Small and Medium-sized Businesses: Access to Finance

Lord Stevenson of Balmacara Excerpts

Thursday 30th January 2014 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I congratulate my noble friend Lord Berkeley on securing this debate and thank all noble Lords for their contributions. We have heard about the range, diversity and potential for growth and employment that exists in our SMEs. Surely it is common ground in this House that if Britain is to grow its way out of the current cost of living crisis that people are experiencing, and we are to build a balanced recovery that lasts, we need to do all we can to help our small businesses grow and create new jobs.

To create more and better-paid jobs, Britain needs more small businesses and it needs the best of them to scale up. A number of noble Lords have mentioned the resources and skills that are required here, including mentoring, but the main problem always seems to be, and comes back to, receiving finance. In this context, we have heard today about some rather difficult issues being alleged against the Royal Bank of Scotland, owned by the taxpayer. In the press today there are reports that Lloyds is cutting down its SME division. In his response, could the Minister tell us what is going on in our banks?

Several noble Lords mentioned the recently published NAO report. It shows that the flow of new bank term lending to SMEs fell by 23% between 2009 and 2012, that 70% of SMEs have loan applications rejected and get no alternative finance, and that the funding gap—the difference between the funding required by SMEs and the funding actually available—is currently between £10 billion and £11 billion but may reach about £22 billion by 2017. There is clearly a real problem here.

It is this sort of consideration that prompted the Labour Party and its BIS team to back a number of initiatives. The first was to support the UK’s first ever Small Business Saturday, which took place on 7 December. It resulted in an additional half a billion pounds of trade going to small businesses. Initiatives like this can help, but we also think that the Government need to do more to ensure that firms get access to the financing capital they so desperately need. That is why we believe that there should be greater competition within the banking sector. We need something that every other G8 country has—a proper state-backed lending institution and, alongside it, a network of regional banks that really understand local business needs. Will the Minister confirm that the current work on a British investment bank in his department will help resolve that problem?

We will also go further. My noble friend Lord Adonis recently published a report on a recommendation to establish a UK small business administration, which we intend to set up if elected in 2015. This would create a step change in the opportunities for small businesses from government procurement, improve the quality of support available, and operate alongside the British investment bank and the network of regional banks I mentioned. Will the Government also match this initiative?