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Local Government Chronicle Conference

Pat McFadden MP,  Minister for Business, Innovation and Skills
London,  26 February 2009

Good morning. Thank you very much. I’m pleased to be here. I’ve recently had several meetings with local government colleagues – so it’s been a bit of a local government week for me.

We’re here talking about what the localities can do during the recession.

The global nature of this was brought home to me a few weeks ago when I went to see Wolverhampton Wanderers play Watford. We’ve got a tie up in Wolverhampton between Wolves and the Indian Premier League side, JCT in the Punjab as part of our attempt in the city to reach out and use the assets we have.

We had a guest at the Wolves game from a textile company that sponsors JCT. And I asked Mr Samir Thapar about the effect of the recession in India. He told me that, in textiles alone, between seven and eight hundred thousand jobs have been lost in India due to a decline in the US demand for sportswear.

That’s one example of the depth and the reach of this global recession. And, however global, its effects are felt in our high streets and in our communities and by people losing their jobs.

So what is government – local and national – to do in these kind of circumstances?

One thing we can’t do is just say the recession should take its course. Government must respond. And all around the world governments are trying to do that. The details of how they are responding varies from state to state. But there are some things in common.

One thing we’re all doing is trying to stabilize the banking system. We’ve got a new announcement today with some big numbers in it and I will come back to that later on.

It’s important to say that what this is not about is bailing out banks. What we’re trying to do is stabilise the banking system for the sake of the savers who have worked long and hard for their money. If the banks were to fail, savers would be the first people to lose out.

Whatever we may think of bank bonuses and the risks that have been taken – and there are many valid criticisms of banking culture – it is absolutely essential for any economy to have a healthy and functioning banking system.

The second thing governments are trying to do is to engage in fiscal stimulus – to put more money into people’s pockets – and, of course, we are doing that in the UK too.

Credit is critical to all this. In my department in particular we have regular contact with businesses large and small. Many say that getting hold of credit is a real problem. So making credit available lies behind many of the measures we’ve taken.

The enterprise finance guarantee scheme, for example, underwrites loans of more than one billion pounds. It is backed by the working capital guarantee scheme, which is on a larger scale. The scheme allows banks to share more risk of lending with the Government, and thereby increase funds for lending.

And today we have made a further announcement about guaranteeing risk. But I think there is an important thing to understand about the numbers.

A lot of the numbers behind these schemes are very big – hundreds of billions of pounds. And this is difficult for the public because they ask the question “how can you spend that on the banks but not spend x million or x billion on this or that?”

I think there’s a very important thing to understand here. What most of these schemes have in common is the underwriting of risk. It is not spending in a one-off way – in the sense of spending to build a school. Most of this money is being lent, a price is being charged, or it is underwriting risk of potential exposure.

So there’s a huge difference and unless we understand that difference between lending, underwriting risk and one-off spending I don’t think we can have a rational discussion about the subject.

But let me return to the issue of how we’re helping companies. Small businesses are asking us how they can benefit from all the help that’s already available. So we’re using Business Link. This is a free vehicle for communicating information. It is offering real help for business at a regional and national level. It is, to use that overused phrase, our one-stop shop for business support.

So that’s what we’ve been doing so far in the recession. But what else can we do in terms of central, regional and local government support? I believe there is quite a lot.

We are conscious that, however difficult and painful this recession is on a day-to-day basis for local communities – and we know it is – we also have to plan for the longer term. Although it’s all hands to the pump in Government at present, we are also keeping an eye to the medium and the longer term as well as the upturn when it comes.

That is why we are trying to think through the sort of industrial activism that will have to take place in the future. That doesn’t mean we’re saying “back this company or that company” but it does mean identifying those sectors where we want Britain to lead the way in the future.

Sectors like digital technology. Unless we have the right pipes, allowing the right flow of information to people, we won’t place ourselves at the forefront of that technology and we won’t benefit from the work that comes our way.

And there’s also our low carbon future to think about. The way we power homes and buildings tomorrow will depend on this type of technology. And the way we work, move around, and produce things, will be radically changed by a shift to low carbon.

Now we’ve got regional and local level measures in place to help address these considerations. And what we’ve also tried to do through the sub national review is work together across spatial issues. I know a lot of local authorities and RDAs share a vision about where they want to be in the next few years and we want to make sure it is underpinned by a proper framework.

But talking about a shared vision ultimately requires us to ask some important questions about the upturn when it comes.

We, as a country, got into a long debate about six months or seven months ago about whether it was worth investing in some areas or some others. I don’t think that was the debate to have. We can’t give up on areas but what I do think local authorities and RDAs can do is consider the balance of investing in buildings and people.

Is the old phrase “if we build it they will come” true?

What makes an area successful? You can see the benefit of investing in buildings but it’s less tangible to see the benefit of investing in people.

Yet a lot of what we know makes a place successful is that a lot of smart people work there. And they attract other people to live and work in those places forming a virtuous circle of ideas, enterprise and creativity that any local area wants to foster.

I want a really serious discussion on this issue of people and buildings. It is a big and important question for all of us interested in the economy of place.

There is no one single answer for how you try to create the right conditions to attract support in local areas – something Sir Michael Lyons has referred to as “place shaping”.

You could follow the example of Swindon Borough council which is hosting network events for local companies to share ideas. Or you could look at dealing more proactively with local crime through schemes like the Croydon Against Shop initiative.

What is important is that, as the local place, you can have a huge effect on the business environment, transport communications, and, of course, the performance of schools and the quality of education. And what’s encouraging is that there’s a great realisation that we have to do more to work together and ensure the frameworks allow people to get the best outcomes.

So I think within that sub-national review framework there are some very important policy and idea issues which have to be worked through. I leave that thought with you.

There’s another area I’d like to mention to you today and I think this goes as much for central government as it does for local government. And that’s the importance of trying to be a good customer.

To offer further support and help Small and Medium-sized Enterprises with cashflow, all central Government departments have signed up to the Prompt Payment initiative, announced in October, to bring forward payment of invoices from 30 to 10 working days.

We are now paying about 90 per cent of invoices and that’s been of huge benefit to many businesses. Furthermore local authorities have also joined this initiative and are aiming to pay invoices within 10 working days.

We are customers of thousands of good businesses up and down the country. If we can be a good customer and pay our bills on time that helps the people we are dealing with.

Let me finish by saying that we, like many governments around the world, have had to respond quickly to a fast moving and evolving situation which as I said reaches right across the world – whether you are up against it in a company like Rover or Waterford Wedgewood or whether you are an India export manufacturer working for a sports wear company.

We have got to work together locally, regionally and centrally to try to get through this. Without that kind of government active response, the recession would be more severe and longer lasting than would otherwise be the case.

But, perhaps even more importantly, we have got to make sure that Britain and British business is in a position to take advantage of the upturn when it comes. As I said many authorities are responding quickly and well but we want to see more of this.

After all, we wouldn’t be doing a full job if we just tried to cope with the recession and didn’t think about the longer term. So it’s all hands to the pump for now. But let’s also prepare for the upturn when it comes.

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