8.24 pm

Lord Stevenson of Balmacara (Lab): My Lords, I thank the noble Baroness for securing this debate. I very much enjoyed listening to her comments. She is someone to whom the House always listens carefully because she knows a lot about the subjects she discusses. I am sure the Minister will reflect on her comments as he prepares to respond to the debate.

However, like my noble friend Lord Haskel, I found the noble Baroness’s somewhat unrelenting optimism about what she called the industrial strategy a little hard to take. I liked it better when she talked about some of the problems that still remain to be solved, including rebalancing the economy and trying to get more of a regional spread. That, I felt, was the more authentic voice which I have come to enjoy listening to. However, we look forward to what the Minister will say in response to the important points that she made.

I was very struck by what the noble Baroness said about the content of the industrial policy in the sense that she made play, I think, of 11 sectors. It was an interesting little number that I initially fell for, but I do not think that 11 is a particularly magic number. I am not an expert on the magic of Hogwarts, or anything like that, but I do not think that 11 features in that. Why 11? I think it is 11 because it is not 12. It is not 12 because, if you read the document produced by BIS last year, from which that is taken, you will see that it covers the 11 sectors which the noble Baroness listed, which are important and are being picked as winners. That may or may not please some noble Lords. The 12th and most important of these is, of course, the creative industries, but they do not appear in the document because they are not covered by BIS. That seems to me to suggest a fractured approach, meaning that the Government are not joined up about this. There is a danger that the sectors which BIS selects and supports are the ones that it provides for. As the noble Baroness pointed out, that would be rather ridiculous. Therefore, those 11 sectors but not the creative industries may well be in a beneficial place as regards the British Business Bank, export support or UKTI. That would be a terrible shame. I hope that is something the Government have picked up and are working on.

The 2008-09 crash exposed long-standing structural problems in our economy: an economy unbalanced by sector and region; short-termism in our corporate culture leading to low levels of business investment and low productivity; a dysfunctional finance system; and a stubborn and increasing trade deficit. Although some growth has finally arrived, which we certainly welcome, it is not the balanced and sustainable growth that we need. Prices are still rising faster than wages and the continuing cost of living crisis for many means that individuals are, on average, £1,600 a year worse off compared with 2010, so “business as usual” is certainly not good enough. To set the foundations for future success, we need to take a different approach.

Labour has a long-term plan to earn and grow our way to higher living standards. Our goal is a high-productivity, high-skilled, innovation-led economy. To get there, we need more British-based businesses creating good jobs, investing, innovating and exporting. If elected

8 July 2014 : Column 202

in May 2015, we will deliver an economy creating good jobs and opportunities, offering people a ladder up and the best chance to make the most of their potential. We will take action on immediate pressures that businesses face and cut business rates. We will reform the energy market and boost competition in the banking sector. To lay the foundations for long-term success, Labour’s plans already include: radically reforming vocational education and apprenticeships; creating a proper, independent British investment bank and a network of regional banks with a responsibility to boost lending in their areas; supporting green growth by backing the 2030 decarbonisation target; and establishing a small business administration to champion small businesses at the heart of government. Some of these points were raised by the noble Lord, Lord Stoneham. When we come to power, I hope that we can count on his support for these measures. I think that he wants to see an all-party approach to ensuring that our economy is sustainably supported over the long term.

What is the problem that the British Business Bank is trying to solve? I agree with the noble Lord, Lord Leigh, who said that in some senses it is a misnomer. I think that point was also picked up by the noble Lord, Lord Wrigglesworth. Indeed, it is more of a wholesale operation. The bank picks up that point in its strategy document and says that it is not a bank in the conventional sense. We understand that. According to the business bank’s new strategic plan, which was published only last month, its goal is to,

“change the structure of finance markets for smaller businesses, so these markets work more effectively and dynamically”.

Any scheme that helps small businesses to access finance is clearly welcome but the record of the Government in getting the clearing banks to lend to small businesses is one of complete failure. This, presumably, is a statement endorsed by the Government confirming what we have been saying to the Government for some time: every scheme, from Project Merlin—remember that one?—to Funding for Lending, has completely failed to deliver to the small and medium-sized businesses.

Indeed, as was quoted by the noble Baroness in her opening remarks, according to the Bank of England's most recent Money and Credit statistical release, net lending to SMEs has fallen by £1 billion in the last quarter and is down by £2.2 billion overall compared to last year.

We have a bit of a problem here and it is very interesting to read in the strategic plan of the business bank what it thinks about it. For example it says very early on in its strategic aims:

“We will increase the supply of finance available to smaller businesses where markets don’t work well”.

If we unpick that, this means there is a problem in that the present system is not supplying finance to where it is needed. Markets are not working well and the supply of finance is therefore reduced. The strategic plan also says:

“We will create a more diverse and vibrant finance market for smaller businesses, with a greater choice of options and providers”.

Again, if we duck behind the language, that means that the existing system does not provide the funding, the existing banks are not worth working with and they need to come up with something that will make

8 July 2014 : Column 203

more of a difference in terms of the flow of funds to those who can use them. I think we would agree with that.

The plan also says:

“We will build confidence in the market by increasing smaller businesses’ understanding of the options available to them”.

That is an interesting point; if you go behind the language, it suggests that the bank is saying that the people who start businesses—the people who are in charge of the small business sector—are untrained in trying to raise finance, probably not very good managers at that either, and do not understand what they need to do in order to get the finance, so they will have to embark on education in order to get to the point where they can even complete all the forms that the noble Lord, Lord Leigh, was saying are very difficult. I enjoyed his riff about the trouble of getting through the website. He mentioned that in an earlier speech to which I was responding. I followed him through it and I had even more trouble than he had in getting to anything. I am glad to say that the British Growth Fund, which he also mentioned, has a much simpler website where you can get to very easy options straightaway. I understand why he recommends that.

I have had a bit of fun with the wording of the strategy document, but I do not think the Minister necessarily needs to go through it. Unless he says anything to the contrary, I will take it to be a validation of what we have been saying. There is a problem and the banks are not solving it. We also have a bigger problem in that people do not really understand what they need to do to get the funding they want.

This section that I have been quoting ends with the proposition:

“We will achieve this whilst managing taxpayer resources efficiently and within a robust risk … framework”.

The noble Baroness, Lady Wheatcroft, was on to that as well. I understand where she was coming from. I too had great difficulties with this section of the report—I do worry about it. Having said that, I want to get the compliments out of the way first. The strategic plan is really good. It is a very good read—and I mean that as a compliment. It gives some interesting figures and background to the context which I have not seen brought together before. For example, there is a little table that shows very clearly that 53% of businesses with up to 50 employees who have applied for a loan from the clearing banks were declined. This is slightly bigger than the figure that the noble Lord, Lord Wrigglesworth, mentioned. It really is a disaster—if nearly 50% of the businesses cannot get the money, there is a problem.

I also liked the direct funding programme that they have in the strategy. The Aspire programme which is up to £1 million for women-led SMEs seems to be a very good proposition. That is an area of the market that has not been looked at in any detail, and I pay tribute to the British Business Bank for picking up the opportunities that are there for women-led SMEs.

I also like the enterprise finance guarantee, which uses the financial strength that is available in the bank to help those who need guarantees to get lending, because they may not have collateral or assets that they can pledge in return for their money.

8 July 2014 : Column 204

I also think that there is still a huge opportunity for start-up loans, which used to come from the banks and of course have dried up completely. Throughout the report, which I recommend to noble Lords, the case studies are very interesting about what is happening on the ground and the way in which the bank is operating.

I am, however, concerned about the way the bank operates for the majority of its interventions. In the Written Ministerial Statement, which accompanied the lodging of the strategy in the House of Commons, the Secretary of State draws attention to the fact that 61% of the bank’s activity is channelled through smaller investors and lenders, with only 39% going through the big four banks. He continues:

“Over the coming years, I expect that this bias away from the big banks will continue”.—[Official Report, Commons, 26/6/14; col. 21WS]

I have already explained that I smell where that is coming from. But that 61% going up and being channelled in a wholesale manner through other institutions is interesting and, like the noble Baroness, I worry about that.

My worry is slightly different in practice because examples of what are called “innovative investments” over the past year have included: £7.8 million to the Dawn Capital II venture capital fund; £25 million to the Episode 1 venture capital fund; £30 million committed to the Praesidian Capital Europe debt fund; £15 million to BMS Finance; £40 million invested through Funding Circle, which is a good thing, and £20 million in the Sussex Place Ventures capital fund. These are somewhat opaque titles and giving money to venture capital funds and hedge funds, which already seem to be quite good at gathering cash to reinvest, seems an odd way to supply support. Perhaps the Minister might reflect on that when he comes to respond. For instance, why are those companies not doing their own funding alongside existing sources, including the British Growth Fund?

This will of course raise issues of propriety. I draw the Minister’s attention to a recent report in the Independent on Sunday. It said:

“Millions of pounds of taxpayers’ money is being spent on a venture capital fund overseen by one of the Conservative Party’s biggest donors … The British Business Bank, which is run by the Department for Business, has committed £7.8m to the Dawn Capital II investment fund … Dawn Capital II’s parent company is Dawn Capital, whose chairman is Adrian Beecroft”.

Does the noble Lord wish to intervene?

Lord Newby (LD): I was seeking to draw the noble Lord’s attention to the time.

Lord Stevenson of Balmacara: I am sorry; I got carried away and I have overrun. I will not go on, as I think the point is made, but the report asks whether there is a problem about a company drawing money from the state and giving money to an individual who is a well known supporter of the Conservative Party. I would be grateful if the Minister could respond to that.

8.36 pm

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con): My Lords, I am extremely

8 July 2014 : Column 205

grateful to my noble friend Lady Wheatcroft for initiating this important debate. I pay tribute to her for her contribution to the business bank steering group.

Changes in international economies are creating new challenges and opportunities for business across Britain. Last week, in a debate in this House, I talked about what we are doing to support manufacturing in the UK, which was mentioned earlier. This debate allows me to go in to more detail on the Government’s industrial strategy and how the British Business Bank is providing access to finance for smaller businesses to help them grow and prosper. I fear that I will not be able fully to address the questions raised by the noble Lords, Lord Haskel and Lord Stevenson, because there were some particularly negative opinions given. As my noble friend Lord Stoneham said, I believe that the industrial strategy is clear and I seek to try to explain that today.

Your Lordships will be aware that the industrial strategy, launched by Vince Cable in 2012, has given impetus and focus to this Government’s long-term plan for growth. I am pleased to hear that there was much agreement today on that. It provides businesses, investors and the public with more clarity about the long-term direction of the economy, looking beyond this Parliament. The Government are working in partnership with industry to provide support across a wide range of sectors. They are broad sectors rather than picking winners, as my noble friend Lady Wheatcroft said.

The noble Lord, Lord Haskel, asked what the purpose of the industrial strategy is. The industrial strategy is providing a spectrum of support for a range of sectors and this partnership with industry is giving both government and industry confidence in the future direction of the economy and confidence to set policy to address the needs of business, and for business to invest in long-term growth. But it is more than that. The industrial strategy is about economic growth and providing benefit for us all.

The noble Lord, Lord Stevenson, asked about the creative industries not being one of the industrial strategy sectors. The Government are providing a spectrum of support for a wide number of sectors, over and above the 11 listed in the industrial strategy, and BIS is working closely with DCMS on the creative industries strategy. Nicola Mendelsohn, the industry chair of the creative sector, sits on the industrial strategy council, which is a sign of the breadth of engagement outside the 11 sectors.

The UK also has great strengths in the life sciences field—a sector I want to focus on—where, among other successes, and as evidenced in the news today, we are world leaders in ground-breaking dementia research. Last week, we launched “Create UK” in support of the creative industries, which are worth £71.4 billion to the UK economy, a sector that I know well in my role as the Minister for Intellectual Property.

My noble friend Lady Wheatcroft asked how we would address regional imbalances in terms of investments and funding. Only yesterday we launched the growth deals for the 39 local enterprise partnerships further to support local growth throughout the country through £6 billion of funding for transport, housing, business

8 July 2014 : Column 206

support and skills projects in the regions. These growth deals are the latest part of the Government’s long-term plan to boost growth around the country, following, among other projects, the multi-billion pound regional growth fund, and the city deals signed with 26 urban areas across the country.

My noble friend Lady Wheatcroft raised the issue of ensuring that the impact of the industrial sector is felt across the UK. As the House will be only too well aware, my noble friend Lord Young of Graffham is working hard with the sectors to increase their help for small and medium-sized enterprises, and in the professional and business services sector, which I co-chair, we run regular regional workshops for SMEs. Members of the council, including my co-chair, attend these and offer advice.

I will be focusing primarily on access to finance but there are some cross-cutting themes that underpin our support for all sectors. As I mentioned last week, we have invested £600 million in the “eight great technologies”. These are the technologies where we have the research expertise and business capabilities to be a world leader. They are supported by the Technology Strategy Board and include robotics, big data and energy storage. We are helping to bridge the gap between research and development and the market through £74 million of investment in nine catapult centres, which are complementary to our industrial strategy.

On the important subject of skills, which was raised by my noble friends Lady Wheatcroft and Lord Stoneham, we need to address the current and future shortages. We need to strengthen our science, technology, engineering and maths skills base by building a skills pipeline at all levels from technicians through to postgraduates. To do this, we are, first, investing £185 million in the teaching of STEM subjects; secondly, offering traineeships to young people; thirdly, we are building and delivering a network of new national colleges to provide specialist vocational training; and finally, as the House will know, we have set up university technical colleges.

As my noble friend Lord Stoneham highlighted, we are unlocking procurement opportunities, advising businesses in advance what the Government are planning to purchase so that they can invest in the right skills and equipment to make the most of these opportunities. Through UKTI we are helping our companies to export. In April 2014, UK organisations won four new contracts worth £1 billion to establish 12 technical and vocational training colleges in Saudi Arabia. Key events such as the International Festival for Business in Liverpool, which I attended two weeks ago, help us to showcase our companies and technologies on the world stage. The festival is creating new business-to-business relationships, and unlocking commercial openings for small, medium and large companies, both at home and overseas.

I now turn to the important point of access to finance. Well-functioning markets for finance are crucial for ensuring that firms can invest and operate when they need to, producing new and improved goods and services, and in turn boosting the UK’s productivity and competitiveness. We do understand that there are some well-documented long-standing supply and demand issues, which mean that smaller firms cannot always access the finance that they require. My noble friend

8 July 2014 : Column 207

Lady Wheatcroft alluded to this. We have been addressing these issues, and hence the reason that this Government have established the British Business Bank.

The business bank is providing funding and guarantees through private sector finance providers, allowing them to offer more targeted and appropriate finance products for smaller firms so that they can prosper and grow. My noble friend Lady Wheatcroft raised issues about using securitisation techniques as part of the modus operandi of the business bank. I agree with my noble friend that the business bank should operate for the good of the economy. It will not operate for its own benefit. It is already staffed by skilled professionals who know how the markets work. But it will operate within the rules set by BIS and the Treasury, and with a sensible risk appetite.

Over the next five years, the bank aims to unlock up to £10 billion of financing for commercially viable smaller businesses. A range of British Business Bank programmes is already making a real and significant difference, catering for the diverse needs of smaller firms, such as start-up loans, which support entrepreneurs looking to start a business with a repayable loan of up to £25,000, and give access to a business mentor. I am delighted to report that more than 18,500 of those loans have now been offered to entrepreneurs, with more than £92 million approved to finance start-up businesses.

The British Business Bank also provides guarantees through the enterprise finance guarantee scheme to support loans to firms that would otherwise be declined funding due to a lack of collateral for working capital purposes. This programme has proved a considerable success, providing nearly 15,500 loans since the election and resulting in more than £1.6 billion of additional lending to smaller businesses.

The bank also provides a suite of venture capital interventions, including enterprise capital funds, which support and promote a diverse and vibrant market to help early-stage and high-growth firms. The enterprise capital fund programme currently has 16 separate funds, nine of which are investing in early-stage opportunities, with a combined capacity of more than £530 million.

As my noble friend Lord Leigh mentioned, a £300 million investment programme has been developed to provide support for a range of finance providers, including debt funds and peer-to-peer finance platforms. To date, £198 million of awards have been recommended by the investment panel, which will support more than £800 million of lending capacity.

The British Business Bank will also provide information and advice to smaller businesses about how to successfully go about getting the right type of finance. One example of this is the recently published Business Finance Guide, produced in association with the Institute of Chartered Accountants in England and Wales.

We believe that the investments made by British Business Bank programmes are already delivering significant results. In total, British Business Bank

8 July 2014 : Column 208

programmes facilitated £782 million of new lending and investment in the last financial year. Over 60% of this funding was provided through new, emerging or smaller finance providers.

My noble friend Lord Wrigglesworth mentioned the need to balance good regulation in banking with promoting sensible risk-taking. Banking regulation has tightened greatly. This Government have led global efforts to increase capital and liquidity requirements but we are also aware of the need to promote competition. This is why rules for small and new entrants are not as strict and the process for new banking licences has been streamlined. We see the results in new banks coming into the market.

My noble friend Lord Stoneham asked about success measures for the British Business Bank. Last week we published our success measures in the bank’s strategic plan, which are: increasing the amount of finance for small firms; increasing choice; increasing small firms’ confidence in finance markets; and finally, doing all this while managing taxpayers’ resources efficiently. These will be turned into detailed KPIs over the next few months and this will be monitored by the British Business Bank’s board, which itself will report to BIS Ministers.

My noble friend Lord Leigh asked to see greater transparency on the British Business Bank’s results. I assure my noble friend that all results will be published and fully transparent.

The noble Lord, Lord Haskel, if I read him correctly, asked how much of the British Business Bank’s activity is effected on its own account. All the bank’s lending and investment is exercised alongside private sector providers. So, of the £782 million of lending and investment last year, around one-quarter is public sector money and the rest is new money from the private sector.

To conclude, the British Business Bank is integral to the UK’s long-term industrial strategy and is playing a vital role in removing the barriers to businesses accessing finance. This Government’s commitment to a long-term industrial strategy has already proven a success in supporting growth and turning our economy around, and its impact will continue to be felt long after this Parliament. It is essential that we continue to work in partnership with industry to address barriers to growth, both to unlock the potential of British business and to deliver strong and sustainable growth.

Baroness Wheatcroft: My Lords, I thank the Minister for his comprehensive response, and I take comfort from the fact that he reassured us that the business bank will work within strict limits as to the risk it takes. I take rather less comfort from his reassurance—

Lord Newby (LD): My Lords, I am sorry to interrupt the noble Baroness, but I should perhaps remind her that in this type of debate she does not have the right of reply.

House adjourned at 8.49 pm.