Budget Resolutions and Economic Situation

Jeremy Lefroy Excerpts

Thursday 24th June 2010 Commons Chamber

[Jeremy Lefroy (Stafford) (Con)]

May I welcome you to the Chair, Mr Deputy Speaker? May I also congratulate those Members who have made their maiden speeches today: my hon. Friends the Members for Staffordshire Moorlands (Karen Bradley), for Hendon (Mr Offord) and for Camborne and Redruth (George Eustice) and the hon. Member for Kingston upon Hull East (Karl Turner)? We have heard some excellent speeches, and I was particularly pleased to hear from my hon. Friend the Member for Staffordshire Moorlands, whose constituency I often have the pleasure of walking through on my very rare days off these days.

I wish to speak briefly about business finance. Some Members have talked about the lack of discussion of growth today, and growth is clearly vital for our economy. Members have referred to the importance of the private sector and of private sector investment taking us out of the situation we are in and creating jobs and tax revenues.

The Budget Red Book rightly states that small and medium-sized enterprises

“are fundamental to the economic recovery and to tackling unemployment”,

and I listened with interest to the remarks of the hon. Member for Liverpool, Wavertree (Luciana Berger) about tax relief on video games. However, some SMEs continue to have problems accessing the affordable finance that they need.

It is important to put that statement in context. According to figures from the Institute of Directors, in 2001, 45% of its members were financing their businesses through bank loans and 40% through overdrafts. A recent survey shows that now only 28% do so through bank loans, 36% through overdrafts and 20% to some extent through credit cards. That is not a sustainable model for SME finance when we are looking to SMEs to be the engine that pulls us into the strong growth necessary both to tackle the scourge of unemployment and to generate the tax revenues that we so desperately need.

Why have things changed so much? An IOD survey of 1,045 directors earlier this year was revealing. It showed that 57% of businesses seeking bank finance in 2009-10 were rejected by their banks. Perhaps even more discouraging was the fact that 83% of those declined bank finance were not even offered information on the previous Government’s and the current Government’s enterprise finance guarantee. Indeed, personal guarantees were sometimes asked for even when the enterprise finance guarantee was offered.

The Government have increased the enterprise finance guarantee facility by £200 million for the current year to support additional lending of up to £700 million. I welcome that, but it is clear that implementation is key. The EFG will not help small and medium-sized enterprises if the participating banks do not make their customers fully aware of it. Neither will it help if the procedures are lengthy. Profitable SMEs often run into short-term cash-flow difficulties—I recently came across one such instance in my constituency—and swift and decisive help is needed in such cases. I therefore welcome the processing target, which is mentioned in the Red Book, of 20 business days for all major lenders participating in the EFG. Indeed, I think that serious lenders could do considerably better.

Although the EFG is welcome, it will not fix the problem of the lack of bank finance. The announcement that the Government will publish a Green Paper on business finance before the summer recess is an important and clear sign that they understand the situation, but we need action from banks now. Their reputation has been tarnished in recent years, and I do not make that point with any satisfaction because they are not the only people in that position. What better way for British banking to restore its reputation than to provide most of the finance that UK SMEs need to carry out the task of profitably creating jobs and generating tax revenues?

Bank loans and overdrafts are not enough. SMEs also need greater access to riskier capital, particularly equity and quasi-equity, but the UK has not excelled in that area. The new or growing business cannot necessarily provide security for loans, so more unsecured finance is desperately needed. I therefore welcome the growth capital fund that the Government will create as part of the existing £237 million programme of enterprise capital funds. I credit the previous Government with recognising the importance of such funding and I am delighted that this Government will build on that work.

Those amounts are necessarily small. It is the Government’s role to take the lead, but they cannot and do not shoulder the whole burden. In north Staffordshire, we have the Michelin development fund, which was set up by the tyre company to provide unsecured finance to local SMEs, with the specific remit of creating sustainable jobs in profitable businesses. There is also the North Staffordshire Risk Capital Fund, which invests in businesses in my constituency. It is a public-private partnership, with investment from local businesses, individuals and the regional development fund. It was set up with a 10-year life and is drawing to a close. We must ensure that it is renewed or replenished, because it performs a vital role. I will do everything I can to assist with that. In south Staffordshire, we have the Black Country Reinvestment Society, which supports firms in Stafford with secured and unsecured funding.

I believe that Members of Parliament on both sides of the House have a vital role to play in encouraging such funds to form and grow in our constituencies. In my working life in business, over more than 25 years, the greatest pleasure was in creating new and lasting jobs, and the times of most distress were when someone had to be made redundant. Working with local people to create or support such funds gives us the chance to play a direct role in helping SMEs to do the job that they want to do and that we so desperately need them to do.