Examination of Witnesses (Questions 249-259)
MR IAN
AUSTIN MP, TRUDI
ELLIOT AND
ADAM JACKSON
29 JUNE 2009
Chairman:Welcome, this is your first
visit to the West Midlands Regional Committee. We think it is
our last evidence session on this first inquiry prior to producing
our report in a few weeks' time. So that we can get straight into
the questions, I will ask you, Ian, to introduce your team.
Mr Austin: I am Ian Austin, the
Regional Minister. Trudi Elliot is Director of the Government
Office for the West Midlands and Adam Jackson is from BIS, as
it now is—I nearly said BERR, which would have been a mistake.
Q249 Chairman: The first evidence
session that we undertook was with the banks in the region. We
wanted to do that first, as they were obviously key to a lot of
the things we were talking about. The narrative we got from some
of those banks—about what was going on, about how lending
was or was not taking place in the region—was quite different
from some of the anecdotal evidence we got from businesses themselves,
and what we were given more formally by businesses in some of
the other evidence sessions. The first question is, how do you
see lending? What has been happening in the region? Who's right
and who's wrong in those narratives? Also, in practical terms,
what have you been able to do as Regional Minister to try to persuade
the banks to improve their support to regional businesses and
free up credit in the way that's needed?
Mr Austin: This has been the central
issue in the whole of the crisis, hasn't it? It was the credit
crunch and the lack of availability of credit and then the withdrawal
from the UK market of a number of foreign lenders and so on, that
caused the crisis in the first place. What have we done in the
region to try to address this? We were the first region through
the task force to establish a transitional loan fund. It was set
up first in the West Midlands before anywhere else in the country.
That has helped over 50 companies and has saved over 2,000 jobs.
Through the community-based finance institutions we have increased
loans to smaller organisations by £2.2 million—290
extra loans. The third thing is that extra grants have been provided
to businesses. This morning Joan and I went to Wade Ceramics which
has had £685,000 to invest in new machinery that will enable
them to move to brand new purpose-built premises and produce products
that no one else in the world can produce, and safeguard 170 jobs.
We have been able to encourage initiatives like that. The fourth
thing I would point to is the Enterprise Finance Guarantee Scheme.
This has obviously taken time to get moving in the region and,
as with any issue of delivery, there is always a gap between what
is agreed or announced nationally and how things then filter through
the system. Directors of banks can agree things with the Government
but then have got to get their staff up to speed with the arrangements,
get processes in place—all of that. What we have been able
to do in the region is get together, through the finance forum,
the business community in the region, the leadership of the business
community and the banks to facilitate discussions, so that the
banks understood the issues that the business community faced.
Because we have got the two sides of the argument talking effectively,
it is fair to say that the enterprise finance guarantee has been
more successful. There are lots of companies still not getting
access to the finance that they need, but it has clearly had a
bigger impact in the West Midlands than it has in other regions.
That is because of the way we have been able to get the region
talking. The final thing I would highlight is what I said right
at the outset. We set up the transitional loan fund first. We
were the first region in the country to do so. It has been more
successful in the West Midlands than in any other part of the
country. The budget decision was that these funds would be wound
up when they were fully committed. We banged on every door in
Whitehall. We have secured the agreement of Ministers to extend
lending in the region by another £2 million, which will clearly
help dozens more companies and save, hopefully, hundreds more
jobs. So I think it is possible to point to a number of initiatives
in the region that would not have happened had it not been for
the work that we've done, and through the task force they have
helped businesses and saved jobs. Is there anything you want to
add, Adam?
Adam Jackson: No, I can talk about
what we see as a national picture of bank lending. That's what
I would add.
Q250 Chairman: Given the fact
that there are different narratives flying around about what's
been happening, hopefully things are now easing. As you may have
heard in a previous evidence session, AWM said that maybe the
two narratives aren't quite as incompatible as they may appear.
Is there any work done either at BIS centrally or elsewhere to
try to look at cases studies? What are the viable businesses?
Are there viable businesses that have gone to the wall because
they just couldn't get access to credit? And what were the blockages?
Can we learn from that so that some of the initiatives can be
successful in future? Is that mapping being done?
Adam Jackson: We are just about
to start doing that. What we've been doing up until now is looking
at quantitative data on bank lending—a kind of combination
of survey data where we know probably around 19% of small and
medium-sized firms have been looking at finance for the past six
months, so it's important to get in perspective the actual number
of companies who are looking for finance. Of those, around 64%
that we surveyed said they got finance from their first port of
call, which means around 30% didn't. We can then look at the data
we get from the banks. We get data directly on small and medium-sized
business lending from the four main banks. What we've seen there,
for example, is that approval rates are around 3% lower than two
years ago. That's for the bigger firms, and it's about 10% lower
for those firms of up to £1 million. So there are definitely
more companies asking for credit, but to keep that in perspective,
the majority still get the finance. That then gets us to the point
of saying, "Statistically, that sounds about right for a
recession." You are clearly going to get a lower quality
of applications in some cases; you would expect approval rates
maybe to drop—they haven't dropped catastrophically. That
then takes us into asking, "What's the texture of that?"
I think that's where we need to drill down more into case studies.
We have links with the regional finance forums, and one of the
things that I'm taking forward through Business Link and the RDAs
is getting more intelligence back from those companies that Business
Link helps in order to understand and get their sense of, "Are
they viable firms which are being turned down, or is it a matter
of more help maybe for the companies themselves to prepare to
go to the bank to seek funding?" We find the majority of
companies haven't got an up-to-date business plan, so again that
is something that we want Business Link to do more on to prepare
them better to get the finance.
Q251 Mr Bailey: Credit insurance
is a national problem but there is a very specific West Midlands
regional dimension, plus of course export credit insurance as
well. What have you done as a Minister to make representations
on behalf of regional businesses to the Council of Regional Ministers
or the Treasury?
Mr Austin: At the outset, we set
up two organisations—a task force, which was about co-ordinating
the work of Government agencies, to try to get the region through
the downturn, and we established the regional Council of Economic
Advisers, which brings together all the representative business
groups, trade unions and so on. This was an issue that was raised
at the outset. It's fair to say that I raised this at meetings
of the Council of Regional Ministers, the Regional Economic Council,
informally with the Prime Minister, the Chancellor of the Exchequer
and the Secretary of State for BERR, so this is an issue that
I raised repeatedly and constantly on behalf of the region. Among
others, that was one of the key issues raised with me by businesses
in the region.
Q252 Mr Bailey: How far have we
got? What are the outcomes of these discussions?
Mr Austin: You will know that
the Government raised this issue in the pre-Budget report, and
they launched the trade credit insurance scheme on 1 May. I do
not think we have been able to provide regional figures for reasons
of confidentiality. Is that correct, Adam?
Adam Jackson: That is why, and
to be honest, it is very early days. Uptake has been quite low.
Again, in response to feedback, now that we have introduced it,
we have backdated the eligibility. Now, any company that has had
its trade credit insurance reduced since October last year, which,
if you like, was when we started to feel the effect, is eligible
to apply. That is an additional change that we made a few weeks
ago. We are waiting to see what impact that has.
Q253 Mr Bailey: This is the backdating
you are talking about?
Adam Jackson: Yes.
Q254 Mr Bailey: I will come to
that in one moment. Could I just ask this? There are two obvious
gaps in the provision. The first is where a company cannot get
credit insurance; it does not qualify under the Government scheme.
Credit insurers are virtually excluded in certain sectors, which
include certainly the automotive supply industry and probably
the construction industry, if my memory serves me right. Those
are major employers, and very important to the West Midlands.
I would appreciate your perspective on that. The second is the
export credit, where we are in the process of consultation. Given
the competitive pound at the moment, that is a possible area of
growth for West Midlands businesses, which is potentially hampered
by the absence of export credit insurance. Could you give me an
indication of what sort of representations you are making on that?
Mr Austin: As I said earlier,
this is an issue that has been raised repeatedly with me by businesses
in the region. You are absolutely right—it is a key issue
for various sectors of our economy. I have taken the opportunity
through the various committees and councils that I sit on to raise
these concerns. It is an issue which, it is fair to say, colleagues
in Government from the Prime Minister down are aware of, focused
on and trying to address.
Q255 Mr Bailey: Have you any idea
of the number of businesses affected? To pick up the point that
Mr Jackson made, have we any idea what sort of benefit the backdating
of this eligibility has provided so far?
Adam Jackson: It certainly massively
increases the eligibility. But it really is too early to see a
flow of policies. I would emphasise that with this scheme, uptake
has been extremely low. That was one of the reasons for introducing
the backdating. We will see what effect that has. I suppose what
is interesting though, is that even before we backdated, only
a small percentage of those companies that are eligible were taking
it up. What we are doing now is some further fieldwork in the
regions to find out why people have not taken it up. Trade credit
insurance is quite an odd area. There is a lot of seasonality
in it. So we might expect to start seeing, if you like, Christmas
orders coming through over the next month or so, but we have launched
it in a period where it is definitely very quiet, seasonality-wise.
Equally, we have some evidence that companies have adjusted to
the reduction in trade credit insurance. They have found different
ways of dealing with their suppliers, or decided that it was not
a useful product. That is something that we need to drill down
into more, to find out what is going on.
Q256 Mr Bailey: In summary, I
would agree from my own experience that companies are looking
for other ways of doing this. But basically, it is too early to
say just why the take-up has been low, but you are researching
that.
Adam Jackson: Yes.
Q257 Mr Plaskitt: Minister, I'll
just flip back ever so quickly to the Enterprise Finance Guarantee
Scheme. You accept that it has had a slow start-up, and that's
the evidence we've had from banks and businesses. In view of that,
are you sticking with the March 2010 closure of the fund?
Mr Austin: The March 22 closure
of the enterprise—
Mr Plaskitt: The Enterprise Finance Guarantee
Scheme is due to shut down in March 2010. Should we stick with
that, or review it?
Mr Austin: I think the decision
on when a national scheme opens and closes is obviously a bit
above my pay grade, isn't it?
Q258 Mr Plaskitt: But are you
making representations on behalf of West Midlands business?
Mr Austin: As I said, access to
finance has been the central issue of this crisis. It's been the
central issue facing businesses in the region and it's been the
No. 1 issue that I've taken up on behalf of the region, which
is why, as I said earlier, we were the first region to get a transition
loan fund in place. That's been more successful in our region
than anywhere else. We were the first region to get businesses
and banks trying to talk together properly at a regional level;
and I think that's borne some results. And we're the only region
that's been able to extend lending in the way that we're able
to announce today. So am I making representations on access to
finance on behalf of business in the West Midlands? Yes, all the
time, of course. But am I able to say at what point I think a
particular scheme should be introduced or closed? Well, it's not
really a decision for me, is it?
Q259 Mr Plaskitt: I understand
that, but if we found evidence that as we approached March next
year there were lots of businesses in the West Midlands that would
qualify and are eligible for support under that scheme but aren't
going to get it because the gate's about to come down, would those
be circumstances in which you would say on behalf of the West
Midlands to colleagues in Government, "Can we look at this
shutdown date"?
Mr Austin: It's my job to stand
up and speak out on behalf of businesses in the West Midlands,
isn't it? And that's why, when we were told that the loan fund
was fully committed, I spoke to Peter Mandelson, Liam Byrne, Pat
McFadden and Ian Pearson, and kept on and went back to them repeatedly,
until it was agreed that we could provide additional lending.
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