Part of the debate – in the House of Lords at 8:14 pm on 3rd November 2008.

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Photo of Lord Bates Lord Bates Deputy Chair, Conservative Party 8:14 pm, 3rd November 2008

My Lords, it has been a privilege to listen to this debate for the past five hours, which has increased my understanding. I am sure that the wisdom uttered here will benefit the Government's deliberations, which prompts the question about why this debate was not held earlier, and certainly the question about why it has not been held in another place.

I hope that I can be helpful to the Government in thinking through this and adding to the context of the debate. I think that the best way I can do that is to take this from the macro and global level to the regional level. I am from the north-east of England; I am for the north-east of England. My passion is education and enterprise. I am proud to declare an interest as someone who is involved in three small to medium-sized enterprises in the north-east. If the House will bear with me, I wish to spend a few minutes talking about the experiences of business in that region. The survey of business confidence and business insolvencies, which came out this morning, indicated that, sadly, so far this year, 365 businesses in the north-east have gone out of business. That is a 43 per cent increase over the same period last year. Earlier, it was speculated that the effect of this recession has been felt most in London. However, the rate of business failure in the north-east is twice the national average. That is being matched by rises in unemployment. Last month the rise in unemployment in the north-east was the largest for 20 years. Already the unemployment rate in the north-east is 7.7 per cent—the highest in the United Kingdom.

The failure of businesses is not only a personal tragedy for those involved in them—I know some of those people, who are outstanding business people and I shall come on to some of the reasons why their businesses have failed—but constitutes a reduction in the number of businesses in the north-east that the region can ill afford. We have by a long chalk the lowest stock of VAT-registered businesses in the United Kingdom. Scotland is second. The north-east is a long way behind. Our economy is too heavily dependent on the public sector, which accounts for some 68 per cent of our regional GDP; only 32 per cent is in the private sector. We know about differential rates of growth between the public and private sectors. Therefore, one can see a gap emerging in terms of wealth, prospects and social mobility between the north and the south. That is to be deeply regretted, and it is something that I am concerned about.

I will move on to sharing a few ideas about how one might begin to tackle this problem. I appreciate that it is a confidence problem. We have talked about the failures of the banks, and I accept that, and we have talked about the failures of the Government, and I am sure that there are lessons to be learnt there, but one must also remember that the good old British consumers have been another party to the problem. They have availed themselves of the credit that has been available at incredible rates. Although one can understand that it was difficult for them to resist blank cheques appearing through the post asking them to fill in the amount, send it back and receive the income, the reality is that we have all been caught up in the irrational exuberance of the consumer economy. In that, the House will reflect well on the remarks made by the right reverend Prelate the Bishop of Chelmsford, and perhaps we will learn lessons from them.

I shall give a few examples. One NorthEast is the regional development agency, and it is always open to criticism, but it does a pretty good job in many areas. On learning of the scale of the financial crisis, it announced that it would make £10 million available to help small businesses in the north-east, which is totally laudable. To do that, it is going to set up a new fund, which will take six to nine months to distribute the money. One of the things that we talk about in this House is energy efficiency, and that idea should be adopted by Governments as well. For example, there are 30 agencies in the private and public sectors which could easily distribute that fund and get it quickly into the hands of the small businesses that desperately need it because of the drying up of credit lines with the banks. Why do we have to invent something new? That is taking our eye off the ball. We should use what is there to its best effect, and the plea is to distribute the money as quickly as possible.

I hear some criticism of my right honourable friend the shadow Chancellor, but he has made some very interesting suggestions that are practical solutions. I offer two of them in addition to those that were eloquently put forward by my noble friend Lady Noakes in her opening remarks. There are two suggestions that would really benefit small businesses. First, there is the idea of the VAT holiday for two quarters; six months. That is practical credit that, for a small business, might mean an extra £50,000 or £100,000 of credit coming at a time when it really needs it. Secondly, there is the idea of a review of the insolvency law to see whether there is scope for some British equivalent of chapter 11 that one might have in the north-east, so that good businesses are not unnecessarily forced to the wall.

My next point relates to Northern Rock, which was, and still is, one of the bastions of the economy of the north-east. It employs 4,000 people, although sadly 1,300 have lost their jobs. We have a responsibility to examine Northern Rock. Its practices in terms of repossession have been overly harsh. The repossession rate is three times that of the national average. It is not a criticism to say that because the Government now have a stake in Northern Rock they ought to be telling it how to run a bank. I would be saying that whether Northern Rock was in the private or public sector. That multiple is too high, and it bears too much inconsideration for the difficulties that many people are in because of the rise in unemployment and the fall in base rates.

My time is up, but I have a final point. Crises such as this one, in the classic sense, provide opportunities to do something for the long term. There are two things that I encourage the Minister to think about doing in the north-east that would make a great difference for the long term. First, the Minister should consider locating one of the Government's enterprise academies in the north-east of England. We need to embrace entrepreneurship and enterprise combined with education in the north-east. Leaving a legacy up there that comes out of the crisis would be very good.

Secondly, there should be infrastructure investments. The dualling of the A1 north of Newcastle to Berwick and the upgrading of the western bypass would amount to just £650 million. You could have all that done, and when you are throwing around £500 billion, that seems like small change. If the Government could slip that in along with the other invoices, I am sure that the north-east would be very grateful.