Enterprise and Regulatory Reform Bill

Lord Mitchell Excerpts

Monday 3rd December 2012 Grand Committee

Moved by

[Lord Mitchell]

2: Clause 1, page 1, line 11, at end insert—
“(3) In undertaking investments in accordance with the green purposes outlined in subsection (1), the UK Green Investment Bank will identify opportunities in which small and medium-sized enterprises may be awarded contracts.”

[Lord Mitchell]

My Lords, I stand here in some trepidation, having heard the comments that the noble Lord, Lord Marland, made to my noble friend. I dread to think what he will say about me. Even before I had the position of shadow Business Minister, I have spoken consistently on the subject of SMEs, on how important they are to this country and on how they require certainty, clarity and consistency. That is very important as regards their ability, in the future, to make a contribution to the growth of this country.

By way of a statistic, the UK has slipped from third position to seventh in world green technologies and I hope, with the introduction of the Green Investment Bank, if it is properly constructed, that we will be able to do better in this vital industry. The Green Investment Bank should be an opportunity to help SMEs explicitly. I shall come back to that a little later but it is really important that SMEs—not just large companies—are helped in this. In addition to its green obligations, it is important that there are investment obligations that are vital to its work. A key part of its remit is boosting growth and creating jobs in the UK economy. Time will rightly be spent talking about the policy and the fact that large companies need to make investments in our transition to a large green economy.

That was evidenced by the letter from seven of the world’s largest energy and engineering firms to the Prime Minister, the Chancellor and the Secretary of State for Energy and Climate Change, a couple of months ago—companies such as Siemens, Alstom UK, Mitsubishi Power Systems, Areva, Doosan, Gamesa and Vestas. However, the importance of SMEs to economic growth cannot be underestimated. According to the European Commission, 85% of net new jobs in the EU, for example, between 2002 and 2010, were created by SMEs, with 23 million SMEs accounting for 75 million jobs in the EU. The Bank of England has recently released figures on funding for lending and today there are a few quotes in the Financial Times, one of which came from Mark Swift who is a spokesman for EEF, the manufacturer's trade body. He said,

“The challenge remains for UK lenders to re-engage with SMEs and support them with their investment plans in challenging economic times”.

John Walker, chairman of the Federation of Small Businesses has said,

“What is needed is more competition and choice for small businesses to access finance”.

Time and time again, it is made clear that support for SMEs is key. We would like to see the Green Investment Bank have SMEs in forefront all the way through.

More investment in SMEs could lead to a significant saving in capital investment costs. In the case of offshore wind, recent research suggests that capital expenditure costs could fall by more than a third during the course of the next decade if more of the components were made in the UK. SMEs face considerable start-up costs, but an active Government, working with the private sector, could remedy that. The Green Investment Bank has the potential to enhance green supply chain possibilities, opportunities and capabilities. As we have discussed many times, SMEs are struggling for investment in the current climate, with negative net lending to such companies since the second quarter of 2011. While demand is down due to the depressed economy, there is clearly a problem with SMEs not getting access to credit. A particular bugbear of mine is that perhaps the Green Investment Bank could insist that everyone it deals with and everyone it invests with has a clear mandate for prompt payment of invoices. Nothing is better for an SME than knowing that it will get its money.

Last year’s Lords Science and Technology Committee report on public procurement as a tool to stimulate innovation also made it clear that SMEs still face difficulties when government contracts are put out to tender. We should ensure from the outset that the GIB has a responsibility to help SMEs be part of the new green economy. This amendment encourages the Green Investment Bank to support investments that offer clear opportunities for British SMEs to be awarded contracts. Does the Minister share our support for the promotion of SMEs? I beg to move.

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[Lord Marland]

My Lords, of course the Government are very committed to SMEs, and I know that the noble Lord, Lord Mitchell, who I can say lots of nice things about, is a committed and good advocate for their cause. The noble Lord, Lord Bates, put his finger on the pulse—it is about definition. However, I do not want to get too deep into definition, thereby tying the hands of the bank too early on in its endeavours.

It is clear that the great challenge for any Government at the moment is to get the SMEs going. I know this first hand, given that I am not only the Prime Minister’s trade envoy but chairman of UKTI’s Business Ambassadors Group. This is our challenge—the beating heart of Britain—getting the SMEs going. Therefore, in the context of SMEs, we have to look at what the Government are doing as a wider initiative, rather than be tied down. That is why we have established the Funding for Lending scheme, Capital for Enterprise, the Business Growth Fund, the Regional Growth Fund, and the Enterprise Finance Guarantee fund, which has already helped 18,000 SMEs. To a certain extent, it is working, because we have had the highest amount of new businesses established since records began. Some 460,000 start-up businesses have registered at Companies House in the past 12 months.

However, I completely agree that this issue is an enormous challenge. In fact, my noble friend is committed to this cause, as he is on late payments—an issue that is fundamental to SMEs. He tells me that his maiden speech was about late payments and commercial debt. He has a record of support for that case.

The noble Lord, Lord Cotter, has raised this subject a number of times in the Chamber. Therefore, do not get me wrong. The Government are completely committed to helping SMEs. That is why, for example, in procurement—one of the issues that I am involved with in government—we have insisted that 25% of government contracts should go to SMEs. An awful lot of work is going on. I do not want to be too prescriptive in this area of the Green Investment Bank, but it is totally focused on this issue and looks at each opportunity on its merits. Already, the bank’s smaller-scale funds for waste and non-domestic energy efficiency are already delivering investment for SMEs, such as the £8 million announced last week alongside a Teeside-based SME. Work is already going on to support SMEs.

With that in mind, I hope that the noble Lord will agree to withdraw his amendment.

[Lord Mitchell]

I thank the noble Lord for his statement and, indeed, I thank all noble Lords for their contributions to this debate. I take it as being broadly supportive of what we are trying to do. That will come out in further stages of the Bill, but I take great heart from what is being said.

I want to make two quick points. First, I cannot emphasise enough the importance of certainty, not just for SMEs but in the whole business environment. Certainty must be there. People are making decisions and, in the green area, these decisions are for longer periods than normal, particularly as regards the payback period and the intensity of those decisions. We must be clear on this, and I will address that issue later when I talk about borrowing powers for the bank. Secondly, of course we cannot tie the Government’s hands too much, but a definitive statement in the Bill on the need to invest in SMEs is important. I beg leave to withdraw the amendment.

Amendment 2 withdrawn.

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[Lord Bates]

Can I dissent from the amendment? I think that it goes against the whole point of the legislation. Indeed, it goes against the whole point of the Green Investment Bank, which is to stand in the gap of market failure within the capital markets in order to get projects up and running and off the ground. Where that is not possible, it provides a bridge or an intervention, but only so that private sector capital can come in. As an example of that, I mentioned earlier the first investment that had come in to Earthly Energy, the anaerobic digestion plant in Teesside. As I recall, the Green Investment Bank invested £8 million there. Immediately that attracted matched private sector investment of £8 million. The total value of the project is £100 million. That seems to be a classic example. To go from zero to £100 million, clearly they would not have been able to get the project off the ground, but that measured intervention of £8 million unlocked a project worth £100 million, which is exactly what the amendment proposed by the noble Lord, Lord Teverson, is trying to achieve. I am simply saying that it is already happening under the present regime.

[Lord Mitchell]

My Lords, we have had some very good contributions. In fact, my Amendment 9 just leads on from what the noble Lord, Lord Teverson, said, and we have a few additional points to make about it. First, I refer to what my noble friend Lady Ford has said on this subject; she has a lot of experience in this area and we should listen to her. We should also listen to the noble Lord, Lord Oxburgh. He has shown a lot of passion for green technology in this country and has said how important it is that we stop sitting around and get on with it. I hope that that is taken on board by this Government.

I suppose that what we are saying more particularly is that this Green Investment Bank has to be a real bank and not a sham. I do not think that it is going to be a sham, but it has to be a real bank with all the attributes of a real bank. Probably the most important issue before this Committee today is its borrowing powers. Without the capacity to borrow from the capital markets for investment, the bank is no more than a government fund. In fact, Transform UK has said:

“A bank that is not allowed to borrow cannot be described as a Bank, and investors will notice this”.

However, the amendment represents a compromise and takes into account the strain on public sector funding, and we would not therefore support reckless and irresponsible levels of borrowing.

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[Lord Marland]

I apologise. It is good that my noble friend understands it, because then he will not disagree with it. That is the way that the Government have set out their stall. We have inherited a very substantial national debt, but not in the same way in which the Germans have inherited the same problems. We have inherited a grave financial situation and, quite rightly, the Treasury decided that it will not enhance that by further borrowing against our balance sheet. The evidence produced by the noble Lord, Lord Smith of Kelvin, would suggest that he does not feel under any pressure in terms of funds at this point. Of course, we must set out our stall, as I have said. We intend to seek European Commission approval for borrowing and we intend to follow that process as soon as possible. I think that is a very good sign and I am delighted that there is some agreement in the room that we are doing that. I invite the noble Lord to withdraw his amendment.

[Lord Mitchell]

Does the Minister have any thoughts about when this borrowing will come to pass?

[Lord Marland]

We have made it very clear that it will not come to pass before the end of this Parliament. That is what prudent people do. They say, “I am going to buy something and I am going to spend this amount of money”. We have said that we will spend only that amount of money, but we have said that we will spend $3 billion on this project, which three years ago did not exist.