Small Businesses

Karen Bradley Excerpts

Tuesday 7th September 2010 Westminster Hall

[Jeremy Lefroy]

My hon. Friend makes a powerful point, and I am sure that she has received many representations from her constituents about the matter. I totally agree with her. The problem is perhaps not so much interest rates, some of which have come down to reasonably low levels, although not all, but the charges. I have heard of charges being trebled. I raised the point with the Minister in the House, and he said in his powerful reply that he would not put up with that and would speak to banks if hon. Members contacted him with representations. I have done so, and I am sure that other hon. Members would like to do so. It is not acceptable for banks to use a shortage of credit as an opportunity to hike up charges, as some have done.

The picture is of some increase in bank lending, but the survey from the Institute of Directors paints a rather different one. Comparing data with a survey in 2001 shows that the number of those surveyed who were financing their businesses through bank loans or overdrafts had declined from 85% to 64%, with 20% now financing their business to some extent through credit cards, which is unsustainable.

The annual survey by the Federation of Small Businesses —again, I must declare an interest because a company of which I am a director is a member—is even starker. Of more than 10,000 who were surveyed, 31% said that fairer bank lending would be key to improving their prospects. The FSB concludes that

“SMEs have lost confidence in the banking sector.”

It pushes for greater competition, including the creation of a post bank, which I have long supported.

[Karen Bradley (Staffordshire Moorlands) (Con)]

I congratulate my hon. Friend on securing the debate. I want to add to the anecdotal evidence something about businesses in Staffordshire Moorlands. A number of businesses have contacted me and two cases in particular are pertinent to the debate. One concerns a builder of affordable housing that is unable to obtain bank finance to build the affordable housing that we need so desperately in north Staffordshire. Another case is a small retailer that stocks stoves and Agas. It cannot expand to take on more staff because it desperately needs new premises but is unable to obtain them due to lack of bank finance. I hope that the Minister will address that point when responding to the debate.

[Jeremy Lefroy]

I am grateful to my hon. Friend for that contribution; I have come across the same problems in my constituency and I will later provide some suggestions about how things can be improved. Hon. Members from all parties have an important role to play because there seems to be a disconnect between businesses and the banks. Sometimes, businesses find that their only source of redress is to go to their Member of Parliament and ask them to talk with the banks on their behalf. I heard of one case—I can hardly believe it—where a bank said that it would be more likely to lend to a business if there were a letter from the local MP. I do not think that MPs are in the business of guaranteeing bank loans of behalf of their constituents. I cannot remember the name of the hon. Member who mentioned that case to me yesterday, but perhaps he or she is in the Chamber and can elucidate further.

The Green Paper quotes evidence that in 2009, 78% of small and medium-sized enterprises managed to obtain some finance from the first source that they approached, which in most cases was the bank. However, that may have been through the use of credit cards or consumer overdrafts. The picture is somewhat confused, but after considering the facts, I believe that credit is beginning to flow to established companies, including SMEs with a reasonable track record. Young businesses often find it difficult to access the finance that they need in order to grow, unless they persevere or can offer reasonable security. As my hon. Friend the Member for Solihull (Lorely Burt) said, such businesses often find that the costs rise through hiked-up charges.

--- Later in debate ---

[Mr Jones]

I thank my hon. Friend for his comments. He is absolutely right. The same comments are coming from small businesses in my constituency.

[Karen Bradley]

I apologise for intervening so soon after the last intervention, but I wanted want to say something about Her Majesty’s Revenue and Customs, which is another area of Government intervention that could very much help small businesses with their cash flows. I have many letters in my postbag from small businesses that are struggling to meet HMRC’s demands to pay very large bills, particularly for VAT. If HMRC could in some way help such businesses over this difficult period in the recession, I am sure that that would be much appreciated.

[Mr Jones]

I thank my hon. Friend for her comments, and I will be interested to hear the Minister’s views about HMRC. I, too, have heard of small firms in my constituency struggling to balance their cash flow when they have large VAT bills to honour.

We must acknowledge that we perhaps need to exert some influence on larger businesses over terms of credit and, as my hon. Friend the Member for Burton (Andrew Griffiths) put it, showing some social responsibility. However, we also need to acknowledge that the Government are limited in how far they can interfere with the way in which businesses are run. In addition, we need to be mindful of the global competitiveness of larger businesses in the modern day.

Will the Minister consider what the Government can do to encourage better payment terms for our small businesses? The extension of the credit terms and conditions of small businesses has inevitable consequences. It is vital that many firms be able immediately to access a bank overdraft when faced with the measures used by larger businesses. However, evidence from my constituency suggests that banks can be unwilling to give such credit facilities, even to long-standing businesses with strong trading records, without demanding security in the form of the business owner’s home, which is often quite an issue.

I have obtained information from the Forum of Private Business suggesting that interest rates on loans that are not secured against the business owner’s property can often be double those on loans secured against commercial or residential property, and one of my colleagues alluded to that. The problem is that many business owners, and particularly long-standing ones, do not necessarily want to put their homes on the line, particularly if they are reaching retirement age and do not consider it worth taking the risk.

That is what happened in the case of a manufacturing business in my constituency that I heard from during the general election campaign. The firm has not been afforded the credit that it needs, even though it has a strong order book. It has been trading for 50 years and employs about six people, but it is on the verge of ceasing to trade. It will close the doors and sell its commercial property because that is a better proposition for the business’s owner than keeping trading and employing people.

If such things keep happening, they will have an extremely negative effect, particularly in the engineering sector, where many small business owners are probably of a reasonable age, given the deteriorating uptake of new people into the industry. Many people will be in their late 50s or early 60s and might consider it better to close their firms than to keep going. That would have a very negative impact on what we are trying to achieve.