The impact of the current economic and financial situation on businesses in the West Midlands Region - West Midlands Regional Committee Contents


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.


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 31 July 2009