Examination of Witnesses (Question Numbers
80-99)
RT HON
LORD MANDELSON,
SIR BRIAN
BENDER AND
MR JOHN
EDWARDS
21 OCTOBER 2008
Q80 Miss Kirkbride: That still does
not answer why one set of jobs should be more important, but we
will park the RDA. Given that sub-prime got the banks into this
position, has the Department made any assessment of the level
of corporate debt, and whether that is going to make things worse
in the future?
Lord Mandelson: Sub-prime in the
United States got all our banks into this position, and the rather
complex and uncreditworthiness of the derivative financial products
that stemmed from the sub-prime market got us into this difficulty.
We are not going to get out of this difficulty entirely until
we go back to the core of the problem and to put that right. That
is why this crisis started in the banking sector across the Pond,
and that is where the remedies have got to start as well.
Q81 Miss Kirkbride: So no worries
about corporate debt. One final question: you will be aware that
the building societies do not require a rating by the ratings
agency, yet the Government now requires local councils to put
their money with banks and other organisations that have a rating.
Are you at all concerned about this and the potential impact that
might have on the building society sector?
Lord Mandelson: I am certainly
concerned that the credit ratings agencies need to polish up their
performance as well. They need reform, they need clarification
of their role and they need to give much sharper, quicker authoritative
information to the market than, frankly, has been the case entirely
to date.
Q82 Mr Binley: You will know that
60% of private sector employment is with the SME sector; you will
know there are about 4.7 million businesses within that sector,
and you will know there is some sizeable concern, and they need
to know that their Ministers fully understand what their sector
is about. What experience do you have of the SME sector and what
understanding might you have—and how you gained it—of
the culture of small businesses?
Lord Mandelson: I have represented,
looked to and, indeed, received support in my stance vis-a"-vis
small business throughout my time, both as a Member of Parliament
and as a previous Secretary of State. I also brought that concern
and knowledge into the European Commission where I was a strong
advocate of changes in regulation that would benefit small firms.
I have never run a business myself—I have run campaigns
but not businesses. I think, insofar as a politician is able to
expose him or herself to the realities of everyday life amongst
small businesses, I have done so. Obviously there are limitations.
Q83 Mr Binley: Of course I understand
that. Let me move on from there because you went through a list
of concerns that had been voiced to you: interest rates being
shoved up to, maybe, 15% or 16%; facilities, maybe, being withdrawn
and certainly being lessened; personal guarantees being demanded—all
of which puts on extra pressure, and pressure now—and yet
you tell me that you are going to meet to discuss this in a week
or so. Can I impress upon you, Secretary of State, that small
businesses are in serious trouble now and many of their arrangements
are being worked out now? Will you give us an undertaking that
you will not leave it for a week or two but that you will get
in there now and make sure that the banks, which have had billions
and billions of taxpayers' money, treat small and medium sized
businesses fairly, because many people think they are not? Will
you give that undertaking?
Lord Mandelson: Yes, firmly and
clearly. I am not dragging my feet, and, to demonstrate that,
I can announce that I am meeting the chief executives of the banks
with the Chancellor this Thursday.
Q84 Mr Binley: I am delighted. You
will tell them to play fair by small business.
Lord Mandelson: I certainly will.
Look, there are two aspects of the problems, the challenges, facing
small firms: one concerns cash flow and the other concerns access
to finance. As far as cash flow is concerned, we have given a
very strong lead (and I championed this myself within days of
becoming Secretary of State) in announcing that central Government
will pay its suppliers, many of whom are SMEs, as soon as possible
and within 10 days at the latest. Yesterday the Regional Development
Agencies committed themselves to this, and I can announce today
that my colleagues, Hazel Blears and the NHS Chief Executive,
David Nicholson, are writing to the local authorities and to the
NHS Trusts respectively asking these public bodies to follow suit
as well. The other sources of cash flow which have got to act
in this context as well are larger businesses themselves. We cannot,
as a Government, force larger businesses to make sure that they
pay promptly to the, literally, tens of thousands of small firms
constituting their supply chains, but we can exhort them to do
so and we will do so powerfully and continuously. Obviously, the
other aspect of cash flow is not just the sort of cash into these
enterprises but cash out, including to the Revenue. The Chancellor
has indicated to his colleagues that he is going to look at what
options there are for the Revenue authorities to show some discretion
and flexibility towards SMEs. I welcome that. There have been
particular proposals relating to VAT and to National Insurance.
In one case the idea is for concessions to SMEs to be paid for
by other businesses, which I do not think will appeal hugely to
the other businesses. There is also a concern amongst SMEs that
rolling over payments in VAT will lead to an accumulation, as
it were, of debt which will make it harder for them to discharge
in the future. So we must be careful in this situation of robbing
Peter to pay Paul; we must be careful of creating a situation
where small firms are building up further problems for themselves
in the future by decisions that are being taken now. As far as
access to finance is concerned, we are looking to the banks, as
you know, to maintain the availability and active marketing for
competitively priced lending to SMEs at a level at least equivalent
to that of 2007. It is important that we focus on what that means.
Availability is not a requirement to lend at 2007 levels in volume
terms. Our aim is to ensure that capital provided by Government
to the banks through the recapitalisation is allocated in the
bank in question to their small businesses lending division to
meet demand for lending. I cannot project into the future what
level of demand there will be, but it is why we are also requiring
banks actively to market lending to SMEs so that small businesses
know the banks are open for business. We are not second-guessing
the banks' judgment on particular lending decisions; banks will
continue to use their own credit assessment, but they do have
to offer competitive rates which will attract good business propositions.
I think that 2007 gives us a benchmark to measure this against.
We want to see banks taking appropriate risk assessment on SME
lending and being responsible, but not being unduly risk-averse.
I am talking about the banks undergoing recapitalisation. We can,
alongside that, exhort banks that are not being recapitalised
with that Government facility to follow the same approach, and
to adopt the same—
Q85 Chairman: There is some speculation
that some of the banks not being capitalised are the worst offenders
in this respect, so it is a very important point you have just
made.
Lord Mandelson: It is a very important
point, which is why the Chancellor and I are meeting their chief
executives on Thursday. The three putatively recapitalised banks
in question do make up 50% of small business lending. Given that
they operate in a competitive environment (they are competing
with other banks), we can expect other banks to match this activity
in the marketplace. They do not want to fall behind in their lending
in a way that would put them at a sort of permanent disadvantage
in the future. The Government will monitor how the recapitalised
banks are delivering their commitment on SME lending. We will
ask the banks how they will achieve this, including the availability
of capital and liquidity allocated for their small business division,
as well, of course, as their mortgage lending. We will be asking
them about their marketing plans and their principles for SME
lending from head office to branch level. There is no point in
talking a good game at the top when what is happening on the ground
is very different.
Q86 Mr Binley: Can I just pursue
that theme, because the whole structure of banking has changed
and, in many respects, moved away from small business in terms
of decision making. It is much harder to get a decision—a
quick decision particularly—and at this time quick decisions
are vital. You only need a bad debt of £8-10,000 in a small
business to be in quite serious trouble, and you need to know
your bank is going to get you over that hit, even though you have
a profitable business. Will you also impress upon the banks that
quick decision-making for small businesses, right at the lower
level that you have just talked about, is a vital part of this
process?
Lord Mandelson: It is vital, but
it is also important that whilst we have to accept that a good
risk for lending to an SME 12 months ago could, for perfectly
understandable reasons, look like a much worse risk now, which
the banks will have to take into account, that should not mean
that they should either drag their feet or attach onerous conditions
and interest to that lending which goes beyond the risk that the
banks are taking on in making that lending. So there is plenty
of discussion to be had between us in the months to come. As I
say, what we want is good practice from the non-recapitalised
banks as much as we do from the recapitalised ones, but, also,
we want some care and sensitivity from the Revenue authorities
when it comes to—
Q87 Mr Binley: That is going to be
a difficult task.
Lord Mandelson:— interacting
with business in the current climate. I recognise the important
role that Her Majesty's Revenue and Customs approach to business
tax compliance can play in managing the economic downturn for
small businesses, and my officials have already raised the matter
directly with the Treasury and with the Revenue authorities. Actually,
they already have a policy of flexibility in dealing with struggling
businesses, and I know that the Treasury will impress upon the
Revenue and Customs the importance of implementing and publicising
this policy in the current climate.
Mr Binley: I am grateful for that, Secretary
of State. Can I just come on to the final point, because you say
in your action programme that not only will you look at issues
to do with cash flow and finance for investment, but you also
talk about regulation.
Chairman: That is what Adrian Bailey
is going to ask about. We will move on to Mark Oaten and then
deal with regulation.
Mr Oaten: Very briefly, your announcement
is very welcome about Government and local government and help
in trying to pay those bills within 10 days, and we will see how
that works through. However, nothing, of course, can replace the
concept of being able to win more business for those small businesses.
I wonder whether you could do another memo to those various government
departments to ask them to look at the incredibly complicated
procurement that you have in government. I do a couple of days
of help for small businesses and just trying to put the tender
together, trying to win anything off Government, at whatever level,
is very, very difficult for small businesses. The process is incredibly
complicated. I am sure that when you meet with businesses again
they will make that point to you. This would make a massive change
to the businesses' ability to win more business, if you could
just relax the procurement system. It really would help them get
more business for the future.
Chairman: In the interests of making
progress I will ask Lindsay Hoyle to ask his question too and
you can wrap up in one answer.
Q88 Mr Hoyle: Obviously, as has been
pointed out, we all welcome the act of ensuring bills are paid
quickly, but can we also look at another part where small businesses
are struggling and that is the business rate. Local authorities
are very quick to chase people for money, and not so much a holiday
period but a little bit of relaxation to give time for people
to pay the business rate rather than taking them straight to court
would be one area. The other one, of course, is capital schemes
by the health authorities and local government. What we are seeing
is those being deferred. At least bring them on time, or bring
them forward to, obviously, stimulate the construction market
and actually get business going as well. Is there anything that
you can do there, through your good offices, to channel those
communications?
Lord Mandelson: I am sorry, which
communications?
Mr Hoyle: Hospitals and local government
have got capital schemes and some are deferring them. Rather than
deferring them, bring them forward or ensure that they come on
time to make sure we get—
Q89 Chairman: These are the two aspects
of procurement: small and large.
Lord Mandelson: This is very important
indeed. We have to recognise that the costs of not doing what
you advocate, and allowing the economy to slow down even further
and for unemployment to rise, will lead us to much higher costs
than we would be incurring if we brought forward these projects
and maintained spending and investment in the economy. I think
the Chancellor is very mindful of this, and I know that he is
weighing these issues very carefully in the run-up to the Pre-Budget
Report. In answer to Mr Oaten's question, again, you put your
finger on a very, very important issue. We had already asked Anne
Glover to review the access of SMEs to the Government's procurement
programme. I think she is being invited to report in time for
the PBR, which is not, therefore, so long away—although
I do not think we have decided on a date for the PBR, but it is
not so many more weeks away. So that will be a very important
and welcome piece of analysis and advice from Anne Glover.
Chairman: Can I just add to Mr Hoyle's
plea on the business rate, also, that I do hope your department
will make representations on the Business Rates Supplement Bill
that is coming forward because there are a lot of concerns that
businesses have about that as well. I would pursue that at greater
length, but in view of the time we will not do that.
Q90 Mr Bailey: Secretary of State,
I represent a Black Country constituency with quite a considerable
manufacturing base—virtually all SMEs. Whenever I visit
companies there are ongoing complaints about regulation. Obviously,
the reported plans that you have to look at that will be very
welcome. Can I just bring your attention to an article in the
FT this morning (which I appreciate from what you said
earlier you will not have seen), and if I can quote from it: there
is a "furious backlash from union leaders" because it
was reported that you intend to postpone the new working rights
directive"—the statutory paid maternity leave. Then,
subsequently: "Ministers have backtracked" on it. Can
I invite you to put the record straight? What are your plans for
reducing regulation and are these measures part and parcel of
it?
Lord Mandelson: This very fierce
backlash, if that is what it is, has not reached me yet, and my
telephone number is in the book. So I do not know about that,
although I did hear what I thought was an intelligent and persuasive
interview on the Today programme this morning, by a senior
TUC official, Sarah Veale, on this subject. I do not know whether
you heard it.
Q91 Mr Bailey: No, I did not.
Lord Mandelson: Or whether it
is linked to this alleged backlash. Let me say that what I feel
my job is, in these circumstances, is to take up questions and
look at issues when they are presented to me. If I have the British
Chamber of Commerce and the Engineering Employers' Federation
saying to me: "Look, your proposals for regulation X or regulation
Y is going to be particularly onerous in the emerging economic
climate. Can you postpone it for one year or more?" I will
consider that. However, that is not the same as agreeing at the
outset with the proposition that they are making. I saw a headline
yesterday suggesting that I had reached conclusions about one
item which was to do with flexible working. It is simply not the
case that I have reached a conclusion or that the Government,
as a whole, has yet considered it. Indeed, the headline did not
actually correspond to what the journalist actually wrote, I noticed.
I welcome the views expressed by the TUC, and other trade unions
if they are formulating their views, just as I welcome the views
of employer organisations as well. I am sure that in an economic
climate of the sort we are getting into such debate needs to take
place, but it is not a forgone conclusion that we will reach one
view or another ahead of that assessment, which we are bound to
undertake.
Q92 Mr Bailey: Yet you can confirm
that you are making an assessment of, if you like, legislation
which could impact on business regulation?
Lord Mandelson: Yes, business
representatives have asked us to look at future plans for regulation,
and I have said that it would be irresponsible of me not to take
their concerns into account and to give them proper consideration.
So I will do so, but without prejudice to what the Government
finally decides on any particular measure.
Q93 Mr Bailey: Could I just turn
now to the Administrative Burdens Reduction Programme and the
Department's business plan 2008-11 on reducing administrative
burdens. The National Audit Office has said that estimates and
reported savings should be treated with caution. If we are to
convince business that we are reducing regulation, we obviously
must have a robust statistical base for proving that. How much
confidence do you think we can have in estimates of reducing administrative
burdens and regulatory burdens?
Lord Mandelson: Let me bring Brian
in on this. You have got to have some confidence in the impact
assessments that your officials undertake on your behalf. If you
take, for example, the impact assessment that was undertaken for
the extension of the right of parents of children aged 16 and
under to request flexible working, that showed a cost to businesses
of £69 million but, also, benefits of £91 million. So
that would indicate that that particular flexible working measure—the
right to request—shows a net gain or net benefit for businesses.
I think that is the sort of impact assessment that we need to
take into account. I realise that many of the benefits from such
a flexible working measure (for example, improved productivity,
reduced staff turnover and lower absenteeism) will not be immediately
obvious to employers, and I understand that. I also understand
that there is a perception that flexible working can be difficult
and burdensome. However, on the other hand, employers in many
cases recognise that flexible working brings business benefits.
Even if they cannot quantify them, evidence shows that 92% of
employers thought people worked best when they can strike a better
balance between work and the rest of their lives. So there are
complex assessments to be made but they can be undertaken, and
I think that we should be guided for them, as illustrated in the
case that I have just described to you. Brian, do you want to
come in? May I just say, I have a slight problem about time. I
have got to be on a train at one o'clock.
Q94 Chairman: In that case, after
Sir Brian's answer we will move on to the Royal Mail group straight
away.
Sir Brian Bender: I will try and
be brief—just two or three points. First of all, as I am
sure you are aware, Mr Bailey, the Administrative Burdens Reduction
Programme refers to the time it takes business to do things—not
the policy cost of implementation but simply the time. So the
sort of things it has delivered are things like replacing 79 health
and safety regimes by one; planning applications being submitted
online and what used to take a day taking an hour. The point that
the NAO were making, as you say, is that they commented that the
savings should be treated with caution because they are only indicative
estimates. Those estimates have been established using an internationally
recognised standard cost model, and the NAO report that it published
a few weeks ago goes on to acknowledge that attempting to carry
out a statistically representative assessment would have been
time-consuming, more expensive and difficult to achieve due to
the variation of business processes. So it is indicative, but
the whole exercise focused on the time business takes to do things.
I could go on, but I do not think the Committee would want me
to, with examples of actually what is meant in practice.
Chairman: We are going to have you back,
Sir Brian, for a session on the Annual Report specifically, so
we will keep it for then. There are lots of questions we wanted
to ask you but we are running out of time. Lindsay Hoyle.
Q95 Mr Hoyle: Straight into Royal
Mail and the future of the Post Office. You have dismissed the
reports in the FT. Time has moved on but we believe in
the Post Office (or I certainly do) and the Post Office network.
My concern is I believe that the Government has got to ensure
that Royal Mail remains. I hope that you are a supporter of Royal
Mail. Some of the key questions about it are: have you any insight
into the Post Office Card Account, which will help ensure that
we do have a Post Office network? The other key one where we are
losing money hand-over-fist is bulk mailing. We know that every
private company is being subsidised by the British taxpayer because
the cost of universal delivery is more than what we are charging
the bulk deliverers. Are you going to renegotiate that and ensure
that the good old British taxpayer is not subsidising the likes
of TNT right through to Business Post, because that is one of
the biggest failings. If we can get a real price increase on that
and ensure that Royal Mail makes profit out of the universal delivery,
rather than losing money, these are the things that will turn
Royal Mail round. The thing that I want to know is, do you stand
by the `95 commitment to Royal Mail, which is the manifesto that
we stood on, and I am sure that you will have adopted it now you
have come back into government?
Lord Mandelson: The biggest problems
facing Royal Mail today are the fall in the volumes of letters
being sent through its network, and the size of its pension deficit,
which is ballooning. These are not down to the regulator and the
current price controls applied to Royal Mail. Volumes were down
a further 3% last year. The main reason is that domestic consumers
and businesses are moving away from the post and using digital
media instead. Now, it has therefore become clear that the market
conditions for all postal service operators are challenging, to
put it mildly, and it is in the light of these developments, which
are not new, that an independent review was set up under Richard
Hooper, announced in December 2007. I believe that initial findings
paint a rather stark picture of the huge challenges in the postal
market: new technologies are transforming the way we communicate
and this will only intensify in the coming decade. I do not, if
you do not mind, want to be drawn on premature responses or conclusions
before I have even seen the Hooper review. There is no set timetable
for that review, and indeed I may ask Richard Hooper to widen
his review and to examine additional factors. It is too early
for me to say, but, nevertheless, I am not prepared to put a timetable
on publication as of today, but I can reassure you and Members
of this Committee and the public that I remain most strongly committed
to the Royal Mail. What we want to see is it being efficient,
modernised and viable in the face of dramatically changing structural
conditions in the market. It is a tough challenge but it is one
I come back to after 10 years having been away, and I am up for
the job.
Q96 Mr Hoyle: The point on bulk mailing—and
you can understand the frustration—that they are being forced
to deliver letters at below cost and subsidising those businesses.
There is something wrong when the taxpayer is subsidising these
private companies, who have an unfair advantage because Royal
Mail has to deliver their mail. If they had set up the universal
postage delivery, I could understand it; the fact is that we are
actually charging them less than what it costs to deliver. Could
you look into renegotiating that to ensure that there is a profit
in delivering your rivals' letters rather than subsidising your
rivals?
Lord Mandelson: I will look at
all those issues, that included, in the wake of the Hooper review
when we take delivery of that.
Q97 Mr Hoyle: Okay, but it is important.
The last, quick question I wanted to ask about is Warwick—the
importance of Warwick and, in particular, from my point of view,
its procurement. I believe that UK procurement (and we have touched
on it)—how that can actually support manufacturing jobs
and ensure that that procurement can take place—and it is
actually getting the message across: "Where Government is
going to buy, let's support British industry". Let us use
the same rules as our rivals do. I think there is something absolutely
absurd that we buy cars built in Japan with not one British component,
not one British job, it is shipped all the way round in cargo
polluting ships for Ministers to ride round thinking they have
ticked some kind of green box. Surely what we ought to see is
the way that Tom Watson has done it and is being driven round
in a British-built Mini. That might be the best example of supporting
British industry. So can we support Warwick and can we support
the procurement part of Warwick?
Lord Mandelson: I insisted on
being driven around Brussels in a British-made Jaguar, and I am
still being driven around now, as a new member of this Government,
in a British-made—
Q98 Mr Hoyle: Excellent news.
Lord Mandelson: And long may it
last.
Chairman: On the subject of British cars.
Q99 Miss Kirkbride: The Rover inquiry,
Secretary of State, has been dragging on for three-and-a-half
years and has cost many millions of pounds. It is extremely offensive
to many people I represent who lost their jobs when Rover went
pear-shaped. When are we going to finish the inquiry, and are
you going to look into the system that allows what appears to
be an abuse of public money that it should go on for so long without
any conclusion?
Lord Mandelson: As the Committee
knows, this is an ongoing independent Companies Act investigation.
It is independent of the Government, so it would not be proper
for me to discuss the substance. I can say that BERR and the inspectors
are intent on completing this inspection as quickly as possible.
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