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24 Feb 2003 : Column 56—continued
Mr. Bercow: My hon. Friend correctly anticipates my mindset on the subject. Does he accept that, as a working premise for the Opposition, it is important to distinguish between funds that can legitimately be spent from time to time as a palliative or cushion in the event of the breakdown or destruction of a whole industry, and a generalised largesse on the part of a Government who mistakenly believe that they can run industry?
Mr. Bellingham: My hon. Friend is right, and I shall give an example that shows up some of the flaws of section 8. The mini-schemes may be laudable, but should such work be done by the DTI under that budget?
I am not very impressed by the UK high technology fund, which—according to the DTI's briefing paper—is
- "a 'fund of funds' providing finance for existing venture capital funds that specialise in financing early stage small and medium sized high-technology firms. The Funds have received investment from the UK High Technology Fund and also receive funding from many other . . . sources. As a result, businesses do not necessarily know that they have received funding from the Fund."
The Minister mentioned Atlantic Telecom. Hon. Members may recall that Atlantic Telecom was a stock market darling whose share price went up to about £13, but which went spectacularly bust in October 2001. Most of its operations were sold as going concerns
by the administrators. However, they could not find a buyer for a fixed radio network, which led to a risk that some business customers, who had switched carriers from—in the main—BT, would have been without a telephone service temporarily. Atlantic Telecom's customers were given extra time to switch back, at a cost of £550,000, shared, as the Minister pointed out, between the DTI and the Scottish Executive. That was not a good use of money. I suggest that the Scottish Executive put pressure on the DTI and, to make the Department look good in Scotland, it agreed to go along with it.
Mr. Bellingham: I shall give way to the hon. Gentleman, because he probably knows much more about the situation than I do.
Mr. Weir: There was a serious danger that many businesses, especially in the north-east of Scotland, would have been without a telephone service for some time. In Aberdeen and Dundee especially, many businesses had gone over to that private operator and found that when it went down the tubes, BT would not reconnect them for many weeks, if not months. I do not often support the Government, but it was a good use of money to ensure that business disruption did not occur. Otherwise, Atlantic Telecom's collapse could have been disastrous.
Mr. Bellingham: I am grateful to the hon. Gentleman, who obviously knows much about the subject. That fly-by-night operator conned a lot of businesses by offering them much lower rates than BT, and the Minister's time would have been better spent talking to BT and urging it to reconnect the businesses affected. Surely in this day and age it does not take more than a few days to reconnect a fixed line system.
The loan guarantee scheme has achieved significant success since its launch in 1981. To a large extent, it was the brainchild of my hon. Friend the Member for South-West Hertfordshire (Mr. Page). I am sorry that he is not in the Chamber this afternoon to hear my praise for him.
As the Minister pointed out, from June 1981 until March 2002, 79,900 loans were guaranteed. The average loan is £37,000 and the total value of the loans is well over £3 billion. Since the scheme has been finessed and improved, it has been a significant success.
I shall give the House some examples of companies that have benefited considerably from the scheme. During 1999, a biotech company had secured providers of new equity capital but was struggling to fund working capital. The projects undertaken by the business were not suitable for bank security, but the bank was able to offer £100,000 under the loan guarantee scheme. The injection of equity was dependent on that loan agreement, as were the jobs of 23 employees. Two years later the business was sold to a plc for £4 million and the loan was repaid.
Another success story comes from a steel fabricating company that was struggling to finance working capital during turnover growth from £0 to £4 million over a three-year period. The banks agreed to an initial £100,000 and recently provided a second tranche of
£150,000 under the small firms loan guarantee scheme. As a result of that growth, 20 new jobs have been created and the business is making a net profit of nearly £500,000 a year.There are many similar examples. I urge the Minister to reinforce that success. Will he remove some of the sector restrictions? For example, the scheme cannot apply to education, medical health services or motor vehicle repairs and servicing—something that many of our constituents would resent—and nor can it apply to retail or transport.
Will the Minister also look into the turnover limits for manufacturing businesses? Currently, the limit is £5 million and it has not been raised for some years. It should be raised because it is too restrictive.
We should try to make the scheme more flexible. As an example of its inflexibility, a business that needed funding to cope with increased orders was excluded from securing £250,000 because although it had been in existence for two years, its parent had gone into receivership. The management team bought the company from the receiver and continued to trade with the same staff, premises and customers as well as a continuing order book, yet the small firms loan guarantee scheme interpreted the change in ownership as a cessation of business. Surely that was a mistake. Let us try to make the scheme more versatile and reinforce success.
Will the Minister tell the House how much the scheme costs every year? I have studied the report in vain. It gives the number and amount of loans and the global totals, but it does not actually give the write-off figures. Obviously, most of the money is paid back to the banks because the businesses are successful, so the Government's guarantee is not called in. However, will the Minister give us the annual figures for the last four years and the global figure for the bad debts that the Government have had to guarantee and which have been a cost under section 8 of the report?
We have debated important concerns for our industrial and manufacturing base, but we need to set the Bill in the wider business and economic context. The Government are right to take credit for the recent falls in unemployment and inflation, but serious storm clouds are gathering. Manufacturing is already in severe recession; 600,000 jobs have been lost since 1997.
The Confederation of British Industry predicts that 40,000 more jobs will be lost in the sector by April this year. Its recent monthly survey was very gloomy indeed. It suggested that the cloud of misery engulfing manufacturers showed no sign of lifting and that output was expected to continue to stagnate, with order books remaining below their normal level. The CBI's conclusion is not surprising, given that industrial output has fallen every month for the past two years.
In terms of market capitalisation, Invensys was once Britain's seventh largest company. It changed its name from BTR Siebe, which probably cost a large amount of money. In spite of the gallant efforts of the new chief executive officer, Rick Haythornthwaite, the company has been in a downward spiral ever since. Four years ago, its shares were worth £4; a year ago, they were worth £1; and they closed on Friday at 15.5p, threatening many further job losses. That is just one example.
It is little wonder that the outlook is grim. In 2002, 16,500 businesses went to the wall, which is a 10 per cent. increase on the previous year. Our trade balance in goods is worse than at any time for over 300 years. Britain's net foreign assets of £5.5 billion in 1992 have turned to net liabilities of £114 billion in 2002. Those figures are staggering.
The Chancellor of the Exchequer has a real problem with public finances as a result of undershooting his growth targets and the fall in tax revenues. The Chancellor was rebuked last week by fellow European Finance Ministers. He was told that his optimistic assumptions on growth could lead to a breach of Brussels rules on public finances, and that
- "The Council considers that the macro-economic forecasts now appear to be optimistic in the short term and that there are downside risks to growth."
We cannot ignore the fall in the stock market and the crisis in pensions, which certainly do not help. Smaller pensions lead to less tax, lower share prices, less tax from the City and less stamp duty revenue. Quietly tucked away in one of the many volumes of the previous Budget was the Chancellor's assumption on the stock market. He assumed that it would go up in line with money gross domestic product—that is, by 4 per cent. In fact, it has fallen by 25 per cent. We all have a vested interest in that, and no one will take great pleasure from that fall.
In conclusion, there are real problems in manufacturing, and many problems in other areas as well. At least the Secretary of State acknowledges those problems in manufacturing. At Labour's spring conference, she said:
- "We also all know our manufacturing is hurting and manufacturing workers are losing their jobs."
A survey in today's report by the British Chambers of Commerce shows that the total extra burden—excluding the minimum wage—is £22 billion. David Frost of the BCC has said:
- "Red tape is strangling British productivity and it is threatening to combine with other blocks on business to create critical mass that will destroy jobs through a dramatic loss of competitiveness."
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