Examination of Witnesses (Questions 220-239)
BARONESS VADERA
12 MAY 2009
Q220 Miss Kirkbride: You say that
about 2,000 businesses have already applied under the business
enterprise guarantee scheme and 2,000 are in the pipeline as you
put it. To get an idea of how useful and widespread the scheme
has been, how many businesses have applied and been turned down?
Baroness Vadera: The number is
3,436 of which 3,071 were eligible in the first instance and had
their applications considered. Currently, of those 2,059 have
been offered.
Q221 Miss Kirkbride: Two in three
are successful?
Baroness Vadera: Yes; it is 2,059
out of 3,436, but there is usually a lag. Therefore, the conversion
rate from just looking at eligible applications is quite high;
it is 3,436 to 3,071 and the rate of conversion into a successful
loan varies each week. We are waiting for a clear trend to emerge,
but it is around two thirds to 85%.
Q222 Miss Kirkbride: Two out of three
of the people who apply would get a loan?
Baroness Vadera: It changes on
a weekly basis, and we are looking to try to increase the conversion
level but it could be that they are just not eligible for some
reason.
Q223 Miss Kirkbride: One in three
fails?
Baroness Vadera: Currently.
Q224 Miss Kirkbride: Is that largely
because of the banks?
Baroness Vadera: No. For example,
there are state aid restrictions which mean that certain sectors
are just not eligible. If they come from a certain sector the
bank might then put them onto something else. We have a clear
requirement that this needs to be additional. We do not put out
taxpayer's money to substitute something that the banks ought
to do themselves. If the banks in any case would have lent this
money it is not a product that we suggest is needed for them.
We need to look after taxpayer's funding as well.
Q225 Chairman: I want to check the
point about state aids. I pressed Ministers in the Commons about
this and have not had answers. There are sectors that are not
eligible under this scheme?
Baroness Vadera: That is correct.
Q226 Chairman: Can you give an indication
of the kinds of sectors that are not eligible?
Baroness Vadera: The ineligible
sectors are: coal mining, insurance, public administration, national
defence and social security. There are sectors that are subject
to restrictions: primary agriculture, banking finance, commission
agents, fisheries, forestry, real estate dealing, professional
sports players, sporting promoters and transport.
Q227 Lembit Öpik: Why is agriculture
excluded?
Baroness Vadera: It is not excluded
in its entirety; it is restricted to certain types of agricultural
activity. It is an EU requirement because it is believed that
it gets aid from other sources, so we have to do it to be legally
compliant.
Q228 Miss Kirkbride: Referring to
your responses to earlier questions, one question that struck
me was about why Britain was in a recession today. Do you think
it was wise of Gordon Brown to tell the British public that he
would abolish boom and bust?
Baroness Vadera: You are very
welcome to ask anybody any of those questions. I am not a Minister
who enjoys getting into overly-politicised debates; I would rather
talk about the substance of it, quite frankly. I think he has
explained his position frequently and very well in Parliament.
If you wish I could read from a transcript.
Q229 Miss Kirkbride: From your previous
answers it seemed to me that you had done so, but I shall leave
it at that. Referring to the capital for enterprise fund, can
you give an update on what has happened?
Baroness Vadera: We have received
applications that are currently being looked at and four offers
of £6 million have been made.
Q230 Miss Kirkbride: Four offers
of £6 million?
Baroness Vadera: Yes.
Q231 Chairman: Is it £6 million
each or £6 million in total?
Baroness Vadera: In total. The
first thing I should explain about the fund is that, as you would
expect with any normal equity fund, we shall be keeping an amount
in reserve for the reason that all funds tend to do that because
people who come in to ask for equity quite often make second calls
on it. We are in discussion on how much of the funding we should
keep in reserve. The estimates are between 10% and 15%. We would
not expect or wish to utilise the full £75 million because
we want to keep that reserve for existing users to come back for
a second call. We have received 329 applications totalling about
£100 million and due diligence is being done on them. There
are two fund managers. Four offers have been made for £6
million which is approximately 10% of what we would expect to
be disbursed and utilised.
Q232 Miss Kirkbride: When did this
scheme start?
Baroness Vadera: I believe it
started in March.
Q233 Miss Kirkbride: And just four
offers have been made out of 329 applications?
Baroness Vadera: Equity is a very
different instrument and one needs to do a degree of due diligence
that is quite different. In terms of the rate and pace of what
we would expect I check it regularly. I check when it is anticipated.
We believe it is quite in order for the time it takes to do due
diligence on equity as opposed to loan applications. We believe
that it is on track to be utilised completely except for the reserve.
We are currently in discussion on how much should be reserved.
Q234 Miss Kirkbride: Have the four
got it or are they on track to get it?
Baroness Vadera: They have received
it.
Q235 Miss Kirkbride: Based on your
flow charts how many of the 329 do you think are likely to be
found acceptable?
Baroness Vadera: It depends on
the average amount. I think there would be a high rate of decline
and it will simply be a matter of checking whether they are eligible
again. If they can get funding from elsewhere we would not wish
to be a substitute for that. We would put them in touch with other
people. If there is a huge demand that is not being met we can
also always consider using some of the other funding we have such
as the enterprise capital funds or see if there are other sources
available to them. We are keeping a very close eye on it, but
it is a little too early to say whether or not it will be over-utilised
at this stage. Right now based on the information we have we believe
that it is on track to meet our projections.
Q236 Miss Kirkbride: Three hundred
and twenty nine companies have already applied for £100 million
worth of funding, so clearly there will be a lot of people turned
down?
Baroness Vadera: But that does
not mean it is all suitable. An application is not the same as
suitability.
Q237 Miss Kirkbride: I accept that,
but in terms of the enormity of the UK's problem it seems pretty
small beer. It is very helpful to those who get it, but an awful
lot of ministerial and civil servant activity is going into what
amounts to quite small beer.
Baroness Vadera: I will try to
explain again what perhaps I have not explained very well. Both
the enterprise finance guarantee scheme and the capital for enterprise
scheme are targeted at the margins to help people who might be
viable in other circumstances; they can prove some viability but
will not be able to do that to the banks particularly in current
circumstances. Our main effort goes into the £55 billion
for lending to SMEs below £1 million turnover, to the £120
billion that goes to SME below turnover of £25 million and
to the £500 billion that goes to lending to businesses across
the piece in the UK, and you cannot do that by having a scheme;
you have to do that by fixing the banks. That is why the major
effort has been concerned with the banks. On the second issue
of equity, which is what we are talking about under the capital
for enterprise scheme, we are targeting additionality. Are we
ensuring that we help every business that we can at the margins
that might not otherwise be able to receive assistance? The equity
markets have recently shown that there have been very significant
issues; it is £4 billion. It is great to see that that market
has had both an appetite for and provided assistance to companies
that need equity. The primary issue is to look at markets and
the banks and try to fix those as a system because we cannot substitute
for that. At the margins we have these targeted areas where market
failures persist and that is the overall approach. When it is
small beer the intention is to target it at a specific market
failure.
Q238 Miss Kirkbride: How happy are
you about Ministers and civil servants picking winners?
Baroness Vadera: I would be extremely
unhappy if we did, and we do not.
Q239 Miss Kirkbride: How else do
you decide who gets the equity funding?
Baroness Vadera: It is assessed
by two professional private sector fund managers, Aberdeen and
Octopus. I would be extremely unhappy to find any civil servant
picking anybody in which to invest equity.
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