Examination of Witnesses (Questions 40-59)
DAVID CARO,
DENISE CRAIG,
CHRIS ROSIER,
BARRIE WILLIAMS
AND GARY
WOODMAN
11 MAY 2009
Q40 Chairman: I think we will
be coming on to that issue later. Can you hold that thought for
the time being? We will move on to the responses to this and talk
about that in a little while. Can I ask you about your own activities
as representative bodies of business and the help that you feel
able to provide to business during the downturn? If a small, city
centre business in, say, Worcester comes and says, "I'm looking
for advice and need some help," where do you direct them?
Denise Craig: We will always signpost
any small business that approaches us for any form of business
advice to Business Link. People's reactions to that are mixed.
Older, established businesses will be reluctant because they have
a past-experience barrier more often than not, but they will go.
We also have a 24-hour legal advice helpline that members can
contact about taxation and legal matters connected to business,
so that they know what their legal position is. We offer a range
of member service benefits as well, which, depending on the inquiry,
members can be directed to consider. We regularly run events and
meetings for members. One, "Meet the Banks", was recently
held in Coventry, which was a really good opportunity for some
of the issues about difficulties accessing finance to be discussed
face to face with regional people from the banks. It was very
well attended, with over 100 delegates turning up. Those are the
sorts of things that we do. We also provide, through our website,
access to standard legal documentation and have recently posted
"How-to" guides on how to access the enterprise finance
guarantee and on basic, simple steps that businesses can take
to help their business. There is a lot out there. As I said, the
first and foremost place that we direct members to for advice
is Business Link. I think that there is an issue with the historical
perception of Business Link, and steps are being taken. But as
I said in our submission, it is disappointing that there have
been a number of credit crunch meetings where I have heard from
several members who attended that it was not for them, because
it is aimed at slightly larger small businesses with 20 or more
employees. The information given to those with no employees, the
self-employed, or those employing perhaps three or four half-day,
part-time workers, was not relevant, and they came away thinking
that they had wasted their time a little bit, which is disappointing.
Gary Woodman: I echo some of what
Denise has said. There are also some other bits that I suspect
overlap in that the FSB will want to mention them as well, so
I am not trying to claim the upper ground or anything like that.
We have also been working with the local authorities trying to
get local companies involved in procurement opportunities. Local
authority spend is limited, but, coming back to David's point,
at least if the local companies get an opportunity to quote and
actually gather work, that money circulates locally, which is
another initiative. We are linked to local strategic partnerships
in Worcester and Herefordshire, but there needs to be more co-ordination.
As a business, you have the Jobcentre looking at the employee
side, you have Business Link as a support, Advantage West Midlands
higher up and the local authorities, so there seem to be a lot
of agencies trying to talk to you. The Chamber of Commerce's role
is to channel that down and say that support is available from
local authorities, which we can decide upon, and also pass on
where we can if we know that Business Link can offer support if
businesses are having problems with their banks. We have to get
through some really detailed stuff in some cases, depending on
a business's issue, so I echo what Denise has said on workshops
and all those sorts of things, and I think that there has been
a degree of activity on that side from the business organisations.
Chairman: Both those comments lead very
nicely to Joan's questions.
Q41 Joan Walley: I want to pick
up two points that have been made. To what extent—I address
this to Mr Williams and Mr Rosier in particular—have you
seen disparities between different parts of the West Midlands?
Also, to what extent do your organisations represent the whole
sweep of the West Midlands, and to what extent might there be
discrepancies between rural and inner-city areas?
Barrie Williams: There are obviously
considerable discrepancies, but rather than being related to a
particular region or part of a region, they are more particularly
related to industry sectors, which tend to be concentrated in
those particular regions.
Chairman: Sorry to interrupt, but I have
noticed the expressions behind you. Could you speak up a little?
Joan Walley: You will have to project
your voice behind you.
Barrie Williams: It is more a
case of the sectors having the influence than of where a business
locates itself. For example, in the motor-manufacturing sector
and the supply chain, a lot of companies are on average affected
to the tune of around 50%, but it is not difficult to find companies
operating at 30% or 40% of capacity, and I came across a company
that primarily supplies the commercial vehicle sector the other
day operating at only 20% of capacity. Most of those companies,
of course, are located in the black country or in and around Birmingham
and the Coventry suburbs. The ceramics industry, which is primarily
located in Stoke-on-Trent, is having a pretty dreadful time, so
has a large fall in output. Other areas in the West Midlands,
south of the M42 in Solihull and the surrounding area, are not
as badly affected, because they do not tend to have those older,
manufacturing industries. Small businesses in rural areas are
affected, but the agricultural sector does not seem to be affected
to quite the same degree as some of the manufacturing sectors.
Joan Walley: Right. Don't answer, Mr
Rosier, unless you have something specific to add to that.
Chris Rosier: Professional services,
property developments and construction will be very much regionally
based, so, occasionally, developers, consultants or contractors
will work out of the area, but generally they tend to stay in
the same area.
Q42 Joan Walley: Moving on, we
have the regional taskforce established by the Government with
a Regional Minister. How effective is that? How much do you feel
that is making a real difference?
Barrie Williams: It is early days
for the regional taskforce. I think it is making a difference
and will make more of one. It is a copy of the taskforce that
was set up when Longbridge closed and that proved to be very constructive
and successful. It includes all the right bodies—except
that business is not involved in the current taskforce, which
seems an omission.
Joan Walley: That is a particular beef
of yours.
Barrie Williams: Yes.
Q43 Joan Walley: How would you
go about getting business represented on it? Should it be represented?
Barrie Williams: Yes. We believe
it should be. We represent ourselves to AWM about that.
Q44 Joan Walley: If you were represented,
given what we have just heard about regional disparities, what
would you bring? How would you ensure that all the sectors across
the West Midlands were represented?
Barrie Williams: That is exactly
what the West Midlands Business Council is set up for. We have
a council of our members that meets on a quarterly basis. All
of the members here participate in that council where we exchange
views. The purpose is that by bringing business together we can
represent all the interests, whether they are from a particular
sector or region.
Q45 Joan Walley: It would be interesting
to have details of the members on that council.
Barrie Williams: Yes, we can give
you that.
Denise Craig: Business was represented
on the Rover taskforce. Mike Cherry was on that group representing
not only the FSB but the West Midlands Business Council. We found
it odd that when the West Midlands taskforce was set up that business
was not included, as there was already a precedent and model that
had worked well.
Q46 Joan Walley: Have you made
representations about it and got replies back?
Barrie Williams: Yes.
Q47 Joan Walley: You mentioned
Business Link just now, with perceptions of it being slightly
disparaging. How do your members find information about available
help during the business downturn?
Barrie Williams: Business Link
has been undergoing a complete metamorphosis over the past couple
of years. As you well know, it has become one body, rather than
more than one. It has moved its location and has new management.
The Department for Business, Enterprise and Regulatory Reform
has brought in new business simplification, reducing some 300
schemes of support to 20 or 30. There has been a vast change.
At the interface, I think members are finding it much more constructive.
We get mixed comments: some people say that it has been tremendously
helpful, but others are disappointed that they have not got the
help they would have liked. It is in a transition phase to some
degree.
Q48 Joan Walley: Do your members
know where to go to and how to get help?
Barrie Williams: Yes.
David Caro: Advertising Business
Link on television has been particularly good, leaving aside whether
you think Business Link services are offered well. Opening up
how to contact Business Link and the fact that our organisations
are signposting people to Business Link make it much better than
it was, particularly when there are signs of recession. There
was a lot of radio advertising and some on television. That is
the only way you can get the message across, to keep battling
on and getting the business organisations and the advertising
out there.
Gary Woodman: Since Business Link
has been regionalised, particularly for the peripheral areas of
the region, there seems to be some withdrawal. The profile has
dropped. That clearly gives an opportunity for the FSB, chambers
or some business organisation to fill that gap, but the reality
is that it cannot be done with the resources. That drop-off then
leads more to a perception that, "I'll find my help elsewhere."
Most of the surveys that come back—whether done by the chamber,
FSB or other business organisations—show that banks and
accountants come out higher for where people go for business advice.
That echoes Barrie's point about where the business engages and
has a relatively good experience; where the business does not
understand or engage with it, that is where the disparity comes.
Barrie Williams: It is important
to have a clear one-stop shop, as it were. There is a plethora
of people offering business advice and really they ought to be
focused in one centre.
Q49 Joan Walley: Do you think
not having a geographical presence in some areas enables that
one-stop shop concept to be understood and accessed?
Barrie Williams: I take the point
that you make. It would probably be better if it was spread; each
part of the region has to be very aware of where it can access
the service.
Denise Craig: There is a credibility
issue. If you are a business based in a rural area and you get
through to an adviser who, quite clearly, has experience of working
solely, say, in the Black Country, you may not necessarily trust
the advice from that person because you do not feel that they
really understand the dynamics of the location where your business
operates. I do not think that it is the role of the business organisations
to promote Business Link, solely. Yes, we have a part to play.
The FSB represents a considerable number of businesses across
the West Midlands, but when there are more than 170,000 enterprises
across the West Midlands alone and we represent just a little
more than 10% of them, there is clearly a gap—we cannot
get out to all businesses. So, it was really good to see that
there was a proper, co-ordinated advertising campaign about that.
An established business will do an awful lot to help itself before
it actually gets to the stage of asking for advice. Business Link
is probably very good at helping start-up businesses, but the
slightly more knotty problems that the established businesses
are coming along with are the ones that present the most difficulty.
That is possibly why there is a less than satisfactory satisfaction
rate with the way it deals with them.
Q50 Joan Walley: Can I put it
to you that you are here representing your members, but to what
extent do you represent all the businesses in our constituencies?
You only represent a very small proportion of businesses that
are, perhaps, within your radar. What could Government do to get
support to assist businesses right the way across the whole region—not
just new ones but the existing ones and the ones below the radar?
What more could Government be doing?
David Caro: The mindset of people
in a recession is different to the mindset of those same people
when they are not in a recession. When you are in a recession
such as this, the first person you turn to is your business adviser,
who is probably your accountant. That is the common point. When
you are not in a recession you think, "Where can I get help
for my business generally?" You may need to pool accountants
as a first-stop shop and get them more involved in signposting
people—as well as giving their own advice—to Business
Link.
Barrie Williams: The organisations
that are members of West Midlands Business Council represent almost
two thirds of the businesses in the West Midlands, as far as we
can tell. Business Link supports small businesses. We talk about
small and medium-sized enterprises, which go from a four-man business
up to a company turning over several million pounds. Support for
businesses that are just above that very small size is not really
that forthcoming through Business Link. In times of recession,
all the support is required in those companies—not middle-sized
companies because they are really still small companies—that
employ 100 people and have a turnover of £20 million or so,
and there is not support for companies in that particular situation.
Q51 Joan Walley: Finally, Mr Rosier,
you mentioned just now that people are being lost during the recession,
and the implications of that for medium and long-term innovation
and future project management. Do you feel that there is sufficient
support during the recession to ensure that a new way of looking
at things, brought on by the recession, is actually there?
Chris Rosier: There certainly
needs to be a new way of looking at things. The professional services
have their own bodies: the RICS, the Royal Institute of British
Architects and the Institute of Civil Engineers all try to help
their own members out. The construction bodies have the Chartered
Institute of Building and the Guild of Master Craftsmen who will
try and help them out. Business Link helps smaller businesses,
but it is not the first port of call for construction and property
companies; they will always go back to their professional and
trade bodies. In terms of property investment and development,
those guys will always look to banks, funders, joint venture partners
and institutional investors for help at times like this. Business
Link is not really geared up for those sorts of people. Regarding
your material suppliers and manufacturers—this probably
comes back to the trade credit insurance that we will talk about
later—remember that we were going to deliver code 5 and
code 6 housing, with carbon-neutral housing by 2016 and carbon-neutral
commercial development by 2020. Somebody needs to be doing their
research to deliver that, but I think that it is the first thing
that is cut. Green issues are being pushed along very firmly by
both the Government and the industry, but of course someone needs
to fund that, and it is the first thing that is cut.
Chairman: You have mentioned the banks,
and that is the next area that we would like to explore with you.
I will ask James Plaskitt to come in on that in a moment. I would
just like to welcome Adrian Bailey, who I hope will be asking
some questions on trade credit insurance a little bit later.
Q52 Mr Plaskitt: Let us turn to
the banks and their relationship with industry. They were our
witnesses at our first session, in Birmingham, last month. We
had all the main banks represented there and they were very keen
to assure the Committee that they were not reducing but increasing
the amount of credit available to businesses. They all told us
the extra millions that they were putting into businesses through
this period. However, when I talk to businesses in my constituency
right here, I hear a different story, so we are trying to understand
why the banks have one perception and businesses another. I want
to explore that with you as representatives of business. May I
start with the FSB? What are your members telling you at the moment,
not just about the amount of credit that banks are putting forward—that
is what the banks keep talking about—but about the cost
of that credit? Can you give us some impression of what you are
hearing?
Denise Craig: I think that the
most oft-used phrase by my members is, "They are moving the
goalposts, often at very short notice." We hear from members,
some wish to be anonymous, who say that they have operated trouble-free
overdrafts entirely properly, completely within the terms and
conditions. I recognise that there are times when a business does
not play ball with its banks. Human beings are involved and so
that is going to happen. However, I have tried to pick out case
studies in which everybody has really toed the line. I have a
case study here, which is the most recent one that came in. There
was a company that owned a filling station and rented it out to
BP. It was getting £250,000 rental income. It approached
HSBC with a new project, which would have created 12 permanent
jobs plus the employment created by the construction project.
The company was looking to borrow £1.2 million on a long-term
loan, serviced by the rental income on the £250,000, against
assets of £2.6 million. It had previously had a good relationship
with the bank, and then the relationship manager had changed.
The result was that the project got pulled and the overdraft was
reduced from £150,000 to £50,000 overnight. That was
a really poor response to what I would say was a well-constructed
proposal for a fairly straightforward project. The little footnote
to this is that this particular member was a bank manager at a
senior level for 20-odd years with another bank. As he pointed
out, he knew how to put together a viable business proposal, and
it got turned down.
David Caro: Facility fees seem
to be a problem as well; we have seen them go up in leaps and
bounds. I recently heard about somebody asking for £15 million
and having to pay a £2.5 million or £1.5 million fee.
Barrie Williams: I can give you
a specific example of a company that has a £3 million overdraft
facility and wishes to renew it at £2 million rather than
£3 million, reducing the facility. When the £3 million
package was agreed 18 months ago, the company paid an arrangement
fee of £1,500 and now to agree a £2 million overdraft
the fee is £15,000. The interest rate interests me much more
though, because the original offer on this particular business
was 0.5 above base, and the new offer is 2.95 above base. The
reduction in interest rates is not benefiting businesses, it is
benefiting the banks. It is all very well saying that lower interest
rates are helping business, but they are not helping business,
because the banks are creaming off that part of the interest rate
fall.
Q53 Mr Plaskitt: I appreciate
the particular examples that you have given us. It might be helpful
if you supply them to us, in an anonymous form. However, I want
to sound a slight note of caution. It will always be possible
to find particular examples where someone feels that they have
been badly done by. We need to be careful, as a Committee, that
we are not going to pin results on a small number of anecdotal
instances, genuine though they are—I have plenty of my own.
I want to be certain that we get at the fullest possible view.
Standing back from individual bad cases that you know about, what
is your overall sense of the position of the banks towards business?
As I said, there are two headings to this: the general amount
of credit available and the cost at which it is coming through.
Please try and give us an overall sense of where you think that
has moved over the past year or so, and where it is now.
Barrie Williams: We hear lots
of anecdotal stories as well. We sat down as a business council
just over a week ago to try to get really specific information,
and it is quite difficult to pin that down, as you are probably
aware. I think that it is probably not as bad as the noise suggests.
That would be the view of the business council members. There
are certain things happening with the banks though that are perhaps
unhelpful, one of which is the propensity to invoice discounting
rather than overdraft facilities. More and more banks are moving
to invoice discounting as a method of supplying funding to companies.
If you are in the manufacturing sector in the West Midlands and
your business falls by 50%, your funds fall by 50% fairly progressively.
Under previous practices you would have an overdraft and that
overdraft would have a term to run, so you would not necessarily
have that same reduction in funding. I think that that is somewhat
of an issue.
David Caro: You also hear of banks
insisting that invoice financing is part of a new package that
they have put together.
Barrie Williams: They are trying
to sell it. You can see from their point of view that it perhaps
makes good banking sense.
Chris Rosier: Property is a double-edged
thing, because in some ways the banks have been absolutely brilliant.
If you have a good, sound business—a lot of developers and
property owners have good, sound businesses—and if you have
handled yourself well over the past five years, then the banks
are supporting you. If a developer or property owner has not handled
himself properly, has taken unnecessary risks or has just got
his figures and proposals wrong, then the banks have gone in there
pretty quickly to try and mitigate their losses, which is understandable.
However, where businesses have handled themselves pretty well,
the banks have been quite understanding. There was, earlier in
the recession, a tendency in the press for people to complain
about the banks putting companies into liquidation. That has certainly
stopped and the banks are working harder with people to try and
come out of it. They have set up special divisions where they
will try and help you work it out—you are in it together.
I do not know what that is going to do in the future. In the past
what has happened is that, as property values have gone up, and
everything else, the banks have moved in to try and recover their
debt. However, at the moment they are behaving themselves pretty
well. The big area of buy to let has caused the problem, because
people have gone in there pretty blind—not knowing the full
consequences of property investment—but that is a topic
for another day. The banks have tried to claw that back, but that
again seems to be tapering off a bit. Another big issue is property
values. Remember we are a property-owning society, be it commercial,
residential or private, and the problem is that the valuers are
suppressing values. Yields on commercial property have gone out,
so it produces a value and then the banks' loan to value rates
have come down from 80% or 85% to 60% or 65%. Therefore, that
gap where you could fund your business, based on your property
assets, has now gone. I imagine it is the same for plant assets
as well—where your plant assets were x two years ago, now
they are x minus a percentage—so we are relying on the banks
to help us out, knowing that future value should rise. The problem
with that is, when are the future values going to rise and what
is the trend? Obviously the position on property changes as economies
evolve, so although you have a sound proposition now, in 18 months
or two years' time that might have disappeared, and suddenly you
have another problem with values as well.
Q54 Mr Plaskitt: Mr Woodman, from
the chamber's point of view, what are you getting from companies?
Gary Woodman: I echo some of Mr
Rosier's points.
Mr Plaskitt: Anything to add?
Gary Woodman: I would add—you
summed it up—a point about the volume of money that they
are lending, from the figures that we see. You have to take that
at face value. The question is whether that is then benefiting
the wider businesses or whether that is selected. We still hear
those noises. We heard earlier about great facilities all of a
sudden going from 2% above base to above LIBOR. Those seem to
have gone. The enterprise finance guarantee scheme seems to be
rolling now. The problems with that seem to have gone.
Q55 Mr Plaskitt: I wanted to come
specifically to that. We drilled into that quite a bit when we
had the banks in front of us. The concern was with regard to individual
banks—perhaps they simply did not have enough information
in the building, or officials in the bank branches did not know
what the scheme was. I think we got the sense that it had a sticky
beginning. Let us not go back over that. Can you give us, on behalf
of the organisations that you represent, a view of where you think
the banks are now with that scheme? Do they know about it? Are
they on top of it? Do they have the information when businesses
go to them, and is the scheme starting to feed through?
Gary Woodman: I would say "improving",
but whether they are in the land of perfect, no. I think there
is still quite a bit of work to do by them, for them and by organisations
such as ours in terms of, "Are you aware of this?" I
have to say a number of businesses still look at it and go, "Not
for me."
Q56 Mr Plaskitt: And the FSB?
Denise Craig: According to our
last survey, 14% of our respondents had applied, of which just
under 9% were offered credit. Having said that, on the flip side,
I talked to the AWM, which said that that was not entirely consistent
with its figures compared with the rest of the country, which
it was starting to see. So it may be that the very smallest businesses
are just finding credit elsewhere. We found that the West Midlands
respondents were the least likely to get turned down for new credit
compared with the rest of the UK. Just under 15% were turned down.
The UK average is about 18%. In London and Northern Ireland they
really are struggling—25% and 21% are not getting it. You
asked about the costs of new finance, and again I think the West
Midlands compares favourably with the rest of the country. We
are not doing too badly here. Some people are finding that there
is existing finance. Fewer respondents are reporting increased
costs, but then we are also saying that only about 30% are not
experiencing increased costs, so it is a mixed picture. It depends
entirely on what sector you are in. Unfortunately, our survey
does not drill down to give us that.
David Caro: One of the biggest
problems that we are hearing about is that banks are demanding
personal assets to cover the loans, even when there are plenty
of assets in the company, and that is a worry.
Barrie Williams: That is leading
to a preference for the AWM transition fund, which does not have
such high charges or such onerous requirements on the owners of
the businesses. I think we favour the transition fund as a scheme.
David Caro: We have heard nothing
but good results in comments that we have had about the transition
fund.
Chairman: Perhaps James can come back
on some of the other questions. As you mention the transition
fund, perhaps we can ask Joan to ask her questions.
David Caro: I would like to add,
just before you come in on the transition fund, that the only
problem is that the £50,000 lower level is quite high for
small businesses to access—they may want only £10,000.
Denise Craig: In which case, they
have to go to a CDFI, and they complain about how expensive that
is—it is very expensive.
Q57 Joan Walley: We wanted to
try to get to grips with the Advantage transition bridge fund.
Looking at that, it seems that we had the advantage of the Rover
taskforce help before, so we were already ahead of the game in
the West Midlands. I think the question is: in terms of the access
to regional credit, how effective has it been? It has the £9
million limit, or whatever it was. In your experience, is credit
still coming through from that? The other aspect is how effective
has that been in helping companies that go to it as a last resort?
In other words, is it doing some advocacy with companies seeking
credit with banks, so that you can exhaust that route and then
go back to the Advantage bridge fund for credit, if all else has
failed? Is it doing its job? How much more does it need to do?
How long do we need it there for? Is it depleted?
Barrie Williams: I personally
believe that it is doing its job. I think it is coming to be fairly
depleted. The original amount left over from Rover was £4
million. It was topped up to £9 million, but I think it is
fairly close to be committed. I think that, for companies that
try traditional sources of funding, having that as a reserve has
proved very successful. In its previous phase, with the Longbridge
scheme, they got all the money back at a pretty good interest
rate; there is very little of it outstanding, and it helped a
lot of companies.
Q58 Joan Walley: Given that it
was originally there for the Longbridge scheme, do you think that
there is a tendency for it to be used in that part of the West
Midlands, and not be available widespread across other areas on
the periphery?
Barrie Williams: I don't know
the spread of it, but that is a distinct possibility.
Denise Craig: When the Advantage
transition bridge fund was first announced, they had a few complaints
from people who were in the retail and wholesale sector, saying
that they were excluded from it. There were a number of business
sectors that were excluded, but I think that it was bound by European
funding regulations on which sectors it could fund. The "Support
West Midlands" website has received favourable comments,
and when people have dealings with the access to finance team,
I never hear complaints—they were always very impressed.
Q59 Joan Walley: But if it has
gone from £4 million to £9 million, how much longer
does it need to be carried on for? Supposing it was exhausted
and finished, would that affect your members?
Barrie Williams: Yes, because
we are still in a difficult situation with businesses, and there
are still businesses getting into financial difficulty, and I
imagine that it is likely to continue for some time.
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