Enterprise and Regulatory Reform Bill

Lord Bates Excerpts

Monday 3rd December 2012 Grand Committee

[Lord Cotter]

My Lords, I also support the thrust of the amendment of the noble Lord, Lord Mitchell, particularly as regards SMEs. I welcome his comments regarding SMEs’ concerns around the payment of debts. The Minister will know that I and others have often raised this issue. It is important for SMEs to be directly involved but, where contracts are awarded to large contractors, small businesses have an important role in supplying those large contractors. To follow on from the point the noble Lord made about late payment, will the Minister once again renew efforts to ensure that main contractors pay their bills to SMEs on time and in due order?

[Lord Bates]

I, too, welcome this amendment but I have some questions about it on which I would like to put down some markers to which I hope the noble Lord, Lord Mitchell, and the Minister will respond. My questions concern the use of the term “SME” and how we define a small and medium-sized enterprise. That definition differs in different parts of the world. For example, the European definition of a small enterprise is one comprising between10 and 50 employees and a medium enterprise is one comprising between 50 and 250 employees. It would be useful to know what definition the noble Lord is using to define small and medium-sized enterprises, particularly when we discuss clauses further down the track. The businesses that I call micro-enterprises, which are defined in European terms as having below 10 employees, are the ones that really need help in accessing finance and are struggling at present. Therefore, it would be helpful if the noble Lord told us the parameters and the definition of enterprise that he is using when he is talking about SMEs.

Secondly, I wonder whether the amendment achieves the ends that the noble Lord, Lord Mitchell, seeks. We are talking here about incredibly capital-intensive investments. I know from one of the first of these businesses that was established in my home area in the north-east of England—an anaerobic digestion plant—that you are talking about a capital investment of £100 million. These are huge sums which would be outside the reach of most businesses. Yet, as a result of the investment through the Green Investment Bank announced just a couple of weeks ago, the project will go ahead and there will be many jobs for micro-enterprises and SMEs in the supply chain, particularly in the construction and operation of that plant.

Those are two questions that I hope that the noble Lord will take as being not at all critical of his amendment, which seeks to help SMEs and have correct in asking for a definition of who it is that we want to help.

[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.

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[Lord Skidelsky]

Perhaps I could reply to the noble Baroness, Lady Ford. Her point is absolutely right, but it is irrelevant. The purpose of the amendment is to allow the bank to borrow; it does not guarantee that the bank will be able to raise the money.

[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 Stevenson of Balmacara]

Perhaps I may respond. Since I joined your Lordships’ House, I have always been impressed with the noble Lord’s grasp on literature. I am a little surprised that he did not pick up my allusion to the Ugly Duckling.

[Lord Bates]

Perhaps the noble Lord, Lord Stevenson, would agree with me that given that this is one of the last chances we will have to discuss Clause 4, in the range of investment criteria or investment classes that can be made through the bank, whether they be grants or loans, if the objective is to achieve leverage, it would seem sensible for more emphasis to be placed on lending money at a given rate, rather than giving it away in the form of grants. Again, a preference should be given to equity finance because it would also be of potential benefit to funds in the long run as those investments come to fruition.

[Lord Stevenson of Balmacara]

My Lords, the noble Lord makes a very good point and, in an early start-up arrangement, the last thing you want to be doing is dissipating your hard-earned capital. You should be using it to recycle. However, that relates to the point we have been making, which is that leverage of about 30 times the investment is achievable, but we do not seem to have the support of the Government in that. However, I beg leave to withdraw the amendment.