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Queen’s Speech

My Lords, while the business environment is greatly different to that which prevailed 12 months ago, I strongly suggest that the green shoots that have been described by the Government as sprouting everywhere are still very green, very small, and, indeed, many are in great danger of disappearing without the urgent application of strong economic fertiliser. Small and medium enterprises, often rightly described as the backbone of the economy, report this month, through surveys commissioned by the British Chambers of Commerce, that 33 per cent of their number found that accessing finance had been more difficult over the past three months—a deterioration on the 20 per cent that had reported this condition in June. Despite some £200 billion injected into the financial system to boost lending, this does not appear to have improved the financial position of the SME sector. The number of companies stating that the situation had improved fell from 6 per cent to 3 per cent measured over the same period. It would appear that the huge volumes injected into the system through quantitative easing are not reaching small and medium-sized businesses. I remind your Lordships that total employment in the SME sector is 13.7 million, representing some 45 per cent of our total workforce. Many of these employers are finely balanced between tipping one way or the other. I suggest that the introduction of a Fiscal Responsibility Bill will not secure and sustain the future of these businesses which are so vital to our economic well-being. A better course, for example, would be to instigate immediate action arising out of the Rowlands review published earlier this week, and "welcomed" by the Government. Action must quickly follow "welcome", otherwise it will be long-grassed, in a similar fashion, perhaps, to what may be happening to the report of the Select Committee of your Lordships' House on the Barnett formula. Back to the Rowlands report, however, entitled Provision of Growth Capital to UK SMEs. This has been welcomed by the noble Lord, Lord Mandelson, the First Secretary of State. The report highlights in particular the problems in accessing growth capital between the levels of £2 million and £10 million, the former being the upper limit of public/private provision while the latter is the minimum level which can be funded by private equity. Proposals are basically for a mezzanine financing solution where funding can, at a later stage, be converted into equity. I understand that Mr Rowlands personally believes that a first fund needs to be in the order of magnitude of some £l billion. The situation of many good SMEs is perilous, so if this initiative is going to be implemented it should be done with expedition. Far from leading the world out of recession, we are lagging the world. Quantitative easing is, of course, part of a solution, although with potentially dangerous effects in the mid to long-term, but as a measure alone it is no substitute for focused, clearly targeted action to close a much identified gap. Last week, a German newspaper commended Chancellor Merkel for taking courageous decisions at the start of her second term. Faced with similar problems of burgeoning public debt, she has chosen to kick-start the German economy by aggressive tax cuts, leaving the deficit aside for a while. The newspaper states: ""Seldom has a German leader shown such chutzpah"." Most of your Lordships will have received last week a top 10 wish list from the chairman of the Federation of Small Businesses in connection with the Pre-Budget Report, in which the FSB concentrates largely on employment and includes suggestions or requests for delaying the VAT rise, not increasing national insurance contributions and not increasing corporation tax, as proposed for April 2010. When he opened the debate, I noted that the noble Lord, Lord Mandelson, suggested strongly that there was great danger in prematurely withdrawing fiscal stimuli, some of which he listed and is clearly contained in the chairman of the FSB’s list. It also contains a plea for regulatory reform and review for a reduction in the current administrative burden, by creating a regulatory environment to encourage innovation and enterprise. The noble Lord, Lord Mandelson, would appear to agree with that, so why do the Government not take heed? Should not this Government, with their strong European commitments and claims of leadership, understand and even consider carefully Chancellor Merkel’s measure? Such a policy would not only reinforce the SME sector, but encourage all UK wealth-creation activities to redouble their efforts to produce the levels of economic growth that are so desperately needed.