Speech by the Financial Secretary to the Treasury, Mark Hoban MP at BBA Better Business Finance event

Speech by the Financial Secretary to the Treasury.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Mark Hoban

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I am very pleased to be here today. Events like these provide the perfect opportunity to meet first hand with the businesses that are the backbone of our recovery. 

Across the UK small and medium sized businesses are leading growth, creating jobs, and generating the revenue the country needs. According to data from the Department for Business, Innovation and Skills, in 2010, enterprises with a turnover up to £25 million accounted for almost 60% of private sector employment and almost 50% of private sector turnover.

We are committed to supporting those businesses through what is a difficult period for the economy. Events like this help the Government keep a close ear to the ground, hear directly from businesses, so that we can understand the challenges that you face.

Of course, the focus of these events is to understand the challenges that businesses and banks face together in the recovery.

Banks and businesses have to work together to fuel a private sector recovery. That much is obvious. But it’s one thing to wish it, quite another to realise it.

As you know recent months have been extremely turbulent for our and the world economy. We are going through a period of economic turbulence that we haven’t seen since 2008, the peak of the financial crisis.

But what was once a crisis of private sector and banking debt has since transformed into an escalating crisis of sovereign debt.

And the Eurozone has been at the very epicentre. But with an open economy and large financial sector, we have not been immune to the chill winds of EU volatility. Instability in our largest export partner inevitably undermines our economic fortunes and acts as a drag on our recovery.

A resolution to the crisis would provide a huge boost to the British economy.

But at the same time, market and financial instability is no excuse to pull back from the vital task of regulatory reform. Some have argued that the instability in financial markets is a reason to back off domestic and international reform. But I disagree entirely.

The financial crisis exposed and exploited huge regulatory failings both domestically and internationally. It demonstrated just how far market developments and progress had outstripped our capacity to monitor and manage risk.

After a crisis that has cost taxpayers billions of bounds, we cannot simply return to business as usual. This is a situation we cannot afford to repeat.

Reform must enhance stability, which is in itself a vital precondition of growth.

We have to reform the financial sector and regulation of the sector now to increase stability in turbulent environment.

That’s why we’re reforming the financial system to ensure that taxpayers will not be on the hook for bank failures.

Earlier this year, the Independent Commission on Banking produced its final report, with recommendations that mark an important step towards a new banking sector.

It recommends ring-fencing retail banking activities, an equity capital surcharge for the ring fenced part of large banks, and statutory powers for bail-in of private investors.

And it also contains recommendations to improve competition, firm in the belief, which we also subscribe to, that competition is essential to driving better consumer outcomes and delivering greater efficiency of pricing.

Of course, we are keen to minimise the uncertainty that the Report may create for the industry which is why we will provide our initial response to its proposals before the end of the year.

At the same time we are fundamentally reforming the domestic regulatory architecture, correcting the failures of the tripartite system.

Earlier this year we issued our White Paper on regulatory reform which revamps the system of domestic regulation. We are creating a permanent Financial Policy Committee within the Bank of England to monitor overall risks in the financial system, identify bubbles as they develop, spot dangerous inter-connections and stop excessive levels of leverage before it is too late.

We are abolishing the Financial Services Authority in its current form, and transferring its significant prudential functions to a new Prudential Regulatory Authority that will sit in the Bank of England. Together these two bodies will bring judgement and foresight to regulation rather than mere box ticking.

And we are also bringing a new approach to protecting consumers, to ensure that they are at the heart of the financial system.

A new Financial Conduct Authority will oversee the conduct of financial services firms, the operation of markets and the protection of consumers.

These reforms go a long way to ensuring we create a financial system that supports sustainable growth across the economy, and doesn’t jeopardise stability.

But we are also taking the necessary steps to rebalance our economy away from over-reliance on the financial sector to support growth across all regions and all sectors.

Our Plan for Growth, published in March this year, set out our plans to secure a private sector-led, sustainable recovery through export and investment.

This includes reducing Corporation Tax to 23% by 2014, the lowest rate in the G7, and the fifth lowest in the G20. And specifically for SMEs, we extended the current small business rate relief holiday for one year - benefitting half a million businesses.

We are also lifting the burden of unnecessary regulation, introducing a moratorium exempting micro start up businesses from new domestic regulation, driving through the Red Tape Challenge and fundamentally reforming the planning process to embed a presumption in favour of sustainable development.

And we have set the stage for some £200 billion of investment in our infrastructure over the course of the parliament. Vital investment in our transport and energy infrastructure to reverse decades of neglect, and investment that will spur new growth across the country.

But that doesn’t mean we can ignore financial services. Indeed it is only by working with the financial services industry that we can achieve these goals.

It is only by healing and restoring the relationship between banks, businesses and individual consumers that we can drive a sustainable recovery.

The Better Business Finance initiatives play a crucial role in that task. The eleven regional events so far, including today, have brought over a thousand businesses together with the banks, to hear what is changing and to talk about how the banks can help them to grow. And there are still three more events to happen across the country.

There has also been substantial progress on a number of other initiatives including the launch of the micro-enterprise lending code, new lending principles for medium and larger businesses, a new transparent appeals process for SMEs refused credit, the new process to initiate a pre re-financing dialogue 12 months ahead of any loan expiry, and the launch of the Business Mentoring Scheme.

Through this scheme the BBA is helping businesses find existing support in their area, as well as providing mentors from the banks themselves.

To date, the portal hosts 50 organisations, providing access to around 11,000 mentors.  A valuable source of ideas, contacts and trusted advice, and I urge you all to take a look at the mentoring webportal.

And likewise the Institute of Chartered Accountants in England and Wales is rolling out a network of Business Advice Services, offering free advice to SMEs across the country.  There are already eight offices offering this service across Berkshire, and two here in Reading.

But as well as advice, businesses need credit.

Businesses want better access to the funds they need for day to day financing as well as investment and growth.

Of course this has proved a complex and controversial area, as it is extremely difficult to know where the balance lies between supply and demand.

That is why I welcome the introduction of a new, independent survey through the BBA Taskforce to address this question, to understand what’s happening on the ground in terms of demand for and access to credit.

That is why we reached our agreement with the UK’s biggest banks to commit to lend £190 billion of new credit to all businesses in 2011. And that figure includes £76 billion being made available specifically for SMEs. A substantial increase on the £66 billion lent to SMEs in 2010.

The Government will use every tool at its disposal to make sure that the banks meet their published commitments.

We’ve also committed to continue the Enterprise Finance Guarantee Scheme for the next four years.

Of course, when businesses look for finance, it’s not just debt they should be looking at - businesses need risk capital as well.

That’s why we’re also continuing with Enterprise Capital Funds, which invest up to £2 million in small innovative companies. And we welcome the first investment of the £2.5 billion bank-led Business Growth Fund.

This is another of the BBA Taskforce’s commitments and investing between £2 million to £10 million of equity finance in Britain’s growing and established businesses.

This will help to make sure that debt finance isn’t their only option.

And most recently, the Chancellor has already said, we are considering credit easing options as a way to inject money directly into companies, and we will be providing further details in the Autumn statement.

Ultimately, our economic recovery depends on constructive engagement and cooperation between banks and businesses. The work of the Taskforce and the Better Business Finance initiatives help ensure we are all pulling in the same direction.

Events like this today are essential to re-establishing confidence and trust between business and the financial sector.

It’s in our collective interest to create a strong and stable financial sector, one that serves the interests of its customers, one that delivers a sustainable economic recovery.

I welcome the work that the Taskforce is undertaking, and I welcome the progress that has been made to realise this ambition.

I look forward to working with you all in the months and years to come.

Thank you.

Published 1 November 2011