DIT and UKEF have “not demonstrated progress in tackling either of big strategic challenges” they now face, say MPs

It is now four years since DIT for International Trade (DIT) was formed to deliver the UK’s independent trade policy following the UK’s decision to leave the EU.

But with just over two months to the end of the EU exit transition period, a report by the Public Accounts Committee today says DIT has not demonstrated measurable progress in tackling the big strategic challenges it faces- either in supporting economic recovery in the wake of the Covid-19 pandemic, or in advancing the UK’s future trading relationships.

A lack of robust metrics means it is not possible to assess DIT’s contribution to export performance, or progress towards Government’s ambition to grow exports to 35% of GDP. It has not done enough to identify and help new, developing businesses to export, and lack of strategic alignment between DIT and the UK Export Finance department means that export opportunities may have been missed.

The Committee says the two departments must work more closely to respond to new export growth opportunities, identifying and investing in new businesses in developing sectors, including renewable energy.

They have not developed sufficient understanding of the challenges smaller businesses face in exporting, such as applying for finance, and are not delivering the necessary support to help SMEs grow. Out of an estimated 5.9 million UK businesses, DIT targets its bespoke support at just 230,000 potential exporters, which has been almost static for the last ten years, and UKEF directly supported only 199 businesses in 2019 - failing to meet its own target of 500.

The report identifies the dissatisfaction with the department’s digital offering. This is a key tool in linking UK exporters to international customers, the Department must improve its digital design to offer a world-class service.

The Government expects that the free trade agreements it is pursuing will boost UK exports and help smaller businesses. But there is evidence that small companies do not benefit from trade agreements as much as larger firms.

One example is that smaller businesses need simpler, faster processes and requirements when they apply for export finance – but businesses who are not customers of one of the five largest commercial banks are not able to use the online portal designed to streamline the process. DIT and UKEF need to improve what they offer to smaller businesses as a matter of urgency.

Sir Geoffrey Clifton-Brown MP, Deputy Chair of the Public Accounts Committee, said:

“Neither business nor Government expected the challenges of building new international trading relationships while economies around the world are battered by the impacts of global pandemic. The department holds the keys to help the economy grow in the aftermath of the pandemic, but DIT and UKEF struggled to tackle the prevailing challenges when they were set up. The committee identified a number of areas where the department could considerably improve its performance and ensure it is at the top of the international league of export advisors, particularly by designing a world-class digital offering.

“The two Departments must step up and take a nimbler, more knowledgeable, more active role at the centre of a transforming the economy. Future export growth needs support for those smaller, innovative businesses, with potential to grow, as well as established companies.

“They should work must closer together to complimenteach others’ roles, with staff trained to be able to implement this - reaching more customers, rapidly reacting to growing markets and sectors, and finally meeting Governments priorities such as supporting the export of green, low carbon businesses and services.”

PAC report conclusions and recommendations

1.A lack of strategic alignment between the Department for International Trade and UK Export Finance means that opportunities for exports may have been missed. The Department and UKEF have not yet signed a Memorandum of Understanding (MoU) which sets out clearly how the two separate departments will work together. An MoU between the two would ensure that the outcomes they are seeking are consistent and aligned, and that the two departments have clear expectations of what they do for each other. Clearer mutual objectives would support more effective collaboration between UKEF managers and the Department’s International Trade Advisers, including on industry sector events, and a more integrated web presence. In addition, UKEF is concerned that Department for International Trade staff who are not experts may not understand export finance well enough to promote it, and may have missed opportunities to support UK exports in some markets. Of 503 staff in the Department who had enrolled for export finance training, only 149 had completed it by March 2020. The Department and UKEF both recognise the benefits of an MoU but their evidence to us was not clear or consistent on when they would develop and agree it.

Recommendation: By the end of 2020, the Department and UKEF should agree how they will work effectively together to ensure consistency in strategic outcomes and objectives, and formally set these arrangements out in a signed Memorandum of Understanding, reporting publicly on progress, for example in their annual reports.

2.The Department for International Trade and UK Export Finance are not yet doing enough to identify and help the businesses of tomorrow to export. The Department’s level of insight into exporters in different sectors of the UK economy is variable. For example, the Department is still developing its understanding of which businesses are ready to export in emerging sectors, such as renewable energy and low carbon industries. Over the last year, the Department has developed its sector teams by recruiting sector leads to help it better understand emerging sectors. The Department also continues to offer peer support where firms get an opportunity to hear how it is done from an experienced exporter. Initiatives such as the Europe trade hub have been welcomed by businesses of all sizes. We remain concerned, however, that the Department focuses on identifying which overseas markets might provide contracts for the UK’s existing exporters, rather than pursuing opportunities for future export growth by supporting new, innovative businesses. The Federation for Small Businesses (FSB) informed us that there needs to be a greater link between innovation funding and export finance. But, the Department is not confident that UK Research & Innovation (UKRI) fully understands what support companies need to become exporters, or whether its own staff consider whether innovation funding might be available to support a potential exporter.

Recommendation: The Department and UKEF should develop a more integrated approach for working with other government departments, in particular with the Department for Business, Innovation and Skills and UK Research & Innovation, in order to build the UK’s industrial capability and prioritise investment in sectors of growing importance and export opportunity, such as renewable energy. The Department should also consider other ways of supporting potential exporters and companies exporting for the first time, for example, by encouraging more peer support to companies or by considering the merits of rolling out initiatives such as the Europe trade hub to the rest of the world. The Department and UKEF should report back to us by September 2021 on the arrangements they have put in place.

3.The Department for International Trade’s contribution to export performance is unclear because of a lack of robust metrics. It is important for any public body to be clear about and accountable for what it is trying to achieve, and the criteria it will use to judge whether it is being successful, including performance information that allows Parliament and the taxpayer to understand how effective they are and what impact they are having. However, the government has not set a timescale for achieving its export growth ambition to increase from 30% to 35% of GDP, and the target is dependent on multiple factors such as economic conditions and contributions from other parties including independent efforts by UK industry. The Department measures its annual exports performance through its ‘export wins’ measure but this target does not encourage it to focus on longer-term export growth. The Department was unable to provide us with details of other measures that cover the broad scope of its role in supporting exports, such as removing market access barriers. The Department says that it aims to develop better measures for understanding the impact of FTAs and to help it target specific markets.

Recommendation: By the end of 2020, the Department should set out longer-term outcome measures that enable us, Parliament and the taxpayer to hold it to account for its impact on exports, and which capture the full range of its activities to support exports. Measures should include supporting exports, such as removing market access barriers, including better international comparators, the impact of free trade agreements and the number of exporters. DIT’s performance against all measures, existing and new, should be reported transparently.

4.The Department for International Trade is not doing enough to address the challenges that small businesses face when they export. Out of an estimated 5.9 million businesses in the UK, the Department focuses its bespoke support on around 230,000 which has been almost identical for many years, with a turnover of over £500,000 and directs businesses below this threshold to digital services on its website. Levels of satisfaction with the Department’s digital services are low (under half of the Department’s clients report that services to help them identify export opportunities are good at meeting their needs) and use of these services is declining (registrations have dropped from 816 per month in 2018, to 450 per month in 2019). Small businesses with fewer staff may not be able to afford the time required to use the Department’s website to identify the right opportunities. In addition, smaller exporters are concerned about the varying quality of the Department’s International Trade Advisors, opportunities for businesses to report trade barriers, and the financial support available for attending trade shows. The FSB has welcomed the Small and Medium-sized Enterprises (SMEs) chapter in the free trade agreement with Japan. The Department intends to include such chapters in all its trade agreements, but the FSB informs us that utilisation of FTAs by smaller businesses is disproportionately low when compared to larger firms. There is scope for the Department to learn from other countries, such as Denmark, about how it could better target support at individual companies.

Recommendation: DIT should take urgent action to ensure that more small businesses become exporters. Specifically, it should:

·Improve the support it offers to smaller businesses. It should improve the quality of the International Trade Adviser service and explore the merits of introducing accreditation, ensure that its digital services meet the needs of smaller businesses, ensure all SMEs are aware of how they can report trade barriers, and, if resources allow, increase the financial support available for SMEs attending trade shows. There should be a comprehensive SME chapter in every free trade deal negotiated.

·Conduct a comprehensive exercise to determine why some small businesses export and some do not. This should include targeted research to better understand what these businesses need and the barriers to exporting, and more comprehensive international comparisons to learn from other countries that support small businesses well, such as Denmark.

·Measure the effectiveness of its work to build export capacity in SMEs and set clearer milestones for measuring its progress in supporting SMEs. For example, it should set out how it will increase the number of UK businesses that currently export and aim to increase the proportion of companies who start exporting or increase exports as a result of going to trade fairs.

5.UK Export Finance directly supported only 199 customers in total in 2019-20, failing to meet its own target of 500. UKEF attributes failing to meet its customer target to a lack of awareness among smaller businesses of what UKEF offers, a potential decline in demand, a lack of appetite from banks and issues with its application process. UKEF is introducing more flexible products which are expected to be more attractive to smaller businesses in a wider range of markets and help increase customer numbers. These include the General Export Facility which will support businesses’ overall export working capital requirements, rather than linking this support to specific contracts. In response to the COVID-19 pandemic it has also expanded the scope of its Export Insurance Policy to a wider number of markets, with the aim of protecting UK exporters from the risk of non-payment, and it has taken steps to proactively engage with the renewable energy sector, supporting projects in Taiwan, Spain and Ghana. However, how effective UKEF is at meeting its customers’ needs is unclear because, unlike the Department, it does not survey its customers to assess their satisfaction with its products and application processes.

Recommendation: UKEF should report back to us in writing by September 2021 with an update on progress and action is has taken to:

·Proactively target the green technology and renewable energy market.

·Increase the number of SMEs it is supporting in a wider range of countries through take up of its new General Export Facility, and consider using UKEF recently approved marketing budget to do that.

·Support exporters during the COVID-19 pandemic, particularly in relation to the expansion of the scope of its Export Insurance Policy to a wider number of markets.

·Develop and implement a customer satisfaction survey. UKEF should consider the merits of developing its own survey as well as working with the Department to identify opportunities to include questions on export finance in the Department’s survey. It should commit to sharing publicly more of the results.

6.It is more difficult for businesses who are not customers of five of the largest commercial banks to access export finance. Smaller businesses would benefit from shorter turnaround times and simpler requirements when they apply for export finance. UKEF has introduced greater delegated authority to five of the largest commercial banks who can apply for some of UKEF’s products using an online portal and obtain immediate cover. In 2019-20, 389 applications were made through this portal. However, we heard that businesses who are not customers of these five banks cannot access the portal. Instead, they need to use a manual process that takes much longer. UKEF said that it intends to expand the number of other banks that can apply for its products using an online portal ‘shortly’. First, it wants to establish the system with the big five and create a single set of standard documentation.

Recommendation: To make it simpler for smaller businesses to apply for export finance, UKEF should accelerate its expansion of the number of banks that can apply for UKEF’s products using the quicker online process. In its Treasury Minute response, we expect UKEF to confirm by when it expects to achieve this.