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Credit Availability

Volume 485: debated on Thursday 11 December 2008

We understand that credit is a serious issue for business. That is why the Chancellor announced a number of measures in the pre-Budget report to improve access to credit, including the new small business finance scheme, which could make available up to £1 billion of additional credit, the export lending scheme and the transition loan funds that will be available through the regional development agencies in many parts of the country.

I would be interested to learn from the Minister about the methodology involved in the Government being able to get information, other than that provided by the banks, on the provision of credit to small businesses. He might be interested to know that, according to the Croydon Guardian, the chief executive of South London Business reports that many perfectly solvent businesses are being damaged, as many other Members have said, by the speedy removal of credit and the early calling away of debt. Many companies that are cashed out and close to being in default will be at risk if the Government are unable to bring forward measures in a speedy way to ensure that such companies are bailed out.

We are bringing forward measures, as I have said. There is a disjunction between what small businesses are reporting to the hon. Gentleman and many other hon. Members on both sides of the House, and what the banks are saying about the availability of credit. That is precisely why we have brought business and bank representatives together in the Small Business Finance Forum to examine the facts and to find out exactly what is happening in the lending market.

The Minister is a fellow west midlands MP, and he will know that many businesses throughout the region cannot get credit from the banks. Why is it that, within hours of coming to the Government, the banks received a big fat cheque from the taxpayer, when businesses in Shropshire, even after many weeks, cannot get the credit that they need to run on a day-to-day basis?

Had we not taken the action that we took to recapitalise the banks and inject more credit into the system, there would have been a danger of a complete seizure in the banking system, which could have had a catastrophic effect on the wider real economy and on the businesses that the hon. Gentleman is worried about. That is why it was entirely right for the Government to take that action to stabilise the banking system. We now need to ensure that lending at an appropriate level is available to businesses in the wider economy, and that is why we are working with the banks and why we have taken the measures that were announced in the pre-Budget report.

I recently met representatives of the Civil Engineering Contractors Association to discuss the impact of the downturn on its members, which include small businesses and some of my constituents. They broadly welcomed the measures that the Government have introduced to assist them with credit, but said that there were still some issues. They were also concerned about the small firms loan guarantee scheme, and gave me examples of their members being told that it would take four months for the process to go through. That is causing real hardship. Will my hon. Friend look into those delays and see whether anything can be done to speed the process up, so as to avoid the loss of jobs and skills in the sector?

It should not take four months for loans to be processed through the small firms loan guarantee scheme, and I will certainly follow that up for my hon. Friend if she gives me the details. The combination of measures that we have taken, including that scheme and the other measures announced in the PBR, are designed precisely to take action with regard to the problem that we are all concerned about—access to finance for small and medium-sized businesses, which are the lifeblood of our economy and which provide so much employment for our constituents.

As it is clear that, in this recession, the biggest single problem facing most businesses is a lack of credit, does the Minister not see that his small firms loan guarantee scheme is inadequate, and that he should take up our proposal for a national loan guarantee scheme? It would cost a lot more money, but it would be paid for by scrapping the ridiculous reduction in VAT, which has not helped industry at all.

Our proposals are not restricted to the existing small firms loan guarantee scheme because, as I said, the Chancellor announced additional measures. As to the right hon. Gentleman’s party’s proposals, the Conservatives really need to make up their minds. The other day, his party leader attacked us over our level of spending and borrowing; the Conservatives have now announced a new scheme, but we have not yet been told about the balance of risk between the Government and the banks or the exposure of the taxpayer to the scheme. If more action is needed, this Government have said that we will take it, but I can assure the right hon. Gentleman that, unlike what happens in his party, any measures we announce will be properly costed and thought through.

When the Secretary of State appeared before the Business, Enterprise and Regulatory Reform Select Committee, he made the valid point that it was important that bank bosses’ promises on lending got through to banks on the ground. This morning, I received a Christmas card from the Federation of Small Businesses Scotland—[Hon. Members: “Ah.”]—and a very nice one it is, too. It is a letter to Santa, which refers to overdrafts renegotiated, rates trebled and charges of £150 for the privilege. That is the reality on the ground. When the Minister has a summit with bank leaders, what other action will he take to ensure that any promises made to small businesses are actually carried out by bank managers on the ground?

It is important that any statements made by banks about the availability of lending are reflected in the reality on the ground. That is why the Small Business Finance Forum has updated the statement of principles that govern lending by banks to small businesses. I referred to RBS earlier, but Lloyds TSB has announced a charter for small businesses, which commits to maintaining overdraft limits and margins at existing levels, and HSBC has announced a £1 billion business support fund for UK small businesses to fund working capital. Some action has been taken, but we will, of course, continue to work with the banks to ensure that the sort of statements made by the banks and mentioned by the hon. Gentleman actually feed through to the small businesses in his and other constituencies.

The real truth is that businesses are increasingly desperate because their credit lines are drying up, the cost of borrowing has increased dramatically and credit insurers are refusing to underwrite the payment chain. Surely the Minister would agree that the recapitalisation of the banks has not yet filtered adequately, if at all, into the real economy. Why, then, has he chosen to reject our clear policy for a national loan guarantee scheme that would augment and underpin credit lines in a way that no Government policy yet does—or is he really saying that the Government have no ideas of their own and are simply rejecting it because it has on it the label, “Not invented here”?

We announced a loan guarantee scheme in the pre-Budget report, based on a balance of risk sharing between the Government and business. As far as the hon. Gentleman’s proposal is concerned, as I have already said, the Conservatives have not made clear what proportion of the loans would be underwritten or what balance of risk will be shared between the Government and the lenders. It is important that proposals in this area are properly costed. That is what we have done and if further action is needed to help small businesses, we will not hesitate to take it.

But one thing the Government could definitely do to extend credit to businesses is to let them delay their VAT payments. Yesterday the Prime Minister said at Prime Minister’s questions that that was his policy and it should happen, but businesses are saying that, in fact, they are not being allowed to do that because Her Majesty’s Revenue and Customs says, among other things, “Oh no, it would give such a company a competitive advantage.” How can the Minister reconcile what the Prime Minister says one day with what is actually happening on the ground, and what instructions—what clear instructions—have the Government given to HMRC about the deferral of businesses VAT?

The Chancellor announced in the pre-Budget report that HMRC would, on a case-by-case basis, allow businesses to spread their tax and VAT payments over a longer period of time. It is not the case that they have all been refused, as the hon. Gentleman claims that they have. It is judged, as I said, on a case-by-case basis.

In terms of policy—I know that the Conservatives like a leak—perhaps I should draw attention to the hon. Gentleman’s approach. I have an e-mail to him from his colleague, the hon. Member for Hertford and Stortford (Mr. Prisk)—