International Trade Committee report on UK Export Finance

The International Trade Committee has published a report on UK Export Finance

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Conclusions and recommendations

Fossil fuel and renewable energy exports

1. We welcome the Government’s commitment to end UKEF support for fossil fuel projects abroad but note that this poses a challenge: UKEF has given considerably more support to oil and gas projects than renewables in the past. The UK’s creation and membership of E3F Coalition reaffirms the UK’s commitment to the Paris climate agreement. We therefore welcome the creation of a “clean industries team” and look forward to learning its composition, remit and ambitions. We request an update on the work of the clean industries team in September 2022, including its progress in reaching and providing specialist support to more companies that export renewables technologies and their supply chains. (Paragraph 23)

2. Although UKEF only supported one fossil fuel-extraction project last year, it has continued to provide a significant amount of support to other sectors with high greenhouse gas emissions. We recommend that UKEF consider how it can further contribute to meeting the UK’s net zero emissions target by 2030 and ask that it share the outcomes of this consideration with us by the end of March 2022. (Paragraph 24)

3. We welcome UKEF’s first climate-related financial disclosure and look forward to seeing more information about the projects it supports through a full quantitative disclosure and scenario analysis in its next Annual Report and Accounts. (Paragraph 25) UK Export Finance Products

4. We commend UKEF for its range of products to support exporters. While many businesses and business associations said that the range of UKEF’s product range was good, some identified further products that would assist exporters. We recommend UKEF consider introducing contract exchange-rate cover and sector-specific policy wording, and report back to us by the end of January 2022 about the viability of doing so. (Paragraph 41)

5. We welcome the introduction of new working capital products such as the General Export Facility and Export Development Guarantee which give exporters the flexibility they need. We heard from some witnesses that the eligibility criteria for both products exclude new exporters, but UKEF told us that it has alternative products for these businesses. UKEF should make sure that it is providing products for new exporters of different sizes and from different sectors, and that it is communicating its offer to them. (Paragraph 42)

6. The Government has told us that it is working on a new, untied concessional financing scheme that will enable UK exporters to find more opportunities in developing countries. In its response to this report, the Government should provide us with more details about its proposed untied concessional finance offer, including whether it will come from the Official Development Assistance budget, and details of any consultation or impact assessment it has planned or already undertaken. (Paragraph 43)

7. UKEF’s headline figure of 549 businesses supported in 2020–21 could be misinterpreted, as the number of exporters that received its direct support was significantly lower. We recognise the value of including businesses that have received indirect support from UKEF, as well as additional work that UKEF has undertaken to secure assistance for exporters from the private market, but these should not be included as businesses to which UKEF has given “direct support”. UKEF should only include the number of exporters to which it has directly awarded products as its headline figure in future Annual Reports and Accounts, with others that have benefitted from secondary support listed as such. (Paragraph 47)

8. UKEF has traditionally focused on sectors such as manufacturing, energy and infrastructure, which often use its support for large-scale projects in a relatively small number of countries each year. We have heard evidence that suggests UKEF is still very reliant on these sectors for business and struggles to understand or meet the needs of other exporters. While recognising the difficulties in appraising new destination markets for potential different sectors, we recommend that the UKEF goes further to identify high potential opportunity nations through further cooperation with DIT, FCDO and BEIS. (Paragraph 62)

9. We note that the Secretary of State is keen for UKEF to develop its support for Government priority sectors where it has traditionally had very little business. The evidence we heard suggests that UKEF does not match this ambition. We recommend that UKEF review its business model to consider how it can diversify its business to support more exports from more sectors and include this in its 2021–22 Annual Report and Accounts. (Paragraph 63)

10. We welcome the intended expansion of UKEF’s network of International Export Finance Executives to 30. We would like an update from UKEF by the end of March 2022 about where these staff will be placed and progress in recruiting them. (Paragraph 64)

Small and medium-sized businesses

11. Developing a relationship with five of the UK’s high street banks has clearly been a positive step for UKEF—ensuring that more SMEs have access to its support when it is needed. We look forward to seeing the Government’s update to the Public Accounts Committee on its progress in expanding the network of banks it works with. We will also keep this issue under review to ensure that UKEF is doing everything it can to reach new customers through its partners. (Paragraph 79)

12. The information available about UKEF’s support to SMEs is unclear and insufficient. UKEF does not currently include the number of SMEs it has supported in its Annual Report and Accounts, nor the value of the support it has given. UKEF must develop better methodologies for collecting and presenting information, to clearly explain how much support it gives to SMEs. (Paragraph 92)

13. Over the past few years, UKEF has created some exciting developments and opportunities for reaching and engaging SMEs, including its supplier fairs programme, its relationship with some of the UK’s high street banks, and the General Export Facility. However, the evidence we have heard from businesses, business associations and UKEF suggests that there is still a disparity between the access to export finance that SME exporters need and what UKEF provides. By the end of March 2022, UKEF should establish a method for regular consultation with SMEs of different sizes and sectors, so that it can better listen to what they need and to inform its approach to supporting SMEs in the future. (Paragraph 93)

14. UKEF has returned money to the Treasury each year since 1991. Witnesses have told us that UKEF’s propensity to return money to the taxpayer suggests that it charges too high a price for premiums for exporters, and that it is more risk-averse to smaller companies. While we recognise the importance of looking after the taxpayer’s money and the value of managing risk effectively, we are concerned that there is a perception among SMEs that UKEF’s approach to risk means that not enough small or potential exporters are benefitting from its support. We recommend that UKEF and the Treasury review their current approach to risk and consider developing a differentiated approach to risk which enables it to provide more support to SMEs, and better communication to SMEs about how UKEF works and assesses risks. We would like the Government to report on its progress by the end of March 2022. (Paragraph 94)

Environmental, social and human rights considerations

15. UKEF’s mission to “ensure that no viable UK export fails” is at odds with the UK’s wider environmental, social and human rights commitments, including issues such as modern slavery, bribery and corruption. While UKEF has recently implemented new policies to identify and manage these risks more effectively, it is still obliged to support projects that are contrary to these commitments. We recommend that the Government amend UKEF’s mandate to better reflect the UK’s environmental, social and human rights policy objectives, so that its scope to include these in its decisionmaking are clearer. (Paragraph 115)

16. We recognise that the LNG project in Mozambique was approved before the Government’s announcement to end support for fossil fuel projects abroad, and that the serious violence that has occurred in Mozambique around Total’s LNG project is out of UKEF’s control. However, UKEF must make its Category A “project supported” notifications available in a more timely manner so that the information about each project’s risks, impacts and the mitigations that have been put in place is promptly publicly available, in line with the OECD Common Approaches and Equator Principles. (Paragraph 116)

17. We welcome the publication of UKEF’s new policies on bribery and corruption and are pleased to hear that it is doubling the number of staff it has working in this area. However, UKEF should not be seen to be complacent in terms of the due diligence it undertakes or the consequences for those that do not comply with its procedures. UKEF should review its anti-bribery and corruption policies and notices to exporters and buyers to ensure that they are clear and consistent with those of its leading G7 counterparts in this area. It should report the findings of this review to us, and its plan to implement them, by the end of March 2022. (Paragraph 117)

UK Government support for exporters

18. We welcome the new memorandum of understanding between DIT and UKEF, and the commitment towards continued cooperation this shows. The Government should ensure that the MoU is published by the end of December 2021 to show how the two departments are continuing to work together to promote and support UK exporters. (Paragraph 126)

19. We recognise that there is a need for different parts of the Government to join up more effectively. We understand that there is cooperation, but have heard that exporters want more, and to know how they can be supported and by whom. DIT should publish its new Export Strategy as soon as possible, and by the end of December 2021 at the latest, to reflect the importance of exporters to the UK’s economy, and to show how the Government is supporting and championing them at home and abroad. (Paragraph 127)