§ Motion made and Question put, That this House do now adjourn.—[Mr. Betts.]9.36 am
§ The Minister for Small Firms, Trade and Industry (Mrs. Barbara Roche)
May I begin by saying how much I have looked forward to this occasion, both in opposition and in government? It is a great honour for me, as Minister for the small business sector, to open the debate. It fulfils a commitment that the Government gave while in opposition, when we said that we would institute an annual parliamentary debate about the small business sector in the United Kingdom.
The debate is long overdue. The Small Business Bureau made many pleas to the previous Government to hold such a debate, but they failed to have it. I am delighted to pay tribute to the work of the Small Business Bureau, which has campaigned for these debates for a long time.
§ Mr. Bernard Jenkin (North Essex)
May I inform the Minister that I won a place in the ballot when Friday morning Adjournment debates were allocated, and I held a full day's debate on small businesses? Therefore, we need no lectures from her about our small business credentials.
§ Mrs. Roche
I congratulate the hon. Gentleman on his good fortune in drawing top place in the ballot and on his choice of subject, but he totally misunderstands the point. There is a world of difference between a Member of Parliament holding a debate in private Members' time and the Government of the day recognising the sector's importance by allowing Government time to debate it. This debate is long overdue, and I am delighted to open it today.
We gave that commitment because small business is so important to our economy, and this debate gives us a chance to recognise that importance. It is an opportunity to celebrate the achievements of small business and to report to the House on what the Government are doing for the sector.
I believe that I speak for the whole House when I say that small business is absolutely vital to our economy. The facts are clear. I was pleased this week to see the welcome report from the Trade and Industry Select Committee, which met to consider the issues that affect small and medium enterprises. The Committee recognised the huge raft of issues that impact on small business, and concentrated on those that affect it most: business support services, access to finance, and, of course, regulation. I am sure that we shall hear more about that important report in the debate.
The small business sector is vast and immensely diverse. There are nearly 4 million enterprises in the United Kingdom—one for every 12 adults—and all but a tiny minority are small and medium-sized. They cover hundreds of industries, many are established family-owned businesses, and one in six are less than a year old. About 10 per cent. are fast growers with the ability to win for this country, domestically and internationally.
What those businesses have in common is that they are part of the enterprise base of this country. What we are absolutely determined to do is foster a culture of 607 enterprise that encourages innovators and those prepared to take a risk—a culture that values and rewards entrepreneurs. The most common form of enterprise is the sole trader. There are about 2.5 million self-employed people, typically in building, retail and the professions. They have been the driving force for increased small business activity.
Small and micro firms provide a third of the United Kingdom's jobs and turnover. Many are consolidating businesses, however, and they are working hard to manage their finances, recruit and train the best people, and achieve high productivity.
§ Mr. Philip Hammond (Runnymede and Weybridge)
The Minister has referred to the prevalence of self-employed one-man businesses in the building sector. Does she accept that the imposition of a £30,000 threshold by the Inland Revenue for the issue of a 714 certificate will effectively stamp out the one-man band in the construction industry?
§ Mrs. Roche
No, I certainly do not. Someone from that industry told me this week how much he welcomed the favourable economic climate that has been generated by my right hon. Friend the Chancellor and the Government. [Interruption.] Conservative Members may laugh, but the boom and bust policies of the previous Government led to the decline in our construction industry, with the loss of hard-won jobs and skills. We are seeking to do something about that.
§ Mr. Nick Gibb (Bognor Regis and Littlehampton)
Was the conversation with that person before or after the announcement on Wednesday of 1,700 people becoming unemployed under this Government?
§ Mrs. Roche
The hon. Gentleman is trying very hard, but he cannot get away from the fact that, up and down the country, businesses of all sizes are saying that, for once, they have a Government who understand the business community, are pro-business, and are doing something about the economy.
Small and micro firms provide a third of the United Kingdom's jobs and turnover, and many of them are working hard. Medium-sized businesses, with perhaps 100 or even 200 employees, are a key part of our manufacturing and business services sectors. The small business sector is extraordinarily diverse. We sometimes lump small and medium-sized enterprises into one, but we should not do so—those groups of businesses have different needs and priorities.
The starting point for our policies for small business is that what we do should be relevant to all small businesses. We must understand their needs—in other words, we must listen to them. I believe that we have done that during our first year in office. In opposition, we listened to small businesses that were suffering from late payment, we listened about the variable quality of business support services, and we listened when they told us that they wanted stability in the economy.
During the past year, we have been addressing those and other issues, as I shall describe, but we are not resting on those actions. We are pressing ahead with fresh consultation, fresh ideas and fresh action.
608 I commend to hon. Members the report that we are publishing today—an action update on the Government's work for small businesses. It shows the extent of the Government's commitment to the small business sector, how we have met the promises that we made in our manifesto for small business, "Growing and Prospering", and that we have listened. We recognise that what small businesses want is a stable economy; we are laying the foundations for that. They want a supportive commercial environment; we are tackling that. They want good business advice; we are addressing that.
Let me start with perhaps one of the most important aspects of the commercial environment—the problem of late payment. We listened to the majority of small firms, which consistently said that they wanted a statutory right to interest on late payment of commercial debt. I am delighted that Royal Assent was given to our Late Payment of Commercial Debts (interest) Bill last week. I regard the passing of the Bill as a major step forward in the fight against the blight of late payment, but we have not rested on that action alone.
We know that there are many causes of late payment, and, important though legislation is, it is only one of the major planks in a raft of measures that we need to implement. I am delighted that, during the past year, many organisations that represent the small business community and which have an interest in the issue have joined us in attacking the culture of late payment.
I pay tribute to those organisations, and the list shows the diversity of interests that have come together to act: the Forum of Private Business, the Union of Independent Companies, the Federation of Small Businesses, the British Chambers of Commerce, the Institute of Directors, the Confederation of British Industry, the Institute of Credit Management, the Factors and Discounters Association, the Association of British Insurers, the National Farmers Union, and the British Bankers Association. All have joined together to work with the Government to do something about this important issue.
In association with the Government, the group is pursuing a range of action addressing aspects of our payment culture. For example, the organisations are using their combined expertise to offer practical support to small businesses on credit management, and they are working with business links on pilot schemes. The Government are supporting the Federation of Small Businesses in its publication of league tables showing average payment times of public limited companies and their large private subsidiaries. We are pursuing a range of action to ensure that payment performance in the public sector improves as well.
We are also co-operating with Bradford university to establish a payment observatory. It will, among other things, examine how well the legislation is working. We shall listen to the findings of the research, and adjust our approach accordingly.
That is only one example of what we are doing—we have also listened on business rates. As hon. Members know, a wide-ranging review of the local government finance system was launched last summer. It has been considering, among other things, the rates burden on small firms. I am grateful for the care with which my hon. Friend the Minister for Local Government and Housing has considered the matter.
609 A business forum, including small business representatives, has been established to inform the review of local government finance, and I participated in its discussions. A consultation exercise has taken place to allow businesses to feed their views into the review, and their responses are being considered by my colleagues in the Department of the Environment, Transport and the Regions.
§ Mr. Jenkin
Will the Minister acknowledge that the debate about business rates was started under the previous Government to try to address, in particular, the unfair burden of business rates on smaller businesses? The table we published in our pamphlet before the election is carried in the consultation document, figure for figure, explaining how unfair that burden is on smaller businesses. Unless we address that problem, we will not promote the growth of small businesses in the way we could.
§ Mrs. Roche
I am glad that the hon. Gentleman has intervened, because I wanted to say something in his favour. It was he who pointed out some of the great difficulties with the uniform business rate. He has forgotten—I am sure that it is merely a temporary loss of memory—that he was pointing out the difficulties that were caused by the Conservative Government, who established the uniform business rate system to which he is now objecting.
§ Mr. Jenkin
The introduction of the uniform business rate limited the increase in the poundage. The problem to which I am referring is that the rates bill is calculated property for property. That has absolutely nothing to do with the introduction of the uniform business rate. What hurt small businesses was the business rates revaluation, not the introduction of a uniform rate poundage, which kept the overall burden of business rates down to the level of inflation or below.
§ Mrs. Roche
The hon. Gentleman has disappointed me, because I was hoping to congratulate him for a second time. I do not want to do him any disservice, because I am sure he will have a long and distinguished career on the Opposition Benches. He has not tackled the issue of the Conservative Government's abysmal failure—unlike the present Government—to come to terms with this problem. We hope to issue a White Paper containing our proposals later in the year. No doubt the hon. Gentleman will contribute to that.
Whatever changes are made to the present rates system, we will ensure that there are central limits on the level of business rates, and safeguards to prevent the rates burden from being switched from council tax payers to businesses.
I shall now deal with regulation. The Government's approach means more than a change of name. Deregulation was about cutting costs to business. Better regulation is about getting the balance right: it is about cutting red tape and giving proper protection. Not all regulation is bad: good regulation is an inherent part of a civilised society, but regulations must be simple, helpful and fair if they are not to burden small firms.
We have taken a variety of steps to improve that aspect of the lives of small firms. We have set up the better regulation task force–50 per cent. of its membership 610 represents small business—under the chairmanship of Christopher Haskins. That is a marked improvement on the record of the Conservative Government, whose deregulation task force contained only one representative who could have been said to represent small business: he employed 100 people, which is hardly typical of the small firms sector. That is another example of how we have moved forward.
§ Mr. Christopher Chope (Christchurch)
The hon. Lady refers to the better regulation task force. One of its principal recommendations to the Government was that they had got it wrong on the issue of the ban of beef on the bone. If the Government did not listen to the better regulation task force on that issue, what confidence does she have that they will listen to its recommendations on other issues?
§ Mrs. Roche
Let me start on a helpful note by congratulating the hon. Gentleman on his new responsibilities in the shadow DTI team. We look forward to his contribution. We have listened to the task force on a number of issues, and I shall discuss its work.
§ Mrs. Lait
I am a member of the Select Committee on Deregulation. The hon. Lady's comments lead me to believe that she is satisfied with all the regulation before 1994. Indeed, the volume of work coming before our Committee is slim. Is she telling us that the DTI has no intention of putting further deregulation measures before the Select Committee?
§ Mrs. Roche
I am not saying anything of the sort. If the hon. Lady will allow me to make some progress, I may be able to help her.
The task force published its first reports—on consumer law and on long-term care—in May. It has produced principles of good regulation: transparency, accountability, targeting, consistency, and proportionality, which is vital. I am working with ministerial colleagues and business and local authority representatives on the access business initiative. We are working hard to make the regulatory system more transparent, accessible and, most important of all, business-friendly. We have drawn up a concordat between central and local government to ensure that enforcers see their primary task as helping business, with formal action as a last resort. That has been warmly welcomed.
Much of our legislation is driven by Europe. We need to ensure that the European Union puts into practice the same principles as we are working towards at home. That has been a major theme of our presidency. We are working with the Commission on the simpler legislation for the internal market initiative.
We have given unstinting support to the business environment simplification task force, chaired by the United Kingdom's Dr. Chris Evans, a well-known entrepreneur of Merlin Ventures. Its recent report made a 611 substantial number of recommendations for reducing administrative and other burdens on business, and enabling better access to finance and to training.
In particular, the task force proposed that a better regulation unit be established under the direct responsibility of the President of the European Commission to oversee and co-ordinate regulatory review and reform; that member states should seek to promote and endorse enterprise and entrepreneurship at all levels, and that entrepreneurial and management skills should feature on the school curriculum; and that new ways should be found to expand the range of finance opportunities available to small firms. I am glad to say that we are already pursuing many of the recommendations in the report, and are examining all of them carefully.
In his last Budget, the Chancellor announced a package of measures to simplify rules and to make compliance easier. That included a payroll assistance scheme for new small employers. Combined with the proposal to merge the Department of Social Security's Contributions Agency with the Inland Revenue in April 1999, those measures should have real, practical benefit for small businesses.
Yesterday's historic announcement of the national minimum wage has been widely welcomed by everyone, with the exception of Conservative Members, who have clearly learnt absolutely nothing from their election defeat. The Government firmly believe that people who work for small firms are entitled to the same level of protection from low wages as those who work for giant corporations.
That is not to say that we underestimate the impact of the national minimum wage on small firms. That is why, when we established the Low Pay Commission, we made sure that among its members were people with a good understanding of the small business sector.
§ Mr. Damian Green (Ashford)
Yesterday, the President of the Board of Trade said that the introduction of the minimum wage would have no impact on employment. Can the Minister reassure us that, in a year or two, it will have had no impact on employment in the small business sector?
§ Mrs. Roche
I agree with my right hon. Friend. She also said yesterday—Conservative Members may want to reflect on this—that, when the equal pay legislation came before the House, Conservative Members said that it would result in the loss of women's jobs. What was the effect of that legislation? No jobs were lost. If anything, there was a slight increase in the employment of women.
§ Mr. Hammond
Will the hon. Lady confirm that, in agreeing with her right hon. Friend the President of the Board of Trade, she is disagreeing with the chairman of the Low Pay Commission, Professor Bain, who said categorically that the introduction of a national minimum wage would cost some jobs?
§ Mrs. Roche
The hon. Gentleman and I have had some interesting discussions about the issue on other occasions. He knows what has been said about quotations that are taken out of context. I do not think that Professor Bain would agree with what the hon. Member has said.
612 We asked the Low Pay Commission to take particular account of the possible impact on the competitiveness of all business, but especially small businesses, which featured strongly in the wide-ranging consultation undertaken by the commission. Its report stressed that it had been careful to consider the views of small firms.
I firmly believe that a national minimum wage should be seen not as a burden, but as an opportunity. Firms with a positive, go-ahead outlook—the firms that will expand and prosper—know that it pays to give people a decent wage. It pays in terms of morale, increased commitment, less absenteeism and a lower staff turnover. When firms are confident that their staff are loyal and want to stay with them, they will have the sense to train them and involve them more in the business, making far better use of their time and talent.
It is now time for us to hear from Opposition Members. Are they really going to say that, if there were ever a day when they were returned to office, they would not have a national minimum wage? Are they seriously going to go into the next election promising a pay cut to 2 million workers?
§ Mrs. Roche
I welcome the hon. Gentleman's intervention. I should be grateful if he could answer my question.
§ Mrs. Roche
The hon. Gentleman knows what has been said about that. I congratulate him on his promotion to the Front Bench, but, once again, he has been unable to give an answer to that simple question. I am sure that low-paid workers in his constituency—perhaps at his surgeries over the weekend—will want him to do so; I hope that they have rather more success than I in getting a sensible answer from him.
Business support is a key issue for many businesses—
§ Ms Linda Perham (Ilford, North)
I hope that my hon. Friend is going to mention business links. I was recently invited by the local depot of a successful and expanding business in my constituency to visit its new sorting centre, and I was pleased to meet people from business links, who were doing a very good job. I hope that my hon. Friend will mention what the Government have done to improve the delivery of the business links service.
§ Mrs. Roche
I am glad that my hon. Friend takes such an interest in business links. I shall be concentrating on support services because of their importance to businesses, particularly growing businesses.
Some hon. Members may have heard me say before that business links were our idea, which the Opposition adopted when in government. I applaud their good sense in so doing.
§ Mrs. Roche
If we have adopted any of the Opposition's ideas, we have improved them and made 613 them more successful. The business links network is a very good example. I am grateful to the hon. Gentleman for feeding me such good lines; perhaps he will continue to do so.
The trouble is that the Opposition did not finish the job. Good though some business links are, in too many cases questions arise about the quality of their services. We are tackling the problem. Last autumn, we launched a document stating what we seek in business links. The challenge is to make a reality of the one-stop shop—to make business links more like the entrepreneurial businesses that they seek to assist, to increase the commitment to continuous improvement and quality, and to ensure that the network raises its game. That will not be accomplished overnight. Working in association with our partners on this vital aspect of business support, we must provide an appropriate gateway for small business.
I pay tribute to the existing work of business links for small business throughout the country, but we are keen to ensure that, rather than resting on their laurels, they look to the future.
Another important part of support for small business is exporting, particularly our export explorer initiative. It is vital that we help more small firms to export. For new exporters, we are putting together a new export initiative for western Europe and the United States. The export explorer package for western Europe was unveiled on 25 March, and will allow new exporters to make prepared visits to some of the more accessible markets and trade fairs in western Europe for £99, plus travel and accommodation. That is a remarkable bargain.
Export explorer missions have already visited Ireland, the Netherlands, Finland, Iceland and Denmark. A good number of companies have already been involved in export explorer programmes, which suggests that this is a service which the British business community really wants.
Let me now deal with finance, particularly finance for creative businesses with the potential for growth. It is vital for those businesses to have access to appropriate capital. Their drive and vision must be matched by the providers of finance if they are to achieve their full potential. The Government are playing their part. The £50 million university challenge will provide funds for universities to back their brightest students in developing new ideas to the stage at which they will become attractive to other funders.
As I am sure all hon. Members agree, it is important for the old barriers between the academic and science base, industry and the financial sector to be broken down, so that people can move freely from one sector to another. I am pleased to note some agreement on the Opposition Front Bench.
Business can also help bright young companies. I am talking to large businesses about how they can become more involved in corporate venturing, investing in dynamic, flexible small businesses. There is considerable scope for us to follow the positive experience of American companies in that regard.
§ Mr. Tony Baldry (Banbury)
I want to be helpful to the Minister. She will know that the Trade and Industry Select Committee took pains to produce its report in time for today's debate. There is, of course, a Labour majority on the Committee, but it was an unanimous report. 614 The report stated that there was an urgent need for the Government to state their objectives on small business policy, to set measurable targets and objectives, and to provide a timetable for them. So far, we have heard nothing about objectives, nothing about targets and nothing about timetables. I do not want the Minister to do herself down if she is able to help us over that.
§ Mrs. Roche
I welcome the Committee's report, and I am grateful to the Committee for producing it in time for the debate. [Interruption.] I am not sure why the hon. Member for Buckingham (Mr. Bercow) is laughing. Does he not value the report? Perhaps, as a new Member, he feels that Select Committees are not worth while. If so, that is probably a mistake, as I understand that he is joining the Trade and Industry Select Committee. I am sure that he will make an interesting contribution to its work.
We had an interesting debate in the Select Committee on the matter raised by the hon. Member for Banbury (Mr. Baldry). I told him that the debate was informing our thinking. We have implemented the manifesto commitments that we gave in "Growing and Prospering", the document which we published before the election. We are now seeking to take our work forward, as will be seen in the competitiveness White Paper that will be published in the autumn. Of course, we shall use the Select Committee report and this debate, which I hope will be constructive and helpful, to inform the White Paper.
We are also seeking to expand the market for business angel finance. Business angels can bring valuable business experience, as well as equity funds, to support the growth of young businesses. I am working with the clearing banks and others to facilitate more activity in that market.
§ Mr. Hammond
How does the hon. Lady square the expansion of the opportunities for business angels with the measures in the Finance Bill that further restrict the ability to offset losses in shares in close companies against other income, thus making it less attractive for private individuals to invest in small businesses?
§ Mrs. Roche
Without criticising the hon. Gentleman, I advise him to discuss matters with the business angel community, which says that, at present, there are a couple of problems in expanding that market. One is the unwillingness of some growing businesses to part with equity, which I understand. The second is the serious problem, which we are addressing with formal venture capitalists and business angels, of putting potentially high-growth companies in touch with potential investors. Perhaps a little discussion with the financial community would assist the hon. Gentleman.
Dynamic young companies often need more than just finance; they need help with their management or marketing skills as they grow. That is where business incubators can help, not only in providing access to advice and support, but by encouraging networking between developing companies. I was pleased to launch the national incubator centre recently with financial support. The centre will be important in spreading the incubator concept and in encouraging best practice.
A stable and supportive economic environment is important for small businesses. The Chancellor has been pursuing a measured approach, putting economic 615 management on to a stable, long-term footing and encouraging investment, particularly in small businesses. The fiscal measures announced in the Budget were widely welcomed, and have been of real help to that part of the business community.
I am anxious that we should hear from as many hon. Members as possible, so, in the time available, I have set out only some of our actions in support of small business. Again, I commend to the House the action update that we have published today. It shows the extent of our work to promote this vital part of our community since we came to office. We have listened and acted.
We must look to the future, and not rest on the achievements of our first year in office. My right hon. Friend the President of the Board of Trade has taken the lead in consulting business, particularly small firms and their representatives, about the issues that matter.
§ Mr. Andrew Lansley (South Cambridgeshire)
How can the hon. Lady square her assertion of the achievements of the past year and her comments about the climate for businesses that are starting up and seeking to grow with the view of companies reporting to the 3i Enterprise barometer index, which say that the climate is now less favourable for starting a new business and expanding existing business activities than a year ago? Those are exactly the type of companies involved in the venture capital and growth that she seeks to promote.
§ Mrs. Roche
I have a great deal of respect for 3i, which spoke favourably to me about Government policy only this week. As 3i would say, that was only one survey of some of the businesses in which it invests. I note that the hon. Gentleman has not mentioned the Lloyds bank survey, published this week, which says:Labour has won the confidence of small business during its first year.The sector believes that positive groundwork has been done and the time is right to concentrate on pre-election promises. David Singleton, Lloyds bank managing director of business banking, said:Small businesses are happy with Labour's economic foundations. Almost two thirds believe they are as well off, or better off, than they would have been had Labour not come to power.I am sure that the hon. Gentleman experienced one of those terrible memory losses that seem to affect the Opposition, which explains why he did not refer to that Lloyds bank survey.
Small business and our commitment to it will feature very strongly in every action that the Government take. We shall make sure that when the White Paper on competitiveness is published in the autumn, it spells out our policies for that sector. We shall state our commitment and aspirations for that key part of the economy.
We are absolutely committed to creating in the UK a climate in which enterprise is valued and rewarded, and entrepreneurs are cherished and respected. We take very seriously our responsibility to that sector, because we know that it is the risk takers and innovators who can win for Britain. Unlike the previous Government, we realise that they are our future, and this Government will not let them down.
§ Mr. Christopher Chope (Christchurch)
I thank the Minister for kindly welcoming me to the Dispatch Box with my new brief. That does not prevent me from saying that her speech was a disappointment—complacent, if not self-satisfied. Her words and phrases are an inadequate substitute for the policy and action that are required and, indeed, demanded by the Select Committee and the business community. When my hon. Friend the Member for Banbury (Mr. Baldry) inquired whether the Minister would respond to the specific criticisms in the Select Committee report, it became apparent that she would duck and weave and avoid the issues.
The Opposition welcome the debate and note that it fulfils a pledge made by the Labour party in its manifesto to hold an annual debate on the issues affecting small and medium-sized enterprises. We are grateful to the Trade and Industry Committee for conducting a short inquiry and publishing the report that informs the debate. We are grateful also to all those who gave evidence to the Select Committee and briefed us on the debate.
The debate is about enterprise—or perhaps I should say that it was to be about enterprise. Its original title was "Enterprising UK—the Small Business Agenda", but on the eve of the debate, the Government changed that title and omitted the word "enterprising". I do not know whether that has anything to do with the fact that the president of the British Chambers of Commerce said at the annual conference in Birmingham this week:There are three things that matter to the success of our nation—enterprise, enterprise, enterprise.
I remember that when I was a youngster in politics, enterprise was not taken for granted. We had to go around with car stickers saying, "Free enterprise works"—a statement which was hotly opposed and contested by members of the Labour party, including, for all I know, the Minister. She told me the other day that she had the misfortune of not getting elected to Wandsworth council some years ago. If she had been elected to that council, she might have had a better understanding of enterprise.
The president of the British Chambers of Commerce said:If we fail to create the conditions to encourage and promote the success of enterprise in the UK then it will be like playing on a waterlogged pitch with Gazza as coach.
We all know that the keenest enterprise is to be found in the small and growing firms who use flair, imagination, new ideas and hard work to create wealth for our nation.
The Minister, the Secretary of State and other hon. Members have emphasised the importance of a stable economic framework in which enterprise can prosper, but in this debate the Minister has manifestly failed to address the evidence of instability in our economy. Earnings and prices are fast running out of control. The news this week is that inflation has risen to 4.2 per cent. and wage increases are running at 5.2 per cent. The cyclical benefits bill is beginning to rise as unemployment worsens. Manufacturing is in recession. Sterling is neither stable nor competitive. Interest rates have gone up six times since the general election, and there is talk of further increases.
The Minister said nothing of substance about those matters. What does she have to say about the substantial additional taxes that have been imposed on business—£25 billion in the lifetime of this Parliament? In so far as 617 she addressed that, she thinks it is a good idea and good for small business. It may be possible for Governments to hide taxes from the public view by imposing them on pension funds and withdrawing business reliefs, but such tax increases do not remain hidden from business and its advisers and investors.
Earlier this month I received the document from 3i Enterprise about which my hon. Friend the Member for South Cambridgeshire (Mr. Lansley) spoke, and which has been described as an enterprise barometer. Earlier this week, the Minister and I shared a platform in Birmingham with the chief executive of 3i Enterprise. The Minister should pay attention to what is contained in that enterprise barometer and should not be so complacent. It shows that the response to a question about investment in new businesses is the most negative since September 1992, when the United Kingdom left the exchange rate mechanism. That should worry all of us, and the Government in particular.
§ Mrs. Roche
I am always interested in surveys. What does the hon. Gentleman have to say about the survey by Barclays which shows that business survival rates are rising? Some 63 per cent. of businesses now make it past the first two years, compared with only 52 per cent. in 1994.
§ Mr. Nicholas Soames (Mid-Sussex)
Is my hon. Friend aware that the tide has substantially turned for manufacturing companies in my constituency? What is my hon. Friend's advice to small and medium companies whose orders are declining and which are having to lay people off as a result of the redistributive process that has been engineered by the Government?
§ Mr. Chope
I would not advise those firms to write to the Minister, because they would not get a satisfactory response. I would encourage them to show their support for the Conservative party and to campaign for our re-election at the earliest opportunity.
The sixth report of the Select Committee on Trade and Industry contained a full minute of the Minister's evidence on 2 June. The second question to the Minister was short. She was asked:How do you benchmark competitiveness?The Minister replied:What we will be doing is that very shortly, and the date has not yet been announced, but for the first time ever there will be a small firms debate which will take place on the Floor of the House of Commons and we hope that that will give the House an opportunity to discuss the issue.
§ Mr. Baldry
I later asked the Minister how her policies differed from those that we had pursued in government. She replied that they differed in focus and structure. Have we heard from the Minister today anything to show that the Government's policies are focused on and structured for small and medium enterprises?
§ Mr. Chope
I had hoped for some sign of that, but I am as disappointed as my hon. Friend by the Minister's speech.
618 I shall try to answer the question that was put to the Minister in the Select Committee. National competitiveness should be benchmarked globally. As part of their golden economic legacy, the Conservative Government succeeded in making the United Kingdom the most competitive country in the European Union—and second only to the United States as the most competitive country with a large population and a diversified economy. That information is contained in the World Economic Forum report on global competitiveness. In the league table of all countries, Singapore is first; Hong Kong is second; the United States is third and the United Kingdom is fourth. France is 22nd; Germany, 24th and Italy, 41st. That competitiveness index is built upon the average of eight factors which, when taken together, show the countries with the highest capacity for medium-term economic growth. That index is the benchmark for competitiveness that we want the Government to use.
The legacy of our 18 enterprise years has enabled the United Kingdom to climb to fourth position in the global league. On the basis of the Government's performance so far, the United Kingdom will soon slip back in that league table to a position similar to that occupied by France, Germany and Italy. That would be depressing for us and for entrepreneurs, but on current Government policies that will happen.
§ Ms Jackie Lawrence (Preseli Pembrokeshire)
Can the hon. Gentleman explain why in recent years the UK has slipped from 13th to 18th position in the world prosperity league?
§ Mr. Chope
I am not sure that the hon. Lady is right about that. Competitiveness is important, and it includes growth potential. The figures that I have cited speak for themselves, and the hon. Lady has not addressed them.
The Select Committee's first recommendation is for a policy, but the Government have not announced one. They gave us a document today that they did not have the courtesy to give to hon. Members yesterday or even several days ago. It contains nothing exciting, and that is obviously why the Government decided to wait until this morning before referring to it. The Minister referred to the document in her speech, but did not have the courtesy to tell us beforehand that it was to be published today.
Instead of listening to small business interests, the Government have a raft of business leaders advising them on policy development. The Cranfield Partnership announced this week that 350 business leaders are advising Ministers on policy developments. Despite that, the Government cannot produce a policy for business. The best that they can do is to make forecasts for the autumn. That is not good enough.
§ Mr. Lansley
No doubt my hon. Friend has looked at the Government document. I turned in expectation to the chapter that is entitled "Small Business, the Future" and found a single page consisting mainly of white space. The text states that the Government will publish a document in the autumn. It is a case of, "Watch this space."
§ Mr. Chope
The document does not even say which autumn it will be.
The Select Committee's second recommendation expresses grave concern about the cavalier way in which the Government abolished the ministerial committee on 619 small businesses which ensured that Ministers from all Departments came together to discuss small business issues. In her evidence to the Committee, the Minister explained how the present arrangements were as satisfactory as the previous ones.
§ Mrs. Roche
Can the hon. Gentleman cite one success by the ministerial group under the previous Government?
§ Mr. Chope
I am sure that some of my hon. Friends who were members of that Government or who were in the previous Parliament will give specific examples. I shall give some examples of how the failure to achieve co-ordination in Government is militating against the interests of small business, the first of which is taken from the Minister's constituency. She will be familiar with the case. Last November, one of her constituents, Mr. Anthony Cohen, was concerned about the adverse impact of proposed regulations concerning single vehicle approval of American cars. In a letter to him, the Minister wrote:As Minister for Small Firms, I am of course, concerned that any measures proposed do not amount to an unnecessary burden on companies such as your own.The Department of the Environment, Transport and the Regions continued to press the case for the regulations containing pernicious extra burdens on small business and, on 6 March, in response to a further letter to the Minister, Mr. Cohen received a reply not from her, but from her assistant private secretary. It said:John Battle, the Minister for Industry, has told Lady Hayman at DETR that we are concerned about the effect of their proposals on businesses like yours. Lady Hayman has asked for further discussions at official level before she decides how to proceed. A meeting will take place shortly.What was the outcome of the meeting? The regulations went ahead in the terms that the DETR wanted, with the result that the very existence of up to 200 small firms specialising in the import of special American cars is in jeopardy.
The Government have forced through the regulations in the teeth of our opposition and in the teeth, supposedly, of the opposition of the Minister, who had a constituency interest as well as a small business interest in the matter. Officials at the Vehicle Inspectorate are now making it extremely difficult, if not impossible, to import vehicles that could, until 30 April, have been imported as personal imports without any problem.
We now have a ludicrous situation: it is possible to import a Ford Mustang convertible that is more than three years old by getting an MOT certificate for it, but, if it is less than three years old and someone gets an MOT certificate for it, a panoply of new regulations prevent him from bringing the car into this country. That is a real example and I quote it because the Minister should be aware of it; she has seen all the copied correspondence from her constituent, Mr. Cohen.
620 That is an example of the Minister's failure to carry the weight that is demanded in Whitehall. The failure to implement the beef-on-the-bone ban is an another example, and there are others. Conservative Members are nervous about some of the major White Papers and policy announcements that have yet to be made because the Government are implementing proposals that are clearly anti-small business and the Minister is not standing up for her sectoral interests in those debates.
Let me raise another issue, which will be relevant from 1 July—the cost of road haulage diesel. Some of us have received a letter from Mr. Lacey, a partner in Lacey's Freight Services, expressing concern about the impact of the cost of diesel when cabotage ends on 1 July. The cost of diesel is now twice as high in this country as it is in Spain, Portugal and Luxembourg, and about 50 per cent. higher than it is in France and Germany.
Road hauliers' costs are closely related to the costs of diesel: about one third of the costs of road haulage are attributable to diesel. We are already seeing evidence of vehicles coming from the continent with extra fuel tanks on them, carrying cheap diesel to enable them to participate and compete in our domestic market, to the detriment of our road hauliers. Our road hauliers will have to go over to the continent to fill up with diesel so that they can compete in their own country. That is a major issue because it is legally possible for one vehicle to have more than 330 gallons of diesel in its tanks.
§ Mr. Green
My hon. Friend understates the case when he says that that road hauliers will soon be going to Calais. I have heard from road hauliers in my constituency and in other parts of east Kent that that is already happening. The Government are damaging not only the interests of our road hauliers but their own interests, in relation to revenue collection. It is becoming increasingly routine for hauliers who are based in east Kent simply to cross the channel and buy all their diesel in Calais, where it is about £75 cheaper per load. The policy is already damaging this country's wider economic interest, as well as small business interests.
§ Mr. Chope
I am grateful to my hon. Friend for that local example. Matters will get even worse from 1 July when cabotage ends and there will be a free-for-all in the road haulage market. Road hauliers are among the largest group of small businesses in this country—and what is the Minister doing to look after their interests? Absolutely nothing, I suspect.
§ Dr. Stephen Ladyman (South Thanet)
If the hon. Gentleman's arguments hold water, will he please explain why 7 per cent. fewer businesses failed in the first year of this Government than in the last year of his Government?
§ Mr. Chope
Business is about the long term, and we know that this Government are all about the short term, the soundbite and what is in today's newspapers. The effect of the 18 enterprise years was that business was expanding and the economy was going extremely well. That was the golden economic legacy, as I have described 621 it. It is being frittered away by the present Government. It will take a bit of time before the full wreckage is apparent to everyone.
§ Mr. Chope
I will not at the moment. I am going to make a little more progress, so that more hon. Members can participate in the debate.
The effect on the economy is very damaging. Every time I take a specific example of a group of small businesses that is adversely affected by Government policy, the Minister and other Labour Members do not wish to take up the challenge.
§ Mrs. Lait
Does my hon. Friend agree that another sector of small business that is being adversely affected by the Government is the sector that sells tobacco and alcohol, which is deeply affected by the illegal smuggling and bootlegging of those two products? The Prime Minister promised an early review of the matter, but no review has yet been carried out.
§ Mr. Chope
My hon. Friend raises another good example. As the Minister has accepted, small business comprises a large and varied group of enterprises and each one needs to be looked at on its merits and to have its case argued vigorously in Whitehall if something is affecting it adversely. As the Minister for Small Firms, that is the responsibility that she has on her shoulders. As my hon. Friends imply, that is a responsibility which she is not currently able to discharge.
A look at some of the Government's recent legislative announcements reveals the way in which small businesses are being hammered by the Government.
§ Ms Lawrence
I was interested to hear what the hon. Gentleman said about the long-term position for small businesses. Does he therefore welcome the fact that this Government's financial rules have brought down long-term interest rates, which can only benefit small businesses?
§ Mr. Chope
The hon. Lady refers to interest rates. Of all sectors, small businesses—she will have the documentation in front of her for the debate—depend most on relatively short-term, variable rates. They depend on having low interest rates and they are feeling the adverse effects of interest rates going up as a result of Government policy. Every time interest rates go up, as the Governor of the Bank of England said the other day, the expectation is that the exchange rate and value of the pound will go up, making the position for manufacturing industry even worse.
Yesterday, the Government made their announcement about the national minimum wage. The small print in the Low Pay Commission report shows exactly the extent to which small firms have again been let down by the Minister. The report shows that the national minimum wage will disproportionately affect small firms of between one and nine employees. Page 134 contains figures that 622 show that. The table shows the impact as a 1 per cent. increase in the wage bill of businesses with between one and nine employees—more than twice as great as that on businesses of between 10 and 24 employees.
The table shows that the national minimum wage legislation will have a massive impact on small enterprises. What did the Minister do to defend the interests of small enterprises when the Government were debating it—when the Secretary of State for Trade and Industry was arguing to hammer small enterprises even harder, with higher minimum wages?
What about parental leave and the social chapter? The Government said that they would be able to pick and choose the provisions of the social chapter that suited the United Kingdom, and that none of the relevant current directives would have an adverse impact on us. What has happened? The "Fairness at Work" White Paper talks about social chapter requirements that the United Kingdom should introduce, such as the parental leave directive.
Paragraph 5.25 states:European requirements do not allow any exemption from the provisions relating to maternity or parental leave, but they do provide for special provision to be made in relation to small firms.If we had not signed up to the social chapter, we would have been able to give a complete exemption to small firms, rather than relying on the weasel wordsspecial provision to be made in relation to small firms.The next paragraph states:The Government wants to ensure sufficient flexibility in implementing the Directive to meet the needs of all employers … and seeks views on the particular difficulties small firms might face in complying with the rights proposed".It is a pity that Ministers did not think about that before. It was always open to the Government to introduce parental leave as a part of domestic legislation—they did not have to sign up to the social chapter to do so. They have signed up to the social chapter, however—again to the detriment of United Kingdom small business.
The White Paper speaks also of "tougher rules" on, and "unlimited penalties" for, unfair dismissal. Those rules and penalties, too, will impinge disproportionately on the small business sector.
We await the forthcoming debate on business rates. However, I have little confidence that the Minister will be able to prevail in favour of small business in the argument being conducted inside the Government. What guarantee is there that the total burden of business rates—currently about £12.5 billion—will not go up by more than the rate of inflation? The Conservatives were able to deliver on such a guarantee to the business community.
We await also the forthcoming much-delayed transport White Paper, and proposals dealing with the effects of poor-quality transport—and particularly road—infrastructure on the competitiveness of British industry, and specifically small businesses. The Minister would do well to examine the recent survey on transport carried out by the British Chambers of Commerce, which shows that there is a demand for greater investment in road infrastructure, and that road congestion is a problem for 87 per cent. of respondent businesses, the main effects being increased costs and/or prices for 55 per cent. of respondents and lost business opportunities for another 30 per cent. The survey shows also that, to negate the effects 623 of congestion, businesses had adopted all sorts of devices, and that almost one fifth of respondents had even considered relocating their business because of congestion.
Tackling road traffic congestion is therefore a major priority in ensuring the competitiveness of small business. What is the Minister doing to ensure that the Government continue to invest in the road programme to ensure that there is less road congestion in future? I suspect that she is doing absolutely nothing.
The story continues. We have a Government who are long on words and phrases. As the Select Committee concluded in its report, the time for talking is over, and the time for action is now. We have heard very little from the Minister about real action and commitment on behalf of the needs of small businesses. We hope that we will hear more from her later.
§ Mr. Martin O'Neill (Ochil)
My hon. Friend the Minister for Small Firms, Trade and Industry has already mentioned the report produced by my colleagues on the Trade and Industry Select Committee and me. We are grateful for her remarks. The report was mentioned also by the hon. Member for Christchurch (Mr. Chope). I am glad that we were able to provide at least some factual and sensible information for him to include in his speech, which seemed otherwise to contain much prejudice and whingeing—which certainly did not come from our report.
We considered the issue of small businesses for two reasons. First, we were conscious of the fact that it would be debated in Government time early in this Parliament. Secondly, we simply wanted to ensure that we were able to consider it.
The report is a fairly modest document—a snapshot—which was based on information and evidence from diverse sources. The diversity of sources has already been shown in this debate by the speeches that we have heard. If one would like a bank or university department to argue one's case, and one is prepared to pay enough money for that argument, the case will be made. Although I do not wish to cast aspersions on the academic independence of individual institutions, one can get the report or survey necessary to make a preferred political point by choosing the right bank to make it.
I make that point only in passing, as undue weight has been given to some of the surveys. Even the evidence in the appendices of our report is sometimes confusing because of the weight given to particular matters by individuals or groups. Sometimes, those individuals or groups are guilty of the charge of riding a hobby horse. Over the years, they may have had a bee in their bonnet which, when they are asked about an issue, inevitably escapes.
The Minister said that there will be an annual debate on the small business sector, and that, by next year, we will have a copy of the White Paper on competition. I hope that the White Paper will meet the criticism—perhaps that word is too strong —observation and charge made by my colleagues and by me that, in the Government's first 13 months in office, they have embarked on a number of initiatives, approaches and studies; all those are included in our update.
624 The update does not make fresh reading for anyone who has kept a close watch on press releases from the Department of Trade and Industry in the past 13 months, although it is useful as a compendium of what the Government have started to do. I should like to think that a clear and coherent strategy on the issue will emerge in a White Paper on competition, which is the appropriate place for it to do so.
After 18 years in opposition—one or two, although not all, of which may have been "enterprise years"—the Labour party has learnt that there is a difference between being in opposition and being in government, and the necessity of trying to establish a coherent strategy. We realise the necessity of formulating a coherent strategy, not least because of the fragmentary approach taken by the previous Administration.
The Select Committee realised that the previous Government's record was something of a curate's egg—good in bits, although other bits were not quite so good. The Select Committee realised, and said in its report, that the idea of having a group of Ministers regularly working together is attractive. When the Minister talked to the Committee, she expressed an alternative view. I should say that, when public administration assumes the proportions of a theological dispute, politicians should step back and say, "Let's wait and see what happens on the issue."
As I said, much research on the small business sector is under way. The Select Committee was interested to learn that a database has been established, which may usefully reveal whether there is a demonstrable link between research and policy making. The White Paper on competition will be the test of such a link. The Select Committee will examine the White Paper to determine whether commissioned research, the database and the White Paper's conclusions show that a thought process involving all three elements has emerged. We shall certainly want to look at that issue.
In the last Parliament, the previous Trade and Industry Select Committee looked at business links. By and large, we were quite enthusiastic about it. We felt that there was a great deal going on in the country and that, although there was a variable level of performance, in the best practice it was excellent. We got the impression that a number of small businesses had been assisted. I shall not follow my hon. Friend the Minister down the road of attempting to find the appropriate metaphor. Mention has been made of incubation centres. I hope that, as one of my hon. Friends said earlier, if a maternity unit were closed, none of the babies would be left in the incubation centre down the road. We have to be careful about the language that we use.
In respect of business links, I hope that there will be demonstrable improvements in areas where there was a failure of performance. We have argued that standards of performance should be set out.
We are aware of the variability in the quality of personal business advisers. To be rather cynical, it seems that, in a number of instances, to become a personal business adviser, one must first have had a business that failed or been made redundant or sacked from another business. That seems a bit unkind, but a number of the individuals involved in that activity have had what is frankly a somewhat variable business past. Sometimes, a personal business adviser was a retired bank manager who 625 was an excellent hand holder and had a breadth of experience. Although one or two had completed what I am led to believe was a rigorous course organised by Durham university, it appears that the introduction of professional standards is overdue. That applies to a number of sectors.
In the past few years, a plethora of operations have grown up involved in the promotion of enterprise and business. Inward investment, which I shall not dwell on this morning, is another sector in which many people offer advisory services without any professional basis and people often throw good money after bad. In the case of personal business advisers, it is often public money, which should be used carefully and prudently. We are all keen that personal business advisers should be accorded professional status, as that would help to protect the good name of the best people in the business and provide a spur to those whose performance needs improvement.
The concept of centres of expertise is also interesting, but we shall have to avoid duplication. Everyone will claim to have a centre of expertise and it is possible that, in one region, two organisations might be vying for that title and wasting resources and time. I hope that the new regional development agencies will play an important part in that area.
One aspect in which both parties in government have not done enough is promotion of the attraction of exporting for small businesses. It is a matter not of party dispute but of fact that the high value of the pound creates difficulties for potential exporters. They are frightened because they think that their goods will be too expensive and they are put off by the prospect of going to certain countries and taking a long time to build up the relationships that should be at the core of a healthy export drive.
Earlier this year, I visited Japan with some of my colleagues on the Select Committee. We were very conscious of the fact that the rewards for small businesses that took the time and had the patience and, indeed, courage to go out there were considerable, but the message is not getting through and it did not get through in the past. I should like to think that, if we have such a debate two years from now, we will have seen a breakthrough. It is interesting to note that there is more self-confidence among bigger enterprises in tackling the Japanese market. That market is undergoing a period of difficulty, although the problems are confined largely to the financial sector.
In Europe, the position is slightly better, but not as good as it should be. The excitement of the new Government in preparing for and carrying out the work of the presidency may have taken the edge off our performance. We should be doing far more. My hon. Friend the Minister mentioned countries where attractive opportunities are now offered. That is encouraging, but it is probably too early to judge the Government's performance. It would not be difficult to improve on the performance of the previous Government, but that would not be good enough. We need far better opportunities and awareness of the chances of doing business in Europe.
On regulation, my hon. Friend the Minister's point about equal pay was extremely well made. I remember standing as a candidate in general elections in the 1970s and being berated for what Barbara Castle intended to introduce when she had the opportunity as it had all been 626 set in train many years before. There has not been any diminution in opportunities for women because of equal employment legislation.
There was a sense in the speech by the hon. Member for Christchurch that we should be prepared to defend the bad employment practices of small businesses. As I said to my hon. Friend the Minister when she appeared before the Select Committee, I am concerned about the proposals on fairness at work that exclude businesses employing between one and 20 people. It is easy for small businesses to exploit people by taking advantage of the personal relationships that inevitably arise in that sector. Small businesses should not be tarred with the brush of being bad employers. They do not deserve that, because, in the main, they treat their employees humanely. Most employers treat their employees humanely, but those parts of British industry that do not should be subject to regulation and there should be proper compensation for the victims of exploitation of any kind.
In that sense, I do not fear in any way for small businesses that are good employers, but, as I said to my hon. Friend the Minister, I hope that, in the reviews that will take place as a consequence of the implementation of "Fairness at Work," due weight will be given to the predicament of small businesses and those who work in them, as some workers may need additional protection.
Another point made to us on tax administration and the threshold for VAT has some merit. I should like to think that this matter will be kept under constant review. The amount of paperwork that small businesses have to process is a problem, and that theme arises in virtually all surveys. In addition, if the threshold for VAT were increased, a number of small businesses would be freed from some of the burdens that they bear.
The jury is still out in respect of access to finance. We do not have the same opportunities for venture capital that exist in the United States. It is also a cultural issue, which will take a long time to change. The 18 enterprise years did not do very much in that respect.
§ Mr. Hammond
Does the hon. Gentleman accept that there are far greater opportunities for venture capital in this country than there are in most continental European partner countries?
§ Mr. O'Neill
We should not judge ourselves against countries that are not the best examples. The best example is the United States, and we have to compare ourselves with that country. It would be futile and arid to enter into such a debate on venture capital, because we all know that more has to be done. If we can achieve a political consensus, so much the better. I know that my hon. Friend the Minister is concerned about the issue and is keeping in touch with the angels—that is a metaphor and I do not want to get into arguments about how many angels can balance on the head of a pin. We know what we are talking about. We hope that the climate will improve for future annual debates on the subject.
The Forum of Private Business has said that it would like the Government to produce a Budget compliance cost assessment. One of the problems of our system of government is that some people in the Treasury do not always take the concept of sustainable development seriously, because often they focus on their regulatory and revenue-raising role to the exclusion of the vibrancy of 627 business. It would be useful for a check to be imposed on their activities, because that would give the people concerned a clear idea of where their responsibilities lay.
We have heard a grapeshot approach from the Opposition this morning, homing in on particular industries. We could spend the whole day debating, each of us going on about one small part of an industry. The strength and resilience of small and medium enterprises lie in their diversity. Although the Government's cautious approach may be frustrating for those who want a grand design and want it now, their caution is understandable. I wish my hon. Friend the Minister well in her endeavours, but when the competition White Paper comes out in the autumn, we shall look carefully at the section on small and medium enterprises. I am confident that the foundations in the update to which I somewhat dismissively referred will be the basis of an expansion which is vital for our economy and for the employment and living standards of our people.
§ 11.2 am
§ Mr. Nicholas Winterton (Macclesfield)
It is always a pleasure to follow the hon. Member for Ochil (Mr. O'Neill), who chairs the Trade and Industry Committee with great distinction. We can all agree with the emphasis he put on standards of performance for business links. He was also right to stress the importance of qualifications for business advisers. I have grave reservations about some of those who in recent years have acted as know-all advisers to companies under the auspices of business links. He was also right to stress the importance of business centres of excellence, such as that at Warwick university. I listened recently to Professor Kumar, who heads that centre of excellence.
I did not agree with everything the hon. Gentleman said, but he was right to emphasise the importance of cost assessment for legislation. That trend was started by the previous Government, who established the policy of a cost assessment being prepared of the impact of any legislation.
§ Mr. Lansley
Does my hon. Friend agree that the substance of compliance cost assessment counts, not the form? The compliance cost assessments of Department of Trade and Industry legislation in this Session have not given a realistic assessment of the burden to be placed on business.
§ Mr. Winterton
I hope that my hon. Friend has gleaned some reassurance from the emphasis given by the hon. Member for Ochil to compliance cost assessment. It must be meaningful, not just a token.
The Minister sought to present a good case on behalf of the Government. Having had dealings with her, I believe that she is determined to assist our small and medium enterprises. I hope that she will forgive me for saying that during the 18 years of Conservative government, this country—indeed, the world—witnessed a revolution in business.
628 The Conservative Governments brought about an economic revolution that made the United Kingdom the unrivalled enterprise centre of the European Union, with an open, flexible and dynamic economy able to win in world markets. We kept social costs down for business so that prosperity, which is what is important, could rise for all. We promoted incentives and rewarded success. We provided education and training for the world today and tomorrow, although a lot more needs to be done in that area. The Government, business and the education sectors, despite all their rhetoric, do not realise the importance of co-operation in education and training to enable our industry to be the most competitive in the world.
Small businesses have been a central feature of our success. I am sad that the title of today's debate does not include the word enterprise, but I intend to refer to enterprise frequently. Enterprise is the key to small businesses, which develop new markets, exploit new products and pioneer new services, often laying the foundations of tomorrow's medium and large companies. Creating the right economic climate for small firms to grow and succeed was one of the great achievements of the Conservative Governments between 1979 and 1997, whatever the Minister may say. The statistics show that under the Conservatives small firms mushroomed. They are vital to the UK economy.
However, the importance of small businesses has not been adequately recognised by successive Governments. They generate one third of our national output and provide more than half of all private sector jobs. Those are telling statistics. The promotion of an enterprise culture by successive Conservative Governments shifted the risk-reward balance by allowing people to retain a greater share of their earnings and profits, making self-employment much more attractive. That is one reason why we have had such a flexible, successful economy. The steady growth in the number of people prepared to take the risks involved in setting up in business reflects a real change in attitude towards the small firms sector and to enterprise in general.
I cannot stress strongly enough the vital role of small and medium enterprises in the UK economy. Small firms are major creators of wealth and providers of employment. There are more than 1 million more small firms in the United Kingdom in 1998 than there were in 1979. I remind Labour Members that that is not due to 13 months of a Labour Government. As everyone in the House knows, a successful economy takes time to build; it takes time to build smaller enterprises.
The increase in the number of small firms is the result of 18 years of Conservative Governments—with ups and downs. I think of the shake-out of the early 1980s to which I, as a member of the governing party, took great exception. The brutal actions that were taken to achieve greater competitiveness unnecessarily killed off many manufacturing concerns. We killed many good young shoots and some very good companies.
Firms with fewer than 100 staff employ more than 10 million people—these are all valuable and accurate statistics—and more than 50 per cent. of private sector employment is in small businesses, compared with 40 per cent. in 1979. In total, there are about 3.7 million small businesses, accounting, as many in the House will know, for more than 40 per cent. of turnover in the United Kingdom.
629 Small to medium enterprises and family businesses, which I like to mention—interestingly enough, the Minister mentioned them, too—should be encouraged all the way with whatever Government action is necessary. Smaller businesses are the backbone of the UK economy and in many ways are better for the economy than large public limited companies which, although they generate huge income for the country, fail fundamentally by, for example, not investing in the long term and succumbing to pressure from shareholders to produce maximum short-term returns.
We often boast that the UK has 40 per cent. of the European Union's top 500 plcs. I do not take any pleasure in that, because I do not believe that such companies often invest for the long term. They frequently decorate their accounts, taking money from one heading and putting it into another, to paint a rather rosy picture, but that is bad for future investment and the future of the company. I want more encouragement for smaller private family businesses—non-plcs that do not have to react continually to City institutions to maintain their share rating. Profit motivation is not the prime concern of the head of a small family business. What is important is the creation of the right conditions, to be in the market and in business the following year and to plan for five years down the line with a view to sustainable, organic expansion. That is what we must continue to encourage.
Successive Conservative Chancellors of the Exchequer reduced the rate at which small companies pay corporation tax from 42 per cent. in 1979 to 23 per cent. as a result of the 1995 and 1996 Budgets, which helped 400,000 small companies. Marginal tax rates should be reduced further to encourage enterprise. A major way in which to encourage enterprise would be the further reform of inheritance tax. Even with the linking to inflation, as it were, of the level at which inheritance tax is paid, it deters many people building up and investing wealth. Why do so many family companies sell out before a principal reaches an age at which he might keel over and be carried out feet first? Because he wants to realise, for his family, the business's capital assets rather than pay a very large slice of it to the Chancellor of the Exchequer, the Treasury and the Government of the day.
Conservative reforms, particularly increases in the rates of relief on business property, meant that most small firms could be passed on completely free of tax—until now, and our current Chancellor. This Government have already started to damage the environment that is needed for healthy enterprise. The Minister made great play of Labour being the party of small business. She quoted selectively from a document, but she could find others that say something very different. With increased taxes on business as a result of the Chancellor's two Budgets, it is unfortunate that, instead of encouraging enterprise, the Government have sought to curtail business development in the most cruel way through changes to capital gains tax in the Finance Bill that is before the House.
The Government have abolished retirement tax relief for businesses worth less than £250,000. Although in business terms that is not a great amount, substantial taxation will kill off many smaller businesses and reduce the scope for enterprise and growth in others as small family businesses pass from one generation to another—which I greatly support, want to continue and, in fact, want to be encouraged. Sadly, long-term investment, enterprise and hard work are in some ways being 630 discouraged. That is the message which I pick up from some smaller businesses. The message is clear: the Labour Government are trying to be good for small business, but they are not entirely succeeding.
I now come to a point that has not been raised so far. Centrally, the burdens of the European Union must be reduced—not to mention their being increased by our accepting new ones. There is a widespread and entirely justified view that British officials—I suppose that I may not refer, Mr. Deputy Speaker, to the Box in which civil servants sit—have tended to strengthen EU regulations when implementing them in UK legislation. That is certainly my experience of 27 years in this place. Such action can be enough to break a small firm that is just starting out or just beginning to balance the books.
The previous Government—my Government—made progress in establishing their deregulatory principles and practice, to which my hon. Friend the Member for Christchurch (Mr. Chope) referred, at the centre of European decision making. We decided that action had to be taken. Unfortunately, very little progress is now being made on that front.
Most important, in creating the means by which and the fiscal climate in which small and medium enterprises can carry out their business in a highly competitive market, we must—I say as a Conservative—maintain control of our own economic policy. Control of interest rates is crucial to business. The new Government, I regret to say, took no time in handing over power to Mr. Eddie George and his committee at the Bank of England.
I have spoken to the Governor of the Bank of England on several occasions. I asked him: "Are you aware, Mr. George, that increasing interest rates is desperately damaging to smaller business and particularly the manufacturing sector?" Interest rate rises increase the value of the pound, which hits our exporting sector. Mr. George replied: "Mr. Winterton, you are right. Damage is done to manufacturing industry and the smaller business sector in this country, but my priority is inflation. I have to act in order to clamp down on and damp down inflation. My priority cannot be the interests of what is really the sole wealth-creating, non-inflationary sector: manufacturing." I find it quite extraordinary that a vital weapon in the Government's armoury has been handed over to the Bank of England, which is not interested in the position of manufacturing industry.
The Government also seem keen to dispose of our currency. Let me make it clear to the House that if we lose control of our currency we shall lose control of our economy. That would be tantamount to losing control of the management of our country. I am not prepared to accept, condone or support that policy. What hope would there be for small family businesses in a federal European superstate? The implications are enormous and they should be contemplated with great sobriety.
All reports suggest that we are on the brink of world recession. Yesterday's Daily Mail, a paper that has given some support to Labour, contained a leader page article by Andrew Alexander headlinedInflation? No, it's a slump we must fear".The paper's comment for yesterday is headlinedEconomic peril and European obsession".Perhaps the people of this country are just beginning to catch up with the problems of European union. All reports currently point towards a world on the brink of recession. 631 The tiger economies of the far east continue to plummet. Japan needs to be bailed out by President Clinton and the United States of America. Japan—the powerhouse of the far east!
At home, our economy begins to look sadly less than rosy. We have rising inflation, and unemployment may be beginning to display itself again. We must look to how best to ride out the storm that may lie ahead. This is the very time to do all in our power to encourage investment in manufacturing and small firms, which are the mainstays of our economy.
My hon. Friend the Member for Christchurch has mentioned transport. There has been an almost total stop on infrastructure projects since the Labour party came to power. Some road projects are needed in the United Kingdom, particularly in my constituency. They are vital to the future competitiveness of industry in the north-west and in Macclesfield.
The Prime Minister's parliamentary private secretary, the hon. Member for Stockport (Ms Coffey), takes an interest in the A6(M) Stockport bypass, the extension of which is the Manchester airport eastern link road, the Poynton bypass and the Macclesfield A523 road improvement scheme. All are vital to the competitiveness of industry in the north-west. Industry must be able to use the tremendous facility of Manchester international airport, which is getting bigger and bigger, and more and more important.
Those road projects must go ahead, and I hope that the Minister will impress on her colleagues in the Department of the Environment, Transport and the Regions that—like the Alderley Edge bypass, which is a matter of importance to the hon. Member for Tatton (Mr. Bell)—they are critical to our future competitiveness.
Instead, the Prime Minister and the Government appear to be lumbering us with a sackful of job-destroying measures: the minimum wage; the social chapter; union recognition; and the Brussels directive on working hours. With recession looming, why on earth are the United Kingdom Government so hell-bent on locking the UK ever more tightly into a Europe of high social costs, crippling labour restrictions and burdensome bureaucracy? The Government's pandering to Brussels has damaged our business men and women. The Prime Minister was, sadly, happy to sign up to the social chapter in Amsterdam last June. Our veto has been further surrendered and a vast array of measures may be decided on by qualified majority voting. We will be unable to have a full and final say.
Most social chapter directives will apply to small firms. It is clear that the Minister of State, Department of Trade and Industry expects those burdens to be in place in the UK by October 1999. The social chapter is typical of Europe. It mirrors the much more regulatory, interventionist approach prevalent in much of the rest of Europe. It runs directly counter to the UK's deregulated flexible approach to social policy and employment. As the Minister knows, I come from a small family business background, and I believe that such an approach can only be bad for small and medium businesses.
The Institute of Directors asserts that social chapter legislation is not as innocuous as the Government would have us believe, as it will place extra burdens on business 632 and will hurt competitiveness. How can the Government say that they seek to help small business when yet more burdens are in the Euro-pipeline? We will give part-time workers the same statutory and contractual employment rights as their full-time counterparts; is that fair? There will be a directive to reverse the burden of proof in sex discrimination cases, and another on sexual harassment in the workplace. Some right hon. and hon. Members may consider those measures worth while and necessary, but let us be clear that all of them will impose more costs on employers, while the benefits will be negligible.
The Conservatives are the true supporters of small business. The Tory party always has been the party of small business—the farmer, the entrepreneur. We have not been the party of the large business man; I must point out to the hon. Member for Weston-super-Mare (Mr. Cotter) that, historically, big business always supported the Liberal party. The Conservatives are the true supporters of smaller business. We believe in low taxation, low inflation and a deregulated economy.
The agenda of the Labour party is characterised by more interference and damaging burdens on business at a time when our firms need as much freedom as possible to negotiate the severe economic challenges that lie ahead. Thanks to the Government, I regret to say, many businesses find themselves constrained more than ever by higher costs and red tape from the interfering federal Europe of which we are a part. The Government appear determined and delighted to wedge us even further in.
§ Mr. Gareth Thomas (Clwyd, West)
I have followed the hon. Gentleman's speech with great interest and agreed with much of what he said until he embarked on his tirade against Europe. If the European approach to the social chapter and the regulatory culture of Europe are so destructive to the small and medium enterprise sector, why do our competitors—Germany is the prime example—have such strong small and medium enterprise sectors?
§ Mr. Winterton
The hon. Gentleman is wrong. Germany is finding it extremely difficult to compete and is, for the first time in its history, exporting manufacturing capacity to other parts of the world. The hon. Gentleman and I may share common ground on the German banks, which seek to invest in business in the long term. They look to repayment periods of 20 years rather than the much shorter periods that are the order of the day in the United Kingdom, but let us consider current unemployment levels. In Germany, unemployment is much higher than it is in the United Kingdom; it is much higher in France, too; in Spain, it is astronomically higher than in the United Kingdom. We have one of the lowest levels—if not the lowest level—of unemployment in the European Union, but, sadly, some of the measures that I have criticised—and have emanated from Europe—will reverse that trend.
I was about to conclude by saying—[HON. MEMBERS: "Hear, hear."] Sometimes Labour Members do not like to hear the truth. I repeat that I have been known not to be on message with the Conservative party. In the 27 years that I have been in this place, I have often spoken out because I believed that what my party was doing in government was wrong. I was prepared to get up and say so, which may be why I am not speaking from the Front 633 Bench. However, I have been in this place long enough not to want that position as much as I might have done at one time.
I have made it clear that, tragically, smaller business is now being damaged by the Government and their policies: the high pound—bad for exporters—six interest rate increases and the national minimum wage. Many business people in my constituency and members of the Institute of Directors and other organisations believe, as I do, that the minimum wage will be damaging, adding unnecessary costs. The social chapter, statutory trade union recognition, tampering with business rates and the abolition of retirement relief will all take their toll on small firms. It will be a tragedy not only for people who lose their jobs and their businesses—and their families—but for the whole United Kingdom.
I make a plea to the Minister, for whom I have a high regard; she has been courteous and helpful whenever I have approached her. All is not rosy in the small and medium business area. Some of the policies that the Government are introducing, many of which relate to the European Union, will make us less competitive, so they will damage small business. I hope that the Government will take heed of some of the messages that will be given during the debate.
§ Ms Jackie Lawrence (Preseli Pembrokeshire)
It is a privilege to follow the hon. Member for Macclesfield (Mr. Winterton). However, I urge him to continue his rebellion. He claims that the Conservatives are the party of small business, if not of large business; perhaps he would persuade the party to publish its accounts, along with other parties, so that we may know where its funding comes from.
I was extremely interested to hear the remarks by the hon. Member for Macclesfield about transport infrastructure—a subject brought to our attention by the hon. Member for Christchurch (Mr. Chope). I recall that, in 1996, the Confederation of British Industry published a statement which said that traffic congestion in this country was costing British business—all British business—£19 billion a year. That was after 18 years of Conservative government, with no integrated transport policy.
The previous Government consistently refused to improve infrastructure in my area, which has an especially large proportion of small businesses. Not least, they postponed the scheduled start of construction of the Fishguard bypass, which is part of an essential link across the shortest land bridge in the United Kingdom between Ireland and Europe, for markets throughout south Wales, west Wales and south-west England.
§ Mr. Hammond
Does the hon. Lady recall that, before the general election, the Labour transport spokesman described the previous Government's plans to widen the M25 in my constituency as lunacy and madness? Does she think it surprising that, 14 months on, the Government have been unable to reach a decision on whether to go ahead with that scheme or drop it?
§ Ms Lawrence
One thing that I am aware of is that the present Government are taking an integrated approach to 634 transport policy throughout the country, and are not rushing into any decisions, but are listening to the public and to the requirements of all parts of the UK.
Small businesses, and the climate for their success, are especially important to my constituency. We often forget that only 0.2 per cent. of businesses throughout the UK employ more than 200 people. In Pembrokeshire and west Wales, such large employers are often thinner on the ground. Moreover, in the business sector, such large employers who have invested in my county over the past decades have often withdrawn that investment as a result of outside or international pressures. For example, we used to have five oil refineries in Pembrokeshire; we are now left with two.
By contrast, many of the 23,800 small business throughout west Wales have operated for several generations. That confirms the findings in the report recently published by the European Commission, which stressed the role of small businesses in creating sustainable employment for the future. Organisations such as the Design Council have also said that small and medium enterprises will become increasingly significant in the UK economy as we move into the next century. Those small businesses have often been denied a voice in economic development forums nationwide, despite the fact that they offer so much for the future on every level. That must change, and I believe that it is changing under the present Government.
Small businesses are important to the economy–94.4 per cent. of all UK businesses employ fewer than 10 people, and 99 per cent. employ fewer than 100. Those figures are absolute confirmation of their importance to Britain's future. Unfortunately, despite that importance, the previous Government treated our SMEs appallingly, standing by to watch one business go to the wall every three minutes of every working day during the premiership of the right hon. Member for Huntingdon (Mr. Major).
§ Mr. Hammond
Does the hon. Lady happen to have the figures for the number of small businesses that were created per minute during that same premiership?
§ Ms Lawrence
Recognition of SMEs' role in providing a sustainable future is also confirmation of their importance environmentally. In west Wales, we have clean air, clean water and unpolluted land. Our two mainstay industries, tourism and agriculture, rely on those properties. Because the majority of our small businesses relate directly to those industries, their future depends on maintaining that level of quality. That was ably demonstrated by the report, recently published by the Pembrokeshire Coast national park, on the economic benefits brought by users of the Pembrokeshire coast path.
As well as being important to the local economy and environment, small businesses have a crucial role to play in maintaining the social fabric of rural communities; plus, for us in Wales, there is an extra dimension of culture and language. Only by promoting and sustaining small enterprises can we protect the unique cultural elements of Welsh society, by creating a framework to enable more of our young people to stay in rural areas. Unfortunately, at present, so many must leave the area to find work.
635 On another front, Wales has a record of success in attracting inward investment to our region, but only to a tiny area around a short stretch of the M4 and A55 in south-east and north-east Wales. That success may have given rise to the impression of an overall thriving economy, but the majority of Wales has experienced massive decline during the 18 Tory years.
For west, mid and north Wales, plus the valleys, gross domestic product as a proportion of the UK average slumped well below the 75 per cent. required to qualify for European objective 1 status. Forecasts of GDP growth in Wales for the period to the year 2000 do not anticipate any significant closing of that gap—testament to the importance of obtaining that objective 1 status for the western seaboard and valleys in the current negotiations.
SMEs know that the previous Government let them down. Labour Members know that. It appears that even Conservative Members know that. Interviewed by "First Voice", the magazine of small businesses, the hon. Member for Chesham and Amersham (Mrs. Gillan), then Tory spokesperson for SMEs, admitted that the Tories had done nothing for small businesses. The hon. Lady said:There will be very little policy coming from the Conservative partyin the initial stages of opposition. She added:it is understandable because we got it wrong.Certainly in Wales we have known that for a long time. In the period mentioned—when GDP in Wales went into free fall—the right hon. Member for Wokingham (Mr. Redwood) returned to the Treasury more than £100 million allocated to Wales. That money could have been invested in infrastructure and other measures to aid small businesses—and, indeed, all businesses. However, the right hon. Gentleman maintained that we did not need it. We needed it then, and we need it now.
The previous Government also let down small businesses, not least by measures such as introducing insurance premium tax and increasing petty regulations on small businesses—despite their supposed deregulation initiative in 1994.
That is in clear contrast to the present Government, who have followed words with positive action. The difference is that the present Government are starting to provide what small businesses need and want, including legislation for interest on late payments. It was interesting to note that that the hon. Member for Christchurch made no mention of that issue, which is certainly one of the major issues of concern of small businesses in my area.
Other measures introduced by the Government include a 20 per cent. cut in the small business rate of corporation tax; increase in first-year capital allowances extended for a further year; policies to promote long-term investment; administration of tax and national insurance contributions consolidated to reduce the bureaucratic burden on SMEs; launch of the UK business incubation centre in February 1998; and many other moves to support small businesses.
In addition, the Government accepted in principle my amendment to the Government of Wales Bill on behalf of Welsh business. Those businesses will now have a greater opportunity to work in partnership with regional government for the benefit of everyone in Wales. One of 636 the major burdens on small businesses in the past two decades has been the massive rise in petty regulations and compliance costs, despite the fine words of Conservative Members.
§ Mrs. Lait
Does the hon. Lady agree that most small businesses want cuts in red tape? What cuts in red tape have the Government provided, given that they are introducing a national minimum wage, the parental leave directive and many other measures that my right hon. and hon. Friends have already described?
§ Ms Lawrence
The figures for the previous Government's deregulation initiative in 1994 show that, for every regulation that the Government of which the hon. Lady was a member disposed of, the number increased by 13.
At least in Wales—through the assembly—business will have an opportunity to lend expertise, as well as voice opinions, to Government. For us in Wales, assisting small businesses to become medium enterprises—a major failure under the previous Government—holds out our best hope for a sustainable vibrant economic future. Through them, we can add value to locally produced primary products, and maintain vibrant rural communities. We can also demonstrate our commitment to a quality agenda for Wales, showing not only that we value our assets, but that we recognise that economic prosperity starts at home by building on them.
§ Mr. Brian Cotter (Weston-super-Mare)
I was somewhat speechless when the hon. Member for Macclesfield (Mr. Winterton) said that the Liberal Democrats had the support of large businesses. I am delighted to take that accolade, but we did not see that support in terms of funding before the election. However, since the election, we are building support with large businesses.
§ Mr. Nicholas Winterton
Yet again, a Liberal Democrat Member is slightly hard of hearing, or is selective in what he hears. I said that, historically, the Liberal party represented big business and industrialists—not today.
§ Mr. Cotter
History has a habit of repeating itself, and I detect that we are getting on very well with large and small businesses.
I congratulate the Government on holding this important debate—the second such debate in recent months. I particularly welcome the Minister's commitment that this will be an annual debate, and we all look forward to addressing over the years how things have gone for small businesses.
Since the debate last November, the small business agenda has moved forward considerably. In that connection, we particularly welcome the passage of the Late Payment of Commercial Debts (Interest) Bill. Small businesses have waited a long time for that important measure, and at last the chain that has dragged them down will start to be broken.
It is fair to say that the Minister for Small Firms, Trade and Industry has had a lot to do, and that much of what she has done has been welcomed by the Liberal 637 Democrats. It is refreshing, and almost novel, to see the Government taking a positive and proactive approach to small business.
Some areas regarding the running of the economy by the Ministers' colleagues—over whom she has no control—are extremely concerning. Will interest rates rise again? The Government's taxation on business has not helped, such as the cash effects of corporation tax, the impact on business of tax relief on dividends, and the discouraging result of the changes in capital gains tax. Most notably, the Government failed in their early months to take the heat out of the economy, and instead have found themselves taxing business.
Enterprise within the SME sector is vital to a thriving, dynamic and competitive economy. That is why the Government have a duty to provide the economic climate to deliver it. According to figures from the DTI's SME statistics unit, SMEs provide 58 per cent. of total employment and contribute 56 per cent. of business turnover. It would therefore be foolish to ignore the domino effect that the small business sector can have nationally.
I share the concerns of the hon. Member for Ochil (Mr. O'Neill) at the current level of the pound. Many firms find it increasingly difficult to compete in this climate. Liberal Democrats believe that the Government must declare a firm timetable for joining the single currency, so that the situation can start to be rectified. The result, we believe, would be a lower pound and lower interest rates, and sustained inward investment into this country would ensue.
I wish to refer to my experience with my company, and to emphasise that the high value of the pound is having a bad effect on small companies as well as big. Many companies see the need for a decision to be taken on the single currency, and the CBI and the TUC—for example—support such a move. We are asking for a calm, intelligent and informed debate.
§ Mr. Lansley
Since the level of the pound concerns the hon. Gentleman, and since entry to the euro is something he wants, does he have a notion in his own mind of the appropriate level at which the pound should enter the euro?
§ Mr. Cotter
Yes, but I would not wish to declare it, for fear that the market might collapse. [Laughter.] If the Government had made a clearer determination about the single currency last autumn, we would not be facing the problems of the high pound at the moment. The Government must not take heed of the heated and rather ill-informed debates on the single currency in the past.
The Government are gradually making moves. This week, the Foreign Secretary signalled that the single currency might be introduced in 2002. The Labour party seems to be wising up to the fact that the issue of the euro is a case of not "if' but "when", provided that the conditions are right. The Liberal Democrats urge a more proactive approach, so that the United Kingdom can confidently embrace the single currency at the right time.
Another crucial issue is that of business start ups. Various organisations, such as business links, provide support for existing businesses. However, they provide little help for the nought to nine employees category, despite the Minister's commitment. Smaller businesses 638 should be given help to emerge. That will be the true indicator of a competitive and thriving small business sector.
§ Mr. Cotter
My colleagues have entrusted me with this debate. They are confident that I shall do my best to represent them. Many people in our party run small businesses.
We want the Government to place more emphasis on start-up guidance and support. The economy as a whole will reap the benefits, and there will be a knock-on effect through business links. The more new businesses that prosper, the more business links will have to do. However, current figures are not encouraging. A report published by Eurostat entitled "Enterprises in Europe" shows that there is a relatively weak small business base in this country. In a survey of the 13 European Union nations, the UK was ranked 13th for businesses that employ 10 to 99 staff. The report also noted that the average turnover of UK-based businesses is the lowest of the 13 nations reviewed.
Those facts should serve as an impetus to the Government to provide more effective support networks. More needs to be done to encourage people to consider starting their own businesses, perhaps along the lines of the work of the Prince's Youth Business Trust. I am impressed with the work of the trust, which has made a great success of supporting and encouraging young people to start up in business. For a modest cost, the trust advises young people and arranges for mentors—people to hold the hands of young people starting in business—to help them get started. That hands-on approach should be studied by other business support organisations.
The results of the trust's work are outstanding when one considers that it deals with young people, with whom it has a 60 per cent. success rate as measured by businesses that are still in operation after three years. Of those who do not succeed in business, some 50 per cent. go on to permanent employment.
For a potential small business owner, starting up is a frightening prospect, but it can be made easier. On the other hand, people must be realistic about the pitfalls. Will the Minister consider the following valuable idea from the National Federation of Enterprise Agencies? It proposes that the Government take the lead in ensuring that there is a national business birthrate strategy. Are the Government considering such an idea?
What financial justification is there for a comprehensive support network for small and medium enterprises? The NFEA has come up with an illustrative example. It says:It costs around £9,000 per annum for the state to support someone on benefits. If you assume for a business started by an employed person, the vacated job will eventually be filled by an unemployed person, and that each new business creates 1.5 jobs, every new business potentially saves the Exchequer £22,500.I quote those figures without having researched them myself, but the Minister should perhaps ponder them. The NFEA goes on:Stimulating a net increase of 50,000 businesses could potentially save £1 billion. And this ignores the extra income generated by tax, national insurance and VAT, which would be substantial.
639 The Conservative Government embodied short-termism; I implore the Labour Government to plan ahead, so that, for once, long-term objectives can be achieved. It is not good enough for Governments to think ahead to the next general election and then to worry about it all again if they are elected for a second term. That has caused damage in the past by creating a boom-bust economy.
We have already discussed funding. The Government should consider adopting mutual guarantee schemes, which would be an extremely effective support mechanism for business initiatives and financing. Mutual guarantee schemes are a sort of co-operative by means of which firms can get together, pool resources and dip into the pot. Other European countries have found them extremely effective, as they provide much easier sources of finance than are currently available in this country.
Training for business owners would aid the development of small businesses, so it is vital that the Government offer such an initiative. Small firms starting out cannot afford expensive training programmes or management consultants. Credit management is vital to small firms, and training on the subject of the late payment of bills would considerably ease that stressful financial burden.
The welfare-to-work programme should be welcomed, although it remains an unemployment initiative rather than an employment strategy. It may help people to get into work, but I doubt whether it will create many jobs.
§ Mr. Tony McNulty (Harrow, East)
Could the hon. Gentleman remind me whether the Liberal Democrats supported the windfall tax that is paying for the new deal and the welfare to work programme?
§ Mr. Cotter
The hon. Gentleman may know that we did not support the windfall tax, because it was a one-off, and we sought more continuous funding.
Many people on the welfare-to-work programme would find it well nigh impossible to straddle the income gap. Although many people are capable of setting up their own small businesses, we should encourage people in such a situation to work to their potential. I hope that that will increasingly become an ingredient of the welfare-to-work programme.
That is where regional development agencies could play a vital role. The local environment is vital to enterprise for a variety of reasons, such as local authority services, planning, crime, transport links and economic factors. That is why we support the concept of the RDAs. It is highly bureaucratic for central Government alone to initiate and run schemes for fledgling enterprises. Central Government do not possess local expertise, so, to maximise efficiency and potential, the RDAs must be able to bridge that gap.
Strategic and sustainable economic regeneration through the regions is the key to small business prosperity. RDAs should be business-led organisations, not another tier of governmental red tape; should work closely with local people and local government; and should intrinsically act as a vital catalyst to regional development and investment.
Over the past decade, the United Kingdom has lost out in the routing of European Union development funds to the different parts of this country because of regional 640 weaknesses and deficiency in resourced regions. Effective business support requires clarification and simplicity, which is why the Liberal Democrats advocate the one-stop approach. Businesses would have more say in planning and development through the RDA system. They would be able to react to the special requirements of their regions, using their specialist knowledge to the most powerful effect.
Central and local government have their own roles—render unto Caesar that which is Caesar's, and unto God that which is God's. Roles appear to have been divided by the Government, but I am unhappy that they have chosen not to bring the training and enterprise councils under their umbrella. That is a mistaken approach, especially as we are all trying to address the best means of support for business.
From my personal knowledge, which has been gained from the many people who talk to me about the effectiveness of what TECs are doing, I know that TECs are suffering some criticisms, and organisations such as the Forum of Private Business and the Prince's Youth Business Trust will confirm that that approach is not always satisfactory. It is not only politicians who moan about the difficulties, but those who deal directly with, or represent those who deal directly with, business links and the TECs.
The hon. Member for Ochil spoke about business links. I accept that the Minister has introduced accreditation, but there are concerns, and we should look at the system as a whole.
§ Mr. Hammond
The hon. Gentleman has told us a great deal about his views and the views of his party on the structures, the support mechanisms, the quangos and the committees that should encourage and help people to set up in small business. Has he anything to say about the burdens that the Government have been piling on to small business—the minimum wage, the social chapter, interest rates and the strong pound? What do the Liberal Democrats think about them?
§ Mr. Cotter
I have talked about the strong pound. Hon. Members do not agree with our approach, so we are not going to get far. I do not go along with the hectoring approach in respect of measures such as the minimum wage and protection for employees, but they will not have the effect that has been suggested by some hon. Members. The hon. Member for Ochil said that people thought that equal wages for women would be a disaster, and that that has not turned out to be the case. There are concerns, but we made it clear in Committee where we stand on those issues.
§ Mr. Cotter
We shall see, when the minimum wage is implemented. My party has not fully concurred with the format of the minimum wage, although we shall wait to see how it develops. It should have had a regional aspect, which might have dealt with some of those problems.
641 It is important to bring the organisations to which I have referred within the RDAs, to make them truly effective and accountable. That cost-effective measure would simplify access to business support. I make no apology for dwelling on business support, because it is vital—the great amount of money being spent has to be made effective in respect of delivery of services.
In respect of the latest Forum of Private Business survey, it came to my attention that the uniform business rate is, once again, the top concern for small firms, now that the late payment legislation has been passed. Of the firms surveyed, 52.3 per cent. specified the uniform business rate as their major priority. Now that the legislation for late payment has been passed, the Government should address this issue. Business rates are a huge impediment to enterprise and competitiveness. They have a disproportionate impact on small business, and are set without reference to the local economy or to the profit of the business.
In its election manifesto, the Labour party promised to return the business rate to local authority control. It stated:
There are sound democratic reasons why, in principle, the business rate should be set locally, not nationally.It claimed that that view had the wide support of business. That principle has been seriously diluted in the Green Paper, which states thatonly a measure of local discretionis proposed.
Parts of the Green Paper are to be welcomed, but it does not go far enough. The system of annual, centrally set business rates that are pooled and redistributed to local authorities is to be retained. We are still waiting for the final proposals, and I look forward to them with great interest.
§ Mr. John Bercow (Buckingham)
It is fascinating to listen to the hon. Gentleman's excoriation of the Government's position on business rates. Will he take a moment to enlighten the House as to whether the Liberal Democrat party believes that local authorities should have the right to jack up business rates to the detriment of local enterprises?
§ Mr. Cotter
Of course I do not think that local authorities should be able to jack up business rates to the detriment of local enterprises. That is not our idea; nor is it any sensible person's. The idea is to make the rates compatible with local business so that it is fairer for small businesses. Small businesses pay about 13 per cent. of their turnover on business rates, whereas large concerns pay 5 per cent. Such disparities should be addressed.
There is little point advocating that idea if nothing is going to be done about it. I hope that the Government will give a clear sign that they will deal with the disparity between businesses, and will make the setting of business rates more accountable.
§ Dr. Ladyman
I assume that the hon. Gentleman is coming to the end of his speech. I do not want him to get into trouble with his party Whips, so I thought I should point out that he has not yet told us that we can solve these problems by putting 1 p on income tax.
§ Mr. Cotter
As the hon. Gentleman said, I am coming to the end of my speech. If I were to launch into that 642 subject, we would be here rather a long time, and people might start to shuffle their feet. I am glad to say that I will not be in trouble with the Whips.
I should like to touch on the exciting opportunity for development within the enterprise sector. Small business will be able to develop internet technologies through the millennium challenge. Like the fax not so many years ago, the internet is an alternative means of communication. More than that, it is an alternative means of business and trade. It is reported that there are more than 100 million users world wide, 60 million of whom are in the United States of America. In America, last year's inflation rate drop, from 3.1 to 2 per cent., was attributed to internet trading.
In America, customers can buy everything from shares to bonds, from cigars to flowers, with a click of their computer mouse. Business costs will be dramatically reduced in this country, and new markets will become open to smaller traders. The internet is ideal for small firms in many ways. Small businesses do not have the resources to spend on lucrative advertising campaign to get their name and product known. The web provides a truly cost-effective alternative.
§ Mr. Cotter
We are not talking about advertising; we are talking about selling, and the presenting of products—as many other products are presented in shops. I think that there has been a slight misunderstanding about what the internet will actually do.
Larger companies can afford to hire the specialists needed to integrate a website with a database, thereby fully automating the ordering and stock control processes. Many small firms will still have to do that manually, increasing their costs in relation to larger businesses. Internet technology not only provides easy communication between customer and service provider, but facilitates communication between individual business departments. Unfortunately, staff are expensive and can be difficult to retain. Web designer network use is quite a luxury at present.
United Kingdom investment is markedly lower than that of our European counterparts. The Government need to look beyond the millennium on this vital issue, and help small firms to realise the potential offered by the Internet.
A key area in which the internet has a role to play is the development of on-line training courses, on which skills can be acquired at relatively low cost. An on-line course can cost a fraction of the cost of classroom-based courses. Such courses would be of great benefit to small employers. The Government and the Opposition have recently involved themselves in a couple of public relations stunts using the internet. I urge them to view the internet not as a stunt, but as a serious option for the future.
While I am on the subject of computers, let me urge the Minister to ensure that the Government address the problem of the millennium bug. I note from the latest 643 survey by the Forum of Private Business that only 29 per cent. of small and medium enterprises have begun to introduce the changes needed to beat the bug. Research by Barclays bank has produced a similar figure: Barclays says that only 60 per cent. of small businesses plan to take any action in the next year. That ought to worry the Government.
According to page 8 of a document that we received this morning entitled "Small Business Action Update"—I shall refer to it only briefly, as others wish to speak—Action 2000 is dealing with the problem of the millennium bug. I must say that it is rather a slim contribution. The Minister knows of my concern, as I have been speaking about the issue for more than a year. She tells us that the Government launched Action 2000 on 22 January 1998. That is rather late.
We welcome today's debate, but is the Minister prepared to make the Government duty bound to issue an annual report that is somewhat more detailed than the report I have here? I believe that the last detailed report was produced in 1996.
New avenues are opening up to small businesses, such as the internet and the single currency. I hope that the Government are prepared to develop strategies for such exciting developments, creating a truly entrepreneurial climate.
Mr. Deputy Speaker
Order. I remind the House that speeches today have been long, and that many hon. Members are still seeking to catch my eye. Unless speeches are much shorter, many of them will be disappointed.
§ Dr. Ian Gibson (Norwich, North)
Gosh. The speech of the hon. Member for Weston-super-Mare (Mr. Cotter) is a hard act to follow.
I do not share the negative views that I have heard from Opposition Members. That is not my experience with small businesses; my experience is quite the opposite. Just before the election, my hon. Friend the Minister for Small Firms, Trade and Industry came to Norwich with me. We visited some small businesses, which welcomed her contribution to discussions. I assure her that she is still seen as a champion of small businesses in Norfolk.
In my constituency, signs of business confidence are suddenly looming. Small businesses are showing signs of direction and strategic planning. There are burgeoning signs of inventions and innovations, with a food bio-technological base in the Norwich research park. So confident are companies in that park that they are bringing an exhibition down to London next Tuesday. When Norwich comes to London, that is real business confidence.
That feeling has been amplified by the encouragement that emanated from the Chancellor of the Exchequer last week—as well as from the Department of Trade and Industry—when he supported the strong science base that would provide the stable economic development that the Government desire. I await the spending review with growing excitement.
644 In Norwich, the public and private sectors are working together, aided by the Norfolk and Waveney business link. They have set up a new Broadland business park, which is close to the city centre, a park and ride scheme and a burgeoning Anglia railway network to London. Last week, in his statement, the Chancellor named Norwich airport as ripe for expansion. I am sure that legislation will follow, and the airport's directors and the city council welcome the opportunity to build up the small businesses in the surrounding area.
New small businesses are developing in Norwich almost monthly. There are new call centres, such as Norwich Union. KLM is coming to Norwich airport. Virgin has also developed there. I shall not say anything about knighthoods in relation to that, but we welcome Virgin and the companies that it will attract. Companies are producing snack foods, micro-electronic compounds, pre-packed sandwiches, catering equipment and travel services.
Suddenly, an entrepreneurial skill has developed, which has been encouraged in the past year by the Government's policies. Companies are growing fast and recruiting a skilled work force from the fall-out of companies destroyed by the previous Government. Norwich has workers with computer skills who are interacting with skilled workers at the university and research institutes.
Have we reached our full potential, not only in Norwich, but in the country? The answer is no. I say that in the spirit of a determination to advance. If we are to generate new products, new companies and new jobs, we must take action on our universities. The Select Committee on Science and Technology, of which I am a member, considered parts of the Dearing report, which have not had a public airing, relating to developing the science base and putting more money into aging labs, where health and safety standards need to be brought into this century. Those points have been made in the House. We are seeking positive interaction and development on that to ensure that our science base competes with the best in the world, as I am sure it will.
I am concerned about the gifted young people who have, over the years, increasingly been employed on short-term contracts. Those young scientists spend their first year getting set up to do their work and the second year worrying about where they will get their grants from. If they are lucky, in the third year they will manage to do some research and development. If they really win the jackpot, they will get another grant for one, two or three years. That is not good enough. I know that the Department of Trade and Industry is considering that issue. I do not want to be negative; I want to look forward. Those young people are the future of this country. I shall give examples later of how young people in the United States have been encouraged to develop.
There will be a dramatic increase in our knowledge, particularly in biological sciences. I am thinking particularly of the human genome project, which will revolutionise the pharmaceutical industry. It will have many helpful effects, and it will make the role of the GP questionable, as people will get personal attention from various paramedic sources. All the new industries that will sprout out of the new technology and science will, without a doubt, be small and medium enterprises.
Part of the contract with universities must be that they stop knocking entrepreneurial skills. There are still too many purists in universities who worry about the size of 645 their office, or sharing an office, or having an office at all, or the pile of their carpet rather than considering what they might do in connection with industry. There is more encouragement of that, but there is much more that we can do. Universities are still, to a large extent, steeped in the past.
California has shown the way forward because big science there means taking big risks, and many people do not succeed. The culture there is to pick yourself up, dust yourself down, and start all over again. People become serial entrepreneurs, whereas in this country if one does not succeed the first time one is labelled a failure. A cultural change is necessary. A recent poll in the USA showed that 70 per cent. of 16 to 18-year-olds want to be entrepreneurs. That shows that they recognise exciting developments.
My local university encourages me because it offered Trevor Bayliss, the inventor of the clockwork radio, an honorary degree at the same time as it offered one to Chris Evans, the man who founded Merlin Venture. The inventor of a clockwork radio that helps the third world and Chris Evans, the biggest entrepreneur that Britain has ever produced, are being recognised by universities. Our universities must now produce their own stars.
I look forward to a visit next week with other members of the Select Committee on Science and Technology to the Massachusetts institute of technology in Boston. It has developed and educated hundreds of young people who have set up companies, mainly in Massachusetts, which are valued at about £142 billion. Graduate schools there teach young people entrepreneurial skills and science. If they can do it, we can do it. I could give examples from Stanford and from other places.
§ Mr. Lansley
Is the hon. Gentleman aware that the Cambridge network is looking towards a school of entrepreneurship as one initiative to help to foster in our region the kind of activity that he mentions?
§ Dr. Gibson
I recently visited Cambridge research park and was encouraged by its excellence. It emanated from six people meeting in the late 1960s in a pub and deciding to go for it. That is the sort of entrepreneurial spirit which we are encouraging and need to encourage more.
There will be massive changes in technology in Britain. Robotics will test the millions of potential drug compounds that are produced each year and will replace the boring manual procedures that people have to go through now. There will be new drugs and mass communication procedures, and we shall solve environmental problems. By doing that, we shall improve the quality of life for our people.
We are all aware of the demand for better health care and safer foods, and many SMEs will be in those areas. There is a huge job to do to convince the public that they will be comfortable with some of those technologies. They should be viewed not as a threat, but as a boon to people. I know that the Minister for Science, Energy and Industry appreciates that the public understanding of science requires consensus politics and public discussion. It would be intolerable if our new companies faced public resistance and decided to move to other countries. We must not let that happen.
I should like to comment on a recent consultation document entitled, "Innovating for the Future: Investing in Research and Development". It shows how the 646 Department of Trade and Industry is working on the co-ordination of business angel networks and on the possible introduction of special services for SMEs. It addresses the important problem of managerial expertise in SMEs and reveals that further consultation is to begin on management recruitment in centres for high-tech SMEs using favourable equity arrangements. I welcome that debate.
The document concludes that our overall rate of spend on business enterprise research and development has declined relative to that of our major competitors. It states that the United Kingdom tends to lag behind its principal industrial competitors in exploiting technology. The Select Committee on Science and Technology is examining that project and will take evidence on it in the United States next week.
In their mini-Budget, the Government took steps to encourage long-term development, and investment will follow that. They plan to fashion innovation and to include that in the general round of business activity. We should welcome that.
With an increase in science and engineering graduates, which I believe will follow the increase in students entering colleges and universities, we will have a whole cadre of researchers moving from academia into industry and having entrepreneurial skills. I welcome what is happening in Cambridge, but that should happen in every college and university. We should really encourage that.
It is clear that the Government are being proactive and are determined to change things in this sector. With confidence growing, small businesses will continue to flourish, and enterprise will become the predominant word in our language.
§ Mr. Philip Hammond (Runnymede and Weybridge)
Any discussion on the Government's policies on small business must analyse the gap between rhetoric and reality. As in the sectors of health care, education and the environment, in opposition the Labour party said on small business what it thought the people wanted to hear. Time and again, we hear from the Government the language of support for small business, but that language is betrayed by the Government's actions. That is partly because they are instinctively hostile to part of the ethos that underlies small business and partly because they fail to understand the problems of small businesses.
Small businesses have faced a series of blows, which reveals Labour's true colours. I want to go through a few deliberate decisions and moves that the Government have taken, where they cannot claim inadvertence or misfortune. The National Minimum Wage Bill, of which the President of the Board of Trade was apparently so proud when she spoke to us yesterday, was introduced without any exemption for small business. I understand what the Minister has told us in terms of her reluctance to allow special treatment for small businesses per se, but, in the Committee that considered the Bill, she also resisted any suggestion that directors might be excluded from its scope.
Directors cannot be regarded, by any stretch of the imagination, as a group that might be exploited by its company. The Minister would not countenance any possibility of excluding spouses or close family relatives, so small business directors are required to remunerate 647 themselves, their wives and close family members at a Government-specified rate, with all the tax consequences that that brings.
As the hon. Member for Weston-super-Mare (Mr. Cotter), who speaks for the Liberal Democrats, rightly pointed out, business rates are one of the main concerns raised by small businesses time and again in surveys. Before the last election, the Conservative Government put forward proposals that would have removed the smallest businesses from the impact of business rates, greatly advantaging the smallest 25 per cent. of businesses. From what we understand of Labour's plans for the business rate, we expect local authorities to have discretion to increase business rates in certain areas. We expect that some small business will be put at the mercy of councils with a known track record of hostility to enterprise.
The social chapter and the working time directive impose a disproportionate burden on small businesses. The parental leave directive is one of the first measures to be implemented since the United Kingdom signed up to the social chapter. It is not an enormous burden for a company that employs 100 or 500 people to be required to give unpaid leave to someone for six months, but that is a huge burden for a business that employs five or six people. Indeed, in many cases, that burden could make such a business go under.
We have also had the Government's pay-off to the trade unions for their perhaps not unwavering support in the run-up to the general election and, to some extent, since then. The requirement that union recognition should be imposed on businesses that employ more than 20 people again places a disproportionate burden on businesses that operate at the lower end of the size scale.
Those are deliberate Government policy actions. It is bare-faced cheek for the Government to continue to proclaim their support for small business, while loading on, week after week and month after month, more measures that impose those additional burdens. The common theme running through the measures is the Government's failure to address the problem of disproportionality. Measures that sound perfectly reasonable and acceptable when applied to large enterprises have a serious and disproportionately negative effect on the smallest enterprises.
The single positive proposal to support small business trailed by the Government—on late payment of debt—is something of a damp squib. The proposal will have very few practical advantages for small businesses because of the reality of the environment in which they operate.
In many ways, the unintentional damage done by the Government is far more important than the damage that they intentionally do to small business. Whereas the damage that they have caused intentionally is bad enough, the collateral damage that they have inflicted is frightening. The Government have struck small business serious blows by failing to hit their own inflation target 12 months out of 13, by six interest rate rises since 1 May 1997 and by the consequent overvaluation of sterling.
Recently, with the pound sliding down a bit, there was some little measure of respite for business. Many small businesses, including some in my constituency, that were literally teetering on the brink breathed a huge sigh 648 of relief after that development. Now, however, because of the Government's economic mismanagement and incompetence, interest rates are again rising, and the pound is again soaring in the expectation of further rate rises. I tell the Minister that rising rates and the threat of the pound breaking through the DM3 barrier for the second time will be the straw that breaks the camel's back for many small manufacturing businesses, which thought that they had finally turned the corner.
The Government's fudge on the convergence criteria for the single European currency has ensured that a soft currency will be established, that the pound will continue to be a relatively strong currency against those of our European neighbours and that small British business will continue to face currency problems even after implementation of the euro.
Small business is not only about profits, interest rates and inflation rates—although all those factors are important. Small business people, entrepreneurs, are sensitive also to the climate in which they operate—to the way in which society and the Government view and value them. The resurgence of small business in the 1980s was not only about material improvements in conditions but about a change in how society treated small businesses. One might say that, in the 1980s, there was spiritual encouragement of small business. Small business people felt that they were valued, that wealth creation was once again an acceptable and valuable activity and that profit was not a dirty word.
In the run-up to the general election, the Labour party made all the right noises. I have to grant the Minister for Small Firms, Trade and Industry that she did all the right things. She went to Norwich, and she said all the right things. People felt comfortable with Labour, and their anxieties were assuaged by the Minister's gentle tones. However, the Labour party's body language—its signals—betrays its remaining deep-seated hostility to profit, success and wealth generation.
The signals from the Government are important, and the Budget has proved to be an important turning point. Before the Minister tries to intervene, I should say—as I have said in the Standing Committee considering the Finance Bill—that the reduction in the small companies corporation tax rate was very welcome. However, the reduction merely implemented a pledge made by the previous Government to reduce the small companies rate to 20 per cent. I am glad that the Government have seen fit to implement the pledge.
The Budget's changes in capital gains tax revealed to anyone who had not hitherto realised it that there remains in the Labour party a deep-rooted hostility to modest wealth creation by ordinary people. The capital gains tax changes and abolition of retirement relief have been a bitter blow to many of those who have worked all their lives to build up a small business, in the expectation of selling it to fund their retirement. The Budget's changes have sent a negative signal, too, to young people who were perhaps considering devoting their career to building a small business over a period of 20, 30 or 40 years.
The Labour Budget has introduced two measures on capital gains tax. First, it has removed indexation. The Chancellor said in his Budget speech that there was no longer any need for indexation. The history of Labour Governments in power and their record in controlling inflation, together with the present Government's patent 649 inability in their first 14 months in power to stick to their own targets on inflation, will not give much comfort to anyone who has now been told that, in future, he or she will pay capital gains tax on the purely inflationary element of any gain on the sale of their business.
Secondly, the Finance Bill has abolished retirement relief—probably the single greatest betrayal of small business that the Government have so far perpetrated. It is all the more deceitful because an early reading of the Chancellor's Budget speech would not betray the full extent of the burden that will be imposed on small businesses. Indeed, it has caused such alarm that a significant number of Labour Members signed an early-day motion urging the Government to reconsider their position on the abolition of retirement relief.
Just in case any hon. Members are not fully aware of what has happened, let me explain. Under the old system that currently prevails, anyone selling a small business in order to retire who makes a capital gain of less than £250,000 would pay no tax at all. Anyone making a gain of between £250,000 and £1 million would pay tax on half that gain. Tax would be paid only on the real post-inflation gain that had been generated in the equity in their business over the time that that person had run it.
Under Labour's new system, the lowest rate of tax that will be payable on the gain on the disposal of a business will be 10 per cent. After 10 years, that will be the lowest possible rate. It will be payable on the entire gain and, if that is not bad enough, it will also be payable on the inflationary element of the gain. Let me explain. If a person bought a business today for £250,000, worked hard at it for 20 years but failed miserably to grow it so that in 20 years' time it had the same value in real terms, if inflation continued at its current rate of 4.2 per cent. over that 20 years, that person would sell the business for about £500,000 in nominal terms in 20 years' time. He would be deemed to have made a capital gain of £250,000 and required to pay £25,000 in tax. It is a disgrace.
By contrast, anyone who sells a business and makes a gain of more than £500,000 will be better off under the changes introduced in the Finance Bill. How does that square with the rhetoric that we heard from the then Opposition before the general election?
It gets worse. The bigger the gain and the more millions that one makes, the greater advantage one gains from the changes introduced by the Government. The capital gains tax change does nothing for small business and everything for people making large-scale gains of millions of pounds. It does nothing for ordinary people who may make a gain of £100,000 or £200,000.
§ Dr. Ladyman
If an employee, out of money that he saves, buys shares in a business and those shares accrue in value, when he sells them—perhaps to pay for his retirement—he is expected to pay capital gains tax. Why should it be different for the owner of a business, who is simply investing in his own business rather than somebody else's?
§ Mr. Hammond
I shall return to that point in a moment.
The scenario that I have outlined will take effect after 10 years. In the interim period, the position is even worse, because the Government, while phasing out retirement relief over five years, have decided to phase in over 650 10 years the taper relief that replaces it. Entrepreneurs who are now in their late 50s or early 60s who are expecting to retire in the next four years are seriously disadvantaged. Some face an unexpected tax bill of not just 10 per cent. but 37.5 per cent. In the real world, there are some very distressed small business people whose retirement plans have been disrupted and who are faced with having to continue to work for another four or five years after their planned retirement date to get through the transitional period.
The hon. Member for South Thanet (Dr. Ladyman) asked why small business people should not be asked to pay tax on the gains that they make when they sell their business. There are two reasons. First, imposing a tax that did not exist before—a tax on success and successful wealth creation—is a strange way to encourage small business, which the Minister tells us that she wants to do. Secondly, for many small business people, their business is their pension fund. People who are in employment regularly put money aside into a pension fund, with generous tax benefits—tax relief on their contributions and a tax-free lump sum when they reach retirement age. Many people who run a small business find that cash flow does not permit them to take money out of their business and invest it on the stock market through a pension fund. They plough their profits back into their business and rely on the capital, the equity and the growth in their business to provide a lump sum that will fund their pension when they retire. That is why the Government's proposals are inequitable.
§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. It is helpful if the hon. Gentleman indicates that he is giving way and does not just sit down.
§ Dr. Ladyman
I am sorry about the confusion. The hon. Gentleman is making a powerful case, but does he understand that someone who does not take money out of his business each year but leaves it in is also avoiding paying income tax on that money? The hon. Gentleman is arguing that people who own their own business should be exempt not only from capital gains tax but from income tax throughout their working life.
§ Mr. Hammond
Unfortunately, the hon. Gentleman does not have a good grasp of our taxation system. If the business in question is a company, corporation tax is paid on the profits. If the business is a sole tradership or a partnership, income tax is paid on the profits. Whether the money is taken out or reinvested in the business, income tax or corporation tax has already been paid on it.
I am coming to a close. I apologise for having inadvertently misled you just now, Mr. Deputy Speaker. The changes to capital gains tax are significant. They have made the small business community wake up to what is happening. After 14 months of flannel, they can see at last the Government's underlying agenda, which is hostile to wealth creation and to wealth creators. I give the Government credit for having got the rhetoric right before 651 the general election. I accept that they struck a chord with many small businesses throughout the country. However, 14 months, two Budgets, one social chapter and several Bills later-not to mention six interest rate rises—small business is waking up to what is happening. The reality has overtaken the rhetoric and small businesses throughout Britain are beginning to see that the leopard has not changed its spots.
§ Mr. Gareth Thomas (Clwyd, West)
Like the hon. Member for Macclesfield (Mr. Winterton), I had assumed that we would speak to the more interestingly titled motion, "Enterprising the UK—The Small Business Agenda". Perhaps it matters not, because any discussion of small and medium-sized enterprises inextricably involves discussion of the benefits of promoting the enterprise culture throughout the United Kingdom. That will be the main burden of my short address.
I welcome the debate and the fact that the Government, unlike their predecessors, believe that we can have an enterprising society and a fair society. The two are not mutually exclusive. I commend to the House a speech made recently by my right hon. Friend the Prime Minister in which, it is quoted in the Observer, he said:Enterprise culture should not be confined to city whizz kids. It should be open to everyone to take a risk on a good business idea".That is surely what the Government are about, mindful of the fact that the small business sector is so important not only to job creation but to wealth creation. It is absolutely essential that policy fosters that. In my area, Wales, there has been considerable interest in how we increase the business birth rate, because it is acknowledged that, in Wales and other peripheral areas of the United Kingdom, far and away the most people are employed in small businesses.
The agenda for small business is an important part of the Government's programme to tackle social exclusion and harness the creativity and self-confidence of ordinary people. I should like to make a series of comments on two specific subjects. First, I shall comment on the role of regional policy in improving the economic prospects not only of areas such as those that I represent in north Wales, but of the small business sector. Secondly, I shall comment on community enterprise—an exciting idea whose time has surely come.
Small business needs a stable macro-economic context within which to work. It needs price stability, low inflation and the sort of fiscal prudence to which, I am pleased to say, the Government are committed. It also needs—here, I agree with some elements of Opposition Members' speeches—to be assured of a correct balance between rewards and benefits in order to promote self-employment. There is also common ground across the Floor of the House about the fact that small business needs a reasonably flexible labour market. It needs to be assured that it will not be burdened unduly with the rather unfortunately named social costs.
The Welsh Affairs Committee, of which I am a member, recently visited Catalonia to investigate the issue of small businesses, where the sector is strong. Youth unemployment is extremely high in Catalonia, and many entrepreneurs put that down to an inflexible labour market 652 and inordinate labour costs. The right balance must be struck between fairness and enterprise, and I firmly believe that the Government have got it right.
I should like to make three specific points to my hon. Friend the Minister about the macro-economic picture as it affects my constituency and Wales. As my hon. Friend the Member for Ochil (Mr. O'Neill), the Chairman of the Trade and Industry Committee, said, the strong pound is definitely having a very bad effect on manufacturing industry. That is particularly pertinent in Wales since, as a reflection of the success of the Welsh Development Agency, there has been considerable foreign inward investment into parts of south1-east and north-east Wales. Manufacturing industry is stronger in Wales; it employs significantly more people proportionately than in other areas of the UK. I ask the Government to take on board the effect of the strong pound.
There is clearly a debate—and the decision will be finely balanced—on whether the Government will enter the single currency. Speaking as someone who represents a peripheral area of the UK—this would apply to other areas such as Scotland, where the economy is vulnerable and prone to fluctuations in interest rates and other economic indices—the sort of stability that a single currency would provide is in our interests, and particularly in the interests of small-scale entrepreneurs. I take the view that it will be necessary to enter the currency in the long term.
I want to make one further point about Europe and the rate of small business start-ups in the poorer areas of the United Kingdom. The Minister knows that I am referring in particular to west Wales and the valleys, because I raised the matter with her during an Adjournment debate earlier this week. Gross domestic product in west Wales and the valleys is extremely low, and falls well beneath the 75 per cent. threshold that qualifies an area for objective 1 status. If those areas receive funding from Europe as a result of regional funding reform, the money should be put into encouraging small business start-ups. I agree with much of what was said by my hon. Friend the Member for Norwich, North (Dr. Gibson). It is implicit in the idea of increasing business birth rates that there will be a high death rate, too. We need to engender an entrepreneurial culture across society that is not confined to the captains of industry who were an obsession of our predecessors.
Let me turn to regional economic policy. Much can be achieved through dynamic action at local level, and there is much to be said for local variation. I am conscious that I am speaking to a Minister at the Department of Trade and Industry, which, I am afraid, is perceived to be overcentralised. May I respectfully ask the Minister to take that on board? Can she give an assurance that when the National Assembly for Wales, the Scottish Parliament and the regional development agencies in England, are established, the DTI's policy will be to encourage variation and local focus on locally attuned policies?
Regional aid via discretionary grants is important. However, a recent survey from Cardiff university—I pay tribute to Professor Kevin Morgan and to Brian Morgan, whose work is at the forefront of thinking on this aspect of policy—found that regional aid is less important than having regional policies in place to encourage a stock of innovative firms; foster a skilled, versatile work force; bring about a robust networking capacity; and encourage collaboration. Small firms can learn from each other, 653 and should be encouraged to collaborate to improve economic performance in terms of supply networks, and to learn how best to achieve good results.
The National Assembly for Wales will be a great achievement of the Government, and it is widely welcomed. The Federation of Small Businesses has welcomed it. The RDAs for England are also to be welcomed, but I suspect that they will have to be democratised in the long term. Our experience of the Welsh Development Agency is that because it was not fully open and accountable, and was not under the control of directly elected representatives, it pursued its own agenda, and tended towards glamorous inward investment projects. There has been success in that area, but it has been at the expense of indigenous business. Not enough resources or attention have been given to small businesses.
I firmly believe that an enhanced WDA under democratic control would result in the sort of policies that we need to remove the economic imbalance between east Wales and west Wales. Prosperity has not percolated into western areas of Wales, or the valleys. Incidentally, the hon. Member for Buckingham (Mr. Bercow), who is to respond to the debate on behalf of the Opposition, is a member of the Welsh Affairs Select Committee—although we do not see much of him these days. I am making a point about democracy, and democracy can bring about better decision making.
The Department of Trade and Industry should be mindful of the importance of the economic agenda in the momentum toward devolution. One of the main reasons why the Welsh assembly has been created is to improve our economic performance. Different arguments were used in Scotland. In Wales, we focused on the benefits that devolution would bring.
I make an important request of the Government. The House will, of course, retain primary legislative powers when the Welsh assembly is set up. Will the Government please take on board the fact that it would be desirable, when passing primary legislation, to give the Welsh assembly as much latitude as possible to pass secondary legislation, to allow it to carve out its own agenda within the overall framework of macro-economic policy?
I shall bring my remarks to a close, as I know that many hon. Members want to speak in the limited time that remains. We need an economic strategy that focuses on the need to foster small businesses. My remarks are not confined to Wales, but are equally applicable to other parts of the United Kingdom, especially outside the so-called overheated areas of the south-east.
We need to improve vocational skills, and we should be moving in the direction of fusing the vocational and academic routes in post-16 education. There is much unnecessary competition between schools and colleges. An important college in my constituency, Llandrillo college, does very important work in that regard. It would improve the labour market if we had a more rational system.
We need to make creative use of graduate skills. We need to improve information and communication technology. We need to improve the birth rate of new firms. We need better co-ordination of support services. In Wales, the equivalent of business link is an organisation called business connect, which many people describe as a virtual organisation because it does not 654 really exist. Rightly, it has been severely criticised for being unco-ordinated, under-resourced, and unfocused in its approach to business support, which is so important. We need to encourage small firms to export and to look outwards, and we need to ensure that there is a better spatial spread of foreign direct investment—in Wales, it should move into the poorer areas.
Improving infrastructure and making use of our cultural, artistic and environmental strengths in Wales would greatly help to improve economic prosperity. That is a comment of general application.
There needs to be a partnership approach between business and Government.
Finally, many hon. Members may be aware of the concept of community enterprise. It is about using business methods to achieve community needs—such as in a credit union, a nursery or an environmental project. Such projects are extremely useful in those very deprived areas—I am talking mainly, in the Welsh context, of those isolated industrial valleys of Wales to which wealth has not percolated. We must improve people's self-confidence, widen their horizons and encourage them to work together to produce community enterprise, which will generate jobs and generate a new breed of entrepreneur, which may be very different from the classical idea of an entrepreneur. In my view, the vision, not only for Wales but for other, poorer, areas of the United Kingdom, must be to spread the idea of entrepreneurship and the enterprise culture throughout society.
I pay tribute to Community Enterprise (Wales), which has done much good work. It would welcome greater Government encouragement and support of community enterprise, and would like the Government to extend charitable status to community economic enterprise. It would like local authorities to be encouraged to put in place community development strategies with social audit techniques. It would also like the Government to fund additional research into community enterprise, and perhaps put more money into the small grants scheme.
Tribute has been paid to the Prince's Youth Business Trust, which held a reception in the House last Tuesday. It is an excellent model, and 40,000 young people have started businesses—modest micro-businesses in the main. We saw two of the trust's representatives in the House. Many of the young people involved are from ethnic minorities, young offenders, people with a criminal record and people with disabilities, but the trust is not confined to those categories.
The trust would like to see an "income bridge"—as it is described—between unemployment and self-employment. Now that the enterprise allowance scheme has gone, there is a difficulty in getting people off the dole and into self-employment. We must make that easier, and I ask the Government to take that on board. Consistent training in the basic skills of setting up and running a business is also needed. I am talking about micro-businesses here; not SMEs, but a much smaller scale of business. Self-employment as a job in its own right should be encouraged also by careers services at school.
In Wales, enterprise has been identified with the ironmasters and coal magnates who played such an influential part in establishing our economy—particularly in the industrial areas of Wales—and who in urn have been identified with exploitation of the sort that the 655 Labour party has always wanted to combat. Our vision of the future must be different, however: we must not regard enterprise and profit as dirty words, but must extend the benefits of the enterprising society—the fair society—to all sections of society.
§ 1.1 pm
§ Mr. David Prior (North Norfolk)
I start by declaring an interest, in that I have a number of interests in small companies. That may bring some benefit to the debate.
Since I was 14, I have been interested in small business. At that time, I got a job fattening pigs during a summer holiday which ended in a rather sticky mess—I got dysentery. Ever since then, I have had a keen interest in small business, and my experience is very much practical rather than theoretical.
I see that the hon. Member for Norwich, North (Dr. Gibson) is in the Chamber. I agree with much of what he said about the importance of academia and universities working closely with business. In America—in areas such as Minnesota, Massachusetts and California—we see the fantastic benefits of working together, as we do in Cambridge in this country.
We must not lose sight of the fact that massive changes were achieved during the 1980s and 1990s, as compared with the 1960s and 1970s. I ran a small engineering company in the west midlands at the end of the 1980s, which made steel pressings and zinc die castings. We were transformed when we won a contract from Honda, which took us around its plants and component suppliers in Japan. When we realised what could be achieved—and how good the competition was—we were able to improve our own business and become competitive.
The attraction of inward investment from overseas is vital, and companies came to this country in the 1980s largely because they regarded the UK as different from much of the rest of Europe. One of my worries is that much of what the Government are doing—well-intentioned though it may be—may cause problems.
Individual Bills may not mean much in themselves, but the aggregation of the social chapter, the minimum wage, the working time directive, greater trade union recognition and the like is sending a signal to global companies—who are totally footloose in the international capital market and the global economy—that Britain is turning towards the more corporatist, dirigiste European model and away from the more free enterprise, entrepreneurial structure that is to be seen in the United States. I shall not spend time today attacking individual bits of legislation, but the Minister must be aware that the climate is changing and that, if we are not careful, the international business community will see that the United Kingdom does not have the most successful economy in the world and that it is looking more towards Europe than towards America, which is a great shame.
I shall now deal with a few micro-issues. Last year, I conducted a survey of some 50 small firms in north Norfolk and found that the uniform business rate was the single most important worry to small businesses, because it is a fixed cost. The rate for the businesses surveyed was 26 per cent. of average profit, and the charge applies whether or not the business makes a profit. That is 656 especially hard for businesses in the high street and for small businesses competing with those who operate from home and therefore pay no business rates.
During the Government's consultation on local authorities, will the Minister battle for small businesses and look at the way in which transitional relief is applied? A constituent of mine, Mrs. Stephanie Harrison, runs a small business in Holt. She receives no transitional relief and competes with shops that do, and she pays more than twice as much as those businesses in business rates.
§ Mr. Prior
My hon. Friend makes a good point, which I am sure the Minister will answer. Many high streets, particularly in small market towns, are dominated by charity shops, which compete with private businesses that sell the same products. That causes real hardship to many private businesses.
The Minister should not get too enthusiastic about giving local authorities more power to raise business rates. During the early 1980s, when the current Secretary of State for Education and Employment was in charge of Sheffield council, I worked in the steel business in Sheffield. The high business rate charged at that time was partly responsible for ruining many businesses in Sheffield.
May I enter one caveat? The relief available to village shops in rural areas has been a great success and has resulted in many staying open which would otherwise have had to close.
My second point concerns regulation. The Government have set up a better regulation task force, led by Chris Haskins, to improve the quality, and to question the quantity, of state regulation. We all accept that there is a growing demand for regulation, stimulated by litigation, the single market, and consumer health and protection requirements. However, will the Minister consider using the sunset clause so that regulation is automatically reviewed or dropped after a time? That might be of some help.
The Late Payment of Commercial Debts (Interest) Bill, although well intentioned, may prove to be counter-productive because small businesses are the worst payers. They simply do not have the money, particularly if they are expanding and financing new working capital. Will the Minister ensure that any new regulations are phased in over a long period and applied in a common-sense and sympathetic manner? Will she also minimise paperwork? For many small businesses, VAT, PAYE and national insurance returns are a great burden, and the last straw will be a new census form from Government Departments. Will the Minister stand up to the blandishments of any big businesses that have a vested interest in regulation as a barrier to entry?
My third point concerns an aspect of the "Fairness at Work" White Paper: the proposals to reduce from two years to one the qualifying period for unfair dismissal, and to abolish the maximum limit on awards for unfair dismissal. The threat of going to a tribunal for unfair dismissal is a major concern for small businesses and a 657 major disincentive to taking on new people. The removal of the cap will make it that much more difficult to settle such cases out of court, and that will have an injurious effect on the employment of new people by small businesses.
My fourth point relates to supermarkets. In my constituency and in many rural areas, a new supermarket could have a devastating effect not only on small businesses in the high street but on a range of local food producers—from farm shops to farmers who produce their own meat and sausages. I hope that the Minister will do whatever she can to ensure that the planning requirements on new supermarket developments will take into account the impact that such developments would have on local high streets and on local business. I make a particular plea, because there is a supermarket proposal for Sheringham, a town in my constituency. There is no doubt that a supermarket would have massive deleterious impact on local business.
The Government have inherited an economy in which enterprise and small business are flourishing. They have the opportunity to build on that, and I hope that they will take it rather than turning the clock back towards the 1960s and 1970s and a more dirigiste and corporate state.
§ Dr. Stephen Ladyman (South Thanet)
The Opposition's attack on Government policy on small businesses has three pillars, the first of which is the strange notion that their 18 years in government—when inflation went backwards and forwards between 4 and 14 per cent., interest rates bounced between 6 and 17 per cent., we went through three recessions, and unemployment stayed below 4 million only because they fiddled the figures 40 times to ensure that it did—were not a difficult time for small businesses, but a golden period of stability and opportunity. I can say to Conservative Members only that that was not the way the public saw it when they voted last May—and I cannot believe that Conservative Members believe it themselves.
The second pillar is that all of Europe is bad for small business. Surely Conservative Members cannot believe that either. The single market has produced great opportunities for small businesses and what protection they have had from anti-competitive activities by large and dominant predatory companies in their market has come through articles 85 and 86 of the treaty of Rome. The idea that small businesses have gained nothing from Europe is nonsense.
The third pillar is that because small businesses do not have the financial reserves of larger companies, they should be protected from legislation and regulation from the Government and from Europe: freed from the minimum wage so they can pay people whatever they like and freed from fairness at work legislation so they can treat people in any way they like.
Conservative Members also say that small businesses should not have to worry about proper dismissal rights, as larger companies have to; that they should be freed from the Health and Safety at Work, etc. Act 1974 because it is okay for people working at a small company to have accidents; and that they should be freed from planning constraints—small businesses can do what they like so long as larger ones do not. All of that is nonsense. I cannot believe that Conservative Members are seriously offering 658 as a policy the argument that people should be able to run small businesses as sweat shops, do what they like and get away with whatever they like.
The hon. Member for Runnymede and Weybridge (Mr. Hammond) said to me earlier that small business men should be free from capital gains tax when they sell their businesses and that investing in their own businesses offers them no advantages because of the income tax laws. I can tell him that by leaving the money in their own businesses they are building value in them. They must pay corporation tax—but at 20 per cent., which is the low rate introduced by the Labour Government. They will gain substantial income tax advantages in doing that.
The Treasury is right to try to close the loophole that allows businesses to exploit the tax system. I hope that the Treasury finds a way of ensuring that small business men can profit properly from their business when they retire, but the regime should not be unfair and enable people who own their own businesses to avoid taxation on a large scale.
However, I have sympathy with some of the comments that have been made by Conservative Members. The pound and interest rates are too high. I doubt whether many hon. Members, including the Chancellor, would argue otherwise. The pound is too high because interest rates are too high. It is a pity that the Conservatives did not tackle the problem of growing inflation in the economy before they left office by increasing interest rates when they should have. If they had, we might not have had to put them up as high as they are now.
The hon. Member for Beckenham (Mrs. Lait) said that the problem of smuggling was hurting many small businesses in the alcohol and tobacco sector. I have great sympathy with that view. It is hurting many small businesses in my constituency, particularly specialist tobacconists. Specialist tobacconists in east Kent are struggling to compete against people who are smuggling tobacco. It is a pity that the Conservative Government signed up to the treaties that have inflicted on us the problem with which we are now having to deal.
Conservative Members are right: the uniform business rate is causing great problems for small businesses. It is a pity the Conservative Government inflicted that on small businesses as well. We shall have to deal with that issue in the fulness of time.
When working for my previous employer, I was taught that, when offering criticism, particularly of honoured colleagues, it is important to start with some compliments, then sneak the criticism in the middle and finish with more compliments. I shall be critical of some of the measures the Government have taken: mildly critical—if the Whips are listening. One of the Minister's characteristics is that she is prepared to accept constructive criticism and to listen and react to the views of small business. She has never been unwelcoming of any suggestion that I have made to improve the lot of small businesses.
A small business community in my constituency is having problems. Manufacturers of amusement machines are important to my area. It is a seaside constituency and possibly for historical reasons it has several such businesses—and why should I not advertise them? There are three large manufacturers of amusement machines: John Icke Automatics, Cromptons Leisure Machines and Harry Levy Amusement Contractor. Two of those companies export 60 per cent. of the machines they make. 659 The original title of the debate included the word innovation. Hon. Members may not immediately associate amusement machines with innovation, but it is as vital in that industry as in any other. The first multi-player amusement machine was invented in my constituency. Those companies are the leading suppliers of amusement-with-prize and push-type machines. Hon. Members have probably seen push machines in arcades around the country: people put in coins, which push out some of the coins in the machine. Kids love them.
One of the problems that we have experienced is the Treasury's decision that amusement-with-prize machines are the goose that lays the golden eggs and that it can increase duty on them by a considerable amount. It is probably right in the case of the machines that can be found in pubs and drinking clubs—they are probably very profitable—but the mix of machines in a seaside arcade is such that most make no money at all. They are there only for the atmosphere they create. The profit from machines into which people put a 2p piece so that a couple of 2p pieces will fall out as a prize will be nowhere near the level of the duty that will be charged on them.
I have a feeling that, in its anxiety to ensure that the appropriate amount of revenue is coming in, the Treasury has identified an industry that it believes has been undertaxed significantly for a number of years, but has not studied that industry closely enough to understand that not all parts of it are the same. The Treasury needs to redefine and reshape the tax so that it catches those who make a great deal out of their amusement machines and leaves alone those who are making less and cannot afford to pay such high duties.
I was disappointed when, having tabled parliamentary questions asking what would be the effect of the duty on the manufacture and sale of such machines, I received a holding answer. I still have only a holding answer, which tells me that when the Government decided to introduce the tax they did not know what the effect would be on the industry—and they still do not know. One of my messages to my hon. Friend the Minister is that she and her colleagues must start interfering much more in the Treasury. They must ensure that the Treasury really understands the problems of specific business sectors, and the problems of traders in my constituency, when making decisions.
I would be derelict in my duty as Member of Parliament for South Thanet if I did not mention another area in which my constituents are very successful: speciality chemicals and pharmaceuticals. My constituency contains Sericol, which is the world leader in the production of screen printing inks, and Pfizer, which hon. Members on both sides of the House will know as the inventor and seller of Viagra. I would test your patience, Mr. Deputy Speaker, if I spent too much time talking about Pfizer, because a company that is now capitalised at $97 billion can hardly be called a small or medium enterprise. I believe, however, that the lesson that those two companies can teach us are vital for industry. The lesson is that it is possible to get big by investing in innovation and research.
I remember when, not so long ago, Pfizer was considered to be ripe for takeover. The then chairman—a visionary chairman called Ed Pratt—said that Pfizer's 660 family atmosphere was what was making it successful, allowing it to be innovative, to produce new drugs at a rate unequalled by any other company in the world and to grow at a tremendous pace. It was also investing appropriately in its own future. Mergers or takeovers would destroy that. Ed Pratt therefore made certain that the company invested in research way beyond the investment of other companies of a similar size. The rest is history: Viagra, and many other equally exciting drugs, are now falling off the production line.
I remind hon. Members that Viagra was not invented in America; it was invented in Sandwich in the United Kingdom, as were two of the three most popular drugs currently on sale in the world. That is a result of the innovative environment that Pfizer has been able to establish.
Pharmaceuticals, speciality chemicals and industries that emerge from our science and technology base are areas in which this country can beat the world. Attempts have been made in the far east to replicate those companies, but they have failed. We can make our fortune with those industries in future, and we must encourage them. I am desperately keen for the Government's comprehensive spending review to result in further support for science and technology.
A final lesson can be learned from my constituency. In other countries to which I have travelled, companies such as Sericol and Pfizer create very small spin-off companies. Some consist of only one or two people, others are larger. Some of them become successful and grow to be very large. That has not happened in my constituency and it does not seem generally to happen anywhere in the UK. I put that down to a failure, which has been mentioned several times in the House, of venture capital in this country.
It has been suggested that venture capital works better in this country than in Europe, but it still does not work nearly as well as it does in America. When I have talked to venture capitalists there, they have been open with me and said that when they pick the companies they will invest in, they expect two out of three to fail; they know that they can make their return on the one that survives, grows and becomes a big company. In this country, we seem to expect venture capital to back only winners. That is not possible if we are to have start-ups in biotechnology, chemicals and pharmaceuticals, which are vital for the country's prosperity.
Many of the innovations proposed by the Minister and her colleagues are absolutely right. They have been recognised by small and medium enterprises in my constituency as vital to their future. They are confident about the future, but we can take further action and we must ensure that the Treasury, in particular, understands their problems.
§ Mr. Nick Gibb (Bognor Regis and Littlehampton)
I congratulate the hon. Member for South Thanet (Dr. Ladyman) on his excellent speech. I wish that his understanding of business and enterprise was shared by more of his colleagues.
I congratulate the hon. Gentleman, in particular, on his comments about the increase in gaming duty in the Finance Bill. That increase will mean that in my constituency a number of small businesses, particularly 661 those that have six-slot push machines—to which the hon. Gentleman referred—will not purchase new machines. An increase in duty of £600 a year on each six-slot machine will mean that they will be unviable for many of the small amusement arcades in seaside towns. That will have an effect on the manufacturers in the hon. Gentleman's constituency.
All hon. Members hope that Wednesday's unemployment figures, which show an increase in the claimant count, are a blip, but the fear is that the Government are squandering their golden economic legacy through a combination of £10 billion of tax rises in last July's Budget, more tax rises in the current Finance Bill and six interest rate rises since May 1997, which are all concurrent with a high level of sterling.
When we unwrap the Government's economic decisions from the hype, presentation and spin, we can see a catalogue of measures that appear almost deliberately damaging to small business. In his March Budget, the Chancellor increased the duty on diesel by 11.7 per cent., the second such increase in only eight months.
Woods Travel in Bognor Regis in my constituency, which spends about £130,000 a year on diesel fuel, will face an increase of £17,000 as a result of measures introduced by the Government. Woods Travel will enter into fixed contracts with people. Holidays are booked month—sometimes years—in advance. The extra £17,000 on diesel fuel may not be recoverable and will directly hit the company's profits.
§ Ms Lawrence
Does the hon. Gentleman agree that the increase in fuel duty is simply a continuation of the 6 per cent. plus inflation fuel accelerator that was started by the Conservative Government?
§ Mr. Gibb
The hon. Lady is wrong. The previous Government's accelerator was 5 per cent.—and this Government have introduced three such increases in 14 months. The increase is excessive, and the Red Book shows an enormous income being generated compared with what it would have been under the previous Government.
How does the increase in duty on diesel fuel help small businesses to expand or compete with European companies whose rates of diesel duty are some 70 per cent. lower according to the Freight Transport Association? The abolition of advance corporation tax and the introduction of quarterly corporation tax payments apply to large companies, but only because of a concerted campaign by industry for them not to apply to medium companies. The measure will affect smaller companies. Bringing forward the corporation tax payments of larger companies will yield to the Exchequer £6.8 billion over the life of this Parliament. Companies will have to borrow money that could have been invested or could have been used to purchase goods and services from the small business sector.
To those burdens can be added the £4 billion to £5 billion a year tax hit on pension funds resulting from the abolition of the repayment of dividend tax credits. That means that £20 billion is being expropriated from the corporate sector over the remainder of this Parliament. Those measures hit the corporate sector and will damage the business sector as a whole.
I shall give another example—one could almost pick them at random. The decision in December to end the cash basis of accounting led to legislation, such was 662 the outcry when the Inland Revenue published a press release in December. That legislation imposes on all businesses—not just on the professions—the requirement to prepare their accounts for tax purposes on a true and fair basis. Large companies have always done that and it will not pose a problem for them, but it will place a huge extra administrative burden on small businesses.
The phrase "true and fair" is technical and it carries the requirement to adopt a plethora of statements of standard accounting procedures, in particular SSAP9. That requires the valuation of stock and work in progress to incorporate an element of overhead costs. That is an unnecessary and burdensome requirement which has been imposed by the Government on small businesses.
How does it help the construction industry by making it even more difficult for subcontractors to obtain a 714 certificate? My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) spoke about that. Without such a certificate, a contractor must deduct PAYE from payments made to a subcontractor. Under the Government's new proposals, a subcontractor must have a minimum turnover to qualify, thus forcing many small subcontractors out of business. They will be forced to seek employment—if they can find an employer who is willing to risk taking people on.
How does it help small business to abolish the foreign earnings deduction relief that enabled businesses to send abroad for periods of 12 months that do not coincide with the full tax year employees who do not qualify as non-residents? Many construction businesses that are competing on small margins for overseas contracts will suffer as a result of that measure. How does it help small businesses to have stamp duty on the purchase of commercial property costing £250,000 doubled from 1 to 2 per cent? The rate on purchases of commercial property costing £500,000 has been tripled from 1 to 3 per cent. Stamp duty on the sale of a business has also been tripled from 1 to 3 per cent. How do those measures in the Government's two Finance Bills help small businesses?
Then we come to the real blow to small business. The entrepreneur who has built an enterprise, risked everything and put all his spare cash into building it now finds that, within a year of a Labour Government being returned, retirement relief is aboli1shed. The phasing out of capital gains tax relief for entrepreneurs over 50 who sell their business is the biggest single body-blow that the Government have inflicted on the small business sector.
That relief meant that a business yielding a capital gain of £250,000 could be sold on retirement with no capital gains tax charge. That sum would have provided the pension for that small business man or woman—not a huge pension, but a £250,000 lump sum could provide a pension of about £12,000 a year.
As a direct result of the abolition of that relief, an entrepreneur disposing of his business on retirement in 2003–04—when the relief is fully phased out, but the full 10-year taper has not been brought in—with a £250,000 gain will pay £52,280 more in tax than he would have paid before. That will knock £2,500 a year off that person's £12,000 a year pension.
663 That does not help small business; it hurts it. It is a vindictive measure. Indeed, the concern of Conservative Members is shared by at least eight Labour Members, who have signed the early-day motion tabled on 18 June, which says that they areconcerned that the phasing out of existing relief from capital gains tax could have a detrimental effect on small business ownersand asks the Chancellor of the Exchequer to consider what would happen to those peoplefaced with a financial loss on retirement.Those hon. Members are absolutely right. The reforms to capital gains tax, introducing a 10-year taper down to 10 per cent., will help the individual making huge gains—the Gavyn Davieses of this world—who will yield large gains in 10 years' time, but penalise small entrepreneurs who have relied on retirement relief and planned their finances accordingly.
It is incredible that the Government should have chosen to debate their record on small business. In 14 months, they have introduced a catalogue of tax reforms that appear almost designed to hurt small business. On top of that, we have the minimum wage, the burdens of the social chapter, a manufacturing sector that is being driven into recession, a £20 billion corporate tax hit on the business sector and the nation's pensions funds being devalued by a £5 billion a year tax. If that were not enough, the pension of the small business man is to be significantly devalued by the abolition of retirement relief. That is an appalling record of which this Government should be ashamed.
§ Mr. Tony McNulty (Harrow, East)
It is sad that the best the Conservatives could do was to get out a veritable Dad's army of Euro-sceptics to contribute to a debate on small businesses, with perhaps the hon. Member for Christchurch (Mr. Chope) as Captain Mainwaring, the hon. Member for Buckingham (Mr. Bercow) as his sidekick Private Pike, and the hon. Member for Weston—super—Mare (Mr. Cotter) as Private Godfrey.
I want to go back to the speech of the hon. Member for Christchurch—it seems so long ago now. He was right on one thing and completely wrong on another. He was right to say that, up to about 10 or 15 years ago, Labour was completely anti-business. It went wildly ant-business for a few years in the early 1980s. We should be proud and brave enough to say that. I agree with him about that. If he wants a mea culpa from me as a humble Back Bencher, he is welcome to it. We now recognise that there is a considerable role for business, not least small business.
The hon. Member for Christchurch was completely wrong—given my limited time, I will not go into this—on American autos. He was wrong to begin with. The constituent is not in Hornsey and Wood Green; he is in mine. The place of work happens to be in Hornsey and Wood Green. I could quote at length from my file on the case, but I simply give one quote on behalf of American car importers:I thank you very much for your past support, which has proved extremely effective. Despite having obviated many of the issues, some remain a potential threat".Therefore, to say that we achieved nothing and do not take up the voice of small business is not true.
664 What about Conservative Members' initiatives on small business since they have been in opposition? I could be unkind by saying that one of the most bewildering examples of such an initiative was "Saturn's Children", the book by the hon. Member for Rutland and Melton (Mr. Duncan)—who, if he had his way, as he states clearly in his book, would have self-employed drug pushers selling hard drugs on every street corner.
§ Mr. McNulty
Thank you, Mr. Deputy Speaker. I shall do so, now that I have finished with the part of my speech dealing with the hon. Member for Rutland and Melton.
Small business will be heartened by the speech of the hon. Member for Weston-super-Mare (Mr. Cotter)—heartened that the Liberal Democrats are nowhere near being in government.
I should like to make several points, especially about my own constituency—where small businesses are doing very well, both because of direct financial and partnership support from central Government, and because of the wonder, last May, of a Labour council being elected for the first time, which in its manifesto pledged explicitly to work with small business.
As other hon. Members have said in this debate, business links are working, and working well. They are certainly working well in Harrow, East. 1 am pleased to report that more than 40 businesses have signed up to a long-term relationship agreement with North West London Business Links, giving them access to professional advice and services, and helping them to realise fully their growth potential.
In the 1997–98 business year, 88 businesses in north-west London were provided with subsidised business audits, which consist of an assessment of their current status and an action plan for the future. Moreover, 79 other businesses were provided with specific consultancy support.
There are many small business success stories in my constituency, and I should like to cite one. Martin Gold, from Stanmore, owns a hairdressing salon. With the help of business links, he has significantly increased his annual turnover, so that he now employs 34 people and enjoys an annual turnover of almost £1 million. Mr. Gold, when asked, said:I have no hesitation in recommending Business Links and Investors in People. They have been brilliant.We have been establishing in Harrow—in keeping with colleagues from across the country—business forum, which will create a platform for regular contact between business and Government, and which includes the local chamber of commerce, local council, the North-West London training and enterprise council, regional representatives of the Confederation of British Industry and, of course, my hon. Friend the Member for Harrow, West (Mr. Thomas).
As the hon. Member for Weston-super-Mare suggested—although he did not support the windfall tax—the new deal offers further proof of the success of the partnership approach. Skill shortages—which were not mentioned by the array of Conservative accountants, lawyers and other personal advisers who have spoken in this debate—are as acute in suburban London as 665 elsewhere. The new deal is a way of tackling the problem, as demonstrated by the representatives of more than 100 local companies who came to a business breakfast— Which was organised with considerable help from our chamber of commerce— to discover much more about the new deal.
Harrow has been, and is increasingly, home to a large Asian population. Historically, many Asian businesses in my borough and in surrounding boroughs have had great difficulty in accessing mainstream business support. Two initiatives to deal with the problem are worthy of mention: the Changing Futures project and the Breakout project.
In its first year of operation, 359 companies participated in Changing Futures, which succeeded Breakout, enabling 239 businesses to attend seminars and providing 24 consultancy projects for businesses in Harrow and Brent. The projects are funded by the Government, and are successfully ensuring that ethnic communities continue to make a valuable contribution to the United Kingdom's economy.
One of the Government's significant national initiatives—which was snorted at and pooh-poohed by the hon. Member for North Norfolk (Mr. Prior)—was on late payment of commercial debts. The Government's action will make a significant difference to small business. I grew up in a family in which everyone worked in small business—except for me, the black sheep, who ended up in this place—as did many of my friends. Opposition Members' pooh-poohing of late payment of commercial debt, as if it does not matter or may even backfire, clearly shows that they do not understand a jot the depth of the recession into which they plunged the small business sector, or the significant personal tragedies that that recession caused. Many small businesses in north-west London went bust, although they were owed thousands of pounds, not just by other small businesses but by public sector companies and local authorities. The Late Payment of Commercial Debts (Interest) Bill will be a great boon to small businesses.
The right hon. Member for Henley (Mr. Heseltine) said quite proudly that he never paid any debts until the red letter came, and tried to get away with paying at the last possible moment. In the past, Lord Thorneycroft happily said that he never paid a penny in tax for something as huge as Vesteys. The Opposition made a virtue of avoiding tax and making payments as late as possible. The Late Payment of Commercial Debts (Interest) Bill is long overdue.
The Conservatives simply do not understand the personal tragedies they wrought during the recessions. I was going to call someone else Willy Loman, but I did not have sufficient time. I shall quote from Arthur Miller now, however, as he makes an important point about the personal dimension that Opposition Members failed to mention. The speech is towards the end of the play and is as follows:Willy Loman never made a lot of money. His name was never in the paper. He's not the finest character that ever lived. But he's a human being, and a terrible thing is happening to him. So attention must be paid. He's not to be allowed to fall into his grave like an old dog. Attention, attention must be finally paid to such a person.
That attention was missing during the three recessions that the Conservatives inflicted on us, especially in the small business sector. In the building sector in north-west London, many Irish families went to the wall and were 666 devastated beyond repair. So it will not do for accountants and others to tell us this or that percentage. We know that the world is not rosy for small business —nor was it so before May 1997—but the Government are doing all they can to improve things. Given the personal tragedies wrought by the previous Government, we will take no lessons from the Comservatives, who, to their shame, have never apologisd. For the sake of the small business sector. I hope that they remain in opposition for ever a day.
§ Mr.Andrew Lansley (South Cambridgeshire)
As the back marker among Opposition Back Benchers, it is sometimes difficult to keep pace with those marchilng ahead, but on this occasion I have no difficulty in that respect. Quite contrary to the suggestion by the hon. Member for Harrow, East (Mr. McNulty), many of my hon. Friends have run businesses, and the debate benefited tremendously from that fact. My hon. Friends the Members for North Norfolk (Mr. Prior) and for Runlnymede and Weybridge (Mr. Hammond) were able to bring to the debate personal knowledge of the impaact on those business of regulation, the strong pound and so on.
Although I have never run a business, I was deputy director-general of the British Chambers of Commerce, and spoke for small Businesses. I was never more aware of that than when I went with the then vice-chairman of the British Chambers of Commerce to see officials at the Department of Trade and Industry. We spent a happy couple of hours with official, who tole us what the chambers of commerce and the small business communilty should do to help themselves.
The then vice-chairman came away from the meeting and said to me, "At the end of the daly, if they don't get their jobs right and something goes wrong, they get moved sideways. Half the time, they get promoted. If something goes wrong in my business, not only do I lose my business, but I lose my house and the future for my family and my children." That is the differece. Entrepreneurship is about risk taking, and the risks that are taken by those who run small businesses should never be underestimated.
That is why, particularly in speeches from Labour Members, we have misssed the big picture. To change the quotation from Viscount Falkland, the big picture is that, when it is not necessary to interfere, it is necessary not to interfere. We have heard nothing about that from the Minister or from Labour Members. We have heard about interference of so many varieties—reviews, quangos, structures and so on —but we have not heard about enterprise and how the Government, by means of their wider range of policies, can get out of the way of business and allow enterprise to flourish.
More particularly, we have not heard what action the Government intend to take to help small businesses, which are disproportionately affected by tax changes and tax complexity, by regulations and by the impact of inflation, higher interest rates, a strong pound and business rates. The Government must take equivalent, disproportionate action to remove those burdens from small business.
One of the main reasons for this debate was to respond to the report of the Trade and Industry Committee. The Minister and other Labour Members have not told us 667 about the principles by which the Government propose to relate to small businesses — what objectives they will set and what targets are to be met I do not mean targets for the date of publication of a White Paper or the number of committees to be set up, but targets for the reduction in burdens on business. We want targets for the reduction in the overall burden of taxation and for the number of businesses that will be started. I anticipate that the Government's record will not compare favourably with the Conservative record of 1 million small business being created during 18 years up to 1997.
I understand from my involvement in small business matters that there are principles. We need to remedy market failure in information technology transfer and in helping those who do not know about exporting to get into the market for the first time. The Minister talked about some of those issues, and some of the measures initiated under the Conservatives are being continued in the action update.
I do not want the Government to get stuck into initiativitis in a micro sense. The Government keep trying to invent new ways in which small businesses must disport themselves to suit the political objectives of Ministers. In local business structures we have had local employer networks, enterprise agencies, the training and enterprise councils and now business links. All have had merit, but they should be brought together into business-led organisations —not Government-led or bureaucrat-led—that will have the freedom to work on a business agenda for their area.
I mention training and enterprise councils advisedly. The hon. Member for Harrow, East admonished the Conservatives for not talking about training. References to training and skills in the action update, and from the Minister today, were unbalanced. I agree with the hon. Gentleman that, at this point of the economic cycle, it is critical to increase skills in small businesses. That is not happening sufficiently.
One reason is that training and enterprise councils are being increasingly sidelined by the Government, who are removing their money. Instead of supporting the enterprise component of TECs' activity, the Government are supporting the new deal, which subsidises those on the unemployment register into work. That will create a revolving door of people going in and out of subsidised employment. If the Government concentrated instead on giving the business community the opportunity to improve the skills of those who are in work, businesses would prosper, creating and opportunity for them to create further jobs, taking up those without skills on the unemployment register.
We have heard a lot of relevant specifics and some of the micro-measures that can be taken, but only from the Conservatives have we heard compelling arguments about the big picture that is affecting small businesses —a picture of increasing taxes, a Budget that had no; substantial benefits or small businesses and imposed substantial costs, and regulation that is increasing without any prospect of sunset clauses or a compliance budget that would show businesses that the Government were setting a limit on the costs that they impose on businesses.
There is no strategy for small businesses—no objectives, no targets and no timetable. The Government should apologise for 14 wasted months rather than 668 Celebrating 14 months of achievement. When the hard landing occurs for small businesses, particularly those in the service sector, which are benefiting from increased demand generated by the economy left to Labour last year, the Government will be seen to have wasted time in which small businesses could have been helped to prosper.
§ Mr. Ross Cranston (Dudley, North)
Debates about small business are often bedevilled by rhetoric. I hope to avoid that in my few remarks.
The small business sector is very varied, as was noted in a recent report by the Organisation for Economic Co-operation and Development. The report said that, if we are concerned with entrepreneurship, we ought to be focusing on small businesses that will grow, and grow quickly. I shall say a few words about the Government's structural changes which will assist such entrepreneurship.
Earlier this year, the Department of Trade and Industry published the paper "Modern Company Law". There has not been a review of company law for 40 years. It is far too complex, many provisions are obsolete, and, as the paper pointed out, many provisions are not appropriate for small businesses. There is much discussion about whether there ought to be a special statute for small businesses. That debate has been opened up by the paper. I congratulate my hon. Friend the Minister on publishing it. One of my colleagues at the London School of Economics, Judith Freedman, has dealt with the matter over many years. She has conducted empirical surveys and written about the subject. Her work will be very important to the debate, as my hon. Friend knows.
We must also consider the co-operative sector. Although it is much more important in other European countries, it is important in this country, too. Legislation on it—the Industrial and Provident Societies Act 1978—is totally out of date. My right hon. and hon. Friends in the Treasury have taken up the matter, and I urge them to address the issue quickly. We must promote that sector.
I turn to some of the environmental aspects of small businesses. Opposition Members have mentioned the Finance Bill. We are seeking to introduce a fairer system of taxation. Unfortunately, the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) did not mention the reduction in corporation tax. At least his hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) acknowledged that that was a very important benefit for small businesses.
The banks are in the process of changing their financing techniques, which is to be welcomed. Too often in the past, small businesses had to rely on overdraft financing. I was able to meet in Dudley the team that deals with corporate finance for Barclays Bank plc in the black country. Chris Sallnow and his team told me that Barclays is moving more towards equity financing and term lending, which is beneficial and should be encouraged.
One other aspect of the environment in which small businesses operate is regulation. Mention has been made of the better regulation task force. I congratulate the Government on establishing it. It is important that regulation be transparent, proportionate and consistent. Those principles of good regulation are firmly embedded in the Government's approach. Much work must be done, 669 though, in the coming years. It is also important to take into account how regulation is enforced. The code that has been published in that area will be very beneficial.
I want to make a point about the need for good regulation. Opposition Members seemed to suggest on occasion that it was better to have no regulation.
One of the problems in my constituency is that of phoenix companies. A constituent, Mr. Bernard Hollis, obtained a judgment against a small business for what he said was faulty work. He cannot enforce the judgment, however. Although the business is still there, and the same people are operating it, it has changed its corporate form. The company was wound up, and a new one established. My hon. Friend the Minister for Competition and Consumer Affairs is addressing that issue, and he has established a hotline relating to disqualified directors, but good regulation is important.
I congratulate my hon. Friend the Minister for Small Firms, Trade and Industry. The Government are establishing a fairer society in which entrepreneurship can flourish.
§ Mr. John Bercow (Buckingham)
Our excellent debate has included powerful speeches from both sides of the Chamber, and I am sure that the Minister will join me in congratulating all those who participated, including no fewer than 13 Back Benchers.
My hon. Friend the Member for Macclesfield (Mr. Winterton), in his brilliant and wide-ranging address, emphasised the importance of resisting the encroachment on our affairs of the European Union. He was right to say that, unless the Government's policy of regular and craven submission to every dictat from Brussels changes in the near future, British small and medium businesses will continue to suffer.
My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) made a similarly lucid contribution, offering the House a forensic dissection of the changes in capital gains tax ushered in by the Government. So comprehensive were his remarks that it is difficult to elaborate on what he said. However, up to 2 million sole traders will be damaged by the policy that the Chancellor knowingly introduced on Budget day while seeking to camouflage its effects from the British electorate.
My hon. Friend the Member for North Norfolk (Mr. Prior) drew on a vast well of commercial experience from the past 20 years, and he underlined the importance of the need for a change in the business rate regime.
My hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) covered a wide span of issues of relevance to small business, and pointed to the damaging effect, which he has observed from constituency experience, of the hike in diesel duty. With the greatest of respect to the hon. Member for Preseli Pembrokeshire (Ms Lawrence), I must tell her that she was mistaken when she attempted to correct him. I offer her one piece of advice: to take on my hon. Friend the Member for Bognor Regis and Littlehampton on matters of taxation policy is singularly unwise.
My hon. Friend the Member for South Cambridgeshire (Mr. Lansley) has an extensive compendium of knowledge of small business from his background 670 of working for a prominent trade association. He emphasised the role of small business people in taking risks, being prepared to have a go and putting their money where their mouths are. They should expect a supportive culture from the Government, not the scorn of Ministers. My hon. Friend also rightly referred to the need to increase skilling.
Despite genuine disagreements between Members, a common theme was the understanding that there has been a substantial expansion of the small business sector. Members recognise the centrality of small and medium enterprises to the future success of our economy. The Minister is responsible for those enterprises and for their increased input to British economic performance. At the risk both of embarrassing her and of damaging her upward rise through the ranks of the Government, let me say that I like and greatly respect her. She is the authentic representative of new Labour 1998. She satisfies the convergence criteria of the Mandelson guide to Front-Bench advancement. There is a great deal to be said for her. The only thing that she appears to lack is the tee-shirt with the Prime Minister's grinning countenance imprinted on it. I understand that such tee-shirts are on sale at Labour party headquarters at a suitably downmarket price; I suggest that, for her career advantage, the purchase of one would be a prudent investment indeed.
The Minister suffers from the difficulty that, although she understands and has a real commitment to small business, she has, in the President of the Board of Trade, a boss who has a great past in front of her and a great future behind her. That is a real problem. She has the added difficulty, which exacerbates the problems that confront her, that the Chancellor of the Exchequer is rampaging throughout the corridors of power, in an ever-increasing bid to stretch his influence.
As the Government are currently taking the Competition Bill through Committee, I hope that my hon. Friends would agree that there is a serious case for referring the Chancellor of the Exchequer to the new Competition Commission for an abuse of dominant position in the ministerial marketplace, because he is engaged in a process of ministerial empire building which appears to be a driving passion. He is a powerful and competent Minister, and it makes it exceptionally difficult for the Minister for Small Firms, Trade and Industry in seeking, as she does with passion and commitment, to represent the interests of small business when he is not on her side.
The Chairman of the Select Committee on Trade and Industry, the hon. Member for Ochil (Mr. O'Neill), in an early and measured contribution to our debate, wondered aloud whether the Select Committee report had been a little harsh on the Government. The hon. Gentleman has had to leave for a constituency engagement in Scotland, but I hasten to assure him that he certainly was not too harsh.
I remind the House of the content of the report—specifically, of the Committee's observationthat the Government has yet to state clearly what its policy objectives are with regard tosmall and medium enterprisespolicy; how the achievement of those objectives can be assessed; or how existing policy measures fit within a broader context.To date, we have heard little response to that constructive criticism; I hope that, when the Minister replies to the debate, we shall hear more. However, the House 671 should demand a thorough and comprehensive report, which demonstrates out that the Government have learnt some of the lessons and have detailed and worthwhile prescriptions for the interests of small businesses.
As the Select Committee report said:Now is the time for the Government's rhetoric with regard tosmall and medium enterprisespolicy to be matched with action.It is necessary to show not just that the Minister has listened, but that she has heard and that she and her right hon. and hon. Friends propose to act.
There is grave concern that action taken by the Government on a broad range of policy has been detrimental to the cause of small business. That is true in relation to taxation and monetary policy. Let us remind ourselves of Labour's words before the general election. The Labour manifesto said:New Labour will establish a new trust on tax with the British people.Well, it can be said that it has done so. That new trust is one that is forged before the election and broken afterwards. That is the reality of what has transpired, with a £25 billion tax hike on British industry and individuals during this Parliament.
The first Budget increased tax by £10.1 billion over what we proposed; the second increased the figure to £12.5 billion. I mentioned what my hon. Friend the Member for Runnymede and Weybridge said about capital gains tax. What do small business people, retiring after a lifetime of commitment, infer from the measures that the Chancellor has taken? They deduce that they are not valued, that they are not thought to be helpful and that they are not regarded as important—that they are simply a convenient source of revenue for a Chancellor who wants to fritter it away on other purposes.
We need to know what the Minister's position was in this matter. Before the Budget, did she make representations to the Chancellor of the Exchequer, opposing a retrograde change in capital taxation, or did she simply offer supine acquiesence in the game plan of the Chancellor? We have not heard. I think we should be told. I look forward to hearing her response.
The Forum of Private Business has said that we need a Budget compliance cost assessment. I wish that we had had it before now. If there had been such before the July Budget of 1997, or before the March Budget this year, I say without reservation that no amount of spinning or doctoring could have hidden from public view the dramatically damaging impact on the small business sector of the tax measures introduced by the Chancellor.
I said that monetary policy had been unhelpfully pursued as well, with the arrogation of power to the Bank of England to determine those matters. Now, interest rates are set not by people whom we do elect and can remove, but by people whom we do not elect and cannot remove. A 1 per cent. increase in interest rates adds £200 million to small business costs. The latest increase, therefore, means that there has been an interest rate hit on small business of £300 million since the Labour party came to office. That is a dismal record of which the Minister should be ashamed. Whether she is, we know not. It appeared from her opening speech that she was rather inordinately proud of the Government's poor record.
672 The second concern of the Opposition is about regulation. The Government's better regulation task force has, so far, been a gigantic flop. Labour Members have sought to misrepresent the record. Let it be clear what the record is. Under the previous Conservative Government, 37 deregulation orders were passed in the House. How does that relate to the record of the Labour party since May last year?
I am a charitable fellow, as all in the House can confirm. It is true that, since July last year—when the Government established the better regulation task force—they have introduced one deregulation order. However, even that—related to licensing arrangements—began its passage under the Conservative Government. It was inspired and conceived by Conservative Ministers.
The Economic Secretary to the Treasury, in a written answer on 2 June, confirmed thatno specific regulations have been removed or amended"—[Official Report, 2 June 1998: Vol. 313, c. 195.]by her Department. That is a lamentable record for which we hope there will today be a fulsome apology.
It is worse than that. Not only have the Government not deregulated, there is—as the British Chambers of Commerce correctly pointed out—a raft of new burdens. What concerns the British Chambers of Commerce—of which my hon. Friend the Member for South Cambridgeshire was once a distinguished servant—is that the requirements to maintain detailed records of compliance with the working time directive and the minimum wage may prove as burdensome for small and medium enterprises as the measures themselves. On top of that, there are 13 new quangos from the Government.
To all that, what is the Minister's response? It is to tell the House—without even a hint of self-mockery—on 7 November last year, in a debate on small firms and innovation:We are moving purposefully and very speedily to bring about simpler government and cut red tape, which is a real barrier to growth for small businesses."—[Official Report, 7 November 1997; Vol. 300, c. 483.]If that is the Government moving "purposefully and very speedily" to minimise regulation, I hate to think what it would be like if the Government were moving without purpose and very slowly.
On regulation, the record is bad enough. Rates, too, are an equally legitimate concern. Despite the trumpeted intention of the Government to reform business rates for the better, there is no sign of that so far.
A real anxiety arises from the Government's consultation paper, which refers to the possibility of a supplementary local rate. It is that new Labour is not so radically different from old in one important respect: it believes that local authorities could legitimately have the power to jack up local rates to the detriment of local business, to finance its own profligate expenditure plans on its favoured interest groups—no doubt in the run-up to local council elections. That would be a shameful betrayal of small business, and I beseech the Minister, if she wishes to retain her new Labour credentials and to maximise the prospect of further advancement in the ranks of the Government, to resist any entreaties from the President of the Board of Trade to move in that direction.
We referred earlier to Europe, a subject on which my hon. Friend the Member for Macclesfield eloquently focused. The Government have done nothing to allay the 673 widespread and consistent concern about the impact of the social chapter and the extension of qualified majority voting to which they have signed up. The parental leave directive threatens to cost British business up to £200 million a year. Most recently, in addition to the European works council directive, we have the threat of a national works council directive, which could apply to companies with as few as 50 employees.
When the point was raised at Trade and Industry questions yesterday, the Minister made a forlorn, but brave, attempt to dismiss its significance. As she knows, on 5 November last year the European Commission confirmed its intention to proceed with the second stage of consultation in the process of seeking to agree a directive that would cover that subject.
On 9 November, the President of the Board of Trade was interviewed by John Humphrys on BBC's "On the Record" and was pressed on that point. She said that the Government opposed the application of such a directive to very small companies, and she continued to emphasise that opposition. John Humphrys simply said words to this effect: "Yes, yes. We understand that, President. But if the Commission is insistent, and if it is subject to qualified majority voting, what recourse in the final analysis do you have?" The right hon. Lady responded—I quote her with no hint of personal abuse, but simply on the basis of a faithful recollection of the verbatim transcript, of which I have a copy:Well—er—we shall see how things go.Thus a senior member of the Government was all but admitting, but did not have the courage directly to do so, that she would be powerless.
That need not have happened. It is an act of almost criminal folly for the Government to have given up the veto and signed the social chapter, pretending at the time that there would be no damaging consequences for British business. They now seek to evade responsibility for the disaster which they are about to visit upon us by supine agreement to everything that comes from Brussels, Strasbourg or the European Court of Justice in Luxembourg.
Several of my hon. Friends drew attention to a further concern that we have about the content of the White Paper "Fairness at Work". Ministers are wont to emphasise their respect for, and the extent to which they pay attention to, the views of small business organisations. The Minister knows that the Federation of Small Businesses, which we both agree is a thoroughly respectable and responsible body, said that it has been very concerned—justifiably concerned—about the content of the Government's proposals. It is worried that the involvement of union representatives in grievance procedures will prolong and exacerbate those grievances. It says that there should be internal procedures to resolve such conflicts, and it is worried that the Government will put back the clock and damage industrial relations.
Several of my hon. Friends also referred to the threat of the minimum wage. My hon. Friend the Member for Ashford (Mr. Green) pointed out the dangers. Strictly speaking, the President of the Board of Trade contradicted herself during her appearance before the House at 3.30 pm yesterday. She began by saying that there would be no impact on jobs. Subsequently, she talked about the importance of minimising that impact. Which is it-no impact, some impact, a big impact or a small impact? 674 Will the Government say? Is it a case of cannot say or will not say? I hope that the Minister will enlighten us—she said that the minimum wage would aid competitiveness.
The truth so far is that the Government have been bad for small business, bad for investment, bad for competitiveness, bad for exports and bad for jobs. We want small business to be stronger, not weaker; more competitive, not less; and better equipped to face the challenges of the 21st century, not worse. I hope that the Government will deliver. To date, they have not. I deplore that inadequate record, and look to the Minister to apologise for it and set out the way in which, through a comprehensive and credible strategy, the Government will do better in the future than they have done in the immediate past.
§ Mrs. Roche
With the leave of the House, Mr. Deputy Speaker.
I congratulate the hon. Member for Buckingham (Mr. Bercow) on his first appearance at the Dispatch Box. I had the great privilege of speaking at the Dispatch Box before I got on to the Front Bench, and it was a good and useful experience. I congratulate him on the confident way in which he marshalled his arguments.
I agree with the hon. Member that this has been an excellent debate. It has also been a powerful debate, and I congratulate hon. Members who have taken part, but I have to say that, when I listened to the hon. Gentleman, I heard the glimmers of why the Conservative party lost the previous general election. Conservative Members live in a fantasy world where, apparently, all was right in the world until 1 May 1997: businesses were not failing or going to the wall, and the small business community was not deserting them in droves. The people who should be apologising to the House are Conservative Members, and it would be good to hear them do so.
I was greatly looking forward to the speech of the hon. Member for Christchurch (Mr. Chope), because I thought that, at last, we might hear the Opposition's policies. The hon. Member for Chesham and Amersham (Mrs. Gillan), his predecessor, was honest, because she said, "You won't be hearing any policies from us." I was waiting for the hon. Gentleman to say something, but we heard absolutely nothing about late payment, business rates or business support — nothing at all. He complained about the action update, however. It was placed in the Vote Office and the Library at 2.30 pm on Wednesday. Clearly he needs more reading time, and I shall ensure that we give him the maximum amount.
I agree with the hon. Member for Buckingham that my hon. Friend the Member for Ochil (Mr. O'Neill), the Chairman of the Trade and Industry Select Committee, made a good speech highlighting the need for professional standards for the personal business advisers in the business links, and the importance of the centres of expertise. I understand his remarks about the need for smaller businesses to be in overseas export markets. We take that on board, and I thank my hon. Friend for his contribution.
I also agree with the hon. Member for Buckingham that the hon. Member for Macclesfield (Mr. Winterton) made a wonderful speech, although it will not surprise him that I did not agree with all of it, especially his remarks about 675 Europe. He was absolutely right, however, about training, skills training, professional standards for business advice, and, most important, family-owned businesses. There is a great deal more work that we can do, and we should consider that important sector in its entirety. I am grateful to him for making those remarks.
My hon. Friend the Member for Preseli Pembrokeshire (Ms Lawrence) spoke about the great importance of small and medium enterprises for economic regeneration. She also referred to the Design Council, which does a very good job. She was probably the only hon. Member to mention design; it should be discussed more often because it is not a luxury or an add-on, but vital to the success of all businesses. I congratulate her on making that point.
I thank the hon. Member for Weston-super-Mare (Mr. Cotter) for his kind remarks about late payment and for his support for that measure. I agree with him about the great achievements of the Prince's Youth Business Trust, particularly on mentoring. I share his view about the importance of mutual guarantee schemes, which we are working on with the banks.
I also agree with what the hon. Gentleman said about the importance of electronic commerce. That is why we have made certain moves, and have established the enterprise zone on the worldwide web. I am sure that he would agree that the Government have made tremendous strides in tackling the problem of the millennium bug to make up for the lamentable record of the Conservative party.
My hon. Friend the Member for Norwich, North (Dr. Gibson) has had a great academic career. He spoke of the importance of the scientific and academic base, and I agree with him. He was kind enough to tell me that he had an engagement, and gave me notice of his absence in his usual courteous way.
I listened to the hon. Member for Runnymede and Weybridge (Mr. Hammond) with some interest, because we have had some exchanges in the past and I was looking forward to a constructive dialogue. His approach was totally negative. He knocked the late payment legislation. That just shows how out of touch the Conservative party is with small business. The Midland bank survey showed that 79 per cent. of the small businesses surveyed supported the legislation and 77 per cent. said that they would use it.
My hon. Friend the Member for Clwyd, West (Mr. Thomas) spoke about the importance of the spirit of enterprise and of local community enterprise. He also praised the Prince's Youth Business Trust and the new deal. I agree with the important points that he made.
The hon. Member for North Norfolk (Mr. Prior) also referred to the importance of the academic base. He said that America was the great enterprise country. Yes, it is. 676 I remind Conservatives Members that America has had a minimum wage for a number of years—and look at its record on enterprise and innovation.
My hon. Friend the Member for South Thanet (Dr. Ladyman) made important points about the relationship between small and larger companies. He referred to inward investment, to the supply chain and to spin-offs. The Government and the business sector are actively examining corporate venturing.
I have been struggling to find something positive to say about the contribution of the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), but I have not been able to do so. It is only 2.28 pm, so I shall keep trying.
My hon. Friend the Member for Harrow, East (Mr. McNulty) rightly raised the issue of the skills shortage, which was not mentioned by Conservative Members. I have gone up and down the country, both in opposition and in government, speaking to small businesses, and they have told me time and again that they have a problem getting skilled people. That is why small and large businesses welcome the new deal, and I thank them for their contribution. They know that it is about social justice and economic efficiency and about ensuring that we close the skills gap.
My hon. Friend also mentioned the single vehicle approval scheme, as did the hon. Member for Christchurch. They will both be delighted to know that the scheme is being reviewed. It is soon to go to public consultation, which did not happen under the last Government. That is another illustration of the fact that the present Government listen to small business.
The hon. Member for South Cambridgeshire (Mr. Lansley) spoke of the importance of risk taking. I entirely agree with him: that is the enterprise culture that we wish to foster. I thought, however, that he was a little unkind to DTI officials, given that he was one himself. He forgot to mention that. Some of my best friends are DTI officials, and I will not have them knocked, especially given the hon. Gentleman's record.
My hon. Friend the Member for Dudley, North (Mr. Cranston) rightly referred to company law, and mentioned Judith Freedman—
§ It being half-past Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.