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This Pre-Budget Report is a sign of the importance of small businesses to the UK economy.
It fully addresses their needs and that is why the package includes a £1 billion small business finance scheme, to encourage bank lending to small and medium enterprises, and an additional £1 billion facility to help smaller exporters. The range of measures is accurately targeted at the problems that small businesses are facing at the moment.
Mr. Frank Field (Birkenhead) (Lab): If the Government are to pump further taxpayers money through the banking system, can my right hon. Friend give the House an undertaking that that will be limited to the nationalised banking sector and specifically tied to extending loans to small and medium businesses?
Mr. Timms: My right hon. Friend will know that conditions addressing exactly that point have been attached to the Government recapitalisation contributions to the two major banks that have received them. We will of course continue to keep the position under review.
Mr. Timms: Yes, I certainly do expect them to be able to access it. The full details of the new scheme will be set out at the beginning of the new year by my noble Friend the Secretary of State for Business, Enterprise and Regulatory Reform. Other measures that we have put in place are already effective, such as the small business support service for firms with a tax bill due that are facing temporary financial difficulty. They have been able for some weeks now to call up the HMRC hotline on 0845 302 1435, which is available seven days a week.
Rob Marris (Wolverhampton, South-West) (Lab): As well as Marstons brewery, in my constituency there are many small businesses called pubs. They are extremely concerned about measures in the pre-Budget report relating to alcohol excise duty and the alcohol duty escalator. Would my right hon. Friend and his ministerial colleagues reconsider those measures because they are hurting pubs, which are vital to our communities?
Mr. Timms: The change in the VAT rate has been offset in the way that my hon. Friend describes. The position for the coming year is as my right hon. Friend the Chancellor has set out, and of course we will look at the future rates of alcohol duty in future Budgets in the normal way.
Justine Greening (Putney) (Con): For the 1,500 people losing their jobs and the 60 small businesses going bust every single day, the Government are not tackling the recession. The Governments small business loan guarantee scheme will not even be up and running until mid-January and even then it will not cover 99 per cent. of loans to companies. Does not the Minister agree that that is too little, too late, that he should get on with our national loan guarantee scheme and that Britain is facing the deepest recession of any G7 country because we have the most incompetent, ineffective Government?
Mr. Timms: The hon. Lady should have a word with some of her colleagues on her Front Bench. I agree with her that it is right for the Government to address these problems, but that contrasts with the policies of those on her Front Bench, which are the policies of do nothing. Those were the policies that we saw in the catastrophic recessions under the last Conservative Government and they are being repeated by Conservative Front Benchers now. The policies that we are putting in place are directly addressing precisely the challenges that small businesses are facing, and that is why such an ambitious and effective package was set out at the time of the pre-Budget report.
Alison Seabeck (Plymouth, Devonport) (Lab):
I have listened to my right hon. Friends response and to the questions from other hon. Members, but I want to inject a slightly more positive note into the discussion
by flagging up the work of the Springboard Fund, an offshoot of Business Link based in Devon and Cornwall that resulted from the sale of Business Link. The fund has just had its 100th inquiry in the short time since it has been set up from a group of people who want to set up new businesses. There is real interest in setting up new businesses, despite the downturn. People are going to the Springboard Fund because the banks are not opening their doors
Mr. Timms: Like my hon. Friend, I welcome and support the measures that the Government have in place and that the regional development agencies are supporting to encourage new enterprise. She is absolutely right that there are some very attractive opportunities for new businesses, even at this very difficult time. It is quite right that we should be working with those who are encouraging entrepreneurs to come forward and make a success of new businesses.
Mr. Jack: There was not much Christmas cheer in that answer from the Chancellor. In just over 180 days, according to the pre-Budget report, growth is supposed to resume in the UK economy. Given the mounting and ever-greater tide of difficult news about the economy and even the prospect of deflation, does the Chancellor stand by the statement he gave in his answer? Secondly, can he cite anybody outside the Treasury who actually agrees with what he has just said?
Mr. Darling: Yes, and the forecasts that we set out were broadly the same as the Bank of Englands, which are entirely independent of ours. This country has a choice: we can either let the recession take its course, which is the policy that the Conservative party seems to advocate, or we can decide to take action to help people and businesses. That is the path that we have chosen.
Dr. Gavin Strang (Edinburgh, East) (Lab): Does my right hon. Friend agree that, although sterlings depreciation against the euro in particular will result in an increase in some input costs, overall it should provide an environment for a substantial increase in agricultural production? That will result in increased investment in food processing and manufacturing, creating more jobs and displacing imports, which we will need in the next few years.
My right hon. Friend is right that depreciation can help our exporters, but we must ensure as well that countries right across the world also take action to support their economies so that there are markets to sell into. That is why I welcome what France, Germany and other European Governments have done
to support their economies, as their actions will create the right conditions to encourage and support our exporters.
Mr. Andrew Mackay (Bracknell) (Con): Does the Chancellor agree with his Cabinet colleague the Olympics Minister, who said this week that this is the worst recession that any of us have ever experienced?
Mr. Darling: It is true that, right across the world, we are facing conditions that we have not seen for generations. The IMF has forecast that, for the first time since the second world war, all the major economies will move into recession in 2009. That is why it is all the more necessary for every country in the world to do everything that they can to support their economies. That is what underpinned my approach to the pre-Budget report, and I am sorry that the Conservatives do not share that view.
Richard Burden (Birmingham, Northfield) (Lab): Does my right hon. Friend agree that a strong manufacturing sector will be vital when the economic recovery comes, and that the motor industry will be central to that? In addition to the welcome moves being made by the European Investment Bank, a number of European countries are offering additional lines of support to their motor industries. Will my right hon. Friend say what further plans he has for the British motor industry, to ensure that lines of credit and liquidity are kept open?
Mr. Darling: My hon. Friend knows more than many Members of the House the importance of the motor industry to this country. It is worth noting that, even in 2007, our automotive industry produced almost as many cars and vans as it did in the heyday of British car manufacturing in the 1970s, so there are many good success stories that we can point to.
The automotive industry is being affected by the downturn, as is to be expected. As my hon. Friend knows, my noble Friend the Secretary of State for Business, Enterprise and Regulatory Reform has been having discussions with some manufacturers. We will do everything we reasonably can to support the industry, but there are two things that I should like to say. First, the primary responsibility for financing a company lies with those who own it, and we must also be mindful, not only of the difficulties in the motor industry, but that other industries will be affected by the downturn. Secondly, we also have to have regard to the interests of the taxpayer. That is of critical importance, and people need to understand that.
Mr. Andrew Pelling (Croydon, Central) (Ind): In his answers, the Chancellor has quite rightly emphasised the economys exposure to the financial sector, and the role that that plays. Does he concur with the comments ascribed to Deputy Governor Bean on the front of the Financial Times today that there is a very high expectation of further capitalisation being required for the banks?
I did see the front of todays Financial Times, and I read the full transcript of what the deputy governor said. He was musing on a number of different matters, and in the current climate it is sensible to keep under review the circumstances of the banks all the
time, just as other countries are doing. The key thing is to make sure that the banks are strong enough to resume lending, and that we get them to make that lending. There has been huge public support for the recapitalisation of the banks, and for the guarantees on lending and the special liquidity scheme. That support is very substantial.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): This recession is global and whenever the recovery occurs, a skilled work force will be extremely important. Will my right hon. Friend therefore keep under consideration the Train to Gain budget to ensure that our skills base has not been eroded when the recovery comes?
Mr. Darling: My hon. Friend is right about that. As we come through the recession and start to see growth and recovery, there will be tremendous opportunities, but most of them will go to countries that have highly skilled and motivated work forces. We lost out badly in the 1980s and 1990s because, when the economy slowed, the reaction of the then Government was to cut back on a lot of skills and training. There are now more apprenticeships, more people with skills, and more people going to universities. We are investing heavily in science, and in many other areas we are taking the right action to ensure that we have the right skills for the future. The World Bank estimates that the world economy will double in the next 20 years, and we need to be ready to take full advantage of that when it happens.
The Chief Secretary to the Treasury (Yvette Cooper): The standard interest rate for support for mortgage interest has been frozen for six months at 6.08 per cent., rather than falling in line with Bank of England base rates as would normally be the case. We will review the position and consider what arrangements should apply beyond May 2009.
John Barrett: I thank the Minister and the Chancellor for the action taken on this issue in the pre-Budget report, but can she give me any assurances today that the help that the 62 per cent. of mortgage holders on fixed rate deals will get from the Government from May, if they lose their job, will reflect the amounts that they have to pay rather than be linked to the Bank of England base rate?
The hon. Gentleman has raised this important point before. The standard approach would be for the standard rate to fall with bank rates as bank rates are cut. However, we know that a lot of people are on fixed rates, and many have mortgages with banks that have not yet passed on the full rate cuts. Many have seen a reduction of about £100 per month in their
mortgage payment as a result of base rate cuts, but others are not benefiting. We will certainly take those issues into account, but the hon. Gentleman will appreciate that it is hard to predict at this stage where base rates will be in May and where individual mortgage rates will be.
Mr. Ken Purchase (Wolverhampton, North-East) (Lab/Co-op): Labour has done a great deal for pensioners in recent years, but in these very difficult times, does the Minister have any plans to review the calculation that results in a 10 per cent. notional rate of interest being placed on pensioners savings before they can qualify for benefit? Pensioners find that difficult to understand, and I must say it is difficult for anyone to understand.
Yvette Cooper: I know that my hon. Friend has raised this issue with the Department for Work and Pensions and he will also know that we are clear about the importance of supporting pensioners through difficult times. That is exactly why, as part of our fiscal stimulus, we are providing an extra £60 to every pensioner in the new year. That is the right thing to do. It is funded by additional borrowing to help support the economy, and sadly it is something that the Conservative party has opposed.
Richard Ottaway (Croydon, South) (Con): May I take the Minister back to the original question? What increase does she expect to see in income support mortgage interest relief as a result of the current bust?
Yvette Cooper: We are both freezing the rate and expanding eligibility, and we believe that that is the right approach to take, because by that means we are making relief available to those who have lost their job and been out of work for more than 13 weeks rather than for the full 39 weeks to which the relief used to apply. That is the right thing to do and the relief will apply to more people. We have set out costings as part of the approach to the pre-Budget report. It is certainly clear that this is about providing more support to people at a difficult time.
The Economic Secretary to the Treasury (Ian Pearson): British small businesses should be able to benefit from around £4 billion of lending from the EIB between 2008 and 2011. As announced in the pre-Budget report last month, after negotiations between UK banks and the EIB, £1 billion of EIB funds will be available to British small firms by the end of the year. This has now been approved by the EIB.
Mr. Kidney: I am grateful to my hon. Friend. Business people in Stafford are coming to me with ideas for modern, innovative new projects. When they ask the banks for funding, it is not that the banks say no; they just freeze and make no decision at all. Given that entrepreneurial spirit is the lifeblood of the country, and all the more vital in these difficult times, can I go back to those businesses and say that now they can go to their bank and get access to EIB funding?
Ian Pearson: Yes, he can. Loans are already being made by UK banks using EIB funds. I refer my hon. Friend to media coverage only yesterday; Barclays bank has been making funding available to companies through the European Investment Bank. The question now is for UK banks to disburse quickly and efficiently and pass on the full benefits associated with EIB funds to the small businesses that my hon. Friend was talking aboutthat are innovative and need those funds to help them to stabilise and grow for the future. That is exactly what is happening and more will be coming in the future.
Miss Julie Kirkbride (Bromsgrove) (Con): The Minister has just said that this money is available in 2008, so as of today18 December 2008can he tell us just how much money has been forthcoming through the European Investment Bank?
Ian Pearson: As I explained, since the pre-Budget report and our agreement with the banks, approval processes have been going through the European Investment Bank. If the hon. Lady reads yesterdays edition of The Daily Telegraph she will see that Barclays bank has £300 million available for lending to businesses. I encourage all small businesses to look to their bank managers and engage in conversation with them, and to make application for funding that is there at the moment and will continue to be available for the future. On top of that, early in the new year the small business finance scheme will also be available. That is real action being taken by the Government, not the gesturing of the Conservative party.
The Financial Secretary to the Treasury (Mr. Stephen Timms): The pre-Budget report forecast the current account deficit of the UK balance of payments to narrow in the second half of 2008 and in 2009, with net trade forecast to add three quarters of a percentage point to gross domestic product growth next year.
Mr. Bellingham: Is that not an incredibly complacent reply? Is the Financial Secretary not ashamed that having inherited a trade surplus in 1997, our deficit last year was the worst since records beganwhen William of Orange was on the throne? Is it not a disgrace that the trade deficit in manufactured goods has grown from £7 billion in 1997 to a staggering £59 billion last year? Why do the right hon. Gentleman and the Chancellor never talk about the balance of trade? Is it any wonder that the pound is falling so sharply?
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