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22 Oct 2008 : Column 106WH—continued
The co-ordination of the free-to-client money advice sector, which includes Citizens Advice, is done by the trust. As a consequence, through Government funding, we now have the largest number of debt advisers of any country in Europe. That is down solely to the funding provided by the Government and the significant role played by the former Treasury Minister, my right hon. Friend the Member for Normanton (Ed Balls).
The National Debtline and Business Debtline have helped 135,000 people so far this year. They have trained more than 90 per cent. of the country’s free-to-client debt advisers, including those funded by the Treasury’s financial inclusion fund. The trust is training a further round of debt advisers, who will work not just for the trust, but for other parts of the sector. It will be training the advisers to deliver the Government’s mortgage rescue system, and it looks forward to taking up that task as soon as possible.
Since becoming president of the trust, I have held meetings with the Treasury, the Ministry of Justice, the Department for Work and Pensions, the Department for Communities and Local Government and the Department for Business, Enterprise and Regulatory Reform to keep them abreast of developments, and they are all investing in one form or another in the trust and its services.
Business Debtline is becoming a much valued asset and resource, and the trust hopes to be able to keep the House and the Government abreast of what the debt line finds. It is a unique national service, offering free, confidential and independent advice by telephone on how to deal to with debt or the cash-flow problems that trading businesses encounter, and which lead to financial difficulty.
Business Debtline was the first crisis intervention hotline for small businesses created in western Europe. The positive impact that it is having is such that the European Commission and other partners have asked it to assist in the launch of three similar pilots in France, Spain and the Netherlands. The problem of small business indebtedness is not peculiar to this country; it affects small businesses across the globe.
This current credit crunch takes vulnerable businesses to the brink. It adds to our burden and problems with the market, cash flow and relationships with suppliers, in getting back from them the income that they owe. That all adds up to a difficult situation for small businesses, as has been reflected time and again in calls to Business Debtline.
About 15,000 small businesses based in the UK will have contacted Business Debtline by the end of the quarter. The Business Debtline website was launched a year ago and is receiving 100,000 hits per month. It is designed to give practical help and advice to small businesses.
From my point of view, there is no point in my representing the Money Advice Trust and not letting hon. Members know just how much effective intervention is needed at an early stage, and how many businesses require such help. The Government are already using that type of information, which has been reflected in ministerial financial statements, in the Secretary of State’s statement yesterday and by the Economic Secretary to the Treasury in the House this afternoon.
During September, Business Debtline received more than 5,500 calls from businesses seeking help and advice. As I said, that is an increase of 60 per cent., compared with an increase of 30 per cent. in calls to the debt line for consumer customers, who are not business owners. The pressures on the business community, particularly the small and micro-business community, are intense at this time. It is important that the free advice that is provided allows businesses to survive and to utilise the other services being made available to them, whether through the Government or other agencies.
I met with Which? on 14 October on behalf of the Money Advice Trust, and during that meeting explained the newly established National Economic Council, which is a welcome initiative by the Government. I wrote to the Chancellor on behalf of the trust to indicate the importance of working with the trust.
However, one aspect of the council needs strengthening at some stage, and that is that it does not have any direct consumer representation. Which? has now put that in the public domain, and I welcome its support, but it was the trust that wrote to the Chancellor first, on 14 October, and asked him to consider establishing at least one place on the council for an independent consumer representative. For that, I do not mean a politician such as me. There are many skilled, knowledgeable people whose job it is to represent consumer interests, and they could play an effective part.
The whole point of the council is to deal with the practical nuts and bolts of how this country takes on the challenges, one of which must be to ensure that the problems faced by individual consumers and small businesses are reflected through the council. I ask my hon. Friend the Minister to ask the Chancellor to look at that request sympathetically.
I also wrote to the Chancellor to tell him that on Monday I will be bringing together all the partners that provide money advice across the United Kingdom: citizens advice bureaux, AdviceUK, the Consumer Credit Counselling Service, the Institute of Money Advisers, Citizens Advice Scotland, Citizens Advice Northern Ireland, Money Advice Scotland and Advice Northern Ireland. We will discuss how we can respond more effectively to the current crisis, the demand for advice services, our current capacity and what capacity we forecast will be required next year. We need to co-ordinate across the whole sector and work not just as individual groups but collectively to maximise the service to the benefit of consumers who are in debt or may get into debt if they do not get proper free advice. We are looking for better ways to work together and to improve access to the capacity that we already have.
We are looking at how the recent steps that the Government have taken in the banking system will affect funding for the free advice sector. Much of our work is done with the banking sector, and of course changes to the structure of the banking system have already taken place. We are looking at how the changes will impact on the job that we do for the Government in terms of the resources that they provide and what more we can do to assist. We are looking at how we can help the Government to help consumers with actual or potential debt problems. I shall write to the Minister following the meeting on Monday, and I hope that we can discuss as soon as possible the outcomes of the meeting, because
the whole purpose of the groups, in helping the consumer, is to help the Minister to understand the issues that consumers face and what we can do as a sector to assist consumers and secure support for them.
One thing that is always forgotten when people get into debt is the fact that the vast majority of them did not get into that situation because of wilful failure on their part. An overwhelming majority of people who get in debt want support and help to get out of debt. More than 80 per cent. of the people who are helped by our service repay their debt and go on to repair the damage done to their life and their family.
The damage done by debt can be severe. Debt can cause severe problems to people’s health, and to relationships in the family and in the workplace. Ultimately, for small businesses, it can lead to their demise and, with that, a demise of the financial structure that underpins the stability of the family, including the potential loss of other assets such as the home.
Debt is not something that someone willingly takes on. It has a serious impact on individuals and families. The debt advice sector is important in helping the Government when people are in debt and in securing resources to do that. It also feeds back to the Government and to the House what is happening on the ground in a fast-moving situation. Even where there is total sympathy, as well as the structures in Government to assist and support people and the community, the fact is that it is only through the debt services that such problems are quickly discovered.
It was through debt counselling, for example, that we became aware of and advised the Government about problems in the court system. Too many people were being automatically put up for repossession when other measures could have been followed first. That information came through the phone lines of the Money Advice Trust and others who give advice. Therefore, the debt advice sector is critical to helping to find solutions to problems that are arising.
I offer the Minister and her colleagues in the Treasury an opportunity after next Monday to get feedback, and I hope that out of that feedback we will be able to provide an even more effective advice service on behalf of her and her colleagues, and co-ordinate effort across the whole sector—not just the Money Advice Trust, but all the other organisations that I named. All of them, in one part or another, receive resources from the public and the private sector, and it is our job to ensure that we provide support services not just to those who are in debt, but to the Government, who want to provide the best possible services to prevent people from getting into debt, or, if they are in debt, to help them to get out of it.
I again thank the hon. Member for Solihull for this opportunity. I hope that the information that I have provided to Members has been of interest. I would be happy to make arrangements for any Member who wished to do so over the coming months to visit our services in Birmingham. On the ground, meeting the staff, Members would get a better understanding of the services that we provide, the quality of the advice that the staff give and the knowledge, sympathy and empathy that they bring to the discussion. We are the first point of contact for many people. Their whole life is crumbling before them, and what they need is someone who has
not just knowledge but sympathy and empathy to take them through reconstructing their life and to help them through the business of getting rid of their debt.
I have a final point to make about the banking system and our discussions on reforming it. When I was a Minister, we established services in places such as Birmingham—they have now been rolled out across the country—to prevent people from getting into the hands of illegal money lenders. In the evidence about how illegal money lenders operate, it came out that, in the first instance, banks had removed themselves from giving quality, legitimate, transparent assistance to communities, small businesses and citizens, particularly in poor, inner-city and urban areas. When the banking system withdrew its services, it opened up opportunities for illegal banking services and all the social and criminal problems that come in their wake.
Therefore, when we consider the future of the banking system, we must ensure that the institutions that come out of the rescue package go back into and invest in those communities and, alongside the voluntary sector, offer banking services to ensure that people are not forced into the hands of illegal money lenders.
It is nonsensical that in large parts of the United Kingdom in the past 20 years or so banks have consistently withdrawn their services to communities and that, as a consequence, millions of pounds of legitimate business has been forced through the hands of illegal money lenders rather than through the legitimate facilities of banks and building societies. There is an obligation on the industry to work with the Government, who are putting in huge resources to rid the country of the scourge of illegal money lenders. We can put them in jail, but others will come in if legitimate banking services are not available.
The lesson that we should all learn is that the only way to keep illegal money lending out of the system and stop people getting into debt to money lenders is to reintroduce legitimate lending services through the banks, building societies and other institutions. The Government have done a great deal of work on that, and I hope that my hon. Friend the Minister will take it forward.
3.8 pm
John Thurso (Caithness, Sutherland and Easter Ross) (LD): I congratulate my hon. Friend the Member for Solihull (Lorely Burt) on having secured this debate at this time. She has clearly caught the mood of the moment.
Before I respond to her remarks, may I briefly congratulate the right hon. Member for Makerfield (Mr. McCartney) on his contribution? It was not so much about small business—more about individual people—but it was important. I recall that when the Minister and I sat on the Treasury Committee together, we looked in some detail at the matter that he discussed. There was a great deal in what he said, and I am sure that the Minister will be sympathetic to it.
One point that I would make briefly is about the importance of credit unions. I happened to have the opportunity late last week to be in a pleasant part of Scotland called Glenrothes. I visited the credit union there and was impressed by the work that that small credit union in the kingdom of Fife was doing.
My hon. Friend has clearly caught the moment. We are at the point where what was, a year ago, a credit crunch that appeared to be almost entirely confined to the City has now well and truly spread out into the high street. Small businesses are vital for commerce. They are major employers and, when taken together, they form the majority of the local economy, particularly in many rural areas such as the one that I represent. Those employers are exactly who hon. Members would expect: hoteliers, restaurateurs, shopkeepers and small farmers, who run important businesses. Interestingly, they are also often small start-up companies in the knowledge economy, which are being nursed through and are growing. All these companies find themselves suddenly vulnerable. For all of them the problem is the same: cash flow. We are back to that moment when cash is king.
I was running a business in the last recession and was responsible for one in the recession before that. I know precisely what owners and managers are thinking at the moment; they are worrying about where the money is coming from to meet the payroll. That is everybody’s worry. Next after that they are worrying about how on earth they will deal with Her Majesty’s Revenue and Customs on tax and VAT. They are trying to squeeze their debtors to pay quickly and stretching their creditors as much as they can, they are cancelling orders where they can and are not going ahead with capital expenditure. On top of all that, the real worry is whether they can hold on to their banking facility and whether their bank will stand by them through this situation.
We heard evidence earlier—we heard evidence in the debate in the main Chamber yesterday and during the statement this afternoon—of banks removing facilities. One problem is that overdraft facilities may be agreed for a year, but the fine print says that those are repayable on demand. Another problem is that, suddenly, as my hon. Friend mentioned, interest rates are going from around 2 to 2.5 per cent. up to 5 and 7 per cent.—and I have heard that they are going higher—and facility fees, which used to be £100, are suddenly £500 or £1,000 or whatever it may be. It is vital that we get to grips with that problem with the banking sector.
Since the Conservative spokesman, the hon. Member for Fareham (Mr. Hoban), raised the point, I should say there is nothing either particularly good or bad about debt. What is bad is badly constructed debt—the toxic debt that I mentioned in my intervention—and irresponsible lending to people who, frankly, should never have had the money in the first place. I am thinking particularly about young people who have been encouraged to take credit cards at exorbitant rates.
I was told a story six or eight months ago about a young lady who had amassed twice as much debt on credit cards as her annual salary. That is unacceptable. I would like to see such levels of debt reduced. I would not want to get back to such a level of irresponsible lending. Banks lending to companies that are solvent but need liquidity and the Government borrowing to advance projects to stimulate the economy are both examples of acceptable debt. We should encourage that, provided that we do so appropriately.
My hon. Friend set out the problems: one’s facility being taken away quickly and the cost involved. My hon. Friend the Member for Richmond Park (Susan Kramer) raised the problem of companies that have never had to acquire debt but find themselves with a working capital deficit and need to ask for some credit. At the moment, if people do not have a credit history they are unlikely to get a facility. The Government statement made this afternoon contained a fine sentiment, which was the promise that debt would be available at 2007 levels. In the statement that I received, “availability” was underlined. So it is the availability that is there.
I am delighted that a Treasury Minister is responding to this debate, because there is a real opportunity tomorrow, when members of the Government and Treasury officials meet with the banks as part of their negotiations, to ask for a formal memorandum of understanding or protocol to deal with these issues in principle before we get into the terrible situation of Government officials having to arbitrate on individual loans, which would be unacceptable. I suggest, as my hon. Friend the Member for Solihull said, that under such a protocol banks would agree not to exercise their right to cancel facilities overnight, but would give a minimum of 28 days’ notice. They would also agree to honour previously agreed facility fees and interest rates. The Government might like to consider asking the banks to allow businesses with term loans over five, seven or 10 years, for example, which are mostly made up of capital repayment with an interest slug on top, a holiday without penalty from the capital repayment, which would save them a lot of money, because it would be an interest-only loan and the capital sum could be added to the end of the term loan with interest on it.
Mr. Hoban: Is there not a challenge here? Every time a loan is extended to a customer, that means less capital is available to lend to other customers. We are talking about banks with a finite amount of capital at the moment, where lending levels are lower, and there is an issue about trade-off, which needs to be recognised.
John Thurso: I understand the difficulties. In a 10-minute speech it is difficult to encapsulate all the detail.
Returning to what is good debt and what is not, if we are to allow borrowing in certain areas, it should be allowed for solvent companies with temporary cash flow difficulties in respect of their working capital, to help them by making minor adjustments, which the banks have done commercially on their own in the past. Agreeing that through a memorandum would be highly desirable.
The idea of making Government bodies at all levels pay at 10 days is laudable. However, I worry about how that will be policed or even quantified, because the vast bulk of large organisations pay by computer, usually through a monthly computer run to the bank. Will these organisations be in a position to make the payments that they are promising? However, more important than that is the point raised by my hon. Friend regarding large plcs conserving their cash by putting pressure on creditors who do not have the clout to argue with them. It is undesirable to attempt to legislate in any way on this. I suggest that the Minister talks to the CBI about the possibility of its making the point to all its members.
Such a measure will ultimately have to be voluntary, but peer pressure from a respected organisation, such as the CBI, would make a considerable difference.
Finally, in the statement there was much talk of HMRC becoming more flexible, which I am looking forward to. However, I would like to know how that would work, because, as I recall, HMRC has a directive to be as efficient as it can about recouping its money. During the statement, my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) requested that the Minister at the Dispatch Box place in the Library of the House of Commons the new instructions being given to HMRC. However, the Minister was unable to answer that point, largely because he was from the Department for Business, Enterprise and Regulatory Reform. Perhaps the Minister will tell us when those instructions will be put in the Library.
My hon. Friend the Member for Solihull made a powerful case, and I hope that I have added a few constructive suggestions for the Minister to think about. It is clear that small businesses are vital to our economy. They will go through a short period that will be very rough and cash flow will be at the root of it, so anything that we can do to help them will be a wise investment for the future.
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