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
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,
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 Osbornewho I know I have met
from time to timewhat 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
Lord Mandelson: No, I have looked
Mr Hoyle: Brian, can you enlighten us
all because we do not know anything?
Q72 Mr Binley: I am more than happy
Lord Mandelson: Is it funded?
Chairman: Secretary of State, we will
ask the questions.
Q73 Mr Hoyle: Brian, where is it
Lord Mandelson: I thought, once
again, I was on the floor of the House of Commons recalling my
Mr Hoyle: A bold statement, so back it
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
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
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
Lord Mandelson: Activity, how
do you mean? I am looking at the Financial Times here.
Do you mean a particular sector?