The Work of the Department - Business and Enterprise Committee Contents

Examination of Witnesses (Questions 80-99)


14 JANUARY 2009

  Q80  Chairman: The Financial Times' report said it would be targeted at particular sectors, that is not the case, it is a general scheme across all sectors?

  Lord Mandelson: No, important sectors of the economy will benefit. For example, people are rightly concerned about the automotive sector, which I think we are going to come to, and the very important and very large supply chain underpinning the automotive sector will be able to benefit.

  Q81  Chairman: There is no deliberate targeting of that scheme to any one particular sector?

  Lord Mandelson: No.

  Q82  Mr Hoyle: Chairman, to put the question the other way around, are there any sectors you will not be funding?

  Lord Mandelson: I am not excluding any.

  Q83  Chairman: The same is true of the rather modest equity capital fund you have announced as well. Again, the Financial Times said it will be targeted at strategically important sectors.

  Lord Mandelson: I would describe them not as strategically important so much as innovative growth companies. You describe it as modest, I would say from small acorns great ideas are born. Remember, after the Second World War the ICFC was created by the post-war Labour Government as part of its industrial strategy then, I choose to describe my own approach more as an industrial activist than interventionist. I think it may well be that from the small acorn of our capital for enterprise fund a large oak tree might grow.

  Q84  Chairman: You are dropping a very interesting and intriguing hint of precisely what I want to ask you. I heard that the Government is considering the establishment of some kind of new equivalent of a 3i organisation. There are large amounts of private equity capital floating around which would dwarf the £50 million in this scheme. The private equity industry had a very benign financial tax environment for years. Of course, companies do not need more debt. One of the problems of the British economy is the public sector, the private sector and the corporate sector are all over-leveraged already. One of the reasons why the problem here is so serious is the over-leverage of every sector, so what the private sector needs is more capital. I am very encouraged by what you are saying about these small acorns and great oaks. Are you saying there is a germ of an idea in your mind for a more ambitious equity fund here?

  Lord Mandelson: Yes. I do not want to go too far in advance of Government policy but, yes, I do have an ambition, I do have a vision for this fund. I would like to see it grow, I would like to see its extended role, not because I believe that debt or credit are wrong, of course they are not, they sustain a modern economy, but the provision of equity finance, particularly for innovative, higher technology growth companies, is very important, they need that for their investment. We will see, I am not going to anticipate where these new ideas might lead.

  Q85  Chairman: I think it would be unfair to push you on that, you have been very honest to the Committee. Can I welcome that suggestion and say how much we look forward to hearing it develop. I think it is a very important suggestion indeed.

  Lord Mandelson: If you could pass that on to the members of your party's front bench!

  Q86  Chairman: I do not think they will be opposed, I could be wrong. Given the way you mis-described our policies earlier, I could have a lot of discussions with the frontbenchers!

  Lord Mandelson: Whoever the members of your frontbench may be!

  Mr Hoyle: This week!

  Q87  Miss Kirkbride: Minister, I think it is the Government that normally pinches the Opposition's policies, but we will leave that aside. What assessment has your department made of the cost to the British economy of the credit squeeze on both GDP growth and jobs?

  Lord Mandelson: I think it is unquantifiable, to be honest.

  Q88  Miss Kirkbride: You must have some assessment.

  Lord Mandelson: No, I do not. The ramifications are so huge because credit underpins activity throughout the economy. If you think of every part of the economy where credit is essential, you have to conclude that almost no sector of the economy is going to be untouched by the implications of that.

  Q89  Miss Kirkbride: You must have some idea. Some of the people have made a stab at it, we are told that 100 businesses were going bankrupt every day because of it all, so surely your Department has some assessment. If it does not have an assessment, how are you going to assess how well your schemes are managing to involve them?

  Lord Mandelson: To be honest, I am less concerned about assessing what is going wrong as devoting my energy to what we can do to make things go right.

  Q90  Miss Kirkbride: How are you going to know that it is getting better from you schemes if you do not have some modelling?

  Lord Mandelson: I will know where the loans are going, I will know where the guarantees are having a positive effect, I will know what additional working capital is being brought into use in the banks, I will know how the Enterprise Finance Guarantee is being used and who those loans are going to, I will know how the capital fund is being used and I will know all those things in due course.

  Q91  Miss Kirkbride: From your very bureaucratic scheme that you are setting up at the moment.

  Lord Mandelson: Is it bureaucratic?

  Miss Kirkbride: On the face of it.

  Mr Binley: Evidence?

  Q92  Miss Kirkbride: On the face of it.

  Lord Mandelson: Sorry, I should say, the banks with whom we have been talking about this and negotiating this have expressed all sorts of concerns about how it might operate and we have been able to smooth out those wrinkles and concerns, but none of them has said they think it is overly-bureaucratic, that is not a criticism I have heard.

  Q93  Miss Kirkbride: As a member of the Opposition, I think I am probably allowed to express a view that in general I find that Labour Government meddles a lot and, once again, we see the way you are operating these schemes seems to me to be over-bureaucratic.

  Lord Mandelson: With respect, I know you might expect us to meddle, as you say, or intervene, as others would say, less, but I do not think that is what the economy needs just at the moment. They do not need us to sit on our hands, sit back and do nothing.

  Q94  Miss Kirkbride: No, we need a National Savings loan guarantee scheme in which the banks share the losses, in which case you can perhaps use them a little bit more clearly. However, you are talking about a six to eight week delay before any of this money will be forthcoming. The credit crunch started last October and, as I have said already, some people think that 100 companies are going bankrupt every day. Do you really think you are moving fast enough on all of this?

  Lord Mandelson: Yes, I do think we are moving fast enough. I was struck by the Deputy Director of the CBI who remarked that monetary measures like this require careful planning because they have not been used in a generation, if at all.

  Q95  Miss Kirkbride: Six months later.

  Lord Mandelson: Not six months later, no.

  Q96  Miss Kirkbride: By March it will be.

  Lord Mandelson: As John Cridland was saying, we are in uncharted waters here. We are designing new financial and monetary instruments which have to, firstly, meet their target, secondly, cater to the organisation and business model of the banks because we have not nationalised them, thirdly, give value for money to the taxpayer and, lastly, enable us to give a proper account for how these schemes are operating, ie we have to know what is going on. You do not design an instrument like that overnight. You do not do it unilaterally and you do not put it into operation before you get it right. The Chancellor announced his intention to introduce this scheme at the end of November. We have had Christmas and New Year intervening, it is now mid-January and it is going live, I think that is pretty good going.

  Q97  Miss Kirkbride: The money will be coming through in March.

  Lord Mandelson: I am sorry, you have made a point and I have got to respond to that.

  Q98  Miss Kirkbride: You said six to eight weeks which is now.

  Lord Mandelson: You are talking about very, very large sums of taxpayers' money, you are talking about £10 billion. Do you expect us to go out and just throw it into the high street, throw it at the banks and say, "Take it up and get on with it and do as you will with it", of course not. This is a transaction between the Government, on behalf of the taxpayer, and the banks to deliver real benefits to small and medium sized businesses in our economy and we are going to get it right.

  Q99  Miss Kirkbride: I am sure they will be very grateful, better late than never; I am sure in that sense it is a good idea.

  Lord Mandelson: Or not at all as your party would have us do

  Mr Hoyle: Do nothing, do nothing!

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