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Start-up Loans

Volume 570: debated on Wednesday 20 November 2013

With permission, Mr Speaker, I wish to make a statement on start-up loans. Since the great recession of 2008, concern has been raised repeatedly across the House about access to finance, particularly for the smallest companies. The contraction in support for small and medium-sized business lending following the financial crisis led to a sharp drop in the growth of lending to, and support for, small businesses. All Members will recognise the constraints facing aspiring entrepreneurs across the country trying to access finance.

Those problems were a consequence of an overreliance on bank finance compared with our international competitors, a hollowing-out of business lending units in the big banks and too much concentration in our banking system, followed by the biggest banking bust ever faced in this country and the biggest bank failure in the world in 2008.

A calamity of that scale cannot be addressed by a single policy, so since 2010 we have engaged on a comprehensive programme of bank reform: splitting retail and investment banking; requiring greater capital; introducing a tax on leverage; introducing much stronger requirements to check that the people running banks are fit and proper persons, so that we do not get the likes of Fred Goodwin and the Rev. Paul Flowers sitting atop our banks in future; and introducing criminal charges for those who behave negligently in charge of big banks.

Those changes are part of a wider drive to change the culture of banking so that our banks serve the economy, rather than the other way around, but alone they are not enough. To help companies access finance, we have introduced the British business bank, doubled the seed enterprise investment scheme, expanded the enterprise finance guarantee, and last year we introduced start-up loans of up to £25,000 per founder—although, more typically it is around £6,000—to help budding entrepreneurs access the seed capital to make their idea a reality.

For too long Britain has been a home of great ideas that are then commercialised and developed elsewhere. We want British business men and women to take brilliant British ideas and turn them into blossoming British businesses. The first start-up loan was made in September 2012, and since then growth has exceeded expectations. Over a third of loans go to black and minority ethnic entrepreneurs and over a third go to people previously unemployed. In June this year the Prime Minister announced that start-up loans would no longer be restricted to young people, so the age cap has been removed altogether. We are now seeing strong growth in the number of people over 30 being helped to realise their full entrepreneurial potential through the programme’s mentoring and financial support.

In August we introduced specialised support to finance ex-military service personnel who want to start their own business within the start-up loans scheme. I am pleased to announce that today we have made the 100,000th start-up loan—[Interruption.] Today we have made the 10,000th start-up loan.

Mr Allen Martin, a Royal Navy engineer from Truro, is the 10,000th loan recipient for the programme. Allen joined the Royal Navy in 1991 as an engineer and mechanic, working with helicopters, search and rescue, and commando forces. He served for 22 years, in Bosnia, Kosovo, Iraq and Afghanistan. Having been medically discharged, Allen knew what he wanted to do—start his own business—so he applied for a start-up loan and founded Eclipse Property Cornwall, which will manage properties on behalf of landlords, renting them out and offering full or part-time management. Allen Martin has benefited from the extension of start-up loans to all ages and the specialised support of our ex-service personnel.

Given the success of this targeted approach within the full age range, we are now going even further. I can tell the House that we are committing a total of £151 million to the scheme this year and next, with the goal of backing 30,000 new businesses by 2015. From 1 January, the Start-Up Loans Company will specifically target priority groups: entrepreneurs over the age of 50, young people not in education, employment or training, and new mothers who are ready to return to the workplace and are seeking the ability to manage their own time and commitments on their own terms.

Age UK estimates that one in five of those over 50 now work for themselves—a growing trend accounting for 70% of the businesses started in the past five years, compared with 28% of those started by young people. With the added support of mentors who understand modern media and marketing, new retail platforms and communication channels, start-up loans can help to bring even more of those in this age group to success. That is why we are tasking Start-Up Loans to find the specialist providers who will make the loans a perfect fit for the older entrepreneur.

On NEETs, I know that Members throughout the House have seen just how valuable and popular these loans are in tackling youth unemployment. Working with the new enterprise allowance, start-up loans give specialist support to those who have been away from the workplace for a long time and need strong and committed mentors with an understanding of what it is to start from a very low base. The Prince’s Trust has already demonstrated just how effective that approach can be, and much more can be done to create a targeted offer that creates the right conditions for these businesses to survive and thrive within the safe environment of start-up loans.

Finally, new mothers are also turning increasingly to self-employment. According to Mumpreneur UK, self-employment for women is rising at three times the rate for men. So far, 37% of start-up loans have gone to women. We want to do more to increase that figure, so we will introduce specialised support for mothers seeking to start businesses who are juggling child care and seeking flexible ways to turn a business idea into reality.

With record new business creation, 400,000 new businesses, record jobs and a record 4.9 million companies in the UK, Britain is once again becoming an entrepreneurial beacon of the world. Our future prosperity rests on the entrepreneurial aspirations of the British people. This Government will not rest in our drive to support those who want to work hard and get on, and I commend this statement to the House.

I thank the Minister for his statement. Given that I first saw it when I arrived at the House, I also thank him for not saying anything surprising during it. I want to place on record the thanks of the whole House for the work that has been done by James Caan and the Start-Up Loans Company to support people to set up their own businesses. I also record our congratulations to Allen Martin, the 10,000th recipient of a start-up loan.

I understand that Allen is one of the very first ex-servicemen to benefit from a start-up loan. It was immense good fortune—I am sure the Prime Minister, as a public relations professional, will have appreciated his luck—that the 10,000th recipient of a loan should happen to be a Royal Naval veteran who gave 22 years’ service to our country, is over the age of 30 and lives far away from London. Sadly, he is not all that typical of the people who are benefiting from the scheme. However, atypical as he may be, he is a great role model to inspire future business leaders.

Small businesses are the lifeblood of our economy, so the £50 million that has been lent to 10,000 new entrepreneurs is an important symbol of the enterprise spirit that runs deep through the proud history of our great island people. The Minister was right to broaden his remarks to address the broader context of the scheme. As we examine the performance of start-up loans in the context of the broader picture for small businesses and the support available, we will see that James Caan is right to say there is still much work to be done.

Does this scheme have a default target and, if so, how is it performing against it? A key lesson from the start-up loans programme is that access to finance schemes is only as good as the infrastructure that supports them and that the schemes rely on a wider system of business support, mentoring and signposting—the very fabric of support that is so lacking in many parts of the country in the absence of Business Link, the abolition of the regional development agencies and the impoverishment of local government.

That is borne out by the statistics that we are welcoming today. In every recession, there has been an increase in business start-ups. People faced with a flat job market and low demand for their skills will often seek to create their own job by setting up a firm. Desperation is not a bad motive for launching a firm—I have done it myself—but it is noticeable that far and away the most loans have been given where businesses support networks are strongest, namely London: 15% of the population lives in London, yet 36% of the start-up loans have been delivered there.

Does the Minister recognise the links between an integrated business support network and successful start-ups? If so, does he regret the destruction of Business Link and the failure to replace it with anything meaningful to provide support, not just to start-ups, but to developing small firms around the country?

Just as with the regeneration money from the Growing Places fund that went much more to London and the south-east, just 5% of the loans under discussion are going to areas such as the north-east, which has seen huge job losses and which we would have thought would be ripe for skilled workers looking to set up their own firms. What is the Minister doing to create a one nation business support network for those areas receiving the least of the start-up loans money? Although we absolutely recognise and welcome the scheme’s success in attracting people from black and minority ethnic backgrounds and the number of women who have benefited from it, it is important that that geographical aspect is recognised.

Is the Minister aware that James Caan has said that support and mentoring is a more important part of the success of this programme than the loan? Is the Minister therefore embarrassed that recent research has shown that people using the Government’s Mentorsme website are four times more likely to offer themselves as experts than as businesses needing mentoring? Does he think that a scheme with four times as many experts as recipients of that expertise sounds like a success?

Will the Minister promise that the success of this worthwhile scheme will not blind him to the fact that there is a crisis in business support in many areas of this country and that businesses that would have had a chance of success will fail because of a lack of signposting and mentoring?

The Minister spoke about commercialised British ideas going overseas, but this type of scheme, important though it is, is not likely to make a difference, because it seems to be targeting a very different part of the market.

The Government’s failure to support small firms with access to finance cannot be camouflaged by this worthwhile scheme. Given that the Government have overseen a £14 billion reduction in lending to small business, will the Minister, at the same time as he celebrates his £50 million scheme, recognise that total lending from it is less than 1% of the shortfall in net lending that British business has experienced? [Interruption.]

Order. May I gently say to the hon. Gentleman that I think he is approaching his last sentence?

You are very wise, once again, Mr Speaker, to notice that.

Will the Minister make a statement on the real access to finance crisis that he has done so little about? Will he recognise the need for radical change to the banks through the Labour party’s proposed network of local banks and support for challenger banks, which will lead to the desperately needed improvement in the position of small firms seeking access to finance?

Mr James Caan, who runs the start-up loans scheme on our behalf and to whom I pay tribute, is absolutely right to say how important mentoring is—and I think we have just seen why. What a pity that the Labour party cannot be enthusiastic about and supportive of a scheme that has done so much: 37% of start-up loans go to BME entrepreneurs and more than a third to the unemployed. We are aiming for 30,000 and the pace of delivery is accelerating.

I will turn to the specific questions asked. I entirely agree with the hon. Gentleman’s point about business growth in hubs, which is why the development of Tech City UK and of start-up hubs around the country—in Manchester, Cambridge, Edinburgh and almost every city—is welcome and I hope it will get cross-party support.

The hon. Gentleman said that we need to ensure that this scheme is part of a package, but I am not sure whether he was listening to the statement. The whole point is that the scheme is precisely part of a plan to start improving access and helping people right at the start of their business careers, and to then expand the enterprise investment scheme, enhance the guarantees available, establish the business bank and, most importantly, turn around the banks. I think that a little more support from the Labour party for turning around the mess it created would be more appropriate.

Order. I am conscious of the level of interest, but also of the pressure on parliamentary time. Depending on the length of questions and answers, it may or may not be possible to accommodate everybody, but we will begin with Mr John Redwood.

As we wish to spread the news to constituents, what is the typical interest rate for loans and the average duration of them?

The interest is typically 6% and the average duration is up to five years, but those matters are of course also dependent on the proposition that is made. So far, in the year and a bit that the scheme has been going, the amount paid back has been pretty strong.

The Minister berated my hon. Friend the Member for Chesterfield (Toby Perkins) for not looking at the wider picture, but he will be aware that of the outstanding loans from British banks in August, more than 30% were loans to other banks and more than 40% were loans to consumers linked to house buying, while only just over 1% were loans to small businesses. After three years of having scheme after scheme, how can he persuade this House to take Government policies in this area seriously?

That is precisely why we need programmes such as this one, which I hope the hon. Gentleman supports. It is important for us all to realise just how difficult it is to recover from the scale of the banking crisis under the previous Government. Many measures are of course needed, and this very important one is helping thousands of people to start their own businesses and realise their dreams.

I congratulate Mr Martin and wish him well. I started two small businesses that now employ almost 300 people, having gone into a sub-branch of Lloyds bank and come out with a facility of £60,000 in 1989. That would not happen now, so my concern is about whether information is getting through properly at the coal face. Will the Minister tell us whether that is happening, and will he continue to monitor that matter to ensure that the people he rightly says are in need of loans can receive them?

Absolutely. The development and acceleration of the scheme includes an acceleration in people being able to get hard cash. In many cases, the turnaround time from application to delivery of the cash is about two weeks and, given that speed kills in relation to starting a new business, that is an important part of the process.

A Welsh Government-sponsored report by Conservative member Professor Dylan Jones-Evans recently recommended the establishment of a publicly-backed Welsh development bank, very much based on a model proposed by my party, Plaid Cymru. Will the Minister enter into negotiations with the Welsh Government, give them a nudge and offer Treasury support for that concept to ensure that Welsh businesses get the access to finance that they deserve?

I can do better than that. In collaboration with the Welsh Government, the roll-out of start-up loans in Wales commenced on 15 October, and I would encourage anybody in Wales to get involved.

I commend the Minister for all the help he has given to small businesses since he took up his post. I am particularly pleased that he has recognised the diversity of groups wanting to start businesses. With regard to the over-50s in particular, how will he get information out—not to the banks, but to local authorities, local enterprise partnerships and other places in which people who are not used to computers will look for such help?

The Business is Great website is an important part of that. I commend my hon. Friend’s work in supporting small businesses, in pushing for improvements for them and in getting out personally to demonstrate what is available. There is a broad communications campaign about the scheme—yes, online, but also offline—and I take every opportunity to tell people what is available.

Will the Minister confirm that the advice that goes with the funding, which is crucial, is specific to individual businesses and the markets in which they operate? Will he also confirm that funding and advice for existing businesses is equally important, because without that second element, start-up loans will ultimately lose much of their effectiveness?

Yes. Those are extremely important points. The growth accelerator programme offers support for small and growing businesses and is itself expanding rapidly. The start-up loan programme is not only about access to finance for those starting businesses, but about mentoring. The number of businesses sponsored by each mentor is small, so that mentors have the opportunity to spend time and put effort into ensuring that such ideas get the best possible chance.

Many of the people who have so far benefited from the programme are truly inspirational. The Minister may be interested to know about a perfume called Pink Addiction—I have tried it—which was created by Nabila Ismail. She was so positive about the scheme that the only thing she asked for was specialist mentoring wherever possible, a point which has been mentioned.

I pay tribute to Pink Addiction. My hon. Friend has put a huge amount of effort into supporting start-ups and small businesses. I am sure that being mentored by him would be one of the best ways in which someone could grow their business.

The Minister told the House that there will be £151 million for the scheme this year and next year, but will he clarify whether that is new or additional funding, or is he simply announcing something that has already been announced? If it is new or additional funding, will he ensure that businesses in Scotland can benefit from the project either directly or with additional funding through a Barnett consequential to the Scottish Government?

The £151 million is available over the next two years. Further details will be set out in the autumn statement. We are working with the Administration in Scotland to ensure that the scheme can be rolled out across Scotland as well.

May I congratulate the Minister on a scheme that has helped to deliver the lowest unemployment level in my constituency since August 2008? I particularly congratulate him on the 4,500 disabled people who have been able to access a scheme that is hugely important in allowing them to reach their true potential. Will he assure me that he will continue to promote that objective?

Yes. My hon. Friend makes an important point. It is vital that the scheme should allow everybody the opportunity to reach their potential through starting a business, and he put that very eloquently.

I congratulate my hon. Friend on the success so far of the start-up loans scheme, which I will continue to promote locally. Does he agree that the support of local business organisations, such as the successful Erewash Partnership in my constituency, is vital, in that they provide mentoring support and networking opportunities to help businesses to flourish?

I pay tribute to the Erewash Partnership. Such local business support groups, as well as LEPs, the chambers of commerce, the Federation of Small Businesses, the Forum of Private Business, the CBI and the Institute of Directors, play a part in making sure that businesses get to know what is available and are given support. We work in partnership with many of those organisations, which have done a great deal to make such a success of the scheme.

I believe it is a moral imperative for the Government to offer a route from welfare dependency and poverty to self-employment and prosperity, and on that basis I strongly welcome the scheme. Will the Minister undertake to look at the work done by third sector and voluntary groups, such as the Cambridgeshire Community Foundation and the Peterborough-based Cross Keys Homes, in helping tenants and those not usually involved in the business world to avail themselves of the scheme and access funding for micro-businesses and SMEs?

Yes, I will do that. The fact that more than a third of the loans have gone to people who are unemployed is one of the scheme’s great strengths. Along with the new enterprise allowance, the scheme is helping us to reduce unemployment for people who do not want to go into an ordinary 9 to 5 job, and instead want to grow their own business.

I congratulate the Minister on his success with the start-up loan scheme. Will he reassure the House that he will continue to champion efforts to build on the scheme, particularly in my Isle of Wight constituency?

Yes, I will take a special interest in ensuring that the Isle of Wight has access to the scheme. Many of the partners through which it is delivered are regional, but there are many national partners and much of it can be done online. I am sure that broadband internet is readily available on the Isle of Wight. If it is not, it soon will be. I will take a special interest in how many loans are taken up on the Isle of Wight.

This is welcome news, especially as the start-up businesses have gone on to employ a further 10,000 people. To build on that, what more can be done to encourage an entrepreneurial spirit within the education system to equip the next generation of young entrepreneurs?

I am grateful to my hon. Friend for adding to the statistics at my disposal. He is a doughty campaigner for enterprise in the education system. One of the main purposes of bringing together the skills and enterprise briefs is to ensure that the education system reflects and prepares people for the world of employment and enterprise. That is very close to my heart and I look forward to working with him to make it happen more.

The start-up loans scheme has been a fantastic success story. One reason for that success is the presence of business mentors. Will the Minister reassure the House that as the scheme grows, as new groups get involved and as the age cap is lifted, the number of business mentors will keep up in order to ensure that all the businesses have access to the support that they need?

We are finding that lots of business men and women are interested in mentoring, partly because they feel that they got so much out of growing their business and want to give something back. Engaging more mentors is a vital part of the scheme, but that is not a constraint on expansion owing to the enthusiasm—to which I pay tribute—of business men and women who want to help others to get the sort of start that they had.

As someone who started and ran a small business, I know about the challenges that are faced by people who want to run their own business, particularly in accessing finance. I was pleased to join the start-up bus when it visited Rugby. Does the Minister agree that the start-up loans scheme shows that the Government are providing real help to small emerging businesses, unlike the Labour party, which took advice on business and industry from the man who managed the decline of the Co-op bank?

My hon. Friend makes an important point. It is surprising to see the Labour Benches almost entirely empty when the House should be uniting in support of the excellent start-up loans scheme. I pay tribute to my hon. Friend, who started his own business and who does much in this House to promote those who start their own businesses.

I recently met a number of young entrepreneurs who had started successful small businesses using start-up loans. They had been refused loans by mainstream banks. Will my hon. Friend assure me that the scheme will be broadened to create tens of thousands of budding entrepreneurs of all ages across our great country?

The scheme is growing and accelerating, and it has the capacity to do more. I hope that we can do more with it, not least because it is helping people who would otherwise not be able to start their own business. We started the scheme because of the difficulty that is faced in getting finance from banks at an early stage. The evidence that my hon. Friend sees in his constituency is what I see across the country. That is exactly what this successful scheme is for.

I have great pleasure in welcoming this excellent statement because it brings good news about the real economy. Does the Minister agree that encouraging schools and colleges to have governors with business experience would enhance and embed the entrepreneurial spirit that we need in those places?

I encourage links between colleges and local enterprise partnerships, which can be strengthened a great deal by their governors and board members sitting on each other’s boards. There are schools around the country that bring in businesses and entrepreneurs, not only to talk to students, for example through the brilliant Speakers for Schools programme, but to help design the curriculum and motivate children to improve their performance in academic subjects. That is a great success when it is done well and I encourage more schools to do it.

Is my hon. Friend aware that Harlow has had the highest business growth in the United Kingdom according to a BBC and Experian survey? Will he congratulate Danielle Field, a young mother who from nothing set up an apprentice hairdressing academy with her partner thanks to a James Caan loan? That has been a tremendous success. Is this scheme not an example of the Government helping the lowest-paid to get back into work?

I pay tribute to Danielle Field. I also pay tribute to my hon. Friend. I did not know that Harlow was the best place in the UK to start a business according to the statistics. That shows just how brilliant Harlow is, almost all of which is down to its brilliant MP.

Northamptonshire was recently declared by the Department for Business, Innovation and Skills to be the most enterprising place in Britain. Will the Minister ensure that a ready supply of start-up loans is made available to the entrepreneurs in that county so that the entrepreneurial spirit that is abroad can be captured, developed and promoted to the full?

There seems to be a competition to be the most enterprising place in Britain. That is superb, because enterprise is all about being competitive and getting ahead. I am glad that that has been brought to my attention. Of course, all Government Members know that Harlow is in Essex, not in Northamptonshire or Kent. Ensuring that Northamptonshire and all other places get the support that is needed for small business is vital.

I remind the House that there is a ten-minute rule motion to follow. I remain fully committed to moving on to the main business at or very close to 2 o’clock, so if everybody wants to get in, Members will have to help each other.

People in Northumberland welcome the Government’s support for start-up businesses. Does the Minister agree that the key to the reform of bank lending is the development of local and regional banks? Is he surprised that in April 2012 the Labour party voted against such banks?

That is a surprise, given that ensuring that there is more competition in banking is a key part of the answer to that problem.

I strongly welcome the statement. Having started businesses myself, I know how hard it can be. A key element of the statement was mentoring. I urge my hon. Friend to build on the targeted approach to mentoring that he has outlined today.

I pay tribute to my hon. Friend, who is the Prime Minister’s apprenticeship ambassador. He does a huge amount of work to promote apprenticeships, small businesses and start-ups across the country.

I welcome the scheme and its extension to include sharia-compliant finance. The UK is a world centre for ethical finance on Judaeo-Christian principles, which, like sharia-compliant finance, concentrates on risk sharing. Will the Minister consider including an ethical product?

Would-be entrepreneurs will recognise the cynical, negative response of the Opposition as evidence that the Labour party does not share their passion for creating businesses. The Minister referred to the 100,000th start-up loan. We were only at 1,000 start-up loans in February and we are now at 10,000 start-up loans, so we might well get to 100,000 start-up loans. What will be the Minister’s response if this policy continues to enjoy the success that it has had so far?

I was getting ahead of myself. Mr Speaker, if we get to 100,000 start-up loans, I hope that I will be able to make a statement about that too.

My hon. Friend was right to single out Mr Martin as a great role model for people of all ages and from all backgrounds in setting up a new business. I would like to give one of the last words this afternoon to Mr Martin. It is important for everyone in this House to listen to what he has to say about start-up loans. He says that they have given him

“the opportunity to start a new life”

and that it is “an amazing feeling”.

It is terrific to hear directly from Mr Martin’s MP, who is such a champion of Falmouth and Truro, about the effect that the loan has had on him. Similar stories abound from all 10,000 of those who have received the loans.

Start-up loans are helping many people to set up their own small businesses. We are coming up to small business Saturday, which is on 7 December. Mr Speaker, you are welcome to come to my networking event for small businesses at the iCon centre in Daventry on that morning and I will happily buy you a coffee. Will the Minister say how important it is to celebrate small businesses on small business Saturday?

I love small businesses. I come from a small business background. Government Members have demonstrated their commitment to growing small businesses and doing everything they can to support them. To show that support, I urge everyone to get out there on 7 December—small business Saturday—to buy something from small businesses and to tweet about it, so the whole world knows how much we support small and growing businesses.