Examination of Witnesses (Questions 100-114)
STEVE BROOMHEAD,
MARK HUGHES
AND VANDA
MURRAY
8 JULY 2009
Q100 Tony Lloyd: Mark, you mentioned
a few moments ago the enterprise finance guarantee scheme, and
I think that you said that it has begun to kick in. What the Federation
of Small Businesses said to us some time ago is that there is
still very low recognition of the scheme among its members. Also,
what is more, it also drew our attention to the fact that only
one correspondent said that their banks were making the scheme
available. Obviously, that is historic, but given that the very
nature of the scheme is designed to get us through the worst moments
of the crisis and that it is plugging gaps that are not covered
by the conventional banking system, is the scheme now doing what
we want it to do? And, if not—your hesitation spoke of something
there—what should we do?
Mark Hughes: The short answer
is that it could clearly be doing more. It started off with an
announcement without everything on the ground being in place,
so it started off in the wrong place, as it were. What it relies
upon to work is individual bank managers in individual branches
knowing how the system works and then the banks' back-room operations
supporting that. Steve talked about our work with the banks; one
of the things that we have been doing with the banks is basically
almost coaching some of them and sharing best practice from one
part of the region, where we have had a bank that has a very high
take-up rate of the enterprise guarantee, with a bank in another
part of the region. So, in terms of getting the scheme to work,
it is really at that level, where you have to get the bank managers
to appreciate that the scheme can be used. If you look at the
proportion of the UK economy in the North-West, we get proportionately
our share of the enterprise guarantee scheme. We are looking at
about £40 million being distributed in the North-West to
date, so we are getting our fair share. The question really, looking
in the few months ahead, is whether the Government are going to
maintain the scheme and how are they going to evolve it, because
the scheme is a replacement for the small firm loan guarantee
scheme. There is always a need for that extra risk to be borne
by the public sector. So, as well as trying to make this one work
more at the grass roots, we have another question about what happens
when this scheme runs out. I think it is due to come to a close
early in the new year.
Q101 Tony Lloyd: Can I just pick
up on a point there? This problem about the banks not knowing
what is there is really quite unprofessional on their part—you
don't need to answer that. What can you do at national or regional
level to force through that culture change in the banks themselves?
It is in their interest to operate the scheme, actually.
Mark Hughes: It is. Nationally,
obviously, the Government meet with the banks on a regular basis.
We have seen those messages going to the national banks. We have
seen some of the positive engagement from the banks within the
region actually stemming from that action at the national level.
Steve mentioned that interaction with banks has increased a huge
amount since, I think, November last year; prior to that, quite
frankly, it was difficult to engage with them. With the message
coming down from the centre, the banks were much more willing
to engage with us. I think that that is one action that has actually
worked. As Vanda mentioned earlier on, the other action that I
think is beholden upon us in the region to make sure of is that
the Business Link brokers are engaging with the bank managers
in their locality. Again, we have also struck up arrangements
with a number of banks—mentioned earlier—by which,
if they do not believe that they can assist a company, they refer
it back or refer the client to Business Link. We have had occasions
when the bank has felt that it could do no more work with that
company, Business Link has been introduced and then the bank has
actually agreed to give it an enterprise guarantee, partly in
conjunction with an agency loan, so that the risk is borne across
it. I do not think that there is a silver bullet; hard work at
different levels needs to take place.
Steve Broomhead: Certainly in
the autumn, Chairman, there were probably far too many announcements
by Government that we had to try to capture and turn into things
that people in the region and localities can understand. The Enterprise
Finance Guarantee Scheme and the role of the banks got caught
up in all of that. If, jointly, Lord Mandelson and the Chancellor
could send a message through the established systems and dialogue
with the national banks about this scheme, to get greater clarity,
I think that we would find that very helpful in the regional model.
Q102 Mr Martlew: Do you wish you
had had more input into the Government initiatives? Are you getting
people who are coming along with very good cases but the Government
scheme doesn't cater for them? Is that the case? Or are Government
initiatives targeted properly?
Mark Hughes: The problem with
this recession that we are still in is that it's so multi-faceted.
I think the Government have put in a good suite of initiatives.
We have never seen a recession like this, and we have never seen
a response like this—if you look from the auto sector, if
you look from the loans—but there will always be people
and businesses that will fall through those gaps. It is very difficult
to say that there should be another big initiative. We have had
discussions with different parts of Government on the detail of
the schemes. In response to your question, some of those discussions
could have been had earlier to benefit from experience on the
ground of the type of businesses that will come through. Going
forward, we have had the new industry new jobs announcement relatively
recently. We have seen a much more positive and early engagement
from Government with RDAs around what kind of initiatives might
come through that policy document.
Q103 Mr Martlew: Do I take it,
Mr Hughes, that you are talking to Government and that Government
are listening?
Mark Hughes: They are. Obviously,
they have their own constraints, but they are now talking to us
earlier than in the past, because the work that we have done over
the past six months in responding to the recession has been positively
received.
Q104 Mr Martlew: The issue of
the venture capital scheme, which we were told by the CBI created
great frustration—not that it wasn't a good scheme, but
that it should have come in in January. Is it in now, from the
end of last month? What problems did that create for you?
Steve Broomhead: The venture capital
loan scheme was announced initially, as a matter of principle,
by the Prime Minister last September on the Cabinet's visit to
Liverpool. We have had considerable discussion with Government,
DCLG, BIS and the Treasury. The issue is the business model and
whether it compromises in any way the public borrowing requirement.
We are still considering that model. However, last Monday, we
had a major event with 300 people from the financial sector within
the region, and we made certain announcements about other schemes
which will provide support in the shorter term, while the Government—in
particular, the Treasury—look at some of the risks on the
model. That sounds a bit of a bureaucratic answer, Eric, but the
model that was being looked at did not meet certain tests of the
Treasury. We have had a very strong dialogue with Government about
it. I will ask Mark to say a little more.
Mark Hughes: Okay. The announcement
that Steve was referring to is a £20 million fund, using
agency money and ERDF money, which will give us enough until the
end of the financial year—April 2010—to keep the flow
of venture capital for existing businesses that are looking for
that. That effectively buys us time to resolve the issues that
we have with the Treasury around the main scheme, which was the
intention to create a £140 million fund for a seven-year
investment period in the region. We are still locked into those
discussions, which, as Steve mentioned, are around the impact
on the public sector borrowing requirement. There is also some
discussion around the legal structure.
Q105 Mr Martlew: So, basically,
it was a scheme that wasn't thought out when it was announced.
You say you are using £20 million, when that £20 million
should have been earmarked for something else, I presume.
Mark Hughes: The scheme was well
thought out. It was announced that we would deliver the scheme
subject to approval of it, which we subsequently did not get.
The money that we are using has not been taken from somewhere
else, because we would have wanted to spend that money, had it
been approved within the time scale. The money was allocated,
and we just found another temporary mechanism to deliver the money
that was allocated to the scheme. We have not had to take money
from somewhere else.
Steve Broomhead: And we will be
taking up the matter with Phil Woolas, the Regional Minister.
Perhaps one of his early areas for consideration was to see whether
we can get movement on the scheme, as it was first presented.
Q106 Chairman: Do you use the
Regional Minister in that way to feed back messages, or do you
use the JEC?
Steve Broomhead: The JEC and the
Regional Minister are one and the same, as far as I am concerned.
Clearly, the Regional Minister carries back messages to the Government.
The Regional Minister has a very strong interface with the Joint
Economic Commission and with the public and the private sector.
People have made representations about the JEC. We found it very
helpful for focusing evidence based around the sorts of interventions
that both the Government and the RDA should be making. For instance,
we agreed with the Homes and Communities Agency at the JEC about
the 20 physical regeneration projects that would fail because
of issues, and we were able to bring some of them forward—one
of them being the northern relief road in Carlisle, Eric. So it
has had use. The role of the Regional Minister from my point of
view, particularly in a recession, has been invaluable to getting
messages back into the Government and providing assistance.
Q107 Tony Lloyd: Can I pursue
the venture capital point? One of the historic criticisms of venture
capital in this country has been that we do not go far enough
either upstream or downstream, whichever way you want to describe
it. We do not get to the early stages of the development. We begin
to support only at the level when people probably no longer need
that kind of support.
Mark Hughes: There is a ladder
within the scheme and it includes proof of concept, which is the
area that I think you are talking about. It does include loans
and mezzanine finance for proof-of-concept projects. The current
rules would allow us to invest up to £2 million within any
particular scheme, and we think that it would address the area
that you are talking about. For some sectors, that gap is much
greater. For biotech and biohealth, the amount you need for that
proof-of-concept area might be £7 million to £10 million.
It would still be within our grasp, but clearly the Government
are looking at that through the Rowlands review to see where gaps
may exist in other technology areas beyond the level in which
the regions can invest.
Vanda Murray: There is a real
need for the scheme in the region. It is very difficult for SMEs
particularly to access venture capital funding. We have evidence
of need. The Business Link brokers, particularly the access to
finance team, have worked and identified many opportunities, so
we have a pipeline. They have been getting their business plans
business-ready. The transitional scheme that Mark was talking
about will be used very quickly so, as he said, that will buy
us time, but there is still a need for the scheme itself.
Q108 Chairman: I am going to ask
questions on prompt payment and the 10-day payment promise. How
successful have you been in encouraging the public sector to pay
within 10 days?
Steve Broomhead: Before the Government
made it a priority in our region through one of the key objectives
that was agreed at the Joint Economic Commission, I went to the
press because I was not shy about the issue, and said that one
of the best things we could do to get money moving again and cash
flow was for people to pay their bills in the private sector within
a 30 or 90-day limit, and for the public sector to meet the requirements
that have been around for a number of years to pay within 30 days.
My own organisation now pays undisputed invoices at the 98% rate
within 10 days, so I did what I said that the region should be
doing. It is a matter of variable practice. I am disappointed
with local authorities and the NHS. We have evidence that local
authorities are not paying on time. We also have evidence through
our discussions with FSB and the Chambers that businesses are
not paying their subcontractors within the statutory days. I asked
the Regional Minister, Beverley Hughes—we need to audit
this work, actually. It is all very well encouraging people to
do this, but we need—I won't say targets—some sort
of audit work to show what is actually happening. Whether you
need legislation, I don't know. You can only encourage, but we
have tried to provide the right sort of leadership to try to make
sure this happens.
Q109 Chairman: So what about the
private sector? Do you have any influence on encouraging the private
sector?
Steve Broomhead: I have just written
to people, not because I knew I was meeting here this afternoon.
I have just written to the chamber of commerce, the IOD and the
CBI to encourage them to have a debate with their members about
the importance of paying within the 30 or 90-day rule. I can only
encourage them to do that. Most of them, when we meet, say that
it is one of the easier priorities—they could meet on a
voluntary basis. But getting people to do it is a difficult issue
if you are not getting the right sort of support from the bank,
so we go back into a circle on this. It is an area that Government
could perhaps have another go at in terms of some sort of campaign.
Mark Hughes: There is very clear
evidence that debtor days in the private sector, or days beyond
payment terms, have increased throughout the recession. They have
also more significantly increased for larger companies, so the
larger companies are paying the supply chain at a much slower
rate than the average company. There is clear evidence of that.
The Government have tried to encourage larger companies, particularly
supermarkets, to pay within that period, but there is a lack of
evidence that that has actually happened.
Steve Broomhead: I have written
to the chief executive of Tesco on that very point, because we
had evidence that they were slow with some of their regional and
local suppliers.
Q110 Rosie Cooper: I heard recently
of companies in the North-West that are even moving the day they
pay employees from the 21st or 24th of the month to the end of
the month, at a stroke. They have no concept of the impact that
has on family units and their ability to pay.
Steve Broomhead: We would like
more evidence on that, Chairman, so we can take it up with Jobcentre
Plus.
Q111 Chairman: You mentioned your
disappointment with the local authorities. When the CBI gave evidence
to us, it suggested that local authorities could help by pursuing
more local procurement. Have you been able to exert any influence
on local authorities to procure locally?
Steve Broomhead: Local authorities
should think more locally in terms of procurement, or perhaps
more regionally, but they have—as I have as accounting officer
for the agency—pressures from regulations in Europe and
pressures around value for money. So while it is obviously the
right thing to do to procure locally, I am afraid sometimes the
actual process and regulations mean that—on tendering, for
instance, in procurement, particularly for larger contracts—it
is difficult to ensure a more regional or local response.
Q112 Tony Lloyd: May I turn to
the very big area of skills and training? Obviously the future
of our region depends on the level of human skill, principally.
Can you tell us a little bit about the working relationship you
have with the LSC and also Jobcentre Plus, and the deliverers
of education, the colleges? Is that working well within that context?
Who defines the strategic ambitions? Perhaps you would also like
to comment on the soon-to-be cessation of the LSC and whether
that is going to cause problems in the area?
Steve Broomhead: First, the relationships
with LSC, Jobcentre Plus and the providers—colleges and
private training—are very good in our region. We have a
regional skills employment board, which looks at the strategic
issues facing the region in terms of individuals and in terms
of the Leitch agenda around employers. I chair that group. While
nationally it has not always had the impact, because there is
still very much a dominant national policy on skills, which doesn't
always in my opinion recognise local and regional interests, it
has been a very important body. The Learning and Skills Council
has a regional board. I sit on that on behalf of the agency.
Q113 Rosie Cooper: Oh dear. I
very much welcome the work that you do generally, Steve, and you
know that, but I am calling for the sacking of the LSC board.
I don't know. I genuinely say that I haven't met a more incompetent
and innumerate bunch outside play school. So I have to except
you from that, because I know you have worked very hard.
Steve Broomhead: I feel admonished.
Remember the LSC is a national organisation. The centre has not
always connected with the region. Frankly, we wanted—we
said very clearly to the LSC—things like the capital programme
and regional flexibilities. For instance, when an employer in
Cumbria—let's say in Barrow—has a big order for elements
of a new aircraft carrier, some flexibility in moving resource
would be good. But it will not allow us to do that easily via
the national situation. I went to the skills Select Committee,
and made very plain my dislike for the removal of the LSC as an
organisation. I deal with issues about how effective it has been
at the moment. We are replacing it with two new agencies in two
new Departments; indeed, one of those has gone since we made these
decisions—the Young People's Learning Agency in DCSF and
the Skills Funding Agency, which will now be in BIS. At a time
of economic uncertainty, when you want to simplify things, particularly
for employers, I do not think all these confusions have helped
at all. I think it has been a mistake to abolish the LSC. I am
on the public record elsewhere saying I think that it is a mistake.
The LSC has not done a good job. I will not repeat some of the
things that have been said in this House before, but the LSC's
capital programme has been disastrously mismanaged. All I can
say, on behalf of the region, is that out of the ashes has come
the fact that we have four colleges of 13 on the list that look
as if they are going to be approved, and we have one third of
the money. But there is very significant disappointment in a number
of places, namely, Carlisle, which we have worked very hard on
to get it past the line, and, if I may say, Skelmersdale—I
declare an interest because I've been the chairman of the governors—to
get that to pass the line as well. It has been disastrous in terms
of its mismanagement. We have good relationships with Jobcentre
Plus around the worklessness agenda. We wanted it to be more flexible
when there have been major redundancies in the region. I think
rapid response has been that in the main. A number of MPs have
often written in, saying what can be done. Geraldine is not here
today, but she had a disaster with a fire in her constituency
at a food manufacturer recently. We have responded quickly. On
the colleges, we meet regularly with the Association of Colleges
to make sure that we are in touch with their thinking. Indeed,
we have provided some additional funding support to colleges around
skills development and capital programmes over the last three
years.
Q114 Tony Lloyd: Steven, I know
that we are running out of time. Can you just answer quickly in
that context? Picking up on something you said, in terms of the
transition, what needs to be done now to make sure that it is
seamless? Are we doing enough, to take the second question, to
protect those who are falling out of work to make sure that this
will be unlike the last recession, when people with engineering
skills were driving taxis for the next 20 years? Are we stopping
that happening?
Steve Broomhead: I think the transition
for the Young People's Learning Agency, which focuses on 16 to
19, in the region is going well. The Government Office and the
LSC have played a really good part in making sure that it is a
seamless transition. For the Skills Funding Agency, which concentrates
on adult skills—the big issue for economic recovery in my
opinion—there are more challenges ahead. To put one suggestion,
which we are certainly keen on in our region, the SFA will have
regional offices. In the case of the North-West, 30 to 40 people
will be placed in those offices, working around strategic skills
issues and skills planning. There will be some transaction activity,
payments and performance monitoring, with the colleges in particular.
We believe it will be important to align that work of the SFA
with regional economic objectives, which means a stronger alignment
with the RDA. This is not a land-grab suggestion by myself. I
think it is almost strategic logic, where you locate by the body
that has responsibility for economic leadership. Otherwise such
an organisation at a regional level could find itself in splendid
isolation, wondering what to do apart from ring up organisations
like mine for support. That is the proposal that is being rehearsed
inside the new Department for Business, Innovation and Skills
at the moment.
Chairman: That brings us to 4.15 pm,
pretty well spot on time. Can I take this opportunity to say thank
you very much for that evidence? We are just about to take evidence
from the Regional Minister. You are welcome to stay and see what
we do to him. It might be fun—I don't know, we'll see. Thank
you very much.
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