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Small Businesses

My Lords, with your Lordships’ permission, I should like to make the following Statement. This Government understand the real difficulties of many small firms as a result of the credit crunch and world-wide economic slowdown. These companies are critical to our long-term economic success. Over 99 per cent of UK businesses are small or medium-sized enterprises. They contribute as much as large businesses to UK output and nearly 60 per cent of private sector jobs. We have always made getting the business environment right for SMEs a priority, and since 1997 1 million more small businesses have been created. UK SMEs employ 1.5 million more people; they are more productive, more innovative and survive longer. Most recently, our enterprise strategy set out our renewed vision to make the UK the world’s most enterprising economy and the best place to grow and start a business. We increased the Small Firms Loan Guarantee lending allocations by 20 per cent for 2008, boosted enterprise programmes and committed to a new approach that avoids placing unnecessary regulatory burdens on small firms. These tough times have only made us more determined to help SMEs. We need to be practical, we need to be innovative, and above all we need to ensure that what we do makes a real difference. We are meeting with business organisations and businesses across the country to discuss the problems they are facing such as cash flow, access to finance, higher bank charges and costs, and to ensure that their views are reflected in government action. Our first priority has been restoring financial stability. Without a strong financial system, small businesses cannot access the credit they need, homeowners struggle with their mortgages, and trade in the high street slows down. But as the impact of the global financial squeeze hits small businesses further, the Government believe that it is not enough for us to focus only on financial stability. So, building on the measures we have already brought forward, yesterday the Government announced further action to help SMEs through these tougher times, with immediate effect. For SMEs, cash dominates: cash in—that is, prompt payment—and cash out, to their workforce, payment for inputs and to the Revenue. Over the last year, the time organisations take to pay their bills to suppliers has increased, intensifying the cash flow pressures of many businesses. The Government are determined to do everything they can to help. Central government will aim to pay its suppliers as soon as possible, and within 10 days at the latest. This will bring forward billions of pounds worth of payments, on top of the majority of payments already made within 10 days. The regional development agencies, which spend around £750 million annually with suppliers, have also committed to this timetable. And yesterday, my right honourable friend the Secretary of State for Communities and Local Government wrote to the Local Government Association, and the chief executive of the NHS wrote to NHS Trusts, asking these public bodies to review their payment performance and follow central government’s lead. I recognise the essential role that Her Majesty’s Revenue and Customs’ approach to business tax compliance can play in managing an economic downturn. HMRC already has a policy of flexibility in dealing with struggling businesses, and I know the Treasury will continue to impress upon it the importance of implementing and publicising this policy in the current climate. We are also working with the Institute of Credit Management and all leading finance and business organisations to promote prompt payment and to ensure that businesses have the best advice and guidance on managing cash flow. The Government’s measures of financial support to the banking industry are designed to stabilise UK banks and support the long-term strength of the economy, which helps small businesses. As part of the recapitalisation package, RBS, HBOS and Lloyds-TSB committed to, "““maintain the availability and active marketing of competitively priced lending to SMEs at a level at least equivalent to that of 2007””." Small businesses must know that the banks are open for business. RBS, HBOS and Lloyds-TSB make up 50 per cent of small business lending; but given that they operate in a competitive environment, we can expect other banks to follow suit. The Government will monitor how recapitalised banks are delivering their commitment on SME lending. We will ask the banks how they will achieve this, including the availability of capital and liquidity allocated for small businesses, their marketing plans, and their principles for SME lending, from head office to the branch level. We want to see banks taking appropriate risk assessments on SME lending, being responsible but not being unduly risk averse, and not passing on unreasonable costs. The Chancellor and I will be meeting all the banks and building societies tomorrow to discuss these issues and what small businesses can expect from them. The Government have also been brokering contact between UK banks and the European Investment Bank. The four largest UK banks have now signalled their initial interest in negotiating loans totalling about £1 billion from the EIB to lend to UK SMEs. I hope we will be able to make rapid progress on this for small businesses. It is critical at this difficult time that businesses have access to support and advice that help them survive now and succeed in the future. Business Link advisers will provide a free health check for every small business, whatever its size, sector or location, and other advice on how to adapt to changing economic conditions and to be ready for the economic upturn. My right honourable friend the Secretary of State for Innovation, Universities and Skills yesterday announced that small businesses are the focus of £350 million of government funds to help them get through the tougher economic climate by building the skills and enterprise of their workers. The Government are making improvements to Train to Gain that will deliver advice and funding for training, with the minimum of bureaucracy or delay. For the first time, training at Level 2 will be free for all SME employees, regardless of whether they already have qualifications at that level, and there will be free bite-size courses in business-critical areas, including business improvement techniques and customer service, in order to raise productivity. Management and leadership training will also be opened up to the smallest employers so that it is now available to employers with between five and 250 employees. Small businesses drive our economy forward. During this global economic downturn, the Government are determined to give the millions of people who run and work for SMEs the chance to maintain their livelihood and prepare for better times in the future. That is why we have brought forward these measures. We will continue to do all we can, through the National Economic Council, to look for and implement solutions that help SMEs. My Lords, that concludes the Statement.