Small and Medium-sized Businesses: Access to Finance

Lord Berkeley Excerpts

Thursday 30th January 2014 Lords Chamber

Asked by

[Lord Berkeley]

To ask Her Majesty’s Government what steps they are taking to improve access to finance to small and medium-sized businesses.

[Lord Berkeley (Lab)]

My Lords, it gives me great pleasure to introduce this short debate on improving access to finance for small and medium-sized enterprises. There has been much concern among the SME fraternity about their business health, but I detect little evidence of success in the government policies in that direction so far. I think they feel hard done by by this Government. However, as the National Audit Office said in a recent report:

“SMEs play an important role in job creation. Three-quarters of all new jobs in the UK are created by SMEs”.

That is an amazing figure, really. The report continues:

“It is therefore important that SMEs with potential are able to obtain the finance they need so that they can grow”.

Any trawl of the Government’s website, and of the BIS page in particular, will show the enormous range of support that the Government offer. The Enterprise Minister, Matthew Hancock, set out the Government’s offer to SMEs in December. Many people find the list a bit confusing. Behind all that, the message that the SMEs give is that the biggest problem is a lack of finance. It may not be there and it may be very expensive. Equally importantly, they may need even more finance than they would otherwise because government departments, large companies and others are taking so long to pay their bills that more working capital is required just to keep the business going. I shall speak a bit more about that later.

It is good for the Government to say that they are doing so much, but the experience in the field is rather different. I have a couple of examples. Five or 10 years ago a good friend of mine developed a restaurant in London that is doing extremely well, and has extended it to three or four branches. I saw him yesterday and he said, “I want to expand further, not just in London but to some of the regions—Manchester, and Bristol eventually”. He has a very good track record and is comparatively risk-free, but he found that he could not get the kind of finance that he might have been able to five years ago, and has had to beg round to get enough just to take things further. This can be seen as just a London issue, but it is not—he wants to go to Manchester and other places where jobs are surely important.

Then there is the infamous case of the Royal Bank of Scotland, which was extensively written about by the Sunday Times in the autumn. A gentleman called John Morris, who is not an SME but sadly received the SME treatment, was trying to do up a house into luxury apartments and, towards the end, when he needed £2.5 million to sort out the snagging—there must have been a lot of snagging in that building, but there we are—the Royal Bank of Scotland pulled out at the last minute, causing his cheques to bounce. I will not repeat the long story, but effectively they put him into liquidation, took the building into their property arm and used it. The inference is that they would then develop and sell it and make a lot of money and that the poor man would be left with nothing. He now seeks to sue RBS over claims that the assets were unfairly seized by the property company.

I understand that the Business Secretary, Vince Cable, has called on City watchdogs to examine this very serious allegation. Lawrence Tomlinson, the multimillionaire enterprise tsar, has published a report. What he has said is quite clear. I have a summary of his findings, which show that the,

“RBS is engineering a business into default in order to move the business out of local management and into their turnaround division … This then generates revenue for the bank through fees, increased margins and the purchase of devalued assets by their property division”.

His conclusion is:

“Without competition in the banking sector, these scandals will continue to come to light and ever more business will be hurt in the process”.

I certainly agree with that. The Government need to deal with this issue of size, lack of competition and a certain degree of arrogance, especially as they own RBS.

There is another issue that I touched on earlier. It is the question of finance needed for late payments by big companies. This was debated in the debate to which I contributed on 24 May 2012. That is some time ago. We had a lot of discussion about big companies like National Grid, which seems to have a late payment policy, and even then it does not comply with it. Some 34% of suppliers had to wait 91 days to be paid, according to Dun & Bradstreet. That process seems to be carrying on now.

I found the Question this afternoon on NHS Property Services to be interesting. This is a wonderful example of late payment. NHS Property Services is in trouble because the hospitals and other buildings that sit on its property were late in paying rent. So part of the NHS is not complying with, presumably, its own procurement procedure and is putting another part of the NHS into financial trouble. If the NHS cannot pay itself on time, what hope does anyone else have? I hope that the Minister will make some comment on this.

I am pleased that 18 months—or perhaps it is two and a half years; I cannot count—after this was raised, the Prime Minister has announced a consultation. The headline of an article from 16 October 2013 on the announcement says that, “Government could launch fines for late payment”. The article also mentions,

“a YouGov report suggesting that some 85 per cent of small businesses have endured late payment over the last two years”.

That is a big percentage. The article goes on to say:

“Outstanding payments to SMEs are now thought to exceed £30 billion, and the average business waits 38 days for payment”.

It is not clear to me what if anything the Government are doing about that. Perhaps the Minister can tell me where that has got to. It is a big problem, so how will this be enforced?

There has been a lot paper but a lack of finance, and late payments are causing a lot of problems. In its report of November 2013, Improving Access to Finance for Small and Medium-sized Enterprises, the National Audit Office is critical of the Treasury and the banks. It basically says that the Treasury needs to make things simpler and easier to understand, and urges the business bank to be more flexible and,

“target SMEs’ lack of awareness”.

I do not know whether that is going to happen. It may be that the Minister will tell us a bit about the business bank, but it is not going to directly lend or invest in businesses. What is it going to do? Will it actually help small businesses? I do not know. According to the House of Commons Public Accounts Committee, the answer is basically that the bank will not do very much. The committee’s report recommends:

“The departments should use the establishment of the British Business Bank to start managing the various schemes as a coherent programme”.

There is a lot more there.

I agree with Ed Miliband, the leader of the Labour Party, who says that this problem has been going on for a long time. There is too much power concentrated in too few hands in the banking industry. Four banks control 85% of small business lending. They are not lending, give poor customer service and are risk averse. I support his proposals for a Green Investment Bank and a new British business investment bank, provided that it lends.

In conclusion, small businesses need a climate in which to flourish, which they do not have at the moment. They need confidence. Who is winning? The big boys are winning at the moment. Small businesses need long-term stability and the debate about Europe is not helping. It certainly will not help small businesses. I could go on but we are having a debate about Europe tomorrow. I am much looking forward to the contributions from other speakers, who are much more expert than I am, and to the Minister’s comments.

[Earl Attlee (Con)]

My Lords, I should point out that this is a topical QSD and is limited to 60 minutes, even though it is last business, as provided for in the Standing Orders. Noble Lords have four minutes, and when the clock shows four minutes, they will be into their fifth minute.

[Lord Berkeley]

My Lords, it says on today’s lists that the debate is time limited to 90 minutes.

[Earl Attlee]

My Lords, that is why I came to the Dispatch Box. There is a slight error on the list. The timings are correct but the overall time suggested is not correct.