§ 3.20 p.m.
§ Lord Stanley of Alderley asked Her Majesty's Government:
§ Whether they consider that the promotion and encouragement of small businesses is assisted by the present arrangements for obtaining bank references.
The Minister of State, Department of Trade and Industry (Earl Ferrers)
My Lords, the Government recognise the vital role which small businesses play in the 407 economy of the country and are firmly committed to supporting them. The style and the content of individual bank references must be a matter for the bankers and their customers.
§ Lord Stanley of Alderley
My Lords, I thank my noble friend for that Answer. Does he accept that the present mealy-mouthed and anodyne, to the point of misleading, bank references given nowadays mislead small businesses and lead them into serious debt? Bearing that in mind, will he consider whether the Government would be prepared to review the present system of credit references?
My Lords, I agree with my noble friend that some bank references can be, as he puts it, mealy-mouthed but, of course, banks have a duty to their customers as well as to the inquirers. Banks are expected to make the meaning as clear as possible within certain confines. I remember an occasion when my father was asked to give a reference for someone who had been found stealing. He said that, although the doctor said that he should not lift heavy articles, he was quite good at lifting light articles. Sometimes a degree of interpretation is required. However, businesses which wish to obtain information about customers can also use credit reference agencies, to which my noble friend referred.
§ Lord Haskel
My Lords, does the Minister agree that, if the small businessman finds bank references misleading, he can always obtain references from credit agencies or from other traders? He can deliver an initial first small order at normal commercial risk and then take a view. Does the Minister agree that that is probably of more value than a bank reference for which the bank accepts no liability?
My Lords, I am bound to say that I agree with the noble Lord, Lord Haskel, principally because that was the answer that I just gave to my noble friend.
§ Lord Clark of Kempston
My Lords, does my noble friend agree that since 1979 the many hundreds of thousands of small businesses that have been set up with the help of this Government have made a very good impression on our unemployment figures? Does he also agree that lower corporation tax on small businesses is a definite help, not only for small businesses but also for the economy, particularly in view of the easing of PAYE and VAT for small businesses? Does he agree further that, apart from bank references, it is high time that we looked at the rate of mandatory interest on late payers, particularly in relation to small businesses?
My Lords, I agree with the general thrust of my noble friend's question which went considerably further than bank references. I believe he is trying to say that what has happened to and for small businesses since 1979 has been of great value to the country. It is perfectly true that small businesses have encouraged employers at a time when employment was decreasing in many other spheres.
Perhaps I may return to the original Question. It is a fact that it has not been brought to the Government's attention that the system of obtaining and providing bank 408 references is a major source of contention between banks and small businesses; but they are alert to the problems which exist in that regard.
§ Lord Monk Bretton
My Lords, is it not the case that one may well receive a perfectly satisfactory bank reference on somebody who is an undischarged bankrupt? I have always thought that that is a fairly illogical situation. Can a bank take into account information from a third party when it gives a reference?
My Lords, as far as I know, banks can take into account what information they like in order to come to the facts which are included in the reference. I am not aware of the position with regard to undischarged bankrupts. But when a bank gives a reference, it gives a view of that person to the best of its ability without disclosing those matters which are best not disclosed. As the noble Lord, Lord Haskel, said, it is for the individual to make inquiries also from other sources.