HC Deb 02 July 2003 vol 408 cc446-66
Madam Deputy Speaker (Sylvia Heal)

I must advise the House that Mr. Speaker has selected the amendment in the name of the Prime Minister.

4.16 pm
Mr. Tim Yeo (South Suffolk)

I beg to move, That this House deplores the impact of Government policy on small and medium-sized enterprises; condemns the Government for increasing the burden of regulation, taxation and bureaucracy, for blurring the economic and social agenda and for wasting money on Government branding and quangoes; and calls for fair treatment for small businesses to allow British enterprise to create jobs and wealth for the benefit of the whole community. I draw the attention of the House to my entry in the Register of Members' Interests.

I warmly welcome the Secretary of State for Trade and Industry to her place in the House today—a place, as I read in The Daily Telegraph today, she intends to occupy not merely until the age of 60, but well beyond then. Of course, that date is many years hence. I wonder whether she has checked that ambition with the Prime Minister, because she rubbished his attachment to the cult of youth in terms that were so candid as to be worthy of the Leader of the House.

I also wonder whether the electors of Leicester may have a say in that matter. Perhaps they will be so grateful to her for the fact that she proposes to postpone not only her own retirement but that of all her constituents that they will regard that as a reason to go on electing her as long as she chooses to honour them with her candidacy—[Interruption.] I hope that the Secretary of State will listen to the debate. I welcome her decision to address the real issue of age discrimination, and I look forward to debating it with her on another occasion—since she did not choose to make a statement to the House when she published her consultation paper, I hope that there will be a proper opportunity to debate the issue on the Floor of the House at a later date.

Madam Deputy Speaker

Order. The hon. Gentleman ought now to address the motion.

Mr. Yeo

I am, but I would be dismayed—I know that this is not your intention, Madam Deputy Speaker—if it were thought that age discrimination was not relevant to small businesses. I believe that it is absolutely relevant to them.

This is the first debate on small businesses on the Floor of the House since the Secretary of State took office, although some years ago we were promised an annual debate on the subject. The Opposition have chosen to remedy that omission by giving up half our time today for such a debate. The Government's reluctance to discuss small business is in marked contrast to their enthusiasm for debating hunting. As there has not been a whisper of protest about that extraordinarily distorted set of priorities from the Secretary of State, people involved in small business must conclude that she agrees with her colleagues in the Government that considering the needs of small business is less urgent than pursuing the vendetta against field sports.

Mrs. Angela Browning (Tiverton and Honiton)

I congratulate my hon. Friend on drawing attention to an election pledge by the Labour Government—to hold an annual small business debate. Does he agree that when the Government came into office, the slogan was "Education, education, education", but as far as small businesses are now concerned, it is "Legislation, legislation, legislation". Is not that what is crippling small businesses?

Mr. Yeo

My hon. Friend makes a powerful point. I know how many times she has raised on the Floor of the House and privately her concerns about the plight of small businesses in her constituency. The Government's unwillingness to debate the needs of small business is perhaps not surprising, given that many of the difficulties faced by small business today are directly or indirectly the result of the Government's actions and inactions. Small businesses bear a disproportionately heavy share of the cost of the extra regulations to which my hon. Friend has just referred: regulations that this Government have introduced, which the British Chambers of Commerce estimates are costing a total of £20 billion. Small businesses are disproportionate victims of the extra taxes imposed on business by this Labour Government, estimated in total, by the CBI, to amount to £47 billion. According to this year's Budget submission from the BCC, the cost of complying with new employment regulations is 50 times higher for a small company than it is for the largest company. Against that background, it is no wonder that Labour does not want to debate small business.

Lembit Öpik (Montgomeryshire)

I am sure that the hon. Gentleman will agree that small businesses are suffering terrible stress—economically as well as psychologically, for very small businesses—with regard to insurance. Insurance companies can effectively drive out of business small businesses that are profitable in all other respects, because they cannot afford the incredible and often extortionate insurance premiums.

Mr. Yeo

The hon. Gentleman anticipates a point to which I shall refer in a moment. He is right to raise it.

Against the background that I have described, it is no surprise that when I met the Forum of Private Business yesterday in Manchester, I was told that fewer of its members expect their businesses to grow now than at any time since Labour came to power. Whatever probusiness rhetoric Ministers like to deploy, their actions tell a different story: a story of neglect of the overriding need to protect the competitive position of British business; a story of increasing hostility to the aims and values of business and enterprise, which are now respected by Government only in so far as they create a milch-cow from which Labour can extract more and more taxation; and a story of ignorance and even disdain for the challenges faced by small business.

Geraint Davies (Croydon, Central)

Does the hon. Gentleman accept that the vast majority of the estimated on-costs that he has just quoted relate, first, to the minimum wage, secondly, to the European working time directive and, thirdly, to holiday rights? Is he saying that he would try to repeal any of those, or is he simply uttering a lot of hot air? Does he not accept that measures such as the working families tax credit reduce real wage costs for small businesses and help to stimulate them in a stable economy?

Mr. Yeo

The hon. Gentleman will regret making that intervention, as he has clearly exposed his ignorance of small businesses' concerns, which will not go unnoticed by his electors.

My point was that under this Labour Government, in the six years since 1997, the burdens on small business in terms of taxation and regulations have risen to levels that have never been seen in the whole of Britain's history.

Angus Robertson (Moray)

Is the hon. Gentleman aware that small businesses in Scotland have to pay a much higher burden than small businesses in England and Wales, with a business tax rate 9 per cent. higher than that south of the border? How does he think businesses in Scotland can compete in an environment that is clearly uncompetitive?

Mr. Yeo

Businesses in Scotland are suffering under the particularly burdensome regime of a Labour-Liberal Democrat coalition: a warning to the rest of the United Kingdom if ever we were faced with a similar threat. They are also labouring with the problem of devolution, which has meant that no one is clear about which responsibilities lie on which side of the border in terms of policies that impact on business.

The harm that new Labour has done to small business is especially worrying, because more than a third of all employees work for enterprises that employ fewer than 20 people. Historically, small business has been the engine of job creation. According to the Federation of Small Businesses, six out of seven private-sector jobs created between 1995 and 1999 were created by small and medium-sized enterprises.

Geraint Davies

Under this Government.

Mr. Yeo

Exactly, because under this Government today, the only engine of job creation is the obsessive determination with which Ministers spend more and more taxpayers' money to expand the ranks of the already swollen army of bureaucrats who work in the public sector.

Despite a huge increase in Department of Trade and Industry spending, the Government do little to addresses the real concerns of small businesses. Those concerns focus first on cash, secondly on people, and thirdly on time. Cash is being drained out of business by huge rises in taxation. Employer national insurance contributions take £10 billion more from business today than they did in 1997, and business rates take £4.5 billion more from business today than they did in 1997. The new tax on pensions is draining away a further £5 billion a year and, from a standing start only two years ago, the wholly anomalous climate change levy is draining a further £1 billion a year from business.

Jonathan Shaw (Chatham and Aylesford)

The hon. Gentleman referred to our investment in public services. Does he realise that investment in school buildings, hospitals and public construction works provides much-needed business opportunities for the people about whom he is talking?

Mr. Yeo

Had the hon. Gentleman been listening to what I said, he would know that I referred not to investment in public services but to the swollen army of bureaucrats who work in the public sector. If he took the trouble to go to a library to consult the recruitment pages in newspapers and magazines, he would see that the advertisements for public sector jobs are not for nurses or doctors—they take years to train; there is no tap that can be turned on and off—but for posts such as performance review analysts. Such people do not deliver public services to patients and pupils, but simply create more and more bureaucracy.

I suspect that the Secretary of State will try to claim that the Government have been sympathetic to business by cutting corporation tax. If she does, she will simply expose her ignorance of small businesses, which seldom find that corporation tax is a problem.

Mrs. Claire Curtis-Thomas (Crosby)

The hon. Gentleman must, like me, know of many small businesses that could not afford to employ the type of expert who would allow them to interact with bureaucracy, major fund providers, objective 1 requirements and European legislation. The public appointments advertised are for people who would provide that support and those services at little cost to those companies. Businesses were denied that under the previous Administration.

Mr. Yeo

I hope that at some stage during the next two and a half hours a Labour Member's intervention will demonstrate that he or she has had some contact with small businesses during the past two years. The hon. Lady's point might well have been handed to her by the Government Whips Office, but it could not have been suggested by any small business person.

Mrs. Browning

On the matter identified by the hon. Member for Crosby (Mrs. Curtis-Thomas), surely the real challenge is the forthcoming temporary workers directive, which is yet to hit small businesses. Small businesses could buy in expertise for a specific project, but they will be penalised for doing that by yet more legislation.

Mr. Yeo

My hon. Friend is absolutely right. The temporary workers directive will have an especially damaging impact on the United Kingdom. It is a typical example of a piece of European legislation that will have an uneven impact on EU countries because it fails to take account of the unique characteristics of the British labour market.

Geraint Davies

Will the hon. Gentleman give way?

Mr. Yeo

In a moment.

Small businesses do not worry about corporation tax, especially in their start-up phase. Indeed, many would love to have a corporation tax liability. As soon as they start trading, however, all small businesses are hit by employer national insurance contributions, business rates and the climate change levy—taxes that apply before a penny of profit has been earned. By shifting the burden of business tax away from corporation tax on to those other taxes, Labour's policy is directly damaging small business.

If only Labour shared the Conservative goal of a fair deal for small business, in which no small business was held back or left behind, it might understand the damage that is done by draining cash out of a small business—

Geraint Davies

On a point of order, Madam Deputy Speaker. Is it in order for the hon. Gentleman to say explicitly that Labour Members have no business experience? I have run businesses with a turnover of £1 million; all he has is a connection with cattle semen. I do not want to talk about cattle semen; that is for him to discuss. I want to talk about my business experience, but he will not allow me to intervene.

Madam Deputy Speaker

That is a point of debate, not a point of order.

Mr. John Bercow (Buckingham)

And a pretty bad one at that.

Mr. Yeo

My hon. Friend is right. It might reassure my hon. Friends to know that I do not intend to give way to the hon. Member for Croydon, Central (Geraint Davies) again.

If Labour Members shared our goals of aiming for a fair deal for small business, they might understand the damage done when cash is drained from a small business at its most vulnerable stage of development. I fear that Ministers in this Government do not understand that. People who have never been personally involved in small business seldom understand the importance of cash. People whose salaries have always been put into their bank account on the 28th of each month, regardless of what they have or have not done, do not know what it is like to wake up in the night sweating about whether one has the cash to pay the bills. They have never spent half their day chasing the payment of invoices to get a bit of cash. They do not realise the damage that the Government's tax policy is doing day in, day out to small businesses.

It is not only tax that drains cash from small businesses. Huge increases in employer liability insurance premiums are another heavy burden. The Federation of Small Businesses has reported on an Essex company that shreds confidential waste—probably a booming business in the light of the Government's difficulties. It faces a 400 per cent. increase in premiums on its latest renewal notice. That follows a 250 per cent. increase last year. Those premiums were demanded despite the company's having no machinery or factory premises, and despite the fact that it had not made a claim for 30 years. Given that the Treasury collects more than £2 billion a year in insurance premium tax, which is more than three times the amount of that tax that was paid in the last full year of the Conservative Government, we can be sure that the Chancellor is in no hurry to slow down the rate at which premiums are increasing.

Instead of the Secretary of State washing her hands of the problem, will she tell us whether the short-term measures proposed by the Government after the recent Department for Work and Pensions review will be implemented in the foreseeable future? Does she plan to provide immediate relief for businesses that may be threatened with closure because of escalating premiums while the more fundamental reforms are considered? In the light of the Office of Fair Trading finding that problems exist in respect of asbestos-related risks and professional indemnity insurance for independent financial advisers, how will she tackle those problems? Does she share my concern, and that of the CBI, about the compensateion culture? In addressing the problem of escalating insurance costs, does she agree that it would help if a greater share of the costs were apportioned to claimants who lose a case and if the cost burden were rebalanced, so that not only the claimant, but the claimant's lawyer, has to shoulder an element of the risk?

The second concern is people. Many employers find it hard to recruit employees with appropriate skills. The Government's obsession with churning out more and more graduates, regardless of whether their degrees equip them for work in the 21st century, does not address the problem. Our approach is to make sure that everyone who will gain from university education receives it, and that those who will gain from other forms of education and training receive those. Even when a small business can find a suitably qualified and trained recruit, it faces other difficulties in the form of employment regulations, which frequently act as a disincentive to offering jobs. Our fair deal for small business will be a fair deal for employees as well as employers, because we want a country in which no one is left behind and no one is held back.

What does the Secretary of State think will be the effect on some of the more vulnerable potential employees, who might be left behind, of her cherished work-life balance? Does she agree with the Institute of Directors, two thirds of whose employer members believe that her policy will reduce the chances of younger women finding jobs? If she does not agree with that bleak but entirely predictable conclusion, on what does she base her own view? Has she undertaken an assessment of the impact of work-life policies on the job prospects of young people?

Given that the European Union will soon admit new members such as Hungary and Poland, where wage costs are only a quarter of those in Britain, could there be a worse time to pursue the agenda that the Secretary of State favours? Is it not grossly irresponsible to do so, presumably to curry favour with trade union bosses, secure with their comfortable salaries and expense accounts, without regard to the damage that she is doing to the chances of the next generation of British workers?

Mr. Bercow

My hon. Friend rightly highlights the absence of, and the need for, a light-touch regulatory environment. Is it not a damning indictment of the Government that for six successive years they have refused to publish an annual statement of the cost of regulation, or indeed of their plans for a reduction in that cost?

Mr. Yeo

It is, as my hon. Friend says in his usual elegant and eloquent way, a damning indictment. It is also a clear admission, first, that, whatever they may say, the Government are not concerned about how much damage they are doing to business and, secondly, that they are fully aware that if they did publish such a statement, it would be clear that they were undermining the competitive position of British business and, therefore, the future job prospects of the British people.

I hope that the Secretary of State will tell us whether she thinks that a small business will be more or less likely to take on new staff as a result of the Employment Act 2002. Does she consider that the 50 per cent. jump in employment tribunal claims shows that new Labour has created a more, or a less, harmonious relationship between employers and employees? Does she realise that if, in three or four years, private sector jobs are harder to find than they have been for the last two decades, the reason will be the policies of this Government, whose tunnel-visioned, old Labour passion for championing more and more employee rights may end up taking away the most fundamental employee right of all: the right of every woman and man to negotiate with a prospective employer the basis on which they are willing to work?

Andrew Selous (South-West Bedfordshire)

Does my hon. Friend share my concern about the costs of employment tribunals in which the employer is found to be wholly innocent? Earlier this week, I met a man with a small business who told me that a tribunal had cost his firm £27,000. Even though his firm was completely exonerated, he had no chance of getting that money back. Does my hon. Friend agree that that is a serious point, which needs to be looked at?

Mr. Yeo

It is a very serious point. It is scandalous that many employers are burdened with huge costs as a result of tribunals, some of which involve frivolous claims. Indeed, I am told that there are examples of employees going from one firm to another, taking one case after another to a tribunal.

If the Secretary of State had any concern for the next generation of workers, and if she were as anxious as the Conservative party is to secure a fair deal for small business, in which no one is left behind or held back, particularly the most vulnerable and least skilled workers, she would argue, as we are doing, for more flexibility in labour markets—the flexibility that creates jobs, as we see in the United States, instead of the rigidity that destroys them, as we see in Germany, and which, sadly for Britain's future workers, appears to be the model that the Government favour.

The third concern for small business managers is time, far too much of which is spent by small business people filling in Government forms, trying to understand what new regulations mean for their businesses, and trying to comply with those regulations. Far too much time is spent administering the Government's tax and benefits systems. The handling of the Chancellor's increasingly chaotic attempts at social engineering and wealth redistribution has been forcibly sub-contracted to business, which now not only administers payrolls and the entire national insurance contribution regime, but has been compelled to take over some of the functions of the Benefits Agency.

As more employees become eligible for some form of tax credit, the Government need to consider the effect that that has on relations between employers and employees. Does it really promote good relationships at work if employees have to disclose intimate financial information to their employer? The time that all of that takes would be better spent talking to customers, improving products, controlling costs, and all the other things that small business people must do. Saving half an hour a week might even allow small business people to get home a little earlier on a Friday evening to spend a little more time with their families. Cutting a few regulations might allow small business people to enjoy a taste of the benefits that the Secretary of State claims to want to create through the work-life balance.

Mr. Mark Prisk (Hertford and Stortford)

My hon. Friend has highlighted an essential issue for small businesses. Is he aware of the latest figures on the number of hours that small business men and women running family firms have to endure? I understand that more than 28 hours a month are spent filling in forms.

Mr. Yeo

Some of the figures for the amount of time that small business people have to spend filling in forms and complying with regulations are alarming. That is unproductive time. On a future occasion, I hope to tell the House about some of the forms that small business people are required to complete. However, it is not just red tape that takes up their time—infrastructure problems do so as well. Britain's increasingly thirdworld transport system, which we heard about during the previous debate, wastes a huge amount of time and represents a vast burden for business. Ministers themselves have admitted that that costs billions of pounds.

Mr. Robert Key (Salisbury)

Does my hon. Friend agree that another part of the infrastructure surprisingly neglected by the Government is broadband access for the very companies in rural areas that could most benefit from that new technology? That is proving to be a serious handicap in our competitiveness with other European countries. The Government could have done a lot more, for example, by allowing piggy-backing on their programmes for wiring up doctors' surgeries and schools in rural areas, but they simply have not bothered.

Mr. Yeo

My hon. Friend is right, and highlights an area of infrastructure that is the direct responsibility of the DTI. The Government's failure to achieve the ambitious plans that they published for access to broadband is causing genuine problems for many small businesses, particularly in rural areas. Many of my hon. Friends have constituents who cannot get access to broadband now and cannot even get a date when they will have such access.

In the next few months, I shall set out in more detail what the Conservative fair deal for small business will include. This afternoon, in an attempt to promote constructive debate about these important issues, I invite the Secretary of State to agree that a fair deal for small business must start with the recognition of four fundamental principles. First, the most important thing that any Government can do for business, small or large, is create a stable macro-economic climate. No amount of ministerial intervention, new Government initiatives or grants to bail out failing businesses in the constituencies of ministerial colleagues can replace the need for policies that promote wealth creation and preserve the competitive position of British business. We live in times of exceptional uncertainty, when modern technology and communications have made investment and jobs more internationally mobile than ever before. Investment which, a decade ago, may have been made in Ipswich, is today just as likely to go to India. Whole industries in which western Europe led the world in the last century are migrating to China in the first quarter of this century.

That is why it is worrying that, under Labour, productivity is rising at only half the rate that it was under the Conservatives. That is why it is worrying that business investment last year suffered its biggest drop for over 10 years, and the second biggest on record since that series of data was started in 1966. That is why it is worrying that last year, strikes cost business more lost days than in any year for more than a decade. That is why it is so worrying for business that, for every week that the Labour Government have been in power, an average of 2,000 manufacturing jobs have been destroyed. That is why it is worrying that Britain's deficit in traded goods is the worst since records began 306 years ago. Those figures are a reminder of worrying trends in the British economy, and they reflect the accumulation of difficulties that small business faces and the gradual erosion of the competitive advantages that Britain fought so hard to win in the 1980s and the early 1990s.

The second principle to be recognised is that the effectiveness of Government intervention is extremely limited. Take the Small Business Service, on which spending has rocketed to £423 million. Is that sizeable chunk of taxpayers' money achieving added value for small business? It is hard to see that it is. It certainly has not established itself as a champion of small companies in the Government and it is not yet established as a widely used source of valued business advice. The Small Business Service business plan for 2003 states: Business Link is being enhanced to improve the support given to those starting a business. It continues: Key to success will be repositioning and strengthening Business Link as a valued brand. Those statements are shorthand for noting Business Link's continued shortcomings and the Government's desire to throw good money after bad.

The same document goes on to state that a key task for the Small Business Service will be the establishment and rolling evaluation of three regional development agency-led business support pilots in the north-west, the west midlands and the east midlands. It continues: A new challenge is to understand the relationship with factors such as company culture, ownership issues and sector-specific issues which can make many small businesses reluctant to grow. The Small Business Service will map the interdependence of these factors and, by March 2004, publish a 'capabilities for growth' strategy. Perhaps the Secretary of State will tell us what all that jargon means and how it translates into any added value for small business.

The Department of Trade and Industry seems to have decided to exclude such private sector business support groups as the Federation of Small Businesses, the British Chambers of Commerce, the Institute of Directors, the CBI, the Small Business Bureau and the Forum of Private Business. It has excluded those, as well as many more specialist bodies, from playing a leading role in small business development. More is the pity. The DTI will rue the day.

The third principle concerns tax. It is time to recognise that business is much more heavily taxed than when Labour came to power. No further increase in the tax burden on business can possibly take place. Two weeks ago, the Leader of the House let the cat out of the bag when he admitted that tax would have to go up again next year. Most of us suspected that already. The Chancellor had already had to admit that he got his sums wrong twice, in the pre-Budget report last November and in the Budget in April. Most people believe that his forecasts for tax revenue will again be proved wrong in the next few months.

Since income tax is a sacred cow that cannot be touched—an extraordinary commitment, as national insurance contributions, which have precisely the same effect as income tax on employees, have already been raised—we must conclude that business taxes will bear the brunt again next year. If the Secretary of State wants to champion small business, I invite her to make a commitment here today to fight publicly against any proposal by the Chancellor to raise tax on business. She should make it clear that if tax on business is raised again while she is Secretary of State, she will resign her office.

The fourth and last principle concerns regulation. It is long overdue to recognise that regulation costs business more than ever before and is weakening the competitive position of British business. Regulation damages small business particularly badly. The burden cannot be increased any further. I invite the Secretary of State to introduce sunset clauses into many of the Government's regulations, such as the provisions of the Employment Act 2002, so that their effect on the job prospects of potential workers can be properly analysed. Those four principles—that small businesses are affected by the macro-economic climate more than anything else; that direct action by the Government without the full involvement of the private sector is of little benefit; that the tax burden on business must now be capped; and that the tide of regulation must be reversed—are the crucial pillars on which a fair deal for small business must rest, so that no small business is left behind. I invite the Secretary of State to commit herself to upholding each of those principles.

Mrs. Curtis-Thomas

Will the hon. Gentleman give way?

Mr. Yeo


The futures of millions of people working in small businesses throughout Britain can be made more or less secure and their daily working lives easier or harder by the Secretary of State's decisions. I invite her now to break the mould of the past two years, abandon her Government's over-taxing, over-regulating and meddlesome ways and support our motion, which I commend to the House.

4.50 pm
The Secretary of State for Trade and Industry (Ms Patricia Hewitt)

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof: agrees that small and medium-sized businesses are crucial to the prosperity of the nation and will be responsible for many of the new jobs and much of the future innovation in the economy; welcomes the steps that the Government has taken to make it easier than ever before for people to start their own business; acknowledges that the Government has created the economic conditions of macro-economic stability and low and stable interest rates in which small business can grown and prosper; believes that the Government has created a pro-enterprise tax environment; and applauds the Government for improving access to finance for small and medium-sized businesses, removing unnecessary regulations and providing world class business support. May I begin by welcoming the hon. Member for Lichfield (Michael Fabricant) to the Front Bench? My hon. Friends and I look forward to jousting with him during DTI questions. However, I regret the fact that, in contrast with the hon. Gentleman, who is always courteous in his questions, the hon. Member for South Suffolk (Mr. Yeo) has developed a most unfortunate habit of opening every debate with rather churlish and, I have to say, rather silly remarks.

I particularly regret that, because this is a debate about small businesses. One of the best things about being Secretary of State for Trade and Industry or Minister for Small Business and E-Commerce, as I was for two years previously, has been that I can get around the country and meet some of our wonderful entrepreneurs and owner-managers. I have met people such as Dave Stevens and his team at Cooke Optics in Leicestershire, who, with the help of a DTI grant, developed the high-definition film lenses that were used in that wonderful film "Chicago". It was one of those grants on which the hon. Member for South Suffolk pours scorn, a £140,000 SMART award—a small firms merit award for research. A few weeks ago, Dave Stevens told me in an e-mail: It is now our responsibility to return to the UK through 95 per cent. export some revenue from this investment.

Dr. Ian Gibson (Norwich, North)

While my right hon. Friend is extolling the virtues of Leicester, will she add another discovery made in Leicester? DNA fingerprinting is an amazing discovery funded by DTI money through the Office of Science and Technology.

Ms Hewitt

My hon. Friend, who plays such a superb role in promoting science, is absolutely right. We in Leicester are particularly proud of that discovery, which has created benefits for our whole society and economy.

I should also like to mention Irene and Arthur Allen in rural Norfolk, who created a tiny company called Listawood 15 years ago. It was a family company that was started around the kitchen table with a £40-a-week enterprise allowance.

Mr. Henry Bellingham (North-West Norfolk)

It is in my constituency.

Ms Hewitt

Yes. I visited the firm years ago when I was deputy chair of the Commission on Social Justice. It was a wonderful firm and is now a flourishing manufacturing company. It makes PC products and has a turnover of £8 million and 100 employees. I say to the hon. Member for South Suffolk that, from the outset, it built up the business by recruiting local staff and giving them family-friendly working because that was what they needed. As a result, it has built up a dedicated, loyal and flexible work force who are one of the main reasons for its success.

A few weeks ago, I visited another Leicestershire company and met Stefan Olsberg and his colleagues at Voice Connect in Groby. They have developed wonderful software that helps schools to cut truancy through text messaging, e-mails and voice mails to parents. People can use whatever system of communication they want. The company is now extending the product to GPs so that they can cut those wasted appointments. It is franchising the business, which it has already expanded to include more than 40 employees, throughout the country, giving other entrepreneurs a chance.

Let me mention, if I may, one of the many entrepreneurs in my own constituency, Atul Lakhani, whose new restaurant my hon. Friend the Member for Leicester, East (Keith Vaz) and I had the pleasure of opening last Friday. My hon. Friend the Member for Croydon, Central (Geraint Davies) founded and grew an outstanding travel business that is promoting the environment and ecologically responsible tourism in Crete.

Mr. Andrew Robathan (Blaby)

I am grateful to the Secretary of State, who is my near neighbour in Leicestershire. Does she recall that last February the then Leader of the House, who is now Secretary of State for Health, went to talk to small businesses in Leicestershire? Afterwards, a banner headline in the Leicester Mercury said, "Minister offers sympathy about red tape," but all he had to offer was sympathy. When I spoke to small businesses in Leicestershire, they complained that the right hon. Lady had not been visiting them, yet I now hear that she has been visiting them endlessly.

Ms Hewitt

I visit and talk to small businesses week in, week out, both as Secretary of State and because they are in my constituency, as well as in other parts of the city and the county. I shall turn later to regulation, which is of course important.

The reality is that whether it is Indian food, tourism, the creative industries or new technologies, our entrepreneurs are leading the way. I was delighted a couple of weeks ago when Surrey Satellite Technologies, one of the companies that has been spun off from the science departments of the university of Surrey, won a €30 million contract, the first to be awarded by the European Union, to lead the development of Europe's first satellite navigation system, Galileo.

Those are examples of outstanding entrepreneurs and businesses throughout our country. For me, they are the real heroes and heroines of our economy—entrepreneurs who work incredibly hard, invest their savings and often put their homes at risk in order to build up a team of people, create a great product and grow a business. I sometimes think that if somebody goes into a shop, buys a scratchcard and wins £1 million there is more public celebration of their success than if they grow a business from scratch through sheer hard work and determination.

I hope that all Members on both sides of the House agree that we should celebrate our entrepreneurs, who do not get great rewards for great failure. If their business fails, they lose their savings and their livelihoods. One of the reasons why I have been so determined to deal with the issue of big rewards for big failure is precisely that the actions of a few damage the reputations of the vast majority of decent, hard-working and determined business people in our country. I want to pay tribute to those millions of small businesses and the owner-managers who run them, who provide more than 12 million jobs, create more than half our national output and now generate nine out of 10 of all new business ideas. They have always been the bedrock of our economy. A century or so ago, we were called a nation of shopkeepers. Today, as the world becomes even more competitive and technology changes faster than ever before, small firms matter even more than they used to. Small businesses are much faster on their feet, much more likely to innovate and much closer to their customers, and they matter all the more in this competitive global economy.

Angus Robertson

I fully endorse the stress that the Secretary of State is placing on the importance of small business in growing the economy. She will be aware that, sadly, powers over the business world in Scotland still remain in this place, especially in the macro-economic sense. Does she agree that growth in the economy is key to helping small business; and, to help other Members to understand the situation, can she tell us what is the growth rate in the Scottish economy at the present time, and whether she thinks that it is adequate?

Ms Hewitt

It is a great deal more than it would be if the nationalists were running Scotland.

It is forecast that by the end of the decade the 3.7 million smaller businesses in our country today will have increased to more than 4.5 million. There will be nearly 1 million more of them, with 2 million new jobs between them. We celebrate our entrepreneurs, and no lectures are necessary from the Conservatives for us to understand that it is the Government's responsibility to help them to succeed.

Mr. Martin O'Neill (Ochil)

Before my right hon. Friend leaves the subject of science and technology, and the success of Galileo at Surrey university, will she share with us some of the thoughts about knowledge transfer that were exposed in the White Paper? If we are to persuade academia to respond in the same way as those in Guildford to the exciting opportunities provided by the search, we must ensure that much more emphasis is placed on the significance of knowledge transfer and the smoothing of the path from the research laboratory to the workshop and the business.

Ms Hewitt

That is true. As we said in our White Paper, our country has a brilliant record of creating new ideas and new technology, but all too often we have left it to other countries and other people's businesses to commercialise them and create jobs and profits from them. We are starting to change that, and our huge investment in science over the past five years—which is in striking contrast to what happened during the Conservative years—is already showing results. The number of spin-off companies has trebled, and the emphasis we are now placing on knowledge transfer will enable far more businesses to take advantage of our science departments.

Dr. Gibson

Does my right hon. Friend share my pleasure at today's news that the Government have put £90 million—along with, possibly, another £200 million—into nanotechnology? That puts us in the top league in relation to an exciting new technology that will help medicine and other areas of work.

Ms Hewitt

I am delighted that my hon. Friend mentioned that. Our investment in nanotechnology will ensure the provision of nanotechnology fabrication centres throughout the country, allowing small firms that could not possibly afford such facilities themselves to apply this extraordinary new technology to their products.

First and foremost, however, Government must deliver economic stability to our businesses. That is precisely what we have delivered. The hon. Member for South Suffolk did not mention the Conservatives' record, but they delivered interest rates that rose to 15 per cent. and devastated entrepreneurs who lost their businesses, their savings and, all too often, their homes.

John Barrett (Edinburgh, West)

Will the Secretary of State listen to small businesses that are genuinely concerned about the amount of administrative time that they spend collecting tax on behalf of the Government? That is the main issue that they raise with me now, whereas they used to raise the high cost of borrowed money.

Ms Hewitt

Of course we listen to them. Indeed, both the Chancellor and the Paymaster General have taken steps to simplify the system. We have already simplified VAT, which has helped a number of businesses.

Geraint Davies

Before my right hon. Friend moves on from macro-economics, may I ask whether she agrees that if we are to move from success to success we must instil the entrepreneurial culture in the education system? In the education action zone in New Addington in my constituency, business mentoring has proved successful: pupils have gained experience in work, and have learned how to manage their time, to run with ideas and to come up with products in a structured way. Would my right hon. Friend be interested in visiting Croydon at some point to observe the education-industry interface that is breeding entrepreneurial flair for the future?

Ms Hewitt

I readily congratulate everyone involved in that initiative. It is an example of the excellent work that is being done in many parts of the country to build much closer relationships between business and industry and our schools. Indeed, as a result of the excellent report from Howard Davies on the subject, my right hon. Friend the Secretary of State for Education and Skills is ensuring that every secondary school student will have the opportunity of good work experience that gives them a taste of business.

What we have delivered for our small businesses is the lowest inflation for 30 years, the lowest interest rates for 40 years and 1.5 million more people in employment. Having said that, it is difficult for our small businesses. It is difficult for every business at the moment with the world economic slowdown, but it is thanks to the decisions that we made on economic policy six years ago that our country continued to grow while others went into recession.

Mrs. Curtis-Thomas

Does my right hon. Friend agree that some of the 1.5 million people who have entered the workplace in the past few years were specifically excluded from the workplace under the previous Administration, including the vast majority of women, who could have provided an enormous contribution and, more important and more dear to my heart, people with disabilities? They were totally ignored under the previous Administration. They never had any hope of employment. They have been liberated into work under this Government.

Ms Hewitt

I entirely agree with my hon. Friend. She makes an extremely important point about how our action to tackle discrimination in the workplace is freeing people to take up new opportunities and making it easier for business people to recruit the staff they need. I add to her list the young people who were trapped in long-term unemployment during the Conservative years. We have virtually eliminated long-term youth unemployment.

Mrs. Browning

Will the right hon. Lady give way?

Ms Hewitt

If I may, I would like to make a little more progress before I give way again.

The second responsibility we have in government is to ensure that small firms can get access to the funding they need. It was clear that we needed to deal with the equity gap in our country, which in striking contrast to the United States left small companies unable to grow through equity finance. We created regional venture capital funds—more than £300 million of extra capital has been made available. We extended the small firms loan guarantee scheme, listening to small businesses that wanted that extended into sectors such as retail and leisure. Now we are looking at whether we should replicate the small business investment companies in the United States, which were so successful in helping Apple, Compaq, AOL and many others to grow from tiny start-ups into huge world beaters.

The third responsibility is to ensure that we get the tax environment right. The hon. Member for South Suffolk spent some time on that. We already have the lowest small firms tax rate in Europe. This year's Budget contained a raft of further measures to help small firms.

David Burnside (South Antrim)

In referring to the low tax rate, will the Secretary of State give a commitment on behalf of the Government that there will be no increase in taxation through another hike in the national insurance surcharge, which has been passed on to small firms? Can she give that commitment?

Ms Hewitt

We have made it absolutely clear that the 1 per cent. increase in national insurance contributions that we have asked people to pay is needed to deliver the record levels of increased funding for the national health service. I draw the hon. Gentleman's attention to the fact that, compared with the costs either of private medical insurance in the United States or social insurance in France, the 1 per cent. for the NHS that we have asked businesses, employees and the self-employed to pay is very small indeed. For a good health service, it is a bargain.

Mrs. Browning

Does the right hon. Lady recall the views of the Engineering Employers Federation at the time of the pre-Budget report last autumn? It pointed out that, in this financial year, an additional £6 billion of tax on business was due, equivalent to almost half the amount that business spends on research and development. It warned just before Christmas that that was affecting British competitiveness and driving investment abroad. That is what business is saying about the right hon. Lady's Government's taxation on business.

Ms Hewitt

I am fairly certain that the figures that the hon. Lady quotes ignore the benefits that we are extending to business, particularly the research and development tax credit, which has been so warmly welcomed and which is supporting exactly the kind of investment that we need.

Mrs. Curtis-Thomas

It was with great interest that I listened to the hon. Member for Tiverton and Honiton (Mrs. Browning) lambast this Administration. Perhaps my right hon. Friend might like to be reminded of what the hon. Lady said on 19 November 1999: I say that after spending three years as a Minister under the previous Government, who tried to reduce regulation on business. We would be the first to say that we did not do very well".—[Official Report, 19 November 1999; Vol. 339, c. 250.] It would be very nice to hear that reasserted today.

Ms Hewitt

My hon. Friend is absolutely right and I shall come to the issue of regulation in a minute. Thanks to the reforms that we have introduced to the business tax system, 150,000 small businesses are no longer paying any corporation tax, and a third of a million have had their corporation tax cut. Today, the Conservatives have dismissed corporation tax as of no concern to small businesses, but it is of huge concern to the nearly 500,000 businesses for which we have cut, or completely abolished, corporation tax bills.

Mr. Adrian Flook (Taunton)

I am grateful to the Secretary of State for giving way. She will doubtless be aware of the case involving T.P. Madgett and R.M. Baldwin, concerning VAT, on which a UK court ruled in 1998. In a similar case, Berry's Coaches of Taunton want to recover £27,000 of VAT from three years ago, but Customs and Excise says that it is awaiting a ruling from Europe. Is it really fair that small businesses should have to wait quite so long to get their own money back?

Ms Hewitt

I am happy to say that my responsibilities do not include VAT, but I shall draw the attention of my right hon. Friend the Paymaster General to the case that the hon. Gentleman mentions, and I should be grateful if he would send me further details on it.

On corporation tax, I should point out that the company law review that we instigated and published last year is based on the whole philosophy of think small first. As we institute a complete rewriting of our company law framework, we will make it far easier for small businesses to become incorporated and to take advantage of the tax benefits that we have already extended to those smaller companies.

Our fourth responsibility as a Government is to ensure that business gets the practical support that it needs. Last year—and in just one year—British Trade International helped 28,000 companies to export, many of which were new exporters that are now able to grow their businesses because of our help. I do not know whether the Conservatives would abolish that. Business Link, which was started by the Conservatives, was in a pretty pathetic state when we took over, and there were many complaints from customers. Now, it is helping nearly a third of a million businesses each year to start and grow. We have increased the number of Business Link customers and significantly increased customer satisfaction. Some 1,000 SMART awards, amounting to more than £40 million, will help other businesses in the way that Cooke Optics was helped. Perhaps the Conservatives plan to abolish that as well.

We listen to our small business customers. They told us to simplify the business support schemes, many of which we inherited from earlier Administrations, and that is exactly what we are doing. They told us to bring together all the information and support available to small businesses—not just from the Department of Trade and Industry, but across government, in the regions and from local authorities as well—and that is exactly what we are doing.

Our fifth responsibility is, of course, to ensure that the regulatory framework is right and that markets are open and competitive.

Mr. Prisk

Before the right hon. Lady leaves the subject of business advice and the Small Business Service, I should point out that the Chief Secretary to the Treasury has advised me of a serious omission. I hope that the right hon. Lady can deal with this point, as the service is in fact accountable to her. Yesterday, this House discussed on Third Reading the issue of stamp duty land tax, which, according to a number of experts, will cost small businesses—especially retailers—£230 million. Yet the Chief Secretary has advised me that at no time during the legislative process and a year's consultation did the Small Business Service make written or oral representations. Is not that a neglect of its duties? Why did it not participate in that vital process?

Ms Hewitt

I am not aware of that point, or of what my right hon. Friend the Chief Secretary said about it. Let me check it, and I shall write to the hon. Gentleman.

The Enterprise Act 2002 has transformed the competition regime that we inherited from the Conservatives—it was, frankly, pretty mediocre by global standards—into one of the best in the world. That is particularly important for start-ups and for small, growing companies, because it makes it easier for them to take on the big businesses and break into new markets. Of course we have to keep addressing the issue of regulation, but let us be clear about what the issue is, and distinguish between fair standards for people at work and the administrative costs of filling in forms on compliance and so on.

Let us take the example of the national minimum wage. Of course it increased the wage bill for some businesses, but I make no apology whatever about that. I think that it was a disgrace that Britain, the fourth largest economy in the world, was paying its security guards £1.20 an hour. That was happening in my constituency and many others before 1997. However, we introduced the national minimum wage in a sensible way. We brought together employers, trade unions and other groups, and it was decided through that process of social partnership what the minimum wage should be. It was set at a level that ensured that people were not put out of work. I remember the scare stories from the Conservative party before 1997. We heard that the minimum wage was going to cost a minimum of a million jobs, but what have we done? We have delivered the national minimum wage and 1.5 million new jobs as well.

Family-friendly working is another issue, and the Conservative spokesman complained about the legal package on that. Again, however, we sat down with the CBI, the TUC and small businesses, forming a taskforce through which we all worked together to devise a package on family-friendly working that would work for businesses as well as employees. The hon. Member for South Suffolk appears to have gone to sleep. He is clearly not getting family-friendly working hours, despite the modernisation of the House of Commons, which he probably opposed.

We have also cut form filling and red tape for 700,000 small businesses through the flat-rate VAT scheme. We have got rid of automatic late penalties for VAT late payers. We have saved 150,000 businesses £180 million a year by raising the statutory audit threshold to £1 million, and before the summer recess, I shall be consulting on whether to raise the threshold even further.

Lembit Öpik

I accept that some of the Secretary of State's achievements are laudable, significant and beneficial to society. However, is it not a problem that we are becoming a rules-based society, in which everything has to be assessed against specific rules? Naturally, the rules will be pretty extensive. Has the Secretary of State thought of moving closer to a guidelines-based system in which every single opportunity does not have to be predicted? There is probably more good faith in such a system, because although some people will always look for the loopholes, most are honourable. The United Kingdom could make do with a lot fewer rules if we had sensible guidelines.

Ms Hewitt

I have great sympathy for the extremely interesting point that the hon. Gentleman makes. Much of our approach is based on promoting best practice, co-regulation and sometimes giving statutory backing to self-regulation. The new family-friendly package and the new legal standards on family-friendly working for parents are good examples of where we are creating a general legal framework without specifying in great detail what is right for every business—which is, of course, impossible.

We have done a great deal to improve the regulatory system in our country and proof comes from the Organisation for Economic Co-operation and Development, which says that we are at the forefront of regulatory reform right across the developed world. Indeed, a forthcoming survey of small businesses by one of our leading banks finds that the amount of time that businesses spend each month on filling in forms and other compliance duties has fallen in the past four years. Of course, we need to keep on doing better.

I am not happy about the growth in employment tribunal cases. They represent a failure of the relationship between the employer and the employee. The Employment Relations Act 2002 will improve matters, because it will ensure that more disputes are resolved in the workplace, instead of going before a tribunal because the employer has no procedures and sacks someone without bothering to talk to them about what is wrong with their work. It will improve matters by devoting more resources to and placing greater emphasis on conciliation and by giving the tribunals much more effective powers to weed out the weak cases in advance. The Act will also ensure that if people abuse the system—whether they are employers or employees—costs can be awarded against them.

There is more to do, and if any hon. Member comes across an unnecessary form or an example of bureaucratic gobbledegook, I invite them to send it to me or to my hon. Friend the Minister for Small Business and Enterprise and we will deal with it. However, we should not run Britain down. We are the No. 1 destination for foreign direct investment into Europe and, according to the World Economic Forum, we have leapt from No. 7 in the world to No. 3 in international competitiveness. Indeed, as Digby Jones recently said: I would much rather be doing business in Britain than anywhere else in Europe. That reflects the Economist Intelligence Unit's findings and a series of benchmarking studies that consistently put us in the top three countries in the world for entrepreneurship and business.

Mr. Bercow

I have already raised this issue with the Secretary of State on behalf of a constituent of mine from the beautiful hamlet of Singleborough. What assessment has the right hon. Lady made of the effect of the over-burdensome and prescriptive character of the Ofsted inspection process on the supply of mobile child care at conferences and other events? That is an important issue for my constituent.

Ms Hewitt

The hon. Gentleman raises an important issue, and indeed I raised it in the cross-cutting review of child care that the Government published a few months ago. We have considered the issue, and I routinely raise the subject with child care businesses in my constituency. Both the work of the cross-cutting review and my own discussions with child care providers suggest that the problem is overstated. The hon. Gentleman may wish to write to me with details of the particular case that he raises, but the assertion that is often made does not seem to be borne out by the extensive inquiries that we have made.

Mr. Nigel Dodds (Belfast, North)

The hon. Member for Montgomeryshire (Lembit Öpik) mentioned the large increases in business insurance premiums and their effects on small businesses. Figures for Northern Ireland show an increase in average business insurance premiums of 28 per cent. for 2001 and a swingeing 49 per cent. for 2002. What advice can the Secretary of State offer to my constituents who run small businesses and who tell me that if that continues, they will be driven out of business?

Ms Hewitt

The hon. Gentleman raises an important point, because all around the country small businesses are suffering from increases in insurance premiums. He will be aware of the report that my hon. Friend the Minister for Work recently published on that very subject. The problem lies in the insurance market and the steep fall in stock markets—not only in Britain, but across the world—that makes it impossible for insurance companies to continue to cut premiums and rely on investments. That option is no longer available. Add to that some very big risks and the failure of at least one major insurance company that was big in that market, and you end up with an enormous problem. However, the Government cannot wave a magic wand over the insurance market to deal with those problems. We have worked with the industry to ensure that no small business is left without insurance, a problem that was threatening to happen last year. I think that we have largely dealt with that, and we are now looking to get much more information about why companies are raising premiums as much as they are. We will then see whether we should insist on a longer notice period for renewal of the premiums, so that businesses can shop around more effectively. It is a very serious problem, and we are working with small businesses and the insurance industry to resolve it.

I shall end by saying that, although it is wonderful to see so many small businesses starting up and growing, we still have much more to do to extend to everyone, in every community in every part of our country, the opportunity to start and grow a business. The start-up rate in our poorest regions is only one sixth of what it is in the most prosperous parts of the country. In the north-east, gross domestic product per head is only half what it is in London, and business research and development is only one tenth of what it is in the south-east.

Mr. Peter Duncan (Galloway and Upper Nithsdale)

Will the Secretary of State give way?

Ms Hewitt

No, I want to make progress. In the north-east and other regions where business start-up rates are low, we need to ensure that we increase our efforts to support potential entrepreneurs and ensure that they get the help that they need to help grow businesses that will generate wealth in their regions.

We also need to reflect on the fact that the Global Entrepreneurship Monitor has found that we do better than many other developed countries in terms of our start-up rate—[Interruption.] I do not know what I have done to attract this fly. It is obviously very pleased with something that I have done.

Mr. Peter Duncan

Will the Secretary of State give way?

Ms Hewitt

No. I am conscious that other hon. Members want to speak and I want to make progress.

Although we compare well with most other developed countries in terms of our business start-up rates generally—and the rates have improved under Labour—we do not do well when it comes to entrepreneurship among women. If women were able to start businesses at the same rate—if they were able to find it as easy to get funded as men—we would have an additional 100,000 new businesses every year. The same applies to some of our minority communities. For example, start-up rates in the Afro-Caribbean community remain low. Too many of our minority entrepreneurs still find that they cannot get the finance that they need, on the terms that they need.

We have business links and the learning and skills councils working much more closely with the regional development agencies to strengthen the economic development strategies in their regions. We are working with organisations such as Prowess, the women's entrepreneurship support network, to ensure that the potential women entrepreneurs all over the country get the opportunity that they deserve.

Much has been done, but much is still left to do. However, we must not understate the achievements of this Government. Above all, we must not run down our great British business. I am proud of the 2.5 million new businesses that have started in Britain since 1997. I am proud of the 107,000 new businesses that started in the first quarter of this year—up 12 per cent. on the same period last year, despite the economic downturn. I am proud of the fact that we have the best survival rates, economic environment and regulatory framework for small businesses.

We in this House should be proud of our small businesses. We should celebrate the work being done by the Government and the public sector in partnership with the private sector to support those entrepreneurs, and I commend the amendment to the House.