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PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT Fifth Delegated Legislation Committee FINANCIAL ASSISTANCE TO INDUSTRY Monday 7 April 2014 PUBLISHED BY AUTHORITY OF THE HOUSE OF COMMONS LONDON – THE STATIONERY OFFICE LIMITED £5·00 Members who wish to have copies of the Official Report of Proceedings in General Committees sent to them are requested to give notice to that effect at the Vote Office. No proofs can be supplied. Corrigenda slips may be published with Bound Volume editions. Corrigenda that Members suggest should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons, not later than Friday 11 April 2014 STRICT ADHERENCE TO THIS ARRANGEMENT WILL GREATLY FACILITATE THE PROMPT PUBLICATION OF THE BOUND VOLUMES OF PROCEEDINGS IN GENERAL COMMITTEES © Parliamentary Copyright House of Commons 2014 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 1 Fifth Delegated7 APRIL 2014 Legislation Committee 2 The Committee consisted of the following Members: Chair: MR DAI HAVARD † Blackwood, Nicola (Oxford West and Abingdon) † Jackson, Mr Stewart (Peterborough) (Con) (Con) † Morris, Anne Marie (Newton Abbot) (Con) † Corbyn, Jeremy (Islington North) (Lab) † Munn, Meg (Sheffield, Heeley) (Lab/Co-op) † Doughty, Stephen (Cardiff South and Penarth) (Lab/ † Murray, Sheryll (South East Cornwall) (Con) Co-op) † Perkins, Toby (Chesterfield) (Lab) † Field, Mark (Cities of London and Westminster) † Pincher, Christopher (Tamworth) (Con) (Con) Qureshi, Yasmin (Bolton South East) (Lab) (Upper Bann) † Hancock, Matthew (Minister for Skills and Simpson, David (DUP) † Thornton, Mike (Eastleigh) (LD) Enterprise) † Vaz, Valerie (Walsall South) (Lab) † Hands, Greg (Treasurer of Her Majesty’s Household) Mark Oxborough, Committee Clerk Hendrick, Mark (Preston) (Lab/Co-op) † Horwood, Martin (Cheltenham) (LD) † attended the Committee 3 Fifth DelegatedHOUSE OF COMMONS Legislation Committee 4 The businesses supported by the fund have high Fifth Delegated Legislation growth potential, are often looking to extend well beyond Committee domestic markets, and cover sectors such as medical instruments, high-tech manufacturing and internet-enabled technologies. We hope that, with the extra resources, the Monday 7 April 2014 Angel CoFund will be able to back about 50 new investments each year during the next few years, setting a commitment to recycle at least £40 million into new R AI AVARD in the Chair [M D H ] businesses within the first 10 years. Financial Assistance to Industry I am also asking the Committee to authorise an extension of the funding provided to the start-up loans programme to £380 million. The programme is expanding 4.30 pm rapidly and requires additional funding in order to The Minister for Skills and Enterprise (Matthew continue to support new businesses across the UK. This Hancock): I beg to move, extension will enable about £85 million of new lending That this House authorises the Secretary of State to undertake each year through to the end of 2018-19, supporting to pay, and to pay by way of financial assistance under section 8 between 12,000 and 15,000 new businesses a year. The of the Industrial Development Act 1982, in respect of certain start-up loans programme provides support in the form British Business Bank programmes, sums exceeding £10 million of a repayable loan combined with a business mentor and up to a cumulative total of £100 million in respect of the for entrepreneurs looking to start their own business Business Angel Co-investment Fund; and sums exceeding £10 million and up to a cumulative £380 million in respect of the Start-Up who have potentially viable propositions that cannot Loans programme. otherwise attract investment from a high street bank. It is a pleasure to serve under your chairmanship, Mr Havard, and a great pleasure to see the shadow Anne Marie Morris (Newton Abbot) (Con): First, I Minister, the hon. Member for Chesterfield, in his place—his commend my hon. Friend the Minister on the proposals, arrival in the room was a standing example of just-in-time because all the help that new start-up businesses can get delivery. is much needed and welcome. Will he clarify how the The motion is laid before the House under the Industrial Government plan to source the mentors to whom he Development Act 1982. I am asking the Committee to refers, to support the expansion of this welcome and approve funding for the Business Angel Co-investment worthy scheme? Fund. The Angel CoFund makes equity investments of between £100,000 and £1 million in smaller businesses Matthew Hancock: We now have more than 15,000 start- across the UK, investing alongside syndicates of business up loans. Each loan provides not just finance but a angel investors. It has, in the 28 months since its launch, mentor, which is important. Those mentors are secured already provided or committed direct investment of through the just under 30 delivery partners that we have £19 million in 47 smaller businesses and attracted a with the Start Up Loans company. The company does further £70 million from business angels and other not deal with start-ups directly; the delivery partners private sources, securing just under £100 million in both find the mentors and directly invest in the start-up total. loans. There are a variety of ways to find mentors, but Since the launch, the Angel CoFund has shown that ensuring that people are well aware of the existence of there is strong market demand for what it provides, and mentoring opportunities is an important part of the that level of activity has led to the fund investing or process. committing to invest £38 million of the initial £50 million of capital at this early stage. That is aimed at high-growth Toby Perkins (Chesterfield) (Lab): Will the Minister companies. The fund now requires additional support take us through the geographical backgrounds of the to continue to make new investments. 30 organisations that are helping to divest the Government Small businesses seeking finance, and particularly of these funds? How many of them are in London and equity investment, often find it difficult to secure that the south-east, and how many are in each of the other investment. That long-standing problem, called the equity regions? gap, results from a structural gap in the market whereby institutional investors focus on fewer, larger investments in more established businesses at the expense of early-stage Matthew Hancock: All of them can invest anywhere venture capital. In recent years, business angels, who in the UK, including in Northern Ireland, where there are often high net worth investors, have become the has been interest. In a sense, the geography is based on predominant source of risk capital in that space. However, demand rather than on the locations of the arm’s length one of the key challenges for those investors is to source bodies. The start-up loans project is UK-wide, and the significant capital required to back the businesses, where the loans go depends on where the demand sometimes over periods of several years. comes from. Therefore, they can all be national. The Business Angel CoFund invests alongside business angel syndicates, whereby a number of the angels team Toby Perkins: I am grateful for that answer, but I up to pool their management abilities and generate would still be interest to know where they are based, as sufficient capital to help small businesses to flourish. It one clear thing that we have discovered is that far more is through those commercial investments that the Angel of the loans are ending up with businesses in London CoFund is able to ensure that the companies are properly and the south-east. The background of the organisations financed to a level that allows them to reach meaningful and where they are based is important in the context of points in their development. the performance of the process. 5 Fifth Delegated7 APRIL 2014 Legislation Committee 6 Matthew Hancock: I will take that point on board, suit returning parents and supports mums in becoming but it is important to ensure that we respond to demand entrepreneurs, and Mumsnet, both of which will drive rather than push out start-up loans in the wrong place. referrals to the programme. From the pilot we have learned about the need to Toby Perkins: I am interested in the Minister’s comments. strengthen the programme’s systems and safeguards. He will be aware that, when he announced the first Automated systems have been implemented to ensure 10,000 start-up loans, 44% of them went to London that applications are genuine and to prevent identity and the south-east, while just 5% of them went to the fraud. A minimum standard on credit decisions is now north-east. Is he therefore saying that the north-east is in place and is reviewed quarterly, in response to emerging the wrong place for them and that London and the trends in the loan book. south-east is where all of the focus should be? That is Following the success of the pilot, the programme what he seems to be saying. has built momentum towards a final, stable ambition to fund just over £1.5 million of new lending a week, Matthew Hancock: No, I am not saying that; I am which is typically between 250 and 300 loans. That saying that it is a national scheme that responds to additional funding will allow the programme and those demand. Where there is demand for start-up loans, that who support its delivery to continue to invest in the is where the money will be drawn down.