HC Deb 07 December 1981 vol 14 cc565-6
4. Mr. Heddle

asked the Secretary of State for Industry, pursuant to his reply to the hon. Member for Lichfield and Tamworth of 9 November, Official Report, c. 23, whether he has now completed his study of the Conservative parliamentary industry committee report on the terms and conditions of bank lending in Great Britain and its relationship to industry in general.

The Secretary of State for Industry (Mr. Patrick Jenkin)

Both my right hon. and learned Friend the Chancellor of the Exchequer and I have discussed this report with representatives of the committee and study group. The report is an interesting contribution to the important question of financing industrial investment, and we are still considering its conclusions.

Mr. Heddle

Does my right hon. Friend agree that while last week's welcome reduction in the bank rate will ultimately have a beneficial effect and that a further and larger reduction would, hopefully, have an even greater and more immediate effect, nevertheless many of the report's recommendations will have an immediate and beneficial effect, particularly on the cash flow of companies in a recession and that, if its recommendations are taken up, companies will be encouraged to invest more and so create more wealth and, particularly, more jobs?

Mr. Jenkin

Any fall in interest rates will help industry, particularly industries that have projects to invest in. We can take some comfort from the fact that, despite the depth of the recession, manufacturing investment has held up remarkably well in very difficult circumstances.

Dr. John Cunningham

Rubbish.

Mr. Jenkin

It is not rubbish. The ratio of investment to output has broadly been maintained. In such circumstances, one would have expected investment to fall much further than it has. That is a cause for some satisfaction. I agree that if it were possible to find a way to reduce the perceived rate of interest and to help companies' cash flows, investment would probably be encouraged still further. My right hon. and learned Friend the Chancellor of the Exchequer and I are discussing precisely those points.

Mr. Hooley

Is the Secretary of State aware that the banks are now showing a welcome nervousness about their poor reputation in this sphere? Is the right hon. Gentleman further aware that one problem is the short-term nature of loans to manufacturing industry for capital investment? Will he discuss that point with the banking authorities?

Mr. Jenkin

The hon. Gentleman is a little out of date. I do not think that there is strong evidence now to support the view that the banks are reluctant to lend for medium or long-term projects. They have devoloped their lending facilities to meet the increasing demand from industry in recent years. On the industrial side, the problems have involved inflation, high wage settlements, low productivity and declining profitability. Those matters are of great concern to industry when considering investment. There is not much evidence of a shortage of funds.

Mr. Grylls

When my right hon. Friend and his colleages consider this matter further, will they bear in mind the point made by my hon. Friend the Member for Lichfield and Tamworth (Mr. Heddle) about cash flow advantages and the term lending aspect of the report's proposals? As a result, many projects might come forward that otherwise would not if there were no such initiative.

Mr. Jenkin

I congratulate my hon. Friend on the part that he played in producing the report. It has aroused a good deal of interest, not least among my colleagues and I. One of the attractions of my hon. Friend's scheme is the cash flow advantage to companies, which would be able to get tax relief at the time of paying the interest by deduction of tax instead of havint to wait until they can claim the deduction of loan interest from their corporation tax profits. We are considering that point.

Mr. Orme

Does the Secretary of State accept that his statement does not match the facts? In the past two years there has been a reduction of more than 20 per cent. in investment and output. What has the right hon. Gentleman got to say about that?

Mr. Jenkin

The right hon. Gentleman is well aware that the recession has hit manufacturing industry hard and that there has been a reduction of about 17 per cent. In the circumstances, the reduction in investment might have been expected to fall much further. However, the figure for 1977 is £3.5 billion; for 1978, £3.8 billion; for 1979, £4 billion; for 1980, £3.6 billion; and for the first half of 1981, £1.5 billion. Although that is a fall, it is nothing like as great as might have been expected, given previous recessions. That is a cause for some comfort.