SMEs: Access to Finance

Debate between Pat McFadden and Kevin Hollinrake

Tuesday 9th November 2021 Westminster Hall

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

Thank you for your chairmanship, Mr Pritchard. I am grateful to the hon. Member for Darlington (Peter Gibson) for proposing the debate and to the hon. Member for Thirsk and Malton (Kevin Hollinrake) and the APPG on fair business banking for their work on the issue.

As we have heard, small and medium-sized enterprises are at the heart of the economy. They employ millions of people and are responsible for much of the innovation and creativity that makes this country such a special place and such a dynamic economy. They have, of course, been through a tough time over the past 18 months or so. Many small businesses could not trade at all for much of the period, and others only in very restricted circumstances. In that context, programmes such as the bounce back loan scheme and the coronavirus business interruption loan scheme were important and welcome. As we now unwind from that level of Government support, it is important that the repayment mechanisms and the schedule are realistic. The SNP spokesperson referred to the burden of debt that has been left. It is also important that we have a proper assessment of the level of fraud and the use of public money in those schemes. A lot of money went out of the door and it is important that the taxpayer gets good value for money in support schemes of that nature.

As we recover from the pandemic, many SMEs are facing labour shortages, rising crises in materials and other effects, and our capacity to recover economically from the covid pandemic will depend to a large degree on how SMEs meet those challenges and manage to fare over the coming years. There are, as we have heard, particular traditions when it comes to access to finance for SMEs here in the UK. They include a dependence on loans from a relatively small number of traditional high street banks, a major focus from banks on mortgage and other property lending, a relatively new group of challenger banking entrants and less-developed non-bank sources of finance that are not always easily available to SMEs. The hon. Member for Darlington mentioned community development financial institutions in that regard and I believe they have an important role to play. I am familiar with the role of the Black Country Reinvestment Society, which operates in the area I represent. It has been able to step in at times and offer loans when the main high street banks have turned people down, and I believe it has helped around 1,500 businesses in the west midlands region over the years. I am sure it is a similar story in other parts of the country with other CDFIs.

The debate has also seen some discussion about the challenger banks and their potential to do more. The Minister heard the points made by the hon. Member for Darlington about MREL funding. That is important, because there is an active debate between the banking sector and the Bank of England about how that operates. The concept of bail-in debt was introduced after the financial crisis to avoid the situation where the taxpayer has to step in if a bank goes belly up—or, as it was termed, privatising the gains and nationalising the losses. With bail-in debt the bondholders are supposed to be on the hook, not the taxpayers. That is the right thing from the public interest point of view, but inevitably it entails a cost that will be applied to those who are lending to banks under those circumstances.

In this country, once a bank’s balance sheet increases above the range of £15 billion to £25 billion, the MREL bail-in rules kick in, although the Bank of England has indicated recently that the staircase for compliance will be shallower and over a longer period than was previously the case. The thresholds elsewhere are much higher. In the European Union, the threshold is €100 billion. In the United States, it is $250 billion. That means that bail-in in those jurisdictions is aimed at much bigger banks. There is another factor, which is related to the different ways that deposit insurance works in those jurisdictions, which has an impact on the risk appetite of regulators, but those are still much higher thresholds than in the UK and they allow medium-sized banks to grow before having to adapt to this new regime.

The challenger banks argue that if the threshold for requiring bail-in debt was higher, that would release more capital, which could be lent to the SMEs that are the subject of today’s debate. When the Minister winds up, I would be really interested in his reflections on the debate about challenger banks and the minimum requirement for own funds and eligible liabilities.

For the purposes of clarity, I should say that this is not a Brexit issue. The differential balance sheet limits for MREL predate Brexit, but challenger banks have all made the point that it places a ceiling on their capacity to grow.

[Kevin Hollinrake]

The changes that the Bank of England has made on MREL are very modest and will not help a bank such as OakNorth, which is a very successful challenger bank, in terms of its ability to lend more, which it could do if the limits were changed. Does the right hon. Gentleman agree that it seems perverse that bail-in requirements are there to try to protect the taxpayer and to take away the systemic risk, but the biggest systemic risk is having all the banking concentrated in a few big banks?

[Mr McFadden]

There is a potential tension here between competition and safety. The rules were brought in to insulate the taxpayer, but, at the same time, the Bank of England, the Treasury and the Government—everybody—subscribe to the idea of more competition in the UK banking sector, so I believe this discussion will continue.

More broadly, the issue of access to finance is also related to the question of economic growth. Economic growth has been sluggish in the UK for the past decade, averaging just 1.8%, which is significantly lower than pre-financial crisis rates of growth. Once we strip out the covid effects of huge plunging growth last year and a sharp bounce back this year and next, the recent report from the Office for Budget Responsibility, published at the same time as the Budget, predicts a return to those sluggish growth rates, averaging just 1.5% between 2024 and 2026.

Let us be clear: taxes are increasing because economic growth has been low. It has been low for more than a decade, and the Government cannot continue to blame that on the past. This low growth has left the country less wealthy than it would have been, and it has made it harder to fund public services adequately without upward pressure on taxes. Low growth is the foundation for the series of tax rises that the Chancellor has announced over the past year. That is a much bigger factor than the pandemic; the OBR report makes that clear. In fact, in that report it downgraded the long-term impact of the pandemic on GDP from 3% to 2%. Its estimate of the long-term impact of the Prime Minister’s Brexit deal was a hit to GDP twice as high as that from the pandemic.

We are talking about the financial services industry today. It was hung out to dry in the Prime Minister’s Brexit deal. It is not that the Government fought for market access and lost—the Government did not even try. This is 10% of the UK economy, hundreds of thousands of jobs around the country. It was simply left by the wayside when the Government negotiated the Brexit deal.

It is in everyone’s interests to address the issue of the UK’s sluggish economic growth. If the economy grows more, tax revenues will increase without tax rates having to rise. The country will become more prosperous and we will be able to pay our way. That is another reason why a healthy and properly financed SME sector is so important. Businesses need access to finance to be able to invest in expansion, to make the new idea happen, to be able to buy the new piece of equipment that might be able to do the job in a greener or more efficient way, to move into new premises, and to increase capacity to meet new orders. That is the foundation of economic growth, and right now we do not have enough economic growth. That of course is not the only thing that will impact growth.

If we talk to many businesses, they will tell us about business rates. In advance of the Budget, we called for an increase in the threshold for small business rate relief from £15,000 to £25,000. That could have lifted many small businesses out of paying business rates altogether, but that did not happen. Nor did the more fundamental reform needed to ensure that business property tax fits the economy of today and tomorrow, rather than the economy of yesterday. There will be other factors, too—not least our education system and whether we are equipping the workforce of tomorrow for the labour market of the future. Every time talent or potential goes unfulfilled, it is a drag anchor on economic growth, and that denial of opportunity is not just socially unjust, but economically destructive. We need to examine everything that can contribute to economic growth, and that means an SME sector firing on all cylinders.

This debate calling for more access to finance for SMEs is timely, but access to finance is not an end in itself. It is a contribution to the economic growth that the UK needs if it is to escape the high-tax, low-growth trap in which it finds itself, and for which households and businesses will have to pay the price in the tax rises recently announced, which will kick in over the next few years.

Supporting Small Business

Debate between Pat McFadden and Kevin Hollinrake

Tuesday 19th October 2021 Commons Chamber

[Mr McFadden]

I am happy to talk about our proposals and the hint we got on what the eventual outcome might be.

We tabled this proposal because we want to support Britain’s businesses as they try to recover from the pandemic. Many physical retailers could not trade at all during the pandemic. Consumers changed their habits and went online. Our high streets were shuttered and closed. The problem of business rates is well known and has been for a long time: they are weighted against high streets; they are weighted on physical versus online businesses; and they create negative incentives for investment. If someone invests in their business, does the right thing and does their bit for the transition to a greener economy, their business rates actually go up. It is a 20th-century tax for a 21st-century economy.

Our calls for reform have met with widespread support from the business community. UKHospitality says that the biggest cost danger in sight for the hospitality sector is the reintroduction of business rates from 2022. The Federation of Small Businesses said that business rates

“hits firms before they’ve even made a pound in turnover.”

The CBI said that business rates are

“literally…a tax on investment”.

The British Retail Consortium found that without a reduction in rates next year, 83% of retailers said that it was “very likely” or “certain” that they might have to close stores. The Institute for Family Business has also backed this call.

In the short term, businesses need help. That is why our proposal, in the motion before the House, sets out positive steps that will help businesses right now: a freeze on business rates; an increase in the threshold for small business rate reliefs; and a proposal that is fully costed and fully funded.

The Government know that business rates need reform. That is why they launched a review 15 months ago, but where is it? Where are the conclusions? Where is the Chancellor’s plan on business rates? Has it not been published because he is fighting with No. 10 about it, as he is over climate change? Has he not published it because he is fighting with the Business Secretary, as he is on industrial support?

But we did get a clue as to what the preference of Government Members is, because many Members went for the Tory party’s three favourite initials: VAT. Time and again in Government, when they have needed to raise money, they have gone for VAT. We do not yet know what the conclusions of the business rate review will be, but the prospect of the VATman returning is certainly possible given the contributions that we have heard today.

[Kevin Hollinrake]

Will the right hon. Gentleman give way?

[Mr McFadden]

I cannot; I have to watch the clock. We put forward a plan both for the short term and the long term, but this is not just about business rates, is it? This is about the broader relationship between politics and business. The Opposition want a partnership with business to help the country to recover from the covid pandemic. We will not blame businesses for every shortage of workers or every shortage of goods. We will not use business as a weapon in ideological battles, as we saw throughout every day of the recent Conservative party conference. And we certainly will not go down the absurd road of trying to retrofit a justification for shortages and problems by claiming that they were part of some plan all along. When there is chaos at the pumps, blame business. When there is chaos at the ports, blame business. When there are shortages on the shelves, blame business. We have heard far too much of that from the Conservative party in recent weeks and, because of that, it has forfeited its right to be called the party of business.

--- Later in debate ---

[Kevin Hollinrake]

Will the right hon. Gentleman give way?

[Mr McFadden]

I will not. And the Conservative party willingly gave that up by putting ideology in its place. When the Prime Minister said “f*** business”, some of us thought it was a quip. We did not expect to see it followed through by briefings on and off the record that business is part of the problem and not part of the solution.

Any serious party of Government has to take wealth creation as seriously as it does wealth distribution. It has to celebrate entrepreneurs, not blame them. It has to champion creativity and innovation. It has to move its policies in line with economic change and the ceaseless process of technological change. That is what we on the Opposition side of the House are doing. Businesses will find, in today’s Labour party, a ready partner that wants to see them grow and see a fair deal for their employees; that wants to see both prosperity and security for the people who work in business; and that will work with business, not blame them for the failures and consequences of Government decisions. That is what this motion is about, that is what this argument is about, and that is the case we will continue to make.

Financial Services Bill

Debate between Pat McFadden and Kevin Hollinrake

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Wednesday 13th January 2021 Commons Chamber

[Kevin Hollinrake]

The right hon. Gentleman is speaking to an important amendment that not only allows for corporate prosecution but allows for a person who is registered with the FCA to be prosecuted. Is that not a critical point? Unless we start holding individuals to account for these wrongdoings, we will never stamp out these corporate failures and this corporate abuse.

[Mr McFadden]

The hon. Gentleman makes a very strong point, and it is why we believe these are strong amendments. We should do this because it is right in itself, and it is an important signal to send about financial services in this post-Brexit world. We do not want to send a signal that we are going for relative weakness in anti-fraud and anti-money laundering laws. Instead, the signal should be that we insist on the strongest possible measures.

New clause 21 seeks to establish a duty of care. This is a long-running debate, and we tabled a similar amendment in Committee. The new clause is intended to make companies ask not just whether their products are legal but whether they are right and are in the consumer’s interest.

New clauses 25 and 26 seek to address the plight of mortgage prisoners. These are people who are stuck on very high standard variable rates and have no ability to switch. All I would ask is, if the Minister cannot accept these amendments, will he continue to work on this issue to try to help these people who are trapped, through no fault of their own, on very uncompetitive rates? He mentioned 3% or 4%, which is much higher than is available in a mortgage environment where the base rate is 0.1%. That can mean paying thousands of pounds more per year, depending on the size of the mortgage, so this is a real material difference for people.

We have a global financial sector in this country that, if properly regulated and paying its way, is a huge asset to the people of this country. We want it to be innovative and successful, but we also want to ensure the public are properly protected against risks if things go wrong. That is the spirit in which we tabled these amendments, and it is the spirit in which we have approached the Bill throughout. I hope the Minister will consider that when it comes to the votes in a couple of hours’ time.

Support for SMEs: Covid-19

Debate between Pat McFadden and Kevin Hollinrake

Tuesday 10th November 2020 Westminster Hall

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

Thank you for your chairmanship this afternoon, Sir Edward. I congratulate the hon. Member for Carshalton and Wallington (Elliot Colburn) on tabling this debate and thank all Members who have contributed to a thoughtful and varied debate. I will not mention everyone, but I was particularly struck by some of the points made, for example, by my hon. Friend the Member for Halifax (Holly Lynch) who raised the difficult issue of local markets; my hon. Friend the Member for Kingston upon Hull West and Hessle (Emma Hardy) who talked about family owned coach companies; the hon. Member for Bexhill and Battle (Huw Merriman) who talked about local shops; and my hon. Friend the Member for Vauxhall (Florence Eshalomi) on the issue of high rateable value properties in central London. The indefatigable hon. Member for Thirsk and Malton (Kevin Hollinrake) quite rightly described this period as a great acceleration; we do not have time today to explore that idea fully, but it is a crucial feature of the experience that we are going through. My hon. Friend the Member for York Central (Rachael Maskell) talked about leaseholders and self-employed people. And of course our great friend the hon. Member for Strangford (Jim Shannon) talked about the crucial wedding industry. I can tell him that in my part of the country—the Black Country—we have an enormous wedding industry, including an Asian wedding industry that is a huge business, and it has suffered all the knock-on effects that he talked about.

The covid pandemic has forced Governments around the world to make major and unprecedented interventions in the economy. In this country, those interventions have included some of the measures that we have heard about this afternoon: the furlough scheme; the grants to small businesses; state-guaranteed lending schemes; tax deferrals; and a lot more. These interventions have been large-scale; indeed, they have been on a larger scale than in previous recessions, because the experience is different to that of a normal recession. They have been necessary, although some people have been missed out by them, as we have heard.

To have stood back and simply let business and workers take the full hit from this pandemic would have caused economic carnage and long-term damage on a scale unseen in living memory: it simply would not have been a feasible option for the Government to choose. In many cases, the grants and other support for small businesses that have been provided have been the difference between survival and going under—there is no doubt about that. They have provided vital revenue to businesses when there has been none from normal trading, because there has simply been no possibility of conducting business.

Of course the interventions are costly, but stepping up in a once-in-a-century situation such as this is what government is for. I am old enough to remember the last time that we had real mass unemployment in this country, when I was growing up in the 1980s, and the social and economic consequences of that were felt for many years afterwards, in terms of the impact both on individual families and on areas such as the Black Country, part of which I represent, and many other parts of the country, too.

A lot of the interventions this time have enjoyed cross-party support. We called for the furlough scheme and we supported it. That was particularly true in the early days of the pandemic. But after that period, things have become both more disjointed and more contested, and there is a reason for that.

I think that we have had four different versions of an economic plan in the last six weeks, with different levels of business support, various percentages of support for self-employed people, and at one point the withdrawal and then the reinstatement of furlough over one weekend. Trying to keep track of all those changes reminded me of what was said about the legendary Celtic winger, Jimmy Johnstone, and his effect on defenders; it was said that he gave them “twisted blood”. It would give any small business person twisted blood trying to follow all the twists and turns of what has been announced in recent weeks, only for us to end up pretty much back where we started in March.

I make that point not to engage in a bit of political knockabout or to take a partisan swing; it is to make a more serious and deeper point, because I think the story of recent weeks betrays a deeper problem within the Government. We are led to believe that there has been a debate or a disagreement in Government between those who have championed public health on the one hand and those who have championed the opening up of the economy on the other. We might say it is a debate between hawks and doves, with the Chancellor portrayed in this debate as a hawk.

Any Chancellor will rightly be concerned with the state of the economy—that is their job—but the mistake in this situation, and the real point that I want to make today, is to regard it as a choice between getting the virus under control and getting the economy moving again. We should have learned by now that any economic plan that does not have at its forefront getting the virus under control will not work, because when infections, hospitalisations and death rates are increasing, by definition the economy cannot be opened up and cannot operate properly. It cannot simply be decided that we open up the economy, because it would by definition mean—when people cannot see their relatives and weddings and all sorts of gatherings cannot take place without resulting in a new outbreak of the virus after a few weeks—going into a period of opening up and lockdown, and opening up and lockdown, particularly when the testing and tracking system is not working properly.

[Kevin Hollinrake]

Will the hon. Gentleman give way?