Secretary of state for business Peter Mandelson on his package of help for small business

The secretary of state for business talks exclusively to Startups on his new package of measures to help small businesses

In the midst of what’s arguably the worst financial crisis in decades Peter Mandelson returned from Europe to take the helm of the Department for Business, Enterprise and Regulatory Reform. Here, the secretary of state talks to Startups about the measures he’s put in place to help small businesses ride out the economic storm and why he believes they’re in a good position to come out thriving.

You’ve been at the helm of BERR for more than three months now. How does it compare to your experience as head of the DTI. Do you feel you’re in a position to make more of an impact given that we’re in such a precarious economic position now?

It’s true that I have returned to the Department for Business, formerly the DTI, at one of the most difficult economic times UK businesses have faced in decades. My department has a massive part to play in assisting businesses in these difficult times.

Since my appointment to BERR, the government has acted to put into place mechanisms to free up credit for business and ensure small and medium sized firms can access the funds they need. Through the BusinessLink health check system, more than 20000 small and medium sized businesses have received practical advice on how to get through the downturn.

Earlier this month, my department launched a package of measures, including a guarantee scheme that will secure £21bn in credit lines and lending – protecting them from reduction or withdrawal. Our basic aim is to get credit moving again, to push banks to lend to small and medium sized companies.

That’s why I established a small business forum to assess bank lending figures, so that we can keep a close eye on exactly where loans are being distributed.

We cannot fix the situation over night, it will take time. But I can assure every business we are committed to providing the kind of concrete help they need.

Some entrepreneurs felt banks wouldn’t lend through the SFLG scheme because it wasn’t profitable enough for them and involved too much administration. How is the EFG different?

We have discussed this new guarantee instrument with the banks and we know that they are supportive. We will be monitoring uptake and performance over the next few weeks.  

The success of the EFG scheme still seems to depend upon the banks’ willingness to play ball. Will you be applying pressure on them to make use of the scheme? If so, how? What will be your course of action if they remain unresponsive?

We will be working closely with the banks to ensure the appropriate use of the EFG scheme and will track lending through the small business forum. We have maintained close dialogue with the banks since the start of the downturn and it is in all of our interests that they start lending again. By reducing the level of risk they face, we are making it easier for them to resume lending at the levels we need. We cannot afford to see perfectly viable businesses fail for lack of credit.

How much will the banks pay for the taxpayer guarantees? Are you certain that they’ve got enough capital available to fund their side of the bargain?

The credit line guarantees will free up capital allowances, which in the case of the Working Capital Scheme the banks must use for new lending. No other proposed scheme of this kind would free up such additional capital or create new lending in this way specifically for the use of UK companies.    

Under the EFG scheme a premium of 1.5% is payable by the borrower for new loans taken during 2009 and 2% thereafter. Although the risk will be relatively low, the government will make financial provisions in case of loan defaults.

Is injecting liquidity into the banks, and encouraging them to lend to small businesses, enough to see them through the financial crisis and encourage more start-ups?

Government measures in October 2008 to recapitalise the banking system significantly increased the capital ratios of the major banks, and provided them with a buffer to withstand the current challenging economic conditions.

It is clear that meeting lending demand to otherwise creditworthy businesses, homeowners and consumers is essential for supporting economic recovery. That’s why we targeted our finance package two weeks ago on securing credit lines and freeing up capital for new lending.

A recent small business poll found that the VAT reduction has done little to help small businesses, and even added to their administrative burden. What tangible results are you seeing from the reduction?

No one is suggesting the VAT cut on its own is enough to help businesses prosper, but it’s important to view it as part of a raft of other measures like bringing forward £3bn of capital investment and the £20bn lending guarantee.

For big purchases like new cars, the VAT cut represents a saving of hundreds of pounds. Whatever the effect of a 2.5% saving on each individual purchase, the savings will accumulate and put almost £13bn back into the pockets of consumers and retailers over the next 13 months. That has to be beneficial. It’s worth pointing out that the Institute for Fiscal Studies said last week that the VAT cut was more beneficial than many of its critics had allowed.

A massive issue for many small businesses is the UK’s growing late payment culture, and many fear this will only get worse as the crisis goes on as large corporates look at ways to improve their cashflow. What are you doing to ensure bigger companies are not squeezing small business on payment terms?

People often forget that the government is itself a significant customer to many companies and we therefore have a responsibility to act as a ‘good customer’. The Prime Minister has set a target for central government departments to ensure that all bills are paid within 10 days. Late last year, the Regional Development Agencies signed up to the commitment and I hope more government agencies and local government departments will follow suit.

We have been working alongside banks, business and financial organisations to ensure businesses have access to the very best advice on managing cashflow. In November, we published a series of cashflow management guides in partnership with the Institute of Credit Management.

In partnership with the ICM I established a new prompt payment code through which large companies can demonstrate their commitment to pay their suppliers (often SMEs) on time. Since its launch in December, a number of businesses and business organisations have already agreed to become signatories to the code, including; Shell, FujiFilm, John Lewis Partnership, Asda, BAE Systems and British Gas.

When do you envisage a turning point in the global economy and how long do you think this will take to filter through to the day-to-day workings of small businesses?

No one can predict that, I wish I could. It’s clear that this year is going to be tough for businesses. While we do everything we can to get the UK through the downturn, it’s also important we plan for the long term.

The global economy is going to continue to grow and new opportunities in areas like low carbon technologies will be vital. For UK companies to be in a position to compete with the best in the world we need to continue to be a country that invests heavily in innovation, educates and skills its workers to be the best in the world and provides the infrastructure that a modern economy needs. For example, the Digital Britain report released last week focused on how we ensure that the UK has the digital infrastructure it will need to be competitive in the 21st century. That’s why our package for the auto industry and its supply chain last week was closely tied to investment in low carbon vehicles and green manufacturing, which are growth sectors of the future.

Small businesses will be in a position to benefit as much as any. Small businesses often have lots of entrepreneurialism, low overheads and a high degree of flexibility, just the qualities that make for competitive companies. In a globalised economy, they have millions of new potential customers.  

How do you respond to allegations that you’re behind a ‘whispering campaign’ to abandon sterling for the Euro? If that is your long-term policy objective, what would the advantages be for small businesses?

I haven’t done any whispering on this subject. I’ve never made a secret of the fact that I think that there is a case for Britain joining the euro if and when the conditions are right. However, I don’t think it’s on the agenda at the moment – we’ve got plenty of other things to focus on right now.

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