House of Commons
Tuesday 28 April 2009
The House met at half-past Two o’clock
Prayers
[Mr. Speaker in the Chair]
Oral Answers to Questions
Treasury
The Chancellor of the Exchequer was asked—
Credit Unions
1. Mrs. Sharon Hodgson (Gateshead, East and Washington, West) (Lab): What steps he is taking to assist credit unions during the economic downturn. [271126]
The Economic Secretary to the Treasury (Ian Pearson): The Government strongly support credit unions and have announced in the Budget an extra £18.75 million for the growth fund, bringing the total to almost £100 million. The extra funding will allow further assistance through accessible, affordable loans to be made by credit unions and community development financial institutions in addition to the 160,000 loans made so far.
Mrs. Hodgson: The Minister will be aware that I have written to him about my local credit union, Wearside First, which helps thousands of people across Sunderland to save and to access affordable loans. Those people would otherwise, unfortunately, have to use illegal loan sharks, and we all know the road that that would take them down. However, that wonderful credit union is facing closure due to a lack of funding. Will the Minister agree to meet me and representatives of Wearside First to discuss the situation?
Ian Pearson: As my hon. Friend knows, Wearside First is one of the credit unions that is participating in the growth fund, and it has been doing good work. I would be very happy to meet her and a delegation from the credit union to discuss the issues that it faces. Obviously, she will also want to discuss the matter with her local authority—perhaps she has done so already—but I would be very happy to have a conversation with her about this issue.
Mark Pritchard (The Wrekin) (Con):
If the Government are serious about helping the poor, why are Ministers allowing some credit unions to charge up to 27 per cent. interest? That is far higher than the rate charged by many leading retail banks. Given the large taxpayer
subsidy to which the Minister has just referred, are the Government not complicit in making the poorest in our society suffer?
Ian Pearson: No; I do not accept that. The Government strongly support the credit union movement across Great Britain. There are 532 credit unions, which have two thirds of a million members and somewhere in the region of £500 million-worth of assets. I would have thought that the hon. Gentleman would welcome the extra resources that the Budget has provided to make additional loans available to vulnerable people at very affordable prices. By 2011, an additional 85,000 people will be able to be helped as a result of the actions announced in the Budget last week. That is good news for people who need affordable credit; the credit unions play a tremendously important role in keeping such people away from doorstep lenders and loan sharks. Credit unions should be supported, and that is what the Government are doing.
Mr. James Plaskitt (Warwick and Leamington) (Lab): The extra financial help from the growth fund is extremely welcome and will be of great assistance to many credit unions, but they sometimes need help that does not have a price tag. In some instances, they simply need a place in which to deliver their services in the community. Through the ministerial work that my hon. Friend does with other Departments, will he look into the possibility of using Government buildings such as Jobcentre Plus and Sure Start centres to give credit unions more places where they can deliver their services in the communities in which those services are now greatly needed?
Ian Pearson: My hon. Friend makes a good point. The Government are very interested in examining how we can extend the coverage of credit unions throughout Great Britain—they are already very strong in Northern Ireland, as he is well aware—and considering whether certain premises could be made available. We are also looking into other routes that would ensure the necessary coverage of credit unions in all the most vulnerable neighbourhoods across Great Britain. We will indeed look at the inter-ministerial level at what more can be done.
Greg Mulholland (Leeds, North-West) (LD): My constituent, Tony Massarella from Otley, is an accountant to many credit unions, and is something of an expert on their structure. Along with many credit unions, he is concerned that the Government’s approach favours the very large credit unions, when surely the point is to keep them close to the very communities that the Minister says they should serve. Will the Minister assure me and Mr. Massarella that the Government do not believe in a “biggest is best” approach to credit unions?
Ian Pearson:
As a Government, we want to see a range of credit unions and, in recent years, we have worked very closely with the credit union movement. The hon. Gentleman will probably be aware of the legislative reform order that we have consulted on, which we hope to launch before the summer. He might also be aware of the Co-operative and Community Benefit Societies and Credit Unions Bill introduced by my right hon. Friend the Member for Croydon, North (Malcolm Wicks), which we discussed in Parliament
last Friday. It provides for further changes to support the modernisation of the credit union movement. However, that should not be taken to mean that we want to see overwhelmingly big credit unions. We want to see a range of credit unions performing a range of functions that will benefit people in local communities and local organisations.
Mr. Jim Devine (Livingston) (Lab): I know that my hon. Friend will want to join me in congratulating the Livingston credit union, which is opening a new office in Livingston on Friday. Does he share my concern, however, that the Scottish National party Government have abolished the £3.5 million ring-fenced funding that was set up to establish and develop credit unions in Scotland?
Ian Pearson: I certainly welcome the opening of Livingston credit union’s new office. Credit unions are as important in Scotland as they are in the rest of the United Kingdom. Obviously it is a matter for the Scottish Administration where they put their resources, but I would like to think that they would want to support the credit union movement, just as we have done through last week’s Budget.
Government Infrastructure Investment
2. Norman Baker (Lewes) (LD): Pursuant to the written ministerial statement of 3 March 2009, Official Report, columns 47-8WS, on Government infrastructure investment, what assessment he has made of the implications of Government policy for the private finance initiative funding provided for the extension to the waste contract let by East Sussex county council and Brighton and Hove council. [271127]
The Exchequer Secretary to the Treasury (Angela Eagle): There are no such implications. The announcement made on 3 March is targeted at PFI projects that have not yet reached financial close. This particular project reached financial close in 2003.
Norman Baker: I thank the Minister for that, but is she aware that the European Commission has indicated that it is minded to uphold my complaint against East Sussex county council for failing to follow public procurement rules in respect of a contract extension that has recently been undertaken, for which PFI funds have been made available? Can she assure the House that East Sussex county council sought specific approval from the Treasury before entering into the contract extension in order to confirm that the terms of the original PFI award were not breached and that all obligations in respect of public procurement have been properly discharged?
Angela Eagle: My understanding is that, as the extension required no further PFI credits or further money from Her Majesty’s Treasury, those decisions were a matter for the local authorities concerned.
Kelvin Hopkins (Luton, North) (Lab) rose—
Mr. Speaker: I am usually happy to call the hon. Gentleman, but Brighton and Hove is a good train journey to the south of Luton, is it not?
Lending to Business
3. Dr. Nick Palmer (Broxtowe) (Lab): What recent assessment he has made of the trends in lending by UK banks to businesses. [271128]
The Chancellor of the Exchequer (Mr. Alistair Darling): The Bank of England published a new report on lending just last week. It suggests that some lenders expect the overall availability of credit to the corporate sector to improve over the coming months.
Dr. Palmer: We also have the impression locally that the position is improving somewhat, but does the Chancellor agree that public support for the rescue of the banks is very much conditional on the banks’ willingness to support the rest of the economy? Will he be doing all he can to ensure that our colleagues in the newly nationalised banks are aware of that public feeling?
Mr. Darling: I agree with my hon. Friend; the reason why we decided to intervene to restructure and rebuild the banking sector was the need to ensure that credit keeps flowing—that is vital for business. RBS will lend an additional £25 billion this year and next, the Lloyds group an additional £14 billion this year and next, and the figure for Northern Rock will be about £5 billion, which mainly relates to mortgages. Even the banks in which we do not have a stake have benefited from the support that we have given: HSBC has said that it will lend another £15 billion, while Barclays will lend another £11 billion this year. That money will be made available—although obviously it is important that we do everything that we can to ensure that credit keeps flowing—and will complement the measures that I announced in the Budget last week that are specifically designed to help businesses.
Dr. Vincent Cable (Twickenham) (LD): Why is the Chancellor proposing to sell the good parts of Northern Rock this year when under current market conditions that would almost certainly guarantee a very large loss, rather than wait for market conditions to improve and get better value for money for the taxpayer?
Mr. Darling: I assume that the hon. Gentleman is referring to the reports that I have seen in the newspapers over the past few days. I have always been clear that my objective, once we get through this, is to return those banks to the private sector, because I do not believe that the Government ought to be in the business of running banks in the long term—I think that he agrees with that view. The question is when we should sell those banks back to the private sector. The answer will be determined by what represents the best value for money for the taxpayer, so I am in no hurry to do so. It is far better that we ensure that when we sell we are satisfied that what we are getting represents the best possible deal. I can tell the hon. Gentleman that it is not something that I would rush into; I want to ensure that we get a good price for the assets that we have.
Ms Dari Taylor (Stockton, South) (Lab):
The chemical process industry in my constituency makes the point that although excellent investment is available for research,
very little investment is available for projects that are being made ready for market. What are the Government doing about that?
Mr. Darling: I agree with my hon. Friend that it is important that we support research. She will know that through the research and development tax credits we have done a great deal in this country, particularly in those areas that are very dependent on research. She is also right to say that we need to ensure that, having got the research worked up, we can then convert it into something that is ready to go into the market. That is why, for example, we have put more money into the Technology Strategy Board, which helps to develop such products. We have also made sure that there is a range of measures available to help with funding. My hon. Friend is right to identify the problem, which is shared by many countries. It is right to try to address it in every possible way, because we are very good at inventing and innovating in this country. The key is to convert that into products that can be sold in the marketplace.
Sir Peter Tapsell (Louth and Horncastle) (Con): Does the Chancellor agree that the objective of the announced programme of quantitative easing is to increase and facilitate lending by banks to businesses? The Bank of England has warned against another fiscal stimulus, so why is it proceeding with QE in such a half-hearted manner that it has actually raised the yields on gilts? It was also very slow to lower interest rates on the eve of the crisis. Would not Montagu Norman be proud of them?
Mr. Darling: I will leave that discussion for another day. The Bank of England has authority to put money into the economy to kick-start credit, and it has agreed to spend £75 billion. Part of that will involve buying commercial paper to help ease lending conditions between companies, but it takes time to build up that activity. The Bank has operational independence for doing that; although, obviously, I had to authorise the operations in the first place, the Bank decides when and where to intervene. I know that the Governor is very aware of the fact that, as part of the process of putting money into the economy and getting credit going, he must ensure that he helps the commercial sector. I know that he is looking at various measures to help him to do that, and he set all that out when he last appeared before the Treasury Committee.
Mr. Ken Purchase (Wolverhampton, North-East) (Lab/Co-op): Does my right hon. Friend agree that the flow of bank lending to smaller companies would be considerably improved if banks would stop imposing impossible conditions? I refer specifically to those banks that want personal guarantees from owners and directors who are applying under loan guarantee schemes that will be met in default by Government. Is it not wrong that when the Government are doing all that they can to improve the flow of money to small businesses, banks are impeding that flow by making the loans conditional on personal guarantees?
Mr. Darling:
My hon. Friend is right: the Government are doing a great deal to help to increase the amount of money available to small businesses, and over the past
few months some 2,000 businesses have been offered some £240 million of additional lending. Other measures are in place. Banks need to be reasonable with their customers and balance the need to ensure that they do not repeat the mistakes made over the past few years—when credit was given with too few questions asked and not enough security—with avoiding the situation in which conditions are so restrictive that the schemes do not actually work. A degree of common sense is required. It is important that we do everything that we can to get credit going, because it is an essential precondition to recovery, and that is why we decided to intervene to support the banking sector.
Stewart Hosie (Dundee, East) (SNP): Although the base rate is only 0.5 per cent., the real cost of borrowing for business is much higher. The banks put that down to a combination of the LIBOR rate, the requirement to strengthen balance sheets and, to some extent, the cost of the various Government insurance guarantee and asset protection schemes. Given that the cost of the latter is within the Government’s control, is the Chancellor prepared to look again at the pricing policy for the insurance guarantee and protection schemes to determine whether a change might bring down the cost of money to the banks and therefore lower the cost of borrowing for business?
Mr. Darling: The hon. Gentleman raises an important point. The Government have put in place substantial schemes to deal with the problems of assets for which there is no market, or where prices have fallen, that were restricting the ability of the banks to lend. The Government have also made available funds through the special liquidity scheme and other measures. However, we have to make a charge for doing that, and we must also ensure that there is some discount, so that it is not just seen as a free good. The obvious other side is the need to ensure value for the taxpayer.
I think that one reason why the IMF withdrew its initial calculations when it tried to calculate our potential liabilities was that it had not quite realised that we had made provision against debts or provisions that might go bad. I have always made it clear that there is a fee to be charged and a price to be paid, because the banks cannot expect to receive this as a free good. Obviously, I will keep all these things under review, because my primary objective is to ensure that we get credit flowing through the economy again, and the banking system is essential to that. I appreciate the hon. Gentleman’s general point about what businesses pay. We will do everything we can to try to keep that price as low as possible, but I have to have regard to the general security of the taxpayer’s position.
Ms Sally Keeble (Northampton, North) (Lab): I welcome the progress made on new lending, but is my right hon. Friend aware that some banks, including those of the Lloyds group in my constituency, are taking a punitive approach towards some existing loans? That has included telling one local business that it should mothball a housing development. Will my right hon. Friend say how the Treasury will use its leverage with the banks with which it has holdings to ensure that they do not take such a punitive approach towards existing borrowers and that they continue with the loan arrangements that have already been made?
Mr. Darling: As I think that I have said on a number of occasions, we cannot second-guess the judgment of every bank manager on every customer. However, we say to the banks that we have made substantial support available and that we want to see that support translated into support for businesses. I would be very happy to look at the case that my hon. Friend raises—obviously, I have no knowledge of it, so I cannot possibly comment on it. It is important, as I said to my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) earlier, that we should ensure that there are funds available but that there has to be a degree of judgment in each individual case about whether the loan is a good prospect and about whether it can be repaid. We do not want to get into the very problems that brought about this situation in the first place, where loans were given without enough questions being asked and with disastrous consequences for the banks and for the wider economy here and across the world.
Mr. Mark Hoban (Fareham) (Con): The Chancellor is being complacent about the flow of credit into the economy. The enterprise finance guarantee scheme is under fire from businesses up and down the country. The working capital scheme started a month late, with only RBS signed up to it. In the Budget, after months of pressure, the Chancellor finally announced the trade credit insurance top-up scheme. Did the British Retail Consortium not sum up the Government’s attempt to get credit flowing again when it said that the trade credit insurance scheme was “too little too late”? While the Government have dithered, the help that they have offered has come too late for many businesses and their employees.
Mr. Darling: I would say that the support that we have made available to the banking system is fully justified. It was necessary—as I said, it is a necessary precondition of recovery. We have also put in place a number of measures: the hon. Gentleman mentioned the enterprise finance guarantee scheme, which is helping 2,000 businesses. We now have support for exporters and other measures of support, too.
I hope that when the hon. Gentleman spoke to the BRC he pointed out what would have happened had he had his way, as he was against every single one of the measures. I am always interested to hear his concern about what we are doing, but he ought at least to stand up and say, “By the way, I would not have done any of these things”, as his Leader of the Opposition made clear at the weekend.
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