SMALL BUSINESSES

HC Deb 12 June 1972 vol 838 cc1010-65

4.1 p.m.

Mr. Robert Redmond (Bolton, West)

I beg to move, That this House takes note of the positive steps taken by Her Majesty's Government to remove many of the difficulties which have faced small businesses and of the recognition given to their important contribution to Great Britain's economy; and calls upon Her Majesty's Government, in the national interest, to continue to stimulate and encourage the prosperity and growth of this energetic and enterprising section of the community. I thank you, Mr. Speaker, for what you said just now about the importance of Private Members' business. I regard this Motion as of considerable importance, but I would also like to think that the second Motion, on animal welfare, in the name of my hon. Friend the Member for Wembley, South (Sir R. Russell), might also get a hearing, because that would have my support.

I make no apology for raising the subject of small firms. All my life I have been with small companies and small industries. For 10 years I was managing director of a small firm of electrical engineers in Lancashire, I then joined a small firm of management consultants, and I am now chairman of a national company concerned entirely with the problems of small firms.

In a sense, I have donned the mantle of my hon. Friend the Member for Croydon, North-East (Mr. Weatherill). His Private Members' Motion on 10th February, 1967, led to the setting up of the Bolton Committee. That Motion, in c. 1955 of HANSARD, spoke of the increasing difficulties of small firms and called on the Government of the day to relieve them. Hon. Members may think that my Motion has cribbed his words. Why not? It was a good Motion. But I have been able to make two big changes.

I can acknowledge the firm and positive steps taken not only since the Bolton Report came out but since the General Election. What I am seeking today is a firm declaration from the Government that there is more to come.

I am talking about 1¼ million small firms, employing 25 per cent. of our work-force and accounting for 20 per cent. of our gross national product. These firms are vital to our national economy. If half of them each took on one more new employee, we should have a shortage of labour in this country. Put another way, if we could increase the number of small firms operating by about 50 per cent. we should have half the present unemployment rate, because so many more people would be self-employed and we would have a potential growth in the economy and in employment.

Mr. Peter Rost (Derbyshire, South-East)

May I draw my hon. Friend's attention to the extraordinary scene on the benches opposite? The fact that they are empty shows that the concern with unemployment of hon. Members opposite does not extend to the point at which they would wish to support this most important Motion.

Mr. Redmond

Frankly, I express no surprise at this. It is exactly what I expected—

Mr. Alan Williams(Swansea, West) rose—

Mr. Redmond

No, I will not keep giving way at the beginning of my speech. The interest of hon. Members is there to be seen—

Mr. Williams

Will the hon. Gentleman give way?

Mr. Redmond

No. I do not wish to take up a lot of time in what can only be a short debate.

I will not bore the House with a recital of all the provisions of the Bolton Report. The Government had already anticipated many of them before the report was published. They have accepted more of them, and I think that there are five recommendations left still to be approved. What a change from 1967, when my hon. Friend moved his Motion!

I could give a great long list of what the Government have done for small firms but that would probably bore the House. It is not my purpose to consider what has been done in the past. One does not get very far with congratulating a Government. What I want to do is ask for more.

It is worth mentioning two points which were particularly bitter experiences of mine—corporation tax and the short-fall provisions on taxation, which have now been removed. Like Oliver Twist, I am coming back for more, but, unlike Oliver Twist, I expect to get it.

I want to draw attention to how the policies of the last Government in relation to small firms helped, through another policy, to do a great deal to establish our present high level of unemployment. I do so because when I speak to trade unionists in my constituency about small firms I find that there is a certain fear of what they regard as small firms. They say "If you work for a small business, you are in danger of takeover". This is a misconception of what constitutes a small firm.

What it amounts to is fear of another aspect of the policies of the Labour Government—the Industrial Reorganisation Corporation, which forced the pace of takeovers and mergers far too fast. Some 3,000 public companies are quoted on the London Stock Exchange. If mergers had gone on at the same rate as in 1967–68 the final takeover would have been in about 1978. Presumably, there would then have been one firm quoted, and it would have been called UK Holdings, Ltd., or something similar. What a terrible picture! How ripe it would be for nationalisation! How awful to think of the industrial relations situation which would arise!

It is absurd to suggest that the process could have gone on at that rate, but it illustrates what was going on in what was called rationalisation, redeployment, shakeout—all the euphemistic terms which mean redundancy and unemployment.

I suppose that this was all forged in the white heat of the technological revolution. I always got a picture when these things were going on of a man telling his wife "I made a great contribution today to the advance of technology; I have got the sack"

I am not suggesting that takeovers as a natural course of events are wrong. What was wrong was to force the pace. It is important, because as companies disappear into other companies without new ones arising the result is unemployment. But if they disappear at a proper rate and new ones take their place there is a constant range of industry, which is surely what we are after. Under the Labour Government firms disappeared, while others were prevented from growing or even from starting. That was a recipe for unemployment if ever there was one.

When I heard my right hon. Friend the Secretary of State for Trade and Industry announce the new regional policies, I was not alone in fearing that the Industrial Development Executive was another IRC under a different name. I lost no time in tackling my right hon. Friend about this, for the reasons I have explained. I was glad to be reassured and to have that reassurance confirmed when I read the Industry Bill which came before the House a short time ago. I would ask the Under-Secretary to rub in this point, because I know of many small businessmen who are a little alarmed to think that the IRC might be rearing its ugly head again. They are fearful that the benefits of the Industry Bill will be going to big companies and will be paid for out of taxation on small companies.

I accept that much of the help in the Industry Bill is for areas of higher employment. But if small firms can be encouraged to start in areas of high employment, as they grow they will bring diversity to those areas which have been previously over-dependent on old, traditional and often declining industries.

In this connection, I draw attention to the Bolton Report. I stress that I am talking about the Bolton Committee Report and not about my constituency. I have been referred to as "the hon. Member for the Bolton West Report" on a number of occasions.

I mention two firms in my constituency, not because there is anything outstanding about them but because I happen to have visited them recently—Silicone Fabrications Limited and Hird-Brown Limited. There are other firms in Bolton and thousands around the country, but the remarkable thing about these two firms is that they began operations from nothing very recently. They began in Bolton because we had the right sort of labour and the right sort of infrastructure for companies of their sort. They represent all that is best in British industry. They lead the markets in their field. They have a reputation throughout the world far greater than their size would justify. I admire; the men who run them. I wish we could encourage more firms to be like those. When the knockers of British industry get on the old game of saying how bad we are and how bad British management is, I remind them that firms such as Silicone Fabrications and Hird-Brown are beavering away and creating secure jobs for those whom they employ. We need more firms such as those.

Small firms do not have only difficulties. They have some advantages, and it is only fair to put the other side of the balance sheet. One of their great advantages is good industrial relations. They can have good industrial relations because the board room is nearer the shop floor. Those who work in the board room are often busy on the shop floor themselves. Therefore, disputes are settled quickly, long before they become nasty disputes that lead to industrial unrest and strikes. On that score alone I appeal to the Government to help us to get more small firms, such as the two I have mentioned, started and developing.

The Small Businesses Association receives an average of three telephone calls per day from people who have the idea that they would like to start a small business and wonder how to go about it. I understand that the United States Government have a way of helping on this matter. They hold clinics—I think they are called "workshops"—which take people to square one in starting a small business. That seems an excellent idea which would help us sort the sheep from the goats. In other words, they find out, to begin with, whether a man has what it takes to start a business, whether he understands the snags which will occur when he has got started, and what he needs to develop the business. They start from a very fundamental point by asking him, or helping him to find out, whether he has the sort of wife it takes to start a small business. I know of many small businesses which have packed up in their early days simply because the proprietor has not had the sort of wife who would encourage him or who could understand the sort of encouragement she needed to give her husband when he was launching out as an entrepreneur. The Government should look at this matter when dealing with the proposals of the Bolton Committee for small firms advisory bureaux.

On that subject I must declare an interest. I am a director of the Manchester Chamber of Commerce and Industry. I am sure that the regional chambers of commerce, with Government help, could be made suitable bodies for assisting the establishment of small firms, with advisory bureaux, too. I do not mean all chambers of commerce, but such chambers as Manchester, Liverpool, Bolton, Birmingham, probably Preston, and the larger centres. They are probably ideally suited for this work. But the most important thing about the small firms advisory bureau is that it must not be bureaucratic. The bureau's existence should be well and widely known as a first point of reference for the small businessman who is seeking help on a particular matter. Here we may find that what would be described as a problem could turn out to be only a symptom.

Here, also, I must declare an interest as a management consultant. If the small businessman, as often happens, is so close to the wood that he is unable to see the trees, he may put the wrong question to the small firms advisory bureau. Over the past few years several firms have told me that they were short of working capital and needed to introduce more equity capital into their business, and they have asked me where they can find more. In each case, an examination of the cash flow of the company has shown that its liquidity can be restored to the right level without introducing more equity into the business.

In such cases as these, what I fear is that the small firms advisory bureaux may refer the proprietor of the business to a finance house, whereas I would suggest that he be referred to a management consultant—not to run the company into vast assignments at enormous costs but to achieve something that is quite cheap and cheerful. If we do not have the small firms advisory bureaux how could this information be disseminated to small firms? The Bolton Committee made some remarks about management consultants and advertising. Here I am on dangerous ground, and again I must declare an interest. Some management consultants who have advertised in the past have been charlatans. One particular company was notorious for charging fat fees with no possible result. The answer is that the small firms advisory bureaux must have a list of management consultants qualified to help small firms with at least the diagnosis of trouble at low cost.

Small firms do not want the Government breathing down their necks. The small businessman wants freedom to get on with the job, but with a Government who are understanding of his problems. Here I have another question for the Under-Secretary. I do not see how his Department can understand the problems of small firms when small firms are the very worst at giving information. I was grateful to the Prime Minister for his Answer to a Question about form-filling some months ago. As a businessman, I know how I hate filling in forms. The Under-Secretary should clear up this vital matter.

I turn to the question of the Common Market. When the Macmillan Government made their application to join the Common Market, I had the honour of being the Chairman of the North-West Export Club. That club consisted of people from small firms, whose qualification for membership was a maximum number of employees of about 250. It was made up of people such as myself who were keen on exporting. We even studied the Common Market as it applied to small firms, and we became very keen for Britain to enter. I am glad to find that that club, which still exists and is thriving—probably far better than it did when I was chairman—is still keen on Britain's entry to the Common Market, as are the small firms in my constituency with which I discussed the matter last summer in great detail.

Nevertheless, small firms sometimes have peculiar problems when it comes to exports. I have always wondered whether the Government and other people understand some of these difficulties. As an example I will refer to containerisation. Small firms by definition deal in small orders, which mean small loads. It is true that a number of small loads can be put together to make a big load for putting into a container. However, one then runs into the argument about stripping and stuffing. I do not want to go up that lane. One small firm has told me recently of the difficulties it now has with containers. By sending its orders into a packing warehouse to be put with others it is never quite sure where the goods are at any given time and, because of the extra handling that goes into the orders, which have to be put into a container with other orders, it gets a surcharge from its forwarding agent. I hope that the small firms' section of the Department of Trade and Industry will look at that sort of thing.

Although these orders from overseas may be small individually, in total they are not chicken-feed. I know a number of small firms in Lancashire, which were members of the export club at its inception and still are, which export as much as 90 per cent. of their turnover. I have done my share of sales abroad in the past, but the biggest individual order that I ever brought back was valued at £5,000. Surely the time is rapidly approaching for the Government to do something to bring about the co-operation of small firms to a greater extent than exists now and to help them to exploit common opportunities. I suggest that the Government might use the export club movement which I founded. The North-West was the first in this respect. As always the North-West of England leads the way in many things.

Regarding the Common Market, I had a letter the other day from a firm in my constituency, BYC Engineers Ltd., asking me to impress upon the Government the need for help in two ways. The first was to get value added tax into operation as soon as possible. BYC said: It makes sense to us as international traders. To support that view I was sent a copy of a letter the firm had had from its Belgian agents, which contained these words: Until the British Government takes necessary steps to enable you to quote reasonable prices you are at a disadvantage. The point was that companies in this country are carrying the full burden of British taxation with purchase tax, where it applies, on all their purchases, SET, and so on. Then they export their goods which immediately attract VAT in Belgium and all over the Continent. So we are suffering in a way from double taxation on our exports. I was glad to assure BYC that VAT was on the way.

I have raised this matter this afternoon because, although VAT will give an advantage to the small exporting firms, it will bring other problems—for example, accounting, where small companies will need advice and guidance.

The second point that BYC made to me was that the constant upward pressure of wage costs, both direct and indirect, at a pace set by the big firms and nationalised industries, should be controlled as soon as possible. It was put to me in this way: "We are about to cross the Rubicon. We have reached it, but we do not want to go across because, if we do, we will not get back. The only thing on the other side of the Rubicon is more unemployment in Bolton."

My final point on the Common Market is that the small firms are asking for equal treatment with their opposite numbers in Europe with regard to restrictive practices. They want to be able to co-operate for combined sales, so long as they do not exceed a certain size, without being hauled before the Restrictive Trade Practices Court. This may mean new legislation, but I hope that the Under-secretary in reply will give us some guidance on that matter.

The effect of what I have been saying is to encourage the entrepreneur. I regard him as the greatest social service in this country. He does not see it this way. He does not regard himself as a social service. He is in business because he wants to do the best he can for himself and his family; but, as he succeeds, he creates wealth for the nation and jobs for other people.

The Bolton Committee's Report expressed surprise that certain small firms were more efficient than big firms. It surprised me that the Committee was surprised. I should have thought it was obvious. I have been around for quite a time in both politics and industry. I have served on committees of many sorts, political, industrial and commercial, and on bodies like the British Legion. I have travelled abroad with my briefcase looking for orders. I have met men and women of all shades of political opinion in many countries, but I have never yet met that paragon of virtue who has reached the standard where he can spend other people's money better than he can spend his own. I suggest that the entrepreneur of small business is looking after his money and, in doing so, is serving the nation.

4.26 p.m.

Mr. Eric Cockeram (Bebington)

I congratulate my hon. Friend the Member for Bolton, West (Mr. Redmond) not only on coming top in the ballot for Private Members' Motions but more particularly on selecting this important subject and highlighting it so capably

I, too, claim a similar qualification for speaking on this subject, having spent my working life before entering politics struggling with the problems of a small family business. Not only do such firms have problems of fierce competition, but often that is the least of their problems. The problems that face the small family business today are more frequently the pressing problems of survival and fighting for the position and conditions which are necessary for the small business to survive. In that respect, I particularly congratulate that small group of enterprising people who in 1967 established the Smaller Businesses Association on the valiant work that that organisation has done since 1967

More recently I have had the privilege of being a member of its council and seeing its work from the inside. A lot of the progress that has been made in pressing for the conditions that smaller firms need and the success that has been achieved in bringing about those conditions is due to that organisation

The Institute of Directors put the matter in perspective in a recent survey when it showed, as my hon. Friend revealed, that 25 per cent. of the working population was employed in small businesses and that collectively these small businesses were responsible for 20 per cent. of the gross national product. That is more than the entire output or contribution of the nationalised industries. We spend a lot of time in the House discussing the problems of the National Coal Board, the railways, the electricity boards and other nationalised industries, but in total they do not achieve an output greater than that of all the small businesses. Therefore, my hon. Friend has made an important point in highlighting this aspect of our economy

The CBI in its survey revealed that in manufacturing alone 2½ million workers are employed in small firms, and the output of these businesses is in excess of £6,000 million. Of the manufacturing industry firms in this country, 97 per cent. employ under 500 people and 75 per cent, employ under 100 people. Perhaps we should remind ourselves that large businesses are merely the smaller business of yesterday, and the large businesses of today still rely to a large extent on the smaller businesses. Companies such as British Leyland are in many respects assemblers of parts supplied by specialist smaller businesses. They choose to buy those pants from those smaller businesses because they can manufacture those parts more efficiently and deliver more promptly than the large business could manufacture them itself.

The decline of the small company should have been worrying Governments in this country for a longer time than it has. The number of new companies steadily increased up to 1964 and since that date showed a marked decline. This decline has now been reversed, and the number of new companies registered last year was the highest since 1961. This year's number of new registrations looks like being higher still, so we are beginning to correct this situation.

Professor Erhard, sometimes called the "economic miracle man of Germany", is on record as saying that the economic miracle was due not so much to the achievements of their great industries but to that which has been achieved by the smaller private companies. In that respect my hon. Friend the Member for Croydon, North-East (Mr. Weatherill) was ahead of his time when he highlighted the unique advantages of the smaller businesses in a document entitled "Acorns into Oaks" in 1967.

Those who work in smaller businesses have a much greater sense of involvement in the company, and in this type of business there is more co-operation with management because, as my hon. Friend the Member for Bolton, West said, management is actually on the work floor for so much of the time. This leads to much greater job satisfaction. It is, therefore, not surprising that the record of absence through sickness in smaller companies is dramatically lower, on any method of comparison, than the record of absence through sickness in the larger companies. By the same token, the industrial relations record of the smaller companies is remarkably better, too.

We have reached the stage in this country where if there is a strike in a small factory employing 10 or a dozen people it is reported in the newspapers as a joke and something which is unique. Yet in the large factories where official strikes and other disputes are so numerous many of them go unrecorded. There is a smaller staff turnover in the smaller businesses. These are social benefits which are often overlooked. The proprietors of these businesses contribute to the local community in a way that managers in the larger companies do not. The proprietors of smaller businesses contribute a disproportionate number of people to such important bodies as local councils, charity committee and chambers of commerce.

In these days when we are troubled with unemployment one factor concerning the small businesses which is often overlooked is that they are indigenous to the region in which they exist. Therefore, when there is a recession they cannot close a branch factory. When a large company with, perhaps, six factories spread over the country is faced with a decline in business so that it can produce its requirements in five factories, instead of cutting production at each factory by one sixth it short-cuts the matter by closing one factory and operating the five others on full production. We cannot blame it for doing so because no doubt it is economic so to do. But the smaller business which is indigenous to the region cannot do that, and its contribution, therefore, to development areas such as my own on Merseyside is very much greater than that of the branch factories of large companies.

The smaller businesses also occupy a larger sector of the service industries, and the economists tell us that the service industries will expand over the next decade. As the country becomes economically more sophisticated, so the number of manufacturing companies and the amount of employment in them tends to decline as they become capital intensive. As the country becomes wealthier and the consumer's purchasing power increases, so the demand for service industries increases. It is here that the smaller businesses have a significant part to play.

Tourism in London means a great deal to the service industries and the smaller businesses there. For example, the attrac- tions of Carnaby Street have not been achieved by the big stores, which have largely gone to sleep. The smaller one-man businesses have experimented and taken in a few friends and partners who have brought about a revolution in Carnaby Street. The same thing has happened in Kings Road and in the antique trade. The newer and expanding businesses are being exploited by the enterprising smaller concerns.

The Government have done a great deal since June, 1970, to help the smaller businesses. In particular, the acceptance of the major recommendation of the Bolton Committee's Report that there should be a small firms division within the Department of Trade and Industry has been one of the greatest contributions towards solving the problems of the small business. On behalf of the small businesses of this country, I congratulate and thank the Minister who was responsible for initially setting up that division, my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). He has earned the gratitude of all the smaller businesses of this country. The benefits of what he has done have already been seen in large measure. More is to come I am sure in due course under the guidance of the present Minister, whom we welcome to this position.

Many of the onerous aspects of the Industrial Training Act as applied to small businesses have already been repealed. Form filling and statistical surveys are a particular burden on the proprietors of small businesses. These proprietors are men and women who often are not particularly well qualified to handle these sophisticated questionnaires. They are more concerned with working on the shop floor and producing the product at which they are expert.

The Government's proposal for a lower rate of corporation tax for smaller businesses when the new system of corporation tax is introduced next April is particularly welcome because smaller businesses do not have access to the capital markets in the way that the large companies do and they have to rely instead to a great extent on retentions.

Mr. Alan Williams

Will the hon. Member take this opportunity to make clear that it is not a lower rate of tax? It will be the same rate as this year on retained capital. It is just that the small businesses will not be facing the higher rate that they would otherwise have faced.

Mr. Cockeram

That is a common misconception, and I am surprised that the hon. Member shares it. The smaller business paying a dividend at the moment pays more in tax than it will pay in future under the Government's proposals, and it is wrong to suggest that proprietors of the smaller businesses are not entitled to interest on their capital.

The Government have introduced more generous measures to enable controlling proprietors of smaller businesses to contribute to their pensions. The former provisions were quite inadequate, and the change is very much welcomed. Also welcomed is the repeal of many of the "shortfall" provisions which apply to close companies, but I believe we have further to go in this direction. I would ask my hon. Friend to bear in mind the recommendation in the Bolton Report about the small firms advisory bureaux. I and many others concerned with small firms do not agree with Bolton's belief in the need for these bureaux. Advice should not be divorced from the lending of money and the raising of capital.

The Industrial and Commercial Finance Corporation is giving a lead. Smaller businesses borrowing capital from the ICFC receive from it supervision and guidance on how they should manage their business. The ICFC exercises a sort of overseeing control of the capital it has lent. The clearing banks have something to learn here. They should consider a greater supervision of loans to smaller companies. Retired directors of close companies and others could be recruited by the banks at comparatively modest cost to operate such a system of guidance and advice on loans. The advice offered should not be divorced from the advance of the capital.

I am pleased that the Bolton Report commented that there was no evidence of a Bolton gap—in other words, any lack of opportunity for the smaller companies to raise capital. I share this view. However, many smaller companies are not aware where they can obtain capital, and in that respect assistance is needed from trade associations. It is not necessary to set up any further organisation or a proliferation of advice centres.

I hope that my hon. Friend the Minister will consider four measures to help smaller businesses. First, the disclosure provisions are particularly onerous to smaller businesses. For example, a small company running a one-factory operation must file its accounts, which are available for inspection by its competitors. These include factories of a similar size and scale, probably in the same neighbourhood, but factories which are branches of a large public company. Although that large public company publishes its accounts, it is not possible for the small businessman to see the detailed accounts of the branch factory which is one of his competitors. I know the Government have made some provisions to cover this, but they have not gone far enough.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Might not it be better to extend the disclosure requirements to the branch factories of large businesses rather than reduce the disclosure requirements for small businesses?

Mr. Cockeram

I am grateful for that suggestion, and would willingly accept it. All I am arguing for is parity, so that the larger company is not at an advantage over the smaller company.

Secondly, although much has been done to make the close company provisions less onerous, I hope the Government will give consideration to the complete abolition of shortfall requirements on trading income. It is argued that from a taxation point of view this would make it possible for small companies to turn themselves into "moneybox companies", piling up cash. In some instances this is legitimate if it is retained earnings needed for future expansion. In other cases it may not be needed for expansion. But now that we have capital gains tax those companies are caught when the shares are transferred. Many of the provisions for shortfall were put into Finance Acts long before we had any capital gains tax.

Thirdly, capital gains tax is also a problem for the smaller business, in that shares perhaps being transferred on average at 10-year intervals reflect the increased value caused by inflation in the interim decade, and capital gains tax has to be paid on a mythical gain. In fact, it is a tax on the capital of these smaller businesses.

Fourthly, there is the problem of death duties, often called the "killer tax" for smaller businesses. I am glad my right hon. Friend the Chancellor of the Exchequer has produced a Green Paper on an inheritance tax. I hope that when introducing his new proposals he will take into account the need to accumulate savings after tax to cover the increased paper value of shares in smaller companies.

Smaller companies are at a great disadvantage on the occasions when the Revenue insists on an assets valuation for death duty. The valuation of the shares in a public company is always on the Stock Exchange price, largely on a yield basis. I hope my right hon. Friend the Chancellor will bear in mind that the damage that can be done by an assets valuation has been acknowledged and taken into account for some smaller businesses. There is provision for a 45 per cent. rebate in the case of farms, to save breaking up a smallholding into an even smaller, uneconomic holding, and that rebate has more recently been extended to industrial buildings and plant by the same argument. I was particularly pleased to note that the Bolton Report recommended that the 45 percent. rebate should apply to net trading assets of smaller companies. If my right hon. Friend cannot accept that recommendation, I hope he will accept as a compromise that where a small company on a death has its shares valued on an assets basis it should be permitted to adopt the 45 per cent. rebate. A company should have the option of deciding whether to accept valuation on a yield basis without the rebate or on an assets basis with the rebate. But I hope that in due course my right hon. Friend will be able to accept the full Bolton recommendation and give full (rebate as Bolton recommended.

I repeat that the smaller private business does not want patronage or protection. The last sentences of the Bolton Report sum the matter up very fully: Fortunately, the sector has shown its resilience in adverse conditions…We believe it will continue to do so…but we trust that in future it will be with the greatest possible encouragement from public opinion and understanding from Government. I echo those sentiments.

4.48 p.m.

Mr. Robert Maclennan (Caithness and Sutherland)

The hon. Member for Bebington (Mr. Cockeram) made some remarks about the provision of advice to small firms, and I should like to return to those points later. But I begin by expressing appreciation to the hon. Member for Bolton, West (Mr. Redmond) for initiating this important debate, which is of considerable interest. It is only because Parliament is engaged in extremely heavy legislative processes at the moment that the attendance is somewhat sparser than might have been hoped. A number of my hon. Friends who would have wished to take part in the debate are otherwise engaged in the building. But the whole House welcomes the opportunity provided by the debate.

The hon. Member for Bolton, West was less than generous in his recognition of the real interest evinced by the Labour Government in the problems of small industries, which led to the setting up of the Bolton Committee, whose Report is the foundation of the debate. It was not only my right hon. Friend the Member for Grimsby (Mr. Crosland) who, as President of the Board of Trade, took a personal interest in these problems, but a number of others who, by their initiative in the matter, gave rise to the most far-reaching inquiry into the problems of small industries that we have had for a very long time.

The Bolton Committee is to be congratulated on having produced such a comprehensive, in some respects controversial and in many respects novel, report, which contains a vast amount of information about the problems of small industries and a number of very useful suggestions, some of which have already been acted upon.

It is also right that the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) should receive recognition and the tribute of the House for the work he did as Under-Secretary of State in setting up the Small Firms Division of the Department of Trade and Industry which was so welcome.

I want to confine my brief remarks to one aspect of the subject which got perhaps relatively little treatment in the report. Indeed, it was not even mentioned in the summary at the end of the report of the eight major contributions which the small firms make to our economy. This is the extremely important rôle played by small firms in the regional development of what might be called the peripheral non-industrial areas I think this will be widely recognised to be very important in maintaining an economic balance in large areas of our country. It is partly because of my experience, even within my own constituency, of the important rôle that these small firms play that I want to contribute to the debate.

In the Highlands and Islands of Scotland there was for many years no recognition that manufacturing industry could have a stabilising rôlein the development of the economy and could help to provide opportunities for the employment of young people particularly who would otherwise leave the area. In a sense, we have seen innovation in the Highlands and Islands in the assistance of small firms which would be worthy of study by the country at large, as it both touches upon a number of important principles and provides evidence of the kind of problems which can be partly assisted by the intervention of Government or of Government-backed public bodies.

One of the features of the small firm and its rôle in the local economy is that it can be both stronger and, obversely, weaker when the economic situation is blowing hard against industry generally. It is sometimes stronger in that it may find that, although the level of demand overall falls, there may be a particular need for an industry and it remains relatively untouched. Equally, however, it may be weaker in that it may be swept aside by a side wind and not be able to draw upon the resources of a larger concern to help tide it over the difficult times. Both these phenomena have been observable in the Highlands situation.

It is partly because of that that I take issue with the hon. Member for Bebington in his view that specialist advisory services should only be linked to the raising of capital. It is not always the necessity to raise new capital or to expand commercial or industrial endeavour that leads small firms to look for the kind of advice that might be helpful.

Much of the advice which firms in the Highlands look for may relate to such specialist services as information on how to obtain the best terms for transporting their products, for example, to quite remote places. It is not within the resources of a small firm to make the necessary inquiries without considerable difficulty, and the end may well be that it will choose some rather less economic alternative source than one which may be available. I recently heard of a sweet-manufacturing firm in the Orkneys which got into difficulties over the transport of its products. The firm wanted to export but encountered the high cost of transport. The Highlands and Islands Development Board was approached for advice on how best to deal with the high cost of freight. The board had within its own resources information on a number of alternative routings and freight charges which, I am glad to say, greatly helped the firm and, indeed, gave it a new lease of life to enable it to expand its activities when there had been some risk that they would be contracted instead.

There is much to be said for looking carefully at the proposal of the Bolton Report about the setting up of specialist small firms' advisory bureaux throughout the country to advance and make available this kind of advice, co-ordinated on a national scale. Of course, no one is forced to take the advice and in the last analysis the managers of the small firms would have to evaluate the advice for themselves, and it may well be that many would not choose to use it. But it would be desirable at least to have it available, and not only because a firm has some need for raising capital.

Those who have spoken already in the debate have indicated the importance of the small firm to the economy as a whole, and it does not require emphasis from me. In a sense, that is the foundation upon which we all operate and which we all understand. But at this time it is right to ask how the Government themselves envisage assisting small firms, in particular to develop their export trade, especially within the European Economic Community. It is here that I think that assistance in co-ordinating and providing, as it were, umbrella services may be of great importance in enabling these vital parts of our national industrial economy to take advantage of membership of the EEC.

In my constituency alone are a number of small firms which have a quite admirable record of exports—for example, firms such as Caithness Leather, Scottish Instruments, Sutherland Fly, Caithness Cheese and Caithness Glass, among others, which employ each up to 100 people and have demonstrated a capacity to export. But, of course, these are all in a sense growth industries whose potential could be realised within the Community with a considerably larger export trade. How do the Government foresee assisting firms of this kind to discover new markets, to arrange for exhibitions within the Common Market countries at which their products can be set off to advantage? How do they see follow-up services, after-sales inquiries and so on being best handled?

There was one curious omission or under-playing of an important question in the context of the industrial development of the remoter areas by the Bolton Committee, and that was with regard to craft industries. It made no specific recommendations although it recognised a case for assisting financially craft industries on social although not economic grounds. It is very hard to draw the line between what is truly a craft industry alone and what is truly a small industry based upon craft which has growth potential.

A number of industries that I have mentioned in my constituency are clearly border-line cases which have expanded from humble beginnings to the employment of perhaps two or three dozen people with a considerable export potential. It would be wrong if, for any kind of ideological reasons, there was any discrimination against craft industries. I do not imagine that would be in the minds of Ministers, but classifying industries as craft industries is perhaps a somewhat out-moded way of approaching industrial problems.

I agree with and endorse what the hon. Member for Bebington said about the growing importance of the service sector. This is of tremendous importance particularly in the developing rural areas. In passing, I wish to record the sense of disappointment experienced in many areas when the Government felt it necessary to terminate the hotel development scheme which was beginning to bear considerable fruit in some areas. It does not seem consonant with properly catering for the growth of tourism in the rural areas. In the light of the developments involved in the introduction of the new Industry Bill and the change of philosophy which this involves the Government might do well to reconsider this scheme.

I would also recommend the Minister, although with little hope that he will look favourably upon the suggestion, to consider carefully the advantages for the small firm in particular of establishing, even if only in an experimental way at this stage, a State holding company. As the hon. Member for Bebington has said, the difficulties of small firms in financing their operations from the capital market means that they have to rely on retained profits. The rate of expansion may not be as rapid as it would be if access to the capital market were more open.

Mr. Cockeram rose—

Mr. Maclennan

The hon. Member wishes to intervene but I have not finished developing this point and perhaps he would prefer to intervene later. This is a subject of some interest to me in the Highlands context. Again we have experence of an analogous development through the operations of the Highlands and Islands Development Board in taking equity shareholdings in companies operating in the Highlands or for the benefit of the Highlands, which followed incidentally from the passage through this House of a Bill which I introduced in the lifetime of the last Parliament.

It is frequently better and easier for companies—as has been proved by the experience of the Highlands and Islands Development Board—to expand in this way rather than to encumber themselves with servicing loans at an early and delicate stage of their growth. Consequently there is a case for the establishment of some such national body with these financial powers which would not only have the effect of strengthening the capital base of a number of small firms operating in such areas but might also help to protect them from the rough winds which sometimes blow through our economy.

Mr. Cockeram

Would the hon. Gentleman acknowledge that one of the major points made by the Bolton Committee was that there was no shortage of capital to assist the smaller businesses and that: there was no "Bolton gap"? I reiterated that aspect of the Committee's report. On that argument I do not think it can be assumed or implied that I was arguing that there was a necessity for a State holding company.

Mr. Maclennan

I would not have attributed that to the hon. Gentleman. I think he tried to have it both ways. On the one hand, he was trying to suggest that small firms ought to have an easier tax burden because of their difficulty in obtaining access to the capital market and, on the other hand, he was saying that they really have no capital problems at all which might, if carried to its logical conclusion, throw some doubt upon his suggestions for the alleviation of taxation or special taxation of small companies, which was a proposition rejected by the Bolton Committee. I do not expect that the suggestion I have made will meet with overwhelmingly enthusiastic support on the other side of the House and it may well remain to a Government from this side of the House to carry forward what I believe would be an important industrial innovation.

I want to draw attention to one area of difficulty observable at present in the Highlands and Islands due to the uncertainties which have arisen over the Government's intentions in assisting industry in the region. I have sought to put to the Secretary of State for Scotland on one or two occasions the doubts about whether the new Industrial Development Executive would be in a position to offer financial assistance to companies operating in the Highlands areas substantially greater than would be available from the Highlands and Islands Development Board.

There is considerable doubt both about the terms upon which that aid would be offered to small firms operating in these areas by the new Industrial Development Executive and about the level of assistance available. The Secretary of State has contented himself with saying that the aid which is available is different. No one doubts that. What is needed now is for the Secretary of State for Scotland and the Department of Trade and Industry to get together and to issue a clear statement of their intentions. It is perhaps significant that in none of the literature produced by the DTI is any reference made to the special assistance available in the Highlands and Islands for incoming industry. This is unfortunate because, as was recommended by the Select Committee on Scottish Affairs, there should be a special financial edge available to be offered to small firms operating in areas of such peculiar difficulty as the Highlands and Islands. It is not clear what, if any, special edge remains after the introduction of the Government's new proposals. So there is here both a general point to be answered and a particular question of how these smaller firms should proceed if they wish to expand at this time.

In my view it is quite possible that it is this uncertainty which is holding up useful investment in the area. I would simply draw attention to the fact that since the hon. Gentleman's Government took office there has not been one single new manufacturing industry which has located iself in Caithness on the industrial sites there, although in the 18 months prior to the General Election there were no fewer than five new small businesses, now employing upwards of 250 people.

This is an unhealthy situation stemming at least in part from the uncertainty which the Government have allowed to prevail, and I hope that the hon. Gentleman will now feel able to throw some light on that situation.

5.11 p.m.

Mr. Charles Simeons (Luton)

I am grateful to my hon. Friend the Member for Bolton, West (Mr. Redmond) for choosing this subject. This may, perhaps, sound like a hollow reiteration, but bearing in mind that this is the first debate on this subject in the whole of this Parliament—just as the Motion I was fortunate enough to have an opportunity to choose, and which dealt with road transport, was the first debate on that subject—all hon. Members, I am sure, can say with great conviction that they congratulate my hon. Friend in giving us this opportunity, because if he had not we should not have had it. I am sure that we are also grateful that the debate is happening when we are all awake and not late at night or in the very early hours of the morning.

The problems of small businesses are quite different from those of large businesses. They are totally different animals. Small businesses are not minor versions of large businesses, nor are large companies grown up versions of small businesses. There is a great need for both large and small businesses, and they are interdependent. Certainly in my constituency, an engineering constituency, to a great extent the small businesses fill the rôleof sub-contractors without whom the large companies would not function. I hesitate to think where Concorde or the Queen Elizabeth or even the building which houses the Department of my hon. Friend the Under-Secretary of State would be, I wonder if they would be in being at all now, if it had not been for small businesses. Conversely, if the Concorde project were to stop, or if any of our major engineering projects or companies were suddenly to cease, the effect on small businesses would be quite enormous. So it is a great opportunity we have today to discuss their problems, and that is why we all welcome it.

My hon. Friend the Member for Bebington (Mr. Cockeram) stressed how small companies employ in total large numbers of people. Of course they do. Because they have small-scale working they have good communications between employers and workpeople, as my hon. Friend said—good industrial relations, because there is interest in the job. Those of us who have been to the large factories of the great motor car manufacturers, and others, will have seen the belts going by with men doing the same job time after time, and we know that many craftsmen leave those companies and go to work for small firms, even possibly at a lower rate of pay. A man goes because he wants a job which is interesting, and also he wants one on which he can depend. A small business does not lay its people off when things are a bit rough Small businesses do not have strikes, which mean people get laid off. They do not have strikes because there is that feeling amongst the men of belonging to the business, and they know how well their firm is doing. If the stockroom is getting empty they know that it is no good shouting the odds for more money; when the stockroom is piling up a good boss will see that they get it.

I was fascinated when I went on a lorry trip to France, and when the driver of the lorry I was in went into a first-class dining room, which I thought excellent, although I myself was aiming for the cafeteria, until I felt that I should not go off on my own, so I joined him. I said to him, "Does your subsistence allow for this?" He replied, "No. We do not have subsistence as such. I have a good boss. He expects me to do a good day's work, and because I do it he pays the bill. He expects me to come in here and to have a glass of the old vino, and I send him in the bill." I could not picture this happening in one of the large companies in my constituency, and I doubt whether any hon. Members would find it happening in large companies in their constituencies.

As I say, in a small firm there is a special feeling of belonging. There is also great inventiveness and great enterprise in small companies, although their very dependence on large companies stems from the fact that they are so often unable to develop it, and the people with inventiveness have often to pass it on, and when they or a small firm become involved with a big company the inventive spirit is often quenched even to disappearing. My hon. Friend mentioned great inventiveness in his constituency. I know of one small firm which, I believe, exports spaghetti to Italy. It is difficult to picture a big company doing that.

Small companies are efficient in day to day practice because they have to be, but, on the whole, they make much poorer use of their assets than do large companies with theirs, and that is because the small companies have not financial backing. There are certain problems there, and that is what we are discussing. They have difficulty in raising finance and having sufficient finance available because they become creditors of large companies.

A large company can send out an edict that it wants its account settled in six months. A small company dare not do that, dare not do more than ask politely for payment, and it dare not because it is afraid that it will not get orders in future from the big company, its creditor. I was once in the very happy position of selling to ICI large quantities worth a few thousand pounds while we bought from them £100 worth, and I was able to beat the ICI system for settlement. ICI wrote saying it would not supply more unless I settled the account. I wrote saying, "We shall not pay your account unless you pay yours." That was not bad, because ICI owed my company some hundreds of pounds, whereas my company owed ICI17s. 6d. However, this shows the disadvantage in which small companies can find themselves.

Therefore, the first thing which small companies, just as much as big ones, are looking for is that inflation should be contained, and certainly those in small companies, both employers and employees, are doing all they can to meet it. Although there may be funds available it is much more difficult for small companies to acquire them in the same way large companies can because the equity is not marketable; it is a very narrow market in the shares in small companies, if any market at all. Also there is always the threat of death, even at an early age, of one of the shareholders, and that can upset the pattern of a company. It is vital that small companies should be given opportunity to make profits. I am certain that the measures taken in the Finance Bill are beginning to give them this opportunity, certainly for some companies in my constituency in Luton.

A small firm has the great virtue of understanding its business. This is one of the first fundamentals, but a small firm needs support to make the most of it. This is being given by the Small Businesses Association. My hon. Friend the Member for Bolton, West referred to companies which ring up the office three times a day. I do not wish to suggest that we are not interested in the Small Businesses Association but, having once met the General Secretary, I am not surprised that businesses ring her up three times a day. I think she is sitting in the Gallery now—

Mr. Redmond

I was referring to three individuals per day asking for advice on how to begin business as small firms. I should think that the members are ringing her up all the time.

Mr. Simeons

The first support which small businesses need is expert accountancy advice, and they can get that easily. Here I differ from my hon. Friends the Member for Bebington and the Member for Cirencester and Tewkesbury (Mr. Ridley) on the question of disclosure. I am not saying that there should not be disclosure, but large companies and small companies can never be on a par, because the small companies have to bare their souls. They are asked to say where their weaknesses are and then the big boys can take them over. I see no virtue whatever in disclosure by small companies, because anyone who is not a nitwit can find out the financial status of a company without waiting 14 months for the accounts to come out. By the time the accounts have come out they are probably out of date and the whole situation has altered.

The fact that accounts come out from a large company does not necessarily mean that there is disclosure. If it did, what was everyone doing about Rolls-Royce? A few people should have their heads on the block over that. That experience shows that accounts are not a crystal ball and do not show very much. Therefore, we must ask ourselves whether in making small companies disclose their position we are offering them up to the altar of sacrifice.

My hon. Friend the Member for Bolton West has dwelt on the need for services towards better management. That is a subject in which I have an interest in that I have been involved in a group which is endeavouring to start an institute for production control. Management is one thing and the delivery of goods is another. The small company probably delivers its goods quickly because it has to get the money in, but there is virtue in looking at the methods of production control.

One factor which needs expertise which is not readily available is environmental pollution, particularly effluent treatment. Many problems will arise because, as we begin to put our house in order, small companies will have to conform. We may have to consider, bearing in mind how expensive it is, whether finance should be made available at low rates of interest to enable this to be done. It does not matter so much where a company is set up; what really matters is the type of river. A company setting up on a filthy river has to conform, but a company setting up on the Thames or in the south of England where the rivers are clean will have to conform so stringently.

I had lunch today with an engineer who runs a sewerage works not far from Luton. His expertise is such that he claims—and it is true—that he has the best fish in the whole of England; he is willing to compare them size for size with fish from anywhere. The fish just came there and have increased to such an extent that he is embarrassed by the numbers. That is the sort of standard we have to achieve, but it is extremely expensive and often completely outside the scope of the small business.

My right hon. Friend the Secretary of State for the Environment is looking into the question of disposal by county councils. It is one thing to set up disposal centres and another to transport the material which is to be disposed of. For example, if there is a million gallons of waste to be disposed of it may be better to treat it on the site. We need to look at the evidence.

The process of registration for all companies is much too slow and I hope my hon. Friend the Under-Secretary of State will look into this.

I am not seeking Government intervention. The Government have the rôle of pointing out the directions from which help can be given. The nucleus is already there. My hon. Friend the Member for Bolton, West mentioned chambers of commerce. My own chambers of commerce has studied the Bolton Report and is drawing expertise from the large companies which have set up a panel to help the small companies. By extending that system to exporting, effluent treatment, production control and so on a great deal can be done, partly on a voluntary basis and partly supported by the industrial liaison officers from the technical colleges who also have their own support. I am not opposed to an industrial advice bureau but I do not believe that it will solve all our ills.

I enjoyed hearing the Under-Secretary of State speak at the lunch at the annual general meeting of the Small Businesses Association. He said that (he had a lot to do with small businesses because people came to him in his capacity as a lawyer for advice. I suggest to him that that rôle should be reversed. He will have to go out to them. It is only by going out and checking up whether the things we are saying today are correct and that they are acted upon that we shall be able to offer a better future for small businesses.

5.26 p.m.

Mr. Wilfred Proudfoot (Brighouse and Spenborough)

The hon. Member for Caithness and Sutherland (Mr. Maclennan) who suggested the setting up of a State holding company to help small businesses cannot know the ethic and motivation of men who run small businesses. They are entrepreneurs, aggressively and robustly independent, who are just as likely to thumb their noses at a Conservative Government as at a Government of any other complexion—and long live that attitude.

Capital is available to enterprising people in this country as it is in America. Wherever there is private enterprise there is money which is looking for enterprising people, young people with energy and brains. Money is there and it can be got by the more enterprising members of our community.

I congratulate the Government on the way in which they have picked up the suggestions contained in the Bolton Report. The Government are more than half-way through the recommendations if my score card is correct. I regret that we are behind some Common Market countries in this matter, and behind America with its Small Business Administration. That is a disappointment, but we must remember that the six years of the previous Administration were probably the roughest six years for small businesses in the history of this country.

Immediately after the small business administration was set up here I met my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) who was then Minister. I believed at that time, and still do, that the most difficult job for the Minister in charge of small firms is how to communicate with these aggressive individualists. It is not easy to get hold of them; they are too busy to bother! The more successful ones believe that it is through their own enterprise that they have got on, and this makes them more independent than ever. I repeat, the problem of communication will be the biggest.

I am delighted that the Department has introduced this prize. I had some conversations about whether we should initiate scholarships—for short courses or travel to be offered to entrepreneurs, as one snag is that these small entrepreneurs do not get around as much as they should and do not have adequate communication with their fellow businessmen and those in their line of business which is vital to their well-being.

One modern idea which should be considered is the technique of programmed learning. Since the businessmen with whom I am dealing are likely to have their noses well to the grindstone and since they do not become involved in the mainstream of industrial and management training to the degree they should, programmed learning will have great relevance to their needs. For example, I have known programmed learning applied to hamburg makers in Wimpy Bars where use is made of teaching machines on how to become a hamburg maker or chef. Surely if one can programme teaching methods on how to make a hamburger, there must be many businesses to which this technique could be applied—for example, to discounted cash flow techniques. My hon. Friend who introduced the debate said that if small firms are told to reduce their stock or get in their debts they will have more capital with which to expand. This is the sort of technique which can be programmed. Therefore, I urge the Minister to look at programmed learning because it is so suitable to the entrepreneur.

Since people running small businesses are scattered throughout the country and are not the sort of people to make journeys to places of education, then the use of programmed learning could be made available to them cheaply and efficiently. The small businessman could use this technique in his own time, and in the middle of the night if he so wished. There must be 20 or 30 techniques which would lend themselves to this sort of learning. I am not qualified to speak about the application of this technique to the production side of a company, but I am certain that in the realm of production much could be taught to the small firms.

There is one area in which small businesses will never be able to compete with big business, and I refer to lobbying in this place. There was an article last week in the Financial Times entitled "Lots of Access and Little Success" which referred to the lobbies that existed. About nine years ago I said in a debate that lobbies in this country existed just as widely as they did in the United States. I said in the House that the National Union of Railwaymen and the National Union of Teachers and various others had their lobbies here and my remarks were not given a very great welcome on the other side. It does not need much imagination to realise that the Small Businesses Association will not have the sort of resources for lobbying at its command as, say, those at the command of ICI and will not be able to make the sort of appeal to the Government as is made by big business.

The Financial Times article is well worth reading. The big companies pay very highly for these lobbying services. It was suggested in the article that the Heinz company in the United States is willing to spend 200,000 dollars to create a lobby in Washington. I am convinced that manufacturing companies here will always outpace groups of small businessmen in assemblying lobbies. We in this House have a moral duty to see that the voice of small business is heard.

In a modern industrialised society such as ours a great growth area in our economy is that of the services demanded by the public, and this is one area in which the small entrepreneur can excel. The Bolton Committee's Report estimated that 75 per cent. of employment in catering is provided by small firms. The very large firms are trying to get into service industry. I believe that in the fullness of time they will be able to do so, but they will not be as successful as they have been in manufacturing.

I believe that young people should look at all the advantages of employment in a service industry rather than in industries producing goods. However, I have no doubt that many of these young people will go into production and will succeed magnificently.

I should like to refer to a specific point, and this relates to a suggestion which was rejected by the Bolton Committee. I refer to what happens when a small businessman finds himself the subject of a compulsory purchase order and, through no fault of his own, suddenly finds that he has made a capital profit. I took up this matter with the Treasury recently. This relates to the small firm which does not seek to make a capital gain but has one foisted upon it.

Mr. Simeons

Will my hon. Friend consider the sort of situation which occurred in my constituency where a firm had a compulsory purchase order thrust upon it and presumably would have had to pay capital gains tax. However, the Council decided that it did not want the land and said that the firm could tender for it back again. Does my hon. Friend not agree that this sort of activity produces an odd situation?

Mr. Proudfoot

I am convinced that capital gains which flow from this sort of situation have some weird results. Surely in the case of a compulsory purchase order there is no need to impose capital gains tax on somebody who has made a profit which he did not want to make in the first place. We all know what happens to property when the Government suddenly decide to build a motorway or large roads in one's constituency. It produces planning blight and the value of nearby properties is thereby reduced. A man can only sell at reduced value; then along comes the council and slaps a compulsory purchase order on the property and the man finds himself faced with a profit. He loses out at both ends because of blight and because he has made a profit which he has not sought. This surely is an instance where my right hon. Friend the Chancellor of the Exchequer could take action in his next Budget and prevent lots of heartaches for the small businessman.

I remember recently addressing 300 students at the Hull University. I thought many of them were the sort of people who on leaving university might wish to go into business on their own. When I asked, "How many of you are going into business on your own?", I was shattered with the answer: only two people put up their hands. Our educational system is organised to produce grey-suited men to work in the big organisations. Young students who dress in such a weird way are only kicking at the fact that sooner or later they will have to take their small part in a huge organisation in which all their individuality will be drawn from them. I asked the same sort of question at a local grammar school in my constituency with the same sort of result.

This is the sort of question that should be asked of a young person before he gets to university and certainly before he gets to grammar school. It never crosses the minds of our educationalists that a vital part of our economy is the entrepreneurs and the small businesses, and that there should be more encouragement earlier in life to young people to have a go on their own. I urge school teachers to point out to young students that to paint a picture is creative, that to write a book is creative, but that to build a business is every bit as creative.

5.40 p.m.

Mr. T. H. H. Skeet (Bedford)

We have listened to some very interesting arguments, and I pay tribute to my hon. Friend the Member for Bolton, West (Mr. Redmond) for introducing such an important topic today. However, I deplore the lack of attendance of right hon. and hon. Members opposite. They are represented by a trilogy, by three players, of whom so far only one has played. That is all that we have heard on the subject of small firms.

The only contentious item to have arisen so far has been the recommendation of the hon. Member for Caithness and Sutherland (Mr. Maclennan) about the setting up of a State holding company. After many years of nationalisation failures and increased debt, I expected right hon. and hon. Gentlemen opposite to have got away from that idea, especially when we know that IRI of Italy turned out a loss last year of £60 million.

I am convinced that the small firm in this country is in character, and that its continuance is necessary for our survival. But two factors continue to threaten its ability to continue. The first is the attitude of the State, which changes from time to time. The other is the heavy load of taxation under which it has succumbed in the past. I am glad that the present Government are doing something to alleviate its problems.

One of the prime difficulties has been the nationalisation processes of the past. The public sector accounts for something like 25 per cent. of the total number of people employed in the United Kingdom and for 27 per cent. of our gross national product. This is detrimental to the survival of the small company, because it works on the assumption that giant concentrations are good in the United Kingdom and the more which are brought into the maw of the State, the better it will be. I view with some anxiety the recommendations of the AUEW reported in this morning's papers about the nationalisation of the machine tool industry. If that is carried out, I assume that many small companies will go out of business. However perhaps I ought not to dwell on that.

Reference is made in the Motion to the inter-meddling of Governments through the IRC. It has been designed to encourage concentrations, and I regret that the present Government, as a result of Part II of the Industry Bill, seem to be steaming ahead along the same course. It has been argued by one hon. Member that it would be possible partially to nationalise an industry under some of its provisions.

Mr. J. Bruce-Gardyne (South Angus)

In this context, has my hon. Friend noticed that the ubiquitous Mr. Charles Villiers has returned to his seat from former pastures?

Mr. Skeet

I have noticed that with some fear and trepidation. I hope that when the Industry Bill goes into Committee those hon. Members who serve on the Committee will be able to do something about Clause 7.

We have seen the work of the IRC, It brought together two companies, Herbert and Ingersoll, and we now find that the new organisation is to be dismembered. It was unsuccessful. It could not sell what it produced. We have also seen the result of the IRC's efforts in connection with Upper Clyde Shipbuilders. That, too, has been totally unsuccessful. Therefore it is the attitude of the State which is important at all times.

However, I am encouraged by the attitude of the Minister in response to the recommendations of the Bolton Committee, not merely that there will be a department established, which is now in being but also that an attempt will be made to give every aid and succour to small firms. Certainly they require it.

There is one other trend that we should notice. The glamour attaching to the larger firm is now disappearing. I appreciate that some companies have an optimum size. Some are bigger than others. To a degree, modern technology will dictate size. But we must not overlook the fact that small companies can get together to form exporting consortia. That has been found possible with petroleum equipment, and Brefcon has been very successful in selling refinery equipment to Brazil. Some consortia of this kind have been very successful in world trade.

When one comes across a glamorous company like Royal Dutch Shell, with a return of only 12 per cent, on its worldwide investments, it is interesting to see how many small firms produce a high return on investment compared with the larger companies.

We also have an indication that some of the bigger mergers have not been successful. Montecatini-Edison is one. In fact, it has been called the sick man of Europe. I have referred already to IRI, which turned out such a huge loss last year. BMC is another. The British nationalised industries are distinguished by the fact that they have enormous debts. They pay very little taxation and from time to time this House has to write off a considerable part of their losses.

It is the duty of the Government to provide an economic climate in which the small firm can operate, in order that it may provide the necessary competition on which our society thrives and provide a spur for the replacement of the larger groups as they decay and ossify. It is also the Government's duty to ensure that bigger firms do not discriminate against smaller companies. When the monopoly legislation is presented to this House, I hope that it will take into account the need to give a certain amount of protection. There is such a thing as a discriminating buyer where a small firm can come off badly. There is also a responsibility for large firms in the private sector not to stultify the efforts of those which might ultimately replace them.

I turn briefly to the subject of taxation. I know that this has been covered very well by several hon. Members, and I pay tribute to the Government's work in accepting four or five of the Bolton Committee's recommendations on taxation. On the other side, there is the problem of inflation. In rather cryptic language. Bolton had this to say: It would be rash now to act on the assumption that inflation will be brought permanently under control; we think it more prudent in matters of such critical importance to be prepared for the worst…it may be that we place greater weight than did the Royal Commission on the maintenance of the real capital of businesses. The erosion of the capital base of businesses in general and of small businesses in particular seems to us to have been a major problem for some years and one which is of particular importance at times of rapid inflation such as the present. When one bears in mind that the £ in 1914 has eroded to 17p today and that companies are paying taxation or capital gains on notional profits, it is scandalous to think that all Governments since the war have not taken these matters into account.

On 9th June, the following letter appeared in The Times: So long as a 30 per cent capital gains tax fails to take account of that inflation we are eating into our capital at a rate of three per cent. in each year. That has been so for seven years and it will go on being so until a government accepts that it is wrong to tax gains which have not in fact been made. It is known as "legal larceny", and it is high time that this Government took account of the fact.

Small companies have small assets. They are building up all the time. My hon. Friend the Member for Brighouse and Spenborough (Mr. Proudfoot) referred to the fact that sometimes they have to pay capital gains when they least expect to do so, especially in circumstances when they can ill afford to pay them. It may mean the disappearance of a business overnight. This is the crux of the argument for the survival of the small company, and if the Government can do this to assist the small companies they should.

The other point is about capital gains on notional disposals. It has been recommended that assets should be taxed at only 50 per cent., and I agree with that proposal. It is also recommended that a close company should be allowed to be taxed as a partnership, which is the practice in the United States. Pension relief has been covered, and I accept the view that, for the sake of continuity, if, on devolution, a farmer pays only 45 per cent. on agricultural land, it seems a rational argument that the same should apply to the net trading assets of small companies.

I come to the conclusion that if the small business is necessary for the sur- vival of Britain and for competition inside it there are two ways in which it can be assisted. If these ways are not adopted the small firms will disappear altogether and we shall become a full corporate State not unlike the Soviet Union in which everything is taken over and centralised.

The Government must have the right attitude to the small company. This is vital. On the other front, it is no good passing legislation which puts additional fiscal burdens on the small companies every year. These have to be progressively dismantled to avoid discriminating against the small man who may one day become a captain of industry.

5.51 p.m.

Mr. Edmund Dell (Birkenhead)

I apologise to the hon. Member for Bolton, West (Mr. Redmond) for not being present when he introduced his Motion. This was due not to any lack of interest in what he might say or any intention on my part to be discourteous but to the fact that I was employed on duties elsewhere in this Palace.

I want to intervene briefly, because I have some responsibility for having set up the Bolton Committee. I have been glad to see its interesting report, I am glad that it is being debated today. I shall be interested to hear what the Minister has to say about the Government's intentions.

There are a few points which I should like to put to the Minister, and on which he may be prepared to comment, before I refer to the speech of the hon. Member for Bedford (Mr. Skeet). The hon. Gentleman seems to be living in a dream world, and I am sure that I shall not succeed in waking him up.

The Minister knows about the anxieties in industrial liaison centres and among industrial liaison officers about what the Government intend for their future. This is a form of assistance to small businesses which is valuable, and it has been welcomed by many of them. I know that the Minister has received a number of letters from small businesses about the future of the industrial liaison centres, and I hope that he will say something that will give them some assurance about the future.

I should like to ask the Minister something about the Government's competition policy, which considerably affects small businesses. We know that the legislation which the Government intended to introduced on this subject has been delayed because of the legislative congestion this Session. I put to the Secretary of State for Trade and Industry the proposal that although the Bill has had to be delayed he might publish it as an appendix to a White Paper. That seems to be a sensibleidea. It would give the Government an opportunity of indiciating what they intend. The right hon. Gentleman told me that he would seriously consider the proposal, but for some weeks I have heard nothing about it and I should be grateful if the Minister would tell me where the matter stands.

I was interested to hear from the hon. Member for Bedford that my hon. Friend the Member for Caithness and Sutherland (Mr. Maclennan) had introduced a controversial note into the debate by mentioning a State holding company. The hon. Gentleman is obviously worried about the Government's Industry Bill. In fact, he expressed such great worry that I could not understand why he was not present for the Second Reading of the Bill to support his hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) who wanted to vote against it That would have been a rather firmer declaration of intention against the Bill than he has expressed by his speech today.

What has happened is that the Government have had to face certain political and economic realities. After all, they nationalised Rolls-Royce—

Mr. Skeet

It is only temporary.

Mr. Dell

—and we had the pathetic spectacle of the right hon. Member for Wolverhampton, South-West (Mr. Powell) saying that it was curious to find a Conservative Government using nationalisation to restore unprofitable assets to profitability. The question of nationalisation is perhaps not relevant to the debate, but that was a matter for Mr. Deputy Speaker to rule upon and for the hon. Member to decide before he introduced it.

It is possible for the Government to take a sensible attitude towards small businesses—to attempt to give small businesses every type of assistance, and yet to take the practical and reasonable attitude that in certain cases public ownership can assist in restoring unprofitable assets to profitablity.

Mr. Skeet

If the intention of the Labour Government is to take over a number of small businesses in order to make one large nationalised undertaking, that must be against their interests. That must be detrimental to the small businesses

Mr. Dell

It may be detrimental to the interests of small business, but in the cases to which the hon. Gentleman referred it might have been in the national interest. As a matter of fact, nationalisation has affected large businesses to a far greater extent than it has affected small businesses. The present Government, who came to office on the basis of all the policies that the hon. Gentleman has been advocating this afternoon, are setting up the Industrial Development Executive and creating for the first time in history the possibility of taking small companies into public ownership without any parliamentary control—because that is what can happen under Part II of the Industry Bill.

That is what the Conservative Government are doing. They obviously think that it is necessary to have the power to do that. If we had introduced a Bill to do that, one can imagine what an outcry there would have been from the CBI and from hon. Gentlemen opposite. How they would have fought a Bill taking power to nationalise small companies without parliamentary control! But now that the Conservative Government are doing it, all that we have are the muffled accents of the hon. Members for Bedford, and South Angus in the Second Reading debate. If the hon. Gentlemen do not appreciate the spectacle that they are making of themselves they have lost all sense of humour. This is the legislation which the Government are passing through the House.

I prefer to operate through instruments which have a continuing responsibility for the results of their actions. That is why I prefer a State holding company to the IRC. Ministers frequently say that I should prefer them to be setting up the IRC, but I want a State holding company. The great advantage of that is that it has that continuing responsibility for the results of its actions. I hope that hon. Gentlemen opposite will gradually begin to appreciate the distinction in my mind and in the minds of many of my hon. Friends about this proposal which we are making which is a different type of proposal from that of the IRC, although the IRC did valuable work.

The Government are sensible to help small businesses, because they have a valuable part to play in the economy. They have a satisfactory record of innovation and a satisfactory record in adding to the competitiveness of our economy. I therefore believe that the Government are sensible to help small privately-owned businesses.

Of course, the main way of helping small businesses, just as it is the main way of helping business generally, is to have an expanding economy. The trouble, over the last too many years, and over the last two years specifically under this Government—who are so interested in the fate of small businesses—is that we have not been having the sort of economy in which small businesses could thrive. If one is to believe the latest Review of the National Institute, we still will not have that rate of expansion that will enable small businesses to thrive.

While we have this sort of economic situation, with unemployment, redundancies and liquidations among small businesses at present levels, the small business community will not like any Government, even a Conservative Government. The main thing that one looks to the Government for is more practical action to get the economy going.

6.01 p.m.

Mr. J. Bruce-Gardyne (South Angus)

I join many of my hon. Friends in heartily congratulating my hon. Friend the Member for Bolton, West (Mr. Redmond)on enabling us at long last to discuss the Bolton Report. I would rather that we had had a debate long before this in Government time, but it is very satisfactory that my hon. Friend has chosen this subject for debate. We have all benefited enormously from the tone that he imparted to this debate, and this has been followed by several of my hon. Friends.

There is no need to comment on the performance of the Labour Party. They demonstrated when in Government that they were "agin" small businesses and we would hardly expect to see them here to speak up in their support.

I want to concentrate purely on one aspect—the vital importance of the small business sector of the economy to the health of what are described as the regions, the assisted areas or the development areas. It appals me that successive Governments seem to have shown almost no recognition of the damage that is being done in the development areas by the pressures applied by Government to destroy the identity of private companies, which are often the only ones with their roots in these areas.

I see this in my own constituency. All around there is the contrast between the branch factories that have been brought in by the so-called regional development policies of successive Governments, which wither away at the first breath of recession, whether at home or overseas, and the locally-based private companies which, if they run into problems, may be driven to draw in from activities pursued in other parts of the country or other parts of the world but which have their whole root and being in an area like mine and which provide employment continuity and prosperity through good times and bad.

Appalling damage was done by the last Government to the health of the economy in, for instance, Scotland, by the casual disregard that they consistently paid, year after year, to the interests of the small business sector. I used to think that the noble Lord, Lord Diamond—who is, I suppose, the epitome of these anti-small business policies, as enshrined in the 1965 Finance Act—might well have been described as the twentieth century "Curse of Scotland"

I am delighted that, in the last two years my right hon. Friends have gone so far to rectify the damage done to small companies, in particular by the 1965 Finance Act. All that I want to do is to draw attention to two of the areas in which I believe that further help is still needed.

The first one I can mention in passing, because it has already been mentioned by my hon. Friend the Member for Bebington (Mr. Cockeram), namely, the effect of the present estate duty system in causing the break-up of private companies and driving them, frequently, quite inappropriately, into the arms of large multi-national companies with headquarters on the other side of the Atlantic or in the south-eastern corner of Great Britain. We need to work on this. I hope that my hon. Friend the Minister, who is now responsible for this sector of the economy, will be banging on the Treasury's door to alleviate this position.

The second matter concerns this year's Finance Bill and the prospect of an increase in corporation tax next year to 50 per cent. That will bear particularly heavily on private, unquoted companies, which rely on their retentions for their capital growth.

A letter from a private company to my hon. Friend the Minister responsible for regional development policies points out that a company might face a bill for an extra £50,000 in taxation next year as a direct result of this, and that that would be equivalent to lost jobs for 15 people.

That is the sort of thing that we are talking about. Again I appeal to my right hon. Friend to use all his influence with the Treasury to get this situation sorted out before this year's Finance Bill leaves the House of Commons. I know that my hon. Friend is now very busy with the Industry Bill in Committee. If he devoted half the attention and expertise that has gone into that Bill to assisting and helping to eliminate the fiscal barriers to the way of progress for the small companies along the lines recommended today he would be doing the interests of regional development far more good than will ever be done by that Bill.

6.7 p.m.

Mr. Alan Williams (Swansea, West)

As I gladly gave up a little of my time to allow a further hon. Member from each side to take part in the debate, I hope that hon. Members will excuse me if I jump from point to point to cover what I regard as essential matters. I start by declaring a general industrial interest through the management consultancy work that I undertake.

I was glad to see the welcome that the Bolton Report received from hon. Members opposite. However, they have shown a sad reluctance to attribute the setting up of the Bolton Committee cor- rectly to the Labour Government. It was of course, set up in July, 1969.

I start rather cryptically by asking a few questions now rather than at the end of my speech, which would leave the Minister very little time to consider his answers. That will give his collective memory, which perches at the end of the Chamber, time to operate. If he cannot answer all the questions now I shall understand, because he has also given up time, but perhaps he will write to me on the various questions that I raise.

On 15th May, in a Written Answer, the Minister issued a list indicating Government action on 25 points under the Bolton Report. Can he say what action the Government have taken or propose to take in relation to Nos. 24 and 25, relating to powers under the Town and Country Planning (Development Plans) Direction, 1965, and the legal obligation to provide suitable alternative accommodation for displaced firms? I am being very cryptic about the content of those items, but the Minister will know what I am referring to.

Furthermore, in Manchester, a previous Under-Secretary of State for Trade and Industry invited small firms to write to him indicating what disadvantages they had suffered as a result of restrictive trade practices legislation. It would be interesting to hon. Members to know what response has materialised from that request, what has been the nature of the complaints and what action has been taken, if any.

A previous Under Secretary, replying to the hon. and learned Member for Montogomery (Mr. Hooson) said: The Bolton Committee recommended that we should promote policies designed to maximise competitive participation by small firms in suitable Government contracts. We are considering how best to give effect to the recommendation in consultation with the Treasury and the major contracting departments."—[OFFICIAL REPORT, 7th February, 1972: Vol. 830, c. 245.] In terms of the spending of public money, it is highly important that we should know what has been done about this and what safeguards are being built in in any action. I am not complaining that action should be taken. Hon. Members on both sides of the House will wish to know that adequate safeguards are built into any system which eventually emerges to ensure proper value for public money in the ultimate scheme.

I move very rapidly to the question of training and the supply of skilled workers in relation to small firms. Hon. Members on both sides of the House will recognise that a ready supply of skilled labour is as essential to small firms as it is to large firms. One of the big constraints of many small firms when we have had our periods of "go" in the economy postwar—and I am not speaking of any particular political party—is that the small firms have found it particularly difficult to attract skilled labour and have been disadvantaged in being outbid by large firms. Therefore, it is essential that a viable training system should be in existence. There is widespread concern at the possible implications of the Bolton Committee's training recommendations. The engineering industry, for example, has set up group training schemes to help small firms. At present three quarters of a million workers are covered by these schemes. Whereas in 1965 there were only 76 such schemes, there are now 171. In 1965, 850 firms were covered by them; now 4,500 are covered. I give the figures purely to demonstrate the rate of build up that has occurred as a result of the present training regulations. Forty per cent. of all engineering firms with between 25 and 250 workers are members of group training schemes. It is felt by the Engineering Industry Training Board that more could benefit; yet Bolton, the C.B.I. and apparently, from their discussion document, the Government want small firms exempt—in effect, that is what it will mean—from a grant-levy system. As the Engineering Industry Training Board points out in paragraph 11 of appendix 6 of its submission to the Government, it can hardly be blamed for any increases in costs because half the increase in costs per head per trainee has been due to inflation. Yet during this time it has managed to reduce the levy from 2½ per cent. to 1¾ per cent, with the possibility of further reductions in future if the Government agree to keep the present system.

But if the Government abandon the grant-levy system, this could be disastrous for small firms because it will mean the death blow for most group training schemes. No one would seriously suggest that this would be in the long-term interests of small firms. A recent survey undertaken for the Engineering Industry Training Board indicated that up to 50 per cent. of its membership would leave group training schemes if the grant-levy system was scrapped. When asked if they would be willing to pay higher fees in order to keep training schemes in existence, 40 per cent. said that if the fees rose they would leave. So a double blow could be struck at the training system within the engineering industry if the Government persist in the policy outlined in their document.

It must be stressed that all this is to enable a few small employers to escape from the duty to the future of their industry and to "leech" parasitically on the training efforts of the companies which are dealing with their needs.

Mr. Redmond

Will the hon. Gentleman give way?

Mr. Williams

No. The hon. Gentleman would not give way to me, and I have little time.

The Government justify their proposals by discovering: A major change in the attitude of a large section of British industry to systematic training. This is hardly borne out by the two surveys I have quoted, nor by page 6 of the Engineering Industry Training Board report, in which it is stated that In the last difficult year when employment in the industry has declined by 5 per cent., the training effort has decreased by as much as 20 per cent. The Board concludes that if the grant-levy system is abandoned, in training terms the industry would revert to the situation which existed before the 1964 Act. This must be a serious warning to the Government, to the industry and to small firms. It is echoed in the submissions to the Government by other boards, for instance, the Distributive Industry Training Board, and representations on behalf of the road transport industry from a national advisory committee representing 2,800 small firms, the people who are supposed, according to Bolton, to favour abolition of the grant-levy system.

The Government should recognise that, in the medium and certainly in the long term, it would be the falsest of all false economies to try to save on training. It would be a false economy not just for large firms but also for small firms.

I refer briefly to criticisms made about the statistical and administrative costs of small firms. One recognises the difficulties this can impose on a very small firm which is confronted with highly technical statistical forms and materials. It is understandably a source of aggravation. We would agree that any such documentation should always be judged by the criterion of relevancy. I should have thought that this is axiomatic, anyhow. But whether relevancy will necessarily mean an overall reduction in the amount of paperwork remains to be seen. While some will be eradicated by a closer scrutiny, it may be that others are needed.

In January, the CBI, in its Smaller Firms Bulletin, expressed doubt about the possibility of a division within the Department of Trade and Industry monitoring the position properly, and having an ability to recognise danger signals when they appear. What is the monitoring system? How will it operate? How soon will it identify danger signals? What danger signals is it looking for? Finally, if it is to work effectively, will it mean less or more statistical data being required from small firms?

Bolton also recommended that all statutory barriers to the passage of information between Government Departments should be demolished where possible. I see this as potentially a highly dangerous recommendation. It may reduce the reliability of returns if businesses and, indeed, individuals think that their returns will be less confidential than they were hitherto and that the returns sent to one department can be transferred to another. I should have thought that this is a very sensitive area of public interest as well as of business interest. It is a delicate balance between simplicity of method and confidentiality. The Government would be wise to err on the side of confidentiality rather than simplicity, instead of risking doubt in the public mind about the confidentiality of governmental returns just to save a relatively small amount of effort for small firms.

Value added tax will not be exactly the greatest administrative boon that has been imposed upon small companies. It is to be collected on an invoice basis from companies with an annual taxable turn-over in excess of £5,000. Hon. Members may say, "Some can avoid this by not registering". But let us look at the warning given by the CBI in January to its members: The chief disadvantage arising from not registering is that the unregistered firm still has to pay the tax to its suppliers but is not in a position to reclaim the tax because it does not have an account with Her Majesty's Customs and Excise; it cannot raise a tax invoice because it is exempt. The only way it can recoup is by increasing the price of its own goods. For this reason it is probable that a registered firm will prefer to deal with another registered firm rather than with an unregistered one. In dealing with an unregistered one, it may feel that it is paying a hidden tax, the amount of which cannot be accurately ascertained and cannot be reclaimed from Customs. This is a point of legitimate criticism. So the Government's concession to the small firm is seen to be a mirage. It may not be in the small firm's interest to take this concession. It may be better for it to incur unnecessary and legally non-required administrative costs to avoid the serious disadvantage the CBI has envisaged.

Reference has been made, quite rightly, to liquidity. Hon. Gentlemen have recognised that sometimes the problems which face small firms arise through their own ignorance of the possible source of funds. Also there is the fact that sometimes other companies do not behave ethically to the small businessman.

There is an interesting item in the Guardian of 6th April in which Mr. Tibby, the Managing Director of Triplan Interstructures, Salford, points out that many small building firms have to wait two years or more for final settlement of their accounts. In particular, he specifies that large companies can be guilty of this imposition upon their smaller colleagues.

The liquidity problem has been worsened by the Government's abandonment of investment grants. That was particularly harmful in the small business sector where there was growth. The Bolton Committee referred to this sector as being a seedbed for growth firms. It is the firm which had been growing which had been ploughing back, which was hit by the abandonment of investment grants. Similarly, these firms will be hurt by the eventual removal of REP, which can only worsen cash flow. The 50 per cent. corporation tax means that companies with profits over £15,000, not large companies but probably those which are emerging as the growth firms in this sector, will next year pay 25 per cent. more tax than they are paying this year. Even the smaller companies which will allegedly receive a concession will still be paying the same amount of tax next year on retained profits.

It was said that I misunderstood the point. I did not. The hon. Member for Bebington (Mr. Cockeram) referred to retention. That is what I am referring to. Small firms get no concession on retained profits because they will pay the same amount of tax on them next year as they will this year.

Undoubtedly the greatest problem facing the small firm regarding liquidity is the Government's utter inability to tackle the problem of inflation. I have not time to go into the particular accounting difficulties that this may represent to small firms of which many hon. Gentlemen are aware. If one had to pinpoint any overriding requirement, the hon. Member for Bedford (Mr. Skeet), in a speech with which I otherwise completely disagreed, made exactly the right point when he referred to the correct economic environment. What is most urgently needed for the small firm that recognises and deals with the various administrative obstacles is a sound and buoyant economy.

What success story can the Government claim? Bankruptcies are at too high a level. There have been a record number of factory closures. I refer to a parliamentary Answer I received on 6th June of this year: 1,052 manufacturing establishments, many of them small, closed last year. That is 25 per cent. more than in our last year of office. Coincidentally, two and a half times as many workers were made redundant last year as in 1969.

These figures throw into a somewhat different perspective the statement of a previous Under-Secretary who at the Manchester conference said: It is an indictment of past policies that the small firms should have been so dis- couraged that there are not more of them, employing more people in existence today. If it was not for the economic folly of the Government there would be more of them employing more people today, as the figures provided by the Government on closures last year clearly demonstrate.

The Government came to office with a secure balance of payments and no inhibition on controlled growth. However, they could not resist doctrinaire self-indulgence. They destroyed confidence in business at a stroke. That is about the only thing they did at a stroke. They announced the scrapping of investment grants as soon as they came to office, without waiting for the result of the cost/benefit study. They announced the ending of REP and declared their "lame duck" policy. Two years ago the Prime Minister marched them up to the top of the hill and in the last couple of weeks he has marched them down again. In doing so he has tried not to look at the casualties on which they have had to march on their return journey: factory closures and bankruptcies large and small and the massive unnecessary increase in unemployment.

The Government are in a mess of their own making. Unfortunately, we will all have to pay—large firms, small firms, workers and consumers. The Government have frittered away the balance of payment surplus so ludicrously and unnecessarily that it is now open speculation in the newspapers not whether there will be devaluation but when the next devaluation will take place. Devaluation is made more likely by the irresponsible comments of the Chancellor of the Exchequer in his Budget speech that his commitment to devaluation is future policy.

Next year we will open our domestic market to Common Market competition. We will start by seeing the capital movements. We will be on the verge of another period of stop. No one can pretend, not even the Government, that more stop will help the small firms.

6.28 p.m.

The Under-Secretary of State for Trade and Industry (Mr. Anthony Grant)

Perhaps we can now return to the subject matter that we are debating today.

First, I join in the congratulations offered to my hon. Friend the Member for Bolton, West (Mr. Redmond), on raising this important subject. I am bound to say that whereas it is true it was the previous Government which commissioned the Bolton Report in 1969, much of the thinking and initiative behind it stems from my hon. Friend the Member for Croydon, North-East (Mr. Weatherill), whose initiative and enthusiasm on this subject jogged the Government and all of us into thinking about it. My hon. Friend the Member for Bedford (Mr. Skeet) and other hon. Members will be interested to note that in the debate which my hon. Friend the Member for Croydon, North-East initiated in 1967, the Opposition had to be ticked off for not contributing. I suppose that there is some improvement, in that there have been two speeches from the Opposition back benches. We are glad to hear the contributions that have been made.

I add my tribute to those that have been made to my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), who was the first Minister with responsibility for small firms. My hon. Friend, whom I know as well as, if not better than, anybody, was responsible for much of the initial work. What he did is very much appreciated by all those concerned in the Department of Trade and Industry, and myself.

It is disturbing how many people, even small firms, are still not aware of the work of the Bolton Committee and the action which the Government have taken to improve the environment for small firms. Small firms are in no sense a minority or specialised subject. They are a vital economic concern and, as my hon. Friend's Motion implies, their future affects everyone.

I was glad to hear what my hon. Friend said about the two firms in his constituency—Silicone Fabrications Ltd. and Hird-Brown Ltd.—which seem to be doing extremely well. I confirm that I have had an interesting letter from him about BYC Engineers, Ltd., which I shall study and reply to in due course.

I join my hon. Friend and other hon. Members in paying tribute to the Bolton Committee for giving us the first complete and thorough study of small firms and the first analysis of the structure of this sector. The report is by no means solely directed to the Government. It provides a useful reference book for the owners and managers of small firms and for all those who are concerned with their well-being. It indicates areas of potential weakness, lists and examines the availability and effectiveness of non-Government services, and gives an extremely useful account of sources of finance for those firms which have difficulty in obtaining it.

The report reveals for the first time the size and importance of this sector—1¼ million firms, representing 20 per cent, of our gross national product, employing more people than the whole of the public sector and responsible for one-third of the employment in this country. The report also identifies the distinctive contribution that small firms make to the economy as suppliers of services, subcontractors, manufacturers of components and the main producers in many spheres.

The Committee's research has shown that small firms are no less efficient than their larger competitors in the use of resources, that they are profitable, and that they are capable of making an important contribution to innovation. But their importance cannot be gauged solely from their direct contribution to national output. As the Committee pointed out, small firms are a vital stimulus to competition— the cutting edge of our industrial initiative and have a major value as a "seedbed", which has been mentioned elsewhere, for new companies to grow and challenge the established leaders.

The Committee rightly drew attention to the social contribution that small businessmen make to the local community. We all know of the work done in our constituencies by chambers of commerce, rotary clubs, and voluntary effort which so often goes unrecognised.

I am fully aware that small firms generally are still suspicious and believe that all Governments are concerned only with large companies. Therefore, I must stress that this Government, unlike the Labour Government, have no bias against small firms; indeed, small firms represent just the kind of initiative that we wish to encourage. I thought that my hon. Friend the Member for Brighouse and Spenborough (Mr. Proudfoot) illustrated this point extremely well. We are determined that small firms should be allowed to flourish and thrive in the freest possible environment, unhampered by unnecessary restrictions and unintentional discrimination.

The extent to which the Government had already taken action before the Bolton Committee Report in a number of ways that were of benefit to small firms is possibly unrecognised.

Early in 1971, we reduced corporation tax and income tax to give greater incentives to initiative; we raised the limit of exemption on estate duty and introduced payment by instalments, and the industrial training boards were urged to exempt more small firms from the levy grant. It is also fair to point out that small firms will benefit as much as anyone from the Government's proposed measures to stimulate demand and investment, which were announced by my right hon. Friends the Chancellor of the Exchequer and the Secretary of State for Trade and Industry in the Budget and which are now before Parliament in the Finance Bill and the Industry Bill.

he steps that we have taken—in particular, the work that we have accomplished since publication of the report—are a firm demonstration of our concern for the welfare of this sector. We believe that these efforts will be recognised and form the basis of a better understanding between the Government and small firms.

The Committee found that there had been a decline in the number of small firms over recent years. To some extent this was because of technological advances and increases in economies of scale in production and marketing. Nevertheless, this decline was a cause for concern, as the Committee recognised, because it is no good having huge trees in the forest if the undergrowth becomes sterile. That is precisely what has been happening in recent years.

I stress that the Committee did not conclude that small firms were in imminent danger of extinction. Indeed, it affirmed the basic strength and competitiveness of the sector, given a fair chance. That is and will be our intention, so long as I am the Minister responsible for small firms. I see my main task as ensuring that the interests of small firms are given their due weight at all levels of Government. I assure my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) that I heed carefully what he said. I am prepared to knock at the Chancellor's door on the points that he has raised. In this sense, I consider that I am the Government's advocate of small firms. I have made it my immediate priority to see that all the Bolton Committee's recommendations are fully and properly considered and that this is done as quickly as possible.

My hon. Friend the Member for Luton (Mr. Simeons) urged me to get out and meet these organisations and small firms as much as possible. My hon. Friend the Member for Brighouse and Spenborough highlighted the difficulty of communication. I accept this, but I assure my hon. Friends that I have already had several meetings for this purpose, as have the enthusiastic officials in the small firms division that we have set up. In the relatively short time since I accepted these new responsibilities I have managed to meet a widely representative section of those concerned with small firms and have received some extremely helpful advice and guidance in this respect from various parts of the country, including assisted and non-assisted areas.

The task of the small firms division within the Department is to act as the focal point within the Government for the interests of small firms. At this stage we have been most concerned with the outstanding problems posed by the Bolton Report. The House will probably accept from answers that I have given to Questions, that the Government have reacted speedily to most of the recommendations. I intend to see that substantial progress on the remaining items is effected before the end of the summer.

Several of my hon. Friends raised the question of taxation. The House will be aware that in his Budget my right hon. Friend the Chancellor of the Exchequer paid careful attention to the problems of small firms. In particular, he had special regard to their need to retain a high proportion of profits for investment. Without going into details in the short time at my disposal, I should point out that companies with net profits below £25,000 will qualify for relief from the full rate of tax when the new system of corporation tax is introduced. That means that 90 per cent. of companies—no small proportion—will benefit from this proposal.

Hon. Members will also recall that changes were proposed to the provisions about shortfall assessments and the treatment of close companies. These proposals will have the effect of exempting completely 80 per cent. of those companies which were potentially liable to shortfall in 1970.

My hon. Friend the Member for Bebington (Mr. Cockeram) referred to the problem of estate duty, which is a major source of concern for many small firms. I believe that the Chancellor's proposals for a review on the basis of the Green Paper on Inheritance Tax will be particularly welcome, as will the other concessions that have been given in this and previous Budgets.

A further item—the restoration of tax relief on loan interest—will meet a specific recommendation of the Bolton Committee. Finally, although the Committee mentioned it in passing rather than making it a main recommendation, the countrywide experience of free depreciation on plant and machinery should have a particular significance for small firms, since it will allow the writing off of the full current cost of replacing assets and hence automatically adjust their accounts for the effects of inflation.

Again, we have largely followed the recommendation of the Bolton Committee that there should be greater flexibility in the matter of industrial development certificates. We substantially accept the Bolton Committee's recommendations on statistical form filling. I assure the hon. Member for Swansea, West (Mr. Alan Williams) that the question of confidentiality is recognised as an important one and that in anything we do there is no intention of departing from the strict standards of confidentiality that have been enjoyed for so many years.

The hon. Member invited me to answer his other points in writing. As I have not time to deal with them now, I shall certainly do so.

A matter that has been raised by a number of hon. Members and which is still an outstanding point under the Bolton Committee is the question of the small firms advisory bureau. We have carried out a wide process of consultation on this recommendation. We have approached the question of an advisory service with an entirely open mind. There is a clear difference of view among outside bodies on the need for such a service, and what should be provided. Our attention has been drawn to the chambers of commerce, the banks and the many sources of advice that are available, including the chamber of commerce of my hon. Friend the Member for Bolton, West and others.

We must take into account the future of the Industrial Liaison Centre Service. I assure the right hon. Member for Birkenhead (Mr. Dell) that that is being done. If there is a measure of agreement in this field it is that small firms need to know where to find management advice, particularly on finance, as much as technical help or help with production problems.

In addition to all these aspects, we shall have to take into account the manpower and the cost implications of the Bolton Committee's proposals. We shall certainly reach a decision on this important matter as soon as possible.

The hon. Member for Caithness and Sutherland (Mr. Maclennan) referred to the European Economic Community study upon which we are embarked. It is now well in progress. Our objective is to identify how entry into the EEC will affect small firms. We cannot do small firms' work for them in this respect but we shall be considering how much information and advice they need. Much information is already available from the EEC/EFTA information unit of the Department of Trade and Industry, and from trade associations, the Confederation of British Industry and chambers of commerce.

In collaboration with the Treasury and the main purchasing Departments we are undertaking a study of obstacles which small firms may encounter in competing for Government contracts. This is an area in which we have invited small firms to tell us of their experience and problems.

I apologise if I have not dealt with every point that has been raised, but hon. Members may rest assured that every point that they have made will be noted carefully by the DTI's small firms division and myself.

The Bolton Report is not the end but only the beginning of our concern for small firms. We intend to keep a close watch on their health and they will continue to find in me a sympathetic ear for their problems and needs. There is still much that we do not know about this vital sector. I would never pretend to anyone in the small firm sector that, as some hon. Members seemed to expect, they will automatically experience fewer bankruptcies. I cannot possibly promise that, nor do I believe that that would be the wish of small firms. I do not believe that small firms wish to be wrapped up for ever in a mass of cotton wool. They want to be freed from the chains and shackles that have been binding them for far too long. That is the spirit with which I approach my task.

The Motion calls upon us in the national interest, to continue to stimulate and encourage the prosperity and growth of this energetic and enterprising section of the community. I assure my hon. Friend that the Government will do this with sincerity and enthusiasm.

Mr. Redmond

Although I believe that I have the right of reply, I do not propose to exercise it, Mr. Speaker.

I thank my hon. Friend the Under-secretary for his reply, and I thank other hon. Members for taking part in the debate.

Question put and agreed to.

Resolved, That this House takes note of the positive steps taken by Her Majesty's Government to remove many of the difficulties which have faced small businesses and of the recognition given to their important contribution to Great Britain's economy; and calls upon Her Majesty's Government, in the national interest, to continue to stimulate and encourage the prosperity and growth of this energetic and enterprising section of the community.