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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 533-i
House of COMMONS
TAKEN BEFORE the
Business, Innovation and Skills Committee
Bank Lending and Business Growth
Tuesday 17 July 2012
RT Hon Vince Cable mp
Evidence heard in Public Questions 1-79
USE OF THE TRANSCRIPT
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Taken before the Business, Innovation and Skills Committee
on Tuesday 17 July 2012
Mr Adrian Bailey (Chair)
Mr Brian Binley
Examination of Witness
Witness: Rt Hon Vince Cable MP, Secretary of State for Business, Innovation and Skills, gave evidence.
Q1 Chair: Good Morning, Minister. Thank you for agreeing to come before the Committee. As this will be our last session before the summer break, I think it is probably appropriate for me to thank you personally and your Ministers for your willingness to come before the Committee. We do recognise the effort that you make to come here and appreciate the time and effort involved. Before we start, could I ask you to introduce yourself for voice transcription purposes?
Vince Cable: I am Vince Cable, Secretary of State for Business, Innovation and Skills.
Q2 Chair: Thank you very much. On 8 June 2011, you said on bank lending, "I think we both want to be judged on results, rather than rhetoric". How do you think you have done?
Vince Cable: Bank lending to business-SMEs in particular-is not in great shape, but that is not for want of trying by Government. We have had a whole variety of schemes, as you know, starting with the Merlin voluntary agreement, progressing to the National Loan Guarantee Scheme and now Funding for Lending. That is on top of our Enterprise Finance Guarantee scheme, which continues. We are trying a variety of mechanisms to maintain a flow of funding at reasonable rates of interest to business. It is an uphill struggle, for reasons that you are very familiar with. The banks themselves are trying to deleverage; they are trying to restock their capital in response to fairly demanding regulatory requirements; and they are struggling with the fact that there is an overall lack of demand in the economy. It is a moving and difficult target, and we are trying a variety of methods to deal with it. I think the Funding for Lending scheme, which we have just launched, is the best designed scheme that we have had to date because it gives the right kind of incentive structure and I am optimistic that it will make a significant difference.
Q3 Chair: We will come on to that in a moment. In June last year you outlined four strands of action. One of them was to explore options "to push" the banks "into being more transparent about the way they assess and price risk". What changes have been made to bring it about?
Vince Cable: On the transparency front, I think there is considerable improvement. One mechanism that arose out of our exchanges with the banks at that time was the scheme now operated by Russel Griggs. He is not an ombudsman acting for individual complainants, but he pursues individual cases and challenges loan rejections. I think there is a 40% rate he effectively finds against the banks. Therefore, we have an independent person embedded in the system who looks at the way banks are lending from a business standpoint and is critical. I think that is a very considerable improvement.
The banks themselves, as you know, through the BBA have entered into what is effectively a code of conduct to improve their practices, clarity about rates of charging, reasons for rejection and so on. Although, as I said in my first answer, I remain concerned about the damaging effect of credit restrictions on business, transparency has certainly improved.
Q4 Chair: Connected to this, you also said you wanted banks to publish more information about their lending to SMEs in particular. You have touched on this, but is there anything else you want to say about their reported practices?
Vince Cable: They have funded and supported this SME lending tracker that we publish. There are now a variety of streams of information that are pretty detailed. There is the SME Survey, which we produce and the banks have supported; there is the Bank of England’s work; and then there is the separate work of the business groups-the Chambers of Commerce and others. We know what is going on and we may not like it, but there is no lack of data.
Q5 Nadhim Zahawi: Chair, I know that later on in the questioning we talk about competition and I will leave that to others. However, my question is very specifically to do with RBS. Is there a point at which you will say, Secretary of State, that we need to break up RBS and have a proper business bank that is supported by the Government?
Vince Cable: That is an important question and one that I spend a fair amount of time reflecting on with the Chancellor. There are issues about RBS’s role in supporting the economy, but there are also very big fiscal questions about the value of its assets and the extent to which we are responsible for taxpayer money. We are talking vast sums of money here: balance sheets in the order of £1.5 trillion, which is the size of the British economy. They are not trivial sums of money.
It is also an extraordinarily complex institution. One of the things that has been discovered since the Government acquired its responsibilities is that it is a very complicated institution with very complex transactions in its investment bank and its other activities. Unscrambling all that and understanding them, let alone dealing with them, is not a simple task. I would very much like to see an effective body coming out of it that does support business lending. However, as my slightly long answer is trying to convey, we also have to take account of the fiscal impact and, therefore, the Chancellor’s totally legitimate concerns on that front.
Q6 Nadhim Zahawi: If one can deal with the fiscal impact, you would say you are more in favour of the possibility of a business bank emerging.
Vince Cable: There are a variety of proposals, as you know. John Redwood, for example, has been arguing that you could create half a dozen different competitive banks arising from it. There has been a variety of proposals. The simple answer is that when action has to be taken on the future disposal of RBS, we should not simply consider it as an asset question; we should think about how it can be used positively to support business lending and create more effective business lending institutions. I do not think I can be more specific, given where we are at the moment.
Nadhim Zahawi: It’s good that you are keeping an open mind.
Q7 Mr Binley: Good morning, Secretary of State. You mentioned something there that rather struck a chord in my mind. You said that you found the structure and organisation of RBS much more complicated than you expected it would be. Could you tell us why you think that was the case? Are we having bankers who overcomplicate the situation deliberately to obscure or is it the nature of the beast?
Vince Cable: It’s the nature of the beast. It is a global bank. As you know, its fatal step was the acquisition of ABN AMRO, which had a lot of complicated international business transactions all over the world. The investment bank within the bank has, like many other comparable institutions, a cocktail of very complex financial instruments. Identifying and valuing them is not simple.
Q8 Chair: I want to pick up a theme that, again, was partly touched on a couple of weeks ago when you came before us. You called last year for "banks to explain clearly how their incentives for senior managers are linked to SME lending". How do you think the proposed changes that you are implementing on executive pay, and the Financial Services Bill, reflect this?
Vince Cable: The idea of building in specific incentives for SME lending was something I advocated in the context of the Merlin agreement, which we did not continue in the event. We are having to look for different ways of incentivising management. When we come to talk about Funding for Lending, what you will see is that there is an incentive structure.
Q9 Chair: I appreciate this issue in the round is in that, yes.
Vince Cable: That is what provides the incentive structure now. However, as far as executive pay is concerned, the changes that we brought forward and that you are now looking at in Parliament and Committee will bring forward greater transparency; they will enable shareholders to exercise much more careful scrutiny and, indeed, make it effective. Only today, AstraZeneca has seen the kind of discipline that shareholders can bring to bear and which will apply to banks also.
Q10 Chair: You mentioned the Funding for Lending scheme and we will be asking a couple of questions on that later. My understanding of that is that in effect the money available for lending will only be given where there is evidence of an increase in lending to SMEs; it is not specifically linked to the incentive structure for senior managers in the bank. Is that so?
Vince Cable: That is correct, yes. It is an incentive to institutions, not to the individuals.
Q11 Chair: So we have not really gone any further in the Funding for Lending scheme over and above that which has already been done.
Vince Cable: That is correct, yes. It is a question that has not been resolved.
Q12 Chair: Lastly, the Independent Commission on Banking recommended increasing bank competition and, as an element of that, the facilitation of switching. What work has been done in that area?
Vince Cable: It is a twopart answer to your question: one on switching and one on the intensification of competition. I think we now have quite a bit of evidence, for the first time in generations, of serious competition beginning to emerge in business lending. The very protracted but ultimately successful agreement for selling off Lloyds branches to the Coop is an important part of that, and RBS similarly with Nationwide, so you now have two substantial players with a significant number of branches. We have Handelsbanken, Aldermore, Shawbrook and a variety of other banks coming in that will have varying degrees of business lending application.
As far as switching is concerned, what has happened with the creation of what I think is called a switching engine, which is being developed in the banks, is primarily a benefit so far to individuals. However, we would hope it will extend in due course to businesses switching accounts. That is obviously necessarily a more complex operation.
Q13 Chair: Are they actually working on a model or a process for doing that?
Vince Cable: Yes. It is called the engine process, which we are developing in the banks to enable people to switch knowing that transactions cannot go wrong and they will not be liable for them. There is a mechanism being developed to do that.
My officials have helpfully amplified my answer. The Payments Council has committed to delivering the switching service for business as well as individuals in September 2013 based on this new approach.
Q14 Chair: Where are we with the switching service for individuals? When is that likely to be completed?
Vince Cable: I think that is happening at the moment.
Q15 Chair: It is actually operational at the moment?
Vince Cable: It is happening, yes.
Q16 Chair: Can we talk about Merlin for a moment? It has generally been reported as a failure and banks have not met their SME targets. What is the outcome of your dialogue with the banks on that issue at this moment?
Vince Cable: I have never acknowledged and would not acknowledge now that it was a failure. It depends on your expectations. We were at a period when banks were drastically reducing their exposure to SMEs, and the scheme was to set a series of benchmarks with ambition. They came pretty close to meeting it; there was quite a small shortfall in terms of the aggregate numbers. We did acknowledge that the figures, which were about gross lending, may have incorporated a certain amount of gaming behaviour and may not have been as productive as we had hoped, but I certainly would not accept that it was a failure. You have to think about what the counterfactual would have been and I fear it would have been a great deal worse.
Q17 Chair: We can debate what is and what is not a failure. On the other hand, if there were benchmarks set up, I would reasonably assume that in the consultation that took place beforehand the benchmarks were reflective of what the banks could reasonably deliver, and they have not done so.
Vince Cable: They were about £1 billion short of £80 billion on one of the key metrics, which is not massive. The failure, if that is what it is, probably is not captured in those numbers.
Chair: There is an issue between gross and net lending but I am not going to pursue that at the moment.
Q18 Mr Binley: The latest data we have suggests that lending, despite the good efforts of the Government-and to be fair, both Governments have tried very hard to introduce schemes to improve lending-is flat–lining. That’s the truth of the matter.
Vince Cable: Yes, it is.
Q19 Mr Binley: Therefore, we have to ask a question about demand. We have had a lot of talk about supply side incentive, but very little about demand side incentive. I wonder whether you feel one of the real answers to getting lending going is to create that confidence that demand brings and whether you are pressuring the Treasury in that respect.
Vince Cable: You are right: the problem with the economy as a whole is partly credit supply but is much more an issue of lack of demand. That comes from a variety of sources. Consumers are reluctant to spend, which is partly a reflection of their inherited levels of indebtedness, but I think the main reason, as the Governor of the Bank of England explained last year, was that real incomes were being squeezed by higher prices. There is some optimism now that, with inflation falling consistently, that negative aspect of demand will moderate or possibly go into reverse. The Ernst & Young study earlier this week suggested there are some positive signs on consumer spending.
As far as exports are concerned, we have a good demand story on the export side as regards nonEU markets, and British companies are actually doing very well in many of those countries. That is only half of 20% of GDP, so it is not a big component of GDP but the demand is there and our companies are doing their best. The real worry I have about credit supply is that we are not maximising meeting export demand because of the restrictions on loans to manufacturers who are exporting.
The third source of demand is investment demand-business investment. That is flatlining because of worries about the wider picture and particularly the eurozone.
Q20 Mr Binley: I want to congratulate you on overseas exports, particularly to nonEuropean countries. You make that point and it is quite clear that there are massive markets out there we can exploit and have not exploited in the past 40 years because most of our focus has been on Europe. However, that is another debate. My concern is about whether the Treasury is listening to you in terms of demand.
Vince Cable: I think the Treasury does understand this perfectly well. We do not have a fundamental difference of view. They understand the problem, but this Government, like the last Government, sees demand as being primarily supported by monetary policy and the Bank of England, and they continue to do that. The Government’s capacity to stoke up demand ourselves through deficit financing is, for reasons I do not need to rehearse before this Committee, very considerably restricted.
Q21 Mr Binley: Many might say that the carbon reduction policy gives you opportunity there to put money straight into people’s pockets, but again, that is slightly outside our remit.
A disturbing point about bank lending is that credit demand from large companies fell in the quarter to May 2012. I wonder why you felt that to be the case. You would have expected large companies to see a period like this as a time to reinvest in structure and so forth because most of them have the resources to do so. I wonder why you feel that lending to large companies has fallen.
Vince Cable: There is a general pattern of large businesses sitting on piles of cash. It is not always the case; some of them, quite wisely, probably take a countercyclical view and think this is actually rather a good time to invest in the long term. Some of them are doing that. We see that in the car industry, which is a very good example of companies investing for 5 to 10 years ahead. However, many are not; many are sitting on cash because of overall uncertainty.
Q22 Mr Binley: Let me then come on a little bit to what the Bank of England’s Credit Conditions Survey reported recently. It said much of the lack of lending to UK plc-big companies and so forth-was due to lack of merger and acquisition activity. I wondered if you felt that that was the case and whether you felt that the Government could do anything, if that is desirable-and it may not be, as many of us felt over the Cadbury situation.
Vince Cable: On mergers and acquisitions, I started with broadly your view and there were some changes that I encouraged to the Takeover Panel operations, which were designed to throw a little bit of sand in the wheels-not a great deal. Interestingly, I was studying a report the other day by the Cass Business School on merger activity in the UK, which portrays it in a much more positive way. It suggests the value to the acquiring company is very substantial and that the benefits to the UK economy are substantial. It challenges the orthodoxy, which I have had for some time, that we should be suspicious of merger activity in terms of its overall effects. There is counter evidence now.
Q23 Mr Binley: I understand that. Can I now move to default rates for small businesses? They have gone down and that suggests what many people have been saying for some time: that many small businesses are relatively cash rich. This comes back again to confidence, doesn’t it?
Vince Cable: Some of them are cash rich; some of them find the costs and conditions that the banks attach to their loans unacceptably onerous and therefore do not borrow. The demand factor is quite complex, but certainly the banks play a part in discouraging customers from acquiring more, I fear.
Q24 Mr Binley: I am glad you raised that, because many small businesses feel that LIBOR has no meaning for them. Is that true and is there anything we can do about that?
Vince Cable: It does not have a great deal of meaning at the moment because, as we know, in interbank lending the markets are not operating the way they did three or four years ago. It is a largely hypothetical construct. They are paying the costs of the fact that the banks actually find it quite expensive to raise money at the moment from funding arrangements, they are passing that on to their customers, and they are clearly also taking a substantial margin for risk-more than they traditionally did.
Q25 Mr Binley: In terms of small businesses, the high street bank is the place they deal with this, yet high street banks have consistently over the last 10 to 15 years taken decision making away from the high street, put it on to a matrixed regional structure and built in much more money for risk on that basis. Do you see any evidence that the high street banks are genuinely understanding that they have missed a massive opportunity and are trying to get people who know business back in the high street?
Vince Cable: You are quite right. You have defined very accurately what I would consider one of the big cultural problems of the banks, that they took a wrong turning from the point of view of the economy a decade or more ago. They became highly centralised and they lost their relationship banking culture, with potentially very damaging effects that we are all now painfully familiar with. In terms of signs of it reversing, when I have discussions with leading bankers they tell me that they are aware of this and they are trying to change it. Whether they are doing that you are probably in a better position to judge than I am, but they certainly acknowledge the failing and are trying to reverse it. Some of the new banks-Handelsbanken being a very good example of that-are very committed to a relationshipbased, localised system. I am optimistic that over a period of time the new banks will bring back what you rightly say we have lost.
Mr Binley: I am grateful for that answer. Thank you.
Q26 Chair: Before we move on and I bring Margot in, as a matter of historical record, you referred to the previous Government and its approach to lending basically through monetary and the supply side. As a matter of record we should point out that the previous Government did take fiscal measures to stimulate demand, like the temporary reduction in VAT.
Vince Cable: Yes, there was a temporary 1% of GDP fiscal stimulus, which in the light of the crisis we have had was welcome at the time but not large.
Chair: We could have a separate debate about that, but can I bring in Margot James now?
Q27 Margot James: I wanted to ask you about quantitative easing. Perhaps first of all you could clarify your view of what it is designed to achieve. Officially, I gather, it is designed to enable the Bank of England to control inflation, but I think you are on record as saying that some of the money has got through into business lending. What is your view of what it should be achieving?
Vince Cable: In crude economic terms, it is designed to enhance money supply, but it works through a variety of mechanisms, which in truth are not fully understood even now. It is very unorthodox, we have limited experience of it and the economics literature is as yet very open, but it is designed to achieve various things. It is to encourage the banks and other institutions to have a bigger risk appetite. Probably its major effect has been on the exchange rate, which has certainly over the last three or four years provided a major source of support to British manufacturers and exporters. That is one of the really positive things that is happening in the economy and it is an indirect consequence of quantitative easing. It should also have increased the ability of the lending institutions to advance capital. Of course, one of its other consequences has been to help drive down the cost of borrowing for the Government. Inevitably, if you buy bonds and drive up the price, you drive up the yield, and that is the longterm cost of capital to the Government. It has a mixture of effects.
Q28 Chair: And income for pension funds.
Vince Cable: It has a negative effect for them, as you are quite right to point out. Annuities are not having a great time.
Q29 Margot James: Were you pleased when the scheme was enlarged from £50 billion to £375 billion, or did you feel that what should have been seen as an emergency economic tool was becoming an everyday instrument that we could get addicted to?
Vince Cable: I have supported it. It is one of the mechanisms that the Governor and his team have. I think it is right that they have used it and I supported that. This is very much a matter for the Bank of England; the Government cannot direct this process. The IMF did, in its last report, make a recommendation that monetary easing should have a more varied form with more varied assets, but that again is really not for the Government to determine. It is something to pursue with the Bank of England when you talk to them.
Q30 Margot James: Is there anything you can do as Secretary of State to convince banks that the money that is flowing in, being printed, could be helping business more than it is?
Vince Cable: I try to, and sometimes I am accused of being a bit abrasive when addressing the banks on that score. There is now a variety of mechanisms to help the banks and I think the point we need to emphasise is that it is in their longterm interest that the British economy and British business recovers. That is not going to happen if they starve them of capital.
Q31 Margot James: The Bank for International Settlements, which I understand is a central bankers’ bank, issued a report arguing that QE runs serious risks of distorting financial markets and putting off tough decisions. Do you accept there are worries about the extent of QE and do you think there is a case for an independent examination of its effects?
Vince Cable: As much independent examination as possible, because it is a new phenomenon that is not fully understood and the more people who interrogate it the better, I would argue. The real worry when it started was that it would be inflationary or it would get out of control and that certainly has not happened. We now have falling inflation. I think the simple answer to your question is, though it is not my area-it is a macroeconomic policy area-we really do need to think much more carefully about its effects and, indeed, whether more creative forms of QE would achieve better results. That is the emerging issue for economic policy.
Q32 Mr Binley: I would argue that quantitative easing is our version of medieval coin clipping, in some respects. The reason why it has not had the impact upon inflation is because the money is being kept primarily within Government and banking circles and has not reached the general economy. That is why there is not the demand that we are hoping there to be. Are you concerned about the longterm effect of the sizeable quantitative easing-something of the order of £375 billion-that we now see? Does that bother you?
Vince Cable: We all have to be concerned because it is the major mechanism by which the authorities are stimulating demand in their economies. It is the major mechanism Governments are using-ours, the US and others. Therefore, we have to be concerned about how it works and what the consequences are. You are quite right that it has now been operating over three years, we show no sign of being able to be weaned off it, and it clearly does change big signals in the economy, such as longterm interest rates-although not inflation yet. Yes, it is a very good area for study, but as I say, my Department probably is not the best vantage point. If I were in my old profession I would be spending much more time working on this problem.
Chair: Margot, can I bring you back in?
Margot James: I think I have covered the area now, Chairman, unless you think there is anything else you would like to ask on that.
Q33 Chair: I would just like to add to it. I stress this is not a party political point because this process started under the previous Government-although I would say the previous Government did combine it with some fiscal stimulatory measures. What concerns me is that in your own words this is a good area for study. There is an incomplete understanding of the economic impact of this process, and yet it seems to be the only process that the Government has to get investment moving. I believe you have yourself said that it is a "necessary but not sufficient" policy. Should it not be combined with measures-potentially fiscal or other investment measures-to stimulate demand at the same time if it is going to actually deliver?
Vince Cable: I did not want to leave you with the impression that it was the only thing that was happening. There are dozens of interventions of what you might call a micro kind that I and my Department are engaged in-the whole Growth Review process.
Q34 Chair: But they don’t seem to be working.
Vince Cable: Again, let’s be clear about what we are comparing ourselves with. We have not had the experience of the post1929 crash in the United States when GDP fell by 30% and that, in significant measure, is due to the emergency action that was taken by central banks. That is the comparison. In terms of the many micro measures we are taking, I would be very happy to take you through a long list of things, but we are simultaneously trying to rebalance the economy, trying to support exports and trying to support manufacturing. Look at everything we are doing with the major sectors of industry: the car industry and the aerospace industry. 90% of my time is spent trying to make maximum use of the resources we have to stimulate growth. In a way, we have been slightly sidetracked into a discussion about basic macroeconomics, which is important but not something I can add a great deal to. I am very happy to talk about the things we are doing, which I think are creating a strong basis for the right kind of growth when we get it.
Chair: But we’re not getting it.
Q35 Paul Blomfield: Without getting into a dispute about whether Project Merlin was a failure-I think we recognise that net lending fell in 2011 and it underachieved in terms of the SME targets-let’s just work from your point that bank lending is not in great shape. Banks are tending to blame business for low demand; business is blaming the banks for a range of issues I might come to in a moment; and the Government is being blamed for setting the wrong targets. Where do you think responsibility lies?
Vince Cable: That is the first time I have heard us being criticised for setting the wrong targets. Are you suggesting they are too high or too low?
Q36 Paul Blomfield: The suggestion has been that you pitched them wrong and therefore you set the wrong benchmarks against which progress could be measured. I am not necessarily endorsing that point; I am just saying that is a comment that is being made.
Vince Cable: The main criticism was that the measures were of gross rather than net lending, as I recall from my discussions in your Committee. The Funding for Lending scheme will measure performance on net lending, so we have advanced that.
Q37 Paul Blomfield: In advance of this session I consulted fairly widely with businesses in Sheffield, both directly and through the local chamber and the FSB. There is a picture developing of a level of risk minimisation from banks. For example, one local window manufacturer won a contract with Sheffield University and they wanted some additional credit to buy materials to fulfil the contract but just got a flat refusal. Clearly, Sheffield University is not a high risk business. There was another business, a creative design agency, who said that they could not get any lending that was not backed by personal guarantees to cover the whole extent of it. They made the point, not unreasonably, that, as the banks share the benefits of lending, should they not be sharing some more of the risk? How would you respond to that?
Vince Cable: I share the same frustration as you and I encounter the same anecdotes, which are actually backed up by statistics. You are absolutely right: the banks are very riskaverse. That is not entirely perverse behaviour on their part; it is because the international regulatory requirements require them to hold more capital, which of course is riskweighted, so they will avoid what they regard as risky even though it is productive in terms of the real economy. That is a constant source of frustration. I try to do a regional visit once a week. I was on the south coast last Friday and I met half a dozen manufacturers, all of whom gave me versions of the accounts you have just given me. The previous week it was in West Yorkshire and before that in Tyneside. This is a nationwide phenomenon and there is an enormous amount of frustration.
Not to be too negative, you started off by asking me about what had happened in the Merlin era, if I can call it that. There was actually a 13% growth in gross lending over that period, so although there are these negative stories-and I experience them all the time-it is against a backdrop where there has been increased exposure to business, particularly on the SME side.
Q38 Paul Blomfield: Following up on that point, Secretary of State, recognising that it is difficult to get the risk balance right, these are nevertheless stories coming from people dealing with Governmentbacked banks. What more do you think you can do to encourage those banks to move forward and to respond to the frustrations that you and I as constituency MPs and you as Secretary of State hear all the time?
Vince Cable: There is the variety of interventions that we have set in train. You are going to ask me about the forwardlooking ones. We have had the Enterprise Finance Guarantee and we have an appeal scheme where companies that are dissatisfied can register their concerns. I cannot really say any more than that other than that if we are going to progress as a country, particularly in relation to exports, which we have to do to rebalance the economy and which are risky, then banks have got to be willing to support it and very often they do not. To my mind, the most frustrating part of the most recent export figures was that there was a loan rejection rate of about 50% for the manufacturing sector. It is better for overdrafts, but their loan rejection rate was worryingly high, given that this is the sector that has got to support the economy.
Q39 Paul Blomfield: I wonder if I can ask one very specific point to get your reaction. One of the companies I spoke to in preparing for this meeting is a reasonablysized player in the supply chain to the mining industry with significant export earnings. Their concern is not only that they have had their lending facility reduced, but unilaterally their bank, which is Lloyds TSB, on 12 June wrapped bonds into their maximum facility that had previously been outside of that limit. Basically what they are saying to me is that as a result of that they are not going to be able to pitch for any more export business. What would your reaction be to that?
Vince Cable: I would like to look at the particular case. I hear many stories of that kind and I do follow some of the more egregious cases up with the banks concerned. I would be happy to do that. Was this an exportoriented company?
Q40 Paul Blomfield: Yes, very much so.
Vince Cable: There is a bond finance arrangement that is now operated through Trade Finance, the successor to ECGD, and it may be that that is the product that was being sold. The other point I would make to you is that we are seeing-and I think we see it as a positive sign-a whole lot of new kinds of mechanisms springing up outside and around the banking system from Tim Breedon and company.
Chair: We will be going on to those.
Vince Cable: That includes supply chain finance, so those companies that do not get proper service from their banks can increasingly access it on a supply chain basis.
Q41 Paul Blomfield: I wonder if I could return to a point Brian made in relation to the cultural problem within banks and what you feel as a Government you can do about that. It is a story that we have all heard in relation to SMEs. One local company run by the chair of the local FSB told me he was moving premises, he needed a loan to cover the costs of moving and he got a flat refusal from his bank. Subsequently, the bank came to visit him in his new premises-he had managed to scrape the money together one way or another-and said, "We can see the potential of your business" and credit lines were then opened. Another said to me that he feels like a stranger now in the dialogue with his bank. There seems to be this problem that, whereas in the past there was a feeling that banks engaged, understood and were therefore able to be flexible, decisions now get passed up the food chain and into a set of rules, which represses lending. Would you agree that that is a cultural problem? You seemed to in answering Brian’s question.
Vince Cable: Yes, Brian Binley asked me the same question in a slightly different way.
Q42 Paul Blomfield: What more can you do about it?
Vince Cable: There is no shortcut. This is only going to change fundamentally when we have real competition from banks that can offer that kind of relationship service. We are beginning to see it. The existing banks will then begin to worry about losing market share and they will copy good practice. I think that is the way. When people talk about cultural problems in banks, I think we are referring to two different things. One is the issue you and Brian Binley have described, which is the loss of relationship banking and centralisation. The other is the effect of very large investment banks-investment bankers running universal banks-and the short-term risk culture that came out of that. I think there are two different problems and they are equally serious.
Q43 Mike Crockart: Can we turn to credit easing and particularly the National Loan Guarantee Scheme, as announced on 20 March? We have since, in the last month, had further information about how the scheme is going to work. Perhaps you could update us on the progress of that scheme in particular.
Vince Cable: The National Loan Guarantee Scheme at the latest count has processed about £2 billion worth of credit to 13,000 companies and the effects of that have been experienced in lower borrowing costs. That is what that scheme is about.
Q44 Mike Crockart: You mentioned lower borrowing costs. It has been widely reported that the scheme could lead to a reduction in the cost of business loans of up to one percentage point. It is going to be a difficult thing to measure, but how do you think you will measure the success of the scheme in delivering that?
Vince Cable: It is measured partly through the volumes-how much actually got out. Given that the banks themselves expressed reservations about it, it is processing a lot of credit. You are quite right that the difference is not vast, but in a highly competitive world a 1% interest differential can be quite important.
Q45 Mike Crockart: You refer to measuring what went out, but of course the difficulty there is that you then find it very difficult to compare it to what would have happened had the intervention not been there.
Vince Cable: It is not a scheme that my Department runs, but as far as I understand it the Treasury and the Bank of England are monitoring it carefully to ensure that companies do derive the benefit. If they were not deriving benefit they would not be applying for its funds, would they?
Q46 Mike Crockart: A lot of what we have been talking about today has focused on help to SMEs and the announcement on 20 March certainly seemed to be that this scheme was aimed very much in that sphere, limited to companies with a turnover of up to £50 million. The announcement last month increased that substantially to £250 million, which brings in 99.9% of all companies in the UK. How are we going to make sure that the original design of the scheme in trying to funnel this credit easing to SMEs actually happens? How are we going to stop it being swallowed up by the larger companies?
Vince Cable: I would not say it has been superseded, but it is now being complemented by Funding for Lending. No doubt we will go on to talk about that in a moment. The problem we have experienced with that scheme is that if you are too precise about the SME limitation, you fall foul of state aid rules. Why this is the case I do not fully understand; I do not totally understand how the European Commission works, but I am told that if you are too prescriptive you run into trouble on that front.
Q47 Mike Crockart: Is that the reason?
Vince Cable: The reason why the ceiling was lifted was simply to enable a wider range of companies to access it. Mediumsized companies were brought into the National Loan Guarantee Scheme as a result of the lifting of the ceiling.
Q48 Mike Crockart: Was that because there was a feeling that there would be insufficient demand from SMEs?
Vince Cable: It may have been a factor, yes. It may have been a factor.
Q49 Katy Clark: You said that the difference is not vast in this scheme in terms of 1%. On a £50,000 loan that would be a difference of £500 a year. Do you really think this scheme is going to make much of a difference to the economy?
Vince Cable: Taken purely in isolation from everything else that is happening, it is of modest importance, but if it was of negligible importance, companies and their banks would not be applying to utilise it. As I say, we have had 13,000 applicants.
Q50 Katy Clark: To take up the point that Mike was making about larger businesses now being brought in, how are you going to monitor and control that to ensure that small businesses still get a fair slice of the cake?
Vince Cable: I do not think it is a question of small companies being crowded out. As far as I know, there is no upper limit on the amount of support that can be made available through that scheme, so if small companies see it as being to their advantage, they will still apply. I do not think there is a rationing issue.
Q51 Katy Clark: Is that something you will be keeping an eye on?
Vince Cable: Yes.
Q52 Chair: Before we move on, obviously it provided marginally cheaper loans to companies, but there was a big debate at the time that unless you actually changed the risk parameters, the money would largely only go to those who would have got loans under other regimes previously. Have you any assessment of whether any additional funding has gone to SMEs as a result of it?
Vince Cable: If we are talking about the National Loan Guarantee Scheme, it was not supposed to be about additionality of funding; it was primarily designed to cut the cost because that was seen as a great problem. If you remember the sequence of events at the end of last year when the eurozone crisis started growing, the cost of funding became a serious problem. We began to get more and more complaints from the business community that the issue was about the cost of credit rather than availability, so the National Loan Guarantee Scheme was designed to address that problem. As Mike Crockart has pointed out, as the scheme evolved the ceiling was lifted. That was primarily because research showed as the scheme was being introduced that it was the mediumsized companies that were most price sensitive and who, therefore, were most affected by the cost of credit and potentially the main beneficiaries of the scheme. That was the logic of it.
Chair: Can we come on now to Funding for Lending?
Q53 Ann McKechin: I just wonder if I could take you back to one comment you made earlier this morning about cash-rich companies. I share your concern about the fact that we have such a high ratio of companies with large cash reserves. Could you update the Committee as to what progress you are making in terms of trying to address that issue? You mentioned earlier in the House that you had asked people to look at this issue. Do you consider that the ratio of cash reserves will be lower or higher 12 months from now?
Vince Cable: The Breedon proposals are partly designed to address that problem by creating a structure for cash-rich companies to lend to peers, preferably those in their own supply chain. We are trying to create mechanisms to do that, but the underlying problem is mainly the black cloud hanging overhead of lack of confidence and uncertainty. I think there is a reasonable prospect, and certainly the IMF’s and others’ projections suggest, that in a year’s time conditions should be better and we would expect to see those cash piles diminishing.
Q54 Ann McKechin: Thank you for that. Coming back to Funding for Lending, as the Chair has referred to, this is about the third credit easing scheme that the Government has announced-there was Project Merlin, which we spoke about earlier this morning. People might argue that it is a pretty blunt instrument because it is simply increasing supply and not actually examining the type of demand and the factors that affect demand. How do you think this scheme will differ from something like Project Merlin?
Vince Cable: It differs in one crucial respect: there is now a very real incentive to banks to utilise it. The Merlin agreement was about exhortation, encouraging them to take a longterm view about the economy. The Funding for Lending scheme creates quite a sophisticated incentive structure. The more an individual bank increases its net lending, the lower the borrowing costs of acquiring liquid assets under this scheme. There is a series of steps, each of which is 25 basis points, so a bank that does a lot of net lending and is ambitious in trying to expand its business lending stream will get cheaper funding than one that is very conservative and has negative net lending.
It is not just helpful to the banks to get cheaper money; the big advance of this scheme is that it aligns the funding arrangements with the interests of the banks and making sure that they have a real incentive to use it. It is also transparent; they have to report publicly bank by bank in terms of their gross and net lending and what they have actually done. Those are two big steps forward.
Q55 Ann McKechin: You mentioned the IMF. The IMF figures have again down-rated the level of growth in our economy. That is clearly the key: what we need to do is increase growth. Some might ask, "Why did the Government not just directly offer loans to businesses rather than going through yet another mechanism with the banks, which, given their record to date, have seemed to find every other way not to lend?"
Vince Cable: These are two obvious problems with offering loans directly to business. The first is that Government does not have the capacity to be a money lender; Ministers and civil servants do not have any training in risk assessment and the complexities of business lending. That is an obvious problem with it. The other problem is that it would score against public spending.
Q56 Ann McKechin: Although we are creating a green investment bank at some point.
Vince Cable: Yes, but that is something we took on consciously because green investment was a Government priority. It would involve making exactly the same calculation as the green investment-that we are willing to increase our exposure and public spending-and that puts a limit on what we can achieve.
Q57 Ann McKechin: How will you gauge whether the scheme has been successful? You have mentioned that there is a more clear and transparent accounting system by the banks. In relation to what that means in terms of growth of our economy and growth of business, are you going to have anything to show that there is a direct relationship between this scheme and achieving growth of business?
Vince Cable: The main metric of success will be how much money actually flows. I gave some figures for the National Loan Guarantee Scheme and we will be monitoring this one in the same way. You cannot transpose that directly into economic growth, but we will know how much money the banks are drawing on.
Q58 Ann McKechin: Some people have criticised the scheme or been cautious about it because they say it is unclear whether firms or households will be the main beneficiaries, for example.
Vince Cable: It is one big pot. That is part of the problem. If you were developing a critique of it, it is exactly that: it is not targeted; it is a total sum for households and firms. That is because we have been given legal advice that to have it more targeted, particularly on SMEs, would require us to go through a state aid approval process that would take months if not years. We just wanted to get on with it, and the way to get on with it was to have a broader category.
Q59 Ann McKechin: That begs a question. If you are saying that you might need to go through a state aid approval application, why don’t you, as a precautionary effort, put in a state aid approval application on the basis that you may need to move to a more targeted form of finance for the SME sector if this particular scheme does not do the job?
Vince Cable: That is a good thought. I will convey that to the Treasury, who are administering the scheme.
Q60 Ann McKechin: The Treasury will always find a reason to go in for another set of approvals, but it is the length of time that takes. The fact is that business and people are waiting to do something now.
Vince Cable: We have learnt with the green investment bank that this is not an easy or rapid process.
Q61 Ann McKechin: You might give the same answer to this, but I just want it on the record. Construction of houses is at its lowest since the 1930s; it clearly is a driver in our economy. Why has there apparently been no assessment carried out by the Government, either from your Department or the Treasury? There seems to be an assumption that the housing market is just going to flip at some point back to where it was in 2005/2006 with the same mix of housing between social, rented and privately owned.
Vince Cable: There is a massive amount of analysis going on in Government, I can assure you, in my Department, but mainly in DCLG and the Treasury, about how we revive the housing market. It is very tricky and multifaceted, and there are a whole lot of issues involved. We have had the collapse of house prices. We have had the credit supply issue affecting builders and developers in general, which has dried up that market. We have had lack of mortgage availability, which affects demand. The problem in the social housing sector, which is probably more serious and where the decline has been biggest, is primarily because of the financial difficulties that a lot of registered social landlords, other than councils, have had.
Q62 Ann McKechin: And therefore it is becoming more expensive.
Vince Cable: The issue that the Government is looking at in detail-and the Chancellor has already stated this in Parliament-is how to make available Government guarantees to help housing associations to borrow.
Q63 Ann McKechin: One concern about this scheme is that if it does go into housing and even to private buyers, it is going to go into the 60% loantovalue market and not to the first-time buyer market, so you are potentially going to end up with a surplus of funds in one area but still an absence in another.
Vince Cable: I think we are getting into a much more specific area, which is about how you support the recovery of the housing sector. The feedback I have had from housing developers is that their worry is actually about the second buyer market rather than the first time buyer market, so that would not matter.
Q64 Ann McKechin: But at the moment we just don’t know which sectors are going to be affected by or benefit from this particular scheme.
Vince Cable: That is correct, yes. Let me assure you there is an enormous amount of thinking going on in Government about how we revive housing. We know that is the key because that is dragging down growth more than any other single sector.
Q65 Chair: Before we leave this, banks tell me that they want to lend money-and understandably; they are in business to lend money-but either the demand is not there or, when they do get the demand, the risk is too great. This particular scheme incentivises banks to lend to SMEs maybe in a way they have not done before. It would seem on the surface they can only do it if they are prepared to accept lower-risk thresholds to do so. Is there not a very real danger that the Bank of England and the Treasury could end up underwriting a higher-risk lending portfolio of the banks?
Vince Cable: Any form of guarantee does involve a default risk and this is factored into Government accounts. I am sure some assessment will have been made about the default risk entailed in this programme, but it is actually the banks that take that risk rather than the Government directly. The Government is acting as an intermediary. As I understand the mechanism-and there is quite complicated economics in all this, quite apart from the issues around banking-what essentially is happening is that the banks are being helped to obtain liquid assets, which will help them meet their regulatory requirements. If they are able to meet their regulatory requirements then that frees them up to do normal lending to households and companies. This is the thought process that is involved.
Q66 Chair: But it does involve the banks accessing money, shall we say, to fund it. If it subsequently proved to be too high a risk and there is a higher level of default, somebody is going to have the bear this, either the banks or those who have provided the money to the banks. Exactly how is that risk going to be apportioned?
Vince Cable: In a way there is a vicious circle operating here. It is because of risk that banks are being asked to hold more capital liquidity and it is to help them meet those requirements that this scheme has been introduced. Essentially there is a swap arrangement: one type of asset is being exchanged for another and in four years’ time, as I think the mechanism works, these assets are then swapped back. It is a temporary, fouryear arrangement to get more liquidity into the system to help banks lend.
Chair: We will monitor that very carefully to see how it works, if indeed it does work. You mentioned earlier processes that are being developed to provide finance for SMEs not involving banks and I want to bring in Rebecca now on alternative methods of funding.
Q67 Rebecca Harris: Thank you. You have just had Tim Breedon’s taskforce report to you about developing alternative sources of SME funding, which you have welcomed. You have said, "More can, and should, be done to build alternative markets and unlock new pools of capital". Could you summarise how you intend to achieve that and take those recommendations forward?
Vince Cable: There are different types of nonbank lending that are emerging. Some of them are familiar to business-assetbased finance and invoice discounting. Companies have used those in the past and they are getting something of a revival. There is supply chain funding, which we have not had very much of in the UK; it is coming in here, but is more common in the United States, where big OEMs have done more of it than British companies. Then there is simple peertopeer lending, with rich people or cash-rich companies lending to other people and bypassing the banks. There are different mechanisms at work and we want to do what we can to encourage all of them.
There are several practical initiatives coming out of it. One immediate one is that we have set up this fund of £100 million in the short run; the applications for this programme close at the end of this month. We will use that to seed funding to some of these mechanisms in order to make sure that credit flows. One key recommendations of Breedon is what he calls aggregation. In other words, if a whole lot of SMEs want to borrow and they want to bypass the banks-if they want to go to capital markets, if they want a bond issue-they have got to be collected together to reduce the overhead costs of the activity, to make them attractive and reduce the costs of the bonds. Therefore, this aggregation platform is something we agree is a good idea. It will take some time to get it launched, but that is something we now want to work on.
Q68 Rebecca Harris: Clearly, peertopeer lending and internet auction mechanisms will provide increased competition in pricing for SME lending. Do you think these internetbased auction mechanisms are informed enough to correctly price and allocate the risk associated with business lending?
Vince Cable: There is an issue about information. At the crudest level it is avoiding ripoffs, but it is also helping business to access good finance. One of the proposals of Breedon that is now being followed through is that they have asked-and we have supported-some of the professional institutions, the ICAEW for one, to provide a point of information contact so that if companies want to get an assessment of alternative funding sources and costs and access to them, they have some neutral, professionally reputable body to go to. That process is being launched as we speak.
Q69 Rebecca Harris: The other issue is of regulation. Some of these activities are not highly regulated, which is helpful in a developing market, but there are risks to that; it might deter people from getting involved. For example, peertopeer lending is not covered by the Financial Services Compensation Scheme. Do you intend to review the regulation in this area to make sure it is not discouraging expansion and innovation?
Vince Cable: Yes, we will review it. There is a balance to be struck here and if we are trying to encourage innovation and new sources of funds then there is a danger of knocking it all on the head with a rather heavyhanded system of regulation. We want to avoid that. Under the scheme I have just mentioned, the professional bodies are going to be rolling out business finance advisers who can help companies through this system. In the first instance, we are looking at that kind of voluntary mechanism, maybe with some sort of kitemarking. As we have found in bank lending, you can get abuse, and that may have to be dealt with. However, these are only the early stages of this market.
Q70 Rebecca Harris: Clearly this kind of non-bank lending is going to be increasingly important in the short to medium term, so it is something we do not want to entirely leave to the market to provide. I wondered if you had thought of giving tax incentives for investing in SME debt. Has that been given any consideration?
Vince Cable: Earlier on there was a question asked about growing distortions and there is a danger of adding yet more, so I think we need to be careful about that.
Q71 Chair: One possible motivating factor behind the increase in the availability of money for peertopeer lending is the low interest rate. If you have a bit of money it is very difficult to find anywhere to get any return on it. Do you think there is a danger that if interest rates increase it could well snuff out this particular development?
Vince Cable: It will not snuff it out, but clearly it will affect the demand for credit. Everything that central banks have been doing in the last three or four years has been designed to keep the costs of borrowing as low as possible. When we get back to "normality", one aspect of normality will be higher real interest rates. That is going to affect an awful lot of people who are currently to a certain extent protected from this, including mortgage borrowers. That is a problem that is going to have to be managed as we emerge from this awful period of crisis. It is an issue that we are going to have to face.
Chair: Can I bring in Brian Binley now on takeovers?
Q72 Mr Binley: Unusually in these sorts of meetings, I want to thank you for the work you have done in this respect. We have worked relatively closely and your work has been valuable and you have always made yourself available. I think it is fair to say that when Ministers go that extra yard, quite frankly.
The Takeover Panel has already acted upon some of the outcomes of the KraftCadbury scenario and they changed the Code in autumn 2011. I assume you are assessing the results of that and, if you are, I wonder when you might be able to give us some information about that assessment.
Vince Cable: I do not have any conclusive assessment of it. As you posed in one of your earlier questions there has not been a great deal of merger activity in the last 12 months.
Mr Binley: That’s exactly right.
Vince Cable: So I am not sure we have anything. But the measures that were taken and which we encouraged were good, common sense proposals and it has reduced the period of uncertainty, among other things. They also created more provision for employee representation and that is quite a good additional part of the mix. We do not have any definitive answer as to whether that process was satisfactory, but our anecdote is that it is now a somewhat better system and we are content with it.
Q73 Mr Binley: I recognise the impact is going to be viewed over the longer term, but I would hope the Takeover Panel will be monitoring and helping you in that respect. Further amendments are being consulted on at this very moment in terms of our findings, not only but primarily from the KraftCadbury scenario. Would it be fair to say that disclosing material changes promptly after their occurrence and not only in the event that a subsequent document is published-that is one of the proposed amendments-might have avoided the Cadbury Somerdale problem, which caused so much trouble not only for the workers but for the whole business of the Cadbury takeover?
Vince Cable: I have not studied the amendments, so I would rather not rush into judgment on it. However, as I understand it, I think the recent Takeover Panel rules do involve disclosure of more information, such as bid price; there is a more comprehensive picture and I think that is one of the genuine advances that has been made there. Whenever we have met you have asked me about CadburyKraft and it was a landmark takeover. We are now three years on from it and the fallout has been a lot more positive than was feared at the time. It was seen at the time as being an awful experience, but what has actually happened is that Kraft has subsequently made a commitment to doing their global R and D in the UK, so we have actually gained from the takeover as a country at the high knowledge end of that business. The negative consequences that were predicted have not materialised, so it is no longer a good example of bad takeovers in quite the way it was seen at the time.
Q74 Mr Binley: You are absolutely right. We have kept in touch with senior management at Kraft and with representatives of the workforce and we have had an impact upon what might have been seen as not the best practice from an American context. That has improved. I think we have done a lot of good and part of the reason why I did my note of congratulations is it does seem to be going very well and that is in all our interests.
You will know that the Kay Review published its interim findings in February and the review website says the final report will be due this summer. Is that still correct? If that is the case, what might the next steps be?
Vince Cable: It is the case. We envisage it being published in full at the end of this month. It has already been clear, on the interim work, that Professor Kay and Sir John Rose and his team do think there is a very serious problem of shorttermism in British investment institutions. I know it is an overused phrase and we have used it several times already, but the cultural problem within our investment community does push decision making away from the kind of longterm decisions you need in manufacturing and elsewhere. He acknowledges that is a problem. Most of the action points, as I recall from the interim report, are focused on the investment community itself rather than on Government intervention. He has a variety of ideas about how practice can be improved. He has raised issues about quarterly reporting and whether that makes matters worse. There are also deeper proposals for getting the investment community into a different kind of mindset. Until we get the report at the end of this month I cannot really say anything more.
Q75 Mr Binley: I understand that and we are talking specifically about the hedge funds in many respects and the way they acted particularly. I am reassured because what you are telling me is the report is to be published, you are taking it very seriously and you will be acting upon it.
Vince Cable: Yes.
Q76 Margot James: I wanted to ask about bank lending for export finance. You mentioned earlier your tour around the north and I understand a number of the companies you visited were finding it very difficult to obtain finance to secure their export deals abroad. I am finding a lot of companies telling me this as well. One of the things the British Bankers’ Association says is that under the Basel III terms, the credit conversion factor proposed for all trade finance transactions is to be 100%, which will mean that banks have to hold even more liquid assets as a financial guarantee when they lend money for export. The BBA is asking whether this could be relaxed according to the nature of the risk, because it is a very small risk in many forms of export finance. What is your view of that? When we had the BBA in a long time ago, they said that UK banks were already complying with Basel III, although we are not obliged until a few years’ time.
Vince Cable: You are right; this is the heart of the problem. I have discussed it with the Chancellor already because I am picking up many examples of very good British companies trying to export and finding that the bank facilities are being contracted. They are highly profitable; they have got an order book; and they cannot proceed for exactly those reasons. It is not terribly clear to either the Chancellor or me where exactly the problem is-whether it is the nature of the regulation, the way in which it has been interpreted by the British authorities, or whether the banks are being overcautious. We are pursuing that at the moment, but there is a serious problem and I acknowledge that. It is in the worst possible bit of the economy because we desperately need our exporters to succeed.
The way we are trying to mitigate it is through Trade Finance, the successor to ECGD. We have a variety of facilities, as you know, including a guarantee function, which got off to a slow start but is now picking up. It was transferred from BIS to Trade Finance and is now better advertised. There are various other supporting facilities, as with bond finance. I think you have put your finger on a very serious issue and we have got to get to the bottom of it very quickly.
Q77 Margot James: My one small supplementary to that is: do you think UK Export Finance can ever be big enough to plug that gap, or do you think we need to solve a problem within the banks? If that is coming from Basel III, how possible is that going to be?
Vince Cable: There may be an issue about the way British authorities are being overcautious-this is not the first time it has happened-but I cannot say so definitively. I am just saying that could be one proposition. Simply saying it is international regulation does not help us very much because we have a problem here to deal with.
Q78 Chair: Thank you, Minister. We are virtually at the end of our questioning. Before we finish, could I go back to the issue of quantitative easing and economic growth? I think it is quite in evidence that quantitative easing is not making the impact that it would hope to, that there are a lot of unknowns about it and that in order to make the most of what is being made available there has to be some sort of stimulus in one way or another. Perhaps before I say this I should acknowledge that a whole range of schemes have been implemented and some of them are potentially quite good. However, it is still not having the macroeconomic impact that is needed. What would you like to see being done to stimulate growth in conjunction with quantitative easing?
Vince Cable: There are various images; the traditional one is pushing on a piece of spring. I don’t think that’s correct. I think it is more like pumping air into a tyre that has a puncture. You have to pump.
Q79 Chair: Neither is particularly attractive, if I may say so.
Vince Cable: You have to keep pumping, but you also have to repair the puncture. The puncture is the fact that the banking system is not performing and therefore the whole set of things that we have spent the last hour or so talking about are highly relevant to that. I would simply add that it is something we have not really discussed in detail. You may want to pursue at your next encounter with me all the various things we are doing in respect of socalled industry strategy and the various things we are doing to support small business startups, growth and mentoring. There is a whole lot of micro initiatives that are designed to help businesses grow when there is demand and when they have credit. I think the combination of those things together will provide a successful outcome, but it is frustratingly slow.
Chair: Yes, that seems to me to be the problem. We have what might be quite good micro measures, but really it is macro issues that they are trying to deal with. Can I thank you, Minister? That is very helpful. As you say, we will no doubt have you before us again to discuss the progress of some of those and any other developments that might be appropriate to discuss with you. Thank you very much.