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House of Commons

Thursday 19 March 2009

The House met at half-past Ten o’clock


[Mr. Speaker in the Chair]

Business Before Questions

Manchester City Council Bill [ Lords] and Bournemouth Borough Council Bill [ Lords]

Resumption of adjourned debate on Question (15 January),

Hon. Members: Object.

The debate stood adjourned; to be resumed on Thursday 26 March.

Canterbury City Council Bill, Leeds City Council Bill, Nottingham City Council Bill and Reading Borough Council Bill

Resumption of adjourned debate on Question (15 January),

Hon. Members: Object.

The debate stood adjourned; to be resumed on Thursday 26 March.

Oral Answers to Questions

Business, Enterprise and Regulatory Reform

The Minister of State was asked—

Royal Mail Pension Scheme

1. James Duddridge (Rochford and Southend, East) (Con): What estimate he has made of the cost to the public purse of assuming liability for the Royal Mail pension scheme. [264469]

The Minister for Employment Relations and Postal Affairs (Mr. Pat McFadden): We estimate that the Government will assume total liabilities of £29.5 billion and assets of £23.5 billion. That would mean the Government absorbing a deficit of £6 billion. This assessment of the liabilities in the scheme and the funding position is based on the most recent trustee valuation, from March 2008. However, we anticipate that the funding position of the scheme could well have worsened since that date, so when we have updated
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figures from the new valuation, beginning this month, we will finalise our assessment of the funding position of the scheme.

James Duddridge: Clause 20 of the Postal Services Bill will allow the Government to take the existing assets from the pension fund into the consolidated fund and spend it that very same year. Is it wise as part of addressing the pension funding crisis to take the existing inadequate assets and use them to rescue the Government’s current deficit, making the problem worse in the longer term?

Mr. McFadden: Our motivation is not about the public sector accounting impact. Our motivation is to give greater security to the hard-working men and women who work for Royal Mail, because the pension fund is an increasing burden for Royal Mail. At the same time, however, if we are to ask the taxpayer to take on those liabilities—I have set out what the scale of those liabilities is—it is equally right that we also give the taxpayer some confidence that the company can be transformed and modernised in the future. It is precisely those two things that are set out in the Postal Services Bill, which was published recently.

Mr. David Chaytor (Bury, North) (Lab): Postal workers in my constituency will be greatly reassured by the Government’s commitment to rescuing the pension scheme, but could the Minister tell the House to what extent the deficit of £6 billion is due to contributions holidays by previous employers?

Mr. McFadden: The scheme was in surplus as recently as 2001, so I am not sure that the deficit can be ascribed to contributions holidays. Another factor that right hon. and hon. Members should consider is that the Government have not taken a dividend from Royal Mail for some years, so the most important thing is to concentrate on what we do now. As things stand, with a combination of the pension fund deficit and falling mail volumes, the company is in a very serious position. That is precisely why we have brought forward plans to deal both with the pension fund and with the transformation of the company in the future.

Mr. Jonathan Djanogly (Huntingdon) (Con): The Minister has just said that the Government proposals would provide greater security for postal workers’ pensions, but can he confirm that clause 19(6)(b) of the Postal Services Bill provides that this or a future Government could waive the pension guarantee and vary the terms of the postal workers’ pensions without the approval of the trustees, who will lose their power to protect the pensions under the provisions of the Bill?

Mr. McFadden: The changes that we propose to the pension scheme will mean that the deficit is handled on the same basis as the pension schemes serving teachers, nurses and civil servants. That will indeed give Royal Mail staff far greater pension security than they get at the moment, when the deficit appears to be increasing year on year.

Mr. Michael Clapham (Barnsley, West and Penistone) (Lab): Can my right hon. Friend say whether the income from the selling of equity and shares in Royal Mail will be used either to reduce the pension deficit or to modernise Royal Mail?

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Mr. McFadden: Our intention, through a partnership, is to bring in new investment into the company. We intend to bring in not just investment in Royal Mail, but experience from another European postal or network company that has been through a transformation of the kind that Royal Mail needs, but has not yet gone through. The harsh fact is that if we do not get that investment and experience, the decline in mail volumes will decide the issue for us. As things stand, without the transformation of the company, for each decline in mail volumes of 1 per cent., Royal Mail loses around £70 million. There is therefore an urgent need not only to deal with the pension fund, but to modernise Royal Mail.

Financial Assistance (Businesses)

2. Mr. David Burrowes (Enfield, Southgate) (Con): What recent progress has been made in the provision of financial assistance and loan guarantees to businesses. [264470]

The Parliamentary Under-Secretary of State for Business, Enterprise and Regulatory Reform (Ian Pearson): Banks participating in the Government’s recently announced asset protection scheme have committed to making available £27 billion of additional lending to businesses over the coming 12 months. The value of eligible cases for the enterprise finance guarantee has increased tenfold, from £3 million in the first week of operation to more than £31 million last week.

Mr. Burrowes: If the Minister were to join me in my meetings with small businesses in Southgate tomorrow, would he be able to tell them how long the crippling effect of credit insurance withdrawal along the supply chain will continue, and when the planned increase in the flow of credit from the Government’s schemes will actually reach the high streets of Southgate?

Ian Pearson: The hon. Gentleman is perfectly right to point out the severe problems that many companies are facing as a result of the global credit crunch. Our priority as a Government has been to fix the power failure in the banking system, and we have been taking action to do that through the recapitalisation of the banks last October, and through the actions that we took through the asset protection scheme. That will stimulate extra spending in the economy as well. I can tell his firms that the Government are providing real help to businesses through the enterprise finance guarantee, which will cover over 95 per cent. of all companies, and through the asset protection scheme and the measures that we have taken to get lending going again.

Tony Lloyd (Manchester, Central) (Lab): My hon. Friend is absolutely right to say that the Government have taken significant steps to open the process up, but does he agree that the banks and other lenders have not yet properly started to play ball? Barclays are asking a company in my constituency for 9.9 per cent. above the base rate for an overdraft, for example, and the car finance corporation is charging a 30 per cent. annual percentage rate on loans. Those rates are not going to get businesses and customers back to where we want them to be, which is buying and selling.

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Ian Pearson: There is certainly a variable picture out there in terms of lending and of the rates being offered on overdrafts and other credit facilities. The most recent Bank of England lending panel report demonstrated that margins were coming down, however, and that lending was now cheaper than in 2007. There has been some progress, with the reduction in the LIBOR rate, although there is probably more to be done. The Government remain committed to ensuring that we have competitive lending available to UK companies and mortgage holders, and we are focused on delivering that.

Mr. Brian Binley (Northampton, South) (Con): Money is not getting through. We have said that again and again, but the Government seem not to be listening. In recognising that there is a management element to the Government’s job, will the Minister tell me what the Department is doing to ensure that he is getting out there, monitoring the process and ensuring that the thing works? It is not working at the moment.

Ian Pearson: There are two points here. The first is about overall lending, and what the Government are trying to do to stimulate lending in the economy through the actions that we are taking with the banks. I hope that the hon. Gentleman realises that, about 12 months ago, 50 per cent. of the lending to the commercial sector in the UK came from foreign banks. Those banks have not gone bust, but they have gone home. That proportion of lending has therefore disappeared from the UK economy, and our banks are having to work even harder to replace some of that lending. That is why we have taken action through the asset protection scheme and other measures.

On the question of specific Government programmes, I have already set out the progress that we are making through the enterprise finance guarantee. This was the old small firms loan guarantee scheme. We have now upped the qualifying limit from £5.6 million to £25 million, which covers the vast majority of companies in the United Kingdom, and we have upped the limit of loans from £250,000 to £1 million. The guarantee stands at 75 per cent., and more than 1,100 companies that are eligible for the scheme are already having their applications assessed. We are monitoring the scheme weekly through the banks and through Capital for Enterprise. It is up and running, and we believe that it is on target to meet its commitment to supporting £1.3 billion of lending to the UK economy.

Clive Efford (Eltham) (Lab): The “Real help now” package that the Government have put in place shows their determination to help small businesses, but the banks remain stubbornly resistant to co-operating with what has been put in place. Businesses in my area describe interest rates being held stubbornly high or increased, bank charges being imposed without warning and a requirement for 100 per cent. security despite the fact that loans are covered by the guarantee scheme. Is it not time that we had an independent ombudsman or arbiter that businesses could go to when the banks are not carrying out what they should be doing on their behalf?

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Ian Pearson: We are certainly already monitoring the actions and activities of the banks through the lending panel, so there is a level of scrutiny there. Obviously, we cannot stand in the shoes of the banks that have to make commercial lending decisions on the basis of their assessment and pricing of risk. That is what would be expected of any functioning economy. What we can do, however, and here I agree with my hon. Friend, is rigorously monitor the situation. It is right to say that we need to keep a close eye on the banks; we are doing just that.

Mr. Elfyn Llwyd (Meirionnydd Nant Conwy) (PC): What are the Government doing about credit guarantee—in other words, what happens when a firm delivers goods to another firm that subsequently becomes insolvent? The Prime Minister assured me during the Gracious Speech debates that something was being done, so will the Minister tell me exactly what is being done to assist small and medium-sized companies?

Ian Pearson: We are taking a range of measures to support small and medium-sized companies, which we recognise as the backbone of the economy, so we need to help them get through the recession in the best possible shape. I have already mentioned the enterprise finance guarantee scheme. We are also taking actions through the working capital scheme to shore up credit lines. I know that there have been criticisms from Conservative Members that we have not made further announcements on the working capital scheme, but what we are doing there is guaranteeing portfolios of working capital facilities. These are deals that we are doing with the banks rather than individual companies, but they run into hundreds of millions of pounds. As the right hon. and learned Member for Rushcliffe (Mr. Clarke), who speaks for the shadow Chancellor of the Exchequer knows, these deals are not done in five minutes or even days and weeks, as they are the result of complex negotiations, but they are important to shoring up working capital for companies, and they are in addition to the actions that we are already taking.

David Taylor (North-West Leicestershire) (Lab/Co-op): The actions taken by the Government so far have been largely defined by, and perhaps constrained by, sections 7 and 8 of the Industrial Development Act 1982, which include the provision to expand or sustain the productive capacity of any industry. Is the Minister happy that those provisions are sufficiently broad and flexible because the construction industry, and particularly the buildings material industry in my area that feeds it, is yet to see the real fruits of the Government’s initiatives? Do we not need some more imaginative action; might not some emergency legislation be appropriate?

Ian Pearson: Yes, I am happy that sections 7 and 8 of the Industrial Development Act remain fit for purpose: section 7 covers regional assistance and section 8 covers industrial support more generally. In the Second Reading debate on the Industry and Exports (Financial Support) Bill on Monday, we explained why we were increasing the limits relating to section 8 expenditure, which are going to go up to £12 billion if the legislation is passed and with a possibility of their going up to £16 billion. That reflects the fact that the more modern way in which we are providing support is through loan guarantees
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that have to be scored as expenditure even though they are really a contingent liability. We can provide support under that legislation, and the schemes that we have announced will have as their legal vires that industrial development legislation.

John Thurso (Caithness, Sutherland and Easter Ross) (LD): At the last DBERR questions, the Minister told me that he expected that lending figures for companies participating in the enterprise finance guarantee scheme

That has simply not happened and, given the scale of the problem, the numbers the Minister has quoted this morning are a pittance. Is he aware that applicants still face considerable difficulty in assessing the scheme, that the banks are still extremely reluctant to grant moneys under it and that the small and medium-sized enterprises that have been clinging on by their fingertips for months now want substantive help and not platitudes? When will the Government get a grip, stop monitoring and actually manage the situation?

Ian Pearson: We are both managing and monitoring the situation. The hon. Gentleman has made a number of assertions; let me explain the facts to him. More than 1,100 companies have shown themselves to be eligible to participate in the enterprise financial guarantee scheme, and £115 million worth of loans can potentially be made to them. It will be up to the banks to assess the applications. About 70 per cent. of cases are going through at present, which is quite normal. There is obviously a difference between the number of eligible cases, the number of loans offered, and the drawdown of those loans.

This is still a new scheme, but it is growing. I have already said that in the first week there were £3 million of eligible cases, and last week the figure was £30 million. A big increase is taking place. As I have said, we will continue to manage the process as well as monitoring it, to ensure that it delivers for small businesses.

Mr. Mark Prisk (Hertford and Stortford) (Con): Three weeks ago, the Government proudly announced what they claimed was a unique agreement with Royal Bank of Scotland and Lloyds, which apparently guarantees that those banks will lend business a total of £27 billion this year. Given the evident and continuing problems for businesses, how will Ministers guarantee that sum this year and, given that they are part-owners of the banks, what penalties could they actually apply if the banks proceeded to default?

Ian Pearson: The hon. Gentleman has repeated the figures that I announced in my reply to the hon. Member for Enfield, Southgate (Mr. Burrowes). He is right about the commitment of £27 billion of additional lending—£16 billion from RBS and £11 billion from Lloyds Banking Group. We will monitor their delivery of that commitment, just as we are monitoring their progress in terms of lending under the enterprise finance guarantee.

I would like to think that the Conservative party welcomes the fact that we are introducing legally binding commitments as part of the asset protection scheme. We expect RBS and Lloyds Banking Group, as responsible
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companies, to deliver on those commitments, and I have no reason to doubt their genuineness in wanting to deliver for small businesses. Rather than carping and moaning, Conservative Members should welcome the fact that we have an active Government who are making commitments and ensuring that they are delivered.

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