Small Firms (Liberation) (Hansard, 20 April 1988)

§ Mrs. Teresa Gorman (Billericay)
I beg to move, That leave be given to bring in a Bill to remove all administrative and legislative obstacles to the growth of small businesses.
I believe that this is the first time in the history of the House that a Bill has been addressed to Parliament with the word "liberation" in its title. There is room for many more such Bills. We have far too much regulation in this country, and it shackles the enterprise of our people.
You may wonder, Mr. Speaker, why, given the amount of legislation that has passed through the House in recent times designed to help small businesses, I have tabled the Bill. No Government since the Glorious Revolution of 1688 has better understood the significance of property rights and markets in creating prosperity in our society. It is puzzling, however, that given the sincerity of my right hon. Friend the Prime Minister and my right hon. and noble Friend Lord Young, the Secretary of State for enterprise, in wishing to remove obstacles to enterprise, the day-to-day reality of running a small firm is that for every obstacle that appears to be removed two more seem to be created, and small businesses still feel that they are often engulfed by the weight of legislation that they have to administer.
The Minister with responsibility for small business, my hon. Friend the Member for Northavon (Mr. Cope), tells me that 500 small firms are created each week. That comes to the surprising total of 250,000 each year. Yet, if we examine the statistics of the VAT returns, we find that of small firms—those with a turnover of £100,000 or less—the number remains stagnant at round 2 million. So where do all these new businesses go? The sad thing is that many of them fail before they reach their third birthday.
High failure rate among small firms is of course inevitable. Setting up a business on one's own is a high-risk game. One's fate is no longer in one's own hands, but is in those of the customers. If they do not like what is on offer, that is the end of it. That is a natural part of business. What is not inevitable, and is unnecessary, is the amount of work that we pile on to small firms.
Perhaps I should say what I mean by a small firm. I mean a firm whose proprietor does most of the paper work. Fifty per cent. of the firms in this country employ fewer than five people, and those are the ones that I am talking about.
Such firms find that their most precious commodity is not money but time, and we rob them of that time when we demand priority for Government paper work. The hours that we make them spend on calculating tax for the Government, for example, mean that many of them do not have the time to get on with the work of making the business grow. It cannot be said too many times that small firms do not so much need more handouts and tax schemes as exemption from rules and regulations which constrict them and deflect them from their essential job.
In the 10 minutes at my disposal I want to confine myself to three areas which are critical and upon which the Government could act without major legislation. The first concerns the time when a business begins. Soon after it is set up it will find itself in need of an extra pair of hands. Naturally, it will want to engage that extra help in as easy a way as possible. It would rather use people in a flexible, 834 self-employed capacity—but here enters the Inland Revenue, which says that it cannot. Instead, it asks the business to set up a PAYE scheme and presents it with a 2½ lb starter pack consisting of two sets of tax tables, a set of national insurance tables, a blue card, a deduction working sheet, an employment record card, five assorted booklets and forms P15, P24, P34, P45, P46 and P47—in all, about 100,000 words to read and digest.
Faced with this penalty, it is not surprising that many proprietors of small firms will decide that they would rather struggle on and not take on the extra pair of hands. That is a tragedy, not only for them but for the country. It is well known that small firms will often engage people who are not well qualified for more formal jobs in larger businesses, and by deterring them we are adding to unemployment and possibly driving these people into the underground economy, not so much to dodge tax but merely because they cannot cope with the paper work that the Government demand.
My first proposal is that the Government allow small firms to engage up to five people as self-employed people, rather than having to set up all the paper work that is necessary for a PAYE scheme. It is then up to the Inland Revenue to make its arrangements with the individuals concerned. The second stage at which the business wants help would be when it begins to expand. At that point it needs more capital. I run a small business and I know that a good year's profits—[Interruption.]—leading on to another busy year, means that the money one has made in the first year is needed in the firm. But along comes the Inland Revenue with its tax demands and takes that money away.
If a stranger invests in a firm, he can, under the Government's enterprise scheme, offset up to £40,000 a year against his tax liability. I propose that small firms be allowed to retain up to £40,000 of their own profits to finance the next stage of growth. That is no different from the concession given to complete strangers and would have a dramatic effect on the expansion of small businesses.
My third proposal concerns the amount of legislation that this House churns out in the vain hope that we can reform human nature through regulations. I adduce two examples: the Financial Services Act 1986, which is currently causing many problems, and the Data Protection Act 1984, under which, according to The Daily Telegraph, prosecutions against many of the 100,000 small firms that have yet to register are about to be initiated. That would mean a fine of £2,000 for each firm, the slaughter of the innocents, because they failed to register—[Interruption.]—on time.

§ Mr. Speaker
Order. I ask the House to give the hon. Lady a quiet hearing.

§ Mrs. Gorman
If 100,000 firms have not found the time to catch up with the legislation, that represents the biggest revolt against Government regulations in history.
Therefore, my third proposal is that all such legislation should have a lead-in time of two years, which will give businesses more chance to get their act together. Of course, many of them will still not be able to cope, which is a tragedy.
The Soviet Union has realised the value of small businesses. It is adopting a policy of perestroika, which I believe means enlightenment. Under that enlightenment, members of the KGB are now allowed to be self-employed. 835 There are more KGB personnel in Russia than there are self-employed people in this country. I do not quite know what lessons we can learn from this, but I do know that all Communist countries now realise the importance of self-employment and small businesses, and they are moving heaven and earth to get rid of the obstacles that prevent them from growing.
The Government should look into the problems that still remain for small businesses and get on with the business of liberating them from the tyranny of these regulations.