ARTICLE...
Could the Government Really Help?
In today's political climate, one man stands head and shoulders above the government. He heads up one of the biggest departments and he has almost single-handedly pushed through some of the biggest reforms the modern consumer and commercial credit sectors have ever seen.
However, the irony is that this man isn't the prime minister or the leader of a political party. He is however the consummate political survivor and the 'king of spin'... Peter Mandelson.
Mr Mandelson has been an imposing figure in recent months, becoming secretary of state for business, innovation and skills, first secretary of state and lord president of the council as part of June's cabinet reshuffle.
Despite previously being his fiercest opponent, Gordon Brown has found a close ally in Mandelson, who has taken on the credit crunch with gusto, spearheading the revival through a number of initiatives.
An example of this is the £1.3bn Enterprise Finance Guarantee Scheme, which aims to support bank lending, of three months to 10 years maturity, to UK businesses with a turnover of up to £25m. This would allow them to access the financing they need but can find difficult to access, enabling them to secure loans of £1,000 to £1m.
Just last month, he was also at the heart of a move to backdate the scheme to provide top-up credit insurance to businesses to include those firms who have suffered reduced insurance cover since October 2008. Previously, this service was only available to businesses with cover reduced from April last year.
Mandelson explained: "This extension will give more small and medium-sized businesses flexibility to respond to a reduction in their credit insurance cover. We want to deliver real help which targets real need to businesses facing collapse because of the credit crisis.
"I want to make sure that when we intervene, we intervene in a way that is really effective, really targets genuine business needs in a way that gives value for money from the government and the taxpayers' point of view, and is genuinely going to help businesses in what is a very difficult credit situation. We are not proposing to offer irresponsible blanket guarantees for all business lending."
Meanwhile, on the consumer lending side of the industry, he has generally dealt with the lenders fairly and he has also been eager to understand their points of view concerning the current difficulties and possible solutions.
He added: "I know there is a lot of anger in the real economy at the claim of the banks on state assistance and the scale of the hole the taxpayer has been required to mend in the banking system. But the reality is that without the machinery of credit there would be no functioning economy at all. Unless we fix the banks, we will not properly fix anything else.
"We are doing everything we can to address the credit problem - we have recapitalised the banks, we have agreed to underwrite £20bn worth of credit lines and lending and tailored a package of bank measures that will start to get bad assets out into the daylight and help lending flow again. We are working intensively here and in Brussels to ensure that these schemes are transparent and fully operational as a matter of urgency."
However, despite the carrot, there is also the looming threat of a big stick, such as when Mandelson told reporters in January this year that the 10bn injection for the banks represents a 'guarantee to enable them to free up working capital to sustain existing loans and create new ones'.
He was crystal clear that this was condition of the funding - that banks would negotiate with the government on what capital would be freed up and how they intended to get back to lending as normal.
He added: "One thing I do know is that you cannot rely on one initiative, one idea or one policy instrument alone. That is why the government has worked to re-establish the banks and get them behaving like ordinary mainstream banks again and also helped businesses through helping their cashflow as the government has done by introducing a prompt payment limit of 10 days payment for all government bills."
But he insists that a state-owned banking sector would have a negative impact on the industry and the wider economy in the long term.
He said: "There is still a risk that in trying to rescue parts of our banking systems and industrial base we effectively start to renationalise parts of the single market, which would be a huge mistake for innovation, enterprise and growth in Europe."
And Mandelson believes that it must be the national governments who lead in developing these situations, because it is ultimately their taxpayers' money that will foot the bill. But, again, he feels measures that push for further government interference or otherwise jeopardise the single market would be a mistake.
He added: "The credit crunch is a wake-up call for governments, regulators and for the financial services and banking industries to do things better, not fundamentally to re-invent market capitalism. It is a wake-up call for anyone who ever took on a debt they could not handle or bought a financial product they did not understand. It is a warning about the costs of bubble-thinking and short termism in markets.
"But these arguments do not trump the case for open economies or market capitalism. They challenge us in government to manage globalisation, maintain social stability and keep the state to a reasonable and affordable size."
Mandelson has also been prepared to put the pressure back on the industry, where and when he feels it is required. And, even as the crunch began, he was quick to threaten credit card companies that did not pass on interest rate cuts to their customers.
He explained: "We have a very tough consumer watchdog - the OFT - and I will have no hesitation, if these companies do not step into line and start treating people in a fair, responsible, consistent way, to ask the OFT to look into their practices, report to me and then I will be able to take even further action."
He even saw fit to take on the might of the Bank of England when he felt their policies were damaging the flow of credit to the ailing car manufacturing industry.
He said: "I wish our discussion with the Treasury and the Bank of England - and it is the Bank of England that is in pole position on this - had gone quicker than they have. I readily acknowledge that.
"I would not say that the Bank of England was holding this u, I would not put it in that way, no, because they are our colleagues and they are doing their best to find the right way. But I can assure you this is a very complex area.
I am not going to get into a battle of words with the Bank of England. But the recession is really hurting the economy and it is perfectly reasonable for the business secretary to speak up for the needs of business during these tough times."
However, he also knows that he is in a position of control and holds the responsibility for ensuring trade keeps flowing and that suitable finance is in place. He has also acknowledged there is a crucial need for continued public action to ensure sufficient flow of trade credit.
It is a different world from his work as an economist and TV producer - and further still from his childhood in Tanzania.
However, with a proven history of surviving as 'the political chameleon', Mandelson may have just fond his true colours at the heart of the credit industry.
Original article courtesy of CCR. For further information visit www.ccrmagazine.co.uk
