Businesses and the Regions

It is always a pleasure to follow the hon. Member for Stafford (Mr. Kidney) who, as usual, spoke with great common sense. I am tempted to follow him down the route of discussing health and safety regulation, because it is important, but I do not think that the time allowed permits me to do so. I shall therefore follow the major thrust of the end of his speech on the availability of finance, which is the critical issue for all businesses throughout all the regions and nations of the United Kingdom. First, however, I want to comment on the discussion about inward investment and the regional development agencies, and point to the nations as opposed to the regions. Scotland has one body responsible for inward investment, and it operates reasonably well. However, those of us in the more outlying areas find it useful to have our own personnel to go abroad and win business. Thurso is not, perhaps, the first port of call for a Japanese battery manufacturer, but we were successful in winning that business, and an important part of our local business it is. Perhaps that is a lesson for the RDAs. I have no doubt that when the figures are published early next year, we will find that we are currently in recession. The only questions are how savage it will be and how long. As in any recession, the core question that every business is asking is how to maintain its cash flow and how to survive. In past recessions, frankly, if we are honest, the policy levers available for helping businesses at any level were, to an extent, curtailed, because what was really needed was to get the economy going again. However, one lever is available in this recession that has not been available before. Owing to the financial crisis and the fact that the Government are now owners of some banks and substantial shareholders in others, they have an ability to affect the outcome of how those banks deal with businesses. We have heard in debates on business over the past week of banks increasing interest rates, increasing fees and curtailing facilities. I have recently had some concrete examples of where loan-to-value covenants have been breached. The bank has called in the facility on the basis of that breach, there has been a requirement to charge more interest, which in turn has breached the interest covenant, and the company is threatened with going into receivership, notwithstanding the fact that it is fully profitable and can carry on. Obviously, I could give details of the company involved, but the point is that sound companies are threatened with being put into administration. Today, I understand that the Chancellor of the Exchequer and Lord Mandelson, the Secretary of State for Business, Enterprise and Regulatory Reform, are meeting the chiefs of the banks. I again ask the Government to consider having a proper and spelt out memorandum of understanding, clearly stating not the detail of one particular loan, but how in principle the banks are going to deal with companies. I suggest that that simple memorandum of understanding would cover several things. The first is the ability of banks to withdraw overdraft facilities on demand. They should agree to a 28-day period from notification to when they would put it into effect. The second concerns covenants on capital values and interest to cover the point that I have just made. The third is to agree not to increase the current interest margins and fee charges that sound companies are paying. Another is to cover the point that the Chancellor made in an article that I read this morning, which says that he"““has promised to step in if banks were found to be 'recklessly withholding money'””." Clearly there must be a way that the problem can be dealt with before the company has gone under, and that needs to be spelt out as well. I suggest to the Minister that one of the main things that we need is clarification from the Chancellor and Lord Mandelson about precisely what is meant. At present there is merely an open aspiration that credit will be available at 2007 levels, and until clear principles are established demonstrating what that means to businesses, it will not be a great deal of help to them. While I accept that summits, forums and meetings are of some use to businesses, what is really required from the Government at this time is leadership and clear direction, and that means setting out the principles on which the banks will operate over the next two years.