Small Businesses

Marcus Jones Excerpts

Tuesday 7th September 2010 Westminster Hall

[Mr Marcus Jones (Nuneaton) (Con)]

I thank you, Mr Hollobone, for allowing me to speak in this vital debate. I also thank my hon. Friend the Member for Stafford (Jeremy Lefroy) for securing it and I congratulate him on doing so. He gave a comprehensive speech and made some powerful and pertinent points, which I hope the Minister will take on board. We should not underestimate the importance of the debate. This is one of the most important issues facing our economy. It is imperative that we look for ways to achieve sustainable growth to enable us to rebalance our economy, reduce the budget deficit and pay off the huge debt that we inherited after 13 years of Labour Government.

To achieve that fundamental goal, we must ensure that small businesses grow and prosper and that new jobs are created. New jobs are vital to constituencies such as mine. Indeed, new employment prospects are desperately needed across the whole of the west midlands, which has suffered particularly badly during the recession. Small and medium-sized enterprises are vital to rebalancing our economy. We need to remind ourselves that they make up more than 59% of the private sector and 50% of private sector turnover. They also employ an estimated 13.7 million people, which is obviously a huge amount.

Two of the main drivers behind SMEs’ need for finance are cash flow and investment, and the two issues are very much linked. Good cash flow makes business more sustainable; it makes it easier for firms to plan ahead and it gives them greater confidence to invest, thereby driving the creation of new jobs. Bad cash flow has the opposite effect, which is very negative. We often associate overcoming cash-flow problems with accessing credit. Before I mention the very pertinent issue of credit, however, let me turn to the other main impediments to good cash flow—payment terms and conditions of business.

The cash-flow issues faced by our small firms often have as much to do with the payment terms and conditions that they have to work with when dealing with big businesses and Government organisations as they do with banks. As a council leader in particularly difficult times, I was extremely pleased to be able to reduce payment terms to small businesses to 10 days in the depths of the recession. Even in these difficult times, when we must reduce public sector spending, the Government could consider supporting such an initiative, and I would like to know the Minister’s thoughts on that.

In my constituency, we have second and third-tier manufacturers, which come under pressure to hold stocks over longer periods when dealing with large businesses. They also have problems because large businesses expect them to extend their terms of credit during tough times, which drastically reduces their cash flows.

[Andrew Griffiths]

I draw my hon. Friend’s attention to a recent case in my constituency, where a large brewing firm unilaterally decided—with no negotiation or discussion—to extend its terms of credit from 30 to 90 days, which had a massive impact on some very small businesses. We talk a lot about corporate responsibility, and although larger businesses need to operate in a tough economic climate, they also have a responsibility to smaller supply businesses, which often rely on tight terms of credit to survive.

[Mr Jones]

I thank my hon. Friend for his comments. He is absolutely right. The same comments are coming from small businesses in my constituency.

[Karen Bradley]

I apologise for intervening so soon after the last intervention, but I wanted want to say something about Her Majesty’s Revenue and Customs, which is another area of Government intervention that could very much help small businesses with their cash flows. I have many letters in my postbag from small businesses that are struggling to meet HMRC’s demands to pay very large bills, particularly for VAT. If HMRC could in some way help such businesses over this difficult period in the recession, I am sure that that would be much appreciated.

[Mr Jones]

I thank my hon. Friend for her comments, and I will be interested to hear the Minister’s views about HMRC. I, too, have heard of small firms in my constituency struggling to balance their cash flow when they have large VAT bills to honour.

We must acknowledge that we perhaps need to exert some influence on larger businesses over terms of credit and, as my hon. Friend the Member for Burton (Andrew Griffiths) put it, showing some social responsibility. However, we also need to acknowledge that the Government are limited in how far they can interfere with the way in which businesses are run. In addition, we need to be mindful of the global competitiveness of larger businesses in the modern day.

Will the Minister consider what the Government can do to encourage better payment terms for our small businesses? The extension of the credit terms and conditions of small businesses has inevitable consequences. It is vital that many firms be able immediately to access a bank overdraft when faced with the measures used by larger businesses. However, evidence from my constituency suggests that banks can be unwilling to give such credit facilities, even to long-standing businesses with strong trading records, without demanding security in the form of the business owner’s home, which is often quite an issue.

I have obtained information from the Forum of Private Business suggesting that interest rates on loans that are not secured against the business owner’s property can often be double those on loans secured against commercial or residential property, and one of my colleagues alluded to that. The problem is that many business owners, and particularly long-standing ones, do not necessarily want to put their homes on the line, particularly if they are reaching retirement age and do not consider it worth taking the risk.

That is what happened in the case of a manufacturing business in my constituency that I heard from during the general election campaign. The firm has not been afforded the credit that it needs, even though it has a strong order book. It has been trading for 50 years and employs about six people, but it is on the verge of ceasing to trade. It will close the doors and sell its commercial property because that is a better proposition for the business’s owner than keeping trading and employing people.

If such things keep happening, they will have an extremely negative effect, particularly in the engineering sector, where many small business owners are probably of a reasonable age, given the deteriorating uptake of new people into the industry. Many people will be in their late 50s or early 60s and might consider it better to close their firms than to keep going. That would have a very negative impact on what we are trying to achieve.

[David Rutley (Macclesfield) (Con)]

My hon. Friend makes some excellent points about the way in which banks are treating small businesses, and we have heard other examples from my hon. Friend the Member for Staffordshire Moorlands (Karen Bradley). Things are getting quite out of hand, and we are seeing similar examples in Macclesfield. Does my hon. Friend the Member for Nuneaton (Mr Jones) agree that we should perhaps work more closely with the Federation of Small Businesses and other industry groups to gather data so that we can put extra pressure on the banks and use an evidence-based approach to demonstrate to the Government what is actually going on? There are a lot of ad hoc data flying around, and we need to get them into a more user-friendly form so that we can use evidenced-based approaches to show what banks are doing. When we have the data, we will be better able to put further pressure on the Government and the banks to provide greater support to small businesses. I do not know whether my hon. Friend agrees with that sentiment.

[Mr Jones]

I thank my hon. Friend for that intervention and agree with his sentiments. Later I shall talk about what I think is progress in that direction. I am sure that the Minister, who has had a lot to do, will be heartened by the quite positive comments I want to make.

As to firms in my constituency that have had problems with credit, I have been made aware of firms around the country whose credit facilities have been reviewed by banks at very short notice. Banks often vary overdraft terms without warning and dramatically increase loan rates at short notice, which makes it difficult for small businesses to respond. I have received figures from the Engineering Employers Federation that quantify those concerns. During the first quarter of this year the cost of finance increased for almost 35% of companies, whereas it decreased for only 3%. That is obviously difficult in the current economic climate. I fully understand that the banks are trying to repair their balance sheets, but at a time when we have the lowest interest rates in living memory, that seems counterproductive. It is no wonder that the number of complaints about banks by SMEs has risen in the past year by 119%. I am therefore heartened to see that, in their Green Paper “Financing a private sector recovery”, the Government have started to make the banks reconsider their position slightly. That is after much talk from the previous Government about making banks lend to small business, all of which seems to have had little effect.

[Justin Tomlinson (North Swindon) (Con)]

My hon. Friend has been making some excellent points, and I am sure that all of us will relate the various issues he has raised to our constituencies and businesses. The holy grail for the banks seems to be to provide customer relationship managers. Does my hon. Friend feel that they will really be given the flexibility and authority to make decisions about lending money? Do they have applied business experience to enable them to make the right decisions?

[Lorely Burt]

The computer says no.

[Mr Jones]

I thank my hon. Friend—and I hear the comment by my hon. Friend the Member for Solihull (Lorely Burt), making that very point. Many business people, particularly those who have been in business a long time, feel that 20 or 30 years ago they could pop in to see the bank manager if they had a problem, and discuss their concerns and try to get over issues. Now it seems that a customer adviser or someone who is purportedly a bank manager taps a few figures into the computer and comes up with the right result—if the computer thinks that is right. That is a dangerous situation. It is difficult for our small businesses to survive.

[Gavin Williamson (South Staffordshire) (Con)]

Does my hon. Friend agree that banks take far too short-term a view of their investment in and support for businesses? What my hon. Friend the Member for Stafford (Jeremy Lefroy) said about banks investing in businesses—in equity—is relevant; it is about having a long-term vision of their future and supporting them so they can grow, much as banks do in Germany.

[Mr Jones]

I tend to agree; that is particularly the case for manufacturing, about which banks are taking a very short-term view.

It is positive that progress is happening, and a taskforce is being created by the six largest banks in the country. Until now that has been headed by Stephen Green. I understand that from today he has other responsibilities and I wish him well with those. The move is a positive one and I hope that the work of Mr Green and his colleagues will continue. I would like the Minister to explain how he will work with the taskforce and feed into it. There seem to be some positive noises about banks wanting to engage with Government and business to get over the problems.

[Lorely Burt]

Does my hon. Friend agree that a taskforce set up by banks to see why they are not lending is a tiny bit self-serving?

[Mr Jones]

That is obviously a risk if the banks are marking their own exam papers, but I have asked the Minister how the Government will interact with the taskforce, and I think that if we do that in the right, positive way and involve business organisations, we can end up with some positive outcomes. I am mindful that there have been many interventions in my speech and that other hon. Members will want to speak, so I shall try to cut my remarks a little short.

We and the Government are here to facilitate and improve the environment in which small businesses can flourish and employ people. That is what we all want, and I hope that the Government’s new local enterprise partnerships will be more focused on doing that. My hon. Friend the Member for Stafford has alluded to schemes that the Government have been or could be involved with, and that is positive. I hope that the local enterprise partnerships will get involved with such schemes and that they will be a positive way to bring about solutions locally. Often such solutions work, in time, but businesses get frustrated by the fact that it takes so long to bring about schemes and to provide the relevant types of finance and help with financing; that has been a problem with the regional development agencies. Businesses often do not have that sort of time, for the reasons I have mentioned.

The Government are moving in the right direction, but hon. Members need to keep putting pressure on them to continue. I am sure that if the Government can motivate the banks and bring them together to work for the common good—although they obviously have their own commercial reasons to be in business—we shall have gone some way towards creating the enterprise culture that this country has so badly missed for so long, and which will reinvigorate our economy.

[Several hon. Members]

rose—