HC Deb 13 March 1986 vol 93 cc1232-9 2.10 am
Mr. Michael Fallon (Darlington)

I am delighted to have the opportunity to discuss policies for the self-employed. I am especially grateful to my hon. Friend the Under-Secretary of State for agreeing so readily to take part in the debate. I note that he among the ministerial team volunteered to do this duty in the House, quite oblivious to any question of rank. I am grateful also for his continuing interest in and unflagging hard work for the self-employed and small businesses since his appointment.

One might think that this is rather a late hour to raise the question of self-employment, but I do not think that it is entirely inappropriate. The self-employed do not work regular hours—not for them a nine-to-five existence. They work very irregular and long hours, especially in their early years of self-employment. I know that because I was myself self-employed from November 1981 to June 1983. We owe it to the self-employed in the economy to devote a little time to their affairs and to the problems they face.

Who are the self-employed? There are now some 2.6 million, a substantial increase on 1979 when there were 1.8 million. I believe that one in 10 of the working population are now self-employed and that in the northeast nearly 90,000 are now self-employed. So we are speaking of a sizeable and very active part of the work force, an entrepreneurial corps at the heart of the British economy.

The self-employed are important in another sense, in that they are a growing part of the economy. Indeed, we might describe them as one of Britain's best industries. Small businesses have created between 800,000 and 1 million new jobs since 1979. Of that figure, one fifth or one quarter have come from new businesses, and the Forum of Private Business has estimated that there are 1 million more jobs to come. Its survey, published last month, shows that each small business aims to take on at least one more employee in the next few months. A Legal and General survey last autumn showed that one self-employed person in three hopes to take on an extra person within the next two years. If we think about that, it means 750,000 new jobs in the economy over the next two years. In the north-east, that is 25,000 potential new jobs. That is a huge potential of new employment. It is a massive reservoir of talent and skills seeking new opportunities. The House and the Government should say to the self-employed, "Go for it, help to make it happen."

Small businesses have thrived under this Government as they have never thrived before. I shall concentrate not on small businesses with perhaps five or 10 employees but on the self-employed who have just got started. It is curious that in Britain, unlike elsewhere, there is no clear definition of self-employment. Nothing in the statute describes a self-employed person. Instead, we leave it to the Revenue to determine employment status.

In other words, self-employment is a privilege subject to the inevitably arbitrary discretion of Revenue officials. We must change that privilege into a right. Anybody who wants to be treated as self-employed should be permitted legally to be so treated after completing a short and simple form of declaration. That would avoid people having to plead with the Inland Revenue for several years for the status of self-employment. There can be many ramifications if the decision goes against the person applying for that status. For example, he may in the meantime have been paying fees on a contract basis.

Thus, it should be a right to be self-employed for those who consider that they have that status, with a right of appeal perhaps the other way round—with the Inland Revenue Commissioners appealing against that right if they believe that the income of a self-employed person derives principally from the same source.

I urge the Minister to try to persuade the Treasury and the Inland Revenue that self-employment should not be considered simply as a loss of revenue but as an entrepreneurial activity that contributes to the growth of the economy and as a right that those who go it alone deserve.

We must also consider the taxation status of the self-employed. They pay—I think too much—income tax. It should be lowered quickly. They also pay too much in capital gains tax, and I hope that the review of that tax will include provision for the self-employed. They are also subject to VAT and, as self-employed people, they have the relatively low ceiling of £20,000. Many have argued in recent months that that ceiling should be lifted for small businesses and the self-employed to about 100,000. More important, qualification for VAT should be made an option for the self-employed. It would benefit some to be able to claim back VAT, while others would lose. People should have the option to decide whether to be part of the VAT system until they reach a turnover of £100,000.

I hope that my hon. Friend will persuade his colleagues to make that a theme of our forthcoming presidency of the Council of Ministers. It is up to his Department to persuade the Treasury that we are talking not of revenue lost but of entrepreneurial activity which is a gain to the economy. The Revenue will be aware of how much of such activity is in the black economy from the tax point of view. We must make that black economy legitimate. We must nationalise it. We must bring the world of Arthur Daly into the Chancellor's system and make those nice little earners the legitimate right of everyone who decides to be self-employed.

Planning is the bugbear of the economy. It is far too complicated and difficult and it takes far too long. I welcome the Housing and Planning Bill, which would simplify planning procedures and establish special planning zones. I am aware that the critics regard them as yet more planning areas to administer. Perhaps we have to go further and to reverse the burden of proof in planning—to put the onus not on the proposer of change who wants to start a business in a garage, shed or living room, but on the objector if the business will not cause noise or nuisance so that those who want to get into business, especially in residential areas, can get on and do so. There is no better proof of the need for that than the present system and the delays that are built into it. I understand that approval for a light commercial development takes some six weeks in Belgium, some five weeks in the United States, some four weeks in Canada and an average of 32 weeks in Britain from the submission of the application to the granting of planning approval.

We should consider the dead hand of the state—the legislative and administrative requirements that successive Governments have piled on business. One of the criticisms of the "Burdens on Business" survey was that business complains about taxation rather than such administrative burdens, but the businesses that were discouraged and did not start up are not around to be surveyed. They are the self-employed who did not go it alone. Such people and businesses are not counted.

The "Burdens on Business" consultative document and the subsequent White Paper concentrated on small businesses. I would like a fresh survey on the burdens on the self-employed, or those hoping to be self-employed, to find out what discourages people, what the disincentives are and how we can make it easier for people who want to go it alone to take the plunge and risk loss of security, and possibly prospects, for their families. I would like to see a survey of the burdens of the self-employed, as well as burdens on small businesses.

In the more general area of education, self-employment is rarely suggested in our schools as a career option. It is often trailed as a last resort. We need to break down increasingly the employee mentality and big company recruitment, especially in the old industrial parts of our country.

I know that there is increasing liaison between my hon. Friend's Department and the world of schools and education. I should like to see added to that dimension the concept promoted by teachers and the Manpower Services Commission, and by all those involved, that there is nothing ignoble or sleazy about working for oneself, and paying taxes. That is working likewise for the community.

With regard to representation, the self-employed, rather like the unemployed, by their very nature do not have a powerful voice in the House, or in Whitehall. There is not an organisation to speak solely for the self-employed. They are busy enough trying to earn a living without taking time to get involved in representative bodies. There is no CBI for the self-employed. Even the Small Firms Council does not speak for the one or two-man businesses. The National Federation of Self-Employed and Small Businesses has a powerful voice, as does the Forum of Private Business. Due to the absence of a powerful representative trade union for the self-employed, I would like the Government to consider the possibility of regular quarterly meetings between Ministers at the Department of Trade and Industry and representatives of the self-employed, in the same way as the Chancellor and his colleagues regularly consult big business and the big trade unions.

I should also like the national federation and other organisations to be consulted about appointments to Government bodies and organisations such as wages councils, even if they themselves are not appointed, or the Government committee or wages council about which they are consulted is not directly concerned, because it does concern all those working on their own, whether it is an appointment to the MSC area boards or the Health and Safety Executive.

There is evidence, from the huge growth in the numbers of self employed, from 1.8 million to 2.6 million in just six years, that people want to be self-employed and like to be self-employed. They want the chance to go it alone. They appreciate the freedom and scope to explore new opportunities. I see that growth as part of a changing pattern of work in our culture. It is seen, too, in contract working and the huge increase in part-time working.

There has been a swing away from the employee mentality and the notion that the employer will always provide. There are now more people out there in our society who want to work for themselves. I believe that it is up to the Government to help them to do it.

2.28 am
The Parliamentary Under-Secretary of State for Employment (Mr. David Trippier)

I warmly welcome the opportunity to consider the Government's policies on self-employment, and I am grateful to my hon. Friend the Member for Darlington (Mr. Fallon) for focusing attention on an area that is central to the Government's efforts to foster the development of enterprise, innovation and growth.

I remember visiting Darlington during Enterprise Week in June 1984 and being impressed by the industrial exhibition which I was invited to open. Subsequently, I have been impressed by my hon. Friend's interest in small firms in general, and the self-employed especially. It is characteristic of him to have initiated such an important debate.

The growth in self-employment has been staggering; my hon. Friend referred, accurately, to a figure of 2.6 million. It has been a striking and encouraging feature of recent employment trends. Of the 2.6 million, about 91,000 are in the north-east. Numbers have increased by about one third since we came to office, which means that one in 10 of those in employment is working for himself. The expanding population of self-employed is the pool from which new goods, services, idea and talents will be drawn, and it is the base for growth in output and employment. It is also testimony to our conviction that there is a wealth of entrepreneurial talent among the unemployed and among employees that has in the past been stifled. As my hon. Friend suggested, in the right climate, it could flourish.

It is also testimony to our belief that people, not Governments, create jobs. The Government can create the conditions that will encourage the establishment and growth of new enterprises. That is the foundation of our employment and economic strategies. Our task is to remove the disincentive to enterprise so that individuals can exploit their potential and skills for their good and for the benefit of the economy as a whole.

Some of the steps that we have taken are an important part of that task and directly encourage people into self-employment. The enterprise allowance scheme helps unemployed people to start their own businesses, by giving them an allowance of £40 a week to help to overcome the disincentive of loss of benefit. More than 130,000 people have taken advantage of the scheme, about 7,000 of them in the north-east. That shows an encouraging success rate of businesses that are supported by the scheme. The latest evidence shows that 61 per cent. of those receiving allowance for a full year were still trading three years after start-up. That makes it the most successful start-up scheme in the world. I know that that sounds dramatic, but we recently made a comparison with the continent. There is no comparable start-up scheme on the continent or in the United States.

From 1 April, 80,000 places will be available nationally, and about 4,200 will be available in the northeast. I am sure that my hon. Friend will welcome that. For the first time, the Manpower Services Commission is engaging in national and regional marketing to increase awareness of the scheme and to encourage employees to consider self-employment as an option. That is an important point, because in the past we have not marketed the scheme. We have not needed to market the scheme, because people have become aware of it principally through personal contact. We have not paid for a single advertisement to push the scheme, so we do not know what its potential is. But in view of the successful take-up of the scheme so far, I believe that much potential remains untapped.

Training is vital to allow more self-employed people to establish themselves successfully and to expand. My hon. Friend will welcome the fact that we have asked the Manpower Services Commission to refocus its adult training strategy still more sharply on the needs of the self-employed. Next year the MSC plans to spend about £20 million more in those areas. In 1986–87 more than 100,000 places are available on courses in the programme that we have called "Training for Enterprise". There will be 25,000 places on one-day business workshops to give people considering self-employment a thorough explanation of what is involved and to encourage them to take up further training. Eighteen thousand places will be available on a five to 10-day self-employment course designed for those wishing to start up a one-person business. These courses provide up to six months' further counselling and other help. In addition, other public sector bodies and the private sector also help to provide the training necessary to help the self-employed improve their management and business skills.

My hon. Friend referred to the unemployed. Encouraging them is one important way of encouraging people to consider self-employment as an alternative. We share the view that the key to changing attitudes is to persuade young people of the benefits and satisfaction of working for themselves.

That brings me to the youth training scheme. The YTS is principally seen as only a training scheme, but we are changing our minds about this. We believe that within the youth training scheme enterprise exists. We have an opportunity, through that scheme, to develop the enterprise culture among YTS trainees. We see that efforts can be made to develop and strengthen that potential.

I have had the opportunity of seeing this in visiting one particular programme which I would draw to the attention of my hon. Friend. It is known as the Genesis programme. The Genesis programme, which is an approved management agency, has identified no fewer than 44 different products and services, of which 12 have been established on the market and are earning revenue. It must be remembered that this is a YTS scheme. In Wales, 16 YTS trainees are involved in a project likely to create some 12 to 20 permanent new jobs for ex-trainees; and in Scotland an independent fashion knitwear business has been set up and looks like creating about six full and part-time jobs.

This may seem like small beer, but the truth is that in the past two years we had never thought that we had within such a training scheme the potential to develop self-employment. Now we think that this opportunity exists, particularly at the present time with the extension of the YTS programme from one year to two. The MSC is already planning to design an enterprise module for the two-year YTS scheme to set up an advice centre of YTS managing agents on self-employment enterprise. That is a very recent innovation.

Nevertheless, we can start at an even younger age. I believe that my hon. Friend is absolutely right. If we are to change attitudes dramatically, we need to start in schools. We need to concentrate on youngsters between the ages of 14 and 18. That is why the Department of Trade and Industry, the Department of Education and Science and my Department are involved in promoting a knowledge of industry among schoolchildren. This is one of the principal aims of Industry Year 1986. It is essential for companies and schools to form closer links. We would like to see all scholchildren able to understand simple business plans and to read balance sheets in a simplified form. That is quite an aim. We also wish to set a target of at least one mini-enterprise in every secondary school by the end of this year. I am very encouraged by the lead that is being taken in this regard by the Department of Trade and Industry. I am sure that that target is attainable.

Apart from the measures that I have already mentioned, I stress that the self-employed have to be ready to make themselves aware of their own limitations, a point on which my hon. Friend touched. What they want is ready and inexpensive access to information, to advice and to counselling, so that they can discuss business plans and problems. In this regard, the small firms service plays a very significant role. It offers free advice and information to all who request it. Each small firms centre advertises in its region the range of services available and where they can be obtained, so that self-employment will be not only an option but obviously a preference in many cases.

My hon. Friend is well aware of the importance of local enterprise agencies. He has a particularly good example of one in his constituency which was responsible for organising the industrial exhibition to which I referred earlier. We now have some 321 enterprise agencies throughout the nation, and that is a significant success. Although the figures which hit my desk in the Department of the Employment show that one in three small firms go to the wall over a three-year period, in those areas where enterprise agencies are established, offering a hand-holding service, the failure rate is one in 12 over the same period. So the proof of the pudding is in the eating.

Some of the enterprise agencies help with finance, premises, equipment and training. To recognise their importance we have just announced a new scheme for 1986–87 costing £2.5 million, where we are prepared to match the private sector contribution to those enterprise agencies on a pound-for-pound basis up to a limit of about £20,000.

My hon. Friend referred to the definition of self-employment. In the White Paper to which he referred, "Lifting the Burden", we showed our determination to clarify the criteria for determining whether someone is self-employed. My hon. Friend said that he wants to see self-employment as a right, not a privilege. I find it difficult to accept that it is currently a privilege. It is a freedom for those entering contracts to agree whatever contractual arrangements they consider suitable to their circumstances.

Whether someone is an employee or a self-employed person depends on all the circumstances surrounding the employment relationship. But action has been taken on the White Paper recommendations. The legal considerations have been simply explained in a new leaflet entitled "Tax-Employed or Self-Employed" published by the Inland Revenue, which I warmly welcome.

Changes have been implemented to ensure that the DHSS and the Inland Revenue work in closer liaison than perhaps they have in the past in determining employment status, including more training to help the staff appreciate the difficulties that individuals have in understanding what their status is. Those steps will help to ensure clear and consistent decisions about employment status.

Tax matters, as my hon. Friend will appreciate, are the concern of my right hon. Friend the Chancellor of the Exchequer. He would not expect me to comment in greater detail in a debate taking place only about three days before the Budget. But I share the view that we need to legitimise the enterprise which is not taking place outside the tax system, to which my hon. Friend specifically referred.

I can see some difficulties in the idea which has been put forward by many an amnesty, including questions of scope, duration, and how to achieve fairness to those honest taxpayers who have been disadvantaged through unfair competition from those evading taxes. But I shall draw the specific points that my hon. Friend made to the attention of my right hon. Friend the Chancellor.

I was interested in the suggestion that the Government should look more closely at the burdens on the self-employed. The "Burdens on Business" survey, which formed the background to the White Paper "Lifting the Burden", published in May, included proprietorships and partnerships in its sample, and almost 40 per cent. of those interviewed employed 10 people or fewer.

The majority of those constraints identified in the White Paper affect the self-employed as well as small and larger enterprises. The self-employed will therefore benefit from the action that the Government have taken, or are taking, to lift the burdens.

I have identified one difficulty in the three years that I have been responsible as the sponsoring Minister for small firms, and that is that there may well be a difficulty in discriminating in favour of the self-employed because it might discourage some entrepreneurs from developing their business. That must be taken into account. There is no way in which the Government would encourage small businesses to remain small. That cannot be a part of our policy and I know that my hon. Friend the Member for Darlington would not wish us to go down that route.

We have had an interesting debate. I am grateful to my hon. Friend for raising these important issues. I recognise the concern felt by him, and I recognise also the fact that the voice of the self-employed may not always be as loud as other voices. Having met the National Federation of Self-Employed and Small Businesses on about 50 occasions in the past three years, I can tell my hon. Friend that I sometimes doubt whether it is quiet. I can assure my hon. Friend that I take all that it says very seriously, and I think that most of its proposals are constructive.

I am grateful to my hon. Friend for raising the debate. His concern to encourage further growth in the number of self-employed is a key objective of our employment strategy. It is part of the answer to encouraging the growth of employment by extending the adaptability and flexibility in the work force and by securing the base from which future small businesses will grow. The self-employed are central to the sort of society that the Government are seeking to create. It is a society based on freedom, enterprise and initiative. The Government's commitment to them is not a fleeting one or a passing phase. It is a commitment shared by the whole of the Government and having heard his excellent contribution, it is clearly a commitment firmly held by my hon. Friend.

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