The Loan Guarantee Scheme (Hansard, 20 April 1982)

§ 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, I am pleased to be able to say that the encouraging response to the loan guarantee scheme has been maintained. In the 10 months since this scheme came into operation 3,351 guarantees have been issued in respect of £113.7 million of bank lending. This includes £53.4 million of lending to new businesses. A preliminary review of the scheme's operation to date is being carried out at present.

§ Baroness Sharples
My Lords, I thank my noble friend for that reply, which I believe shows almost a doubling of the loans in the last four months. Can he tell me what average rate of interest above base rate is charged by the banks? Can he also please tell me whether the Department of Industry has any thoughts of changing the premium of 3 per cent. which it charges on these loans?

§ Viscount Trenchard
My Lords, yes; the increase in the use of the scheme has been very considerable and that led my right honourable friend the Chancellor of the Exchequer to increase for the second time the funds allotted to this scheme. He announced at the time of the Budget that £150 million would be allocated in the current year and £150 million next year. So far as the rates are concerned, the clearing banks normally charge most of their small business customers between 3 per cent. and 5 per cent. above the base rate for lending. Under the loan guarantee scheme they seem to be charging between 1¾ per cent. and 2½ per cent. above base rate. That is why, in answer to a previous question from my noble friend, I said that the net cost to the borrower was about the same. In relation to my noble friend's third supplementary point, as to whether we would consider any change in the premium charge, it is much too early to say, and the main object of the scheme is to cover risk loans that would not otherwise take place, rather than to produce cheap lending.

§ Lord Cledwyn of Penrhos
My Lords, while welcoming the news that progress has been made with this scheme, may I ask the noble Viscount to be kind enough to say how many new jobs have been created in these businesses since the inception of the scheme? Can he further say what prospect there is that the upper borrowing limit might be increased from the present £75,000 to something much more substantial?

§ Viscount Trenchard
My Lords, the current review will of course take in the current individual ceiling which the noble Lord mentions, but I do not think 462 that that will be radically changed without changing the whole nature of the scheme. So far as the employment consequences of the growth of small business and new business is concerned, it is very hard in current circumstances to evaluate this, but the many schemes, and not only this one, in support of small and new business undoubtedly have added substantially to the employment figures which otherwise would have been worse.

Lord Spens
My Lords, has the noble Viscount the Minister any evidence to suggest that the banks are making use of this facility to make risk loans, as he describes them, to businesses which they would not otherwise have been prepared to help finance?

§ Viscount Trenchard
My Lords, the noble Lord has on a previous occasion asked me the same question and I can only give him the same answer: the banks and financial institutions are taking every step to try to ensure that this is additional lending. This is one of the important aspects of the present review being carried out by my honourable friend Mr. John MacGregor at the Department of Industry. It is one of the points he will be particularly looking at.

Lord Bruce of Donington
My Lords, is the noble Lord satisfied that this scheme, together with other schemes, is making an important contribution to the assistance of businesses, in the light of the fact that during the first three months of this year firms were either going bankrupt or into liquidation at the rate of one per hour?

§ Viscount Trenchard
My Lords, as I have said to the noble Lord so often, the effects of our cumulative non-competitiveness are still with us and it will take some time yet in this country to overcome the very poor rate of new business start-ups and of small business growth, compared with other countries over the last 15 to 20 years; but the difference is beginning to be made good by the current Administration's schemes, including this one.