Manufacturing

Mike Weatherley Excerpts

Thursday 24th November 2011 Commons Chamber

[Guy Opperman]

My hon. Friend anticipates my next move, which is to say that such matters are already road-tested in other jurisdictions in other countries. Sadly, the FSA is reluctant to change its regulatory system. I have heard other examples of its failing to meet individuals who want to provide local financing—something that would be immensely good for local communities and could provide a flexible approach. Instead of being stuck with a loan from Barclays, for example, people would have a much lower flexible interest rate and adopt a much more interesting way to recuperate their finances at a later stage when the company was in profit. Banking would be local. We all know what happens when we are approached by a constituent when a business is in trouble. The decisions in relation to such financing are made not in Hexham or Newcastle or even in the north-east, but in a place such as Nottingham or Leatherhead or, ultimately, in London. That must change.

[Mike Weatherley (Hove) (Con)]

Does my hon. Friend agree that the banks in his example would facilitate help for some of the failures in respect of the enterprise finance guarantee scheme? There are 4.8 million SMEs, but the Government are targeting only 6,000 of them with help through the EFG at the moment.

[Guy Opperman]

My proposal would provide an alternative way forward for the financing that those businesses clearly need. I suggest that the Minister take it back to the future Minister for manufacturing and the Treasury, with a view to trying to move forward. I am conscious of the time, so I will not take any further interventions.

My next suggestion is an industry bank. We could extend the remit of the existing green investment bank to form a general enterprise bank, for which there are successful models in Germany and the United States. The German KFW—a product of Germany’s social market tradition—and the US Small Business Administration industry bank are specialists in long-term lending to SMEs, and they are effectively financed by their Governments, with a bottom line of commercial viability and social benefit.

The blueprint also exists in this country. What is presently 3i, which is a FTSE 100 company, was originally the UK Industrial and Commercial Finance Corporation, which had tremendous success when it was set up. On practical realisation, given that we have quantitative easing, would it not be better, instead of investing all those sums in bank bonds, for some of that money to go into an industry bank, so that it would go directly to the people who need it most and who are creating the jobs and growth that we all want and need?

I must conclude my remarks. I urge the Government to have a more pro-business policy. Others will talk of what the Government are doing and the positive steps they are taking, but I put in a plea for flexibility. There are repeated examples in my constituency of viable and successful businesses being penalised heavily for being a day late with their tax returns, or three days late with their VAT returns. Effectively, the Government are penalising those who are working the hardest to create the jobs that we need. I thank the House for its indulgence.

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[Mike Weatherley (Hove) (Con)]

I shall be brief and hope not to take up the full eight minutes I have been allotted. I want to concentrate on smaller manufacturers. My hon. Friend the Member for Warwick and Leamington (Chris White) might be interested to know that I come to the debate with a certain amount of expertise. First, I am a chartered management accountant and that profession is geared towards manufacturing. In addition, I was previously the owner and finance director of a manufacturing company in East Sussex. While I was there, we won a Queen’s Award for Export, a Queen’s Award for Enterprise, and Sussex company of the year. The company exported to 48 countries worldwide and had five satellite offices overseas. I pay tribute to my previous business partners Hugh Burnett and David Westcott and to all the staff at Cash Bases.

The two areas I would like to highlight today are staffing and finance. When I owned that company in the late ’90s we had enormous trouble recruiting staff at all levels. We even laid on buses from outlying areas. That was in the boom years after the Conservatives had put the economy on a good financial basis but the shortage of both skilled and unskilled workers was exceptionally high. The fact that our education system was, and almost certainly still is, geared towards service sector jobs rather than traditional engineering and machine operation is to our detriment. I recognise many of the points that the hon. Member for Huddersfield (Mr Sheerman) made about education, so I shall not revisit them. I appreciate the apprenticeships that the Minister mentioned earlier, but we need more of those to cover the skills gaps.

A far more worrying issue, which is a huge hindrance to growth generally but manufacturing in particular, is the availability of funds, which my hon. Friend the Member for Calder Valley (Craig Whittaker) mentioned. The banks can give very small loans but when the requirement creeps over the £10,000 mark, it gets very difficult. The enterprise finance guarantee scheme is supposed to fill the gap between equity investment and the lower levels at which banks are lending, but it fails on two counts. First, the banks do not like it and will not lend with the 25% risk factor. Secondly, the amounts being loaned are just too small.

There are 4.8 million SMEs in this country, but the Government are currently targeting loans at only 6,000 for this year. In comparison with previous years, the amount of funding has decreased. There was £1.3 billion in 2009-10 and £700 million in 2010-11, and the figure has gone down to £600 million for 2011-12. They are not just grants; they are loans that the Government get back.

I recognise what the right hon. Member for Wolverhampton South East (Mr McFadden) was saying about the creative industries. To my knowledge, not a single small firms loan guarantee has been given to the music industry, and that is a great shame. In the first half of 2011, just 1,779 firms were successful in obtaining such loan guarantees, and the average amount is just under £100,000 per loan.

My second point is the funding gap. Anything under £5 million is difficult to finance. When I purchased the company in Newhaven, East Sussex in 1997, we bought it for £4.2 million. The venture capital company that backed us then has said that it would not back a similarly low investment again. Anything under £5 million is considered totally uneconomic. That and the funding for small businesses trying to grow our industries need to be addressed.

Exports are another financing-related issue. I was pleased to hear what the Minister said about the Government’s growth targets. I will certainly hold the Government to account to try to reach the levels that we would like to achieve. However, funding for exports is not balanced sufficiently when compared with inward investment. Of course, inward investment is good for a short-term fix for jobs, but we must substantially address the fact that exporting is an important part of any recovery in the long term.

In summary, the enterprise loan guarantee scheme must be improved. The 25% collateral that the banks require puts them off making proposals. Indeed, the amount available under such schemes must be increased to get closer to where equity investment becomes sufficiently realistic. Lastly, let us not forget the staffing implications. We must gear towards manufacturing, not just the service sectors.