Loan Guarantee Scheme (Hansard, 20 June 1984)

§ Lord Hatch of Lusby
My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

§ The Chancellor of the Duchy of Lancaster (Lord Cockfield)
My Lords, the original Loan Guarantee Scheme was a pilot scheme which terminated on 31st May. The present scheme is a temporary scheme, designed to cover the period up to 31st December, to give time for discussion to take place with the banks on its longer-term future. The reduction in guarantee was designed to reduce the high cost of the original scheme to the Exchequer and to encourage those involved to scrutinise applications with greater care. The need for this was supported by a full and detailed analysis by outside consultants.

§ Lord Hatch of Lusby
My Lords, would the noble Lord agree that the scheme was originally designed to help in particular small businesses which would not normally qualify for bank loans? Is he aware that every bank which has expressed itself on the new scheme, including the Co-operative Bank, which was the first bank to ask for its introduction, has condemned it?

§ Lord Cockfield
No, my Lords. What the noble Lord said is not in fact true; the scheme has not been universally condemned by the banks; on the contrary, it has made a very valuable contribution to the establishment of new small businesses and to the growth of existing small businesses. A very detailed report on the operation of the scheme was carried out by the chartered accountants, Messrs. Robson Rhodes. Their report is a very detailed one which contains a great deal of very valuable information and a number of penetrating observations. It is a published document. Copies of the paper are available from the Printed Paper Office, and I suggest that the noble Lords reads it.

§ Baroness Sharples
My Lords, would my noble friend say how much money was orginally allocated to this scheme?

§ Lord Cockfield
My Lords, the point raised by my noble friend is an important one. The amount originally authorised was £150 million. The total amount advanced to 31st May was £501.5 million. From that point of view, therefore, the scheme has been a considerable success. The problem is that the cost to the Exchequer has been greater than is desirable, and the changes which are being made are designed to curb the cost to the Exchequer.

§ Lord Barnett
My Lords, would the noble Lord the Minister confirm that Robson Rhodes recommended that there should be a change to 70:30 only for discussion? They did not recommend that a change should be made. Would the noble Lord the Minister also tell the House whether or not we, and small firms, are to treat the experiment seriously when, in addition to high interest rates already being charged, the new scheme suggests that there should be an additional premium of 5 per cent.? Would that not seem to indicate that the only people who will apply are those who are even more desperate and that the losses to the public will be even greater?

§ Lord Cockfield
My Lords, the first observation made by the noble Lord is entirely correct. The 291 Robson Rhodes report discussed in detail the question of whether or not the guaranteed percentage should be reduced from 80 per cent. to 70 per cent. That is why I suggested to the noble Lord's noble friend that he should read the report and study what appears in it. Obviously, the decision was taken by the Government because it is their responsibility to make such judgments. But the scheme has been successful in helping a large number of small businesses to get off the ground.

§ Lord Stodart of Leaston
My Lords, is my noble friend aware that an equivalent scheme applies to agriculture and that it has been operating for the last 19 years with, if I may say so, considerable success? Is he also aware that the rate of defaults in the agricultural scheme has been infinitely lower than that in the industrial one? Would he not agree that perhaps the reason for this has been very much more efficient scrutiny of the farmers' applications to the scheme by a very small staff?

§ Lord Cockfield
My Lords, I am grateful to my noble friend for his glowing tribute to the agricultural scheme, from which I am sure we have a great deal to learn; but I do not think there is any great difference of opinion between the two sides of the House on this matter. It is important that we create new employment opportunities in this country, and the encouragement of new small businesses and the expansion of existing businesses is only one of the routes along which that success must be sought.

§ Lord Barnett
My Lords, if the noble Lord the Minister is saying that the scheme has been so successful, why has he decided to increase the premium on the interest rate to 5 per cent., which will obviously make it much less successful?

§ Lord Cockfield
My Lords, the noble Lord's summary of what I said is inaccurate, and the conclusions he draws from his own summary are also wrong. The scheme has been successful in relation to the amount of money which has been made available to small businesses. It does give rise to anxieties, as I have said, because of the high cost to the Exchequer. We are trying, therefore, to find a better balance between these two factors.

§ Lord Hatch of Lusby
My Lords, is the noble Lord the Minister also aware that he was inaccurate in his interpretation of my first supplementary question? I did not suggest that the banks had criticised the original scheme. We are all aware of the success of the original scheme. Can the noble Lord the Minister now tell the House whether any bank has approved of the change in the scheme which has taken place this month? Is it not a fact, as my noble friend has suggested from the Front Bench, that this change is seen by the banks as too expensive, and therefore as an obstacle to the development of small businesses?

§ Lord Cockfield
My Lords, I am grateful to the noble Lord for explaining his supplementary question in greater detail. There does seem to be some conflict between him and his noble friend on the Front Bench. 292 The noble Lord, Lord Hatch, appears to wish to expand the scheme and his noble friend appears to wish to contract it. I leave them to sort out those differences between them.
So far as the attitudes of the banks are concerned, discussions with them are continuing and I should not want, at this stage, to start making statements about what is their attitude.