My Lords, I thank the noble Baroness, Lady Kramer, for providing the opportunity for what might be a micro-debate in terms of numbers but a macro-debate in terms of the issue. I start with what my noble friend Lord Myners referred to as the core issue-if we do not get some growth and confidence back into the economy, we face a situation where potential borrowers and small businesses see borrowing as the very last resort because they do not have confidence in the current financial situation.
I am also glad that we are having a debate on an issue which something like 28% of SMEs said was one of the key issues that they face. I am afraid I did not agree with much of what the noble Lord, Lord Popat, said except when he got on to the Beecroft report. I do not think that that is going to encourage small businesses to take on more employees. Confidence and the ability to borrow if they feel confident are much higher up their agenda. If we had to give a message on how they should treat their employees, it would not be on the ability to fire them without giving them a reason for dismissal. It might be on recognising the need to invest in their employees and have decent HR policies. They might find that they would get a much better return in productivity and retention. That has been my experience over the years.
I must admit that, listening to the noble Baroness, Lady Kramer, I found myself in agreement with much of what she said. She talked about the different developments in the US, Switzerland and Germany and the social obligation and local nature of their banking. That is a view about which the Federation of Small Businesses, if one looks at its report, was asking the Government. I look forward to the noble Lord, Lord De Mauley, commenting on whether the Government intend to pick up on any of the recommendations of that report from the Federation of Small Businesses.
There seems to be some disagreement, as some have suggested, including, I think, the noble Baroness, Lady Kramer, in relation to innovative, online peer-to-peer lending. I do not feel confident about saying who is right. The noble Lord, Lord Smith, referred to that as something that would be of value, although my noble friend Lord Myners did not necessarily agree with that. I must admit that I was fascinated to hear the comments of the noble Lord, Lord Smith, about Mondragon-I do not know whether I have pronounced that right-and the expansion of Co-ops. That was an interesting point.
Whatever Merlin did, it certainly was not a magic bullet. It did not deliver. My noble friend Lord Myners delivered a far more comprehensive analysis of the failure of Merlin. What is the Government's strategy, given that Merlin has failed and credit easing does not yet seem to have emerged to solve the serious problems that we face? The plain fact of the matter is that the Government are failing to get the banks lending to SMEs and that is one of the contributory factors to holding back growth and job creation. Credit easing has failed to get banks lending to more small businesses. If we were in government, we would have established a British investment bank to support SMEs-an infrastructure that was backed by the British Chambers of Commerce and by Adam Posen from the Bank of England.
In relation to other measures that the Government could take that might assist small firms to take on extra workers, a national insurance tax break might well provide some relief and encourage companies to consider taking on extra workers. In our view, it would reverse the Government's damaging VAT rise. Interestingly, the Bank of England's lending report of April 2012 said:
"The stock of lending to businesses decreased by around £9 billion in the three months to February ... The net monthly flow of lending in February was at its lowest in almost two years".
It went on to say:
"Spreads over reference rates on lending to small and medium-sized businesses widened in 2012".
That is not a good picture at all of the Government's attempts to get banks to lend to small businesses.
"Nobody ever argued that the credit easing scheme would solve the problem of small business lending. We argued that it would cheapen the cost, and that will happen. All the major banks are now engaged in arranging packages to enable those lower costs to be passed through".
He said that we were going to be,
"pleasantly surprised by the take-up within a few months".-[Hansard, Commons, 14/5/12; col. 289.]
That sounds different from what the Chancellor told us in October in his description of the credit-easing scheme. I would welcome the Minister's opinion on whether the Government feel that that scheme is having any effect.
In the other place, Labour's shadow Small Business Minister, Toby Perkins, said that the Bank of England survey showed that many businesses are seeing the cost of finance rise and that small and medium-size businesses are finding it hard to get finance at all. He said that we are looking to the private sector to grow our economy, but 50 businesses are going under every day and too many are struggling to get the finance that they need to grow and take on extra employees. He said that Ministers promised that the credit-easing scheme would help firms unable to get finance, but the report shows that the scheme is failing to make a difference. He went to say that the Government continue to let down small firms under pressure because of the recession made in Downing Street. Labour is planning a British investment bank to help small businesses get the finance that they need to grow. Our five-point plan for jobs and growth will provide real help, including a one-year national insurance tax break for small firms hiring extra workers.
I was interested in the comments made by my noble friend Lord Berkeley when he gave us the idea of the good guy and the bad guy. This is a serious problem for SMEs. I would be interested to hear what the Minister has to say about what he described as a fair payment charter. It seems a worthwhile proposal for industries which are regulated.
I conclude by coming back to small and medium-size businesses. When I speak to them, they tell me that they see this as an issue of high importance. They do not tell me that the ability to hire and fire is their number one concern. Given that Project Merlin has failed, what positive steps are the Government intending to take? Are they going to pick up recommendations made by the Federation of Small Businesses? I look forward to the Minister's response.