House of Commons Business and Enterprise Committee Financial support for small and medium- sized enterprises Oral and written evidence Tuesday 16 December 2008 Ordered by The House of Commons to be printed 16 December 2008 HC 90-i Published on 23 March 2009 by authority of the House of Commons London: The Stationery Office Limited £0.00 The Business & Enterprise Committee The Business & Enterprise Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Business, Enterprise & Regulatory Reform. Current membership Peter Luff MP (Conservative, Mid Worcestershire) (Chairman) Mr Adrian Bailey MP (Labour, West Bromwich West) Roger Berry MP (Labour, Kingswood) Mr Brian Binley MP (Conservative, Northampton South) Mr Michael Clapham MP (Labour, Barnsley West and Penistone) Mr Lindsay Hoyle MP (Labour, Chorley) Miss Julie Kirkbride MP (Conservative, Bromsgrove) Anne Moffat MP (Labour, East Lothian) Mr Mark Oaten MP (Liberal Democrat, Winchester) Lembit Öpik MP (Liberal Democrat, Montgomeryshire) Mr Anthony Wright MP (Labour, Great Yarmouth) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via http://www.parliament.uk/parliamentary_committees/parliamentary_committees Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at http://www.parliament.uk/bec Committee staff The current staff of the Committee are: Eve Samson (Clerk), Emma Berry (Second Clerk), Louise Whitley (Inquiry Manager), Janna Jessee (Inquiry Manager) Anita Fuki (Senior Committee Assistant), Eleanor Scarnell (Committee Assistant) and Jim Hudson (Committee Support Assistant). Contacts All correspondence should be addressed to the Clerks of the Business and Enterprise Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5777; the Committee’s email address is [email protected] List of witnesses Tuesday 16 December 2008 Page Mr David Frost, Director General, British Chambers of Commerce, Mr Andrew Cave, Head of Policy, Federation of Small Businesses, and Mr Michael Izza, Chief Executive, Institute of Chartered Accountants in England and Wales Ev 1 Mr Steve Cooper, Managing Director, Local Business, Barclays Bank, Mr John Maltby, Managing Director, Commercial Banking, Lloyds TSB, Ms Lynne Peacock, Chief Executive Officer, Clydesdale Bank, and Mr Peter Ibbetson, Chairman, RBS Small Businesses, Royal Bank of Scotland Ev 11 List of written evidence 1 Department for Business, Enterprise and Regulatory Reform Ev 26 2 ACCA Ev 30 3 Barclays Plc Ev 34 4 British Bankers Association Ev 37 5 British Chambers of Commerce Ev 40 6 British Marine Federation Ev 41 7 CBI Ev 42 8 Civil Engineering Contractors Association Ev 46 9 Cleaning and Support Services Association Ev 47 10 Clydesdale Bank Ev 48 11 England’s Regional Development Agencies Ev 52 12 Finance and Leasing Association Ev 55 13 Forum of Private Business Ev 55 14 Growthwire Ev 63 15 The Institute of Chartered Accountants in England and Wales Ev 65 16 Lloyds TSB Ev 75 17 Mayor of London Ev 79 18 Specialist Engineering Contractors’ (SEC) Group Ev 81 19 The Survey Association Ev 87 20 Roger Williams MP and Mark Williams MP Ev 88 Processed: 19-03-2009 18:38:36 Page Layout: COENEW [SO] PPSysB Job: 419071 Unit: PAG1 Business and Enterprise Committee: Evidence Ev 1 Oral evidence Taken before the Business and Enterprise Committee on Tuesday 16 December 2008 Members present Peter LuV, in the Chair Mr Adrian Bailey Mr Lindsay Hoyle Roger Berry Miss Julie Kirkbride Mr Brian Binley Anne MoVat Mr Michael Clapham Mr Mike Weir Witnesses: Mr David Frost, Director General, British Chambers of Commerce, Mr Andrew Cave, Head of Policy, Federation of Small Businesses and Mr Michael Izza, Chief Executive, Institute of Chartered Accountants in England and Wales, gave evidence. Q1 Chairman: Good morning. Thank you very not what it should be; I think it is a lack of much indeed for coming before this Committee confidence. There is the money there and I think it is today to give us evidence ahead of our session later the confidence that we need to see return. this morning with a representative group of the Mr Izza: I would just add to the point Andrew and banks. Can I begin, as I always do, by asking you to David have made that I see the problem slightly introduce yourselves for the record. diVerently because I think, on the one hand, banks Mr Frost: David Frost, Director General of the are being asked to rebuild their capital position and British Chambers of Commerce. that is something they are being asked to do through Mr Cave: Andrew Cave, Head of Policy at the regulation. That is causing the banks to de-leverage, Federation of Small Businesses. which means they have less capacity to mount. On Mr Izza: Michael Izza, Chief Executive of the the other hand, the Government are asking them to Institute of Chartered Accountants in England and lend more and to make more available. Both of those Wales. aims are perfectly laudable, however they are not exactly easy to reconcile. I think that pressure to rebuild the capital base is actually a very real one. Q2 Mr Binley: I want to ask a general background question. It has been suggested that the banks are being stretched and pulled in two very distinct ways. Q3 Mr Binley: I agree with that. We have a situation Y On the one hand they have got the problems of libor, where the banks are facing sizeable di culties from around 3.3 still, I think; at least three of them have those conflicting pressures, and we need to bear that 12% to pay back to government each year for the in mind when we move on to ask the next question injection of liquidity; and they have got the whole I have in mind. The banks say their lending has not fixed saver scenario, where people are still being paid decreased, yet government and business organisations say that access to credit is getting 5% and 6% on those fixed term accounts; and so they harder not easier. Can you tell me what is going on? have got a lot of money they have to pay in that Mr Frost: It is a very diYcult picture and it is an direction, and yet they are expected to pass on base emerging picture. We are carrying out research at rate cuts in full and cut rates generally on lending. the moment over Christmas and into the New Year Do you think that those conflicting areas of activity to get a real fix. All I can say is that we have a are hindering the banks, or do you think they are V substantial amount of evidence on an almost daily handle-able and should be handled more e ectively basis arriving in our oYces from businesses which than they seem to be at the moment? are facing a more diYcult relationship with the Y Mr Frost: It is a very di cult issue for the banks— banks. Let me start by saying, if we are to get V clearly being pulled in a number of di erent ways through what is clearly a very, very diYcult V and a number of di erent tasks that they have to economic time at the end of it we will require a balance. My own view would be that it is not a cohort, a substantial group of businesses who are in question of “can it be managed” it has to be a fit state to drive us forward and drive us out of this. manageable, because if we are to get through this we The British Chambers of Commerce, whilst we need an eYcient and eVective banking sector represent from the very largest to the very smallest, working with business. at our heart are medium-sized, often family owned Mr Cave: Clearly everybody is in a very diYcult businesses, businesses of some very real substance, position at the moment and the position you have frequently exposed to global competition, described the banks in is not dissimilar to the frequently involved in international trade. These will position that small businesses find themselves in, be the businesses that will have to get us out of this being pinched at every quarter. I do not think that mess that we are in now. If we do not find a way of those problems are the core reason why lending is supporting what are at the heart good quality Processed: 19-03-2009 18:38:36 Page Layout: COENEW [E] PPSysB Job: 419071 Unit: PAG1 Ev 2 Business and Enterprise Committee: Evidence 16 December 2008 Mr David Frost, Mr Andrew Cave and Mr Michael Izza businesses over the next two to three years, then I of your second question of how to fix it, I would go personally find it very diYcult to contemplate how back to the point about confidence. A lot of what we we can get out of this. What we have seen is are hearing from the banks at the moment is very substantial job losses; unemployment is expected to good. There are some very interesting ideas and rise very substantially in 2009; it is the private sector measures coming forward, but at the moment it is which has taken the hit from that; we are seeing a lot words; that is not a criticism of the banks, it is just a of money factoring capacity; we have seen a huge simple fact that they, like us and everyone else, are increase in the number of public sector jobs over the looking for solutions but until there is that last eight years which is now unsustainable; and we confidence at grass roots level you are still going to have seen the financial service sector and business have these behavioural inconsistencies between service sector being hit.