Small and Medium-Sized Enterprises — Question

– in the House of Lords at 11:28 am on 22nd November 2012.

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Photo of Lord Harrison Lord Harrison Chair, EU Sub Committee A - Economic and Financial Affairs 11:28 am, 22nd November 2012

To ask Her Majesty's Government how they plan to help small and medium-sized enterprises to access sources of finance.

Photo of Lord Marland Lord Marland The Parliamentary Under-Secretary of State for Business, Innovation and Skills

My Lords, the Government recently announced that they are setting up a business bank to address long-standing gaps in finance for small and medium-sized businesses. This will build on a range of measures already in place. Increasing the supply of finance to lenders through the Funding for Lending scheme will lead to lower costs for borrowers. The Enterprise Finance Guarantee scheme helps small businesses lacking a track record or collateral secure bank finance. The Enterprise Capital Funds programme provides equity funding to businesses with high growth potential.

Photo of Lord Harrison Lord Harrison Chair, EU Sub Committee A - Economic and Financial Affairs

My Lords, according to the Federation of Small Businesses, three out of four small firms rate credit availability as either poor or very poor, and four out of 10 firms are being paid later than the agreed 30-day payment period, including by the Government. What will the Government do to enforce the excellent legislation on late payment of the previous decade and ensure that small businesses get their money back? Welcome as the announcement of the British business bank is, does the Minister recognise the failure of the regional growth fund, which was supposedly designed to help small businesses but was panned recently in the House of Commons by the PAC? When will the Government deal with small business as big business on the road to growth and to restoring the economy?

Photo of Lord Marland Lord Marland The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The word is "restoring" the economy. We have inherited a significant problem-I am talking about the previous Government-and we need to be careful not to get too political. Small business is at the heart of what we are trying to do. On a serious note, it is clear to me that all of us in this House want to achieve dynamism in the small business community. In fact, I am extremely grateful for the noble Lord's Question because today we have published Best-Practice Guideline: SME Finance which sets out ways and options available relating to this critical subject. I do not want to go on too long, but there is a lack of confidence in business that banks will give finance. The banks have to look at themselves and consider that they are turning the screws on successful businesses too tightly and government have to work hard with them to make sure they get the finance.

Photo of Lord Cotter Lord Cotter Liberal Democrat

Does the Minister agree that we need to continue with increasing competition within banking in the country, have greater transparency and more locally focused initiatives to lend to SMEs, as happens in the USA and Germany, for example?

Photo of Lord Marland Lord Marland The Parliamentary Under-Secretary of State for Business, Innovation and Skills

Transparency in banking and increasing its scope and width by setting up new banks is absolutely fundamental to getting competitiveness into the banking system, which does not look very competitive at the moment. We have a range of schemes-I could go on forever. I will start with the enterprise capital fund, because it was started by the previous Government, which shows that all Governments are active. We have put another £200 million into it recently. We have the regional growth fund, with £1.4 billion, which will help small businesses in the regions, which I think is the noble Lord's interest. There are many initiatives which I am happy to be questioned about.

Photo of Lord Campbell-Savours Lord Campbell-Savours Labour

My Lords, does the Minister accept that invoice discounting and factoring have a far greater part to play in funding small businesses, in particular in dealing with cash-flow problems?

Photo of Lord Marland Lord Marland The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The noble Lord is absolutely right, but getting access to factoring is much more difficult. Obviously, it smoothes the cash flow that is so critical for businesses. The noble Lord shows a great deal of knowledge in that area.

Photo of Lord Flight Lord Flight Conservative

My Lords, the EIS has raised some £10 billion of risk equity capital for small business and been a great success. I declare an interest as chairman of the EIS Association. Is the Minister aware that a combination of the RDR reforms, which will greatly reduce the number of intermediary financial advisers, and the new FSA initiative to limit the marketing of most forms of EIS funds to professional investors only, is likely to considerably reduce the flow of risk capital for small businesses under the EIS scheme?

Photo of Lord Marland Lord Marland The Parliamentary Under-Secretary of State for Business, Innovation and Skills

There are elements of give and take in that particular area. The EIS scheme is extremely beneficial. We have raised the limits of tax relief for that scheme-which is the "give". The "take" is that the Government are concerned that it does not attract unsophisticated investors. It is important that investors are clear about the risk that EIS-registered companies have. After all, most are start-up and new businesses, which have an element of risk. So there is an element of give and take.

Photo of Lord Mitchell Lord Mitchell Shadow Spokesperson (Business, Innovation and Skills)

My Lords, after two and a half years and half a Parliament, it is about time that this Government started taking responsibility for their actions and stop blaming others for the consequences of their own shambles. However, when will this Government understand that announcing convoluted schemes every few weeks is not the primary way to help SMEs to recover? What will help businesses recover is creating an atmosphere of confidence. That will be created by increasing demand, and demand will be increased by moving from a policy of ever-tightening austerity into one of strategic economic growth.

Photo of Lord Marland Lord Marland The Parliamentary Under-Secretary of State for Business, Innovation and Skills

If I may say so, that is a rather disappointing question from someone with so much expertise in business. We all know that the heart of the problem is the banking crisis. That was not caused on our watch, so we are perfectly entitled to look in the rear view mirror and say that it was not our fault. I do not think there is any lack of entitlement there. We have to get finance into the market, but what is much more important is that we have to be outward looking and developing trade. That is what the Government are doing and, my goodness, I have been to some countries over the past few years that have not had a labour trade Minister for years. That is why the Government are committed to expanding exports, helping SMEs and helping big companies to act as mothers to smaller companies in an export drive that is going to be fundamental to our growth.

Photo of Lord Martin of Springburn Lord Martin of Springburn Crossbench

My Lords, credit unions in the poorest of our communities have an excellent record of helping redundant workers start up and become self-employed. Will the Government encourage the credit unions in this country?

Photo of Lord Marland Lord Marland The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The noble Lord makes an excellent point. Of course the credit unions have a vital role to play, as does, funnily enough, anyone who is prepared to extend credit or lend money. As the noble Lord says, they do an incredibly valuable job in the slightly distressed regions.

Photo of Lord Hamilton of Epsom Lord Hamilton of Epsom Conservative

My Lords, what does my noble friend think of the suggestion made by the right reverend Prelate the Bishop of Durham, soon to be the next Archbishop of Canterbury, who is on the parliamentary banking commission, that we should create a number of small banks by breaking up the big ones and increase competition in that way?

Photo of Lord Marland Lord Marland The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I am not going to prejudge the final report on that issue. I have some private views on it, with a view on the Church of England being one of them, but I will not go into those now.