§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Goodlad]9.35 am
§ The Under-Secretary of State for Industry (Mr. John MacGregor)
I warmly welcome the debate. I am pleased to have the opportunity to give a progress report on Government measures for small businesses. I have been in my present post for an active 10 months. I pay tribute to my predecessor, my hon. Friend the Member for Basingstoke (Mr. Mitchell), who did so much for small businesses. I also pay tribute to my hon. Friends, many of whom are in the Chamber today, who have been active in giving a much higher profile of small businesses than in the recent past and in putting forward so many suggestions, a number of which we have been able to take up. I hope to say something later about the many others, especially the growing number of small firms and organisations and the more active, more traditional movements which are doing so much to put the cause of small businesses to the fore.
The business opportunities programme was launched by the Prime Minister and the Chancellor of the Exchequer in May and is now well under way. That has given us the opportunity not only to bring to the attention of the country at large all that we have been trying to do for small businesses, but to obtain reactions. The objectives of the business opportunities programme are twofold—first, to publicise the measures and the help and advice that are available, and secondly to engage directly in discussions with the small business community and to obtain feedback.
We have used two methods. First, we have produced a wide range of concise, and, I hope, simply explained literature. Secondly, and more important, we have undertaken a series of major conferences and smaller meetings all round the country. We are describing those, I hope not in disco language, as mini-BOPS. There will be 14 major regional conferences, of which some have now taken place, and nearly 70 mini-BOPs. Some 30 of those have taken place so far. That will mean that we shall have made direct contact specifically with over 6,000 small business men and their advisers through the business opportunities programme. There are also many other ways in which I am keeping regularly in touch with small business men.
I am also delighted to see the growing interest of the media in the small business world. The Financial Times has now a small business page once a week. "Nationwide" has been running a competition for people setting up in business. The monitoring of those who win the competition will run throughout the coming year. Shortly, 764 Yorkshire Television is having a series called "Be Your Own Boss", which will also be shown nation-wide. All that demonstrates a substantial growing interest in the small business sector.
I have participated in a large number of the BOPs conferences and meetings. I shall briefly comment on the reactions to them. Undoubtedly we have been proved right in our objective to publicise the measures and make business men more aware of them. In saying that, I ant in no sense critical of small business men. They work 24 hours a day to keep their businesses going and to expand them. We pass measures in the House often late at night and they do not always receive as much publicity as we would like. Therefore, because small business men are working 24 hours a day and do not follow what goes on in the House, there is a substantial need to make them aware of the large range of changes that have taken place in legislation and in their practical working environment so that they can take advantage of them.
In my early months in my present job I was frequently asked at meetings all round the country by small business men why we did not make changes in this or that piece of legislation, frequently employment legislation, to remove obstacles and encourage them to take on more employees. I often had to point out that the Government had already taken the steps that the questioner in the audience was pressing me to take. I have discovered from the business opportunities programmes that business men are delighted at the wide range of measures that have now been introduced to change their environment.
I get a very positive reaction as the audience considers the range and impact of what has been done, especially as it recognises the new impetus that the Government are giving to small businesses. People recognise that, in the very difficult international and national economic environment in which we have to operate, the Government are making every effort to expand our small business sector.
In my opening remarks I do not wish to say too much about wider economic policies. I hope that later I shall have the opportunity to respond to questions. We have been debating economic policies in the House all week. Therefore, it is right today to concentrate on the small business measures.
I recognise—as has emerged at the conferences—that high interest rates, which are a necessary part of the anti-inflationary strategy and a reflection of American interest rates and increased public sector prices, especially those of nationalised industries, are of great concern to small business men. The worldwide recession affects small businesses as it does everyone else, but small business men understand that the recession is world-wide. We often forget how much small businesses and their customers export. They understand the impact of the recession much more than Opposition Members.
However, many small businesses are doing well. I have met many small business men in Britain and have seen for myself that they are doing well. Fundamentally, that is because they make the effort. develop the products and recognise their markets. Above all, they recognise that it is service, the right price, delivery and after-sales service that count. They try to give all those things.
It is today almost exactly 10 years since the Bolton report on small firms was presented to Parliament. The Bolton committee not only noted that the small firms sector had been declining but emphasised its importance 765 and long-term viability. It stimulated much action, including the appointment of a Minister with special responsibility for small firms and the establishment of the small firms service.
My hon. Friends will agree—because they took part in the opposition between 1974 and 1979—that, following the publication of the Bolton report and the early measures, there was a striking lack of interest and activity in the small business sector. The only item of note in the early years was the setting up of counsellors, which I welcome and which I have developed. However, that was a minuscule amount of help in the face of the barrage of punitive tax measures. I recall the many debates on the original measures of capital transfer tax and the barrage of employment and other legislation that intimidated and overwhelmed so many small businesses and the self-employed.
During those years small business men felt neglected and friendless at court, and they were right. That is fundamentally because so many Opposition Members—of course I exclude some—do not understand or sympathise with the aims, ambitions, desires and motivation of the entrepreneur, the small business man who wants to grow and to profit from his achievement, or of the independently minded self-employed.
There was belated recognition of the damage being done in the appointment of Lord Lever to do something about small business policies. I believe that his was a genuine attempt. He understood the needs of small businesses and the need to remove obstacles and give incentives, but he was practically alone. The evidence is that he was appointed so late in the lifetime of the Labour Government that he introduced only a handful of measures.
I contrast that with the position since May 1979. Some 72 measures of direct practical benefit—some major and others inevitably minor—have been introduced to help small businesses. They have all been designed to change the practical working environment in which small businesses operate. They fall into two broad categories. The first is the removal of burdens and barriers not appropriate to small businesses. The second—which I believe is the more exciting—are those that give positive incentives, principally through the tax system.
I do not wish to cover all 72 measures; nor would the House wish me to. I shall pick out the more recent and also some of the developments that have taken place. However, I have two important points about the 72 as a whole. The first is that the measures are not directed just at those starting up in business, but to all small businesses. Sometimes, because of the publicity that the business startup scheme has received this year—and because of the media's understandable interest in those who set up in business on their own—there is a feeling that the Government have not concentrated their measures on those not starting up in business for the first time. I have done an analysis of the 72 measures; only two are specifically directed to start-ups. The rest apply to existing small businesses.
The second general point is that the measures range over all Government Departments. That shows that all Ministers—in the business opportunities programme and in the creation of measures—are taking part, from the Prime Minister downwards. That fact should give pause 766 for thought about whether a single small firms Department—a proposition sometimes put forward by small business advocates—is an appropriate mechanism in Whitehall for advancing the small firms' case. What matters most of all—without it no administrative mechanism will make much difference—is the whole-hearted commitment of the Government to the cause. That is what we have.
Why are we putting such emphasis on small businesses? Why is there such a drive, and is it a genuine commitment? I am convinced that it is genuine for four reasons. The first is employment. It is interesting to observe from employment statistics that manufacturing employment in the private sector declined from 7.7 million to 6.5 million between 1970 and 1979. Nearly 90 per cent. of the jobs lost were from larger firms. During the same period, the small firms sector maintained its share of jobs in manufacturing. Had it followed the same trend as large firms, the job loss would have been much greater.
All hon. Members will know of the Massachusetts Institute of Technology study of new jobs created. The report looks at the past. Looking to the future, I am struck by the number of representatives of large firms who have told me during the past nine months that they have taken decisions during the past 18 months that they knew should have been taken years ago, or, alternatively, that they wished to take years ago but could not because the environment was wrong. Some of those decisions dealt with over-manning. Many large firms say—now that the recovery is coming and output increases—that they have enormous scope for an increase in productivity and output without taking on many new employees.
Also, the small business community and certainly we on the Government Benches do not wish to see the public sector increased. Therefore, we are looking to the small and medium-sized business sector for a major contribution in dealing with unemployment.
The second reason is that small businesses at their best—there are many of them—demonstrate all the qualities that we need if we are to halt economic decline and establish the competitive place in the world economy that we are capable of achieving.
It requires willingness to work night and day, if necessary, to meet a customer's requirements, because proprietors have a stake in their own business. It also requires lack of restrictive practices, good industrial relations, flexibility and speed of response to a market opportunity, innovativeness and resourcefulness—much of which I have seen in the past 10 months—but, above all, recognition by owners and proprietors, as well as by all those working in small firms, that meeting customers' needs alone ensures not only growth but survival.
That is seen much more often in the small business community than in large firms. It is being demonstrated in small firms involved in high technology, but I have also seen many examples in recent months in more traditional and long-standing sectors. Those firms embody the qualities of independence and determination to stand on their own feet and prosper by their merits which at least on the Government Benches is recognised as being vital to a successful nation.
The third reason is that small firms provide variety and diversity, and hence a more stable base to local economies. In some towns that I have visited I am struck by the impact of the closure or decline of major industries or a major firm on which the local community has heavily 767 depended. Consett and Corby are examples. Building a more diversified small business base provides much more stability for the local economy.
The final reason is the comparison with our more successful competitors overseas. I recognise that small business statistics in all countries need to be heavily qualified. The definition of a small business differs from country to country, so international comparisons must be heavily qualified. With that proviso, it nevertheless appears from my studies that in our more successful competitor countries, especially the United States, West Germany and Japan, the small business community has always been encouraged to play a much bigger part in the economy than for many years it has here. That is only one factor in our competitors' success, but it is a major one and it is the reason for our putting emphasis on the small business sector.
I turn now to the measures that we have taken, and I shall update the House on progress. First, tax and finance is perhaps the most crucial concern of small businesses. A large number of changes have been made since we came to office. Many are of general application but of specific interest to small businesses; others are directly aimed at small businesses. I shall refer briefly to those of particular importance and then deal in greater detail with a few of them.
The reduction in the high rates of direct taxation has undoubtedly made a big difference to the incentives for small businesses. The many changes in capital transfer tax and capital gains tax are of great importance—in particular drawing the teeth from capital transfer tax so that its jaws will no longer destroy businesses and obliterate the incentives for proprietors to build up something for their families, a desire which motivates so many small business men.
The establishment of enterprise zones is also important. Ten out of the 11 are now in operation. The Department of the Environment has commissioned a three-year study to investigate fully their impact.
The small companies rate has also been reduced to 40 per cent. and the thresholds have been substantially increased. There have been other detailed but important measures such as appropriation of profits in close companies. All have substantially changed the fiscal scene for small companies.
I refer particularly to the measures introduced this year. The new stock relief scheme has helped small businesses in two ways especially. First, it has removed the possibility of clawback, except when trade ceases. From conversations with small businesses last year I know that that is of great importance to many small firms. Secondly, the change in the previous profits restrictions is beneficial. The old system bore more heavily on the small business sector. Under the new scheme the number of companies qualifying for a claim is expected to increase by 50,000 and the number of unincorporated businesses to double or treble to 200,000 or 300,000.
The business start-up scheme is designed to encourage outsiders to put up risk capital. It enables outside investors to put money into new businesses and, subject to certain conditions, to claim tax relief on up to £10,000 per year for three years. It is widely recognised that the scheme is a unique and exciting experiment to encourage investment in riskier enterprises.
I pay tribute to my right hon. and hon. Friends in the Treasury and to my right hon. and hon. Friends on the 768 Back Benches who participated in the Finance Bill debates. I took a close interest in the development of the scheme during the debates and was much involved in discussing the original scheme with outside interests, such as accountants, small business men and investors. As a result of the discussions and the constructive response from my right hon. and hon. Friends we have now met all the major criticisms.
The first claims are expected in April, so it is not at present possible accurately to measure the success of the scheme. However, the signs are promising. There has been a good response from professional firms, investors and businesses. It is gratifying that three schemes have now been set up under the provision that enables investments to be channelled through approved nominee investment funds. Those funds have already generated several millions of pounds of new investment for start-ups. The first two funds are, I understand, pleased with the progress of their schemes, although success can be said to have been achieved only when target companies have been chosen and proved their success in practice, which will inevitably take time. However, the scheme is a major step towards restoring the fiscal bias in favour of direct investment in small firms and away from investment in Government savings and institutional investment outlets.
The loan guarantee scheme came into operation on 1 June as a pilot exercise. It is designed to encourage participating banks to support viable business propositions that they would normally have turned down because the proposal did not meet the usual banking criteria. I have been most encouraged by the response from the banks involved. The scheme has got off to a tremendous start. As I announced to the House earlier this week, in only five months, up to the end of October, 1,172 guarantees have been issued in support of £41.1 million of bank lending. It is encouraging that £22.7 million of that went to new businesses and it is equally important that £18.4 million went to help established small businesses to expand and develop. It is also encouraging that 589 loans so far have gone to manufacturing businesses, and there is a fairly good regional spread.
Work remains to be done to ensure that individual branch managers and small firms are aware of the advantages offered by the scheme. I spend a good deal of my time on that. As my hon. Friends continue to point out on the Floor of the House and in correspondence, bank managers in some areas are still unaware of the potential of the scheme. As we are dealing with 14,000 bank managers, it is understandable that there may be difficulty in communication. Nevertheless, the demand for scheme loans is much greater than originally estimated. In response, I was able to announce that the financial ceiling for the first year has been raised from £50 million to £100 million. The financial provision for the second year will be reviewed as we gain experience of the operation of the scheme.
When the scheme was launched, only the main clearing banks and ICFC could apply for guaranteed loans. I have constantly stressed the importance that I attach to getting more banks into the scheme to ensure competition. Currently, 17 institutions are participating and there is already a good deal of competition between the banks for the business. As a result, rates vary considerably.
I am pleased to announce today the names of the 10 new banks and institutions that have been invited to participate in the scheme. They are Brown Shipley & Company 769 Limited, Commercial Credit Services Limited, County Bank Limited, Hong Kong and Shanghai Banking Corporation, Bank Leumi (UK) Limited, Norwich General Trust Limited, Swiss Bank Corporation, TCB Limited, United Dominions Trust Limited and the British Linen Bank Limited.
The increased competition between the banks and institutions for businesses under the scheme, including the terms and conditions for scheme loans, can only be of benefit to applicants. When these new institutions are added to the 17 banks already operating the scheme—I emphasise that, although they are keen to do so, they have not yet entered into an agreement with the Government and therefore cannot yet issue guaranteed loans to their customers, but I hope that they will soon be able to do so—it will provide a good mix of different types of financial organisation, including the clearing banks, merchant banks, licensed deposit takers and foreign banks.
The spread of organisations will also be of great benefit when we come to review the scheme. However, as I said in the House recently, the financial and administrative resources available to us in the Department of Industry are limited and I want to keep them that way in running the scheme. That restricts the number of institutions that can be invited to join the scheme. Although I may be able to include a few more institutions in addition to those that have already applied to join the scheme, I must confirm that applications will not be considered during the pilot stage of the scheme.
I am monitoring the development of the loan guarantee scheme carefully. It is very much an experimental scheme and the continuing high demand for loans does not in itself provide conclusive evidence of the scheme's success. It will inevitably take time, and we must wait to see how the scheme develops and how the bad debt position turns out. As our experience of the scheme increases, I will, among other things, be carefully looking at the extent to which lending under the scheme is truly additional to what the banks would have taken on anyway. I will also watch carefully other matters, such as the premium, which I know some of my hon. Friends believe should be changed if the scheme is to continue beyond the pilot stage.
Hon. Members' views, the views of the various small firm representative bodies and comments from small individual firms will be taken fully into account. The loan guarantee was one part of the Chancellor of the Exchequer's 11-point package to help small businesses in this year's Budget.
One point that remains is a suggestion made by my right hon. and learned Friend. We recognise that many unemployed people may want to set up in business for themselves, but may find it very difficult to do so, because all their resources would be taken up by the new business. They would have little to live on during the early stage and, by determining to set up their own business, would lose their entitlement to benefit. It is increasingly put to me by many small firms' counsellors and at many BOP sessions that that is proving a real and psychological barrier to the unemployed taking such a step.
In his Budget speech, my right hon. and learned Friend said that we were considering whether any arrangements could be made to deal with that problem. It has been examined at length over recent months and there are many practical difficulties in finding ways of dealing with it. 770 Although it has not proved practicable to make changes to the social security regulations, I am pleased to be able to say that the Manpower Services Commission has agreed to set up a pilot experiment to give an enterprise allowance, as we shall be calling it, in the form of a grant for a period of one year to unemployed people who want to set up in business. The Department of Industry's small firms service will also be fully involved in the experiment, which will take place for a trial period in three areas—Coventry, the Medway Towns—Chatham, Gillingham, Gravesend, Rochester and Strood—and an area in North-East Lancashire consisting of Accrington, Burnley, Nelson and Rawtenstall. I hope that the experiment will enable us to evaluate——
§ Mr. MacGregor
My small firms' service and my responsibility for it relate entirely to England, which is what I am talking about as far as the counsellors are concerned.
§ Mr. Douglas
I apologise for intervening, but I wrote to the Under-Secretary of State for Scotland indicating the interest of Scottish Members on the issue. We have heard nothing about the special situation in Scotland and the role of the Scottish Development Agency, the Highlands and Islands Development Board and the other agencies in Scotland which do promotional work. I hope that if this interesting venture takes place in other parts of the United Kingdom, Scotland will have its share and we shall get an explanation.
§ Mr. MacGregor
My hon. Friend the Under-Secretary told me of the correspondence that he has had with the hon. Member for Dunfermline (Mr. Douglas). I am sure that the hon. Gentleman will make his points during the debate, and I hope to be able to respond to them.
I hope that the scheme will enable us to evaluate whether there is a serious problem and, if so, how widespread it is. If it demonstrates a positive need, I hope that it will give further guidance on how we might tackle the problem more widely. Further details of the pilot scheme have not yet been finalised, but I hope that my right hon. Friend the Secretary of State for Employment will be able to announce them shortly and that the experiment will start early in the new year.
§ Mr. Michael Grylls (Surrey, North-West)
This is an exciting development on which my hon. Friend should be congratulated and it should certainly be helpful. However, will the allowance be tax-free?
§ Mr. MacGregor
I am grateful for my hon. Friend's remarks, but I would prefer that he awaits the detailed announcement from my right hon. Friend the Secretary of State for Employment.
I pay tribute to the growth of the number of private sector institutions involved in venture capital and small firms' financing. I have had considerable experience in the City and it has struck me very much, in the period that I have been in my present job, that the private sector attitude towards helping and assisting small firms, both in venture capital and other ways, has been greatly transformed recently.
I believe that management buy-outs are an exciting and potentially important development. Although I do not wish to say too much about that in my opening remarks, I have been struck by the extent to which management buy-outs 771 are increasing. For example, ICFC, which has specialised in that area, undertook only 43 management buy-outs up to 1977. From 1977 to 1979 there were 30 management buy-outs. There were 49 in 1979–80 and 69 in 1980–81. Some of my hon. Friends may wish to comment on that new development, and I certainly regard it as a very interesting one.
By far the most exciting development is what we might describe as an "employee buy-out of the National Freight Company". Both the NEB and the NRDC have also taken important initiatives in the provision of finance for progressive small companies, especially in high technology.
The NRDC set up its small companies innovation fund in September 1980 to provide sums of up to £60,000 to innovative small companies with high growth potential. Last March, the NEB set up Oakwood Loan Finance to provide loans of up to £50,000 to small firms. Loans are available to all sectors of industry but, again, the emphasis is on growth companies in advanced technology areas.
The two schemes have proved to be very popular and should make a significant contribution to the development of innovative small companies. To date, Oakwood and the small companies innovation fund have attracted about 2,400 inquiries which have led to 42 firm offers totalling £1.4 million. On the tax and finance side, there has been a transformed tax regime and there is now a much more favourable financial scenario for small businesses than there has been for many years.
When the Government came into office the Coopers and Lybrand report, which we commissioned, confirmed an acute shortage of small industrial premises. In particular, there was a marked absence of private sector investment. The raising of the industrial buildings allowance for premises under 2,500 square feet to 100 per cent. last year enabled something of a transformation to take place. Far more small factories are being built by the private sector than for a number of years.
The Department of Industry has also made available to the English Industrial Estates Corporation £5 million from within its cash limits to enable it to go into partnership with the private sector in building mini-estates in the English assisted areas. Within weeks, CIN Properties Limited announced its intention to put £15 million into the scheme and that was followed by investments of £5 million each by Barclays and Midland banks. Those investments will result in the building of over 1,500 small industrial workshop units. That is already well over the 1,000 target that the Government set themselves when making the £5 million available. Other similar agreements are being negotiated.
I should like to pay tribute to Beehive Workshops Limited which is the new operation under the EIEC. The corporation is also a pace-setter in the assisted areas. It has built two experimental workshop estates in Jarrow and Sunderland. Both those estates have been quickly tenanted. That clearly shows the demand for small premises even in the most depressed areas, and it is hoped that the private sector will be encouraged to follow suit.
I believe that the increasing changes in planning are having, and will have, an effect. The whole system has been speeded up; limited extensions can now be made to premises without permission, some flexibility between light industrial and warehouse use has been introduced in respect of smaller premises and the recent circular on 772 development control has emphasised the importance of doing everything possible constructively to meet small firms' needs.
I have been encouraged by the feedback from the BOP conferences where I always try to get a chief planning officer to talk on planning. They are responding much more positively to small firms' needs. One or two planning officers admitted at the conferences that five years ago he atmosphere in planning departments was often hostile to the needs of industry and small firms, but that rapid changes are occurring. I am sure that much of that is because of the Government's lead.
Another important area is that of employment legislation. Here we have introduced a number of changes to reflect the different circumstances of small firms, particularly on unfair dismissal which has frequently been a bone of contention in the past, as many of my hon. Friends will recall. It has been described by many small firms as an obstacle to taking on new employees because of stories of bad experiences. I believe that the changes made by last year's Employment Act have altered the practical working of the system to remove the difficulties for small firms, although I find that sometimes the myth lives on.
When problems about employement legislation are raised, I always ask the person raising the problem to give a specific recent example in which he has run up against the difficulty involved. During the 10 months that I have held my present appointment, I have had only one such complaint. This suggests to me that in practice the changes in the Employment Act have met that need. The changes mean that employment legislation is now realistically tuned to the administrative resources of small firms. I am considering, with my right hon. Friend the Secretary of State for Employment, how the changes may best be publicised.
I commend also to small firms the young workers' scheme announced by the Prime Minister on 27 July. As the House knows, that will come into operation on 4 January. Under the scheme, firms may obtain grants of £15 per week for a year for new employees who are school leavers or young people under the age of 18 in specified circumstances if the gross wages are £40 per week or less, with corresponding provisions up to £45. I believe that the scheme will greatly help small firms, and I stress that they may take advantage of it by employing people now and obtaining the benefits of the scheme when it comes into operation on 4 January.
We were all aware that some parts of our companies legislation were inappropriate for small businesses. The new Companies Act has resulted in some important changes designed to make life less onerous for them. In particular, they need now file only an abridged balance sheet without a profit and loss account or a directors' report. Two further aspects of the Act are also important. First, there are the provisions enabling companies to buy back their own shares. This will help companies and small businesses which are still, alas, afraid of "giving away", as they describe it, any of the equity. The legislation gives them that let-out for themselves. It will also encourage investors by giving them a further potential outlet. That is a very important change. Secondly, sections 40 to 42 will greatly assist management buy-outs.
Public sector purchasing is also of great importance to small firms which can often make a considerable contribution—particularly, perhaps, as subcontractors, 773 when there may be no contact with the ultimate purchasing organisation. As the House knows, the Government have a new drive in the whole area of Government purchasing policy. I shall not go into that today, but I make this comment in relation to small firms. One of the difficulties faced by small firms in seeking public contracts is that of information and know-how. To help overcome this, a booklet has been published in the small firms service series explaining what the major Government purchasing departments buy, the procedures involved and, above all, giving a single contact point in each Department for small firms. We are now inquiring into the impact of the booklet, which was launched earlier this year.
Secondly, and perhaps more importantly, I have set in motion a review of small firms' services and public purchasing to see whether there are any obstacles which might hinder small firms competing for public contracts—recognising, of course, that the onus to improve their share of public contracts rests equally on the small firms themselves. In carrying out that review, we are taking account of a recent report by the CBI on the subject, which I found very helpful.
An important area of our work in relation to small firms is that of technological support, bearing in mind that half of the firms in this country still have no new microtechnology at all. We should therefore encourage and help them to compete effectively in sectors in which technological innovation is important. Their management and material resources are often stretched, but their size gives them a flexibility that many larger businesses would envy.
The Department of Industry has already helped more than 2,000 small and medium firms through the manufacturing advisory service. That service has been in operation since 1977, and my hon. Friend the Under-Secretary of State recently announced that it would be extended for a further four years. I am now examining ways in which firms even smaller than those covered by the manufacturing advisory service may be helped to obtain access to the most modern technology.
There also needs to be greater awareness among small firms of what is currently available. Under the support schemes for information technology, my Department is now spending more than £60 million per year in this area. Much of this is actually available to and being used by small firms, but I believe that schemes such as the product and process development scheme, the MISP scheme and a number of others offer possibilities for Government aid of which many small firms are still unaware. The "micros in schools" scheme introduced by my hon. Friend the Minister of State earlier this year is also of great potential importance to small firms. At present, the two approved United Kingdom suppliers which are beneficiaries of that scheme are themselves small firms, and I believe that there are other directions in which we could build on that.
§ Mr. Gregor MacKenzie (Rutherglen)
In the early stages of the MISP scheme in 1979, there was great confusion as to whether the Government intended to go ahead with the scheme. Even now, it is not clear even to Members of Parliament, never mind to those outside, exactly what the scheme involves and how to benefit from it. I say that to the hon. Gentleman in a spirit of good will, 774 but something must be done about this. The scheme is not sufficiently widely publicised. If Members of Parliament do not fully understand the scheme, God help small firms.
§ Mr. MacGregor
I take the right hon. Gentleman's point and I pay tribute to his own work for small firms. I am aware of his great interest in that sector. The hon. Gentleman is quite right. That is why we are devoting a great deal of effort to the business opportunities programme to put that information across.
Much needs to be done, too, with regard to training. One of the problems is that owners and managers of small businesses frequently do not recognise the need for this, although that attitude is changing fast. Here it is worth pointing out that business schools, several universities and polytechnics and the Manpower Services Commission are undertaking an increasing number of schemes. Yesterday, I visited a master class at the London Business School. Out of 100 people on that two-year course, 70 had chosen to take the small firms option and were enthusiastic about going into small firms. That shows a new spirit in these matters and is most encouraging.
The proposals contained in the MSC's consultative document "A New Training Initiative", issued in May 1981—in particular, those concerned with the opening up of opportunities for adults to acquire, increase or update their skills and knowledge—could also be very helpful in providing training for managers of small businesses. I am sure that much can be done to build on the valuable work that has already been undertaken in training for small businesses, both by way of extending and improving the effectiveness of existing facilities and by co-ordinating information about what is available. I am considering urgently how to proceed with this.
Much else has been done by my Department in the provision of new statistics for small firms, cutting out form-filling and many other matters with which I do not have time to deal today.
I turn to one other specific measure—the advisory services. The Department's small firms service has this year experienced a substantial increase in demand. In the first nine months, the number of inquiries was 103 per cent. higher than last year. In the past three months, the figure was 138 per cent. higher and the trend is upwards all the way. The same applies to counselling cases. A Research Associates study in May 1981 confirmed that counselling, which is carried out by experienced business men on a part-time contract basis to the Department, is a highly cost-effective and practical way of providing a business management advisory service for small firms. That is why I am devoting a large part of the extra £1 million this year to expanding the number of counsellors.
§ Mr. MacGregor
My hon. Friend will forgive me if I do not give way. I should like to finish my remarks so that everyone may participate in the debate. If my hon. Friend wishes to raise points with me, I hope to respond to them later.
I know that many of my hon. Friends are interested in the relationship between the small firms service and COSIRA. Reference was made in the Budget Statement to the need for greater co-ordination. We have taken a number of steps to bring the two services more closely together. In particular, an experimental joint management scheme for advisory work between the small firms service 775 and COSIRA has been introduced in Cumbria, Northamptonshire, Somerset and parts of Avon. This is a pilot scheme. I believe in pilot schemes where there are great technical and practical difficulties in bringing two services much more closely together. The pilot scheme came into operation on 1 October 1981. It enables clients of one advisory service to be offered the facilities of the other according to individual needs. We are trying to integrate the services for a year. I hope that we shall gain much from that.
I am the first to recognise that it is vital that there is a multiplicity of sources of advice and that those sources come not only from the Government. I am delighted that enterprise trusts and large firms are becoming more involved in the provision of practical help, financial help, help with premises and advisory services for small businesses. Enterprise trusts are mushrooming throughout the country. I am delighted that the chambers of commerce and trade are playing an increasing role. They are always helpful in this area.
The small firms' organisations are rapidly becoming an important part of our economic scene. I place great importance also on the regular constructive discussions that I have with the small business organisations. I pay tribute to their efforts to examine legislative and other Government proposals and to represent their members' views on their impact. It is a continuing developing dialogue which with sustained effort on both sides will become even more constructive and worth while.
I have been much involved with the employers' statutory sick pay proposals. These are proposals that employers should pay the first eight weeks of sick pay. After prolonged genuine consultation I think that the needs of industry were met. There has been a warm response from small firms' organisations and we have been able to move to the 100 per cent. self-deduction method. I hope that everyone will agree that we have the right system and that we shall be able to move ahead to achieve the objectives that are set out in the new proposal.
I apologise for speaking at some length. I think that the length of my speech reflects the fact that much has already been done and that much is being done to change the practical working environment for small businesses. First, I share the opinion of the right hon. Member for Rutherglen (Mr. MacKenzie) that there is a need to bring about a greater awareness of all the measures that have been taken. We shall continue to work directly to that end within the business opportunities programme. We shall work beyond that when the programme finishes in February.
Secondly, we. shall monitor especially the pilot schemes and schemes with a limited life. Many of the schemes are radical innovations. I shall monitor them carefully and I shall be prepared to adjust them in the light of the monitoring to enable us to build on them. Thirdly, we shall constantly seek and be ready to respond to other ways to assist the small business sector to expand, both in the removing of obstacles and in much more positive aspects of incentives and encouragement. I look forward to hearing the thoughts and ideas of the House in that direction.
This is not merely a matter of changing the practical working environment of small firms. We must be concerned about changing attitudes from the school upwards. For too long, we have encouraged our brightest and best to go into universities and other academic 776 institutions. We have encouraged them to enter the public sector, the Diplomatic Service, the professions and large firms. On far too few occasions have we encouraged many of our brightest and best to go into small businesses or to think of becoming entrepreneurs in their own right. We are now concerned with changing attitudes and changing the approach to the entrepreneur. In that way, small business and the country generally will benefit.
§ Mr. John Garrett (Norwich, South)
The debate gives the house a welcome opportunity to discuss the grievous damage that has been inflicted on small businesses by the Government by their mismanagement of the economy and by their cutting back of expenditure in a number of areas of direct assistance to small businesses. All research has revealed that small firms are most likely to prosper in a growing economy. That is the view that is set out in the CBI's small firms report. They are most likely to proper in a financial environment in which interest rates are low.
The environment that the Government have contrived to provide for small businesses consists of an economy that has slumped more than any other economy in Europe, falling demand and output, prohibitively high interest rates and cuts in public expenditure that fall especially hard on small businesses. These are body blows to the small firms that the Government's palliatives have done nothing to soften.
At the end of last year the chairman of the Association of Independent Businesses, representing 30,000 small businesses and being an organisation that is frequently quoted by Conservative Members when it suits their book to do so, wrote to the Department of Industry in the following terms:the extreme hardship forced on smaller businesses has given rise to feelings of bitterness and betrayal that the minor measures introduced to assist our sector can do little to subdue.The chairman quoted an emergency survey that his association had carried out. It revealed that bad debts had increased, that slow payment was endemic, that margins had been reduced and that part-time working, redundancies and closures in the small firm sector were at a record level. The position has steadily worsened since then.
By a stroke of extremely bad luck for the Government, the Association of Independent Businesses introduced yesterday its latest emergency survey. It said:The Association of Independent Businesses quarterly survey shows that the squeeze on small firms is tightening.It continued:The main findings show that last year 42 per cent. of firms reported an absolute decline in turnover, that 16 per cent. had an increase below the rate of inflation and that 6 per cent. had increased their turnover in line with inflation. 57 per cent. of firms reported a decrease in their labour force in the last year.The survey revealed a net job loss of 5.6 per cent. Since last October in the independent business sector, and concluded by saying:Many firms which have survived so far have had their resources so severely depleted that they may be unable to tolerate continued recession or take advantage of any economic upturn.It is no wonder that the Minister did not want to refer to the economy.
The former Under-Secretary of State for Industry who was responsible for small firms described the effects of monetarism to the CBI's small firms' council in February in the following terms: 777the combination of inflation, tight money policy and high interest rates makes firms cash hungry and then small firms are caught in the squeeze between their customers and their suppliers.For his honest talking the Minister was made redundant later in the year.
The economic context in which the Government expect small businesses to thrive includes a falling gross domestic product of 8 per cent. in two years. That is a sharper fall that that which took place in the 1929 slump. It includes a fall in manufacturing output of 20 per cent. in two years. Investment in manufacturing is 18 per cent. below the level of May 1979. There has been a fall in real disposable income since the end of 1979. It was down by 1.4 per cent. in the first three months of 1981. Inflation is still higher than when the Government took office in 1979. Unemployment is at its highest level ever. It is higher than that which existed in January 1933.
It is worth noting the words of the Financial Secretary to the Treasury in January 1981. That high priest of monetarism said:Bringing down the inflation rate can only be done by restricting the money supply and doing that inevitably causes difficulties for business and rising unemployment. The high level of unemployment is evidence of the progress that we are making.Since then the money supply has risen and has gone out of control. Unemployment has continued to rise and there is no sign of it falling. Are these still indications of progress? We have the highest rate of unemployment in the Western world. The rate of return for manufacturing industry has fallen to 2 per cent. There is precious little encouragement there for small businesses.
All the leading indicators have fallen for the third month running. That indicates that there will be no appreciable increase in economic activity this year or next year. These factors form a daunting prospect for a small business man who wants to start an enterprise. It is a truly disastrous environment for small business. That is reinforced by the number of business failures. Company liquidations are running at a post-war record rate. By the end of 1980, 7,269 companies went into liquidation, an increase of 50 per cent. on the previous year. In the first nine months of this year 6,223 companies went into liquidation. A new record will be established this year, yet the Prime Minister and the Secretary of State for Industry have the nerve to talk of a small business boom. Company deaths are running at a record rate. Fewer new companies were founded in 1980 than annually during the 1970s.
The Prime Minister told the Conservative Party conference that 10,000 new businesses were being formed every month. As the Financial Times pointed out, that is not a particularly high figure, and research by my right hon. Friend the Member for Blackburn (Mr. Straw), published in a letter in the Financial Times last week, shows that that 10,000 a month is the lowest annual rate since the Customs and Excise register was opened in 1973. On those figures, the Under-Secretary of State for Industry said that not only had the recession stabilised—an economic term with which I am not familiar—but that small firms were starting to boom.
Under this Government, the only increase in small companies has been among those that were formerly big companies. Companies that once employed thousands are now employing hundreds and vainly trying to hold on to 778 their existence until the recession is over. We have all visited the empty, echoing factories that are the Government's monument. Not only has the economy been so managed as to inhibit the formation of small companies, but many Government measures have been specifically aimed at damaging their prospects—the cutbacks in export services, which are particularly important for small businesses; the ending of the small firms' employment subsidy this year; the cutting back of local authority expenditure required for industrial development; the placing in jeopardy of the ability of local authorities to create industrial jobs and increase the important source of premises for small firms by the Local Government, Planning and Land Act 1980; and the ending of the Labour Government's sectoral schemes of assistance, a number of which were aimed at assisting small businesses.
For example, the footwear assistance scheme, which was of enormous importance in my constituency, and was particularly aimed at small businesses, was cut off at half the level of expenditure that was originally intended. The ferrous foundry scheme, the poultry processing scheme and many other specific schemes of assistance that were aimed mainly at small firms have been ended.
There has been a cut in funds for the Co-operative Development Agency which, as a result, has had to reduce its staff from 20 to 12. The cuts in public expenditure, as we all know, have fallen heavily on the construction industry, which is a small firm industry. Of the 1.3 million small firms that there were in Britain, about 290,000 were in construction, the largest single industrial group. In the construction industry today, unemployment runs at 24.5 per cent. Output has fallen by £2 billion in two years and is forecast to decline for the next two years, on the Government's own figures.
Compared with that destruction, the Government's measures to assist small businesses are pretty small beer. The tax reliefs are usually recorded as being of negligible cost in the Government's accounts. The loan guarantee scheme, about which we heard so much and which was introduced in the face of opposition from the banks, may or may not have had the effect on the creation of new business that was intended.
On 31 October the Financial Times reporteda widespread suspicion, not discouraged by the banks, that the funds in practice have not been going to new people.We do not know whether the scheme is being used by local banks to allow business men to overrun their normal loan limit, or whether any of the lending is additional to what would otherwise have been available. Perhaps the Minister will be able to tell us.
The 1981 small business start-up scheme is so hedged about by restrictions—in a critical report the Institute of Taxation counted 70—that small business opinion generally is that it is of no great value. The amelioration of the Employment Protection Act 1975 for small businesses was simply to assist them at the expense of the rights of their employees.
We are pleased to hear about the enterprise grant, and no doubt more details will be forthcoming. We should like to know the amount of the grant. There would not be any point in making it liable to taxation. Who will examine the viability of the business? Why were the wider pilot areas chosen rather than the worst areas of employment in the country, particularly in Scotland?
The launch of the business opportunities programme this summer was said by the Financial Times to illustrate 779how desperately worried Ministers have become about their failure to generate an entrepreneurial revival.Much of the enthusiasm for small businesses is, of course, a cynical diversion to draw attention from our economic collapse. As the Financial Times said last week:Small business are sought after in times of trouble by politicians, particularly by Conservatives",although there was a beliefamong individual owner-managers, as well as politically oriented lobbyists, that the Government should not use them to score political points.It concluded that there was little to show that the effects of the recession were being offset or ameliorated in any way by the Government's policies and proposals for small businesses.
Looking wider than just at this issue of the day, we have known for many years that Britain has had a low rate of formation of new businesses, that small businesses play a less important part in our economy than they do in Europe and the United States and that in the United Kingdom the level of State support for small manufacturing firms is lower than that of most of our competitors. Yet, world-wide, research shows that small businesses have a very good record of innovation and growth.
That issue was first taken seriously by the setting up of the Bolton committee by the Labour Government in 1968. The key issue of finance for small businesses was tackled by the setting up of the Wilson committee by the Labour Government in 1976. The special study by Lord Lever in 1977, the Labour Government's tax concessions in 1978, the setting up of the manufacturing advisory service in the same year, and the other measures to which I have referred—the Co-operative Development Agency, the schemes of assistance and the small firms' employment subsidy—first signified Government concern about the small business problem in Britain.
Those measures and the Government's publicity campaign—that is what it amounts to—have had some effect. Over recent years they have changed the attitudes of banks to small businesses, and the change is slowly filtering down from bank head offices to local branch managers, who in earlier years were actively hostile to assisting new and small businesses. That change still has a long way to go. The British banking industry is still not sufficiently attuned to the needs of small businesses.
Over the years the measures have also changed the attitude of local authority planners who, until recently, in the interests of tidiness, cleared away small business premises whenever they could, thus making such premises difficult to find. They have changed the attitude of local authorities. Many authorities, particularly Labour authorities in cities, are successfully involved in promoting industrial developments. They include the London boroughs, Sheffield and Norwich. Even some shire counties are waking up, as the Minister knows. Until recently, Norfolk county council, controlled by back-woods primitives, actively restricted the number of sites for industry and turned business away.
The measures have changed the attitudes of financial institutions and pension funds. The Minister's Department's magazine British Business stated on 3 July:The miners' pension fund is emerging as one of the largest and most versatile sources of investment capital available for the small business wanting to expand, for development capital in industry and for the provision of nursery units.The change in attitude has also filtered through to large companies, so that many of them—Shell, ICI and BP—are devising schemes to assist small businesses. The National 780 Enterprise Board—a Labour creation vilified by Conservative Members and reduced in scope by the Government—has an excellent record of assistance to high technology small businesses, for example, in office automation. It has three venture capital subsidiaries designed to provide funds for new enterprises.
The Opposition are pleased with these changing attitudes. A change in cultural attitudes must also take place over a long period. We should like more direct State assistance for small businesses, and certainly much more public expenditure in areas such as construction, where small businesses dominate. We also need more encouragement and direct assistance to the co-operative movement. We lag behind the rest of Europe, not only in small businesses, but in the development of industrial co-operatives.
Above all, small businesses need a climate of expansion, not the self-imposed recession that was invented by the Government. The Government's attitude can only be described as hypocritical. As survey after survey conducted by small business organisations shows, their monetarist policies are squeezing small businesses out of existence. Giving minor concessions to small businesses in this economic climate is like attending to the woodworm when the house is on fire. Low demand, high interest and high unemployment—the inevitable result of this monetarist fetish on which the Government are hooked—are bankrupting small businesses every day and stunting new enterprise. Ministers are vainly trying to talk up a small business boom, but in this area, as in so many others, the Government's words are little short of fraudulent.
§ Mr. Anthony Grant (Harrow, Central)
I was waiting agog with excitement to learn the Opposition's policy. All that we had was a repetition of what happened the other night during the debate on the Queen's Speech. We are by no means clear about their policy. If their economic policy is that enunciated at Labour Party conferences, the prospect for small firms if the Opposition came to power would be bleak indeed. It would mean raging inflation, yet further Government interference and much higher taxation. Every small firm in the land knows the consequences of that.
I gleaned from the speech of the hon. Member for Norwich, South (Mr. Garrett) that one policy of the Opposition is to pump more State aid into small firms. That is the last thing that small firms want. They do not want to be cosseted in subsidies and cotton wool. They want the State off their backs. We can therefore disregard that suggestion.
I congratulate my hon. Friend the Under-Secretary of State not only on a comprehensive speech but on the zest and enthusiasm that he has brought to the task. He will be the first to admit that he has been helped by following in the footsteps of my hon. Friend the Member for Basingstoke (Mr. Mitchell) who was also a genuine enthusiast. My hon. Friend has also been aided by the work of my hon. Friend the Member for Upminster (Mr. Loveridge) and his committee of Back Benchers, who take such an enthusiastic interest in the subject.
I intervene briefly, partly because my constituency contains many small firms. Apart from the people who work in the great Kodak empire, nearly everyone in my constituency engages in small firm activity. There was 781 anxiety about the sick pay proposals among the active members of the small business bureau and others who get together to advance the cause of small firms in Harrow. They will be delighted at the Government's common sense new approach to the matter.
I was almost the first Minister responsible for small firms. The first such Minister was the present Financial Secretary to the Treasury. My task was to implement the Bolton report recommendations. The Bolton committee was set up by the late Anthony Crosland. The report came in our time and our task was to put it into effect. We received scant help from the Opposition, but we implemented as many reforms as possible.
In those days I felt extraordinarily isolated. Mine was a lone voice in the Government. I had great difficulty with the Treasury, because it had little enthusiasm for small firms. It was interested only in big firms. There was no enthusiasm in the trade union movement for small firms. My voice cried in the wilderness. However, all that has changed.
We then experienced the bleak years between 1974 and 1979. In that context I exclude the right hon. Member for Rutherglen (Mr. MacKenzie), who was the Minister responsible for small firms. He is the one chap on the Opposition Benches who has any knowledge or practical experience of small firms. He brought much practical common sense to the task. The right hon. Gentleman was replaced when the ludicrous appointment was made of the hon. Member for Keighley (Mr. Cryer). Everything then collapsed and ran into the sand.
Since the Government came to power there has been a complete change of attitude by the Treasury and the Chancellor of the Exchequer. This Chancellor has done more than any other on either side to ease the burden of taxation on small firms, which is their No. 1 requirement. My hon. Friend the Under-Secretary must keep up to the mark, because small firms have taken a great deal of punishment during the recession. He will be the first to admit that. They have taken punishment because the private sector has had to bear the brunt of the failure to curb the public sector as much as we would wish.
Some big firms have been able to ride the recession, but small firms have found it difficult to do so. I know that my hon. Friend will take that as a genuine criticism. The will is there to assist them. It is no consolation to small firms to think that if a Labour Government were in power conditions would be infinitely worse. Interest rates, in particular, place a heavy burden on small firms. There are international reasons for high interest rates, but anything that can be done to bring them down will be welcomed by the small firms sector.
The Government have introduced splendid measures for small firms, but I beg them not to forget the medium-sized firms. It is always difficult to translate to a larger firm from a small firm in which there is the enthusiasm of entrepreneurs working hard together and being helped by the banks and Government concessions. When a small firm becomes just a little bigger, administrative problems begin to develop. Such a firm is not large enough to go to the market like a public company. I hope that my hon. Friend will examine that sector closely and ensure that small firms are able to develop into medium-sized firms more easily and then perhaps grow into large firms. That is the climate that we wish to see.
782 I was pleased to hear what my hon. Friend said about Government contracts. The horrible word "privatisation" is used these days. The word is revolting, but the policy is right, and much more can be done in that connection. The Ministry of Defence has a good record, but many other large organisations could shed some of their activities. For example, the amount of work done by the public sector for the National Health Service which could be done by small firms is ludicrous. State industries such as British Airways and the Central Electricity Generating Board should get out of the business of doing ancillary work and hand it to sub-contractors and so create business for small firms. I hope that that idea will be pushed hard.
Finally, there is the black economy. This is not talked about much, but it exists in Britain on a larger scale than is sometimes imagined. Britain is not the same as Italy, where nearly everyone seems to work in the black economy, but the number of people who operate outside the system is larger than many people admit. We all know of examples. In some ways, perhaps, it is an encouraging sign. It means that young people are not lazy. Some are prepared to work 23 hours out of 24 at all types of small firm activities. However, they will not do that within a complicated and tangled State system. They tend to opt out.
In this context, I hope that the Minister will pursue vigorously the enterprise allowance for the unemployed. I hope, too, that it will not be impeded by too much taxation, form filling and bureaucratic nonsense, because that would deter people who otherwise would be prepared to have a go, stand on their own feet, and contribute to the economy. That is an important aspect of my hon. Friend's work.
There are still too many impediments in the path of young enthusiasts who wish to embark upon a life of commerce and enterprise. I cite as an example a hairdressing, salon that my wife attends. It is run by an enthusiastic entrepreneur who works flat out, far harder than his staff and throughout his lunch time, to provide an excellent service. Recently a bureaucrat arrived at a most inconvenient moment and started to ask him an endless series of damn fool questions, the answers to which were all to be locked away in some Whitehall pigeon hole. He was too polite to tell the bureaucrat to go to blazes, as I suggested he should have done. Instead he wasted a great deal of time and thus diminished the service rendered to his customers. Goodness knows to what use this bumf will be put—certainly not for the good or the customers of the business, or for the good of the country.
Anything that my hon. Friend can do to minimise that sort of nonsense will be an incentive to people to expand the small firm sector. He has made an excellent start, and so have the Government, but there is a great deal more to be done. If he can continue on the lines that he has laid out he will earn and deserve the plaudits not only of the House but of the nation as a whole.
§ Mr. David Steel (Roxburgh, Selkirk and Peebles)
The hon. Member for Harrow, Central (Mr. Grant) was right to begin his speech with a tribute to the zest and enthusiasm that the Under-Secretary of State for Industry has for his job. I think that it is widely appreciated in the small business world. Nothing I say this morning is intended to diminish in any way the task which he has undertaken. However, in many ways I thought that the 783 most significant sentence in the speech of the Under-Secretary was that he did not want to say too much on wide economic policies.
One of the problems facing small businesses at the moment is that it does not matter how enthusiastic or imaginative the Under-Secretary of State at the Department of Industry is if he has to battle against the tide of hostile policies from his superiors in other Departments.
The hon. Member for Harrow, Central was most interesting and I agreed with his recitation of the history of Government concern for the small business world. I suggested to my party conference that, given the large number of promises made by the Conservative Party during the election campaign, there has been much disappointment. Many people feel that the only successful way to run a small business under this Government is to start with a large one. That appears to have been the general effect of the Government's economic policies.
The Under-Secretary of State referred to the appointment of Lord Lever in the last Government to look after the interests of the small business community. That stemmed directly from the Lib-Lab pact. It was one of the healthy influences we brought to bear on the last Government, for precisely the reason put forward by the hon. Member for Harrow, Central.
This is a matter that has to be looked into by the Treasury, the Department of Employment, the Department of Industry and the Department of Trade. In other words, unless a member of the Cabinet is examining the whole of Government economic policy and watching its impact on small businesses, they will not be successful. That is why the Liberal Party felt that the appointment of the hon. Member for Keighley (Mr. Cryer) was not an adequate bulwark to protect the interests of the small business world. We were therefore proud of the appointment of Harold Lever in the Cabinet.
Mr. Dexter, chairman of the National Federation of Self-Employed and Small Businesses Limited, said to me the other day that he thought that the Lib-Lab pact in its short existence brought about as many changes to help small business as this Government have in two and a half years. I regret that the pattern that we established has not been followed by the present Government. The present Under-Secretary, able though he is, is floundering without the real power that a Minister in the Cabinet would have to protect the interests of this part of the community.
Mr. Dexter also said that the Government have not realised what small business really is, because most of the Government's measures have basically assisted the middle and top end of the small business sector, and not the self-employed, the sole proprietors or the partnerships, and it is these people who are perhaps struggling most in the present economic climate.
There is one thing on which we can all agree, and that is that the climate of political opinion towards small businesses has changed for the better over the years. Small businesses are now seen by all political parties to be an important source of employment, of new ideas and new products. It is no longer assumed, in the casual way that it used to be, that large corporations are more efficient than smaller ones, or more responsive to consumer demand. It is recognised that employment in a small firm can often be more satisfying and interesting than employment in a big company.
784 I therefore welcomed the speech of the Secretary of State for Industry to the National Chamber for Trade last month, when he said that a thriving small business sector was essential as asafeguard against too much economic power in too few hands".That is true. As Governments come and go, we want to see the small sector develop.
I disagree with the Secretary of State for Industry, however, in his unsubstantiated optimism towards the sector. He went on to say, in the speech to which I have just referred, that small businesses were now being created at the rate of 2,500 a week, and thatthe number of new businesses starting up, even in this recession, may well outweigh the number of businesses being wound up or taken over.My hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) tabled a written question to the Secretary of State, asking how many new small businesses with fewer than 200 employees had been set up for each month during the last year, and how many had gone into liquidation. The reply was that the information was not available in the form in which my hon. Friend requested it, although work is now being done on it in the Department. My hon. Friend was referred to British Business for the latest details of insolvencies.
It would appear—unless the Under-Secretary can provide new information in his reply—that there is no official basis for the Secretary of State's figure of 2,500 a week for the creation of new businesses. Indeed, last Monday the Under-Secretary of State for Employment in the House used the same figure of 2,500 new businesses per week, and went on glibly to compare that figure with the smaller number of bankruptcies in the third quarter of this year, even though we have no idea how many people lost their jobs as a result of those bankruptcies, or how many people the new companies were employing.
It is not necessarily a happy picture for a bankrupt enterprise which used to employ 100 or 200 people to be replaced by a handful of new companies, each employing one, two or six people. We need much more information than we are getting from the Department of Industry about the real picture of unemployment in the small business sector.
When my hon. Friend asked how many businesses employing fewer than 200 people in Britain existed in September each year since 1976, and how many people were employed in those businesses, he received a reply for the years 1976 to 1979, but no information was available for subsequent years. My plea, therefore, is for more monitoring and for more information concerning employment in small businesses. I suppose it is a matter for the Department of Employment rather than the Department of Industry.
The Association of Independent Businesses, representing 30,000 smaller firms in manufacturing, wholesale and retail service industries, published only this week its fourth quarterly emergency trade survey of members, and the results show great cause for concern. The hon. Member for Norwich South (Mr. Garrett) has already quoted from a section of it. The survey states:The main findings show that in the last year 42 per cent. of firms reported an absolute decline in turnover, 16 per cent had increased their turnover below the rate of inflation and 6 per cent. had increased their turnover in line with inflation.Although 36 per cent. were able to claim an increase in excess of inflation, this may simply reflect the low level of business activity this time last year. Employment figures reflect a similar pattern. 57 per cent. of firms reported a decrease in their labour 785 force in the last year, and the survey revealed a net job loss of 5.6 per cent. since last October in the independent business sector.The gloomy part of the survey, to which reference has already been made, is:Business confidence remains low. 29 per cent. of firms are now more pessimistic than they were at the beginning of the year and the majority of those which declared no change in their attitude were pessimistic in January 1981.The dual squeezes of weak home demand and public sector price rises have tightened on most businesses.Here I repeat what the hon. Member for Norwich, South quoted:Many firms which have survived so far have had their resources so severely depleted that they may be unable to tolerate continued recession or"—this is the most serious part—to take advantage of any economic upturn.It is against that background that we must look at the effectiveness of the measures which the Under-Secretary is anxious to promote. For example, we do not believe that the loan guarantee scheme, the extension of which he announced today, will itself prove generally effective unless there is some mechanism for lowering the interest rates. It is obvious that businesses cannot expand if they cannot afford to borrow. That is why we have called for a loan guarantee scheme in which there would be real help at lower interest rates.
Again, this is not a view that is confined to any one political party. There was an interesting letter in The Times last week from a member of the Council for Small Industries in Rural Areas. The letter stated:The Government has in recent months launched its business opportunities programme and loan guarantee scheme in a blaze of publicity. Laudable as the Government's initiatives may be, they can only be expected to have a restricted impact for as long as businesses are forced to borrow at current penal interest rates. In our long experience of dealing with small businesses we find that potential entrepreneurs with the best ideas often have few capital resources and a feature of many small businesses in the critical formation phase is a high level of borrowing.Mr. Thompson, of COSIRA, goes on to say:If the Government wishes its initiatives to succeed it must recognise the need to cushion the impact of high interest rates on small businesses. Suitable vehicles for achieving that essential prerequisite already exist for a large part of the most disadvantaged areas of the country.Mr. Thompson goes on to cite the various agencies, of which we all know, and then he says:Currently wethe "we" is COSIRA—are forced to lend at interest rates apparently dictated by President Reagan's economic policies rather than at rates fixed at a level which would achieve the objective of encouraging small businesses to get off the ground and develop.That is why I am arguing that, whatever technical schemes the Under-Secretary may introduce in his Department, unless there is a change of attitude by the Treasury we shall not succeed in seeing the loan guarantee scheme pick up and play a useful part in promoting small businesses.
The Minister is always saying that the scheme must be self-financing and that the 3 per cent. premium on the guaranteed part of the loan is necessary to protect the Government from bad debts. However, that means that small companies, most of them hard up for cash, are backing up other small companies which turn out to be unable to pay back loans. We believe that a subsidy from the taxpayer would be greatly preferable, and would not 786 be any less justifiable than the very large subsidies that we already give to the nationalised industries. The 3 per cent. premium could be eliminated, and then we would have a classic example of Government intervention and public subsidy working to the benefit of free enterprise and competition.
Some welcome steps have been taken in recent times. For example, the low-cost loan scheme for redundant coal and steel workers, run by the European Coal and Steel Community, the Co-operative Bank and the Department of Industry, is an example of European institutions being put to good use. That is an achievement that even the Labour Party would have to accept as welcome. [Interruption.] The hon. Member for Dunfermline (Mr. Douglas) is rather an exception in the Labour Party. I do not think that we should take his voice on European issues as being the authentic voice of the Labour Party.
During the recent by-election campaign in Croydon, my party and the Social Democrats together issued a long and detailed action programme for small businesses and the self-employed. I shall not weary the House by going through about 20 proposals, but I shall pick out one or two which are particularly important.
There is a case for further reducing corporation tax on the first £25,000 of profit. There is certainly a case for raising the VAT threshold further and for reducing the national insurance surcharge payable by employers, particularly in the small business sector.
I should like to comment on the role of Government Departments in awarding public tenders. This is an issue on which I have written to the Scottish Office on several occasions because of complaints in my constituency from small firms, particularly those contracting in a rural area, which find that the policy of the Government Department still is to maintain a centralised list of contractors, and the small firm often does not even get the opportunity to tender. We are not saying that the Government ought to extend favouritism to small businesses, but it is quite wrong that artificial barriers are erected even against the opportunity of tendering.
Even though this matter applies to the Scottish Office, I am sure that it applies to English Departments as well. I ask the Under-Secretary for a change of attitude from central Government Departments in relation to public tenders. Here is a way in which the Government, directly, without any legislation or extra cash being required from the Treasury, by a change of departmental policy, could do a great deal to give smaller firms a real chance to compete with bigger firms in tendering. The Government should not exclude them on the basis that such firms have not been in business for so many years or that they are doubtful whether they will be able to secure delivery on time. Let them have a chance. If they fail, they will not get contracts again. The Government need to look through all their departmental processes to try to provide much greater help.
Both in the Scottish Office and in the Department of the Environment much more could be done to persuade local government, similarly, to mirror the new policies directed by central Government to give greater opportunities to smaller businesses in their areas.
I, too, regret, as did the hon. Member for Norwich, South, the cut in the work of the Co-operative Development Agency. I welcome the announcement made by the Under-Secretary this morning of what he called the enterprise grant, although, like other hon. Members, I am 787 disappointed that we did not hear a little more about it in detail. I am also puzzled as to why the three areas announced were selected and why it is not a wider pilot scheme. I very much hope that there will be some of these pilot schemes in Scotland.
Surely the scope for giving some form of incentive, be it a tax incentive or some other form of legislation, for people who have been made redundant to use their capital sums of redundancy payment in order to start up a new enterprise, on a co-operative or any other basis, ought to be a high priority in Government thinking. If this is what the enterprise grant is intended to do, I hope that it will progress very soon from a limited pilot scheme in three areas.
Lastly, we need to remind ourselves that employment in small firms in Britain has lost ground over many years. It has about halved since the pre-war period. That is in marked contrast to the pattern in some other countries. In relation to population, West Germany has 40 per cent. more small firms than we have. The United States currently has two or three times our birth rate of small firms and about a quarter of our death rate. It would be very helpful if there were, not a cessation of party warfare on this matter—it is only through party warfare that we shall make progress—but at any rate a unity of objective among political parties that this is a weakness in our ecconomy and that it should be the objective of all Government policy—not just of one Minister in one Department—to try to see that the British small business sector has a real chance to bloom and flower.
§ Mr. John Browne (Winchester)
I declare an interest as a small business man and also as a director and adviser in the banking industry. I apologise to my hon. Friend the Minister as I shall not be here to listen to his reply due to commitments in my constituency arranged before the debate was announced.
As I have often said, the key to our survival as a developed nation is the achievement of a technological revolution. That is the essence of new products, high margins, profitable employment and, therefore, of our being able to maintain the standard of living to which we have all grown to aspire. It worries me to hear senior Ministers still talking about a second industrial revolution. We have already had that. The first was the heavy industrial revolution and the second the light industrial revolution. My hon. Friend must urge his colleagues to adopt the attitude of a technological revolution, which is entirely different from an agricultural or industrial revolution.
I was heartened to hear my hon. Friend place emphasis upon the real marketing mix of products, proper design of equipment, quality of production, delivery and after-sales service. He did not concentrate simply on lower and lower prices, either the absolute price or by lowering sterling. My hon. Friend referred to a change of attitude. That is critical. It is that change of attitude that I urge upon the House in saying that there must be a technological revolution and not a second or even a third industrial revolution. That is the key point. Many of the points raised by the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) focused on the changed attitudes that we must adopt in Britain.
I am very pleased with my right hon. and right hon. Friends who have been selected to serve in the Department 788 of Industry. They have the necessary changed attitudes. They fight their corner very well indeed, but it is an extremely hard corner to fight—even within this Government.
§ Mr. Clement Freud (Isle of Ely)
Does not the hon. Gentleman agree that if there is to be a new industrial revolution it will occur more smoothly and easily if small businesses did not have administrative work imposed upon them in acting as unpaid tax collectors for the Government? They are doing that now, and will do so to an even greater extent when they have to pay sickness benefit to their employees for the first eight weeks.
§ Mr. Browne
I am saying that there should be not a new industrial revolution, but a technological revolution. On the face of it, I agree with the hon. Gentleman. His arguments sound plausible. I am a small business man and understand his point. However, in gauging the efficiency of the collection of VAT and the payment of sickness benefit, provided the Government are prepared to give allowances against tax and repay them, the companies are more efficient at doing that job than democracy and the Government. Therefore, although I agree with the hon. Gentleman's remarks on the surface, I have to disagree when I consider the problem in more detail.
I was heartened by the emphasis that my hon. Friend the Minister placed on the importance of small business in its speed and reaction to the market, as opposed to State-owned industries that respond mostly to the political whims of Government.
I wish to comment briefly on some of the 72 measures announced by my hon. Friend. I do not disagree with any of them. I especially support the measures for tax and the loan guarantee scheme. However, I urge him to remember that it is still only a loan guarantee scheme. The real need is for venture capital for equity.
I was sorry that the Government did not take the initiative and encourage the banks to inject equity capital—£100 million apiece for the big clearing banks—into industry through their branch networks, rather than imposing a retrospective windfall profits tax on them. Such banks as Barclays already had start-up and expansion schemes. That is a plus factor.
I welcome the enterprise grant for the unemployed, which sounds good. Although my hon. Friend made a valid point about the growth in the private capital of venture capital institutions. the problem is that there are so many of them. They are all small parts of big companies. A large life assurance company may put aside £20 million or £50 million for venture capital. That is peanuts to a big company, and there is little management emphasis placed upon it. How does the entrepreneur know that the capital even exists? How does he approach the ivory tower in the City? That reinforces my point about the banks, which have 14,000 outlets throughout Britain. They are often the only contact between the entrepreneur and the financial industries. I urge my hon. Friend to consider the advantage of using banks in that way.
I agree with my hon. Friend's point about premises and planning. That has been a more flexible and faster process, but much more could be done. However, I appreciate what has been done. I agree with my hon. Friend about employment legislation. At least the Government have done something in that area. As the right hon. Member for Roxburgh, Selkirk and Peebles said, one reason why we 789 are not larger employers in the small business area is still because of restrictive employment legislation. I fought for a long time for companies' legislation with regard to Treasury stock and companies being able to buy their own shares. I thank the Government for the measure that my hon. Friend announced. I urge him to remember that that is the first phase. The second is to ensure that there is a free enterprise system in the over-the-counter market for trading shares. That is an essential point of Treasury stock for small and unlisted companies.
I agree with what the right hon. Member for Roxburgh, Selkirk and Peebles had to say about public purchasing. I entirely agree with technological support. I emphasise the need for training through education, especially at the normal educational level where more emphasis should be placed upon training youngsters in schools in elementary accounting, which is the essence of business. We manufacture and market a product for financial return. Few people are aware of even the most elementary accounting systems. A major problem when starting a new business is that if one is not an accountant there is an enormous cost for accounting services. I ask my hon. Friend to press it upon his right hon. Friend the Secretary of State for Education and Science that such training should be included in the syllabus.
The second area of training in schools should be typing. It is the interface between man and the machine—the microcomputer or whatever. Typing should be included in the normal curriculum of education.
In the area of higher education, we should concentrate more upon giving degrees in both science and business administration. Few people in this country can understand science and also administer a business.
§ Mr. John Garrett
A feature of the Government's cuts in university education is that those institutions that specialise in practical and vocational qualifications have been singled out for cuts.
§ Mr. Browne
I do not agree, although it may be so in quantitative terms. That is not the emphasis of the increased cost benefit of expenditure on higher education.
I applaud all 72 measures announced by my hon. Friend. I must ask him what value he puts on the total package in its cost to the Government. I do not believe that it is anywhere near enough when measured against the £6,000 million that we shall spend on the nationalised industries this year.
Is the cost of the package £500 million, £1 billion or £2 billion? I doubt whether it is even £1 billion. There are 72 measures, which I applaud and which the Minister's Department has fought hard to get. However, the acid test is still, as my hon. Friend the Member for Harrow, Central (Mr. Grant) said, that the Government's emphasis is too much on the public sector and the State-owned monopoly sector. That is draining the available sums that the Government must spend on productive investment.
The costs to small businesses cover the following areas. There is the overall cost of the failure to privatise with real teeth. That has cost the country £6 billion just for this year—200 per cent. over the budget. There are the services of those State-owned monopolies which are not subject to the market. There is the cost of gas, electricity, water, the telephone system and the telex system to all businesses. There have been outrageous increases, 790 particularly in the average price increases in the private sector, where so-called monetarism is working effectively. There have been outrageous increases in rates, particularly business rates. I am glad to hear that my right hon. Friend the Secretary of State for the Environment is determined to take action on rates.
High interest rates have always hurt economically throughout history. What makes them unusual today—it is the first time that it has happened in our history—is that the predominant amount of debt in a company now is at floating rates. In the old days only the overdraft was effectively at floating rates. However, today even long-term debt is at floating rates. Therefore, a leap in high interest rates cuts straight into all the debt servicing of a company within six months to a year. That is what causes the agony.
American interest rates are a serious outside influence, but despite that, if more emphasis were laid on the quality of Government spending rather than on the amount, we would be able to encourage more investment in sterling and, therefore, lower interest rates in that respect. That is the crux of the Government's policy which I strongly support, but the quality of the spending, with, for example, the £6 billion spent on the State-owned monopolies, leaves much to be desired.
We still have Government controls that are restricting the expansion of small businesses in the private sector. One example is the videotex industry or the home information processing business of which cable and cable television is an integral part. That is a multi-billion dollar business and will be one of the greatest businesses of the next decade. Yet the restrictions placed on the growth of cable by the Home Office are virtually killing.
At the moment we are at the forefront of expertise, technological advance and so on. We could be a number one competitor, but after the two-year so-called experiment of cable television throughout the country and the restrictions placed on it by the Home Office we will be an "also-ran" and will end up paying for American, German and Japanese equipment and experience. I urge my hon. Friend and his hon. Friends in his Department to fight that battle with the Home Office because the potentials of that industry are being damaged.
Indexation discriminates entirely against the private sector, particularly small businesses. It is outrageous that indexed pensions are given to one sector of the community and not another. How can the private sector in all honesty compete with index-linked pensions? The Chancellor of the Exchequer may say that he has now given us index-linked gilts. That does not answer the question by a long way, because index-linked gilts will go up and down in price. What portfolio manager would have his whole portfolio in index-linked gilts? The indexation of public sector pensions is paid for out of tax revenue. It does not rely on the market forces on which other investors, managing pension funds, must rely. Therefore, that grossly discriminatory system must be sorted out.
My next point concerns fiscal neutrality. My hon. Friend is correctly enthusiastic about getting funds into the private sector. However, the tax system still favours life insurance companies, pension funds and building societies. Those are huge, mammoth ivory towers of investment that are unsuited to invest in new and small businesses. They are geared to big listed companies, Government bonds and such investment. They are unsuited to the investment that my hon. Friend is urging. 791 Therefore, I urge him to press hard on the Treasury to restore some fiscal neutrality and take away the favoured status of the other institutions.
I entirely agree with the points raised by the right hon. Member for Roxburgh, Selkirk and Peebles about Government tenders. As I have said, the key is the technological as opposed to any industrial revolution. I have every confidence in my right hon. and hon. Friends in the Department of Industry. My hon. Friend's predecessor, who represents the constituency next to mine, Basingstoke (Mr. Mitchell), did an enormous job in pressing for some of the 72 measures that have been taken.
However, I do not have confidence that the Government are paying anywhere near enough attention, in terms of total amounts of money and action, to the new and small business sector. Therefore, I urge my hon. Friends on the Treasury Bench to fight harder for massive privatisation, the release of those funds to the private sector, the release of the Home Office restrictions on the cable industry and the abolition of the fiscal bias that is now given to certain financial institutions. That is the only way in which we will have any chance of making the private sector healthy enough to ensure that the Government policy of so-called monetarism works in terms of genuine job creation and wealth creation, the wealth upon which our defence, social services and everything else must depend.
§ Mr. Gregor MacKenzie (Rutherglen)
Perhaps it is that the older one gets, the more cynical one gets. Perhaps it is true that the longer one is here, the more frustrated one sometimes becomes. Like the hon. Member for Harrow, Central (Mr. Grant) I have been coming to debates on small firms, speaking in them and listening to them for the past 17 or 18 years. I am not sure that we have progressed much further along the road. Perhaps the hon. Gentleman sometimes feels as I do. We make a little progress now and then, but not as much as either one of us would want.
Anthony Crosland set up the Bolton committee many years ago, which focused the minds of hon. Members on the problems of small firms. Simply to say with monotonous regularity that we are all for small firms is not good enough. There must be a great deal more than that behind saying that we are in favour of them.
Rather uncharacteristically, the Minister was less than generous to those of us who were Ministers between 1974 and 1979. When he returns to his office, he should look at the Bolton report and do a check list on the recommendations. I wish to be fair to the hon. Member for Harrow, Central—although I hate to be fair to Conservative Members. The Minister will find that the Labour Government did rather more than just introduce the counselling service, useful though it has been. We introduced almost 80 per cent. of the recommendations.
The hon. Member for Harrow, Central hit the nail on the head when he said that small firms did not necessarily wish to be cosseted. We all know that businesses must live in the real world. They cannot be put in a separate compartment. They must live with the Government's economic policies. I believe that those policies have not been good for Britain, for British industry or for my constituents. Thousands of people are now unemployed in my constituency, which cannot be good for firms, whether big or small. They are living in the wider economic 792 scheme and they have to pay high interest rates. I reiterate that what does not seem to have got through is that small firms depend heavily on large firms. If large firms collapse and reduce their number of employees, it affects the smaller companies in the area.
During the past few weeks, a major company in my constituency has made a further 400 people redundant. Therefore, it has reduced considerably production in that plant. That means that all the small local firms, such as printers and machine repairers, are also suffering. There is a heavy dependence on large companies. If larger companies are being hit hard by the Government's economic policies, by definition, smaller companies will be hit just as hard.
It is all very well to introduce schemes such as those mentioned by the Minister today, but they do not go to the heart of the problems facing small firms, because they are tied up inextricably with the larger companies. The Minister told us about the new enterprise grants. Like the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) and my hon. Friend the Member for Dunfermline (Mr. Douglas), I am disappointed that the Minister has not gone further and taken the measures into Scotland. Although it is the responsibility of the Scottish Office, the Minister must have a wider responsibility for small firms than merely in England and Wales. He must cover all of Britain. I hope that he will do something about the Scottish situation.
I have a constructive suggestion about the enterprise schemes. They must be monitored with great care. I have been troubled—I am not alone—by the number of advertisements appearing in newspapers encouraging people to start small businesses. The advertisements say that, if a person starts up a small business, selling salt, for example, or making something small, he will earn himself £50,000 a year. That is rubbish which is put out by agencies that employ people on a self-employed basis. It is simply a way of conning redundancy money out of poor unfortunates, who end up with less money in the bank than they had before. The scheme must be carefully monitored.
§ Mr. MacGregor
What we are describing are enterprise allowances. However, I take the hon. Gentleman's point about monitoring. There are difficulties. We are proceeding with pilot schemes in limited areas so that monitoring can be carried out. The small firms' counsellors will be closely involved in the scheme and will not only give advice but also monitor. The right hon. Gentleman knows those counsellors well, and I pay tribute to the work that he did.
§ Mr. MacKenzie
It is a considerable relief to know that the schemes will be monitored.
We all know that the largest problem for small companies is their cash flow. Some of the larger British companies—I do not exclude the nationalised industries—do not pay their bills to the small companies as quickly as they should. Sometimes the length of time taken to pay is nothing short of a national scandal. The Minister must come down on the nationalised industries like a ton of bricks if they behave in that way.
§ Mr. Anthony Grant
I agree with the right hon. Gentleman. In some large firms, it is deliberate policy to take that credit and try to squeeze the small firms out.
§ Mr. MacKenzie
I agree with the hon. Gentleman. I am 100 per cent. behind the right hon. Member for 793 Roxburgh, Selkirk and Peebles when he urges the Minister to ensure that Government Departments give orders to small companies. They must also pay their bills more quickly. That is the largest problem that faces small businesses.
I also suggest to the Minister—we have had many years in which to reflect upon it—that it is time to redefine what we mean by a small firm. I believe that the Bolton report's definition is any company that employs fewer than 200 people or that has a turnover of less than a certain amount.
The small firms about which I am concerned are those that employ between 10 and 25 people. We have many of those in Scotland. We should think of them when we talk of small companies. A company employing 200 people is no longer small. We must look again at the legislation.
There should be another group to help the Minister to assess the problems and interests of small firms. It is a difficult problem, because by definition small business men cannot easily sit on Government committees. They are working and do not have the time. The only way in which one can get their views—as the Minister does, and I did—is to go around the country and meet them. However, there should be an organisation that can give us the views of those business men.
The Minister visited my constituency to see a project based on the concept of village workshops. I am grateful to him for that. I believe that the hon. Member for Harrow, Central mentioned the necessity of providing services for the small company. The man may be skilled in his trade but his knowledge of accountancy, office management and Government support and grants may be limited. ICI can employ a tax lawyer who has read the Finance Bill from cover to cover. He will earn his salary in no time at all, and ICI will extract every brass farthing out of the Government. Small firms do not have that capacity. More publicity should be given to the matter. There is considerable value in the village concept, with a central manager to give advice and guidance on business administration.
The hon. Member for Winchester (Mr. Browne) stressed the importance of small firms in the manufacturing sector. I agree with him. I also wish the Government to support the new industries. However, coming from Scotland, the Minister will be aware that much more support must be given to our small service industries. We depend more and more in Scotland on service industries. They do not receive much attention but they provide many jobs. They should not be ignored because they are a bit less glamorous than the newer industries, such as electronics. They need more Government support, and it would be of considerable value if the Minister passed on to the Scottish Development Agency, the Welsh Development Agency and the National Enterprise Board the urgent need to assist our service industries.
§ Mr. John Browne
Does the right hon. Gentleman agree that service industries are an integral part of our modern technological society?
§ Mr. MacKenzie
I do not doubt that. The service industries are part of our newer society, but we also have older service industries that require Government support.
The debate will have been useful if we have persuaded people outside that small firms are as important as we 794 believe they are. If we can convey that message to the bigger companies and the banks, the debate will have been useful.
§ Mr. Michael Grylls (Surrey, North-West)
I am pleased to follow the right hon. Member for Rutherglen (Mr. MacKenzie), who played a distinguished part when he was the Minister responsible for small businesses. He knows the problems and has thought hard about solutions.
The right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) has left the Chamber. Significantly, no one is present from the SDP, although that party professes an interest in small businesses. The right hon. Gentleman said that interest rates caused problems to many firms, but he is out of step with his SDP allies, whose economic statement announces:to suppose that the first requirement is to lower interest rates … is to fatally misunderstand business psychology.The right hon. Gentleman had better get alongside his so-called allies and straighten out their policies. What he said is right, and they are totally out of touch. Interest rates cause great difficulties. The study group set up by the Select Committee on Industry and Trade has considered the problem and proposed solutions.
The Minister rightly, and without apology, explained the changes that the Government have made. The job of the Minister responsible for small businesses is to improve the climate in which small firms can operate. My hon. Friend and his predecessor my hon. Friend the Member for Basingstoke (Mr. Mitchell) have a distinguished record in that regard.
In Opposition, it is easy and perhaps fair game to make a little fun of the difficult economic climate and its effect on business. However, the Government are struggling to get the economy right at a time of world recession. The changes that they are making in the climate for small businesses are important against the background of world recession. Britain has been slow to recognise the importance of small and medium-sized businesses. I make no political point, but the long-term decline has now been halted, and we should all rejoice. However, as my hon. Friend the Member for Winchester (Mr. Browne) said, more still needs to be done. It is difficult for Oppositions to rejoice in anything done by the Government, but they should rejoice in the positive measures that have been taken—although that may be asking too much.
The Government's plan is right. They have reduced the hurdles and burdens for small firms. The right hon. Member for Rutherglen understands a point that his Front Bench does not understand—small firms do not have the advantages of consultants and advisers to find their way around laws and regulations.
The Government are also right to concentrate on motivating small businesses. My hon. Friend the Member for Winchester pointed out that it is no use getting new firms started if the motivation is not there and the tax system is not right. There have been dramatic changes. We are the first country to have a scheme as generous as the scheme to encourage people to put their money into new firms with tax incentives.
It is also important to get firms moving—to get them to grow. Birth rate is important but the growth rate of existing businesses may be more important, certainly in the short term, to produce jobs at a time of high unemployment. The right hon. Member for Rutherglen 795 mentioned firms employing between 200 and 250 people. Medium-sized companies employing up to 500 people have the potential to take on another 50 or 60 if conditions are right.
Smaller businesses can grow only when more money is left in the firm. They grow from their internal resources. With the difficult economic situation and high inflation that we have had for many years, we must ensure that more money is left in firms by reducing corporate tax. Even at 40 per cent. the small firms' rate is too high.
It has been said that a number of firms have gone out of business. The debate has spotlighted the need for greater counselling for small firms. Over the years the Department of Industry under all Governments has gradually improved the position. Failure of businesses is often due to lack of training, guidance and the right sort of advice. The Government have a modest role to play in reducing the failure rate.
The hon. Member for Norwich, South (Mr. Garrett) had his bit of fun—if one can call it that—throwing in comments about the economic difficulties that we face. He should have risen to the occasion and talked for Britain rather than made a cheap point. He is out of tune with the smaller business man, who well understands what the Government are doing.
Small businesses may suffer and be hurt, and are at times even put out of business, but frequently they are in sympathy with the Government's economic strategy to kill inflation once and for all. Once their capital has gone they are out of business. A big firm can always launch a rights issue to replace capital that is eroded by inflation. There is no such possibility for the smaller business.
There is much more to do. The recent seven nations study carried out by the distinguished economist Mr. Graham Bannock, who has just taken over The Economist intelligence unit, made clear that even with the changes of recent years we still devote fewer resources to helping the smaller business sector than do other countries. For too long, our commitment to that sector has been less than that of other countries. They have had a deeper commitment for a longer time. We now have the commitment, but we still have a long way to go.
Why do I say that we need more commitment to the needs of smaller firms? It has been proved that smaller businesses are more innovative than bigger firms and they create more genuine competition, which big business does not really like. Small firms are positively good from the social and political point of view, because it is better to spread power than to gather it in a few hands.
One gibe often made against the Conservative Party is that we are the friends of big business. I do not believe that that is so. We are the friends of smaller and medium-sized businesses, because they are socially and economically healthier for the nation.
Countries that have paid greater attention to the needs of smaller firms have benefited. We have not at last begun to tilt the balance and to discriminate positively in favour of small business, whether by changes in employment protection legislation or by changes in taxation, but we have to do much more. It is no good tilting the balance once and allowing it to spring back in favour of the large corporations.
I make no apology for repeating what I have said several times in the past year. It is important that we 796 should look at the machinery of government as it affects small firms. The resources that my hon. Friend the Under-Secretary is given to do his job are inadequate.
Perhaps I am the last person to ask for more bureaucracy in general, but if we are to do an important job we need the tools, because otherwise we shall not overcome the power of the rest of the bureaucracy. If we could do that, there would be nothing to fight against, but as that is not likely, at least in the short term, more needs to be done.
I make no criticism of the splendid work done by my hon. Friend and his predecessor, but we must give Ministers the tools to do the job. In particular, the small firms division of the Department of Industry is too small. It has about 25 employees and, although I know that there are part-time counsellors, the equivalent unit in Germany has 200 employees. A total of 25 people to look after the needs of 1.3 million small firms which employ 5½ million people is not enough.
It is worth reflecting on the number of civil servants who look after the interests of agriculture, the most successful British business. There are 228,000 farms, employing 650,000 people, compared with 1.3 million small businesses employing 5½ million people, but we have a Cabinet Minister two Ministers of State, a Parliamentary Secretary and 14,000 civil servants, in goodness knows how many buildings—probably too many—wholly devoted to the needs of agriculture. I do not ask for so many civil servants to look after small business, but those numbers show the importance that successive Governments have attached to agriculture over the past 30 to 40 years.
We do not need 14,000—or even 1,000—civil servants to help small firms, but we need a modest increase in the small, hard-working group at the Department of Industry. I hope that the Government will take the matter seriously and will consider enlarging the small firms division. It has proved what it can do with limited resources and if it is to tackle the job of considering all our regulations and their impact on small firms we shall need a slightly less modest structure.
For example, if the Employment Protection Act 1975, which has had such disadvantages for small businesses and which the Government have subsequently changed, had been scrutinised with small businesses in mind it would never have appeared on the statute book in the form that it did and it would not have done such damage.
We need not only to scrutinise all new legislation to see what damage it may do to small firms, and to ensure that any measures that will cause damage do not get through, but we should follow Washington's lead and look at existing legislation which is still damaging smaller firms. We shall need more staff for that work, but it will repay us to do it.
We have made much progress, but I hope that the structure will be strengthened for the formidable tasks that still lie ahead. We need to extend the start-up scheme to allow employees to take advantage of it. It is disappointing that employees are not allowed to take part in the scheme at present.
We should also consider a graduated corporation tax, with a lower starting rate of, say, 10 per cent. or 15 per cent. on profits up to £20,000. We should also extend the upper limit of the loan guarantee scheme to £¼ million per 797 loan. That will help the medium-sized firms, which have the biggest employment potential. The present limit of £75,000 is too low and is suitable only for the minnows.
I hope that my right hon. and learned Friend the Chancellor will consider in his next Budget rolling over capital transfer tax when someone passes a business on to the next generation or to anyone else. CTT should not be payable until a business is sold for cash. I agree that tax should be paid then, but if a business is passed on it should be left intact, because otherwise it may disappear.
There is also an argument for rolling over capital gains tax for those who have been in a business and seen it grow to a level beyond which they do not wish to expand it, and who want to sell and start a new business. That is difficult for them because they have to pay capital gains tax. If that could be rolled over there would be a small loss to the Inland Revenue, but we would encourage a certain type of entrepreneur. At present the tax system militates against him.
There is much more that I could say, but I end by noting that we should be thankful for what is being done on behalf of the small business sector. It is interesting that the Conservative Party, uniquely among political parties, has its own organisation—the Small Business Bureau—to try to help smaller firms. The message to the Government from most small firms is "Stick to the path you have taken in general economic terms, because, in the end, that will bring real benefits. And carry on the good work of improving the climate for small firms."
§ 12 noon
§ Mr. Dick Douglas (Dunfermline)
I crave the indulgence of the House to say a few words about the tragedy that occurred in Kirkcaldy last evening, to express our sorrow and offer our condolences to the bereaved, and to commend the rescue services for their work. I say this in the absence of my hon. Friend the Member for Kirkcaldy (Mr. Gourlay), who is indisposed.
The hon. Member for Surrey, North-West (Mr. Grylls) rightly stressed the need to counsel small businesses, though he and I might disagree about where that counselling should come from. Small businesses, by their nature, are local. Having studied this area of activity, I am convinced that there is an important and growing role for local authorities and local organisations, such as the local branch of the Co-operative Development Agency in the provision of counselling assistance. Those bodies, together with organisations of higher and further education in the area, could offer a variety of expertise.
I have been disturbed to hear again today the same black and white argument between the parties. Government speakers have tried to suggest that there is little scope for public enterprise and public authorities. The terrible word "privatisation" has been used repeatedly by Conservative hon. Members. The hon. Member for Winchester (Mr. Browne) made considerable use of it.
I should like to illustrate the opposite case, where Government intervention secures valuable orders. Here I must declare an interest in what took place on the Lower Clyde yesterday. Here is an offshore industry in which a Government agency is playing a valuable role together with the Ben Line company, ODEC, an American drilling company, and BNOC—so far still a public enterprise—British Shipbuilders, and other public 798 enterprises. No one can tell me that the impact on small businesses in Greenock and Port Glasgow of securing £80 million of orders will not be considerable. That is an example of the beneficial effects of Government intervention for the economy of the area and in particular for the small businesses in the area.
I do not take the view that business should be all private or all public. That argument applies especially to small businesses. I couple that with the growing interest in co-operative enterprises of an industrial and service nature. Again I must declare an interest as a Co-operative-sponsored Member of Parliament. One of the dangers affecting small firms is that they are considered as something apart from general business activity. We must keep before us the national and international context in which all firms—large and small, public and private—have to exist.
The right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) and the hon. Member for Winchester referred to interest rates. The conditioning of the atmosphere in which business has to operate by the pursuance of the stupid dogma of monetary policy has endangered firms, both large and small, in this country and internationally.
There have been allusions to criticism of President Reagan's economic policy, but what is that policy but our own Government's economic madness writ large? In the 1920s and 1930s we had competition devaluation. We now have competitive monetary policy exemplified by competition in interest rates. We have the heterodox swishing of money about the world in pursuit of an extra 1 or 2 per cent. Members who have interests in the City and understand its functions far better than I do know only too well that if the Government continue to pursue the stupidities of monetary policy, saying that the only goal is to cure inflation and that the only way to do that is to concentrate on controlling the money supply, both large and small firms will go down the drain. I give the Government some credit for having put forward an array of measures to help business in general and small firms in particular, but no one could claim that the overall effect of their economic policy has been helpful to business.
As a Co-operative-sponsored Member of Parliament, I am chairman of the Co-operative Party group that is examining the role of co-operatives in the generation of employment. It will be some time before the group reports and it would be wrong for me to anticipate too much of what might be contained in the report, but I feel safe in saying at this stage that there is a general revival of interest in industrial and service co-operatives and that a large part of this has been due to the creation of the Co-operative Development Agency.
It is a pity that at a time when we are constantly talking about creating conditions and an atmosphere that will favour small businesses and co-operatives the Government have seen fit somewhat to diminish the role of the CDA. The Under-Secretary of State shakes his head. I hope that he will be able to reassure us about the future of the agency.
Hon. Members have rightly concentrated on the availability of finance for small business. My own tentative view is that although finance may be a problem it is by no means as insurmountable an obstacle to the creation and growth of small businesses as may at first be 799 supposed. Certainly it cannot be dismissed, but to my mind the problem is not so much the availability of funds as the timing and the payment for funds.
I may have seemed critical of the loan guarantee scheme, which has been mentioned by Conservative and Labour hon. Members. I am sorry if I gave that impression. I welcome the scheme, and as a Co-operative-sponsored Member of Parliament I support it, because the Co-operative Bank is among the banks interested in participating in it. Indeed, I am happy to say that the rate of interest offered by that bank is one of the most competitive, if not the most competitive, in the scheme
My criticism relates to the premium of 3 per cent.—or 2.4 per cent. if one takes it in relation to the 80 per cent.—that the Government place upon the scheme. Unlikely though this may sound, I quote in defence of my argument that manifesto for Tory wets, "Changing Gear", which states on page 13:The Government has set a premium of 3 per cent. on the guarantee portion of the loan. This is very severe compared to the USA which only charges a 'once-and-for-all' premium of 1 per cent. and Canada which charges nothing. No comparable scheme overseas has incurred losses on anything like the scale that would justify the 3 per cent. premium presently being charged by the Government. It should be cut.That is the view of many Conservatives who examine the scheme. The trial period will run for three years. Before it has expired some evidence should come forward that will lead to at least a modification of the exorbitant 3 per cent., which is additional to the rate of interest that companies already have to pay.
I deal next with local initiatives. In Scottish terms, these are extremely important for small businesses. I remind the House that in Scotland 90 per cent. of manufacturing employment is with firms with fewer than 200 employees. The role of agencies and local authorities in providing backing to this area of the Scottish economy is extremely important.
I might have appeared churlish when the Minister was announcing a new proposal to assist those who were unemployed to obtain grants to enable them to embark on business ventures. The Minister explained what is happening in England. An announcement should have been made for Scotland. It is not sufficient to say that the Under-Secretary of State for Scotland will announce his own scheme subsequently. The details of the scheme should have been presented to us today.
In Fife the district and regional authorities and the Glenrothes new town development corporation are leaders in giving assistance to small businesses. They use their limited powers, and together with the Manpower Services Commission they provide back-up facilities to enterprises such as training workshops. One of the most notable and exciting enterprises is operating in association with Marconi. Hillend Enterprises is embarking on a series of devices to assist the disabled. A public venture that is allied to a private concern is giving much aid and assistance, especially to young people. In Fife over 300 young people are employed in the workshops.
There are other public agencies that are giving assistance and support to small businesses and cooperatives. One of the most enterprising and interesting is the Highlands and Islands Development Board, which has embarked recently on using its powers to extend co-operatives. Paragraph 32 of its most recent report states:1980 was the third full year of the board's community co-operative scheme. By March we were sufficiently encouraged by 800 progress to extend the duration of the scheme for a further three years. At the end of the year 34 activities of 22 full-time, 61 part-time and 13 seasonal employees were generating an annual community co-operative turnover of some half a million pounds.That might not seem enormous when considering the total GDP, but it is important when considering the impact that it has on small areas and local communities.
We know that the Highlands and Islands Development Board has used its powers to assist many small businesses. The small business division of the Scottish Development Agency has played an important part in providing counselling and back-up agencies to generate small business activities in Scotland. It has used its powers to the full in that direction.
I welcome the apparent desire of the new director of the agency to promote activity within the Scottish economy. However, I share his fear that there is a tendency in Scotland for growing small businesses to sell out to larger concerns that are often based outside Scotland. In an article that appeared in the Financial Times of 20 October he said:The sad thing has been the loss of strategic decisions in Scotland.A matter that is claiming our attention is a possible merger with or acquisition of the Royal Bank of Scotland. It would be appalling if financial decision-making of that nature were taken out of Scotland. It has been illustrated in this debate that one of the organisations to which small business men turn is the bank. The more intimate that banking facilities are with the local community, the better is the all-round environment for small businesses. We shall be strong in our opposition to the removal of any more decision-making of that nature from Scotland.
It is the Schumacher contention that small businesses are basically local. It is one that no one should challenge. However, small businesses have to be related to the large businesses in their area. I was heartened by the emergence of an organisation called Community Business in Scotland, which is trying to hold seminars to bring together emerging community business in Scotland to determine how they can relate to wider communities. I was heartened during my short attendance at one of the seminars to witness the fact that despite the economic climate—this is a tribute to the character of the people of the United Kingdom and not to the Government—many individuals——
§ Mr. Richard Page (Hertfordshire, South-West)
Cannot the hon. Gentleman be slightly charitable and accept that it is possible that some of the measures that the Government have introduced have helped smaller businesses?
§ Mr. Douglas
I have already indicated that measures such as the loan guarantee scheme, tax schemes and the start-up scheme have been helpful. However, the overall impact of the Government's economic policy has been detrimental. I do not think that anyone can challenge that contention. It is a tribute to the people of this country that despite the black and bleak economic outlook they are assembling co-operatives, trying to establish small firms and showing great tenacity. They are not lying down in the face of economic difficulties. I do not want to claim that they are all getting on their bikes and chuntering around the country or anything laughable like that, but they have responded positively, because basically they are not lazy. They want to work and they want to find work. They are 801 using the opportunities that are available and coming together to ascertain how they can start a number of different sorts of enterprise.
Finance is not the overburdening problem. One of the most difficult areas for small business men is understanding and appreciating the market for their products. Many craftsmen have wonderful ideas, but will they sell? How will they present their product through retailers? Can they price it in a fashion that can take a retail margin? These are issues that do not spring instantly to the minds of entrepreneurs or small business men who want to start a business or expand.
Many small business men need assistance with marketing. As my right hon. Friend the Member for Rutherglen (Mr. MacKenzie) said, ICI and large corporate enterprises have specialist marketing divisions, personnel departments and specialised training establishments. The small business man has to ask himself "Will my product sell?" He needs an agency to assist and guide him. He does not necessarily need that agency to do it all for him. However, he needs advice such as "We think that this will go" or "You should consult this retailer or that wholesale establishment, which will give you assistance".
The resources of our education establishments, especially in Scotland, must be put into gear and set in motion. Their resources must be brought to bear upon this important topic. I deplore the fact that we do not yet have—perhaps this is a digression, but it relates to education—a key business school in Scotland. The stupidity of diverting the activities of the Scottish Business School throughout many unversities has been extremely damaging to business education in Scotland. If we are to condition the atmosphere in relation to that, the sooner the Scottish universities or the University Grants Committee sort out the matter, the better. Nevertheless, there are many organisations concerned with further and higher education that could be of assistance to small businesses in the area.
I deal next with public purchasing. I support the comments of the CBI in its document on the subject. It asked the Treasury to issue guidelines. I am not sure whether the Under-Secretary of State said that the booklet issued by his Department was in harmony with the CBI's position. Perhaps he will clarify the position. I believe that some guidelines must be laid down on public purchasing.
The hon. Member for Harrow, Central (Mr. Grant) was a little sanguine about the Ministry of Defence. I represent a constituency in which there is a naval base, so I am not sanguine about the Ministry's public purchasing policy. I do not think that it pays enough attention to the needs of local areas and communities. Its purchasing policy should be examined.
I recognise that the role of co-operatives and small businesses introduces a large element of flexibility into the economy. They are important not only in terms of their overall economic impact but in their psychological impact on communities as a whole. However, a time scale is involved in the creation of enterprises and seeing them through. That is why the Government must be sympathetic and not deal with matters in stand-offish, bureaucratic, civil servant's terms.
Here I should like to mention the Scottish Office, and my right hon. Friend the Member for Rutherglen will know what I mean. The Scottish civil servants did not have 802 to be told where Motherwell bridge, Marconi or Henry Balfour were located. They knew. They knew intimately the heads of the enterprises and could discuss the problems with them. To have a highly centralised bureaucratic Civil Service, such as we have in London, which thinks that the Arctic begins north of Watford is dangerous and inimical to businesses, both small and large. That is why small businesses are important in decentralisation terms, but the decentralisation of Government decision-making is equally important.
§ Mr. John Loveridge (Upminster)
I know that the hon. Member for Dunfermline (Mr. Douglas) will forgive me if I do not take up and follow his remarks in detail. The Conservative Back-Bench smaller businesses committee has examined the problems relating to the role of cooperative small businesses, and particularly the success of such businesses in Spain. This is an area in which the Government can play a role in helping such developments forward.
However, today I wish to express my gratitude to the Government for the way in which they have listened to the representations put to them by my committee. We have gone to numerous Ministers and to the Minister responsible for small businesses and, with the help of my hon. Friends the Members for Luton, East (Mr. Bright), Hertfordshire, South-West (Mr. Page) and Surrey, North-West (Mr. Grylls), we put forward a wide range of requirements that we thought would help small businesses. Fifty of those requirements were expressed in my Small Firms Expansion (Inquiry) Bill. It is pleasing that more than half of those suggestions were accepted by the Government, including, in particular, the loan guarantee scheme and the call for tax reliefs along the lines of the business start-up scheme.
In my experience, it is not often that the Government listen to Back-Bench committees and outside opinion. I am deeply appreciative. Much has been done. Within the general economic climate, almost all has been done that could be done to help business start-ups and smaller firms. However, we are still concerned about medium-sized businesses. I do not think that it is generally realised in the country at large to what a degree the United Kingdom's industry has been concentrated. About 200 companies produce half of our output. Although there are many small businesses, they do not cover the mammoth part of output that they do in other countries. Two thirds of the output in Japan in manufacturing industries is accounted for by small businesses, less than half of that is accounted for by small businesses in this country. We neglect at our peril the realisation that the Japanese economic miracle has been based largely on small, and even more on medium-sized, firms.
Why has that happened? Why do so few firms account for such a large part of our output? It is not only due to the economies of scale. Many large firms continue to have separate groups with units of production and perhaps four or five hundred men in each unit. They have become conglomerates. A conglomerate is not the same as an individual enterprise. The duty of the conglomerate to its shareholders is the security and safety of investment. By that process, we have eliminated much of the entrepreneurial edge. The aim for high profits has been replaced by an aim for high security of capital. That has happened partly because of our companies system, which 803 means that there is, in effect, double taxation for entrepreneurs—a tax on profits within the company and a tax when money is taken out of it—which has induced those firms to sell out to conglomerates that are more interested in safety than progress.
That process has been increased by the £9,000 million a year that flows through pension and investment funds. We are told that, at the present rate, in 20 years two-thirds of all Stock Exchange listings will be owned by such funds. It has been worse for small companies. What was once thought of as large-scale economics—that we would achieve and get greater productivity—has now given way to the realisation that greater productivity is often associated with small firms.
Alas, it has taken us much experience to learn that lesson. Profits have fallen from one-sixth of capital investment to one-twentieth of the value of the assets of firms. That has left an unhappy position where possibilities of reinvestment from retained earnings no longer exist because profits are too small. At the same time the individual has less to invest as taxes on income and death have removed his capacity to do so. Bank lending has often been limited to small firms and the pension and insurance funds have a duty to look for security. However, some nationalised industry pension funds have been helpful to small businesses. That is a sign of the awakening in the country of the need for small firms. Overall, the medium-sized firm's capacity for reinvestment has not been enough to enable it to survive without selling out to conglomerates. That is bad.
This Government have done much to help new firms start up. About 10,000 firms a month are being created. That is not to be sneezed at. It is a great achievement during a world recession. Although the Government have done so much for small firms, Britain's medium-sized firms have become a limping part of our small firm sector.
The Leader of the Liberal Party said that we have done more for medium-sized firms. That is not borne out by the facts. The latest figures—they are a little old—show that only 2,800 firms in manufacturing industry employ between 100 and 199 people. Even if they were all at the top end of the scale there can be only ½ million people employed in such firms. The figure is probably half or two thirds of that. It is trifling for medium-sized firms in a great industrial economy. There are 71,000 firms in the smaller sector of manufacturing but the bulk of such firms have been sold to the conglomerates.
We must look forward to robot factories where the output per man will be not £25,000 or £100,000 a year but £1 million. Then there will be room for small businesses—small in terms of the number of people employed but great in terms of output. There will then be a need for even more job creation than is envisaged.
We must look for new ways of creating jobs. I have an idea which the Government might wish to examine, although there are difficulties. If every household were able to consider turning itself into a business so that every person employed received business relief on his employment, at one fell swoop that would eliminate the black economy because PAYE would be paid. In electronic technology there is room for very small industry—almost of cottage industry size—yielding high rewards and high output. The Government should examine that suggestion and see whether we can create new jobs in that way.
804 We can look forward in the small business sector, if we take the necessary measures, to creating 5 million new jobs in five years. The creation of 10,000 new firms a month would double the 1.3 million firms in a decade. With a little pressure we could double that in five years. If each new firm provided three jobs that would create 4 million new jobs. If we push forward the 2,000 firms employing about 500 men each that would create another 1 million jobs. If only one household in 20 took up the idea of setting up business at home with Government encouragement and help, another 1 million part-time and full-time jobs would be created. In five years we could hope to create 6 million jobs to meet the requirements, not only of present unemployment, but of that created by the release of staff caused by the growth of the robot industry. I hope that the Government will examine that possibility.
The problem should not be that difficult. In Japan there are 5.4 million businesses compared with our 1.3 million. Already the Government have taken the bit between their teeth. They have accepted in principle the loan guarantee scheme. They have increased to £100 million the total funds that might be applied under that scheme. The business start-up scheme could grow to mammoth proportions. There is evidence that the complexities in the business start-up scheme are such that it is being inhibited at a practical level and not being applied as much as we hoped.
The maximum loan under the loan guarantee scheme should be not £75,000, which is important for the smallest firms, but at least £250,000. At that level money might be obtained from the wider City markets. Below that level they cannot do so, and therefore this scheme is particularly important for those who wish to grow to medium size.
It is noteworthy that in this kingdom many more people are now working in the public sector. There are 5.3 million at work in that sector, compared with 3.7 million. 15 years ago. To some degree, there is no harm in that, for if industrial output grows, the services should also grow, even in the public sector.
What is shocking and gives cause for anxiety is that 15 years ago in manufacturing industry there were 7.7 million employed—two persons for every one in the public sector. Today, however, the number employed in manufacturing industry is falling towards 6 million, whereas the public sector is employing well over 5 million.
It is extraordinary that every person in manufacturing now has to sustain nearly one person in the public sector, although previously the figure was two to one. Such a burden cannot be carried by this nation without a mammoth improvement and change in our industry along the lines of robot factories.
Therefore, I welcome the Government's concern to keep down public sector spending, as I welcome the pilot experiment, which should be more widely applied. I hope that the Government will consider the scheme which has been put forward by my hon. Friend the Member for Luton, East for tax credit certificates to help meet capital transfer tax payments, particularly those arising on death. The Government should also examine procurement and experience in America, where substantial procurement facilities apply for small businesses in competition with large firms for Government contracts.
It is important that the Minister should ask his hon. Friends in the Ministry of Defence for defence orders to be given to small firms. Often, small firms are swept 805 aside. One example is of a survey of a particular scheme, important for defence. The cost of the survey was more than the total tender from a small firm.
Another aspect that should be examined is the over-the-counter market in the United States. That would fill the equity gap for the medium-sized firms here. In that connection, the Government should look at the need to reform Acts of Parliament which have phrases such as "if shares are recognised on a registered stock exchange". This often excludes firms from being considered when seeking funds.
The Insurance Company (Valuation of Assets) Order contains complex formulae that militate against fast-growing firms, in favour of slow firms looking for capital safety. How far is it right for banks and merchant banks in this country to act as both agent and principal in investing funds in firms? In America, there is a much greater tendency for banks to act as agents for funds, but not themselves to take stakes in the firms. This often gives rise to resentment among those whose life's work is bought out when looking for new funds.
The wide-ranging work of the Government is excellent and includes work on employment and planning matters. The whole climate has changed. It would change even more rapidly if the economy could be lifted and if interest rates were to fall. We recognise the difficulties world-wide of achieving that objective but, within the possibilities of the whole economic scheme of things, what has been done by the Government—I am glad to see with us my hon. Friend the Member for Basingstoke (Mr. Mitchell), who did so much for small businesses when he was the Minister concerned—is a matter for congratulation. The equity gap for the medium-sized firms remains, and I hope that the Government will not neglect to look at that, but at the same time we praise them for what they have done for the smaller firms.
§ Miss Janet Fookes (Plymouth, Drake)
I suppose that it was predictable—but none the less disappointing—that the opening spokesman for the official Opposition, the hon. Member for Norwich, South (Mr. Garrett), was so long on criticism and so short on constructive comment. We are entitled to ask him, if he is so contemptuous of the measures that the Government have brought forward, which he would retain and which he would jettison if, unhappily, his party were ever to come to office again.
The hon. Gentleman spoke of the smaller number of small firms in Britain as compared with Japan and the United States, but I remind him that, with one short break of three and a half years, there were Labour Governments from 1964 to 1979. The Labour Party cannot escape responsibility for the kind of climate that was engendered. If there are fewer small firms than there ought to be, the Labour Party must take some responsibility for that.
I know that even supporters of the Government—I include myself among them—have certain reservations about the aid to small firms, and certain suggestions to make, but it would be churlish indeed if we did not warmly welcome the tremendous efforts that the Government have made to assist small firms. I gladly pay tribute now to the package of 72 measures.
I also welcome, as a practical step, the business opportunities programme which has been set in train, 806 through the excellent literature and through the conferences which are taking place. It is a measure of the support of the Government for small firms that so many Ministers are prepared to go out from Westminster to various parts of the country and to give their time in helping to make these conferences a success.
I very much welcome the regional conference which is to take place in Plymouth later this month. It will be of particular interest to Plymouth and the West Country generally, because small businesses are the very lifeblood of that part of the world, and we rely heavily upon them. Even Plymouth, which is the biggest centre to the west of Bristol, has a large number of small firms. Indeed, the industrial section of the Plymouth chamber of trade and industry lists 50 per cent. of the firms on its register as having under 100 employees. In the more rural parts of the West Country, the number of very small firms markedly increases.
It will not escape notice that not one SDP Member has been present during the debate, let alone taken part in it. In view of the importance of small firms to this country, that omission will be both noted and criticised.
I have several points of encouragement and of criticism in regard to the Government's specific measures. There have been many references to the Government-backed loan guarantee scheme, but the excellent idea behind the scheme—to give encouragement to small businesses, which are either starting or have not long begun to go ahead with capital where the ususal institutions would perhaps not be willing to lend—does not always accord with reality.
Mr. Peter Wood, the director of the Plymouth chamber of trade and industry, has supplied me with the names of four or five firms which are finding it difficult to obtain capital in this way. For obvious reasons, I shall not name them. I shall go further. I have been trying to encourage one firm. Details of its predicament are now on the Minister's desk. Suffice it to say that this firm is run by a man with considerable experience in his field who started up the business. He has an excellent staff who are willing to work, including overtime working, and the firm has a full order book. He desperately needs capital to keep going but his local bank is dragging its feet in providing it despite all the good intentions of the loan guarantee scheme.
It can be said that this is merely one unhappy experience for one area of the country and that it is not generally true. In aid of my argument, therefore, I shall quote from an article in the Financial Times of 31 October. It says:There is, for instance, a wide gap between the commitment to the sector of clearing bankers sitting in head office and the attitude of many branch managers out in the field. Privately senior bankers admit that their lending is inevitably guided by long established and often inflexible rules and that the current generation of managers in their late 40s and 50s is unlikely to adapt easily to the increasing demands from their small business customers.
§ Miss Fookes
I gather from a seated intervention that that will be echoed in another part of the House. It is very important for the Minister to state loudly and clearly what are the Government's intentions and to give encouragement to those banks which are slow to take advantage of the opportunities which are offered to small firms.
I should like to see the exemption from VAT lifted from the present threshold of £15,000. I understand that there 807 are difficulties involved in going higher than that because of the requirement to conform to EEC regulations. I should like confirmation of that point and, if possible, an undertaking that the Government will try to alter it. Perhaps I may suggest an upper limit of £50,000, at any rate as a bargaining position, which would do much to assist small businesses which feel greatly weighed down by the imposition of VAT and all the work which that involves.
Other suggestions relating to Government contracts, have already been made by some of my hon. Friends. I also agree with the leader of the Liberal Party, who said that it was very important that small firms should have the opportunity to tender. I know from experience in Plymouth that this is not always the case. It is absolutely essential that such small firms should start off on level pegging with bigger firms. It will then be up to them to prove that they can do the job. There should not be a tight selective tendering scheme so that they cannot get their noses in.
There is also concern among some firms that the credit which is expected of them is too long. For example, I am told that for some Government contracts firms are required to give six months' credit. Small firms complain that they themselves are not given six months' credit for the components or raw materials which they are required to buy. Therefore, there is an unacceptably wide gap which affects them very much. A simple change of that sort would make all the difference to a small firm being able to tender successfully for a Government contract.
A point has been put to me by the chamber of trade and industry which is rather more controversial. It concerns contracts with the Government, where tenders may be slightly higher when all the components or raw materials are produced in this country whereas the successful tenderer may be relying on components or raw materials from abroad. This has its impact on employment prospects in Britain. A particular firm was mentioned to me. I have its permission to use its name. It is Farley Health Products—long-known for its production of milk powders and other items for babies—which lost a Government contract to supply milk powder to hospitals abroad on that very point. I ask the Minister to examine this matter.
I also suggest that there are certain facets of the Minister's package which need particular publicity and stress. It is important to let business men know that the small firms counselling service uses experienced business men to offer the advice. Too many think that it is "another bunch of civil servants." I hasten to add that that is not my term; it is theirs. I think that they would be more inclined to use this valuable service if they were aware that the advice would be offered by people like themselves. I entirely take the point that they lack the sort of expertise which is open to a bigger firm—taxation specialists, accountants and the like—and this service fills the gap.
I believe that the service is to be extended with an injection of about £1 million more in order to have more counsellors. I warmly welcome that, with the proviso that it gets the services of good, experienced business men. It would be no use extending it if firms then came to a second-rate or third-rate calibre of business man at a very delicate juncture in their life.
Like many of my hon. Friends, I welcome the business start-up scheme. However, what needs to be made much 808 clearer is that it is open to individuals to buy equity shares in small new firms. Much greater publicity should be given to that point.
As regards employment legislation, I am afraid that it is a case of, give a dog a bad name and hang him. I still find large numbers of business men who are put off by provisions which, as we are all aware, are obsolete. It will need a really long publicity job to make them understand—we shall need to spell it out—that all firms now enjoy a year's grace before unfair dismissal arrangements come into operation, and that in the case of firms with under 20 employees the period is now two years.
It is also important to stress that the industrial tribunals are now neutral in their judgments and that employers are not now required to prove their case to the hilt. They simply have to prove that they have behaved reasonably. The idea of the pre-hearing, avoiding all the expense and hullabaloo of a formal hearing, is very important to get across to business men, as is the fact that the tribunal must take into account the size and administrative resources of the company concerned.
All these are most valuable features. Sadly, they are not nearly widely enough recognised by small business men. I am sure that it would make a marked difference to their tendency to take on the extra person or two. It would make for a much improved employment position if many small firms could take on as much as one extra person.
All in all, I warmly welcome the Government's serious efforts, although much remains to be done. We have made an excellent start and I wish the business opportunities programme every success.
§ Mr. Graham Bright (Luton, East)
The opportunity that the debate provides to highlight the contribution of small businesses to the economy is an important sign of the change in our view during the past 10 years. Hon. Members on both sides of the House have recognised that small businesses in all sectors—manufacturing, retailing, construction, employment and so on—have been in serious decline since the 1930s. We have lost the benefits of job creation and technical innovation that our industrial competitors enjoy.
The rate of birth of small firms is three times as high in the United States as it is in Britain. Small firms provide more than half the new jobs in the American economy. West Germany, with a population 10 per cent. more than Britain, has 40 per cent. more firms. The contrast between the long-term performance of its economy and ours has obvious lessons for us, even in the depths of world recession.
Our economic recovery depends, to a significant degree, on the revival and expansion of our small business sector. I accept that the structural problem was recognised by the Labour Administration. Unfortunately, their strategy worked directly against small businesses. The increases in personal income tax, the rate of corporation tax and the surcharge on national insurance contributions added to the burdens that small firms had to bear. It is no good subscribing to the principle of profitability while supporting price controls.
Small firms—especially new firms, as I know from my experience—depend for their survival on a good early return on the capital employed, which the controls introduced by the Labour Government undermined. There 809 is clear evidence that small businesses were deterred from taking on new workers by the provisions of the Employment Protection Act 1975 relating to the qualification period for unfair dismissal and notification of redundancies. The oppressive rate and low threshold of development land tax enhanced the shortage of land, and nothing was done to encourage local planning authorities to make sites available or to relax the unnecessary and onerous conditions.
For all its constructive suggestions, the committee chaired by the right hon. Member for Huyton (Sir H. Wilson)—which in March 1979 issued an interim report on the financing of small firms—failed to tackle the issue of over-taxation of investors in small firms. The pernicious effects of capital gains and capital transfer tax on family businesses barely attracted the attention of the Labour Government. It is no surprise that they mentioned small businesses only in passing in their election manifesto. On their record, on that of their then allies the Liberals, it would not have been decent to be more forthcoming. To listen to them now makes one almost believe that they invented small firms. Frankly, I prefer crocodile tears to be shed by crocodiles.
The failure of Opposition Members to translate their professed intentions for small businesses into action is obvious. Some of them do not believe in their existence as part of our economic system. Others are unable to persuade their colleagues to give the interests of small firms any real priority. I and my right hon. and hon. Friends on the Conservative Benches believe in small firms. They have a crucial role to play in stimulating our economy and providing new jobs, new goods and new services.
We have been determined to ensure that an entirely new atmosphere is created in which small businesses can flourish and new ones grow as the economy moves out of recession. That has been our aim since we took office in May 1979. We had to start by tackling the problems that our predecessors left unsolved. The Government were obliged to begin by removing the tax restrictions that had proved such a disincentive to small businesses. Both the standard rate and top rate of income tax were substantially cut in June 1979. I hope that my right hon. and learned Friend the Chancellor of the Exchequer will be able to resume increasing the personal allowances and tax thresholds in his next Budget, as in 1979–80. The greater the share of earnings that our taxpayers can keep, the stronger is the incentive to produce.
The action that we have taken to raise the threshold for the payment of investment income surcharge from the absurd level of £1,700, which we inherited, to £5,500 makes saving and investment much more worth while. We have been able to lift the threat to the existence of family businesses by raising the threshold of capital transfer tax to £50,000 and instituting an allowance of £3,000 for capital gains to replace the exemption limit of £1,000 per annum. There are also no more double charges on the same gift, which was an important move to protect family businesses.
For small business men and their families, the tax environment has dramatically improved. The Government are entitled to claim that the measures go a long way towards reversing the decline of the small business sector. The basis for building up the capital to start and fund their 810 enterprises has been restored. That must count as a major achievement in the present climate. We will reap the benefits as the economy expands.
However, it is not enough simply to relieve the tax burden on small enterprises. Their problems have been more complex. They have always found it difficult to raise new equity capital or to qualify for adequate lending. As a small business man, I know how strong is the reluctance of small entrepreneurs to surrender control over their firms. That point should be emphasised to the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel). The loan guarantee scheme helps a business man to hold on to his business.
The Government are to be congratulated on the range of schemes that they have promoted to overcome those difficulties. Investors can offset any loss that they suffer on the sale of their shares in unquoted trading companies against income under the venture capital scheme. Relief on interest on funds borrowed to invest in close companies, which has been available since 1980, will further ease the position for small investors.
The business start-up scheme, under which individual investors can obtain relief against income tax on up to £10,000 in any one year, was introduced in the last Budget. The hon. Member for Norwich, South (Mr. Garrett) said that that scheme would not work and that people had criticised it. It was right to criticise the Bill when it was published, but once it went through Committee it was workable. Now we must let people know that the scheme exists. Once they know that it exists, it will be used.
The loan guarantee scheme will continue to help people who are already in business or about to start up business. It is not only a good scheme, but extremely imaginative. I do not know of a more positive set of schemes anywhere in the industrialised world. We have overtaken the Opposition by introducing that scheme.
Several firms in my constituency have already benefited from the loan guarantee scheme. Although it may be too early to draw general conclusions, I am confident that it will prove a resounding success. I hope that it will be possible to extend some of its provisions, particularly, as some of my hon. Friends have mentioned, into the medium-sized firms, and to increase the limit of £75,000. Perhaps the loans could be made on a longer-term basis. Long-term finance, whether from internal or external sources, is the key to better employment prospects. We must not lose sight of that.
The programme is based on a recognition that small businesses face special problems. It is beginning to give a bias towards rather than against small businesses, which is what happened so much in the past. It has been a mistake to treat all firms as if they were alike. ICI is unlike a small family retail or manufacturing business. That is particularly true in employment legislation. The Employment Protection Act 1975 included provisions on the qualifying period for the unfair dismissals procedure—a mere 26 weeks. The period of notice to be given before redundancy was 60 days. The provisions positively discouraged small businesses from taking on employees.
I am glad that the Government had the courage to alter both provisions and require industrial tribunals to take into account the size and resources of firms in the cases before 811 them. The relationship between a firm and its employees cannot be governed by a simple and sometimes simpleminded formula.
The co-operation of other bodies is necessary if the Government's stimulus is to prove fully effective. Small businesses have been hampered for too long in their search for premises by over-zealous local planning authorities. The protection of rural and residential areas from nonconforming development has too often been the cause of decay in the countryside and in town centres. No decisions, or slow decisions, are of no help to business men, who must find sites.
I hope that we have seen the end of such practices, just as I hope that we shall soon see an end to local authorities that believe that businesses have a bottomless purse out of which to pay local rates. Such authorities cut the throats of their local economies and promote unemployment. The hon. Member for Norwich, South said that Labour was doing well. I hope that he and the leaders of the Labour Party will encourage their councils to moderate rate demands.
The Government have tried persuasion. They have led the way by example. The process of changing small industrial premises to warehouses has been made easier. The have encouraged a more flexible attitude in planning requirements. The new small factory units being built in the assisted areas of England, and the 100 per cent. allowance on premises of up to 2,500 square feet, will give many existing or new small businesses the essential chance to set up and expand in their own buildings.
My hon. Friend the Minister said that that was a transformation, and he is right. When I set up my small business 11 years ago I tramped the countryside to look for premises. Now we see small units being built all over Britain. There is no better encouragement for a small business man starting up than to go into a purpose-built building. It encourages him to put his heart into the job, to expand and to build up a worthwhile business. Public expenditure there is thoroughly practical and will pay a rich dividend.
The Government's effort to reduce the burden of taxation on small businesses and to provide them with new sources of capital and lending has my full support. My right Hon. and hon. Friends will, I am sure, understand when I say that the strategy must be pursued further. Our record is honourable. We have reduced the burden of bureaucracy and cut time-consuming form filling. We have even undertaken a review of the excessive powers of entry enjoyed by officers of almost every official body in Britain. However, we have not yet seen the fundamental reform of capital taxation promised before the last election. If we have that reform, why cannot my right hon. Friends ensure that bonds can be purchased in advance for payment of capital transfer tax that are not aggregable on the estate? That would help many people to transfer family businesses.
It is not beyond the Government's imaginative powers to devise schemes for the graduated payment of corporation tax. It would be easier if firms gradually, and not suddenly, came into paying corporation tax. Many business men put the brakes on to avoid running into corporation tax. They should in no way be discouraged from expansion. A graduated scheme of payment would assist them.
We should also consider introducing interest-bearing enterprise bonds. Small companies could purchase the 812 bonds and escape corporation tax if they subsequently reinvested them in the business. It would give them the flexibility that larger firms already have.
Whatever proposals there are to replace commercial rates, they must take account of the capacity of businesses to pay and include a ceiling above which the levy will not go. That is very important. Rates play a major role in hurting, and often pushing small businesses out of business altogether.
Even the present Government suffer from one handicap in dealing with small businesses. There are too many Departments—the Treasury and the Departments of Industry, Employment, the Environment and Trade—and too many agencies such as COSIRA, the Industrial and Commercial Finance Corporation, urban development corporations, enterprise zones, the Inland Revenue and so on. They are all involved in policy making and helping small businesses. It is, therfore, difficult and time consuming to consult Whitehall, and a strong case exists to establish a co-ordinating body to draw the issues together more speedily. The special interests of agriculture and the consumer are already acknowledged in the machinery of Government. The claims of small businesses to have similar status are equally convincing.
The measures introduced by the Government in the past two and a half years are the most positive that small businesses have ever enjoyed. They have provided more than relief from the recession. Even during economic booms small businesses have foundered from bad management, chronic debts, poor products or services or ill fortune. When Opposition Members criticise the Government, they should remember that the Labour Government merely offered mild platitudes and weak gestures in support of small businesses. We have taken major action over taxation, investment, lending, planning and building to encourage small businesses. Their long-term decline has been reversed, and the Government are to be congratulated.
In fact, the Government have done even better. They have laid the foundations for a major expansion of the small business sector as the economy revives. A far larger proportion of new jobs, products and services will be provided by small businesses. The opportunities for investment and profit are now much greater. The strategy is already working. Our job is to see it through so that small businesses may play their part in Britain's economic revival.
§ Mr. Bruce George (Walsall, South)
I apologise to the House for not having been present for the early part of the debate. It is a sad reflection on the House that on a subject as important as small businesses so few hon. Members can muster the enthusiasm to attend. We all have pressures on a Friday, but more hon. Members than the few who are here and who have a special interest should have brought their experience to the debate and told the ministerial team of the problems that we all see on constituency visits.
I have no experience of setting up a business, but I have represented my constituency for eight years and on most Fridays visit factories and other forms of enterprise. I have also taken part in the Parliament and Industry Trust. The trust is an attempt to bring hon. Members closer to the problems of industry, albeit big industry, and performs a valuable task. I wish that it was more of a two-way process—that more business men could experience 813 government and politics and that there was a better flow of personnel into and out of the Civil Service, into and out of Parliament and into and out of business.
Perhaps one factor in our failure industrially, and in some ways politically is what has become almost a caste system. People enter government when they are young and retire many years later, if they are lucky, never having gone out of the bureaucracy. If politicians are fortunate, they begin their career at an early age and go to the House of Lords a couple of generations later. It would be far better for this country if there were a greater willingness to develop an interchange between the various arms of administration, business and politics. That would give all of us a much better perspective and certainly improve the quality of decision-making in Government and industry.
It is important that I should say, as I usually do, that I speak from the perspective of a politician who believes in a mixed economy. A Marxist solution of our economic problems would be as disastrous as our present experiences. Anyone who thinks that a Marxist solution is desirable should observe the scintillating economic performance of East European countries that are overregulated. The suggestion that there are simple panaceas for our industrial problems is to be deprecated.
I found it difficult to resolve the paradoxes in the speech of the hon. Member for Luton, East (Mr. Bright). Perhaps those in the Strangers Gallery were equally bemused. The Conservative Party conference was told—not that I was there—of 80 measures to ease the plight of the small business man. Conservative Members have told us how appalling the previous Labour Government were and how many measures the present Government have taken to improve and stimulate small business. We might be excused for thinking that the Labour Government were responsible for the 3 million unemployed and that the Conservative Government had halved that figure. The reverse is the case. If all the Government's measures have been so well conceived, surely some elements in the equation have gone badly wrong.
We might even welcome a return to the almost halcyon days of 1979 when unemployment was at about 6½ per cent. We have been told of the appalling days when the Labour Government were in office between 1964 and 1970, but I suggest that some Conservative Members rush to the Library and study the levels of unemployment at that time—they were probably under 3 per cent.
In constituencies like mine and, I suspect, those of Conservative Members one sees a saga of disaster. Surely much of the blame must be attributed to the Government—not all, but much. The Opposition may be guilty of heaping too much blame on the Government but, on the other hand, Conservative Members are guilty of placing the blame on factors other than those within their own control.
The silence in parts of my constituency is almost deafening. The town of Darlaston has a history going back 800 or 900 years. Many of the companies that were profitable a decade ago are now silent. Their doors have closed for the last time. Many companies that were prosperous have been shedding labour and are haemorrhaging. They have not closed yet, but the roll call of the dead and dying companies in my constituency is lengthening almost daily. Only this week I had news of 814 another company that is shedding a large number of its work force. Most hon. Members regularly receive such news and it makes us almost fearful of opening the mail.
It is not that the nation has failed to recognise the ills. Few countries can have had more Royal Commissions, committees of inquiry or parliamentary inquiries into what is wrong with their institutions. However, when our institutions are reformed, the reforms are often negative.
My hon. Friend the Member for Norwich, South (Mr. Garrett) knows better than anyone in the House that, had the Fulton committee been implemented in part, some of the present Civil Service and industrial problems would not be so severe. We do not yet have in the Civil Service people of comparable experience—we may have personnel of comparable intellectual ability—to the bureaucrats in France. We have not yet managed to develop the expertise and knowledge of business and industry that must be within the repository of knowledge and experience of our Civil Service.
In an article in The Guardian today, Richard Norton-Taylor dismisses the Civil Service college and the time spent by civil servants at Sunningdale as "quasi-intellectual holidays". That may be a little far-fetched, but if we thought that the creation of the Civil Service college would in some way approach the Ecole Normaled' Administration in France, our expectations have been sadly set aside. My criticism is therefore not that there are too many civil servants, but that there are not enough of the right type. They have the right ability, but they do not have the right experience.
The days when small businesses were the "in" thing may to some extent have passed, but we are all concerned to see a healthy small business sector. Both sides of the House are guilty of sloganising. To hear some Labour hon. Members, one would think that the small business sector was almost superfluous and should be nationalised or eliminated. For some Conservative hon. Members, on the other hand, it appears to be the repository of all that is healthy, good and efficient in our society.
Neither is a realistic model of reality. We must accept that within the small business sector there are some very poor decision makers and some very bad industrial relations, and that working conditions may be as bad as can be found anywhere in the industrialised world. All parties are guilty of giving idealised versions of the truth, but certainly we need a healthy small business sector.
As a mixed economy man and a believer in a Keynesian approach, I believe that we need a healthy private sector operating alongside a healthy public sector. The small business man, however, operates within an environment that determines how successful or unsuccessful he will be. Part of his success or failure is attributable to the quality of his own decisions and his own inherent qualifications and abilities, but in some ways he is like a ship tossed about on the ocean, unable to control events. He is subject to an international environment. He is subject to Government control. State agencies have an impact on his activities, as do local government, the banks and the support services. Most important of all, perhaps, he operates within a cultural and political environment that may not be conducive to the kind of progress that we may wish to see.
I believe that in any enterprise there must be a profit, although profit has often been misspent. As the former 815 leader of the Labour Party, my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan), said a few years ago:Whether you call it surplus or profit, it is necessary whether we live in a socialist economy, a mixed economy or a capitalist economy.We must create an environment in which small businesses can be set up and an intellectual environment in which entrepreneurs—I know that that word is regarded by some almost as a term of abuse—and aspiring business men are encouraged to set up and, one hopes, to sustain their activities.
The Finniston report referred to a climate of opinion that is not conducive to the health of the engineering profession. Here, too, there is an attitude to be overcome which in many cases prevents small business men from coming forward. Education certainly has a role to play. Had I been in my constituency today, I should have visited a number of schools that are benefiting from a microprocessor project introduced by the local education authority encouraging youngsters to learn about the new technology. I say that as one who failed O-level mathematics four times and would probably still not have passed if I had stayed at school until now. I am sure that many successful business men on the Conservative Benches could not have developed my innumeracy.
Having visited schools and watched youngstrs acquiring skills that were not available to previous generations, I am greatly encouraged. The microprocessor may still be seen by some as revolutionary, but to many of our competitors it represents an old revolution. Some companies have just about harnessed the wheel and steam. The prospect of getting involved in the new microprocessor revolution appears to be illusory to many firms. The schools must do more to encourage an attitude that is conducive to industrial expansion. That has been said on many occasions.
The fault does not lie only with the education system. Faults can be attributed to business. We must have youngsters who are aware that our industrial future depends upon successful industry. They must be encouraged to go into industry. Possibly the adaptation of school courses to encourage, for example, book-keeping and the understanding of industry's problems would facilitate their progression into industry and not into other areas. It is unfortunate that most of them are now going into unemployment. However, those who are fortunate to gain employment often enter areas that may not necessarily be beneficial to the economy.
I compliment many of the chambers of commerce. The Walsall chamber is one of the best. It encourages the formation of companies. Only last week it promoted a course at a local school on how to set up one's own business. It is important to offer encouragement to local government. The hon. Member for Luton, East criticised, as many others have, local government for making far too great a rate demand on business men. There is some substance in that, but often those who shout the most about rates are the first to scream when the quality of services is impaired.
I am pleased that local government appears to be shedding its traditional passive administrative approach. It is now developing skills and developing an awareness that it can be a catalyst for economic expansion. It can help 816 to create an environment within which business men may want to establish themselves. Advance factories are being constructed. Surely that is the way to make progress.
The local government system can offer advice to prospective entrepreneurs. It can develop an environment by building factories and providing support services. It can offer encouragement of all forms. We must attract into local government those with business expertise and enterprise. It is unfair for some to criticise local government and to claim that it is a burden on local entrepreneurs. Properly developed, local government can be an enormous asset in helping to regenerate our ailing economy.
I represent an authority that does not have the powers that it requires because it is not one of the designated authorities and is not a partnership area. It is surrounded by partnership and programme areas. The Under-Secretary of State has listened to a number of delegations with great sympathy. My local authority suffers because it has the will but lacks the statutory base. As a result of Government activity, it lacks part of the financial base that is necessary to enable it to make the necessary decision.
The Government's macroeconomic strategy is profoundly deficient and is responsible in part for the difficult period that has been experienced by small business men. In some instances legislation has been harmful to business men. I was a member of the Committee that considered the recent Companies Bill, and I can point to a number of further obstacles that are being placed in the way of business efficiency.
Despite the eulogistic words that I have heard from Conservative Members, the Government are pastoralising large parts of the country, which is to be regretted. We have heard—not only today, but many times in the past—not just a bias against local government, but often a bias against universities. Universities are supposedly a haven for people who can make no contribution to anything other than turgid academic studies and research. That is not entirely true. Lessons can be learnt from abroad. We need more departments in our universities specialising in business administration.
My hon. Friend the Member for Dunfermline (Mr. Douglas) spoke about the need for more schools of business studies in Scotland. How long would it take for the number of successful graduates in business studies each year to percolate their way around British business? We would need a tenfold increase in the number of business schools. Yet some of those very institutions specialising in the needs of industry are bearing the greatest brunt of the Government's assault on higher education. I refer, in particular, to Aston university.
American, Japanese and German universities are the centre of gravity within the local community. Not only do they have a fund of expertise that they can pump out into their industrial hinterland, but they have within their portals the expertise necessary to stimulate, encourage and sustain.
More must be done to encourage business studies and to encourage business men to lecture and study at universities. We must stop thinking that once we reach a certain stage in our careers all that we are good for is communicating the skills that we have acquired. That is arrogant, because only the final nail in the coffin should prevent us from continuing to learn. We must be prepared to study throughout our lives. Business men, civil servants 817 and bank managers should go to university. I do not think that the banking profession has done all that it can to stimulate small businesses.
Statistics show that in Japan loans from banks amount to about 15 per cent. of that country's gross national product. In Germany the figure is 8 per cent., but in the United Kingdom loans amount to only 3 per cent. of our gross national product. In Japan the duration of the loan is 15 to 20 years, in Germany it is seven years or more, but in the United Kingdom the average duration is two and a half years. If we compare the amount of borrowing in relation to the total assets of the company, which reflects the degree of risk that the bank is prepared to take, we see that in Japan it amounts two-thirds of the assets of the company, in Germany also two-thirds, but in the United Kingdom only about one-third of the assets of the company, and then for a period of about two or three years only.
We need a climate within which the entrepreneur is able to succeed. He will have to overcome the crisis points that he will experience at each stage in his development. He will have to fight his way through the hostile environment not just of his domestic or international competitors but, in some ways, that sometimes created by the actions of local and central Government, the support services and the banks. We must try to minimise that hostile environment to create the scope and conditions for the business man to be able to develop, make profits, create jobs and contribute towards the major national good.
Local government has much control over the small business sector, the growth of which can be severely inhibited if suitable premises with short leases are not available. The clearing banks are stifling business investment compared with what is happening in Germany and Japan. That is partly due to the traditional conservatism of British banking.
I have described some of the prerequisites for the expansion of the small business sector. The Government and business men must have imagination and dynamism. There must be co-operation. Small businesses need cash to set up and to sustain them. Only then can they create the wealth upon which we depend. Government intervention is important. The Government should not go back to the early days of the nineteenth century, when they adopted a passive attitude to the economy.
I recently visited the Glebe centre in my constituency, where many youngsters are participating in job creation schemes. The young, mature adults there told me "The tragedy is that we are put on a training scheme for a year and then, before we have acquired the expertise, it is hi-ho and away, and we are in the unemployment queue. We have not benefited enough."
The job creation schemes were not meant to be the alternative to digging a hole simply to give people employment. We must use the job creation schemes for industrial training. If we cannot compete with our major competitors in Japan, France and Germany, we are dead as a nation.
Perhaps we have progressed. Perhaps the machinery to assist small businesses has improved. However, it is a question not just of creating the machinery, but of creating the political and intellectual environment in which business men and entrepreneurs in the public sector can see 818 the need to expand. Perhaps a future Government will get the formula right. There are few signs that this Government have the formula right.
§ Mr. Richard Page (Hertfordshire, South-West)
It is a pleasure to follow the hon. Member for Walsall, South (Mr. George), who made a constructive speech. The House will echo his words about the need to create an environment in which small business can flourish and expand. I am delighted to add my thanks for the opportunity to discuss this subject. It shows that the Government appreciate the value of small businesses.
I have listened to the comments of Opposition Members. When the Labour Government had a problem with small businesses they set up a committee, whereas this Government have introduced constructive and practical measures.
I sympathise with my hon. Friend the Under-Secretary of State, not only because he had to open the debate and will reply to it, but because the small business sector has its tentacles in all aspects of our society. If he is to cover adequately all the points put to him he needs five ministerial colleagues to lighten the load, plus especially a Minister who can deal with the Highlands and Islands. Perhaps that is why the United States has a small business administration to examine all legislation to ensure that it will have no harmful effect on the small business sector. However, my hon. Friend is more than capable, with his expertise, of answering all the questions. He is enthusiastically carrying the banner of small businesses which was raised by my hon. Friend the Member for Basingstoke (Mr. Mitchell).
My hon. Friend the Member for Luton, East (Mr. Bright) said that attitudes had changed over the years. When I came to the House about four years ago and started taking an interest in small businesses, anybody who did that was regarded indulgently and treated in a slightly condescending manner by those engaged in more important matters, such as spending the nation's wealth. They were usually spending it before we had earned it.
I am sorry that Members of the Liberal Party and the SDP—the alliance, for as long as it lasts—could not stay for the end of the debate. I am delighted that the Liberals have produced a joint pamphlet, dated 15 October, describing what they would like to do in an action programme for small businesses. It seems to be a direct crib of what we produced three years ago. Never mind, they will catch up.
The pendulum has now swung back towards reality. International comparisons show that this section of our community offers the main hope if we are to generate the wealth and employment opportunities that we need. Hon. Members have said that small businesses represent a shrunken sector. I do not propose to labour that point but I believe that two things must be done if we are to improve our standing in the international league table of small businesses. First, we must co-ordinate the advice and assistance given to business men. Secondly, there is a need for improvement by employers, Government and trade unions in the training of the school leaver so that Britain has a skilled work force.
I come to the question of advice and support for business men. In the past few years there has been a considerable improvement in the financial requirements of business men operating in the smaller sector. The banks 819 report that when they are approached now for support for a project they are given properly costed analyses and cash flow forecasts rather than the back-of-the-envelope calculations that used to be the norm. However, within that growing sophistication there is a need to provide a single, coherent signpost for business men seeking solutions to any one of a myriad of problems. To that end there must be considerable rationalisation and integration of the Government's services provided by many Departments.
My hon. Friend has already set up three pilot areas in which COSIRA and the small firms unit are co-operating and working together. I have to say that I believe that the problem is far more widespread. This initial move is welcome, but to be practical it must be expanded if we are to overcome the problem and provide the necessary services.
The House of Lords Select Committee on Unemployment commented on the growth of agencies and the duplication of their functions. That reinforces my concern. Further support for the point that I am trying to make comes in a table compiled by Professor D. J. Storey of Durham university's department of economics. He lists the number of agencies available in Cleveland, which number 20. If we add to these the borough councils, the number rises to 25, of which only two do not receive public money. Twenty-one of them are totally supported by public funds. The majority of the agencies, if not all, are unable to offer a complete service to the customer, and the business man—or the would-be business man—has to bounce from one to another if he wants to obtain a complete support package.
I believe that the findings of Professor Storey's table are not unique and would be duplicated through the rest of the country if similar surveys were carried out. In addition, I doubt whether many of the agencies satisfactorily hit the target of providing even fragmented support for the business man. Although this survey was carried out in the years 1973 to 1976, it shows that, out of 310 businesses, 55 per cent. did not even go to any agency, and many of the 55 per cent claimed that they did not even know about the services of those agencies.
I know that the Minister has spent considerable time and effort in promoting the business opportunities programme. He has travelled around the country working extremely hard to inform people of the services available. However, the central problem remains, and the sooner the integration and rationalisation of the services takes place, the sooner we shall have a better service with a single coherent signpost pointing towards assistance for the small business sector.
I would now like to turn to my second point covering youth unemployment. Here I believe that small businesses could, as in Germany, be the catalyst to make a substantial dent in the youth unemployment figures, and in doing so provide Britain with a skilled and trained worked force. Such a work force will be necessary if the smaller business sector is to grow.
I am delighted to welcome the initiatives taken by the Prime Minister concerning grants for school leavers, but we have to look beyond that for a more permanent solution. I believe that there has to be a significant change in attitude on the part of employers, trade unions, and certain Government Departments, and especially in regard to the operation of wages councils.
820 Over the years we have seen the build-up of rigid structures which, far from encouraging youth employment, have had the opposite effect. We have allowed apprentices to be sucked into the collective bargaining system. This, by its very nature, has made apprentices extremely expensive to employ. I speak as an ex-mechanical engineering apprentice. The rigid wage levels have forced employers to pay annual increments which too rapidly put an apprentice's wage near to that of a skilled man. That is one major reason why there has been a move away from offering apprenticeships, with the consequent reduction in the reservoir of skill.
I dislike offering comparisons, because the base is never the same, but I should like to mention some figures so that the size of the problem may be more easily evaluated. Last year West Germany had 1.7 million apprentices working in 460 recognised schemes. Britain had just over 100,000 apprentices working in 20 skilled areas.
I recognise the value of the youth opportunities programme in helping partly to close the gap—the huge increase in its budget shows that the Conservative Government care—but we have to recognise that it is an almost emotional response to unemployment among school leavers. Over the years Governments have felt that unemployment could be cured, to quote partly the right hon. Member for Cardiff, South-East (Mr. Callaghan)—"by a stroke of the Chancellor of the Exchequer's pen".
I should like, in emphasising the requirement for skill, in turn to quote from Mr. Geoffrey Holland, the director of the Manpower Services Commission. He warns:By 1985 nearly 1 million unskilled jobs will be lost—the consequence is clear. Those without skills experience and knowledge will be in very great difficulty in the jobs market.Whether or not we agree that 1 million jobs in that area will go by 1985 or 1990, automation, robotics and information technology will take their toll in the unskilled areas. The present problem will increase over the years unless we provide skilled training for our school leavers.
We must be prepared actively to cost out three proposals that go hand in hand. First, we must consider taking apprentices out of the collective bargaining system, as I have mentioned, and paying them not so much wages as a training allowance on the German lines. Their training allowances are currently about two-thirds of the British equivalent. As an example of our problem I instance some recent NJIC awards, in which a 16-year-old apprentice gets 83p an hour and someone going into the same firm without taking an apprenticeship gets 76.5p an hour. The apprentice, with his day off at school, his payment for examinations and so on, therefore becomes an expensive person to employ, with the obvious discouragement.
Secondly, employers should be offered cash incentives to take on additional apprentices. In this respect the Prime Minister's initiative fits in nicely. Some balance could he struck between the cost of unemployment and youth opportunities schemes per school leaver and the amount that each employer could be offered to take on a new apprentice.
Lastly, we must end the rather old-fashioned attitude that apprentices must serve a fixed period. Skill levels in every trade take a different time to achieve. Let no one tell me, for example, that an apprentice toolmaker and and apprentice motor mechanic need the same time to achieve proficiency.
821 I put forward this second point about unemployment among school leavers not only because I am concerned about it, like every other hon. Member, but because I believe that the small business sector can solve a national problem while being asked to help itself. However, to do this it needs the co-operation of trade unions, employers and the Government.
I am very conscious that I have not touched upon the other areas of advance on the part of the Government over the last two years. Time is running against me. Perhaps I may precis the points by saying that I very much appreciate the way in which the Government have covered the equity gap that existed and the way in which they have gone out into the markets to try to create opportunities for people to invest in new companies. I especially welcome the sale and purchase by companies of their own shares, because that gives people the opportunity to get out of a company if they need the money or want to change to some new operation.
I am slightly disappointed that the opportunity was not taken to allow companies to create Treasury shares, because I think that the market in Treasury shares should be allowed to grow. Through Treasury shares we could encourage across-the-counter share dealings by small local agencies, by which people could be encouraged more directly to invest in local firms.
The Government have done a great deal to create the right environment and framework for smaller business. I welcome and support what they are doing. Now that they have created the framework, all that they have to do is to switch the resources to enable this section of the community to supply the wealth and job opportunities that I know it can supply.
§ Mr. Paul Marland (Gloucestershire, West)
I was encouraged by the report given by my hon. Friend the Minister when he updated the House on what is taking place in his Department. As many hon. Members have said, our function is to create the right environment to encourage small businesses to prosper and have a go. I am delighted with the unanimity in the House that that is the objective of the exercise.
It is a pity that so much of what has been said and done by the Department has not been more widely publicised. There is a great deal of confusion and misunderstanding surrounding some of the things done by the Government to ease the lot of small businesses. I refer especially to employment legislation. Many companies are uncertain about the exact position.
Because of the time, I wish to focus attention—I hope it will receive some modest publicity—on one aspect of help that the Government have given to small business, and one that is all too often ignored—the provision of premises. As my hon. Friend the Member for Luton, East (Mr. Bright) said, premises are vital. Many small businesses begin in gardeners' sheds and garages, but they grow. Other enterprises often need to begin with better premises to house their plant and equipment. In recognising that need, the Finance Act 1980 introduced a 100 per cent. capital allowance for small industrial buildings.
If I can avoid accusations of being parochial, I wish to tell the House how that scheme has been used successfully 822 in my constituency, with the assistance of the local authority. It has given tremendous help and encouragement to those in the district seeking employment. The unemployment rate in West Gloucestershire is more than 11 per cent. It is not a development area. There is little hope of any major new employer coming to the district. Existing firms are trimming their labour requirements and some, sadly, are even closing down.
One firm, Durakin, which manufactured containers, closed down recently. A group of its ex-employees formed their own company, called Contherm, which began 18 months ago with three directors and one employee. They all worked on the shop floor. It now employs 50. I hope that the enterprise grant referred to by the Minister will encourage more people to start up, providing they can find the right premises and conditions in which to operate.
In 1979–80, the local authority in the Forest of Dean planned to build a £200,000 factory. The trouble was that the rent it would have to charge of £3 a square foot would leave a shortfall that would have to be picked up by the ratepayers. The average rent in that area is about £2 a sq. ft. The difficulty was that the local authority factory would be more expensive than others that were available in the district. Nevertheless, it pushed ahead with the project, and great credit should be given to it for that.
With the passing of the 1980 Act, the local treasurer soon twigged the great opportunities available to him to refinance the project. Happily, a large financial organisation offered to buy the factory and lease it to the local authority for £2 a sq. ft. I am glad to say that, the factory of 12,000 sq. ft. was occupied immediately it was completed. So encouraged was the local authority by that first effort that it immediately ordered a second factory to be built nearby. That was opened this month. I am pleased to say that, of the seven units in that second factory, six have been let. That is a fine example of how local authorities can, if they have the determination, show the way. That local authority has that determination. It has been substantially backed up by the passing of the Finance Act 1980. I am greatly encouraged by what it has done.
I hope that when the spine road has been extended to the industrial site that is being developed a third factory will be built. Whether it will be by the local authority or by a private developer is not yet certain. There is no doubt that private developers have been attracted to the area as a result of the construction of the two new factories. I am sorry that not enough people, whether in West Gloucestershire or in the nation, realise how those new factories are being financed. It is due to the clever thinking of this Administration that we have been able to introduce such a scheme, of which people have taken advantage and which has provided premises for new businesses to set up and expand.
If that is coupled with the new business start-up scheme introduced in 1981, we have a winning recipe for creating many new jobs. It is a slow process and I know that those who are now out of work want a job tomorrow. They do not want to wait endlessly for new opportunities. We can offer hope with the schemes that we are discussing and to which we are considering making improvements. We must carry on in the same vein as now.
I wish my hon. Friend the Minister the best of luck in carrying on his work in the future. My contribution to the debate will be to urge my hon. Friend to use his best endeavours to extend the scheme of 100 per cent. capital allowances beyond March 1983.
§ 2.2 pm
By leave of the House, I should like to respond to a number of the points that have been made.
It is highly appropriate that during a large part of the debate we have been discussing small business matters under your chairmanship, Mr. Deputy Speaker. Many of us recall that, with my hon. Friend the Member for Gloucestershire, South (Mr. Cope) who, as a Lord Commissioner to the Treasury, sat on the Benches for a large part of the debate, you wrote the pamphlet entitled "Acorns to Oaks" many years ago. It was the precursor of the Bolton report. In many ways it encouraged the debate in the House and elsewhere which persuaded the Labour Government to set up the Bolton report. I have been flicking through the pamphlet again and it has been interesting how many of the measures that have been warmly welcomed now were urged by you, Mr. Deputy Speaker, and my hon. Friend the Member for Gloucestershire, South in those days and how much of what has been said in tribute to small firms was first identified by you.
It has been an excellent debate. It has demonstrated once again the enormous interest of Conservative Members in small businesses. Once again it has shown that my hon. Friends speak from practical experience as well as conviction. I exclude from my previous strictures on lack of interest on the Opposition Benches the right hon. Member for Rutherglen (Mr. MacKenzie), who did much to encourage the movement of small businesses, and the hon. Members for Dunfermline (Mr. Douglas) and Walsall, South (Mr. George). The speech of the hon. Member for Walsall, South displayed a real interest in the problems faced by small business men. I agree with him about the importance of getting people with industrial experience and an awareness of industry more into academic institutions and the public sector.
The hon. Member for Norwich, South (Mr. Garrett) struck the only unconstructive note in the debate. It surprised me that his analysis left out so many of the realities of the present economic situation. To listen to the hon. Gentleman's speech, one would not have thought that unit labour costs between 1975 and 1980 rose by 87 per cent. and that none of our major competitors reached anywhere near that appalling percentage. One would not have thought that wages had risen by over 300 per cent. in the last 10 years and output by only 15 per cent.
One would not have thought that in the years before and including the early stages of this Government's coming to power our international competitiveness went down by almost 60 per cent. One would not have thought that overmanning continued during the years of the hon. Gentleman's Government, often on a drastic scale, and that decisions, for example in the British Steel Corporation, on over-capacity and overmanning had been fudged and, therefore, had to be tackled late by this Government. One would not have thought that public expenditure had consistently been too high and had affected the private sector. One would not have thought that there would be the endless interference in the business community that we saw in so much of the legislation introduced between 1974 and 1979.
Those are problems that we have had to tackle at a time of world recession. We have worked from a poorer economic base than most of our competitors and on a short time scale. It is not surprising that there are difficulties in 824 the business world, but at least the Government are tackling them. Had they been tackled earlier, we should not have the present problems.
At least overmanning is being dealt with. The process may have a major effect on employment in the short and medium terms, but it is necessary in the long term. Restrictive practices are being substantially reduced. Output per man hour is rising and we now have a considerable productive potential. At least unit labour costs are now stabilising, our competitiveness is improving and there are more realistic pay settlements. It is that side of the economic picture to which attention must be drawn.
§ Mr. John Garrett
That is one-sided. The main fact that has emerged from the debate is that the rate of new company births is no higher than it was during the 1970s, and the rate of company deaths is the highest ever recorded. The message, that must go to Britain from the House is that the Government's economic policies are squeezing small businesses out of existence. That is what the facts show.
§ Mr. MacGregor
I shall deal with the facts in a moment. They certainly do not show that. The message that is coming from the economy is that we have halted the constant drift in our decline relative to other countries, and we are beginning to restore a competitive basis. Small businesses, as many hon. Members have recognised, have a major part to play in that.
The hon. Gentleman's remedies, such as they were—I agree with my hon. Friend the Member for Harrow, Central (Mr. Grant)—included more public expenditure at a high level and more intervention. That is the last thing that small businesses want.
My hon. Friend the Member for Harrow, Central made a robust and pertinent speech. I agree with his comments and the tributes that he paid to the Small Business Bureau—which is now chaired by my hon. Friend the Member for Surrey, North-West (Mr. Grylls)—and to my hon. Friend the Member for Upminster (Mr. Loveridge), who now chairs our smaller businesses committee. I take fully my hon. Friend's point that the most important aspect of small businesses has been the increase in public sector prices, including those of the nationalised industries, compared with private sector increases during the year. There are many reasons for that which we do not have time to go into now.
One thing that has struck me in the past 10 months, and before, is that no matter what we do—the Government have done many things in relation to nationalised industries, for example by taking them to the Monopolies and Mergers Commission—at the end of the day the fundamental problem is that there are large public sector monopolies. The difficulty that faces all Governments, is how to ensure that increases in costs are not passed on in price increases to the consumer without the measures that the private sector, in a competitive position, has had to take over the past two years, including greater efficiency and dealing with overmanning. That is the major difficulty, on which much of our attention must be focused.
The Government have taken many steps, the full effect of which will not be felt for some time, in the direction of privatisation—I know that the hon. Member for Dunfermline does not like that word—and to inject more 825 competition into the affected areas. Those steps may not come through in the short term, except in the case of the National Bus Company and present bus services, but they will increasingly have their effect as they work through.
Several hon. Members referred to public sector purchasing. The right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) mentioned especially public sector tenders in rural areas. We shall consider the matter in the review of public sector purchasing and small firms.
My hon. Friend the Member for Harrow, Central also mentioned a hairdressing establishment in his constituency. I am conscious of the need to ensure that all burdens placed on small firms are reasonable. If my hon. Friend writes to me, I shall look at the particular example.
The right hon. Member for Roxburgh, Selkirk and Peebles and the hon. Member for Norwich, South also dealt with statistics and monitoring information on the small business sector. I was grateful for the right hon. Gentleman's constructive speech and his positive approach. As I said, statistics on small businesses in all countries are faulty. There is a problem. If one wants precise statistics, including statistics on employment creation, numbers employed at any one time and so on, across the range of small firms, one will incur, perhaps not always cost-effectively, a good deal more public sector cost and, above all, put more burdens on small firms. The hon. Member for Isle of Ely (Mr. Freud) said that small firms do not want excessive demands for form-filling and questionnaires. We have to strike a balance.
Previous sources of statistics have been faulty. That applies also to the statistics that the hon. Member for Norwich, South mentioned. Company registrations are unsatisfactory as a source of specific data on births and deaths of small firms. The hon. Gentleman quoted statistics on bankruptcies and liquidations, but they refer only to a proportion—I admit an important proportion—of possible deaths. We must find something that establishes a proper comparison and is reasonably accurate.
From work in my Department we have decided that at this stage VAT returns offer the only practical and, one hopes, reliable alternative. However, the raw data there also have their difficulties, mainly because not all registrations and deregistrations relate to births and deaths of firms. We have, therefore, been doing new work on the data, and that is the work to which the right hon. Member for Roxburgh, Selkirk and Peebles referred. It leads us to the view that in 1980 births and deaths were broadly in balance.
As with all Government statistics, they have to be updated as the final figures are worked out, but that broadly shows the position. It is important to emphasise that at this stage. So often the emphasis is on deaths, because bankruptcy and liquidation figures are clear, and we rarely bring to public attention how many new businesses are created all the time—very much so at present.
§ Mr. David Steel
The Minister says that, according to the information, births and deaths almost equal each other. However, within the total figure of births and deaths, we have no figures to show the number of employees lost in deaths and the number gained in births.
§ Mr. MacGregor
That is correct. We are dealing with a new assessment of figures at an early stage, and that aspect does not come through in the VAT registers.
Newly evaluated data of that sort, which attempt to clarify more clearly from the VAT registers the precise numbers of new births and deaths, cannot be compared with VAT figures in earlier years. That is the understandable error—he could not have known otherwise—that the hon. Member for Blackburn (Mr. Straw) made in his letter to the Financial Times. In fact, if the hon. Gentleman had taken VAT registrations gross, which we are not doing in our work, he would have seen that they rose between 1974 and 1980 and did not, as he suggested, fall.
We are using net figures and they are not comparable with those of previous years. We still have to make qualifications about the new figures, because births will not include those that have not reached the VAT threshold. It may seem slightly pedantic, but some births that come into the VAT figures will be firms that have been in existence in previous years but have been below the threshold. Of course, they will have been very small firms.
There are also problems in identifying subsidiaries and associates. That is why we are continuing to work on the subject, but so far our work does not seem to affect the broad conclusion for last year that a large number of new businesses were brought into existence every month and that in a difficult period of recession the number of births and deaths was broadly in balance.
The right hon. Member for Rutherglen has a commitment to small firms, which I recognise. I feel that much of what he achieved in the previous Government went out of the window under his successor. The right hon. Gentleman referred to the cash flow difficulties of small firms caused by delays in the payment of bills. I recognise that that is a difficult issue. The Law Commission recommended in a much wider-ranging report about three years ago that consideration should be given to compulsory interest payments being made on delayed payments after a certain period.
My predecessor consulted a wide range of groups and individuals, including the small firms' organisations, and the general reaction to that proposal was that there should not be such intervention. That is why it was announced shortly before I took over my responsibilities that the Government would not proceed with the proposal.
Therefore, the scope for Government action is limited. My predecessor commended the initiative of the Institute of Purchasing and Supply which introduced in July last year a guide to good buying practice from small firms. Perhaps I should take another such initiative to draw attention of larger companies to the problem.
The right hon. Member for Rutherglen mentioned Government Departments. I assure him that they are under a standing instruction to settle bills as promptly as possible. Nationalised industries have been reminded of the importance of that to small firms. I shall be glad to look at areas where that is not happening.
The right hon. Member made an interesting point about the general sources of advice on small firms' policy. I try to tap as many sources of advice as possible. The right hon. Gentleman knows that there has been a growing number of small firm representative organisations and their voice is heard much more strongly.
An announcement was made in the press today of the appointment to the NEDC of the chairman of the CBI's 827 smaller firms council, Mr. Jeremy Pope, who, I know, has a deep interest in, and widespread knowledge of, small firms. I am delighted that he will be serving on the NEDC in his own right.
My hon. Friend the Member for Surrey, North-West, who has had to leave to attend a constituency engagement, referred in passing to the study group which he, as chairman of the Conservative industry committee, set up into bank finance. The group's proposals are being studied by my Department and by Ministers. It suggested a considerable extension to the loan guarantee scheme and a number of hon. Members have made similar comments.
There seems to be some misunderstanding about the premium. It is 2.4 per cent. as a cost to the borrower, because it is on the 80 per cent. of the loan. Many people think that it is 3 per cent. on top of what the bank charges.
We intend the scheme to be self-financing and it is different from those overseas, so one cannot draw directly from their experience.
I assure the House that we shall continue to monitor the work of the scheme in relation to the premium, but it is too early to make a change in the earlier judgments. People often forget the most important point about the loan guarantee scheme. As the hon. Member for Norwich, South rightly said, it was intended to encourage additional lending. If that is our intention, we should be under considerable criticism from small businesses which receive bank lending in normal circumstances—it could be a marginal loan, at the top margial rate over base—if in a scheme guaranteed by the Government for additional lending on even more risky propositions the borrower could obtain lower rates, even including the premium, than existing rates of interest which other small business men are paying.
The guarantee scheme is therefore pitched in such a way that, with competition applying, it is either at that level of normal marginal lending or just above. That is a further important consideration in relation to the premium.
An extension of the £75,000 limit could certainly be considered in the review, but I believe that that limit reasonably ensures that small businesses will benefit. If we raise the ceiling, allowing many other businesses to take part, the take-up is likely to be far greater and we are likely to reach the present ceiling more quickly, so it would not necessarily benefit the small businesses.
The loan guarantee scheme can be and is being used by firms and banks as part of a wider package, so that lending under the scheme comes in to top up other loans from banks in a single package—allowing the loans to go to the type of firm described by my hon. Friend the Member for Upminster.
I am grateful to my hon. Friend the Member for Surrey, North-West for his recognition of what he described as the modest role of the small firms service. He urged that we should expand the team in the Department of Industry which deals with small firms. He accepted that it was surprising that this should be urged by someone with his views.
I assure my hon. Friend that I have a good and effective team. Despite talk in the House about bureaucracy, the civil servants in my Department and the 65 who work in the small firms service—along with the 151 counsellors, who are business men themselves, of course—are in the front line with business and are enthusiastic about working for small businesses. Wherever they go, they receive a good reception from small business men.
828 The hon. Member for Dunfermline referred to co-operatives and to a report that he was drafting about their role in employment generation. I stress the words "employment generation" since for me that is the crucial aspect in which co-operatives have an important role to play. That is the emphasis that I have given to the renewed Co-operative Development Agency, with its new board. There was considerable discussion in the House earlier about this new direction for the CDA, and it received warm support from the right hon. Member for Orkney and Shetland (Mr. Grimond), as well as from the hon. Member for Edmonton (Mr. Graham) who knows a great deal about co-operatives.
The Under-Secretary of State for Scotland, my hon. Friend the Member for Edinburgh, North (Mr. Fletcher), asked me to express his regret that he could not be here today, but I shall pass on to him all that has been said about Scotland.
My hon. Friend the Member for Upminster concentrated upon medium-sized businesses. I know of his great interest in this and no doubt I shall continue to discuss with him ways in which we can pursue these matters. I very much agree with him about robotics and the importance of finding new ways to create jobs.
My hon. Friend the Member for Plymouth, Drake (Miss Fookes) made very favourable remarks about the business opportunities programme. I am grateful that she and several others of my hon. Friends stressed the need for greater publicity for the measures. I look forward to being in Plymouth on Wednesday as part of the programme and I shall certainly discuss with the director of the chamber of trade and commerce the points that she raised about the loan guarantee scheme.
I cannot comment on particular cases, but clearly not all loan guarantee scheme applications can be entertained. At the end of the day, we must leave it to the banks and the bank managers who have not only the expertise but the local knowledge to make the judgments.
My hon. Friend referred also to VAT threshold. I confirm that, under the EEC regulations, it is only possible to raise this in line with inflation. Our own threshold levels, however, are higher than those of at least four of our European partners, including West Germany. I cannot give the undertaking that she seeks, as clearly that is a matter for my right hon. and learned Friend the Chancellor of the Exchequer, but I shall certainly draw the attention of Treasury Ministers to the point that she made.
My hon. Friend the Member for Luton, East (Mr. Bright), in an excellent speech, gave a devastating description of the anti-small business fiscal climate created by the Labour Government. I was interested to hear his comments about premises, as he speaks from direct experience. I am delighted that he feels that the climate has changed a great deal in that respect, too. He rightly drew attention to the present widespread concern among small businesses and, indeed, among all industry and commerce about the impact of rates. I have no doubt that he will wish to say more about this when the Bill prepared by my right hon. Friend the Secretary of State for the Environment comes before the House.
My hon. Friend the Member for Hertfordshire, South-West (Mr. Page), in a thoughtful speech, raised two main points. With regard to the co-ordination of advice, I recently held a conferece in the North-West on the problem of the proliferation of agencies, at which we had a very helpful first discussion. I would certainly never 829 wish to go so far as to centralise or over-co-ordinate. I believe that great advantages derive from the fact that so many different types of person and organisation from both the private and the public sector become involved. But if there is a problem of co-ordination, I am certainly very much alert to that.
I was delighted to hear that my hon. Friend is pleased about the three pilot schemes bringing together the small firms service and COSIRA. We certainly look forward to seeing what will come out of that. From my many conversations with him, I know that my hon. Friend will continue to work on this and I look forward to benefiting from that.
On youth unemployment, my hon. Friend will know that the former Minister of State at the Department of Employment wrote to the wages councils drawing their attention to the new scheme that my hon. Friend mentioned. I hope that they will take full account of it. He will also see that in the recent debates on the Queen's Speech my right hon. Friend the Secretary of State for Employment made a number of remarks similar to his own in a number of respects, drawing on West German experience. I shall certainly draw my right hon. Friend's attention to his comments.
My hon. Friend the Member for Gloucestershire, West (Mr. Marland) gave an interesting example of the way in which the industrial buildings allowance is now being used. We are and shall be monitoring this. We are currently carrying out a review of the impact of that allowance. We shall shortly be collating the results of it with a view to considering what might be done about extending the scheme after the three-year period runs out. At this stage, I cannot tell what will come out of that, and ultimately, of course, it must be a matter for my right hon. and learned Friend the Chancellor of the Exchequer.
I hope that I have dealt with most of the specific points that were raised. The message that I take away with me and which has come through clearly in the debate is that the Government are going in the right direction and that the House, particularly my hon. Friends, want them to keep going and to go much harder. I assure them that I take that message fully on board.
§ Motion, by leave, withdrawn.
§ Mr. Deputy Speaker (Mr. Bernard Weatherill)
With the leave of the House, I shall put together the questions on the motions standing in the name of the hon. Member for Carlton (Mr. Holland) on behalf of the Committee of Selection.