16:32 Kevin Hollinrake (Conservative)

That this House has considered support for SMEs and the net zero target.

I am very supportive of the push to get to net zero as soon as possible. I absolutely believe that business will help to deliver that solution even faster than 2050. My principal concern in bringing forward this debate is that, in the headlong rush to get to that point, we must not treat businesses as collateral damage. We have done that in the past. When we had a change of emphasis in lending back in 2008, that happened to some good businesses, as well as to some businesses that had probably borrowed inappropriately.

If we are going to get to net zero, it is absolutely vital that the private sector is taken with us. It will provide the cash and capital to invest in new processes and new techniques. We know for an absolute fact that the private sector is much better at allocating capital than the public sector—I might point to Croydon council in that regard, if Members have seen some of the recent news reports. The private sector is much better at allocating capital; in the past, the public sector has misallocated capital.

Of course, that investment will contribute towards innovation, and the solutions to climate change are about innovation. The more innovation and the more competitive free markets we have, the more our consumers get a better deal at a better price. We are seeing some interventions from shareholders in banks, who are saying, “We do not want you to invest in these kinds of industries anymore.” Shareholder action groups will get increasingly vociferous, which could be to the detriment of small and medium-sized enterprises, and even bigger companies. This is not just about SMEs: bigger companies will remember that last year, for example, there were some protests by actors from the Royal Shakespeare Company regarding BP’s sponsorship of that organisation, which led to a parting of the ways between the RSC and its sponsor. That is despite the fact that BP is working within our overall regulatory framework, and will be incredibly important in the future in making the investment we need to move from a dependence on fossil fuels to a greater dependence on renewable energy.

Does my hon. Friend agree that there could be some merit in the UK Government doing what many G7 countries have done, which is to create a development bank that brings in some offer of Government funding to help with the transfer towards net zero that we all want to see, and from which all SMEs could benefit?

With regard to banking, I mentioned before that banks are seeing some shareholder action in the businesses and sectors they will support in future. Access to capital being the most fundamental requirement of any business, this is a hugely important topic. As such, the APPG has come up with a project called Bankers for NetZero. It is engaging with the banking sector and others. It is supported by Volans, the sustainability think-tank, and Re:Pattern, who specialise in business transformation social impact. It is developing policy recommendations to lead to COP26, looking at the regulatory environment and the part banks play in financing; engaging with businesses on net zero challenges; and looking at opportunities and obstacles for banking, while trying to formulate some evidence-based, targeted policy, and to make recommendations on legislation and regulation, in accordance with the United Nations environment programme finance initiative, or UNEPFI, for short. The key objective is that no willing SME is left behind in this vital change to our economy.

I welcome the Government’s focus on moving forward to a greener future. The Pension Schemes Bill that was before the House yesterday certainly moves us towards the net zero horizon. Last week, the Chancellor announced a taskforce for climate-related financial disclosure for large companies and financial institutions by 2025 to report on their progress in those areas. We also have the new green taxonomy and a plethora of policies in my right hon. Friend the Minister’s Department on the clean growth strategy.

We need a sector-specific just transition road map that looks at every different sector. If some of the current provisions for hospitality, such as the VAT cut, were extended or made permanent, that would be welcome. The British Business Bank needs a role in supporting and advising SMEs. We need to standardise just-transition restructuring, so that if businesses are seen as being in a sector that banks do not want to support, there is a proven standardised process for taking those SMEs from where they are today into the greener future. The shared prosperity fund should be used to support SMEs to make the transition and we should have a fiscal policy that is conducive to allowing SMEs to make the transition, with tax breaks, for example, to decarbonise.

My final point to the Minister—and I know he gets this—is please, please, please let us have no cliff edges, but a strategic approach and a long-term stable framework towards that net zero future.

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16:49 Alex Sobel (Labour)

I thank the hon. Member for Thirsk and Malton (Kevin Hollinrake) for securing the debate on this vital subject. In 2019, the business sector accounted for 18% of total carbon emissions. It is one of the biggest contributors of greenhouse gas, along with energy production and transportation. SMEs make up 99% of firms and 61% of the private sector workforce, and contribute £2.2 trillion in turnover, which makes them indispensable to the UK economy. They are extremely innovative, generate vast amounts of employment, and deliver economic prosperity and social cohesiveness. They are also disproportionately present in deindustrialised areas, and therefore present a unique opportunity to build back better.

It is not just a matter of businesses that have a sole environmental focus. Many are leading the way in taking steps to make their businesses more environmentally friendly. A recent opinion poll found that more than half—54%—of SMEs said that they had taken steps to green their business in the past 18 months. When asked whether the transition to a green economy would be financially positive or negative for their business, 61% were optimistic, and just 8% said that the overall impact would be likely to be negative, on balance. Participants pointed to net zero legislation, the ongoing war on plastics, climate activism movements and the green recovery movement as drivers of the transition, so SMEs are rising to the challenge. There are huge benefits and opportunities in the transition.

Those are all opportunities for SMEs, but many SMEs will come out of the pandemic burdened with debt, as the hon. Member for Thirsk and Malton said. To contribute to a net zero transition, they will require capital investment and business support. It is important that the Minister responds to my question about what support SMEs will be given to ensure that they have appropriate information, incentives and targets to be able to pull together to contribute to our collective ambition of net zero. What business support will they receive and, as the hon. Gentleman said, what financial support and investment can they receive?

As the chair of the all-party parliamentary group on net zero, I want to finish by talking about our action plan, which looks at building an expansive and ambitious covid-19 green recovery package that focuses on green job creation and workforce retooling, especially in disadvantaged areas. That includes looking at the growth of solar installers and the reintroduction of the feed-in tariff. Decarbonisation through heat pumps, electric heating or hydrogen would also present opportunities for SMEs as installers. All those things present a huge opportunity to create new SMEs and new jobs within them, but they need the business support, investment, incentives and targets, and an ecosystem that creates the opportunity for net zero for SMEs and business at large.

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16:53 Gareth Davies (Conservative)

The debate is, of course, about support for SMEs and the net zero targets. I do not think that it is controversial to say that SMEs are both a cause of and a potential solution to climate change. The Federation of Small Businesses has said that about 16% to 18% of emissions are caused by SMEs, but also, given their might, they are a huge potential solution, with a view to our meeting the targets set down in legislation. We should be proud of that. Their role in our communities, as well as the knock-on effect on their customers and people who interact with them, can have a great impact.

Climate change is a risk and an opportunity for SMEs. As the hon. Member for Leeds North West (Alex Sobel) said, when surveyed SMEs say that they believe climate change is a significant risk, whether to the supply chain or because of extreme weather. However, it is also a huge opportunity for SMEs to show great innovation and to capture the opportunity of a changing climate. We should encourage and embrace that.

What should we do about the fact that SMEs need to get ready for climate change in order to mitigate the risk and capture the opportunities? How do we fix that financing gap? I have two potential solutions. First, I applaud the work of the British Business Bank. It is a great innovation as a financial institution and it works with 98,000 business in our country. It has £8 billion of financing and it has proved its worth through the coronavirus crisis. I believe that it should have more money.

The Government have shown, in their latest innovation for meeting our net zero targets, that they are willing to hypothecate the gilt markets with a green gilt. What a good idea that was. We could use the proceeds from that green gilt to help finance the British Business Bank to hypothecate its funding to help SMEs prepare for climate change and our net zero targets, and also to help them innovate and capture the opportunities.

Secondly and finally, as my right hon. Friend the Member for South Northamptonshire (Andrea Leadsom) so eloquently said, we must now look to a British development bank, rolling in the CDC as our international finance arm and rolling in the British Business Bank, to create a huge balance sheet from which we can issue bonds that will target not only regions but SMEs to help them meet the challenges of tomorrow and finance a future that is net zero.

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16:57 Scott Mann (North Cornwall) (Con)

Given that SMEs employ more than 60% of the private sector workforce, it is right that they play their role in this defining issue for our generation. I believe that our vibrant private sector businesses and entrepreneurs, with the right guidance from Government, are the key to meeting our climate change obligations. Green businesses are setting up across the UK, with the aim of reducing our climate emissions and getting them under control. Some of those products and services are playing their part in removing and stopping the release of far more CO 2 emissions than they are creating, and as parliamentarians we must bang the drum for those businesses. I will therefore shamelessly plug businesses in my constituency in this debate.

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17:02 Richard Thomson (Gordon) (SNP)

The pressures on SMEs and the difficulties in ensuring they play a full part in the pursuit of the goal of net zero are well understood. The goal of many SMEs will understandably be to ensure their survival, often week to week and month to month, rather than to focus on the wider goal of net zero.

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17:07 Matthew Pennycook (Labour)

It is a pleasure to serve under your chairmanship, Ms Ghani. We always state this as a courtesy when opening our remarks in this place, but I am genuinely grateful that the hon. Member for Thirsk and Malton (Kevin Hollinrake) secured this debate, because the subject deserves far more attention in this House than it has received to date. When we talk about decarbonisation of the kind required by the net zero target, the focus is invariably on either big market trends or the action that the Government must take to drive emissions reductions across the largest emitting sectors of the economy. Although it is recognised that SMEs will be impacted by both, the assumption is always that they will simply adapt to any change made. To some extent, that will no doubt be the case, but, given that SMEs are the backbone of our economy, they need to be much more than an afterthought in our thinking about net zero, and much more thinking will need to be done about what targeted support they will need to ensure that the transition to net zero is as orderly as possible. The hon. Gentleman made very good points about the risks entailed when that does not take place and the need to learn lessons from history.

I intend to touch on three specific areas where there is clearly a need to do more to support SMEs in transitioning towards a local carbon economy. Before I do, I want to make two general points about the Government’s approach to climate action that have implications for them. The first is the need for a clear and credible net zero strategy. Setting a net zero target was an essential first step, but hitting that target requires a plan for its delivery. Despite having legislated for it more than a year ago, the Government have still not brought forward such a strategy. Indeed, core building blocks of it, from the national infrastructure strategy to the energy White Paper, have been repeatedly delayed. Although there will need to be a sector-specific component for SMEs in it, the most important thing is that the Government bring forward that comprehensive strategy as a matter of urgency to provide clarity and certainty for SMEs and other sized businesses, and a framework within which they can make investment decisions. The test of the announcement expected from the Prime Minister tomorrow will be whether it moves us forward towards that comprehensive strategy.

The second general point is that there is a real need for the Government to prioritise decarbonisation in any coronavirus stimulus package, and in particular a need to bring forward significant investment in low-carbon infrastructure. It is no good providing targeted net zero support for SMEs if the systems that they are embedded in and the infrastructure that they rely on are not transformed.

On the targeted support that SMEs require to make the transition in an orderly fashion, there are three areas, as I said earlier, that require more focus. First, SMEs clearly need more information and guidance on how to progress towards net zero. That not only means better access to tailored business, financial and legal advice; we need to do more to ensure that SMEs are persuaded of the commercial importance of planning for the transition to net zero early and the detrimental implications of not doing so.

The Government should look at what more they could do to support innovation in relation to SME business models and manufacturing processes. There are good examples of where this is happening in other countries across the world. The Dutch green new deal, for example, provides government-backed institutions to offer free technical advice to help businesses in Holland become more efficient. More could be done to augment and enhance the role of local government and local enterprise partnerships in engaging SMEs on the issue of net zero and helping them understand the business and supply chain opportunities that exist as part of it.

To date, while organisations such as the Carbon Trust and the Federation of Small Businesses have stepped in to provide SMEs with support along these lines, the Government themselves have done very little. Will the Minister outline in his response what plans, if any, the Government have to help inform and advise SMEs about how best to decarbonise their businesses? Secondly, as many hon. Members have said, SMEs undoubtedly need more help to access financing. Many have spoken about the pressure that SMEs are under as a result of the pandemic; the fact that they are struggling with high levels of debts and substantial losses of revenue. Many have also spoken about the financing gap that exists, not least the hon. Member for Grantham and Stamford (Gareth Davies) in his succinct and well-argued speech.

Lastly, SMEs need support with skills for their workforce. The Confederation of British Industry has estimated that nine out of 10 employees will need to reskill by 2030. That will require a national low-carbon skills strategy that embeds sustainability and net zero across the whole education system. We called for the Government to bring forward a national retraining strategy to deal with the immediate jobs crisis, while meeting the longer-term needs of a low-carbon economy. Much more could be done in this respect. Will the Minister explain what thinking the Government have done, if any, on a net zero skills strategy that will provide SMEs a workforce that is capable of successfully transitioning?

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17:13 The Minister for Business, Energy and Clean Growth (Kwasi Kwarteng)

We have to make clear our absolute 100% commitment to net zero as a Government. The Prime Minister has shown many times that this is at the centre of our strategy. We also feel that, given where we are with covid, it is absolutely necessary to build back better. As my hon. Friend the Member for Thirsk and Malton said in the first part of his speech, the 2008 crisis was extremely difficult, but one of its bad features was that we did not as a global community look at climate change and think about building back greener and better in the aftermath. People in this Government, in the Opposition and in Governments across the world are much more focused on building back greener and building back better as a consequence of this covid crisis.

As my hon. Friend said, SMEs are the backbone of our economy and will have a key role in driving economic growth. He described a headlong rush to net zero; others might take a different view. However, we cannot assume that the push to net zero will be imposed on businesses. We have to take our people and our SMEs along with us. I fully accept that we should engage with SMEs. I do this fairly regularly, as I am sure he and others do as local MPs. If he has SMEs in his constituency that he wants to talk to about net zero with me, I urge him to engage with me on that. It is a two-way street, and I look forward very much to engaging with many of the excellent businesses in his constituency. My hon. Friend the Member for North Cornwall (Scott Mann) gave us a flavour of the many SMEs engaged with net zero in his constituency. He said that net zero and the covid-19 crisis would “fundamentally adjust” our economy, which was an excellent and well-made point.

On SME engagement, we have a net zero small business engagement strategy that seeks to strengthen our approach to working with SMEs, which is particularly relevant in the context of COP26 in Glasgow in November next year. I have made it a specific cause of mine to make sure that SMEs can play a part in COP26. We are also developing a small business energy efficiency scheme, which is obviously related, in some measure, to the green homes grant that we are pioneering at the moment.

My hon. Friend was right to mention the British Business Bank in this context. I am keen—I have been driving this within the Department—to get a net zero remit for the British Business Bank. He will remember that the British Business Bank was set up years before the net zero legislation, so we have to do a degree of reverse engineering to ensure that the net zero challenge is at the centre of the bank’s remit.

There is clearly an appetite in certain quarters, as well as a wide debate, for a national institution that may emerge as a consequence of our leaving the EU, focusing particularly on net zero. These are ongoing discussions, but my hon. Friend the Member for Thirsk and Malton cannot believe that I would be so naive, even if I knew the answer, to blurt out our plans in the context of a Westminster Hall debate. He can rest assured that this matter is being debated and discussed very seriously at the highest levels of Government.

The first point that my hon. Friend the Member for Thirsk and Malton made was very pertinent. If we are to try to bring people along with us on the journey towards net zero, we have to engage. Engagement means supplying information, exchanging ideas and providing guidance, as he suggested. We do that all the time and, of course, we could do more. Debates like this, dare I say it, are excellent ways in which we can broadcast and encourage our engagement with SMEs on the vital question of net zero.

There were many other remarks that I have not been able to fully address one by one. Broadly, I would say that this debate is absolutely key. Within the debate there were slightly different voices. If he will permit me to say it, my hon. Friend the Member for Thirsk and Malton is a brilliant champion of local business, but he did stress the fact that we must take people with us. There is no point in our hurtling to a net zero endpoint and leaving vast swathes of the economy and business behind. The hon. Member for Greenwich and Woolwich stressed that there is urgency, and I fully agree; there is a real need for further impetus. These are balancing arguments, and I can assure hon. Members present that the Government are taking all their remarks seriously.

We discuss the issue all the time and we are open to ideas. Ministers do not often say that, but we are open to ideas about how best we can engage with local businesses and small and medium-sized enterprises in our quest to reach net zero by 2050.

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16:24 Kevin Hollinrake (Conservative)

I love the word “ecosystem”, which the hon. Member for Leeds North West (Alex Sobel) used in this context, to describe this whole situation. What we need is a 30-year ecosystem in order to take the business community with us. There were some great examples, such as the British development bank, through to Papa Pump and whatever else—two ends of the same scale. There are lots of banks that are supportive. There is the Bankers for NetZero project. We have Barclays, Tide, Handelsbanken and Triodos, which are all keen to have a conversation on this issue and try to take businesses with us. It is so easy to look at shiny new innovative businesses, rather than businesses that currently exist and that want to make a contribution. I am very heartened by my right hon. Friend’s comments that he wants to take business with us.

When someone is in the world of business and has their own SME, it is not just a job and a business—it is their life. It is so critical to everything they do and stand for. I urge again, and I am reassured by the Minister’s comments, that there should be no cliff edges. There should be a stable framework. If we leave no one behind here, the SMEs can lead from the front—if that is not too much of a mixed metaphor—towards a net zero future.

That this House has considered support for SMEs and the net zero target.

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