Investec Mid-market Summit, 20 November 2015
For those of you who don’t know me, I’m Greg Hands, Chief Secretary to the Treasury, number 2 to George Osborne in the Department, and, as the MP for Chelsea and Fulham, quite possibly the local MP for some of you.
I haven’t had to travel very far – just a few hundred yards down the road, in the Treasury building, where we are busy putting the finishing touches to next week’s Autumn Statement and Spending Review.
The preparation of the Spending Review is a central part of my role as Chief Secretary to the Treasury.
Essentially, I am the Minister responsible for public spending.
Or, to be more precise, the Minister responsible for reducing public spending – because we have a deficit that needs to be eliminated.
I run a portfolio of some £742 billion – but unlike the portfolios Investec manages, my objective is not to make it as big as possible…
One of my favourite quotes is the response that Fred Smith, of FedEx fame, gave when asked by a journalist to what he owed his success.
He replied: “The main thing is to keep the main thing the main thing.”
Our “main thing” is sorting out the deficit.
That’s the mandate on which we were elected, and what the public expect us to do.
The Summer Budget set out the consolidation required to deliver the surplus in 2019-20:
£5bn from continuing to tackle tax avoidance, evasion and aggressive planning; and £12bn of reductions to the welfare bill.
And next Wednesday, the Chancellor will set out the remainder required to deliver the surplus.
These decisions will be tough, but necessary; because without getting public spending in order, we cannot deliver the reduction in the national debt necessary for our long-term economic security.
But apart from putting public spending on a sustainable footing, there is another important function carried out by the Treasury:
Creating the right conditions for growth.
As a literary-minded Chancellor put it many decades ago: it’s not just about Bleak House, it’s about Great Expectations too.
So today, I would like to say a few words about how growth can be achieved.
The first point I would like to be clear about is that it is not Governments that “create growth”.
What we aim for is creating the right conditions for growth.
That’s an important distinction, though it’s one which is too often forgotten.
It is companies such as yours that start up, that expand, that take on new people, that open up new markets – you are the growth creators.
Our job is to make sure you, and companies such as yours, have what you need, in order to create that growth.
The second point I would like to make is that your sector is not only exceptionally important to the UK economy – but also, I think, occasionally seems a little overlooked in public discourse!
I think part of the reason for that is that the lay person finds the concept of very small and very large businesses, relatively easy to understand.
The small business is the butcher, the baker, or the candlestick maker (which, these days, is I suppose more of an artisan boutique). Everyone knows someone with a small business.
And big businesses are no less easy to visualise – they’re the big multinational corporations who are household names, and whose leaders are very good at being heard.
But what of the mid-market?
Well, as is so often the case, it’s the middle that does a lot of the work.
Our analysis suggests that mid-sized businesses, defined as those with annual revenues of £25 - £500m, account for:
Total turnover of almost £875 billion per year, almost 20% of the private sector total;
Almost 4.5 million jobs, over 20% of private sector employment;
And this analysis showed that you’re especially important in certain industries – that includes accounting for more than a quarter of employment in the manufacturing, transport and wholesale sectors.
You also account for some of the biggest success stories in UK entrepreneurship – many of which we celebrate here today.
That is a significant contribution to this nation’s wellbeing. And that is why yours is a sector whose continued success we want to see.
So today, I would like to touch on three areas where we can enable your success – and enable the creation of growth at the same time.
The first area is ensuring that you have the access to the finance and investment you need.
We currently do this through a number of schemes:
We have the Funding for Lending Scheme, designed to reduce banks’ and building societies’ funding costs, allowing them to boost lending to the real economy. This year, we’ve focused the scheme on supporting lending to small and medium-sized companies such as your own.
I’m delighted that just in the second quarter of this year, net lending by participants was in the region of £500 million.
We also have a number of schemes run by the British Business Bank.
The Business Finance Partnership aims to diversify the sources of finance available to smaller and mid-sized firms;
The ENABLE Guarantees programme reduces the amount of capital that banks need to hold against new SME lending;
The Help to Grow programme helps companies with high-growth potential move to the next level of funding;
Tax-advantaged venture capital schemes provide generous tax reliefs to investors in small and medium-sized business, which have helped over 22,000 companies raise over £17.5 billion;
And, because the best way of incentivising investment is making it cheaper, at the last Budget, we announced we would increase the permanent level of the Annual Investment Allowance eightfold, to its highest ever permanent level.
Not only that. We’re reforming the tax relief scheme for research and development, making it easier for small and medium sized companies to make a claim. Look out for a consultation on this in the next few weeks.
And over the coming years, we’ll keep up the focus on knocking down the barriers to funding – so where you continue to encounter difficulties, let us know; you’ll find us in listening mode.
The second area is making sure that the UK is ideally positioned to make the most of global opportunities.
The UK is already an attractive place to do business. But we know there is more we can do to attract opportunities to our shores – making our business environment that much more dynamic.
That is why, for example, we have paid such importance to cutting our rate of corporation tax, so that it is the lowest in the G7.
And we are also pulling out all the stops to help our companies export.
In our recent Productivity Plan – of which more shortly – we announced that we would mobilise the whole of government behind exporting, working alongside a more effective UK Trade and Investment (UKTI for short), and better export finance.
Not only did that mean enhancing and modernising support to exporters; it also involved building stronger trading links with emerging markets, especially China, India and Brazil.
The sheer size of the deals announced during recent inward visits from the Presidents of both China and India, shows how much our countries can benefit from building strong, mature partnerships with the world’s growing economies.
Small and medium-sized businesses have a specific and important role to play here.
In the last Parliament, we committed funds to help mid-sized companies export: £4m in 2014/15 and £5m in 2015/16.
This enabled UKTI to treble the number of mid-sized companies it has assisted between 2014 and 2015.
We also provided, in last year’s Autumn Statement, a £20m package for first time exporters. As a result, UKTI has more than doubled the number of businesses it helps on an annual basis, since 2010.
And we also know that export finance is crucial.
As a result of reforms in the last Parliament, UK Export Finance is now delivering its services to record numbers of British businesses, with £14.5 billion of support provided for exports since 2010-11.
We announced in the Productivity Plan that we are increasing the range of lending UK Export Finance will support, to include exporters’ suppliers; and that UK Export Finance, jointly with the British Business Bank, will re-examine how best to meet our exporters’ financing needs.
Our third area of focus is boosting Britain’s productivity.
Highly respected economists – such as my Ministerial colleague Jim O’Neill – have long argued that productivity is one of the key drivers of a nation’s prosperity.
For too long, we have had a so-called “productivity gap”.
There are no easy solutions to the productivity gap. It is due to a large number of factors – some of them negative; some of them, such as our record levels of employment, positive.
But there are actions we can take to resolve the problem – and, for the first time, this year we published a Productivity Plan setting out precisely how we do that.
For instance, we can do much more to improve the quality of our national infrastructure – an issue which I know businesses have raised repeatedly.
That’s why we committed to spend £100bn on infrastructure over the course of this Parliament…
Set up a National Infrastructure Plan with an infrastructure delivery pipeline…
Published a specific plan for the skills we need…
And, so we can look look clear-sightedly at the future, we’ve also set up the National Infrastructure Commission, headed by Andrew Adonis, which will take a long-term, depoliticised approach to major projects.
Improving our national infrastructure will also help deliver a key part of our agenda: regional rebalancing.
I’m a London MP, so clearly this is the greatest city in the world!
But, as I know from watching the games in both stadiums in my constituency, if you rely on just one star player, you’ll never reach your potential as a team.
There is great potential for regional growth out there. If the north was to grow every year as fast as is forecast for the whole UK, we could add over £37 billion in real terms to the region’s economy by 2030.
We haven’t always made the most of that potential, but through the creation of the Northern Powerhouse – a combination of more funding, and far greater devolution – we’re changing all that.
The Northern Powerhouse will usher in some fantastic opportunities in our Northern cities – and I hope your businesses, and many more, reap the rewards.
Just to give a flavour of things to come, at the March Budget this year, we provided funding for an ambitious series of ‘northern powerhouse’ trade missions (£3.5m in 2015-16), as well as funding to ensure that the UK firms make the most of the International Festival for Business 2016 in Liverpool.
And I am particularly pleased to see that, in the list that Investec has published of its fastest growing medium-sized businesses, the north-west’s representation increased from nine to 14, while a total of 27 companies on the list now hail from the north of England and Scotland.
I very much hope that this trend continues.
Of course, businesses themselves have an important role to play in increasing productivity.
Shortly after the election, some of the country’s most senior business leaders, convened by Sir Charlie Mayfield, wrote to us, making the case for taking forward a business-led action group for productivity.
This work will focus on direct action to enhance productivity in sectors and workplaces across the UK, and will report to the Chancellor and the Secretary of State for Business by the end of the year.
A number of the country’s largest institutional investors are also collaborating on a project led by the Investment Association, designed to figure out how investors can support long-term growth.
These are two excellent initiatives by senior business people, so we will continue to engage with them, as the work develops.
Finance; exports; productivity – these are three important parts of a much wider Government strategy to help companies such as yours flourish.
And of course, there are a number of other vital factors to your continued success. A larger workforce equipped with higher-order skills is one; better – and less – regulation is another.
Over the coming years, we will continue to make advances on all fronts, to create the conditions for you to do well.
We do this because of our belief in the wealth-creating ability of private enterprise.
There is no question in my mind that a healthy, flourishing private sector leads to national prosperity. I’ve held that belief for as long as I can remember – certainly before starting my own career in financial services, and then becoming involved in politics.
But what we have seen recently is some of the old consensuses disappearing.
Only a few years ago, most people believed in things like the free market, and private-sector driven growth, and the benefits of wealth creation. I’m not sure that’s necessarily the case now – certainly not on the front benches of Her Majesty’s Opposition!
It falls to all of us to prove the naysayers wrong.
For us as a Government, that means continuing to create the right conditions for you to prosper and succeed.
For you as businesses, it means innovating, employing, expanding, and flourishing.
I look forward to seeing you go from strength to strength – and we’ll help you all the way.
Thank you for your contribution.
Investec Mid-market Summit, 20 November 2015