Small Businesses

Debate between Gavin Williamson and Baroness Burt of Solihull

Tuesday 7th September 2010 Westminster Hall

[Lorely Burt (Solihull) (LD)]

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 13 August and it will be an interesting way for private investors to borrow, and to undercut the banks by several percentage points—by up to a quarter. That is a similar enterprise to Zopa, which has lent more than £90 million in the past five years. There is an element of risk, but it can be spread by investing in a number of different organisations, so I should like the Government to give that some blessing.

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.

[Gavin Williamson]

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.

[Lorely Burt]

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.