This episode is sponsored by Dell Technologies. Dell can help push your business further, with innovative technology designed for small business.
Tina McKenzie
FSB Chair, Policy and Advocacy
Michael Weedon
Chair, FSB Retail and High Streets Policy Unit
with strategic oversight for Growth and Localism
Episode transcript
Jon Watkins: Welcome to this latest FSB monthly roundup podcast, which this month is brought to you in partnership with Dell Technologies, and is the go-to podcast for news, tips and important information for small businesses and self employed. This episode is our April 2023 Small Business Round-up, in which we will take a look at some of the important issues hitting the headlines at the moment, and which you need to be aware of right now as small business owners. This month we will be diving deep into two specific issues that are important to you right now. The first of those topics is international trade; research by FSB has revealed small firms are being held back from international trade by excessive customs paperwork, soaring costs and supply chain issues. So we will look at that and of course what FSB would like to see from the government to remove those barriers. To talk about that I will be joined by FSB policy chair Tina McKenzie, who will explain how FSB has been helping lay the foundations for greater UK US trade opportunities as well as a new study shows America to be the number one non-European market for UK small firms. Meanwhile, our second topic for this episode is what support rural small businesses need to help them play their crucial role in energising the economy. And to talk about that I am joined by FSB policy champion for place-based economy, local government and retail, Michael Weedon. Tina and Michael, thank you so much for joining. So kicking us off, Tina, I'd like to start with you, if I may, on this issue of international trade. Before we go into the specifics, let's start by understanding how international trade can benefit small firms and how much our exports are driving UK SMEs.
Tina McKenzie: Sure. Hello, Jon. And I think there's a misconception that exporting is just for big businesses. And even some of the smaller businesses that are trading internationally think that as well strangely. But in fact, SMEs are a big proportion of what we export from UK as well. Even if they're selling services overseas on a small scale, when you add up that 99% of all of the businesses in the UK are SMEs, then they make up quite a big proportion of those that are exporting. So what does it do? Well, international trade allows businesses to reach a wide range of customers and new markets, and that boosts your sales and your growth. So we see a lot of appetite and interest in the space, especially after the COVID pandemic. And that really, as we know accelerated the development of online sales, which give small businesses the opportunity to expand further. So around a fifth of our members are currently exporting and by the third are importing. And so overall, the government figures show that SMEs made up about 84% of all UK goods exporters in 2021, which was really an amazing statistic.
Jon Watkins: Yeah, I mean, sounds like SMEs are a hidden jewel for the export sector. Do you see the potential to grow more small exporters? And if so what what needs to be done to help that?
Tina McKenzie: Yes, I think there's much potential to encourage growth in this space. And many current and potential exporters tell us that they're being held back from international trade, simply because of the paperwork or some of the costs, we just put out a new report called customs clearance. And that find that about 9% of small firms used to import or export but have stopped within the last five years. And the reason for stopping the volume of paperwork 56% quota. overall costs, nearly half of them said that and supply chain or logistical issues. About a third of them said that so the top challenges facing current traders are the high shipping costs, the losses and delays in transit and a lack of clear guidance. So our top three priorities for the government now when we go to lobby are lowering the overall costs of trade, making customs declarations more user friendly, and asking the government to deliver clear guidance on customs procedures because it's not clear enough.
Jon Watkins: Right. And you know you what causes these cost increases and paperwork headaches and and how exactly can government lower the cost of trade?
Tina McKenzie: I guess the first major thing is the Russian invasion of the Ukraine, which obviously led to a worldwide shortage of commodities. So small firms have borne the brunt of subsequent inflationary pressure on other things. And then at home UK, small firms are still adjusting to the new UK EU trading rules since the UK's formal exit from the trade bloc. There's lots of delays and goods and difficulties and completing the customs paperwork, navigating the VAT processes, and many other issues that weren't there before. Now, there's a few things that government can do to bring the cost of trade down is to go ahead and deliver on their promise of a single trade window, which will be an online portal, it'll bring in a 'once and done' approach to government collection of the data that traders need to provide the export or import. That's really important. Another thing is committing to passing and implementing the electronic trade documents bill. Because there's way too many manual forms floating around. And then also finally, to place small businesses at the heart of the new trade and customs structures and commit to raising the minimum customs duty threshold to £1000. So we've you know, we have successfully lobbied for the small business chapters and the existing trade deals with different countries. But we think that these three things if delivered by the government, which they are working on, in good faith, would really help small businesses, what they're exporting, and they're importing.
Jon Watkins: Yeah. And you mentioned I think, that around a fifth of your members currently export, what kind of companies are these? And what exactly do they export?
Tina McKenzie: Well, about a third of them exported goods that are manufactured goods, such as sporting equipment, furniture, decorative objects, about a quarter are machinery or mechanical and electrical goods. And about 11%, are clothing, or textiles. And we've got some interesting case studies. We have a member that's a small organic snack business, based in Surrey, and they're exporting to more than 16 countries, such as the US, Singapore and Australia. We also have a member who runs a catering service in the East Midlands, and they've just signed an agreement to export to their 18th overseas market. And they're supplying places like the US, Israel. So some really interesting businesses in the UK doing really interesting things.
Jon Watkins: Yeah. And you talked about, you know, going global there. I understand. You also recently led an FSB trade delegation to the US, what was that about? Can you share a bit more detail?
Tina McKenzie: Yeah. So we find with our small businesses across the UK, that with our surveys, we find that the US is the market they're most interested in? So we're working really hard with the UK Government and the US Government, on how do we make it easier for our businesses here to import and export from the USA. So I had a very interesting meeting with the Small Business Administration there, looking at what kinds of things we can do to simplify forms, simplify the process and get the information to small businesses in the UK. So you know, we did that. But we also reached out to policymakers in the US and met with people like Joe Kennedy III, and also various other Trade Representatives, we also went and met with our teams in the British Embassy looking at, you know, what the jobs are they are doing across all the states? Because as you probably know, we've agreed three or four individual state deals, like memorandums of understanding, and we're really looking at how do we expand on that? And how do we - we're in a time where US/UK relations are very good - how do we build upon that in order that we trade more with each other? So that's what we were focused on. It was 14 meetings and five days of people who were very interested in talking to us in a very busy period.
Jon Watkins: Yeah. Can you explain for us the the relevance of the Windsor framework and what that means for small firms?
Tina McKenzie: And I think the Windsor framework is one of those things, that's helped UK/US relationships. So we know that coming out of the EU, that we have a part of the United Kingdom, which is landlocked with Europe, but also that's bound by the Good Friday Agreement and that is Northern Ireland. So there had to be a solution by the UK came out of Europe, but equally Northern Ireland still managed its commitments around the Good Friday Agreement and this has led to challenges over a number of years, but equally how did Europe manage that risk of having, you know, a land border with no checks, and no officials taking paperwork, checking what's in lorries going between the United Kingdom and the rest of Europe and that border would have been in Ireland now in the Irish Sea. So it's it's been this has been managed over the last couple of years, not necessarily well, I must say, because small businesses in GB and in Northern Ireland have suffered and have had extra costs extra paperwork, and it's become a real problem. Now the Windsor Framework sees a much more positive way of working with the EU. And you may have people may have seen that with some of the meetings that you can see on the news, between Ursula van der Leyen, and our prime minister, Rishi Sunak. And also, you know, some of the deals that are starting to happen with the US, the Prime Minister was over there just signing off a new deal, just a couple of weeks ago with the US. So what we've seen is a real push in relationships, a lot of hard work. And really, you know, a lot of flexibility with all the partners introducing green and red lanes for trade to move, flow quickly and smoothly, you know, addressing some of the issues we had around VAT or around grace periods. And you know, what was lovely to see was that for the first time and a couple of years, Parliament agreed on something to a big majority, passing the Windsor Framework and anything to do with Brexit has been such a problem for UK politics. And actually, in terms of getting everybody on the one page, the Windsor Framework seems to have got the majority of people on the one page, which makes it easier for us to show confidence as the UK that we can build trade with the US and trade with the EU and the US are delighted about that, as are the EU and as are we, so we need to build upon it. And we need to ensure that the these relationships and this time is not lost.
Jon Watkins: Indeed, the UK will be joining the Comprehensive and Progressive Agreement for Trans Pacific Partnership, the CPTPP, what exactly is that? And how will that support small businesses?
Tina McKenzie: So this is essentially the rest of the world in a sense. So it's another 11 countries that span the Indo-Pacific region. And so countries like Australia, Canada, and New Zealand, Japan, Singapore, some really interesting markets for us. And we lobbied and we have in there, and we've worked with government on a small business chapter to ensure that they think small first when building these agreements, so that it's easier for small businesses to do trade within the CT, CPTPP... not easy to say! And so it concluded in terms of the deal, it actually it's taken a long time to get through, but it concluded on the 31st of March. And now it's really down to implementation in terms of encouraging the SMEs to start trading. And they will find it easier. And therefore that will that will increase the amount of trade we do with those countries. And them with us as well.
Jon Watkins: Thanks, Tina. And just finally, on this issue, if there are smaller businesses listening who'd like to consider trading internationally themselves, maybe they're not already doing so where is a good place for them to start when it comes to accessing information and advice.
Tina McKenzie: So they can either go to the FSB trade advisory hub. So if you just Google 'FSB trade advisory hub', or the 'Export Academy', there, so they're the probably the best places to start.
Jon Watkins: Thanks, Tina. That's brilliant. Michael, I'll come to you now, if I may, on our second topic, and that's a big topic on the agenda for FSB at the moment, which is that of rural businesses and the support they need to prosper and therefore energise the economy. Can you set the scene a little for us around this topic? What is the scale of the rural business sector in the UK? What types of firms are they? And how many of them are there?
Michael Weedon: Hi, thanks, Jon. The rural business landscape, I suppose you could say is poorly understood, especially we feel by government, and the FSB is keen to put that right. It's all often thought of as kind of the domain of Defra and that it's all about agriculture. But that's just plain wrong. Just under a quarter of all the registered businesses that VAT registered businesses in England, are in rural areas. Now that's more per head of population than predominantly urban areas, and they employ 3.6 million people. 98.9% of these are small businesses, and one in five of the population, within mainly rural areas. So there's this massive kind of hidden business which is going on large part of our economy. I'll give you some more of the details later. But when you look at the types of businesses which are there, because of that kind of invisibility, it's not obvious what they are and what they're doing. So the professional, the proportion now here of professional.... I, by the way, I'm going to point out, I'm in a small village, by the way, I'm in a rural area, in the East Midlands, just to set that particular scene. And in this tiny village, outside a small rural market town, I ended up we've got two IT companies one research consultancy, two accountancy businesses, two hospitality businesses, two builders, two plumbers, two marketing operations, a hairdresser, a tool distributor, and a car repair business, and a couple of farms. So when you look at the official statistics, the proportion of these businesses, so your professional, scientific and technical in rural areas match urban areas at one in seven businesses.
Jon Watkins: Right. And what are the specific challenges that these types of firms face? Can you list out some of those and explain how they're hampering rural firms in terms of growth and expansion specifically?
Michael Weedon: Well, in common with all businesses, they see the the current problems of energy and so forth, plus extra challenges. So energy costs are very dangerous, especially with the slashing of government support from the end of March onwards, magnified by the fact that one in six depend on even less well supported alternative fuels, such as liquid propane gas and heating oil. That's only one in 50 in urban areas, there's a very different kind of perspective on these things. So that support needs to be made available to a broader range of energy types. Over two thirds of rural businesses say they've seen their energy costs increase since last year, the result of which, when we look at their their confidence level 18% or nearly one in five, say they're planning to consolidate, or sell or close their businesses compared to 15% in urban areas. So there's a bit of a differential there. 30% say recruitment is holding them back, specifically because of communications issues, transport in particular, something which once again, only 4% of urban businesses cited as a difficulty. And bus services, for example are being cut out here and transition to electric vehicles is critically hampered by the lack of infrastructure, which is simply more difficult to put in place in rural areas. One of the ways of course of communicating without moving people around is with mobile and broadband digital communications. And they both remain very patchy. In rural areas. Twice as many rural businesses report this is holding back their ability to communicate with customers and to improve their competitiveness. As urban businesses report this, 42% say that their broadband speed is insufficient. And I've got to say, mine is just teetering on the edge of being good enough to have this conversation with you.
Jon Watkins: Yeah, and I guess those transport and access issues are creating other problems like getting being able to bring in people with the right skills and things like that as well. How important are rural businesses to the UK economy? You touched on it a little bit, but do you have a sense of the scale of impact these challenges are having, for example, what scale could addressing these challenges... to what level could addressing these challenges boost the economy?
Michael Weedon: I've already said that, you know, nearly a quarter of all registered businesses, and that's over half a million, are in rural areas. And startup rates are close to those for urban areas. So there's huge potential. And this isn't theoretical. It's the reality. In 2020, rural areas contributed 15% in England, of gross added value. And that's more than a quarter of a trillion pounds. Right now, the confidence of rural businesses is lower than that of urban businesses because of these extra challenges loaded onto what, frankly, is not good for any business at the moment. Of those rural businesses who plan to grow in the next year, we find more than seven in 10 say that the state of the domestic economy is the greatest barrier to achieving that growth. So they got all the standing problems, but the state in the domestic economy, particularly facing inflation and the difficulties around that, and the way people are spending their money differently. They are having an impact, more powerful current support. Plus strategic support from the future can really help fulfil the promise of what is pretty obvious from this quarter of a trillion pound gross added value. That business that we already have there, the growth is there, the growth is available, startup rates are close to those of urban areas. So current support, and setting the right theme for the future can can really release that.
Jon Watkins: Yeah. So what are some of those specific support mechanisms? What support do they need to overcome the challenges? What support would you like to see from from the government and others?
Michael Weedon: In the immediate term, real support energy costs, particularly for those businesses which come out of contract, and are facing potentially business-destroying increases, is not something we as consumers would often understand, but most businesses actually work on contract. Coming out of them the moment, we're seeing some people have a 600% increases from one contract to the next, as they move out, or an old one to try and negotiate a new one. So extending existing contracts is something we would like to see more and blending by easing into new arrangements is going to be necessary so that businesses, I mean, I was talking to somebody the other day, and their their pub costs are gone up by £15,000 pounds in one jump. How you actually get over that as a business without ramping up your prices and alienating customers is very, very difficult to say. Strong support for all businesses reliant on oil and LBG is vital. And for example, supporting 'help to green' which is something we would like to see could be key here. You know, rural businesses are often in a better position than urban ones, to invest with help in say microgeneration and in air source heating, and they can really benefit from simple measures such as better insulation, because that's another way of reducing those costs. But looking forward to more longer term things, the Rural England Prosperity Fund established £110 million a year it's a replacement for a thing called the Leader Fund, which was European funding or money coming back through Europe, which was to help businesses invest in infrastructure, really local machinery and so forth, or new building, maybe even in insulation and so forth. That's gone, been replaced with this £110 million a year rulings of prosperity fund, we believe that needs to be to be beefed up. Under devolution, and we've heard a lot about devolution, Local Authorities must have their own areas in their mind at all times. And they got to communicate more openly with those rural businesses. They're too easy to forget. You know, for example, in Wales, we see funding moving to the Welsh Government to Local Authorities. So it's vital that happens locally and on the ground. We often see this mentioned as you know, the rural fringe in government documents, but it's not fringe. It's most of the country. The government's rural proofing strategy, which it says it has, needs to demonstrate a strategic long term view and ensure that all departments, not just Defra, not just Department for Transport, work together for that. But there's more here because productivity is being held back by communications. We've already mentioned this, both physical and digital, as well as the availability of skills and all purposes getting an answer a bit of a question, you asked me earlier, an all party parliamentary group on rural affairs. Looking at this subject says improvements in these areas could yield an extra 43 billion extra in GVA to the UK each year. We think, on broadband, the Universal Service Obligation should be set to ensure higher basic speeds and lower costs. And here's another one, this is the perennial list when it comes to roads, potholes in transport, they're a critical fact of life for rural businesses. So it's good to see the recent announcement of a pot of money for potholes, that the FSB, we've argued strongly for this over the years. This affects maintenance costs and business profits directly especially if you have to move around the countryside to either deliver or or just for staff to get to places. As far as public transport is concerned. We're pleased to see the 'get around for two pounds' policy has been extended. But we'd also like to see something which is promised from the Department of Transport the future of transport coal on rural report published without further delay, because we really need a long term strategy here. And one final thing, moving the VAT threshold from 85,000 to 100,000 would encourage small businesses and there's a lot in the countryside to expand by moving that cliff edge And then that threshold becoming index linked, so it will continue to move. As inflation shifted along. One of the things I'm aware of out here in this rural areas is just how many side hustles there are, which eventually becomes small businesses as well. These don't show up so well in those some of the figures, which we've talked about, they're invisible until they become a fact. Very often, they're lurking just below that VAT threshold. So those are the things which we would like to see, to really help in that rural business landscape.
Jon Watkins: Thanks, Mike. That's really good and thorough. And again, listeners that want to find out more about these issues facing your businesses and the support they need, where can they find that?
Michael Weedon: We have, I was gonna say, 'Watch this space', which is a really dumb thing to say in an audio podcast, but watch our website fsb.org.uk and watch our social media, for news of a major report that the FSB is working on about rural businesses, their challenges, their needs, and the enormous opportunities that whole group presents for the country. That will be published soon. I can't tell you what it's going to be called, can't tell you exactly when it's coming out. But I'm really excited about that. Watch those spaces.
Jon Watkins: That's brilliant. Thanks. Thanks, Michael. That's, that's really insightful. That brings us to the end of this small business round up for April, our look at the small business announcements in the headlines right now. And I'd like to say thanks again to our guests, Tina and Michael for a really thorough run through those two really big issues for UK small businesses. Thank you also to our audience for listening to this episode. While I have your attention, I would just like to remind you that you can subscribe to the FSB podcast to receive regular updates and guidance on the big issues affecting small businesses and do please also remember that you can find a whole host of additional webinars, podcasts and other content at the first voice website which is firstvoice.fsb.org.uk and on the FSB website which as Michael said, there is fsb.org.uk and keep an eye on the social channels too for that soon to be released report. Thanks again for listening.
This episode is sponsored by Dell Technologies. Dell can help push your business further, with innovative technology designed for small business.
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