My Lords, the national loan guarantee scheme was launched on 20 March to provide cheaper loans for smaller businesses. Businesses have now started to benefit from these loans. Also, under the £1.2 billion business finance partnership, the Government intend shortly to invest up to £700 million with some or all of the seven shortlisted fund managers. Although it is too early to draw conclusions on any impact, credit easing is expected to have a positive effect on the economy.
Bearing in mind that the Answer that the noble Lord has just given me is not quite relevant to the Question on the Order Paper, surely the Answer should have been that the Office for Budget Responsibility—which meets regularly with the Chancellor and the Treasury—said in March, at the time of the Budget, that there would be a 6.9 per cent fall in business investment. Why did he not want to tell us that? At the same time the OBR told us that there would be growth this year. As the Minister knows, in the first quarter we have had negative growth of 0.2 per cent. In those circumstances, do he and the Chancellor believe that without QE we would have had even worse negative growth? Is that the Government’s position? What do they plan to do? Are they planning to increase QE, or are they taking note of the Treasury Select Committee’s recent report which pointed out the serious effect it was having on retired people who are taking out annuities and getting very low interest rates?
My Lords, I fear that I will not be able to do justice to all the six questions that I thought I detected, but let me try to deal with one or two. First, we should distinguish between credit easing, which is the policy announced by the Chancellor and made manifest in the national loan guarantee scheme, and quantitative easing, which is the responsibility of the Bank of England. As to quantitative easing, if the noble Lord, Lord Barnett, had asked me I would have answered that the Bank of England’s own assessment is that under quantitative easing the economy has benefited by between 1.5 to 2 per cent. One can therefore draw inferences from that for what a more limited scheme targeted at small businesses will achieve.
As to the question of the levels of investment in the economy, that is set out in the latest report from the Office for Budget Responsibility. It is therefore its independent figures, not mine, which point out that the fall-off in levels of business investment and the expected sharp recovery very much follow the pattern seen in the recession of the early 1990s. It is territory that we have been in before and the Government believe that we should respond in the ways that we have. As to the evidence that the national loan guarantee scheme is gaining traction, Barclays has already issued a £1.5 billion bond backed by the scheme, and Lloyds has issued $1.4 billion since the scheme started on 20 March. So it is indeed, unlike some of the schemes introduced by the previous Government, up and running and having an effect.
My Lords, is my noble friend aware of the very recently published unanimous report of the Economic Affairs Committee of this House on development aid which urged the Government to abandon the wholly arbitrary target of allocating 0.7 per cent of GDP for development aid? Is he further aware that if the Government were to accept this all-party recommendation there would be scope for expediting carefully chosen public investment plans, to the great benefit of the economy and without infringing the Government’s overall public expenditure plans?
My Lords, I think that we are straying a little bit but my noble friend has, of course, ultimately tied it back to the Question. Of course, if lots of other things were changed in government policy then we could free up money for all sorts of other good things. The Government have no intention—notwithstanding the excellent report from your Lordships’ committee—of changing their policy on development aid.
My Lords, the noble Lord very kindly gave way and I appreciate it.
Perhaps I may suggest to the Government that they missed an opportunity in this round of credit easing by not including community development financial institutions, which, after all, serve micro and small businesses considered unbankable by the big five. Will the Government reconsider and see if a tranche could be made available under this round, or certainly under future rounds?
I am grateful to my noble friend, who rightly comes back to this issue, which is important. We have certainly extended the reach of the present scheme beyond previous comparable schemes. For example, the NLGS includes asset-backed finance, which other schemes have not in the past; we have the non-bank finance schemes, through the business finance partnership; and we have one non-traditional big bank—Aldermore—which is in principle committed to the NLGS. So we are pushing out the boundaries. As to the specific question about CDFIs, as my noble friend may be aware, the banks, under the BBA’s better finance initiative, are putting in place procedures to make sure that banks formally pass customers whom they think appropriate towards CDFIs. That is an important step which the BBA has initiated.
My Lords, the Minister is no doubt aware that earlier this week the Bank of England reported another very substantial drop in bank lending. Quite clearly Project Merlin did not work; otherwise it would have been repeated. There is very little evidence that the banks are particularly interested or enthusiastic about credit easing—which, of course, as funding support, is to the advantage of the banks rather than the borrowers. Is not the truth about why companies and businesses are not borrowing is that they have no confidence in the Government’s ability to steer the economy back towards growth?
My Lords, as I have already explained, the pattern we are seeing in business investment is one that has largely been replicated from previous recessions. Since, on the top of this recession, we also have the enormous burden imposed by the previous Government of an unsustainable fiscal position, businesses are putting in a remarkable amount of investment. They have created over 600,000 new private sector jobs since the last election.