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House of Commons

Thursday 11 December 2008

The House met at half-past Ten o’clock


[Mr. Speaker in the Chair]

Oral Answers to Questions

Business, Enterprise and Regulatory Reform

The Minister of State was asked—

Bank Lending

1. Sandra Gidley (Romsey) (LD): What assessment he has made of the effect on small businesses of bank lending practices. [242331]

The Minister for Employment Relations and Postal Affairs (Mr. Pat McFadden): The credit crunch and the global economic downturn are, of course, having a serious effect on small businesses. As well as the measures to increase the availability of credit that have been set out by the Government in the pre-Budget report, my noble Friend the Secretary of State has established the Small Business Finance Forum, which involves all the major high street banks and the main business organisations. That body has drawn up a revised statement of principles covering business lending and is also monitoring the availability of credit to small business.

Sandra Gidley: Some would say that the banks have been treated more than fairly, yet they have not passed on that largesse to their customers. Will the Minister look into a case where the Royal Bank of Scotland, which is one of the banks that has been bailed out, has increased fivefold the repayments required from one of the businesses in my constituency, despite an existing six-month agreement, and the fact it was a long-standing customer? That could, effectively, put 80 jobs at risk. Does he think that is fair and, given such agreements, what will he do to ensure that customers and businesses are treated fairly by the banks?

Mr. McFadden: Ministers will not seek to place themselves in the shoes of bank managers and judge individual credit applications. However, of course, it is also true that many businesses have raised the difficulties of accessing credit with right hon. and hon. Members from all parties. The hon. Lady mentioned the RBS Group, which, with the NatWest Group, announced on 23 November that it would maintain existing overdraft pricing for small businesses until the end of next year. Some measures have been taken, but we are not saying that there is not an issue. That is why the Small Business
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Finance Forum has been established, and, indeed, why both the Chancellor and the Secretary of State will meet the high-level lending panel later today to pursue the issue further.

Tony Lloyd (Manchester, Central) (Lab): My right hon. Friend’s comments will give some comfort, but I draw his attention to one specific group of small firms that, even in easier times, have traditionally found it difficult to obtain finance: those firms involved in research and development. They are at the cutting edge of technology and are vital businesses in terms of the creation of future manufacturing strength and employment. Will he have a particular look at how such firms can gain access to finance in these difficult times?

Mr. McFadden: In the pre-Budget report, my right hon. Friend the Chancellor of the Exchequer set out a number of measures that should help businesses to gain more access to credit. In addition to the existing small firms loan guarantee scheme, those measures included a small business finance scheme to support up to £1 billion of bank lending, a separate £1 billion guarantee facility to support bank lending to small exporters, and a £50 million loan facility based on swapping debt for equity. That is in addition to the measures announced by regional development agencies for transition loan funds. The Government have taken a number of measures to try to ease the problems of access to finance and credit, which small businesses across the country are raising with us.

Mr. Brian Binley (Northampton, South) (Con): The Prime Minister boasted yesterday that help has been given to small business, yet all the small businesses that have contacted me say that the banks are not well informed about the scheme, some are reluctant to promote it and many small firms are unaware of it. The Minister talked about monitoring, from which one assumes he has had some results. Will he tell us what results he has had, because my information is that things simply are not working?

Mr. McFadden: I think the hon. Gentleman is referring to the small firms loan guarantee scheme. The measures that I listed in response to my hon. Friend the Member for Manchester, Central (Tony Lloyd) are in addition to that scheme and are coming on stream precisely because we recognise how important access to credit finance is to small businesses. Without such credit, businesses cannot take investment decisions and they cannot operate in the way that they should. That is why we are so active in this matter.

Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): The measures that the Government have announced to help small business are clearly welcome, but there is a problem with small businesses knowing where to go. A plethora of initiatives has been announced, but the Government should take steps to improve one-stop shop access to make it clear to small businesses what initiatives are available. I would be interested to know what the Minister is going to do to address that problem.

Mr. McFadden: My hon. Friend makes a good point. The Government have recognised a need for the simplification of information in business support schemes.
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Indeed, prior to the pre-Budget report, we announced a large-scale simplification of advice to businesses, collating all the different support schemes into a much smaller number. I hope that the process of obtaining advice about what help is available and where to go will be easier than it is at present. Business Link is the key place to go for businesses looking for advice on what help is available from the Government. I also think that the banks have a role to play in ensuring that an appropriate level of lending is available, so that the economy can work in the way that we all want it to.

Mr. Mark Prisk (Hertford and Stortford) (Con): Sharp practice by the banks clearly must be exposed and challenged, but Government interference is often not helpful itself. Why is the much-promised European Investment Bank money yet to reach our small businesses? Czech businesses have reportedly received €100 million, Spanish firms have received €200 million and French firms have received €300 million. Could the Minister tell us how much of the EIB money UK small businesses have received? I am talking about the actual businesses, not their banks.

Mr. McFadden: A number of other countries have traditionally used EIB money, and that is precisely why their businesses are already receiving money. The banks in the UK have accessed up to £1 billion from the EIB, which will be channelled to small businesses.

Car Industry

2. Miss Julie Kirkbride (Bromsgrove) (Con): What steps the Government are taking to support the car manufacturing industry; and if he will make a statement. [242332]

The Parliamentary Under-Secretary of State for Business, Enterprise and Regulatory Reform (Ian Pearson): We are closely engaged in supporting the UK automotive sector, both at a European level, through pressing the European Investment Bank for an €8 billion automotive support fund and domestically, through our investments in low-carbon research and development and training, and our package of support for small and medium-sized enterprises announced in the pre-Budget report.

Miss Kirkbride: The Minister will be aware of speculation in the newspapers that secret talks are taking place between the Government—Ministers and perhaps his officials—and the owners of Land Rover and Jaguar about some kind of financial support. I would be grateful if he would tell the House whether that is the case and whether, given the severe situation in America and in its automotive sector—General Motors is in trouble over there—the Government are also having talks with Vauxhall, which is owned by GM.

Ian Pearson: I do not want to speculate on talks that the Government may or may not have been having with a range of automotive companies. What I want to say clearly to the House is that the automotive sector is extremely important to the UK. Peter Mandelson and I publicly had a meeting with a wide cross-section of the automotive manufacturers, suppliers and retailers on 27 November. We continue to engage closely with the
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sector, and I am determined that we shall do everything we sensibly can to help viable businesses during these exceptional times.

Richard Burden (Birmingham, Northfield) (Lab): Clearly these are difficult times for the motor industry. Some of the major manufacturers are going on extended breaks as a result of falling sales. Does my hon. Friend agree that, although understandable, that can cause major problems down the line in the components sector? Does he also agree that we need to take real action to ensure that our technological base in motor sport, components and other parts of motor manufacturing is maintained, not just for the sake of jobs right now, but to secure our prowess in those areas in the future?

Ian Pearson: My hon. Friend is an expert in these areas, and I agree that the integrated nature of the automotive supply chain brings real challenges for suppliers when the automotive manufacturers decide to take extended breaks. We are acutely aware of the pressures that the situation is causing a number of supply chain companies. As he is aware, the UK has about 200,000 jobs in the supply chain alone, about 500,000 in retail and about 180,000 in direct automotive production. This is a vast and important sector of the UK economy, and we need to examine what more we can do to support companies that are going through very difficult times at the moment.

Peter Luff (Mid-Worcestershire) (Con): I heard what the Minister said, and he cited the statistics that I was going to cite about the manufacturing and retail sectors. But continuing to engage closely is not enough; action is urgently needed. I have just come from a meeting with the Retail Motor Industry Federation, which has suggested a range of practical measures that would help it and manufacturers. Such measures include abandoning the Government’s proposals to remove the right of car retailers to claim back vehicle excise duty in respect of unused car discs and ending the Government’s punitive attack on void rates. The pathetic measures introduced by the Chancellor just will not be enough for car dealers, who will have empty premises next year. A range of things, such as introducing 100 per cent. capital allowances for commercial vehicles, could be done now—urgently—to prevent an imminent disaster, not just for manufacturers, but for retailers.

Ian Pearson: There is a range of things that the Government are already doing, such as the small business finance scheme, the £1 billion in loan guarantees, the schemes to convert business debt into equity and the transition loan fund, of which the hon. Gentleman will be aware, that exists in the west midlands and other places. I have already written to supply chain companies, through the manufacturers, outlining the package of measures that are already available from the Government. However, we need to see whether we can do anything further, because we recognise as a Government that the UK automotive industry is of critical national importance. The Government are taking action. The action that we took on the recapitalisation of the banks and through the £20 billion fiscal stimulus, which the Opposition have opposed, is about responding. We are trying to kick-start the economy and help companies through difficult times, and I hope that the hon. Gentleman appreciates the actions that we are taking.

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Mr. Elliot Morley (Scunthorpe) (Lab): My hon. Friend is quite right to say that the car industry is of national importance, but so is the steel industry, which provides it with the basic raw materials. He knows that Corus recently had a meeting with the Prime Minister and other Ministers. Corus is making efforts to keep the work force together, which is a welcome break from the past, because losing a skilled work force makes it difficult when things turn around. Will my hon. Friend assure me that the Government will give Corus whatever assistance is appropriate to see it through this difficult period?

Ian Pearson: As I have said, we want to do all that we sensibly can to help viable businesses. My right hon. Friend will be aware from reports in the newspapers today of the discussions that Corus has been having with the unions about taking a pay cut, and of the other measures being taken to see people through difficult times. Whether we are talking about the steel, automotive or construction industry, the global credit crunch and the recession that we are all facing are bringing enormous challenges to companies, to people who work in them and to Governments. We need to ensure that we are up to the mark and are taking action to support our companies through these difficult times, and that is exactly what we are going to do.

John Thurso (Caithness, Sutherland and Easter Ross) (LD): As has already been said, the car manufacturing industry is a major part of British industry, as well as a substantial employer. Given that President-elect Obama has decided that the US car industry is too large to fail, what assessment has the Department made of the potential for a failure in the car industry to give rise to a systemic failure in UK plc? Would the Government consider a similar decision, and if so, what criteria would they use to make the judgment?

Ian Pearson: I have already quoted figures that demonstrate the importance of the automotive sector to the UK economy, and I do not need to repeat them. The Government are engaging with the automotive industry on a daily basis about the problems that it faces. We have already taken a range of measures to support companies, particularly some of the small and medium-sized companies in the supply chain, with the schemes that we have made available, which we are widely publicising to the industry.

There is a case for saying that we need to do more and we are actively considering that. I can only repeat that the circumstances in which we find ourselves are circumstances that we have not seen for more than a generation. Sales have fallen off a cliff. The November figures show that UK car sales are down by 37 per cent. The situation is the same in the United States and sales are down by 50 per cent. in Spain. Although they have declined less in France, Germany and Italy, the declines are still significant. When companies’ sales disappear, we need to ensure that we bring back confidence to the market as quickly as possible, which is why the fiscal stimulus is so important and why it is irresponsible of the Conservative party to oppose it.

Credit Availability

4. Mr. Andrew Pelling (Croydon, Central) (Ind): What assessment his Department has made of the adequacy of the availability of credit for businesses. [242334]

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The Minister for Employment Relations and Postal Affairs (Mr. Pat McFadden): We understand that credit is a serious issue for business. That is why the Chancellor announced a number of measures in the pre-Budget report to improve access to credit, including the new small business finance scheme, which could make available up to £1 billion of additional credit, the export lending scheme and the transition loan funds that will be available through the regional development agencies in many parts of the country.

Mr. Pelling: I would be interested to learn from the Minister about the methodology involved in the Government being able to get information, other than that provided by the banks, on the provision of credit to small businesses. He might be interested to know that, according to the Croydon Guardian, the chief executive of South London Business reports that many perfectly solvent businesses are being damaged, as many other Members have said, by the speedy removal of credit and the early calling away of debt. Many companies that are cashed out and close to being in default will be at risk if the Government are unable to bring forward measures in a speedy way to ensure that such companies are bailed out.

Mr. McFadden: We are bringing forward measures, as I have said. There is a disjunction between what small businesses are reporting to the hon. Gentleman and many other hon. Members on both sides of the House, and what the banks are saying about the availability of credit. That is precisely why we have brought business and bank representatives together in the Small Business Finance Forum to examine the facts and to find out exactly what is happening in the lending market.

Mark Pritchard (The Wrekin) (Con): The Minister is a fellow west midlands MP, and he will know that many businesses throughout the region cannot get credit from the banks. Why is it that, within hours of coming to the Government, the banks received a big fat cheque from the taxpayer, when businesses in Shropshire, even after many weeks, cannot get the credit that they need to run on a day-to-day basis?

Mr. McFadden: Had we not taken the action that we took to recapitalise the banks and inject more credit into the system, there would have been a danger of a complete seizure in the banking system, which could have had a catastrophic effect on the wider real economy and on the businesses that the hon. Gentleman is worried about. That is why it was entirely right for the Government to take that action to stabilise the banking system. We now need to ensure that lending at an appropriate level is available to businesses in the wider economy, and that is why we are working with the banks and why we have taken the measures that were announced in the pre-Budget report.

Alison Seabeck (Plymouth, Devonport) (Lab): I recently met representatives of the Civil Engineering Contractors Association to discuss the impact of the downturn on its members, which include small businesses and some of my constituents. They broadly welcomed the measures that the Government have introduced to assist them with credit, but said that there were still some issues. They were also concerned about the small firms loan
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guarantee scheme, and gave me examples of their members being told that it would take four months for the process to go through. That is causing real hardship. Will my hon. Friend look into those delays and see whether anything can be done to speed the process up, so as to avoid the loss of jobs and skills in the sector?

Mr. McFadden: It should not take four months for loans to be processed through the small firms loan guarantee scheme, and I will certainly follow that up for my hon. Friend if she gives me the details. The combination of measures that we have taken, including that scheme and the other measures announced in the PBR, are designed precisely to take action with regard to the problem that we are all concerned about—access to finance for small and medium-sized businesses, which are the lifeblood of our economy and which provide so much employment for our constituents.

Mr. Andrew Mackay (Bracknell) (Con): As it is clear that, in this recession, the biggest single problem facing most businesses is a lack of credit, does the Minister not see that his small firms loan guarantee scheme is inadequate, and that he should take up our proposal for a national loan guarantee scheme? It would cost a lot more money, but it would be paid for by scrapping the ridiculous reduction in VAT, which has not helped industry at all.

Mr. McFadden: Our proposals are not restricted to the existing small firms loan guarantee scheme because, as I said, the Chancellor announced additional measures. As to the right hon. Gentleman’s party’s proposals, the Conservatives really need to make up their minds. The other day, his party leader attacked us over our level of spending and borrowing; the Conservatives have now announced a new scheme, but we have not yet been told about the balance of risk between the Government and the banks or the exposure of the taxpayer to the scheme. If more action is needed, this Government have said that we will take it, but I can assure the right hon. Gentleman that, unlike what happens in his party, any measures we announce will be properly costed and thought through.

Mr. Mike Weir (Angus) (SNP): When the Secretary of State appeared before the Business, Enterprise and Regulatory Reform Select Committee, he made the valid point that it was important that bank bosses’ promises on lending got through to banks on the ground. This morning, I received a Christmas card from the Federation of Small Businesses Scotland—[Hon. Members: “Ah.”]—and a very nice one it is, too. It is a letter to Santa, which refers to overdrafts renegotiated, rates trebled and charges of £150 for the privilege. That is the reality on the ground. When the Minister has a summit with bank leaders, what other action will he take to ensure that any promises made to small businesses are actually carried out by bank managers on the ground?

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