My Lords, under this Government credit conditions continue to improve. Survey evidence indicates that more small and medium-sized enterprises are using external finance. Recent data from the Bank of England show that gross lending is continuing to rise year on year and in September reached the highest level since 2009. More broadly, confidence is beginning to return to businesses, which are now more ready to borrow and invest than since before the financial crisis.
My Lords, yet again I am asking the Government why much needed financial support is not getting through to SMEs. According to the Bank of England, net lending to SMEs was down £600 million in the second quarter of 2013. The answer to the Question is obvious: financing that should be going to small businesses is in fact being used by banks to build up their profitable mortgage portfolios. Does the Minister accept that banks should be backing small businesses rather than helping to create another property bubble?
My Lords, it is important to set the picture in context. According to the British Bankers’ Association, the current stock of lending to SMEs by the top seven banks is more than £99 billion. By this measure, around £2 billion is lent by the banks to SMEs every month. SMEs are actually twice as likely to be successful when applying for finance than has been predicted.
The World Bank’s ease of doing business index puts the UK as the top place in the world for accessing finance. I think this overstates how things are. In any case, we know that there is scope for improvement. Clearly, it is a tough environment for small businesses. Although net lending might have dropped last year, I am pleased to report to the noble Lord that gross lending has gone up, as did net lending in September.
My Lords, the August SME Finance Monitor showed a welcome increase in SMEs seeking finance, from 39% to 44%, but this increase is from less conventional sources of funding; for example, lease and income financing, which focus on cash flow rather than growth. The report went on to say that 25% of SMEs expect their loans to be turned down, whereas in fact 50% are successful. What can the Government do to encourage more SMEs to apply for finance for growth?
The noble Baroness makes a very important point. SMEs are more likely now to have an alternative source of finance, including asset or leasing and quite often inward discounting. They are not approaching their own banks as much as they used to, but I am pleased to report that banks are now proactively lending money to SMEs.
Will the Minister respond to my noble friend’s question about real estate? The Bank of England report states:
“The outlook for corporate lending also depends on developments in the commercial real estate (CRE) sector, which makes up around a third of lending to non-financial businesses”.
The point is that the property bubble is taking money away from the SME sector. Will the Minister respond to that?
My Lords, under our Funding for Lending scheme, £80 billion has been allocated by the Bank of England, of which some £17.6 billion has been taken up by SMEs. I agree that a large proportion of that is in the property sector. We have relaxed some of the conditions for lending money to SMEs, which are now able to finance their debt or their stock. Hence we will be lending more money to SMEs and this figure is gradually going up. Real lending to businesses is now taking place.
My Lords, finance is important for small and medium-sized enterprises right across the board. Can the Minister tell us what the Government are doing to help with cutting red tape? This is one of the most important things for a small business. Finance is important but cutting red tape, which gets in the way of start-ups and small businesses, is also very important for small businesses’ future.
My Lords, it is a pleasure to answer the first question from my noble friend, who brings a wealth of experience from both the private and public sectors. As your Lordships know, the Government have introduced a moratorium on all new domestic regulations for three years for new start-ups and businesses with fewer than 10 employees. In addition, in January we introduced a “one in, two out” rule on all domestic regulations affecting businesses and voluntary organisations. The Government are absolutely committed to creating a culture in which all businesses, including SMEs, can thrive.
My Lords, in September 2012, having failed to persuade the Treasury to break up RBS, the Secretary of State announced the formation of the British Business Bank. However, it was not until 17 October 2013 that the first chair was appointed and then we were told that the bank was in a “substantial expansion phase” and that it was on target to unlock £10 billion for expanding companies. Last week we learnt that the bank finally made its first investments, when it gave £45 million to two financial institutions, Praesidian Capital Europe and BMS Finance. When will we see funding actually flowing to the small and medium-sized businesses that need it and when do the Government expect the bank to reach its £10 billion target?
My Lords, on 1 November RBS committed to a new direction that will lead it to being a boost to the UK economy, rather than a burden. It will be dealing decisively with the problems from the past by separating out the good and the bad and putting the bad loans in an internal bad bank. RBS will now focus on its core British business, supporting British families and companies. It will sell off more of its overseas operations and go on shrinking its investment bank so it has more capital to support lending to the British economy. RBS is committed to becoming the number one bank for small and medium-sized enterprises, as judged by customers, measured by the newly created survey to be run by the Federation of Small Businesses. On growing SME lending, RBS continues to be the number one bank for SMEs.
My Lords, one of the key problems at the moment in the British economy is not about lending but quite the opposite—businesses are sitting on cash mountains, particularly large corporations and even medium-sized and some small businesses. We need now to liberate that cash so it is invested and drives this economy forward. Is not the good news economically at the moment the exact trigger for those businesses to do just that?
I agree with my noble friend. In fact, we are returning to consumer and business confidence. The figures this morning from the OECD show that our growth forecast has gone up from 0.6% to 1.4% for 2013 and 2.4% for 2014. My noble friend is quite correct that a large number of SMEs are holding cash in their banks. A lot of them are also risk averse, or were until recently, and hence are not borrowing that much money from the banks.