SMALL BUSINESSES

HC Deb 23 July 1969 vol 787 cc1912-35

1.17 a.m.

Mrs. Jill Knight (Birmingham, Edgbaston)

I am glad to have the opportunity to raise this important subject, representing as I do part of a great city which has a proud name as "the city with a thousand trades". Many of those trades are carried on in a very small way. I shall talk of the problems which they face against a background of bankruptcies and even suicides of small businessmen. Last month a constituent of mine who ran a small business became so weighed down with the rising number of worries he faced in keeping his business going against what appeared to him insurmountable odds, that he committed suicide.

This may have been an extreme case. Nevertheless, thousands of small businesses today are in danger of going to the wall. They are by no means necessarily inefficient. They provide important services for the country, but they have to face constant savage attacks of various forms from the Government who appear to think that they constitute some sinister danger to the State and must be eliminated by squeeze or freeze by fair means or foul.

The phrase "small business" is difficult to define, even if we take it to mean a business which employs a very small number of people, perhaps under 100. Three-fifths of manufacturing units in Britain today employ fewer than 100 persons. My hon. Friend the Member for Croydon, North-East (Mr. Weatherill), who greatly regrets that he is unable to be present tonight, has made a wide and careful study of this subject over many years. I shall quote him on more than one occasion. He has pointed out that in Britain there are about 80,000 small companies. If they all closed tomorrow, 2½ million people would be out of work and over £6,000 million of industrial output would vanish with their jobs. That is not peanuts. The Government cannot shrug it off as unimportant. I cannot believe that they do not know it.

The first problem is that of creditworthiness. For a number of reasons, many small businesses are forced to operate on credit—and that has always been the case. A constituent of mine was in trouble in meeting the Industrial Training Board levy. He had a very small printing business and drew a derisory salary for himself. He could not raise the money from the bank to pay the levy because of Government policy. He was at his wits' end, and someone contacted me on his behalf. I regret to say that after correspondence with the Minister the only relief I was offered was that it might be possible for this poor man to pay by instalments. In fact, his story had a happy ending, because the Engineering Industry Training Board agreed to waive most of the levy, as they recognised the immense difficulties under which he was operating.

But it is hard when one Government Department demands money. A small business cannot produce it out of a hat, or even out of a safe. Whereas, formerly, the bank would have advanced the money, another Government Department now refuses to permit that. The Government appear to believe that loans are excellent when made to Britain, but reprehensible and unworthy when made to individual Britons.

It should be clearly understood that because small companies have no shareholders they are limited strictly to their own resources. It is very difficult for them to grant debentures. Where small businesses are partnerships they face not only income tax, but also surtax. A limited company pays corporation tax at 42½ per cent., shortly to be 45 per cent., and that is a smaller burden than income tax and surtax.

I turn to selective employment tax, the most hated tax ever to be levied on the long-suffering people. Many small businesses get it back, but not before they have given an interest-free loan to the Government for six months. It is rather less than fair when the Government will not allow small businesses to borrow the money from the banks, even at high interest rates. Other small businesses do not get their S.E.T. payments back. If the Chancellor is not sharply aware that for many retail businesses the latest savage increase in this imposition means bankruptcy, he cannot have been receiving the letters which I have sent him recently from constituents amply making the point.

To some small basinesses—export houses and building—the extortions of S.E.T. make no sense at all.

Mr. Deputy Speaker (Mr. Harry Gourlay)

Order. I hesitate to interrupt the hon. Lady, but Mr. Speaker has ruled that questions of taxation are not in order on Second Reading of the Consolidated Fund Bill.

Mrs. Knight

With respect, it is one of the great problems which face small businesses—

Mr. Deputy Speaker

That may be so, but it is not covered under the appropriation of the Consolidated Fund and is not in order. Mr. Speaker has ruled several times today that taxation may not be discussed on Second Reading of the Bill.

Mrs. Knight

I bow to your Ruling, Mr. Deputy Speaker, and leave the point as I have made it, but I regret that I am not able to deal with it at greater length. It is one of the problems which small businesses face.

Estate duty wipes out many small businesses. Hundreds of them go out of existence because when the boss dies it is necessary to sell the business to meet estate duty demands. This might not mean that it goes out of existence, because it might just change hands. But it is unfair to the widow and family, and for the man's partner it is absolutely ruinous. On many occasions the partner cannot carry on.

There are all sort of added burdens, such as the amount of paper work small businessmen must do for the Government, not only for such things as P.A.Y.E. but in the constant returns they must make to various Government Departments mesmerised by them. For example, there are redundancy payments, and the fact that funds set up to cover them are not tax-free, as they should be. The redundancy payments that have to be made by small firms constitute a real problem for many of them.

There are some very sore points in connection with the close company provisions of the 1965 Finance Act. When close companies, denied borrowing facilities elsewhere, borrow from a director, participator in the company, or member of the family connected with the company at a commercial rate of interest, this is not allowed for tax purposes. It is laughingly called a distribution.

The import surcharge is another headache for many small firms. If they cannot obtain cover from their suppliers overseas they must finance yet another interest-free loan to the Government.

The Companies Act is another burden. It is a serious matter that the small companies must disclose publicly what hitherto have been most confidential matters of salary figures, turnover, export figures and profits. This puts many small firms at a great disadvantage. All this information is useful to competitors, and they do not fail to take advantage of the knowledge. This is iniquitous. There are countless examples of a multiplicity of legislative straws that are breaking the small company camel's back.

Only today my hon. Friend the Member for Hertfordshire, South-West (Mr. Longden) asked whether the President of the Board of Trade would …seek to amend section 1 of the Industrial Development Act, 1966, so as to enable him to make investment grants to firms who incur capital expenditure in providing new plant or machinery for use in a qualifying industrial process when that process is carried out on the firms' behalf by sub-contractors. I have not seen the Answer yet, but I will bet that it is, "No" It is one more example of the kind of thing small businesses suffer badly from. There is, for instance, the problem of restaurants and hotels which cannot equip themselves under the arrangements that used to be made when their table cloths or sheets are worn out or they have to replace cutlery and china and so on. These, too, are burdens.

I am not saying that all the businesses which are going to the wall and facing bankruptcy are doing solely as a result of Government action. There are some inefficient small businesses, and it is understandable that in the rat race these go under. But, in the main, the small businesses do an excellent job for Britain and deserve encouragement. We know about the Government's passion for mergers, for bigger and bigger companies. They smile on commercial matrimony in a very concrete way. But the bulk of our companies are still small. The large percentage of all the companies in Britain are small businesses, and their importance to the country is immense.

The existence of a large number of small independent businesses helps to increase efficiency, high quality and reasonable prices to the consumer. Small firms also constitute a large and diversified source of employment opportunities and are frequently sources of new products and ideas. Certain things are best done by small firms. Their adaptability, resilience, and ability to respond to change are often not present in the bigger companies which are infinitely more clumsy. The small firms offer provision for growth and give opportunities to a man unable to find his true vocation in a large concern.

I do not believe that any of these reasons why encouragement should be given to small firms are invalid. They all come from my right hon. Friend the Member for Croydon, North-East, who knows the subject well.

The Government have been ready to recognise the difficulties. I would particularly pay tribute to the hon. Member for Birkenhead (Mr. Dell), now on the Government Front Bench, for his kind help to me when I piloted my Bill on design of copyright which went through this House last year, and which was to help small firms. The Government has schemes to promote management efficiency which are immensely important, and, as far as they go, good.

I should also mention the help of the Rural Industries Board, which is very good indeed.

When looking at the tremendous difficulties under which small businesses are working today, however, these are niggardly crumbs. Sometimes it seems that the Government are aiming at bring- ing about a situation where there are only big businesses. Perish the thought.

I know that it is not in order, having posed the problem, to say what the answers would be. This comes hard, because some of us are used to the criticism of politicians that we are always talking destructively and never constructively. Unfortunately, the administrative arrangements governing this debate do not allow us to do more than state the problems. There are answers, and the Government know them. The Government should remove many of the difficulties which face small businesses.

If I have managed to get the Government to think about some of these things, although I have no wish to go on with examples, I have achieved something.

1.34 a.m

Mr. Wallace Lawler (Birmingham, Ladywood)

I have no wish to repeat some of the words of the hon. Lady the Member for Birmingham, Edgbaston (Mrs. Knight), but on this occasion I am making my maiden speech and, as I come from a constituency with more small firms than any other constituency in the country, it might be right and proper to make a maiden contribution.

I am told that a maiden speech should be non-controversial. I hope that the House will afford me some indulgence, but it is difficult to fulfil that requirement and to keep faith with those on the parliamentary register at Ladywood, and the thousands of small firms not entitled to parliamentary franchise, in putting to the House certain points they would clearly expect their elected Member to put.

Small businesses, which abound in Ladywood, and the small income families —the bulk of Ladywood electors are in that category—have a common problem. It is the struggle to survive, the weekly dilemma of how to make both ends meet. I wonder whether the hon. Member for Bromsgrove (Mr. Dance), who made a recent reference to the small number of electors in Ladywood, realised before he spoke that there are more non-refund S.E.T. sufferers among small businesses in Ladywood than in his constituency and in Meriden, Dudley and Birmingham, Northfield constituencies put together.

Ladywood has frequently been on the lips of many hon. Members during recent debates and a great deal has been said with which I agree about the comparatively small number of electors. What has not been said, and what needs to be emphasised, and nowhere more appropriately than in this debate, is that Lady-wood has more small businesses within its sprawling confines throughout central Birmingham than some of the giant Midland constituencies put together.

We have 1,000 and more small businesses which have no vote at parliamentary elections. They are entitled to look to their M.P. to represent in this House the very many problems they face. Almost every Ladywocd family works inside a small business and almost every Ladywood family lives in a council-owned dwelling. They are low and modest income families.

It is appropriate to refer to this because of the relationship between the working-class electors and the small businesses surrounding them and upon which —a point worth repetition—they are forced to rely for their employment. To remove the popular misconception in the House in recent debates, it should be said that, of Ladywood's 18,500 electors, about 15,000 live in council-owned dwellings. These are low and modest income families, working inside small businesses and having to pay high rents and high heating costs which, in many cases, absorb the first £7 10s. of their limited net incomes weekly.

It is fair to say that the people of Ladywood, like millions more throughout the country, have to live within these limits of low and modest incomes and that they feel particularly resentful of the higher living costs forced upon them in recent years in such ways, for example, as the ever-increasing rents—in Birmingham there have been five direct and indirect rent increases in three years—and in so many other ways which affect the cost of living generally.

The most interesting feature of the recent by-election, noticeable not only within the ranks of the electors who voted but within the ranks of the about 1,500 small businesses within Ladywood, was the number of those electors and small businessmen who still remember with great bitterness the 16 per cent. increase in electricity charges which the Government allowed to be imposed upon their very limited turnover in October, 1967. While allowing these excessive increases in the cost of living, the Government had provided no means for the small wage families to increase their incomes. These families, not unnaturally, look to their employers, often small businesses, to help them by substantial wage increases.

Yet the same kind of increases to which the small wage families have been subjected in recent years have been applied, often in even greater measure, to the struggling small businesses which—particularly these which, because of redevelopment, have had to find new sites and new premises—have had to bear increasing costs—heavy electricity and heating charges, general service charges and the other costs which small businesses have to struggle to meet.

I can speak somewhat authoritatively on this subject as one who has headed two small businesses over the past 30 years. I have known and still know the great struggle which a small business has to keep alive. The difficulty has been accentuated by successive actions by the present and preceding Governments. Small businesses have had to struggle against increasing burdens which has fallen on that section of the business world least able to meet it.

For small businesses and for small income families the struggle is not just to progress, but to survive. In Ladywood, I am frequently asked by families who have waited endless years to enter their lovely, but costly, new homes to help them to get back to the lower-rented substandard dwellings, sometimes hovels, in which they formerly lived.

Many small income families are employed by small businesses which find it impossible to pay substantial wage increases and which often face bankruptcy. The trend for small businesses bears a striking similarity to the increasingly unhappy trend of small income families, many of whom are their employees. Existing heavy financial burdens are driving many small businesses to the verge of bankruptcy. Birmingham has a record rate of bankruptcies and many of the firms concerned are small businesses, and the trend is continuing to rise.

I have recently been concerned with the example of one of the most thriving small businesses which it has been my lot to meet in my constituency. This week, it had to consider cancelling an order for more than 2,000 tons of Corten A steel because of a recent gigantic increase which the Government allowed and which amounted to about 28½ per cent. The loss of the order would mean that an important dollar-earning market would be lost to the country and that the livelihood of a small but important number of people would be endangered because their employment would cease. I hope that the Government will take a fresh and urgent look at the growing problem of small businesses, which would directly help millions of modest, small income families whose livelihoods are closely linked to the prosperity of the average small business.

Small businessmen who are displaced by redevelopment should receive much more financial assistance to meet the full cost of reinstatement and should continue to get additional financial help to meet the heavily increasing overheads during the initial years of reinstatement. This is the beginning of the path to bankruptcy for many small busineses, as is proved by the number of small firms who, after redevelopment in the industrial Midlands, have gone to the wall.

Equally, it should be recognised that the modest income worker within the small business firm forms a large part of the electorate. To continue squeezing him or her by continually squeezing the small business by which he or she is invariably employed is a policy which, if it continues, the present Government may have good cause to regret when the ultimate confrontation with the people takes place. The recent by-election in Ladywood gives emphasis to this grave warning.

I hope that the Government will take heed before it is too late for many small businesses. For many, it is already too late. I hope that, early in the new Session, the Government will allow time for a full debate on the growing problems confronting so many small businesses, and will introduce early measures to assist them.

1.47 a.m

Mr. James Dance (Bromsgrove)

I am delighted to follow the hon. Member for Birmingham, Ladywood (Mr. Lawler). The House will congratulate him, I think, on his excellent speech. I go a long way with what he said and I am sure that we will listen to his future speeches with great pleasure.

I am also delighted to follow my hon. Friend the Member for Birmingham, Edgbaston (Mrs. Knight). I go the whole way with her. When will the Government realise that a large part of the welfare of the country depends on small private enterprise? As my hon. Friend said, Birmingham and the West Midlands have done a tremendous amount to help the economy. She also said that Birmingham is known as the "city of a thousand industries". Although there are many motor car factories in that area, I know of none which actually makes cars. They assemble the cars and most of the components are manufactured by small firms. In my own constituency springs are made to go into a multitude of cars and aircraft. Where would we be without these small industries?

I must declare an interest. I am a director of a small retail wine business. The wine and many other businesses are placed in difficulty. We in the wine business must carry a large stock if we are to compete with supermarkets. We must provide a service which the supermarket cannot provide. A high percentage of the value of my stock is represented by duty, and on my shelves and in my cellar I carry a large amount of money which is just paid over to the Government.

The wine business, like the motor industry, which is partially seasonal, is seasonal. Towards the end of November we must stock up for Christmas. Whereas the wholesaler expects to be paid on the nail at the beginning of the month, our clients cannot be chivvied too much or we would lose them, and in many cases they do not pay until well into March. The Government, by curtailing overdrafts, are making life difficult for that type of business, because in the past we were able to get credit for a short period. It was not a question of our not having sufficient capital to run our business properly. Over an exceptional period, such as over Christmas, we sought and were granted credit from the bank.

People are apt to blame the banks for what goes on, but let us see what the banks say. The Daily Mail of 27th January of this year said: … Barclays Bank chairman Mr. John Thomson showed his anger at the way his customers are being forced to borrow elsewhere at vastly higher rates. His speech confirmed the anguish of bank managers who are flush with money but forbidden to lend it by Government directives. As one put it to me: 'I spend all morning telling very good customers that I cannot lend them money and all afternoon begging the nationalised industries, who are outside the directives, to borow the money we have.' How futile that is.

The Daily Mail of 3rd February of this year, said: Last week Mr. Crossman produced a pensions plan which would allow the Government to borrow £500 million from us on the promise of bigger pensions in 20 years. And Mr. Richard Marsh, the Transport Minister, asked us for £25 million to start nationalising the docks. It is this profligate, uncontrolled, unconsidered borrowing and spending by this Government which is robbing our money of its value, getting us into terrible debt overseas, and depriving industry of finance for expansion. As Mr. Robarts,"— he is chairman of the London Clearing Banks— points out, loans from the banks are peanuts in comparison. If the banks help a fanner to buy a new tractor, or a doctor to re-equip his surgery, or a businessman to lease a computer, they are told they have committed mortal sin. Yet when we hand over umpteen millions for some pointless piece of nationalisation, the Government tells us that this is a 'dynamic breakthrough,' or some such twaddle. This is the key point: The nation's seed corn rots in the granaries of Whitehall, while the fertile fields go to waste. In the meantime firms are going into liquidation. The Minister of State, in an Answer he gave on 12th February—I draw attention to column 1311 of the OFFICIAL REPORT for that date—stated that there were 729 compulsory liquidations in 1963 and 1,117 in 1968, and that there were 4,455 voluntary liquidations in 1963 and 8,191 in 1968. Are the Government proud of this? Do they want these companies to go into liquidation? I do not know, but it looks sinister to me.

The Government may tell people that they should save and put money aside for a rainy day. I have some interesting figures. When taxation is 8s. 3d. in the £, and inflation is running at a longterm rate of about 4 per cent., as it has been under the present Government, the real after-tax return from a security earning 8 per cent. is only 0.7 per cent. Let us work that out. From the 8 per cent. return, taxation at 8s. 3d. removes 3.3 per cent. From the remaining 4.7 per cent., 4 per cent. inflation necessitates a 4 per cent. deduction to maintain capital values, leaving only 0.7 per cent. If one is paying surtax, the effect is even greater.

I have raised before the position of small farmers. The Minister of Agriculture has said on many occasions that banks have been told to give special treatment to the farmer. That may be so, but in the West Midlands, close to my part of the country, I know of three farmers who had to go out because they could not carry on and two have emigrated to Australia.

The Government fail to realise that a farmer, having had to buy fertilisers, seeds and, perhaps, machinery, has traditionally gone to his bank to get help to tide him over a difficult period. When the harvest comes in, he pays off the overdraft. I am asking not for permanent overdrafts, but merely that consideration should be given to these people who, through no fault of their own, need to be tided over a difficult period. The "Little Neddy" is asking farmers to increase production by £200 million, but they are given very little return on their capital. Furthermore, they are being penalised by not being able to get the accommodation which they require from the bank.

I turn next to steel stockholders. It is recognised, I think, that the motor industry does not stockpile; it buys its raw material more or less from day to day. As a result, the steel stockholders have to carry fairly large stocks of a large range of steel. As in the wine business, so also in the motor industry there are seasonal increases in production and sales. During those periods, the steel stockholders need extra assistance from the banks, and yet these are the very people who are being clamped down.

When something is manufactured, it must be transported from the place of manufacture to the wholesaler and to the retailer. I now come, therefore, to the question of haulage. The Govern- ment introduced a Bill not long ago to enforce the testing and plating of commercial vehicles. They were quite right to introduce this measure in the cause of safety, but this has imposed a certain amount of hardship upon the small haulier. He has tried to get a loan from his bank to help him over this difficult period, but he has been turned down.

What is iniquitous is that when National Carriers Limited took over the vehicles of British Railways, it was given a £5 million loan. Why? I am trying to find out the truth of this, but I am quite convinced that British Railways maintained those vehicles so badly that this money was needed to replace those vehicles. They get it, but the small trader does not.

I want to quote a few extracts from letters I have received from various people about this problem. It does not remain only with the wine merchant, with the motor trader, with the road haulier. Here is a man who runs a television business. He applied to the bank for an overdraft to pay for some stock of coloured television that he had been offered. He writes: The manager agreed that the request was reasonable and he saw no reason why I should not be obliged. Rather shamefacedly, later he came and told me the request that I had made had been flatly refused. Because of the directive by the Goverment.

I had another letter from a firm of printers, a firm which produces more than £500.000 worth of printing a year for blue chip British industry. Much of our work is in foreign languages, sales literature, instruction books, etc., for British exports. It may fairly be said that print of this kind is vital to our export trade. The firm found itself owed about £50,000. It went to the bank which agreed, in the first place, to tide the firm over, but again there was the same old story: a directive from the Government told the firms it could not have the advance. So we go on.

I have another case of a member of Lloyd's who, through age and for other reasons, wanted to retire. I am sure that the Minister will be fully aware that when one retires from Lloyd's it takes three years to get one's deposit back. This man wanted to invest some money in a business. So he went to his bank and said he wanted to borrow £5,000, which was covered time and again by his deposit at Lloyd's. This request was turned own flat, again because of the directive from the Government.

What are the Government really trying to do? I myself have a feeling that the massacre which is going on of small businesses is a policy of this Socialist Government in order to feed their sacred cow, nationalisation and more nationalisation. They will say that private enterprise does not work and that the Slate should take over. What is even more sinister, they compel small firms to amalgamate and so make it easier for the State to take over. Whether or not I am correct in my assessment of the motives of the Government, and I am fairly sure I am, one thing is certain, that their measures, S.E.T. and bank overdraft restrictions, are driving out of business many small traders who, in the past, have done so much, and in the future should be able to play their part, in helping the economy of our country.

2.3 a.m.

Mr. Michael Shaw (Scarborough and Whitby)

I am grateful for the opportunity to intervene in this debate for a few minutes. First, I should like to add my own congratulations to those already offered by my hon. Friend the Member for Bromsgrove (Mr. Dance), to the hon. Member for Birmingham, Lady-wood (Mr. Lawler) on his maiden speech. I am informed by a near neighbour of his that this is probably the first time a Member has made his maiden speech after midnight since J. J. Astor made his maiden speech when he came here to represent Plymouth many years ago. We remember the predecessor of the hon. Member for Ladywood with great affection—[HON. MEMBERS: "Hear, hear."]—and regret his death. He made his mark in the House and his memory will be with us for some considerable time. We look forward to the hon. Gentleman's trenchant contributions to our debates.

I congratulate my hon. Friend the Member for Birmingham, Edgbaston (Mrs. Knight) for initiating this debate. When one studies the history of many of the great firms in British industry and commerce, one discovers that many of them started life because of the inspiration and efforts of one or two men. They begin as small firms and as a result of the practical expertise and enthusiasm of one or two people they have sometimes grown rapidly into large national firms, beyond the wildest hopes of their founders; at other times they have grown steadily, and when opportunity has knocked they have taken full advantage of it and have achieved a position and size of national importance.

The great advantage to the national economy of the small, business is its flexibility and the enthusiasm and willingness to take a risk on the part of those who are engaged in that business. There is special virtue in the fact that many small businesses are able, from the very nature of their size, to seize what at the time appears to be a small market and to exploit it and expand it, to bring new ideas and energy into established markets, and to disturb any complacency among those who are already established in a market. All these are vital contributory factors in the smooth and efficient running of our economy.

Why has the small company received so much attention during the last year or so? I am glad to say that public comment has been sympathetic. It is not just a natural sympathy for the small man, which is a British characteristic. It arises from a growing fear that the balance between large firms and their smaller competitors has been dangerously tilted against the small firm in favour of the large. But both the large firms and the small firms are necessary if our economy is to function efficiently and if we are to prosper.

The fashion, however, has changed. It has now become respectable to talk about economies of size, and mergers are almost a necessity for up-and-coming businessmen. On the other hand, certain difficulties face the small company today which either did not exist in the past, or existed to a much lesser extent.

We cannot this evening talk about taxation, although my hon. Friend the Member for Edgbaston indicated certain difficulties in that direction. Certainly, estate duty still plays a major part in the difficulties of the smaller firm, often diluting the interest and enthusiasm of the creator of the business, possibly at a time when he has put a business on its feet, when he has reached the prime of his experience and enthusiasm, and diverting his attention to getting rid of the business or of preserving it for his heirs and successors. It is sad that that should be so. Our estate duty rates and the amounts of wealth which attract these high rates are out of proportion by modern-day standards when looked at in comparison with other nations in the free world.

We seem to be living in a permanent credit squeeze. This affects more stringently the small, private company than the public company. The former relies to a far greater extent on family funds and the standing and respect which the proprietors of the company have at the local bank, on which they have in the past always felt free to draw for business expansion. But the bank manager today, even when satisfied that the need is legitimate and the credit sound, is often powerless to help. This often results in up-and-coming expanding private companies being held back while the larger company which has worked out its credit limits with the bank in good times is able almost to laugh at the credit restrictions. I know of cases where such companies keep to the limits of their credit so that they can use the money at a profit in a way that they would not otherwise have dreamt of doing.

These are some of the many reasons why small businesses are in special difficulty and need special sympathy. This is not the time for us to spell out our views on the subject, though there are certain factors which the Government must bear in mind. First, life is more complicated for small businesses and an opportunity should be given for them to seek guidance on such matters as finance, management and marketing from the sort of organisation suggested my my hon. Friend the Member for Croydon, North-East (Mr. Weatherill).

The advice of such an organisation should not be forced on firms, but it should be available if sought. It might not be needed if the business climate could be changed, with a return to confidence, tax reductions and less Government interference. The attitude and "feel" that exists in the country can play a major part in the future of the companies about which we have been speaking. Confidence often plays a vital part in the expansion of these businesses.

We are thankful to the Government for certain steps that they have taken this year in relation to small businesses, notably in connection with taxation, which we cannot discuss tonight. The taxation alterations have helped and my hon. Friend the Member for Edgbaston is out of date in saying that money lent to a private company by proprietors does not have the interest allowed for corporation tax purposes. It does, provided it does not exceed 8 per cent., and this change will be of tremendous help. The disparities relating to directors' salaries and interest should not have been placed on close companies in the first place.

I am grateful to my hon. Friend the Member for Edgbaston for having raised this subject. I hope that this debate will have proved useful, remembering that we have been discussing an issue which is of considerable importance to the well being of the nation.

2.15 a.m.

The Minister of State, Board of Trade (Mr. Edmund Dell)

May I, first, join with other hon. Members in paying tribute to the maiden speech of the hon. Member for Birmingham, Ladywood (Mr. Lawler). I was interested to hear that he made history by speaking later at night than Mr. J. Astor. I admire the ingenuity which he worked the very varied concerns of his constituents into the discussion. I am sure that that ingenuity will serve him in good stead in other debates. He said that he would not follow tradition by speaking non-controversially, but it is my experience that over the years that tradition has been changed and more maiden speeches today are controversial than non-controversial. Perhaps in that respect he still follows tradition.

I am sure that in the course of his parliamentary career he will maintain the great Liberal tradition which has been upheld by his colleagues in the Liberal Party. I am grateful to the hon. Member for Scarborough and Whitby (Mr. Michael Shaw) for what he said about the hon. Member's predecessor, who was a deeply respected Member of this House and who gave it great service.

I now turn to this interesting subject raised by the hon. Member for Birmingham, Edgbaston (Mrs. Knight). I hope that she will not want me to dwell on the somewhat high-flown language she used at times, referring to constant and savage attacks on small businesses, with which I thought the hon. Member for Scarborough and Whitby dealt very well. I have some experience of small businesses, and to that extent perhaps, I should declare not an interest, but almost an interest. My father ran a small business for about 60 years. He saw his last customer the day before he died, in January, at the age of 89.

I am well acquainted with the difficulties of small businesses, the ups and dawns, the periods of expansion and of difficulty, when there are credit restrictions and the market collapses. I am, therefore, able to approach this debate with sympathy and concern. I recognise, as do the Government, the value of the small firm to the community as a source of new ideas and innovations. I do not know whether the hon. Lady has read an interesting study done by the United States Department of Commerce about two years ago on innovation for which Robert Charpie was largely responsible, and which showed the surprising degree of innovation created by small firms, their flexibility in reacting to market opportunities, their ability to produce specialised products in small quantities and sometimes their ability to expand into large firms and to be taken over at a high price.

Nothing that the Government have done would in any way justify the hon. Lady in saying that it is Government policy to bring about a situation in which there are no small firms. I do not think that she believes that the Government would intend to achieve such an absurd ambition. The hon. Member for Scarborough and Whitby has indicated to her certain taxation measures which the Government have recently taken for the benefit of small firms.

I am coming to a number of examples which I hope will help the hon. Lady to understand that the Government have an interest in and concern for small firms, apart from the recent relaxations in the Finance Act such as the removal of the restrictions on the part of the salary of directors of close companies allowable for tax.

Today, my right hon. Friend announced that the Government are setting up an independent committee, after consultation with the C.B.I.—indeed, largely at the suggestion of the C.B.I,—to consider the problems which face small firms. I will come to that in more detail later. But the Government have no reason to be ashamed of their record regarding small firms. Quite the contrary.

The hon. Member for Scarborough and Whitby referred to the need for small firms to seek guidance. Indeed, he referred to an idea which has been put forward by some hon. Members and others that there might be established some organisation which would be a source of such advice—something on the lines of the Small Businesses Administration in the United States. We have said that we are considering that idea.

We are also considering the idea of using retired businessmen as a corps of troubleshooters after the model of SCORE, in the United States. Whereas for hon. Members opposite this is an idea, the Government can claim that this is an area in which they have acted—for example, in building up the British Productivity Council and assisting it with larger grants; the grant which we are giving for the period 1968–75 of £650,000 to the British Institute of Management; and the grant-in-aid on a pump priming basis to the Centre for Interfirm Comparison.

The hon. Lady referred to a pilot scheme to help small firms in the 25 to 500 employee range to make use of consultancy services. That was a considerable success. I hope that it will be the basis of a national scheme, the possibility of which we are now considering. Over eight months, grants amounting to £476,000 were approved for 313 applications from 245 businesses.

There is the Manpower and Productivity Service set up on a free basis by the Department of Employment and Productivity. In Birmingham, there is the pump priming grant given by the Department of Economic Affairs to the Aston University's Small Business Centre. We are now considering, as a result of the recommendation of the Hunt Committee, whether a further centre should be set up in the North-West or in Yorkshire.

There is the multitude of advisory services provided by the Ministry of Technology: the Industrial Liaison Centres, the Low Cost Automation Centres based on universities and colleges, and the regionally based Production Engineering Advisory Service. This is not limited to small firms, but it is available to them, and it has small firms very much in mind in its activities.

I suggest that none of this is the sort of evidence which would prove that the Government are not interested in the future of small firms. The Government would hardly have done these things had they not had considerable concern about the interests of small firms and an awareness of the need to assist them. I accept that more needs to be known about the rôle of small companies in the economy—for example, as innovators—and about their special needs for expert advice and finance.

The C.B.I. and others have brought to our attention various problems concerning small firms. Some of these problems have been mentioned tonight—for example, the Industrial Training Act, which was passed by the previous Administration. I hope that the hon. Lady does not want to disavow what was a considerable advance in the provision of industrial training in this country, which provided the basis for it. I hope that the hon. Lady does not regard it simply as a burden on small firms. It is a most valuable advance. However, it was pointed out to us that this represents a problem for some small firms.

Mrs. Knight

I was aware of that. I was chairman of the Youth Employment Committee at that time, and I was most interested in that legislation. It ought to be put on record that no one could have guessed at that time how that Act would affect small businesses in the way that it is doing today, and I am glad that the Minister has shown that he is aware of that. It was by no means intended that this should be the result. Now that it it is having this effect it presents a problem, and that is why it was introduced.

Mr. Dell

The hon. Lady also raised the matter of statistical returns and the paper work which is again a considerable burden on small firms. These statistical returns are sent out, not because we are mesmerised by statistics, or if we are we are no more mesmerised by them than were previous Governments who for a long time sent statistical returns to small firms, and to others, but to enable the Government to provide information which industry itself wants and presses the Government to provide.

Much of this information is very little required by the Government. It is provided by the Government at the request of industry, and it is precisely because the small firm is such an important part of the economy that we cannot provide the necessary statistical basis for adequate market research unless we send these statistical returns to them as well, but we always emphasise, for example, in relation to the census of production, that these forms do not have to be completed with an accountancy degree of accuracy, but that it is necessary that they should be filled in.

Another problem, again raised by the hon. Lady, is that many small firms complain about the disclosure provisions of the Companies Act, 1967. We have taken the view that the incorporation of a company with limited liability carries with it certain obligations. That may be questioned, and I referred to the fact that we are setting up a committee. This committee can look into this question, but this is the view that we have taken, and which Parliament took when it passed that legislation.

The hon. Lady raised a technical point of which she did not give me notice, namely, the matter of investment grants for sub-contractors, and, therefore, I am replying to this point from memory. The problem of sub-contractors and the fact that they are not eligible for investment grant was given full publicity during the passing of the Bill, and was discussed with the C.B.I. As far as I am aware, there are very few examples of difficulty caused by this because, among other things, the difficulties can frequently be got over by means of a lease. However, we have discussed this recently with the C.B.I., and if it can provide evidence to the effect that we are wrong in that, we shall consider it.

The hon. Member for Ladywood suggested that compensation for small businesses forced to move should be increased. It would be entirely within the terms of reference of the committee which we are setting up to examine this, and if it wished it could make recommendations about it.

The committee will consist of members who have direct experience of the problems of small businesses in some specialised field. The chairman will be Mr. John E. Bolton, who is Chairman of the Foundation for Management Education, and who has vast experience in this field. The other members are Mr. E. L. G. Robbins, the Vice-Chairman of the Industrial Training Foundation, Professor J. H. B. Tew, of Nottingham University, and Mr. L. V. D. Tindale, General Manager of the Industrial & Commercial Finance Corporation.

The terms of reference are to consider the rôle of small firms in the national economy, the facilities available to them and the problems confronting them; and to make recommendations. For the purpose of the study, a small firm may be defined broadly as one that has not more than 200 employees, but this should not be regarded as a rigid definition. It will be necessary to study in particular the profitability of small firms and the availability of finance. Regard should also be paid to the special functions of small firms, for example as innovators and specialist suppliers.

Other problems which the committee may look into are the effect of disclosure provisions of the Companies Act, the effect of estate duty and the burdens on small firms of the statistical and other returns required by Government. We also wish the committee to take note of what is being done to help small businesses and to consider how these facilities might be made more effective, particularly in the interests of dynamic innovatory firms. There are other subjects, such as the effect of current fiscal polocies, which are already the subject of continued study and which the committee could reasonably treat more briefly. The committee had its first meeting yesterday. The chairman told me that he intended it to be a long meeting. It may be still silting, but perhaps the members do not behave in quite the absurd way in which we do.

The hon. Lady referred to bankruptcies in Birmingham and provided figures which, I suppose, were derived from The Times article on 7th July entitled, Small Firms Fight to Survive the Double Squeeze". The article reported that there were 38 bankruptcies in the last quarter of 1968 compared with 17 in the same period in 1967 and hundreds of firms were trying to survive. It would be absurd to argue that the present stringent control of credit supply has not affected small firms in their activity. Small firms with small cash resources will be the first to feel the pinch, but there is no evidence of a general turndown in their activity as a result of this policy. According to the latest Board of Trade estimates and the C.B.I. survey, investment is at a high level. It would be wrong to generalise from the figures quoted in The Times. The quarterly figures are subject to occasional violent fluctuations. The national figures show an increase of only 7 per cent. in the first quarter of 1969 as against the same quarter of 1968 and the Birmingham figures for the first quarters of 1968 and 1969 were 22 and 24 respectively.

It is not always clear that bankruptcies and company liquidations are an accurate indicator of the health of the economy. The hon. Member for Bromsgrove (Mr. Dance) mentioned figures of voluntary and compulsory liquidations and said that they had been rising in recent years. I have not the figures by me and, therefore, I can reply only from memory, but my memory is that the figures for voluntary and compulsory liquidations have been rising for a very long period under Governments of both parties. The reasons are not those the hon. Member adduced. There are other reasons for this interesting phenomenon of a continuing increase in the number of voluntary and compulsory liquidations.

Mr. Dance

If he looks up the figures, as I am sure he will, the hon. Gentleman will find that there has been a very steep rise recently compared with the smoother graph before the figures I quoted.

Mr. Dell

At least the hon. Member should discount his case to the extent that there has been a continuing rise in the numbers under his party as well. Someone speaking at the Dispatch Box opposite on behalf of the Opposition could have provided figures of 1964 and 1954 which showed a very similar picture to that which the hon. Member has presented.

The hon. Member made a number of points about small farms, but as I understand that the next debate is about agriculture, I will leave my hon. and learned Friend the Minister of State, Treasury, to deal with them.

Summarising, we are concerned about the future of small businesses. We recognise their contribution to the economy. I expect that we shall have a valuable report from the committee which will help to guide Government policy.