Small Business Bill

HC Deb 18 January 1985 vol 71 cc688-704

Order for Second Reading read.

1.12 pm

Mr. Michael Grylls (Surrey, North-West)

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

The essence of the Bill, which is somewhat novel in content—but we can come to that in a moment—is a conscious restraint upon the power of the Government. In considering the needs of the small independent firm, we believe that this is very important. It is a very short Bill. It provides the parliamentary mechanism for restraint of the power of the Government. A not very attractive phrase has been coined—deregulation—but it fairly accurately describes this mechanism.

It is common knowledge among those who think about the health of smaller firms generally that, by and large, small businesses do not want money handouts from the Government. They want to get the Government off their backs. The Bill will help to bring that about. Small firms want less government in their daily business lives.

I am greatly indebted to one of my joint sponsors, my hon. Friend the Member for Stafford (Mr. Cash), who has brought considerable political and legislative experience and skill to the preparation of the Bill. He has played a very important part in framing the Bill. If the deregulation programme rolls forward, as we hope that it will, small firms in general will owe my hon. Friend a very great debt.

I am pleased that the main organisations that represent smaller firms up and down the country—the CBI, the Institute of Directors, the Forum of Private Business, the National Federation of Self Employed and Small Businesses and all the main organisations representing small, independent businesses in Britain — are firmly behind this measure. I am grateful to many of those organisations which have helped enormously with the framing of the Bill.

The House will probably wish me to say something about the background to the Bill. As a result of all the legislation of the past 30, 40 or 50 years, it has to be recognised that Ministers and their officials must take responsibility for the impact of the legislation that they have been responsible for drafting. They cannot escape the concept of informed decision-making and the impact of those decisions on the smaller businesses.

I hope that when my hon. Friend the Minister speaks, we shall hear a firm commitment by the Government to a determined continuing review—a rolling programme—of all existing and new legislation. It is vital that that should happen if, in practice, the Government are to deliver their promise to aid, counsel, assist and protect the smaller firm.

I should like to make it clear that this is not a request for partisan legislation, but we need to tilt the economic legislation and environment in favour of small businesses and to overcome, by doing so, the inevitable and factual advantages of a concentration of economic power that large firms can enjoy. Uniquely in the western industrialised world—this is an important part of the economic and unemployment problems that Britain faces —we have allowed an over-concentration of economic power. That has resulted in greater difficulties for smaller firms.

I should like to refer to what happens in practice. The first knowledge that a small business man might have of a Government regulation is when the Government inspector arrives on his doorstep, identifies himself and says that that firm has not complied with that regulation. Is that sensible? Why should the small business man have to go to the Government and let them know of the regulations that he finds a burden when the burden has been placed on his firm by the Government? It may well be in the natural scheme of things for large organisations to have regular communication with the Government, but it is not the nature of the small business man or woman to have regular contact with the Government; nor does he or she have the staff to do so.

The House also needs to appreciate that the intention behind the Bill and the Government's declared objective of simplifying the legislative burdens faced by smaller businesses is to reduce not the totality of legislation, but its damaging impact on smaller businesses. In clause 2(3) the Bill states that the Secretary of State shall take into account the underlying objectives of existing legislation". The Bill is pinpointing the fact that the costs and benefits of legislation should be subject to continual review by all Government Departments. There should be a continuing justification for all legislation.

In the Bill we have made a suggestion—it is only a suggestion—that there should be an annual report to bring about the rolling programme of review. However, on reflection the House might think that an annual report by all Government Departments is not necessary, provided that a programme of deregulation is taking place. If the Bill is used as a mechanism, there will be a continual flow of statutory instruments simplifying the regulations along the lines that I have described. Therefore, the House might feel that there is no need for an annual report as well. It will need time to think about that.

In considering how the burdens on the small firm can be eased, the House must ask itself a simple but fundamental question: are the legislative objectives of a measure met by including all firms, whether large, medium or small, within one standard? Would it not be more practical to set the goals of that legislation and then to allow firms to find separate ways of meeting them, subject perhaps to a monitoring procedure?

In considering deregulation, hon. Members may ask why the same information should be collected by a firm that controls, for example, only one tenth of 1 per cent. of the market as by a firm that controls 30 per cent. of it. Looked at like that, it is clearly ludicrous. Yet that is the result of much of our legislation, and it is absurd. The legislative expense per unit or per pound of turnover is much greater for small firms. If the cost of implementing legislation is £10,000, it is easily absorbed and hardly noticed by large firms. However, for a small or medium-sized business, it is quite a lot to swallow.

I shall quote from a report written by probably the most knowledgeable expert on small firms in Britain, Mr. Barry Baldwin, who is a partner in the well-known firm of Price Waterhouse. The extract is relevant to the Bill. Mr. Baldwin says: Government officials in all departments must be made to think about small firms and the effects of proposed legislation and even if they decide that there is not a case to 'tier' legislation they must demonstrate that they have considered the problems created for smaller firms. In particular the timing and cost involved for the smaller businessman, to comply with the legislation and to achieve the goal of the legislator, must be fully demonstrated. It must be recognised that certain legislation can only benefit firms large enough to implement and meet the proposals. This emphasises the need for all social and economic legislation to be examined and justified in this way. That is a very good summing up of the position.

As a starting point, could not the Government invite the trade unions, the employers and anyone else concerned with the good of independent businesses to set up a programme of identifying the burdens that they find onerous? That would be a good starting point, and the private sector would then be working with the Government in reviewing all legislation. It is important to recognise that the cumulative impact of duplicating and contradictory regulations imposed on small firms by central and local government is a considerable burden. In trying to bring about a review of the burdens faced by small firms we must look at that point.

Professor Galbraith has put the matter well. The United States has gone through the deregulation process and is beginning to have quite an effective programme. He said: All regulatory policy should have categories. Without retreat on regulatory objectives"— it is important to emphasise that we are maintaining the legislation's main objectives— there should always be consideration of cost and reporting requirements for the small firm. By treating large and small alike, one treats them differently. In considering whether the Bill can provide the mechanism whereby firms can get out of that quagmire of legislation, it must be borne in mind that the present situation inhibits new firms from starting and existing firms from expanding. It is not necessary to list the plurality of legislation that has built up relating to planning and reporting requirements on health and safety at work legislation to realise that some simplification is necessary. There might be a programme for simplification running over 10 years, but the sooner we get started the better.

It is inevitable that when we try to reduce the burdens on firms, proposals meet vigorous opposition from the existing bureaucracy and some politicians. It is time that Parliament recognised, through an Act of Parliament, that small firms have been hurt by inflexible, uniform regulations and over-zealous enforcement proceedings. We all know about that from our postbags. Such regulations are aimed at the smallest, and possibly the most defenceless, targets. The irony is that we shall depend on small firms for new jobs and a solution to the problem of unemployment which worries us all.

There is a conflict in that Whitehall and some sections of Westminster do not recognise that over-regulation is a problem because the people concerned have never had to cope with it. They have never experienced an inspector knocking on the door and saying, "Do you realise that you have contravened regulations, X, Y and Z?" The business man's face drains, although he has done nothing desperately wrong. His attention is diverted from his business to deal with the problem. We should remember that, of the 35 million new jobs that have been created in the United States during the past 15 years, only 6 million were in large-scale industry. The rest were in small firms. If we want a massive increase in new jobs, we must recognise that they will come primarily from the small firms sector.

I pay tribute to the work of my hon. Friend the Minister and his Department in trying to improve the climate. The Bill would enable him to push his work forward more quickly and to remove the burdens and obstacles about which we hear so much. I hope that the House will give the Bill a fair wind to ensure that the process of deregulation can get under way quickly.

1.28 pm

Mr. Paddy Ashdown (Yeovil)

The House will understand my regret at having to leave before the end of the debate, because this is the first time that I have spoken from the Dispatch Box. I apologise to the House for that discourtesy. I have already apologised to the hon. Member for Surrey, North-West (Mr. Grylls) and to the Minister. I am sure that the House understands that we all have constituency engagements and that there was no way in which I could have predicted that the Labour party would today, once again, abandon its responsibility as Her Majesty's Opposition. That leads to our having to take up that duty, which we perform as Her Majesty's responsible, if not as yet official, Opposition.

Mr. Alex Carlile (Montgomery)

Before my hon. Friend moves to the meat of his speech, perhaps he will say whether he agrees that it is disgraceful not only that the Labour party Front Bench has not turned up for the debate, but that not one Labour Member is present to discuss small businesses, which employ many trade union members?

Mr. Ashdown

My hon. and learned Friend makes the point that I was about to make. I wish to make a short speech, because many hon. Members wish to speak, but I cannot let the moment pass without commenting on that matter.

The Labour party complains about the problem of unemployment, yet fails to be present to discuss a key item of Government policy which can do as much to reduce unemployment as most other items. That reveals its claims to care to be hollow, sham and rhetoric. Although we hear a lot about the Labour party's new move towards setting up a socially responsible enterprise economy, Labour Members are absent when we can discuss that matter.

I congratulate the hon. Member for Surrey, North-West on having obtained a place in the ballot and choosing this subject. We have had three debates on small businesses during the past few years, all of which have been on a Friday. It is an important matter, as the hon. Gentleman recognised when introducing the Bill, but it is a pity that we must consider it yet again on a Friday.

The alliance supports the Bill. The hon. Gentleman puts it in its right context by saying that it is designed to remove burdens from small industry. He rightly pointed out the expenses that small businesses have to carry to observe legislation. The Bill is designed to create a climate or a set of benchmarks for the Government to aim at and for us to prompt them to achieve.

I pay tribute to the Under-Secretary of State. He knows that we would have preferred to see a Cabinet Minister present. One of the achievements of the Lib-Lab pact was the appointment of a Cabinet Minister with responsibility for small businesses. No doubt the hon. Gentleman would like to be a Cabinet Minister in the near future. Nevertheless, the hon. Gentleman has dedicated himself to his task and identified himself in the public eye with small businesses. He has done a great deal, although not enough, within the terms of his job to pursue their best interests. He has generated energy in his task, which has the admiration of many hon. Members.

I have two reservations about the Bill. Clause 2(2) is a general statement, to which we can easily adhere and which we can adopt with enthusiasm, except for one small caveat. I suspect that some Conservative Members would see within the terms of the subsection the possibility, for instance, of amending the legislation where it touches wages councils. We would strongly oppose that. Wages councils are inadequate mechanisms to preserve the wages of the poorly paid. Nevertheless, they are the only available mechanism. In the absence of a more efficient form of mechanism, I would not like to see wages councils brought within that subsection. In many cases small businesses, regrettably and understandably, have to pay wages which are lower than they should be.

Secondly, in clause 4(3) we would prefer to see a positive, not a negative, procedure.

I shall make four points as briefly as possible. Three are points of detail, and one is about policy direction. First, I am delighted that the Bill includes provisions for Government procurement. Hon. Members on both sides of the House believe that Government procurement is one of the chief mechanisms to encourage small industry. I hope that the Minister will consider legislation, or at least a change in attitude, similar to that in America. It has had a considerable impact on small industries in America. I hope that the Government will address the matter soon, because it would have an equivalent impact here.

Secondly, as the Bill talks about the burdens on small industries, I should mention briefly the operation of the VAT authorities and the Inland Revenue. There is evidence that those authorities, following legislation to the letter, if not its spirit, proceed in a way that is frequently disadvantageous to small businesses. I know of cases in my constituency where those two authorities have sought to collect paltry sums from small businesses and have caused, or threatened to cause, their bankruptcy. That is to the advantage of no one: tax is not collected, and the employment that the business could generate vanishes with it.

Thirdly, the Bill should have included something about discriminatory discounts. I realise that the hon. Member for Surrey, North-West has drawn up a broad Bill and that the discriminatory discount problem is a specific one, but I must point out that it is a major problem for many small retail outlets. We hear much about monopoly producers in our society, but we do not hear enough about the power of monopoly purchasers. Many small retail outlets suffer significantly because the discounts given to large chain stores enable them to buy in and to sell goods at prices for which the small retail outlet cannot even buy them in. We need legislation in that area.

I admit—the Minister would no doubt pull me up if I did not — that although there is legislation for this difficult matter in America, it is inadequate. At all events, it is somewhat sensitive. I have considered the problem in some detail and can find no easy way to legislate on it. Perhaps we should draw up a code of conduct to deal with it. I hope that the Government will consider this matter, perhaps at the same time as they consider liberalising the Sunday trading laws, which may affect some small retail outlets. It would be a useful quid pro quo if the two could be considered together.

Fourthly, what worries small industries most is the direction of some of the Government's policies. I understand why they have encouraged an increase in start-ups. They have been successful in doing so, and the number of start-ups has grown significantly as a result of their measures. I want the Government to begin to think not about the sexy area of small business policy. We can all measure the number of start-ups, see how they have progressed, and pat ourselves on the back for having achieved something significant, but it is at the point of expansion—after about a year or a year and a half—that assistance is most important.

The business expansion scheme provides some help at that time, but we need a shift in Government policy. It should be directed towards ensuring that existing small firms can survive, prosper and expand. Such a policy would not only help to reduce the current relatively high level of deaths, but might mean a quantum leap forward in terms of the employment and prosperity created by small businesses. It is at the point when a small business expands from one man to three or five, or changes its position in the market place in order to generate more profits, that a small amount of money — rather more than is currently available — could generate a significantly greater return.

The Government must study the life and death cycles of small businesses. I know that the Minister shares my view that we need more information in that area. We would not wish to place any extra burdens on small businesses in the form of paperwork, but we need more knowledge about their life and death cycles. A shift in emphasis would help small businesses when they are growing.

I congratulate the hon. Member for Surrey, North-West on bringing forward the Bill. The alliance will give the Bill a fair wind, although we may well suggest amendments in Committee. On behalf of the alliance — apparently operating, on this occasion, as the official Opposition—I welcome the Bill.

1.42 pm

Mr. William Cash (Stafford)

The first words in the Bill are For the purpose of promoting enterprise and employment". That is the object to which the Bill is directed and to which the Government are committed. Rapidly changing technology is bringing with it a significant change in the nature of employment. As in other countries in the industrialised world, including Socialist countries such as France and Spain, the current international economic climate has produced in this country unacceptably high unemployment. That has been inevitable. A similar situation occurred in the middle of the 19th century when the industrial revolution was developing and when the spirt of enterprise, harnessed to innovation and communication, provided the motive power for the expansion of small businesses and—yes—profits as people left the land in search of new jobs in the towns and cities.

I declare an interest in this. My great, great grandfather, William Cash, was chairman and founder of the London to Brighton railway, which was established in the 1830s. In 1835 he founded the National Provident Institution. I telephoned the NPI yesterday and was told that my great, great grandfather and his brother-in-law originally invested £10,000 and that the organisation is now valued at £1.6 billion.

Mr. Andrew Rowe (Mid-Kent)

A good Cash return!

Mr. Cash

In those days, the economic and fiscal environment for enterprise enabled small businesses—they were all small businesses then — to grow and flourish. Of course, there were problems. The social conditions of those working in many of the new businesses were often appalling. That had to be put right, and our generation will not allow such problems to recur. However, we must continue to re-create a balanced economic environment in which new businesses can take root and expand and through which we can successfully compete in world markets and provide enough lasting jobs.

Without changes in legislation positively to provide that environment, I believe that we shall fail significantly to reduce unemployment and to achieve our other objective of a society more friendly towards free enterprise. That is why the Bill is important. Over the past 75 years or so we have generated far too much over-complicated legislation, much of which militates against the opportunities of small businesses to grow, especially when the wide functions conferred upon officials are used in an incompetent and bureaucratic way.

Having practised for many years in a field which includes administrative licensing law, I can assure the House that that law is easily misused and that it is very expensive to appeal. That is primarily the fault of the system. We must see the wood for the trees. I put enterprise before administration, although both are needed. We cannot afford administration if we lack enterprise, and too much administration stifles enterprise. I am sure that the Government recognise that, but the months are passing. I await the Government's new initiatives with interest. I hope that my hon. Friend will not mind my adding that I await the passage of legislation on such initiatives more than the announcement of them, and their success in practice more than anything else. We can and surely must not only remove the dead weight of such over-regulation as inhibits enterprise but provide a legislative framework in which it can flourish, as in the United States and Japan.

Opinions may vary about what inhibits enterprise, but I hope that the eventual decisions on the nuts and bolts will be based much more on a bias in favour of a freer climate than against. This will largely determine the outcome. The question is how to go about it. The Bill is a short one of four clauses—a small Bill for small businesses. I see it as a catalyst and a potential vehicle for a coherent legislative and administrative policy, which I feel sure we should all like to see. We surely do not want a mosaic of different amending Bills. That would clog up the parliamentary timetable and turn it into a legislative Russian roulette.

Moreover, the task of stimulating and reinforcing the motive force of free enterprise, already successfully encouraged by the Government, needs to be started as soon as possible, and preferably this Session. I do not believe that we could sensibly achieve our objectives within a single Bill to which is attached a schedule for repeals and/or modifications to legislation. That would be too inflexible and the schedule too obscure and complicated.

Furthermore, relatively few Acts contain the power to make orders amending provisions within those Acts that are sufficiently flexible to be used for the purpose that we have in mind. Anyway, it would be unsatisfactory for the process to be conducted piecemeal, partly in one way and partly in another. The framework needs to be coherent if we are to have an effective and coherent policy. Therefore, I thought it reasonable to devise the Bill as an omnibus measure with maximum flexibility, providing that each Secretary of State will determine for himself how to proceed by taking such steps … as he considers are best calculated to help small businesses in the areas covered by the Bill.

Small businesses are affected by legislation in other measures such as directives and circulars, which have emanated for decades from other Departments. This is often stated, but by any objective standard, the quantity is simply devastating, particularly taking into account EEC legislation and statutory instruments. The volume and rate may be slowing down, but the edifice is still very much there. I invite hon. Members to spare a moment to look in the Library at the vast space devoted to the statute book, statutory instruments and EEC legislation. Not all these measures affect small businesses, but I defy anyone to claim that he knows which do and which do not without a thorough and continuing review.

There is also the question of prospective legislation. Each Secretary of State must retain specific responsibility for all legislation, within the Cabinet and within his Department, including prospective EEC legislation. I recognise the problem of EEC directives and regulations. In a figurative sense, small business activities cross the vertical lines of each Department horizontally. The need for co-ordination is recognised by the important appointment and functions of the Under-Secretary of State for Trade and Industry.

I do not say that this Bill is without imperfections, but the same can be said of all Bills. The volume and complexity of our statute book is good evidence of the need for such a measure. Amendments can be dealt with in Committee or in a subsequent draft. I see the Bill as a catalyst or as a vehicle for the overall objective. I would be concerned greatly—as would others who support the objectives that I have adopted—by an attempt to avoid the central thrust and framework of the proposals by any invisible "Sir Humphrey" or "Sir Pedant", if there are any in real life, who objects to the main political objectives of the Bill or who falls back on the well-worn clichés about technical drafting matters. I am sure that this should not be allowed to happen if we are to avoid and reduce unnecessary over-regulation. I prefer the expression "avoid over-regulation" to the expression "deregulation".

We are trying to strive and battle for the future prosperity of the country, and I for one will back the Government 100 per cent. in this endeavour. Small businesses can play an essential role in this and in the reduction of unemployment. It may be difficult to achieve the balanced but necessary legislative change that we seek, with some duty being achieved through Parliament of the kind set out in clauses 1 and 2.

The legislative review must be done in-house within Departments concerned with a constant and co-ordinated rolling programme, with proper regard for the health and safety of those engaged in small business and the underlying objectives of existing similar legislation and with the benefit of pre-consultation with those affected.

Clause 2(2) is known as a "Henry VIII clause" under which Acts of Parliament may be amended, special provision made or exemption granted by statutory instrument subject to the annulment procedure. That would provide the flexibility that I have mentioned within a single omnibus Act. The objection sometimes taken to such clauses—that they amend by order— is, in my view, overriden by the real and urgent need to accelerate the cutting of a path through the maze of provisions that we have inherited. A small business includes the self-employed individual as well as the small company, but that must be determined by each Secretary of State.

Small businesses vary in size and character according to different sectors of economic activity. I hope that the Minister and the Government will view the Bill as a constructive and positive attempt to stimulate debate and analysis of the means of relieving the legislative-related burdens on the small business man. We hear too much negative and pessimistic talk these days, and that has a gradual and persistent adverse effect upon the confidence of those who are out of work and in work and on young people who want to work. We want to try to reverse those trends.

One of our greatest assets is the independent-minded, productive and innovative risk takers. They have in the past made our country one of the greatest economic forces in the world. We can and must continue to provide them with an environment for enterprise in which they can help to rebuild the confidence of the people of this country in themselves and, in these times of great change, our national confidence in a world in which we must create the conditions in which we can compete on more equal terms with our rivals abroad.

Small businesses cannot on their own achieve all that, but if the legislative and fiscal climate is right they will be better able, in co-operation and partnership with larger enterprises and by sub-contracting from them in a truly competitive environment, to expand their operations. At the same time, by their very nature, they will be able to adjust themselves to rapid change in the modern industrial scene. That has happened in Japan, as recent surveys have shown. Comparisons with the United States on the basis of other recent surveys, perhaps suggesting that interest rates, inflation and taxes are the only real problems facing the entrepreneur, and implying that legislative burdens are not as serious as they are here, overlook the fact that since at least 1953 the United States has effectively tackled the problem of over-regulation. As William Nicholls said in 1983 of United States policy towards small business: Running through the US system was a single strand of political will. With the excellent and enthusiastic efforts of the Minister with responsibility for small businesses and his Department, we are on the same course here, and the Bill is part and parcel of the endeavour.

1.52 pm

Mr. Charles Kennedy (Ross, Cromarty and Skye)

Like others who have spoken, including my hon. Friend the Member for Yeovil (Mr. Ashdown) I support the Bill and the direction in which it goes. I am glad of the opportunity to speak because the area that I represent in the Highlands and Islands of Scotland may not be one that people would immediately associate with small business. However, what would be large businesses elsewhere in the country tends to be small in that part of Britain.

I agree with what other hon. Members have said. Small business provides perhaps the biggest stimulus for future long-term employment. I shall give some idea of how the Highlands and Islands are involved in that. The Highlands and Islands Development Board covers just one aspect of small business. Industrial and business support, through manufacturing services and tourism, in terms of direct grants and loans, support or professional advice, has been given to 464 businesses in 1982, 677 in 1983 and 625 in 1984.

The number of jobs created or retained as a result of the HIDB's presence in what one might generally describe as manufacturing services was estimated to be about 1,800 in the financial year 1983–84. Given the comparative sparsity of population and the high levels of unemployment in some areas, the sponsoring of that number of jobs in small businesses is greatly to be welcomed, as I am sure the Minister will agree.

Nevertheless, unemployment in the area is still appallingly high. The highest travel-to-work unemployment ratio in Scotland is in the Sutherland area, and the Invergordon-Dingwall travel-to-work area in my constituency has the third highest unemployment level in Scotland, with more than 25 per cent. In addition, there are the traditional areas of persistently high unemployment on the west coast, on Skye and in the Western Isles, where the reasons are historical and theoretical as much as economic. In Lochaber, too, unemployment has continued to increase.

One reason for the rise in unemployment has been the recent rapid decline in major industry, especially the closure of the Invergordon aluminium smelter and the pulp mill at Corpach near Fort William. There is clearly an urgent need to rejuvenate industry to pick up the unemployment that has resulted. The national case for public investment in the infrastructure also applies very much in the Highlands and Islands. I strongly agree, however, with the view of the chairman of the HIDB, Mr. Robert Cowan, that the small business sector will be the mainstay in securing stable, long-term employment prospects and any measure that will encourage that sector is greatly to be welcomed.

I especially welcome the Bill's emphasis on the reduction of complexity as it affects small businesses. That is a crucial factor. Clause 2(1) (c) seeks to ensure that all administrative measures and so forth are reviewed annually and that the need for simplification and amendment is constantly monitored. I am sure that the small business sector will welcome that. The suggestion that that rolling review should be dealt with in annual statements to Parliament by Ministers would allow hon. Members to raise specific problems that have arisen in their constituencies and in the small business world generally as well as focusing the attention of Government and civil servants on areas in which further simplification could take place. That proposal is therefore very much to be encouraged.

I have raised this in the Committee now discussing the Social Security Bill, but I hope that at some stage the Minister, who is also conducting his own review, will give us his views on the extension of the statutory sick pay scheme now being proposed and the additional administrative burden that it will impose on small businesses, especially those with fewer than 10 employees which in my area are nevertheless very important. The further accumulation of paperwork will clearly impose a considerable burden on the small employer. Moreover, delays in reimbursement by the DHSS, especially in rural areas in the winter months, when revenue from tourism is reduced and statutory sick pay is most likely to be needed, may involve sums equivalent to the entire profit made by a small business during that period. That encourages more small businesses to take on part-time employees. If more full-time jobs are to be created the burden must be reduced.

This is a good measure which we fully support. We wish it success.

2 pm

Mr. John Browne (Winchester)

As chairman of the Conservative small business committee, I pay tribute to my two predecessors, Mr. John Loveridge and my hon. Friend the Member for Luton, South (Mr. Bright). They had a substantial influence on the Government, who have introduced beneficial legislation in the past five years which has improved the environment for new and small businesses.

I congratulate my hon. Friends the Members for Surrey, North-West (Mr. Grylls) and for Stafford (Mr. Cash) on the drafting of the Bill. They did a superb job. I was pleased to hear the speeches by the hon. Members for Yeovil (Mr. Ashdown) and for Ross, Cromarty and Skye (Mr. Kennedy), who expressed support for the Bill on behalf of the alliance.

Since 1979 the Government have achieved enormous results in improving the climate for new arid small businesses. Much has already been achieved. We now have the most lenient tax regime for investment in new and small businesses in the OECD, including the United States. I pay tribute to the Minister for his considerable role in that achievement.

Although much has been achieved, we must remember that before 1979 Governments of both major parties discriminated against new and small businesses. That happened for 30 years, so there is a massive backlog to deal with. Much has still to be done.

I support the Bill, because it is designed to keep up the momentum of Government policies. I make no excuse for supporting the Bill, despite the fact that it will obviously require added effort by the Government. As I have often said, the future of our nation as a developed society depends implicitly on a successful and vibrant atmosphere to encourage new and small businesses in wealth creation and employment.

In the first and second agricultural revolutions—the use of enclosures and machines on the land—and in the heavy and light industrial revolutions, we were in the lead. We tended to shun the technological revolution, but we must embrace it, as we have in the last five years, if we are to create the wealth necessary for us to remain a developed society.

About 66 per cent. of all new jobs are created by companies with fewer than 200 employees. In the United States in the last five years 29 million jobs have been created by small businesses. That speaks for itself. We must improve the climate if we are to construct one of the most important planks necessary to create genuine employment, which is usually highly paid.

The supporters of the Bill are flexible, and I hope that the Government will regard the Bill as friendly. I hope that they will use, adapt and, if necessary, take it on. As my hon. Friend the Member for Stafford said, the definition of small businesses causes confusion. That area must be honed down in future.

I want to make a plea, through my hon. Friend the Minister, to our right hon. Friend the Chancellor of the Exchequer. The Wilson report correctly pointed out the enormous availability in this country of capital for investment and the dearth of investment opportunities. What the report did not say, and what needs to be rammed home even to this Government, is that the capital exists. The problem is that it is mostly debt capital. New and smaller businesses need equity capital. We must make that definition. The capital in the hands of massive institutions that lend money is entirely different from the capital that accrues in the pockets of people who are used to buying shares and taking equity positions in companies. I urge the Chancellor to continue to break down the tax discriminations that have existed in favour of the institutions and against the individual and to encourage the accumulation of equity funds as opposed to debt funds.

I also urge the Chancellor, in his Budget, to tackle the employment problem on a dual front. Tax thresholds should be lifted so that it is worth while to work. There is an awful marginal stage when it often does not pay someone to work. Secondly, my right hon. Friend should alleviate the problem of taxes on employment, such as the massive employer's contribution.

The Government have already made great headway in encouraging not only entrepreneurs but a whole climate for new and small businesses. I thank the Government and congratulate my hon. Friend the Minister on his very significant part in that. I thank my hon. Friends the sponsors of the Bill, which I hope the Government will take very seriously as it is based upon consultation with industry and many people who represent what is within industry. It is based also upon strong support from Back-Bench Conservative Members. I hope that it will be treated as a supportive Bill, not one of criticism. I hope that the Government will use the Bill. I wish the Bill all success.

2.7 pm

Mr. Andrew Rowe (Mid-Kent)

I am proud to declare an interest. I am both the editor of a small magazine called Small Business and a vice-chairman of the Small Business Bureau. I am delighted to support the chairman of that bureau in the promotion of the Bill.

With one or two exceptions, Ministers and civil servants have no intention of declaring war on small firms. They have the prosperity of small firms at heart. However, sometimes there is a slight jealousy of their freedom of movement that results occasionally in an unsympathetic view of some of their difficulties in filling in returns, but that is a very minor phenomenon. What goes wrong is almost always by misadventure rather than malice. The Bill provides a real opportunity to correct that problem.

One of the difficulties is that Government Departments have a particular objective that they wish to fulfil in a particular piece of legislation. In order to smooth the passage of that legislation, they minimise the wrinkles, difficulties and imperfections and go single-mindedly for a particular objective. I shall give one example of something currently under discussion which, if my remarks are not taken into account, will be a great blow to small businesses.

It is proposed that building society mortgages on mixed shops and residences and on small guest houses should be included in the lending category, which would mean that the amount of money available for lending would be restricted. Yet many building societies have a great deal of experience of satisfactory lending to small businesses. I believe that this is the kind of example of damage done by misadventure which needs to be examined.

Similarly, the definition that somebody is no longer self-employed if he has only one major employer needs to be looked at very carefully. Many adults are perfectly capable of making their own tax returns and social security payments. For this to be added to the burden already placed upon employers rather than being placed upon such people is unnecessary.

I could not agree more with my hon. Friend the Member for Surrey, North-west (Mr. Grylls) about the great damage that is done to small firms by the levying of charges, whether for Government inspections, or for returns of one kind or another, or for licences. Although this is an understandable and commendable search for simplicity, in one way it is enormously regressive, because the small one-man or two-men business finds itself paying the same kind of charge as the large business. As a proportion of total turnover, that is unacceptable. Therefore, the Bill, which will demand that Ministers come to the House and explain exactly what they have done during the year to make sure that the operations of their Departments do not damage small firms, seems to me to be a wonderful step in the right direction, and I wish it every possible success.

2.11 pm

Mr. Lewis Stevens (Nuneaton)

I very much welcome the Bill. It introduces the concept that all of the legislation concerned with small businesses should be looked at in detail. A commitment to try to ease the problems for small businesses, particularly over the volume of legislation, is absolutely necessary. The Bill will not result in the selection of a particular section of the Department of Trade and Industry. It will embrace all Departments that are involved in framing Government legislation which affects small businesses. That means nearly all Departments. It will therefore help to make improvements for small businesses.

Everybody recognises how important small businesses are to our economy. It has been recognised by the Government, for they have introduced enterprise allowances. The Government also recognise the need for help to be given to small businesses by enterprise agencies. In my constituency, the Warwickshire enterprise agency has given excellent advice and help to small companies and to those who are considering setting up in business. However, the amount of legislation which affects small businesses is very difficult to understand. Therefore, it deprives small companies of the enthusiasm to expand. There are both real and imaginary fears about what they can do. Therefore, small companies are deterred from taking the necessary step towards expansion.

The legislation goes beyond that. It leads to the failure of some small businesses. Because they do not understand the legislation, and because the cost of obtaining advice is in some cases so high, small businesses cannot sort out the legislation and then get caught up in various legal procedures. Consequently, their businesses fail. If the Bill means that small businesses can be confident that the legislation has been simplified and that they stand a better chance of understanding the legislation, we shall increase their chances of success and their enthusiasm to move forward. We shall thereby increase the development of small businesses, which are so important to the country.

One area in which legislation is most punitive is in the vital sector of manufacturing. In some cases, it is comparatively easy to run retail industries and companies, but once one becomes involved in manufacturing—the wealth-producing part of the nation which we rely upon and must develop—the problems are more complex and difficult. Those people often have problems persuading banks and run into difficulties. With the confidence and understanding that simplification could bring about, we could see a great improvement. In principle, the Bill will allow that to happen.

In the Bill there is a principle to commit the Government and the Civil Service to look at past legislation and protect future legislation. There is a commitment to report and for various actions to be monitored. That is a principle that the House should support wholeheartedly.

2.15 pm

Mr. John Prescott (Kingston upon Hull, East)

I should like to ask the Minister a question as he has responsibility for small businesses. We would all welcome any Bill on business activity which encourages the reduction of unemployment. Small companies have certainly done that, although there have been many bankruptcies in the past few years.

Yesterday I visited the Greater London council. The Greater London enterprise board is a body of the GLC that actively encourages small businesses. It has already created hundreds, and, with them, thousands of jobs. Therefore, we welcome what the local authorities are doing. However, the Government are considering scrapping the GLC, so that activity might be scrapped as well. Perhaps the Minister will tell us whether the GLED will be left out, because he is known to be an advocate of enterprise boards.

I should like to ask the Minister about a matter that I raised with the Secretary of State when we debated unemployment on 15 January. I inquired about the role of Lord Young, who is examining how to help small businesses. I have access to a document that shows that the Department is considering reducing some of the costs on small businesses, possibly by abolishing statutory rights on unfair dismissal, redundancy pay, aspects of race relations, equal opportunities, the Truck Acts and maternity leave. Is the Department really considering getting rid of those obligations on small businesses as a way to help them?

2.16 pm

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. David Trippier)

I congratulate my hon. Friend the Member for Surrey, North-West (Mr. Grylls) on his success in the ballot. I also congratulate him and right hon. and hon. Members on their admirable objectives in presenting the Bill, which concerns what I believe to be the most important subject that the House could consider—small businesses.

It is clear from the excellent contributions by my hon. Friends the Members for Surrey, North-West, for Stafford (Mr. Cash), for Nuneaton (Mr. Stevens), for mid-Kent (Mr. Rowe), and for Winchester (Mr. Browne), and by the hon. Members for Yeovil (Mr. Ashdown) and for Ross, Cromarty and Skye (Mr. Kennedy) that they have a good understanding of many of the problems that can beset small firms, and I warmly welcome their resolve to change public attitudes, raise the status of the small entrepreneur and ensure that we have a thriving small firms sector.

I am particularly grateful to the hon. Member for Yeovil for his compliment to me. If it is of use to the hon. Member for Ross, Cromarty and Skye, I can tell him that an assurance was given by my hon. Friend the Minister of State when he wound up the debate on regional policy last night that the whole of the Highlands and Islands Development Board area will be covered by European regional development fund aid. I assure the hon. Member for Kingston upon Hull, East (Mr. Prescott) that I shall refer to my noble Friend Lord Young of Graffham. I shall try to spell out his responsibilities.

Those of us who are strong advocates of small businesses do not support them because of some starry-eyed sense of nostalgia. We passionately believe that small firms have an essential part to play in revitalising the economy and creating new and lasting jobs.

The debate gives me the opportunity to pay a warm tribute to my hon. Friend the Member for Surrey, North-West for the significant contribution that he has made to the small firms sector, particularly in his capacity as chairman of the Small Business Bureau. It would be churlish of me not to acknowledge the contribution that other hon. Members have made in this important sector. I refer, for example, to my hon. Friends the Members for Mid-Kent, for Winchester and for Nuneaton. I am anxious that the House should recognise that my hon. Friend the Member for Stafford, whose experience in parliamentary draftsmanship is well known, has spent considerable time in assisting my hon. Friend the Member for Surrey, North-West in preparing the Bill.

It will come as no surprise to the House when I say that the general purpose of the Bill is consistent with the Government's objectives of encouraging the small firms sector. A considerable number of new initiatives are currently taking place in the small firms sphere. They include such important exercises as the efficiency unit's scrutiny of administrative and legislative burdens, the internal exercise of the Department of Trade and Industry on repackaging schemes and other initiatives that will be brought forward by the committee of Ministers, is chaired by my noble Friend Lord Young of Graffham who has special responsibilities in the Cabinet for enterprise. Perhaps I could have the attention of the hon. Member for Kingston upon Hull, East because I should like to point out that those are Lord Young's responsibilities. The meeting of Ministers that he chairs is a Cabinet committee and all matters affecting small firms are discussed.

I very much hope that the work on those initiatives will be concluded by the spring. It would be wrong for me to speculate as to the detail of those initiatives. At this stage we are not sure whether legislation will be necessary. If it is, it may be worth considering a co-ordinating mechanism for bringing these initiatives forward. Several hon. Members have made suggestions that should be considered. It is, of course, the Government's wish that many of the representations made today by hon. Members and by many of the small firms' lobby groups should be satisfied. If that were not so, the considerable effort that has gone into the initiatives I have referred to would have been a complete waste of time.

The reasons why we must continue to bring forward new initiatives should, by now, be obvious. In the United Kingdom our history warns us against the neglect of the small business and of the dangers of fashionable phrases such as "big is beautiful". The industrial revolution started in the United Kingdom and spread east and west, and in time, we, like others, came to overlook the fact that the original enterprise and innovation sprang from small independent business. We have had to learn the hard lessons of an overdependence on large business.

We have also had to learn a very painful lesson. Too many regions in the United Kingdom relied, through their emphasis on big firms, on too narrow an industrial and commercial base for generating their employment and prosperity. That tended to ignore the fact that change is an essential and enduring feature of an economy. I understand that there is now some conjecture as to who coined the immortal phrase England is a nation of shopkeepers". Certainly the phrase has not applied to us for some considerable time. Although it is now clear from the statistics that the net growth in start-ups is at the highest level ever recorded, we still have a long way to go and much more needs to be done to encourage these important people.

It is no coincidence that small businesses have been encouraged for a longer time and seemingly in a more effective manner in the countries that are our more successful competitors. As hon. Members have suggested, the more active the small firms sector, the greater are the chances of achieving the higher rates of innovation that characterise the more successful economies. We need their diversity, flexibility and innovative strengths if we are to sustain and benefit from the industrial recovery that Britain has worked so hard for during the past five and a half years.

Again, as hon. Members have suggested, there are numerous examples of cases where small firms have been disadvantaged as against bigger businesses. We must do something constructive to encourage large firms to pay the bills of small firms on time. I am examining that.

Government purchasing can produce major problems for small businesses. We have improved small firms' access to Government contracts—I referred to some of them in a parliamentary reply on 19 December. Information is now more readily available to small firms concerning what Government Departments buy and the procedures. My Department and others have published booklets for them. Some of the procedures have been eased. For example, for contracts under £10,000, firms are normally exempt from approval procedures and much of the financial and general information that firms must provide when seeking approval has been standardised between Departments. That has resulted in a dramatic reduction in form filling. We have cut out red tape but there is much more to be done. A report that proposed improvements in Government purchasing has been published recently. My right hon. Friend the Prime Minister has recently agreed to set up an expert team to help Departments make improvements in planning, to streamline processes, to improve the skills of purchasing staff and to achieve closer liaison with suppliers.

We know how successful small firms are in winning public sector business. A study of that is being conducted in the Ministry of Defence and the results will be extremely useful. One of the most important things that Government can change is the quantity of legislation and regulation that small business men find burdensome and regard as a disincentive. My hon. Friend the Member for Surrey, North-West mentioned that and it was developed by my hon. Friend the Member for Stafford. We are working to disengage Government from industry. Small business men are busy enough without having to dance to the tune of Government Departments in filing their returns and complying with regulations. The Government are already responding — we have scrapped more than 1 million statistical returns in the past five and a half years.

In my determination to try to reduce the bureaucratic burden on small firms, I decided to produce two flow charts showing the requirements that had to be checked and, in many cases, complied with, by anyone thinking of setting up in business on his own, and those thinking of employing only one person. There are no fewer than 99 different regulations, many of which read like a bad horror story. Reading those regulations, it is surprising that we have 1.3 million small businesses.

To reduce bureaucratic burdens and to stimulate further small firm development, my right hon. Friend the Prime Minister announced that a burdens scrutiny exercise would be commissioned. We are now in the middle of it. The Government acknowledge that small firms are disadvantaged in certain regards but I believe that small firms suffer from weaknesses on a much broader front. The weaknesses are caused principally by overstretching limited management time and resources and by difficulties in attracting sufficient capital investment, as my hon. Friend the Member for Winchester said. Our aim has been to help firms over those weaknesses so that they can exploit their strengths and compete on equal terms with larger businesses.

Our anxiety about the lack of capital investment led us to introduce schemes such as the business expansion scheme and the loan guarantee scheme. I must confess that I was staggered to hear the impressive figures on the business expansion scheme that my right hon. Friend the Chancellor announced the day after his autumn statement. The figures confirmed our view that it is the most revolutionary financial scheme that the Government have introduced in the past five and a half years. He told the House that at least £75 million had been raised by small businesses under that scheme in the fiscal year 1983–84. More than 10,000 investors put their money into more than 400 small companies, and the scheme helped to provide investment in both small and large amounts. Thirty per cent. of companies raised £50,000 or less, and 60 per cent. raised between £50,000 and £250,000. A few raised more than £1 million each.

I was especially pleased to see that well over half of the total amount invested—at least £41 million—

It being half past Two o'clock, the debate stood adjourned.

Debate to be resumed upon Friday 25 January.