Loan Guarantee Scheme (Hansard, 18 May 1981)

§ 11. Mr. Greenway
asked the Secretary of State for Industry when he will be able to announce the timing of the launch of the proposed loan guarantee scheme.

§ 18. Mr. Nicholas Baker
asked the Secretary of State for Industry if he will make a statement on the application of the loan guarantee scheme to industry and commerce.

§ 21. Mr. Myles
asked the Secretary of State for Industry what role his Department will play in the operation of the proposed loan guarantee scheme.

§ The Under-Secretary of State for Industry (Mr. John MacGregor)
My right hon. and learned Friend the Chancellor of the Exchequer has announced that the loan guarantee scheme will operate from 1 June. Full details of the scheme's coverage will be given in the supporting literature, which will be available on 1 June. The Department will administer the scheme and will be monitoring its results, but the primary appraisal of loans to be guaranteed will be undertaken by the banks.

§ Mr. Greenway
May I welcome that reply, not only on behalf of hon. Members but on behalf of small and other businesses? What will the rate of interest be under the loan guarantee scheme?

§ Mr. MacGregor
I am grateful for that welcome and am aware of outside interest, particularly among small firms. That is why I have been anxious to get the scheme into operation as soon as possible. The rate of interest will be for the banks to decide, but it will be at their marginal rate of interest, or thereabouts. It must be borne in mind that this is additional lending and probably carries a higher risk than any lending that the banks undertake at present. It is not the intention that existing lending should be siphoned into the scheme.

§ Mr. Baker
Will my hon. Friend press ahead with publication of the details of the scheme, because the delays are causing concern in business circles? Will my hon. Friend make it clear what the security is to be for the loans? Furthermore, will he seek to widen the class of business and industry to which the scheme will apply?

§ Mr. MacGregor
I am aware of concern about the delay, but substantial legal documentation has had to be completed between the banks and my Department. In addition, many loan application forms—about 14,000 branches are involved—have had to be published. However, I can assure my hon. Friend that everything possible has been done to press ahead with the scheme. It is axiomatic that personal security is unlikely to be required. That is the whole point of the guarantee. As term loans on fixed assets will be involved, business securities will be required under the scheme in many cases. I have made it plain that a wide range of businesses will be involved, including the manufacturing and commercial sectors and a great deal of the service sector. I am anxious that that should be so.

§ Mr. Myles
I welcome the scheme's announcement. How will it operate in Scotland?

§ Mr. MacGregor
It will operate in Scotland with the Scottish banks. As my hon. Friend knows, the legal system in Scotland is different from that in England and we still have to complete some of the different legal arrangements. However, I hope that the scheme will operate shortly after 1 June.

§ Mr. John Garrett
Does the Minister agree that general business opinion is that the loan guarantee scheme is too small, is potentially to bureaucratic, and calls for too high a premium for it to be anything but a cosmetic exercise? Is it not true that the interest in a small business scheme has been stoked up by the Government as a smokescreen to distract attention from the universal collapse of big business?

§ Mr. MacGregor
We have made it plain that this is a pilot scheme. It is designed to test the view that there is a gap in the market in this area, particularly where small businesses do not have a track record or are unwilling or unable to give securities. I shall monitor the scheme and if it is felt that it is too small, we shall give that consideration. However, £50 million is a fairly large initial tranche for such a scheme. I reject the charge that the scheme will be too bureaucratic. A handful of people in my Department will handle the scheme. I was extremely anxious to ensure that bureaucracy should be as limited as possible.
The banks will reflect in their rate of interest the premium that the Department is charging. They will also reflect the fact that they are getting a guarantee as a result. Therefore, I do not believe that the interest rate will be too high as a result of the premium. It is important for those interested in the scheme to be prepared to shop around the banks because I am anxious that competition shall apply.

§ Mr. Grylls
Will my hon. Friend open the scheme to the foreign banks, many of which have branches all over the country, to engender more competition and perhaps push the interest rates down? Will he also reconsider the maximum sum of £75,000, which is low for a medium-sized company?

§ Mr. MacGregor
It is a pilot scheme. We are anxious to direct it to small firms in particular. That is why the figure of £75,000 was fixed. I agree about the need for competition. That will, I hope, have its effect on interest rates. A number of banks other than the clearers have already applied. I am considering their applications urgently. Not only the foreign banks, but a number of British banks other than the clearers might be interested in the scheme. I hope that they will apply.