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Swindon Lending Seminar

Pat McFadden MP,  Minister for Employment Relations and Postal Affairs
Federation of Small Businesses, Swindon,  21 April 2009

Let me begin by thanking the Federation of Small Businesses here in Swindon for hosting this meeting.

It’s very important for ministers to get out of Whitehall. Yesterday I was on the south coast and a couple of weeks ago I was in the East Midlands. Today I’m here in Swindon.

It’s very important to hear first hand exactly how the economic situation is unfolding and, in particular, about the areas where you have concerns. I can assure you that this intelligence informs our thinking in Government.

Before hearing from you, I just want to say a few things about what we’ve been trying to do to cope with the downturn and prepare for the upturn.

It’s not enough to just try and cope with day to day events. We’ve also got to be looking ahead to the future. Although this is a difficult economic time - and I wouldn’t for one moment want to deny the difficulties some companies have been in or the difficulties faced by people losing their jobs - it is still the case that Britain is a country with huge economic strengths. It would be wrong for us to ignore that in trying to steer the country through this downturn.

But let me return to our response to the downturn. The first thing we had to do was to stabilise the situation and governments around the world had to do this in different ways. People frequently say to their MPs and their ministers "you’ve spent x amount on the banks what about my cause?" I think there are a couple of important points to make here.

We intervened in the banks not out of a particular concern for the investment bankers involved but because any economy where people have worked hard and saved needs a functioning banking system.

And it was absolutely essential that, not just this Government, but governments around the world, acted to stabilise this situation last autumn. We did it on behalf of the savers. We did it on behalf of the kind of small businesses that are represented in this room. Because, without that action, savings would have been in danger.

Although we have been through a difficult period, it would have been far, far, worse had we seen the collapse of major high street banks – a very real possibility at that time. So our intervention was very much in the economic interests of the country.

Having stabilised the situation, the second thing we did was to try to get lending moving again. We have done this in a number of ways partly through agreements with some of the banks like RBS and Lloyds TSB. These banks have agreed to increase lending to small businesses in different parts of the country. In fact, just yesterday I met somebody on the south coast who had benefited from increased lending from one of those banks. That lending meant they were able to keep employing 14 people who otherwise would not have had those jobs.

For all the specific government measures, which I will mention in a minute, most businesses will still be in the situation of having to borrow money from their banks rather than through Government schemes. Banks are still the main source of lending.

In terms of the Government help that’s available, we’ve got specific schemes such as the Enterprise Finance Guarantee Scheme. So far, I believe more than 2,350 of small businesses have applied for help with loans potentially up to the value of some £270 million. And that scheme is beginning to feed through in a very real way.

So getting lending moving again is the second core part of our approach in this recession.

The third part, I think, is considering Government as a customer. We’ve taken certain measures to support demand by putting money into people’s pockets. Whether it’s by bringing forward pension increases, by tax cuts fed through to some 22 million people, or through VAT cuts worth around £20 a month to families.

And, when I refer to Government as a customer, I’m also referring to Government as a customer of business. Very early in our response, we said we’d try to pay our bills early. Which is why the Prime Minister announced we’d try and do that in 10 days rather than 30 days as was previously the case.

I know late payment can be a real problem for small businesses. It can be the difference between survival and the opposite. And so it’s important for Government to be a good customer. I’m glad that RDAs have also signed up to the 10-day target and we would encourage other parts of Government or local authorities to do so.

We’ve also tried to help businesses in terms of flexibility on paying taxes. When you’re going through a downturn cash is king. From Government’s point of view it’s very important to try to be flexible about cash flow. We’ve got 100,000 businesses who have benefited from the Government saying they can be flexible about the timescales on which they pay their taxes – including, as I understand it, some 270 businesses here in Swindon.

So those are the three main things we’ve done to tackle the downturn. Now I want to say something more about preparing for the upturn because we’ve been placing an emphasis on that area this week.

As I said we are a country of enormous economic strengths. Yesterday the Prime Minister and my boss Peter Mandelson set out a programme about Britain’s industrial future. It’s not about picking individual companies, as maybe happened sometimes in the past. It is about picking some of the sectors where we know we want to succeed.

For example, the way we heat our homes and produce our goods is going to transform in the coming decades. And, as we move to a low carbon economy, we don’t want Britain just to be customer of these technologies. We want Britain to be a producer of these technologies. That’s why high-tech manufacturing, low carbon manufacturing and the shift to greener forms of transport is an absolutely integral part of any strategy for Britain’s industrial future. That’s what we were talking about yesterday.

Similarly broadband. Communications technologies have the potential to be major drivers of economies in future. We take a very active stance on this – which is why we’re trying to spread access to these technologies right around the country. That is very, very, important for the country’s economic future.

There are also other areas where I think we want Britain to be in a position to succeed in years to come and enterprise talent is very much part of that.

But, whatever the detail, the big point is this. We’ve got to take an active view in terms of government working with business to shape Britain’s industrial future. Rather than take the view that recessions happen, that the state must step back, let it run its course, let the pain unfold. Rather than choosing not to help individuals affected by recession or shape the way we’re coming out of it.

That would be an enormous mistake. So we’re active on helping Britain through the downturn, but equally we want to be active on preparing for the upturn when it comes.

And just let me finish on this point about confidence. We had a visit a couple of months ago from the Chinese premier and he said something along the lines of “confidence is greater than gold and silver”. I think there’s a lot of truth in that.

I’ve met businesses around the country who are doing ok financially but they’ve told me that, because they are worried about the economic situation, they’re not going to be investing in any cars or vans for example. And that’s about confidence rather than cash flow.

So, having gone through difficult months, it is time to talk up Britain again and it’s time we created the environment where people can invest with confidence. That’s why we said what we said yesterday and that’s why it will be a strong part of the Chancellor’s message tomorrow.

Thank you.

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