Q4 Mr. Dave Anderson: May I pick up on a point that Tony made? Will he get us details of where people have given up so that we can be more specific about how we address this, and will he tell us the reasons why they gave up?

Tony Sarginson: Sure.

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Q24 Mr. Dave Anderson: You made the point that things do not seem as bad now as they were. Is that because your members could have given up trying? Six to nine months ago, ridiculous criteria were placed on us. All of a sudden, people are not knocking at our door. I wonder whether they have just given up and gone home, or is it actually better than it was?

Simon Hanson: I do not think that the conditions have particularly improved. There are signs of optimism. A lot of our members have said that, over the past six months, things have been made less worse. Perhaps a lot of our members are giving up because they are hearing such horror stories. Even Business Link is saying that we can change the funding around in a certain period, and three months after that, they can still be waiting to find the finance.

Sarah Green: Our latest access-to-finance survey shows that existing and new credit is continuing to deteriorate further. However, the rate decline becomes less. It is not getting any better in absolute terms. There are a number of issues, such as the direct finance costs, the indirect finance costs, the costs of getting the loan, the arrangement fees and the terms of the loan. Specific issues, such as trade credit and insurance are adding to finance pressures, but the reality is that we just operate in a very different world.

There is a short-term transition that will be very difficult. We need to be looking at different models if we want to finance business, particularly medium-sized business, in the longer term. We have put forward a new form of ICFC model. There is a real role for everyone to look at the swap between whether debt is the way forward or whether we should be looking at a more equity-based model. There is a communication and a consultation role in that respect, because if we are to move our business models significantly and our culture around investment, that will take a broad awareness. It is not something very familiar to businesses, particularly in the north-east if we consider equity investment in business, as we have relatively low private equity investment and so on. It will therefore be a big cultural shift for the north-east.

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Q34 Mr. Dave Anderson: I would like to make one point about the last debate. It doesn't need to be a choice between us, Yorkshire and Scotland-it could be all three. We don't want too many eggs in one basket. We have a specific kind of basket up here that is probably better than many-Denis mentioned the aquifer. What is the current skills need in this region and have we got enough skills to maintain the growth that we all want? If not, what do we do about it?

Sarah Green: It is clear that, as we move into new industries, we shall have to reskill and ensure that people have different skills. That is one reason why we need some clear messages about what our region's priorities are. We need to be talking to young people in schools to ensure that those industries are attractive to them. We need to ensure that we bring through young people with the appropriate skills. It is clear across the board that, whichever industry you go for-this is equally the case with the current industrial mix-we need more STEM skills. We need to look very clearly at that in our schools. This week there were announcements on the number of children taking combined rather than single sciences. Those sorts of issues are critical to our region. They sound quite simple, but we need to solve such issues, because they are having a dramatic impact.

Tony Sarginson: I would like to make two fairly different points. In the world of apprentices, engineers in manufacturing companies need more apprenticeships. Again, David, we were getting there. Nine months ago, the mood music had changed. For the first time, in some companies, people were starting to think about apprenticeships, but with the downturn that has stopped. In fact, there is a grave danger that many apprentices will find themselves in limbo, which is a great shame. We need to look after them. However, I am fairly confident that when we get through this period, apprenticeships will come back again.

Even now, in the downturn, there is still a chronic shortage of higher engineering skills in this region. Design engineers, project managers and any leadership-type engineering people are in real short supply in this region. One initiative on which I am working with the development agency is its "Passionate People, Passionate Places" campaign. The next round of images and so on will be directed to young people who have carved out successful engineering careers in this region. They will feature. That is all part of the need to attract and retain the talent. Our universities turn out great engineers, but they leave because they do not think that there are the opportunities.

Sarah Green: And they also leave because they leave engineering. They go to finance and so on, so there is a role as well around the image of all these new industries, which presents us with an opportunity to redesign what young people see as attractive and to make sure that happens.

Simon Hanson: From our perspective, obviously there is that focus on the need for the higher level skills, but there are also the problems with basic skills. A lot of our members say that the school leavers that they take on do not have the basic numeracy and literacy skills, which can seem a bit of a whinge from small businesses. But if they happen to then retrain after 11 years of formal education, and it is about getting those basic building blocks for a lot of our members in place, as well as looking at the new industries that we can create, the big concern that a lot of our members have if they want to reskill their employees or take on skilled employees is where do they go for the information?

I know I seem to have banged on a bit about the need for clarity and information, but certainly at the current time, with the demise of the Learning and Skills Council changing into the Skills Funding Agency and local authorities getting control over some funding streams, there is massive confusion now. I think an Innovation, Universities, Science and Skills Committee report said that there were only a few academics and Whitehall civil servants who actually understood what the system looks like now. If you try to get that down to some of our members with five members of staff, or even two members, or sole traders, they have not got the time to trawl through a whole load of skills websites to try to find some funding.

I think that there needs to be a bit more clarity as to where to go for the funding and what you can get, but almost to step back from that and, rather than just focus on funding all the time with all these areas, actually sit down with a lot of businesses and find out where they want to go as a business. The funding should come in last. It should almost be, "Where do you think you can go as a business? What more can we do on mentoring?" and things like that. Then we can have a look to find the relevant funding after that, rather than always chasing the funding first and then thinking about the rest afterwards.

On the formal education, I think a lot of our members would prefer to see informal, non-accredited short courses that could be done that are not at the behest of the timetables of the colleges, so that they can be a bit more flexible and responsive.

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Q36 Chairman: We will end on that very serious note. We are getting to the end of the session. We have some serious questions about infrastructure. Both Denis and Phil will take on these questions. There are loads more, as you can well imagine. We would have liked a rather more in-depth discussion with you about apprenticeships and the way in which our economic lives are being shaped. Unfortunately, time is beating us. Unless you have a last throw of the dice, I shall say that this has been an excellent session for us.

Simon Hanson: I have one general point. A lot of our members are reporting, with regard to the circumstances in which we are living, that there is a massive focus nationally on the expenses scandal. Our members are saying that this has taken people's eye off the ball. A recession is still going on out there.

Mr. Dave Anderson: A lot of us are saying exactly the same thing.

Simon Hanson: I appreciate that. Again, this is not meant to be a criticism in any way, but there seems to be a focus on personalities, Cabinet reshuffles and the like when realistically businesses are still going to be there, pre and post whoever is in, out and shaking it all about. I just think we need to see a better focus now on the economy, rather than the expenses scandal and the like.

Hon. Members: Hear, hear.

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Chairman: This afternoon, David Anderson is going to start the questioning. We will rattle through quite a few questions, we will get to where we get to and then we will ask if we can re-establish this session.

Q38 Mr. Dave Anderson: Good afternoon, nice to see you all in different circumstances from normal. What do you see as the biggest economic challenges facing us in the north-east, compared with other regions?

Kevin Rowan: There are long-term challenges and immediate challenges. The region has faced 50 years of structural change and is still in the process of trying to respond to those long-term structural challenges. We have gone from a world-leading region in manufacturing and primary industries to a much more diverse economy, but probably still not as diverse as we would like. Those long-term challenges of restructuring our industrial economic base are still important in the region and we need to keep our minds on those long-term economic industrial trends and changes.

The immediate challenges we face, not within the economic recession, but within broader economic conditions that are exacerbated by the recession, are things such as low productivity, low participation rates and a relatively ageing work force. One of the key challenges we face is that our brightest and best, youngest people tend to find opportunities outside the region more than they find opportunities within the region. Finding a hook to keep them here-an economic platform that is diverse and interesting enough to keep them here and that they are aware of-is a fundamental challenge. We obviously have the highest rates of economic inactivity compared with other regions, which is a long-term problem which we had started to see some progress on before the recession bit, but it is still a huge challenge in the region. Allied to that, there are pockets of severe deprivation, with the long-term impact that that has on health, opportunity and aspiration. Those are fundamental challenges for us.

There are different challenges with the skills prospectus. We still have significant skills-for-life challenges. We do okay on intermediate skill levels, but people are leaving school without the skills that we would want them to have. On higher-level skills, too, we face some quite fundamental challenges. It is also important that I highlight transport as a major economic challenge for us. Across the region, local authorities, the business community and ourselves would all say that we have some fundamental, significant transport challenges in the region and in terms of connecting to markets and connecting internationally. That is a very short answer, but that is my assessment of the key challenges.

Chairman: That is very valuable. Davey, do you want to pick it up from there?

Davey Hall: No, I am waiting for another question.

Chairman: All right. Julie?

Julie Elliott: No.

Chairman: That's okay. Gill?

Gill Hale: I'm fine.

Chairman: Hey, we'll invite them again.

Q39 Mr. Dave Anderson: May I follow up one specific point about skills? When we talked earlier to colleagues from the private sector, they clearly recognised that when their members face tough times, one of the first things to go to the wall is training and skills. What do you think is happening? What should we do more? What support are you getting from bodies such as the RDA? Could the public sector play a bigger role in closing the skills gap?

Kevin Rowan: It is not a simple answer. In the region, businesses and individuals are investing more in skills than they ever have, and the same is true of public sector investment in skills. That is very welcome, and the commitment of employers and individuals in the public sector is hugely important, but employers are still identifying skills shortages as a constraint on growth, which is a challenge for us. Some individuals still do not have the skill sets that they need to progress using the opportunities that are here now or those that we will see in the future. There are particular challenges in terms of different skill levels. So the region still faces a huge challenge in terms of basic skills, although we have made a lot of progress in the past 10 years. We still face a huge challenge-it is probably a bigger challenge-in getting people up to level 4 and level 5 qualifications and higher-level skills. So participation in those areas is quite important.

On public investment, it is interesting that the Train to Gain route to skills through the employer has been an important catalyst in getting on board employers who were not previously on board in skills development. It is a shame that it often took a recession and downtime for workers for some employers to think about investing in skills. There are still issues around skills demand where public sector investment can lever in an increase. We would also make a broader point about the demand-led model in skills. If you rely on employers alone to articulate their skills needs, and then facilitate training on the back of that, there is a chance that you will miss future economic opportunities. So we would be inclined to support a demand-led skills infrastructure, but it should involve demand from different sources, and future opportunities-future economic potential-should be one of the factors influencing demand, not just what employers say they need now and in the short term.

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Q54 Mr. Dave Anderson: Good afternoon, folks. Would you say what you think is the state of the north-east economy at the moment?

Simon Lenney: For the record, my name is Simon Lenney and I am the corporate director for Barclays bank in the north-east. I look after the small and medium-sized enterprises market with a turnover of £1 million and above, with other members of my team taking up to 40 to 50 businesses.

As far as the north-east is concerned, the economy is experiencing very tough and challenging conditions. There was a weakness in the opening quarter of 2009 and we certainly expect to see production fall by around 9 per cent. this year. We remain fully committed to the north-east, which is a very important region for the bank. We are there to support our existing customer base, which is experiencing some very difficult issues at this point in time. One of the main issues at present is that a lot of the customer base, particularly in manufacturing, is making some very reluctant cost savings by way of labour reduction, and is not actually sure if the cut is deep enough at this point in time. The one word that I would wrap around everything is "confidence", because there really is a lack of confidence in the marketplace.

Chairman: That is valuable. Again, your words are not surprising. I think it is going to take us a couple more years. Slowly but surely, you can see the confidence getting better.

Simon Lenney: The decline is slowing, which is very encouraging. The manufacturing sector is certainly beginning to experience that, and de-stocking is actually playing a part now. People have de-stocked and you would hope that production will impact on orders going forward.

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Q84 Mr. Dave Anderson: In the discussion that we had with colleagues from business earlier, they we were saying-particularly about the development of carbon capture and storage-that they did not think that there was finance in this region to facilitate that. What is your view on that? If that is true, what do we do? Some of us are committed to making sure that it happens here-we have natural resources that nobody else has.

Simon Lenney: Carbon capture and storage is an embryonic process, which by definition dictates the need for capital, and that goes back to what we are saying before about the long-term need for investment. Fossil fuel power and labour must come to the fore. Denis, you mentioned in the first session that the Government won't allow another coal burner without capture and storage facilities. Finance, I believe, will have to come from the private sector as well as Government, but it will also come from the utilities that will benefit from it. Essentially, they will put themselves in a better position, with a cleaner footprint, if they deliver on further investment in the process. You could ask where the banks want to sit on that. The utilities will obtain all sorts of funding, and no doubt there will be some bank funding on the back of that as well, but essentially it must come through the utilities.

Craig Iley: The only thing I would add is that I think the Renewables Obligation Credit scheme is very important in how it evolves going forward. I agree very much that renewables and clean energy generation are important in Teesside. We have a number of attributes down there that, quite honestly, leave the rest of the country standing. I am thinking of things like access through the port to ensure sustainability of supply and the upgrade that we had at the pylons into the grid not too many years ago, which caused a little bit of a stir. We have access to the grid. Some companies are quite advanced in getting access to the grid ready; there is quite a long lead time. On a political level, that might help the process along for energy generation. That is not something that you can sign off on locally in terms of planning; I believe that it needs to go to central Government.

Mr. Murphy: It depends how big it is.

Craig Iley: If we are designated as an eco-energy producing environment, the north-east might perhaps gain some kind of exemption, which could speed the process up. If the Renewables Obligation Credit scheme is overhauled, that is a key part of proving viability. As Simon was saying, the sooner that we get from embryonic technology to proven technology and viability, the sooner that it opens up access to all sorts of capital, from the capital markets all the way through to debt financing.

Q85 Mr. Dave Anderson: It is a bit chicken and egg, isn't it? Somebody somewhere is going to start putting something in to prove the technology. What we need to know from you is whether you will be there supporting the companies.

Simon Lenney: It goes back to the viability of the business and whether its cash is well balanced. Is it a form of equity? Is it a form of long-term bank finance? If you prove viability, the banks will have a look at it.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here.

Promoted by Paul Foy on behalf of Dave Anderson, both of St Cuthbert's Church Hall, Shibdon Road, Blaydon, NE21 5PT