The Work of the Department - Business and Enterprise Committee Contents

Examination of Witnesses (Questions 60-79)


14 JANUARY 2009

  Q60  Mr Binley: Closely is good. So your newly made Lord from the banking profession is going to do the monitoring. Tell me how that is going to work?

  Lord Mandelson: That will not be his primary responsibility. There will be a team, not to say a squad—

  Q61  Mr Binley: A squad!

  Lord Mandelson:—of people who will be monitoring this. I am not going to see the taxpayer taken for a ride in the operation of these schemes only to find they are not hitting the target, they are not delivering the results for which they are intended. We will make sure that does not happen.

  Q62  Mr Binley: I am delighted. When you have set up these squads, will you let us know how you are going to do it and give us a report?

  Lord Mandelson: Teams, teams, teams.

  Q63  Mr Binley: Teams, we are changing the name again. Will you tell us how you are going to do it so we can keep an eye on it too, bearing in mind you are in the other place and we work in the Commons?

  Lord Mandelson: I am sort of here today, with you tomorrow, but never left your side.

  Q64  Mr Binley: That is most reassuring!

  Lord Mandelson: I will make sure that the information that I have that we are accountable for I will report regularly to you.

  Q65  Mr Binley: The Committee would appreciate that enormously. Can I ask the extent to which the Secretary of State believes the credit crunch is preventing sound companies from getting access on reasonable terms and the extent to which difficulties are caused by changed bank lending practices? May I introduce into that the level of knowledge owned by banks at the coal-face? Thirty years ago bank managers really were at the coal-face, they were members of Rotary, they knew what local business was all about but my feeling as a businessman is that skill and knowledge is much less relevant today, much less in operation. How are you going to change that round?

  Lord Mandelson: The skill?

  Q66  Mr Binley: The bank at the coal-face in the High Street knowing exactly what is happening in local business terms so that real risks can be assessed in the sense of a given business. That is no longer in place as it was 30 years ago. You need to rectify that, how might you do it?

  Lord Mandelson: I think you touch on a very important issue. When I became Secretary of State I set up the Small Business Finance Forum which brings together actual but also representatives of small businesses, together with the main business organisations, the CBI, the IoD, et cetera, and the senior representatives of all the main UK lending banks. We met a number of times. What have been the problems that we identified? Obviously that whilst the overall stock of lending has remained stable, this masks a significant decline in levels of new lending and the cost of finance also appears to have increased and there has been an upward movement in margins on the variable rate market. The measures that are going live today seek to address those issues. There was another issue that emerged very strongly in our Forum, that customer relationships were not being conducted in the way that the banks' customers are entitled to expect. Rather than local managers, if they want to review lending facilities, getting in touch with businesses, talking through their balance sheets, their orders and prospects, making a real-time assessment, that a sort of blanket approach has been taken to lending, particularly in certain sectors, and letters have arrived or, worse, emails have been received which have given companies a short time in order to respond to new arrangements and, indeed, new arrangement fees which have been required from them for the privilege of the banks summarily rearranging their lending facilities. The banks are very sensitive to this criticism. They strongly contest that this practice is extensive. They say they take very seriously indeed their customer relationships and if particular firms feel they are being inappropriately or poorly treated in the conduct of this relationship the banks have agreed, at my request, to set up a sort of hotline that companies can use to make an appeal to a higher authority or central unit of the bank so that their needs can be reconsidered if they think they have been subject to summary judgments and poor treatment. The other thing I have stressed is that in some cases within the banks and their management structures, I think at local level managers have become more risk averse—

  Q67  Mr Binley: Very much so.

  Lord Mandelson:—than they need to be because they get the feeling their jobs and reputations are on the line and if they take any risk at all, their heads are going to be on the block and the area director, if not somebody higher, is going to come down on them like a ton of bricks and they are not going to take that chance. I also feel, from some of the anecdotal evidence I have picked up from small businesses, the message has been passed down the line that everything is bleak, everything is grim, banks have to take a zero risk or a zero tolerance attitude to lending and local managers have interpreted this in too sweeping and blanket a way. The senior managements say they have not been sending that message, that the stock of lending has been maintained and that those banks that benefited from re-capitalisation by the Government are standing by the commitment they originally made last autumn, which was to maintain the availability of resources for lending at the level of 2007 and that this availability has been reflected in instructions which have been passed down the line. All I can say is, if that is the case, it fights with a lot of the anecdotal evidence we have been receiving. The Chancellor and I have set up a high-level lending panel to review all the data from the UK lending banks, which was given to us in confidence and enables us to draw conclusions about the lending policies and behaviour of all the banks, both in respect of the corporate sector and homeowners. We have had one meeting with that panel. In my view, the information we received was somewhat partial. We will be having another meeting with the panel shortly in order to review the further information and evidence which will be submitted. We will be able to draw conclusions from that information given to us in confidence, although I am not saying the conclusions we draw and the measures we think we need to adopt will be kept in confidence, they will become public.

  Chairman: That was a very interesting answer but if we could have slightly shorter answers, it would help enormously, but it was a good answer.

  Q68  Mr Binley: Can I say, without wishing to contradict the Chairman, I have been very encouraged by your depth of knowledge of the small business area and I think that is good for the sector. There you go, there is praise, indeed, from the other side, as it were. Can I raise briefly the price of money at the level we are talking.

  Lord Mandelson: Of credit?

  Q69  Mr Binley: Yes. Overdraft prices, I heard of a company who thought they were doing very well getting 9.7% and another one said, "Well, we topped you, we got 9.1%", that is a sizeable rate above the rates you want to lend. Can I ask what you are doing about that? It is a difficult situation for the banks, they are being pulled in two ways. They have got fixed-term depositors at 5% and 6%. You are demanding about 12% a year from them, they have got to rebuild their asset base, LIBOR is still a problem for them. How do you overcome that in real terms for small business?

  Lord Mandelson: These dilemmas are real; the banks are being pulled in different directions. They are being asked to recover from the excesses of the past, to de-leverage their balance sheets and draw in their horns somewhat, at the same time maintaining lending and credit availability across the economy. This dilemma and these tensions were described rather eloquently by the Liberal Democrats' spokesman, Vince Cable, on the radio yesterday. He then jumped to the conclusion that these dilemmas would be eliminated, these tensions would be removed at a stroke simply by the banks being nationalised. Whilst there are some, indeed some in my own party I hear, who still aspire to the nationalisation of the commanding heart of the economy, indeed, whilst, in a sense, we have partially nationalised certain banks, I do not believe that as things stand at the moment wholesale nationalisation is going to provide the silver bullet, the magic wand and is going to eliminate those tensions with a stroke in the way that people want. They will remain in whosever ownership the banks remain. We have got to climb back stage by stage, bit by bit, instrument by instrument and measure by measure. I am afraid it is going to take time, and quite a bit of time, before the banks are fully restored to health, but that is not a reason or an excuse for the Government to sit on its hands and do nothing, as some would suggest. We have got to keep acting, managing and intervening in order to steer the banks back to health and to the position we need them in because they are absolutely fundamental to the running of our economy.

  Q70  Mr Binley: The others, you say, were doing nothing and, of course, you adopted their schemes, so I find a slight dichotomy there?

  Lord Mandelson: With the greatest love and respect to George Osborne—who I know I have met from time to time—what does he call it, his national loan guarantee scheme, it is a scheme in name only. It is unfocused, untargeted, unfunded and, I suspect, imprudent in anything like the operation that he has currently described for it. He bases his scheme, of course, in name, at any rate, on the announcements that the Chancellor made last November in the pre-Budget Report, so let us get our sequence right.

  Q71  Mr Binley: He will be delighted with your terms of affection, I have no doubt, but having talked with him before Christmas, I can tell you there was much more detail to the scheme than you are willing to admit but that is another matter.

  Lord Mandelson: No, I have looked at it.

  Mr Hoyle: Brian, can you enlighten us all because we do not know anything?

  Q72  Mr Binley: I am more than happy to afterwards.

  Lord Mandelson: Is it funded?

  Chairman: Secretary of State, we will ask the questions.

  Q73  Mr Hoyle: Brian, where is it coming from?

  Lord Mandelson: I thought, once again, I was on the floor of the House of Commons recalling my better years!

  Mr Hoyle: A bold statement, so back it up!

  Q74  Mr Binley: Having been nice to you and congratulated you, let me now move on to ask about the relationship between the Treasury and your department because that is a very important relationship in terms of the work you are doing. Can you give us a little insight into how that is going, recognising that the Treasury have always seen themselves as the rather isolated and superior ministry in this respect?

  Lord Mandelson: You mean a little haughty?

  Q75  Mr Binley: If you think so.

  Lord Mandelson: No, no, no, of course not. I have to say, I take my hat off to the Chancellor and his team. They are across the issues, they have devoted enormous hard work and a great deal of wisdom and good judgment, in my view, and not a little bit of political courage in the way they have taken on the banking crisis. I am pleased to work closely with the Chancellor. I always find him responsive and flexible within the limits of Treasury finances and prevailing orthodoxy. Whenever I come with an issue or a need or a fresh challenge that some part of the economy faces, which I am speaking up for, he is a good team player. That is how I would sum him up.

  Q76  Mr Binley: You are perfectly happy with the relationship and you think it is going to benefit the people we have just been talking about because that is what they are bothered about?

  Lord Mandelson: Yes, I really do because he talks in real terms and in real time about the real needs of homeowners, companies and small businesses. He is right across these issues. He is completely familiar with the problems and the needs and he is always willing to listen to a new idea and measure about how we should address them. I really mean that. There is nothing Snowden-esque about Alistair Darling, with great respect to the former great Labour Chancellor.

  Q77  Chairman: Can I ask some technical questions. I am a bit confused about the Financial Times report today. The Financial Times suggested that the Enterprise Finance Guarantee would be targeted at particular sectors seen as vital to rebuilding the economy. Is that the case? Is it a targeted scheme?

  Lord Mandelson: It is directed at smaller businesses.

  Q78  Chairman: Generally.

  Lord Mandelson: Of not the lowest risk but not the highest risk either.

  Q79  Chairman: By risk and size, not by activity?

  Lord Mandelson: Activity, how do you mean? I am looking at the Financial Times here. Do you mean a particular sector?

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 20 April 2009