§ 8.22 p.m.
§ Mr. William Clark (Nottingham, South)Having presumably finished with transport, I thought that it might be a good idea to talk about the future of small businesses. It is a long time since the House debated this specific subject. In the hurly burly of politics some politicians are inclined to overlook the problems and fears of small businessmen.
There are about 400,000 small companies in Britain. Probably 300,000 of them are actually operating while the others are dormant. At any rate, hundreds of thousands of small firms are not incorporated, but are one-, two-, three-man businesses, particularly family businesses, many of which are known to hon. Members, whatever their constituencies.
Small businesses cover many industries. There are obviously a number in the service industries—food distribution, retailing, transport, building, and so on. Many of them are situated in small factories. Many are small manufacturing businesses, either for export or making component parts. Most of them give a personal service and this is particularly true in the retailing business.
It has been said that we are a nation of small shopkeepers. I prefer to say that we are a nation of small businessmen. This has been the basis of our economic success over the last 100 to 150 years. All businessmen, particularly the small ones, have their worries. Businessmen in the retailing trade were particularly worried in 1964—although their fears started long before then—with the great upsurge of supermarkets. At that time the small retailer thought that he would be squeezed out by the supermarkets. This has not happened. The small retailer is still in business.
More fears were expressed with the passing of the Resale Prices Act, which my right hon. Friend the Leader of the Opposition introduced in March, 1964. This Measure caused considerable fears, but the proof of the pudding is in the eating and retailers have not been put out of business by the abolition of price maintenance. I mention, in this connection, that the present Government 2211 have something to be thankful for in that Measure, because to a certain extent it has kept down the cost of living. I have no doubt that in the coming weeks the party opposite will make all that it can of that, but it should be remembered that it was a Conservative Measure that brought this about.
In speaking about small businesses, particularly small family ones, it should be understood that they are part of our economy and the backbone of the country. The people who run these businesses are efficient. They must be, or they are squeezed out of business. Obviously, the small businessman, with all the competition he must suffer, must be hard working. He puts in long hours. He must be inventive. He cannot possibly have a monopoly in anything because there are so many small businessmen, all of whom must be progressive. The penalty for not being all these things is losing money. This makes the small businessman, who does not have huge reserves behind him, efficient.
We are discussing the private enterprise of our nation. No Government can legislate for prosperity, but the Government can set the scene whereby prosperity can come about. This is the nub of the problem. Small businessmen accept that they must be competitive and no Government should do anything which could harm the small businessman, and here we come to the legislation of the past 16 or 17 months.
The April, 1965, Budget really hit the small businessman, particularly the small family businessman, because most small companies are close companies. And, as such, under the 1965 Finance Act most close companies had very penal regulations and restrictions placed on them from the taxation point of view. The criticism from this side was that the application of Corporation Tax had not been thought through to the bitter end.
The small companies—assuming that they are close companies, which most of them are—are owned by what are known as participators. A small business that is successful and is making a fair profit is put in a ludicrous position. When I speak of a small business, I am not thinking of the one-man business, but of the small close company that employs 100, 2212 150, 200, or 300 men. Such companies are the backbone of our manufacturing potential. Yet we have the ludicrous position that under Corporation Tax the distribution of profits is made really penal.
The Minister of State may reply that the same penalty existed under the old taxation system with the so-called Surtax company, but I would remind him that the Surtax company regulations were not really as stringent from a distribution of profits point of view as is the present Corporation Tax. It may be argued, "All right, if your close company is being hit, form yourselves into a partnership." I hope that the Minister will not mention that as the answer to the problem, because he knows as well as I do that borrowing can be more easily done through the auspices of the limited company—where one can offer debentures, perference shares, or whatever—rather than through a partnership.
Many hon. Members on both sides have great experience in business. It is known that many of these small family companies get their own capital through their families, and these are participators. I just cannot understand why, under Corporation Tax, when a family business borrows money from a director or a participator at a true commercial rate of interest—no high interest rate or anything like that—it is not allowed for tax purposes. That is hitting small businesses.
There are other methods of borrowing money. One can borrow by the issue of preference shares giving a fixed rate of interest. If it is a cumulative preference share, where the preference shareholder does not necessarily share in the equity of the company, it is tantamount to saying that it is a debenture to say to a small businessman, "If you hold preference shares or debentures in your company, the interest on them is not considered to be a charge, but as a distribution", and there is penal taxation on it.
The small family businessman must go outside his sphere of participators and outside his sphere of directors and borrow from an outsider. Is this good enough? Why should we, with our taxation legislation, force family businesses—which have the money available to them from their own participators—to go outside for their finance?
2213 Another thing that has hit the small businessman is the investment incentive. I shall not make the party point that the investment incentive is worth about £100 million less than it was before the April, 1965, Budget, although that is correct in fact. The Minister of State may recollect that under the old system the cost of the investment allowances given was £320 million, and under the new system, even with the cash grants, it is about £225 million. These are the best figures we can get, as I understand that they came from the Treasury.
Many of these small businesses are in the service industries and the distributive trades, and are not eligible for the cash investment grant. This is extremely important in the tourist industry. My constituency is a tourist visiting place, and an excellent place to go to, but the tourist industry throughout the country, and particularly in the seaside resorts, is being hit very hard indeed because of the non-availability of the cash investment grant.
Most people in our tourist industry are small businessmen—with a small hotel, restaurant, or the like. These are the people who have been hit by the legislation we have had over the past year or so. Many of my hon. Friends who have spoken in debates on investment incentive and on the last Finance Bill—my hon. Friend the Member for Torquay (Sir F. Bennett), my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies)—take a great interest in our tourist industry, as the House knows.
I appreciate that the Companies Bill will fall on Prorogation tomorrow, but small businessmen had great fears about the implications of that Bill, brought forward by the Labour Government. The points made on that Bill—as the Minister of State, who opened the debate, will remember—put forward no valid reason why the Jenkins Committee Report was not accepted in its entirety. The Minister will realise that the Jenkins Committee pointed out the difference between a big business and a small business and between large companies and small companies. The Government have advanced no reason why the small family business should be subject to the same regulations as the giants.
I have never been able to understand why in a small company it is necessary to 2214 disclose turnover. There is a genuine fear among small businessmen, particularly where many firms make only one article, that a competitor, by paying 1s. or whatever is involved—if the Bill had gone through—could very easily find out the turnover of a small business. The Government have advanced no valid reason for this disclosure and small businessmen are very worried about it.
I do not think that any small businessman has fear of competition; what he fears is unfair competition. We look at the legislation which has come out of the pipeline of the present Government. We have had the statement on the Industrial Reorganisation Corporation. I accept that it has not become an Act, but it involves State interference in business. I shall not go over all the arguments of anti-nationalisation, but State interference in business is bound to hit the small businessman before it hits the giant. It is bound to hit him if competition is unfair.
The Government have plans for extending the powers of the nationalised industries. Unless those industries or the Industrial Reorganisation Corporation are to be commercially viable and, therefore, an extra drain on the taxpayer, we shall have unfair competition with other companies and businesses. In the past hon. Members opposite have jeered at stop-go policy, but since October, 1964, we have had more or less stop-stop. We have had the longest credit squeeze in history. Who does that squeeze hit? The large company can stand it. It has huge reserves, but the small businessman finds his rate of interest increased; but the special deposit and increased liquidity ratio of the banks and overdraft went down and the small man is hit by any credit squeeze.
I have spent much time talking to businessmen, as no doubt other hon. Members have done. What does the small businessman think of his future? He welcomes opportunity. He is not afraid to work. I am sure that the Minister of State would agree with that. He wants competition, but not unfair competition. His fear is that private enterprise is being whittled away, slowly but surely, under the legislation which has come from this Government. [Laughter.] It is all very well for the Minister of State to laugh, but I assure 2215 him that there is a genuine fear among small businessmen that that is the policy of the Labour Government. I would be delighted if the Minister of State could say that the measures which I have mentioned, Corporation Tax, the investment incentives, and so on, will remedy the position for the small businessman, but in fact, they will hit him.
No doubt the hon. Gentleman will recollect that during our debates on the Finance Bill one of my hon. Friends said that it looked as though family businesses would disappear, and his hon. Friend the Minister of State for Economic Affairs said, "And a good job, too". That remark has never been withdrawn. What is the businessman to infer from it? A Minister of the Crown says "And a good job, too" about small family businesses disappearing.
I hope that nothing I have said will be taken as showing any bias against the large companies. They do an excellent job for the economy. But they have huge resources and if the small man is squeezed out, as he surely will be if present Labour policies are continued much longer, his business will be taken over by a larger company, and the large companies will become larger and larger, so that there will be more and more monopolies. The Government say that they could deal with such a situation. But the conclusion which must be drawn from all the measures which they have put to the House is that they want to eradicate the small business.
I hope that hon. Members will not think that I am over-stating the case when I say that my personal fear, my personal hunch, is that it is deliberate policy of the Labour Government to squeeze out the small man. [Interruption.] Hon. Members opposite shake their heads. I wish that they could prove what they suggest. It is no good shaking one's head and saying that it is not true when one introduces legislation which hits the small man.
Is this policy part of an extension of nationalisation? I seriously put it to the Minister of State that it is obvious that if the Labour Government could reduce the number of small businessmen and have their businesses taken over by the giants, it would be easier to nationalise 2216 the giants than the small businesses. If there are 200 or 300 giants, they can be nationalised more or less by the stroke of the pen, certainly much more easily than nationalising hundreds of thousands of small businesses.
My conviction is that the abolition of the family business—and I use the expression "family business" in its widest sense—would be a disaster to the economy.
The profit motive is the driving force in all business, big or small. I am not afraid, and I do not think that any hon. Member on either side of the House should be afraid, of the profit motive.
§ Mr. ClarkI am delighted at last to carry the hon. Gentleman with me. It is rather a death-bed repentence for him, because most of his hon. Friends think that there is something wrong about the profit motive. I remind hon. Members that the small business is the forerunner of the large. If there had been in force all the legislation which the Labour Government have passed and which they have forecast in White Papers and so on, Lord Nuffield would never have started his organisation. That is a salutary lesson for all of us. Everyone wants to build up the country's competitive power and we must always support the man who is inventive and progressive. We on this side of the House believe in private enterprise. I am sure that the Minister will agree with me that private enterprise does not want to be mollycoddled; but it does not want to be deliberately harmed by legislation. The Labour Party is anti-business. This is quite obvious. It is anti-small business. We on this side of the House reject this policy.
A Government who try to restrain the small businessman are defeating themselves, because if we kill private initiative it will be disastrous for our future. Nowhere is initiative more important than in business. As the Minister of State knows, the whole economy depends upon private enterprise, which is responsible for 95 per cent. of our exports. When we on this side of the House are returned to power, very shortly, we shall do all we can to further incentives and we shall not penalise initiative.
2217 I started by saying that the future of small businesses is extremely bright, but I must enter the caveat that it is bright only if we have a Conservative Government.
§ 8.46 p.m.
§ The Minister of State, Board of Trade (Mr. George Darling)The speech of the hon. Member for Nottingham, South (Mr. William Clark) turned out to be much as I anticipated. It was an electioneering effort, the kind of effort which I suppose we must expect from all Conservatives from now until polling day. It was a typical Tory electioneering speech, full of synthetic emotion, almost completely misleading, generally inaccurate, and in parts positively untruthful. But I will treat the hon. Gentleman kindly. We know that he and his hon. and right hon. Friends are on a very sticky wicket and that he must lash out in this irresponsible fashion. Therefore, with what I hope will be commendable brevity, I will try to point out his misconceptions and glaring errors. Afterwards I think that, in all friendship, I can bid him goodbye as he goes to the hustings to do his worst.
I am not quoting the hon. Member's exact words but the tenor of his speech was that it is the determined aim of the present Government and of the Labour Party to strangle or squeeze out small businesses, to close them down, or nationalise them or hand them over to big companies in some way. This view of our attitude towards small businesses, family businesses and small-scale enterprises of all kind is completely untrue. I am sure that in his calmer moments, when he has time after the election to think things over and think back on the days when he was in the House, the hon. Member will be prepared to say so.
If the hon. Member will allow me, I would say that even to suggest that as a matter of principle we are opposed to small-scale firms and wish to crush them in some way is just downright silly, for the very reasons that the hon. Member gave. I am sorry, but I must put it like that. For instance, why did we pass the Monopolies and Mergers Act as one of the first things that the Government put on the Statute Book if we had not wished to protect them for oligopolies—I am sorry to have to use that word—and undesirable takeovers? We put the Act 2218 on the Statute Book to protect small companies, and if the hon. Member wants me to coin a phrase as a truthful election slogan for him I would say, "Labour is on the side of the small business".
I agree with the hon. Member that small businesses form an important part of the country's economy, and there is every reason to suppose that they will continue to do so. I will not quarrel with the hon. Member when he says that they are important in themselves. As he also said, they are important because in some cases they develop into large businesses. When the hon. Gentleman talks about inventiveness, I must remind him that it was a Labour Government which introduced the National Research Development Corporation in order to give help to those inventors who were in small businesses and had not sufficient economic strength behind them to develop the inventions themselves.
We are on the side of the small man. We are on the side of the inventive person. We do not just talk about it. We do something to help. I assure the House that it is the Government's aim to promote greater efficiency in the economy, and, in our view, there is room in an efficient economy for companies of all sizes.
The hon. Gentleman suggested that the disclosure provisions in the Companies Bill will do a lot of harm to small companies. We do not agree at all. The reason why we have gone beyond Jenkins in this matter is that the climate of opinion about disclosure, as the Stock Exchange has shown, has changed since the publication of the Jenkins Report.
§ Mr. William ClarkI am sure the hon. Gentleman wants to be fair. The recommendation of the Stock Exchange was directed to quoted securities. I was speaking about the exempt private company.
§ Mr. DarlingI did not want to go into detail on the subject, but I was pointing out that the whole climate of opinion about disclosure has changed. Financial journalists admit this. The Stock Exchange itself, not in this particular detail, but in its recommendations and rules, has suggested that there should be more disclosure. There can be no 2219 quarrel about that. Yet there is a problem here. Where do we draw the line? The concept of the exempt private company failed. The definition was wrong. It allowed far too many big companies to come in under an umbrella which should never have been provided for them. Moreover, it is not just the firm concerned which is affected by lack of disclosure. One can understand the arguments which are put forward by some people. I met a deputation from the Association of British Chambers of Commerce which came to see me about this subject. Small companies say that, if too much information is given publicly, their competitors will know far too much about their activities, and, that in the light of the smallness of the operations, it is wrong for the emoluments of family directors in a family business, for example, to be exposed to the public. There are other arguments put forward, too.
On the other side of the question, we have to take into account that the public is concerned, largely because there are so many of these companies. There are other people, too, who are quite properly and legitimately interested in getting information, whether they be suppliers, customers or even employees, who frequently tend to get left out of the argument. There are also the people engaged on another important aspect of these matters nowadays, namely, the commentators and those who investigate the activities of companies; the economists who publish their ideas of the trends of business, and so on. Undoubtedly, the case for disclosure is made out, if these considerations are borne in mind.
In my view, the case for including small companies in the disclosure provisions of the Companies Bill is made out, although I understand many of the arguments which are put up against it. But to attempt a definition which would be satisfactory, to draw the line somewhere and say that companies below that line, whatever the definition might be, should be left out, would be extraordinarily difficult, and I think that this point is well taken.
We must also look at small businesses in their place in the economy as a whole when we consider the question of disclosure. Efficient small businesses, as 2220 do all other efficient businesses, contribute to the well being of the economy as a whole, as the hon. Gentleman rightly said. But, the converse is also true. An efficient economy provides the setting in which an efficient small business can operate. An economy will not be efficient if those who can influence it lack some of the information on which their decision should be based. I will not go into detail on this, because we shall come to this when we re-introduce the Companies Bill, and there will be plenty of opportunity for us to discuss these matters then. But, in my view, many mistakes have been made in the direction of our economy because we do not have enough information about the 300,000 smaller companies and not enough information generally about other activities which are not in themselves companies but are on a small scale.
The economy is not influenced by the Government alone, and I say this because there is an argument that this information, if it is useful to the Board of Trade and the Government, might be provided privately. There are employers' organisations, trade unions, the Press, the public and specialists, such as economists, who all have a part to play in decisions on the country's economy. We believe that the publication by companies of more information about their affairs is of advantage to the whole economy, and what is of advantage to the economy as a whole is of advantage to the great majority of small businesses.
The hon. Gentleman mentioned close companies. I do not want to go over the Finance Bill debates again, except to say that I still believe that firms are no worse off under the Corporation Tax than they were under the Profits Tax and Surtax arrangements previously. I know that the hon. Gentleman will not agree with me, but I do not think there is any point at this time of night on the last day but one of this Parliament in going over the whole ground again.
I want to answer one or two of the hon. Gentleman's other points. He mentioned the new scheme of investment incentives and said that these arrangements will harm the small enterprise. I am sure that it was made perfectly clear in our previous discussions in this House that one of the virtues of the new scheme is that it provides incentives to investment 2221 in a form in which it is understood. Another virtue is that the grants are made sooner than are the capital allowances against taxable profits since when a firm is expanding it may be some years—this particularly applies to small businesses—before sufficient profits are made to cover the allowances. I am sure that these virtues are likely to be appreciated by small companies. We have as yet no evidence that they are not.
§ Mr. William ClarkI am sure that the hon. Gentleman wishes to be fair. A cash grant is not available to service industries
§ Mr. DarlingI am just coming to service industries. The hon. Gentleman should not shift his ground so swiftly. He said that investment allowances under the new scheme as a whole would prejudice small companies. I have just disposed of that, and I now come to the service industries.
It was made clear in the White Paper—this is generally accepted—that what is needed in our economy at present from the point of view of inducements is more investment in manufacturing industry. Everybody who looks at the amount of investment that has gone into the service industries knows very well that we are now out of balance. If we are to use investments in any selective manner—obviously, the purpose of incentives of this kind would break down if we were not selective—we must be selective in the sense that more goes into manufacturing industries and less into service industries to redress the balance. I do not think that anybody who is taking the matter seriously would object to that argument.
With regard to the Industrial Reorganisation Corporation, I repeat all the assurances that have been given previously. There are no compulsory powers. The Corporation cannot, and will not, nationalise companies in the way that the hon. Member has suggested or in any other way that does not have the approval generally of this House.
The purpose of the Corporation is to help. Small businesses, to carry on their enterprise, to expand and grow, some- 2222 times must amalgamate and get together. Sometimes they require cash to do this. That is what the Corporation will do. It is certainly not anti-business. The reference to nationalised industries has been disposed of so often that the House would be surprised to have it raised again. Why should not plant and equipment that happens to be publicly owned be used for industrial development, as long as it is done—I accept the hon. Member's criteria—in a completely commercial way and in proper and not unfair competition with private industry that may be engaged in the same business?
The hon. Member finished by suggesting that family businesses were now afraid of the Government and of what the Labour Party would do to them. I have met deputations from chambers of commerce representing small businesses. They have not expressed this view. We will not squeeze out the small man. Businesses which are enterprising, efficient and have a future will be helped far more by the measures that this Labour Government have already introduced and promise to introduce than was ever done by Conservative Administrations.
We do not simply go round the country saying that we want the small man to prosper and then put burdens upon him to prevent him from doing so. The credit squeeze has certainly gone on for some time, but it has been a different kind of credit squeeze. There is no increase in unemployment. In fact, we have done something which was considered to be impossible. We have put a brake on the economy to get our financial situation straight and we have done it by increasing employment, which has never been done before. This kind of credit squeeze is something of which we can be proud. We have not put people out of business or out of work. We have tried to live within our resources, and we will go on expanding those resources. The people, knowing very well what our intentions are and that we are capable of carrying out those intentions, will see to it that we are returned again to look after the interests of small businesses and those of all other people who want to be enterprising, prosperous and successful.