More help needed to get West Midlands through the recession €“ MPs on West Midlands committee report

A report published today (Thurs 23 July 2009) by MPs on the West Midlands Select Committee welcomes a number of initiatives already taken by Government, but concludes that more needs to be done to help the region's businesses get through the current economic situation.

The availability of credit is crucial, say the MPs, who say banks and businesses seem to be living in 'parallel worlds' after receiving conflicting evidence on lending in the region. The report says that the credit crunch is still a reality in the region, and calls on regional banks to work much more closely with local business groups to ensure that levels of lending and charges help businesses get through the downturn.

The Committee welcomes the contribution being made by the Government's Enterprise Finance Guarantee scheme to easing access to credit by small and medium size enterprises' in the region as well as the Advantage Transition Bridge Fund pioneered through Advantage West Midlands. However, it also recommends that the Government should take such initiatives further, including extending its Enterprise Finance Guarantee Scheme beyond March 2010 and urgently addressing what more can be done to enable companies to access credit insurance.

The MPs were also dismayed that West Midlands businesses were yet to see any of the £2.3 billion available through the Automotive Assistance Programme. The Committee is calling on the Regional Minister Ian Austin to do all he can to speed up the approval of funding through the AAP. It also recommends that the Government launch an urgent investigation into whether or not the introduction of temporary wage subsidy scheme is a better way to save jobs and support people than relying on benefits or tax credits.

Chair of the Committee Richard Burden MP for Birmingham Northfield said:

"The West Midlands has been hit hard by the recession. The Government is already helping but everybody needs to step up a gear to get us through the downturn and enable our region to achieve its full potential as a centre for innovation and business dynamism in tomorrow's low-carbon economy."

Evidence submitted to the Committee highlighted a number of ways that Government could stimulate the economy and meet its wider objectives on climate change and fuel poverty. The report points out that the Government could boost the housing and construction sectors by bringing forward plans to insulate homes or add other climate-friendly features to existing housing stock. The Committee also says, there should be broadened as well investment in research and development to enable the region's traditional manufacturing industries, such as automotive, to meet the challenges and opportunities of a sustainable future.

The MPs emphasise that effective regeneration and investment in the Region's infrastructure will be crucial to broadening the region's economic base and preparing for the upturn . Whilst budget pressures have forced Advantage West Midlands to focus its efforts on a number of priority projects, the Committee warns that effective action tackling deprivation in different parts of the region should not be compromised.

The Committee welcomes the impact of the Train to Gain scheme which is helping to maintain and boost skills across the region during the downturn. The report also highlights how important it is for BusinessLink to be as effective as possible in signposting support available to business.

The MPs say that HMRC and local authorities also have important roles to play working with business through the downturn in relation to taxation issues and business rates.

The Committee also commends the proactive role which the Regional Minister and Advantage West Midlands have played in establishing the West Midlands Task Force and recommends that the Taskforce be made permanent. The Committee also wants the Government to address the issue of how Regional Ministers can best be enabled to fulfil their dual role of representing regions in the Government, and of representing the Government in the regions.

The question of businesses' ability to access adequate finance was one of the most significant issues raised during the inquiry. The evidence presented to the Committee from banks and local business seemed to be at odds. The quantitative data provided by the banks showing levels of lending had been maintained did not match the evidence provided by businesses that there has been a squeeze on lending. The Committee recommends that bank regional managers work more closely with the region's business groups and ensure that their lending levels and charges are appropriate for supporting West Midlands business through the downturn.

The withdrawal of credit insurance also concerned the Committee. It is of particular significance to the West Midlands as the automotive supply chain hard can no longer obtain credit insurance of any kind. The Committee is urging the Government to investigate, as a matter of urgency, why take up of its credit insurance provision has been low and if necessary reassess eligibility criteria in order to achieve its intended objective.

The TUC and Federation of Small Businesses estimate that a wage subsidy would cost £1.2 billion a year and prevent 600,000 redundancies across the UK. The West Midlands Committee recommends that the Government undertakes a cost benefit analysis of such a scheme compared to, for example, supporting 600,000 workers through the benefits or tax credits. This could also include an assessment of the effectiveness of the WelshProAct initiative.

Whilst welcoming the introduction of Regional Ministers, the report says that a key issue to be resolved is how they can openly advocate regional the interest whilst simultaneously being bound to defend Government policies in the region through a conventional application of collective responsibility. Regional Ministers have been given a different role to Ministers elsewhere in Government, and this difference needs to be reflected in accountability arrangements and the Committee urges Government to clarify how Regional Ministers are going to be enabled to fulfil their dual role.