Economy

Part of the debate – in the House of Lords at 4:13 pm on 3rd November 2008.

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Photo of Lord Bilimoria Lord Bilimoria Crossbench 4:13 pm, 3rd November 2008

My Lords, last week during a debate I tabled on reforming global financial institutions, it was made clear that the situation is so critical, and the threat to our economy so severe, that we have no time to go on apportioning blame. I believe that all our focus and all our energy must be piled into finding the solutions that will free us from the grip of this financial crisis.

I want to start with the fundamentals and examine the Government's attitude towards business. We welcomed the noble Lord, Lord Mandelson, to this Chamber three weeks ago. However, his appointment made him the fifth Secretary of State for business in five years. If I had changed the chief executive of my company five times in the past five years, my company would have gone bust a long time ago. Perceptions can be deceiving, but the Secretary of State's office at the Department for Business, Enterprise and Regulatory Reform has been fitted with a revolving door and we are justified in questioning the Government's commitment towards business.

As chair of the UK India Business Council, I often attend meetings between our Secretary of State for business and his Indian counterpart, for whom I have the greatest sympathy. Having served his Government in the same post for four years, every year the Indian Minister for Commerce and Industry is having to read the biographies of the latest UK incumbent.

This is not just about the Secretary of State for business, it is also his Ministers. After the resignation of my noble friend Lord Jones of Birmingham as Minister for trade, his replacement now holds responsibilities at the Department for Business, Enterprise and Regulatory Reform and the Department for International Development. My noble friend Lord Jones of Birmingham spent his time focused entirely on banging the drum for British business around the world, as he always said, so is this really the time to dilute our efforts in promoting trade and investment?

I will turn my attention to SMEs and entrepreneurship, which have been overshadowed by the banks in this financial crisis but which are equally threatened by it, if not more. The Chancellor, Alistair Darling, announced last week that £4 billion would be available for small and medium-sized enterprises to support businesses through the downturn; and the Minister reaffirmed that today. My understanding is that this funding will come from the European Investment Bank via British high street banks and will amount to £1 billion of loans each year for the next four years. According to the British Bankers' Association, net lending to SMEs totalled £5.7 billion in the first six months of this year alone. We have of late become accustomed to a new financial vocabulary, where figures reaching into the many billions no longer generate the awe that they once did. But let us be in no doubt that £4 billion over four years is nowhere near enough, considering the current situation.

I call on the Government to vastly increase the Small Firms Loan Guarantee scheme, which my business benefited from in its fledgling years. I have used before in this House the example of the United States. Last year, its Small Business Administration backed more than $12.3 billion-worth of loans to small businesses. In the same period, our Government's Small Firms Loan Guarantee scheme made available £360 million. That is £360 million versus $12.3 billion.

The Government could also learn from a tiny country such as Israel. Its Yozma initiative was a government-backed venture capital scheme that has been a catalyst for thousands of successful high-tech and knowledge-based companies with government-backed venture capital investment. The companies have been crucial in giving Israel a cutting-edge advantage globally, in spite of all the problems that exist in that region. As a result, Israel has been attracting huge amounts of foreign direct investment. Now is the time for the Government here in Britain to create a multi-billion-pound government-backed, venture capital fund, so that we, like Israel, can punch above our weight as a country.

There has been much talk of, and we have already heard in this debate, about trickle-down economics, with a Keynesian-inspired increase in public spending, being mooted at the highest levels of government as a solution to this crisis. Increases in public spending will, I fear, hardly help small businesses. All too often, much of it does not filter through and what does often takes too long and is too late. It would be far more effective for the Government to support SMEs directly. Entrepreneurs and SMEs are not asking for a hand-out, but a help-up, be it through loans or investing in training.

It costs approximately £10,000 to attend the business growth and development programme at Cranfield University which, I know from first-hand experience, transformed my business and helped to secure its growth path. How many companies get a chance to attend that programme? Some 150 a year. If the Government were to support SMEs through courses such as the BGP at Cranfield, the effect would be enormous, and the biggest beneficiary would be the Treasury.

Now is also an opportune moment for the Government to reverse those measures which over the past 18 months have served to diminish their once excellent relationship with business. I am talking about the non-dom levy; the removal of taper relief on capital gains tax; the increase of corporation tax on small businesses and the taxation of foreign companies' earnings. Thanks to those measures, the Government entered the financial crisis having already alienated the business community. Now is the Government's chance to make amends.

Now is also the time for the Monetary Policy Committee of the Bank of England to cut interest rates. The US rates, as we all know, are down to 1 per cent, but here we are at 4.5 per cent. We are out of the euro; let us make the most of it and urgently cut our interest rates. Groucho Marx once said:

"Politics is the art of looking for trouble, finding it, misdiagnosing it and then misapplying the wrong remedies".

Sticking to a rigid target for inflation at a time of crisis like this is an example of that saying being brought to bear.

Parliament has been sitting for a month since the Summer Recess; yet today is the first opportunity for this House to debate the financial crisis at any length. Where are the Government's priorities? This does not look right to me, this does not feel right and this is not right. For all their good intentions, this Government have yet to grasp how much this financial crisis will hit British business, SMEs in particular and the 13 million people whom they employ—and their families.

Through building business from scratch, I have discovered that one of the keys to that has been continually to turn threats, frustrations and obstacles into opportunities. I call on the Government to seize the opportunity offered by these unprecedented times for the Government to be bold. They have shown boldness in leading the world in the financial bail-out of British banks. Today, I ask the Government to apply the same boldness and resolve to securing our British business, especially our SMEs which are the heartbeat of our country and the engine of our economy.