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As a Select Committee Chairman, it would be quite wrong of me to apportion blame for the crisis that we face, so I am not going to do so. I am very glad that we still have a business Department to address those problems. My own party once toyed with the idea of abolishing it and the Liberal Democrats may still have that as official
policy—I hope that that is not the case, because we need to have a new consensus based around the need for such a Department, so that the voice of business can be heard loudly and clearly in Whitehall. After all, most of what the Department does has to be done by someone, so it is better for it to be done by someone with a rough understanding of the needs of business.
I know that opinions differ on how well the Department does that job; last week’s custard thrower thinks that it sweeps all before it in the argument about Heathrow, whereas others, in the business world, think that it has sometimes been slow and inadequate in its response to the current crisis. This debate provides an opportunity to see who is right.
Debates on the economy are all too rare in this House, and I have mixed feelings about this half-day debate; I am pleased that my Select Committee and the Liaison Committee are providing this opportunity for a debate on the economy, but I am sorry that the Government have not done so before now, and although I understand the reasons for the two statements made today, it is regrettable that, once again, an estimates day debate is being truncated by very important statements.
Mr. John Redwood (Wokingham) (Con): My hon. Friend rightly says that we need to probe these estimates in the Department of his choice, but is he aware that the biggest single item in these estimates is a massive £20 billion increase in the estimates for the Treasury, yet we have been given no explanation and no opportunity to debate it?
Peter Luff: My right hon. Friend makes an extremely important point. If we are being honest, we must say that this House is not always very good at scrutinising the expenditure of government generally.
Mr. Hugo Swire (East Devon) (Con): My hon. Friend is being most indulgent in giving way at the outset of his speech. Does he agree that at a time when we need to hold the Executive to account far more thoroughly on a day-to-day basis, our task would be far easier if the Secretary of State were in this House and not in the other place?
Peter Luff: I shall be exploring that theme at some length towards the end of my remarks, but for now it suffices to say that I agree with my hon. Friend.
Although we have a Budget debate starting on 22 April, that is still six weeks away. We should be having regular debates on the economy—on the central issue of our time—and not relying on estimates days and Opposition supply days. We are talking about the Budget, so I should point out that one of the three Commons Ministers to whom I wish to refer is in his place—the Economic Secretary, who is also a business Minister. I am intrigued by the suggestion that his very presence in two Departments—again, that is one of the issues that I wish to address later—may inhibit his ability to stand up for business. I am told by business that it sometimes wants tax cuts—the last thing that the Treasury wants—and sometimes its interest in issues such as the VAT reduction may not be being properly represented because the economic and business Minister has to defend Treasury decisions.
That interesting situation leads to a rather important point about the current structure of BERR. I do not think that sharing Ministers is a very clever idea on the whole, and BERR has far more than its fair share of shared Ministers. My view of Whitehall is that it works on constructive tension between Departments, and although internalising too much tension may look like joined-up government, it makes for bad government. There has even been criticism—I see that the hon. Member for Ellesmere Port and Neston (Andrew Miller), my friend who is Chair of the Select Committee on Regulatory Reform, is in his place—of the fact that responsibility for regulatory reform has been taken away from the Cabinet Office and given to BERR, because that has internalised a very important conflict.
I was pleased to hear Lord Mandelson express concerns in public about the level of planned future business regulation. I have a lot of sympathy with the view of the British Chambers of Commerce that there should be a three-year moratorium on non-essential Government regulation that imposes a cost on business. Although business has been talking about this for a long time, when preparing for this debate I was struck by the new urgency from the business community about the need to curb the growth in regulation.
Bob Spink (Castle Point) (Ind): Does the hon. Gentleman accept that, as part of that debate, we should look at business rate reform, because small businesses in our constituencies, particularly small retail outlets in our shopping centres, are suffering terribly in the current economic crisis? We should be doing something specifically about that particular problem.
Peter Luff: I agree with the hon. Gentleman, but it would have been nice to have seen him in the Chamber on Friday when we debated this issue. He would have had the opportunity to speak up for his constituents then and it is a shame that he was not here to make that point, with which I agree.
There are conflicting views about the status and activities of BERR. One leading business organisation member said:
“BERR needs to clarify its authority on the business agenda and should require ultimate sign-off on business issues.”
He means across Whitehall. He added:
“The risk is that other government departments are using businesses for more and more outcomes that benefit”
“department’s core stakeholders—councils, schools etc—and leaving BERR with the role of managing the fallout amongst the business community.”
The construction sector has continuing concerns about the Department, and the constant merry-go-round of Ministers who are responsible for construction does not help. The current Minister responsible for that issue is in his place, but if I am right, there has been quite a lot of change in who has worn that hat over the past few years. A representative of the construction industry said to me:
“One of the difficulties that BERR found fairly quickly, however, was demonstrating that it was actually ‘fighting the corner’ for business. Decisions on a number of tax issues”—
“in the autumn of 2007 which went in favour of Treasury despite strong protestations from business harmed its credibility, as it seemed to industry that the department had rolled over with little or no fight on behalf of those it represented.”
Perhaps more worryingly, that representative also said:
“Proposals earlier this year to develop a strategy for the recovery seem to have been put in abeyance and the focus is more and more on fire fighting. Strategic thinking seems to have gone out of the window.”
I am delighted that the Department has accepted the key recommendation of our Committee, which was the recommendation for a chief construction officer. I think that that will do a lot to address the inevitable flux in Ministers, but it would be nice to have that person in post soon. I know that the consultation has begun and I welcome that, but there are big issues. For example, there is tension between the Department for Children, Schools and Families, which has unspent capital in its budget, and the Department for Innovation, Universities and Skills, which cannot find the money to fund the essential further education college building programme. A modest transfer from one to the other would help the nation’s skills agenda and the construction sector. The chief construction officer could and should be knocking heads together to achieve that.
The good news is that BERR seems to be doing better than its predecessors. That is the judgment, it seems, of a number of organisations. The CBI said that it saw an improvement from the old Department of Trade and Industry, a positive change and transition and greater emphasis on shaping policy across government. However, the CBI also said:
“BERR still has some way to go to achieve its mission. BERR should continue to strive to influence critical business issues across Government, including tax competitiveness, labour market flexibility, infrastructure, skills, and energy prices and security.”
The Engineering Employers Federation, Ministers will be pleased to hear, is quite kind too. It states:
“BERR appears to have developed a greater sense of purpose and a more confident relationship with other government departments. In part this is down to personalities and there is no doubt that the Department has a forceful and often impressive Ministerial team. It is arguable that the economic downturn has helped give BERR a clearer sense of purpose.”
So, there are mixed views outside, but the general sense is that the Department could and should be doing better.
Mr. William Cash (Stone) (Con): One matter that does not seem to have been mentioned by the CBI is over-regulation and the role of my hon. Friend’s Committee and the Department in the context of billions of pounds-worth of over-regulation. Commissioner Verheugen has already identified a cost of £100 billion a year for the whole of Europe, Boyfield and Ambler and others have calculated a figure of £23 billion for the City and, as my hon. Friend mentioned earlier, according to the British Chambers of Commerce, cost increases to business amount to £20 billion a year. In that context, is it not absolutely essential in weighing up the cost-benefit of the Department to start digging deeply into that over-regulation and to take all necessary steps in this House and in Europe to ensure that the whole thing is dealt with properly?
Peter Luff: I am very pleased to agree with my hon. Friend. To be fair to the Department, many of the regulations that impact on business come from other Departments. We need to get a handle on other Departments’ behaviour, too, and not just on BERR’s.
I had hoped to discuss at some length the distraction of Sir Fred Goodwin’s pension scheme and the real issues that we face but given the time available, I will not do so. Sometimes I think that the Government are throwing up a smokescreen in front of our eyes and promoting some issues over some of the more fundamental issues. I shall not talk about that today, but shall simply say that the banks and the Government got us where we are by allowing indiscriminate lending and over-borrowing, both public and private. My friends in business find it somewhat confusing to be told by business Ministers that the Government are suggesting that banks must restore lending, especially lending on property, to the very levels that helped to create the problem. I hope that it is uncontroversial now to say that we believe that the Government and the Bank of England should have acted sooner to correct the huge asset price bubble that we knew was an unsustainable boom that was bound to end in bust.
Mr. Swire: We have just heard from the Financial Secretary to the Treasury that the new deal with Lloyds will release an extra £3 billion for home loans. Does not my hon. Friend share my concern that that extra lending will be without any direction from the UK taxpayer, who is the majority shareholder, on the income or assets on which that lending should be based?
Peter Luff: I hope that we will again move towards a world where more prudent guidance about lending is offered to individuals who are making the most important purchase of their lives. One of the great failures of the past few years has been the failure to provide that guidance, so I am very sympathetic to what my hon. Friend says.
The trouble is that the indebtedness in our economy— the indebtedness of individuals, companies and the Government—poses huge challenges to business. There is an overwhelming need to refinance corporate debt this year, a lot of it held by foreign banks that are now desperately short of liquidity and unprepared to offer that refinancing. Intriguingly, one senior banker said to me that in the great scheme of things, given the scale of the tidal wave of corporate debt requiring refinancing this year, the schemes that we are debating in our consideration of the estimates today, such as the enterprise finance guarantee scheme, amounted to little more than “a rounding error”. That is a salutary thought. When I think of the hundreds of billions of pounds that we have been talking about, I see what he means.
It would have been nice to have had a statement in the House on the implications of quantitative easing; that would have been good, and I am surprised and disappointed that we have not had such a statement. Quantitative easing may make the refinancing of corporate debt more achievable, but its scale does not match up to the level of corporate debt that needs refinancing. Anyhow, the smaller businesses that are rightly of concern to the Government and the House will not be selling bonds to the old lady of Threadneedle street for a while yet; that is for sure. What businesses, and small businesses in particular, need is working capital; it is often overdrafts that they need, not loans—a point that my hon. Friend the Member for Northampton, South (Mr. Binley) made in a very fine speech on Friday in the debate on my private Member’s Bill on small business rate relief. I am
sorry that the Government could not bring themselves to back my Bill. Small schemes of that kind add up and form a big picture; they would make a world of difference to small and medium-sized businesses. I will not repeat all that my hon. Friend and I said about the importance of small businesses to the economy. Members of the House who are interested can read the debate in Friday’s Hansard. The fact remains that small businesses are still finding it desperately difficult to access the finance that they need.
The Business and Enterprise Committee had a session with the banks before Christmas. Their evidence appears in the tagged bundle of papers provided for today’s debate. Intriguingly, we heard clear evidence from them that the political pressure that they were under had led them to make improvements, as regards base rates and overdraft rates, particularly for small businesses. It is important that the House keeps up the pressure, and reminds banks of the need to address the issue. However, the CBI’s chief economic adviser has said:
“Significant government measures aimed at restoring credit flows are gradually being put into place, but the pace of delivery is slow. As can be seen in this survey”—
that is, the CBI’s February survey—
“businesses’ access to credit is just as difficult as it was a month ago.
The cost of borrowing, the credit freeze and the lack of a solution on trade credit insurance”—
I shall come to that issue in a minute—
“are having a growing impact on business activity.”
The CBI’s director general, Richard Lambert, has called for the Government to use a clearer, louder voice to explain the recovery plans, as there is confusion in business about what those plans cover and how they fit together. That follows what the CBI said in January about the need for a clearer timetable. The Federation of Small Businesses told me that it really appreciates what the Government are trying to do, but it adds that
“feedback from our members suggests that generally, small businesses are not satisfied with the speed with which measures to help small businesses are being passed on.”
The Engineering Employers Federation told me:
“The government has announced a number of support measures for business, with BERR in particular leading on measures to free up the flow of credit. There has been some criticism of the piecemeal nature of these initiatives and the lack of an overall discernible strategy.”
The enterprise finance guarantee scheme is aimed at viable businesses that have a history of borrowing from banks, but the EEF gave an example of a shortcoming in the detail of the scheme. It says:
“The Enterprise Finance Guarantee (EFG) Scheme, announced in January, has been slow to get off the ground. In January, EEF’s steel division, UK Steel, also pointed to the incorrect exclusion of steel from the scheme and this has only recently been reversed.”
I have had to write to Lord Mandelson to seek clarification on whether the scheme fully applies in Northern Ireland; that is apparently still not clear. On 16 February, the Financial Times reported that only £12 million had been lent under the scheme a month after it was launched.
The FSB has carried out a survey, which is available today. It says that a third of all small businesses are expecting to close down, or to lay off staff, if they do
not have more help, but fewer than half of them had even heard of the enterprise finance guarantee scheme. In another FSB survey, no respondents said that branch bank managers were promoting the Government funds at all. The FSB says:
“Generally, it is apparent from responses that while some businesses have benefited from Government measures, for the most part, high street banks are either not aware of the detail or Government schemes, do not know how they would operate, and/or are concerned about the risk they would carry (25 per cent.).”
I saw a long story about that issue in The Sunday Times yesterday, and there are serious concerns about the level of personal security still being sought from companies under the enterprise finance guarantee scheme. There are big questions there.
If I had more time—if it were not for the statements—I would cite some case histories that prove that these are not anonymous concerns. They have specific roots in reality. I can show business after business that is not getting the help that it thought it would get as a result of issues with the way in which the schemes work, but I will not do that, to save time. I shall also not expand at length on the delay to the much bigger working capital scheme—a £10 billion scheme, which was revealed in the Financial Times last week as being “weeks behind schedule”. It is another example of a scheme winning headlines, but still lacking tangible reality.
What about the promise of 10-day payment from the public sector? All members of the Federation of Small Businesses who responded to the survey cited waiting more than 30 days to be paid by central Government Departments, local authorities and primary care trusts, so the 10-day deal is not working.
The Government have said that they are looking at trade credit insurance. The importance of that cannot be overstated. All business organisations are concerned about the withdrawal of trade credit insurance. It is affecting a growing number of businesses, particularly in the construction, retail and electronic sectors. I know that manufacturing businesses in my constituency are suffering from the lack of trade credit insurance. We need to know soon—very soon indeed—whether the Government intend to act on trade credit insurance or not.
Let me give one example. Focus DIY, one of the largest DIY retailers in the UK, owns 183 stores and employs almost 5,000 people. I am told, and I have no reason to disbelieve it, that it is in healthy economic shape and has just opened two new stores. It has had all its trade credit insurance withdrawn. The consequences do not need to be spelled out. That is happening across the retail sector, leaving otherwise completely healthy businesses facing an inevitable funding crisis. If those retailers collapse, jobs will be lost not only in those businesses, but in the manufacturing industries that supply those retailers. Sorting out trade credit insurance must be a very high priority for BERR. I look for reassurance from the Minister when he replies to the debate that that is indeed the case.
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