HC Deb 26 April 1978 vol 948 cc1458-68

'(1) Where—

  1. (a) a designated district authority are satisfied that the acquisition by a small firm of land situated within a special area, or the carrying out by such a firm of any works on land so situated, would benefit the special area; and
  2. (b) a loan is made to the firm (whether by the authority or by any other person) for the purpose of enabling it to acquire that land or, as the case may be, carry out those works,
the authorities may, in respect of such period and by such instalments as they may determine, make a grant to the firm towards the interest payable in respect of that loan.

(2) Subsections (6) and (7) of section 3 above shall apply in relation to the making of grants under this section as they apply in relation to the making of grants under that section.

(3) In this section "small firm" means an industrial or commercial undertaking which has no more than fifty employees.'—[Mr. Guy Barnett.]

Brought up, and read the First time.

Mr. Guy Barnett

I beg to move, That the clause be read a Second time.

The clause gives an additional power in partnership areas. Clause 6 enables partnership authorities to help firms that rent premises in a partnership area, but there was no corresponding assistance for firms that intended to build or buy premises. The new clause will enable local authorities to give some assistance to such firms. It allows the local authority to make interest relief grants, subject to any direction from the Secretary of State, to firms that employ fewer than 50 workers. We felt that such a limitation was appropriate, as we see the Bill primarily as assisting small firms that have local links and are settled in inner city areas. Firms have to be already trading in the partnership area before they can receive grants.

These grants will thus be an incentive to firms to buy the premises that they occupy, to extend them, or purchase other premises in the partnership area. They are not intended, in the first place, as incentives to firms from outside to come to the partnership areas, as there may, in the latter case, be a conflict with regional policy. Accordingly, a firm will have to be established in the partnership area for a minimum of 12 months before it becomes eligible for a grant.

Mr. MacKay

The Minister will be aware that my right hon. and hon. Friends and I are pleased that small businesses are being specially treated. However, I am slightly disturbed that they have to be in the designated area for 12 months. I was also disturbed to hear the lion. Gentleman say that the reasoning behind the decision was not to upset any existing regional policy. Surely it was sufficient that we should designate certain areas of our inner cities as derelict areas in need of attention. That was sufficient reason to encourage firms to go into those areas. Whether such designated areas happen to be within one of the Government's development areas is really irrelevant.

Surely we proved in Committee and on Second Reading that the object of the exercise is to improve the dire situation in certain of our large deprived inner city areas. Birmingham, for example, is technically in the so-called prosperous West Midlands, or once prosperous West Midlands.

Many parts of Birmingham are in the designated inner urban area, but others are not, as I pointed out earlier today. These are areas where there is considerable dereliction. They are areas where there is great need for Government assistance. They require new industry and jobs, particularly from small firms. It is a pity that in New Clause No. 4, which in other respects is worth while, we cannot encourage new small firms to set up in areas such as the inner areas of Birmingham.

I come back to the general point about small businesses. I hope that the Minister does not think that I am being unduly churlish in saying that this Government are a Johnny-come-lately to small businesses, whereas the Opposition have for many years encouraged the virtues of small businesses.

The Under-Secretary of State for Industry (Mr. Bob Cryer)

Could the hon. Gentleman say which Government instituted the Bolton Committee of Inquiry on Small Firms, which made recommendations to the then Government of the day, some of which were implemented? Will he outline which Minister called for the Bolton Report, and the year?

Mr. MacKay

To counter that, I ask the Minister: who brought in capital gains tax? Who brought in many complicated bureaucratic measures which caused small businesses a great deal of difficulty in operating and discouraged them from starting? Without wishing to go too far down that road—it is an interesting argument, but I suspect that it is not relevant to the new clause—I ask the Minister: which Government failed to raise the level of VAT exemptions? We refer back to the Labour Government.

Mr. Cryer

Will the hon. Gentleman say which Government brought in value added tax? Will he state the limit for the exemption from VAT? Does he accept that there is an EEC limit, which is fixed at about £10,000 for exemption purposes? I am sure that he would not like to go outside the general directions laid down by our EEC partners.

Mr. MacKay

It surprises me that the Minister, of all Ministers, is loth to go outside the EEC guidelines. I recall many examples when this Government have gone outside such guidelines.

Referring to the more general topic of VAT, of course the Conservative Government brought in that tax. VAT, as such, is not a tax that will adversely affect small businesses. It will affect them only if the exemption level is too low and brings in firms that are unable to afford the clerical staff to cope with it. I think that the Minister is fully aware of that fact.

Returning to my theme about small businesses and the Government being a Johnny-come-lately to seeing the benefits of the small business community, nevertheless the Opposition are delighted that at long last the merits of small businesses have been seen.

I believe that small businesses are the best potential employers of the future. They are most likely to take on fresh workers, to move into inner city areas and to assist in livening up and rejigging such areas. I believe that they should be encouraged. To this extent, I am naturally grateful to the Minister for moving the new clause after the representations that we made in Committee.

When the Minister winds up the debate on the new clause, will he tell us why we cannot give encouragement to small businesses to move into designated areas in our inner city areas, particularly areas which are not already associated with the Government's regional development programme?

Mr. Alison

We are delighted that the Under-Secretary of State for Industry—the hon. Member for Keighley (Mr. Cryer)—should have become such a passionate partisan of the small business enterprise that he leaps to the defence of the Government's record. This is an excellent conversion. We are delighted that he has taken that attitude. But he and the Government remind me of a gang of ruffians who come upon an unfortunate member of the public, throw dirt all over him, and then come forward with a patent cleansing fluid to get rid of it. I suggest that it would have been better not to have upset small businesses at the beginning in the way that they have been upset. We should not then need all these special provisions which are now being brought forward.

I want to concentrate on the new clause moved by the Under-Secretary of State for the Environment. We are pleased with it and congratulate the Government on the step that they have taken in this direction.

I should like to ask the Minister some questions. It may be that he cannot answer them on the spot, but perhaps he will take advice and let me know the answers in due course.

First, what is the meaning of the term of art in the new clause— a grant to the firm towards the interest payable"? Does that give us any idea of the extent to which the grant covers the total interest? Is it meant to be a small proportion, or the totality? It is a term of art.

It is relevant to ask this question because, unless we know the extent of the words "towards the interest payable", it is difficult to work out whether the Government are giving something which, from the point of view of the small business, is preferable to the powers already available in Clause 5 where provision is made for a total holiday in respect of interest and principal for two years. It is not possible to know whether it is better for the small business to go for the interest and principal-free loan for two years, which is clearly the full extent of the loan or interest payable for that period, or to go for the provisions of New Clause No. 4. It would be interesting to have some clarification on this matter.

I should be glad of the Minister's illumination on the question whether the small business is likely to be better off with this contribution towards the interest payable not only in respect of the alternative that seems to be provided in Clause 5 but the alternative provided in Clause 6, where grant is payable towards rent under a lease. Again, it is a term of art. We do not know how far the grant goes. There is some overlap in the provision made here between the new clause provisions and those in Clauses 5 and 6. That is the first little group of questions, that I ask the Minister about the new clause.

The second part of the new clause refers to enabling a small firm to carry out works on land. Given that, under the new clause, acquisition is a clear-cut opportunity for a small business, it is also able to get relief on loan interest in respect of works carried out.

We tabled an amendment to a later part of the Bill—unfortunately, it has not been selected—in which we attempted to explore the question whether there were any means by which what can broadly be called working capital might be the subject of some assistance. Perhaps the Under-Secretary—the hon. Member for Keighley—could throw some light on this matter, either by an intervention or indirectly in some other way. He will know that for any firm the installation of plant, machinery and equipment in buildings is an important part of the cost element in setting up business in any part of the country. It is landed not only with the acquisition cost of acquiring a new building or site or of conversion or adaptation costs of a kind for which the new clause makes provision, but, if starting de novo, with the problem of working capital provision and, in particular, the installation of plant, machinery, equipment, and so on.

7.30 p.m.

It will be interesting to know whether the "works" referred to in line 7 can be stretched to include the installation of plant, equipment and machinery and whether the loan funds available to the small business to make those installations will be subject to interest payable under the terms of the clause. It would be of great advantage to a small firm if such working capital could be provided for.

I wish to refer to the use of relief for small businesses in the acquisition of land. This is one of the special features of the new clause, namely, that loans made to enable small businesses to acquire land are to be subject to the relief given by the clause. The interesting fact is that although many parts of the Bill make provision for loans or grants in respect of various operations carried out on land, this is the only example in the Bill of special help given towards the acquisition of land.

The only acquisition provision in the whole of the Bill, so far as I can see, is contained in Clause 2. Land acquisition under that clause relates to loan finance which is at a level of 90 per cent. but which must be carried out at full commercial rates, with no special subsidy. All the other grants and loans available in the Bill relate to things done on land, acquisition having been completed in some shape or form. This is a unique case in respect of the small business in a special area under New Clause No. 4, in which special help is given towards the loan charges involved in land acquisition.

Have the Government thought through this matter? Do they believe that it is only the small business that is in need of special help in land acquisition? I suspect that the cost of land acquisition in inner urban areas is one of the greatest disincentives to firms of any size set up in those areas. The problem in inner city areas is that often the local authorities own much of the land and may be prevented by statute from disposing of that land at a rate which reflects its real value because of the level of the cost of acquiring that land. Therefore, for businesses of any size—large, medium or small—the problem of the high cost of borrowing for land acquisition bears on them all.

Uniquely, the Minister intends to give relief to the small business for land acquisition. Has he deliberately decided that all other scales of land acquisition by medium-sized businesses or anything larger than a business employing 50 employees will not be available for relief, and has he ruled out the possibility of any special relief to businesses of any size who wish to have help when seeking to buy high-cost local authority land in inner city areas? These costs, for historical reasons, can be very high.

Small business will now obtain relief under the new clause. This will be of great help, but why is the Minister limiting the help to small businesses? Will consideration be given—if not here, in another place—to the extension of help towards land acquisition in special areas for businesses with over 50 employees?

Mr. Guy Barnett

I shall do my best to answer the detailed questions put to me by the hon. Member for Barkston Ash (Mr. Alison). I am not sure that this is the best way of dealing with some of those detailed matters.

The hon. Gentleman asked an earlier series of questions about New Clause No. 4. Designated districts are those with special social need which will benefit from the powers in Clauses 2 and 3. Secondly, arrangements can be made under New Clause No. 4 as regards districts with special social needs—districts which need a concerted effort but which may not need the powers in Clauses 2 and 3 so much, if at all.

Clause 7 can apply to both designated districts and districts with arrangements. The powers in Clauses 5 and 6 can he exercised only by designated district authorities. They are unlikely to need the powers in Clauses 5 and 6 if they do not also need the powers in Clauses 2 and 3, and this applies to those which have arrangements. Clauses 5 and 6 are exercisable within a special area decided by the partnership and geographically defined by the Secretary of State by order.

Mr. Alison

The Minister pinpoints the rather nebulous entity called "the arrangements". Has he any idea what sort of area an "arrangements area" would be? Is it bound to be inner urban? Is it bound to be an industrial area? Will he give an example of what the Government have in mind?

Mr. Barnett

Presumably, it is an area with arrangements that is not designated. I cannot give the hon. Gentleman an answer since no such area now exists. Therefore, I do not think the question arises. It has been included on the assumption that at some time in future such a situation might exist.

Let me now deal with the other issues that were raised. The grants in the new clause are grants towards interest payable. The Government intend to prepare detailed proposals which will be included in directions under the Bill. The Government do not intend to give powers to local authorities to grant-aid the installation or purchase of plant and machinery. That is definitely excluded from the Bill.

I cannot at the moment deal with the other detailed issues raised by the hon. Gentleman, but by way of explanation on the points he made about plant and machinery, and also in answer to the speech made by the hon. Member for Birmingham, Stechford (Mr. MacKay), I wish to make it clear, as did the White Paper, that inner city policy is added as an intra-regional dimension to existing regional policy. It is not a denial of regional policy and therefore has to be seen in that context.

The powers in the Bill—and this applies particularly to the point about plant and machinery—have to be conditioned by the need to maintain present regional incentives but also the offer of assistance to firms which are already in the inner city areas and which by the nature of their business need to remain in them. In general, small firms are less mobile than large ones and more suited to inner city areas. That is the reason why in the new clause we have made this special provision for the small firms.

Mr. Tony Durant (Reading, North)

I apologise to the Minister for not being here at the beginning of his remarks. The Bill was progressing rather slowly, but suddenly took a leap forward and caught me unawares. I wish to make only one or two points, some of which have been touched on already.

A large part of the inner city land that we are now discussing is owned by local authorities, as has been pointed out. I believe that this is a major problem, because they are unable to sell always at complete market cost. This is often set by district valuers and may not be of use from the point of view of small businesses. A large amount of the land is also owned by nationalised industries, and there are problems which arise in divesting them of the land.

I particularly wanted to comment on the reason that the Government have suddenly arrived at the figure of 50 people for a small business. Perhaps the Under-Secretary of State, who deals with small businesses, can tell us. Is this his optimum number which he has now decided represents a small business? What will happen if the firm expands, as is obviously the intention, and the number increases to 60? Does the position remain the same concerning the loan? If, after six months of successful business, the firm takes on 10 more people, does that make a difference to the loan position? It is not entirely clear in the clause as it stands. I believe that this is an important point if the measure is to be introduced.

This is a timid approach to the problem. It is as though the Government, with a sudden blinding vision, realised that something had to be done in the inner city areas about small businesses, which are the key to the problem, and decided to settle on 50. What will happen if a firm develops quickly, going from 50 to 60, and then to 70 or even 80 people?

This is, of course, only a very small beginning and it will not make a lot of difference to the present position, especially bearing in mind the price of land within inner city areas, which is a matter that planners ought to look at. Indeed, they are partly responsible for the situation in the inner city areas from the point of view of land development.

I particularly ask the Minister to comment on the figure of 50, because this is a key point, I believe, in the whole of the development.

Mr. Peter Morrison (City of Chester)

I had been waiting for the Under-Secretary to rise from his place. As the Minister in charge of small businesses, I had hoped that he would answer the question put by my hon. Friend the Member for Reading, North (Mr. Durant) as to exactly what is the Government's policy towards small businesses, and how small businesses are defined.

As my hon. Friend the Member for Barkston Ash (Mr. Alison) said, the clause is very welcome, but the fact is that the definition of a small business as comprising 50 people goes far wider than the clause itself. It would be very interesting to know whether this is the Government's definitive way of describing a small business. I am sure that many people listening to the debate would like to know the answer.

7.45 p.m.

Mr. Cryer

We seem to have a plethora of Ministers answering points on this fairly narrow clause. The figure of 50 is a definition for the purposes of the Bill. We have made a judgment that this is the sort of size of firm—the smaller small firm—which is most likely to benefit from the provisions under the Bill.

The definition of 50 has been used previously. The Department of Employment used it when it introduced the small firms employment subsidy as a pilot scheme in the special development areas only. Subsequently it was extended. It is hoped that the scheme will be starting in July this year and it will extend to the more generally accepted definition of 200.

It is generally wise to try to avoid narrow definitions. As has been pointed out, once we start on definitions, we tend to create anomalies in all sorts of ways. But we hope that this definition will prove satisfactory.

If a small firm of fewer than 50 people applies for a loan and is granted the facility, and then expands, the facility will still be retained, but a firm with a larger number than 50 will be excluded from applying. I think that should clarify the position.

It is a fairly narrow Bill for a fairly narrow range of purposes. It has been tailored for that specific sort of purpose. We think that in this context it is relevant and right at that sort of figure.

It does not bind the Government in any way to a definition—as the hon. Member for City of Chester (Mr. Morrison) suggested—over a wider range of legislation. In general, as I have indicated, it is probably better to avoid definitions if at all possible. As the hon. Gentleman will know, where we have a preferential rate of corporation tax, and a lower rate, it is applied right across the board. If, for example, Imperial Chemical Industries were to make a profit of £50,000 or less, it would qualify for the lower rate of tax. But, of course, it is very unlikely that that would be the case, and it would be the small firms which would benefit. In that situation the legislation is general and avoids the difficulty of definition. But in the circumstances of the Bill it seems to me that a definition is useful, important and necessary.

Mr. Durant

Am I correct in understanding that if a firm, having benefited under the loan arrangement, expands beyond 50, it will retain the loan? I should like that to be absolutely clear from the Minister.

Mr. Cryer

My understanding is that the firm will retain the loan if it completes the formalities and obtains the loan before it numbers 50. I emphasise that the formalities must be completed within the definition of the legislation. If it is outside the definition, quite clearly it will fail.

Question put and agreed to.

Clause read a Second time, and added to the Bill.