Examination of Witnesses (Questions 240-259)
BARONESS VADERA
12 MAY 2009
Q240 Chairman: My understanding is
that the Secretary of State has aspirations that this particular
scheme should grow into a very large source of equity finance
for business. Is that the understanding?
Baroness Vadera: I think you are
referring to something in the industrial activism paper which
refers to carrying out a study, in which we are currently engaged,
into the possibility of having a version of ICFC. It is not exactly
this scheme, but the concept is that particularly when emerging
from recession certain types of debt will be more difficult to
access. Possibly it has been too easy to access it in the past.
There are certain types of growth companies, not all high tech,
start ups or university spin-offs, that are very important to
the productivity of the UK economy and to our sense of from where
future growth will come. Possibly they would not be able to meet
normal banking covenants, so there is potential for us to take
a degree of risk there. That is particularly true when the economy
emerges from recession and is in recovery but there is also evidence
that that has been a persistent failure. The question is whether
we consider doing something similar to ICFC across the regions
which would be a more permanent structure both for debt and equity
and take some of the risks that, like a public/private partnership
approach, would allow other lenders and providers of funding to
be involved. That is something we are currently studying and it
could be a very exciting development.
Q241 Miss Kirkbride: The capital
for enterprise fund was announced, albeit under a different name,
in the 2008 pre-Budget Report. You have been telling us that it
started in March, so why did it take four months for the department
to focus on a scheme that had already been announced and re-announce
it?
Baroness Vadera: I think we needed
to get the scheme in place and appoint the fund managers. I apologise
for an error. It started in January.
Q242 Miss Kirkbride: So, it was announced
in the pre-Budget Report?
Baroness Vadera: It was announced
in the pre-Budget Report. We had to get funding. We announced
our contribution of £50 million and got an additional contribution
from the private sector—the banks—of £25 million.
We had to get funds structured and make sure they were compliant
with state aids. We started it in January and had a helpline ready
for applications to come in and that was in parallel with the
appointment of the fund managers; and we obviously had to do the
correct due diligence. At the same time we were already taking
in applications and advising people on whether or not they were
eligible.
Q243 Miss Kirkbride: So, four months
later four lucky companies got it?
Baroness Vadera: Yes. I think
that from January to now, which is the correct period in which
to look at this, would not be a bad timetable for any new fund
to start.
Chairman: We could spend the rest of
the session on this matter. We could examine whether or not whichever
government sold 3i got it right. I have no idea whether it was
a labour or conservative government, but let us move on because
we have other areas to cover.
Q244 Mr Wright: Turning to taxation
and some of the policies adopted to help small businesses during
this particularly difficult period, some of the tools in contemplation
to help during the current economic climate are: late payment
provisions to spread tax payments over a timetable they can afford;
extended loss carry back provisions; and deferral of the small
companies' corporation tax increase. All of these measures are
aimed at helping small businesses. Are there any other tools that
will be used in future, or are there some you have looked at and
deferred for now or perhaps have turned down?
Baroness Vadera: Tempted though
I might be, I do not think I could announce what the Chancellor
might want to do in a future Budget or PBR. We have tried to be
very flexible particularly in terms of helping with what SMEs
tell us are issues for them. The essential one is cash flow. I
believe that time to pay is one of the biggest helps we have provided.
Business people tend not to talk about it very much, but about
116,000 businesses have been able to spread their payments of
about £2 billion. The loss carry-back was incredibly important.
The exemption from the empty property tax relief helps about 70%
of premises. You have mentioned FCR and others. We have attempted
to be as flexible as we can in particular in helping businesses
with cash flow.
Q245 Mr Wright: Has there been any
suggested way forward by the FSB as one organisation that has
been turned down by the government or perhaps has even been looked
at seriously?
Baroness Vadera: I know the Chairman
is very much aware of this given his Private Members' Bill. One
issue we looked at was the automaticity of business rates relief.
I am pleased to say that CLG is still reviewing ways in which
we can help to get the rates relief to SMEs as widely as possible,
but automaticity is quite difficult because local authorities
do not have the ability to differentiate between a small premise
and a small business. They require that information from the person
who applies. We have changed as much as we can, in that an application
needs to be made only once every five years. It is really a one
or two-page application form. In addition, when local authorities
write to small businesses telling them about deferral of the uplift
announced by the Chancellor in March they can also inform them
that they can apply and enclose the application form. We shall
try to do that but CLG continues to examine it. It is not always
practical to implement all of the ideas.
Q246 Chairman: Is it correct that
you are now taking a personal interest in this subject?
Baroness Vadera: I am.
Q247 Chairman: I am very encouraged
by that because you have a reputation in Whitehall for getting
things done. Recently I had a very encouraging Written Answer
from John Healey which said that automaticity was not yet ruled
out.
Baroness Vadera: I am glad to
hear it.
Q248 Chairman: Can I have a discussion
with you at a later date about this matter?
Baroness Vadera: Yes.
Q249 Mr Wright: I have heard one
or two small businesses, shops and cafes say that one of the difficulties
they have faced in recent months is the fact that they defer some
of their payments and perhaps the business rates element is the
last one they will pay and they have fallen foul of it. Can anything
be done for small businesses in that particular direction? In
some cases the council calls in the bailiff because of these difficulties
when in reality if the business could see its way through this
particularly difficult time it would be a thriving concern in
future. This may well be a blunder. In some cases they find it
difficult to manage in these times and for the sake of a small
amount of business rates they have been pulled down.
Baroness Vadera: I would be very
happy to look at that and take it up. I do not know whether you
can provide specific details.
Q250 Mr Wright: Yes, but at the moment
I am generalising.
Baroness Vadera: I would be surprised
if it was just the rates piece that created a problem of viability
for the business. You are right to say that if they can defer
all of their other taxes by calling HMRC then perhaps local authorities
need to be a bit more flexible, and I would be happy to look at
it. It is not the easiest thing in the world to corral many local
authorities but I am very happy to look at that.
Q251 Mr Wright: In the past 12 months
because of a bad auditor's report from the previous year my local
authority now tends to use the bailiffs more often at an earlier
stage than it did before. Prior to last year it would probably
have been more relaxed about it and extended the period but now
it just sends in the bailiffs. To me, that is ludicrous. It gets
a bad auditor's report and responds by closing down some businesses.
Baroness Vadera: Clearly, they
need to improve their cash management but perhaps not just right
now. I would be very happy to look at that issue.
Q252 Mr Wright: Obviously, there
has always been an issue about the burden of regulation on small
businesses. Recently, the breakdown in negotiations over the Working
Time Directive in Europe means that working hours in the UK are
now much more flexible than they are in the rest of the European
Union. Do you consider that to be a good or bad thing?
Baroness Vadera: I think flexibility
has been one of the key drivers of our success over the past 10
years and it is incredibly important. It is also probably helping
with what will inevitably be a very difficult time in the labour
market. Although my view is not always shared by colleagues in
my own party I am a firm believer in very flexible markets including
labour markets.
Q253 Mr Wright: Do you think that
this time the rest of the European Union will follow our lead
in terms of flexibility?
Baroness Vadera: That is much
more difficult to say. Member States run very different systems
and it is difficult to change midstream. I cannot imagine that
to change in the middle of a recession is the easiest thing to
do, so I suspect that we will not see many changes in the rules
that govern labour markets in Europe.
Q254 Mr Wright: Does the government
have any plans to lift some of the burdens on small businesses
or delay the implementation of new policies to help them weather
the economic downturn?
Baroness Vadera: Yes. We have
been looking at that very closely. I understand that you are to
see Stephen Carter.
Q255 Chairman: He is probably to
appear before our sister Committee, the Regulatory Reform Committee.
Baroness Vadera: Yes. We are to
introduce a number of matters. I feel passionately that the burden
of regulation does fall disproportionately on SMEs, not least
because quite often large firms can afford to have people to deal
with the regulation and it becomes a kind of barrier to entry
of small businesses. One matter we have introduced is a test for
all regulations to see the specific impact on small businesses.
They are required to see if the regulation ought to be slightly
different, delayed or simpler in its application. Most recently,
in the Equalities Bill SMEs who employ fewer than 2500 people
are not required to pay audit, for example. We have these exemptions.
We have also said that for both secondary legislation from this
year end and primary legislation from next year the legislation
needs to state the impact on small businesses, so we are very
conscious of this. There are some specific examples of exemptions,
but we are trying also to make systemic change.
Q256 Roger Berry: If I may refer
to the cut in VAT of £12 billion, clearly the benefit of
that will be split between consumers and businesses. Do you have
any idea what proportion of that amounts to a benefit to business
directly as opposed to consumers?
Baroness Vadera: That is a complicated
question because the benefit to consumers is also a benefit to
businesses.
Q257 Roger Berry: People often forget
the potentially large benefit to business from that.
Baroness Vadera: Basically, about
two thirds of the cut in VAT is estimated independently to have
been passed on to consumers and about a third mainly on the SME
side to have benefited small retail. Obviously, that is the direct
impact. There is now significant evidence emerging of an indirect
impact. I understand that CEBR said that it led to an increase
in retail sales of about £8-9 billion. There is already evidence
that our retail consumer spend has held up somewhat better than
it might have done in other circumstances which again ultimately
benefits business activity. Currently, that is the approximate
split.
Q258 Lembit Öpik: Leaving aside
all the hyperbole and party-politicking on the cut in VAT, are
you genuinely persuaded that it has made a measurable difference
as you have described?
Baroness Vadera: There is evidence
emerging that that is the case, yes.
Q259 Lembit Öpik: It seems to
me that the problem will always be the pricing points £12.99
and £14.99. What stops all of the prices going more or less
to where they were before after they have been at some strange
figure like £14.72 or £14.15 because of the VAT cut?
What stops them from going up to £14.99 again? It seemed
to me that that was the biggest single issue about maintaining
the VAT cut.
Baroness Vadera: Do you mean that
prices will potentially go up?
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