HC Deb 21 October 1998 vol 317 cc1236-44 12.25 pm
Ms Margaret Moran (Luton, South)

I welcome the opportunity to raise some of the competitiveness issues that small and medium enterprises in my constituency have raised with me. As my hon. Friend the Minister for Small Firms, Trade and Industry has said many times, SMEs are essential to this country's competitive edge and to the Government's competitiveness agenda. I am pleased that the White Paper on competitiveness, which is to be published soon, will reflect that.

I whole-heartedly welcome the fact that competitiveness is at the heart of our industrial and economic policy. It is a key issue for us in Luton, a town that has suffered badly from the boom-and-bust economics of the previous Government and their desertion of manufacturing industry. The competitiveness and productivity of our local companies are recognised as priorities for the Luton and Dunstable partnership and Luton borough council's economic development strategy, yet we still have difficulty, certainly at local level, identifying and spreading the factors that will increase competitiveness for our SMEs.

I raised that question with local businesses, the chamber of commerce, the local branch of the Federation of Small Businesses and the university of Luton over the recess. My visits and discussions ranged across the SMEs of virtually every sector in Luton, from the traditional hat industry to the engineering and manufacturing sectors, and from the service sector to high-tech firms. I committed myself to feeding back some of the views of those involved in Luton's smaller businesses, with my own observations. As ever, this is a partnership approach, aimed at getting what is best for Luton.

Although the issues raised are not new in the competitiveness debate, I hope that they will make some small contribution to ensuring that our competitiveness agenda recognises the coal face issues for SMEs and assures them that the Government are determined to promote their competitiveness. That does not mean going cap in hand to the Government; indeed, the "more grants" approach from some SMEs that I visit always sets alarm bells ringing about their productivity and competitiveness. Nor is it the old Tory Government approach of "sink or swim". Our smaller businesses can compete and flourish only when the Government are creating the right climate—for example, through our focus on education to help to upskill our people.

What do people at the coal face think about competitiveness? First, although the impact of the strong pound was raised with reasonable frequency, there was widespread recognition that the single most important factor for the competitiveness of the sector is creating a stable, long-term economic framework for planning and investment, whether in production, people or productivity. A senior executive of a small engineering company in our area said: economic volatility is our greatest problem". Secondly, although there is reasonable recognition of the work that we have already done to create the right climate for the sector, some businesses are concerned that, if our strategy to encourage investment is to be fulfilled, there is still a need further to extend the capital allowances.

The extension in the last Budget of enhanced allowances to small and medium-sized enterprises for investment in plant and machinery at 40 per cent. for a further year is welcome, but a longer extension would have been even more welcome. Other measures in the Budget, such as the reduction in the level of corporation tax to 20 per cent.—the lowest in Europe—represent a major boost to profits and should encourage investment, as should the improvements to cash flow from the abolition of advance corporation tax.

The reform in the Budget of the tax and national insurance system, and the simplification of the system by the alignment of the national insurance contribution system with the Inland Revenue, by the abolition of the NIC entry fee and by the alignment of the lower earnings limit with income tax personal allowance are welcome. Those measures will mean that small and medium-sized enterprises will pay about £140 million less tax in the next financial year, which is significant for our smaller businesses.

The national insurance reforms will eliminate 1 million employers' NIC charges, and will make it easier for employers to create new jobs, thereby complementing our new deal initiatives. That is significant for Luton, where unemployment in some wards in my constituency is more than 18 per cent.

Therein lies a further issue for Luton's small businesses: the level of recognition of the benefits to them of the new deal. Despite a series of high profile events, some of which I initiated, including a conference on the new deal hosted by Vauxhall Motors and a launch involving almost all the major employers based at or around London Luton airport, and the Government's national television campaign, I constantly have to explain the benefits of the new deal to every small and medium business that I visit. As most jobs are likely to come from that sector, it is clear that we need to do more. Dare I say that we should have a joint promotion involving the Department of Trade and Industry and the Department for Education and Employment to focus attention on the advantages that the new deal can offer, particularly in reducing the training costs of new employees.

One of the barriers to the involvement of small and medium-sized enterprises in the new deal is the perceived lack of skills on offer. The skills gap problem is not new for any business, but for us in Luton it is crucial. From hat manufacturers, such as Marida Ltd., to high-tech manufacturers, the problems are the same. A Bedfordshire training and enterprise council survey found that, of 50 local companies, 16 said that skills shortages had limited growth in the past 12 months or would limit growth in the coming year. Stanbridge Precision Turned Parts, which has 100 workers, has had to turn down work. With the cost of training running at £50,000 per new recruit—they are often then poached by other companies—more incentives for smaller businesses to assist with in-house training would be valuable. That is just one example of the skills crisis locally and nationally in the engineering sector.

The recent engineering audit carried out in conjunction with the Engineering Employers Federation, which I recently met in Luton, is to be applauded. It showed a greater commitment to training by engineering SMEs than by their larger counterparts. However, it is clear that more incentives and a more targeted approach are needed.

Skills-based training is critical now, but to retain a competitive edge, training staff to embrace the new, more competitive ideas is crucial for the long term. Although SMEs in Luton recognise the immediate skills gap that needs to be tackled, they seem to be less certain about the need to maximise their skills base.

The ability to encourage innovation is an essential element of competitiveness. The level of innovation among small businesses in the Bedfordshire area is low compared with the level in the United Kingdom as a whole, according to a study undertaken by Luton university. That study concluded that, although there is some correlation between size of business and the level of innovation, that does not tell the whole story. Indeed, the factors that account for this focus on the macro level, and we still have little understanding of the processes at work. There is a clear need for more work in that area.

A further factor that the Government have recognised as a key to competitiveness in the small business sector is the ability to adapt to the information age. However, from my experience through my visits to businesses in Luton, it is clear that the importance and the opportunities of new technologies to the competitiveness of small and medium enterprises should be more widely known.

I am aware of the information society initiative programme for businesses that the Government have initiated, and its emphasis on this sector, but not many SMEs that I visited knew of it. That is borne out by research carried out recently by Bedfordshire chamber of commerce, which found that most small businesses in Luton and Bedfordshire use IT equipment, but feel that they are not making optimum use of what they have.

On my recent visit to a company with 80 employees, it was depressing to be told that the only technology in the company was an ancient computer used for the payroll, and that there was a director who was proud of knowing nothing about new technology. I hope that that is atypical, but I fear that for many, the information age is an issue only for the emerging technologies sector and the so-called "tech stars." The message I give to all small businesses is to "get wired."

Our SMEs have much to learn from their counterparts in Canada, which I recently visited. There, the new technologies are integrated into every aspect of business life, from the large to the micro, and from systems to new production methods. We could all learn from Industry Canada' s strategy for creating a knowledge-based economy, which recognises that investment in knowledge contributes directly to competitiveness and growth in all sectors. It has set clear targets for working in partnership with all businesses to promote the recognition of knowledge as a fundamental factor in improving efficiency of production and distribution processes, and in improving the quality, variety and quantity of products.

The proof is that businesses that develop new ideas, manufacture new products and deliver new services succeed. Output in Canada is expanding fastest in knowledge-intensive firms, which are also creating the most jobs. Canarie and Tara in Halifax provide repayable loans to emerging and small companies. Their support for innovation in the application of new technologies is an example of the practical application of the strategy, and can enhance competitiveness for smaller firms.

In this country, the small business foresight programme and the university for industry will have a crucial role to play in helping SMEs to increase competitiveness in these areas. The university for industry cannot come soon enough for many small businesses in Luton. Given the concerns that I have expressed about the competitiveness of SMEs locally, I am delighted that Luton university is rising to the challenge right now. It has recognised that competitiveness is a priority for British business, and that a structured approach is required to tackle the impediments.

At the moment, there is no nationally recognised centre where organisations can seek advice on improving their competitiveness. That is why the national centre for competitiveness is being established. It will help to provide solutions to the new demands of the world's marketplace by working with business to define the key elements of competitiveness, by benchmarking, by drawing on best practice and, crucially, by focusing on practical application.

With a plethora of small businesses on the centre's doorstep, it has confirmed that it will play a key role in enhancing competitiveness among small businesses locally. I welcome its contribution to this task, and I look forward to working with the centre to the competitive benefit of Luton's small and medium-sized enterprises.

12.38 pm
The Minister for Small Firms, Trade and Industry (Mrs. Barbara Roche)

I am delighted that my hon. Friend the Member for Luton, South (Ms Moran) has chosen this important topic for us to debate. I congratulate her on her work with local small businesses. She has done very well to use the recess period for that purpose, and to secure a debate so soon afterwards. She raised a number of important issues that directly affect businesses in her constituency, all other small businesses and, indeed, all who aspire to run their own enterprises.

The Government have said a number of times, here and elsewhere, that small businesses are the life blood of our economy. If they are not competitive, the country is not competitive. That is why the Government are so committed to helping to create an environment in which businesses have the confidence to grow and prosper, whatever their size and in whichever sector they operate. In doing that, we shall generate wealth, employment opportunities, and opportunities for firms to innovate and create.

Since the general election, the Government have been working to establish strong links with businesses at all levels, to ensure that they really understand the issues that concern them and what affects their ability to compete. We aim to be a listening as well as a doing Government, and what my hon. Friend has said is particularly welcome because it will enable us to perform such a role.

We know that gaining access to appropriate finance is a key issue for all businesses, but especially for smaller firms.

Mr. Colin Breed (South-East Cornwall)

Does the Minister share my concern about the recent statement that, now that banks are ploughing hundreds of millions of pounds into black holes known as hedge funds, they may find it more difficult to support small and medium-sized enterprises? Will she seek confirmation from the chairmen of the clearing banks that any irresponsible lending in which they have engaged internationally in respect of hedge funds will not prevent them from supporting the small and medium business sector?

Mrs. Roche

I make it my business to have a good relationship will all the banks and to meet them regularly, not only on an individual basis, but collectively, through helpful organisations such as the British Bankers Association.

I think that the relationship between the clearing banks and small businesses is better now than it has been in the past. The message that I try to get across is that small businesses are operating in a climate in which they must be really competitive to win support. The banks seem to be increasingly aware of the importance of the SME market, but I shall convey the hon. Gentleman's remarks to them when I meet them again.

As finance is a key issue, we are working with the venture capital industry, and through the enterprise investment scheme and venture capital trusts, to get to grips with the problems involved in obtaining small amounts of investment capital. Finance is, of course, especially important to small technology-based companies.

Mr. Brian White (Milton Keynes, North-East)

Many firms want to bring an idea to, as it were, the pre-development stage before venture capitalists have invested in it. Other countries have learnt the lesson, and invested at that stage. Are the British Government considering doing the same?

Mrs. Roche

We are examining the possibilities with interest. We do not think that there is any one solution to what is clearly a problem. This is a great country for ideas and innovation, but we have slipped up in the past, in that there has been a gap between creativity and bringing good ideas to commercial fruition. We are talking to the banks and to other financial institutions, and also considering what the Government can add to the contribution of our academic and scientific base.

Ms Moran

I gave the Canadian examples of Canarie and Tara. Have the Government considered adopting their approach? The setting up of an arm's-length private sector company has enhanced business confidence, leading to investment in micro-businesses that are doing innovative work and the provision of venture funds on a loan-share basis, to be repaid over a period.

Mrs. Roche

I believe that my hon. Friend visited Canada through PITCOM—the Parliamentary Information Technology Committee. A few days earlier, I was in Canada representing the United Kingdom at the Organisation for Economic Co-operation and Development ministerial meeting to discuss electronic commerce. I was interested to learn that my hon. Friend and other parliamentarians were to visit the country.

We are considering a number of options. We are considering ways in which we can encourage spin-offs, and our attitude to corporate ventures. I have written to some of our top companies about their experience of corporate venturing. There is probably no single solution, but the Government can make a number of contributions in partnership with finance and business.

Mr. Brian Cotter (Weston-super-Mare)

I am sorry to intervene when there have already been so many interventions, but does the Minister agree that there is an argument, in the case of small enterprises and enterprises that are trying to get going, for raising the VAT threshold?

Mrs. Roche

As the hon. Gentleman will know, the Chancellor announced in his March Budget that there would be consultation to invite views on the desirability of changing the registration thresholds. On 10 July, Customs and Excise published a consultation paper inviting comments on options, to be submitted by 12 October. The responses will help to inform any future Budget decisions on registration thresholds.

We are working with the financial sector to try to assist "new growth" firms. The long-standing small firms loan guarantee scheme continues to offer support to small businesses that lack security or a trading track record. As my hon. Friend the Member for Luton, South pointed out, we have also made tax changes to ensure that businesses keep more of their profits so that they can reinvest and expand. In April next year, for example, the small companies rate of corporation tax will be cut to 20 per cent., the lowest rate ever.

When we were in opposition, we listened a great deal to what small businesses said about what they described as a great barrier to growth—late payment of commercial debt. One of the first things that we did for small firms was to legislate for a statutory right to interest, which will be introduced on 1 November. Along with organisations representing businesses, we are working on a package of measures to tackle the problem of late payment.

Mr. Nick Hawkins (Surrey Heath)

Does the Minister agree that the contribution of organisations such as the Small Business Bureau—whose conference she addressed last week, in my constituency—and the Federation of Small Businesses, among others, has helped Governments of both parties to adapt to the prevailing climate, and the need for legislation? Will she join me in paying tribute to the work of such organisations?

Mrs. Roche

I will do so with pleasure. The organisations that the hon. Gentleman has cited—along with the Forum of Private Business, the Institute of Directors, the British chamber of commerce and others—have made a tremendous contribution. They have given freely of their time to allow us to pursue and consult on our policies. As a Minister, I am personally grateful to them for that high-calibre contribution.

We listened to organisations such as those that I have mentioned when they told us that business was being strangled by red tape and the over-zealous enforcement of regulations. That is why we have created a one-stop shop on the Internet—direct access Government—to provide businesses with guidance and the forms they need to comply with regulation.

In the last Budget, the Chancellor of the Exchequer announced a package of measures to simplify rules and to help business to comply, including a payroll assistance scheme to help new employers. That, combined with the merging of the Department of Social Security's Contributions Agency with the Inland Revenue in April 1999, should further ease the regulatory burden on business.

Where we have introduced new legislation to protect consumers or to ensure that employees are treated fairly, we have taken steps to ensure that the burdens on business are kept to a minimum. That is key—to get the balance absolutely right.

My hon. Friend the Member for Luton, South rightly spoke about the role of training and development. Business owners and managers know that their workers are their greatest resource. The more successful a firm, the more likely it is to invest in training. We are working with businesses to help them to develop their own and their employees' skills and potential. Small firms training loans help firms to provide training when it is needed—often at a crucial phase in expansion—without having to wait until they can afford further capital outlay. It is encouraging to note the number of smaller businesses participating in modern apprenticeships and national traineeships. That is why we have placed such emphasis on those particular sectors.

Rightly, my hon. Friend the Member for Luton, South mentioned the importance of the university for industry and the particular advantage that that can bring to small and medium enterprises. We have used communication and information technologies to develop a new sort of organisation—the university for industry—to stimulate the demand for learning among businesses and individuals, and to improve the availability of and access to high-quality education and training. That will enable the small firm that finds it difficult to allow its employees to go away from their place of work to take advantage of what is on offer. We are also seeing a realisation among employees and employers alike that, if we are to be truly competitive into the next century, the key is a highly skilled, highly motivated work force.

Businesses constantly tell us that, to grow, they need high-quality information and advice. That is where partnership is so important; indeed, that was something to which my hon. Friend the Member for Luton, South referred. As all hon. Members will know, Business Links is the network of national partnerships in England that provides a single access point to businesses of all sizes and in all sectors, offering them help and information at all stages of their growth.

Last October, I launched "Enhanced Business Links: A Vision for the 21st century." That is intended to ensure that all those involved in Business Links will raise the quality of business support to the best standard. That means focusing on the needs of customers to ensure that Business Links reaches its full potential, which in turn will enable its business customers to grow and to compete in the global market.

Rightly, in her speech, my hon. Friend the Member for Luton, South spoke about the importance of new technology for small and medium enterprises. I absolutely reassure her that the Government want small businesses, whatever sector they are involved in, to take advantage of the new technology. All the benchmarking that the Government have done recently, which compares our performance against that of our major competitors internationally, shows that the United Kingdom is doing pretty well in the use of new technology.

That does not mean that we cannot do better. We can and we will—we certainly aim to do so—but there is still too wide a gap between large firms and small and medium enterprises. As we look at our competitiveness, a key aim of the Government is to bridge that gap, and we are working hard to do so.

My hon. Friend the Member for Luton, South mentioned the programme for business and local support centres; we have increased them. We know that giving small business the hands-on experience of using new technology can be beneficial. We also appreciate that, if people are running their own small business, they often do not have the time to use the technology that they have to its fullest extent. That is why we are committed to ensuring that we can give them the experience of doing so.

The key thing that we have to get across to those businesses is that the changes in the next few years, with electronic commerce coming on stream, will mean that all business, whatever its size, will have to embrace the new technology. That is a challenge to the industry as well: to make the technology as consumer and business friendly as possible.

Mr. Cotter

What specific training will there be for smaller businesses when it comes to the use of electronic communication such as the internet, as they are at some disadvantage against larger concerns?

Mrs. Roche

There is already the programme for business, which looks at the use of information technology. As I have said, just a couple of weeks ago, I represented the UK at the Organisation for Economic Co-operation and Development ministerial conference in Ottawa. We are looking to see how we can help small business in that regard, but the key thing is that, in future—I will probably put myself out of a job—we shall probably not define firms any more in terms of small, medium and large, but only by how best they compete in the marketplace using new technologies. That is why schemes such as SMART, the small firms merit award for research and technology, the innovation and technology counsellors in Business Links and the teaching company scheme are so important—to ensure that we really meet those challenges.

Businesses have to prepare themselves for some challenges in the next few weeks and months. Whether the UK is in or out of the European monetary union, businesses will have to learn to deal with the single currency. The year 2000 problem, the so-called millennium bug, also has to be faced, which is why the Government have invested so much time, money and effort in the matter. Of course, the setting up of Action 2000, specifically working with business, is so important in that regard.

All British firms that trade with the 11 European member states that will have a single currency from 1 January next year will be affected by European monetary union, so we have a duty to ensure that those firms are as prepared as they possibly can be to take advantage of the opportunities that that will bring.

I am delighted that my hon. Friend the Member for Luton, South has raised this important subject and recognises the importance of creating an environment that encourages entrepreneurial activity. I again congratulate her on her work in her constituency on the issue, thank her for, so early on in this new Session, giving me the opportunity to speak about the Government's plans in this sector and assure her and the House that enterprise will be at the heart of the competitiveness White Paper which will be published by the Government this autumn. I congratulate her again. The contributions that we have received from hon. Members on both sides of the House demonstrate the importance of this vital topic.