§ Mr. Cryerasked the Secretary of State for Industry how many applications under the small firms loan guarantee scheme have been made to the most recent practicable date; how many have been approved; and how many guarantees have been required.
§ Mr. MacGregorAt the end of February 1983, the Department of Industry had issued 8,861 guarantees in respect of £295 million of bank lending. It is not possible to give a figure for the number of applications or potential applications that are considered and rejected by the banks. Very few applications are rejected by the Department. At the end of February 1983 the Department of Industry had authorised payment on 450 claims under the guarantee arrangements.
§ Mr. Kenneth Carlisleasked the Secretary of State for Industry if he will make a statement on the outcome of the review of the loan guarantee scheme.
§ Mr. MacGregorAs my right hon. and learned Friend the Chancellor said in yesterday's Budget statement, I have now completed my review of the loan guarantee scheme. During the review I took full account of the available statistics, I held a number of meetings with the participating banks and the main small firms organisations, and I received many comments and representations about the scheme's progress. In addition I was able to draw on two helpful and constructive reports by chartered accountants, Robson Rhodes, following studies commissioned by the Department of Industry and the clearing banks. One report relates to an analysis of some early claims under the scheme, the other is a commentary on a second telephone survey conducted by the Department of Industry. Both reports have provided an important input to my review and both were published today. Copies have been made available in the Library of the House.
My review of the scheme has shown that the scheme has, so far, achieved its objectives and continues to operate well. The feedback I have received from the small business community suggests that the scheme has been well received and its catalytic effect on the provision of 167W other forms of finance has been welcome. I have no doubt that the scheme is proving to be a worthwhile experiment. Following the review I have decided on the following, but I should stress that the main features remain unchanged:
First, as from today, the number of sectors covered by the scheme is to be widened to include vocational training—including business and management training; driving and flying schools; film production, distribution and exhibition; radio and television services, theatre, and so on; sports facilities and sports instruction and other recreational services but excluding betting and gambling.Secondly, banks and potential borrowers are to be reminded that in carrying out their commercial appraisal the banks will want to take full account of the personal commitment of scheme borrowers to their business. However, personal commitment need not always be measured in terms of financial commitment and the banks will need to consider specific cases on their individual merits. However, the total ban on the taking of personal assets or guarantees as security for scheme loans is to stay.An important conclusion to be drawn from my review is that both the banks and borrowers have needed time to assess the advantages of the scheme and to learn how to use it to best effect. Awareness and experience have improved since my previous review, but it is still too early to carry out a full appraisal of some important aspects of the scheme's operation and impact. It has therefore been decided that the scheme should continue until closer to the end of the three-year period ending in May 1984, originally envisaged for the pilot phase of the scheme. The Chancellor has therefore agreed to increase the ceiling for guarantees thereby providing support for an additional £300 million of bank lending and bringing the total to £600 million.
An encouraging element to emerge from the review is the attention drawn by the banks, the small firms organisations and others, to the employment benefits derived from the scheme. The investigations of the consultants confirmed the contribution of the scheme to promoting output and new jobs. While accepting that all the estimates so far compiled must be very tentative, they nevertheless demonstrate the considerable job creation potential of the scheme.
Robson Rhodes suggested that the failure rates on early scheme loans are likely to be high—it estimates 1 in 5—but it acknowledged, and I share this view, that it is too early to forecast where such rates may settle and it felt that there are reasons for expecting them to turn down for more recent lending. Clearly the losses on early scheme loans must be put into context in relation to the wider economic benefits of the scheme. The consultants have also confirmed the conclusions of an earlier study that about 80 per cent. of scheme borrowers would either not have found other forms of finance or would have had to give personal guarantees to do so.
Robson Rhodes also identified a need to improve the access of small firms to sources of advice; and to establish a simple but robust appraisal and monitoring procedure for application by the banks. I see merit in both of these recommendations. I have discussed them with the banks and we are now exploring ways in which they can be accommodated.