Westminster Hall
Tuesday 7 September 2010
[Mr Philip Hollobone in the Chair]
West Midlands
Motion made, and Question proposed, That the sitting be now adjourned.-(Robert Neill.)
9.30 am
Richard Burden (Birmingham, Northfield) (Lab): I welcome you to the Chair, Mr Hollobone, and express my gratitude for being able to debate Government policy on the west midlands. I am pleased to be joined this morning by a number of colleagues from the region.
I have represented Birmingham, Northfield for the past 18 years. During the last Parliament, I chaired the West Midlands Regional Committee. The Committee was a genuine attempt by Parliament to provide a focus for addressing matters of concern to the people in the region. The Committee's agenda was set not by the Government or by Ministers but by MPs from the region. I am pleased to be joined today by two members of that Committee-my hon. Friends the Member for West Bromwich West (Mr Bailey) and for Stoke-on-Trent North (Joan Walley).
The Committee, however, was scrapped by the diktat of the new Government; but in its short life at the height of the recession we were able to give voice to regional concerns about the impact of the economic downturn on communities across the region, on west midlands businesses and on the options for the future of housing and planning in the region. I hope that the Committee was also able to contribute to the accountability of regional institutions, the most obvious one being Advantage West Midlands-the regional development agency. It was also able to contribute to the operation of government in the region. Indeed, I welcome to the debate the former Minister for the West Midlands, my hon. Friend the Member for Dudley North (Ian Austin), and thank him for his approach to dealing with our Committee. It was one of engagement with MPs for the region. We did not always agree, but we agreed on a number of things. The key point, however, was that the Government and the Minister engaged.
The west midlands is a diverse and vibrant region. Its heritage as the workshop of the world means that innovation is in our blood. However, the region is in transition. Massive upheavals were already taking place in the economic base of the west midlands-from Staffordshire in the north and east to the traditional industrial heartlands of Birmingham, Coventry and the black country-and dramatic changes took place in the late 20th century in the economies of areas such as Warwickshire, Shropshire, Herefordshire and Worcestershire.
The region was hit hard by the economic downturn. For while, it had the worst unemployment rate in the country. However, action by people in the region, backed by the previous Government, helped to turn things around, and unemployment is down by 2.4% on last year. Nevertheless, the recovery is fragile. The danger of
a double-dip recession is real for our region. I was at a breakfast meeting this morning organised by the Society of Motor Manufacturers and Traders, just across the road. The message from those in the automotive industry and from a number of academics was clear: that Britain still needs to address persistent under-investment in research and development.
The Department for Business, Innovation and Skills has a target for 2.5% of GDP to be invested in research and development. Projections that I heard earlier today suggest that the likely shortfall will be between £9.6 billion and £12.1 billion. Given that the automotive industry accounts for about 8% of our country's research and development, and that the industry is key to the future of the west midlands regional economy, we can see why the west midlands is worried indeed about the consequences of precipitate and untargeted tightening, as it will affect the development of our industrial base and its recovery.
We know that the Government's policies are leading to a downgrading of growth forecasts and are likely to result in higher unemployment, so the implications for our region are serious. As I said, they are serious not only for the economic base of the region but for our people. The Institute for Fiscal Studies confirmed only a few weeks ago that the coalition Government's Budget will hit the poorest households hardest. Despite claims that the rich will bear most of the pain, it is those on the lowest incomes who will gain least from the increase in the income tax personal allowance and suffer most from cuts in public spending. That will be the case also for pensioners, who will be hit by the rise in VAT. It will be families, particularly those on low incomes, who will be hit by cuts in the value of support for families. From next year, it is estimated that more than 80,000 people in the west midlands could lose an average of £520 a year through cuts in housing benefit.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op): I thank my hon. Friend for giving way. I apologise, but I shall have to leave fairly shortly as I have to chair my Select Committee at 10 o'clock.
In the context of what my hon. Friend said about the motor industry, does he agree that the latest figures for new car registrations-they showed a dip last month following a dip in the previous month-underline the fragility of the west midlands economy, and that that will have a particular impact on the Birmingham and black country region?
Richard Burden: My hon. Friend is right. I fully accept his apology. Indeed, I congratulate him, a fellow west midlands MP, on being elected as Chair of the Select Committee on Business, Innovation and Skills. I also welcome my hon. Friend the Member for Birmingham, Erdington (Jack Dromey), who is a member of that Select Committee, and my right hon. Friend the Member for Warley (Mr Spellar), who takes a keen interest in automotive affairs.
My hon. Friend the Member for West Bromwich West is absolutely right: if one industry sums up the fragility of the recovery, it has to be the automotive industry. It was one of the hardest-hit sectors, but it came through strongly. However, that did not happen by accident, but because people in the industry-whether the management or the work force-willed it to happen and because the Government were prepared to stand
behind them. I do not say that the car scrappage scheme turned the automotive industry around, but it was part of the jigsaw of things that allowed that to happen. I do not say that the creation of a taskforce in the west midlands allowed the industry to come through, but it was part of that jigsaw.
Jack Dromey (Birmingham, Erdington) (Lab): I give the same apology, Mr Hollobone, as that given earlier. As a member of the Select Committee I have to be at its 10 am sitting.
Advantage West Midlands has evidence that for every £1 of public money invested, £8.14 is generated in wealth for the local economy. It was rated by the National Audit Office as the top-performing regional development agency, and it was praised for its management of the shock of what happened to Rover between 2000 and 2005, and for consolidating an automotive cluster that employs 150,000 people in the midlands and which is vital to the regional economy. Does my hon. Friend agree with the clear voice of business in the west midlands, which supports Advantage West Midlands and argues for the retention of a strong regional economic structure?
Richard Burden: My hon. Friend makes a good point, and I will shortly say a little more about Advantage West Midlands and the haziness that seems to surround some of the present Government's proposals for change. The responses from businesses and from people outside the political sphere are clear. Sometimes, one gets the impression that the future of effective regional co-ordination-I am talking about the type of co-ordination that Advantage West Midlands has been involved with-has been a matter for debate just among politicians, but it has not. It is an issue for the people affected by the decisions of organisations such as AWM, and for every business that has applied for and may have received assistance from the Advantage Transition Bridge Fund. It is a matter of economic health for many businesses in our region, and an issue of importance for the third sector in the region that engages with AWM.
The Regional Committee had a seminar in the west midlands that brought together different organisations, institutions and players to assess the future of governance in the region. Again, the message was clear that what we need is strong regional co-ordination and a strong regional tier that is accountable. It is easy to come up with the slogan, "Scrap the quangos", and then look for a quango in the west midlands and say, "There's AWM, let's get rid of it." People know that that is the easy bit; the difficult bit is to get away from the headlines and work out and put into effect the policies that will enable our region to win through. My hon. Friend the Member for Birmingham, Erdington was absolutely right about the matter.
I have referred to businesses, but often the impact of Government policy in the west midlands is felt not just by them but by the people whom we represent. The National Housing Federation recently highlighted that Birmingham is one of the places likely to be most badly hit. Its chief executive, David Orr, said:
"The changes could see hundreds of thousands of vulnerable people fall into debt, forced out of their homes and neighbourhoods and crammed into overcrowded ghettos. Many others will simply become homeless."
He was referring to the coming changes to housing benefit. All this comes at a time when Birmingham city council itself is proposing to cut no less-and it could be more-than £7 million that was allocated by the previous Government to tackle worklessness through the working neighbourhoods fund. It is not going to reallocate or redistribute that money to enable it to be spent more effectively; it is just cutting it and removing that level of support in tackling worklessness. As my hon. Friends know, the council is proposing to cut back on community day nurseries for some of the most vulnerable people in our city, even though such a proposal runs counter to the idea of stimulating and taking forward the principles of early intervention to which every single political party in this place signs up.
I turn to Longbridge in my constituency. I welcome the fact that, in Shanghai Automotive, there is still an important car presence there. There are plans to introduce new models for the coming year and it is the major technical centre for the whole of Europe, which is good news. However, Longbridge can never again be simply a car plant, no matter how important that plant is. Regeneration and the creation of a diverse economy in Longbridge and the surrounding areas are vital to the future. It is important for the regeneration not just of my constituency but of the south of Birmingham and the regional economy as a whole.
A bulletin produced in August by Birmingham city council, Bromsgrove district council and Worcestershire county council, all of which are either Conservative or coalition led councils, said:
"The new government's intended changes to planning policy and significant budget cuts continue to have a detrimental consequence on the development programme for Longbridge. Certainty of funding for the MyPlace programme, Regional Infrastructure Fund and the future of HCA funding continues to be at risk"
I am pleased that around £4 million of the Homes and Communities Agency's money, which was earmarked by the previous Government for Longbridge, has now been confirmed by the present Government, but the message of that update remains a chilling one for many of us. The report on housing and economic development in the west midlands by the former regional Committee said:
"Substantial public funding will remain necessary to increase the supply of affordable housing in the region to the extent required."
That conclusion was not just dreamt up; it was based on the evidence that we received. It is difficult to relate it to the cuts that are now taking place in housing: cuts of £100 million from the National Affordable Housing Programme, of £50 million from the Kickstart programme and of £50 million from the Housing Market Renewal scheme. I have described the likely impact of that on regeneration programmes such as Longbridge. No doubt other hon. Members can give examples from their own constituencies.
Such cuts affect real people in real communities in our region. For example they feel the impact of the scrapping of 64 school rebuilding projects that had been in the pipeline under the Building Schools for the Future programme, not to mention the scores of other schools, including all but one in my constituency, that never even got to the starting grid of the programme.
Hon. Members, particularly those on the Government Benches, may say that difficult decisions have to be made and they are right. They may say that capital
spending would have been squeezed by whoever won the general election and there is force in that argument. Difficult decisions were going to have to be made, but difficult decisions are about making choices. It is a question not just of what choices to make but who makes those choices, who one listens to and what one takes into account when making such choices. That is why it is so important in this climate to listen to the people who are most likely to be affected by the decisions. If they are to have their voices heard, they must have institutions through which they can speak. In Birmingham, in my own home town, we now hear that the city council is proposing radically to scale back the very mechanisms through which local people can have a say in council decisions. So much for all the talk about a big society in Birmingham.
What about the voice for our region? The final report of the West Midlands Regional Select Committee before the general election looked at how institutions can engage more effectively with the public and how that engagement can be used to help the region to become more responsive to the needs of the people who live there. We also recognised that Westminster needs to look at regional issues in a more coherent way. Normally when Select Committee reports are published, the convention is that the Government respond not only within a reasonable time scale but in a considered way. The Government will produce a report that will be discussed by the Select Committee. The Select Committee will consider whether the Government have tackled the issues that were proposed in its report and it will be its decision whether to publish the Government's response. Occasionally, when there are some holes in the response, the Select Committee has the right to send it back to the Government and say, "Have another think about it before we publish this." In that way, we can ensure that Parliament can consider properly not only what the Select Committee has said but the Government's response. My hon. Friend the Member for Dudley North, who is a former Minister, will know that that is precisely what happened over the last year. We produced reports, and they were responded to. There was one instance-I am sure he will not think that I am breaking any confidences here-when we felt that the initial Government response was not good enough. We sent it back and the Government had a rethink and came forward with another response, which was then published. It was done in a considered way that respected the region and the issues that it was raising.
The report, "Making the Voice of the West Midlands Heard", came out before the general election, but it was dismissed by the current Government in just two sentences in a written statement. Our report on housing and planning in the west midlands, which also came out just before the general election, was dismissed in just four paragraphs in the same written statement. Now Ministers are proposing to scrap the regional development agency, Advantage West Midlands. That is despite the fact that, as my hon. Friend the Member for Birmingham, Erdington said earlier, a National Audit Office report judged the RDA's performance as "strong" and gave it the maximum possible rating across most areas of the assessment, repeating the findings of the NAO's report of 2007. As my hon. Friend also said, the most recent independent evaluation suggested that for every £1 invested by Advantage West Midlands, a return of £8.14 is generated for the west midlands region.
Advantage West Midlands is not perfect. My Committee-the West Midlands Regional Committee-suggested changes, including changes to the accountability arrangements for AWM. However, the evidence that was given to us was that AWM's role in co-ordinating effort among regional players, in securing investment and in putting that investment-hard cash-to use in the areas where it was needed was and is absolutely vital. So, when the Government talk about cutting quangos and then relate that talk to AWM, they are not just talking about cutting institutions; they are talking about jeopardising the programmes and the real investment on which our region depends. And it is really not good enough to say that the new bodies that the Government are talking about-the so-called "local economic partnerships"-will pick up where the RDAs are just leaving off.
Partners around the west midlands, including in my own sub-region of Birmingham and Solihull, want to be as constructive as possible and they are putting ideas together about how they could put in place a local economic partnership. However, I ask the Minister today to be as clear as he can be in the information that he gives and if he cannot give information today I ask him to set out some key points in written form for hon. Members from the region.
In my opening remarks, I talked about the importance of research and development for the west midlands and about the importance of having the mechanisms for stimulating R and D in businesses up and down the region. If AWM is going to be scrapped and if local economic partnerships, which are undefined as yet, are going to replace AWM, it is important that we know which programmes will continue and which will not. Furthermore, of those programmes that are going to continue, it is important that we know which ones will be administered entirely centrally by Government and which will be controlled and administered by local economic partnerships in the future.
I ask the Minister to say clearly what actually is the difference between the budget that will be made available in the west midlands to do the type of things that I have been referring to in my speech and the budget for AWM, because I think that people in the region deserve to know what the difference is. If we are talking about AWM, we are talking about a budget of about £1.5 billion a year. However, when we look at the budget that is likely to be available for local economic partnerships, we are talking about £1 billion, which is not per year but spread over two years.
If I am right about that budget difference-the Minister represents the Government, so he will know the figures better than I do-what is it that will go? What is it that is going to be cut? Perhaps he will say, "Well, it will just be the bureaucracy that is going to go. That is what is going to be the difference-just the bureaucracy. The programmes will be maintained." However, if that is the case, I must ask, "Who is going to pick up and administer those things? Who will do the work?" Is it the Government's view that local authorities will simply pick up the slack? Is it the Government's view that local authority and local authority staff will do that work?
Robert Flello (Stoke-on-Trent South) (Lab): I am grateful to my hon. Friend for giving way. He is making an extremely good and impassioned speech, which I am listening to with great interest.
I think that we are already seeing some evidence of where these cuts will fall. In my own constituency, I was approached by a company that wanted to establish a brand new mug-making business, which is something that we have not seen in the Potteries area for far too long. That company was promised a grant of £250,000 from AWM, but that grant has now been cut. The whole project is now in jeopardy; the nine-month order book that the company had already managed to accumulate is now in jeopardy, as are the 50-plus jobs that were planned. I think that we are already seeing the evidence of the cuts.
Richard Burden: I welcome my hon. Friend to today's debate. He makes a very important point. I think that the point that he is making is twofold, and both aspects are important.
The first aspect is the type of thing that I was talking about earlier. All the indications are that there are going to be cuts, which will be real and substantial. Those cuts will not simply be in services but in the very things that will be able to generate the wealth that will keep unemployment down, create jobs and enable regional recovery. So there will be substantive cuts.
However, the second and more insidious thing that is going on at the moment is that because of the policies that the Government have come out with and because they have said that AWM will go, to be replaced by these local economic partnerships that are as yet undefined but will take up the strain, the Government have bred uncertainty and unpredictability at the very time that we need certainty and predictability in order to invest and innovate for the future. That is the story that my hon. Friend is talking about in his area and I think that it applies elsewhere.
Karen Lumley (Redditch) (Con): Obviously, AWM has done some good work. However, I visited many companies in Redditch before the election and I have obviously visited a lot since the election. So let me just say to the hon. Gentleman that AWM does not benefit the companies in Redditch, because they do not fall within the category of companies that AWM helps. There is a lot of deprivation in Redditch; it has actually got the highest unemployment in Worcestershire. So a lot of the companies in Redditch are actually looking forward to the local economic partnerships and hopefully Worcestershire will get its own partnership, so that we can see some of the money for those schemes coming into Redditch.
Richard Burden: I applaud the hon. Lady's optimism and I am very happy to sit down if she would like to intervene again. However, what is the budget that she is anticipating for her local economic partnership?
Karen Lumley: I am looking forward very much to hearing the Minister's response to the debate and I am also looking forward to seeing what we get. Actually, for those of us in Redditch something is better than nothing.
Richard Burden:
I am also looking forward to the Minister's response. I simply say to the hon. Lady what I said before, that AWM was not perfect and that choices had to be made, as choices always have to be
made. However, to make the choice, there must be the institution that people can debate with; to make the choice, there must be the engagement, and to make the choice we need to have the discussion. That is the point. At the moment, it is unclear what the institution will be in the future, what its budget will be and who will have a say.
Robert Flello: I am very grateful to my hon. Friend for giving way; he is being very generous in allowing interventions. If I may respond to his point about the perfectness or otherwise of AWM, I will say that I have been one of its critics in the past. Historically, however, the problem lay very much with Stoke-on-Trent city council not being able to use the resources, the funding and the talents that were being provided. So I think that quite often AWM got the criticism, when it really should have been levelled more locally.
Richard Burden: My hon. Friend makes an important point. I just have an inkling that, perhaps a little later on, my hon. Friend the Member for Stoke-on-Trent North may well have some particular things to say, not only about Stoke-on-Trent itself but about north Staffordshire. Earlier I said that our region is one that is in transition and that is diverse. However, the particular problems affecting north Staffordshire are very large and very acute, and targeted help, support and attention are required to tackle them.
Talking about north Staffordshire raises another point. If regional institutions such as AWM are going to be scrapped and if there are going to be these local economic partnerships springing up all over the place, it is understandable-absolutely understandable-that different local economic partnerships in different areas are likely to come up with different priorities and different solutions that affect their own particular area. It is absolutely understandable that they will reflect local aspirations and local circumstances. However, the question will arise in the future-who will be the arbiter of those competing aspirations? In the future, will it actually be the case that, for all the talk about decentralisation, central Government will be the arbiter of those competing priorities, rather than partnership bodies in the region itself? Those regional bodies were too unaccountable, but it is not a case of making them more accountable. It is actually a case of taking that power from the region altogether and giving it to central Government.
Lorely Burt (Solihull) (LD): I congratulate the hon. Gentleman on securing this important debate. He says that the fact that we have lost our regional development agency will make Government more accountable. The whole purpose of the local enterprise partnerships is to prevent Government from dictating the programmes for each region. The region's businesses and its elected representatives will make the decisions that affect them directly. I believe that the situation is the opposite of what he is suggesting.
Richard Burden: I very much hope that the hon. Lady is right, but I do not see the evidence for it. Perhaps the Minister will enlighten us about whether she is right.
If different local economic partnerships come up with different priorities and aspirations, who will decide who gets what? Central Government. If I am wrong about that, what body will decide? If another body is created-perhaps it will bring together regional stakeholders and players from the different sub-regions-it will need
a staff and some presence in the region if it is to work, will it not? It will need the ability and the reach to work out what needs to happen in the region. I guess that we could give a body like that a name, could we not? Because it would be involved in developing the region, we could call it a regional development agency.
The RDAs were not wrong; the problem was that they were not sufficiently accountable. However, my difference with the present Government-I look forward to the Minister's speech, because I may have this wrong-is that they appear not to be improving accountability. All the accountability mechanisms are as vague as ever-arguably more so. The Government are undermining the institutions that need to be held accountable, their budgets, their reach and their strategic relevance to the region. That is the problem.
These matters are not of academic importance; they involve how the west midlands can address the big challenges that it faces in the coming months and years. Inevitably, there will be and are political differences in this place about what economic strategies we think are right for the country or for our region. Understandably, views will differ about the scale, pace and timing of deficit reduction. We will differ politically about when, in order to prevent double-dip decisions and secure recovery, we may need to maintain spending and, in some cases, even expand it. Those differences are absolutely understandable.
However, the point of this debate is not just to touch on those issues; it is to return to the issue of choice. Who will decide? Who will be the voice of people, businesses, the third sector and communities in the west midlands? Will it be local councils? As I said, Birmingham city council is scaling back devolution internally. Will regional players make strategic decisions for different businesses and industries? Who will decide, and by what mechanisms?
It is time for the Government to come clean, not because I as a Labour MP from the west midlands say so, not because I have taken umbrage because they scrapped the Select Committee that I chaired but because this is the voice of the west midlands. They should look at what business organisations and the third sector in the west midlands are saying, and what local authorities themselves are saying in their more reflective moments, and act on it. We need more clarity so that we can meet the challenges in the west midlands and secure for our people the recovery and the future that the region deserves.
10.4 am
Lorely Burt (Solihull) (LD): I congratulate the hon. Member for Birmingham, Northfield (Richard Burden) on his passionate speech. I know how much he loves and cares for the west midlands; so do I, and we have worked together positively in the past. We may have slightly different views about how to do things, but we always want the same end result: the success and prosperity of our region.
I will concentrate on one or two issues. Like the hon. Gentleman, who spoke about this at some length, I am particularly worried about the impact of the cuts expected in our region. On 22 October there is the comprehensive spending review, which we know will have a big impact on our public sector jobs. We are all bracing ourselves
with concern for any job cuts that might be coming our way. My constituency has the UK Border Agency, so the cuts are of concern to everyone there.
The region as a whole has 636,900 public sector jobs. They represent 27% of the region's total, which is high. The west midlands is the only region in Britain to have suffered a net loss in private sector jobs since 1988, according to a Financial Times investigation done 18 months ago. It is a concern, and we need support from Government. We know that we are going to lose public sector jobs, so we need help diverting resources into ensuring that we achieve growth in the private sector.
The regional growth fund announced by the coalition Government is extremely welcome. I want to learn as much as possible about how it will affect the west midlands, what it will do and how it will work. I do not know whether the Minister can enlighten us to any great degree this morning, but information as early as possible would be extremely welcome.
The Government have issued various types of support to business generally by waiving some employment taxes on new businesses' first 10 jobs and cutting the main rate of corporation tax from 28p to 24p for larger companies and from 21p to 20p for small ones. Another £200 million has been announced for the enterprise finance guarantee scheme, and so on. The Government are not unaware that business needs support. Sometimes that support comes in the form of tax reductions, but it also comes in other forms.
The hon. Member for Birmingham, Northfield spoke at some length about the importance of infrastructure to our region. He spoke amusingly about how we might manage regional challenges such as infrastructure and sectors that span more than one local enterprise partnership in the region. It is important that we tackle that issue. There is no reason why different local enterprise partnerships cannot work in harmony. My area, Solihull, is going in with Birmingham, but we have a lot of sectoral interest with Coventry and Warwick. There is no reason why we cannot work with those areas on joint projects to help each other in local enterprise partnerships.
I want to bring to the Minister's attention three projects that will make a big difference. The Government have already agreed that the Birmingham New Street station development will definitely go ahead, but two other projects are absolutely vital to the prosperity of the region. One such project is the runway extension at Birmingham International airport, for which the small matter of £25 million needs to be dealt with. Although the vast majority of the ownership relates to private and local authority areas, we need an injection of £25 million to square the circle and make that project viable again.
We also need High Speed 2, which I am delighted the Government have backed. Centro has estimated that High Speed 2 will provide 22,000 jobs and £1.5 billion per annum for the region. The project will also free up the west coast main line for local traffic, which is important because we cannot get any more trains on the tracks at peak time. In addition, the development of Curzon street-the regeneration of that area and the creation of retail opportunities there-is very important. The west midlands, particularly Birmingham, is the hub of the project. We should be viewed as an international destination for visitors and for businesses that want to invest. Once we have High Speed 2, it will take a short time to get to London, and that will make our region a
very desirable destination indeed for inward investment. I urge the Government to get on with that project-I know it cannot not happen tomorrow-because it will make a very big difference to our region.
The hon. Member for Birmingham, Northfield talked with some passion about Advantage West Midlands and the Government's replacing it with local enterprise partnerships. I agree with him that Advantage West Midlands has done a good job with the remit the Government gave it; however, that remit was determined by Whitehall. There is some local representation on the board of Advantage West Midlands, but the piper calling the tune has definitely been central Government. The introduction of local enterprise partnerships has led the Government to ask local authorities and local businesses to work together in partnership. They have been given a blank sheet of paper and asked, "What do you want? We want you please to think for yourselves. Don't just expect to be told what you need. You know what you need, so you should put forward a proposal for endorsement by the Government." That is how things are going to happen. There will be a lot more localism, and local companies and locally elected representatives will be able to determine what should happen.
In the Birmingham Post, Jon Walker refers to local councils throwing off the shackles of Whitehall and states:
"residents will elect people who actually make decisions for a change."
I am looking forward to that happening, but there is no question but that the process is scary. The hon. Member for Redditch (Karen Lumley) talked about Worcestershire developing an LEP on its own. I am worried about some of the proposals being made. It is unfathomable why Herefordshire, Shropshire and Telford should be together and Worcestershire should be missed out-unless the old traditional political ties make such partnerships feel more comfortable. It is more important that any LEP have geographical centres of economic common interest, and I want to ensure that that happens.
The deadline for LEP proposals was yesterday, and whatever has landed on the Minister's desk will doubtless prove varied, interesting and challenging, to say the least. It will be fascinating to see the Government's response to all the new ideas that are being brought forward. I suspect that they will take the best of them and help the areas where proposals are not quite hitting the mark. In the end, local areas should have a say, because the people who are involved locally know about their area and what it needs. We should have true democracy and business involvement in future decisions.
I have some concerns about Advantage West Midlands and the interim period, which could turn out to be a hiatus unless some careful work is done. Advantage West Midlands is making cuts to programmes, and it has said to me that some of its decisions about which programmes to cut are based more on the cost of getting out of the programme in question than on its value. I have asked Advantage West Midlands to produce a list of those programmes. I raise the matter with the Minister because the last thing the Government want is for good programmes to go down the drain for the wrong reasons. The days of making any organisation
jump through hoops because of a centralising view should be over. That must not happen to some of the good programmes that Advantage West Midlands is rolling out.
I look forward to hearing the Minister's response to the comments of the hon. Member for Birmingham, Northfield.
10.17 am
Joan Walley (Stoke-on-Trent North) (Lab): It is always a pleasure to take part in Westminster Hall debates. I am particularly pleased to do so under your chairmanship, Mr Hollobone, because I know you understand the role of Back-Bench MPs and the importance of getting constituency issues on the agenda. I congratulate my hon. Friend the Member for Birmingham, Northfield (Richard Burden) on initiating the debate. I agree with the hon. Member for Solihull (Lorely Burt): it has been a passionate debate, but it has also been very measured.
My hon. Friend's well informed contribution was based on some of the many debates that took place when we had the West Midlands Regional Committee. I welcome the Minister to his post. I understand that no longer having regional development agencies means there is no need to have Regional Select Committees to scrutinise what is being done. However, if the Minister would like some bedtime reading, I urge him to have a look at the work we did and the evidence we collected. He should also consider the reports of the public evidence sessions. If he wants to get a grounding in the real concerns of the whole of the west midlands-from Staffordshire in the north to wherever the area ends in the south-those evidence sessions should be his bible.
The West Midlands Regional Committee covered much ground in understanding a unique part of the UK that is dependent on manufacturing and has found the world has changed. The real issue is how to deal with the global economic changes we have had and bring together all the skills that are needed to deal with those changes, including the political skills and the area's institutional needs. As hon. Members have said, things rarely happen by accident in this world; they happen by design. Taking political decisions is about ensuring that the things that need to happen are understood and do happen. I question how we can get the end results that we need without having the relevant institutions in place.
The debate is timely, not least because whatever will replace the RDAs are now in their formative stage; they are going through, if not a regional process, a process at Whitehall. When I came down to Westminster yesterday, I was concerned to read an article in the Financial Times on the future role of LEPs. It speculated on what LEPs might be set up and gave an overview of what might be in place in the south, the south-east, the south-west and so on. For the west midlands, the article stated with great authority that there would be one LEP for Birmingham, one for the black country and possibly one for some of the other marginal areas-I use the word marginal authoritatively, because there was no mention of an LEP for Staffordshire.
Therefore, today I want to argue that the Minister, whatever he does in this brave new world, must understand the needs of Stoke-on-Trent and Staffordshire. I prefaced every meeting that my colleagues from Stoke-on-Trent
and I had with the RDA, and with my hon. Friend the Member for Dudley North (Ian Austin) when he was a Minister-he is now representing us on the Opposition Front Bench-by stating that the RDA would only deliver for the Government if it delivered what Staffordshire, and particularly Stoke-on-Trent, needed.
The west midlands has one of the most fragile economies in the UK, and the breakdown of the figures shows that Stoke-on-Trent's needs are higher than most. That might be a ghastly situation to face, but it means that we all must understand it and be informed. The Government must not adopt party political positions just because there are no coalition Government Members in Stoke-on-Trent. They must recognise that need none the less and do what is necessary.
Lorely Burt: The hon. Lady makes a powerful point on behalf of her constituency, but I suggest that that is whole point of the LEPs. The hon. Member for Redditch said that she felt that her constituency had been ignored by Advantage West Midlands. Will it not now be helpful for Stoke-on-Trent and its economically viable areas to have their own say? Its business people and local representatives could make their points, put their business plan together and have ownership of it themselves so that they could say to the Government, "This is what we want. Let's have it please."
Joan Walley: That all sounds very good and plausible, but one needs the necessary recourses, skills, expertise, professionalism and governance to make that happen. One also needs people who know what they are doing and understand their role in delivering that. As my hon. Friend the Member for Stoke-on-Trent South (Robert Flello) mentioned earlier, and as was well documented in the report on Stoke-on-Trent produced by the local government democracy commission, there are particular issues there that cannot be dealt with simply by stating that if local businesses and representatives have a say in what happens it will all be all right, and everyone recognises that. I am afraid that the problems are much more deep seated than such a view suggests.
In traditional manufacturing areas education and skills are often seen as the way out of the problems, and I belief that the key challenge we face is to ensure that our young people get the education they need and that there are the jobs available for them locally so that they can stay in the area and be part of its local governance arrangements. That way, they will become the leaders who will be able, along with the whole area, to make the case for what we need.
Sadly, Stoke-on-Trent was behind other areas in getting its act together and understanding the changing needs of the global economy. However, as was well charted in the meeting MPs had with the North Staffordshire chamber of commerce in June, we now understand that and have started to see an improvement in the local economy, as a result of the measures that the previous Government put in place to get us through the recession. We have started to see further improvements in trading conditions and in levels of job creation, and home market sales and orders for the manufacturing and service sectors have risen significantly, and that has all been charted by the North Staffordshire chamber of commerce. We now have the necessary expertise and know what we need, but just as we start to see those improvements, we find that we are in a period of limbo
in which we genuinely do not know what will replace the RDAs, what money will be available and how those scarce resources will be allocated.
Robert Flello: My hon. Friend is making an extremely impassioned speech on behalf of an area that I, like her, love and feel strongly for. Does she recognise that, just as things are starting to turn the page in North Staffordshire, and in Stoke-on-Trent in particular, the rug is being pulled from under us, not only in terms of not knowing what the future holds, but in terms of the concrete help, such as the funding for new homes and for businesses, which has been pulled? All those things that we were starting to get to grips with are gone. The other issue, which she might like to comment on, is that there is now a danger that the LEPs will be in competition with each other and that Stoke-on-Trent and North Staffordshire might lose out to the big conglomerate of Birmingham and its immediate neighbours. When it comes to the distribution of funding to the LEPs, there is a danger that Stoke-on-Trent will yet again be hidden away at the bottom of the pile and will have to make do with the crumbs.
Joan Walley: There was no intention on my part for Stoke-on-Trent to be hidden away at the bottom of the pile. That is why I am speaking in this debate with my colleagues and saying to the Minister that we look forward to our further meetings in the coming weeks. In one meeting later this week we will discuss the ceramics sector with the Secretary of State, which will give us an opportunity to explain to the Government that ceramics is a creative industry and to educate them on what our local industry is doing. I could talk at great length, had I sufficient time, about how firms, such as Steelite in my constituency, are shortly to launch a major campaign to show the world the tableware that is being manufactured in Stoke-on-Trent and explain that there is a piece of Stoke-on-Trent just about everywhere around the world. We want the Government to recognise that the ceramics industry needs that support and assistance if it is to flourish, particularly in relation to energy issues, a cross-governmental concern.
We have further meetings arranged with the Government to focus on our further education college, so I am pleased that we will have the opportunity to put the case for the investment that is needed. If we can secure that investment, we will secure the skills, education and training for our young people so that they can grasp those opportunities, as my hon. Friend the Member for Stoke-on-Trent South has just said. We are in no way allowing that freefall or the limbo land that we are in to prevent us from making the case for what we need in Stoke-on-Trent.
Having said that, I am worried that we are already starting to see people leave, from the NHS and from key professions. Many professionals are moving to other jobs elsewhere in advance of the redundancies that will be made. My main concern is that people will not stay because there will be no jobs and that we will not have the people in the positions or the institutional framework to secure that funding. Some of that money will come from Europe. European innovative funding has already been dedicated to Stoke-on-Trent and we need to ensure that it is kept there.
I am conscious of the time and the debate being short. In summary, the local economic partnership plan being submitted is not what I would prefer, but it has to
be supported by the Government to the fullest extent when the application arrives on their desk.
We have an issue about the uncompleted funding in the university quarter. The money needed for the further education colleges has to be there. Money is also needed to complete the bus station that serves Stoke-on-Trent in Hanley. Never mind Birmingham runway extensions or anything like that-we do not have a basic bus station to keep our essential infrastructure going which, again, will not help us get the regeneration that we need. Having said that, money must not come at the expense of the European and other funding that is taking place in the six towns of Stoke-on-Trent, such as Burslem. Those issues need to be thrashed out.
I have major concerns about how the demise not just of Advantage West Midlands but of the regional government office will leave us with no planning strategy. We could well end up being left with no solution for the brownfield sites, on which we should be concentrating, in the urban area of Stoke-on-Trent. We could get investment decisions whereby people will take their plans elsewhere and develop on green belt sites. In the absence of a coherent environmental strategy, it is difficult to see how all that will take place.
I am anxious to hear in good time about the Minister's plans. Unless we know those plans, we cannot ensure that what we are having to salvage can be taken forward. Our fragile economic improvement is too precious-we must not see a double dip recession. I look forward to what the Minister will say and to the many ministerial letters saying that he has understood the needs of Stoke-on-Trent and north Staffordshire.
10.31 am
Ian Austin (Dudley North) (Lab): I congratulate you on your appointment or election-I do not know how such things work-to the Panel of Chairs, Mr Hollobone.
I congratulate all the Members who have taken part in an important debate. I congratulate my hon. Friend the Member for Birmingham, Northfield (Richard Burden) on securing the debate and for the work he has done over the past 20 years as a Birmingham MP and, more recently, as Chair of the Regional Select Committee, highlighting regional issues and campaigning for more help and support for the west midlands.
As has been said, we have many great strengths in the region: hard work, ingenuity, adaptability and innovation. Those are the attributes on which we launched the industrial revolution and changed not just the west midlands and Britain but the whole of the world. We have some world-beating companies too, just not enough of them. The truth is that our region has been hit harder than any other region during the recession and the recovery in the west midlands is more fragile.
Not as a result of mistakes made over the past few years, our region has lagged behind the national average, in terms of output and productivity, since 1976-more than 30 years in which our region has been falling further behind. Secondly, as pointed out by the hon. Member for Solihull (Lorely Burt), ours is the only region in which private sector investment has declined over the past 20 years.
I want to discuss some of the structural challenges that our economy faces, some of the opportunities ahead and how we should be preparing to exploit them, so that we can bring new industries and jobs to the west midlands.
We face major challenges in the region on transport and trade, innovation, reputation and skills. The region was beginning to get its act together, but we cannot say that we have worked together to present our case to Whitehall as effectively as other regions have for decades. We have some brilliant universities, but the links between them and business are less effective in the west midlands than elsewhere.
The organisation tasked with strengthening our economy and tackling such underlying structural weaknesses was, of course, Advantage West Midlands. I want to pay tribute to Mick Laverty, his predecessor John Edwards and their colleagues, and to Sir Roy McNulty and his predecessor Nick Paul, and to thank them for their hard work, their contribution and everything they have achieved in the west midlands so far.
Let us look at the organisation's record: 87,000 jobs, 7,500 new businesses and 127,000 people helped to get better skills. It drove forward the regeneration of the south side of Birmingham city centre and led the Rover taskforce-to which my hon. Friend the Member for Birmingham, Northfield made such an important contribution-which enabled more than nine out of 10 of the former Rover workers to get back into work. AWM also led the regional taskforce, which got the whole of the region working together and helped thousands of people and hundreds of businesses to weather the storm of the past few years. It sorted out major projects, such as Fort Dunlop, the Edgar Street Grid in Hereford and New Street station in Birmingham.
Look at Fort Dunlop, which was the largest single regeneration project in Europe. They are massively complex projects. The New Street station project had to bring together Network Rail, train operating companies, the private sector, shops, businesses, the local authority and the Government. That could never have happened without an organisation, such as AWM, with the necessary expertise, strength and knowledge.
Look at the airport project, which involved two local authorities, businesses, the owners of the airport and the Government, who had to contribute. There is no way a local economic partnership in Solihull would have the authority and clout to bring all of them to the table and to find a way through the complex legal arrangements or to get the airport the necessary investment.
Lorely Burt: I have to disagree with the hon. Gentleman. Birmingham Solihull does have the ability, skill and expertise for a project such as the extension of the runway. However, he is making an important point about regional infrastructure and the skills needed for such big projects. A small local economic partnership might need to bring in particular expertise.
I guess I am arguing against myself for a moment, and agreeing with the hon. Member for Birmingham, Northfield. There will be times when we need a much more structural regional overview to ensure that we are working together as a region. The Government are mindful of that.
Ian Austin: I am not sure I know what the hon. Lady is arguing. I am not sure that she knows what she is arguing. She does not seem to know what the Government are arguing on the issue.
The blunt truth, which the local authorities in Birmingham and Solihull would accept, is that if it were not for AWM, the government office and the other regional organisations, they would not have been able to make progress on the plans to extend the runway. They would not have got to where they are today without such support. For the hon. Lady to pretend otherwise is fanciful, frankly.
Do not take my word only for AWM's success over the past few years. Independent evaluations, as we heard, show that AWM generated £8.14 in economic benefit for every £1 it invested. Only last week, the National Audit Office ranked AWM among the top two regional development authorities in the country, said it was performing strongly and commended its
"lean and efficient good practices".
First, I want the Minister to tell us how much funding will be allocated to local economic partnerships in the region compared with AWM's existing budget. Secondly, how confident is he that decisions on which LEP projects will be funded will be as well informed as decisions taken by AWM in the past? That question deals with the totally spurious and ridiculous point made about localism today. Decisions used to be taken in the region, by local councillors and businesses in the region.
What happened before was that local authorities and local regeneration companies, run by local people and local councillors, presented their case for funds to the RDA. Local councillors and business leaders sitting on the RDA decided which projects to fund in the region. Look at how the regional funding allocation process worked, and the joint strategy and investment board of the RDA achieved a phenomenal degree of cross-regional co-operation. People set aside vested interests and parochial demands to come up with 20 priorities to deal with the underlying structural weaknesses in the regional economy.
What will happen now is that local economic partnerships, presumably made up of those same people who sit on local councils or in local regeneration companies and all the rest, will put their case to remote officials in Whitehall, who will make decisions previously made locally and regionally. Let us hear no more nonsense about the new LEP arrangements being evidence of some sort of localist agenda.
We have also heard today that there will be less money to spend. I am not sure that we can rely on the Minister to admit to the cuts in those budgets, but I am happy to confirm what my hon. Friend the Member for Birmingham, Northfield sought from him. My hon. Friend is absolutely right. Under the previous Government, RDAs nationally had a budget of £1.5 billion a year. The new regional growth fund will amount to £1 billion over two years, which is less than one third of what is currently spent in the area and less than one quarter of what was spent just a few years ago. It does not take a genius to work out that more organisations will be chasing less funding.
As my hon. Friend the Member for Stoke-on-Trent North (Joan Walley) said just a moment ago, the fear of many of us in the region is that the new LEPs representing smaller areas or individual counties will find themselves massively outgunned by strong LEPs such as those
based in Birmingham and Solihull. The idea that an LEP in Worcestershire will be able to compete with the expertise, knowledge and so on that are available to the Birmingham LEP strikes me as utterly ludicrous. The truth is that AWM's work is needed now more than ever.
The blunt truth is that our region was hit harder by the recession than any other, so I would like the Minister to tell us why the region that he represents-London, which all the evidence and research tells us will recover more quickly and more strongly than any other region in the country-is able to keep its RDA but the RDA for the region where recovery will be toughest has been abolished.
The west midlands was hit harder because of underlying long-term structural weaknesses in the regional economy, the most serious of which is skills, our region's number one priority. We have too many people with poor literacy and numeracy skills and no qualifications, and too few people with level 2 qualifications. We have fewer people with high-level skills than other regions, and the second lowest proportion of managerial and professional jobs in England. The region has 70,000 fewer graduates working in its economy than other regions do. Can the Minister tell us how much money will be invested in skills in the west midlands, as compared with the past?
The central reason why the west midlands suffers from a skills problem is that its regional economy has a higher proportion of small and medium-sized enterprises than elsewhere. The owner-manager of a small business who is desperately trying to keep his head above water and worrying about how he will pay his staff at the end of this week or the next is much less likely to be thinking about innovation, new skills, building links with universities, employing graduates next year, or new apprenticeship programmes. That is why we have fewer graduates working in the region.
The AWM instituted several programmes to bring universities and businesses closer together to tackle underlying structural weaknesses in the regional economy. I would like the Minister to tell us what plans he has to get the region's brilliant universities and fantastic businesses working together to strengthen our economy for the future. Can he tell us what will happen to the multi-area agreement? For the first time, businesses and universities and eight local authorities in the region are working together.
It is crucial that the west midlands has the skills that are needed to exploit the opportunities presented by new industries, and by new jobs in the growth areas of the future. We will face massive growth in low-carbon technologies, advanced manufacturing, digital media and health care and biomedical technologies. We must make absolutely no mistake about this over the next few years. Our region is at a turning point, and the decisions that we make now about investment in skills and innovation in such areas will determine how many of the high-wage, high-productivity jobs of the future we will get in the west midlands. If we get the decisions wrong, we will face decades more of decline. Look what happened with the computer revolution and the massive investment in pharmaceuticals over the past few decades in Britain: all the jobs went to regions that had the necessary skills.
Can the Minister update us on plans for the manufacturing technology centre at Ansty, which was designed to increase investment in high-technology
manufacturing? Can he tell us how the region will continue to exploit the new green industries and lead the way on low-carbon vehicle technologies, which were such important strands of AWM's work? That cannot be done by an individual LEP in Coventry, Birmingham or Solihull, because the work happens across the region, from Stoke-on-Trent to Lichfield, Coventry, Birmingham and the black country, and a regional organisation is needed to pull it together. Who will ensure that the region is able to co-ordinate its activities as it has in the past and profit from those opportunities?
Can the Minister tell us how, without an RDA co-ordinating the work, he plans to get better links between centres of excellence and business so that the region can become more entrepreneurial? Can he give an update on plans to extend the runway at Birmingham, which is crucial for developing more long-haul flights and direct links with emerging and growing economies? Can he tell us what is happening with High Speed 2, which has the potential to turn parts of our region into a new Thames valley?
Who does the Minister think will lead on the region's approach to the relocation of civil service and public sector jobs in the future, or does he envisage a long list of LEPs, all of which will jump on trains and hammer down to Euston to put competing cases to Departments about where jobs should be located?
Joan Walley: I hope that my hon. Friend will ask the Minister to discuss the follow-up to the Smith review. There was a meeting in the west midlands on 11 June, and it is important to know how it is being followed up.
Ian Austin: I am sure the Minister will deal with that when he replies.
What are the Minister's plans for inward investment? Instead of one regional co-ordinating body-the RDA-does he now want every local authority and LEP to charge off to other countries to compete for investment and to put competing arguments about where new companies should locate? All that supports the argument that we need to get the Government, businesses and local authorities working together, which was the central purpose behind RDAs.
The truth about the west midlands is that it faces the brunt of huge economic changes that are taking place faster than ever before. Jobs, businesses and whole industries can move around the world, and our poorest communities have paid the highest price for the benefits of globalisation. We are working in Stoke to tackle the decline of the pits and the Potteries, and in the black country to deal with changes in manufacturing. Faced with massive restructuring, we have a choice. We can blame the Government and say that communities would be free to transform themselves if only we could get government out of the way, or we can say that while communities still struggle with poverty, and while the economy in the west midlands lags behind the rest of the UK, there is a role for an organisation that can get the Government, business, the third sector, educational institutes and local authorities working together to help businesses exploit new opportunities with better skills and more innovation, and to ensure that, as we overcome
the recession and as our economy grows again, we will build a stronger economy without leaving any community behind.
10.47 am
The Parliamentary Under-Secretary of State for Communities and Local Government (Robert Neill): I join the other hon. Members who have welcomed you to the Chair, Mr Hollobone. It is a pleasure to see you there for the first time. I am sure that it will not be the last time, and we look forward to serving under your chairmanship in the future.
This has been a useful debate, and I warmly congratulate the hon. Member for Birmingham, Northfield (Richard Burden) on initiating it and on making informed and passionate arguments. I may not agree with everything that he said, but no one doubts his commitment to the region. I accept the genuineness of the concerns raised by hon. Members on both sides of the House about issues that affect their area.
I accept, too, the commitment of hon. Members to the former regional Select Committees. We disagree on the appropriateness of that route, but I want to make it clear that that does not diminish my respect for the work that hon. Members, including the hon. Gentleman, put in at the time.
Several important points were raised, and I shall do my best to deal with them in the time available. I have made notes, and, if I am unable to touch on everything, I will do my level best in due course to get back to hon. Members. I am conscious of the important opportunity provided by these debates.
I do not wish to start with semantics, but it is interesting that the debate is on Government policy on the west midlands. I would prefer to rephrase that to "Government policy for the west midlands". It is, perhaps, a question of how we see things being delivered. Policy is not an end in itself. It does not exist in a vacuum but is actually a means to an end of improving people's lives, be that through fiscal stimuli, transport infrastructure, education-all the things about which we have spoken. I believe that that is where we are on common ground. But the Government are saying clearly that they have policies for-not on-various parts of the country. That is important, because I suspect that we differ on the importance of decentralisation to the Government's agenda. That is clear in the coalition agreement and in the manifestos on which both coalition parties fought the election. I am a little bit disappointed by some comments by Opposition Members, because, with respect, some of their arguments-although not those regarding specifics, which were useful-were deeply old fashioned and harked back to failed solutions. I genuinely do not believe that the way forward is to rehash failed solutions.
It is not always about having a plethora of interventions, programmes and agencies to take things forward and help. As my hon. Friend the Member for Solihull (Lorely Burt) said, it is often as much about what the Government do not do and about their giving people freedom and opportunity to seize the initiative.
Ian Austin: Which businesses in the west midlands have told the Minister that the RDA should be scrapped?
Robert Neill: I will mention the RDA in a moment. I am sorry that the hon. Gentleman continues to live in the past. His speech, as Opposition spokesman, was simply a defence of all that went before. It was a Bourbon speech, with respect, pretending that nothing had changed. But things have changed. Whatever the good intentions behind some interventions, the sad fact is that, in many respects, they were not delivering.
We have touched briefly on housing. The fact is that the top-down regional strategies were not delivering the housing that people in the west midlands and other parts of the country need. As a consequence, at the end of the previous Government's period in office there were fewer housing starts than in any peacetime period since 1926.
Ian Austin: There was a recession.
Robert Neill: The hon. Gentleman cannot go on blaming the recession. That is a fantasy land. The Opposition like to think that a recession walked in and destroyed everything. No. They mucked up on their watch. The people of this country, including those in the west midlands, are paying the price for the previous Government's incompetence.
Robert Flello: I invite the hon. Gentleman to Stoke-on-Trent South-specifically, to what used to be known as Coalville and is now known as Weston Heights-where he will see a fantastic housing success story that ground to a halt because the investment also ground to a halt.
Robert Neill: That is why the coalition has made it clear that getting the economy back on a safe track has to be central to what we do. There is a risk that, unless one gets to grips with the deficit of £156 billion, we will not have an economic base enabling us to take forward the initiatives that we all wish to see and which unite people from all parties. We disagree about the remedies, but the need to make some reductions in spending programmes, which have been mentioned, goes back directly-I am sorry to have to say it-to the previous Government's failure to tackle the deficit. I cannot accept the proposition advanced by some people, however sincerely, that the solution is to carry on spending when the country is already mired in debt. I do not believe that that would serve anyone.
Let me return to specific points raised in this debate. Against the context that I have mentioned, the answer is to unlock initiative, partnership and co-operation. The point was well made by my hon. Friend the Member for Solihull that there is no reason to assume that a one-size-fits-all approach will automatically meet all the needs and requirements of such a diverse area as the west midlands. We take the view, as we always have done, that Government office regions frequently do not represent the natural economic units, which may be a much better basis for economic collaboration. That is why we have said that we will not rigidly use those regions as the basis for regional development agencies or Government office interventions, but will instead let the people on the ground, who know their area best, come forward with ideas about the way forward.
I am pleased that some nine proposals have been submitted for local economic partnerships from local authorities and business in the west midlands, in a number of configurations. I can say to the hon. Member
for Stoke-on-Trent North (Joan Walley), who mentioned that, as well as other matters, that a Stoke and Staffordshire LEP has been proposed. Those proposals will be evaluated by my right hon. and hon. Friends who are responsible for such matters and they will consider the best way to go forward, as my hon. Friend the Member for Solihull said.
There has been a positive and rich response from business and local authorities in the west midlands. I am not as disdainful as the hon. Member for Dudley North (Ian Austin) is of local initiative. The answer does not always lie in sneering at the little people and in the big battalions. Often, local initiative is likely to get more focused results. That is why we have confirmed the abolition of the regional development agencies, along with a plethora of top-down machinery of which they were a part. Although I, too, recognise good work done in individual cases by such agencies, that does not justify the highly centralised remit of which they were part. I want to make some other points, but I shall give way one last time to the hon. Gentleman.
Ian Austin: At no time did I argue that local initiative does not matter. The RDAs were based on local people putting proposals to them, just as local people will now put proposals to Whitehall. But let us set that to one side for a moment. If the RDAs were such a failure, as the hon. Gentleman suggests, achieved nothing and need to be abolished, why is he retaining the one that serves his constituency here in London and getting rid of the ones that are much more needed and necessary in the west midlands?
Robert Neill: If the hon. Gentleman is going to make a bad point, he should at least make an accurate bad point. The fact is that that is not happening. First, the power is being given for the London Development Agency to be merged into the Greater London Authority, so it does not exist as an RDA. Secondly, it has democratic accountability to a directly elected Mayor of London, which is not the case elsewhere. We are, of course, extending to major cities such as Birmingham and Coventry the ability to have a democratically elected mayor. If the hon. Gentleman will forgive me for saying so, I will not take any lectures from him on that issue.
Richard Burden: I realise that the Minister is short of time. If he is not able to cover my points now, will he please write to hon. Members present? First, will he confirm the figures that I gave on the budgets for the RDAs compared with those for the LEPs? Secondly, do the budgets for LEPs include staffing or are local authorities meant to compete for a staffing budget in respect of other front-line services? Thirdly, will he list the programmes run by the RDA and say what will happen to them, whether decisions on them will be made by central Government and LEPs and whether they will be scrapped?
Robert Neill: I will do my best. A number of those matters, as the hon. Gentleman will appreciate, are under review in the spending round. Once we are in a position to do so, I will ensure that that information is made available.
It is important to stress that this Government are committed to assisting areas such as the west midlands, where private sector employment and growth declined
seriously, with the regional growth fund. We have made a clear commitment to proceeding with Birmingham New Street station, which is a key piece of transport infrastructure, and we have made the key commitment to High Speed 2. Those major investments will make a real difference to the economy of that area. Local authorities and airport operators are discussing funding arrangements in relation to the extension of Birmingham airport. Those positive commitments to infrastructure are likely to have a far greater long-term effect on the people of the west midlands than a plethora of institutional initiatives. That is important.
I am conscious of the need for local authorities to work together constructively, because their co-operating is important. We will consider that matter when evaluating the various bids together. The key thing is that there should be a bottom-up process based on local knowledge and incentives, rather than the other way round.
The city of Birmingham was represented in the past by Joseph Chamberlain. He would be sad that there is not greater faith-at least, not in the Opposition Front-Bench spokesman-in the ability of the people of Birmingham and its neighbours to come together and find a way forward to deal with their own challenges and to find their own solutions. We have faith in the people of the west midlands. Joseph Chamberlain would have thoroughly approved of the stance and the philosophy underpinning the Government's approach.
Given that time is short, I will deal with the specifics that hon. Members have raised in correspondence, as is increasingly the normal practice in such time-limited debates.
Small Businesses
11 am
Jeremy Lefroy (Stafford) (Con): It is a great pleasure, Mr. Hollobone, to speak under your chairmanship during my first debate in Westminster Hall, and I welcome you to the Chair.
The Government clearly have a great interest in the subject of this debate. The excellent Green Paper, "Financing a Private Sector Recovery", which was published in July, states that
"the ability of business to access finance will play a key part in determining the shape and sustainability of the recovery."
The recovery depends on the two issues that are of most concern in the economy-reducing unemployment and improving Government finances-so it is clear that businesses' access to finance is of the utmost importance. Such access is vital for all businesses, so I shall explain why I am concentrating on small businesses in this debate. I am speaking broadly of those to which the Green Paper refers as small and medium-sized enterprises with a turnover of below £25 million a year.
The first reason is that although most businesses experience difficulty in raising finance at some stage, SMEs, as the Green Paper states,
"may face more of a challenge given their reliance on bank lending, and the fact that they have historically faced greater challenges accessing external finance."
The Green Paper also points out that the question of whether existing Government schemes are
"sufficient to ensure that finance is available to SMEs as confidence recovers and demand revives is of central importance."
The second reason is the importance of SMEs to our economy. There are 4.8 million of them, and they account for more than 50% of private sector employment and turnover. Those statistics alone show that SMEs are likely to have the most impact on creating jobs and restoring public finances.
The third reason is that SMEs and especially new businesses are likely to produce the best return in the number of jobs created for the available finance. Estimates of the capital cost of job creation are difficult to come by, and clearly they vary from sector to sector, but there are examples of funds making loans to small businesses that have shown over many years that they can create a job with a loan-not a grant-of as little as £4,000 in fixed and working capital. The cost to the state of one person out of work is, at a conservative estimate, at least £5,000 a year. That money serves only to increase our burgeoning national debt and gives nothing in return to the recipient or the state. I am sure that any Government, especially one who have shown in the Green Paper such welcome clarity in their analysis, would be keen to ensure that such funds, which provide such an excellent rate of return to society, are given every encouragement and incentive to flourish. I shall return to that.
I must establish some facts, and I shall start with the banks. I have obtained figures from four major high street banks and the following points emerge. First, utilisation of existing bank facilities is as low as 44% in one major high street bank, and a total of £45 billion of unused capacity in another.
Mr Brian Binley (Northampton South) (Con):
I congratulate my hon. Friend on obtaining this important debate. He rightly said that the matter is vital to budget
strategy. My concern emanates from access to capital becoming more difficult. All the facts tell us that that has become more difficult over the past 12 months, and that is not helpful. At the same time, Government bodies, particularly G20, are piling desire on banks to build up their capital asset base-by £130 billion in the case of G20-and that affects their ability to lend. Would it be right to ease that pressure at this time, and is it not more important to ensure that small businesses have working capital to enable the number of jobs to increase?
Jeremy Lefroy: My hon. Friend makes some important points. He is one of the most expert Members in this subject, and I agree with him. It is important to increase capital and the banks are doing so. Their total profit in the past year was £15 billion, so they are gradually increasing capital, particularly as some are not paying dividends. But financing the recovery is of greater long-term interest, not only to the nation, but to the banks, and I entirely support what my hon. Friend said.
Another point arising from the survey of banks is that businesses are currently repaying debt rather than borrowing more. One bank made a net repayment of £1.4 billion during the last quarter, so money is coming out of the small business sector rather than going into it. Banks have also increased their lending to all sizes of company, including SMEs, and one reported that lending to SMEs was up by 38% during the past eight months, albeit to only £1.4 billion. Another lent £10.9 billion to SMEs during the 12 months to March 2010, and approved 80% of applicants.
That is the story from the banks' perspective. The picture is of some increase in lending to SMEs, combined with a cautious approach by businesses to borrowing, with many reducing borrowing rather seeking an increase. From their point of view, there does not seem to be a major problem with capacity. However, a survey in February by the Institute of Directors-I declare an interest as I am a member-paints a somewhat different picture, because 57% of directors said that their application for finance had been rejected by their bank and 83% of those who were declined for bank finance were not offered information on the Government's enterprise finance guarantee scheme. That worries me.
Tellingly, one in five businesses which said that they needed additional capital did not investigate bank loans or overdrafts because they believed that they would be declined, saddled with disproportionately high costs or required to comply with requests for security that they did not have.
Lorely Burt (Solihull) (LD): The hon. Gentleman is making some powerful points. Does he agree that one reason why companies are reticent about approaching banks is the exorbitantly high rates that they are charging in interest and administration fees? The five biggest banks made £15 billion in the first half of this year. Are not the rates that they are charging part of the problem? Many companies are repaying loans because they cannot afford to hang on to them.
Jeremy Lefroy:
My hon. Friend makes a powerful point, and I am sure that she has received many representations from her constituents about the matter. I totally agree with her. The problem is perhaps not so much interest rates, some of which have come down to
reasonably low levels, although not all, but the charges. I have heard of charges being trebled. I raised the point with the Minister in the House, and he said in his powerful reply that he would not put up with that and would speak to banks if hon. Members contacted him with representations. I have done so, and I am sure that other hon. Members would like to do so. It is not acceptable for banks to use a shortage of credit as an opportunity to hike up charges, as some have done.
The picture is of some increase in bank lending, but the survey from the Institute of Directors paints a rather different one. Comparing data with a survey in 2001 shows that the number of those surveyed who were financing their businesses through bank loans or overdrafts had declined from 85% to 64%, with 20% now financing their business to some extent through credit cards, which is unsustainable.
The annual survey by the Federation of Small Businesses -again, I must declare an interest because a company of which I am a director is a member-is even starker. Of more than 10,000 who were surveyed, 31% said that fairer bank lending would be key to improving their prospects. The FSB concludes that
"SMEs have lost confidence in the banking sector."
It pushes for greater competition, including the creation of a post bank, which I have long supported.
Karen Bradley (Staffordshire Moorlands) (Con): I congratulate my hon. Friend on securing the debate. I want to add to the anecdotal evidence something about businesses in Staffordshire Moorlands. A number of businesses have contacted me and two cases in particular are pertinent to the debate. One concerns a builder of affordable housing that is unable to obtain bank finance to build the affordable housing that we need so desperately in north Staffordshire. Another case is a small retailer that stocks stoves and Agas. It cannot expand to take on more staff because it desperately needs new premises but is unable to obtain them due to lack of bank finance. I hope that the Minister will address that point when responding to the debate.
Jeremy Lefroy: I am grateful to my hon. Friend for that contribution; I have come across the same problems in my constituency and I will later provide some suggestions about how things can be improved. Hon. Members from all parties have an important role to play because there seems to be a disconnect between businesses and the banks. Sometimes, businesses find that their only source of redress is to go to their Member of Parliament and ask them to talk with the banks on their behalf. I heard of one case-I can hardly believe it-where a bank said that it would be more likely to lend to a business if there were a letter from the local MP. I do not think that MPs are in the business of guaranteeing bank loans of behalf of their constituents. I cannot remember the name of the hon. Member who mentioned that case to me yesterday, but perhaps he or she is in the Chamber and can elucidate further.
The Green Paper quotes evidence that in 2009, 78% of small and medium-sized enterprises managed to obtain some finance from the first source that they approached, which in most cases was the bank. However, that may have been through the use of credit cards or consumer overdrafts. The picture is somewhat confused, but after considering the facts, I believe that credit is
beginning to flow to established companies, including SMEs with a reasonable track record. Young businesses often find it difficult to access the finance that they need in order to grow, unless they persevere or can offer reasonable security. As my hon. Friend the Member for Solihull (Lorely Burt) said, such businesses often find that the costs rise through hiked-up charges.
Anne Marie Morris (Newton Abbot) (Con): I agree with my hon. Friend; he makes some good points. In my constituency, there are a number of individuals who would like to start up a business, and I am not sure that we have really looked at that issue. Such people find it even more difficult to get access to funding. Some of the high street banks-Barclays is a case in point-have come up with new ideas and will lend money even to those who have been bankrupt in the past. However, that does not seem to be making a difference to new businesses, and I would be grateful if the Minister addressed that problem as it is a key issue.
Jeremy Lefroy: My hon. Friend makes a powerful point that I will address in a moment. I entirely agree with her point about access to finance for new businesses. I conclude that in general, new businesses do not consider approaching a bank because they believe that it will be a waste of time or that they have only a small chance of success.
David Simpson (Upper Bann) (DUP): I congratulate the hon. Gentleman on securing this important debate. Does he agree that one thing that would help small businesses is the removal of bureaucracy and red tape? Small businesses are hands-on businesses and do not have the time to deal with paperwork. I believe that such a move would assist the small business sector.
All hon. Members present in the Chamber will have received letters from different constituents and companies. It is one thing for banks to be prudent in lending, but they are being draconian and that makes it impossible for small businesses to start up. We live in the real world, but the banks do not seem to, and I do not believe that the Government have any influence over them.
Jeremy Lefroy: The hon. Gentleman makes two powerful points. The second point is true; as someone involved in small business for many years, I have been on the receiving end of that kind of draconian attitude many times-although not every time, I hasten to add. I am sure that the Minister will want to say something about red tape. I, too, have spent many late hours going through the red tape for my business, after having spent the rest of the day trying to make some money. Whatever the truth-it probably lies somewhere in between all the figures provided-it is clear that a substantial number of SMEs approach banks but do not obtain the funding that they need to maintain or expand their business.
In my constituency, I have seen the difficulty that farmers are finding in business diversification. Money is pouring in to help farmers buy land or get involved in agricultural activities, but they receive a limited response from the banks for the laudable process of rural diversification, which will create more jobs in that area.
It is likely that there are some people not yet in business who wish to start up on their own. However, as my hon. Friend the Member for Newton Abbot (Anne Marie Morris) mentioned, they might find it even harder to obtain that funding, perhaps because they have been made redundant. There might be good reasons for banks to refuse applications, and they must be confident that they will receive their money back. However, anecdotal evidence from my constituents-as, I am sure, from those of all hon. Members in the Chamber-suggests that banks are unwilling to take even the smallest risk if they find it difficult to assess viability, which is often the case with new and young businesses.
Fiona Bruce (Congleton) (Con): My hon. Friend makes an excellent point, and I declare an interest in this debate as someone who has run a small business for over 20 years. A linked issue is the shortage of skilled employees across a range of businesses, which hampers their development. For example, I know from my own business that it is difficult to recruit legal secretaries. Businesses in my constituency claim that they cannot recruit engineering staff or that they need scientific staff. There is a small, green technology business in my constituency, based in Middlewich. It has about 30 staff who convert used cooking oils to diesel but it cannot recruit people with those skills. It is proud that it is training up young men who were stacking shelves at the local supermarket but are now becoming lab technicians. Nevertheless, the cost of training skilled staff is a disproportionate burden on small businesses. That is a funding challenge because finance for that training cannot be obtained from banks. It is not like the purchase of property where some form of collateral can be offered, but the country desperately needs such investment. If we are to recover economic health and well-being, we need an increased skilled work force and at the moment we are not providing the funding for that. I ask the Minister to look urgently at that matter because it is not easy for a small business to obtain funding from a bank for that purpose.
Jeremy Lefroy: I am grateful to my hon. Friend for her contribution. I had the pleasure of working with her on a training course in Rwanda one month ago, so I know how expert she is on the subject of training, and how much she knows about it. Her words must be taken extremely seriously.
The Government must step in on the issue of small business finance-indeed, they have already intervened. Since 1981, there has been a small loans guarantee scheme. The previous Government set up the enterprise finance guarantee in January 2009, and the current Government committed an additional £200 million in the June Budget. The public often demand evidence of cross-party consensus in the national interest, and this issue provides a fine example of that.
In his response, I would be grateful if the Minister answered questions on the enterprise finance guarantee, and told us how he assesses its performance to date. He is no doubt aware that the Institute of Chartered Accountants in England and Wales-of which I am a member-has called for the scheme to become more like the former small loans guarantee scheme in its design and operation. I would be interested to hear his views on that.
If a loan guarantee scheme proves successful and pays its way, it needs to be expanded further and rapidly at this critical time, so that as many SMEs as possible can be assisted. I would be grateful for the Minister's views on that. Finally, on bank lending, what progress are the Government making to bring together banks and small business representatives to ensure that instead of the stand-off that we appear to have at the moment, we have genuine co-operation in our country's most vital interests?
Andrew Griffiths (Burton) (Con): I thank my hon. Friend for organising the debate. It is testament to his hard work and diligence that we are all here, and I think that we are getting to the crux of the matter. May I raise the flag for engineering, as someone who comes from a small engineering family business? There are a lot of concerns in my constituency in relation to manufacturing. I am lucky enough to have in my constituency a couple of large manufacturing businesses. They tell me that they see the green shoots-they see business slowly improving-and they want to place orders with local businesses. They want to buy British and they want to use local suppliers, but they are finding that there is a major problem with the supply chain. Companies that they have used in the past or new companies just are not able or are unwilling to take the risk in order to meet the potential orders. They are saying that those businesses have either downscaled-they have cut shifts and lost staff-or they just are not prepared to take the risk, or the banks, more importantly, are not prepared to take the risk, that the order that might be there tomorrow or next month will be there in six months' time. That problem is having a major impact. It is slowing things down; there is a drag effect on manufacturing in particular. If we could get that supply of finance to small manufacturing businesses, that would make a massive impact.
Jeremy Lefroy: My hon. Friend makes extremely important points; he has great experience in this field. I feel disappointed at the situation. We are a trading nation; our history is as a trading nation. That is how Britain became wealthy over the centuries. Only by taking risks, particularly through the merchant banking of the 19th and 20th centuries, were we able to finance it, but I do not see that spirit alive in our banking sector as much I would like to. I long to see the formation of some new British merchant banks. All our old ones were largely taken over and are now part of massive conglomerates. I would like to see young entrepreneurs come into the City-indeed, I would like to see this not just in the City of London but all over-set up merchant banks and really take some risks and make a difference to the country, because I believe that they can do that and it might help firms such as the ones to which my hon. Friend referred.
The other major potential source of funding-apart from grants, where organisations such as the Prince's Trust in particular have done fine work over many years-is of equal importance. I am referring to equity. That is where SMEs miss out. Only 2% have access to equity finance. The Green Paper gives several reasons why that is the case: a reluctance to cede ownership, unsuitable business models, poor corporate governance and businesses that are in themselves not ready for investment. I would add further reasons. First, there is the work involved in making an investment compared
with the actual amount invested. Looking at a proposal for £20,000 can require as much work as looking at one for £200,000 or even £2 million. I ask the Minister to consider how to make it easier and less costly for small businesses to raise equity capital.
Secondly, there is a lack of suitable investment vehicles. I hope that the Government will give serious attention to that. Thirdly, the overall tax treatment of investment in new and young businesses puts them at somewhat of a disadvantage in attracting funds compared with larger companies. It is ironic that the companies that least need funds from investors are those that receive the most favourable tax treatment through being eligible for inclusion in pension portfolios. There are tax incentives for funds investing in smaller non-quoted companies-in particular, venture capital trusts-but they are usually available only to the wealthy investor, and the funds themselves will tend to invest in reasonably well established companies.
I am not saying that there is an enormous amount of money out there just waiting for a home in new businesses or SMEs, but we do not need an enormous amount. Let me take an example from my own county of Staffordshire. The Michelin Development fund estimates that it has helped to create 1,400 jobs over the years through a revolving fund of just £3 million-a revolving fund, not grants. That is just over £2,000 a job. The North Staffordshire Risk Capital Fund and the Black Country Reinvestment Society, both of which operate in my constituency, also help to preserve or generate jobs cheaply. Those funds are not equity funds. They mainly use loans, but they do have some characteristics of equity. They are unsecured and, in some cases, they may ask for a premium return based on performance. Those funds overcome the obstacle of the ratio of time taken to assess proposals to the investment amount by using local experts, who provide their time voluntarily or whose cost is covered by grants or the return on the investment. I would like many more such funds to be set up around the country. Indeed, I believe that the new local enterprise partnerships could make supporting them a priority. Local companies and individuals can use them to invest directly in the future of their area, just as the funds in Staffordshire and elsewhere have done.
It may be argued that such a model is not sustainable because it depends on goodwill or some financial support from the private sector or Government, but those who are quick to challenge explicit assistance are sometimes reluctant to acknowledge implicit assistance-in particular, the substantial amount of pension tax relief that continues to be granted annually to higher rate taxpayers, despite recent restrictions, and which is invested very largely in companies comprising just 30% of the private sector, in property or in gilts.
I respectfully ask the Minister to examine ways to unlock equity funding from pension funds for small businesses, which most need the capital. That could result in dozens of locally based funds springing up around the country, allowing people to contribute their time and expertise to the future of their communities. That would be yet another example of the big society at work in a very practical way.
Andrew Griffiths:
My hon. Friend touches on the big society, and one of the things that people in my constituency are quite excited about is the prospect of the green
bank. We have not heard much about that today, but perhaps my hon. Friend the Minister will touch on it a bit more. There is a business in Burton called Regenerco, which is working with businesses across the country to install solar panels free of charge on those businesses in return for a share of the profit from the energy produced. That is a brilliant business. It is low carbon. It is doing its bit for the environment and for the economy. However, like many other businesses, it is keen to get access to further finance. Many people are waiting with bated breath to see how the green bank will operate and how it can unlock some of the potential in those new green businesses. Perhaps we shall hear more from the Minister about how the green bank will work, but I am sure that my hon. Friend the Member for Stafford (Jeremy Lefroy) will agree with me that it has the potential to help some of those fledgling businesses.
Jeremy Lefroy: I am most grateful to my hon. Friend for that intervention. I look forward to hearing from the Minister as well, because I, too, am excited by the concept of the green bank and would like to see it in operation as soon as possible.
Will the Minister also consider whether there is a need to increase the sums invested in Capital for Enterprise? The last figures that I have seen indicate that the total invested by the various funds in UK equity is £566 million, while total SME financing was £1.1 billion, including loans. Those figures may be a little out of date, but in contrast, the total invested in equity in developing countries by the Government-owned Commonwealth Development Corporation is £2.7 billion-well over twice as much. What is right for developing countries is surely right for the UK.
There is also a very important role for the banks to play. Just as the major clearing banks established in 1945 the Industrial and Commercial Finance Corporation -later known as Investors in Industry and finally 3i-is it perhaps not time for them to come together again and form an ICFC mark 2 to invest equity in the smallest businesses, if not directly, for reasons of cost, then through local funds? The major banks have the ability, working together through an ICFC mark 2, to transform the availability of equity funding for small businesses. As the taxpayer is a major shareholder in two of them, I ask the Minister to discuss that with them.
I have been able to give only the briefest of surveys of the current situation regarding the finance of small businesses. I am sure that hon. Members following me will help to fill out the picture with the benefit of their experience. I am no expert in this matter, but what I do have is a conviction that unless we get this right, we will not be able to tackle the twin evils of unemployment and the excessive budget deficit.
The quality of the Green Paper is clear evidence of the thought being given to this subject, but as with many of my colleagues who entered Parliament this year, my background in business makes me rather impatient about words that are not followed up with appropriate action. The Government have already shown themselves willing and able to take difficult but necessary decisions, and I have no doubt that they will do the same to ensure that small business will indeed have access to finance so that our economic recovery is strong and sustained.
Mr Philip Hollobone (in the Chair): Four people are seeking to catch my eye, two of whom have written to Mr Speaker. I will ask those who have written to speak first. No member of the Opposition has stood up to indicate that they want to speak, so those contributing to the debate will come purely from the Government side. I propose to call the winding-up speeches at 12.10 pm, and the debate is due to finish at 12.30 pm, so Members can work out what would be a good time to speak for to allow colleagues to get in.
11.30 am
Mr Marcus Jones (Nuneaton) (Con): I thank you, Mr Hollobone, for allowing me to speak in this vital debate. I also thank my hon. Friend the Member for Stafford (Jeremy Lefroy) for securing it and I congratulate him on doing so. He gave a comprehensive speech and made some powerful and pertinent points, which I hope the Minister will take on board. We should not underestimate the importance of the debate. This is one of the most important issues facing our economy. It is imperative that we look for ways to achieve sustainable growth to enable us to rebalance our economy, reduce the budget deficit and pay off the huge debt that we inherited after 13 years of Labour Government.
To achieve that fundamental goal, we must ensure that small businesses grow and prosper and that new jobs are created. New jobs are vital to constituencies such as mine. Indeed, new employment prospects are desperately needed across the whole of the west midlands, which has suffered particularly badly during the recession. Small and medium-sized enterprises are vital to rebalancing our economy. We need to remind ourselves that they make up more than 59% of the private sector and 50% of private sector turnover. They also employ an estimated 13.7 million people, which is obviously a huge amount.
Two of the main drivers behind SMEs' need for finance are cash flow and investment, and the two issues are very much linked. Good cash flow makes business more sustainable; it makes it easier for firms to plan ahead and it gives them greater confidence to invest, thereby driving the creation of new jobs. Bad cash flow has the opposite effect, which is very negative. We often associate overcoming cash-flow problems with accessing credit. Before I mention the very pertinent issue of credit, however, let me turn to the other main impediments to good cash flow-payment terms and conditions of business.
The cash-flow issues faced by our small firms often have as much to do with the payment terms and conditions that they have to work with when dealing with big businesses and Government organisations as they do with banks. As a council leader in particularly difficult times, I was extremely pleased to be able to reduce payment terms to small businesses to 10 days in the depths of the recession. Even in these difficult times, when we must reduce public sector spending, the Government could consider supporting such an initiative, and I would like to know the Minister's thoughts on that.
In my constituency, we have second and third-tier manufacturers, which come under pressure to hold stocks over longer periods when dealing with large businesses. They also have problems because large businesses expect them to extend their terms of credit during tough times, which drastically reduces their cash flows.
Andrew Griffiths: I draw my hon. Friend's attention to a recent case in my constituency, where a large brewing firm unilaterally decided-with no negotiation or discussion-to extend its terms of credit from 30 to 90 days, which had a massive impact on some very small businesses. We talk a lot about corporate responsibility, and although larger businesses need to operate in a tough economic climate, they also have a responsibility to smaller supply businesses, which often rely on tight terms of credit to survive.
Mr Jones: I thank my hon. Friend for his comments. He is absolutely right. The same comments are coming from small businesses in my constituency.
Karen Bradley: I apologise for intervening so soon after the last intervention, but I wanted want to say something about Her Majesty's Revenue and Customs, which is another area of Government intervention that could very much help small businesses with their cash flows. I have many letters in my postbag from small businesses that are struggling to meet HMRC's demands to pay very large bills, particularly for VAT. If HMRC could in some way help such businesses over this difficult period in the recession, I am sure that that would be much appreciated.
Mr Jones: I thank my hon. Friend for her comments, and I will be interested to hear the Minister's views about HMRC. I, too, have heard of small firms in my constituency struggling to balance their cash flow when they have large VAT bills to honour.
We must acknowledge that we perhaps need to exert some influence on larger businesses over terms of credit and, as my hon. Friend the Member for Burton (Andrew Griffiths) put it, showing some social responsibility. However, we also need to acknowledge that the Government are limited in how far they can interfere with the way in which businesses are run. In addition, we need to be mindful of the global competitiveness of larger businesses in the modern day.
Will the Minister consider what the Government can do to encourage better payment terms for our small businesses? The extension of the credit terms and conditions of small businesses has inevitable consequences. It is vital that many firms be able immediately to access a bank overdraft when faced with the measures used by larger businesses. However, evidence from my constituency suggests that banks can be unwilling to give such credit facilities, even to long-standing businesses with strong trading records, without demanding security in the form of the business owner's home, which is often quite an issue.
I have obtained information from the Forum of Private Business suggesting that interest rates on loans that are not secured against the business owner's property can often be double those on loans secured against commercial or residential property, and one of my colleagues alluded to that. The problem is that many business owners, and particularly long-standing ones, do not necessarily want to put their homes on the line, particularly if they are reaching retirement age and do not consider it worth taking the risk.
That is what happened in the case of a manufacturing business in my constituency that I heard from during the general election campaign. The firm has not been afforded the credit that it needs, even though it has a
strong order book. It has been trading for 50 years and employs about six people, but it is on the verge of ceasing to trade. It will close the doors and sell its commercial property because that is a better proposition for the business's owner than keeping trading and employing people.
If such things keep happening, they will have an extremely negative effect, particularly in the engineering sector, where many small business owners are probably of a reasonable age, given the deteriorating uptake of new people into the industry. Many people will be in their late 50s or early 60s and might consider it better to close their firms than to keep going. That would have a very negative impact on what we are trying to achieve.
David Rutley (Macclesfield) (Con): My hon. Friend makes some excellent points about the way in which banks are treating small businesses, and we have heard other examples from my hon. Friend the Member for Staffordshire Moorlands (Karen Bradley). Things are getting quite out of hand, and we are seeing similar examples in Macclesfield. Does my hon. Friend the Member for Nuneaton (Mr Jones) agree that we should perhaps work more closely with the Federation of Small Businesses and other industry groups to gather data so that we can put extra pressure on the banks and use an evidence-based approach to demonstrate to the Government what is actually going on? There are a lot of ad hoc data flying around, and we need to get them into a more user-friendly form so that we can use evidenced-based approaches to show what banks are doing. When we have the data, we will be better able to put further pressure on the Government and the banks to provide greater support to small businesses. I do not know whether my hon. Friend agrees with that sentiment.
Mr Jones: I thank my hon. Friend for that intervention and agree with his sentiments. Later I shall talk about what I think is progress in that direction. I am sure that the Minister, who has had a lot to do, will be heartened by the quite positive comments I want to make.
As to firms in my constituency that have had problems with credit, I have been made aware of firms around the country whose credit facilities have been reviewed by banks at very short notice. Banks often vary overdraft terms without warning and dramatically increase loan rates at short notice, which makes it difficult for small businesses to respond. I have received figures from the Engineering Employers Federation that quantify those concerns. During the first quarter of this year the cost of finance increased for almost 35% of companies, whereas it decreased for only 3%. That is obviously difficult in the current economic climate. I fully understand that the banks are trying to repair their balance sheets, but at a time when we have the lowest interest rates in living memory, that seems counterproductive. It is no wonder that the number of complaints about banks by SMEs has risen in the past year by 119%. I am therefore heartened to see that, in their Green Paper "Financing a private sector recovery", the Government have started to make the banks reconsider their position slightly. That is after much talk from the previous Government about making banks lend to small business, all of which seems to have had little effect.
Justin Tomlinson (North Swindon) (Con):
My hon. Friend has been making some excellent points, and I am sure that all of us will relate the various issues he has
raised to our constituencies and businesses. The holy grail for the banks seems to be to provide customer relationship managers. Does my hon. Friend feel that they will really be given the flexibility and authority to make decisions about lending money? Do they have applied business experience to enable them to make the right decisions?
Lorely Burt: The computer says no.
Mr Jones: I thank my hon. Friend-and I hear the comment by my hon. Friend the Member for Solihull (Lorely Burt), making that very point. Many business people, particularly those who have been in business a long time, feel that 20 or 30 years ago they could pop in to see the bank manager if they had a problem, and discuss their concerns and try to get over issues. Now it seems that a customer adviser or someone who is purportedly a bank manager taps a few figures into the computer and comes up with the right result-if the computer thinks that is right. That is a dangerous situation. It is difficult for our small businesses to survive.
Gavin Williamson (South Staffordshire) (Con): Does my hon. Friend agree that banks take far too short-term a view of their investment in and support for businesses? What my hon. Friend the Member for Stafford (Jeremy Lefroy) said about banks investing in businesses-in equity-is relevant; it is about having a long-term vision of their future and supporting them so they can grow, much as banks do in Germany.
Mr Jones: I tend to agree; that is particularly the case for manufacturing, about which banks are taking a very short-term view.
It is positive that progress is happening, and a taskforce is being created by the six largest banks in the country. Until now that has been headed by Stephen Green. I understand that from today he has other responsibilities and I wish him well with those. The move is a positive one and I hope that the work of Mr Green and his colleagues will continue. I would like the Minister to explain how he will work with the taskforce and feed into it. There seem to be some positive noises about banks wanting to engage with Government and business to get over the problems.
Lorely Burt: Does my hon. Friend agree that a taskforce set up by banks to see why they are not lending is a tiny bit self-serving?
Mr Jones: That is obviously a risk if the banks are marking their own exam papers, but I have asked the Minister how the Government will interact with the taskforce, and I think that if we do that in the right, positive way and involve business organisations, we can end up with some positive outcomes. I am mindful that there have been many interventions in my speech and that other hon. Members will want to speak, so I shall try to cut my remarks a little short.
We and the Government are here to facilitate and improve the environment in which small businesses can flourish and employ people. That is what we all want, and I hope that the Government's new local enterprise partnerships will be more focused on doing that. My
hon. Friend the Member for Stafford has alluded to schemes that the Government have been or could be involved with, and that is positive. I hope that the local enterprise partnerships will get involved with such schemes and that they will be a positive way to bring about solutions locally. Often such solutions work, in time, but businesses get frustrated by the fact that it takes so long to bring about schemes and to provide the relevant types of finance and help with financing; that has been a problem with the regional development agencies. Businesses often do not have that sort of time, for the reasons I have mentioned.
The Government are moving in the right direction, but hon. Members need to keep putting pressure on them to continue. I am sure that if the Government can motivate the banks and bring them together to work for the common good-although they obviously have their own commercial reasons to be in business-we shall have gone some way towards creating the enterprise culture that this country has so badly missed for so long, and which will reinvigorate our economy.
Mr Philip Hollobone (in the Chair): We have 25 minutes until the winding-up speeches and three Back Benchers want to speak.
11.46 am
Lorely Burt (Solihull) (LD): I shall be brief because I know that colleagues want to contribute.
I was going to talk about Government schemes, but that area has been well covered by other hon. Members, so I shall confine my comments to privately run, independent schemes, to which I should like the Government to give some form of backing. I also want to talk about the banks.
The Funding Circle was launched on 13 August and it will be an interesting way for private investors to borrow, and to undercut the banks by several percentage points-by up to a quarter. That is a similar enterprise to Zopa, which has lent more than £90 million in the past five years. There is an element of risk, but it can be spread by investing in a number of different organisations, so I should like the Government to give that some blessing.
I also want to mention 3i. The point has already been made about investigating how we could support a similar type of organisation-a private equity group-to provide equity and debt finance to business, particularly small businesses.
My third suggestion was in the Liberal Democrat manifesto but does not seem to have made it into the coalition agreement: regional stock exchanges. Local investors want to invest in businesses that are local to them and to put money back into the prosperity of their region.
Gavin Williamson:
The hon. Lady made a valuable point about private equity and perhaps regional stock exchanges, but the fundamental issue is that although private equity is one of the longest-term investors in the country, in that it has a five or six-year plan-that is going through the stock exchange-we want to consider modes of investment with a turnaround of not five or six years but 20 to 30 years, so that people invest for a sustained, long period and the small business can become
a medium-sized business and grow. I encourage the Minister to look at ways to do it. I do not quite have the answer, but obviously that is why I am not a Minister. I am sure that he has all the answers.
Lorely Burt: The hon. Gentleman makes a valid point. I, too, look forward to the Minister's response to that plea.
In August, the Bank of England reported that loans to small and medium-sized businesses had contracted by 2% year on year. Credit conditions are tighter for small business. Larger businesses can get out of that by refinancing on the bond market, but there are few places for small businesses to go. I referred earlier to the exorbitant rates that small businesses are being charged. I have come to the conclusion that there is a sort of cartel. I do not know whether that statement is libellous, but at least I said it in the House.
There are four main banks, and 90% of small businesses bank with the big four. The Federation of Small Businesses says that it wants to see more competition among the banks. Various attempts were made by Labour to get the banks to lend; they threatened them and said, "We are going to do some bank bashing if you don't comply," but none of that resulted in anything worth while. However, I do not believe it was through a lack of trying.
I have a solution for the Minister to consider. I call it the Lil-lets solution after a recent visit to the Lil-lets head office in my constituency. I have been visiting businesses to see how they are faring with the recession and to ask what the Government can do to release that stranglehold and create a better business environment for them. They said that banks are not lending more, and that even those with only half a brain would not borrow from banks if they could possibly avoid it because of the exorbitant rates, arrangement fees and other charges made by the banks.
The two directors of Lil-lets have a solution. We own 84% of the Royal Bank of Scotland. We also own a substantial proportion of Lloyds. Why not make RBS bring its rates down? The cartel agreement would thus not be valid. If one bank went to a lower rate, all the others would have to follow or they would become uncompetitive. General competition would improve, which would break the stranglehold agreement that seems to have evolved between the big four banks. It would create the sort of competitive environment needed particularly by small businesses, which need not only to borrow money but to borrow at a sustainable rate. That is the most important thing.
11.53 am
George Freeman (Mid Norfolk) (Con): I shall try to be brief. I welcome this debate and I thank my hon. Friend the Member for Stafford (Jeremy Lefroy) for initiating it. I welcome my hon. Friend the Minister; I know that the small business community will be delighted that we have a Front-Bench spokesman with experience of building a small business. I also welcome the Government's commitment to this vital area, both in the Chancellor's statement and in the centrality of their open-for-business commitment. I welcome the role of the Foreign and Commonwealth Office in driving trade around the world and the excellent July paper, and I support the comments of colleagues about microfinance.
Like a number of Members I came to the House after a career in small business. In my case, it was a rather specialist field. I spent 14 years in biotechnology venture capital, so rather than echo the excellent comments of others about general small business finance, I shall concentrate on the particular needs of technology companies, and the technology sector. Before doing so, I declare an interest in my business, 4D Biomedical, and in directorships of the Iceni fund at the Norwich research park and Elsoms seeds.
I shall make three principal comments. The first is about the potential of the UK technology and science sectors to drive SME growth, national economic growth and international competitiveness. There are three key exploding markets around the world. Some may wonder where growth in the UK economy might come from, but I suggest that we do not have far to look. They are food, biomedicine and the technologies that drive sustainable living. Given the world population and the rate of growth, those three markets are all set to explode over the next 10, 20 or 30 years.
We have the science and research base to lead in the technical solutions required to make that population growth sustainable. In my area of Cambridge and Norwich, but sadly not yet in my constituency, we have genuinely global world-class centres of excellence in biomedicine and food science and clean tech, of which the Minister is aware. My plea is that when considering the financing of small businesses in those sectors we do not overlook the importance of core research. We must ensure, in the forthcoming review of departmental spending, that we do what we can to protect the core research spending of our excellent world-class centres of science research, such as the John Innes centre at the Institute of Food Research.
My second point is about how the Government can encourage those important technology sectors. I know that the Minister has given a lot of thought to the subject. To their credit, the previous Government recognised the importance of the sector, but their approach was essentially flawed. It was that the Government know best; we had one initiative after another and we had the regional development agencies, and they created well-intentioned pots of money and schemes suggesting that everyone had it in them to be a biotech entrepreneur and that every region had potential, but we wasted a lot of money. I know that the Minister, when in Opposition, considered the matter closely. I suggest that our approach should be based on incentives, not initiatives. If we create the incentives that allow centres of excellence to grow and flourish, in which companies can invest, we will not need initiatives.
My third point-I accelerate rapidly to leave my hon. Friend the Member for Bedford (Richard Fuller) some time-is about specific financing difficulties. A number of colleagues have spoken of the banks, and I echo those comments. We clearly have a problem with bank regulation, the banks anticipating regulatory pressures to repair their balance sheets to the cost of small businesses. The latest figures show that bank lending to small businesses this year is again down by 6%. The big companies, of course, are fine, as they play in the international bond markets and have other options open to them.
We have a huge problem with the banks. My plea is that, as with the green investment bank, we consider all sorts of ways of promoting direct credit unions and
smaller new banks. I am aware of an initiative in Cambridge-I believe it is known as the boring bank of Cambridge. It is not intended to be an investment bank but will do straightforward borrowing and lending for good local businesses. There is a huge appetite locally, and many people would put their money into a local bank that supported local businesses. It could be a fiscal element to the big society.
I come now to the financing of the food chain in the technology sector. In my 14 years' experience, the banks are largely irrelevant to the financing of high-technology companies. It tends to be a cycle, with entrepreneurs taking a risk and putting their personal and family assets on the line, then high-risk angel investors putting in their expertise and often their money, and then specialist venture capital, corporate venture funds and sovereign wealth funds becoming involved. My plea is that we should recognise the importance of reinvesting personal and corporate wealth. I wonder whether we can do something through the tax regime to encourage such reinvestment. I was interested to note that the latest FSB survey of its members showed that only 28% of those who were borrowing rely on bank loans; 31% use their own savings and credit cards, and 24% retain profits, the latter two being the bigger element.
My last comment, which is for the Minister, is about the global potential of the Foreign and Commonwealth Office mission to unlock some strategic national partnerships. I cannot help but wonder about the potential of this country, in partnership with India, to drive a great innovation in agricultural productivity in India, using our historic strengths in agriculture and our links, not least the English language, with the Indian Government. Although my party believes principally in incentives rather than big government initiatives, there are some instances when only the Government can act. The Government could help to facilitate some interesting partnerships between British research institutes, British companies and overseas markets.
With that I shall close, leaving my hon. Friend the Member for Bedford and the Minister time to reply.
11.59 am
Richard Fuller (Bedford) (Con): I am indebted to my hon. Friends the Members for Solihull (Lorely Burt) and for Mid Norfolk (George Freeman) for being brief in their remarks because it means that I can avoid talking about financing for small businesses in the manner of "Just a Minute". I shall try to avoid deviation, repetition and whatever else I am supposed to avoid. I must declare an interest; I am chairman of a number of small businesses and a participant in a venture capital fund, all of which are in the Register of Members' Financial Interests. I must also declare an ailment; I have a very sore throat and so may cough at inappropriate moments. Although I do not want to make too much of a partisan point, I am intrigued by the absence of Opposition Members in the Chamber today. The debate is important to the well-being of constituents and to the future of our country. As many hon. Members have said, we welcome having a Minister in office who is such an extraordinarily good and knowledgeable friend of small businesses, and we hope that he will be a strong friend during his time in office.
To encourage the Minister in his endeavour to be a strong friend, may I make a couple of high-minded points? First, starting up a small business, whether it is for profit or it is a social enterprise, is one of the noblest endeavours that one can undertake. A person does not go into small business just because they want to get rich; often, they do not want to be rich at all. If one is running a social enterprise, being rich is not even on their map. People do it because there is something inside them. It may be creativity, drive and the sense of trying to create something for themselves, their family and their community. It is a noble endeavour, and it is an important endeavour to promote. The motivations of people who start up small businesses are important.
Secondly, it is a vital endeavour for our country. When it comes to employing the next generation of Britons, "there is no alternative"-to quote a former Prime Minister-to strengthening the small and medium-sized enterprises in our country. That is something that we sitting in this Chamber have a responsibility to do as we face the difficulties of the great recession and the responsibility of dragging our economy and country out of it. It is also the source of our long-run national opportunity. I want us to sell into those international markets and to take advantage of technological innovation, which is what my hon. Friend the Member for Mid Norfolk has been talking about. That will only come with those sparks of ingenuity or insights and with supporting our entrepreneurs and small-business people. I say to the Minister, please be brave, strong and radical.
Given that many comments today have been about how we can encourage and strengthen the banks to lend to small businesses, let me say this: "Don't bother." The banks are failing small businesses; they are not structured to understand the problems and they are not ready to provide the capital. Be bold and radical and find alternatives. Challenge the banks on that turf. Do not rely on them because it will be a waste of time and of another generation. When we seek finance, the banks often stand in our way. They are poor both in terms of availability and of the cost of finance. The administrative burden of securing even the smallest overdraft does not make any sense and that burden is increasing. The terms and conditions for small businesses to get started and then for when they get into trouble are just too much bother. Why try and ask the banks at all? Just gravitate a bit and improve their little bits over here and there, but look for alternatives. Hon. Members have encouraged the Minister to consider reviving the 3i model, which is an exceptionally good idea. We have talked about trying to find ways in which we can create community funds that tap into local people who want to support local businesses and tying that to the changes in local enterprise partnerships. In Bedford, we are ready to do that. Give us the encouragement to do it; we will stand up and do it in our local community. By providing competition to the banks that have failed our local businesses, we will find ways in which we can achieve the support that is needed to help our next generation of entrepreneurs and the creation of jobs in our economy.
12.4 pm
Ian Lucas (Wrexham) (Lab): It is a great pleasure to appear before you, Mrs Main. It has been a very interesting debate, so let me congratulate the hon. Member for Stafford (Jeremy Lefroy) on securing it and on provoking such reflective comments.
The Minister and I discussed this difficult matter when I was in government, but the whole subject has now moved on. In the context of the international banking crisis, it was clear that one of the most traumatic problems for businesses of all types was securing lending or investment on a consistent basis. Over the past two to three years, we have heard massive exhortations about the banks from all parties. The former Chancellor, the present Chancellor and the Secretary of State for Business, Innovation and Skills have all made it clear that they are dissatisfied with the investment decisions that the banks have made. In our own constituencies, we are seeing businesses that are having great difficulties. If anything, the problem of securing investment from banks may be getting even worse. In the past, the Government have taken steps to address the issues. The enterprise finance guarantee scheme has been relatively successful, and I am pleased that the Government took the decision to extend it in the Budget. I do not know what has happened to the major loan guarantee scheme that was referred to in the coalition agreement. Perhaps it morphed into the enterprise finance guarantee extension. I am pleased to see the extension of a scheme that has helped many businesses in my own constituency.
An important concession that was made by the previous Government concerned VAT and payments to Her Majesty's Revenue and Customs. It was a massive extension of support by Government, and it cost money. Part of the reason behind the size of the deficit is that the Government decided to support business to ensure that unemployment was lower than it was in the 1980s and 1990s. That was the correct decision at that time. It is interesting to note that some of the suggestions today from the Government Benches involve Government investment to support small businesses. We still have massive problems with the banks.
Dr William McCrea (South Antrim) (DUP): Does the hon. Gentleman not agree that many of these small and medium-sized businesses are viable? They are facing challenges that are not of their own making. Many were encouraged to take loans by the very banks that pulled the rug from under them when they got the first sign of the recession. Surely it is criminal to destroy viable businesses at a time of such crisis?
Ian Lucas: The hon. Gentleman is absolutely right. What is vexing is when businesses that have had a long-term relationship with a bank suddenly discover that the terms and conditions that are being applied by that bank are completely changed to their detriment. There is not the local relationship that there should be. When I ran my own small business-yes, it does happen on the Labour Benches sometimes-I had a long-term relationship with the bank that helped finance my business, and that was very important.
What has been interesting about this debate is that rather than just banging the banks-we have done that to a certain extent-we have begun to move on and to talk about alternative methods of finance. I do not think that we have done that sufficiently in the past. I hope that in a different governmental environment, in which the present Government are seeing just how difficult it is to find a solution to this problem, we look at alternative ways of financing businesses. I think that we have heard some interesting observations today on that issue in what, as I have said already, has been a genuinely positive and reflective debate.
One of the important lessons that we need to learn from the economic crisis of the past few years is that certain businesses actually prospered during it. We need to look at why they did so. When I was in government, I met, for example, representatives of the John Lewis Partnership and of the Co-operative. They are organisations that did very well in the past few years, because they had business models that were apart from the norm and that functioned on a different basis. It seemed to me that they functioned on a more stable basis and, to use a phrase that I have heard a number of times in this debate, on a longer-term basis. I think that we could learn from those organisations.
I also think that we need to reflect on the experience of those organisations and be much more aware of the possibility of businesses being run in a different way from how they have perhaps been run in the past. They could have a different model, a different form of ownership and a longer-term approach. I think that those businesses would be much less susceptible to the bad decisions that we are so often seeing from banks, decisions that are detrimentally affecting the finances of small businesses.
My perception is that banks do not have any idea about alternative business models. Earlier in my life, I was a solicitor and when I was taught about business, the two models were, first, partnerships or sole traders and, secondly, companies. There was very little discussion of alternative business models, which I think is a great failing for perhaps the legal profession, the accountancy profession and, I strongly suspect, the banking profession. We need to explore alternative business models as part of a process of looking at financing business in a different way.
Another interesting point that has been made today is that, within that long-term context, we should look at how pension funds, for example, can support business on a very long-term basis. All of us have pensions and have funds that are built up during many years within those pension funds. However, it seems to me that most of us have very little knowledge of how that money is invested and that most of us do not take as much interest in that investment as we perhaps ought to. As individuals or working with others within our communities, we ourselves could take steps to invest in the types of business that will really provide the bedrock support for our community.
Stephen McPartland (Stevenage) (Con): Does the hon. Gentleman agree that, as my hon. Friend the Member for Bedford (Richard Fuller) stated earlier, part of the problem with the banks at the moment is the complexity of their organisation? What has happened during the last decade is that the banks have become so large and so complex that their focus has moved away from lending to small businesses, and their profits are focused in a different manner. The real crux of the problem now is that they are not lending to small businesses. All small businesses want is access to credit, reasonable terms and conditions for access to that credit and prompt payment of invoices. So I do not think that we should encourage small businesses to change how they operate. It is more about encouraging the banks to focus more on small businesses, in terms of their core lending to those organisations.
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