Downing Street Says » Speech to business breakfast

A transcript of the Prime Minister’s opening address to a business breakfast at Downing Street on 1 April 2010.

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Good morning, everyone. Thank you very much indeed for joining us here at 10 Downing Street. I suspect one or two of you only wondered given the date today whether you had been invited in reality or as an April Fool. There is no fooling anyone about our meeting this morning, and you are very welcome indeed. I would like to ask the Prime Minister to kick off.

It is a great pleasure to welcome you to Downing Street. I am just recalling that a year ago this week, we had the G20 meeting in this room when we took action to deal with the world economy. So a year on, I think it is important for us to look at where we are, how we are faring and what we can do for the future.

There is no doubt that your businesses, like millions of businesses around the world, have faced the fallout from the global financial recession, and these have been very difficult times indeed. But I think this morning I want to strike an optimistic note about the future. I want to thank you first of all, because your businesses are the backbone of the British economy. I want to thank you for your contribution to the recovery, and for all the work that you do to promote the Britain not just at home but abroad. And I think we can be incredibly proud that the dynamism of Britain’s entrepreneurs have defied the recession, to start up nearly half a million new businesses in the last period of time. There are now three million British businesses, more than at any point since records began, and fewer businesses closed last year than in the year before.

So I am confident, with the right support, the dynamism and entrepreneurial flair and the cutting edge of innovation and enterprise that our businesses bring to bear on the economy will continue to flourish. It is vital because of course the fate and fortunes of small businesses are the future prosperity of the United Kingdom, but your businesses will as I know continue to thrive only if we can help meet your particular needs, such as ensuring that you have a skilled workforce to draw from, ensuring you have a fair deal in public contracts and public procurement, and we continue to reduce red tape.

Most of all, I think you would all agree that the most important thing we can all do is make sure that the banks provide appropriate and consistent access to finance at the right time. That is why Peter Mandelson, Paul Myners and I are here with you this morning. We think this is the key element in enabling small and medium-sized enterprises to grow. Now, in the last 12 months, as you know, having bought shares in RBS and Lloyds, which make up half the small-business market, we asked them to and they did lend 38 billion to small and medium-sized businesses. But some things did not work as well as they should, and over the next year we have agreed a different agreement with RBS and Lloyds. They will provide a total of 94 billion as part of our lending agreement with them of new business loans, and they will provide nearly 50 billion of that to small and medium-sized enterprises.

Now, it is a measure of our determination to achieve these targets, to increase small-business lending, that we are prepared to say also that the chief executives’ pay should be cut if they do not achieve this increased lending. So there is a pressure upon the banks to achieve this. We have asked the UKFI to work with the remuneration committees of the banks to determine the appropriate consequences for executives if these commitments of the customer charters are breached.

But we remain concerned that there are still companies being unfairly denied credit and who feel that they are powerless to challenge the decision. I think you all know cases where businesses have complained to you about the way they have been treated. To help them and to help the economy, Alistair Darling announced in the Budget the creation of a credit adjudicator to hear cases where a small business may have been unfairly denied finance. It will have legal powers to enforce its judgements if it believes that credit has been wrongly denied. I am pleased that Lord Sugar has agreed to lead the taskforce, alongside the outgoing chairman of the Federation of Small Businesses, John Wright, who is with us this morning, and former Lloyds Deputy Chief Executive, Mike Fairey. Drawing on their decades of experience in enterprise, business and banking, they will advise the government on the role and responsibilities of this adjudicator. The taskforce will build on the work that Alan Sugar has already been doing with small businesses and with the Financial Intermediary Service and the banks.

So I have said all along that the banks have to accept their responsibilities. We have done what we can; they have to accept their duty to act in a fairer manner to those people who depend on them. I do believe that they have yet to meet the tough standards the public expects of them. I am angry, I have to be honest, when I see bank executives continue to award themselves large pay and pension increases at a time when the rest of the economy is only just starting to recover from the damage caused by the financial crisis. Many banking customers are justifiably angry.

At the same time, many of these banks remain heavily dependent on the funding, the capital and the financial guarantees that governments made available to avert a complete meltdown in their banks and in the financial system. So what we are trying to do is re-establish a fair balance of risk and reward between banks and the rest of society, between bankers, their shareholders, their customers and the taxpayer. The key question that we are discussing internationally – because this has to be dealt with not just in one country but in all countries – is what is the right balance between the capital that banks hold, the lending they do, the risks they take, and the remuneration of their shareholders and employees, as well as their contribution to the public in tax?

We are proposing four changes internationally. First of all, to implement the packages on bank supervision and bank regulation that we have agreed at the G20. We need a strengthened international capital regime so the banks and their shareholders bear a far higher proportion of the risk of failure in future. Second, we are working intensively over the next few days and weeks to agree common principles that will allow countries to impose a new systemic-risk levy on banks to reflect the cost of government interventions and ensure that taxpayers in all countries get a fairer return from the profits made in the banking system. This follows a proposal I made in St Andrews last year and then a seminar we had in January. We have now interestingly seen proposals that are similar from the United States of America and yesterday you may have seen an announcement from France and Germany that they favour this action. Today, I am meeting the Chancellor of Germany, Angela Merkel, and I believe we can build on the excellent progress we have made and move rapidly to implement banking levies in the key financial centres based on the principles we have set out.

We have to get the right balance also between capital requirements and the remuneration of employees and shareholders, and I do not believe any more that banking can be seen as a special sector dominated by employee interests and exempt from the normal and fair rules of society. We have already made progress here as well.

This must be a time of structural change in the banking system to deliver to small businesses and the people of our country not a one-off response to political pressure. Through our Financial Services Bill, the Financial Services Authority will have power to quash those contracts which incentivise reckless risk taking. Banks will have to disclose more information so that shareholders can challenge inappropriate remuneration practices; bank boards will have to reveal in advance if they are able to upgrade benefits such as pensions for departing senior employees and then disclose if and when they have done so. So people will know in a more transparent way what is happening.

We are also protecting borrowers more effectively with the small-business credit adjudicator. I would like to hear your views on this today and to answer any questions you have about it. Our aim is to deliver a reliable flow of credit on fair and reasonable terms from the banks to businesses and households. I welcome you here this morning. I think we are dealing with some of the most important issues our economy faces over the next year. I congratulate you on what you have done to take your companies through a very difficult time. I believe that we can be optimistic about the opportunities that exist in the world economy in the future, but I believe it is important that we have this dialogue to make sure that the relationship between banks and society, and particularly what banks can do to help businesses flourish, is properly debated and then properly resolved. Thank you very much.

Well, thank you very much indeed, Prime Minister. You raised a whole number of issues there in relation to the banks.

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Speech to business breakfast

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