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Chairman's Annual Dinner, Federation of Small Businesses

Baroness Shriti Vadera,  Minister for Economic Competitiveness and Small Business (jointly with Cabinet Office)
Fishmongers' Hall, London,  03 February 2009

Thank you very much for inviting me to join you. I would first like to pay tribute to the FSB and the people who work for it, particularly John and Stephen.

You should be aware that they champion the cause of small business tirelessly;

Are never afraid to tell it like it is, sometimes even though it can be difficult for ministers to hear;

And are a source of good ideas – like the billion pound fund – as well as an important way for us to get the real picture from businesses on the ground.

I know from the FSB that the businesses here tonight will be feeling the full force of the global economic storm. We are all facing challenges and uncertainty that we’ve never had to face in our lifetime before.

If there is one message to give you tonight it is that we are acutely aware of this and focus on it 24 hours a day. And to assure that we are, and we will, do everything in our power to help small businesses weather this.

Because we know small businesses are the lifeblood of the economy and their prosperity is central to Britain’s prosperity. Small businesses have higher productivity growth than large businesses. They employ more people than large businesses. And they are of course the large businesses of tomorrow.

Their performance in the last 10 years has been quite astonishing. There are a million more businesses than 10 years ago. And they survive longer, innovate more and aspire to grow more than they used to.

And so we need to make sure they can continue to do just that. Today we have launched a major campaign, using Business Link as a single point of contact, to raise awareness amongst business of all the real help from government we are providing in these difficult times, especially in terms of access to finance and cash flow.

• A £1.3bn lending guarantee scheme that John mentioned, available from your banks. It has got off to a good start with over 20,000 hits on the website and 12 million pounds disbursed in just its first 2 weeks which we hope will accelerate rapidly. And I have just today asked officials in my department to change the website urgently to include feed back from small businesses about how they were treated by their banks when they approached them with this scheme - if any of the businesses here have problems with your banks, I hope John will testify that I am always happy to hear from them directly.
• We have provided £10bn of working capital guarantees eligible to companies of up to ½bn turnover to banks if they can assure us they will use the funds released to provide additional lending
• A £75 mn equity fund for those companies needing equity rather than debt
• Funding from the EIB, £1 bn of which has already been applied for
• Special help for troubled companies from Revenue and Customs called “Time to Pay” providing a year’s rescheduling of tax and VAT payments
• Launching a prompt payment code for large businesses paying their supply chain
• And of course ensuring government as client pays within 30 days

I know there is a view that we spend a huge amount of time and money on the banks. I certainly spend more time on them than I would want myself. It is not because we are worrying about the banks as such, but because we are worrying about lending – to business – from the banks. This lending is the key to shortening the recession and to making it shallower.

The recapitisation package prevented the collapse of the banking system and the condition we imposed was that lending availability to small businesses had to be maintained. The protection scheme most recently announced by the Chancellor a couple of weeks ago for the banks will be subject to a lending responsibility agreement for each bank to sign specific requirements to increase lending to business.

As the Governor of the Bank of England recently said, the measures are “not designed to protect the banks as such. They are designed to protect the economy from the banks. “

I would add of course it is to protect the economy from global banks. The problem we are in fact facing is not that the big UK banks are not responding to the requirements we are putting on them on business’ behalf. The problem is that lending from foreign banks to business is drying up as they are retrenching to their home markets. Some estimates go up to £25bn capacity to business could be lost. And that is why our recent measures are targetting the UK banks to make up for this gap.

Adam Smith said: “all money is a matter of belief.” And it is this belief, this trust in the financial system, this confidence in the world economy, that we are trying to recapture. And to allow small businesses to get back to doing what it does best – which is running their businesses and creating wealth and jobs for the economy.