Did George Osborne get it right with his budget pledge on exports?
It was hailed as a budget to champion ‘the makers, the doers and the savers.’ In his penultimate budget before the next general election, the chancellor needed to nail it.
Bingo duty tax slash excluded, one of the most exciting things to have come out of George Osborne’s speech was the doubling of the amount of finance available to UK exporters, rising from £1.5bn to £3bn, whilst cutting interest rates by a third.
Some SMEs may previously have been reluctant to take the plunge in overseas markets owing to the costs involved. Consequently, this new found opportunity to dip a toe in the water and begin to embrace export, as opposed to exclude it, was rightly lauded.
However, with the government hoping to double British exports to £1tn by 2020, we have been left wondering whether the chancellor has actually gone far enough with his budget pledge. Or are we asking too much?
"It’s SMEs that need to drive the change," Ian Baxter, founder, Baxter Freight
George Osborne gets it. Exports are essential if Britain is to have a sustainable, balanced recovery. Today’s improvement is mostly based on growth in consumer debt rather than earning our way in the world. I was therefore pleased to see the chancellor double the export finance facility to £3bn and cut its interest rates to the lowest of similar nations. This, along with other help the government is giving exporters, is welcome, but it is still small compared to Germany and France. It cannot possibly be enough for the government to hit its own target of doubling exports to £1tn by 2020.
To me though, the issue is not fundamentally about government finance. Export credit is most suited to major engineering projects in developing countries and is mostly taken up by a few large companies. If we are to really become an exporting nation again, it’s SMEs that will need to drive the change. They’re more likely to be secondary manufacturers of light industrial or consumer goods, consultants or in IT. It’s these companies that need to be inspired to export more especially to developing nations.
As well as bringing faster, more profitable growth and market diversification, engagement with new markets will test the strength of UK companies’ offer abroad before foreign companies take away their market at home. In a global marketplace I see exporting as an essential part of UK companies’ activity. There really is no alternative if we are to be winners in the global race.
"SMEs still face expense of bringing foreign currency profits home," Helen Scott, founder, 4X Currency
On the face of it, the statements made sounded positive. However, the truth of the matter is that small and medium-sized businesses, especially those new to exporting, are often unaware of how much the banks are actually charging them for foreign exchange deals.
The government announced that it wants to help small and medium-sized businesses to export. A new lending scheme will go some way towards this, but once they are actually exporting, these small companies are faced with the expense of bringing their foreign currency profits back home. Whilst large companies are dealt with by the banks’ treasury departments and have access to competitive foreign exchange rates, small businesses are routinely charged up to 5% of the value of the trades to convert profits back into sterling.
There are some great small to medium-sized companies in the UK that could really benefit from export opportunities. The budget has given us a great opportunity to shake up the foreign exchange sector and showcase the opportunities that exist for SMEs. The banks dominate the international payment sector, but they are not set up to support smaller businesses with foreign exchange and typically charge them far more than they do larger companies.
Smaller companies need to gain access to export in the first place, but once they’re up and running they also need to consider how to hang on to their profits.