The Work of the Department - Business and Enterprise Committee Contents

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 very carefully!

  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 is

  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 it did.

  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 insurance issue?

  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 job—and 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 go—surely 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 year".

  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 in dipping!

  Lord Mandelson: I do not believe in dipping.

  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 initiative?

  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 say.

  Chairman: Thank you. We will turn to cars.

  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 consider?

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