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22 Oct 2008 : Column 305

Small Businesses

12.31 pm

The Economic Secretary to the Treasury (Ian Pearson): With permission, Mr. Speaker, I shall now make a statement on the latest Government measures to help small businesses. The Government understand that many small firms are having real difficulties as a result of the credit crunch and worldwide economic slowdown. Those companies are critical to our long-term economic success. More than 99 per cent. of UK businesses are small and medium-sized enterprises. They contribute as much as large businesses to UK output, and nearly 60 per cent. of private sector jobs.

We have always made getting the business environment right for SMEs a priority, and since 1997, 1 million more small businesses have been created. UK SMEs employ 1.5 million more people; they are more productive and more innovative, and they survive longer. Most recently, our enterprise strategy set out our renewed vision to make the UK the world’s most enterprising economy and the best place to grow and start a business. We increased the small firms loan guarantee lending allocations by 20 per cent. for 2008, boosted enterprise programmes and committed to a new approach that avoids placing unnecessary regulatory burdens on smaller firms.

These tough times have only made us more determined to help SMEs. We need to be practical and innovative; above all, we need to ensure that what we do makes a real difference. We are meeting business organisations and businesses across the country to discuss the problems that they are facing, such as cash flow, access to finance and higher bank charges and costs, and to ensure that their views are reflected in Government action.

Our first priority has been restoring financial stability. Without a strong financial system, small businesses cannot access the credit that they need, home owners struggle with their mortgages, and trade in the high street slows down. But as the impact of the global financial squeeze hits small businesses further, the Government believe that it is not enough for us to focus on financial stability alone. So, building on the measures that we have already brought forward, the Government announced yesterday further action, with immediate effect, to help SMEs through these tougher times.

For SMEs, cash dominates: cash in—prompt payment—and cash out, to their work force, for inputs and to the Revenue. Over the past year, the time that organisations take to pay their bills to suppliers has increased, intensifying the cash-flow pressures of many businesses. The Government are determined to do everything they can to help. The Government will aim to pay their suppliers as soon as possible, and within 10 days at the latest. That will bring forward billions of pounds-worth of payments, on top of the majority of payments already made within 10 days. The regional development agencies, which spend around £750 million annually with suppliers, have also committed to that. Yesterday, my right hon. Friend the Secretary of State for Communities and Local Government wrote to the Local Government Association, and the chief executive of the national health service wrote to NHS trusts, asking those public bodies to review their payment performance and to follow the Government’s lead.

I recognise the essential role that the approach of Her Majesty’s Revenue and Customs to business tax compliance
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can play in managing the economic downturn. HMRC already has a policy of flexibility in dealing with struggling businesses, and I know that the Treasury will continue to impress upon it the importance of implementing and publicising that policy in the current climate. We are also working with the Institute of Credit Management and all leading finance and business organisations to promote prompt payment and ensure that businesses have the best advice and guidance on managing cash flow.

The Government’s measures of financial support to the banking industry are designed to stabilise UK banks and support the long-term strength of the economy, which helps small businesses. As part of the recapitalisation package, Royal Bank of Scotland, HBOS and Lloyds TSB committed to

Small businesses must know that the banks are open for business. RBS, HBOS and Lloyds TSB make up 50 per cent. of small business lending, but given that they operate in a competitive environment, we can expect other banks to follow suit. The Government will monitor how recapitalised banks are delivering their commitment on SME lending. We will ask the banks how they will achieve that, including the availability of capital and liquidity allocated for small businesses, marketing plans, and their principles for SME lending, from head office to branch level.

We want to see banks taking appropriate risk assessments on SME lending—being responsible but not unduly risk-averse, and not passing on unreasonable costs. The Chancellor and my right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform will be meeting all the banks and building societies tomorrow to discuss those issues, and what small businesses can expect from them.

The Government have also been brokering contact between UK banks and the European Investment Bank. The four largest UK banks have now signalled their initial interest in negotiating loans totalling about £1 billion from the EIB to lend to UK SMEs. I hope that we will be able to make rapid progress on that for small businesses.

It is critical at this difficult time that businesses have access to support and advice that helps them to survive now and succeed in the future. Business Link advisers will provide a free health check for every small business, whatever its size, sector or location, and other advice on how to adapt to changing economic conditions and be ready for the economic upturn.

My right hon. Friend the Secretary of State for Innovation, Universities and Skills yesterday announced that small businesses are the focus of £350 million of Government funds to help them get through the tougher economic climate by building the skills and expertise of their workers. The Government are making improvements to Train to Gain that will deliver advice and funding for training, with the minimum bureaucracy and delay. For the first time, training at level 2 will be free for all SME employees regardless of whether they already have qualifications at that level, and there will be free bite-size courses in business-critical areas, including business improvement techniques and customer service, to raise productivity. Management and leadership training will
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also be opened up to the smallest employers so that it is now available to employers with five to 250 employees.

Small businesses drive our economy forward, and during this global economic downturn, the Government are determined to give the millions of people who run and work for SMEs the chance to maintain their livelihood and prepare for better times in the future. That is why we have brought forward these measures, and we will continue to do all we can through the work of the National Economic Council to look for and implement solutions that help SMEs. I commend this statement to the House.

Alan Duncan (Rutland and Melton) (Con): The Minister’s statement is an unprecedented occasion, representing an unacceptable mixture of farce and contempt. The Department has no one of Cabinet rank in this House, so instead, a Minister has just read out a statement that the real Secretary of State will deliver in another place in three hours’ time.

Last week the Leader of the House said that there would be no statement delivered today, but then today’s announcements were made first in a Select Committee, then in a press release sent out by the Department yesterday lunchtime, and then in a press conference attended by the Secretary of State and the Prime Minister. If the real Secretary of State says something in the House of Lords that the Minister has not said here, will we be entitled to a further statement tomorrow?

The Government have been slow to cotton on to the fact that the turmoil witnessed over the past few months in financial markets is now causing the deepest imaginable pain for businesses both big and small throughout the country. Is there not a danger that even the most imaginative measures to assist business cash flow will simply be too small and puny to cope with the scale of the fallout caused by a decade of Government mismanagement and financial hubris?

We have been ahead of the Government in sounding the alarm about the debt that has been built up, the taxes that have been raised and the irresponsible financial practices at the heart of Government. We want to see some immediate practical assistance for small businesses, which are having to deal with serious cash-flow problems: prompt payment from central and local government, deferral of VAT, a cut in national insurance, a reduction in corporation tax for small business, and more promotion of the small business rate relief, to which many are entitled but for which not all apply.

Will the Minister therefore confirm that the £350 million that was announced yesterday, and repeated today, to help SMEs train staff is, in fact, just a reheat of old money and a recycling of old schemes? How, indeed, can the Government possibly monitor prompt payment by Government and Government agencies, when they have admitted in a parliamentary answer that they never even record that information?

On what basis can the Minister defend the assertion made by the Secretary of State for Innovation, Universities and Skills on the “Today” programme, and repeated today, that bank lending will continue at 2007 levels? How will the Minister measure that? Is it not the case that all over the country, contrary to the Government’s assertions, overdraft facilities are being viciously called in by the banks, to the severe detriment of thousands of
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businesses? Is it not blatantly evident that banks are not continuing to lend as the Government say they are and must, but are in fact pulling the rug from under many perfectly good firms?

To whom can business turn for a reprieve, when a bank declares that it will withdraw an overdraft facility or suddenly call in guarantees? What is the Minister’s estimate of the number of businesses that will go to the wall in the coming year? Does he agree with some independent economic experts that unemployment will shoot through the 3 million mark by the end of next year? Is it not the case that although the base rate is falling, actual borrowing costs are rising through 15 per cent.?

The Minister mentioned the small firms loan guarantee scheme, but what plans do the Government have to extend this very narrow scheme to help businesses more widely? How, indeed, can they claim that regional development agencies will make a difference when the Government have just raided their budget to prop up the housing market?

Does the Minister share my analysis that there is growing anger that a Prime Minister who has spent the last years declaring that he has abolished boom and bust, while in fact storing up all the trouble that is now hitting us hard, is massively to blame for mortgaging this country just as bankers have mortgaged their banks? While demanding praise for building what he has not yet even paid for, he has delivered only the illusion of prosperity, behind which will now follow massive bills for future generations to pay. Having built the country on a mountain of debt, the Labour Government are now as bankrupt as the economy that they have created. Does that not prove the abiding truth of post-war British politics—that Labour Governments always run out of money?

Ian Pearson: I start by thanking the hon. Gentleman for his courteous welcome to me at the Dispatch Box.

What we are doing as a Government is concentrating on the real work of helping small businesses through difficult economic times. I would have liked to think that he would welcome the package of measures that we are announcing today. He mentioned small business rate relief, so may I remind him that the Opposition voted against the Bill introducing it?

Let me address the questions that the hon. Gentleman posed, first about the £350 million announced by the Department for Innovation, Universities and Skills. That focuses on SMEs as a top priority and relaxes the rules on spending on training to gain. I should have thought that that would be widely welcomed at a time when companies are thinking about shedding staff and about whether to move to short-time working. I should have thought that the ability to say, “You can work four days a week and you can train for one, so you will have additional skills”, would be warmly welcomed during these difficult economic times. I am surprised that the Opposition do not seem to accept that.

On the subject of prompt payment, the hon. Gentleman should be aware that Government Departments report annually on their progress in meeting payment targets. Yes, it is an ambitious target that Departments pay within 10 days—although I think that the majority of
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payments are already made within 10 days. If we can get this right, it could be a big boost to help small companies, but we are paying with taxpayers’ money and we need to make sure, when we are safeguarding the public purse, that the goods and services have been delivered and the invoice is right. We will then do everything we can to ensure that it is paid within 10 days.

Let me repeat the point about bank lending. We are not saying that there should be lending at 2007 levels; we are saying that the availability of that funding should be at 2007 levels, and that we expect banks to market actively and to offer competitively priced products to the SME sector.

There is clearly an issue in relation to rates. There is a great deal of anecdotal evidence out there suggesting that some banks are starting to look again at their lending practices and are insisting on higher margins. Although we cannot interfere in individual lending decisions and it would be wrong to do so, it is right that we should expect banks to be clear about their lending principles. That will be one of the subjects for discussion when my right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform and the Chancellor meet the banks tomorrow.

There was an accusation from the Opposition that we have been too slow in taking action. In March we announced that we would increase the small firms loan guarantee scheme by 20 per cent., because we understood that companies were going through difficult times and would need extra support. We are making such decisions. I heard the hon. Member for Rutland and Melton (Alan Duncan) argue last night in the debate that there should be lower spending. I do not see how, in our current difficult economic times, low spending will help the SMEs that he professes to want to support. That is bad economics, and he should be ashamed of himself.

Mr. David Clelland (Tyne Bridge) (Lab): The Chancellor of the Exchequer is considering bringing forward capital works in order to stimulate the economy in the face of the economic downturn. Is the Minister aware that improvements to the major road network and local rail services in the north-east, which are currently outside the scope of regional funding allocations, would be of major benefit to small businesses in the north-east, which have been calling for such improvements for some time? Will my hon. Friend draw to the attention of the Chancellor of the Exchequer the opportunity that the proposal presents for helping small businesses in the north-east of England?

Ian Pearson: My hon. Friend is right to point out that a number of worthwhile infrastructure projects could be brought forward to provide strong economic benefits while at the same time helping small businesses during difficult economic times. We are actively looking at such possibilities. Our policy contrasts very sharply indeed with that of Conservative Members, who do not want to borrow, think we are wrong and think we should be spending less. That would damage our economy, so it is not the right or responsible thing to do.

John Thurso (Caithness, Sutherland and Easter Ross) (LD): I am grateful to the Minister for having sent me a copy of his statement in advance—although there is not much new in it. The hon. Gentleman is right to draw
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attention to the importance of small businesses, which are the bedrock of commerce in many parts of the country and vital for our long-term economic growth. The key issue facing small businesses is cash flow and, more particularly, the availability of bank finance. Will he explain how the Government will ensure that the banks negotiating for refinancing will actually deliver on the sentiment? The sentiment in favour of maintaining availability is fine and laudable, but how will the Government ensure that that is what happens? May I suggest that a memorandum of understanding be agreed between the Government and the banks, which specifically deals with the question of rates, fees and availability? That should be agreed in principle in advance.

On payments to small companies, I welcome the move to oblige public sector bodies to pay up quickly, and within 10 days, if possible. Again, however, how will the Minister ensure that that actually happens, given that most of those bodies have computerised payment systems that operate on a monthly basis?

How will the Minister ensure that HMRC will be more flexible, particularly when the work force change programme is taking 10,000 skilled people out of HMRC and replacing them with a call centre operation? And what can he do to ensure that private companies, too, pay more quickly? Will he talk to the CBI about how it could talk to its members about that?

The Minister mentioned the small firms loan guarantee scheme. Is he aware that its annual report, published in August this year, noted a further decline in the number of loans given—notwithstanding the new money. Total loans now stand at £270 million, but default rates are about 13 per cent., and the biggest complaint from small businesses is about the administrative burden of getting into the scheme. The best way to make that scheme work is to improve the administration, so what action is the Minister taking to get the administration right?

Ian Pearson: I thank the hon. Gentleman for his comments, particularly his welcome for the Government’s attempt to ensure prompt payments. Yes, there are administrative difficulties in carrying out some of these measures, but there is a clear commitment from the top to do that. We need to ensure that the system continues to deliver. As I said, a significant majority of payments are already being made within 10 days, but we need to consider how to raise that performance; it is a question of managing for better performance. Yes, we also want to encourage large private companies to pay their suppliers more promptly, and I have no doubt that we will want to discuss the matter with them.

The hon. Gentleman asked about HMRC. We have said that we want it to look into how it can operate more flexibly during these difficult economic times, and I have no reason to believe other than that it will want to do just that.

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