Small Firms (Interest Rates)

Oral Answers to Questions — Trade and Industry – in the House of Commons at 12:00 am on 9th March 1994.

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Photo of Peter Hain Peter Hain , Neath 12:00 am, 9th March 1994

To ask the President of the Board of Trade what is the average rate of interest on loans from financial institutions to small firms and the average period for repayment.

Photo of Patrick McLoughlin Patrick McLoughlin Parliamentary Under-Secretary (Department of Trade and Industry)

The most recent Bank of England study shows that the average margin over base rates is slightly under 3 per cent. for businesses with a turnover of less than £10 million. For term loans, 26 per cent. were repayable over a period of up to five years, and the remainder over longer periods with 15 per cent. repayable over periods exceeding 20 years.

Photo of Peter Hain Peter Hain , Neath

It is difficult to reconcile the daily experience of small firms with the Minister's answer, because they are being strangled by short-term loans at prohibitively high interest rates that do not appear to bear any relation to the base rate. Why do not the Government establish new joint ventures with the financial institutions and the banks to provide long-term, low-cost finance, like our more successful competitor countries? Or is he happy to perpetuate the curse of the British economy— short-termism?

Photo of Patrick McLoughlin Patrick McLoughlin Parliamentary Under-Secretary (Department of Trade and Industry)

The hon. Gentleman prepared his supplementary question before he heard the answer. What we have seen, and what the answer shows, is that many of the long-term loans are taken out on favourable conditions. We currently have the lowest base rate for some 20 years —5.5 per cent. That is welcomed by British industry.

Photo of Mr Anthony Coombs Mr Anthony Coombs , Wyre Forest

While one recognises the present very low base rates and low rates of inflation, which can only be good for investment intentions for small and other companies, does my hon. Friend recognise that there is a demand among smaller companies for longer-term, non-equity finance? In that regard, will he accept our congratulations on the new venture capital trusts and ensure that those trusts look at amounts below £2 million, which will be relevant for smaller firms?

Photo of Patrick McLoughlin Patrick McLoughlin Parliamentary Under-Secretary (Department of Trade and Industry)

I am grateful to my hon. Friend. He rightly points out some of the schemes that have been taken forward—and, indeed, some that were announced by my right hon. and learned Friend the Chancellor of the Exchequer in his recent Budget statement.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

Will the Minister acknowledge that as businesses benefit from the recovery, their ability to repay loans can be inhibited, because they are being squeezed by large companies by which they are owed money but which are slow in repaying it? What progress are the Government making towards presenting firm—as opposed to general—proposals to ensure that companies are not prevented from paying their debts because their customers do not pay them?

Photo of Patrick McLoughlin Patrick McLoughlin Parliamentary Under-Secretary (Department of Trade and Industry)

As the hon. Gentleman will know, we are currently consulting about the problem of late debt payments. Overall, our information suggests that the position may not be as bad as it was, but I accept that it is a serious issue. Once our consultations are concluded, we shall announce our considered opinion.