Impact of the economic downturn on the South West and the Government's response - South West Regional Committee Contents


Examination of Witnesses (Questions 80-89)

NICK BEAUMONT-JONES, VIV RAYNER AND DAVID ROSSER

8 JUNE 2009

  Q80 Mr Drew: Can I just make one rejoinder? If we made this sector-specific—clearly, the sector most at risk is automotive industries—would that make more sense, and would we get more unity? I accept that there is a dilemma if you talk about the whole of manufacturing or agriculture or whatever. If we made it sector-specific, would that unify the core, and do you think Government would be more receptive?

  David Rosser: I cannot say whether Government would be more receptive, but it would probably unify the position. It reduces the overall cost the public purse, and clearly, the automotive sector is exposed to international competition and particularly competition within groups. There is more of a case for it to be applied in the automotive sector, and I suspect that that would reduce some of the concerns of those who have them.

  Q81 Dr Naysmith: Mr Rosser, in your written evidence, you suggested that there is very little that regional government organisations could be expected to do that would make a real difference for south-west firms. Do you think that central and regional government have any significant role in assisting the south-west out of the downturn, or are you just sceptical about the whole business?

  David Rosser: That comment refers to the scale of the recession and where the real levers of power and assistance lie. From the CBI from the start, the things that have been absolutely paramount are fixing the capital markets, getting liquidity moving and sorting out confidence in the banking system.

  Dr Naysmith: They are the important ones.

  David Rosser: Set against that, does that mean that regional government and agencies have no role to play? No, it does not. I was trying to set the context. It is quite small beer compared with getting that big picture sorted.

  Q82 Dr Naysmith: It could be significant, as Mr Drew is suggesting, in particular sectors and industries. It could be much more significant for some than others.

  David Rosser: It could, but I doubt whether the kind of wage subsidy scheme that Mr Drew is talking about could be applied at a regional level with regional funding. We have talked about funding already this morning. One of the barriers to regional government and agencies doing anything is the amount of funding they have to apply, which is quite small. If that money is focused, useful things can be done for certain sizes and sectors of companies in the region. But set against the big picture it is quite small beer.

  Q83 Dr Naysmith: It is interesting because some of the regions are larger, much larger, than Wales. Mr Drew was talking about the effect in Wales. There must be some things that regional development agencies and so on can do for their areas that are significant and important, if properly targeted. You need the finance I am talking about, although there is not very much. Does it all have to be done exactly the same everywhere?

  Viv Rayner: The south-west RDA is to be congratulated as the first RDA to get a fund up and running and open for business—but it is just £10 million. The north-east was talking about a £143 million fund. That difference gives a very clear indication of the difference in funding between the south-west and the north-east. Reference was made earlier to support for tourism. I am trying to remember the figure. I have an idea that something like 0.3p per visitor is the amount we are able to spend on promoting the south-west for tourism. I think Scotland gets £7. We are talking about major and significant differences. If we had the funding, there are things that could be done to improve the economy now by investing in infrastructure, which would leave us in a better position for the future. But we just don't have the funds.

  Q84 Chairman: Assuming that the news we are likely to get on RDA funding later today is probably not going to be good, what would your advice be to the RDA? Should it hone and focus on targets rather than try to spread, or do you think it should carry on trying to do its best to help every sector and project?

  David Rosser: The worst thing in a situation like this would be for the RDA to take an ever-smaller dollop of jam and spread it even more thinly across the whole region. If one looks for a benefit out of a difficult financial situation for the RDA, it should be that it enables it to focus absolutely on what is going to have the biggest economic return, either by place or by project or a combination of both. It cannot look to do a little bit in every local authority part of the region, I'm afraid. Some of the actions which were nice to do—around town centre regeneration and the public realm—may have to go. We would like to see it focus its spend in future on improving the infrastructure for the region, improving capacity to do research and development, focusing on a few key sectors where the south-west has a real advantage and reinforcing that advantage—so aerospace would probably be one of those. That is the only sensible route out of the situation for it.

  Chairman: Doug, did you want to come back on that or can we move on?

  Dr Naysmith: No, that was excellent.

  Q85 Chairman: Can we move on, as we are starting to run out of time? A whole range of Government measures was introduced to try to hit different sectors and target different problems. Which, in your view, have worked and why? Which have completely missed the target or have not yet taken off?

  Viv Rayner: On tax and VAT, it is the first time I have ever had a 100% positive response from members—everybody who phoned up the business support line; they could not have been more helpful. It is getting a bit of a sting in the tail now, whereby they are going back for more help and are told, "You only get one bite of the cherry." As I said in evidence, that was ridiculous in terms of VAT. As for things that have not worked well, I have to say the cut in VAT. By cutting it across the board, we think a big opportunity was missed. If you had cut VAT, say, to 5% on labour-intensive sectors such as construction and hospitality/tourism, you would have encouraged economic activity but you would have sucked in fewer imports. You would also have had a beneficial structural effect on construction, in that the 5% differential was a lot less temptation to use the cowboys and pay cash. So you would have reinforced the good businesses within the sector.

  Nick Beaumont-Jones: I absolutely go along with that. There is a certain amount of cynicism now about the reduction in VAT. Generally, most people accept that it is going to go to 20% when it goes back up again. Certainly for my sector, it created an awful lot of work with relatively little benefit. God knows what that must have cost—HMRC changing its systems and so on; our view is that it probably cost the Government more than it helped the economy.

  David Rosser: I endorse the comments regarding HMRC and its willingness to defer VAT; members have been pleasantly surprised with the response. There are huge concerns around trade credit insurance and the length of time that it took Government to intervene in that market; frankly, the extent and effectiveness of the intervention when it did come was quite disappointing. There was a lot of real anger around the decision to put up business rates by 5% at a time of negative RPI, just because it happened to coincide with the wrong month. And the refusal, which I still think we do not understand, to reverse the abolition of property rates and property rate relief we think will have a detrimental effect on recovery.

  Chairman: Kerry, do you want to speak?

  Q86 Kerry McCarthy: Going back to what you said—that it would have been better to target the VAT on certain sectors—I believe that there would be complications in administering it and divvying things up.

  Viv Rayner: The French do it—the French have differential rates. If you go on holiday in France and you look at your hotel bill, you are only paying 5.5% on the accommodation. If they can do it, why can't we?

  Nick Beaumont-Jones: We do it already with books, newspapers and so on.

  Q87 Kerry McCarthy: That is fairly easy when you are talking about products. When talking about something like the construction sector, at what stage along the supply line do you deem something to have fallen within the construction sector?

  Viv Rayner: I don't know. At the moment, we are having some very negative results from the environmental suppliers—people who install the energy-efficient boilers, renewing all sorts of things. Anybody who has "construction" in their title or their operation is having grave problems with the banks, unless we can go a long way to helping them. I am not an HMRC person, but I cannot think that it is beyond the wit of man to work out some way of doing it. If they are members of the CITB, for example, or fall within its remit, then perhaps it should be applied. I don't know.

  Q88 Kerry McCarthy: As a more general point, do you think that rather than looking at measures that are helping businesses across the board we should focus on particular sectors, in the same way that we have done for the car manufacturing sector and car retailers? Are there particular sectors that all the Government help should be going into?

  Viv Rayner: It's horses for courses. In terms of engineering and automotive, it is to preserve it until the upturn comes. I think that if you change the VAT in the two sectors I have mentioned you have an opportunity to achieve a structural change in terms of improving quality and removing the incentive for the cowboys, which I think we would all welcome. You can help a sector, and if there are other things that come with that as well, then I think that's a reason for doing it.

  Q89 Kerry McCarthy: Just following on from that, to what extent should we be using this as an opportunity to go forward and move the economy of the south-west down slightly different paths? You mentioned green technology and environmental things. Should we be targeting the assistance to encourage ones that we perhaps see as long-term survivors, or real prospects for growth in the future, rather than those British-based industries whose days, we would accept, are probably numbered in the medium to long term?

  Viv Rayner: There are two comments there. First of all, it is impossible to pick the winners. Much of the work that is going on is targeted on the growth potential companies—the RDA's £10 million loan fund very definitely is. If you look at the small print and the criteria for the enterprise finance guarantee, it is again focused on growth. Certainly the Business Links are tasked with putting most of their effort against the growth businesses. So I think as much is being done there as can be. More can be effected by removing the issues around trade credit and banking support, which is particularly affecting the construction industry.

  Chairman: On that point we have to say thank you. I'm sure we could have gone on a lot longer, but we have other witnesses. So thank you all very much for coming.





 
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