Further written evidence from the Department
for Business, Innovation and Skills
During the evidence session with BIS officials
on 9 November the Committee asked the Department to provide more
information on how Capital for Enterprise Ltd (CFEL) monitor EFG.
CFEL are a small, arms length body of BIS based in Sheffield and
are responsible for managing BIS SME finance interventions (both
debt and equity). A summary of how CFEL oversee and support EFG
lenders is set out in annex to this letter.
In addition, the Committee expressed interest
in how the Department evaluates the impact of the EFG on job creation.
The Department commissioned an early assessment of the EFG from
the Policy Research Group of Durham University at the end of 2009.
This is available on the BIS website at the following address:
http://www.bis.gov.uk/files/file54076.doc . On job creation specifically,
approximately 60% of firms reported the creation of jobs, either
already or anticipated in the future, due to receiving EFG. At
the time of the assessment, an additional 350 jobs had already
been created in the 385 businesses surveyed as a direct result
of receiving EFG and a further 550 new jobs were expected in the
future.
The Department intends to undertake a full evaluation
of the Enterprise Finance Guarantee to assess its economic impact
and value for money. On current plans, this evaluation would comprise
of a telephone survey of EFG recipients to assess their ability
to obtain alternative sources of funding; their business performance
including turnover and employment levels since receiving the loan;
and the impact of the EFG-backed loan on a wide range of other
measures including innovation and exports. Fieldwork for the evaluation
is likely to be undertaken from 2011 onwards and the results will
be published on the BIS Website by Christmas. Further details
of the evaluation are attached in Annex 2.
Finally please find at Annex 3 a summary of
the Department's expenditure in support of business and industry.
Annex 1
SFLG AND EFG LENDER SUPPORT AND OVERSIGHT
BY CAPITAL FOR ENTERPRISE LTD.
Capital for Enterprise Ltd (CfEL) are an arms
length body of BIS. They are responsible for oversight and implementation
of BIS SME finance schemes. On the debt side, these include the
legacy from the Small Firm Loan Guarantee (SFLG) and the Enterprise
Finance Guarantee (EFG).
GENERAL PRINCIPLES
— As part of the EFG accreditation process
a potential Lender is required to set out their approach to the
marketing and promotion of their SME lending products and how
they will ensure that their customer-facing staff are familiar
with the way in which EFG operates within their organisation.
— Each Lender's formal responsibilities
in operating SFLG & EFG are set out in the bilateral Legal
Agreements entered into between the Lender and the Secretary of
State.
— CfEL manage SFLG & EFG for BIS and
provide the interface between BIS and the Lenders. Each Lender
nominates a "Product Owner" who is the first point of
contact for interaction with CfEL. That person is the internal
expert within the Lender and can contact CfEL at any time to seek
any guidance or clarification necessary that cannot be obtained
from the web portal or through published documentation.
— All Lenders transact with the Department
in the same way, through a secure web portal. This means that,
for the purposes of the EFG-specific aspects of the "application"
process, the process is identical for all lenders and any timing
and handling issues arising from the interface between EFG issues
and their own commercial lending process is a matter for the Lender.
There is no requirement for applications to be "sent to BIS
for decision" as is sometimes alleged, and all paperwork
issued to the Borrower is generated by the Lender.
SUPPORT & TRAINING
— On successfully being accredited as an
EFG Lender a training course is run by CfEL for those staff of
the institution most likely to be involved in operating EFG.
— All Lenders are provided with a comprehensive
Lender Manual and other material from which they are encouraged
to prepare internal communications, website content, customer
literature etc which positions EFG in the context of their SME
lending overall.
— If an accredited Lender subsequently
requests additional training (eg following a change in the structure
of their organisation) then this is provided by CfEL.
CONTACT WITH
LENDERS
— CfEL meet with all Lenders at least once
per year. For the four largest Lenders (Barclays, LBG, HSBC, RBSG)
meetings are held quarterly.
— More frequent meetings are held at either
Lender or CfEL instigation if there are specific issues to be
addressed.
DATA ANALYSIS
— All EFG applications are registered on
an on-line portal by each lender.
— CfEL collects and collates on a regular
basis data on the number of eligible cases registered on the EFG
portal, loan offers made, and loans drawn down by SMEs.
— CfEL can analyse this data by region,
sector, type of loan (eg term loan guarantee, invoice finance
guarantee or overdraft guarantee, etc.) and by age of business
that has applied for finance.
— CfEL use this information in their regular
meetings with the lenders to question any unusual patterns of
usage or under usage.
— BIS regularly makes data available to
interested parties, for example on the number of EFG loans approved
in a particular region. Given the level of interest in data on
EFG lending, BIS will place non-commercially sensitive details
of the monitoring information that CfEL provide to us on our website
on a regular basis, as part of our commitment to open and transparent
Government.
FORMAL OVERSIGHT
— Each Lender is subject to a periodic
independent audit to examine their compliance with the eligibility
criteria in their decisions to use the guarantee and subsequently
their claiming against it in instances where the borrowing business
has failed. Timing of and sample sizing for these audits is determined
according to risk and volume, with all Lenders visited at least
once every two years and most more frequently.
COMPLAINT INVESTIGATION
— Any complaints received about a Lender's
handling of an SFLG or EFG case, or about reported instances of
Lender staff denying knowledge of EFG, are investigated with the
Lender as far as the detail of the complaint, the Lender's customer
confidentiality requirements and the willingness of the customer
to share information with CfEL permit. In all cases we will consider
what corrective action may be necessary either across the operation
of the programme as a whole or by the named Lender.
— Where a complaint is presented as an
EFG matter but turns out not to be then the complainant is redirected
to the Lender's own customer complaints process and/or the Financial
Ombudsman Service.
Annex 2
EFG EVALUATION PLAN
The economic evaluation of EFG will be evaluated
in two stages:
| Evaluation stage
| Description | Timing
|
Stage 1 | Early Assessment
| This research provides an initial assessment of the likely impact of EFG, associated with recipient businesses being able to access loans that otherwise would not have been available. The purpose of the study was to understand the experiences and the benefits for businesses receiving EFG loans. The three principal areas considered were:
(i) the EFG borrowing process
(ii) level of satisfaction of borrowers under EFG;
(iii) the extent and nature of impacts of EFG on recipient businesses.
The results from the Early Assessment are published on the BIS website: http://www.bis.gov.uk/files/file54076.doc .
| Autumn 2009 (completed) |
| Stage 2 | Economic evaluation survey
| The main objective of this research is to provide a comprehensive assessment of the wider economic impact of EFG arising from recipient businesses being able to access loans that they would otherwise not have received.
The impact of EFG is assessed on a number of business outcomes including employment change, sales change, labour productivity, likelihood to export, propensity to introduce new products and processes.
An assessment is also made of the overall cost effectiveness of the EFG to the Exchequer and the economy in terms of additional Gross Value Added (GVA). In addition, other economic benefits such as enhanced innovation capability, increased use of technology and productivity gains will be assessed. These take account of the extent to which businesses would have obtained finance in the absence of the scheme (finance additionality) and business deadweight and displacement effects in markets.
An example of an economic evaluation is the evaluation of SFLG (the predecessor scheme to EFG):
http://www.bis.gov.uk/files/file54112.doc
| 2-3 years after scheme running (from 2011)
|
| |
| |
Annex 3
A summary of the Department's expenditure in support of business
and industry is tabulated below:
EXPENDITURE IN
PRIOR YEARS
Resource DEL
| |
| | |
| £000 | 2006-07
| 2007-08 | 2008-09
| 2009-10 |
| |
| | |
| Regional Development Agencies | 482,833
| 385,553 | 401,484 | 454,379
|
| Support for the Automotive Industry | -
| - | - | 397,893
|
| Enterprise Funds, including Small Firms Loan Guarantee Scheme
| 28,804 | 57,880 | 174,440
| (117,973) |
| Other Business Support | 259,144
| 151,074 | 181,309 | 210,195
|
| |
| | |
| [source: 2009-10 BIS Resource Accounts]
| | | |
|
| |
| | |
Capital DEL
| |
| | |
| £000 | 2006-07
| 2007-08 | 2008-09
| 2009-10 |
| |
| | |
| Regional Development Agencies | 133,639
| 123,902 | 70,284 | 71,940
|
| Strategic Investment Fund | -
| - | - | 30,417
|
| Grants For Business Investment | 27,684
| (10,698) | 12,379 | 9,803
|
| Enterprise Funds, including Small Firms Loan Guarantee Scheme
| 13,711 | 20,633 | 20,579
| 76,745 |
| Other Business Support | 9,842
| 2,296 | 624 | 58,748
|
| |
| | |
| [source: 2009-10 BIS Resource Accounts]
| | | |
|
| |
| | |
It is important to note that these tables only show expenditure
by this Department on the RDAs. Other Departments also contribute
to the funding of RDAs under the Single Pot arrangements that
have been in place. Total Government funding of the RDAs over
these years has been:
| |
| | |
| £m | 2006-07
| 2007-08 | 2008-09
| 2009-10 |
| |
| | |
| Resource | 1,135 | 1,082
| 1,072 | 1,090 |
| Capital | 1,124 | 1,142
| 1,064 | 1,116 |
| Total | 2,259 | 2,224
| 2,136 | 2,206 |
| |
| | |
| |
| | |
In the evidence session, the Committee asked specifically
about expenditure on the Manufacturing Advisory Service. We can
now confirm that spend on this service, largely through the Regional
Development Agencies, was around £23 million in 2009-10.
EXPENDITURE OVER
THE SPENDING
REVIEW PERIOD
Looking forward over the course of the Spending Review period,
the Department will reduce its resource budget by 25%. Taking
into account anticipated receipts, the cut to capital spending
by 2014-15 will be 44%. The Department's Administration budget
will be reduced by 40%, including savings from abolition of the
Regional Development Agencies in 2012.
| |
| | | |
| £ billion | |
| | |
|
| 2010-11 | 2011-12
| 2012-13 | 2013-14
| 2014-15 |
| |
| | | |
| Resource DEL1 | 16.7 | 16.5
| 15.6 | 14.7 | 13.7
|
| Capital DEL | 1.8 | 1.2
| 1.1 | 0.8 | 1.0
|
| Total DEL | 18.6
| 17.6 | 16.7 |
15.5 | 14.6 |
| |
| | | |
| 1 In this table, Resource DEL excludes depreciation
| | | |
| |
| | |
| | |
Following the headline Spending Review settlement above,
future years' budgets within the Department and its operational
units are not yet firm. The Department is currently undertaking
an operational planning process which will prioritise the available
baseline resources provided by the SR against our strategic objectives,
including economic development.
Specific sources of additional funding provided by the SR
to promote economic growth include:
— the creation of a UK-wide Green Investment Bank that
will be capitalised initially with a £1 billion spending
allocation with additional significant proceeds from the sale
of Government-owned assets, to catalyse additional investment
in green infrastructure;
— the new £1.4 billion Regional Growth Fund, that
will support projects with significant potential for private sector
economic growth and employment, particularly in areas dependent
on the public sector;
— up to £200 million by 2014-15 to support manufacturing
and business development—with a focus on high growth businesses.
In addition,
— the Enterprise Finance Guarantee scheme will provide
up to £600 million of additional lending to around 6,000
businesses next year and, subject to demand, over £2 billion
in total over the next four years;
— the Government's share of Enterprise Capital Funds
will be increased by £200 million which will enable investment
into the equity gap of more than £300 million for early stage
innovative SMEs with the highest growth potential; and
— a new bank-led £1.5 billion "Business Growth
Fund" will be created to provide equity finance to established
SMEs who need capital to secure their plans for growth.
6 December 2010
|
