The Institute of Export and International Trade (IOE&IT) has today (8 February) published its requests for policymakers working on trade. The paper, titled 'Policies for progress: How to unlock the UK’s full trade potential', argues for better support for small businesses looking to export, as well as a trade strategy that targets a ‘just transition' to net zero carbon emissions.

SME needs

The report contends that “tailored” support for micro, small and medium-sized enterprises (MSMEs) is required “to encourage small businesses to start engaging” in trade. Among the specific policy proposals for bolstering that support is a tax credit for MSMEs designed to enable investment in the exporting side of their business. The aim is for small firms to see international trade “as a normal part of doing business”.

More broadly, the UK tax system is said to be “adversely impacting MSMEs’ growth”, with the current VAT threshold of £85,000 disincentivising turnover growth. Raising the threshold to £100,000 would encourage that growth “without suddenly having to charge customers VAT”.

On MSME support, IOE&IT also calls for a joint expert committee of representatives from government and industry to develop initiatives designed at improving the rate of MSMEs who export. This committee would be able to award grants to particularly promising businesses, supporting them to export.

Small businesses in the UK have also yet to fully exploit the opportunities of e-commerce-based international trade. If they did, it could be worth some £9.3bn to the UK economy, according to a paper from the Social Market Foundation commissioned by Amazon in 2022.

IOE&IT director general Marco Forgione noted that only 9% of the UK’s SMEs export compared to 80% of Germany’s. He added:

“Small business exports have the potential to be the true lifeblood of the UK economy. The UK’s economic growth has been slower than some of the G7 counterparts.

“Focusing on encouraging and supporting more of these small businesses to export would accelerate the UK’s economic opportunities and make the UK more competitive on the world stage.”

Net zero

“Trade,” the paper states, “is often seen as part of the problem” on climate change. With “the right strategy”, however, it can help to facilitate solutions to rising global temperatures by enabling “the global transfer of green technologies”.

With that potential in mind, IOE&IT is also calling for a “just” approach to tackling climate change through trade. The EU carbon border adjustment mechanism (CBAM), currently in its first phase of implementation, risks “potentially unfair consequences on developing economies” by not providing exemptions for least developed countries (LDCs). Addressing that risk while developing a green trade policy for the UK is important, while there should also be an “in-depth impact analysis with industry” on the potential impact of a UK CBAM on the country’s own economic competitiveness.

Aiding LDCs to transition to low-carbon manufacturing will also require support, and IOE&IT is also calling for the establishment of a pot funded by a UK CBAM which will fund innovation aimed at boosting that support. The paper adds that an agreement should be reached with the EU to “create linkage between the two emissions trading schemes”.

Digitalisation drive

A poll of IOE&IT members recently found that a third of respondents considered digitalisation of trade processes “the most important solution” to the biggest barriers in international trade. Among those barriers are the various threats to supply chains being seen across the globe.

Addressing this means improving trade visibility, and this can be done through trade digitalisation:

“It is vital that countries across the world have parity of access, both to these kinds of initiatives, but also to broader digitalisation opportunities, such as electronic trade documents. Third-party interoperability is vital. It is of no use for the UK to accelerate the trade digitalisation agenda in isolation.

“Therefore, it is vital for strong information-sharing relationships to be maintained.”

The report also returns to a theme previously emphasised in IOE&IT’s Global horizons report, published in September last year, looking at regional disparities in export activity.

Only 73% of England’s regions have actual service exports (ASE) rankings in line with their services export potential (SEP), and IOE&IT is calling for an improvement to regional data quality as well as the creation of a Regional Trade in Services Taskforce to identify how regions such as Cornwall or Lincolnshire, which underperform their SEP, could be helped to improve.

IOE&IT’s UK public affairs lead, Grace Thompson, noted:

“All the policies in this paper come back to the heart of what IOE&IT does, which is empowering organisations and equipping individuals with the expertise to trade effectively, sustainably and competitively.

“These policies focus on how to support small business exporters who have the potential to unlock significant economic growth, if supported in the right ways. But trade is not merely a purely financial endeavour. And the potential it has to uplift and transform communities through the boosting of regional services exports, for example, is one of the particularly significant points to take away from this paper.”