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22 Oct 2008 : Column 100WH—continued
11.30 am
Banking Services (Small Businesses)
2.30 pm
Lorely Burt (Solihull) (LD): I was grateful to have secured this debate, but when I heard that the Government were making a statement on support for small businesses, I hoped that I would be able to tear up the speech. Sadly that was not the case, but we are all grateful for any small measures that they come up with to support small businesses. We have all watched financial events unfold over the past few months with huge concern. Every person in the country is affected, but today I ask the Government to help the small business sector to survive over the coming months.
Ten days ago, a small business owner in Solihull e-mailed me to say that his bank, HSBC in Solihull, had withdrawn his business overdraft without warning. He described his business profile as very profitable overall, but spiky. He needed an overdraft to help him get over the spikes. His so-called relationship manager had already agreed verbally to the facility and was mysteriously unavailable when he tried to contact her for an explanation. Naturally, I have written to the manager of the bank and to the chief executive of HSBC about the matter.
I have also written to the chief executive about the case of another small business involving the Harborne branch of HSBC. An art studio and retail outlet opened with the full support of that bank. The three directors provided the start-up funding. The business applied for an overdraft to ease its early cash-flow problems caused by having to pay the business rent three months in advance. Despite being able to demonstrate steady growth over the first six months, the application was flatly refused.
The Federation of Small Businesses has been good enough to provide me with further examples from all over the country. Barclays has raised overdraft rates from 2.2 to 5.5 per cent above the base rate. On one company account in east England, it was raised to 7 per cent. above the base rate. NatWest doubled its interest rates on an overdraft and loan for a south Wales-based company and introduced a facility fee of 2.5 per cent. The company had never defaulted on or delayed a payment, but its banking overheads were increased by £100,000 a year. There are more examples, but you get the flavour, Mr. Amess. I find it sickening that some banks are pulling the carpet from underneath small businesses when those same banks have been treated most generously by the taxpayer.
Some businesses are being squeezed at both ends of the credit chain. Some large companies, including supermarkets and retail outlets, are arbitrarily changing their terms of business by extending payment schedules in their own favour to improve their cash flow. Boots, which I name and shame, has extended its terms from paying suppliers about 45 days after the delivery of goods or services to potentially more than 100 days.
I welcome today’s statement that Departments will make prompt payments to their supply chains within 10 days. I also welcome the commitment given in last night’s debate to look at lowering barriers to enable small businesses to become approved suppliers for Government contracts. Frankly, it is currently hard for small businesses to get a look in. Local authorities such as my own in Solihull can be seduced into awarding
huge swathes of service contracts to large companies, thereby cutting out small suppliers. Will the Minister undertake to ensure that the prompt payments to first-tier suppliers feed down the supply chain?
Mr. Brian Binley (Northampton, South) (Con): On that point, let us take as an example a big company that has 400 small businesses in its supply chain. The Government will deal with the big company and pay it, but the trickle-down effect is immensely slow and I fear that it will get slower. Does the hon. Lady see that as a problem? Perhaps she will ask the Minister whether there is any opportunity for the Government to help in that respect with their major suppliers.
Lorely Burt: That is an excellent point, which covers exactly what I am about to ask the Minister. Will she undertake to ensure that the prompt payments that the Government and its agencies make to first-tier suppliers feed down the supply chain? If that does not happen, it will be predominantly large companies that benefit and not the little guys at the bottom.
Worryingly, a Federation of Small Businesses survey found that 51 per cent. of businesses were seeing an increase in their payment times from invoicing to full payment. The FSB maintains that that reflects its concern that large companies are improving their cash-flow performance on the backs of smaller companies. If a small supplier does not like it, they can lump it. The large companies hold all the cards, but should they? Should not the companies that can pay in a timely manner exercise some corporate social responsibility and pay?
When such cases are brought to the attention of the Government, is it possible for a Minister to put pressure on large companies to see whether their influence can persuade those companies to take a more responsible approach to their payment terms? It is in the interests of large companies to do that, as the hon. Gentleman pointed out last night. Otherwise they may find that they have no supply chain left.
At the other end of the credit chain, banks often increase charges for credit or cut off credit facilities arbitrarily. Banks have suddenly and unilaterally altered loan deals and then charged firms higher administrative costs for making those charges. I read that in the Daily Mail, Mr. Amess, so it must be true. Some banks have argued that changes in interest rates and other charges will push only companies that are in trouble over the top. Let me tell them that in the vast majority of cases, the problem is not solvency but liquidity. The FSB survey also found that more than three quarters of companies that borrow have seen an increase in the cost of their finance over the last year. A survey by the London chambers of commerce conducted last week and this week found that more than a third of businesses have experienced difficulty in accessing credit as a result of the financial turmoil.
Mr. Binley:
The hon. Lady raises an important point that I want to highlight. In many cases, this is about contingency. We will see more bad debt and an elongation of the payment of invoices. Small businesses can run into a one-off problem or have cash-flow problems even if they are very profitable. It is that understanding that we need from the banks—that firms can be very profitable
but still get a major hit on cash flow, which they need real help with there and then. They want the bank’s decision made there and then, too.
Lorely Burt: I am grateful for that intervention, because again the hon. Gentleman raises an important point. If he will have a little patience, I will go on to talk about some of the things that we could ask the Government and the banks to do to help to resolve the short-term cash-flow problems that many of these small businesses have.
The Government have made £50 billion available to the UK’s top eight banks and say that they will require those banks that they bail out to give competitively priced debt facilities to small businesses. The Government have said that the arrangement that they have made with the banks is for the banks to maintain the same level of lending for the next three years as they maintained in 2007.
Susan Kramer (Richmond Park) (LD): I apologise for arriving late; I did not race back for this debate from the vote in the House as fast as some other hon. Members managed to.
One of the fears that some businesses in my community have is that they have never needed credit in the past, but because of late payment they suddenly need credit and they have no credit history. They are very afraid that the definition of credit to be made available excludes them, because they were not part of the customer pool in 2007. Will my hon. Friend ask the Minister to address that?
Lorely Burt: Indeed. That is another crucial problem for those companies, which have been so successful in the past that they have not been hit by this tsunami of financial difficulties. Now, at the very moment that they need to ask their banks for help, they face difficulties. I am sure that the Minister has taken note and will ensure that, where banks have customers who have had good cash-flow records in the past, the banks should look very sensitively at this new group of—let us face it—potential good customers.
On the £50 billion that the Government have made available and the 2007 lending levels to which the banks must adhere, only yesterday Lord Mandelson was rowing back on that commitment, saying that the banks would “offer” money at those levels.
Of course, I would be the last one to criticise the Government for not helping small businesses. The Prime Minister negotiated £12 billion-worth of aid through the European Investment Bank. That money is to be made available in the form of “soft” loans from British banks. However, the reason, apparently, that the release of these loans has been delayed is because the Government interfered in how the high street banks should co-ordinate in order to promote the scheme.
I received assurances in the small business debate last night that the Government are not holding up those moneys. I am sure that they do not intend to. However, I do not have a single example to quote yet of that money trickling through to where it is urgently needed. I urge the Minister to get on with it and release that badly needed funding. I hope to goodness that it will
not get snagged up in the miles of red tape that we have seen created by other Government grant initiatives. Forget the red tape, because as we speak, companies are failing for want of this life-giving cash injection.
Mr. Mark Hoban (Fareham) (Con): The hon. Member for Twickenham (Dr. Cable) has talked about excessive levels of debt, which leads to the argument that there should be less debt around. Who does the hon. Lady think will suffer as a result of reducing debt levels?
Lorely Burt: I am not entirely sure that I understand the point. When the hon. Gentleman talks about reducing the levels of debt, does that mean debt for the companies or debt for the banks?
Mr. Hoban: The hon. Member for Twickenham frequently talks about reducing the level of debt in the economy. That means that banks will have to lend less if they are to reduce the level of debt. Who will suffer when that level of debt comes down?
Lorely Burt: I am not aware of my hon. Friend having made any such statement. Only today and in the debate yesterday, my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso), who is sitting here and is big enough to speak for himself, agreed with the Government about the amount of borrowing that is necessary to try to refloat the economy. I am not sure where the hon. Gentleman has taken that idea from, but I suspect that it may be slightly incorrect.
John Thurso (Caithness, Sutherland and Easter Ross) (LD): Is it not the case that the debt to which my hon. Friend is referring is the vast tide of toxic debt that has been wracked up by a greedy City, which sloshes around in the balance sheets of banks, bringing them to their knees? That is the debt that we want to see removed from the economy.
Lorely Burt: I am extremely grateful to my hon. Friend for that intervention; he has helped me out very graciously there.
Perhaps I can help the Minister with some further suggestions. I was wondering whether it would be possible for her colleagues to negotiate an agreed protocol with all the banks that have received taxpayers’ money. My hon. Friend the Member for Caithness, Sutherland and Easter Ross, in his response to the Government statement, asked for the Government to agree a memorandum of understanding on vital issues, such as limits to the fees and rates to be charged, availability of finance and so on.
Could that list not also include, say, a requirement that banks always give at least one month’s notice of any changes in banking terms of business? Furthermore, could the other banks not adopt the same sort of procedure as Lloyds TSB, which has about 5 per cent. of its business customers on a special “watch list”, to give them extra support? How much better is that than pulling the rug out from under them?
In the small business debate yesterday, the attitude of some banks that make arbitrary decisions at a level removed from the immediate branch and the customer’s situation was raised. The best person to decide how help is to be given is surely the person who is closest to
the problem. It is meaningless to designate someone as a “relationship manager” when there is no real relationship. They might just as well sit there and say to the company that approaches them for help, “Computer says no.” I will be making these points when I meet the chief executive of the British Bankers Association next week. However, what we really need is for the Government to row in and ensure that these changes, or something like them, happen before it is too late.
I know that this is a crazy idea, but could we not even get the magnificent Business Link advisers to row in and help struggling companies? Indeed, the Economic Secretary suggested that in his statement. Those advisers could work with the banks to help businesses, perhaps requiring banks at least to consider schemes such as the small business loan guarantee scheme. Would that not be a really good use of Business Link advisers’ time?
I do not know whether the Minister has noticed, but take-up of the small firms loans guarantee scheme has been steadily declining. I think that that is because many companies need more than the existing £250,000 limit and the process to obtain the money has been criticised by many businesses as being the biggest barrier to obtaining it. Why not increase the limit that a firm can apply for and get rid of the red tape that is holding firms back? After all, we would not stop at a roadside accident where a victim was bleeding to death and fill in a questionnaire before applying a tourniquet, would we?
Having said all that, the picture is not all bad. Some small businesses can prosper in economic downturns such as this one because they are more flexible in adapting to a changed market circumstance.
Mark Williams (Ceredigion) (LD): One particular problem that many businesses face in my constituency and that of my hon. Friend is the continuing failure of rate relief on empty properties. That is a standard fee which is very costly to the type of businesses that she is representing. As some of our small businesses contract, that situation is getting markedly worse. Would she welcome an extension, at the very least, of the three-month holiday period for payment on empty properties?
Lorely Burt: I completely understand what my hon. Friend is saying. Indeed, I do not know whether he has seen my early-day motion on that subject, which calls for the Government to re-examine the policy on rate relief for empty businesses. Companies are making money from needlessly demolishing commercial property because the property owner cannot afford to pay the empty property rate relief. I have a constituent who is letting his commercial premises in Birmingham at only 50p a square foot, because he cannot afford to pay the empty property rate relief. My hon. Friend makes an important point. Why, at a time when it is clear that there will be much less demand for commercial property, can we not help this sector of the market and make some adjustments to Government policy? Otherwise, when the upturn comes there will be nobody to do all the jobs that will be created.
On a positive note, however, businesses—particularly small businesses—are extremely flexible. They can survive and prosper, but only if they get a little help from their friends, the banks.
2.52 pm
Mr. Ian McCartney (Makerfield) (Lab): I congratulate the hon. Member for Solihull (Lorely Burt) on securing this debate in such a timely manner. I know that she has a strong interest in consumer affairs. When I was the Minister with responsibility for trading and consumer affairs, she represented the Liberal Democrats with distinction, although she caused me uncomfortable moments at times, particularly during the passage of the Consumers, Estate Agents and Redress Act 2007. During the passage of that Act, she spent a great deal of time talking about vulnerable consumers and the impact of indebtedness on them, individually and as families. The points that she made in today’s debate are among a family of measures that she is prepared to set before the House.
I declare an interest: since leaving the Government, I have become president of the Money Advice Trust, which was founded in 1991, following the Conservative Government’s report on indebtedness and the lack of free face-to-face advice—or free advice of any kind—to help people to get out of debt and to manage their resources effectively so as to prevent them from going further into debt, or back into debt once they had come out of it.
Since 1991, the president of the trust has been Lord Borrie, so I have large shoes to fill. I am enjoying the role, and I hope to give a flavour of the trust’s work to all hon. Members, because it is not a partisan political organisation. Indeed, during the Conservative party conference in Birmingham, the Leader of the Opposition visited the service and was made extremely welcome. He had a private discussion and debate not just with those who run the national debt advice centre in Birmingham, but with the staff who have daily contact with people to work on their indebtedness and to help them through it to reach the other side and keep them and their families together.
The Money Advice Trust is there to increase the quality, availability and efficiency of money advice. It receives resources from Departments and from the banking and other sectors, with two thirds of its funding coming from outside Government and one third from Government. The trust’s job is to co-ordinate money advice, provide direct service provision free to all who contact it, provide information, and influence the training and research of the money advice sector.
The trust is chaired by Martin Hall, former director general of the Finance and Leasing Association, who has a great reputation in the City and in the voluntary sector, where he is involved in work in this area. The chief executive is Joanna Elson, a former executive director at the British Bankers Association, who is one of the most effective chief executives working in this area, in this country and in Europe.
The Money Advice Trust opened up Business Debtline and has now received pledges from the Department for Business, Enterprise and Regulatory Reform, for which I wish to thank the Minister, for an ongoing budget through to 2010. Since September this year, demand for the Business Debtline service has risen by a staggering 60 per cent., putting stress and strain on its resources and ability to give good-quality advice to those who need it, and need it quickly.
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