Loan Guarantee Scheme (Hansard, 25 January 1982)

§ 4. Mr. Grylls
asked the Secretary of State for Industry if he will raise the upper limit on the loan guarantee scheme from £75, 000 to £500, 000.

§ 6. Mr. Nelson
asked the Secretary of State for Industry when he intends to make his first review of the loan guarantee scheme for industry.

§ The Under-Secretary of State for Industry (Mr. John MacGregor)
The loan guarantee scheme has now been in operation for just under eight months, and I shall be reviewing its operation to date with the banks very shortly. We must look carefully at how it is working before considering major changes of the sort suggested by my hon. Friend.

§ Mr. Grylls
A review would be useful, but does my hon. Friend agree that whereas research in the United States has shown that new small firms create the greatest number of new jobs, in Britain the existing small firms have the greatest potential for creating new jobs? Is it not therefore necessary to raise the upper limit from the modest £75, 000 to £500, 000, and would we not create more jobs if we did so?

§ Mr. MacGregor
We are anxious to increase the contributions of both new and existing small firms, but an increase to £500, 000 would change the nature of the scheme and greatly increase the potential cost. It is one of those points that I shall be taking into account in the review, but, as my hon. Friend knows, the scheme is going like hot cakes in its present form. Up to the end of last month 1, 839 businesses had been helped with a total of £63.6 million, and the pace is accellerating. I have to take that point into account, too.

§ Mr. Nelson
My hon. Friend deserves great credit for the way in which he and the Government have administered and expanded the scheme over the last 18 months. In view of the importance of expanding the number of new jobs, will he bear in mind the importance of ensuring that the proportion of new businesses as opposed to existing ones receiving support under the loan scheme is in the majority? Will he ensure that not just a larger amount of money in terms of limit is made available, but that the proportion of new businesses is in the majority?

§ Mr. MacGregor
I am grateful to my hon. Friend for his tribute. The experience so far has been most encouraging. It is difficult for us to be certain that it is directed entirely in the way that he suggests, because we are at the mercy of the response by businesses to the scheme.
So far they have responded extremely well. I am sure that my hon. Friend will be delighted to know that still over half of the money is going into new businesses and that a good deal more than half of the total number of businesses being helped are new businesses, although that in itself means that a large amount is also going to existing businesses.

§ Mr. Pitt
Is it not about time that the interest charged on the guaranteed part of the loan was reviewed, in view of the criticism by a number of business organisations, including the National Federation of Self Employed and Small Businesses, the Council for Small Industries in Rural Areas and the Development Commission, that many small businesses cannot afford to take the loans because the interest rates are too high?

§ Mr. MacGregor
It is important to keep stressing that because the banks charge lower interest rates on that proportion of the lending that gets the guarantee the actual interest rates charged are broadly at the same level as the banks would be charging for marginal lending propositions without a guarantee. There is an important factor here. In a scheme of this sort, which is encouraging additional lending, we would be criticised by existing businesses if that lending were to be made at rates of interest well below what they were paying.

§ Mr. Foster
Will the hon. Gentleman bear in mind, when he reviews the scheme, that a very small proportion of the money is finding its way to the North of England? Has not the bulk of the money so far spent been allocated to companies in the South and the South-East? If he and the Government are looking to this or any scheme to do with small businesses to make a very large contribution to solving the unemployment problem in the North, they must bear in mind that, while it may make a contribution, it will be very marginal.

§ Mr. MacGregor
As I said, it depends upon businesses making applications for loans. The North also includes the North-Western area.

§ Dr. John. Cunningham
The Northern region.

§ Mr. MacGregor
The hon. Member for Bishop Auckland (Mr. Foster) referred to the South and the South-East, so it is worth pointing out that the North-Western area has had the highest proportion of lending under the scheme to date. That indicates that there is not a bias in favour of the South by any means. Naturally, I should like to see the North-East increasing its lending under the scheme as well.

§ Dr. Glyn
I congratulate my hon. Friend on what he has done. Is he aware that a large number of small businesses, although well constructed, are finding things very difficult? Is he satisfied that the proportion between new businesses and existing businesses which have a good foundation is correct?

§ Mr. MacGregor
I am well aware of the difficulties that, because of the world-wide recession, many small businesses are facing. It is encouraging that the balance in the loan guarantee scheme is as it is at the moment. As I said, the situation depends upon the applications being made by new and existing businesses.

§ Dr. John Cunningham
Are not bankruptcies and closures among small businesses at record levels? What does the Minister have to say in answer to the recent small business survey, which showed that over 800, 000 jobs had been lost in small businesses since the Government started their monetarist recession?

§ Mr. MacGregor
I would say three things in reply to that. First, the survey was not a scientific survey. Therefore, one must look carefully at the estimate of 800, 000 jobs lost. I should have thought that it was a good deal less, based on the sample itself. Secondly, other surveys show that while many small businesses are folding up at present, just as many are starting up. It is important to stress that aspect. Thirdly, there is widespread evidence that there has been a lower loss of jobs among small firms than among large ones.