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Q8. [246433] Kerry McCarthy (Bristol, East) (Lab):
The Prime Minister may be aware that DK Eyewitness, the world’s best-selling guide book publisher, recently declared Bristol one of the world’s top 10 cities to visit in 2008. He is more than welcome to check out its recommendation himself whenever he wishes. More
important is the fact that our city has also been shortlisted for the title of European green capital of the year, and has been voted the United Kingdom’s most sustainable city. Does the Prime Minister agree with me, and with the people of Bristol, that green jobs and sustainable development are the way out of the present economic downturn?
The Prime Minister: I am grateful to my hon. Friend, and I look forward to visiting Bristol very soon. As for the environment, my hon. Friend is absolutely right. I believe that as we come out of this downturn, one of the triggers for further growth can be investment in the environment. We are going to invest in green and environmental technologies: on that we have an agenda in common with President Obama. I believe that when we meet at the G20 summit in April there will be general agreement that one of the ways in which we can increase demand in the world economy and create jobs for the future is by investing in our environmental industries, and we will certainly do that.
Businesses (Financial Support)
12.32 pm
Alan Duncan (Rutland and Melton) (Con): (Urgent Question): To ask the Parliamentary Under-Secretary of State for Business, Enterprise and Regulatory Reform if he will make a statement on the Government’s announcements today about their loan package to help improve business credit.
The Parliamentary Under-Secretary of State for Business, Enterprise and Regulatory Reform (Ian Pearson): With permission, I shall give the House details of the business support measures that the Chancellor announced in the pre-Budget report in November, which are going live today.
The crisis in the global economy is above all a credit crisis. Many companies are struggling to finance themselves because of the crisis in the banks. Their business models are not flawed, but the credit crunch has drastically reduced the amount of capital available, and banks have tightened their lending criteria. Today’s package is designed to address the problem directly.
The support package that we are launching today builds on the commitments that we made in November’s pre-Budget report. It addresses the cash-flow, credit and capital needs of businesses. We are offering specific solutions, not a blanket subsidy; we are delivering real help, and targeting real needs. The package will make a real difference to business, while preserving value for money for the taxpayer.
First, the working capital scheme is a direct response to the constraint on bank credit available for lending to ordinary-risk businesses with a turnover of up to £500 million a year. The Government will provide banks with guarantees covering 50 per cent. of the risk on existing and new working capital portfolios worth up to £20 billion. The guarantee will secure £20 billion worth of working capital credit lines for companies, ensuring that they are safe from reduction or withdrawal. In addition, the guarantee will free up capital, which the banks must use for new lending as a condition of this scheme. This is lending that would otherwise not have been provided. No other proposed scheme of this kind would free up such additional capital or create new lending specifically for the use of UK companies. A charge will be made for the Government guarantee and although the risk will be relatively low, the Government will make prudent financial provision of £225 million in case of loan defaults.
Secondly, through a new enterprise finance guarantee we will support up to £1.3 billion of bank loans to companies with a turnover of up to £25 million. These will be smaller viable creditworthy firms that are struggling to access the finance they need because of the additional risk created by the downturn. Under the scheme, businesses will be able to borrow a maximum of £1 million, of which the Government will guarantee 75 per cent., to cover working capital or investment. They will also be able to convert their overdrafts into loans to free up their existing facilities. Banks will have to certify that each loan is additional to what they would otherwise offer. The scheme will operate on a first come, first served basis within the allocated proportion of the sum for each participating bank.
Thirdly, we are establishing a new £75 million fund to help viable small businesses with high levels of existing debt to raise long-term finance. The capital for enterprise fund brings together £50 million of Government funding with £25 million from major banks. Run by professional fund managers, the fund will provide equity investment to companies with viable business models that have exhausted traditional forms of finance. They will be able to use the capital to restructure their balance sheets and invest for growth.
Lastly, the Government want, if possible, to address concerns about the operation of credit insurance, which have emerged since the pre-Budget report. This insures suppliers of goods to other companies against payment default by those companies for the goods provided. As my right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform announced, the Government are discussing with trade credit insurance providers a Government scheme to help companies affected by reductions in their credit insurance. There will be a further announcement on this as we progress.
This overall package of measures offers not slogans, but real targeted help from today to those firms that need it most, while ensuring the banks are not insulated from normal commercial risk. It addresses the problem at the heart of the credit crunch: credit for viable businesses.
UK businesses are the backbone of our economy, so it is vital that the Government act now. We are absolutely determined to do everything we can to support viable companies through this global downturn, and I commend this statement to the House.
Alan Duncan: May I start by asking the Minister to apologise to the House for the way in which his Department has handled this announcement? It was leaked yesterday to a BBC journalist, it was followed up with interviews on the broadcast media this morning, and it was briefed out in a press conference from the Secretary of State, yet he and his Department intended to give only a written statement to the House. That is yet another display of this Government’s total disregard for proper parliamentary procedures, and Parliament will wish to express its displeasure at the contempt for it shown by Lord Mandelson.
We have been arguing for several months now that at the heart of this current recession is the collapse of credit. Companies of all sizes are experiencing significant difficulties, either as a consequence of the actions of the banks in protecting their own balance sheets or because credit insurers are withdrawing from the marketplace and breaking the payment chain. The CBI says that businesses will face the daunting prospect of refinancing £100 billion during this year. What number would the Minister put on the collapse in the volume of credit over the last year, and how does it compare with the figures the Government have announced today?
For the past few weeks the Conservative party has persistently called for the Government to adopt a big, bold and simple scheme which will open new channels of credit to help restore the flow of lending. Our national loans guarantee scheme would guarantee up to £50 billion of new loans to British business. It has been endorsed and supported by numerous commentators and trade bodies, but all the Government could do was rubbish it, yet now, today, they are announcing something based on it.
Can the Minister tell us how the Government will select the small firms that are eligible for the £1 billion of longer-term loan guarantees? Secondly, will the guarantees be available to foreign firms, or just to British companies? Thirdly, on what basis will the Government decide whether to buy the shares of a company? Fourthly, following the report in The Guardian today, will the Minister confirm that the £10 billion of guarantees for working capital will be self-financing, which is what we have argued for? Fifthly, what is there in the package for larger businesses, many of which are also our largest employers?
Today, redundancies have been announced at Jaguar Land Rover, Barclays and other companies, particularly in the retail sector. We are facing an explosion of insolvencies. Is not the package that has been unveiled today too little, too late and too complicated? The Government have spent months grandstanding and designing publicity stunts, during which time they have done absolutely nothing to help the 6,000 small firms that the Federation of Small Businesses says have gone under while we have been waiting for action. Now, they have announced a pale imitation of our proposals, which the National Institute of Economic and Social Research has said
“will look like another of the Government’s half-measures”.
The CBI says that the scale of the problem goes
“well beyond what the Government has announced today”.
How long must we wait for the bigger, bolder and simpler scheme that the Opposition have been proposing for months? Today, we have been given a small bandage for a massive wound to an economy that has been injured beyond measure by the irresponsibility of the Prime Minister.
Ian Pearson: First, may I say that I am pleased to see that the hon. Gentleman is still in his job? I had heard rumours that the right hon. and learned Member for Rushcliffe (Mr. Clarke) might be taking over from him— [ Interruption. ]
Mr. Speaker: Order. There is no need for shouting.
Ian Pearson: We have made a written statement to the House today, and I am very happy to answer this urgent question. We shall continue to keep the House informed, through debate and other means, about how we will roll out the proposals that we announced in the pre-Budget report and of other decisions that we make.
It is important to contrast our proposals today—a measured, well thought out package of measures comprising a working capital scheme, an enterprise finance guarantee and a scheme to help companies that need equity injection—with the Opposition’s untargeted and uncosted proposals. Our package of measures will be widely welcomed by small, medium and large firms.
The £1.3 billion package for small firms goes live today and, as I said in my statement, it will be made available on a first come, first served basis. The banks are participating fully in the scheme and have been given allocations. If businesses go to the Business Link website, they will find links that explain in more detail the eligibility criteria and how they can access the funding. That is a step change from the small firms loan guarantee scheme so that firms with a turnover of up to
£25 million will be eligible. Companies with up to £500 million annual turnover will be eligible for the Government’s working capital scheme, which will operate on a portfolio basis. We will discuss with the banks the portfolio of assets that will form part of that. It is a crucial point that that turnover of up to £500 million includes a significant number of mid-cap companies. The scheme is not just for small companies.
I can confirm to the hon. Gentleman that the capital for enterprise fund will be run by professional fund managers who will make investment decisions in the normal way. It will be an important scheme for small businesses that need equity.
The measures that we are announcing today are effectively targeted and costed. I can confirm that on a prudential basis we have reached agreement that we will allow for £225 million to be made available in the case of loss. We expect the measures to be run on a break-even basis but we have looked thoroughly at the costs, unlike the Opposition, whose proposals are uncosted and untargeted and are not, we believe, the most effective way forward.
Ms Patricia Hewitt (Leicester, West) (Lab): I know that many firms in my constituency will warmly welcome today’s announcement, but will my hon. Friend confirm not only that the help will be available from today but that all banks will be participating, so that we no longer have the spectacle of some fundamentally and absolutely healthy firms finding that their overdrafts are completely withdrawn or that credit lines continue to be made available only at excessive rates of interest, often with no notice at all provided by the banks to which they have been loyal customers?
Ian Pearson: As always, my right hon. Friend makes some very good points. It is important that all the major banks take part in the various schemes. We have certainly been in discussion with them all on those issues. On the issue of lending to small businesses in particular, she will be aware of some of the decisions that were announced as a result, I believe, of Government pressure back at the end of November and early December about maintaining available lending. It is not just about the banks that take part in the recapitalisation process. The other major banks are making strong attempts to do the right thing by small businesses.
As my right hon. Friend rightly says, there is an issue about the credit economy and about the price of credit, which is why we believe that the working capital scheme is an appropriately and effectively targeted measure that will help many businesses in this country through these difficult times. Over the next few months, businesses will be looking to renew their credit facilities. The fact that there is a Government guarantee for existing and new credit lines will, I am sure, be welcomed by companies and it should be welcomed by this House.
John Thurso (Caithness, Sutherland and Easter Ross) (LD): May I begin by saying that, given the scale and complexity of the measures that are being proposed, it would have been far more appropriate if they had been communicated to the House in a statement on the Floor of the House? In future, if the Minister has any further such measures to announce, will he do so in the usual manner of and make a statement to the House?
Is it not the case that the core issue for the economy remains the crisis of confidence in the financial system and the consequent inability of companies to gain credit? The proposals are designed to help alleviate that problem. I would welcome any well designed or thought through proposals, but it is somewhat difficult to know whether these proposals meet that test at this time and my fear is that they do not. The root cause of the problem in the financial system remains the uncertainty about the level of toxic debt in the banking system. It is like a gangrene in the financial body and until that gangrene has been amputated in terms of the loss of a nasty bank that uncertainty will remain. Our concern is that large liabilities will continue to be taken on by the taxpayer without proper quantification or clear strategic thinking. Do the Government not accept that such conflict is inherent in their instructions to the banks to maintain 2007 levels of credit while repairing their balance sheets? Those aims, frankly, are not compatible.
With regard to the working capital scheme, may I ask the Minister how the Government will ensure that those funds go to companies that actually need them—to companies that would not otherwise be funded in the normal way by their banks? Is there not a danger that banks will simply use the funds to lower their risk? How is there to be a proper definition of new lending? Will it simply be new lending to an existing company that would already have had it or will it be to a company that would not have got it, and how will that be quantified?
With regard to the enterprise finance guarantee, how will creditworthiness be rated and what will be the due diligence procedure? How will the Government ensure that finance goes to firms that need it rather than to those that would have received it anyway?
Lastly, I am happy to give a cautious welcome to the capital enterprise fund, as I have long believed that one of the barriers to growth for small companies has been the lack of affordable capital, but how will the capital be made available? The Minister said that it will come by means of equity and that the fund will be run by professional managers, but at the core are the terms under which the equity will be acquired. What is the internal rate of return that the Government will target for those fund managers? What thought have they given to making the funds available in that way?
Although I welcome the sentiment behind the proposals, I am unsure as to their practical effects and whether they will work. May I ask the Minister that at the earliest opportunity the House be given the chance properly to scrutinise what has been put forward and to debate it in a manner other than this?
Ian Pearson: As a Government, we are always prepared to see proper parliamentary scrutiny of Government decisions and I have no doubt that, subject to issues of commercial confidentiality, we shall want to make full information available.
We believe that today’s announcement is important. We have an effective package of measures that build on the work we have done so far—the recapitalising of the banks, the fiscal stimulus that has been announced and the discussions and negotiations we have had with the banks to make sure that those involved in the recapitalisation process continue to make lending available at 2007 levels, which the hon. Gentleman mentioned. All that is important. If he looks at the recent lending report
produced by the Bank of England, he will see that the estimated net flow of lending to businesses for the whole of December actually picked up significantly compared with the previous month, but there are still issues, which is why the measures we have announced today are important.
The hon. Gentleman raised the issue of whether the working capital scheme would be additional. What we are doing, on a portfolio of companies basis, is seeking to agree with the banks a package of existing and new working capital credit lines, which we will guarantee as a Government. In turn, that will free up bank capital, and we have said that as a stipulation of participating in the scheme banks must use that freed-up capital to provide additional lending to businesses. That is something that will not be proposed in the Opposition scheme and is major additionality in the programme, which will, I am sure, be welcomed by the House.
The enterprise finance guarantee is targeted on creditworthy companies and because it is operated by the banks the process is that an individual company will apply for the scheme through its bank. Companies can get guidance from the Business Link website on how to go about the process but it will be up to the banks to apply due diligence in determining access to the scheme. I have already indicated the eligibility criteria in broad terms and more details are available.
Lastly, the hon. Gentleman mentioned capital for enterprise and I appreciate his cautious welcome for the scheme. It is targeted on smaller companies that need an equity injection that they cannot get through other means. It will be up to professional fund managers to determine the internal rates of return they might target and that is obviously a matter to which we shall return.
Sir Stuart Bell (Middlesbrough) (Lab): I welcome the statement made by the Minister. He mentioned fiscal stimulus. Is not that part of the package similar to the €50 billion that the German Government are putting into fiscal stimulus, the €26 billion in France and the $800 billion from President-elect Obama when he takes office? Building on the question put by the Liberal spokesman, is it not appropriate—as he said—to target during a recession so that the recession does not turn into a depression? Will my hon. Friend repeat the commitment that the Government have already given that they will do whatever it takes to avoid this recession turning into something longer and deeper, which apparently seems to be the wish of the Conservative Opposition?
Ian Pearson: My hon. Friend is absolutely right to point out that all other countries around the world are seeking to stimulate their economies. The fiscal stimulus we announced in the pre-Budget report is a measure that has been adopted by lots of other countries, including, most recently, Germany. The only party I am aware of that does not support fiscal stimulus is the Conservative party, and I have to say that the Conservatives are on the wrong side of the argument—
Mr. Speaker: Order. I call Mr. Luff.
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