Small Businesses

Mark Prisk Excerpts

Tuesday 7th September 2010 Westminster Hall

[The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)]

I begin by congratulating my hon. Friend the Member for Stafford (Jeremy Lefroy) not only on securing this debate but on providing an informed and informative contribution that ranged over the wider issues—from debt through to equity—showing how we can help small businesses, which is vital given their crucial role in the economy.

I also want to say how refreshing it has been to take part in a debate in which nearly every Member has had to declare an interest. That is often seen as a negative thing, but I regard it as wholly positive when Members bring to the Chamber and this House their own experience. As several Members have alluded to, I myself started my own business at the bottom of the last recession and I was able to run it for 10 years. I value that experience, and I hope it has informed what I have been able to do as a Member and that it will inform what I can do as a Minister. How refreshing it has been that almost everyone who has contributed to this debate—including my opposite number, the hon. Member for Wrexham (Ian Lucas)—has been able to do so on the basis of real-world experience. I only wish that that was the case in more of the debates we have in this place.

A wide range of topics has been raised and I have a relatively short time in which to refer to them. On the cash-flow issue, which several Members have mentioned, I encourage hon. Members to take the cudgels up with the relevant Government agency and to copy the relevant Ministers in on any correspondence. The relevant Ministers will probably not thank me for saying that, but it is important to ensure that hon. Members play that role, because often there will be a miscommunication or an error will be made, and hon. Members can help to tackle such problems. That is an important point to make first.

A number of other issues were raised. In due course, I hope that I may have the opportunity to discuss the “Lil-lets solution”, although I must confess that I feared where the hon. Member for Solihull (Lorely Burt) was heading when she discussed that. However, I will focus on other issues: debt, particularly the enterprise finance guarantee, about which a number of questions have been asked; the finance Green Paper and the role of equity, which underpins that document; and, of course, the vexed issue of bank lending.

As we emerge from the deepest and longest recession since the second world war, the continuing constraints on finance for SMEs are a prime concern for the coalition Government. The coalition agreement made it clear that one of our core priorities is to increase the availability of both debt and equity finance to businesses that are fundamentally sound. As several Members have rightly pointed out, that is crucial to the future growth and structure of the economy. I entirely applaud the remarks made by my hon. Friend the Member for Bedford (Richard Fuller) about what a noble calling it is to begin a business. How right he is, and how well he put it.

The Government also want to ensure that the banking system and financial markets meet the economy’s long-term needs and support sustained growth. My hon. Friend the Member for Northampton South (Mr Binley), who, sadly, is not in his place at the moment, raised the issue of the balance between lending and capital reserves. We must be careful, for we do not want to repeat the instability and over-exuberance—to put it nicely—in the banking system that led to many of the problems we are discussing. Balance is important.

In the few weeks since taking office, we have introduced a number of measures to tackle the immediate challenges that small businesses face when accessing credit. We are also considering the longer term. However, as my hon. Friend the Member for Stafford rightly said, it is action that counts, not words, so I will refer to three specific matters before I consider the Green Paper.

We have increased the enterprise finance guarantee by £200 million to support £700 million in additional lending until March next year. The additional money will support up to 2,000 SMEs. In addition, having listened to small businesses’ concerns, we have set a target of 20 working days for lenders to inform businesses of their decision. Time and again, SME owners have said to me, “The worst part of the process is not knowing. If I know that I’m going to have a clear decision in 15 days, 20 days or whenever, I can plan and work forward.” We felt that it was important to introduce an element of predictability into decision making as well as providing the additional £200 million.

[Mr William Cash (Stone) (Con)]

Will my hon. Friend give way?

[Mr Prisk]

I will, although my hon. Friend has not contributed to the debate.

[Mr Cash]

I wanted to draw attention to the fact that among this distinguished company are five Staffordshire MPs. My hon. Friend the Member for Stafford (Jeremy Lefroy) has carried forward the initiatives of Stafford Enterprise, which was formed in the 1980s and to which the document from the Department for Business, Innovation and Skills refers. In the 1980s, we established the culture that my hon. Friend the Member for Nuneaton (Mr Jones) mentioned, which enabled us to create enterprise and employment. I know that my hon. Friend the Minister agrees with all that, but it is worth putting on record. It was a huge incentive to such a culture, and it needs to be related for the sake of historical continuity. In the 1980s, we achieved it.

[Mr Prisk]

I strongly commend that achievement and totally endorse what my hon. Friend suggests. Staffordshire Members are well represented here, which indicates their commitment to their constituencies. That is to be applauded.

My hon. Friend the Member for Stafford raised several issues involving the enterprise finance guarantee. On its own, it cannot be a remedy for the broader problems that SMEs face. It exists to underpin additional bank lending; it is not an alternative loan product. However, it is important to bear it in mind that the EFG is there to ensure that viable businesses that can pay back the money but are struggling to secure a commercial loan—often because their track record is insufficiently long or they do not have security—can obtain finance. At this point in the economic cycle, especially given several hon. Members’ comments about start-ups and fresh new businesses, such underpinning is crucial as businesses develop a track record. They need an opportunity to get going.

My hon. Friend asked some specific questions, some of which I will answer. I have information for the period from January to October last year; I hope shortly to have information for the period thereafter. The sum lent during the first nine-year period was £580 million. The cost to the taxpayer—principally in administration—was £21 million. The number of jobs created or saved, according to the information we have received, was 31,600. Therefore, the cost per job is expected to be £665. Hon. Members will realise that that is an encouraging set of statistics. A note of caution: most of those loans are three or five-year arrangements, so absolute clarity about how successful the scheme has been would be a little premature at this stage. However, the statistics are encouraging, which is why I did not hesitate to take on the work.

The hon. Member for Wrexham, my predecessor in the former Government, worked hard on these matters. I thought it important that we should say, “Fine, this seems to be working. Let’s move on and use it, not just change it for the sake of change.” That is an important part of what we are doing. I pay tribute to the hon. Gentleman, whom I no doubt annoyed and challenged in my role as shadow Minister. He was diligent in trying to ensure that the scheme worked.

In addition, we are considering equity issues, which my hon. Friend the Member for Stafford mentioned. A growth capital fund is being created to fill a gap for SMEs that need to finance growth. We will provide more detail in the next couple of weeks. A further enterprise capital fund of £37.5 million is being set up to provide early-stage risk capital—to get the phraseology correct—to innovative small businesses with high growth potential. Several hon. Members asked about that. It is part of a £1 billion series of programmes. There are 10 ECFs, run by Capital for Enterprise Ltd. Like the market, they seek to invest in key high-technology areas. In that sense, there is an element of small pots, about which I have been critical on the record, but I think that hon. Members will realise that targeting key technologies and capabilities requires expert investors and not politicians to make the decisions. That is an important part of what we are doing.

On the green investment bank, I am pleased to say that my hon. Friend the Member for Stafford will have the full details when the Chancellor announces them during the next couple of months. I would love to be able to pre-empt the Chancellor, but that might be the end of my career, so my hon. Friend must be a little patient. He is keen, which is encouraging, but it is important to wait. Crucially, the green investment bank is meant to enable the transition to a low-carbon economy. Several hon. Members have pointed to the important role of high-technology businesses in the low-carbon field. It is important to recognise that and to make a targeted effort using the green investment bank. Details will be forthcoming in the next few weeks.

I am aware of the time, so I will move on to the vexed issue of bank lending. We should be clear that, as Members have suggested, most small businesses seeking funds at the moment are getting the money they require, but I am well aware of the problems. Although it is true that international regulators have tightened banks’ capital and reserve requirements, it is nevertheless clear to me and this Government that banks can and should be doing more to support the financing needs of viable SMEs. The Secretary of State and I have stressed that in our conversations. I will put it clearly on the record again: where unreasonable terms or behaviour are brought to our attention, we will challenge the bank concerned and make absolutely sure that it understands the issue’s importance to both the Government and the economy as a whole.

Hon. Members raised several other topics. I am aware that time is short, but I will return to the question of competition asked by my hon. Friend the Member for Bedford. We will challenge the banks. I want to ensure that if they are not doing their job, we hold their feet to the fire. However, in the end, competition will be the answer. That is why I have great faith in the role of community development finance institutions for micro-businesses wishing to secure microfinance. Again, the last Government took a role in that, which is to be applauded. I want to consider how we can extend and develop that.

It is crucial to remember that small businesses are short not of finances but of time. We must ensure that debt and equity finance is simple and clear and that it works. That is my ambition and the ambition of this Government, and I hope that it will secure the House’s support when we introduce our measures.