It is a great pleasure, Mr. Hollobone, to speak under your chairmanship during my first debate in Westminster Hall, and I welcome you to the Chair.
The Government clearly have a great interest in the subject of this debate. The excellent Green Paper, "Financing a Private Sector Recovery", which was published in July, states that
"the ability of business to access finance will play a key part in determining the shape and sustainability of the recovery."
The recovery depends on the two issues that are of most concern in the economy-reducing unemployment and improving Government finances-so it is clear that businesses' access to finance is of the utmost importance. Such access is vital for all businesses, so I shall explain why I am concentrating on small businesses in this debate. I am speaking broadly of those to which the Green Paper refers as small and medium-sized enterprises with a turnover of below £25 million a year.
The first reason is that although most businesses experience difficulty in raising finance at some stage, SMEs, as the Green Paper states,
"may face more of a challenge given their reliance on bank lending, and the fact that they have historically faced greater challenges accessing external finance."
The Green Paper also points out that the question of whether existing Government schemes are
"sufficient to ensure that finance is available to SMEs as confidence recovers and demand revives is of central importance."
The second reason is the importance of SMEs to our economy. There are 4.8 million of them, and they account for more than 50% of private sector employment and turnover. Those statistics alone show that SMEs are likely to have the most impact on creating jobs and restoring public finances.
The third reason is that SMEs and especially new businesses are likely to produce the best return in the number of jobs created for the available finance. Estimates of the capital cost of job creation are difficult to come by, and clearly they vary from sector to sector, but there are examples of funds making loans to small businesses that have shown over many years that they can create a job with a loan-not a grant-of as little as £4,000 in fixed and working capital. The cost to the state of one person out of work is, at a conservative estimate, at least £5,000 a year. That money serves only to increase our burgeoning national debt and gives nothing in return to the recipient or the state. I am sure that any Government, especially one who have shown in the Green Paper such welcome clarity in their analysis, would be keen to ensure that such funds, which provide such an excellent rate of return to society, are given every encouragement and incentive to flourish. I shall return to that.
I must establish some facts, and I shall start with the banks. I have obtained figures from four major high street banks and the following points emerge. First, utilisation of existing bank facilities is as low as 44% in one major high street bank, and a total of £45 billion of unused capacity in another.
I congratulate my hon. Friend on obtaining this important debate. He rightly said that the matter is vital to budget strategy. My concern emanates from access to capital becoming more difficult. All the facts tell us that that has become more difficult over the past 12 months, and that is not helpful. At the same time, Government bodies, particularly G20, are piling desire on banks to build up their capital asset base-by £130 billion in the case of G20-and that affects their ability to lend. Would it be right to ease that pressure at this time, and is it not more important to ensure that small businesses have working capital to enable the number of jobs to increase?
My hon. Friend makes some important points. He is one of the most expert Members in this subject, and I agree with him. It is important to increase capital and the banks are doing so. Their total profit in the past year was £15 billion, so they are gradually increasing capital, particularly as some are not paying dividends. But financing the recovery is of greater long-term interest, not only to the nation, but to the banks, and I entirely support what my hon. Friend said.
Another point arising from the survey of banks is that businesses are currently repaying debt rather than borrowing more. One bank made a net repayment of £1.4 billion during the last quarter, so money is coming out of the small business sector rather than going into it. Banks have also increased their lending to all sizes of company, including SMEs, and one reported that lending to SMEs was up by 38% during the past eight months, albeit to only £1.4 billion. Another lent £10.9 billion to SMEs during the 12 months to March 2010, and approved 80% of applicants.
That is the story from the banks' perspective. The picture is of some increase in lending to SMEs, combined with a cautious approach by businesses to borrowing, with many reducing borrowing rather seeking an increase. From their point of view, there does not seem to be a major problem with capacity. However, a survey in February by the Institute of Directors-I declare an interest as I am a member-paints a somewhat different picture, because 57% of directors said that their application for finance had been rejected by their bank and 83% of those who were declined for bank finance were not offered information on the Government's enterprise finance guarantee scheme. That worries me.
Tellingly, one in five businesses which said that they needed additional capital did not investigate bank loans or overdrafts because they believed that they would be declined, saddled with disproportionately high costs or required to comply with requests for security that they did not have.
The hon. Gentleman is making some powerful points. Does he agree that one reason why companies are reticent about approaching banks is the exorbitantly high rates that they are charging in interest and administration fees? The five biggest banks made £15 billion in the first half of this year. Are not the rates that they are charging part of the problem? Many companies are repaying loans because they cannot afford to hang on to them.
My hon. Friend makes a powerful point, and I am sure that she has received many representations from her constituents about the matter. I totally agree with her. The problem is perhaps not so much interest rates, some of which have come down to reasonably low levels, although not all, but the charges. I have heard of charges being trebled. I raised the point with the Minister in the House, and he said in his powerful reply that he would not put up with that and would speak to banks if hon. Members contacted him with representations. I have done so, and I am sure that other hon. Members would like to do so. It is not acceptable for banks to use a shortage of credit as an opportunity to hike up charges, as some have done.
The picture is of some increase in bank lending, but the survey from the Institute of Directors paints a rather different one. Comparing data with a survey in 2001 shows that the number of those surveyed who were financing their businesses through bank loans or overdrafts had declined from 85% to 64%, with 20% now financing their business to some extent through credit cards, which is unsustainable.
The annual survey by the Federation of Small Businesses -again, I must declare an interest because a company of which I am a director is a member-is even starker. Of more than 10,000 who were surveyed, 31% said that fairer bank lending would be key to improving their prospects. The FSB concludes that
"SMEs have lost confidence in the banking sector."
It pushes for greater competition, including the creation of a post bank, which I have long supported.
I congratulate my hon. Friend on securing the debate. I want to add to the anecdotal evidence something about businesses in Staffordshire Moorlands. A number of businesses have contacted me and two cases in particular are pertinent to the debate. One concerns a builder of affordable housing that is unable to obtain bank finance to build the affordable housing that we need so desperately in north Staffordshire. Another case is a small retailer that stocks stoves and Agas. It cannot expand to take on more staff because it desperately needs new premises but is unable to obtain them due to lack of bank finance. I hope that the Minister will address that point when responding to the debate.
I am grateful to my hon. Friend for that contribution; I have come across the same problems in my constituency and I will later provide some suggestions about how things can be improved. Hon. Members from all parties have an important role to play because there seems to be a disconnect between businesses and the banks. Sometimes, businesses find that their only source of redress is to go to their Member of Parliament and ask them to talk with the banks on their behalf. I heard of one case-I can hardly believe it-where a bank said that it would be more likely to lend to a business if there were a letter from the local MP. I do not think that MPs are in the business of guaranteeing bank loans of behalf of their constituents. I cannot remember the name of the hon. Member who mentioned that case to me yesterday, but perhaps he or she is in the Chamber and can elucidate further.
The Green Paper quotes evidence that in 2009, 78% of small and medium-sized enterprises managed to obtain some finance from the first source that they approached, which in most cases was the bank. However, that may have been through the use of credit cards or consumer overdrafts. The picture is somewhat confused, but after considering the facts, I believe that credit is beginning to flow to established companies, including SMEs with a reasonable track record. Young businesses often find it difficult to access the finance that they need in order to grow, unless they persevere or can offer reasonable security. As my hon. Friend Lorely Burt said, such businesses often find that the costs rise through hiked-up charges.
I agree with my hon. Friend; he makes some good points. In my constituency, there are a number of individuals who would like to start up a business, and I am not sure that we have really looked at that issue. Such people find it even more difficult to get access to funding. Some of the high street banks-Barclays is a case in point-have come up with new ideas and will lend money even to those who have been bankrupt in the past. However, that does not seem to be making a difference to new businesses, and I would be grateful if the Minister addressed that problem as it is a key issue.
My hon. Friend makes a powerful point that I will address in a moment. I entirely agree with her point about access to finance for new businesses. I conclude that in general, new businesses do not consider approaching a bank because they believe that it will be a waste of time or that they have only a small chance of success.
I congratulate the hon. Gentleman on securing this important debate. Does he agree that one thing that would help small businesses is the removal of bureaucracy and red tape? Small businesses are hands-on businesses and do not have the time to deal with paperwork. I believe that such a move would assist the small business sector.
All hon. Members present in the Chamber will have received letters from different constituents and companies. It is one thing for banks to be prudent in lending, but they are being draconian and that makes it impossible for small businesses to start up. We live in the real world, but the banks do not seem to, and I do not believe that the Government have any influence over them.
The hon. Gentleman makes two powerful points. The second point is true; as someone involved in small business for many years, I have been on the receiving end of that kind of draconian attitude many times-although not every time, I hasten to add. I am sure that the Minister will want to say something about red tape. I, too, have spent many late hours going through the red tape for my business, after having spent the rest of the day trying to make some money. Whatever the truth-it probably lies somewhere in between all the figures provided-it is clear that a substantial number of SMEs approach banks but do not obtain the funding that they need to maintain or expand their business.
In my constituency, I have seen the difficulty that farmers are finding in business diversification. Money is pouring in to help farmers buy land or get involved in agricultural activities, but they receive a limited response from the banks for the laudable process of rural diversification, which will create more jobs in that area.
It is likely that there are some people not yet in business who wish to start up on their own. However, as my hon. Friend Anne Marie Morris mentioned, they might find it even harder to obtain that funding, perhaps because they have been made redundant. There might be good reasons for banks to refuse applications, and they must be confident that they will receive their money back. However, anecdotal evidence from my constituents-as, I am sure, from those of all hon. Members in the Chamber-suggests that banks are unwilling to take even the smallest risk if they find it difficult to assess viability, which is often the case with new and young businesses.
My hon. Friend makes an excellent point, and I declare an interest in this debate as someone who has run a small business for over 20 years. A linked issue is the shortage of skilled employees across a range of businesses, which hampers their development. For example, I know from my own business that it is difficult to recruit legal secretaries. Businesses in my constituency claim that they cannot recruit engineering staff or that they need scientific staff. There is a small, green technology business in my constituency, based in Middlewich. It has about 30 staff who convert used cooking oils to diesel but it cannot recruit people with those skills. It is proud that it is training up young men who were stacking shelves at the local supermarket but are now becoming lab technicians. Nevertheless, the cost of training skilled staff is a disproportionate burden on small businesses. That is a funding challenge because finance for that training cannot be obtained from banks. It is not like the purchase of property where some form of collateral can be offered, but the country desperately needs such investment. If we are to recover economic health and well-being, we need an increased skilled work force and at the moment we are not providing the funding for that. I ask the Minister to look urgently at that matter because it is not easy for a small business to obtain funding from a bank for that purpose.
I am grateful to my hon. Friend for her contribution. I had the pleasure of working with her on a training course in Rwanda one month ago, so I know how expert she is on the subject of training, and how much she knows about it. Her words must be taken extremely seriously.
The Government must step in on the issue of small business finance-indeed, they have already intervened. Since 1981, there has been a small loans guarantee scheme. The previous Government set up the enterprise finance guarantee in January 2009, and the current Government committed an additional £200 million in the June Budget. The public often demand evidence of cross-party consensus in the national interest, and this issue provides a fine example of that.
In his response, I would be grateful if the Minister answered questions on the enterprise finance guarantee, and told us how he assesses its performance to date. He is no doubt aware that the Institute of Chartered Accountants in England and Wales-of which I am a member-has called for the scheme to become more like the former small loans guarantee scheme in its design and operation. I would be interested to hear his views on that.
If a loan guarantee scheme proves successful and pays its way, it needs to be expanded further and rapidly at this critical time, so that as many SMEs as possible can be assisted. I would be grateful for the Minister's views on that. Finally, on bank lending, what progress are the Government making to bring together banks and small business representatives to ensure that instead of the stand-off that we appear to have at the moment, we have genuine co-operation in our country's most vital interests?
I thank my hon. Friend for organising the debate. It is testament to his hard work and diligence that we are all here, and I think that we are getting to the crux of the matter. May I raise the flag for engineering, as someone who comes from a small engineering family business? There are a lot of concerns in my constituency in relation to manufacturing. I am lucky enough to have in my constituency a couple of large manufacturing businesses. They tell me that they see the green shoots-they see business slowly improving-and they want to place orders with local businesses. They want to buy British and they want to use local suppliers, but they are finding that there is a major problem with the supply chain. Companies that they have used in the past or new companies just are not able or are unwilling to take the risk in order to meet the potential orders. They are saying that those businesses have either downscaled-they have cut shifts and lost staff-or they just are not prepared to take the risk, or the banks, more importantly, are not prepared to take the risk, that the order that might be there tomorrow or next month will be there in six months' time. That problem is having a major impact. It is slowing things down; there is a drag effect on manufacturing in particular. If we could get that supply of finance to small manufacturing businesses, that would make a massive impact.
My hon. Friend makes extremely important points; he has great experience in this field. I feel disappointed at the situation. We are a trading nation; our history is as a trading nation. That is how Britain became wealthy over the centuries. Only by taking risks, particularly through the merchant banking of the 19th and 20th centuries, were we able to finance it, but I do not see that spirit alive in our banking sector as much I would like to. I long to see the formation of some new British merchant banks. All our old ones were largely taken over and are now part of massive conglomerates. I would like to see young entrepreneurs come into the City-indeed, I would like to see this not just in the City of London but all over-set up merchant banks and really take some risks and make a difference to the country, because I believe that they can do that and it might help firms such as the ones to which my hon. Friend referred.
The other major potential source of funding-apart from grants, where organisations such as the Prince's Trust in particular have done fine work over many years-is of equal importance. I am referring to equity. That is where SMEs miss out. Only 2% have access to equity finance. The Green Paper gives several reasons why that is the case: a reluctance to cede ownership, unsuitable business models, poor corporate governance and businesses that are in themselves not ready for investment. I would add further reasons. First, there is the work involved in making an investment compared with the actual amount invested. Looking at a proposal for £20,000 can require as much work as looking at one for £200,000 or even £2 million. I ask the Minister to consider how to make it easier and less costly for small businesses to raise equity capital.
Secondly, there is a lack of suitable investment vehicles. I hope that the Government will give serious attention to that. Thirdly, the overall tax treatment of investment in new and young businesses puts them at somewhat of a disadvantage in attracting funds compared with larger companies. It is ironic that the companies that least need funds from investors are those that receive the most favourable tax treatment through being eligible for inclusion in pension portfolios. There are tax incentives for funds investing in smaller non-quoted companies-in particular, venture capital trusts-but they are usually available only to the wealthy investor, and the funds themselves will tend to invest in reasonably well established companies.
I am not saying that there is an enormous amount of money out there just waiting for a home in new businesses or SMEs, but we do not need an enormous amount. Let me take an example from my own county of Staffordshire. The Michelin Development fund estimates that it has helped to create 1,400 jobs over the years through a revolving fund of just £3 million-a revolving fund, not grants. That is just over £2,000 a job. The North Staffordshire Risk Capital Fund and the Black Country Reinvestment Society, both of which operate in my constituency, also help to preserve or generate jobs cheaply. Those funds are not equity funds. They mainly use loans, but they do have some characteristics of equity. They are unsecured and, in some cases, they may ask for a premium return based on performance. Those funds overcome the obstacle of the ratio of time taken to assess proposals to the investment amount by using local experts, who provide their time voluntarily or whose cost is covered by grants or the return on the investment. I would like many more such funds to be set up around the country. Indeed, I believe that the new local enterprise partnerships could make supporting them a priority. Local companies and individuals can use them to invest directly in the future of their area, just as the funds in Staffordshire and elsewhere have done.
It may be argued that such a model is not sustainable because it depends on goodwill or some financial support from the private sector or Government, but those who are quick to challenge explicit assistance are sometimes reluctant to acknowledge implicit assistance-in particular, the substantial amount of pension tax relief that continues to be granted annually to higher rate taxpayers, despite recent restrictions, and which is invested very largely in companies comprising just 30% of the private sector, in property or in gilts.
I respectfully ask the Minister to examine ways to unlock equity funding from pension funds for small businesses, which most need the capital. That could result in dozens of locally based funds springing up around the country, allowing people to contribute their time and expertise to the future of their communities. That would be yet another example of the big society at work in a very practical way.
My hon. Friend touches on the big society, and one of the things that people in my constituency are quite excited about is the prospect of the green bank. We have not heard much about that today, but perhaps my hon. Friend the Minister will touch on it a bit more. There is a business in Burton called Regenerco, which is working with businesses across the country to install solar panels free of charge on those businesses in return for a share of the profit from the energy produced. That is a brilliant business. It is low carbon. It is doing its bit for the environment and for the economy. However, like many other businesses, it is keen to get access to further finance. Many people are waiting with bated breath to see how the green bank will operate and how it can unlock some of the potential in those new green businesses. Perhaps we shall hear more from the Minister about how the green bank will work, but I am sure that my hon. Friend Jeremy Lefroy will agree with me that it has the potential to help some of those fledgling businesses.
I am most grateful to my hon. Friend for that intervention. I look forward to hearing from the Minister as well, because I, too, am excited by the concept of the green bank and would like to see it in operation as soon as possible.
Will the Minister also consider whether there is a need to increase the sums invested in Capital for Enterprise? The last figures that I have seen indicate that the total invested by the various funds in UK equity is £566 million, while total SME financing was £1.1 billion, including loans. Those figures may be a little out of date, but in contrast, the total invested in equity in developing countries by the Government-owned Commonwealth Development Corporation is £2.7 billion-well over twice as much. What is right for developing countries is surely right for the UK.
There is also a very important role for the banks to play. Just as the major clearing banks established in 1945 the Industrial and Commercial Finance Corporation -later known as Investors in Industry and finally 3i-is it perhaps not time for them to come together again and form an ICFC mark 2 to invest equity in the smallest businesses, if not directly, for reasons of cost, then through local funds? The major banks have the ability, working together through an ICFC mark 2, to transform the availability of equity funding for small businesses. As the taxpayer is a major shareholder in two of them, I ask the Minister to discuss that with them.
I have been able to give only the briefest of surveys of the current situation regarding the finance of small businesses. I am sure that hon. Members following me will help to fill out the picture with the benefit of their experience. I am no expert in this matter, but what I do have is a conviction that unless we get this right, we will not be able to tackle the twin evils of unemployment and the excessive budget deficit.
The quality of the Green Paper is clear evidence of the thought being given to this subject, but as with many of my colleagues who entered Parliament this year, my background in business makes me rather impatient about words that are not followed up with appropriate action. The Government have already shown themselves willing and able to take difficult but necessary decisions, and I have no doubt that they will do the same to ensure that small business will indeed have access to finance so that our economic recovery is strong and sustained.
Four people are seeking to catch my eye, two of whom have written to Mr Speaker. I will ask those who have written to speak first. No member of the Opposition has stood up to indicate that they want to speak, so those contributing to the debate will come purely from the Government side. I propose to call the winding-up speeches at 12.10 pm, and the debate is due to finish at 12.30 pm, so Members can work out what would be a good time to speak for to allow colleagues to get in.
I thank you, Mr Hollobone, for allowing me to speak in this vital debate. I also thank my hon. Friend Jeremy Lefroy for securing it and I congratulate him on doing so. He gave a comprehensive speech and made some powerful and pertinent points, which I hope the Minister will take on board. We should not underestimate the importance of the debate. This is one of the most important issues facing our economy. It is imperative that we look for ways to achieve sustainable growth to enable us to rebalance our economy, reduce the budget deficit and pay off the huge debt that we inherited after 13 years of Labour Government.
To achieve that fundamental goal, we must ensure that small businesses grow and prosper and that new jobs are created. New jobs are vital to constituencies such as mine. Indeed, new employment prospects are desperately needed across the whole of the west midlands, which has suffered particularly badly during the recession. Small and medium-sized enterprises are vital to rebalancing our economy. We need to remind ourselves that they make up more than 59% of the private sector and 50% of private sector turnover. They also employ an estimated 13.7 million people, which is obviously a huge amount.
Two of the main drivers behind SMEs' need for finance are cash flow and investment, and the two issues are very much linked. Good cash flow makes business more sustainable; it makes it easier for firms to plan ahead and it gives them greater confidence to invest, thereby driving the creation of new jobs. Bad cash flow has the opposite effect, which is very negative. We often associate overcoming cash-flow problems with accessing credit. Before I mention the very pertinent issue of credit, however, let me turn to the other main impediments to good cash flow-payment terms and conditions of business.
The cash-flow issues faced by our small firms often have as much to do with the payment terms and conditions that they have to work with when dealing with big businesses and Government organisations as they do with banks. As a council leader in particularly difficult times, I was extremely pleased to be able to reduce payment terms to small businesses to 10 days in the depths of the recession. Even in these difficult times, when we must reduce public sector spending, the Government could consider supporting such an initiative, and I would like to know the Minister's thoughts on that.
In my constituency, we have second and third-tier manufacturers, which come under pressure to hold stocks over longer periods when dealing with large businesses. They also have problems because large businesses expect them to extend their terms of credit during tough times, which drastically reduces their cash flows.
I draw my hon. Friend's attention to a recent case in my constituency, where a large brewing firm unilaterally decided-with no negotiation or discussion-to extend its terms of credit from 30 to 90 days, which had a massive impact on some very small businesses. We talk a lot about corporate responsibility, and although larger businesses need to operate in a tough economic climate, they also have a responsibility to smaller supply businesses, which often rely on tight terms of credit to survive.
I apologise for intervening so soon after the last intervention, but I wanted want to say something about Her Majesty's Revenue and Customs, which is another area of Government intervention that could very much help small businesses with their cash flows. I have many letters in my postbag from small businesses that are struggling to meet HMRC's demands to pay very large bills, particularly for VAT. If HMRC could in some way help such businesses over this difficult period in the recession, I am sure that that would be much appreciated.
I thank my hon. Friend for her comments, and I will be interested to hear the Minister's views about HMRC. I, too, have heard of small firms in my constituency struggling to balance their cash flow when they have large VAT bills to honour.
We must acknowledge that we perhaps need to exert some influence on larger businesses over terms of credit and, as my hon. Friend Andrew Griffiths put it, showing some social responsibility. However, we also need to acknowledge that the Government are limited in how far they can interfere with the way in which businesses are run. In addition, we need to be mindful of the global competitiveness of larger businesses in the modern day.
Will the Minister consider what the Government can do to encourage better payment terms for our small businesses? The extension of the credit terms and conditions of small businesses has inevitable consequences. It is vital that many firms be able immediately to access a bank overdraft when faced with the measures used by larger businesses. However, evidence from my constituency suggests that banks can be unwilling to give such credit facilities, even to long-standing businesses with strong trading records, without demanding security in the form of the business owner's home, which is often quite an issue.
I have obtained information from the Forum of Private Business suggesting that interest rates on loans that are not secured against the business owner's property can often be double those on loans secured against commercial or residential property, and one of my colleagues alluded to that. The problem is that many business owners, and particularly long-standing ones, do not necessarily want to put their homes on the line, particularly if they are reaching retirement age and do not consider it worth taking the risk.
That is what happened in the case of a manufacturing business in my constituency that I heard from during the general election campaign. The firm has not been afforded the credit that it needs, even though it has a strong order book. It has been trading for 50 years and employs about six people, but it is on the verge of ceasing to trade. It will close the doors and sell its commercial property because that is a better proposition for the business's owner than keeping trading and employing people.
If such things keep happening, they will have an extremely negative effect, particularly in the engineering sector, where many small business owners are probably of a reasonable age, given the deteriorating uptake of new people into the industry. Many people will be in their late 50s or early 60s and might consider it better to close their firms than to keep going. That would have a very negative impact on what we are trying to achieve.
My hon. Friend makes some excellent points about the way in which banks are treating small businesses, and we have heard other examples from my hon. Friend Karen Bradley. Things are getting quite out of hand, and we are seeing similar examples in Macclesfield. Does my hon. Friend Mr Jones agree that we should perhaps work more closely with the Federation of Small Businesses and other industry groups to gather data so that we can put extra pressure on the banks and use an evidence-based approach to demonstrate to the Government what is actually going on? There are a lot of ad hoc data flying around, and we need to get them into a more user-friendly form so that we can use evidenced-based approaches to show what banks are doing. When we have the data, we will be better able to put further pressure on the Government and the banks to provide greater support to small businesses. I do not know whether my hon. Friend agrees with that sentiment.
I thank my hon. Friend for that intervention and agree with his sentiments. Later I shall talk about what I think is progress in that direction. I am sure that the Minister, who has had a lot to do, will be heartened by the quite positive comments I want to make.
As to firms in my constituency that have had problems with credit, I have been made aware of firms around the country whose credit facilities have been reviewed by banks at very short notice. Banks often vary overdraft terms without warning and dramatically increase loan rates at short notice, which makes it difficult for small businesses to respond. I have received figures from the Engineering Employers Federation that quantify those concerns. During the first quarter of this year the cost of finance increased for almost 35% of companies, whereas it decreased for only 3%. That is obviously difficult in the current economic climate. I fully understand that the banks are trying to repair their balance sheets, but at a time when we have the lowest interest rates in living memory, that seems counterproductive. It is no wonder that the number of complaints about banks by SMEs has risen in the past year by 119%. I am therefore heartened to see that, in their Green Paper "Financing a private sector recovery", the Government have started to make the banks reconsider their position slightly. That is after much talk from the previous Government about making banks lend to small business, all of which seems to have had little effect.
My hon. Friend has been making some excellent points, and I am sure that all of us will relate the various issues he has raised to our constituencies and businesses. The holy grail for the banks seems to be to provide customer relationship managers. Does my hon. Friend feel that they will really be given the flexibility and authority to make decisions about lending money? Do they have applied business experience to enable them to make the right decisions?
I thank my hon. Friend-and I hear the comment by my hon. Friend Lorely Burt, making that very point. Many business people, particularly those who have been in business a long time, feel that 20 or 30 years ago they could pop in to see the bank manager if they had a problem, and discuss their concerns and try to get over issues. Now it seems that a customer adviser or someone who is purportedly a bank manager taps a few figures into the computer and comes up with the right result-if the computer thinks that is right. That is a dangerous situation. It is difficult for our small businesses to survive.
Does my hon. Friend agree that banks take far too short-term a view of their investment in and support for businesses? What my hon. Friend Jeremy Lefroy said about banks investing in businesses-in equity-is relevant; it is about having a long-term vision of their future and supporting them so they can grow, much as banks do in Germany.
I tend to agree; that is particularly the case for manufacturing, about which banks are taking a very short-term view.
It is positive that progress is happening, and a taskforce is being created by the six largest banks in the country. Until now that has been headed by Stephen Green. I understand that from today he has other responsibilities and I wish him well with those. The move is a positive one and I hope that the work of Mr Green and his colleagues will continue. I would like the Minister to explain how he will work with the taskforce and feed into it. There seem to be some positive noises about banks wanting to engage with Government and business to get over the problems.
That is obviously a risk if the banks are marking their own exam papers, but I have asked the Minister how the Government will interact with the taskforce, and I think that if we do that in the right, positive way and involve business organisations, we can end up with some positive outcomes. I am mindful that there have been many interventions in my speech and that other hon. Members will want to speak, so I shall try to cut my remarks a little short.
We and the Government are here to facilitate and improve the environment in which small businesses can flourish and employ people. That is what we all want, and I hope that the Government's new local enterprise partnerships will be more focused on doing that. My hon. Friend the Member for Stafford has alluded to schemes that the Government have been or could be involved with, and that is positive. I hope that the local enterprise partnerships will get involved with such schemes and that they will be a positive way to bring about solutions locally. Often such solutions work, in time, but businesses get frustrated by the fact that it takes so long to bring about schemes and to provide the relevant types of finance and help with financing; that has been a problem with the regional development agencies. Businesses often do not have that sort of time, for the reasons I have mentioned.
The Government are moving in the right direction, but hon. Members need to keep putting pressure on them to continue. I am sure that if the Government can motivate the banks and bring them together to work for the common good-although they obviously have their own commercial reasons to be in business-we shall have gone some way towards creating the enterprise culture that this country has so badly missed for so long, and which will reinvigorate our economy.
I shall be brief because I know that colleagues want to contribute.
I was going to talk about Government schemes, but that area has been well covered by other hon. Members, so I shall confine my comments to privately run, independent schemes, to which I should like the Government to give some form of backing. I also want to talk about the banks.
The Funding Circle was launched on
I also want to mention 3i. The point has already been made about investigating how we could support a similar type of organisation-a private equity group-to provide equity and debt finance to business, particularly small businesses.
My third suggestion was in the Liberal Democrat manifesto but does not seem to have made it into the coalition agreement: regional stock exchanges. Local investors want to invest in businesses that are local to them and to put money back into the prosperity of their region.
The hon. Lady made a valuable point about private equity and perhaps regional stock exchanges, but the fundamental issue is that although private equity is one of the longest-term investors in the country, in that it has a five or six-year plan-that is going through the stock exchange-we want to consider modes of investment with a turnaround of not five or six years but 20 to 30 years, so that people invest for a sustained, long period and the small business can become a medium-sized business and grow. I encourage the Minister to look at ways to do it. I do not quite have the answer, but obviously that is why I am not a Minister. I am sure that he has all the answers.
The hon. Gentleman makes a valid point. I, too, look forward to the Minister's response to that plea.
In August, the Bank of England reported that loans to small and medium-sized businesses had contracted by 2% year on year. Credit conditions are tighter for small business. Larger businesses can get out of that by refinancing on the bond market, but there are few places for small businesses to go. I referred earlier to the exorbitant rates that small businesses are being charged. I have come to the conclusion that there is a sort of cartel. I do not know whether that statement is libellous, but at least I said it in the House.
There are four main banks, and 90% of small businesses bank with the big four. The Federation of Small Businesses says that it wants to see more competition among the banks. Various attempts were made by Labour to get the banks to lend; they threatened them and said, "We are going to do some bank bashing if you don't comply," but none of that resulted in anything worth while. However, I do not believe it was through a lack of trying.
I have a solution for the Minister to consider. I call it the Lil-lets solution after a recent visit to the Lil-lets head office in my constituency. I have been visiting businesses to see how they are faring with the recession and to ask what the Government can do to release that stranglehold and create a better business environment for them. They said that banks are not lending more, and that even those with only half a brain would not borrow from banks if they could possibly avoid it because of the exorbitant rates, arrangement fees and other charges made by the banks.
The two directors of Lil-lets have a solution. We own 84% of the Royal Bank of Scotland. We also own a substantial proportion of Lloyds. Why not make RBS bring its rates down? The cartel agreement would thus not be valid. If one bank went to a lower rate, all the others would have to follow or they would become uncompetitive. General competition would improve, which would break the stranglehold agreement that seems to have evolved between the big four banks. It would create the sort of competitive environment needed particularly by small businesses, which need not only to borrow money but to borrow at a sustainable rate. That is the most important thing.
I shall try to be brief. I welcome this debate and I thank my hon. Friend Jeremy Lefroy for initiating it. I welcome my hon. Friend the Minister; I know that the small business community will be delighted that we have a Front-Bench spokesman with experience of building a small business. I also welcome the Government's commitment to this vital area, both in the Chancellor's statement and in the centrality of their open-for-business commitment. I welcome the role of the Foreign and Commonwealth Office in driving trade around the world and the excellent July paper, and I support the comments of colleagues about microfinance.
Like a number of Members I came to the House after a career in small business. In my case, it was a rather specialist field. I spent 14 years in biotechnology venture capital, so rather than echo the excellent comments of others about general small business finance, I shall concentrate on the particular needs of technology companies, and the technology sector. Before doing so, I declare an interest in my business, 4D Biomedical, and in directorships of the Iceni fund at the Norwich research park and Elsoms seeds.
I shall make three principal comments. The first is about the potential of the UK technology and science sectors to drive SME growth, national economic growth and international competitiveness. There are three key exploding markets around the world. Some may wonder where growth in the UK economy might come from, but I suggest that we do not have far to look. They are food, biomedicine and the technologies that drive sustainable living. Given the world population and the rate of growth, those three markets are all set to explode over the next 10, 20 or 30 years.
We have the science and research base to lead in the technical solutions required to make that population growth sustainable. In my area of Cambridge and Norwich, but sadly not yet in my constituency, we have genuinely global world-class centres of excellence in biomedicine and food science and clean tech, of which the Minister is aware. My plea is that when considering the financing of small businesses in those sectors we do not overlook the importance of core research. We must ensure, in the forthcoming review of departmental spending, that we do what we can to protect the core research spending of our excellent world-class centres of science research, such as the John Innes centre at the Institute of Food Research.
My second point is about how the Government can encourage those important technology sectors. I know that the Minister has given a lot of thought to the subject. To their credit, the previous Government recognised the importance of the sector, but their approach was essentially flawed. It was that the Government know best; we had one initiative after another and we had the regional development agencies, and they created well-intentioned pots of money and schemes suggesting that everyone had it in them to be a biotech entrepreneur and that every region had potential, but we wasted a lot of money. I know that the Minister, when in Opposition, considered the matter closely. I suggest that our approach should be based on incentives, not initiatives. If we create the incentives that allow centres of excellence to grow and flourish, in which companies can invest, we will not need initiatives.
My third point-I accelerate rapidly to leave my hon. Friend Richard Fuller some time-is about specific financing difficulties. A number of colleagues have spoken of the banks, and I echo those comments. We clearly have a problem with bank regulation, the banks anticipating regulatory pressures to repair their balance sheets to the cost of small businesses. The latest figures show that bank lending to small businesses this year is again down by 6%. The big companies, of course, are fine, as they play in the international bond markets and have other options open to them.
We have a huge problem with the banks. My plea is that, as with the green investment bank, we consider all sorts of ways of promoting direct credit unions and smaller new banks. I am aware of an initiative in Cambridge-I believe it is known as the boring bank of Cambridge. It is not intended to be an investment bank but will do straightforward borrowing and lending for good local businesses. There is a huge appetite locally, and many people would put their money into a local bank that supported local businesses. It could be a fiscal element to the big society.
I come now to the financing of the food chain in the technology sector. In my 14 years' experience, the banks are largely irrelevant to the financing of high-technology companies. It tends to be a cycle, with entrepreneurs taking a risk and putting their personal and family assets on the line, then high-risk angel investors putting in their expertise and often their money, and then specialist venture capital, corporate venture funds and sovereign wealth funds becoming involved. My plea is that we should recognise the importance of reinvesting personal and corporate wealth. I wonder whether we can do something through the tax regime to encourage such reinvestment. I was interested to note that the latest FSB survey of its members showed that only 28% of those who were borrowing rely on bank loans; 31% use their own savings and credit cards, and 24% retain profits, the latter two being the bigger element.
My last comment, which is for the Minister, is about the global potential of the Foreign and Commonwealth Office mission to unlock some strategic national partnerships. I cannot help but wonder about the potential of this country, in partnership with India, to drive a great innovation in agricultural productivity in India, using our historic strengths in agriculture and our links, not least the English language, with the Indian Government. Although my party believes principally in incentives rather than big government initiatives, there are some instances when only the Government can act. The Government could help to facilitate some interesting partnerships between British research institutes, British companies and overseas markets.
With that I shall close, leaving my hon. Friend the Member for Bedford and the Minister time to reply.
I am indebted to my hon. Friends the Members for Solihull (Lorely Burt) and for Mid Norfolk (George Freeman) for being brief in their remarks because it means that I can avoid talking about financing for small businesses in the manner of "Just a Minute". I shall try to avoid deviation, repetition and whatever else I am supposed to avoid. I must declare an interest; I am chairman of a number of small businesses and a participant in a venture capital fund, all of which are in the Register of Members' Financial Interests. I must also declare an ailment; I have a very sore throat and so may cough at inappropriate moments. Although I do not want to make too much of a partisan point, I am intrigued by the absence of Opposition Members in the Chamber today. The debate is important to the well-being of constituents and to the future of our country. As many hon. Members have said, we welcome having a Minister in office who is such an extraordinarily good and knowledgeable friend of small businesses, and we hope that he will be a strong friend during his time in office.
To encourage the Minister in his endeavour to be a strong friend, may I make a couple of high-minded points? First, starting up a small business, whether it is for profit or it is a social enterprise, is one of the noblest endeavours that one can undertake. A person does not go into small business just because they want to get rich; often, they do not want to be rich at all. If one is running a social enterprise, being rich is not even on their map. People do it because there is something inside them. It may be creativity, drive and the sense of trying to create something for themselves, their family and their community. It is a noble endeavour, and it is an important endeavour to promote. The motivations of people who start up small businesses are important.
Secondly, it is a vital endeavour for our country. When it comes to employing the next generation of Britons, "there is no alternative"-to quote a former Prime Minister-to strengthening the small and medium-sized enterprises in our country. That is something that we sitting in this Chamber have a responsibility to do as we face the difficulties of the great recession and the responsibility of dragging our economy and country out of it. It is also the source of our long-run national opportunity. I want us to sell into those international markets and to take advantage of technological innovation, which is what my hon. Friend the Member for Mid Norfolk has been talking about. That will only come with those sparks of ingenuity or insights and with supporting our entrepreneurs and small-business people. I say to the Minister, please be brave, strong and radical.
Given that many comments today have been about how we can encourage and strengthen the banks to lend to small businesses, let me say this: "Don't bother." The banks are failing small businesses; they are not structured to understand the problems and they are not ready to provide the capital. Be bold and radical and find alternatives. Challenge the banks on that turf. Do not rely on them because it will be a waste of time and of another generation. When we seek finance, the banks often stand in our way. They are poor both in terms of availability and of the cost of finance. The administrative burden of securing even the smallest overdraft does not make any sense and that burden is increasing. The terms and conditions for small businesses to get started and then for when they get into trouble are just too much bother. Why try and ask the banks at all? Just gravitate a bit and improve their little bits over here and there, but look for alternatives. Hon. Members have encouraged the Minister to consider reviving the 3i model, which is an exceptionally good idea. We have talked about trying to find ways in which we can create community funds that tap into local people who want to support local businesses and tying that to the changes in local enterprise partnerships. In Bedford, we are ready to do that. Give us the encouragement to do it; we will stand up and do it in our local community. By providing competition to the banks that have failed our local businesses, we will find ways in which we can achieve the support that is needed to help our next generation of entrepreneurs and the creation of jobs in our economy.
It is a great pleasure to appear before you, Mrs Main. It has been a very interesting debate, so let me congratulate Jeremy Lefroy on securing it and on provoking such reflective comments.
The Minister and I discussed this difficult matter when I was in government, but the whole subject has now moved on. In the context of the international banking crisis, it was clear that one of the most traumatic problems for businesses of all types was securing lending or investment on a consistent basis. Over the past two to three years, we have heard massive exhortations about the banks from all parties. The former Chancellor, the present Chancellor and the Secretary of State for Business, Innovation and Skills have all made it clear that they are dissatisfied with the investment decisions that the banks have made. In our own constituencies, we are seeing businesses that are having great difficulties. If anything, the problem of securing investment from banks may be getting even worse. In the past, the Government have taken steps to address the issues. The enterprise finance guarantee scheme has been relatively successful, and I am pleased that the Government took the decision to extend it in the Budget. I do not know what has happened to the major loan guarantee scheme that was referred to in the coalition agreement. Perhaps it morphed into the enterprise finance guarantee extension. I am pleased to see the extension of a scheme that has helped many businesses in my own constituency.
An important concession that was made by the previous Government concerned VAT and payments to Her Majesty's Revenue and Customs. It was a massive extension of support by Government, and it cost money. Part of the reason behind the size of the deficit is that the Government decided to support business to ensure that unemployment was lower than it was in the 1980s and 1990s. That was the correct decision at that time. It is interesting to note that some of the suggestions today from the Government Benches involve Government investment to support small businesses. We still have massive problems with the banks.
Does the hon. Gentleman not agree that many of these small and medium-sized businesses are viable? They are facing challenges that are not of their own making. Many were encouraged to take loans by the very banks that pulled the rug from under them when they got the first sign of the recession. Surely it is criminal to destroy viable businesses at a time of such crisis?
The hon. Gentleman is absolutely right. What is vexing is when businesses that have had a long-term relationship with a bank suddenly discover that the terms and conditions that are being applied by that bank are completely changed to their detriment. There is not the local relationship that there should be. When I ran my own small business-yes, it does happen on the Labour Benches sometimes-I had a long-term relationship with the bank that helped finance my business, and that was very important.
What has been interesting about this debate is that rather than just banging the banks-we have done that to a certain extent-we have begun to move on and to talk about alternative methods of finance. I do not think that we have done that sufficiently in the past. I hope that in a different governmental environment, in which the present Government are seeing just how difficult it is to find a solution to this problem, we look at alternative ways of financing businesses. I think that we have heard some interesting observations today on that issue in what, as I have said already, has been a genuinely positive and reflective debate.
One of the important lessons that we need to learn from the economic crisis of the past few years is that certain businesses actually prospered during it. We need to look at why they did so. When I was in government, I met, for example, representatives of the John Lewis Partnership and of the Co-operative. They are organisations that did very well in the past few years, because they had business models that were apart from the norm and that functioned on a different basis. It seemed to me that they functioned on a more stable basis and, to use a phrase that I have heard a number of times in this debate, on a longer-term basis. I think that we could learn from those organisations.
I also think that we need to reflect on the experience of those organisations and be much more aware of the possibility of businesses being run in a different way from how they have perhaps been run in the past. They could have a different model, a different form of ownership and a longer-term approach. I think that those businesses would be much less susceptible to the bad decisions that we are so often seeing from banks, decisions that are detrimentally affecting the finances of small businesses.
My perception is that banks do not have any idea about alternative business models. Earlier in my life, I was a solicitor and when I was taught about business, the two models were, first, partnerships or sole traders and, secondly, companies. There was very little discussion of alternative business models, which I think is a great failing for perhaps the legal profession, the accountancy profession and, I strongly suspect, the banking profession. We need to explore alternative business models as part of a process of looking at financing business in a different way.
Another interesting point that has been made today is that, within that long-term context, we should look at how pension funds, for example, can support business on a very long-term basis. All of us have pensions and have funds that are built up during many years within those pension funds. However, it seems to me that most of us have very little knowledge of how that money is invested and that most of us do not take as much interest in that investment as we perhaps ought to. As individuals or working with others within our communities, we ourselves could take steps to invest in the types of business that will really provide the bedrock support for our community.
Does the hon. Gentleman agree that, as my hon. Friend Richard Fuller stated earlier, part of the problem with the banks at the moment is the complexity of their organisation? What has happened during the last decade is that the banks have become so large and so complex that their focus has moved away from lending to small businesses, and their profits are focused in a different manner. The real crux of the problem now is that they are not lending to small businesses. All small businesses want is access to credit, reasonable terms and conditions for access to that credit and prompt payment of invoices. So I do not think that we should encourage small businesses to change how they operate. It is more about encouraging the banks to focus more on small businesses, in terms of their core lending to those organisations.
I am not sure that I agree with that observation, because the thrust of what I am saying is that perhaps we ought to move away from the banks when it comes to financing businesses. Of course, it is true that there will always be a role for banks, but we should be aware of the possibility of alternative models, because it seems to me that the banking sector is not that interested in small business. It certainly does not seem to be providing the support locally to small business and if the big banks are not interested in small business, small business should perhaps look for investment from someone who is interested. We need to provide structures that will support the development of business over a long term and I hope that those structures could be provided by some alternative sources of finance, which have been referred to in this debate.
Of course, one of the major problems in the banking sector is the lack of effective competition between the big banks, which seems to be one of these problems that is very difficult to solve. I would be interested to know about the time scale that is going to be applied to the commission that is looking into these subjects, including when the commission is likely to report.
We have a finance system that needs to change. I think that there is a willingness among people to make longer-term investments, provided of course that the security is there for the investments that are made. In the longer term, it may be that the Government will have a more important role, in ensuring that, if we are using alternative models for investment, there is a guarantee mechanism provided by the Government, so that they support-with their hand in their pocket-those who make the publicly-spirited investments in the businesses that will provide jobs and prosperity for the UK in the future.
Clearly, we have had a seismic shock to the financial system in the past three years. It has been a shock in historic terms and not only in the UK, of course, but right across the world. The banking system and the regulatory system were found gravely wanting during that period. Now that we have gone through a period in which we have held the banks very much responsible for what has happened and we are seeing that they are not able to respond to the necessary moves towards growth that are being made, we need to think in a different way-I think that many Members have done so in this debate already-about how we take forward investment in businesses that will grow the economy in the UK in the years to come, providing the jobs that we all want for our constituents. I think that many of the ideas that we have heard today are an interesting initial step and I hope that we will continue to take more steps in the months and years to come.
I begin by congratulating my hon. Friend Jeremy Lefroy not only on securing this debate but on providing an informed and informative contribution that ranged over the wider issues-from debt through to equity-showing how we can help small businesses, which is vital given their crucial role in the economy.
I also want to say how refreshing it has been to take part in a debate in which nearly every Member has had to declare an interest. That is often seen as a negative thing, but I regard it as wholly positive when Members bring to the Chamber and this House their own experience. As several Members have alluded to, I myself started my own business at the bottom of the last recession and I was able to run it for 10 years. I value that experience, and I hope it has informed what I have been able to do as a Member and that it will inform what I can do as a Minister. How refreshing it has been that almost everyone who has contributed to this debate-including my opposite number, Ian Lucas-has been able to do so on the basis of real-world experience. I only wish that that was the case in more of the debates we have in this place.
A wide range of topics has been raised and I have a relatively short time in which to refer to them. On the cash-flow issue, which several Members have mentioned, I encourage hon. Members to take the cudgels up with the relevant Government agency and to copy the relevant Ministers in on any correspondence. The relevant Ministers will probably not thank me for saying that, but it is important to ensure that hon. Members play that role, because often there will be a miscommunication or an error will be made, and hon. Members can help to tackle such problems. That is an important point to make first.
A number of other issues were raised. In due course, I hope that I may have the opportunity to discuss the "Lil-lets solution", although I must confess that I feared where Lorely Burt was heading when she discussed that. However, I will focus on other issues: debt, particularly the enterprise finance guarantee, about which a number of questions have been asked; the finance Green Paper and the role of equity, which underpins that document; and, of course, the vexed issue of bank lending.
As we emerge from the deepest and longest recession since the second world war, the continuing constraints on finance for SMEs are a prime concern for the coalition Government. The coalition agreement made it clear that one of our core priorities is to increase the availability of both debt and equity finance to businesses that are fundamentally sound. As several Members have rightly pointed out, that is crucial to the future growth and structure of the economy. I entirely applaud the remarks made by my hon. Friend Richard Fuller about what a noble calling it is to begin a business. How right he is, and how well he put it.
The Government also want to ensure that the banking system and financial markets meet the economy's long-term needs and support sustained growth. My hon. Friend Mr Binley, who, sadly, is not in his place at the moment, raised the issue of the balance between lending and capital reserves. We must be careful, for we do not want to repeat the instability and over-exuberance-to put it nicely-in the banking system that led to many of the problems we are discussing. Balance is important.
In the few weeks since taking office, we have introduced a number of measures to tackle the immediate challenges that small businesses face when accessing credit. We are also considering the longer term. However, as my hon. Friend the Member for Stafford rightly said, it is action that counts, not words, so I will refer to three specific matters before I consider the Green Paper.
We have increased the enterprise finance guarantee by £200 million to support £700 million in additional lending until March next year. The additional money will support up to 2,000 SMEs. In addition, having listened to small businesses' concerns, we have set a target of 20 working days for lenders to inform businesses of their decision. Time and again, SME owners have said to me, "The worst part of the process is not knowing. If I know that I'm going to have a clear decision in 15 days, 20 days or whenever, I can plan and work forward." We felt that it was important to introduce an element of predictability into decision making as well as providing the additional £200 million.
I wanted to draw attention to the fact that among this distinguished company are five Staffordshire MPs. My hon. Friend Jeremy Lefroy has carried forward the initiatives of Stafford Enterprise, which was formed in the 1980s and to which the document from the Department for Business, Innovation and Skills refers. In the 1980s, we established the culture that my hon. Friend Mr Jones mentioned, which enabled us to create enterprise and employment. I know that my hon. Friend the Minister agrees with all that, but it is worth putting on record. It was a huge incentive to such a culture, and it needs to be related for the sake of historical continuity. In the 1980s, we achieved it.
I strongly commend that achievement and totally endorse what my hon. Friend suggests. Staffordshire Members are well represented here, which indicates their commitment to their constituencies. That is to be applauded.
My hon. Friend the Member for Stafford raised several issues involving the enterprise finance guarantee. On its own, it cannot be a remedy for the broader problems that SMEs face. It exists to underpin additional bank lending; it is not an alternative loan product. However, it is important to bear it in mind that the EFG is there to ensure that viable businesses that can pay back the money but are struggling to secure a commercial loan-often because their track record is insufficiently long or they do not have security-can obtain finance. At this point in the economic cycle, especially given several hon. Members' comments about start-ups and fresh new businesses, such underpinning is crucial as businesses develop a track record. They need an opportunity to get going.
My hon. Friend asked some specific questions, some of which I will answer. I have information for the period from January to October last year; I hope shortly to have information for the period thereafter. The sum lent during the first nine-year period was £580 million. The cost to the taxpayer-principally in administration-was £21 million. The number of jobs created or saved, according to the information we have received, was 31,600. Therefore, the cost per job is expected to be £665. Hon. Members will realise that that is an encouraging set of statistics. A note of caution: most of those loans are three or five-year arrangements, so absolute clarity about how successful the scheme has been would be a little premature at this stage. However, the statistics are encouraging, which is why I did not hesitate to take on the work.
The hon. Member for Wrexham, my predecessor in the former Government, worked hard on these matters. I thought it important that we should say, "Fine, this seems to be working. Let's move on and use it, not just change it for the sake of change." That is an important part of what we are doing. I pay tribute to the hon. Gentleman, whom I no doubt annoyed and challenged in my role as shadow Minister. He was diligent in trying to ensure that the scheme worked.
In addition, we are considering equity issues, which my hon. Friend the Member for Stafford mentioned. A growth capital fund is being created to fill a gap for SMEs that need to finance growth. We will provide more detail in the next couple of weeks. A further enterprise capital fund of £37.5 million is being set up to provide early-stage risk capital-to get the phraseology correct-to innovative small businesses with high growth potential. Several hon. Members asked about that. It is part of a £1 billion series of programmes. There are 10 ECFs, run by Capital for Enterprise Ltd. Like the market, they seek to invest in key high-technology areas. In that sense, there is an element of small pots, about which I have been critical on the record, but I think that hon. Members will realise that targeting key technologies and capabilities requires expert investors and not politicians to make the decisions. That is an important part of what we are doing.
On the green investment bank, I am pleased to say that my hon. Friend the Member for Stafford will have the full details when the Chancellor announces them during the next couple of months. I would love to be able to pre-empt the Chancellor, but that might be the end of my career, so my hon. Friend must be a little patient. He is keen, which is encouraging, but it is important to wait. Crucially, the green investment bank is meant to enable the transition to a low-carbon economy. Several hon. Members have pointed to the important role of high-technology businesses in the low-carbon field. It is important to recognise that and to make a targeted effort using the green investment bank. Details will be forthcoming in the next few weeks.
I am aware of the time, so I will move on to the vexed issue of bank lending. We should be clear that, as Members have suggested, most small businesses seeking funds at the moment are getting the money they require, but I am well aware of the problems. Although it is true that international regulators have tightened banks' capital and reserve requirements, it is nevertheless clear to me and this Government that banks can and should be doing more to support the financing needs of viable SMEs. The Secretary of State and I have stressed that in our conversations. I will put it clearly on the record again: where unreasonable terms or behaviour are brought to our attention, we will challenge the bank concerned and make absolutely sure that it understands the issue's importance to both the Government and the economy as a whole.
Hon. Members raised several other topics. I am aware that time is short, but I will return to the question of competition asked by my hon. Friend the Member for Bedford. We will challenge the banks. I want to ensure that if they are not doing their job, we hold their feet to the fire. However, in the end, competition will be the answer. That is why I have great faith in the role of community development finance institutions for micro-businesses wishing to secure microfinance. Again, the last Government took a role in that, which is to be applauded. I want to consider how we can extend and develop that.
It is crucial to remember that small businesses are short not of finances but of time. We must ensure that debt and equity finance is simple and clear and that it works. That is my ambition and the ambition of this Government, and I hope that it will secure the House's support when we introduce our measures.