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Covid, fraud and the future: What are the next steps for British Business Bank? | Bonds & Ballots
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Oct 7, 2024
The British Business Bank shot into the public consciousness through the pandemic when it became a lifeline for businesses around the country. As then-Chancellor Rishi Sunak announced a raft of business support measures, the State-backed development bank was the main channel for billions of pounds of state money to be funnelled into firms around the country. Since then, it has looked to get back on the front foot with a changing role in the world of UK business. As we approach an election in the UK, chief executive Louis Taylor speaks with City A.M. about what the future holds for the bank in this episode of Bonds & Ballots. Get more of City A.M. š š http://www.cityam.com X(formerly Twitter): http://twitter.com/CityAM Facebook: http://www.facebook.com/cityam Instagram: http://www.instagram.com/city_am LinkedIn: http://www.linkedin.com/company/cityam
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0:00
The British Business Bank has been through something like an unwanted rise to fame over the past few years
0:06
Back in 2020, as COVID ripped through the economy and businesses around the country were shuttered
0:11
It shot into the public consciousness as a saviour. It became the key channel by which billions of pounds of cash were pumped into the private sector to help keep businesses afloat
0:22
Since then, it's had to deal with some of the repercussions of that rapid distribution of cash
0:26
and get back on the front foot to get money flowing in to start-ups around the country
0:31
I'm Charlie Conchie Chief City Reporter at City AM here with another episode of Bonds of Ballots
0:36
where I'll be speaking in just a moment to Louis Taylor, the chief executive of the British Business Bank
0:41
to get his thoughts on the government, on Westminster, on the Chancellor's upcoming budget
0:45
and hear what the future might hold for the bank. So let's go in here what he has to say
0:55
Well, Louis, thank you very much. having us into British Business Bank HQ on a rather cold February morning early on
1:02
I wondered if we could just start with a bit of a big picture on the British business
1:06
bank. I think for many people who sort of shot into the national consciousness through the
1:11
COVID pandemic, distributing many COVID loans to small business around the country
1:15
Obviously now playing a slightly bigger part in equity investment, getting pension money into
1:19
startups. Can you just take us through, I suppose, where the British Business Bank is now
1:23
compared to where it was, say, four years ago and what that role changed? has looked like. Great. Well, look, thanks, Charlie, for having me, talking about my specialist subject
1:32
right? So the bank set up around 10 years ago, coming up in November 10th anniversary
1:39
the National Economic Development Bank, but really with a mandate to make sure that small
1:43
businesses had access to the finance they needed in order to start up, scale up, and to thrive
1:48
And initially, the bank was very focused on broadening the sources of finance for small
1:53
businesses. You know, seen a range of challenger banks and alternative finance providers who
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sprung up over the last 10 years, whilst a lot of entrepreneurial capital was behind that
2:02
The bank was also very instrumental in helping those businesses to establish themselves
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Five years ago, almost six, the Patient Capital Review resulted in British Patient Capital
2:12
being set up by our commercial subsidiary investing in venture funds. And there have been a range
2:18
of other add-ons in that regard. You talked about COVID loans, so the bank
2:23
does deliver when government needs us to. And most recently, we're moving more towards attracting more UK institutional capital
2:32
into early stage companies, growth companies. Last thing to say, I think, is that we have just recently redefined our strategic objectives
2:42
We're there to drive sustainable growth, which largely will be through our debt products
2:46
We're there to back innovation, which largely will be through our equity products
2:50
we're also there to unlock potential, making sure entrepreneurs get the finance
2:55
They need whoever and wherever they are. And lastly, we're helping to build the modern clean economy
3:02
and helping SMEs to turn green and reduce their emissions. So it's shifting, I suppose, slightly from a defensive footing
3:09
emergency footing through the pandemic, into slightly more positive getting money flowing into start-ups now
3:14
I hope it's more than just slightly more positive. But actually, I mean, the COVID response is something I think the bank can be very proud of
3:20
but I think most businesses were somewhat distracted, if not derailed, by COVID
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But, I mean, we're through that now, and the economy's got to look forward, and the bank is working with entrepreneurs who are future business leaders
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If we just go back to the COVID loans for a second, I know there's been a lot of political pressure about the way that those were
3:40
distracted businesses. There's been concerns over the amount of fraud that perhaps did come up through those loan schemes
3:45
How much of that sort of blowback from that fraud is now
3:50
taking up your time? Do you see huge amounts of fraud still in the business, loans that
3:54
were distributed through that time? So look, I think there's a real distinction between putting the loans on and now dealing
3:59
with them because all these programs are closed, their legacy programs. So the risk and
4:04
the fraud we've got is what we're wearing, but, you know, there's not incremental loans
4:09
being made. I think that, you know, there's been parliamentary inquiries and all the rest of
4:14
into how the loans are made. The bank is focused now on maximising the benefit for the taxpayer
4:19
We done two evaluations of the schemes over the last two years during which it been clear that up to 650 businesses and around 3 million jobs were saved by the schemes
4:32
Balance that against the fraud and other issues, over time we'll see what the real value
4:37
for money of those schemes was. But the important thing is we've got a future focus on these schemes ensuring we get
4:43
most value, not only from ensuring we don't get the guarantees that we gave called on
4:48
but also, more positively, future fund, for example, where there are some really great companies in there
4:54
and getting the value back. So the fraud in a way was almost a necessary evil
4:59
for the speed and scale. I wouldn't say it's a necessary evil
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but my predecessor, Keith Morgan, absolutely said this is going to happen if we go ahead
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Ministers were in full knowledge, and the decision they took was to go ahead, which I am not saying in any way was wrong
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And as I say, over time, the value for money of those decisions will become clear
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but the initial signs are that a lot of businesses, a lot of jobs were saved by rapid action
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and the rapid deployment of these loans, even if there was some fraud. And on the fraud, you know, the potential fraud is huge, but the actual fraud is going to be a lot lower
5:32
because quite a lot of the fraud was people obtaining loans that are bigger than they otherwise should have got
5:38
but the loans are performing and there is no loss. Or people saying they were directors of a company before they were in order to get a loan
5:44
but the loan is performing and there is no loss. So fraudulently obtaining a loan, but no loss for the taxpayer at all
5:51
Okay, so positive fraud in a way that we're able to... Well, no, I mean, it's up to the investigatory authorities
5:56
how they want to deal with all of that because the law's been broken, but there's an argument for saying that in a lot of these cases
6:03
if you pursue people for the fraud, then you'll precipitate the very outcome you don't want
6:08
which is a non-performing loan. The interest of justice have to be served as well
6:12
If we do just come on to the wider business landscape at the moment, that was obviously a time of huge distress for small business
6:17
businesses around the country. Do you see comparable effects now? We've obviously been in a period
6:23
of massive inflation, rising costs, a lot of businesses going under. Are there sort of effects
6:28
even though the causes might be different, the effects similar amongst more businesses? Is it still
6:32
very bleak when you're out there talking to small businesses at the moment? It is not very bleak at
6:38
all. And actually today we are just launching our small business finance markets report
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which gives a kind of assessment of finance and small businesses over the last year
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And there's some really interesting stats in there. I mean, nominal bank lending is down
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but the Finance and Leasing Association has asset that finance is significantly up
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These of credit cards, probably up a bit, number of borrowers or percentage of small businesses that are borrowing up a bit
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And I think that does reflect some stress in the economy, but actually their ability to find the financing shows the resilience of business as well
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which I think has also been made very clear in the results of the big banks that came out just last week
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So, you know, there's never an ideal time for business. I mean, there's always challenges
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I think everybody who recognised there have been some economic challenges over the last
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couple of years, rising interest rate environment, inflation being high. No question about that
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Business resilience has been very strong, and although insolvency has gone up, I mean
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not to an endemic level. I think actually it's been pretty good
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The last thing to say is that, you know, the Challenger banks represent
7:46
centred 69% of all bank lending, not the big five. So the majority of bank lending has come
7:54
from those challenger banks. And in terms of equity provision, although we're down at levels
7:59
last seen in 2020, 2020 was pretty good. 21, 22, extraordinary years. And whilst, you know
8:07
numbers are down from there, in the environment's pretty good. Just coming on to the wider picture
8:11
again, you're obviously in regular contact with government, we're coming into a big crunch two
8:16
weeks now, budget next week. What are your conversations like with the Treasury at the moment
8:20
Are you sort of pitching? What would you like to see in that budget next Wednesday when Jeremy Hunt takes
8:24
to the shares? Well, look, I mean, I think in terms of the bank, we got a huge boost from the
8:32
Chancellor at the Autumn Statement, where, you know, something that I've been pushing for
8:37
which is more permanence of capital, flexibility to respond to the market and independence of
8:43
decision making on commercial decisions. That kind of came through with the Chancellor turning seven billion pounds of capital It was already committed but it was not recyclable We had to give it back to the Treasury That is permanent capital for the bank
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It is flexible. We can choose which programs have put it into
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So we've got plenty on our plate in addition to the growth fund that the Chancellor has asked us to look to create
9:06
which would be for DC pension money to invest alongside our commercial programs and to invest in the growth economy
9:14
So can you take us, because the DC pension debate has become such a sort of hotly debated political topic over the past couple years
9:21
is getting more pension money into productive assets, into growth start-ups. How far along are you with those plans now? Are you seeing the appellate there from the pension money managers as well
9:32
Can you just take us through what the progress has been like? Well, look at this from two lenses. Clearly the government wants to drive economic growth and wants to find a pool of capital that can invest
9:41
But from the pension fund pensioners side and pension fund members side, they won't have exposure to growth assets because it potentially can lead to higher returns and their pension will be bigger and they help support the economy that is going to employ their children and their grandchildren
9:57
So there's mutuality of interest here is the contention. In terms of what we've got to, we have a great track record over the last five years of building up a lot of positions in venture and growth equity funds, particularly
10:11
given exposure to our 1,200 growth companies. And that makes us quite a good vehicle for DC pension funds to look at and say
10:19
well, actually, that's quite a sensible entry point for us. It might give us diversification
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That is, your biggest risk mitigant for investing in risky small businesses if you've got a
10:29
broad spread of them. And actually, if we're investing in a broad range, then we could write a single big check
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So rather than many, many, many little checks. And by the way, all of that due diligence on those opportunities, that's kind of being done for
10:41
in a sensible way. So we're trying to create this vehicle. It's going to take us 12 to 18 months
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I think. We'll need to get regulated. But what is a myth out there is that pension funds are
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not interested in growth assets. I mean, not all of them are shunning or, sorry
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or kind of clamoring to get into venture capital. Even those who are really interested
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it'll be a small allocation. It'll be a single-digit percent of a, of a venture capital. an overall pension plan
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But nevertheless, this is important. And so there is interest out there
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Are we seeing sort of a shift then in the tone of that debate
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Because I think initially there was some skittishness when it was brought up, the idea of the retirement money
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going into perhaps slightly brisky a bet. Do you think there is a sort of change
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and more nuanced understanding now around what that actually means? I think we've still got a long way to go
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But I think that it's very difficult to get everybody to be an evangelist straight away
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And actually we don't want that because if suddenly everyone's an evangelist, there'll be too much money chasing the market
11:44
I think it needs them, you know, it's been a 25-year de-equitization of pension funds
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It's a 25-year re-equitization, I think. We have to do this sensibly
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And, you know, it is the case that in the US, about 72% of venture money comes from pension funds
12:01
whereas in the UK it's 10%. In Canada, the pension funds invest 15 times what UK pension funds invest in private equity
12:09
and venture capital. And in Australia, their DC pension schemes have over 20% illiquid assets
12:17
a range of illiquid assets. And that's been the most successful DC program in the world
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generating over the last 20 years 11.3% IRA. So, you know, there's quite a lot of examples out
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there of what we could be seeing here. Not everybody is convinced. I think the political
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spectrum is pretty united across it. I think public private sector match. I think there's some
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really strong positivity in the private sector, but by no means everybody, there are some real
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skeptics out there. I want to just come back to your interactions with government, because I think
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when we've spoken previously, you talk about British Business Bank being a value maximiser
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and the government perhaps being a loss minimiser. And do you still see that as a tension in your
13:00
discussions with government? Do you think that hinders the debate at all? Well, look, I think that
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that both crude characterisations and I said them so my crude characterisations I agree with that But it not improper that those different lens of or different lens have different lenses Is there attention Of course there some unlimited attention You know
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we'd love unlimited resources, but that's not going to happen. Over time, we'd like unlimited
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resources. But look, I think government has been incredibly supportive of the bank. I mean
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this government established the bank. I think that they backed it. British Patient Capital
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has been very successful and as a consequence of the first stock
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take of British patient capital after five years. As I said, the Chancellor turned the money
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into permanent capital, recyclable, accreting, and kind of got behind this concept of
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well, is it a sovereign growth fund? I'd argue that potentially it is a sovereign growth
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fund. Not a wealth fund with a broader range of assets, but the growth end, that's what we
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might become. And you did, you know, you mentioned there that this, the British Business Bank was set up by this government. You're now having to play perhaps a slightly more delicate
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balancing act, potentially an incoming Labour government. Are you seeing good back and get engagement with the Labour side as well, what your discussion is like with
14:15
Kirstama's party? Well, as an arm's body, we are allowed to talk to the opposition and we have
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engaged with them a little. We're allowed to listen to what they're thinking about and we're
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allowed to give them information about the bank. We're not promoting policy to them. But what I think is
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that the bank is fundamentally an organisation that delivers policy outcomes through commerce and investment
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and that is something that any government coming in to Westminster towards the end of the year
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or whenever the election is need. Every government or whatever they colour they are has a growth issue
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And we're part of the growth economy. We're part of the solution to driving more growth into the economy
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And so actually the agenda that we're working on, we think is pretty apolitical
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You can amp it up, amp it down. It's a national economic development bank, which is what we are
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you can get a maximalist view like KFW or a more minimalist view or anything in between
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So I think that there is some scope for a new government, whatever colour, to change the mandate
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of the bank a bit. But I don't think that anybody's thinking this is not an institution
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This is an institution we don't need. So change the mandate of the bank a bit, any signs of what that change could look like then
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Is that just an idea? Well, at the moment, you know, I mean, we have money to go into equity investment up to sort of series B
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We've been in a few larger rounds, but not in great scale
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I think the opportunity is there if government wants to help us to invest at later stage
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although the growth fund that we're thinking about setting up at the moment, the chances us to look at
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That too, using private sector money will help to fill in that gap where UK companies want to raise 100 to 200 million pounds
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and actually doing that out of UK institutions at the moment is really very difficult
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and it's US venture funds predominantly that are filling that gap and taking these great companies back to the US
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where they gravitate towards where their capital came from. And that just at the time when they're becoming economically interesting
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for the UK economy, we've got to kind of stop that and that's what the bank is there to help do
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And then finally, you know, big year ahead, probably slightly tumultuous year ahead for all the Westminster goings on
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if we would have this conversation and say 12 months time, what would you have liked to have ticked off the list
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you've just laid out there? Where would you like to be in a year's time? Well, look, I think that whatever government of the day is there, where I'd like the bank to be is very close to, if not having received regulatory approval on a vehicle to help pension money go into growth capital
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I'd like to see our startup loan scheme carrying on. I'd like to see our nations and regions investment funds thriving
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I'd like to see our regional angels program continue to deliver great results in the regions of the net
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the nations of the UK, on the raft of things. There's a lot of upside here
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Busy year ahead, then, West Landsberg. Louis, thank you very much to join us. Thank you, Charlie
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Louis said that on what the future might hold for the British Business Bank
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and how he'll be navigating some of the turmoil to come in Westminster in the months ahead
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Will he get his wish this? Will pension money be flowing via the British Business Bank
17:26
into startups by the end of the year? Let's know what you think in the comments below
17:30
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