for Business, Innovation & Skills and Deputy Prime Minister's Office, 'Advanced manufacturing supply chain fund to create thousands of new jobs', accessed 4 February 2014 Back

137   AMSCI, 'Advanced Manufacturing Supply Chain Initiative', accessed 4 February 2014 Back

138   Q306 [Dr Madigan] Back

139   Q369 Back

140   Q370 Back

141   Q370 Back

142   Department for Business, Innovation and Skills (GSB 36) extract Back

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Prepared 24 February 2015