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We are seeing the British economy go from overheating to permafrost in one fell swoop.
Mr. Jamie Reed (Copeland) (Lab): Will the hon. Gentleman give way?
The key to that is bank lines. It is severely in doubt whether the Government’s promises will be converted to the real lending and cash flow to which the Prime Minister and other Ministers have referred. We need to recognise that the banks are already facing great difficulty. I have some case studies. I will not go through them all; I think that all Members will have encountered similar cases in their constituencies.
Mr. Reed: Will the hon. Gentleman give way?
It goes a little bit like this. The bank says, “You used to have £100,000 as a bank line, but now I am going to take it back.” Then, because it has some guarantees from the company, it calls in the assets and forces the company to realise them by selling them at something like half their value in a broken market. The bank takes the money. In comes the VAT man and says “Pay my VAT.” The combination of those two activities does not just cause the company difficulty; it closes it down. In the absence of alternative sources of funds, there are many companies now facing those pressures. They are being closed down by a combination of HM Revenue and Customs and the banks. On the back of their closing down, those involved often have to cash in personal guarantees and sell their main asset, which is their house. The picture is very grim.
I commend the Daily Mail and The Sun for their campaigns on the things that ought to be done to try to assist cash flow, because even the majority of companies in this country will be in a battle for survival.
There are some things that we can do and must do. Yesterday, at our business survival summit, we proposed a series of measures. Like the Government, we accept that paying promptly is crucial. If councils and Government agencies pay after ten days, that can only help struggling businesses to get through this difficulty. We will be watching very carefully to ensure that Government organisations pay as the Government have promised that they will.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): As well as the public sector setting an example, does he think that larger companies that are still cash-rich need to take on board that their supply chain will not be there unless they, too, do all they can to benefit the cash flow of their suppliers and contractors?
Alan Duncan: I totally agree with the hon. Gentleman’s message of great sense and I hope that all companies that can pay, will pay and will follow exactly the standard that he has just described in his intervention.
We would like to see a reduction in national insurance contributions for the smallest companies. They are the ones that employ the most people, that often live most from hand to mouth, and that have the fewest assets against which they can raise money from the bank. Although the measure is small, it is exactly of the kind that can help them get through this difficult period.
Likewise, we think that companies ought to be able to defer their VAT payments if that is what it takes to assist their cash flow. We think they should pay for that at the normal default rate; call it 7 per cent. But 7 per cent. is less than half of the 15 per cent. that banks are now charging many companies of this size. I think the Prime Minister will rue the day that he taunted us about interest rates at 15 per cent.; now, most companies getting short or medium-term credit are having to pay 15 per cent. or more.
Mark Durkan (Foyle) (SDLP): Will the hon. Gentleman give way?
In addition, we would like to see a reduction in corporation tax for small business, for which we have been calling ever since the last Budget, which, from the Conservative Benches, we described as a tax con. As my hon. Friend the Member for Hertford and Stortford (Mr. Prisk) illustrated today by visiting small shops in London, we want to see small businesses applying for that business rate relief to which many are entitled but for which not all apply.
The Minister of State, Department for Innovation, Universities and Skills, has announced today £350 million for Train to Gain. The House should be aware that this is the reheating of an old announcement and, as a policy, it will not give the immediate relief that our businesses are crying out for.
This country will have to put debt on top of debt. We should be in a position to use a Government surplus to help this country turn the corner in such difficult economic times. The Prime Minister, when he was Chancellor, mortgaged this country to the hilt. We are in desperate times, which prove the abiding truth of post-war Britain: that Labour Governments always run out of money.
7.54 pm
The Minister of State, Department for Business, Enterprise and Regulatory Reform (Mr. Pat McFadden): I beg to move, To leave out from “House” to the end of the Question, and to add instead thereof:
“notes that in the 1980s Britain experienced two recessions with unemployment reaching three million on both occasions, a thousand businesses a week were lost and that interest rates reached 15 per cent.; further notes that the roots and effects of the current financial crisis are global and unprecedented in recent decades; believes that at such a time it is essential that the Government acts to restore stability and confidence and therefore supports the action the Government has taken to inject liquidity into the banking system, to recapitalise the banks and to make funds available to resume the medium term lending essential to small businesses; further notes that the UK is better placed than in the past to get through the economic downturn with an economy that has produced three million more jobs over the past decade and enjoyed strong growth and low inflation; supports Government measures such as the Prime Minister’s announcement to reduce to 10 days the payment period from central government to small businesses and to bring forward funding for small businesses available through the European Investment Bank; and believes that the Government should reject public spending cuts at this time and continue working with the banks to ensure the availability and competitive pricing of lending to the small and medium-sized business sector.”
I welcome the opportunity to talk about the importance of small businesses to Britain’s economic strength, to pay tribute to the courage and entrepreneurship of the
people running those businesses and to set out the steps we are taking to help small businesses as we face difficult economic times.
Anne Main (St. Albans) (Con): Will the Minister give way?
Mr. McFadden: I will in just a moment.
As the Chancellor of the Exchequer said a few months ago, we are facing a combination of global economic circumstances that we have not seen for decades.
Anne Main: On the help that the Minister says he is giving to small businesses, will he give me a frank answer? Some £300 million of grants from the East of England development agency and other development agencies were taken away from small businesses and shifted towards housing. I have yet to have an answer about why that has happened. Is that a way to help small business?
Mr. McFadden: The hon. Lady’s party is not even sure if it would keep regional development agencies if it ever got the chance.
International credit conditions led banks to stop lending to one another. This resulted, first, in the difficulties we have seen in the banking and financial system, and now in the problems being faced by small and medium-sized enterprises and by homeowners in the wider economy.
In the circumstances, it was vital and right that the Government put their full force behind, first, restoring stability and then restoring confidence. We acted decisively to do that. First, we injected short term liquidity into the lending system, with the Bank of England making available up to £200 billion to the banks under the special liquidity scheme. Secondly, we recapitalised three of the leading banks, injecting fresh capital worth £37 billion. A condition of the recapitalisation is a commitment from banks that they will maintain the availability and active marketing of competitively priced lending to small and medium-sized enterprises at a level at least equivalent to that of 2007.
The origins of the crisis are global, so at the same time as taking firm action in the UK the Prime Minister and Chancellor have been working with their counterparts around the world, and interventions similar to those that we made have been announced in a number of other countries.
Restoring stability has been our first priority. Stability and strong banks are absolutely essential for the economy to work. Without stability, small businesses cannot access the credit they need, trade in the high street slows down and the investment decisions on which the economy depends become much more difficult to take forward.
Alan Duncan: Do Her Majesty’s Government accept any blame whatever for exacerbating the problems that we now face in the financial markets?
Mr. McFadden: Her Majesty’s Government have acted decisively to try to deal with problems that have their root in the international credit problems to which I have referred.
Our actions on the financial front have been essential, but as the impact of the financial squeeze spreads it will hit small businesses. We will have to act decisively here, too—and we are—to help them through the difficulties they are experiencing.
Mr. John Redwood (Wokingham) (Con): Will the Minister at least agree that Northern Rock and Bradford & Bingley were British institutions under a British regulator who made British mortgages available to British people, and that theirs was entirely a British crisis?
Mr. McFadden: If we had followed the advice of the Conservative party, we would not have been able to take the action we took over Northern Rock and Bradford & Bingley. Time after time during this crisis, the judgment shown by the Conservative party has been proven to be wrong.
Small businesses are absolutely vital to the economy, to creativity, to innovation and to enterprise. There are 4.7 million small businesses in our economy and the numbers employed in small businesses have gone up by 1.5 million since 1997. In total, they employ around 60 per cent of the private sector work force and contribute as much as large business to UK output. There is no doubt about the importance of the small business sector to the economy. The Government want to support the small business men and women who build a business, take a risk, see a market gap, innovate to fill it and employ so many people, contributing so much to the country in the process.
Mr. Jamie Reed: Does my hon. Friend agree with me and the many business people in my constituency that there is a direct correlation between unprecedented public investment over the past 10 or 11 years and the number of new small businesses within the UK economy, and furthermore that it would be an act of economic vandalism to cut public spending either now or over the next economic cycle as that would devastate—nay, crucify—small businesses throughout this country?
Mr. McFadden: My hon. Friend makes a strong point and, of course, all those small business people will have heard the Opposition Front-Bench spokesman say tonight that his party wants public spending to be lower.
The World Bank says Britain is among the best places in the world to do business—it is second in Europe, and sixth in the world—but despite this good record and strong position, many small businesses are facing difficulties during the current period and will continue to do so in the months to come.
Stewart Hosie: Small businesses are struggling, particularly with access to capital, and we know that the banks are not lending at reasonable rates—instead, they are lending at very high rates. Might the Government wish to re-examine their capital gains tax proposals, as to provide a disincentive when there is not access to traditional lending from banks might be the wrong thing to do?
Mr. McFadden: We did, of course, announce changes to the capital gains tax proposals some months ago.
In our dialogue with small businesses, the issue they have raised with probably the most urgency is access to finance. Small businesses need to be able to borrow to invest and to keep their companies moving, and we will monitor the commitments made—to which I have referred—on the availability of finance to small and medium-sized enterprises. In addition, the Government have brokered contact between the European Investment
Bank and UK banks to help release more funds for small businesses, and the four largest banks have signalled their interest in securing a further £1 billion from the EIB for lending to small and medium-sized enterprises.
Sir Robert Smith: How do the Government plan to monitor the availability commitment on lending to small businesses, especially in respect of ensuring due diligence? How will the banks be measured on the delivery of that promise, and what will the fact that the availability has to be on the books, even if it cannot be taken up, do to the banks’ finances?
Mr. McFadden: These were the conditions to which the banks taking part in the recapitalisation scheme agreed. The Secretary of State announced this morning to the Business, Enterprise and Regulatory Reform Committee that there will be a meeting involving him, the Chancellor and the banks within the next few days.
I referred to EIB finance, but other actions can also help business gain access to finance. Earlier this year, the Government made available an extra £60 million for the small firms loan guarantee scheme, taking the total to £360 million, so that in the more difficult months to come the scheme has the resources to help many more firms.
In addition to access to finance, there is the issue of cash flow, which is another urgent concern for many small businesses. Late payment of invoices can cause severe—and sometimes lethal—problems for small businesses. That is why the Prime Minister announced that central Government would pay bills within 10 days. That will bring forward some £8 billion-worth of payments on top of the £58 billion already paid in this period. In addition, we have gone further, with regional development agencies, which spend £750 million a year with suppliers, also signing up to this target. The chief executive of the NHS has today written to NHS bodies asking them to follow suit, and my right hon. Friend the Secretary of State for Communities and Local Government will also be writing to the Local Government Association to encourage its members to play their part.
Mr. Mark Prisk (Hertford and Stortford) (Con): The Minister mentioned the Secretary of State for Communities and Local Government. How will the Government monitor late—or, indeed, prompt—payments by that Department when the Secretary of State told me in a written answer that it keeps no figures on the promptness of its payments?
Mr. McFadden: The payment target is for central Government, and my right hon. Friend the Secretary of State for Communities and Local Government has also written to local government encouraging it to play its part.
Regional development agencies have an important role to play in helping small businesses at this time. We remember that in past recessions when the Conservative party was in power there were no regional development agencies, and local communities and areas were often abandoned to their fate. RDAs have demonstrated—for example, with the MG Rover taskforce in 2005 and in response to last year’s floods—their capacity to move quickly and directly to respond to urgent problems in their area. Let me offer a couple of examples from the
regional development agency for the west midlands. It has moved to lift the £100,000 cap on selective finance for investment in England. It has made available an extra £1 million in community development finance institutions to help provide finance for firms that cannot get it from mainstream institutions. Therefore, while the Conservative party continues to place a question mark over the very future of RDAs, under this Government RDAs are already playing their part to respond to the difficulties the economy faces.
Alan Duncan: Given that that has never been said and that comments have been made specifically to the contrary, I invite the Minister to withdraw that comment and to apologise.
Mr. McFadden: If the hon. Gentleman is confirming that his party would keep the RDAs, I am sure everyone would be happy to have that clarification.
Mr. Philip Hollobone (Kettering) (Con): There are big issues to do with cash flow for small and medium-sized manufacturing businesses and sky-high utility bills. Commodity bills have fallen around the world in recent weeks, however, and petrol prices are now coming down. However, utility bills remain stubbornly high. Is the Minister doing anything to bash the utility companies over the head, to make sure they play their part in supporting small and medium-sized manufacturing concerns?
Mr. McFadden: My right hon. Friend the Secretary of State for Energy and Climate Change made a statement to the House last week on precisely that topic, and I encourage the hon. Gentleman to read it.
As well as access to finance and helping with cash flow, another important support the Government can give at these times is making sure that correct advice is available to companies through the Business Link service, which already provides advice to more than 850,000 customers. It will offer free heath checks, providing advice and support to businesses if they want that over the coming months.
We are also working closely with business groups and others to improve the guidance for employers that is made available from Government. This matters because if Government can improve the guidance we issue, businesses have to spend less on external advice they may not need, so such services can lead to real savings for small businesses.
When times are tough, we understand that training budgets are sometimes cut. That is why my right hon. Friend the Secretary of State for Innovation, Universities and Skills today announced greater flexibility in the Train to Gain programme, making it available for more short-term training and a greater range of employees than has previously been the case.
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