SMALL AND MEDIUM-SIZED BUSINESSES

HC Deb 06 December 1974 vol 882 cc2124-210

Mr. Speaker

I have to tell the House that I have not selected the amendment in the name of the hon. Member for Hendon. North (Mr. Gorst).

11.25 a.m.

Sir William Elliott (Newcastle-upon-Tyne, North)

I beg to move, That this House pays tribute to smaller business employers and the self-employed for their past contribution to the national well-being; and calls upon the Government urgently to consider measures necessary for the encouragement of individual enterprise and initiative. I greatly welcome the opportunity to raise in the House the serious and increasing problems which are being faced at this time by small and medium-sized businesses and by individuals in professional or business capacities who are self-employed.

To define a small business has never been easy. I would like to refer to the Bolton Report's definitions of a small business. On manufacturing, that report suggested 200 employees or fewer, in construction 25 employees or fewer, and in trade the figures of turnover of £200,000 or less in wholesaling and £50,000 or less in retailing. These are the principal guidelines as set down by the Bolton Report. For revenue purposes a small firm is now considered to be one with less than £25,000 per annum profit. The report therefore suggests—this is the beginning of the case I wish to put—that we have in this country 800,000 small businesses. This figure excludes the agriculture, horticulture and fishing industries, which have a full Ministry in support of them, as well as strong and considerable member organisations.

It is desirable, much as I wish to emphasise the problems of present and would-be small businesses, that I draw a distinction first between publicly-owned and privately-owned concerns. In a book published in 1971 entitled "The Private Company Today" a breakdown is given showing that private businesses, including agriculture, employ 39 per cent. of the working population, public companies employ 37 per cent., the Civil Service employs 11 per cent. and nationalised companies 10 per cent. There are, of course, some large private companies with turnover in excess of £200,000, but the vast majority of private businesses can be called small businesses. If we return to the Bolton Report's figure of 800,000 excluding agriculture, we find that the enormous importance of this sector of our economy, which represents 39 per cent. of the working population, cannot—and should not—be underestimated. It is part of my case that the present Government underestimate this sector of our society.

If we pause for a moment to contemplate the dread subject for all politicians, of whatever party—unemployment—we find that it would take just one more employee in each of the 800,000 private businesses to solve our present unemployment altogether. By any examination—perhaps this point follows well the statement we have heard earlier this morning—there is comparative industrial peace among the 9 million people employed in the private sector, compared with those employed in the public sector.

I have no doubt, following my lengthy and considerable experience in my region in the North-East involving businesses large and small, that in small businesses there is industrial peace in the vast majority of cases and a constant good relationship between management and labour. In small concerns pride in skilled work leads to job satisfaction and good labour relations.

No one in this country, particularly at this time in our history, should ever underestimate the necessity of establishing good labour relations in industry. The cost to the economy of bad labour relations and strike action—as my hon. Friend the Member for Birmingham, Hall Green (Mr. Eyre) has already illustrated this morning when asking a question on the statement made by the Secretary of State for Industry—is enormous. I am sure that other hon. Members, like myself, will recall that during the last General Election campaign many people confessed that they had a fear of industrial war. If that cannot be avoided, it is in the large and nationalised industries that most strike actions and excessive wage demands take place. Nothing can aid the industrial peace for which we all long more than the encouragement of small business.

The National Institute of Economic and Social Research has just produced a report which every hon. Member will take seriously. It made me think very much of a letter from a constituent just this week, in which were used the words: The politicians with regard to economic crises have cried wolf so many times; are we to believe it this time? Anyone who studies that report will realise that this time we are not crying "wolf". The anticipated inflation rate of 20 per cent. to 25 per cent. next year and the fact that the social contract is, to say the least, in grave trouble, should bring home to the country the fact that we face enormous economic problems.

It is at a time like this that I suggest that the substantial section of the working population who work hard and are employed in smaller and medium business should be given the maximum encouragement and not the discouragement that they are getting from the present administration. It is no exaggeration to suggest that if 100,000 of the 800,000 are in trouble, this country is in trouble. My case is that at least that number of private businesses are in trouble. In the last 10 years more than 80,000 small firms have gone out of business altogether in the distributive trades alone. Evidence sent to me from all over the country since I put down this motion suggests that the rate of closure is increasing.

The setting up of the Bolton Committee in 1969 was wholly desirable, and two of the recommendations which have been adopted are wholly commendable. One is the appointment of a special Minister with responsibility for small firms. I am pleased that the present Minister has come to the House to answer this debate. I know that he had an important engagement in the country which he has given up, and I am grateful to him. His engagement was connected with the other wholly desirable result of the Bolton recommendations. He was to have opened a small firms information centre in Leeds—I believe the eleventh in the country.

I recently visited the centre in New-castle-upon-Tyne which was opened under a Conservative Government by my right hon. Friend the Member for Worcester (Mr. Walker). It is interesting to realise that the Newcastle centre has received no fewer than 1,000 inquiries in the first year of its existence from people wishing to set up in business for the first time. This is a very important point in our industrial history to realise that so many people still wish to become independent small business men. The value of the centre is obviously high, and I am sure that every hon. Member will wish the new one in Leeds all possible success.

The small firm information centres have rightly been described as signposting agencies, and they are obviously doing a good job. I would pay tribute at a regional level to an organisation called Enterprise North, a loose association of Northern business men organised by the Newcastle upon Tyne Polytechnic who are offering their advice and experience to budding entrepreneurs. In particular, the efforts in this regard of Mr. Noble are to be highly commended.

However, I emphasise strongly that more and much more needs to be urgently undertaken if we are to give essential encouragement to individual initiative. My first comments would be under the heading of advice. Since the war the industrial success of Germany, Holland, the United States and Japan has been phenomenal. There is a number of reasons for this, but prominent is the fact that all four countries have full-scale Government departments encouraging privately-owned businesses. Here in Britain it is publicly-owned business which receives Government emphasis. Our overall industrial performance in recent years has left an enormous amount to be desired.

My first suggestion, therefore, is that the Minister responsible for that sector of the economy which employs 9 million people should have higher ministerial rank and more executive possibilities. I say this without any criticism of the present Minister responsible for small business, who rightly enjoys considerable respect on both sides of the House. Far from criticising him, I am suggesting his promotion.

Second, there is possibly scope, when it comes to finance, for an organisation similar to the Export Credits Guarantee Department which would encourage the banking system to provide long-term working capital. It seems that some £400 million is tied up in long-term loans to exporters. The future wealth and strength of our internal economy and internal reasonably high employment might depend on a similar facility for private concerns.

I pay full tribute to the joint stock banks. They co-operate with small business, they are sympathetic and they try their best to understand the desire for expansion of the average business man. But it is a hopeless state of affairs, as many business men have been quick to point out to me since I tabled this motion, when they are encouraged to borrow and expand in one year only to find that the reverse takes place two or three years later.

I would not favour a new Government bank. The joint stock banks are already in touch with private business. They understand their customers and their customers' needs. They are in the best position to judge the viability of each and every concern. With Government encouragement, but much stronger encouragement than they know at present, they could encourage sound expansion.

This leads me, third, to the all-important subject of taxation. Before the present level of corporation tax, private companies could finance expansion reasonably out of profits. The effect on private business of advance corporation tax has been heavy and detrimental. It is impossible to increase turnover, as the average business man wishes to do, without additional investment, so where will the money come from? Private business cannot possibly hope for the equity capital from private sources, mainly because of the enormous burden of the monstrous rate of tax on so-called unearned income.

Now there is the threatened wealth tax. Most small companies are privately owned. An enormous number are family businesses. So many businesses from which the country has known economic strength and prosperity in the past have been built up by individuals with their families, their sons and grandsons and successors generally very much in mind. It therefore appals such people—again, I am receiving a great deal of correspondence about it—that the proposed wealth tax may apply to such businesses.

With the average family business, all the wealth of the proprietor, the partners or the family is tied up in the business. It is a different matter facing a wealth tax if other investments are available. But in the case of most private businesses, such investments are not available. I should like, therefore, to suggest to the Minister that if it is at all possible small businesses should be exempted from the proposed wealth tax. Here we might again use the guidelines as set out by Bolton. I ask today that small businesses with profits of less than £25,000—or, if we use the other Bolton guideline, with 200 employees or fewer—should be excluded from the provisions of the proposed wealth tax. I ask that there should be a general appreciation that with wealth tax, with heavy taxation on returned profits, with heavy taxation which deters the private citizen from investing, there is an enormous danger of many private businesses going out of existence within one generation and that this could have a very detrimental effect on the future health and strength of the British economy.

What, then, are the answers? By far the best and, of course, the most prominent is a reduction in taxation generally, particularly in corporation tax, for small businesses, and possibly the use on the American pattern of small business investment companies. I know that a certain amount is being done in this country in this sphere, but there is quite obviously considerable scope for more. Large companies knew encouragement on the production of the recent Budget by the concessions on the Price Code and stock appreciation. It is necessary, however, to point out today that these concessions do not apply to companies with stocks valued at less than £25,000. They should do.

Again, private business has suffered in the past, and very heavily, from estate duty. The scales are even more heavily weighted against private business by the proposal for a capital transfer tax. I repeat that the total destruction of family businesses within one generation is now threatened.

I should like now to make a brief comment, which again has particular relevance to my part of the world, on train- ing. There must be scope for the encouragement of small business by the provision of more aid on training. I managed yesterday to suggest to the Prime Minister at Question Time that our very high level of unemployment in the North-East masks, and has masked for a considerable number of years now, a desperate shortage of skill. There is need for people in small businesses to be trained. Small business is doing its best. Its record is remarkably good. But there is scope here for more aid on training for small business.

In his Budget Statement the Chancellor said that we needed to know more of the skill requirement in industry in our country as a whole. With respect, I am on record in the House no fewer than 10 years ago as having suggested to the then Minister responsible for training in industry, the right hon. Member for Blackburn (Mrs. Castle), that we needed a national review of the requirements—as I was thinking at that time—of new industry in the development areas. But I would extend that not only over new industry in the development areas but, 10 years later, over the whole sphere of small and medium-sized businesses. I was told by the right hon. Member for Blackburn 10 years ago that the Department concerned had all the information that it needed. I do not believe at this stage that we have all the information we need. I agree with the Chancellor of the Exchequer. I should, therefore, like to suggest that there be an urgent review of skill requirements in the sphere of private business.

I should like now to comment on the self-employed. On the Opposition side of the House we have received with considerable pleasure the news of a vote in another place. I hope that in due course the Government will not attempt, in this House, to overturn that decision. [HON. MEMBERS: "Hear, hear."] On the Opposition side of the House we deplore these proposals embodied in the Social Security Amendment Bill which increase, and substantially increase, the taxation burden on the self-employed.

Two million people are employed either in business or the professions on a self-employed basis. No one fails—and we on the Opposition side of the House have not failed in the process of the Bill this far—to appreciate that the financing of higher benefits means larger contributions. But why should the self-employed carry the enormously increased burden when the Minister responsible for the Bill suggested on Second Reading that employees earning up to well above £60 a week will be paying less? This is how the self-employed person sees this new burden, as a reduction for the employed persons, some of whom he employs, while the self-employed person appreciates to the full that he does not receive unemployment benefit, redundancy payment, industrial injuries benefit or the earnings-related supplement.

Many self-employed people realise that they have received no help at all from the recent Budget and that they also face much higher rates on their business premises. In many cases, again, they are being driven out of business by the actions of the present Government. Small shopkeepers, plumbers, carpenters, craftsmen and business men who perform a useful service in society and to the community are seeing themselves as having been singled out for this discriminatory burden. Therefore, I appeal to the Minister to use his influence within the Government to make quite sure that a decision taken in another place very recently is upheld.

My final point is this. I believe the contribution of the individual to society today to be all-important. In recent years we have been mesmerized by the size of businesses. We have been inclined to believe that the future of our industrial well-being depends on bigger and bigger concerns. I do not believe this to be so. At this time of dangerous inflation for our country we cannot do better than encourage that sector of industry which is successful and has been successful in the past.

I stand firmly in support of the small business man. For generations this country has known its prosperity and greatness because of the respect for and encouragement to the individual. I stand for and applaud the person who gets up in the morning and gets on with it, who does not worry about unsocial hours, does not want to be a special case, does not go on strike, and wants to stand on his own feet. A nation which does not recognise the power for the public good of such individuals is a nation which will not prosper. I ask that individual enterprise and initiative should be encouraged again, not only in words but in deeds.

11.48 a.m.

Mr. Bob Cryer (Keighley)

I am grateful that we have the opportunity to discuss this matter today. We must express our thanks to the hon. Member for New-castle-upon-Tyne, North (Sir W. Elliott) for raising the subject.

I want to make clear at the outset that we on the Government side of the Chamber realise that small businesses provide in many instances a very useful and valuable service to the nation and the community they serve—from the small shopkeeper to the plumber, the joiner, the small builder and so on. In many respects, many of them provide a very useful service.

However, it should be borne in mind that small businesses do have tax advantages. The hon. Gentleman has made some criticism of their present position, but they have tax advantages. They can, for example, get taxation allowances for equipment and vehicles, which they use over a period, which the ordinary PAYE employee cannot get. We have to bear these things in mind when assessing the present position of small businesses.

In my view, there ought to be improvements in company legislation to protect the good name of many small and medium-sized businesses. It is fair to say that there are people who operate at the periphery of the law and bring the good name of small companies into disrepute.

I give the House an example. Some three years ago, in Bradford, a number of central heating companies were given wide publicity by the local newspaper because they were installing central heating systems very shoddily and were not able to service them. One after another the companies were wound up. It appears that they operated in a perfectly legitimate manner, but they left behind a trail of dissatisfied customers without any redress, because the companies had gone into limbo. There were identical directors for all those companies. Whenever a company got into financial difficulties, it was simply wound up and the directors went into limboland, started another company and continued the process.

That sort of situation brings discredit on companies that make their best efforts to provide the services or goods that they are in business to provide. Some of the companies that came unstuck in that incident were the small and medium businesses that had supplied goods to the central heating companies to which I have referred—of course on credit.

I was dismayed to learn this year that two of the directors concerned in those shady dealings of three or four years ago had registered another company in my constituency. They have done exactly the same thing all over again, leaving behind a trail of dissatisfied customers. The Government should carefully consider company legislation that allows directors to participate in the running of companies that are later voluntarily or com-pulsorily wound up and then to engage in the formation of as many other companies as they choose.

Such people have a much better situation than the self-employed person who goes into bankruptcy and faces onerous legal obligations and severe restrictions on any future commercial operations. We should consider tightening up company legislation to control the capacity of the participants in companies to act in the way I have instanced. The Government have made promises along these lines, as did the last Conservative administration, but it is time that action was taken.

Bearing those matters in mind, I emphasise that small business has a useful function. It is part of the basic philosophy of the Conservative Party that the kernel of our existence should be small businesses, that it is the small businesses that grow into bigger businesses through hard work and devotion, that they become medium businesses and even larger businesses, and that their directors finally become captains of industry.

What the Conservatives fail to point out is that the competitive system means a race, in which the weakest go to the wall. It is often the small and medium businesses that go to the wall in the face of the competition from the giants, who gobble them up or extinguish them.

Mr. F. A. Burden (Gillingham)

Such as the nationalised industries.

Mr. Cryer

I shall give examples to show that it is not the nationalised industries that gobble up the small businesses, but the large private enterprise companies.

The hon. Member for Newcastle-upon-Tyne, North said that families frequently owned a business for several generations, and that of course is so. But there are several disadvantages in that. There may be a family squabble and the family may decide to sell out and wind up the firm, losing the goodwill of the business because the family is no longer interested in it. A family business may come to an end because there is no more family to carry it on, or because the family has made its pile and decided that the business is not worth keeping in operation, or the family may simply decide to sell the title. That is not entirely satisfactory.

Takeovers and closures are often the result of a big concern gobbling up a small one. In my constituency there was a large and reasonably prosperous firm, Prince, Smith and Stells, a long-established family firm and one of the biggest employers in the constituency, which manufactured textile machinery. It was taken over by Platt International, which decided that there was no point in having two or three centres, and rationalisation resulted in the closing of the plant in my town. The employees have very little say when that sort of decision occurs.

Another example concerns a small business almost within the definition of the Bolton Committee. It employed 203 people. It was bought out by the Tilling Group, which decided to close Timothy Hirds. The group decided that it no longer needed a textile sector and so a mill in my constituency is being closed by the arbitrary decision of a board, probably in London but certainly many miles from the production centre. That sort of thing is happening in many towns.

Mr. Robert Taylor (Croydon, North-West)

I am not sure whether the hon. Gentleman is opposing or supporting the motion. Surely the small companies that he has instanced have been forced into selling out. That is precisely why my hon. Friend the Member for Newcastle-upon-Tyne, North (Sir W. Elliott) wants them to be supported. We hope that the motion will be carried so that such companies will not have to sell out to the Tilling Group and other big organisations.

Mr. Cryer

The hon. Gentleman mistakes the nature of the society in which we live. It is not a kindly society, with people looking at small and medium businesses through rose-coloured spectacles. It is an acquisitive society of competition, in which the big boys are the winners. Hon. Members opposite may look at small businesses in that romantic way, but are they prepared to introduce legislation that will stop the grab by the large companies? They did not do so during their period of office from 1970 to 1974. It would be against the interests of the Conservative Party for them to do so.

Although we may look at the small family business in that cosy way, the facts are that in a competitive situation—and hon. Member after hon. Member opposite supports the virtues of competition—there is a race. Unless there is comprehensive legislation to maintain everybody in his status quo, in a race there are winners and losers and the losers are the small and medium businesses. That process is going on all the time, but the employees, who have no say in these decisions, suffer because it may not be in the interests of the big concern to allow the smaller concern to survive.

Mr. John Cope (Gloucestershire, South)

Does the hon. Gentleman propose to strengthen the Monopolies Commission in order to prevent large companies from growing? If I have understood him correctly, he agrees that we want the small companies to be allowed to flourish and not to be swallowed in the way he has described.

Mr. Cryer

I shall elaborate on the virtues of the National Enterprise Board and other Labour policies which we produced at the last election.

Mr. Ted Graham (Edmonton)

That'll teach them.

Mr. Cryer

I want to embark on a little illustration from what happened during the General Election. The hon. Member for Henley (Mr. Heseltine) visited my constituency and said that in it were 13 firms of small and medium size ready to be gobbled up by the National Enterprise Board. I argued then and still argue that the biggest danger comes not from public ownership but from big firms gobbling up small ones. By a quirk of fate, the day after the election and not before, it was announced that one of the threatened firms had been bought up by an American firm. The jobs of its 750 employees are now under the control of a company in the United States.

I wonder whether hon. Members opposite would prefer control to be exercised in the name of private enterprise from Iran or America, or exercised through the National Enterprise Board in this country and thereby to some degree accountable to Parliament. That is the problem facing the country today.

The hon. Member for Newcastle-upon-Tyne, North mentioned the Monopolies Commission. Many of the small and medium-sized firms are being taken over by the smaller ends of large companies, so they do not come within the scope of the commission. To strengthen the commission to take in the 800,000 small businesses and scrutinise them would be a massive bureaucratic undertaking. The NEB is a far better safeguard to ensure against the removal of ownership from this country abroad. At the General Election the Labour Party said: We shall set up a National Enterprise Board to administer publicly owned shareholdings; to extend public ownership into profitable manufacturing industry by the acquisitions, partly or wholly, of individual firms; to stimulate investment; to create employment in areas of high unemployment; to encourage industrial democracy; to promote industrial efficiency; to increase exports and reduce our dependence on imports; to combat private monopoly; and to prevent industry from passing into unacceptable foreign control. The NEB is an excellent vehicle for doing it. It will assist in keeping small and medium-sized businesses in British hands, through public ownership, and will help them in their investment problems.

There is an argument that Finance for Industry will castrate the work of the NEB. I hope that it does not. I hope also that the £1,000 million allocated by my right hon. Friend the Chancellor of the Exchequer to FFI will not mean that the NEB will be unable to buy into the profitable sections of British industry, where investment is needed.

Many of these small and medium-sized businesses are lacking in capital to invest, for all sorts of reasons. Some of them have been milked in the past; some have not been making enough profit to allow for investment; some have faced market changes. It is not just a question of diminution of profits. Many factors are involved. One of the reasons is downright inefficient management. The Leader of the Opposition in 1973 told the Institute of Directors that British management was highly inefficient—at least, he used words to that effect. I hope that the NEB will be able to assist British industry with a degree of accountability.

Today's announcement by my right hon. Friend the Secretary of State for Industry is going to affect small and medium-sized British firms in the motor car manufacturing industry. Motor car manufacing is essentially an assembly process, and if a large firm collapses it means that a large number of small and medium-sized firms are placed in jeopardy. My right hon. Friend's announcement will, I am sure, give encouragement to a large number of component manufacturers that their future is secure.

I hope that my right hon. Friend's announcement also means that British Leyland is to be taken into public ownership with a large element of democratic control. That is another element which many small and medium-sized firms fail to recognise. Today, employees are not prepared to accept the forelock-touching attitude of yesteryear. More information needs to be given by small, medium-sized and, indeed, larger firms, and I hope that the Employment Protection Bill will produce changes in company legislation so that that information is given.

Mr. Peter Rost (Derbyshire, South-East)

There is far more direct participation in small firms through the actual ownership of part of the capital than in the nationalised industries or the larger groups.

Mr. Cryer

The hon. Gentleman paints a rosy picture of a small family firm owned by a lot of employees. I have no doubt that in some small family firms the fact that the boss is perhaps on the shop floor, and is known and liked by his employees, is a very useful factor in promoting good industrial relations. I would not deny that for a moment. I do not propose that the NEB should swallow up hundreds of thousands of small businesses. But as firms grow, so their problems of management grow, and so the remoteness of management is increased. Where there is a demand for some sort of control by the employees, that demand should be met, and where there is a demand for information which is relevant to the employees, such as the trading situation, the fact that the firm is to be taken over or is negotiating, the fact that redundancies are to occur, that information should be given by law.

I hope that the Employment Protection Bill will ensure that such information is provided. Earlier, I quoted the case of Timothy Hird's. I am given to understand that the announcement of rundown of the work force was simply to be given to the employees in a notice posted on a board. In other words, 200 people were to be told that their careers at the firm were finished by a duplicated sheet on a notice board. The union persuaded the firm to hold a meeting with the 200 employees and explain the matter to them. Industrial relations of that kind breed disharmony, and some degree of legislation is necessary.

The fears expressed by hon. Members opposite are entirely unfounded. There needs to be some degree of improvement of small and medium-sized businesses through increased investment, and this can be brought about by the NEB. The notion that competition is the sole philosophy simply will not serve us these days because small and medium-sized businesses are increasingly going to the wall. I do not accept that the strike record of small and medium-sized businesses is necessarily all that brilliant. It is no better than that of the publicly-owned sector. It was significant that no figures of comparison were given by the hon. Gentleman: If hon. Members opposite are concerned about the loss of working days they had better compare the accident record of the publicly-owned industries with that of the privately-owned industries. The publicly-owned industries have the highest working standards and in any given year about 20 million days are lost.

Mr. Burden

Does the hon. Gentleman agree that there are very strong rules in legislation about safety in factories which apply not only to nationalised industries but to others and that there is no evidence to suggest that the privately-owned industries are burking the issue and evading the law?

Mr. Cryer

I am grateful for that intervention. I am pleased to advise the hon. Gentleman, first, to consider the very small number of prosecutions that are brought and, secondly, to compare the number of prosecutions of nationalised industries with the number instituted in private industry. The number in private industry is far greater.

Mr. Burden

The hon. Gentleman has just made my point—that there is legislation on this matter, and it can be enforced.

Mr. Cryer

I do not deny that for a moment. I am refuting the Opposition's concern, because I think that it is largely spurious and a political point, about the number of days lost through strike action. Far more days are lost through industrial injuries.

If the Opposition are concerned about the number of days lost, let them start pressing the Factory Inspectorate to undertake prosecutions. Let them point out to the Factory Inspectorate that 50,000 accidents involving eye injuries result each year in men being off work for more than three days and yet, on average, only 15 firms a year have been prosecuted in the past eight years. That is the sort of dereliction about which I am talking.

Mr. David Mitchell (Basingstoke) rose——

Mr. Speaker

Order. Most of the hon. Members who interrupt also want to catch my eye. The Opposition must have it one way or the other; either they expect to be called, or they can go on interrupting. We must get on.

Mr. Cryer

I am grateful, Mr. Speaker.

As I have said, there is no justification for assuming that privately-owned small and medium-sized businesses have a better strike record than others. We must earnestly look to the support of small industries in the way outlined on previous occasions by various members of the Departments of Industry and Trade, but we must ensure that the National Enterprise Board provides the degree of investment and public accountability which we laid down in our policy statement during the last election.

12.13 p.m.

Mr. John Gorst (Hendon, North)

I shall not follow the hon. Member for Keighley (Mr. Cryer) into the enchanted world of the National Enterprise Board from which he hopes for so much, but I join him in congratulating my hon. Friend the Member for Newcastle-upon-Tyne, North (Sir W. Elliott) on his choice of subject. It is extremely valuable to have the opportunity of discussing the needs and plight of small businesses. I hope that my hon. Friend will not feel that the amendment which you did not call, Mr. Speaker, which was designed explicitly to incorporate an important constructive suggestion implicit in the motion was intended to be critical. The reverse is the case.

The remarks of my hon. Friend the Member for Newcastle-upon-Tyne, North and perhaps those of the hon. Member for Keighley show that we are witnessing the silent elimination of a group of people whom one might describe as the people in the middle, whom I have described as the middle classes. The people running the businesses are as important as the businesses themselves. However, when I refer to the middle classes, I make it clear that I am talking about self-employed people in professional occupations, executives in small and medium-sized businesses, managers, and a host of retired people living on hard-earned savings.

However, my purpose is not to describe the illness but to suggest what I hope will be the beginning of a remedy. Not all the ills from which the people to whom I have referred are suffering come from the malice of any political party. Some result from ignorance of the broad effect of measures taken, or indeed not taken, by Governments which nevertheless affect these sections of the community, not least the inventive, enterprising, say, one-to-50 men businesses, whether they are self-employed plumbers or owners of self-service shops.

No Minister or Ministry is charged with overall concern with the cumulative effect of a whole series of measures which are debilitating the middle classes and the enterprises they are trying desperately hard to promote. For example, we have a Secretary of State for the Environment, who deals with rates. We have a Secretary of State for Social Services, who deals with national insurance. We have a Chancellor of the Exchequer, who is supposed to deal with inflation, and who certainly deals with taxation. We have a Secretary of State for Industry, who deals most effectively with bureaucracy.

Mr. Rost

He creates it.

Mr. Gorst

As my hon. Friend says, he creates it.

All those Departments and Ministers hurt or hinder the individual as an individual, and they also hurt or hinder small businesses as growing and struggling enterprises. Therefore, plainly there is need for machinery to cope with the problem which this lack of co-ordination presents. Our problem is not unique. It exists, has been recognised, and attempts are being made to resolve it in other European countries. France, Germany and Belgium have faced this important question.

In France there is a Secretary-General of the Middle Classes, responsible for studying and co-ordinating economic, social, financial and fiscal matters relating to small and medium-sized businesses, craftsmen, the professions, engineers, executives and small fanners. He is empowered to undertake inquiries regarding their fiscal progress, professional training and questions about their productivity. He can liaise with other Ministries to find solutions to their problems and to bring about improvements in these sectors. He is also responsible for the management and functioning of the National Technical Commission on the Middle Classes and its sub-committees. He is in permanent contact with overseas Government Departments responsible for the middle classes.

Belgium actually has a Minister for the Middle Classes. Until 1954 there was merely a section of the Ministry of Economic Affairs. In the last 20 years a separate entity has been created. Its activities cover economic, financial and social sectors likely to interest independent workers. Its functions—I particularly draw the Minister's attention to this point—are to defend, represent and promote the interests of the middle classes and to assume co-ordination of certain semi-Government bodies including a whole list of different bodies with "middle classes" in their titles.

The definition given of "middle class" is: socio-economic groups lying between holders of large capital and wage-earners. In Belgium they represent more than one-third of the active population. In Germany there are similar organisations, although there is not a Minister for the co-ordination of the interests of the middle classes. My amendment would have proposed something more appropriate to our constitutional practice. What is wanted is a senior Secretary of State who would be on equal terms with the Secretaries of State for Employment, Industry and Social Security.

Small firms are entitled not just to a small Minister but to a large voice in the Cabinet. It is no use fobbing us off with a junior Minister in an already busy and preoccupied Department, or, worse still, with a harassed permanent official. The Minister who occupies the Government Front Bench in somewhat lonely splendour is in no way a political minnow or a parliamentary paper tiger. I would not say that of him. However, I suggest that his substance would be enormously enhanced if his specific gravity could be translated to the environment of the Cabinet. I join in saying that it may be that he aims to go there in such a capacity.

The Under-Secretary of State for Industry (Mr. Gregor Mackenzie)

I am grateful for the comments of the hon. Member for Hendon, North (Mr. Gorst). I hope that he will not push the matter too hard.

Mr. Gorst

I do not wish to embarrass the Minister, but I must make the point emphatically that a miniature Minister for small businesses is not enough. I do not need to detail the duties and responsibilities that I believe a Minister for the middle classes should have. That is clearly evident from what I have said about the practice in other European countries.

I hope that the Minister will undertake to draw the gist of what I have said to the attention of the Prime Minister, so that when his right hon. Friend replies to a Question which I have tabled for 19th December he may be positive and forthcoming. If it helps the Minister to identify my Question to the Prime Minister, it is the one that asks him whether he will pay an official visit to Belgium.

I ask my hon. Friend the Member for Basingstoke (Mr. Mitchell) whether he intends to intervene to give an undertaking not only that he will ensure that our party considers this proposition but that he will adopt something on the lines that I have suggested when he is talking to some of our right hon. and hon. Friends.

The chief executive of a company who wrote to the co-founder of the Middle Class Association, which, some hon. Members may know, I have recently started, pointed out in his letter: We are in great danger that Government inaction … will rapidly impoverish the middle classes more than any other single move. He then said that we shall be removing important career incentives. And, ultimately, we shall be short of good managers, professional men and creative people of all kinds: and the whole community will suffer. There is a job of co-ordination for a Minister for the middle classes. Taxation would be a matter for him, but certainly not the only matter. He would have to concern himself with problems ranging over the entire spectrum to which reference has already been made. I now quote from someone who is certainly no Conservative, namely, Mr. Alan Watkins In last Tuesday's Evening Standard he wrote: The middle-classes are not asking for special measures to be taken in their favour, rather they are asking, or demanding, that certain measures which are opposed to their interests should be modified or withdrawn. He also wrote: What is much more surprising is that … the Government should so underestimate the potential strength and seriousness of the middle-class revolt, not only over rates but over other matters also. The House should not lightly ignore the expressions of smouldering resentment. It ignores the rising anger of patient men at its peril.

12.25 p.m.

Mr. F. A. Burden (Gillingham)

I am sorry that the hon. Member for Keighley (Mr. Cryer) has left the Chamber. He said that the strike record of small firms was no better than that of the larger companies. It is clear that he has not read the Bolton Report, which was produced at the request of the present Secretary of State for the Environment. The report states that The small firms which responded to our Inquiry are affected by strikes to only a very small extent: under 8 per cent, had been affected at all in the two years to 1969, and of these only 1½ per cent, experienced strikes in their own firms, the remaining 6 per cent. were affected by strikes in other firms. That point should be made. It is clear that the hon. Gentleman was wrong in his assumption and the statement that he made. He also made comments about the conditions in many of the smaller firms. He implied that there was some great virtue in conditions from the point of view of workers in the bigger firms, including the nationalised industries. It is interesting to read that the Bolton Report says, about that: In many respects the small firm provides a better environment for the employee than is possible in most large firms. Although physical working conditions may sometimes be inferior in small firms, most people prefer to work in a small group where communication presents fewer probems: the employee in a small firm can more easily see the relation between what he is doing and the objectives of the performance of the firm as a whole. Where management is more direct and flexible, working rules can be varied to suit the individual. I suggest that the Secretary of State for Industry should take note of the Bolton Report.

One of the great dangers to this country is the constant growth of great monolithic enterprises. It was the Labour Party that began that growth, with nationalisation. It was then called public ownership, but it seems that that expression is not bandied around quite so much nowadays. That may be because the public have been gravely disillusioned over the years of their ownership of the giant organisations. As we all know, they have no control over their activities, and the organisations are accountable to Parliament only once a year. We cannot even table a Question about them at any time during the year dealing with what are termed the day-to-day operations of nationalised industries. We have no control over them at all.

Nationalised industries have become instruments of Government, in many instances without accountability to Parliament. Their policy is fixed by Government. They have also become instruments of patronage. The Government appoint people to head them. Sometimes I believe that there is a political motive behind such appointments, and that they do not have much to do with ability.

Mr. Gregor Mackenzie

The latest appointment made by the Government was that of Sir William Ryland. I would not like anyone to think that the hon. Gentleman is suggesting that Sir William's was a political appointment by me or anyone else.

Mr. Burden

I am not suggesting that at all. However, the Government appoint the heads of these nationalised industries and they must take full responsibility for what happens in them. My own party over the years has encouraged the creation of huge industrial complexes in the private sector. The idea that monopolistic empires create efficiency is a fallacy. Frequently the opposite is the case. Huge organisations, public or private, are not always acting in the national, the public interest.

One of the great dangers is that these huge concerns in the private sector represent an invitation to a Left-wing Government to nationalise them. Their size makes that easy. The hon. Member for Keighley admitted that there was a remoteness in top management in many of the bigger industrial organisations. This is inevitable, because of the vast size of the plant and the number of workpeople. It tends to stifle ambition and initiative. It lowers the level of work and suppresses the flow of new ideas from the lower echelons.

It is difficult for the man on the shop floor in a giant corporation, public or private, to infiltrate his ideas up to management level. How much easier it is for the man on the shop floor in the small business to approach the boss and to give him the benefit of an excellent idea. Many exciting suggestions and inventions are probably stillborn in the minds of their creators because there is no opportunity for them to be pursued in big organisations.

Is it not significant that strikes, lockouts and general unrest mostly prevail in the nationalised corporations and the large industrial concerns? That is not my view; it is the decision to which Bolton came. It is wrong for us to imply that there are the same problems among the smaller companies.

I remind the House of some comments of the Chancellor of the Exchequer during his Budget speech. For me the most significant and frightening sentence in that speech was that in which the right hon. Gentleman pointed out that produc- tion per man in this country is now below that of any of our industrial competitors. That shows that there is something wrong with our industry. It may that there is not the right relationship to encourage men down the scale to put their backs into the job, as will have to happen if we are to maintain our standard of living, let alone increase it.

People are becoming more than a little fed up with the way in which industrial power can be wielded by the big unions in the nationalised industries and the large private companies in the way which holds the country to ransom. These organisations browbeat the country, often for political motives. This has been made perfectly clear in recent months, and now, for the first time in the history of this country, the average man and woman is being denied his or her daily bread because its manufacture in this country is mostly in the hands of a few companies.

Mr. Gregor Mackenzie

They are not nationalised.

Mr. Burden

No, but the arguments are the same. When such companies get so large, a strike can hold the country to ransom. Who is helping out? Who is seeing that we get our bread? It is the small business man, the small baker. These are the people providing us with what bread is available. If we still had many small bakers rather than one or two large firms we would not be in our present position.

Overall the picture shows that enormous political pressure can be exerted by men simply threatening to withhold their labour. The whole economy of the country can be threatened. This situation has come about only in the last few years, since we have had these giant corporations, nationalised and private. We must urgently encourage the growth of the small businesses.

I am concerned about the defence cuts. In my area the dockyard is the biggest employer. There are other employers connected with defence who will suffer. We should do our best to encourage small firms to set up in dormitory areas outside London to provide fresh jobs. We need to encourage those with the will, the initiative and the desire to create their own enterprises. If they succeed, the nation will benefit. If they fail, their failure does not rock the very foundations of our economic structure, as is happening today, as I am sure the Secretary of State for Industry made clear earlier, in his report on British Leyland, when, unfortunately, I was not here.

Small businesses and their owners set a work pattern, an example, for their workpeople. The owners are not remote and unapproachable people—I am repeating in my own words what Bolton said—to whom the worker is so often a meaningless, numerical symbol. Most of them are known by name by the men for whom they work. They can discuss their problems eyeball to eyeball. The person at work feels that because of his close association with his employer he is treated with the dignity that is the right of every working man.

Small and medium-sized businesses have an awareness of the responsibility of employer and worker. They know that they sink or swim together. Their problems are faced and solved together. Small and medium-sized businesses played an enormous part in creating this country's prosperity.

The time has come when we must question whether the huge nationalised industries and enormous firms with monopolistic powers are suited to combat the problems of the future. Some of them will, but some will fail. If we are to take the best advantage of our technological knowledge, if we are once again to ensure, as we must, that our products are sold in the world on the scale necessary for our economic survival, the Government must do everything possible to support existing small and medium-sized businesses. They must encourage those men and women who would like to enter commerce by starting their own businesses, giving them every possible support through taxation and other measures. I believe that they will respond, and the country will benefit greatly from their efforts.

12.43 p.m.

Mr. John Loveridge (Upminster)

I join in the tributes to my hon. Friend the Member for Newcastle-upon-Tyne, North (Sir W. Elliott), the mover of the motion. I hope that the Government will think deeply about his practical proposals.

I declare a personal interest, as the head of a small business for the past 20 years—a business that has grown. My mother, who died 20 years ago today, founded it, and my father helped her. My pram was used to carry the leaflets that advertised its foundation, so it can be said that I was in on it from the very first. I hope that my mother would be pleased with what the second generation has done. Such businesses, the many of them throughout the country, are a great help to our nation and everyone in it, whether or not he works in a small business.

In speaking previously on the problems of small businesses. I have tried to make detailed recommendations. What a comfort it would be if we could feel that our speeches were kept for bedside reading by Ministers. Today I shall speak more broadly.

Small and medium-sized firms still employ—depending on the definition—between one-quarter and one-third of all the people who work in this kingdom. Such firms are not insignificant. They are the very basis of our prosperity. Many years ago they looked ahead with trepidation. With Marx, they looked ahead with fear to the inevitability of complete monopoly within industry. Instead, the inventiveness of man has provided new outlets for the design and marketing of innumerable products on the fringes of those vast areas where the economics of scale apply.

It has been one of the blessings of the British growth of business that we have had the parallel development of vast enterprises, which the nation needs, and enterprises of a small scale, which are also needed. The great businesses allow for long production runs, vast capital expenditure on machinery, and large sums to be put aside for research and development. The smaller firms are often pioneers of new ideas on a smaller scale. They are quicker to adapt to new circumstances. They are often run on lower capital overheads, in proportion to their turnover, which enables them to put a larger share of their capital to the rapid change of their comparatively simple products.

I was sorry to hear the hon. Member for Keighley (Mr. Cryer) stress the competitive aspects. Of course, there is competition between businesses, but what is more important is their creative aspect—the new ideas and developments for the nation. Small firms can offer specialist products for which there is a limited demand but none the less an urgent need. It would not be worth while for a large firm to go into such specialist lines. Modern society is so complex that there is need for an almost infinite variety of such specialist products.

It is not only in the speedy reaction to events and the supply of such products that the smaller firms serve our country. They are also known for the happy atmosphere that many enjoy in their working conditions. They may not have the washrooms, and they may not have such good canteens. Certainly, they seldom run to great blocks of prestige offices. Yet they seldom suffer from severe troubles among those who work in them. It does not matter that the owner-manager has a camp bed in the workshop or the office, or that he has graduated through success to a fine house.

In these firms, there is no feeling of embarrassment between the owners and those who work for them. They have often been through many difficulties together. They have spent many nights working together when they have been challenged to meet a deadline, and they have shared private anxieties over family illness. There is a close friendship between them that cannot readily be achieved in larger industries or services. In view of that, I was sorry in some ways to hear my hon. Friend the Member for Hendon, North (Mr. Gorst) applying the expression "the middle classes" to those in these businesses. He has a point of view, and he put it very well, but in my view it does not apply to these businesses. At best, those engaged in businesses of this type approach the truly classless society, where each worker works with his fellows, all respecting one another for what they contribute.

Mr. Burden

Is it not fair to say that these people are just as much members of the working class as are most of us, and just as much as others who are lauded as the working class and are used as some sort of weapon to wield against the rest of us?

Mr. Loveridge

I agree very much with my hon. Friend. It is important for Britain that we all learn to be one with another—one people, irrespective of class. It is the harping upon class which has damaged our community in the past. I hope that we shall not harp upon it in the years ahead. The small business can play a substantial part in this, and it would be a sorry Britain if this one-third of our people at work were to be set back.

The school of many of these firms has been the school of difficulty. There are difficulties enough to overcome without adding to them, and it would be a tragedy if Government policy, or the lack of it, were to turn the quality which starts and builds such firms into introversion and into worrying about how to save their businesses from destruction as a result of the capital transfer tax and other Inland Revenue taxes—quite apart from the wealth tax which is now proposed.

Instead, these firms should be encouraged to worry and work on how to design, make and sell new products. As small firms prosper, they grow to medium size and develop the new ideas and the understanding which are needed from the entrepreneur. The owner of such a firm has to understand how to delegate authority safely and wisely to meet new management demands. A new structure is needed for this. When it reaches that point, the firm can carry on its life independent of the founder or owner.

These unceasing new challenges make hard demands on the owner-manager. They make hard demands on his family, who often see less of him than they wish. We, as politicians, appreciate that only too well. They make demands upon the owner-manager's health. If, at this stage of development, when these new demands are being made and when the firm is about to grow more substantial in size, the head of the enterprise has to consider 98 per cent, rates of marginal taxation on personal investment reserves and 83 per cent, on his own income, plus the need to look at the new capital transfer tax which may destroy his firm and mean that he cannot transfer ownership to his son or daughter, or to his colleagues, because he cannot afford to do so without selling off the assets of the firm and thus breaking it down, what is likely to be the effect on the enterprise?

Whatever new dreams he may have of new designs and new hopes and aspirations for the business, the owner-manager is forced to put them aside—to turn, instead, to safety and to adopt steady and solid measures. In other words, he is forced to become almost a bureaucrat, because he is no longer in a position to take the risk that these new dreams, hopes and designs involve.

If the owner-manager dies, taxes may force the sale of the business or, at the least, of much of the assets, thus hindering development for decades ahead. Alternatively, as so many have already done even under the old system of taxation, he may sell his firm and life's work to what are called conglomerates.

Is there any evidence that such conglomerates are more successful, or are they simply the beneficiaries of a tax system which is designed to destroy the more successful of our small firms? Does each part of a conglomerate produce more, invent more, and have better relations with its workpeople? No evidence has been produced to show that the process of centralisation has been beneficial. It may help those who run the money side, because they obtain the benefit of interest relief on borrowed money. Businesses require such money, of course. They could not run without loans and the interest relief applied to those loans.

I ask the Government, none the less, to consider extending the relief to those who obtain money and put it into financing the growth of their own businesses. Why add an unnecessary burden of interest rates now running at between 15 per cent, and 18 per cent, a year on loans which are not really required? All that it does is to place an additional burden of expenditure upon many firms which could successfully finance their own expansion out of retained earnings. The Government must know that many firms are forced to borrow purely because the tax system encourages it. Why not let the relief be given? Why not let them retain their earnings for expansion?

I make no apology for speaking of expansion and of hope for the smaller firm at a time when all the economic traffic lights are set at amber, if not threatening to turn red. There is danger ahead. If the inflation forecast this week by the Institute of Economic and Social Re- search proves to be true, it may not be possible for many people to afford to borrow at such penal rates. If the Government's own forecasts of inflation prove to be true, they are still an onerous burden to carry.

I have no doubt that the Government know more than the rest of us what hope there is of maintaining the country's high level of borrowing abroad. They know far more how much of this is short-term and how much long-term. But many of us are deeply concerned that the debt itself is becoming too large either to be readily repaid or even to be serviced adequately. If that turns out to be the case, where will the Government's credit be?

Whatever the Government do about the nation's debt as a whole, they would be unwise to increase the burden of debt on the smaller business. If the nation is forced to consider measures for replacing imports that we cannot afford by new sources of supply of manufactures at home, the smaller firms will be in the forefront of such a reversal of policy. It is they who will be called upon for the retooling. I said earlier that one of the great virtues of the small firm is its swift adaptability to new designs. If such firms are to be urged to meet the challenge of the nation, they must have adequate finances. It is not enough to say that bankable facilities are available.

These economic uncertainties leave small firms in a position in which the wise men running them are not willing to gamble on extensive borrowings which they cannot safely afford. Let them keep their own cash flows. At times of inflation, we should allow them to carry forward their stock figures which have grown in paper value only because of the rising prices of raw and semi-manufactured materials. It is senseless to charge to taxation the increased values of stock resulting from inflation. In any case why discriminate against the small firm in this respect?

The Chancellor of the Exchequer clearly recognises the need. Let him act on it now. There should be no limit. The provisions affecting inflation should apply across the board. There is no real accountancy difficulty.

In life, it is not how much a man knows that is of importance but the end and purpose for which he knows it. Let the men with small businesses fulfil their purpose to be enterprising. Do not frustrate them by making them feel, in Shelley's words: The seed ye grow, another reaps; The wealth ye find, another keeps. In simpler terms, do not kill the goose that lays the golden egg.

It would be madness for the State to plan to make men with small businesses spend their time working out how to fend off bureaucratic threats and taxes designed to break up their firms. It would be sane for the State to allow them to work with hearts and minds for their own honourable fulfilment and for the good of us all.

1.1 p.m.

Mr. W. Benyon (Buckingham)

I join my hon. Friends in congratulating my hon. Friend the Member for Newcastle-upon-Tyne, North (Sir W. Elliott) on bringing this important matter to the attention of the House today.

It will come as no surprise that, in view of the motion in my name later on the Order Paper, I propose to concentrate on the specific burden of rates on small businesses, particularly shops.

Napoleon described this country as a nation of shopkeepers. We have been proud to glory in that description, because it implies a considerable amount of individualism and enterprise. Yet the shopkeepers of Britain today are threatened as never before. They are threatened not by some foreign foe but by the action, or inaction, of their own Government. I say at once that not only the present Government but the last Government must bear some of the blame for the current situation.

Shopkeepers are now faced with heavy taxation both as individuals and as businesses. They have to pay considerably larger social security charges, but, more important, inflation requires additions to their capital which, for many, is quite impossible to obtain. Even if they can obtain capital, they find the cost prohibitive. They have to operate under a load of legislation which, although in itself socially desirable, imposes considerable burdens on both their resources and time. Finally, they have the substantial burden of extra rates, which has arisen during the last two years and will obviously increase in the coming financial year. It is no exaggeration to say that the present stream of such enterprises going out of business will become a torrent unless something is done. The consequences cannot be over-emphasised.

I think that on both sides of the House there is now a suspicion of bigness and monopoly power. We do not wish the retail trade of this country to become the sole preserve of the multiples and the supermarkets. We accept that they have a rôle to play, but not an exclusive one.

I shall resist the temptation to deal with the rating system as a whole, because that subject has been discussed on a number of occasions and is to be discussed next week. I should be covering old ground if I went into that.

For better or worse, we are waiting for Layfield. The Conservative Party's view is well known. We fought the General Election on a policy which would remove rates as the predominant source of local government finance. I want, therefore, to concentrate particularly on the narrow issue in the short term of the effect of the rates burden on small businesses and what can be done now to put the situation right.

First, I turn to the overall effect of rates on small businesses. The rating precept from all sources has been increasing over the last two years at 5 per cent, compound. The expenditure of local authorities has been increasing at 8 per cent, compound. However, the gross domestic product has been rising at between only 2 per cent, and 3 per cent. Therefore, the local government sector has been taking a large—some people would say a disproportionate—amount of the national cake. It is little wonder, therefore, that the retail trade has been hit very hard.

Recent studies have estimated that rates account for l½p to 2p in the pound in retail costs. That does not sound much, but, taking the average retail profit at 5p to 6p in the pound on the latest figures, it assumes a significance which I want to emphasise. Yet even that does not give the true picture, because the figures that I have quoted cover everything from Marks and Spencer, on the one hand, to the corner shop, on the other. Therefore, the proportion of rates in retail costs is much higher in small operations.

Between 1973–74 and 1974–75 the domestic ratepayer's share as a proportion of total rates paid fell from 44.4 per cent, to 41.5 per cent. Yet, at the same time the commercial ratepayer's share increased from 27.2 per cent, to 28.6 per cent, on a higher figure.

National surveys conducted by the chambers of trade during the last two to three years have tried to evaluate the effect on the retail trade, first, of revaluation and, secondly, of the inflation of rate demands. These returns show that the increases in the amounts paid by traders have been very high. Indeed, 200 per cent, in that period is not uncommon and almost half the returns that have been received are up by over 100 per cent.

I do not have to remind the House that we face further substantial increases next year. The Secretary of State in his recent statement said that these would amount to approximately 20 per cent, for commercial properties. But, obviously, an average figure disguises the fact that it will be much higher in certain parts of the country.

It must be obvious to anyone who has any knowledge of how the retail trade operates that such increases have imposed real hardship in certain sectors. The small retailer relies on sales to produce the wherewithal for the replacement of his stocks. Recently, inflation has meant that sales have not produced sufficient to effect that replacement. Now the small retailer has to contend with this surcharge of rates on top of that.

The official view—not only by this Government, but the previous one—has always been that these increases could be passed on in prices or could be set against tax. When the sums were very small—and this applies to the rating system as a whole—that was true. Now the position is completely different.

First, the climate of opinion is such that the retailer suffers the lion's share of abuse for rising prices—in many cases that is totally unjustified—and that curtails his freedom of action in passing on these charges.

Secondly, the ability to offset against tax implies a profit. If the retailer has no profit, the tax cannot be offset.

In present conditions any profit is becoming difficult to obtain because trade must be expanded to cover the extra costs. Yet in many instances the market for the small trader's particular enterprise is static. It is static not only financially but geographically. When one realises that for every extra £1 of overheads the small trader has to produce an extra £10 of trade to cover it. one appreciates the difficutly.

I have here two examples of rises in the last two years. In one case it was from £74 to £523, and in the other from £455 to £2,415. The most unfair thing about this is that in many cases the shopkeeper is also a domestic ratepayer, and if he lives over his shop he is at a double disadvantage. I am thinking particularly of one instance in my constituency. The shopkeeper occupies premises that are extremely bad compared with those occupied by his neighbour, yet he has to pay the full commercial rate while his neighbour pays a domestic rate and gets the full allowance.

As hon. Members know, in a mixed hereditament the domestic allowance applies if the shopkeeper occupies more than 50 per cent, of the whole. My first suggestion, therefore, is that while we are waiting for Layfield—and this is at least two years away—the Government should consider altering the rule about the domestic part of the premises occupied by the shopkeeper in all cases, and should not apply the rule only when the amount is more than 50 per cent, of the whole.

The second matter that needs to be considered is the valuation of property, and I should like to quote from a letter that I have received because it puts the matter succinctly. The writer says: Assessment on a differential basis according to the size of the premises results in small shops paying considerably more per square foot of floor space than his larger competitors—yet economists tend to talk about measuring efficiency in retailing by the yield per square foot. One could cite the evidence of one street in a town on the South Coast where the gross rateable value per square metre averages £9.35 for the 10 largest shops, as against £16.95 for the 10 small businesses … the lowest all-in cost per square metre being £6 compared with the highest at £20. Can it be wondered at that the small trader finds it more and more difficult to compete on equal terms? I urge the Government to consider this aspect of the matter because, whatever happens, valuation will continue, certainly until they take a decision on Layfield, and the present arrangement imposes considerable hardship on the small trader.

The third aspect which the Government should consider is that of applying the concession to domestic ratepayers, which is 60 per cent. of any increase about 20 per cent., to all businesses below a certain figure. We might take as a reasonable figure that suggested by the Prime Minister; namely, a total turnover of £250,000. If that were done it would make it very much easier for these enterprises to continue.

My fourth point, which is a major one and much more of a general nature, is that the Government must consider imposing limits on the total rate burden that local authorities can impose. I have been in local government for 10 years, and I say quite frankly that local government is not accountable to its electors. That is a pity, but it is true.

Anybody who has been in local government knows that it is much more difficult for local councillors to say that a service has to be cut or reduced than to tell ratepayers that if they want certain services they will have to pay for them. This is a big gap in the control of public expenditure. The Government impose limits on their own expenditure, they make certain that the nationalised industries limit their expenditure, but this loophole in local government can undo everything that the Government are trying to do in the present inflationary situation.

The Government must say that the rate precept can increase up to a certain percentage and if it is proposed to exceed that figure Government approval must be obtained before ratepayers are made liable for the extra amount. That would set limits on the total burden that is being placed on ratepayers generally, and, in particular, it would limit the burden on the small retailer.

I commend the motion to the House. I hope I have proved by my few remarks that small businesses and shops are unfairly treated. The matter requires urgent solution, and the consequences of any delay will be grave.

1.16 p.m.

Mr. Ted Graham (Edmonton)

I, too, warmly congratulate the hon. Member for Newcastle-upon-Tyne, North (Sir W. Elliott) on providing the House with an opportunity to discuss this topic today. As has been said fairly often during the last two hours, the problem is not straightforward and it is not easy to deal with. It is not even easy to apportion blame. The tenor of the debate has been constructive.

I was surprised to hear the hon. Member for Hendon, North (Mr. Gorst) introduce a class concept. He said that we were witnessing the silent elimination of the small and medium-sized business, and he equated that with the elimination of the middle classes. There is no more articulate and noisy class than the middle class in defending its interests, and the debate this morning has demonstrated the genuine concern that is felt on both sides of the House for the maintenance of a sturdy, flourishing, progressive and independent sector of the economy.

Individual enterprise deserves rewards, and what we have heard today illustrates clearly that small and medium-sized businesses are facing perils from a number of quarters. It is right to say that the Government have some responsibility here, but it must be said at the same time that small and medium-sized businesses also have a responsibility.

The Bolton Committee on Small Firms was set up by the Labour Government in 1969 as a manifestation of our concern to get the facts and figures. That committee reported a year or two later, and I think that the House would do well to take note of its findings. It said, on page 85: The small firm sector in this country is in a state of long-term decline in terms of the number of small firms in existence. A similar decline is taking place in all the other developed countries from which we have collected information, but it has gone further here than elsewhere and is still proceeding more rapidly than in some other countries. Although in December 1974 we are considering the matter against the background of the responsibility of a Labour Government, I think we ought to accept the evidence of the Bolton Committee that the decline in the number of small businesses, per se, has been going on for many years.

In opening the debate the hon. Member for Newcastle-upon-Tyne, North referred to the 800,000 individual firms that had gone out of existence over a number of years. One of the problems is to identify the meaning of the word "small". Lady Margaret Hall said that the notion of smallness is a relative one. Is a small elephant bigger than a large mouse? We must get the definition of smallness into our minds.

In the debate there have been allusions to businesses which have gone out of existence. We must be clear why businesses go out of existence. It is not always because they have gone bankrupt or because they have sold out to neighbouring businesses. The Bolton Committee gives us a number of reasons why small businesses went out of existence in a previous period. Financial failure was the prime reason, but there were also succession problems. We have heard today about such problems in which a family, because of inability, after the end of a certain period, to continue the business, decides that the business should go out of existence. Another reason given for businesses going out of existence is to eliminate competition. Small businesses are voluntarily, almost cheerfully, bought up by bigger businesses, and this is seen as being in the best interests of the small businesses and the bigger businesses. Businesses also go out of existence so that tied suppliers and tied outlets can be arranged. These are all perfectly proper ways in which small businesses have declined in numbers over the years.

I was interested to see that one of the objectives of the union representing small shopkeepers is to oppose the closing down of the businesses of small shopkeepers. But how on earth can we, as a matter of policy, oppose such closing down, because it may be at the behest, and in the interests, of the small shopkeepers themselves.

The present position regarding small businesses calls for close examination by the Government of the day of their responsibility to ensure that this sector of our economy is treated fairly. I hope that when my right hon. Friend the Minister makes his speech he will say some kind words about the motion and accept it, because it recognises that there are problems and asks for investigations into how the problem of small and medium-sized businesses can be treated rather better in the future than they have been in the past——

Mr. Nicholas Winterton (Macclesfield)

Will the hon. Gentleman go a little further and ask his hon. Friend to take some action to improve the climate for small businesses? This is what the motion is all about. It is not sufficient for the Minister to say kind words. He must take action, and take it now.

Mr. Graham

I think that the action will be proposed shortly, if the hon. Gentleman can contain himself. I am sure that he will support the points of view that I wish to make on this.

In considering the reduction in the number of businesses, we must take account of the wide disparity in their organisation. We must consider other businesses besides small, one-man businesses. Here I declare an interest, in the form of my association with the co-operative movement and a special connection with retailing. In this context we must also consider the corner shop, and the multiple, as well as the large regional or national chain. During the past 10 years there has developed the phenomenon of a number of ostensibly independent businesses combining into a kind of co-operative. I refer to organisations such as Mace, Spar and Vivo, which are instruments created by smaller and medium-sized independent businesses in order to survive, and to obtain for themselves the benefits of co-operative activity, such as bulk buying, merchandising, advice on layout design, financial assistance and promotional aids.

There is a wide disparity under the umbrella of the co-operative movement which, as hon. Members will know, is in itself a large organisation, having within it businesses of different sorts. The London Co-operative Society is one business, and yet it has an annual turnover of £120 million, with 1 million individual members. But there are contrasts within the co-operative movement. For instance, a small society in Northamptonshire, at Ringstead, has 460 members, with £54,000 annual trade and five employees. We must be careful when we try to make broad assessments on this sort of situation.

We must also bear in mind that there has been, particularly in distributive trades, drastic centralisation of outlets, whether they be grocery, butchery or drapery concerns. In 1961 there were 442,000 retail outlets. That figure declined to 382,000 by 1971–60,000 retail outlets had closed. In the co-operative movement over the same period the figure dropped from 30,000 to 15,000.

There has been a concentration, but it would be wrong to believe that people have been necessarily driven out of business. This has been a voluntary, though not always desired, process of rationalisation in order to improve the profitability and the efficiency of businesses.

I shall give another illustration of the problem involved in looking at businesses and deciding whether they are big businesses. I have in mind some regional co-operative societies. In one society, in the South, trade is under £2,000 a week in 39.1 per cent. of its shops. In another society in the South-West, 65 per cent. of the trade is done in shops with a turnover of less than £2,000 a week. I could give other illustrations.

In looking at the problems of small and medium-sized businesses we should not ignore the fact that the consuming public, through change of both fashion and habit, has forced small businesses—whether they be in the form of co-operatives, multiples or independents—to change their method of operation. Nor should we underestimate the advantage in cash benefit terms to the consumer if a small business becomes a bigger business, or part of a bigger business. I can give one or two illustrations of this. Wages costs in a small shop can well amount to 10 per cent. or 12 per cent. of the turnover, but in a large shop, which takes £20,000 a week—perhaps a big supermarket—the wages costs can be as low as 5 per cent. of the turnover.

We have also heard about the retailers' problems concerning capital. One of the problems of the small retailer is that if his stock turnover is low, capital is tied up for long periods and this increases the costs of the business. In a larger business it is possible to turn stock over more quickly and therefore run the business marginally cheaper. This helps to make businesses much more efficient. The contrast is that although there are thousands and thousands of small businesses which would still survive, in 1972, according to a report by the Neilson Research Organisation, 57 new supermarkets, defined as having more than 20,000 sq. ft. of selling space, have been built, 30 per cent. more than in the previous year.

However much as we wish to retain the small independent sector, the trend in retailing is towards bigger—I do not say better, but perhaps more efficient and perhaps cheaper—units, and we ignore that point at our peril. Do we equate "big" with "better"? There has been a slight move against the trend in the last year or two, not least because the attraction of taking the motor car to a larger town to buy a week's or a month's supply of groceries has lost some of its attraction with the increased cost of petrol and the problems or impossibility of parking. I hope that the Government and local authorities will encourage a move back towards neighbourhood units, even if perhaps not as small as the previous neighbourhood of a street or two. Commerce, local government and national Government should recognise that it is wrong merely to drive consumers into bigger, not necessarily better, businesses.

There is a special problem in remote areas like the Highlands and Island of Scotland. I am dismayed by the evidence that, in an increasing number of such communities, as the catchment population declines and profitability disappears, more and more of the small independents or co-operatives who sell them their coal, bread, milk or groceries pack up and go. The consequence is often one organisation or shop ekeing out a living. Will the Minister consider whether assistance can be given by subsidy or tax allowance to the organisation or individual who is willing to continue providing such a service?

I know of many examples of co-operative societies continuing to provide an uneconomic service because they have a social as well as an economic ethic. It is wrong that any organisation should be forced to subsidise services in remote areas from its profits in other areas.

The enterprise, initiative and independence of the small business is just as needed in 1974 and 1975 as it ever was. But no one owes the small business a living. The writing has been on the wall for many years. The biggest enemy of the small business is the rapacious big business which wants to get bigger. I hope that the Minister can say something positive, particularly to the organisations which try to serve remote communities.

Several Hon. Member rose——

Mr. Deputy Speaker (Mr. George Thomas)

Order. Ten hon. Members wish to speak, counting the two Front Bench speakers, and there is less than 2½ hours left. If hon. Members will take only 10 minutes or so, everyone will get in.

1.34 p.m.

Mr. Peter Rost (Derbyshire, South-East)

I am glad to be able to follow the hon. Member for Edmonton (Mr. Graham), because it is so rare to hear a constructive speech in defence of free enterprise from the benches opposite—and even more unexpected when the benches are as empty as they are today. Even the hon. Member must feel ashamed that more of his colleagues are not here. If the debate were about letting off law-breaking councillors in Clay Cross or about the Shrewsbury pickets, the Government benches would be packed, but because the subject involves the well-being of nearly everyone in the country—the survival of the free enterprise system—the attendance by the Labour Party is disgraceful.

I disagree with the claim of the hon. Member for Edmonton that the chief enemy of the small business is the big business. Its chief enemies are this Government and their policies, their doctrinaire and prejudiced attitude towards private enterprise—not just in the way in which the tirade is expressed here and outside but by their actions and lack of action. Small businesses and large are completely demoralised, frustrated and on the verge of collapse. Small business has been hit most by this Government's policies. I know small business people in Derbyshire—not just small farmers but small shopkeepers and others—who are on social security, supplementary benefits and family incomes supplement because their income is well below survival level.

If something is not done soon—a change either in Government policy or in the Government—small business people will revolt. They are fed up with penal legislation, and they have just about had enough of being trampled on by an anti-business Government who make occasional sympathetic noises—no doubt we shall hear some today—but continue with anti-business policies. It is no use paying lip service to the need to help small business when the Government continue with policies which lead to the death and destruction of the small business community.

My hon. Friend the Member for Buckingham (Mr. Benyon) made a devastatingly powerful indictment of the Government's policies on rates and other penal legislation which hits small traders. In my area and the whole of the Midlands, life very much depends on small businesses. The self-employed are a large proportion of the community. The small traders have been severely hit. Their rates have not been relieved, and many have to meet double bills this year. They face penal taxation, and they are particularly hard-hit by inflation on their stocks and work in progress and by the difficulty and the cost of obtaining credit. They now face the final insult of the national insurance stamp increase. At a time when their margins are being severely squeezed, the question is not whether they will be able to grow but whether they can survive.

One appreciates that the Government are not really listening because they are not interested—if they were, they would have done something before now—but in the vain hope that what I say might catch the ear of someone on the Government side, I want to ask whether they regard the 9 million or so people employed or self-employed in our 1 million small businesses as "useful" people. If so, why are they not included in the social contract? Why are the professional people, the self-employed and the small traders excluded? Who will bail them out? Will the Secretary of State for Industry come to the House every time a small business man faces bankruptcy and say that the Government will be prepared to lend him a certain sum—perhaps £50 million, as the right hon. Gentleman said he would do this morning for British Leyland? Who will bail out the small business people? The number of bankruptcies this year is double what it was last year. But, of course, small businesses are too small to interest the Government. There is no question of nationalising them. All that faces the self-employed and the small business man is ruin.

The Government's policies are deliberately aimed at this collectivism. They want to effect control over business in this country so that they can gradually eliminate the small business man and effect easier control by planning agreements, the National Enterprise Board, State intervention and eventual nationalisation. The only way that this can be achieved is by eliminating the small business man, by preventing the small business community from growing and thriving, or by forcibly effecting mergers into larger conglomerates and, eventually, into a nationalised bureaucracy.

I maintain, therefore, that there is deliberate policy underlying the actions of the present Government towards this collectivism and towards unionisation. One of the main reasons why the present Government are so "anti" small business is that the majority of people who achieve their livelihood out of small businesses are not members of trade unions. Therefore, there is a prejudice against that sector of the community.

I mention only one point in relation to why I believe that the Government are so misguided in trying to force the small business community to conform to their ideas on Socialism. There is absolutely no doubt that if the Government really believed in participation and democratic control in industry they would be encouraging the growth and strength of small businesses, and not deliberately trying to clobber them. There is no doubt that genuine participation, genuine profitsharing, genuine ownership, and effective administration in management decisions and control, take place in the small businesses but not in the large enterprises and certainly not in the State monopoly bureaucracies.

We are also well aware—I defy the Government to deny it—that it is within the small businesses and the private self-employed sector that industrial relations are substantially better than they are elsewhere and that productivity is higher, because people have an incentive to work for themselves and are still motivated by ambition, however frustrated the ambition may now be by Government action.

I believe, therefore, that we have here a serious problem. I do not wish to outline the details, because that has been done by some of my hon. Friends. I want to emphasise what I regard as the fundamental problem. That is that we have a Government at present who are dedicated to the ruthless march of Socialism and, in that march, to trample over the self-employed, the traders and the small business community, the Government want to trample over those who are prepared to be self-reliant, to stand on their own feet and to work for their own progress, ambition and prosperity. While we have that Government and that attitude, with the attempts to pursue a relentless advance of State bureaucracy and, in doing so, to pursue divisive policies to make it more difficult for the small business community to exist, I think we are wasting our time even in debating the matter today.

If the Government ignore the problems of such a large sector of also "useful" people and continue to pursue repressive anti-private enterprise measures in order to sweep away the wealth creators of this country, to eliminate the ambitious, the self-reliant and the thrifty, they will in doing so risk sinking under their own tide of economic ruin.

1.45 p.m.

Mr. John MacGregor (Norfolk, South)

In this valuable debate it is clear that we are encompassing a very large number of different types of business. Some hon. Members have concentrated on the larger firms, with which the Bolton Report was, perhaps, most concerned. Others have concentrated on the very small businesses, on the employers of fewer than 20 people, and the self-employed. It is on the latter group that I wish to concentrate.

It is important to bring out the point that within this group many people have incomes which are less than the average wage. I follow the remarks of my hon. Friend the Member for Derbyshire, South-East (Mr. Rost) in saying that, whereas in the country as a whole we have concern with those who are earning less than the average wage as employees, in relation to the self-employed the concern seems to be very much less. As he said, they seem to be no part of the social contract.

Within this group, however, we are admittedly also talking of those with incomes above the average wage. The group on which I shall concentrate is in that area—those with incomes rising to about £5,000 a year. It is a group which is just as important as others, for reasons I hope to mention.

What is not sufficiently realised, perhaps, certainly in the country at large and perhaps even in the House, too, is the way in which, in an inflationary age such as we have at present, the social and economic implications for the small firm and the self-employed become so very much greater than even those with which the Bolton Report was concerned. It does not seem that the present Government have recognised that point. The public, at least as is evidenced by the debates in the media, have not recognised it, and the social contract certainly has not recognised it.

First, these groups are squeezed by inflation and by the impact of the enormous rise in the costs of fuel, transport and so on. Labour costs, equally, affect small business men and retail traders. One example has come to my attention in the past week. In one village in my constituency there is a small shop. It is the only shop in the village, so many people—old-age pensioners, young housewives with children, and so on—are dependent on that shop. The proprietor recently retired. He handed the business over to his nephew. The nephew happens to work, as an employee, in a village a few miles away. He has to employ two people as shop assistants to run that shop for him.

The original proprietor was taking about £16 a week out of the business and lived frugally. The nephew finds that because of the increase in labour costs, combined with other costs, over the past three months the business has been yielding no net income at all to him, despite the fact that he gives up all Saturdays and Sundays to run it. He has no alternative but to try to sell that business—if he can. Therefore, yet another village shop will depart from the scene.

That is another aspect of the impact on the social system of raising the wages of employees—quite rightly—but ignoring the effect on small business.

Next there is the squeeze on margins, to which frequent reference has been made, which especially affects garages, for example, in relation to petrol prices, and the fact that small businesses cannot easily increase their turnover.

Concerning inflation, there is the effect of increased rates. My hon. Friend the Member for Buckingham (Mr. Benyon) developed the argument very eloquently. I wish to stress two points about rates in addition. I could give so many examples of where rates have increased by up to 500 per cent. over the last two years, but in view of your request, Mr. Deputy Speaker, to be brief, I will refrain from doing so. The first point is that it is the dramatic size of the recent increase in rates which has affected the situation of small businesses. This will be true next year as well.

Secondly, there is the fact that this eats into these people's net take-home pay, their income, very much more than into that of the domestic householder. Yet the small business men are not to be relieved from the rise in rates in the same way as the domestic householder.

Next there is the financial squeeze. Hon. Members have already mentioned the difficulties of re-financing stocks in an inflationary age. There is also the point that small businesses come at the end of the queue for payment by the big companies to which they supply goods. Because of that, they become much more dependent on banks in an era of difficulty and credit squeeze, and it is precisely at this time that they are unable to increase their overdrafts, and even if they can, they find interest rates almost impossible to bear. For those financial reasons, the impact of higher taxation bears even more heavily on the small businesses than on the large.

There is next the burden that the House itself imposes, that of form filling and other extra administrative demands. It has been borne in upon me very strongly in the past few days when looking at the tea and household flour subsidies that this adds a very heavy extra weekly burden. This means that small business men have to work even longer hours and have to acquire the skills of the accountant, the lawyer and even the economist, because they cannot afford to pay for those professional skills, and firms employing about 20 people or more have to employ an extra person to meet these burdens which adds considerably to their costs.

There is, finally, the burden of the extra national insurance contributions that the self-employed have to pay. I do not want to labour this subject, because it has already been fully aired in the House, but I should like to draw attention to a Written Answer that appeared in column 322 of HANSARD on Monday. The Question was about the difference in net income, after taking into account tax and national insurance contributions, of employed and self-employed men at various levels of income. The figures were striking. A married man who had two children and who was earning £2,000 a year would pay £368 in income tax and social security contributions if employed and £416 if self-employed, a difference of practically £50. At the income level of £3,500 the difference is almost £90, to the disadvantage of the self-employed, although he gets less benefit from his social security contributions.

It is not surprising that the small business man is finding his net income declining, and let us remember that often his wife works very long hours in his business for nothing. Would it be surprising if many men in that situation found it better to close down the business or shop, better to stop employing others and trying to provide a service, and better to invest such proceeds as they have managed to obtain in order at today's interest rates to produce a net income greater than they get from running their own business?

I could give many examples of constituents who have come to see me at my surgeries with stories of what has happened to them because of these various factors during the past two years, but I shall refrain from doing so because of the disadvantages of time. But what comes out is that many small garage owners and small shopkeepers are earning incomes that, if calculated accurately, would work out at about £20 a week. Yet often these people may employ as many as eight persons. They might be helped by family income supplement. but they are not always aware when they calculate their income over a three- monthly period that that is the situation. Many of them know that the prospects for the coming year are even worse.

The implications are many, but I wish to refer to only three. The first is the loss to the economy, not just the fact that we are losing the self-reliance and independence of the self-employed. The wider issue was well put in the Bolton Report, which said: The contribution of small businessmen to the vitality of society is inestimable. The qualities of vigour, enterprise and ambition which characterise so many of them have made them natural community leaders and they have been benefactors to their localities, to the arts and in many other ways which help to make life meaningful and pleasant. Above all their spirit of independence is a strength to the nation, as deeply needed now as it has ever been. If that was true when the Bolton Report was produced, it is even truer today.

Next there are the implications for rural communities. In many villages the small shops are disappearing. In my constituency nine sub-post offices have gone out of business this year, a subject I hope to take up in other ways. One sees the pubs closing down, and the small tradesmen, who are so important to the local community, beginning to find it no longer possible to carry on. Perhaps most important of all to the community, the employer of five or six people is now in great difficulty. All that will make an enormous difference to the rural community.

Above all, there is the social implication for the nation as a whole. Here I follow what was said by my hon. Friend the Member for Derbyshire, South-East. He mentioned the possibility of a widespread revolt. These people see no powerful union to help them. I am now talking about people with an above average income. They feel that they deserve such an income because they work longer hours than others in the community, but they get no proper reward for the risks that they take and no security at the end of their lives. They now feel that there is no one to stand up for them, and the revolt among ratepayers and the self-employed is just a portent of things to come.

I conclude by making some constructive observations, for I feel that it is right to do so. We should all recognise that we must stop imposing on these people—not just making exemptions in the demands that we as Parliament impose upon them—by increasing form filling. The employment protection Bill will add extra burdens, as will the increase in the cost of the national insurance stamp for the self-employed.

Secondly, I strongly support what was said by my hon. Friend the Member for Buckingham about rates. I hope later this Session to introduce a Bill to help the small business man in that respect.

Thirdly, I hope that the Government will stick to the change that the other place has fortunately made in the proposal to increase the national insurance contribution by the self-employed. But I hope that they will go further and consider the whole subject of social security contributions by the self-employed, to see whether they could be given the chance of opting out of the State system, whether they should be entitled to make the sort of contribution that an employee makes with the same overall net cost, therefore perhaps getting tax relief for that additional portion of the contribution above what the employee has to pay, and at the end of the day getting the same benefits as the employee if they make the same contributions.

On the subject of tax, I hope that inflation accounting will be applied to small businesses. The requirement income of many small business men depends on their saved income during their working lives, and we should carefully reconsider whether investment income should be taxed at the same level as earned income. Greater retirement relief against capital gains tax should be allowed for small business men who move into retirement by raising the exemption limits and certainly capital gains should be inflation indexed.

Above all, what we are asking for concerns the psychology of the millions of these people who are to be found throughout the community. I strongly disagree with the hon. Member for Keighley (Mr. Cryer) who said that attitudes in society had changed about independence, for he greatly underestimates the strength of feeling among the many millions in this group. These people now feel that they do not have a champion anywhere. What they require and what they seek is the support of Parliament, and it is our duty to give it to them.

1.59 p.m.

Mr. Michael Marshall (Arundel)

I am glad to have the opportunity to speak briefly in the debate and I shall certainly follow your injunction, Mr. Deputy Speaker, and attempt to work within the ten-minute rule—to use your term.

My hon. Friend the Member for New-castle-upon-Tyne, North (Sir W. Elliott) has done us a signal service today. He made a well-documented speech laying down the framework of the problems facing small and medium businesses and offering the Government opportunities and encouragement to help this vital sector of our economy. I should like to put some flesh and blood on that skeleton by dealing with the problems that seem to arise directly within the experience of the steel industry.

I do this because I think that the steel industry gives us good chapter and verse about the complex, indeed crucial, relationship between public enterprise and the private sector. We have in the steel industry about 140 companies which are members of the British Independent Steel Producers' Association, co-existing, competing, and in many ways having to work out a relationship with the large nationalised British Steel Corporation. These two aspects of the industry touch on a number of the problems which hon. Members have brought out today.

First, there is the problem of bigness itself. I agree with those who say that the cult of bigness is not what it was. That view is shared on both sides of the House. This week we have heard hon. Members opposite saying, rightly, that there are many difficulties within nationalised industries on account of the feeling of long distance from headquarters. Many of these points were raised by the hon. Member for Thornaby (Mr. Wriggles-worth) during our debate on the Post Office earlier this week. He referred to the feeling that this monolithic organisation might be broken down to the benefit of its employees and the country.

When we look at the BSC we see also that it is experiencing many of the problems of bigness and is seeking to find ways to break down some of the problems of the high degree of centralisation and ministerial responsibility through the need for intervention by Government and civil servants, and so on.

On the other hand, we can see the advantages of small businesses. By contrast with the position of the BSC, these advantages are clearly evident in the steel industry. The great majority of the 140 companies have an outstanding record both in profit and in service to the rest of industry. That is in contrast with the BSC which, for reasons I shall not go into now, has been running at a loss throughout its life, until this year, when it has moved into profitability—a situation that pleases us all. But the mere fact that there is that contrast in profitability and commercial flexibility suggests yet again one of the essential differences we look for in small and medium-sized businesses compared with monolithic businesses, particularly when the latter are nationalised.

I want now to refer to some of the problems of small businesses instanced by my experience of the steel industry. In recent weeks I have had the opportunity to talk on these issues to a large number of these firms and to the corporation itself. There are four main areas in which the problems of the small and medium-sized businesses in the industry illustrate what so many of us have tried to say.

First, there is the question of investment. The biggest investment problem which the small steel makers face is well illustrated by a recent classic case. On publication of the White Paper. "The Regeneration of British Industry" there was attached to it a list of the companies in which the National Enterprise Board would assume a Government stake, and it was implied that it would assume some kind of control function once the proposals were implemented.

In that list was one small independent steel maker. I shall not go into details because I had an opportunity to do so earlier this week, when I cited the example in the wee small hours, but it is a fact that although this firm has only 2½ per cent. Government shareholding, as soon as its name was announced in the White Paper—it was no coincidence—there was a substantial slump in its share prices. The cause was the fear that small businesses which come under the umbrella of the Government or the NEB are likely candidates for complete State takeover.

The result has been problems not just in terms of share prices but in terms of the fact that the independent steel makers—I have evidence of this—are now distinctly chary of going to the Government for money for particular investment needs—this at a time when the country is desperately short of steel and there is a place for small- and medium-sized steel companies to seek aid under the Industry Act 1972. These companies are now holding back because they feel that to come forward for such aid would automatically qualify them for the NEB's shopping list.

The second main problem is the question how smaller businesses will be affected by our future in the EEC. For the smaller steel companies, the freedom of pricing policy currently guaranteed by our membership of the EEC has had a most beneficial effect, as it has had on the BSC. The greatest worry these companies have on the matter is that if we do not soon decide what we are to do in the EEC the whole question of commercial planning and flexibility will become increasingly difficult, because of doubts about freedom of pricing.

Thirdly, there is the question of the relationship between the smaller steel companies and the corporation itself. The closure review—it will be another year before we get a firm announcement—has had a disastrous effect in a number of ways. To the smaller companies, the biggest disaster is that they have had to disregard the corporation's own capacity to meet their demands. They have had increasingly to make plans for their own steel-making capacity, to invest in plant, to purchase from overseas, and to make long-term contracts at considerable disadvantage to themselves—in terms of prices—and to the nation, in terms of the adverse effect on the balance of payments. It is a most unfortunate sequence, caused by the delay brought about by the closure review and the inability of the corporation to implement its £3,000 million investment programme, with the smaller companies unable to make their own plans.

Mr. Gregor Mackenzie

As well as commercial reasons there were very strong social reasons for the closure review. For example, if planned closures had taken place, my constituency would have had 4,000 or 5,000 people out of work. In such circumstances, it was right for the Government to reconsider the situation. Where so many people will be put out of work, the Government must give the situation thorough consideration. I hope that the hon. Member will understand our anxieties.

Mr. Marshall

I fully understand the hon. Gentleman's concern. Because I have had considerable experience working in the steel industry, I do not lightly consider these questions, but I hope the Government will bend their minds to the whole question of other forms of employment and of a longer-term strategy, because it would be disastrously wrong to try to take only the employment argument in looking at the whole future of the massive BSC. The effective maintenance of the industry and of the employment of those within it, in the long term, is far more important. I take the hon. Gentleman's point, but I hope that we shall not all get caught up in the inevitable political fighting for each of our corners which is likely to follow if this continues to be a political rather than an economic argument.

Finally, there is what I regard as the outstanding problem for the smaller steel companies—the question whether nationalisation is to be extended to cover the whole of the industry. I say that with sadness, because I thought that this argument had been resolved. In 1967, Mr. Richard Marsh gave a firm pledge in the House which seemed to all disinterested and, indeed, interested observers to guarantee a reasonable co-existence between both sectors of the steel industry. That relationship is now under threat. I have strong evidence of the Secretary of State's discussions in Brussels in June—the Minister may care to deny this later—at which he sought to restrain the activities of the private steel companies and explored the possibility—if he were to take such restraining action under EEC legislation—of taking into public ownership the remainder of the steel industry.

With that background, it is extremely difficult for the smaller steel companies to make investment plans. There is no impetus in the British Steel Corporation to be part of a take-over mechanism. It is clear that the corporation has enough on its plate without having to think about 140 smaller steel companies—many of them specialist alloy producers—being brought within the State orbit. I wish to quote a telling observation which sums up the relationship between bigger and smaller business and between the public and private sectors. It was written in an editorial for one of the independent steel company magazines by the Managing Director of the British Steel Corporation's Special Steel Division—Mr. Joy. He outlined the interdependence of the public and private sectors and went on to write: These are clearly complex relationships, but they are not impossible ones, for if we compete—as indeed we must—we can also agree. Both the private and public sectors are united in wishing to see a thriving, progressive and successful steel industry. That is a summation of what we hope to see—a continuing relationship between the large public corporation and many smaller companies, as is the case in the steel industry, and which, if the Government have their way, may well be the case in shipbuilding and, to a lesser extent, among the component manufacturers in the aircraft industry.

There is grave concern in the steel industry, and I should like to make a direct appeal to the Under-Secretary of State.

I have sought, by correspondence with the Secretary of State, an assurance on the question whether the independent steel companies would be left outside the nationalised sector. I was given an answer which merely referred me to the White Paper. Late on Wednesday night this week I had the opportunity to call for a similar assurance from the Minister of State. I should like to complete the hat-trick today and put the same question to the Under-Secretary of State, for whom many of us have a high regard. My hon. Friend the Member for Hendon, North (Mr. Gorst) suggested that the hon. Gentleman might well enter the Cabinet as Minister for the middle classes. That is a desirable project, but, in view of the political realities, I am not sure that we expect it to happen this week or next week.

With 140 companies in the independent steel sector, if the Under-Secretary of State can give an assurance today he will do a great service to the steel industry and to the nation, and he will reaffirm the good opinion and good will which he enjoys among Members on the Opposition side of the House.

2.14 p.m.

Mr. Nicholas Winterton (Macclesfield)

I shall be brief. I hope to speak for only half the time you have mentioned, Mr. Speaker.

I join my hon. Friends in congratulating my hon. Friend the Member for New-castle-upon-Tyne, North (Sir W. Elliott) on introducing the motion. If the Government react to the requests which have been made by hon. Members on both sides of the House, they will find that private enterprise, small and medium-sized businesses, can make a greater contribution to the economy.

I wish to declare an interest. Recently I became Chairman of a small company, Camra (Real Ale) Investments Limited with interests in the brewery trade. One of the purposes of the company is to oppose the growing monopoly which is developing in that industry. If there were any proof that the mergers, amalgamations and takeovers which have occurred in the brewery industry were providing better beer, a greater variety of beer or even more employment, I should not perhaps have been interested in joining the company. But mergers and take-overs have reduced the number of jobs available, have closed breweries and have reduced the variety of ale available to people. Therefore, because of my interest in small and efficient businesses, I have become associated with the company.

What has been the climate for industry, and particularly smaller businesses, in recent years? We have had an increasing liquidity problem, with high interest rates. There have been problems of stocking for small businesses. There have been difficulties about arranging security for the banks if small businesses are to stock and remain in business. The subject of rates has been eloquently touched upon by my hon. Friends the Members for Norfolk, South (Mr. MacGregor) and Buckingham (Mr. Benyon). There have been problems with estate duty—or should I say the capital transfer tax or wealth tax? The sword of Damocles hangs over business, and particularly small business.

Now smaller business is faced with the proposals for increasing the national insurance contributions of the self-employed. We have had lengthy and emotional debates on that matter recently. Bearing in mind the decision made in another place, I hope that even at this late stage the Government will be influenced by the deep, heartfelt feelings of so many people on this subject.

Much attention has been given to the question of the long hours worked each week by people in small businesses. There is no 35, 38, 40, 42 or 44-hour week for them. They often work 60, 70, 80 or 90 hours a week. If we were to work out an hourly rate for them, we would find that they were very badly remunerated.

Mention has been made of the number of forms which must be filled in by smaller business men, whether they be retailers, pharmacists, technicians or doctors. They cannot finish work at 4.30, 5 or 5.30 p.m. The forms must be filled in after normal working hours. But these people do not have the same security as people who are employed or who work for companies which have special people to fill in such forms. They do not have the same security when they are away on holiday or ill and the business is unmanned. They never know when they will be struck down by a mild or serious illness.

The variety of small and medium-sized businesses is almost without end. There are retailers, farmers, pharmacists, technicians, doctors, manufacturers' agents, accountants, solicitors—the list is endless. I hope that the Government will appreciate the valuable contribution which they make to the economy.

We must also consider the social contribution that the small firms make to the community. Only this morning I received a letter from the wife of a constituent. She writes: As the wife of a man who works extremely hard to provide for our family (three boys) and six employees by organising and working in a family firm that was established 50 years ago and has since contributed to the country's benefit by selling abroad, I feel I must at last protest at the systematic destruction of smaller businesses. Perhaps it is just a coincidence that this letter arrived today. It reflects the deep concern that is felt about the situation facing smaller businesses.

Another constituent sent me a copy of a letter that he sent to the Prime Minister. He was referring basically to the increase in the contributions for self-employed people. He wrote: I have at last succeeded in obtaining a copy—of the legislation—and I am absolutely amazed that a Yorkshireman, of all people, representing a Lancastrian constituency, and supporting another Lancastrian Member, can bow down to the nameless civil servants at the Treasury who have thought of this preposterous scheme. Perhaps that reflects the amazement and concern that is felt by so many people.

I believe that if the Minister does not put forward some positive proposals for Government action, the problems facing the smaller businesses will become so acute and will place so many burdens upon this valuable group within our economy that many of them will go out of business and the community will suffer as a whole.

2.22 p.m.

Mr. David Mitchell (Basingstoke)

It may be for the convenience of the House if I intervene now. I believe that the House is indebted to my hon. Friend the Member for Newcastle-upon-Tyne, North (Sir W. Elliott) for raising this matter today. My hon. Friend spoke with clarity and with insight of the problems that face small businesses. Newcastle is an important centre for small business activity and my hon. Friend has personal experience of small business.

Perhaps I should declare my interest. Before coming to the House I was fully employed in a small business. I still have a working connection with it. Perhaps it is an advantage to me that I can speak with some personal knowledge of the problems that face small businesses. I know that the Minister can also speak with personal experience. I congratulate him on his reappointment following the General Election. I welcome him, as this is the first debate on small businesses that we have had since the General Election. We may from time to time ask him some searching questions, and we may say some hard things, but I can assure him that they will not represent any attack on him. We recognise that in the Minister we have someone who is our ally inside the Government and who will look after the interests of small businesses.

I echo the words of my hon. Friend the Member for Hendon, North (Mr. Gorst). It is important that the Minister's position should be enhanced and that he should be given more power within the Government. I am sure that that is right. I am not accusing him of guilt by association, but the experience of small businesses of his hon. Friend the Minister of State for Industry, the hon. Member for Liverpool, Walton (Mr. Heffer), is perhaps not quite the same as his own. He and his hon. Friend can be likened to two glasses of beer, one mild and one bitter. Today we have the mild with us, and we are glad to see him.

The motion is of special importance because I recall that a similar debate which took place some years ago, in which my hon. Friend the Member for Croydon, North-East (Mr. Weatherall) played a part, led to the setting up by the then Labour Government of the Bolton Committee. I hope that today's debate may spark off a similar development. The motion pays tribute to the part played by employers and the self-employed in their contribution to the national economy, it calls attention to their problems, and it calls for Government action.

The contribution which is made by small businesses to the national economy is of great importance. The Bolton definition of a small business was a firm with 200 employees. Such firms produce 25 per cent. of the gross national product and employ approximately one-third of those employed outside the nationalised sector. The motion also refers to medium-sized businesses. If I define such firms as having up to 500 employees, we are talking about firms which produce approximately 45 per. cent. of the gross national product.

Firms of the size that I have mentioned are in many ways much more efficient than larger firms. For instance, they are better at invention. Research shows that 80 per cent. of invention comes from small organisations. They are also better at innovation. My hon. Friends have spoken of their enterprise, the way in which they convert invention into developed and finished products and their flexibility. They have a much better record in their use of national resources. I am sure that the Minister will agree that it is not without interest and importance that if we take the 300 largest firms and use as a measure of efficiency their return on assets employed, large firms have a 4 per cent. worse return on assets than businesses with under £1 million worth of assets. In other words, smaller businesses are more efficient in their activities.

Most important of all is the way in which the small business provides a degree of competition which keeps larger businesses on their feet and is effective in helping to keep down prices. It is possible to prove to almost any board that it is necessary to increase prices to recover costs, but if a competitor opens up across the road some way will be found not to have to introduce price increases by improving efficiency. The rôle of competition in the economy is one in which the smaller businesses play a vital and important part.

Another more personal and important aspect involving all hon. Members and all our constituents is that small businesses can provide speed, efficiency and service at almost any time of the day. For example, if we want to shop in the evening or if we want a plumber in a hurry it is no good approaching the larger organisations. It is no use contacting the local electricity board late at night following an electrical breakdown. But it is possible to telephone Barton's or any other local electrician. Within half an hour the small firm will be on its way to put the matter right. That is part of the rôle of the small business.

If we squeeze out individuality and replace it with monopolies the result will be boredom and uniformity. We are agreed on the importance and value of small businesses as set out in the motion. I am sure that on that point I can carry the Minister with me. Certainly the Prime Minister is on record with words of goodwill towards the smaller business community. That we value. But words of good will do not, as they say in my part of the world, butter any parsnips. There are problems, and they need urgent attention. We want to know what the Government are doing. I hope that the Minister will be able to assure us that he is tackling the problems.

The problems of small businesses very much stem from inflation. I am not accusing the Government of being responsible for that, although sadly, inflation is gathering momentum as the months go by. There is a lack of Government action. There has been, not by the Minister but by some of his colleagues, an attack on private enterprise which caused grave misgivings to many involved with small businesses. Some legislation, such as parts of the Budget and the Social Security Amendment Bill, and the activities of the Department of Employment cause considerable concern. They indicate a major lack of understanding on the part of the Government generally to the problems of small businesses. The Government do not appear to appreciate the motivations of such businesses.

Let me explain why inflation is so important for small businesses as opposed to larger businesses, although it is important to them, too. The village corner store with £1,000 worth of goods on its shelves will require £1,250 to replace those same cans, bottles and jars next year if inflation runs at 25 per cent. Where will the extra money come from? Major engineering industry probably needs about 30 per cent. of its sales figures in working capital. If, because of inflation, the turnover, on paper, rises from £1 million to £1,250,000, which is likely to happen next year, an extra £84,000 of working capital will be required in the business next year just to cope with inflation. Where will that come from?

For the large quoted company there is an outside chance that money can be raised on the Stock Exchange. The small business is financed out of plough-back, out of profits, out of the private wealth of the worker-proprietor. The Minister may say that such a person should go to the bank for assistance but banks are interested in lending only to those whom they regard as creditworthy. The sort of situation I have described might be thought to be creditworthy. However the banks' definition of "creditworthy" is very different from that of many people in political circles and elsewhere.

The reality is that the banks regard as creditworthy someone who can repay that money, in cash, within three years. Banks are not interested in lending long-term money which will be tied up in stock, debtors, machinery, equipment, buildings and raw materials. It is no use a wine merchant saying to the bank manager "I can repay you with a hogshead of Château Latour." The bank manager is not interested. He wants cash when the time comes for repayment. It is no use a heavy engineering firm offering two of the most modern lathes as repayment to the bank. The banks cannot provide long-term capital which is tied up in the business.

There have been, and continue to be, increases in wages, material costs, the cost of money and the amount of money tied up in work in progress. On the other side of the coin there is price control. The result is an enormous squeeze on cash flow and liquidity. That is what is causing so much trouble in industry.

It is ironic and disastrous that against that background the Chancellor chose to increase corporation tax in his spring Budget. He did so at a time when industry needed more working capital. Indeed, the Chancellor donned the robe of an asset-stripper and began taking away that working capital. The hon. Member for Edmonton (Mr. Graham) referred to the fall in the number of those involved in small businesses. In the first nine months of this year the number of bankruptcies has risen by no less than 42.5 per cent. over the same period last year.

This is a massive, dangerous and startling figure. I will give the House an even more alarming figure. In the third quarter of this year bankruptcies have risen by 59 per cent. over the same period last year. I received these figures this morning. The effects of the cash squeeze are being felt increasingly, and this is being reflected in the number of bankruptcies.

The problem is initially one of finance. The autumn Budget may be prayed in aid by the Minister because here the Chancellor tried to undo some of the damage he had caused in the spring. Yet for some reason he will not allow the remission of stock profits to apply to companies with stocks of £25,000 or less. This is said to be because of the amount of work involved for the Treasury. We all know that companies pay corporation tax based upon audited accounts prepared by their auditors and not by the Inland Revenue. The Revenue is not involved in the work. That is done by the unfortunate company's accountants and the external auditors who do the work. There is no additional work involved for the Revenue in applying this concession to all companies which are corporate bodies and have outside auditors. The Minister should make representations to his right hon. Friend.

Mr. Cope

I am an accountant and in case my hon. Friend should think that accountants might have difficulty in calculating the relief—and there is some complexity involved—may I say that I know of a large firm of City accountants which, following the recent Budget, was able to calculate for all of its clients, including the small ones, the effect of the stock remission within a day or two of the Budget Statement. There is no problem for the accountancy profession. It is the mechanics or convenience of the Inland Revenue which is holding this up.

Mr. Mitchell

I am grateful to my hon. Friend. I hope that the Minister will have this point in mind in the representations he will no doubt take away from this debate to his right hon. Friend in the Treasury. There is no help in the Budget for the company which was not able to increase its stock because it could not borrow more money from its bankers and thus had to turn away orders which it would have liked to take up.

After corporation tax and the problems which that gave rise to there is now the threat of the wealth tax, as it is called. I contrast the differing views of the Government. By so doing I can help the Minister in his representations. In the White Paper "The Regeneration of British Industry" paragraph 14 says: in times of economic difficulty it is often the small businessman, dependent to a great extent on personal wealth as a source of finance, who suffers the greatest hardship. The Government are therefore reviewing the problems of small businesses". I am delighted to hear that and to know that that fact has been taken on board.

But what do we find when we turn to the Green Paper dealing with the wealth tax? Do the Government sing the same tune? No. There they say: In the Government's view it would be wrong to exempt business assets or farms from the tax or to caculate liabilities on such assets on specially favourable terms. The wealth tax would lose much of its desired social effect if a substantial proportion of those who are among the wealthiest of the country were not to come within its scope. There is a recognition within the Department of Trade and Industry of the problems of small businesses, but the wealth tax will make them worse. If the wealth tax goes on the statute book in the form proposed, it will not only work in the way spelt out in the White Paper but will do considerable damage by hindering expansion. Many small businesses doing important jobs could, and should, be expanding, but are not, because the proprietor says to himself "When the wealth tax comes I shall have to pay it in cash out of my net income, by resources outside the business. Therefore, I had better take the cash out and keep it rather than use it in the business to finance expansion." That is a dangerous casting ahead of the shadows of the capital levy.

There is the whole problem of capital gains tax and the fact that there is no offset against the phoney paper profits to which inflation gives rise. The intervention of the hon. Member for Keighley (Mr. Cryer) illustrated how much more the Treasury is concerned with one sinner than with 99 just men expanding the nation's wealth. I hope that the Minister will make his voice heard on that matter.

I hope that when the Finance Bill leaves the House it will be so amended, perhaps with the Minister's support, that it will require an ambulance to take it to the other place. There is no understanding in the Treasury and many parts of the Government of the motivation which makes people start, build up and work in small businesses. There is the desire to improve one's standard of living and the opportunity to satisfy consumer demand. But by the time a man reaches the age of about 50, if he has built up a business, there is no urgent need for him to secure his own means of earning his living. He then has the choice of expanding the business or simply gliding along, playing golf, living out of the business and letting it wind down as he consumes its capital.

The introduction of the capital transfer tax, which means that no man will be able to pass on his business to the next generation, is a clear indication to such people not to expand their business but to play golf. It is not worth while expanding, because they will not be able to satisfy that most human of all motivations, the desire to pass on to the next generation intact what one has built up and achieved. This is the reality of human beings. One must work with the grain of human nature.

I mention next the important area of the self-employed. My hon. Friends the Members for Norfolk, South (Mr. Mac-Gregor) and Macclesrield (Mr. Winter-ton) spoke of village shopkeepers, craftsmen, dealers, silversmiths, doctors, restaurateurs, café proprietors, barrow boys and artists, all of whom have been clobbered by the Government's national insurance proposals. With the substantial increase of pensions last summer, it is necessary to increase the contributions, but it cannot be right and fair to reduce the amount paid by most employees, as the Government have done, and at the same time clobber the self-employed with savage increases accompanied by no extra benefits. I shall not remind the House of all the benefits received by employees that the self-employed do not receive.

The self-employed person earning £3,600 a year will have to find £160 extra, which is not set off against tax, and, therefore, he will have to earn £265 extra. Is that money to come from higher prices or a lower standard of living? The Minister is the protector of small business. Does he want to see prices driven up or the standard of living of the small business man and the self-employed driven down?

The hon. Gentleman is the man to whom we look in these matters. How much was he consulted by the Department of Health and Social Security before it introduced this iniquitous measure? We have so unfair a system that a shopkeeper may reduce his employee's national insurance contributions by £13 a year, while having to pay £120 a year more, even though they are both taking the same amount of money out of the business. Because of the grotesque unfairness of that, I look to the Minister to make his voice heard on behalf of the self-employed and to see that the Lords amendments are accepted by the Government and are not brought back here to be rejected.

The social contract is supposed to embrace all. The self-employed should not be second-class citizens.

My hon. Friend the Member for Gil-lingham (Mr. Burden) referred to the important matter of industrial relations, which he said were much better in small businesses than in large businesses. All the statistics confirm that, and I know that the Minister joins me in being glad about it. But a disruptive factor is about to be injected. The Government's employment protection Bill will create enormous difficulties for small businesses. For example, there is the guaranteed week. If there is a strike at the factory of one of his suppliers, with the result that he cannot obtain supplies to keep his plant going, where will the small man without much capital find the money to pay the wages on a guaranteed week? It may well be right that the large employer should pay—I am not arguing that issue—but it is certainly not right for the small employer.

There is also the question of time off for public work, not by arrangement and common sense, as happens now, but by law. In addition, there is the question of safety committees with trade union representatives. Many small businesses do not have trade union representatives inside them. There is the matter of redundancy having to be discussed with trade unions.

All these things will affect small businesses. I ask the Minister to give an assurance that he will see that the smallest businesses are exempt from the final proposals. If they are not, they will not be able to manage their own business.

My hon. Friend the Member for Buckingham (Mr. Benyon) referred to the important point of rates. For reasons of time, I shall not say more about that, except that there should be urgent action by the Government to limit the load that will have to be borne by the small shopkeeper and small business man next year. Rate increases of 50 per cent. this year and expectations of another 25 per cent. next year are intolerable for small businesses.

The motion calls for urgent action, and we expect from the Minister an assurance that he will be able to give it to us. We want action to assist the self-employed by the Government accepting the Lords amendments to which I have referred. We want action in industrial relations by means of an assurance that the Government's employment protection proposals will provide exemptions for small firms. We want action on rates. Above all, we want action on the cash flow problems of industry which are leading to such enormous increases in the number of bankruptcies. Money is the root of all employment. The danger facing the country today is that small businesses will be so starved of cash flow and of money that employment will be in danger.

Britain faces a crisis. I state my faith, my belief and my conviction that our future depends on the encouragement and the expansion of our small businesses. I urge my hon. Friends to support the motion, and I urge the Minister to accept it.

2.50 p.m.

The Under-Secretary of State for Industry (Mr. Gregor Mackenzie)

As the Minister in the Department of Industry with responsibility for small firms, I welcome this opportunity to discuss these matters. It is a long tradition of this House for a Minister to say on an occasion such as this how delighted he is that the hon. Member concerned has won a place in the ballot. That is not always true, but in this case it is. We all welcome this opportunity, because this is the first occasion for a very long time on which we have been able to discuss these matters.

Some point has been made today about the absence of many Government supporters. No doubt the hon. Member for Gillingham (Mr. Burden) remembers that the situation was reversed when we last debated this subject.

The hon. Member for Newcastle-upon-Tyne, North (Sir W. Elliott) made his speech with much care and thought, and he deserves our thanks for that. I take this opportunity also to say how grateful I am to him for his interest in the small firms information centre in his own part of the world and for the trouble that he has taken to look into the problems of small businesses there. It is much appreciated by all those who work in that branch of the Department in the North, and on their behalf I want to express my sincere thanks to the hon. Gentleman.

The motion encompasses not only small firms but medium-sized firms. I do not have a medium-sized Minister sitting beside me on the Treasury Bench. There is not one. Incidentally, whenever reference is made to the Minister responsible for small firms, I sometimes think that I got the job only because I happened to be the smallest fellow in the Department. I am sure that the reason is not, as the hon. Member for Basingstoke (Mr. Mitchell) suggested, that I had an interest in a small firm until February of this year.

Mr. Burden

The hon. Gentleman has a big heart.

Mr. Mackenzie

That is very kind of the hon. Member for Gillingham.

Our discussion has ranged over a tremendous number of issues. Unfortunately, I have to tell some hon. Members who have contributed to it that I am but the ear of the Government on many of these issues. I cannot pretend to be able to deal with all of them. However, I assure hon. Members that I have taken their points on board, as has my Department, and we shall put them forward to our colleagues concerned with these matters in other Government Departments.

I am especially sorry to disappoint the hon. Member for Arundel (Mr. Marshall), who spoke about steel. I should love dearly to be able to make a number of comments on the steel industry. During my time in this House I have spoken in almost every steel debate. I should have liked to be able to respond to the hon. Member for Arundel. I am afraid that the best answer that I can give him is that I shall put his points to my colleagues who have special responsibility for steel. I assure the hon. Gentleman that they will be borne in mind.

At the beginning of his speech, the hon. Member for Newcastle-upon-Tyne, North stressed the significance of the problems of small companies and the importance of this sector in the British economy. I quite agree with the hon. Gentleman. After all, it must not be forgotten that small firms are responsible for about 20 per cent. of the turnover of industry and trade generally. They employ about 6 million people, or about 25 per cent. of the employed population. This is very important, as the hon. Member for Gillingham said. The most important members of the sector are those responsible for manufacturing, and they number about 58,000.

One matter which is troubling hon. Members is the diminution in the number of small firms. That point was made both by the hon. Member for Basing-stoke and by my hon. Friend the Member for Keighley (Mr. Cryer). There are a number of reasons for it. The hon. Member for Basingstoke spoke about bankruptcies, and quoted some alarming figures. Without wishing to strike a party political note, I must say that this situation has not arisen since March of this year. Many of the decisions of people to go into liquidation must have been taken prior to the election of the Labour Government. If there is fault, it has to be shared by the administrations of both parties and their handling of this problem.

Nor should we blame only Governments for the considerable reduction in the number of small firms. As the hon. Member for Gillingham pointed out, we have watched the growth of many of our large companies. The hon. Member blamed both the major parties for this situation. He stressed the value of small firms in terms of industrial relations, service, and many other issues.

Like the hon. Member for Gillingham, it troubles me to see this reduction in the number of small firms due to their being bought up by larger companies, sometimes by means of quite unfair practices.

Mr. Burden

Sometimes purely and simply for purposes of asset stripping.

Mr. Mackenzie

Quite so. It is not uncommon for a small company to have one large trader who buys 40 per cent., then 50 per cent. and then 60 per cent. of the product, saying, at the end of the day, "Unless you supply your product at about half the price, I shall have nothing further to do with you", with the result that the small trader is left on his beam ends and either has to sell to his principal customer or go to the wall. This problem has concerned many of us over the years.

I have also been greatly concerned about takeovers and the effect that they have on staff. People can work well in a company for 20, 30 or 40 years, only to wake up one morning to find themselves employed by an anonymous group of people who are not as concerned as their former employer for their welfare and future interests. Therefore, I regret that, when this happens, not only management, but many employees in these companies find themselves less well cared for than before.

Mr. Michael Marshall

Does the hon. Gentleman agree that his remarks about the problems of companies being taken over by giant concerns apply in many cases to State takeovers?

Mr. Mackenzie

The State will take over a particular company when it feels that it is in the best interests of the workers. I know that my constituents who work in the steel industry, which the hon. Gentleman knows well, were anxious that there should be a takeover, because they had fears about their future employment, as they have again.

Whilst I have stressed the numbers of small firms and why they have reduced in size, I do not think that is the whole answer. This problem has always troubled us. Therefore, when my right hon. Friend the Secretary of State for the Environment was President of the Board of Trade, he set up the Bolton Committee to look into the whole matter. The attitude of the Labour Government to small firms is indicated by the fact that we set up that Committee. We were and are genuinely concerned about the whole problem. That committee produced a great deal of valuable information about this sector and drew attention, perhaps for the first time, to its vitally important functions as a source of innovation and a seedbed—a word used by the hon. Member for Basingstoke and by my hon. Friend the Member for Edmonton (Mr. Graham)—from which large new companies grow.

The committee reported in 1971 to a Conservative Government. It is fair to point out—I like to be fair to my political opponents—that since that time there has been a general measure of agreement between the two main parties, whether in or out of office, over the need to maintain a healthy small firms sector for economic reasons, apart from the social benefits that it provides. This Government, therefore, have readily recognised, as I do today, the debt that we owe to the small firms sector as part of an integrated, interacting industrial economy.

In paying this tribute there is one point that I should like to stress. The efficiency of the sector, its characteristic flexibility and adaptability, and the contribution that it makes to the economy, reflect the personal qualities of everyone associated with it. That applies as much to the employees as to the employers. The harmony and teamwork between them are important. That is a matter that I should not like the House to forget. We should be grateful for the work that has been and is done in that area.

The hon. Member for Basingstoke said that tributes, like fine words, butter no parsnips, but he went on to ask, as I often ask myself: how should we seek to ensure a healthy small firms sector? Like the Bolton Committee and our predecessors in office, we believe that discriminatory policies in favour of small firms are not the answer. The hon. Gentleman and his hon. Friends have maintained that view, as I have, for some years.

We must seek at all costs to avoid and, where they exist, to eliminate unintentional causes of discrimination against small firms, as the Bolton Committee would have us do and as successive Governments have sought to achieve. But, though the health of the sector necessitates continuous attention by the Government, we ought to be careful to avoid treating small firms as something special—in this context I conflict with some of the comments that have been made—simply on account of their size, and depart from the strictly neutral attitudes that Governments have adopted in the past only if we are genuinely convinced that there is no alternative way of ensuring the survival of the sector.

The difficulty, as the Bolton Committee recognised, is that the health of small firms is difficult to assess. That is why the committee felt, and Governments have since accepted, that a Minister should be appointed whose rôle would be to listen to the views of small business men. Much has been made of that point today.

My hon. Friend the Under Secretary of State for Scotland was not here, but I think that he would have been pleased to hear that one of his fellow countrymen was being so complimented, even by the Opposition, as a possible Minister for small firms—a Minister who might sit in the Cabinet. I got very worried about that suggestion. I do not mind my hon. Friends making such a suggestion, but when it comes from hon. Gentlemen opposite I fear that, despite their well-meaning attitude, it might be counter-productive. Whether I should be the best candidate for the Minister for the middle classes is a matter that I do not wish to pursue. I appreciate the feeling of regret in the small business community that although there is a Minister with responsibility for small firms he has no executive authority. That feeling was shared by my predecessor, but we are both good listeners, and I promise to listen as intently today as I did yesterday.

Mr. Burden

If we put down an early-day motion, will the Minister sign it?

Mr. Mackenzie

The hon. Gentleman knows that Ministers are not allowed to sign early-day motions. This is only part of my responsibility within the Department, but it is a matter about which I am particularly concerned. The Conservative Government set up a division within the Department to deal with small firms, and I can tell the House that those who back me up take a great deal of care and trouble to look after their interests. I pay tribute to them for the valuable work that they have done.

The hon. Member for Newcastle-upon-Tyne, North commented on the work done by the small firms information centres. I have visited a number of them during my term of office. In fact, I should have been opening one in Leeds today, but it is just as pleasant to be here as it would have been to be in Leeds. However, had the centre been in Glasgow that might have been a different kettle of fish.

Mr. David Mitchell

Perhaps I may be allowed to express our appreciation to the Minister for the fact that his colleague the hon. Member for Doncaster (Mr. Walker) is performing that function in Leeds. We very much appreciate the Minister's asking his hon. Friend to do that.

Mr. Mackenzie

Small firms information centres have been set up in many parts of the country, and recently I had the opportunity of visiting a number of them. The people working there are appreciative of the interests of small firms. These centres have become built into the community and they have a close relationship with local authorities, chambers of commerce, and so on. They do a useful job of work, and over a period have provided a free signposting service.

A number of hon. Members have stressed the difficulties experienced by small firms in obtaining technical and financial advice. Large companies employ qualified chartered accountants and solicitors who know the lot and are able to get every brass farthing out of the Government—or anybody else—in the form of regional grants, selective assistance, and so on. Small firms, on the other hand, do not know how to do that. These centres have a vital rôle to play, and I am sure the House will accept that they are a worthwhile venture.

I, too, believe that the future of the small firms sector is inextricably bound up with the nation's well-being as a whole. I do not think anyone would want to suggest that small firms should be singled out and regarded as being outside the scope of general economic and fiscal policy, but it follows from what I have said that at the end of the day the health of the small firms sector depends on the success of the rest of the economy, on restraining inflation, on restoring confidence and on improving substantially our balance of payments position.

I am sorry that the hon. Member for Macclesfield (Mr. Winterton) is not here, because he made an interesting comment. He said that small firms had experienced difficulties under both Labour and Conservative Governments. I think it is right to mention that last year small firms were troubled by shortages of paper and tin foil, and the hon. Member for Basingstoke knows from personal experience that there was an acute shortage of bottles. All these things created difficulties for the small firms. Those conditions were exacerbated by the three day working week. In my own business we had many problems regarding shortages exacerbated by the three day working week, and in some instances problems which first arose at that time are still being experienced.

We have heard a lot about our policies on taxation and other matters, but some of the policies of the Conservative Government were not terribly helpful to small firms. I do not think that price restraint, and similar action, was particularly welcome. There were phase 2 and phase 3, and all the rest of it—I have forgotten what stage we have now reached. The £200 million cuts in public expenditure made at the end of last year by the then Chancellor were not particularly helpful to small firms.

I do not intend to deal at great length with some of the comments made by the hon. Member for Hendon, North (Mr. Gorst), though I appreciate them. But I cannot see how the mortgage interest rates that were charged at the end of last year were particularly helpful to the middle classes. The question of mortgage rates was an important one from what I recall of my election campaign. I found this when I went to those parts of my constituency where the folk do not vote for me. Those people raised the issue of mortgage rates with me. I think that we are all a little to blame for some of the difficulties of small firms.

Mr. Gorst

I appreciate that the hon. Gentleman does not want to follow me on all my points, but I wish that he would give some weight to at least one point; namely, that businesses are not inanimate objects. They are comprised of human beings, and human beings are frail and are motivated by all manner of desires. Could not the hon. Gentleman address himself—at least briefly—to the considerations about clobbering the sort of people who need incentives, rather than merely talk all the time about the purely trading climate. We should be more concerned with these incentives, which are the guts of small businesses and which make them work.

Mr. Mackenzie

I take the hon. Gentleman's point, and I will mention it later. But first I want to deal with one or two specific points raised in the debate, but I am afraid that I must deal with them quickly.

On the important matter of what the Chancellor has said, I want to assure the House that my right hon. Friend is not unsympathetic to the needs of the smaller firms. The Chancellor and my right hon. Friends the Secretary of State in my own Department and the Prime Minister have gone out of their way recently to stress the value that they place on this sector of British industry.

Disappointment has been expressed today and in the past few days, as I have found in talking to business men, that the stock valuation relief announced in the Budget has not been extended this year to smaller companies and unincorporated businesses. My right hon. Friend the Chancellor has explained, however, that it was only because of practical administrative problems that this decision was taken. No doubt, as a result, certain anomalies may arise this year, but I take the point made by the hon. Member for Basingstoke that I would be failing in my responsibility if the Chancellor were not made aware of the difficulties which have been created. However, when my right hon. Friend made his Budget Statement he said: In deciding how that further relief is to apply to those traders who, for practical reasons, will not benefit from my present proposals, I will take into account the fact that their relief will cover two years' trading and that they will have to wait a year for it. This is a bankable assurance and should be treated as such."—[OFFICIAL REPORT, 12th November 1974; Vol. 881, c. 265.] I know that a number of people have not liked the expression "bankable assurance", but one goes along to one's bank——

Mr. David Mitchell

The Minister says that it is a bankable assurance. Do I take it that, in the case of small businesses, we can get interest on that assurance in the intervening period?

Mr. Mackenzie

On the basis of what the hon. Member said earlier, I should have thought that it would be about three cases of wine.

But even in the most favourable conditions, a modern and businesslike approach by small firms is an important ingredient in the sector's success. No one with any appreciation of the long hours and work entailed thinks that it is an easy or soft option to run one's own business. As several hon. Members have stressed, it involves hard work by the owners and often by members of their families. This is something that we all understand.

But as my hon. Friend the Member for Edmonton said, there is more to it than long hours and devotion. For example, as I said earlier, there has to be a much better understanding of some of the new techniques. Stock control techniques and an appropriate accounting system are as essential for the small businesses as for the large. So are suitable marketing and promotional techniques. I say this as one who, before coming to the House, was for many years associated with marketing, once in a small firm, and eventually in larger one. This is something which is of concern to me.

Unhappily, many of our small firms have not yet learned the advantages of these simple tools, although much information is available to those prepared to use it through the various trade publications, training boards and small firms' information centres. Yet when all this is said, it still remains true that to remain effective and successful small firms as much as large must offer what the customer needs or face the prospect of going out of business altogether. As the hon. Member for Gillingham said, there are commercial facts of life which large firms as well as small ignore at their peril.

I am sure that the majority of small firms, and those with their welfare at heart, as are most of us here, accept this. It is natural, however, that they must feel justified in pointing to difficulties that are not of their making as the cause of their fears about their own futures. We recognise, of course, that in times of economic difficulty it is often small businesses that suffer the greatest hardship because of their dependence on personal wealth as a source of finance. It is, therefore, no coincidence, I am sure, that this problem has received a fair amount of attention today.

We are all, I think, familiar with the fact that small firms are heavily dependent on bank overdrafts for outside funds, and that in times of financial stringency these are liable to reduction for existing borrowers, and can become non-existent for new ones, who are more likely to be small firms than large. Though there is some conflict of view over whether small firms are suffering in this way at the present time, the indications given to me are that the banks are both able and willing to meet the needs of their customers on normal commercial terms.

Small firms are also precluded from taking advantage of certain institutional facilities, such as the stock market, but an increasing number of investment banks are prepared to consider advancing relatively small sums either in the form of loans or in return for an equity holding. Of course, I know that this borrowing is not cheap for anyone at present, not least for small firms—this certainly applies to the small firms—but the higher costs they have to pay no more than reflect the higher cost of lending to the small borrowers.

Another problem was almost touched on by the hon. Member for Arundel and concerns something that I want to mention which has not been particularly mentioned in the debate. That is the question of trade credit. I have spoken about this matter publicly on several occasions recently because it troubles me a great deal. I know of some instances in which small firms are being squeezed between prompt demands for payment from large suppliers, under threat of with-olding deliveries, and extended credit taken by large customers. The Government have in the past appealed to the CBI to encourage its members to avoid any action harmful to small firms. I want to stress today that we have also approached the nationalised industries about this matter.

Hon. Members will appreciate that it is not possible to legislate to regulate transactions of this kind, but it is right that the Government should take up the issue with the CBI, and, from our point of view, certainly with the nationalised industries.

Mr. David Mitchell

Will the Minister ensure that such representations include other Government Departments, as well as the nationalised industries—for example, the Department of Health and Social Security? There are some worries in that connection.

Mr. Mackenzie

Yes. Only yesterday I met the Small Firms Council of the CBI. This point was put to me, and it is certainly a point I shall pass on to my colleagues in the Government.

Mr. Michael Marshall

This is a very important point. I am grateful for the way in which the Minister has put this matter. If I understood him aright, he is saying that he is taking on board the problems which arise from the monopoly buying power of the nationalised corporations. Is that what he is saying? It is a very important matter.

Mr. Mackenzie

It is a question not just of the nationalised industries but of many of the large companies which are getting a little more difficult towards the small companies. We are finding it difficult to get as much evidence as we want. We hear rumours, but few of the small companies come to tell us about difficulties. I think that we understand the reasons for this.

The hon. Member for Newcastle-upon-Tyne, North, setting the scene, mentioned the whole question of taxation. Taxation is never popular and it is very difficult ever to say the right things about this because they never meet with approval. I remember particularly one Chief Secretary to the Treasury who said that 99 per cent. of the amendments to a Finance Bill were good but that the Government did not have the money to accept them. This is very much the approach of many of us on taxation. There is much that we need done in this country, in the way of provision of schools, hospitals and so on, and that can only be done if we have the necessary money.

The hon. Member for Basingstoke said that if the going got much worse people would all take to the golf courses. But that was what people were saying when income tax was first introduced a very long time ago. There was nothing novel in the hon. Gentleman's point.

However, the two taxes with which the hon. Member for Newcastle-upon-Tyne, North and his hon. Friends have been concerned are the wealth tax and the capital transfer tax. I deal first with the wealth tax. As the House will know, these proposals are to be considered by a Select Committee, but, assuming that the Green Paper exemption of £100,000 is adopted, it is fairly reasonable to assume that the tax is unlikely to affect small business men solely on account of their business assets, particularly as the tax is conceived as a charge on net assets only. But before the Government make up their minds on many questions associated with the tax, they will certainly want to hear the views of those who will be directly affected and of anyone else who wishes to contribute to the debate. But it will be for the House of Commons as a whole to approve its precise form, and the Green Paper is only the first step to that decision.

A number of other points have been made, particularly about the capital transfer tax and matters of that kind, which I clearly cannot answer at this stage. I can only say that they will be borne in mind by myself and conveyed to the Chancellor of the Exchequer.

The hon. Member for Buckingham (Mr. Benyon), who has, I am disappointed to say, missed out on his debate today, raised the problem of rates. He would not expect me, as a Scot who barely understands the English and Welsh rating system, to give him definitive answers on the many points he raised.

However, as one who was a local councillor for many years, I am particularly mindful of the effect of rates on the small business community. My hon. Friend the Under-Secretary of State for the Environment, who came in particularly to listen to the hon. Member for Buckingham, has asked me to stress his view that the present rating system needs reform. That is why the Layfield Committee of inquiry into local government finance has been set up, and we hope that all small business men will take the opportunity of giving it their views.

Mr. Stephen Ross (Isle of Wight)

I had hoped to intervene in the debate that the hon. Member for Buckingham (Mr. Benyon) was to initiate. The Layfield Committee is not to report until November of next year. I happened to meet the chairman last night. I know that we have been told that it may report earlier, but the expected date is November. The small businesses and shops need help now.

Last July the Chancellor introduced measures to relieve rates where increases had been 20 per cent. or more—60 per cent. coming back to the ratepayer. That scheme could have been extended to commercial properties and certainly to shops.

The hon. Member for Buckingham suggested the levying of rates on the basis of turnover. I suggest that it could be based on gross value, and I should be grateful if that suggestion could be passed on. It has been done in London and elsewhere.

Mr. Mackenzie

I do not want to prolong the debate. I have already taken up enough time, and I know that others wish to speak, but I can say that that suggestion will certainly be taken into account.

The hon. Member for Hendon, North suggested the setting up of an association to represent the interests of the middle classes. I find that slightly pretentious. I do not mean the hon. Gentleman any personal disrespect, but I cannot understand his reasons for that suggestion. There are already a number of organisations representing the business community with which we deal—small firms information centres, a sector of the CBI, chambers of commerce, the Smaller Businesses Association, and others—and we are only too willing at all times to listen to what they have to say.

I am sorry that I have not been able to answer all the observations made today. There will be other occasions when hon. Members can raise these issues—on the Finance Bill, when amendments to the Social Security Amendment Bill come back from the House of Lords, and others. I can only promise to let my colleagues in other Departments appreciate the effect that any proposals would have on the small business community.

We may not be able to accept all of them, in the same way as my predecessor was not able to accept every suggestion. But I can assure hon. Members, as one who has been connected with these matters for a number of years, that my senior colleagues in the Government are concerned about these problems. We are most desirous that there should be a strong, healthy and profitable small firms sector of British industry, and we shall do everything we can to assist it.

3.28 p.m.

Mr. Tony Durant (Reading, North)

I begin by congratulating my hon. Friend the Member for Newcastle-upon-Tyne, North (Sir W. Elliott) on introducing a debate on this vital subect. That the interest of the House has been maintained throughout shows that hon. Members feel strongly on this subject.

The Minister said that he was a very small Minister both in role and in personal size. He plainly has a big heart, as has been said, and I welcome the attitude that has resulted, but I am disappointed that he has had nothing positive to say. He may have a big heart, but in what he said there was not much fact to help us in our anxiety.

He said that many companies must have been thinking of liquidation or winding up before the change of Government. That may be true of some of the middle-sized companies, but I do not think that it can be true of the smaller companies, for most are too small to make that sort of advance decision. Such a decision often suddenly comes upon them when the bank manager summons them and says, "No more." That can happen quickly in a smaller company. We must get the position clear. The situation has got worse.

The hon. Gentleman mentioned the regrettable atmosphere of big companies taking over smaller companies. We all regret it. We have heard comments about asset stripping, and so on. But the atmosphere has been largely created by the Labour Party and even slightly by the Conservative Government over a period. An atmosphere has been created which has meant that the sharpshooter has got into this world instead of the reliable, decent chap trying to make an honest living.

The hon. Gentleman said that he did not feel that small businesses should have special treatment. We are not asking for special treatment. We are asking for fair treatment. We want at least equal treatment. The points we have made today have shown the inequalities between small and big business.

The hon. Gentleman also mentioned the difficulties which he felt had been created by the cuts made by the Conservative Government, the three-day week, and other things. That is a red herring. I work in a small business. My experience in the three-day week period was that we were far more resilient than a lot of big companies were. We managed to keep going. Everyone was willing to work a little harder and bend the rules a little.

The hon. Gentleman said that he was encouraging the banks to help small businesses. That is all very well, but it is very expensive. No company wants to do that if it can avoid it. The hon. Gentleman also felt that the figure of £100,000 mentioned for purposes of the wealth tax would probably be all right for most small businesses. I warn him that, within the general value of the property of a small firm, there could be, say, a warehouse which is not in a sense part of the normal business property but could well put the company well above the £100,000 mark. That has to be taken into account.

Mr. Michael Latham (Melton)

Does not my hon. Friend agree that this is a particularly important consideration for small firms in the building industry, where they have a land element as well, which is essential for housebuilding?

Mr. Durant

I did not want to bring the land element in, because I did not want to spark off a debate about land nationalisation, but I take the point.

This has been a cordial debate, in that most hon. Members taking part have been probing for help. The exception has been the hon. Member for Keighley (Mr. Cryer) who, in his usual Friday tactics, blew in, spoke for 16 minutes, and then blew out again. He tends to do this, not remaining for the subsequent debate. He thought that the National Enterprise Board would solve all our problems. I thought of a friend of mine who runs three washettes and wondered how the board would help him. But that is the sort of atmosphere the hon. Gentleman was trying to create. He was probably just making political points, probably for his local newspaper.

My hon. Friend the Member for Hendon, North (Mr. Gorst) expressed anxiety about the middle classes. I do not like using that phraseology. I prefer the term, "middle income groups", which is what we are really on about.

My hon. Friend the Member for Gillingham (Mr. Burden), referring to the Bolton Committee mentioned the need for good communication from top to bottom in a company. This is an important aspect of our society. I have a bee in my bonnet—I think that a great deal of industrial trouble arises through lack of communication between top and bottom in a company. One of the strengths of small companies is the fact that the boss wanders around everywhere. I am involved in my company, and it is nothing unusual for a girl to say, "We have run out of loo paper. What are we going to do about it?" That is the sort of thing that happens in small companies. It is good communication, which is very important.

My hon. Friend the Member for Macclesfield (Mr. Winterton) asked for urgent action. I am disappointed to hear that the Minister will not take immediate action, though he is sympathetic to our cause.

My hon. Friends the Members for Buckingham (Mr. Benyon) and Norfolk, South (Mr. MacGregor) mentioned the question of rates, which we shall be debating next week, when many of the points raised today will be made again. Rates represent a crucial factor in small companies.

In constituencies such as mine, in Reading, which is a straggling town, it is important to have small shopping centres outside the town. It is all right to have multiple stores in the town centres, but there must be small shops on the outskirts, so that we can save fuel and help old people and those who simply want to buy a magazine or have their shoes repaired.

My hon. Friend the Member for Basingstoke (Mr. Mitchell) said that the nub of the problem was taxation and finance. He touched on the question of the employment protection bill. When they introduce legislation the Labour Government rarely think about its side effects. If the employment protection Bill is passed, small businesses will not take on any more people, fearing that they may be trapped into having to help people when there is a cutback or they have to be laid off. That will tend to squeeze the market for labour in the small businesses.

We all agree that the small firms are an important part of our economy. There are three or four large companies in my constituency. The rest of it is made up of small light engineering firms and others involved in that type of activity. Many of the services, both to bigger industry and to the individual, are provided by small business. As I walked to the station this morning I passed a parade of shops only one of which could be called a multiple. There was a butcher's shop, a hairdresser's, a greengrocer's and a newsagent's, all individually owned.

My hon. Friend the Member for Upminster (Mr. Loveridge) gave his antecedent history with his company. My grandfather, with two others, started the General Electric Company in a small shop in London, when electricity was something novel. They were told that they were mad and were running great risks and that the concern would not succeed. My grandfather did not believe in passing things on, so the company is nothing to do with me, and I do not have to declare an interest. However, that shows how people's initiative and ideas blossom into enormous industries.

Another friend of mine had a brilliant idea for microscopes with which one could look inside jet engines. The Daily Express used to run a competition for brilliant ideas. My friend won the competition, obtained enough money and set up business in a shed. Now he is exporting on a very large scale. That is the sort of enterprise which we must encourage.

We have heard that one of the principal problems is liquidity. I have never doubted the helpfulness of the banks. It is interest rates which are the deterrent. Another principal problem is that the larger companies do not pay their bills. It is not the small suppliers but the larger companies which cause embarrassment. That applies to the nationalised industries, education authorities and many other large enterprises which do not pay in a hurry. That can cause great liquidity problems for small companies. There is often difficulty in a small firm providing enough money to pay wages for the following month.

Another problem is caused by our dear friends the nationalised industries—namely, overheads. I think, for example, of electricity, telephones, and stamps. There has been a tremendous price escalation. My company has considered using a small van to deliver the letters. We have worked it out, and it might be reasonable to do that, in the sense that it will not cost as much to run the van as to put the mail in the postbox.

I shall not reiterate the self-employment stamp argument. Another aspect that we should consider is the problem facing the self-employed man who decides to take on staff. His problem escalates over- night. A man is then moving from something which can be run quite easily into many problems involving stamps, PAYE and all the other matters with which he will be suddenly confronted. It is only necessary to take on one extra person to become involved in all those matters. Many small organisations hesitate when faced with a choice of expanding or remaining very small and within a confined orbit. I have met several people who have taken on staff and who have been confronted with the problems to which I have referred. In one instance they decided to give the job of manager to one of the staff and to go to work on the buses themselves. They decided that that was the easier way to make a profit out of their business.

We must emphasise to Government, of whatever complexion, that size is not always the best maxim. For some time society has considered increased size to be a good thing. We must reconsider that attitude with a view to returning to the belief that smallness may have some merits. We must increase the confidence of small businesses. They have none at the moment.

The Minister said that he comes from Scotland. The Scots play rugby, and they always have quite a good team. The Minister is a small man and he will know that small men in rugby teams are often the scrum halves. May I look upon his as the scrum half, and upon all the forwards jostling about as the Cabinet? Will he ask the forwards to get the ball and to pass it to him? He can then pass it down the line to the poorer sections of industries which are waiting for some handout from him to help them.

3.44 p.m.

Mr. John Cope (Gloucestershire, South)

On a personal level it is a matter of the greatest regret that my hon. Friend the Member for Reading, North (Mr. Durant) did not inherit his grandfather's business and that he is not now running it for the benefit of the country. If he were, we would probably be deprived of his services in this place. For many of us that is not an attractive possibility.

I apologise for having missed part of the debate. I missed a few minutes of the Minister's speech. However, I was present when he was talking about the so-called "bankable assurances" given by the Chancellor of the Exchequer regarding small companies and the stock appreciation provisions. It seemed that what the Chancellor did was to say "We will allow you, if you come within the scope of this measure, to postpone a certain amount of this tax". That is the accounting effect of it. He said, in effect, "We will artificially reduce for tax purposes the amount of your stock and shunt that forward, and hence the tax payable, into the next year. Next year we will consider doing the same thing again, and maybe it will be shunted forward for another year or two."

That is all very well but that is a postponement of tax and not a tax relief in the absolute sense. It seems that the "bankable assurances" are not really bankable because by the time we get to the Chancellor implementing those assurances the tax will be payable anyway, even if people were eligible for the relief. Unless interest is paid on this money which would not otherwise be payable, and in the case of large firms will not be payable for another year or two, the "bankable assurances" are of no value.

In an extreme case where the small firm is in danger of going into liquidation an assurance which works with the bank is no good unless it also works with the liquidator. By definition it will not work with the liquidator unless the Chancellor does something quite exceptional. He has shown no signs of doing that and he might be unwise to do so. The Minister skated over this but it is important to emphasise that the practical reasons why this relief is not being extended to small firms this year are entirely practical reasons within the Inland Revenue. They are to do with the split in the Revenue between the inspector of taxes and the collector of taxes.

I will not go into a long description, but basically once the inspector has issued an assessment and passed it to his colleagues on the collection side it cannot be retracted without putting the mechanism into a rather complex reverse gear, which is difficult to do. I do not see why the Revenue could not institute a system under which, if the inspector agrees with the taxpayer and his accoun- tants that a relatively simply adjustment should be made, the inspector gave a chit which would be cashable with the collector in exchange for part of the tax liability.

This would get over the mechanical difficulties in the Revenue caused by this divorce between inspectors and collectors. I am not against this split. I understand the accounting and cash control reasons for its existence. For wider reasons, too, it is probably correct that it should exist. It seems, however, that this difficulty could be overcome by some kind of credit note being issued by the inspector which would be cashable with the collector in exchange for part of the liability to tax of the small business.

The Minister also referred to the problem of trade credit and spoke particularly about the nationalised industries. I appreciate that it is by no means entirely a question of the nationalised industries. There are many other large firms, including GEC, with which small businesses do business. I do not wish to make a reference to any particular firm, but not all of them are as good at paying their smaller suppliers as they might be.

I am delighted that we have been joined by the Secretary of State for Energy, who is responsible for some of the most important nationalised industries. I hope that he and the Minister will consider whether something can be done in the public sector, by which I mean not only the nationalised industries but local authorities and Government Departments, such as the Department of Health and Social Security, to try to ensure that they pay promptly. Perhaps we could introduce a form cash discount in reverse, automatically deducted on payment. It is open to the suppliers of the Government, as to the suppliers of anyone else, to try to have a cash discount. It is often done, but an automatic cash discount in the public sector would encourage that sort of thing throughout industry. It would be useful, particularly to the small firms which we know the Minister has so much at heart.

The wealth tax has also been mentioned. The Minister suggested that the starting figure of £100,000 would take many people concerned in small firms out of its range. It will take many of them out, but it must be remembered that, after corporation tax of 5 per cent. or 10 per cent. and so on, the returns on £100,000 net assets give an income for the partners of £5,000 or £10,000. We can see that if the money is spread around several partners they are not necessarily rich men involved in businesses with net assets of £100,000. In many cases the return is much below the percentage return that I used in my examples.

It is a matter of regret that, although we have had for a few minutes at least the attention of the Secretary of State for Energy, there has been no Treasury Minister present even for a portion of the debate. Many of the points with which we are concerned relate to tax and finance and other matters within the purview of the Treasury. It is also a matter of regret that the Minister for small businesses is not as senior a Minister as we should like to see him, both personally and from the point of view of his office.

I do not agree 100 per cent. with my hon. Friend the Member for Hendon, North (Mr. Gorst) about the title he would like to give the Minister. My hon. Friend's phraseology is somewhat loose and on the quaint side. But it is a disadvantage that the Minister is relatively junior, and that small businesses are not the end of his responsibilities. He also has responsibility for regional development, as did his Conservative predecessor, and he is responsible for the Post Office, a large and important responsibility which was until fairly recent years the sole responsibility of a more senior Minister. This is a matter of regret to the small firms, and I hope that it is a situation which will be corrected fairly quickly. I hope that that is the kind of measure which will flow from this important motion.

If positive measures such as those called for in it are put into effect, the motion could be of the greatest importance for the country and for our economy. It will not revolutionise our economic outlook overnight, but it could be a matter of the greatest importance.

Question put and agreed to.

Resolved, That this House pays tribute to smaller business employers and the self-employed for their past contribution to the national well-being; and calls upon the Government urgently to consider measures necessary for the encouragement or individual enterprise and initiative.

Mr. David Mitchell (Basingstoke)

On a point of order, Mr. Deputy Speaker. There is a matter which I wanted to raise with the Minister before he left the Chamber. However, I do not wish to prevent my hon. Friend the Member for Buckingham (Mr. Benyon) from moving his motion. Perhaps the Minister will remain behind for a few minutes.

Mr. Deputy Speaker (Mr. Oscar Murton)

I understand that the hon. Member for Buckingham (Mr. Benyon) does not wish to move his motion.