Small Businesses: The Loan Guarantee Scheme (Hansard, 7 October 1981)

§ Baroness Sharples
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ The Minister of State for Defence Procurement (Viscount Trenchard)
My Lords, the response to the Loan Guarantee Scheme has been very encouraging. In the four months since the scheme came into operation 838 guarantees have been issued in respect of £28.5 million-worth of bank lending. That includes £15.5 million of lending to new businesses.

§ Baroness Sharples
My Lords, I should like to thank my noble friend for that extremely helpful Answer. Will he agree that it is especially encouraging that the Treasury and the banks have been extremely speedy in their response to the Government's suggestions?

§ Viscount Trenchard
My Lords, I think that the Treasury is part of the Government, and therefore, together with the Department of Industry, was responsible for introducing the scheme. The financial institutions—the banks and others—have certainly co-operated to the full, and are co-operating in the necessary steps which we must take to monitor the scheme as it progresses.

Lord Bruce of Donington
My Lords, is the noble Viscount yet in a position to say what effect he thinks there will be on the scheme due to the recent very large rise in interest rates?

§ Viscount Trenchard
My Lords, I think that for new borrowing the interest rates have to be seen against the rate of inflation, and with the guarantees involved here I do not believe that with the current interest rates, which nobody wishes to see remain longer than is necessary, there will be any major adverse effect on new borrowing for these purposes.

§ Lord Wells-Pestell
My Lords, will the Minister clearly state to the House what is in fact the rate of interest?

§ Viscount Trenchard
My Lords, I take it that the noble Lord is asking me the rate of interest on these schemes. This depends entirely on the individual bank, but the bank is aware that the lender has to pay a 3 per cent. premium for the guarantee which he (the lender) receives from the Government, to cover 80 per cent. of the loan if it were not, despite everybody's hopes and beliefs, to be repaid. However, the result of this that we can see so far is that the rates of interest in total, including the 3 per cent. premium, are not dissimilar from the current bank lending rates.

§ Baroness Faithfull
My Lords, can the noble Viscount say to what extent these schemes have reduced the number of unemployed?

§ Viscount Trenchard
My Lords, at this stage, no, and one has to take account of all the steps which the Government have taken to encourage small business: the business start-up scheme; the ability to set losses against tax; the changes in general taxation. But there are encouraging signs that the accumulation of these measures is producing an increase in small start-ups. All the small, modern factories that are built by both the EIEC and local authorities continue to be taken up. So, while one cannot give a definitive answer, there are signs that small business in this country is on the move.

§ Lord Davies of Leek
My Lords, is the noble Viscount aware that many of us feel that perhaps it would be churlish not to pay some tribute to the Government for their encouragement of small businesses and to the noble Baroness opposite, who initiated the Small Businesses Group in this House? Nevertheless, is the noble Viscount aware of the billions of pounds from insurance companies and others that are now flowing overseas? While I have no knowledge of this, I would ask the noble Viscount whether he can inform the House of whether there is any possibility of directing some of these massive overseas investments into the encouragement of small businesses in Britain?

§ Viscount Trenchard
My Lords, I thank the noble Lord for his congratulations on the Government's steps to encourage small business, which I think are principally due to my old colleague in the Department of Industry, the Parliamentary Under-Secretary, Mr. David Mitchell, who started much of the thinking behind these ideas. So far as the overseas investment is concerned, this is an age-old question and it has been examined on many occasions. There is no correlation between the movements of overseas investments and the availability of investment for good home projects. Indeed, the money is there if the projects can be found and encouraged.

§ Lord Cledwyn of Penrhos
My Lords, would the noble Viscount be good enough to say what percentage of the money so far made available under the scheme has gone to the development areas and the special development areas?

§ Viscount Trenchard
My Lords, I will let the noble Lord know the detailed answer to that question. I do not have it with me.

Lord Spens
My Lords, can the noble Viscount tell us to what extent the banks are offering these loans to businesses which they would not otherwise have considered worthy of the loans? Or are they just "passing the buck" to the Government and offering the loans only to creditworthy businesses?

§ Viscount Trenchard
My Lords, the noble Lord, Lord Spens, of course raises a key point, and it is one of the reasons why the scheme will have to be monitored very carefully indeed. I am absolutely clear that the banks are doing their very best to ensure that this is additional lending. There is a difference between their judgment of what may be a viable project and the securities that a particular lender starting a new business can offer, and in the past this has led to a refusal of loan on some occasions. There is also the problem of the business without a track record but which has an apparently good idea. Considerable thought has gone into trying to ensure that this is additional lending.

Lord Bruce of Donington
My Lords, may I ask one final question in clarification? Would the noble Viscount confirm that these new enterprises are paying precisely the same rate of interest as any other business?

§ Viscount Trenchard
My Lords, the answer is broadly yes. The rates of interest that banks quote for different kinds of borrowing vary, but the result is broadly the same rate of interest.