Examination of Witnesses (Questions 1-19)
HOLLY BONFIELD,
CHRIS FLETCHER
AND DAMIAN
WATERS
15 JUNE 2009
Q1 Chairman: Welcome to the first
meeting of the North West Regional Committee. Thank you for coming
today to give evidence on what is a very important subject as
far as the North-West is concerned. May I open the questioning
by asking a fairly general question. What are your views about
the economy of the North-West? Why do you think that some sectors
and sub-regions of the North-West are handling the downturn better
than others?
Holly Bonfield:
I am Holly Bonfield from the Federation of Small Businesses. We
are an organisation with 215,000 members across the country, 22,000
in the North-West.
Looking at different areas, rural areas are
finding it much more difficult at the moment because of the various
services pulling out of their areas; banks and post offices are
pulling out. That is affecting the ability of businesses to access
those services in their area. Not only is it impacting on businesses
in rural areas, but it is impacting on the sustainability of local
communities.
Damian Waters: There is a lot
to be said for diversity. Those areas of the North-West where
the economy is more diverse are better protected. Clearly, places
where there has been a reliance on financial services, such as
Chester and Greater Manchester, have experienced a greater impact
because of the nature of the downturn. You asked why some businesses
are doing quite well during this recession. The businesses we
find that are doing well are those that are either helping other
businesses to cut costs or are in an industry where the cost of
raw materials has fallen; falling energy prices and the position
of the pound have also been helpful. Some of these economic indices
have helped them to ride through the worst of this recession.
Chris Fletcher: We could probably
track the progress of the recession on a sectoral basis. It is
obvious from the early impact on the construction industry that
that was where it was beginning to be felt. It then spilled over
into manufacturing, finance, professional services and, finally,
retail. To back up Damian's point, where businesses are doing
well compared with others, it is not primarily down to which sector
they are in, but how those businesses are run and perhaps the
service and competition elements and so on. The businesses that
seem to be doing better at present are those where the business
owners have taken early preventative action to put steps in place
to offset the worst effects of the downturn.
Holly Bonfield: There will also
be some sectors that almost benefit from an economic downturn:
tourism, because of the difficult pound, and garages, because
people are having their cars repaired rather than buying new ones.
There are always areas that will benefit in such ways from an
economic downturn.
Q2 Chairman: I take this opportunity
to say thank you for all of your submissions to this inquiry.
Several submissions highlighted the importance of manufacturing
in the region and the way that it is experiencing some difficulties.
Do you think manufacturing is receiving the attention that it
needs from the North West Development Agency and the Joint Economic
Commission for the North West?
Damian Waters: It is arguable
whether manufacturing ever receives the attention that it deserves.
It is still a significant part of the economy, particularly in
the North-West. To answer those two questions, the NWDA has done
a fairly good job in quickly trying to restructure its offering
through Business Link and by trying to make the funds that are
available from national Government quickly available in the North-West.
Some of that has helped manufacturers; it could have been better,
but I think that they should be commended for making a good effort.
To be completely honest, I struggle to see any evidence of the
JEC helping manufacturers in particular. If you have read the
CBI's submission to the Committee, we have been fairly cynical
about the role of the JEC. I cannot think of any example of the
JEC making a large contribution to manufacturing in the North-West.
Q3 Chairman: Okay. You make the
point that not enough is being done to help manufacturing. That
is always the case.
Damian Waters: I don't think nothing
is being done but there could have been more. A good example is
the automotive sector. Lord Mandelson, I think, stated in January
that there was £2 billion available for that sector. I do
not think we have seen any of that yet in the North-West—that
is six months on. I know detailed negotiations have taken place,
but, for the automotive industry, in the depth of a recession,
six months is a long time.
Q4 Mr Martlew: Scrappage is not
in yet, is it?
Damian Waters: It is in, but that
won't necessarily be a big boost to the economy and the automotive
sector in the North-West. I don't think people view £2,000
off a Bentley or a Land Rover as a big incentive.
Mr Martlew: They might do if they had
a Pirelli tyre factory in their constituency.
Damian Waters: Yes.
Q5 Tony Lloyd: Can I ask something
related to the last two exchanges? CBI said, this morning, that
it believes that progress through the recession is going to be
more rapid than anticipated and while it is a cautious response,
it is, nevertheless, a cautiously positive one. Of course, the
North-West is not the same as the national economy. What are your
expectations for the regional economy? Furthermore, let me add
this rider: are you concerned that this is a South-Eastern phenomenon,
or is it something that we will see spreading throughout the UK?
Damian Waters: I think today we
released figures that showed the economy will shrink in 2009 by
3.9% and grow in 2010 by 0.7%. So that is way short of what the
Government are forecasting.I don't think it is a South-East phenomenon.
Our economists look right across the UK and our colleagues would
say the further away from the South-West you get, the better it
feels. That is not to say, come January 2010, everything will
look rosy in the North-West. We will start to see growth but it
will be a long, slow road to recovery. Some will come out of it
more quickly than others: some will feel the effects for years.
There is no panacea that will see the economy suddenly booming
from 2010. We will continue to see businesses struggling for two,
three, maybe four years after the recession is declared over.
Holly Bonfield: It is important
to look at some of the things that are slowing down the upturn
in the North-West. In other parts of the country we are seeing
that the Government's decision to encourage local authorities
to pay within 10 days is working. We do not see that in the North-West,
getting access to funding is still difficult and some of the figures
in our recent crunch poll show that in the last two or three months
it has not got any better. We have not seen figures turning round
showing that people are being able to get hold of the Enterprise
Finance Guarantee fund. Generally, access to credit is still difficult.
Prompt payment is crucial to small businesses and we have not
seen a turnaround on that. Although local authorities have been
asked to pay within 10 days, we don't see that happening at the
moment. In fact, we see big organisations extending their payment
terms, even up to 120 days. Late payment is viewed as the reason
for at least 25% of insolvencies of small businesses.
Chairman: We want to move on to business
support and the question of late payments.
Q6 Mr Martlew: On finance, you
made the point that it is still very difficult. What are the two
gentlemen's opinions on that? There seems to be a diversion from
the Chamber of Commerce and Government North-West. What are your
feelings?
Chris Fletcher: There are a couple
of points. Linked with the previous point on manufacturing, niche
manufacturers and specialist engineering firms are doing fairly
well. Also, there has been a great deal made about exporting manufacturers
surviving better than others, so it is not a broad-brush approach,
by any stretch of the imagination.
About accessing finance, we have done surveys
on how businesses feel their relationships with banks have been
over the last few months. In the first one, roughly 60% of respondees
said that the relationship was the same. Whether that was good
or bad, it has not worsened. In our most recent survey that figure
has increased to 72%. The relationship is fine, but some problems
start to come out when trying to access finance and we have seen
an increase in the cost of that finance over the last three months.
The figures we are pulling together show that businesses which
want to make an approach to banks for finance are seeing the cost
go up. Anecdotal evidence tells us that a lot of members come
back to us and say "Actually it seems as though the banks
do not properly understand what the Enterprise Finance Guarantee
is about." A few months ago, in conversations with business
managers from within the same department of the same bank, I was
getting different messages from different people over how that
scheme should be best rolled out. These were people who virtually
worked side by side. Part of that has to be the urgency with which
the Government got the scheme out there; there was very little
follow through from the point of view of people on the front line,
who were making the decisions to get that money out to businesses.
Q7 Mr Martlew: Is that getting
any better?
Chris Fletcher: Marginally, but
some people have decided not to go down that path. Some manufacturers
I have spoken to recently are self or privately funded and would
never go down the route of asking for finance. It is something
that we are watching and we are doing a follow-up survey in quarter
3 on whether things are getting better, from the point of view
of getting the access to finance out there. I still don't think
it is right by any stretch of the imagination.
Q8 Tony Lloyd: Chris, can I just
follow that up slightly? What the banks themselves have said—or
admitted—is that they were slow to have the people in place
at the level where it mattered. These were people who understood
what these schemes were all about so there is a problem within
the banks as very big institutions. They are saying now that they
think that the information base and the skill is there. However,
you are concerned that some firms have simply said, "This
is not for us" because they are once bitten, twice shy, or
that it is still not properly working at the sharp end. Is that
a fair summary?
Chris Fletcher: I think so. From
the businesses we have spoken to that have submitted applications,
there is concern about the length of time it takes from getting
through the process of putting in the application to an actual
decision being made. In some cases, that can be measured in months.
Obviously, if you are a business at the sharp end, feeling pressures
on working capital or late payment issues, you need a decision
in days, not months. There is a time lag from an application to
a decision. The real problem is with that, to be quite honest.
Q9 Geraldine Smith: Chris, you
made a point about the increasing cost of finance. Surely that
is just a reality now, and some of the mess we are in is because
of cheap finance. Don't we need to be honest and accept that those
days have gone?
Chris Fletcher: Well, yes, and
that is what the bankers would also say. However, from the business
perspective, there is the feeling that they are actually paying
for somebody else's mistakes. That is the view we have heard from
businesses. We work in this environment, are used to it and acknowledge
what the circumstances are. However, when we have headlines of
the base rate being 0.5% and a sole trader is doing his absolute
best to employ one or two people, words and figures differ. There
are the 0.5% headlines, but when you go in and look at some of
the interest rates being charged there is a disconnect. It is
the reality and it is one of economics, but unfortunately it does
not make it easier.
Q10 Geraldine Smith: Can I ask
another question? Nobody has picked up on it, but you mentioned
rural areas and the problems businesses there are facing. I have
seen it first-hand in my own constituency. They feel isolated
and are not getting help and support. Could you perhaps say more
about that, and can I also ask if business rates were something
you came across? A business contacted me on Saturday and it was
very concerned that the rates had gone up because it had lost
some transitional relief and that was pushing it to the brink.
Are there other areas where we should be offering help, and what
can we do to help these small, isolated businesses that, I guess,
make up the bulk of businesses in this country?
Holly Bonfield: Ninety-nine per
cent. of businesses in the country are very small businesses with
fewer than 49 employees. One thing we have been trying to do is
to get Government to make business rates relief automatic for
rural businesses. I do not know the details of that, but we could
certainly follow up on information on it. There was a Bill going
through recently, wasn't there, with Peter Luff? That didn't go
through, but I think the Federation of Small Businesses are still
pursuing it and it would be really useful.
Q11 Chairman: A private Member's
Bill, wasn't it?
Holly Bonfield: Yes. One thing
that we are suggesting might really help in rural areas is to
stop the closure of the post offices straight away, and build
the post office network into something that is much more supportive
of small businesses through access to finance which would be locally
decided, rather than decided more centrally.
Q12 Geraldine Smith: Of course,
the privatisation of Royal Mail could have an impact on small
post offices also?
Holly Bonfield: Indeed. The withdrawal
of post offices—and it has been going on for longer than
this economic downturn—is having an ever worsening effect
on rural areas, such that, in the end, there will not be any businesses
in rural areas and we will have real problems there.
Q13 Mr Martlew: On that point,
I represent a seat in Cumbria and I look at the figures. First,
the only sector that is growing now is the agricultural sector—I
think it is 1.5%—everything else is in decline. Then I look
at unemployment and I see unemployment in the urban area near
the national average. When I look at, say, Westmorland, I see
it has about 1.5% and Penrith and The Border has about 1.3%. This
does not tally with your idea that rural areas are suffering more
than urban ones.
Holly Bonfield: That is a different
argument, with respect. If unemployment is lower, maybe people
are moving out of rural areas, so there are not as many people
who can be employed.
Q14 Mr Martlew: That is not the
case, if you look at the figures on population.
Holly Bonfield: I would have to
look at those figures, I don't have them in front of me. The fact
is that we have to accept that rural communities are disappearing.
As different services disappear from villages, those villages
become smaller and smaller.
Q15 Mr Martlew: That is not my
experience in Cumbria. The villages are expanding because people
who work in the urban area go to live in the villages.
Holly Bonfield: Unfortunately,
that is not my experience from our figures, and we do get figures
from our rural areas, particularly in Lancashire and Cumbria.
I would have to look into and respond to that separately.
Q16 Geraldine Smith: Perhaps it
varies in different areas. We have experienced some of the problems
you suggest, particularly with the loss of the post offices. I
think that they are vital to rural areas because they keep the
little village shop going, they keep the community alive in the
village and I think we have to do whatever we can to protect that
village life. Sometimes it is not appreciated that, with a bit
of help and support, it can make a huge difference.
Holly Bonfield: It is linked to
businesses, but it is a separate issue.
Geraldine Smith: Yes, and we do have
to accept that those post offices are public services as well
as businesses.
Holly Bonfield: Yes, I agree.
Q17 Rosie Cooper: May I ask a
broad-brush question to each of you? If one of your members comes
along asking for advice or assistance towards getting finance,
who do you refer them to?
Damian Waters: It depends who
they are and what question they are asking. My primary response
is to speak to colleagues at Business Link. We have had a very
good relationship with Business Link and they have focused on
that area of support. Obviously, we can introduce our members
to banks and other sources of finance, private equity, but it
depends on their individual circumstances and the nature of the
business. We do a monthly survey on access to finance and it seems
to be getting slightly better, but, to echo what Chris said, not
as quickly as people would like. One of our concerns in predicting
some growth in 2010 is that demand for finance will grow as the
economy grows, but there is a huge shortfall in the marketplace.
About 50% of people operating in the marketplace 12 months ago
are no longer here. Icelandic banks and American banks have withdrawn
from the market, so we have a concern that in 2010, that will
appear even bigger, because demand for finance will be greater.
Holly Bonfield: I agree with Damian.
We would lead people to Business Link. They have responded very
quickly to the difficulties and changed their product offering
and we do know that the people who have had their hand held through
the access to finance minefield have been successful. The difficulty
is that Business Link cannot do that for every individual organisation
that is seeking finance. We would certainly point them towards
Business Link.
Chris Fletcher: I would echo what
both Damian and Holly have said.
Q18 Mr Martlew: You say that interest
rates were down to 0.5%. What are they charging your members?
What are the banks asking for?
Chris Fletcher: The feedback we
are getting is that as opposed to costing x per cent they are
seeing an increase of 0.5% or 1% over the interest rate that was
charged before. Nobody has come back to say that they are charging
me 8%or anything like that but the rate is slightly increasing.
Again, there is the discrepancy between what is right in people's
minds and what they are being told in their meeting with the bank
manager.
Damian Waters: We historically
got used to finance at artificially low levels. There will therefore
be a re-setting in the marketplace. It might be that we just have
to live with more expensive finance. I have anecdotal evidence
of some of our bigger members supporting their own supply chain
through their own cash-flow but that is not a sustainable position
either. There might be that element stored up in the economy that
still has to filter out. When that source of support runs out
we might see further reductions in the supply chain in the North-West.
Q19 Geraldine Smith: Is one of
the problems that big companies such as Tesco have no problem—they
can always access cheap finance if they want and they also pay
their smaller suppliers quite late? If you are a little business
and you are really struggling that is where the finance is the
most expensive.
Damian Waters: There are issues
right across the board but obviously it has a bigger impact if
you are a small business struggling to pay the bills day to day.
Cash-flow is the heart of every business. There have been some
good indications from Business Link and other Government sources
are also made available but it was never going to solve the problem
overnight. It is a long, slow process which is no comfort to those
businesses that are going out of business.
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