North East Post
A Voice of the Free Press
Andrew Palmer
Group Editor
4:15 AM 20th January 2022

Business Interview: Lloyds Bank's Stephen Harris Flying The Flag For Yorkshire & The North East Business Community -

It’s all go for Stephen Harris, Lloyds Banking Group’s Regional Director and Head of SME & Mid Corporate for Yorkshire and the North East.

And not just because it is the start of a New Year or his day job visiting businesses, gathering market intelligence, and offering support to his clients but there is joy in the Harris household with the birth of a son who is only four months old.

I regularly meet with Stephen to catch up on what’s happening across his patch usually supporting an independent café, but we are back to video calls as the government is suggesting where possible, we work from home.

We were thrust into an environment where the best way of communicating was suddenly using the technologies available to us; it’s been incredible how people have adapted and changed to be able to use that.

It does though, give him an opportunity to proudly show off his son.

After congratulations we move on to how businesses across the north of England are faring.

“Right now,” he says, “it’s particularly interesting. If you had asked me eight – ten weeks ago, I would have taken an optimistic view for 2022, reflected in our latest business barometer (conducted between 26th November and 10th December), which showed a slight uptick in business confidence both nationally (40%) and in Yorkshire (37%) although both have improved a little bit.”

“Andrew, the Omicron variant has accelerated dramatically on the run into Christmas, and it continues to be a drag on optimism for 2022. As we chat today, we don’t know what other temporary restrictions may be brought in that could affect the situation and there are certain sectors and industries, especially leisure, hospitality, and travel, that were already hard hit from the effects of the pandemic. These sectors were hit again over the Christmas period and that’s difficult.

However, there is most definitely growth in the economy that is coming through in other industries.”

That is positive and I reflect on the musings I hear about businesses being quick to adapt and I ask if the overall economy has responded well.

“Many of the businesses I’ve been chatting to have shown considerable resilience and adapted to change by looking at their operation and business models. This has meant they have been able to continue to trade and, in certain instances, grow through this difficult period, which has been quite remarkable.

“Necessity is the mother of all invention and we have seen a lot of that over the past months and certain industries have the opportunity for growth in 2022.

However, the big themes will be continuous management and emergence out of the pandemic. Of course, we still can’t ignore Brexit, which may cause some challenges around supply chains, and further operational changes may be needed.”

If these two issues weren’t enough for businesses to consider heading into 2022, I mention the ‘S’ word – sustainability – and how the path to net zero is rapidly climbing the business agenda.

“It was coming anyway,” Stephen says, “COP26 heightened it even further and as businesses look to the new year, they and their investment plans, will have to consider how they approach this big topic: making their businesses sustainable and reducing emissions. That’s going to be a key issue for us to focus on.”

It can’t be done overnight, I suggest, so how can industry prioritise?

“The first step is recognising that sustainability is going to be business critical and developing a clear plan no matter what the size of your business is essential. Many larger businesses have had plans in place for some time partially because they have the scale up and resource but equally have recognised the importance of building sustainability into their operations and increasingly into supply chains. Over the past 12 months most have set bold targets and ambitions, a good starting point even if the path to achieving them maybe a little unclear. The companies I visit are laying out clear plans on what they want to achieve and by when and that is driving real business change.”

There’s a lot of facets to this agenda and it’s good to see emissions being discussed and, I gather, is something that fits Lloyds agenda as it owns the fleet management company, Lex.

“Yes, it is all about understanding where we are now and what current emission levels are generated from existing operations. Then it’s about how that all fits into the sustainable agenda and what actions can be taken to reduce or remove those emissions in an effective way.

Businesses are doing it right by starting simply with the low hanging fruit which is easier to achieve and at least starts the process. Managing vehicles is an obvious way to start, and we are talking to companies that are transitioning to electric vehicle fleets.

“We are also having conversations because of the Lex link, in terms of being able to provide consultative support to understand the costs, impacts and benefits of such a transition. It is across the board too with both large businesses and the SME market wanting to transition to green fleets.

“After fleet management the other hot topic is energy. I’m talking to clients about energy either from a production or usage perspective. For example, what can be done with operations to lower emissions and energy management, to reducing overall usage in terms of process with the help of technology. As we move to more digitisation it can help in using fewer resources in one shape or form.

“It doesn’t stop there. If you add in the greater complexity of supply chains and interaction with others, the sustainable agenda is beginning to build a head of steam an area that clients want advice on.”

I suggest that there are plenty of pamphlets and advice sheets, but I wonder what Lloyds can do from a pragmatic point of view?

“Ah! Well, there’s our online Sustainability Audit, and our Green Buildings Tool that enables businesses to assess how green, or not, businesses buildings are; it suggests ideas for improving the sustainability and emissions from the built environment. We are also currently working on a new Carbon Calculator to help companies assesses the carbon levels in their business and what they are emitting now. This is a start to managing it appropriately.”

Moving to the financing side of investing in sustainability. I am interested to hear Steve’s views on discounted financing and how the Lloyds’ Clean Growth Financing Initiative works.

“It is a fund for businesses to raise finance to support investment in sustainable activities or investments, to help them become more environmentally conscious. We are trying to help business transition in several ways from providing the financing to support and advice. We have trained the whole of our small and mid-corporate business teams, via the Cambridge Institute for Sustainability, to be more informed about the issues when out speaking to clients.”

It’s an area we are all learning about it, and I think it’s one here at the Yorkshire Times and North East Post wants to stimulate more debate about and share what businesses are doing. It will be important to promote the importance of these schemes.

So far, we haven’t really touched on the impact of the pandemic on workforces and there have been many challenges and changes.

“Indeed, there has, Andrew. Take Lloyds as an example, at the beginning of the pandemic we moved from 15000 people working from home to 45000, which happened in an agile manner in just a matter of days and weeks. I think you would agree, a massive undertaking. The pandemic for all its challenges and impact on families and sadness that it has brought has accelerated the use of technology in business at a rate that would not have happened so quickly before Covid.

“However, because humans are humans, we still like that physical interaction.

“We were thrust into an environment where the best way of communicating was suddenly using the technologies available to us; it’s been incredible how people have adapted and changed to be able to use that. Being able to work in an agile and multi-channel way, whether face-to-face in certain instances, over the telephone or using web-based digital technology, Teams or Zoom, is part of the future.“

I agree, business I suggest can transition and adapt and understand what this new way of working means but for someone working in the banking sector how is the cashless society being felt?

“The sectors that have felt it the most are probably the more traditional ones, such as retail, where cash was part of the equation. If you are a leisure or retail business, then using or being able to accept cash has changed through the pandemic. It means adopting good digital payment systems that allow these companies to receive and manage payment flows even if they are in a physical environment. It has become critically important for all business to understand the different payment methods available.

Thinking of the leisure industry it also applies to booking systems. There are a lot of businesses investing rapidly in technology and we at Lloyds have been supporting that with the various payment systems that are available. You can do a lot of things on a website and online without having a physical card present or without the need for a terminal.
Regional acceleration, aka, levelling up, is important and as a passionate Yorkshireman and northerner, I strongly believe our region wants to be a net contributor to the UK economy.

"There are many ways of dealing with this. So, in the main, businesses have adapted well and there are businesses that have struggled more than others and unfortunately along the way there have been some business failures. I would add alongside the development of new payment channels, fraud and cybercrime continues to be a major challenge for business. We continue to provide a significant amount of support to clients to help them manage the risks of the various forms or crime. Whilst system integrity is critical many crimes are linked to manipulating human behaviours and therefore its important our clients are informed and have good education, governance, and procedures in place for their employees to protect their businesses from fraud.

I see our time is moving on and there is still a lot to cover, so I move to asking if Government support has been helpful

“What I would say, is that the government support has really helped support business to survive. There is no one single thing but through tax deferral, through furlough, through the various government lending schemes, it has supported business with cash when they needed it the most. Lloyds distributed £13bn of government funding. The industry as a whole was responsible for the assessment and distribution for this funding. And that really helped businesses with the ability to cover those short term costs when the revenues might not have been there and invest where necessary to adapt their businesses. So, that’s been absolutely invaluable.”

“My teams will continue to focus on that in 2022 and Lloyds will be investing into the SME sector on an ongoing basis. Where it comes down to the wider LEP environment, one of our strategic aims at Lloyds Banking Groups is to support regional development, acceleration and growth which very much aligns with the LEP’s strategic agenda.”

That brings me to the levelling up agenda and the role of the LEPs. Stephen was, when I knew him, as CBI’s Director for Yorkshire & the Humber, on the Leeds LEP, so how is it all going?

“Regional acceleration, aka, levelling up, is important and as a passionate Yorkshireman and northerner, I strongly believe our region wants to be a net contributor to the UK economy. It needs the right level of level investment to enable the potential that is innate in this economy, but it must be done in partnerships. We can be a big enabler of that. We have significant resources to support the sustainability agenda and are working with businesses on productivity and we’re a supporter of race action and diversity.

"All these elements are critical to a healthy economy as well as high quality skills and learning. We support small businesses in the region with our Lloyds Banking Group Academy. We can’t do it alone and the LEPS are a critical facilitator bringing in business and local government together to support regional growth.

“I actively encourage any businesses to engage with the LEPs as they are a really excellent conduit to other business and to resources that are available via local and national government.

“There are also brilliant educational institutions in the region, some great universities and colleges adding to the way we can all connect with real purpose and make a difference. Of course, a never ending task and one we are committed to do more on the new year.”

Moving on, I venture to ask Steve about managing the debt burden.

“There is still the ongoing management of the debt burden and how business do that in the future, plus some challenges that are emerging around supply chain, inflation and obviously interest rate risk rises, are all things businesses are going to have to be thoughtful about, alongside that adaption to change.”

“If you think about inflation and supply chains, the direct impact is normally on working capital. You see in certain commoditised areas there has been significant price inflation on certain products, resulting in an increase in working capital requirements. There is a little liquidity left over from the government schemes in some quarters, but we are increasingly supporting clients with working capital facilities, whether it be trade financing, invoice financing or derivatives of invoice financing and asset financing. In some instances, clients retain cash to manage working capital and then use appropriate financing mechanisms to support capital investment.

“That is the biggest topic of conversation with clients - what has changed in their working capital cycles and how they can manage their payables, receivables and stock effectively.

“How, for example, does their working capital cycle compare with their peers. Again, we have developed a tool that supports doing this. Ultimately, if there is a real financing need, what’s the best and most effective and efficient product to support that fundamental need. I suppose that is probably the key discussion we are having at present.

“Moving to the inflationary pressure impacting on interest rates, that’s more about risk management. It was interesting that a sizeable number of clients did take some form of rate risk management in the preceding two years purely because rates were at historic lows. Long term fixed rates were at historic lows and whilst you pay a little bit of a premium to have that certainty, in comparison to long term rates they were still low.

“Clients are now beginning to see a rise in interest rates and want to approach those conversations around how they can manage their interest rate risks into the future coupled with what the options are for them.
“Some might want to retain a little exposure to base rate but equally they want to limit their downside risks.”
I suppose this is about risk mitigation I suggest to Steve.

“Yes. Because ultimately it cuts to a cost point and that is what you are suggesting, it is about risk mitigation. We are continuing to help clients think through what it means for their businesses and what are their breakeven points are around increasing cost, and how do they approach it and manage it into the future.”

I’m taken back by Steve’s response to my next question which is asking him if there had been any surprises in 2021.

“Well Andrew, I was bit surprised that Leeds United and Newcastle are at the lower end of the premiership, I would like to see them higher up that is for sure.”
Yes, and what about business?

“On the upside, it is how business, and the wider economy has bounced back, reacted and dealt with the pandemic. On one hand it never fails to surprise me how resilient businesses in Yorkshire and the North East are, but then this time it was tough but incredible to see the way in which business knuckled down and pulled together.

“There has been a lot of joined up collaboration with government, LEPs, Local Authorities, business and financial institutions and professional services more broadly. It’s been an amazing team effort.

“I expected more business failure and there hasn’t been as much, a testament to the government support. We are not through this yet. There is still the management of the indebtedness that the country and businesses have going forward so I don’t think we can be complacent but again I think that it has been positive to date that we haven’t seen rapid increases in business failures.

We have already discussed flexible working and the effect of the Omicron variant has led to the two of us facing each other via a computer screen. I know that I miss the face-to-face meetings and it must impact on Steve and his team.

“In terms of the human interaction, I called this out on one of my team calls yesterday. It was really positive to get out and see clients face-to-face again when the Covid restrictions were lifted through the summer and up until more recently the ability to interact with our teams, as well as clients, stimulated a different dialogue, because as much as the technology has been a real facilitator and enabler to continue to do business, it is not the same as being in person.

“And the ability to properly visit a premises and businesses to have a discussion and meet a client never tires – it’s always great seeing business in operation. It will be important to get back to that quickly for everyone in 2022, as soon as it is safe to do so.

“I have a cracking role and I am extraordinarily privileged to look after a large geography that includes Yorkshire and the North East, and parts of Nottingham and Lincoln and to be responsible for Lloyds in those marketplaces, supporting small and mid-sized business. It is rewarding, interesting, and challenging in equal measure.

“We can make a real difference. Our purpose is helping Britain prosper – that really resonates with everyone at Lloyds Banking Group, it does have meaning and we do endeavour to live by it. That is what drives us, which is important for SMES, to help them be successful and ultimately, deliver growth and wider prosperity for the UK.

With that positive message I congratulate Stephen again on the birth of his son and ask what his message is for 2022.

“I really hope people had a break over the Christmas period as everyone thought 2020 was tough but 2021 has been another test of us all; there have been so many facets that I genuinely hope people had a restful Christmas with family and friends, that they stayed safe and emerge from that with real optimism in 2022 and think about how they can make a difference.”