Small Businesses

Oral Answers to Questions — Treasury – in the House of Commons at 11:30 am on 30th October 2008.

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Photo of Don Touhig Don Touhig Labour, Islwyn 11:30 am, 30th October 2008

What assessment he has made of the effects of recapitalisation on the policies pursued by the recapitalised banks on providing credit to small businesses.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

The measures that I announced on 8 and 13 October included agreements with the banks that use the bank reconstruction fund that they would maintain the availability and active marketing of competitively priced lending to small businesses at 2007 levels.

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Photo of Don Touhig Don Touhig Labour, Islwyn

As a former chairman of a county council finance committee, I once borrowed £37 million from the European Investment Bank; I also managed to pay it back. I welcome today's announcement that the bank is to make £4 billion-worth of credit available for small companies in this country. Many of them are faced with bully-boy tactics from British banks, which are simply cancelling their overdraft facilities and denying them vital capital to invest. What action can the Government take to ensure that British banks give small businesses the same support that our Government have given the banks?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

I agree with my right hon. Friend that it is important that we do everything we can to support small and medium-sized businesses in this country. They employ more than half the work force and account for an important part of the economy. In addition to the EIB making £4 billion available to British banks, we want to ensure that the banks that have used the bank reconstruction fund make funds available at the equivalent of 2007 levels, and that they make that EIB money available. That does not mean that everyone who comes through the front door of a bank will get what they want, on the terms that they want, but it is important that British banks play their part. We, on behalf of the taxpayer, have put a lot of money into the banking system because we recognise its importance. In turn, banks have to recognise the importance, not just to the country but to the banks, of ensuring that small and medium-sized enterprises get the support that they need.

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Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

Will the Chancellor clear up the position that the newly appointed Government directors of the banks in question will take when considering such lending? Will they be required to act in the interests of the Government, the taxpayer, or—as proper company directors do—the business?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

I made it clear when I made my announcement in the middle of last month that even the banks in which we are taking significant shareholdings need to operate in a commercial manner. They will operate at arm's length from the Government. All directors have one duty, and that is to represent the interests of their shareholders; of course, the Government, on behalf of the taxpayer, will be a major shareholder in three of the banks. No doubt we will explore the issue further when I appear before the Treasury Committee, of which the hon. Gentleman is a member, on Monday afternoon.

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Photo of John McFall John McFall Chair, Treasury Committee, Chair, Treasury Committee

The Chancellor, along with the Governor of the Bank of England and the chairman of the Financial Services Authority, has kindly agreed to come along to the Treasury Committee's banking crisis inquiry on Monday. We asked the public what questions they would like to ask the Chancellor, the Governor and the chairman of the FSA, and more than 1,500 e-mails have been received. One big issue is that the banks do not play fair with savers and small businesses. The taxpayer is the lender of last resort, but today will the Chancellor and Lord Mandelson impress on the banks that the taxpayer will certainly not be the sucker of last resort?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

My right hon. Friend has done a good job of providing a trailer for Monday afternoon's performance. He rightly draws attention to the fact that today, many businesses find things difficult because of the prevailing economic conditions. We need to make sure that banks do not make a difficult situation worse. As I say, that does not mean that every business will get what it wants, on the terms that it wants—because although something might have been a good business prospect 12 months ago, the situation may be different today. It means that banks have got to play their part. Small businesses rely on banks for support more than large businesses do. The banks need to remember that although they go looking for customers in the good times, when times get more difficult their customers depend on them, so it is important that they play their part. My right hon. Friend Lord Mandelson, the Secretary of State for Business, Enterprise and Regulatory Reform, will meet small business representatives and banks regularly to ensure that if problems arise, we work through them, because it is important that we make sure that support gets through to where it is needed.

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Photo of Richard Spring Richard Spring Vice-Chair, Conservative Party

Is the Chancellor aware that some banks are changing small businesses' overdraft facilities to loan facilities, with an even higher rate of interest, at a time of difficult commercial problems for small businesses? When the Chancellor and the noble Lord Mandelson hold the meetings just mentioned, will the Chancellor bring to the attention of the bankers just how devastating the changes are to businesses' cash flow and chances of survival?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

Yes, and Lord Mandelson and I raised those cases when we met the chief executives of the major banks a week ago today. We will continue to raise those matters. If hon. Members come across such cases, they will obviously make inquiries about what exactly happened. If there appears to be no justification for what has happened to a business and put it in difficulties, my colleagues and I will be very pleased to hear about it from hon. Members, the hon. Gentleman included.

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Photo of Lyn Brown Lyn Brown PPS (Rt Hon John Denham, Secretary of State), Department for Innovation, Universities and Skills

I congratulate the Chancellor on the recapitalisation of banks, which has been admired and copied throughout the world, but was that task helped by the leaking of confidential documents by the Bank of England and by the hon. Gentleman on the Opposition Front Bench on "The Andrew Marr Show"? What does the Chancellor think of his opposite number's judgment? [Interruption.]

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Photo of Julian Brazier Julian Brazier Shadow Minister (Transport)

The Chancellor has made a series of assertions to comfort small businesses, but may I now direct him back to the question from my hon. Friend Mr. Fallon? The Chancellor knows perfectly that the duties of directors are laid down extremely clearly in law and are tightly and narrowly drawn. Does he plan to introduce an order to vary the legislation on that, or not?

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Photo of David Kidney David Kidney PPS (Rt Hon Rosie Winterton, Minister of State), Department for Work and Pensions

I can understand why the Chancellor would not want the request to the banks to lend at 2007 levels to be taken as a green light to repeat the mistakes of the past in terms of irresponsible lending, but does he agree that any analysis will show that there has been very little evidence of irresponsible lending by banks to small businesses? Therefore, will the Chancellor ensure that the banks maintain their focus on keeping credit lines open to small businesses?

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

Indeed, that is what I was saying just a few moments ago. The point that I was making was that there will be occasions when a business with a credit line or other facilities with a bank may have a perfectly good business, but for perfectly understandable reasons circumstances may have changed and the bank may then say, "Look, we'll have to change the arrangements." I think that everyone understands that. What people do not understand is if a bank, especially one that has had the benefit of a substantial injection of public funds, has a blanket policy of saying to people, "Actually, we're not concerned about you at all, and we'll cut your credit and put you into difficulties." In any banking operation, whether it is lending to individuals or to businesses, there must be discretion, and Opposition Members made the point that directors clearly have a duty to the banks' shareholders. But at present, learning from what has gone wrong in the past, if we do not ensure adequate funds are available to small and medium-sized enterprises, we will exacerbate the situation. That is why, both in terms of capitalisation of the banks and the measures that we announced earlier this month, and today's announcement in relation to persuading the EIB to come forward with substantial sums, I hope that banks will play their part, because it is as much in their interests as it is in everybody else's that this works.

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Photo of George Osborne George Osborne Shadow Chancellor of the Exchequer

I look forward to the advance warnings of the attacks on me, which certainly would have helped in the last week.

The banks, of course, should act responsibly to help small businesses as the economy deteriorates, but does the Chancellor agree that the Government should act responsibly as well? Can he confirm that he is still— [Interruption.]

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Photo of George Osborne George Osborne Shadow Chancellor of the Exchequer

Thank you, Mr. Speaker.

Does the Chancellor still plan to increase the small companies tax rate next April? Does he agree that even if this was a good idea two years ago—and I did not agree that it was—it is certainly not a good idea when we are in recession? Will he now abandon this tax rise? If he does not do it now, he will certainly have to before the Budget in April.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

I agree that the Government have to play their part in supporting businesses and in supporting individuals. For example, the fact that we have reduced the amount of tax paid by basic rate taxpayers is an extremely useful step. We have frozen fuel duty, and if I may say so—if the hon. Gentleman does not take this as an attack—that is a much better policy than the fuel duty escalator that he announced in July, which would have resulted in fuel duty having to go up now, at the very time when businesses want tax to come down. We will continue to do everything that we can to help businesses, because that is very important.

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Photo of George Osborne George Osborne Shadow Chancellor of the Exchequer

The Chancellor of the Exchequer is planning to increase the small companies tax rate next April. If he wants to talk about cars, I should say that he is still planning the big increase in family car tax next April as well. Surely the thing that would most help small businesses—this is a simple statement of fact—is a sustained reduction in interest rates.

The Chancellor and I agree that the Monetary Policy Committee must make its own decisions, but the Government should do nothing that gets in the way of that. Will we have an end to all this irresponsible spinning about Keynesian spending splurges and all this irresponsible nonsense about borrowing without limit, which have spooked the international markets? Can we instead have from the Chancellor a clear plan to get the public finances back under control? Is it not the case that on the current path, this Labour Government are set to leave behind them the biggest budget deficit of any Labour Government in the entire history of this country? Again, the Conservatives will have to clear up the mess.

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Photo of Alistair Darling Alistair Darling The Chancellor of the Exchequer

If I were the hon. Gentleman, I would say a little bit less about spinning. Let me deal with the points that he has raised. First—and this perhaps goes to the heart of what is now emerging as a difference between the two parties—at this time in the economic cycle, and in the face of the extraordinary conditions that we face just now, it is right that we support the economy. Yesterday, the hon. Gentleman said in The Daily Telegraph that he was against borrowing. That would have a profound consequence for the economy. He might want to have a word with the shadow Chief Secretary to the Treasury, who in the space of one single interview said:

"Increasing borrowing is not a strategy for dealing with the recession", and, seconds later:

"To increase borrowing to deal with an economic downturn—that's a perfectly sensible thing to do."

The Conservative party is all over the place on the issue. In relation to interest rates, during one of the last debates that we had here I made it clear that the Bank of England has a remit sufficiently wide to enable it to take into account the wider economy. I also have to say to the shadow Chancellor that he said in the House on 14 October that he made it a practice not to comment on interest rates. Yet yesterday he was calling on the Bank of England to cut interest rates.

It seems to me that the hon. Gentleman has not a clue about how to deal with this problem. What the public want is a clear course of action, and decisive action being taken. That is what we are doing. It is obvious now that the Conservative party and the hon. Gentleman are completely incapable of sticking to a decision and seeing it through.

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