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Small Business Growth (Hazel Grove)

Volume 555: debated on Monday 17 December 2012

Motion made, and Question proposed, That this House do now adjourn.—(Mr Syms.)

I am pleased to have the opportunity to bring this debate to the House. Although it relates specifically to my constituency, I am certain from the remarks I have heard from other Members over the past few months that the problem is universal, and that we could easily have another 649 such debates relating to other constituencies. The problem is that there is a huge gap between what the retail banks tell the Government is going on, what they tell Members of Parliament is going on and what they tell small and medium-sized businesses in my constituency is going on. As soon as it was known that I had secured the debate, a number of organisations got in touch with me to say words to the effect of, “Good on yer, get on with it, and there’s lots more to follow.” The British Chambers of Commerce e-mailed me to say:

“Across Britain, there is strong evidence of a serious market failure around access to finance, especially for fast-growing and newer businesses.”

The e-mail went on:

“The introduction of state-backed support schemes to increase the availability of finance to SMEs has been impeded by a lack of coherence, poor roll-out, poor communication, and over-dependence on existing bank infrastructure.”

By that, the BCC means that the existing banks are being expected to deliver it.

The Federation of Small Businesses got in touch to say that as part of its quarterly economic index it asked members whether they had requested credit, and other related questions. In the third quarter of this year, 21.6% of those questioned had applied for a loan—in other words, more than a fifth of businesses—and of those 42.4% were rejected and 14.8% still await a decision. In addition, 74.7% of firms rated credit availability as quite poor or very poor, with only 6.9% rating it as good. In other words, half of those who applied had their loans rejected, and three quarters of all firms thought that credit availability was poor or very poor.

The FSB went on to tell me that it had also recently carried out a survey of its members in Hazel Grove regarding their main concerns. Approximately one third said that getting bank lending or lending from other sources was their biggest concern—a third of the businesses they polled in my constituency. It provided a quote from one of its members:

“the high street banks are not the vehicle for engaging small business due to their aggressive policies and their inability to discuss/consider risk based lending. What we need is not lots of different schemes that try to get the banks to do their job, but rather one scheme that does not involve the high street banks.”

Not everybody shares the pessimism about retail banks. I was drawn to remarks made in the newspaper City A.M. on 6 December by Anthony Browne, the chief executive of the British Bankers Association. His commentary was:

“It is time politicians wake up to the fact that, when it comes to returning the economy to growth, banks are no longer the problem–but part of the solution.”

That is why it is so important for us to have this debate and to hear the Minister’s response. There is a huge gap between the perception of the banks as they represent themselves to the Government and MPs—we all get monthly or quarterly newsletters from each of the big retail banks in which they point out that everything is as good as it ever possibly could be, they are trying hard and nothing is going wrong—and my constituency inbox, in which every month small and medium-sized enterprises tell me of their problems.

I want to spend a little time on four specific cases. In each case, I have spoken to the companies concerned and they are happy and ready for me to use them as examples in this debate. The first case is Isaac Hirst Fine Furniture, which I think is best described as a micro-business—it is a one-man furniture making proposition. Mr Hirst has been running it since 2011 and banks with Lloyds. At the beginning of the year, he was offered a £10,000 contract from a big company specialising in high-end commercial kitchens. He approached the bank for an overdraft to provide working capital. When he opened his account with Lloyds in 2011, he was told that he would be eligible for consideration of an overdraft after a few months. In fact, his overdraft application triggered a refusal and a robust challenge from the bank over how he got a business account in the first place, and, because of the bank’s response, his company had to turn down the contract.

The same company that had offered my constituent the £10,000 contract then offered him a £2,000 contract. He realised that cash flow could still be a problem, because he was finishing off a piece of furniture for a client in Valencia—export business, you see—so on 2 July this year he approached the bank for a short-term overdraft of £500 to help pay for the materials for the new commission, but the bank refused.

That is when I came into the picture. I took up the case and received a letter from Lloyds TSB dated 11 September that, apart from some explanatory stuff about its decision making, said:

“I’ve also asked Leigh Taylor to contact your office to arrange the meeting which was previously discussed.”

By the end of November, Leigh Taylor had not contacted me, but on the other hand I had got an invite to breakfast from Lloyds TSB and to meet Annette Barnes, whose job title was “ambassador for the north”—a suitably grand title and perhaps worth compromising my ethical position for by accepting a breakfast from her. I thought she might be at least dimly aware of the fact that I had raised a complaint about the bank’s behaviour in relation to Isaac Hirst Fine Furniture, but that turned out not to be the case—she was completely unsighted—although she said she would make some inquiries. She made them and came back saying, “Everything’s okay, I think.” Well, I am still waiting for the call from Leigh Taylor, and it is now 17 December.

I have, however, got endless briefing notes from Lloyds bank. I have a note telling me it employs 9,000 people, has got 350 branches and gives £4.9 million to charity. It sent me a “state of the economy” pack and a constituency factsheet that, among other things, tells me what the average child’s savings are in my constituency, but it has avoided telling me how many SMEs there are in my constituency, how many applications for loans it has received from SMEs in my constituency and how many have succeeded.

I would not want the House to think that I have a particular gripe about Lloyds bank, so it is right to introduce my second example, which relates to an engineering company in my constituency, JD Hughes, Europe’s largest manufacturer of emergency safety showers, eyebaths and decontamination equipment. A lot of its equipment goes into chemical plants and petrochemical plants so that, in the event of spillage or some other problem, workers can get immediate relief. The company’s products are used throughout industry and by civil and military authorities worldwide, including by our own fire and rescue services. They are sold directly to end users and contractors or sometimes through an international network of distributers, and they are sold through specialist safety equipment suppliers.

This case came to my attention when I attended the awarding of the Queen’s award for export given to the company by the lord lieutenant of Greater Manchester in the presence of me, as the constituency MP, and the mayor of Stockport borough. At that point, it became clear that it, too, had a quite a serious problem. Its turnover is £12 million a year, it employs 90 people and 70% of its product is exported. Some 97% of the materials it uses are UK-supplied, and a dozen or more of those companies are based in Stockport. It provides local jobs, and has a local purchasing policy but worldwide trade. However, it cannot get the money and support it needs from the banks.

JD Hughes started with RBS—we can add that to the rogue’s gallery—but it was not much use so the company switched to HSBC. That did not work so it switched to NatWest. In the course of that process it received a mysterious £250,000 cut to its overdraft, a reduction in invoice discount rate, and an offer of factoring for outstanding bills which, given that it was dealing with internationally known major corporations, was inappropriate. That cost the company £50,000 to sort out.

In July this year I am happy to report—I am sure the Minister will be pleased to note this—that the Export Credits Guarantee Department offered the company 50% for its export project. However, that must be matched by the bank, although five months later the bank has not agreed to do that. The money is there but cannot be released. JD Hughes needs an underwriting of its bond facilities but at the moment that is costing it £1 million in money held back by clients because it cannot get the bond in place. The company’s finance director estimates that it is £1 million behind where it could be in terms of turnover—the equivalent of 10 jobs. It has recently been approached by a foreign bank that is offering a better deal than any of the domestic banks. Its plea is for the banks to adopt not a no-risk but a low-risk way of evaluating propositions they receive. On Friday I met Mr Steve Sankson, the regional director at NatWest commercial banking, and to be fair he left the meeting with a clear understanding of my concerns. It remains to be seen whether that will lead to action.

My third example concerns Tribourne Catering Services, and the villain of the piece is HSBC. Tribourne recently secured a 10-year contract to run catering facilities at a newly opened private sports centre in my constituency, Woodley Sports. The company has been banking with HSBC since 1996 but to get the contract under way it is necessary for the successful catering company to equip the kitchen, which requires the purchase of capital materials. Tribourne asked for a loan of £100,000, which was refused. When it approached the bank to say, “Okay, if not £100,000, how much?” the answer was, “None at all.” When I spoke to Brenda Hopkins of Tribourne she said that the response may have something to do with the fact that she is now in contact with her ninth relationship manager in 16 years of banking with HSBC, although she has not heard from most of them in her time with the bank.

What does HSBC have to say about that? A letter on 13 September stated that

“in the North West region we are pleased to report that we have in the first six months of the year: agreed in excess of £657 million gross new lending to over 13,650 small and medium sized businesses—an increase on the same period last year.”

No doubt that is true; I am sure the bank would not deceive MPs in its correspondence, but it certainly missed one company in which it should have invested—another example of things that go wrong.

Fourthly, just to get a full suite of banks, let us look at Barclays. Childcare Products has had a 15-year business relationship with Barclays bank. In January 2012 there was a change of bank manager—or relationship manager as they seem to be called these days—and the boss was called into talk about his overdraft facility and how the bank could make things a bit easier for him. The company has an £18,000 overdraft facility that could be extended to £20,000 via a phone call to the bank manager. The new proposition was to turn that into a loan, with a change in interest from 8% to 14% over five years. When the company refused, nothing very much happened until it discovered that the £18,000 overdraft was reduced to £10,000 without anybody bothering to notify it.

The Federation of Small Businesses was tipped off by Childcare Products and an all-party group has considered the matter, but what did Barclays have to say to me? It wrote on 29 November to say that it is running

“a series of clinics and seminars…to encourage entrepreneurship and help businesses boost skills, overcome challenges and widen their networks.”

It has a strange way of doing that.

I have given an overview from the British Chambers of Commerce, the Federation of Small Businesses and the British Bankers Association and asked the House to judge which has got it more right in the real world. I gave examples of four different companies in my constituency that approached me—I did not seek them out—to say, “Mr Stunell, can you not do something about how the banks are treating small businesses?” All had the option and capacity to create more jobs in Hazel Grove doing productive work, and all have been blocked as a result of decisions taken on their applications.

What do I want to hear from the Minister tonight? I want to hear his assurances on the Government’s good intentions. I share them, and I know he has worked hard. I want to hear the report on progress and to know how soon we will have the business bank. I want to know whether and how soon we can channel more of the Government’s and public taxpayers’ resources through the non-retail banking sector, for which the British Chambers of Commerce has asked.

I want to ask the Minister for just one practical step. I would like him to convene a meeting at which the British Bankers Association and senior representatives of each of the banks I have named in the debate are in the same room with him as the Minister and me as the affected MP. I also want the opportunity to bring one or two of the people to whom I have referred into that room, so that we can short-circuit the gap between what the banks tell the House and the Government and what really happens on the ground. We must get to a point at which we get real action, instead of talking on two different planets about two different situations while jobs go begging. I am looking forward to what I know the Minister will tell me.

I thank my right hon. Friend the Member for Hazel Grove (Andrew Stunell) for securing this debate and for presenting his case so eloquently.

All hon. Members are keen to see successful businesses in our constituencies, whether in Hazel Grove or Bromsgrove. We recognise the importance of businesses. Whether they are small, medium or multinational, they provide jobs for our communities. Indeed, only with the help of successful British businesses will we be able to deal with the economic challenges that our country faces. I am therefore glad to have the opportunity to discuss retail banks and small businesses, and business finance more generally.

My right hon. Friend has shared some interesting case studies of the difficulties that some of his constituency companies have faced. He mentioned four companies, including Isaac Hirst Fine Furniture, JD Hughes and Tribourne Catering. I am sure he understands that it would not be appropriate for me to try to address the company issues he has, but his message comes through clearly from the illustrative examples he has picked.

I would like to start by talking about some of the action that the Government have already taken, and then to answer some of the excellent questions that my right hon. Friend has asked. The Government have taken a number of steps, and the first that they took on coming to power was to set up Project Merlin, which began in 2011. In that year, UK banks lent a total of £214 billion to British businesses. That represented a 20% increase on 2010, exceeding the lending target by £24 billion. On top of that, the national loan guarantee scheme enabled businesses to receive a 1% discount on loans, compared with the price of loans outside the scheme. As a result, over 28,000 cheaper loans, worth over £4.6 billion, have been committed to businesses. Of those loans, over £2.7 billion has already been used by businesses to help them to invest and grow.

One of the Government’s most ambitious schemes is the funding for lending scheme. Also referred to as the FLS, this joint project between the Government and the Bank of England was launched in July this year. It works by reducing banks’ funding pressures in return for increased lending to businesses and households. The FLS creates strong incentives for banks to increase lending to UK households and businesses, and as a result of the scheme, we have already seen a number of participating banks launch new and discounted SME loan products. The scheme is transparent, and the Bank of England will publish data on the amount that each bank has drawn from the scheme and how much they have lent to UK households and businesses.

Other Government measures include the enterprise finance guarantee scheme, which enables lenders to provide debt finance to small businesses that can demonstrate that they have capacity to repay the loan in full but do not have sufficient security. The EFG has already supported £300 million of lending in 2011-12 and, subject to demand, is due to provide over £2 billion in total over the next four years.

My right hon. Friend mentioned the newly announced business bank, which is in the process of being created. A number of the bank’s functions will be operational from spring 2013, with the institution becoming fully operational by the following autumn. The bank aims to address gaps in business finance by drawing together the Government’s existing initiatives under one roof in an integrated service to all firms, and £1 billion of additional capital has been allocated to the business bank to stimulate the market for long-term capital. At least £300 million of that will be co-invested over the next two years in channels that will diversify the sources of finance available to SMEs, such as non-bank lenders.

As my right hon. Friend has rightly pointed out, the public want to know that the money from all those schemes is finding its way from banks to businesses, so let me say a word or two about the importance of transparency. I believe that we are going further than any Government to ensure transparency in lending, especially in relation to the lending that the Government are helping to provide. The Government will be working with industry—through the British Bankers Association and other interested parties—to get a commitment from the banks that they will publish more granular data. We have agreed to work with industry to collate and publish lending data that are disaggregated by institution and presented on a postcode-level basis. The Government will take this forward as an urgent and pressing matter.

In reiterating our commitment to make progress in this area, I confirm tonight that, should our negotiations with industry fail to deliver for any reason, the Government will introduce amendments to the Banking Reform Bill to ensure that the data, in disaggregated and postcode-specific form, are published. That will enable my right hon. Friend to see exactly how much the banks are lending to small businesses in Hazel Grove. Indeed, it will allow all Members to see similarly detailed data. I hope that my right hon. Friend agrees that that will be a welcome development.

I want to say something about the appeals process, which I do not think is given enough air time and which is not as well known as it should be. It is important for businesses that fail to secure loans to be given clear and honest information about the reasons for that. In April 2011, the major UK banks established the appeals process as one of the 17 commitments of the business finance taskforce. The process allows any business with a turnover of up to £25 million that has been declined any form of lending to appeal against the decision, for any reason, to the participating bank concerned. If an appeal is raised, the decision will be reviewed by a second person from the bank who was not involved in the original decision. The results of the first year of the process show that in 40% of cases in which a decline was appealed against, a lending agreement with which both parties were satisfied was reached.

I am not sure whether the four companies in my right hon. Friend’s constituency have tried to use the process, but if not, I certainly recommend it. He said in his speech that he had raised the issue with some of the banks, and mentioned the “ambassador to the north” from Lloyds TSB. I hope he agrees that it is worth while for the Government to advertise the appeals process and ensure that enough people know about it. Better promotion is needed, so that every firm knows that it has somewhere to turn.

We must bear in mind, however, that banks and other lenders must make sensible decisions about whether to lend, how much to lend and on what terms to lend. Lenders consider a number of factors when making such decisions, including the cost of obtaining funds and the risk that some borrowers will default. Both these factors have been heightened by the financial crisis in the eurozone, and that may have contributed to changes in the way in which some banks have approached their lending activities. Decisions about whether to lend to specific businesses remain commercial decisions for banks to make. It is important for them to have in place the correct lending criteria, so that we do not see a return to the excessive balance sheet growth that we saw during the financial crisis.

Towards the end of his speech, my right hon. Friend suggested that a meeting could be convened between him—along with, perhaps, some representatives from his constituency—and members of the British Bankers Association, including some of the banks that he mentioned this evening. I would be more than happy to write to the BBA and try to convene such a meeting on his behalf, because I believe that it is a sensible idea. Perhaps we can take that up directly later.

The Government believe that it is important for viable businesses that want to invest and grow to have access to the finance that they require in order to do so, and we are therefore pursuing a substantial agenda. I thank my right hon. Friend again for raising this important issue. The Government are well aware that banks play a vital role in serving the economy, and I assure him that we take this issue very seriously.

Question put and agreed to.

House adjourned.