Building the Business Bank
The Secretary of State for Business, Innovation and Skills (Vince Cable)
I would like to update the House on progress made to set up a new British business bank to support the provision of finance to small and medium-sized firms (SMEs). Inadequate access to finance remains one of the biggest risks to the UK’s economic recovery. While the situation has been exacerbated by the financial crisis, there are also underlying structural problems in the financial landscape for small and medium-sized enterprises.
This Government have already put in place £2.9 billion of commitments through existing schemes to address problems in the market for SME finance. They are now going further by bringing these interventions together in the business bank and deploying an extra £1 billion of capital. The business bank therefore will manage the combined £3.9 billion of Government resources to meet its objectives. By bringing together management, budgets, spending authorities and the power to alter or create new schemes into one place this Government will be providing a more coherent and comprehensive package of support for businesses.
The objectives of the business bank will be to:
support the development of diverse debt and equity finance markets for businesses, promoting competition and increased supply through new finance providers;
increase the provision of finance to viable but underserved businesses, in particular improving the provision of long-term finance;
bring together the management of the Government’s existing business finance schemes, creating a single portfolio and simplifying access for businesses;
consolidate the provision of and increase the awareness of available support and advice to high-growth businesses and those needing specialist support;
function on commercial terms to use taxpayers’ funds most effectively.
The business bank’s success will be measured against its ability to:
raise the overall amount of finance provided to viable but under-served SMEs and mid-sized businesses;
increase the diversity of suppliers and products in the SME and mid-cap finance market;
improve effectiveness, raise awareness and increase use of Government finance and other support;
achieve the above while generating an appropriate return on the bank’s capital dedicated to commercial or near-commercial schemes and maximising the impact of those schemes which involve the provision of subsidy.
The business bank will operate on a commercial basis in order to make the best use of taxpayers’ funds. It will not directly lend to or invest in businesses nor use taxpayers’ funds to prop up businesses with little chance of success. The object of the bank is to work with the private sector in order to support and increase the capacity of current channels of finance, rather than simply replace them.
The business bank organisation will bring together Capital for Enterprise Ltd (the existing delivery agency for BIS), key policy teams and new expertise from the private sector. The management team will be augmented with additional product development, finance and risk management capability as its programme of activities expands and it prepares for full operational readiness.
Economic analysis suggests that the following types of firms are particularly underserved for finance:
SMEs of all sizes who seek finance to expand their business or to develop new products and services;
SMEs who lack the collateral to take out a secured loan;
SMEs at the smaller end of the SME scale;
Young SMEs which have existed for less than five years.
The business bank will be set up in stages so that support is available to businesses quickly. As soon as programmes are ready they will be launched and operated from the Department for Business, Innovation and Skills before being transferred to the new management team in the business bank as soon as possible.
Therefore, I can outline to the House our plans to deploy the £300 million investment programme that was announced in the autumn statement 2012.
The £300 million investment programme will build on the recent investments made by the Government’s business finance partnership programme. This will be focused on promoting diversity of supply by encouraging new entrants and the growth of smaller lenders in the market. This programme will be launched and proposals invited this spring.
This Government are also making available a further £75 million for venture capital for early stage SMEs with the potential for high growth, for investment from 2013-14 onwards.
£50 million will expand the business angel co-investment fund (CoFund) to a £100 million fund.
£25 million will extend the enterprise capital fund programme to include a VC catalyst fund, which will invest in venture capital funds that specialise in early stage venture capital and are near to close, enabling them to commence investment in SMEs.
The enterprise finance guarantee programme helps business without sufficient track record or collateral to access loans and currently supports £1.7 billion of SME lending that would otherwise not have been made. The work on the business bank will lead to a major overhaul of this already successful programme. As a first, a pilot scheme has been set up enabling businesses to obtain additional non-bank credit through trade credit with Kingfisher using the existing EFG scheme.
Given the important role that high quality advice and support can play in raising demand and successful use of finance in small businesses, this Government will take steps to improve further the availability and provision of advice and support schemes they provide to SMEs as part of the bank programme. Government invest in supporting innovative companies, exporters, manufacturers and those looking to grow through programmes such as the manufacturing advisory service, growth accelerator, UKTI’s export support services and some of the Technology Strategy Board’s competitions.
These provide excellent support in building small business capability but we need to make them better understood and easier to access, use the information they collectively provide to be responsive to small business needs and strengthen the link between finance and advice. This Government will therefore be developing an integrated service for high-growth and specialist firms, providing a single professional analysis of the client business that ensures SMEs readily get the expert help needed to accelerate performance.
Many of the next steps in implementation will require approval from European Commission to ensure compliance with EU state aid rules, but our indicative timetable is that in the remainder of 2013 we will:
Roll out fully the extended enterprise finance guarantee programme.
Make the first SME loan portfolio guarantees (subject to EU state aid approval).
Pilot new long-term growth finance products (subject to EU state aid approval).
Finalise a detailed implementation plan for the business bank’s advice functions.
We will also commit all £300 million of the investment programme by the end of the 2013-14 financial year.
In 2014, we intend to set up a new company to house the business bank’s programme and appoint a chair and board. We will also extend the reach of venture capital programmes and roll out new long-term growth finance products.
Further details of this work is set out in a strategy update on the business bank by the Department for Business, Innovation and Skills, which will be placed in the Libraries of both Houses.