UK chancellor targets closing global trade gap

By:
Duncan Kerr
Published on:

UK chancellor George Osborne has given a welcome boost to the UK’s competitiveness in global trade with plans to double investment in export finance and potentially overhaul the current ailing system supporting overseas sales.

Announcing the plans in the 2014 Budget, Osborne said investment in UK Export Finance’s (UKEF) direct lending scheme would double to £3 billion, interest rates on loans would be cut by a third and that a review of the government’s export finance scheme was under way.

UK chancellor George Osborne
The chancellor has been lobbied hard by banks and manufacturing companies to increase the breadth of finance options available to support overseas sales, which it is hoped will help strengthen the UK’s recovery and reduce its heavy trade deficit.

Osborne has set an ambitious target of doubling the UK’s annual exports to £1 trillion by 2020, but has conceded the UK is playing catch-up, and particularly in exporting to core emerging-market economies.

In the Budget statement, he said: “Our combined goods exports to Brazil, India and China have risen faster than those of our competitors. But we are starting from a low base and have many lost years to catch up.”

The direct lending scheme of the UKEF, the UK’s export credit agency, was introduced in September – a year later than planned – to lend to overseas buyers of goods and services produced by UK companies.

As part of the review, Lord Livingston, trade and investment minister, said the government was planning to consult on legislative changes to allow UKEF to support not just single export contracts but, more generally, companies engaged in exporting, their supply chains and intangible exports, such as intellectual property rights and insurance.

Simon Collins, UK chairman of KPMG, says the government must do what it can to enable UK business to tap into overseas markets and particularly high growth countries, such as India and China, adding that improving access to export finance is fundamentally important in that.

“Many other countries, which the UK competes with for global trade, have far better export finance schemes, which put their local businesses at an advantage,” says Collins.

“The review of the export finance scheme could lead to a sea change in the competitive position of the UK’s export finance, allowing UK businesses to win a larger market share as a direct result.”

Jeremy Barker, corporate finance director at KPMG, adds that the changes announced by the chancellor have the potential to “close the international competitive gap by overhauling the existing system, which is, in its current state, an option of last resort”.

“This review could fundamentally change the status quo, making it more attractive to lenders and, most importantly, making it readily available for UK exporters of all sizes who would like to offer overseas buyers more competitive payment terms,” he says.

UK banks active in trade and export finance have broadly welcomed what has been announced by the chancellor, and particularly the emphasis being placed on supporting small and medium-sized companies.

Andrew Wild, global head of mid-market and business banking, HSBC, says that it is encouraging to see the chancellor acknowledge that small and mid-market UK companies need more help to increase and diversify their exports.

“The doubling of UKEF’s direct lending scheme is a positive step, and we hope to see this followed by a widening of export guarantees to cover more countries,” he says.

Jacqueline Keogh, director of global trade, commercial banking, Lloyds Bank, says the commitment to double lending available for export finance is a welcome uplift for UK trade.

“It sends the right signal to businesses across the UK who have gained in strength over recent months,” she says.

Gabriel Buck, managing director, head of ECA and capex financing solutions group, investment banking, Barclays, says they are looking forward to seeing the details, “but the measures proposed should increase the availability, and cut the cost, of export finance”.

He adds: “The supply chain proposals look innovative, helping to finance the import leg before finished goods are then exported from the UK.”