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Business Credit

Volume 506: debated on Thursday 4 March 2010

10. What recent representations he has received on trends in availability to businesses of credit from banks. (320203)

The Department meets regularly both banks and business representatives to discuss the availability of business finance. This has included the quarterly meeting of the Small Business Finance Forum and a recent “Going for Growth” seminar, which brought banks and businesses together to look at current issues affecting business bank credit and how they might evolve as the recovery of the economy progresses.

The Federation of Small Businesses has found that nearly half of small businesses in Scotland are having to use personal savings, personal loans or personal credit cards as a major source of business finance. The Minister will know that the Public Accounts Committee found that Lloyds and Royal Bank of Scotland fell well short of their promises to lend £39 billion last year. Can the Minister tell the House what he will do this year to get the banks lending and, at the very least, ensure that the part-nationalised banks meet their lending targets for small businesses?

The Department has a help for business unit and, if the hon. Lady has individual examples with which she needs assistance, we are happy to take those up and discuss individual cases directly with banks. We are very conscious of the availability of lending and how important it is in taking forward the recovery. There have been signs of progress in the last quarter, but we will continue to engage with both banks and small businesses to ensure that that recovery builds.

Is the Minister aware that the Bank of England’s report last month showed that the fall in bank lending in 2009 was the worst since records began, and that lending to business crashed by a whopping £4.3 billion in December alone? Does he not remember the Chancellor’s words about the Government’s bank rescue plans 18 months ago—as far back as October 2008—when he said:

“The purpose of these proposals is to get lending started again”. —[Official Report, 8 October 2008; Vol. 480, c. 280.]

Given the latest figures, does the Minister not feel even the faintest shred of embarrassment about the yawning gulf between the rhetoric and the reality?

What I do remember is that when I was running a small business in 1992, interest rates increased in a morning from 10 per cent. to 15 per cent. We do not wish to see those days of instability return. We understand small businesses and engage with them, and we are continuing to work to restore credit and investment in industry. There are signs of positive steps forward and we will continue with those as time passes.

One of the problems that small businesses in my constituency have with the banks is the operation of the enterprise guarantee scheme. Despite businesses meeting all the published criteria, the banks simply will not lend, often saying that businesses are unviable because they have had a drop in profitability over the last year—hardly surprising in the midst of a recession. Will the Minister look at the operation of the scheme and put pressure on the banks to deal with small businesses more equitably?

To date, more than £1.2 billion of eligible applications have been pursued through the enterprise finance guarantee from 10,738 companies, and £857 million has been offered to 8,378 businesses. That has meant real help to those individual businesses. As I indicated to the hon. Member for East Dunbartonshire (Jo Swinson), if hon. Members—on either side of the House—have individual examples, I will work with them to help small business.

As the economy starts to grow, the provision of credit for all business, especially small and medium-sized enterprises, will be vital as working capital. As my hon. Friend the Member for East Dunbartonshire (Jo Swinson) said, the PAC has drawn attention to the fact that the nationalised banks have failed to meet their lending commitments. Last week, the Institute of Directors published a survey that showed that 57 per cent. of those who had applied for credit were denied it. Worst of all, of that 57 per cent., 83 per cent. were not even offered information about the enterprise finance guarantee scheme. So the banks are failing to lend, United Kingdom Financial Investments Ltd is failing to do anything about it, and the enterprise finance guarantee scheme is also failing. What will the Minister do about that catalogue of failure?

I have already recounted the figures on the extent of the success of the enterprise finance guarantee scheme—the money invested in businesses and the numbers of businesses that have benefited. We always wish to do more, and as the recovery gathers pace, we will continue to engage with business and banks to ensure that the banks provide assistance to the economy as it grows.