HL Deb 21 February 1973 vol 339 cc133-48

2.55 p.m.

LORD STRATHCONA AND MOUNT ROYAL rose to call attention to the Bolton Report on Small Firms; and to move for Papers. The noble Lord said: My Lords, as one who has had some considerable associations with a number of small businesses over the years, I feel that the amount of public notice which has been attracted by the Bolton Report has not been commensurate with the importance of a subject which affects the future life of this country, both socially and economically. The Report itself says right at the outset: To ask whether there is a future for the small firm is tantamount to asking whether the future of private capitalism as we have known it in this country is threatened. So far as I personally am concerned, I particularly welcome the Report as a document which adds credibility and support to a long-held intuitive prejudice of my own, that bigness is not necessarily an advantage in business—bigness is not necessarily better. Incidentally, the Report itself points out that small firms taken across the board produce a higher return on capital than the larger companies do.

This is not, I think, a Party issue; at least, I hope it is not. This Report was commissioned by Mr. Crosland and the Labour Government, to their credit, and has been acted upon by this Government, though, as I shall say in a moment, I hope they are going to do rather more to implement some of the recommendations of the Report than they have done so far. The Report starts off by demonstrating that the aggregate contribution of small firms is not small in itself. We are talking about 1¼ million businesses, employing some 6 million people—that is about 25 per cent. of the work force of this country—and they are producing about 20 per cent. of the G.N.P. The Report goes on to say that it excludes the agricultural and horticultural areas, and it also excludes the professions. The Committee go to some length to try to define what they mean by a small company. This is clearly a very difficult thing to do, and they felt it necessary to make those exclusions in order to encompass the very wide field they had to consider.

The overall message of the Report is regrettable and it is clear enough: in spite of the contribution made by the small firms to our economy, they are declining both absolutely and relatively, and the decline in the United Kingdom is faster than it is in any other industrialised country. The Committee then say that the decline is due, at least partly, to a hostile environment, and the Government contribution to this hostile environment is a real one, though it derives more from ignorance and insensitivity than from a conscious desire to persecute the small firm. Therefore, the Report says, it is urgent to establish a channel of communications between the small businesses and the Minister responsible for them and to give the small firms a spokesman who can put their case where it is going to be acted upon.

Having said that, I do not want my remarks to be misinterpreted as some kind of Poujadist attack on big business as such. I dare say that in this House we have more than our fair share of tycoons present; indeed, possibly that accounts for the fact that we have a relatively small number of speakers in this debate to-day, and I confess to some disappointment. We have to recognise that there are certain industries, notably industries like the motor industry and the aircraft industry, which demand large-scale organisation to undertake that kind of work. I would remind your Lordships that in an heroic period in this country we were scornfully described as "a nation of shopkeepers", but Napoleon went on to have to eat his words in the end.

May I turn to comment in slightly greater detail on one or two of the recommendations of the Report and the Government's reactions to them. First of all, we must welcome the appointment of the Minister. It is a pity that very soon after his appointment the particular Minister appointed was changed, but at least the appointment of a Minister shows the Government's seriousness of purpose. One reason why I personally thought that it would be useful to have a debate in your Lordships' House on this point was that the Minister was having difficulty in getting it through to the small businesses that he had indeed arrived, and that the Government had recognised the need for this appointment. The Minister himself apparently recognised this point, because in a reply to a question in a debate in the other place in June last year he said this: It is disturbing how many people, even small firms, are still not aware of the work of the Bolton Committee and the action that the Government have taken to improve the environment for small firms. Small firms are in no sense a minority or a specialised subject; they are a vital economic concern.

Of course, as with Oliver Twist, the small businessmen having got their Minister, they want more. The only way for the Minister fully to convince the small businessmen is to become exclusively their spokesman, fighting their case in this large Department of Trade and Industry against the much more vocal and influential voices that can be deployed by the larger segments of industry. However, for their part the small businessmen have a problem. This the Minister himself was very quick to recognise. The trouble is that there is no one acknowledged body speaking for small firms.

The Minister held a conference in November to which some 14 representative bodies were invited. I think that from that approach the Government are really entitled to say to the small firms, "Well, you set up the one body that can talk to this Minister, and maybe we will consider giving you a Minister to listen to you". But one of the problems precisely in the nature of the small businessman is that he is a compulsive non-joiner. He is also preoccupied with the very wide span of concern that he needs to have with every detail of his business. He is particularly preoccupied, and it is difficult for him to get away and serve on representative bodies. A direct consequence of this is the problem of trying to find the central organisations that can speak for the small businessman. This has been emphasised by some recent letters. Somebody suggested the imposition or creation of another body, a confederation, to speak for the small businessman. Letters in The Director indicated the sort of resistance there was on the part of some people to that kind of proposal.

Having referred to The Director magazine, which is the mouthpiece of the Institute of Directors and on whose Council I serve in an honorary capacity, may I say in passing that that organisation pinpoints the problem that exists in the small business field. With 40,000 members, the Institute of Directors must represent a large number of small firms; but the plain fact is that the Council positively bristles with tycoon names of national importance, and they are there to add prestige and weight to the deliberations of this body. But inevitably as a result of that, the small businessman will feel that these people may speak less than they might do in the interests of those whom he would wish to be represented. Bolton himself said that Government policies have not been formed with the interest of small firms particularly in mind; and this is the question that we want to return to. I would suggest, therefore, that possibly the Minister might consider a way of assisting the small firms to set up a representative body; perhaps they could see their way, for instance, to matching pound for pound the contributions that the small bodies might make towards setting up a central organisation with central headquarters.

Bolton was also at great pains to emphasise that small firms should not be looking for privileges; they should merely seek to mitigate the discrimination, which is not usually even deliberately contrived against them. Bolton saw no reason to exclude small firms from the four criteria that he laid down to be met before the Government could reasonably be asked to supply a subsidised service for industry. These four criteria were, first, that there should be a need for the service; secondly, that private enterprise would not, or could not, provide the service; thirdly, that the service must be capable of producing a national economic return; and fourthly, that the users were not in a position to pay for the service. Having said that there was no justification for providing services for small businesses particularly, Bolton then went on to suggest that advisory bureaux should be set up, and these have emerged as Small Firms Centres. They have received a very dubious reception because of the natural suspicion of businessmen towards the creation of yet another expensive organisation staffed by civil servants, who they feel—I think with a good deal of justification—are inherently incapable of understanding the small businessmen's needs. Indeed, on the whole, these Government organisations have a fairly unhappy track record, if I may use the modern jargon.

My own misgivings about the Small Firms Centres arise from the insistence on what they call their "passive role". This is liable to emasculate the effectiveness of these organisations from the very outset. If they are to serve the purpose that the Minister has said he wishes them to, as a channel of two-way communication from the Ministry and back up to the Ministry, they need to be able to reach out into industry. I would therefore suggest one or two additional functions to what I understand to be the original concept of the Small Firms Centre.

The first function concerns the question of credit taken by large companies from small companies. At page 183, Bolton, rather to my surprise, says that there is no great difference between the credit taken by large and small companies. I can only say that my experience in the engineering industry simply does not agree with that statement. I have seen (particularly in periods of credit squeeze), the most outrageous bullying by large national concerns, whose names we could not mention here to-day, of small companies, knowing perfectly well that the latter are in no position to react. The difficulty is that if the small firm tries to do anything about this, they are liable to be penalised by withdrawal of business on the part of the big company.

It therefore occurred to me to suggest that possibly the small firms might refer to the Small Firms Centre when they experience this kind of activity. This is a slightly cumbrous way of proceeding, I admit, but the Small Firm Centres could send their information up to the Minister, and if the Minister received more than one report concerning one particular company, he could write to that company and ask whether indeed it was the policy of the company to act in this way. I should have thought that normally this would have been quite enough to discourage the company. The advantage, of course, is that there is no need for the particular firm making a complaint to be mentioned. If the trouble persisted, I see no reason why the Minister should not elect to publish the fact that this kind of complaint has been made about the specific company. Indeed, it seems to me that at the end of the day it would be possible for the Government to say that they would introduce a discounting system for the bills of the small company on the large company, and charge the big company an exorbitant rate of interest for the service. But I am no banker and that course may be totally impractical. However, I am quite sure that this is a trouble which is widespread—and a number of your Lordships appear to agree with me—and I certainly do not accept what the Bolton Report says about the matter.

The second function is a more difficult one. On page 119, Bolton makes a plea for the banks to provide a better service to small companies. I recognise that the banks are in a difficult position here, in that it is probably true that lending £10 million to a large company creates very little more work than lending £10,000 to a small one. Furthermore, you will be dealing with a more understanding accountant in the large company. What is evidently required are some kind of simple cash flow and monitoring arrangements to aid the bank in considering applications, and we want to get away from the bank looking simply at the underlying security of the company to whom they are to lend money. This point was made in the Accountant magazine in June, 1972, which stated: The role of the small firms advisory bureaux could be useful indeed: it could be extended with great effect into active administrative assistance". It went on: If such services could be supplied on a short-term loan basis, there might be more interest shown. What I am asking is: could "signposting", which is the declared purpose of the Small Firms Centre, be extended to detailed advice and assistance in raising and retaining bank credit? Perhaps a fee could be charged for this service, which could be repaid over a period of, say, three years. Again, this seems to me to be a pump-priming operation in which the new Minister might reasonably be able to indulge.

Thirdly, just at this moment, more than ever before, assistance is badly needed by small firms in interpreting all the maze of Government regulations which are descending upon them every day. The combined impact of V.A.T. and the freeze legislation means that even firms with quite large organisations, and with ready access to legal opinion, are quite unclear as to what kind of charges they are entitled to make under the new legislation. I know of at least one firm which is unable to produce its budget for next year because it simply does not know what it will be able to charge for its services. If that is true of the larger companies, just imagine, my Lords, the dilemma that the small man finds himself in. I should have thought that the Small Firms Centre was an ideal vehicle for assisting the small man to find his way through these regulations, and to put over the Government's view as to what the regulations mean.

It is probably fair to say, as a generalisation, that "signposting" is of value only if one has a very clear idea of where one is trying to go; but at the present time a great many people are totally unclear as to where they are allowed to go. This, in turn, raises the whole question of paper work and form-filling which has cropped up both in the Report itself and in a number of articles and letters that have followed publication of the Report. The Report emphasised the undue and specially onerous impact on small businessmen where it is very often the boss himself who has to fill out the forms. It went on to mention the surprising dearth of information which exists about small companies. It was therefore a great relief to me to hear the Minister say that he is studying the possibility of sampling, and that he intends to refer any demand for information to the Statistical Office before sending it out—most particularly, to small companies. It is worth remembering that we get remarkably accurate results from General Election forecasts based on a sample that is sometimes as low as 2 per cent. of the electorate.

LORD ORR-EWING

They are sometimes wrong.

LORD STRATHCONA AND MOUNT ROYAL

My Lords, they are sometimes wrong, I admit. So the small businessman faces a fairly gloomy future in the next few months, knowing that there will be a cascade of paperwork on to his desk. Indeed, I feel that he may be mentally addressing the Minister in the words of an old prayer which is written up over my desk at home, which says: O Lord, I shall be very busy this day, If I forget Thee, do not Thou forget me. I do not intend to stray into all the fiscal measures which the Report has suggested and which the Government themselves have already enacted. No doubt the Minister who is to reply will remind us of some of the things they have already done. But I should like to mention one point concerning the very alarming impact of the new tax imputation system which will bear particularly hardly on small companies. It is significant that the letter addressed by the Institute of Directors to the Chancellor touched on a number of issues which are of special relevance to small firms. These are all more or less technical points: the raising of the lower limit of corporation tax; the pension disabilities of the so-called controlling directors; retirement annuity contracts for the self-employed; and the disallowance of share option systems for close companies. I can hardly expect the Minister to give us any clear ruling on these issues just before the Budget, but I hope that he will go so far as to say that he will at least represent these points to the Chancellor.

The Bolton Report identified eight important special economic functions of the small firm, and then went on to summarise them in these words: The real issue is: what part have small firms to play in preserving a healthy industrial structure and in creating the kind of society we want for the future? Then, in another part of the introduction, the Report stated: Without small firms this country would be an infinitely duller, poorer and less happy place. Fortunately the economic arguments alone are powerful enough to establish the need for an active small firm sector. Then at the end, summarising the recommendations, the Report stated: Benign neglect is no substitute for a policy. So I hope that the Minister will be able to reassure us that the Government indeed have a forward-looking policy, following the good start which they have already made. My Lords, I beg to move for Papers.

LORD AUCKLAND

My Lords, the House will be very grateful to my noble friend Lord Strathcona and Mount Royal for having given us the opportunity of discussing this very important Report, and tribute is due to Professor Bolton and to those on his Committee. I do not claim anything like the same experience and knowledge as my noble friend, because my own business career has been in commerce as opposed to industry. But I have one small interest to declare as a director of a small firm of management consultants. The role of management consultancy is dealt with on page 121 of the Report.

My Lords, the climate for small firms at the present time is a rather gloomy one for obvious reasons, many of which were instanced by my noble friend, but I believe that as time goes on the need for small firms and the expertise which small firms can give will be more generally recognised. Ironically, the company of which I am a director began carrying out management communication work with the medium and small-sized companies because we felt that to approach the big companies was rather presumptuous, but we have in fact ended up by carrying out work for some of the major, "blue chip" companies of this country. I think this is the measure of the value which small firms can give. I rather regret in some ways that the professions are not included in this Report, because I believe there is a need for a look to be taken at small firms of management consultants and others, who I think provide a very valuable service.

This is not a question of lame ducks and of giving Government support merely because a firm is small. Basically, I think the question is as to what role the small firm plays in this country. We have been described as a nation of small shopkeepers. Indeed, in these days of supermarkets everywhere one might be tempted to wonder: How true is this? How many small shopkeepers are there? Are we going to be run by the big combines, so that we can no longer get our tin of peaches from the village shop? Fortunately, some of these small shops still exist, although conditions are not entirely easy for them. To give an example of one firm, which I will not name but which is situated in the Highlands of Scotland, in the Moray Firth, it makes foodstuffs of various kinds and began in Victorian days, when the gamekeeper's wife prepared soup for the shooting parties. That firm has expanded, and it is now, relatively speaking, one of our greatest producers of export goods, particularly to the United States of America. It now employs, I believe, some 600 people, so under the terms of the Bolton Report I think it is still technically regarded as a small firm.

Here is an example of a company which started, literally, by employing a handful of people and which has now become, as I say, one of our greatest producers, relatively speaking. How many more small firms are there like this, which go unrecognised? I think there is a need for more publicity to be given to what these firms do, either through Chambers of Commerce or other organisations, or even through the Government's own publicity services. My Lords, one of the greatest needs these days is for good communications, whether it is communications between management and the shop floor or whether it is between the customer and the retailer. Here again, my Lords, it is the small firms who have such a vital part to play. A small company cannot afford to let its customer down, even if some of the big combines may occasionally say, "Well, you will just have to wait for this service; we have not got enough people available, or we just have not got time". If a small company did this, they would soon be out of business.

May I now turn to a point which the Bolton Report makes concerning small firms which have to be moved to new areas, sometimes development areas, when there is slum clearance—because many of these small firms are situated in areas where there is considerable clearance going on—and sometimes to New Towns or elsewhere. I am not absolutely clear as to the extent of the help which the Government are giving in this field, but I think it is very important that a small company, merely because it has to move on through no fault of its own, should be given whatever assistance is reasonable. Here again, my Lords, this is not asking for a subsidy: it is asking just for basic help so that the firm can resettle in its new area. Like my noble friend, I regret the fact that there are not more speakers in this debate, because there are Members on all sides of your Lordships' House who have had much experience in this field. I end by saying just this: that in this age of big combines, in this age of more mergers and monopolies which loom over us, it would be a very sad thing if the small firm went to the wall.

3.28 p.m.

LORD MOTTISTONE

My Lords, I should like to begin by congratulating my noble friend Lord Strathcona on introducing this subject to your Lordships' House at such a very opportune moment when the initial work of implementing what Bolton recommended has started, though, as I shall attempt to show, there is still a great deal more to be done. I should also like to congratulate the noble Lords opposite, whose Government saw fit to set up the Bolton Committee, but perhaps it is unfortunate that, in the end, there are no speakers from the Benches opposite in this particular debate.

LORD CHAMPION

My Lords, there will be.

LORD MOTTISTONE

And that lack of interest does not go only for the Benches opposite; it goes for our own Benches here. It is significant that part of the main message of Bolton was that people were not taking the interest in the small firms which those firms, as an essential part of the country's economy, deserved; and the lack of speakers in this debate is unfortunately an example of how that lack of thought, that lack of interest, still prevails. I should like to thank (though he is not in this House) Mr. Bolton for a splendid Report. I think he did a most remarkable job. He had to chart a fresh course over territory which had not been previously explored. He had to initiate many studies all on his own; and, indeed, he had to produce, in what may perhaps be thought to be a long time but which, in view of the difficult start he had, was really a short time, this compendious Report, in which he endeavoured to tackle all the main economic features that he was able to identify. I consider that he and his Committee did a first-class job, and I should like to think that this House would support me in saying that.

I should like also to congratulate the Government on the steps that they have taken so far; although I fear I shall have to go on to say that I think there is a great deal more to be done. No doubt my noble friend on the Front Bench will be telling us that they are going to do more. I hope that that will be the case. I should explain my own interest, which is that, as some noble Lords will know, I am the director of the Distributive Industries' Training Board. Because of that, I have a great deal to do with many small firms. Although, technically, the small firms defined by Mr. Bolton are not the ones on which we inflict our services if they do not wish for them, there are many other firms with whom we have a great deal to do and whose problems are identical to those examined in the Bolton Report.

My Lords, the one thing that I have learned during the course of the last four years is that the great strength of the small firm is in the independence of its management, owner, proprietor or whoever it may be. The great thing about the small firm is that it is independent and wishes to remain so. The very able people who run small firms could probably earn a great deal more money if they worked for somebody else; but that is not what they wish; and because of this they are not seeking—and I think Mr. Bolton made this clear—for subsidies, for support, for a great deal to be done for them. What they seek is to be left alone to get on and to develop their own resources, for this is to their best advantage and, in the end, to the advantage of the country as a whole.

Against that background, it is therefore difficult—and the noble Lord, Lord Strathcona, made this point clearly—to see what can best be done for them or with them. It is with that sort of beginning that I should like to address a few remarks to your Lordships. I shall not be addressing you for long, but for once, within the terms of a short debate and with so few speakers, it would perhaps be desirable to make a long speech instead of a short one.

The first point to make is that although the Government, by setting up a Minister specifically concerned with small firms and a Department within the Department of Trade and Industry, have made a very good start, this element of Government, when it comes to the crunch, does not seem to have the influence within the Government machine as a whole that one would hope it should have. It could be that this is because it is new; but I think that it is partly for the reason that my noble friend mentioned earlier. This is that by default—and Mr. Bolton mentions this—people generally do not think of small firms as being something they need to take thought for and account of in making their decisions. There are examples of this. Since the Small Firms Division has been set up, it does not appear to have been consulted about membership of the Consultative Committee on Company Law Review. One would have thought that that is the sort of thing that they could have been consulted about. Neither do they appear to have been consulted about British membership of the recently set up Economic Community's Economic and Social Committee. Matters of this sort, small in themselves, are examples of how, by default, the small businesses' interests are not taken care of, even when there is a section of Government to deal with them on their behalf. It would seem that the general thinking—and this goes not only for Government but for most people in what might loosely be described as the "Establishment"—is that big business is synonymous with business as a whole; whereas I think it can be shown that business as a whole is much more synonymous with small business, and particularly with private companies as opposed to public companies.

Of course, there are many more of them; but, as my noble friend said, they have a better return on capital than their bigger brothers and employ a substantial proportion of the country's workers. On the whole, making a broad assessment, it would be fairer if we—and I mean this House as much as Government—could train ourselves collectively, when dealing with business problems and practices and introducing regulations to deal with them, to think of the small business as being more synonymous with business as a whole. It may be that it is unfair to expect a radical change in approach by the Government—partly because, as I have just indicated, it requires a radical change in approach by us all and not just the Government—and particularly so at such a short time after they have taken the action they have to set up the Small Firms Division of the Department of Trade and Industry and its Minister.

However, I think it is true that the only proposals of the Bolton Report (apart from the actual establishment of this division) that they have implemented is, first, in initiating action to reduce form filling, which action, while very necessary and very much hoped for in itself, is not as difficult as might be many other things. After all, if you want to stop forms from being sent out, then, if you are the Government, you just stop them. The other thing that they have done is to start the information bureaux around the country. I should have thought that the bureaux might have just the right sort of balanced contribution to make that is intended; but I think it is very important that great care is given to their development.

My noble friend, in introducing this debate, said that he feared that because the bureaux were peopled by civil servants they would be viewed with great suspicion by small business. I can assure him that even when you are not a civil servant and are trying to help small businesses you are viewed with suspicion. To that extent, I agree with him; but I think that the great potential of these information bureaux is that they are not seeking to dictate; they are seeking to provide advice and help when called for. This would seem to me to fit better with the basic attitude of independence to which I referred earlier. But I believe it is important in developing their activities that they are given in time more "teeth" than is at present envisaged. I believe there is something here that we could learn from the United States where, I understand, similar organisations have the power to provide finance on a very generous loan basis to selected firms which are starting off in business. Furthermore, they take the trouble to make sure that the people who obtain these loans know what they are about before they get given them and are allowed to get going. That, in a gentle sort of way, in the sense that the loan would be forthcoming only to those people who ask for it (rather than to have it thrust down their throats) would be the sort of thing which could be developed in this country.

Apart from that, I think that the bureaux would have to find their way by learning what people want to know before they establish what they are going to give them. It may sound very simple, but I have had experience of this and I know that when you are trying to provide an advisory service for people, which is effectively what a training board does, it is very easy to say, "Oh, yes, you all need that, so we will force you to adopt it." Whereas in practice the better way is to say to people, "What do you need?" and then develop the work that you do for them on the basis of what you have discovered they need. I think that these bureaux need to tackle the problem from that point of view.

These really, my Lords, are all beginnings; they are not the end in themselves. What we need, as I think Bolton identified, is a framework to help the small businessman to develop his own enterprise to the best advantage with minimum interference, not only for his own benefit but also for the benefit of the country as a whole. We need more positive action, for example on taxation; this was touched upon by my noble friend. An example of this is that representations have been made by the Smaller Businesses Association to the Chancellor to show that the proposed increases in corporation tax would have the effect of reducing still further the ability of firms to plough back profits into developing their businesses. It almost seems at times as though regulations are framed mainly to restrict those who might cheat rather than to provide incentives for the development of their businesses by the vast majority who are only too keen to get on and do so.

To sum up, my Lords, Bolton has charted a splendid course. The Government have instituted the beginnings of machinery for following his track, but so far the effort has not captured the imagination of Government Departments as a whole, or indeed of other elements of the Establishment. What we now need is a massive effort to put energy into the machine and to get an understanding of the needs of the small business—which is accepted generally as essential to the life-blood of the country.