Examination of Witnesses (Questions 120-139)|
14 JANUARY 2009
Q120 Chairman: Were I not a mutual
Chairman, of course, who does not do party politics on occasions
like this, I would point out the Conservative Party had the scheme
to give automatic VAT relief, which would have avoided these difficulties,
but that would be inappropriate for the Chair, of course!
Lord Mandelson: I will study it
Q121 Chairman: Can I ask about the
complexity of some of this. For the small business sector, obviously
a lot of what we are hearing is very welcome, and whether it is
building on a Conservative policy or Government thinking, it does
not matter, it is very welcome. There is a concern in terms of
the SME sector that understanding what the Government is doing
is actually quite difficult. What are you doing to communicate
with the SME sector about the initiatives you are taking?
Lord Mandelson: I am looking for
the website, the single portal by which companies can access the
Business Link's organised support. I think it is realhelpnow/finance-businesslink,
I cannot remember what it is.
Q122 Chairman: I am sure they can
navigate from the homepage, do not worry.
Lord Mandelson: In a flash, it
Q123 Chairman: Business Link is the
answer to that question.
Lord Mandelson: And the single
portal through which to gain access to the variety of schemes
and offers of help that we are making.
Q124 Chairman: It is very important,
but I think Tony Wright will be asking about RDAs later and it
may be something he will want to explore. Can I ask about 10 day
payments quickly as well. This is a very welcome initiative. I
do not know how good Government is at meeting the targets imposed
on it but local authorities are very variable. I have heard accounts
from contractors in the civil engineering sector, for example,
some are doing a tremendous job, Berry, for example, are bending
over backwards, others really not offering it at all. What can
you do to encourage independent local authorities to do all they
can to respect the 10 day payment deadline?
Lord Mandelson: Keep reminding
them of their obligation and their responsibility. This is not
the end of the problem because what I am finding is where the
10 day payment limit is being operated by central Government,
NHS trusts, local authorities and others in the public sector,
this is not being taken up universally by large companies in the
private sector. Secondly, where the initial payment has been made,
it is not then passed on subsequently down the supply chain with
that 10 day limit also being observed down the chain. This is
of concern to me. I publicly express that concern and encourage
people and firms and those in the supply chain, as well as everyone
across the public sector as well as bigger operators in the private
sector, to rise to the standards of the best.
Q125 Chairman: What about credit
insurance? At least your announcement today did deal with credit
insurance, an issue which has concerned this Committee.
Lord Mandelson: Provisionally
Q126 Chairman: Yes, provisionally.
It recognised the potential concern. Can you tell me a bit more
about the Government's and the Department's attitude to the credit
Lord Mandelson: Yes. The concern
is that the credit insurance companies, of whom there are three,
are responding to the credit crunch and the new conditions operating
in the economy rather as the banks are. They are reducing and
in some cases withdrawing credit insurance. This is very important.
As you know, credit insurance insures suppliers of goods against
the default to those companies that they are supplying on the
payment for those goods. Without credit insurance you find suppliers
are stepping back and companies are not being supplied with the
goods they need. That is placing those companies in immense financial
distress. I have made it clear that I am very concerned about
this development. I am examining ways with Treasury colleagues
to see how the Government may intervene in order to make a difference.
I want us to make a real difference in this. We are not going
to be able to transform the operation of the credit insurance
market, far from it, but I want to make sure that the instrument
we craft, and I think we can do this, and we are reaching the
closing stages of our look at this, makes the sort of substantive
difference we would like to see for what we would be putting in
in accepting, what, up to 50% of the risk, say, with credit insurers
in some cases. I want to make sure that really delivers results
and, as I said, we are nearing the end of that examination.
Q127 Chairman: I had a major manufacturing
business in my constituency threatened with closure just because
of the withdrawal of credit insurance and it was an entirely viable
business, so I am glad you say that, Secretary of State. What
about the over-cautious audit opinions and the modification of
accounts because of the fear that bank leading will not be sustained
for the following year. There was a possible concern here that
sound businesses could experience difficulties as suppliers and
others express concerns about the viability of businesses where
accountants modify the accounts. Is that an issue you have got
on your radar screen? We were encouraged by some of the dialogues
that were taking place by the accountants and banks before Christmas,
I hope that is continuing.
Lord Mandelson: There is a dialogue
going on between the Department and the accountancy and auditing
professions. They have a job to do, they have responsibilities
to discharge, they have to be prudent, but not raise unnecessary
alarm or send wrong signals.
Chairman: I hope it is an issue which
is being addressed because potentially it was very serious.
Q128 Mr Hoyle: You have mentioned
the problems, quite rightly, about 10 day payments, it was absolutely
critical that the Government sent all the right messages out.
The Chairman has touched on the trickle-down effect, which is
that you pay the main contractor who then does not pay the sub-contractors
or suppliers down the line, but what worries me is how can we
get them to pay more quickly? Also, what they have been offering
is to say, "We will pay you quickly if you will give us a
discount on the amount that we owe you". There are real nasty
things happening there to the small businesses in that supply
chain and I wonder what pressure we can put on. If it is local
government, maybe we can put some kind of rule in to say, "You
must try and ensure that you pay within the 10 and 20 days"
and whether we can do that knock-on effect to a main contractor,
"If we pay you well, will you ensure that your sub-contractors
are paid?". I wonder if you can have a look at that and try
and stop the arm twisting that is going on.
Lord Mandelson: I will. I would
certainly be very disappointed to learn of any local or public
authorities engaging in the sort of arm twisting or pressure that
you have described.
Mr Hoyle: It is more the main contractors
who have been paid back.
Chairman: It is an issue this Committee
may take up with the Local Government Association, for example.
Q129 Mr Wright: To go on to the Regional
Development Agency and the importance of the RDAs, it is certainly
an area I consider as being one of our successes in terms of the
economy and obviously in terms of the regional aid that is required,
but there is huge disparity amongst the regions in terms of the
amount of grant they receive. It has been a bone of contention
for many, many years since the inception of the development agencies.
For instance, my development agency, in the East of England gets
the lowest level of support amongst all of the development agencies.
In actual fact, it is £24 per head, whereas the One North
East, for instance, gets £97 per head of population. Why
is there that disparity amongst the regions? Is it less important
within the East and the South East?
Lord Mandelson: Certainly not.
The East of England Agency does a very, very good job. I have
visited it in going to the region and I know that they are very
ably led and managed. This funding is based on assessed need and
conditions operating in the region. If you think that we have
reached an unfair assessment, I will be happy to look at it again.
One general observation I would like to make is, I am a great
believer in the RDAs, I think they do a first rate job and a job
which is becoming all the more important in the economic conditions
we are facing in the country now. It requires an even closer collaborative
relationship between central Government and, in particular, my
Department and the agencies. I spelt this out in remarks I made
in Manchester in a speech last Thursday. What is important about
the RDAs is not only their focus in real need, real time on the
economic needs of their regions, but they are business-led organisations,
unique amongst public authorities. It makes them different from
other parts of government and, in my view, uniquely suited to
cope with the regeneration and investment which happens across
local authority boundaries. I think their close working with local
authorities is important and I have emphasised this, but there
are some things that agencies operating across a region can only
do. Their role is going to become very much more enhanced as we
get through the current downturn.
Q130 Mr Wright: I would certainly
welcome the comments and, indeed, when you last visited this Committee
you certainly said that they will play a crucial role in the coming
months and years ahead as: "They have proven their ability
to intervene to operate with flexibility, to deliver resources,
to underpin the work of other public sector bodies and to work
very closely with the business community in order to safeguard
jobs and generate new ones". That does not sit comfortably
with the fact that we have cut the budgets. It sends a different
message out to say, "Because of difficulties we are going
to have to make cuts in your budget". Surely at this time
what we should be saying to the RDAs is, "Look, you're going
to play this important strategic role, therefore part of the package
that we're putting in in terms of the economy is going to be put
more down to local decision-making process to the RDAs to increase
their budgets so they can deliver more locally financed packages
to the small and medium enterprises in particular, but obviously
in some cases to the larger ones". In our case, certainly
in the Eastern region, a budget of less than £130 million
does not go that far. Indeed to double that would certainly deliver
what the Government is seeking to do on a national basis.
Lord Mandelson: In principle I
do not disagree with you, but I am only in charge of dividing
up the cake. I think they have a crucial frontline role. They
are supporting and nurturing businesses and they are working in
particular with the SME sector. It is not true to say that we
are cutting the RDA budgets, we have dipped into their budgets
from time to time for specific tasks and reasons. That is not
quite the same.
Q131 Mr Wright: Their ability to
spend has been diminished by the fact that we have been dipping
into the budget. Whatever way you look at it, they have got less
than they were predicted to have this time last year because of
the Comprehensive Spending Review.
Lord Mandelson: I think this dipping
in has become a bit habitual.
Q132 Mr Wright: Is it not about time
then that we give them more prominence. If we genuinely believe
in the RDAs and the joband everything you have said indicates
to me that you are a supporter of RDAs, that they have got to
play this crucial role in the economy, certainly in these difficult
times, they are more focused within their regions, they know the
needs of their regions, they know where the resources need to
gosurely we should not be cutting their budget, we should
be increasing their budget at this difficult time and give them
more access. You mentioned Business Link and other avenues of
support which are coming through, surely we can divert some of
those resources directly to the RDAs, even at this stage to say,
"We are going to increase your budget for the next financial
Lord Mandelson: I will communicate
your view to my colleagues, to the Chancellor in particular and
the Chief Secretary. I have some sympathy for what you are saying.
Let me give you an example of the transition loan funds. In the
case of the West Midlands, I announced last autumn that they would
provide a transition loan fund for viable small and medium sized
businesses facing financial difficulties. The transition fund
can give them some temporary assistance, securing new loans for
a period of up to six months. It is not designed to replace traditional
borrowing, but designed to work in an emergency to tie the SMEs
over for that short period where they need it. Those transition
funds are now being authorised and set up in regions around the
country. I think that is a very good example where a public authority,
an agency, on the ground close to the coalface, as it were, is
in touch very quickly in real time with particular companies facing
difficulty being able to give flexible help where it is needed.
I must say, given that and all the other things the RDAs do, the
last thing anyone in this country should be thinking of is winding
up the RDAs. It would be a huge setback.
Q133 Chairman: I am glad to say no-one
is thinking of doing that, so it is very good news.
Lord Mandelson: Let us hope they
escape the cuts.
Chairman: The dipping in!
Q134 Mr Hoyle: We do not believe
Lord Mandelson: I do not believe
Q135 Mr Wright: In terms of the development
agencies, what level of interference or, should I say, consultation
is there with the Department when an RDA comes up with a particular
scheme? I know a scheme in my own constituency from its application
for a level of grant took seven and a half years, from the conception
to realisation that they were going to do it.
Lord Mandelson: A private sector
Q136 Mr Wright: It was a private
sector initiative supported strongly by the Regional Development
Agency, but there was this level of questioning and interference
from the Department. In terms of a Regional Development Agency
coming up with a particular scheme, is there this consultation
or is there a process they have to go through for every scheme?
Lord Mandelson: There is consultation,
there is close working, but I hope it does not amount to bureaucratic
interference. If it does, I will resist it, I do not want it.
I believe in the maximum amount of decentralisation of decision-taking,
the maximum amount of autonomy which is consistent with RDAs working
together in pursuit of national objectives and goals and in keeping
with the needs, the ability and value for money.
Q137 Chairman: Secretary of State,
we will move to the last area of questioning, which is the automotive
sector but before I do that, I will just make clear, we had thought
of going through some more sectors with you in some detail and
discussing industrial strategies and green priorities and so on.
We understand what you have said about that, we can save it for
another occasion, possibly. One other sector, which is the automotive
industry. We welcomed unreservedly the Government's acceptance
of a recommendation from this Committee last year on the establishment
of a post of a chief construction officer. The construction industry
is hurting particularly in this recession and we know you are
consulting on the establishment of the post. There is still a
feeling in the industry that although it would not solve all the
problems the industry is experiencing at present, to have that
co-ordinating role there sooner rather than later would certainly
help. Can you give us an update on where we are on the establishment
of a post of a chief construction officer?
Lord Mandelson: "I welcome
the Committee's continued interest in the establishment of the
role of a chief construction officer", it says here! The
role envisaged by the Committee is a broad one. It requires consultation
and there are quite a lot of people and organisations with whom
we have to consult, but we are very clear where and how the potential
role may create added value. I do believe it is possible to secure
the sorts of changes the Committee and the industry are seeking.
We are on the case.
Q138 Chairman: Can I inject some
urgency into that; I did not sense urgency in that response. I
think the industry would appreciate sooner rather than later.
Lord Mandelson: I hear what you
Chairman: Thank you. We will turn to
Q139 Miss Kirkbride: We understand
that you are thinking about offering support to the car manufacturing
sector and I wonder if you can give us any ideas as to how that
support might be structured or what you have in mind to do?
Lord Mandelson: Did you have any
particular intervention or support or subsidy in mind that I could