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As the hon. Gentleman will be aware, we have ensured that banks that have received Government support commit to freeing up credit as part of the contractual terms. As
part of their participation in the asset protection scheme, Lloyds Banking Group and RBS have been required to sign legally binding agreements. Lloyds will lend about £11 billion extra to businesses this year and next and RBS about £16 billion, at commercial terms. That represents a significant pool of new lending available to business.
Mr. Hands: The Minister is being most generous in giving way. A little earlier, he was claiming the credit for the independent Bank of England’s cut in interest rates, yet most businesses will not borrow at 0.5 per cent. on account of the continuing large credit spreads in the economy. What does he think about long-term interest rates at 4.5 per cent., which is nine times the short-term interest rates? The rates available for businesses to borrow at, assuming that they can find a bank willing to lend the money, are far higher than the 0.5 per cent. he quoted.
Ian Pearson: I was not seeking to take credit for the actions of the Bank of England, which, as the hon. Gentleman is aware, is independent from Government. I was merely noting that on top of the fiscal stimulus introduced by the Government, the aggressive actions taken by the Bank, and the level of interest rates, are all big macro-economic factors supporting the economy at the moment.
The hon. Gentleman is right to point out that interest rates are historically low, but small businesses in particular still find it difficult to access credit on terms that they find acceptable. We continue to have discussions with banks about not only the quantum of lending but the rates of interest charged. Banks must make commercial decisions according to their assessment of risk and creditworthiness, and a market adjustment has been occurring throughout the UK economy. I do not think what is going on in the UK economy is at all different from what is going on in other advanced nations currently.
I want to mention the European Investment Bank and the onward lending to the small business community successfully negotiated by the Government. The UK’s share of overall EIB lending to small and medium-sized enterprises has already increased from 2.2 per cent. in 2007 to 12.3 per cent. in 2008, as part of a four-year deal that has been negotiated. It is also worth noting the Government’s enterprise finance guarantee scheme, which a number of Opposition Members criticised for being slow to spend, is proving extremely popular with businesses, and we are confident that it will support about £1.3 billion of bank lending to smaller firms this year. The most recent figures I have suggest that about £420 million of eligible applications from more than 3,800 firms have been granted or are being processed or assessed. More than 2,650 businesses have been offered loans totalling more than £250 million. The scheme is therefore popular.
On top of that, the Government introduced the trade credit insurance scheme in the Budget. From May 2009 until the end of the year, suppliers are being given the chance to purchase six months’ top-up insurance from private insurers, who are providing it on the Government’s behalf up to an aggregate limit of £5 billion. That is real help being provided to business.
Ian Pearson: If I may, I will mention the support for the automotive industry, which the hon. Gentleman raised. I will happily appear before the Business and Enterprise Committee next week to discuss the automotive assistance programme. As he will be aware, it has two parts, one of which is linked to guaranteeing loans from the European Investment Bank, and the other is a separate guarantee package. As he knows, Jaguar Land Rover has successfully applied to the European Investment Bank, and we will have discussions about the Government guarantee as part of that package. We are also in discussions with a number of automotive companies about assisting them through the automotive assistance programme. Given that the Government are providing guarantees, it is naturally up to the companies to reach agreements with the banks providing the loans, which the Government will guarantee. I hope to make announcements shortly about the AAP, but he will be aware that such deals can take a significant amount of time. When we are spending taxpayers’ money, it is right that we take precautions. The team in place in the Department for Business, Enterprise and Regulatory Reform is working hard with a number of companies in the supply chain, and we can make a real difference to some of those companies.
The Government have also recognised that many businesses are worried about being able to meet their tax, national insurance, VAT and other payments owed to Her Majesty’s Revenue and Customs. Those businesses can call the business payment support line that we have we set up. About 131,000 businesses have now been given the leeway to defer tax payments worth more than £2.3 billion, giving them a significant breathing space during difficult times. On top of that, the Government and their agencies, as major customers for good and services that UK businesses provide, have taken steps to help to ease the cash-flow problems of suppliers, by committing to pay bills within 10 days, bringing forward an extra £8 billion of payments on top of the £58 billion already paid within 10 days.
Mr. Hands: I think the Minister said he was worried about whether businesses would be able to meet their obligations to pay national insurance. Will he therefore tell us why he is hiking national insurance up by 0.5 per cent. from next year, for employers and those employees earning more than £19,000—a tax on the many, not the few?
Ian Pearson: The hon. Gentleman knows very well what we said in the Budget about the need to provide real help to businesses and the economy now, and to provide a fiscal stimulus, but also to take a sustainable approach to the public finances. That is why we have made announcements on national insurance, top rates of income tax and pensions. The Government must make a balanced judgment on the economy and its future and ensure that we put public finances on a sustainable path. That is what we did in the Budget: taking actions now that will help people and businesses get through difficult times, while ensuring a prudent and sustainable approach to the public finances over the medium term. That, Mr. Speaker, is exactly what you would expect Government to do.
We are also setting out a strategic vision about how to provide more support to companies in the future, through our White Paper, “New Industry, New Jobs”
and our industrial activism approach. That is important. We will continue to develop it, and I commend it to the House.
12.29 pm
Mr. Greg Hands (Hammersmith and Fulham) (Con): What extraordinary scenes! The Government have called a debate on the economy, and the Chamber is practically empty. The Minister arrived only just in time to present the Government’s case. I thought for a moment that he might have packed his bags in anticipation of the official announcement, and taken part in the DIY reshuffle that seems to have started earlier in the week. There appear to be no other Labour Members present to contribute to the debate. The Labour Benches are almost entirely empty: I see only the Whip and the Minister. There is no sign of anyone else wishing to make a speech in support of the Government’s policy on the economy.
The debate takes place in unhappy circumstances. I commend in advance all the members of my own party who are hoping to speak today, but it cannot be right for the Government to try to meet the widespread demand, in the House and the country, for significant time in which we can debate the economy by presenting us with a debate lasting only an hour and a half on election day, when an empty Chamber can be almost guaranteed.
Peter Luff: Would we not have been greatly assisted if this had been a substantive motion? The House could then have expressed its view, rather than merely debating the motion.
Mr. Hands: That would indeed have been very helpful. The Government have been running away from any debate of substance on the economy for many months. It was only a full Opposition day debate on the subject in March that finally prompted the Government to call their own debate in the week before Easter. Apart from allowing the usual scheduled debates on the Budget and the Finance Bill, the Government have been running away from being scrutinised on the economy for the past six months.
The Minister tried to talk about green shoots. It is true that the rate of decline in the UK economy appears to have abated in some areas. Manufacturing industry and the service sector are not as downbeat as they were a few months ago. Nevertheless, we have already experienced the longest recession in decades, and if there is joy at seeing light at the end of the tunnel, it is mainly because we have been underground for so long.
We welcome any signs of improvement in the economy. After four quarters of no growth or negative growth, we desperately need some signs that improvement will come. We have always thought and said that growth would return in 2009, although we have questioned, and continue to question, the Government’s growth forecasts for the years ahead. However, there are conflicting signs in the real economy. The Minister presented some of the highlights, which we welcome, but we should be realistic about the complete picture. Lending to companies and households fell in April for the first time since 1997. Earlier this week, the Financial Times commented:
“The slowdown in lending serves as a warning that while some ‘green shoots’ are emerging in the economy, constrained access to credit and weak demand for loans in the private sector could yet kill them off.’
Unemployment continues to rise inexorably, and at its fastest rate since the second world war. The Minister’s optimistic tone will not be echoed by the additional hundreds of thousands who are joining the dole queues each quarter. In March, the level of unemployment had already surpassed the forecasts for the whole of 2009 that had been made in the 2008 pre-Budget report. The Budget predicted that the claimant count would rise to 2.44 million by the end of 2010, a figure that had already exceeded by 1 million the one predicted only six months earlier in the pre-Budget report. The British Chambers of Commerce have predicted that it will reach 3.2 million by the end of 2010, and the CBI has made a similar prediction. It seems that the age-old adage—that all Labour Governments leave office with unemployment higher than when they took over—will prove to be true yet again.
If I were the Minister, I would go easy on trumpeting claims for the success of Government schemes to help people and businesses through the recession. It emerged earlier this week that just two home owners had been helped by the Government’s flagship initiative to help families avoid repossession. The mortgage rescue scheme has been running since January, during which time nearly 20,000 homes are thought to have been seized, but only two households have been helped.
Let us consider two of the Government’s schemes for business. I do not know whether the Government can provide more up-to-date figures, but the most recent publicly available figures suggest that the capital for enterprise fund announced in November 2008 has yet to invest a single pound in any business. Furthermore, according to the Minister for Employment Relations and Postal Affairs the £1.3 billion enterprise finance guarantee scheme has loaned just £92.6 million to industry, despite also being announced last November. That represents just 7 per cent. of the funds available. Meanwhile—and I hear this across the country—big Government rises in business rates continue to hurt.
One easy way of helping small and medium-sized enterprises would be to make small business rate relief automatic. Why did the Government oppose the private Member’s Bill presented recently by my hon. Friend the Member for Mid-Worcestershire (Peter Luff), which would have done precisely that? As I said earlier, however, the way in which the Government could really help business is by sorting out the public finances. Unfortunately for the Government and the country, the position is going from bad to worse. We are still deep in the tunnel, with no chinks of light to be seen. Government borrowing in April—in just one month—was an incredible £8.5 billion. That is a record, and it is five times as much as was borrowed in the same month last year.
Even according to the Government’s own highly questionable statistical basis, net debt has already risen from the mid-40s to 53.2 per cent. of GDP. It is at its highest level since the 53.8 per cent. that we saw when the country was shamefully bailed out by the IMF in 1976. The United Kingdom has been publicly downgraded by Standard and Poor’s for the first time ever, or at least since its credit was rated for the first time in 1978. Our credit prospects are negative. That will add yet further
to our borrowing costs, especially the costs of any non-domestic borrowings. It will also shrink the investor base for our debt products, as some investors are not able to hold anything less than AAA-rated assets.
Thanks to the public finances, borrowing rates for businesses are far higher than they should be in this recession. As I said earlier, long-term interest rates are an incredible nine times higher than short-term interest rates. Credit spreads on variable-rate borrowings are still too wide. Whether we look at variable or fixed-rate funding, it is clear that the long-term funding needed by businesses is still far too expensive. Moreover, the Government are crowding out business borrowers from the capital markets with their huge gilt auctions
It seems that no one believes the Government’s forecasts of a trampoline recovery. We hope and expect there to be some growth in the economy before the end of the year, but it is difficult to share the Government’s optimism that there will be a 3.5 per cent. rate of growth next year. Of course we would love that to be true, but we suspect some political massaging of the figures. Indeed, I read that the Prime Minister wanted the figures to be even more fixed than those that I have cited. On Tuesday, The Times reported that
“the Prime Minister tried to upgrade the growth forecasts to make the economic outlook appear rosier than it was; the Chancellor refused.”
We urgently need to hear from the Minister what really happened. Are the growth forecasts in the Red Book from No. 10, or are they from the Treasury? Did the Prime Minister try to intervene, as The Times claimed? Perhaps he intervened successfully, and those growth forecasts are the result of his intervention.
It would also be helpful to hear the Minister’s response to the harsh criticisms of the Government’s quantitative easing programme made earlier this week by the German Chancellor, Angela Merkel. She said:
“What other central banks have been doing must be reversed. I am very sceptical about the extent of the Fed’s actions and the way the bank of England has carved its own little line in Europe”.
That is another extraordinary attack from a foreign leader on the Government’s economic policy. May I ask the Minister whether, at the G20 summit and at last month’s ECOFIN meeting, Germany raised its opposition to the quantitative easing programme with the Prime Minister or the Chancellor?
Although no Labour Members except the Minister are present for it, this may well end up being an historic debate. It may well be the last debate on the economy to take place while the Chancellor of the Exchequer, the right hon. Member for Edinburgh, South-West (Mr. Darling) is Chancellor. This could be how it all finished: a dead-end debate slot on European election day with virtually no one present to witness the end of it all. The Chancellor would be like a modern-day Eleanor Rigby.
Instead of coming here to talk about the economy, the Chancellor is somewhere else fighting for his political survival. Britain deserves better than this, and that is why we are calling for a general election. I thank my hon. Friends in advance for participating in this debate, but the whole Conservative party wants to debate the economy, and for longer than an hour and a half; we want a full, four-week debate in a general election campaign. Moreover, a general election is what the country wants and so desperately needs.
12.40 pm
Dr. John Pugh (Southport) (LD): I do not know whether this is a dead-end debate slot, but I do know that I have only six minutes to say all that needs to be said about the economy and business, and I also know how strict you are, Mr. Deputy Speaker, in enforcing such time limits. Saying all that needs to be said in such a brief period presents something of a challenge because relatively little has been said recently in either this place or the media about the economy and business. Far more has been said about the home economics of MPs. We live in a strange world at present, where a £5 claim for an offertory is given as much precedence in terms of newspaper headlines as was the attack on the twin towers.
In a way, however, that might not be such a bad thing, because when the focus was on the economy, that led to a rush of Government headline-grabbing initiatives that were not well thought-through, and to the media ceaselessly attempting to pile on the misery, darken the gloom and depress optimism. Every statistical device known to man was used to illustrate that, when compared with the great depression of the 1930s, the black death and so forth, the severity of current circumstances was unrivalled.
I am not trying to pretend that the economy is not in serious difficulties and an unexpectedly bad state, but I drew attention to the media effect on confidence in an early-day motion that I tabled some time ago. I called for that to be studied, because is it not a strange coincidence that some slight signs of recovery—of bottoming out—are arising in a period of relative media neglect? While democratic institutions are taking a hammering, the ailing economy is enjoying something of a media respite.
I make this point because I was receiving a consistent message from my constituents a few months ago. They were saying, “Yes, business is in a fix, and we know that these are difficult, hard and tough times, but we could do without the media larding it on and exaggerating the extent of the depression.” The local media do not do that, because they do not want to depress confidence unduly as they recognise that they need advertisers and that those advertisers are local businesses.
Mr. William Cash (Stone) (Con): Does the hon. Gentleman also recognise that when dealing with matters affecting our local economy, which is very important, the most important thing we can do is stand up for manufacturing industry and the people who really matter? We must protect their jobs and interests, and do everything we can to ensure that they can survive in the current difficult circumstances.
Dr. Pugh: I do accept that, but I want to make the point that there is a big difference between how the whole issue has been treated from start to finish by the local media, which in a sense depend on local industry, and by national media, such as the BBC, which do not. I simply point that out. The effect of that may be marginal, but it is nevertheless real. Mark Vitner, senior economist of Wachovia, recently commented on the fragile recovery in business confidence in the US and warned that:
“People’s expectations were built on such things as newspaper headlines.”
Let me turn now to the main subject of our debate: the expectations of business. We are going through tough times, and there is an expectation that Government will help. In good times, good business does not need any help, but most businesses currently do. Genuine attempts to help have been made; the Minister listed some of them. The Government have pressured banks to lend and also to maintain credit, which is very important. They are also trying to create a more benign tax environment; there is some evidence of that in the current Finance Bill. They are spreading business rate payments, too, and increasing advice. More national and European grants are coming forward as well. However, much of the help is rushed, poorly communicated and, at times, ineffectual. It also does not address real and reasonable requests. One of them has already been mentioned: the automatic small business rate relief would not cost the Treasury anything, but it would be enormously beneficial to many local businesses.
Businesses also notice that the help they are being given is incommensurate with the help being given to banks, who were the authors of the general misfortune in the first place, and who still pressure viable businesses rather more than businesses that are likely to default. In other words, they put pressure on businesses that are doing reasonably well and tighten their access to credit, because they know that if they put pressure on businesses that are likely to fail, they themselves will be the losers.
Expectations are not being met, therefore, but then few expectations are being met these days. Few people expected the current economic mess, or the scale of it; few expert economists, global pundits or parliamentarians did so. However, that has not stopped everybody now rushing in to make further predictions with the same confidence as in the past. The best of the predictions do little more than encapsulate current trends. The CBI recently said:
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