§ Debate resumed.
§ 3.40 p.m.
My Lords, reverting to the subject of the debate so ably introduced by the noble Baroness Lady Sharples, and so well supported by the two previous speakers, I shall try to keep myself within the time limit laid down by the noble Baroness. Therefore, I want to confine myself to making only one point. That point T made, in fact, in a debate on 7th November. It was a long debate running to a fairly late hour and I was not able to stay until the end of it so that the noble Lord the Minister (who is not the Minister down to reply to us this afternoon) was able to avoid giving me an answer.
I want to raise the point again and look at it from another angle. It is the problem 457 of VAT for the small business. I do not think that many of us realise how small a business can be to be involved in having to collect and pay over VAT to the Customs and Excise authorities. At the moment, the turnover of that business has to be less than £10,000 to avoid paying or getting involved in this exercise. Just to give you an example, I look after the accounts of a small corner shop which now has a turnover of just over £100,000 in a year. But I should be surprised if the profit that comes out of the turnover of that shop is more than £5,000. A profit of £5,000 for a sole proprietor is less than that of a wage-earner earning £100 a week. So we are really looking at very, very small businesses which are involved in the collection and payment of VAT.
The total number of those businesses from the last statistics that are available, which was in the Customs and Excise annual report for 1977–78, amounted to just over 1¼ million. The Revenue obtained a net collection of some £4,200 million from those one and a quarter million businesses. Of those businesses, over one million had a turnover then of less than £100,000 a year. Between them they raised only a net revenue of some £320 million. I realise that to raise the lower limit of the VAT threshold too high is going to change the nature of the tax; but it is a nonsense that this situation should apply at the moment. I am speaking of 1978 which was before VAT was increased to 15 per cent.
At the lower limit of the businesses with less than £20,000 turnover in the year—and that is a very small business indeed—there are some later figures which were given in a Written Answer in another place last October. That showed that there are some 375,000 of such businesses which between them raised a net £25 million for the Revenue. The cost of collecting that revenue from those businesses appears to be £25¼ million, so that there are 375,000 businesses contributing a net loss of a quarter of a million pounds to the Government. My Lords, that surely is a complete nonsense and if the Government are unable to raise the threshold for VAT too high, I ask them to consider raising that threshold to at least £20,000 so that they do not continue to make a loss out of collecting this tax.
§ 3.45 p.m.
§ Baroness MACLEOD of BORVE
My Lords, like other noble Lords, I should like to thank my noble friend Lady Sharples for introducing a very important debate. That is already apparent. I for one am sorry that it is only a short debate because in such a short time it is difficult to draw attention to more than one or two of the problems which arise for a small shopkeeper. There are two distinct categories of small shopkeepers; the one which struggles to keep going in a town where every year more of the big stores are expanding and taking business and customers. His main worry is competition, the increased costs of employing a few staff, the increase in rates, the increase in National Insurance contributions and often the failure of wholesalers to deliver the goods.
The second category is the village shopkeeper. He is often the centre of the village. He performs an invaluable service for the community. In my local village the one shop stocks groceries, toys and stationery. The owner also stocks and delivers newspapers. He is also a sub-postmaster. Every week he, aided by his wife, works more than 70 hours. At the moment all sub-postmasters are worried about the possibility that social security benefits might be paid through banks. In the country districts this would not only he an inconvenience to the consumers, giving them extra expense in travelling to the bank, but it would deprive the shopkeeper of valued customers in that those who collect social security benefits often buy goods from that shop.
The problem that is common to both these categories is the failure of both Governments to implement their policy of metrication. Whatever our views on the metric system, it is a fact that since 1964 Governments have accepted that the country shall go metric in the interests of our survival in the world markets. Until, by order, the Government complete the change, small shopkeepers will continue to face the time-consuming and unnecessary work which is involved when dealing in both imperial and metric systems. The shopkeeper has to be constantly on his guard to check delivery documents from his suppliers. Some operate in metric, but some still operate in imperial. Some sizes and prices of packs are metric and 459 some are imperial. I do not suggest for one moment that a shopkeeper cannot cope with this problem; but it is an extra burden of work which adds to costs which will eventually be borne by the consumer. Until orders are laid to complete the procedure, consumers will be worried in case they are not getting value for money, and the small shopkeeper might be discouraged from continuing his valuable service to the community. It was Napoleon who said that England is a nation of shopkeepers. I hope that the Government will do all in their power to encourage these shopkeepers.
§ 3.49 p.m.
§ Baroness PHILLIPS
My Lords, I should like to follow the noble Baroness. Lady Macleod of Borve, and refer to the question of the small retailer. I consider that we have the best shops in the world, whether we are speaking about large or small ones. It is not by accident that people travel both from the West and from the Continent in great numbers to come to our shops. We should be very proud of them. As the noble Baroness said, Napoleon, wishing to insult us, called us a nation of shopkeepers. In my travels I find that invariably the small shopkeeper is the backbone of the community where he has his small shop. I meet them all the time in social clubs, from youth groups to cultural groups. One realises the great contribution, mainly unsung, that they make to the community.
Various Governments have encouraged businesses of all kinds to take on more staff and then, when the employers take on more staff, they add an extra surcharge on the staff they already employ. The National Insurance surcharge, it seems to me, is really more like a poll tax so far as the small trader is concerned. It seems to me, too, that it is nonsense to suggest that small businesses, and particularly small retailers, should have to conform to the same legislative processes as the large public companies and the large public undertakings.
I happen to have the privilege of being one of the vice-presidents of the National Chamber of Trade, who put forward a very reasoned argument for the introduction of a different type of company, which would be known as "an incorporated limited partnership". I believe 460 they have already approached the Government on this and have had an audience. I hope very much that the Government are looking into it. I personally had the opportunity to set up a small trade association; and one observes how nonsensical it is that with a staff of three, one still has to employ someone to do the high-powered accountancy which would be exactly the same, I suspect, as that for the very much larger businesses.
Many of the small shops, in providing this service to the community, do, as we have heard, work on a profit which is so low that it is definitely less than the average wage taken home by a worker; and to pay rates of £500 a small shopkeeper would need certainly to take something like £3,000 worth of business. There must be some way in which we can get through the rating jungle. In my own high street in a London borough, I have watched, sadly, one after another, the small shops disappear, closing because of high rents, high rates, theft and all the other attendant problems. It is very sad to go along a high street in a London borough and see that each of the small shops now has to have steel shutters in front of its windows because of constant pilferage.
If the Government will put money, as they do, into large concerns to encourage greater efficiency, that in my book means a smaller number of people employed. The only sector left which can take up the mass of the unemployed is that concerned with small businesses, and particularly small retailers. They need all the encouragement that any Government can give them. It will be a sad day if the small man disappears. There will always be the elderly, the handicapped and mothers with small children who need desperately to use the small shop.
I would hope that we will remember that the United Kingdom is not a mass of conurbations. The more I move about the more I realise that, happily, it is still composed of a number of small towns; and small is beautiful. We create so many of our problems by our bigness; and I would therefore put in a very keen plea to the Government that they will look to the interests of the small retailer.
§ 3.54 p.m.
§ Lord ROBERTHALL
My Lords, I was at one time economic adviser to the 461 Government, and when I gave up that job I became adviser to a number of very large firms. But recently I have become the accountant to a one-man firm which is just going into business. If your Lordships will forgive this somewhat personal account, I give it because I think that anecdotal evidence—evidence from direct experience—is often more useful than a mass of statistics or generalisations.
The young man in question came from an academic background; all his relations had gone to school and university and then into academic or professional jobs. He did not care for that at all. He was very difficult. He got some casual work and then was on social security for a while. However, it transpired that he really wanted to run his own affairs if he could. He took a short technical course and then set up his own little busines to fill a gap which he thought could be filled. I ought to declare an interest: he is a connection of mine and I put up some of the capital, though I may say I do not expect any return on it. However, I am concerned.
The transformation in this man was very striking indeed. He became self-reliant, anxious to stand on his own feet—not like some of the people he knew, sitting around, drawing social security and expecting the Government to do something for them. He worked all night if that was necessary. He showed a great deal of enterprise and energy, and indeed all the qualities which I think this country wants so much. He lost money in his first year but is now beginning to build up his turnover and is just about in the black. But of course he has got to expand.
In front of him are a great many hurdles, the first of which the noble Lord, Lord Spens, has mentioned. He has to get his turnover up. He will soon be at the £10,000 level and at that stage he will need a more professional accountant and much more detailed records. Perhaps I should say at this stage that the only department he has seen so far has been the Inland Revenue. They were extremely kind and helpful to him, and I think it is a very good thing that that is the line the Revenue takes, because if it goes on like this he will begin to think of the department as a friend and not as an 462 enemy. I give full marks there to the Inland Revenue.
But the VAT people will not be able to do that. They are tied down and have to keep very rigid records; and a very great burden will be imposed on him. He will probably need professional accountancy and, as the noble Lord, Lord Spens, has pointed out in detail, it is probably at this level an expense to the Government: the present allowance has not even kept pace with inflation. This must be true of a lot of virtuous and industrious young people in the country who are in the same situation as this particular young man I am talking about. The next thing will be to employ somebody, and then he will get a fresh load of responsibilities to take care of. He will have to stamp cards, deduct PAYE, and so on. If one looks at the ladder going upwards in front of the small businessman, one finds a succession of things imposed on him by Government requirements.
I do feel so strongly in favour of what the noble Baroness, Lady Sharples, said—I think one or two other speakers have also said this. In other words, it would be a very good thing if there were a department, as they have in the United States, which is concerned with small business. It would be very good if one of the things they did was to examine these problems encountered by a young man or young woman in rising up, and see whether things could not be made as simple as possible with as little red tape as possible. It would be very helpful to see that the departments concerned with this sort of thing keep a lenient an friendly eye on them and give them the sort of help which I think the Inland Revenue was trying to give to the man I am talking about.
§ 4 p.m.
My Lords, I am delighted to have the opportunity of supporting the noble Baroness, Lady Sharples, who moved this Motion so well. I am also pleased to see that the noble Lord, Lord Lever, is in his place, because he stated:We must he careful that the Employment Protection Act is not turned into an Employment Destruction Act. If something is to be done for the pool of a million and a half unemployed, then small businesses are one of our best hopes … It is vital that we help small businesses to expand".463 He stated that in November, 1977, in the Sunday Times, and I think that he was right. This Act has done a great deal of harm to small businesses.
I want to talk about the decline of the rural areas, because this is a very important matter for this country. A survey was undertaken by the Standing Committee of Rural Community Councils in 1978, and it stated:Village shops are doomed and village life is dying".This echoes what the National Chamber of Trade has been forecasting for many years. It also stated that the quality of life in our villages, and also in town centres and suburban areas, will deteriorate if nothing is done.
In another report by the National Chamber of Trade, the Director-General said:The sorrow will be all the more poignant for knowing that we all share the responsibility, including reporters and feature writers".He added:If you wish to retain the services and the community interest of the remaining smaller businesses, what is needed is a bit more genuine support now by local people".In 1977, between one quarter and one-third of all the villages in Avon, Gloucestershire, Wiltshire and Somerset had no village shop. One of the difficulties is in getting adequate supplies, and another is the increased number of weekenders who, unfortunately, bring all their food and drink with them.
A leading political and economic planning research scientist, Dr. Hillman, said publicly that hypermarkets are a serious danger to local communities and should be opposed by planning authorities. Action can be taken. For example, it was suddenly announced that a wet fish shop had to close down and it was reported to me that there were then queues for fish. The owner stated that if only half the people had been regular customers, it could have been a thriving business.
I understand that there will soon be a difficulty in regard to sub-post offices. I believe that payment is made according to the number of units. For example, if pensions are paid weekly, there are four units per month. But now they are being paid fortnightly, so that there are only two units per month. The sub-postmaster 464 in one post office recently lost £8, while another made 50p profit in a month. I gather that there is now talk of paying through banks. How many villages have banks and how many villagers have bank accounts? Recently—and I agree with the noble Lord, Lord Oram, here—we in Wiltshire have managed to get a number of shops to collaborate with each other. For example, one shop will deliver for the butcher and bring all the other groceries. Furthermore, an off-licence has now been opened, so that instead of going 16 miles to get a bottle of whisky you can now get it delivered to your house, if you require one. This is a very great service.
I should also like to support the noble Lord, Lord Byers, in suggesting that local authorities should assist in providing adequate accommodation. They have quite a lot of empty shops, which they could easily let and make a slight profit. Also, it seems very unnecessary that electricity boards should have large shops in villages. They are not open all the time, they use a great deal of electricity and they take business away from local shops which are doing the same job. If you want anything done to your house it is no good ringing up the electricity board; you have to go to the local people to get it done. I suggest that careers officers in schools should be more helpful. In other words, there should be more teaching in thatching, plumbing, car maintenance and gardening for nurseries and interest should be stimulated in farming, carpentry, nursing and home helps. This would create more employment.
My final point is on tourism. The countryside is very much less expensive, as well as being very beautiful. But, regrettably, people come to London and very seldom have enough time to spend in the country. As prices in London have gone up tremendously, I should like to suggest that the Tourist Board makes a great effort to get people to go and stay in the countryside. From a great many places, you can get to London in a day, see the sights and then go back. This would give a better understanding of the British people, because London does not represent the British people and countryside. England, Scotland and Wales do.
§ Lord PARRY
My Lords, as the noble Baroness is about to sit down, may I 465 ask whether she is aware that the Minister for Wales made a very welcome Statement on the importance of tourism? It is essentially an industry which attracts the activities of the small businessman and, in fact, the big businesses in tourism are small businesses in the Government terms.
§ 4.5 p.m.
§ Lord LEVER of MANCHESTER
My Lords, we are all very grateful go the noble Baroness, Lady Sharples, for enabling us to have this most rewarding debate. I am a little embarrassed to pay that tribute, in view of her overgenerous comment about the small amount of work that I did in trying to overcome the lethargy and indifference in Government Departments, which over a long period has been their habit.
One thing is absolutely clear. This country is missing out in the small business area. Until recently, the view was widely held that the small business area was some residual, unimportant relic of olden days which would finally be squeezed out of existence altogether. In fact, the small business area is potentially the most rewardingly dynamic area in the whole economy, in a period of accelerating world economic change. They have the adaptability, versatility and tendency to innovate which meets the challenges and responds to that change. No small part of our failure in Britain to be sufficiently responsive to the remarkable economic changes that have come about in the world in the postwar period, is due to our neglect of small businesses and our attitude, and the attitude of Governments, towards those businesses. At the heart of that attitude of Government is the kind of absurd notion, when Governments are legislating, that they are legislating for GEC, ICI and concerns of that kind. They virtually never, in their administrative and fiscal legislation, take into account that there are hundreds of thousands of small businesses and millions of their employees who have to work complicated legislation which has been imposed upon them, without the financial and departmental resources of those vast 466 concerns. That is why you get problems in all fields and some have been mentioned today. I know that VAT was mentioned, and I am sorry that I missed part of the noble Lord's speech.
I was able, during my period, to persuade them to halve the number of questions that had to be filled in, and triumphantly announced this advance in the other place. Of course, nobody was alert enough to point out that what I was announcing was that for several years we had been asking twice as many questions as were really necessary, since we have survived with great fortitude the diminution of questions that was then inaugurated. That goes along the whole field. Idiot requirements to provide mines of useless statistical information at ludicrously over-frequent intervals are imposed upon the ordinary small businessman, and he is even more bewildered when he gets some of those forms than he is when he tries to fill in his football coupons. You have to see those forms to realise the total absurdity of many of them. This has to be cut down.
I accept the gentle tease of the noble Baroness, Lady Vickers, about the Employment Protection Act. I did, in fact, warn that the splendid purposes of that Act, which I fully endorse, must be tailored to the needs of small business as well as big business and, without diminishing from our purposes, let us make it possible for small businesses to maintain high standards in employment protection, without deterring them from taking on labour. I am sure that this is possible, though within the confines of this debate—and the speakers so far have a devastatingly good track record in keeping to the timetable—I do not want to go into too much detail. But we can do more in advisory services and in simplification of legislation, without prejudicing the very fine purposes behind it.
One of the great difficulties which has arisen from this indifference of Governments is that they have, without intending it, choked-off the flow of the crucial investment funds which are required for small businesses, because the crucial investment funds are the equity capital, and those come from people with local knowledge, family connections and association of interest. They are not forthcoming, mainly because the Government 467 have given tax advantages to the institutions and, I may add, to themselves, in the form of tax-free gilt edged bonds which make it far more attractive for people to put their savings into Government bonds or into institutional arrangements of varying types of ingenuity, through insurance companies and the like. I do not want to take these away, but I insist that if you want a healthy small business sector, properly supported in its equity capital, you must give it the equivalent of the tax advantages which have been given to the flow of funds into Government and into the large institutions. That is not difficult, and strangely enough it is not very expensive. One could relieve small businesses of all capital taxation, which produces a trifling amount of money.
For example, there need be no capital gains tax on equity investments in small trading firms and no capital transfer tax on shares in small businesses, certainly not until the businesses are sold so that this could not in any circumstances he a burden on those businesses. It would be no burden upon ICI if I happened to die, leaving a great number of ICI shares, and if the Inland Revenue seized an excessive share of those funds. ICI could not care less; at least, I do not suppose that they would care very much about it. It would not trouble the business. If, however, I died leaving shares in a small family business, it would matter a lot to that business. This has never been recognised, and I am sorry to say that it is less recognised by some of the spokesmen for the present Government than it was by their predecessors. So we can deal with that, too.
Turning to the loan fund question, our branch banking services are remarkable, compared with those of any other country in the world. They are led by the Governor of the Bank of England who has encouraged them greatly in this area. In many respects they are trying to bring their attitudes up-to-date. I said that they are led by the Governor of the Bank of England, but in fact they are led by his eyebrows. He has no power over our joint stock banks, but he has a great deal of influence.
The Governor of the Bank of England has encouraged the banks and they have responded by increasing their interest advisory services and loan facilities to 468 small businesses. This is not always received with total admiration by all applicants. Creditors are notoriously less avant garde in their monetary notions than debtors. Therefore the banks sometimes fall short in their response to the more romantic expectations of their customers. However, I believe that they are doing a very good service. The weakness is not so much at the loan end but at the equity end, and that weakness can be remedied only by a fiscal change.
Some of the existing public agencies are doing a very good job. In particular, I would cite CoSIRA. On a little money CoSIRA has provided great numbers of jobs, with negligible loss. I should like to see that experiment extended. CoSIRA might very well be asked to do a prototype effort in the town areas. They are restricted at present to the country areas. We might give them encouragement.
On the question of the more generous subsidised lending schemes. I am sorry to depart a little from the noble Baroness; she is somewhat to the left of me on this question of grandiose schemes using public funds. Alas! we have a shortage of public funds, and we have to make sure that where we give them they are effective and good value for money.
I must confess, too, that I am of the Macaulay school. I prefer an acre in Middlesex to a principality in Utopia. Incidentally, it is a pity that Lord Macaulay did not say this: I think it is harder to come by that particular acre than by the great principalities in Utopia.
I myself, therefore, favour very practical, immediate, pragmatic efforts to encourage our small business people. I think that the reward will be not only an economic reward but also a political reward—not in the party political sense but in the fibre of our nation. It means that you have hundreds of thousands of small businessmen—sturdy, reliant, independent and creative—and millions of their employees in an intimate relationship with them. This is not always possible in our great factories. I believe that from that you have a seedbed of great talent not only in the service of industry, not only in the service of our economy but also in the service of the Government and the people of our country.
§ 4.15 p.m.
§ Lord ENERGLYN
My Lords, I do not think that we can extend too strong praise to the noble Baroness for bringing this subject into your Lordships' House at a time when the country is being bewildered by political warfare and also smothered by the blankets which we have heard so vividly described by the noble Lord, Lord Spens—for example, the paperwork invented by the bureaucrats. It is in this kind of arena, as I see it, that from an embryonic condition the small businesses have to try to emerge and come to life.
I should like to deal with one point which the noble Baroness made; namely, that these firms—as the noble Lord, Lord Lever of Manchester, pointed out—have not received adequate credit for what they do to the economy of this country. Small businesses have always underpinned, and always will underpin, the economy of any country. Before the war, this used to be the case in Britain.
It was customary then to see "Made in Birmingham", "Made in Sheffield". What do we see now? We see "Made in Bangladesh", "Made in Austria", "Made in Germany", or wherever it may be. Small businesses have emerged from these countries and they have planted their products upon us. Therefore I should like to say two or three words about recognition of these small enterprises.
Small enterprises have to fight their way into the market. We ought to recognise this. Also, we ought to recognise that in doing so they are taking their courage in both hands. Therefore should we not extend to them honours—for instance, through the wonderful Queen's Award to Industry and through the awards of the Association of Independent Businesses? Why should we not go further and denude the Honours List of the names of civil servants who are being rewarded only for doing jobs which they are adequately paid to do?
These apparently flippant observations have great commercial value. A person or firm who has had one of these awards from his country is recognised abroad as someone of substance. Therefore, his entrée into the market is made much easier. So it is not really a flippant point 470 of view; it has substantial commercial value.
The second point I should like to pick up is entry into the marketplace. It is easy enough to manufacture a product from a bright idea, but without resources it is difficult to market it. No small business can hope to expand overseas if it has not got its feet firmly planted in the home market. To illustrate my point, I have in my hand two empty matchboxes. One of them is entitled "England's Glory"; the other is entitled "Traveller's Fare", and it has upon it the insignia of British Rail. Every match in the "England's Glory" box ignited first time, and not one of the 49 traditional matches broke. But not one of the matches in the "Traveller's Fare" box ignited first time, and one in eight snapped, which clearly indicates that British Rail are selling boxes of inferior matches Where does this box come from? It is printed, made and filled in Austria. This is just one example. I could recount dozens of examples where this simple act is denying the market to British manufacturers.
My point is that in every facet of our life we should try to convince—you cannot pass laws to do it—the public that the quality of British goods can once again resound throughout the world. We used to say quite safely and confidently "British is best".
§ 4.20 p.m.
My Lords, like every other noble Lord who has spoken, I should like to thank my noble friend sincerely for introducing this very important debate, which I have found extremely interesting, particularly the noble Baroness's own speech and what she had to say about the United States of America. I want to confine my few remarks to the small manufacturing firm; and I take as my criterion the definition that was given it by the Bolton Committee on Small Businesses when they reported in 1971, which was a firm of fewer than 200 employees, a firm directed and managed by the owner and with little equity capital.
If we look at this field of manufacturing industry we find that it and the large industries are absolutely interdependent. 471 That is a very important matter. After all, the small firm can be much more adventurous and aggressive in its innovation, in its design and in its competition. It is a very important source of high technology specialised goods for the major industries themselves. They rely upon such firms. It is very much better able to have short runs in its production and therefore it can have greater variety in what it produces, to the benefit of its customers. It has more intimate labour relations because, of course, the small firm is much more labour intensive and the evidence is quite clear that with small firms there are far fewer disputes and therefore there is more steady working.
With those advantages, where do we go from there? The noble Lord, Lord Byers, referred to its value in the inner city problem. I entirely agree with him, but I believe also that the small manufacturing firm has tremendous value in the rural areas because today we have here excellent schools producing highly skilled and ambitious young people. Where are they to find work'? Unless we have something that will exercise and challenge them in the country they will drift away and in time the local rural communities will disintegrate, which would obviously be a disadvantage to all of us.
With all those advantages for the small business firm, how is it that we and our Western competitors have had such a reduction in the number of our small firms? The noble Lord, Lord Lever of Manchester, referred to this, but, to give a figure, between the mid 1930s and the mid 1960s our small firms in the categories I am speaking about were more than halved—much more of a reduction than in other firms in West Germany, Japan, the United States, France and so on. But, fortunately—and I have no doubt that the noble Lord, Lord Lever, has great responsibility for this—the climate is greatly improving and there is a recognition of their importance. Today this field of industry represents something like 20 per cent. of our gross national product, and it is of interest that, so far as I can see, they have earned some 50 per cent. of the Queen's awards for export, which is tremendously encouraging.
So what are the problems? The two areas of problems that I have identified 472 are similar to those identified by other noble Lords—one, finance, and the other, regulations. I will say very little about the provision of finance because other noble Lords have covered the matter very well and I can support everything that has been said, but I should like to say a word about taxation and particularly capital taxation, because that is important. I say that it is important not in the way that one often criticises high taxation and wants it to be reduced in order that one may place a carrot in front of the individual concerned. I say it not for that reason, but because what we need in these small firms is continuity—continuity for planning, continuity for direction, and therefore greater confidence for the future in the small companies.
I shall not say any more about finance but I want to say a few words on the question of regulation. Industry as a whole has to work, may be rightly, under a great many regulations: health and safety at work, employment protection, planning statistics, and so on. Small firms simply do not have the specialists to deal with these matters. There are agencies which help. I think the Department of Industry has a small firms division counselling service, but what we want the small firms to direct their specialising ability to is not these ministry matters, but to put their efforts into design, into invention, into research and into production. That effort on their part must on no account be blunted because, if it is blunted, then half the reason for their very existence would be done away with.
Therefore, I make two suggestions. As regards regulations under existing legislation I would suggest that perhaps there may be room for a more sympathetic application of some regulations. As regards new legislation, I should like to see a more penetrating look at the cost involved. When most Bills come to Parliament the Explanatory Memorandum at the beginning says that the cost to the Exchequer will be little or nothing, or so much. I should like to see some reference as to what is the likely cost of compliance with the regulations to the firms which are going to be affected. I do not know how difficult that would be, but I think it is an important matter which should be looked into. I believe that many of us are preaching to the converted—at 473 least I hope we are—and I look forward to hearing what my noble friend has to say in reply.
§ 4.28 p.m.
§ Lord GISBOROUGH
My Lords, there is a strong relationship between the financial strength of countries and the number of small businesses per thousand of the population. Yet Britain has some 30 or 40 per cent. fewer firms than France and West Germany and the rate of new firm starts per thousand of the population of Britain is one of the lowest among the developed nations and only a third of that in America. The rate of decline of small firms exceeds that of other countries where Government action has reduced that decline. In America 88 per cent. of new jobs between 1969 and 1976 were provided by small firms: new firms created 80 per cent. of those jobs. The capital employed per worker in big business averages perhaps £400,000 against £20,000 in small firms, so that a given capital provides 20 times more jobs if structured to a small firm than to a large firm. Also these small firms have proved to be more efficient, to have better labour relations and to have been more competitive than their larger counterparts. Small firms employ 6 million people and involve hard work, long hours and great financial risk to their owners, who deserve high rewards after tax and every encouragement and the thanks of the nation.
At a time when large industries are shedding labour, new ventures must provide the base for the creation of wealth and the provision of extra employment which is needed, and nowhere is that more important than in the North of England. Small firms have many special difficulties, both in formation and running, which have already been mentioned. They are at a considerable disadvantage in raising equity and venture capital has become even harder to find, as in the past taxation has reduced potential providers of equity, which is the best means of finance for new businesses. Also, loans are more expensive and security requirements stringent.
In America there is the Small Businesses Administration Department, which guarantees loans for the financing of venture capital. Indeed Britain is one of the very few countries with no direct government guarantee scheme. For example, 474 Japan currently has £10,000 million lent to small firms. It is true that there is one British new town which is offering a guarantee scheme in conjunction with two of the clearing banks. Without adequate venture capital available a guarantee scheme of some sort is quite essential for this country. While some new firms will fail, those that succeed will become the medium firms of the next decade, providing the employment of the future. Otherwise, banks, if they will lend at all in start-up situations, naturally require their loans to be serviced even during the early period before sales and profits start to materialise. Furthermore, in the United Kingdom loans are made on the security of the value of the venturer's house and assets, which he will lose if the venture fails. It is surely better in the long run to finance a good venture than finance one just because it has the backing of a good home to lose. In Germany interest-free grants and loans have led to a healthy small firm sector of the economy and business failures have been offset by the successes.
Skill is one of the limiting factors in the growth of small firms in many parts of the country, and until the supply of skilled men can be vastly increased there must be restraint on growth in small and medium companies. No fewer than two-thirds of the companies interviewed in one study complained of shortage of skilled workers, and this is a field where the Government can help even further with training centres. The queston of skills is of course vital to firms large and small.
After skills comes the problem of business know-how. It is one thing to get a product made, another to organise the business side. The small trader often does not understand financial jargon and has little opportunity to learn. Yet where courses are run, such as the one at the polytechnic at Teesside in October, the course was overwhelmed with applicants. Schools should teach more business management and must help to break down the potential distrust felt by some sections of the public towards the enterprising entrepreneur.
Above all, the Government should set up an advisory service to help small firms in exactly the same way as A DAS helps farmers. The problems of large firms are soon known to the Government, but those of small firms can be undetected 475 until too late, but they would soon be brought to the notice of the Government by an advisory service. If Government cannot do this they could get the financial institutions to do the job, but it is not an effective alternative just to give out cash grants without increasing competence. Banks do have advisory services to help small firms, but the sense of urgency can be judged by the fact that one particular clearing bank has only one man to cover this field for the whole of the North of England and the whole of Scotland.
Time is a big factor for small firms. The bureaucratic delay in paying a grant may be enough to kill off the tender shoot of a new venture while large firms can finance that delay. Small firms need quick money and quick solutions. Banks can move quickly, if Government cannot, and it might be quicker and cheaper for the Government to use the banks rather than their own departments as a vehicle for helping small firms, backed by a Government guarantee scheme.
There is the matter of legislation and of form filling, and a reduction in forms has already been made. They are often difficult for company lawyers to complete and they are a nightmare to the small trader. Little wonder then that the take-up of grants which are available is small as people are just not aware of them and do not understand how or what to claim. There is room for more positive advice in simpler language. Perhaps a parallel may be drawn with the way some companies now present their accounts in simple diagrammatic form.
A further penalty imposed on the venturer into self-employment is that he gives up his pension rights, and a United Kingdom small business man cannot use foreign social services as an employee can. Why should a businessman bear this penalty for his initiative and his creation of jobs? Could this not be overcome by the Government?
There are other factors for study, such as allowing companies to buy back their own shares to encourage temporary equity holdings, elimination of capital gains tax on lifetime transfers, decrease of capital transfer tax, and revision of employment legislation. How often I have heard, particularly in the North 476 where I live, builders say that they could take on more labour and expand but prefer to stay small to avoid all the problems of employment protection legislation, dismissal legislation, unions and so on. Abolition of all that legislation would boost employment overnight. Also, product liability threatens to impose a severe strain on all companies and could do vast damage to growth and employment.
Finally, I turn to the North-East region, with its constant unemployment problem. There is compelling evidence that new firms are formed mainly by people who work in other small firms. Large manufacturing industry which predominates in the North-East has created its own problems in this respect, creating a low potential for the spawning of new firms by employees. Centralised management tends to remove management staff who might otherwise set up their own firms. In the short run large factories help employment but in the long term they tend to depress the rate of self-sustaining growth of small firms.
In conclusion, if these firms are to be encouraged, if wealth is to be created, and if unemployment is to be licked, the solutions must be radical, not marginal.
§ 4.36 p.m.
§ Lord DAVIES of LEEK
My Lords, the track record, as the noble Lord, Lord Lever, said, has been excellent. I will try, reluctantly, to keep to it. I wish this debate had been a full debate rather than a short one. Nevertheless, we are all grateful to the noble Baroness, Lady Sharples, for having raised this issue. With that quick sentence I have to leave the praise.
I would certainly agree with the noble Baroness, Lady Vickers, when she pointed to post offices and old-age pensioners in rural areas. I know of a beautiful village near Macclesfield called Wincle, where 90 people used to collect their pension. In this particular hamlet it was from the village shop, with a sub-post office. It has closed down and there is only a bus service twice a week to Macclesfield, and the difficulty for these old people in collecting their pensions has been increased. An organisation that makes £400 million in general profit should not worry too much when a rural sub-post 477 office is not quite making the grade on profit but is serving people who have served the country in rural industry and agriculture. I regret that nobody seems to check on this. I think the Government should look into the matter before sub-post offices in rural areas are closed clown.
Having said that, I would recall that under the leadership of the noble Lord, Lord Lever of Manchester, and Sir Harold Wilson, a committee was specially set up to report on the financing of small firms (Cmnd. 7503). Without going into that as deeply as I should like, this is of importance, and I would ask in passing if the spirit of that research is to be kept up by the Government now in power. The inquiry was set up in January 1977, to inquire into the role and functioning at home and abroad of financial institutions in the United Kingdom and their value to the economy; and one specific report, the one I have just mentioned, particularly spiked down the vital importance to small businesses of the financial institutions.
Then comes the reference made by the noble Baroness, Lady Sharples, to a change in the functioning of the Stock Exchange, making it simpler for investment into smaller businesses. With that overall broad canvas expression, I cannot go into details, but this is a well-informed House and noble Lords know exactly what I mean. Fifteen recommendations were made by that report, all of which are worthy of note. With that brief reference, regretfully, I have to pass on from that point.
I want now, in passing, to come to one favourite love of mine, and that is the Council for Small Industries in Rural Areas. This organisation was set up and it is a child of the Development Commission. There is a new report just about due, but I am quoting from the report of 31st March 1978. In speaking of the Council for Small Industries in Rural Areas we use the acronym CoSIRA. The Development Commission was appointed as long ago as 1909–10, so please do not think that we have dropped on a brilliant idea. It was brought in by that Welshman, David Lloyd George—my father knew him! The Development Commissions were appointed by Royal Warrant under the Development Road Improvement Funds between 1909 and 1910. Since those days people of all stations of the community have served upon them. Recently the Marquess of 478 Bute retired after doing marvellous work in aid of Scottish rural industry and Sir Jack Longland and others have done great work in that respect.
The constituency of Leek, which I used to represent, had nearly 3,000 farms—1,430 acres. It is well and assiduously represented, I am pleased to say, by a Tory Member at present. In Leek CoSIRA's role is, in the main, that of agent of the Development Commission which has set up various industries in the Moorlands. It has been done with the co-operation of the Leek and Moorlands' local council, plus an intelligent and constructive approach by Staffordshire County Council.
I am watching the clock and, regrettably, I must sit down in the next half minute. I hope that the Government will look closely at the work of the Development Commission, and I should like to mention the number of jobs that it has found in that area. Although the Government have threatened to cut back this work, which is being done under the chairmanship of my noble friend Lord Northfield, I hope that they will think again before they do so. Regrettably, five minutes have passed. I hope that the Government will ensure that CoSIRA gets a square deal.
§ 4.43 p.m.
§ Lord MONK BRETTON
My Lords, I put my name down on the list of speakers today because I happen to have served for a long time on one of CoSIRA's small industries committees—namely; the one in Sussex. In speaking today I am expressing my own views and not necessarily those of that committee. I also have a strong desire to encourage the Government as regards small business. So far they have made a good attempt to improve the general climate for business, which includes small business. All that I can say further—and I want to be encouraging—is that I trust that, if they go ahead as regards small business in the way that they have said that they would in their original election manifesto, then so much the better.
Having only four or five minutes in which to speak, first, I wish to convey that I believe, as a matter of urgency, that we should deal with the question of the express intervention in aid of small 479 business which is necessary. It simply must be dealt with urgently because otherwise there will be a long delay in getting it going. Too much water has gone under the bridge already and no more than can be helped should go under it now. I am absolutely behind what my noble friend Lady Sharples has said and what the noble Lord, Lord Lever of Manchester, said by way of support of my noble friend.
I wish to make a few comments about CoSIRA. Presumably CoSIRA, the Development Commission, and the whole gamut of small business support will already be under review by Government, and therefore change is contemplated. I wish to emphasise from my experience how important it is that CoSIRA's role should remain a rural one. It should not become an urban agency: if possible, it should be retained as a rural agency because it is vital that the countryside should have specific consideration. In these days local government is more urbanised than it used to be and it does not give that consideration as fully as perhaps is necessary. In that light it is worth bearing in mind what my noble friend Lady Vickers said about country areas—they have their difficulties indeed. CoSIRA under the wing of the Development Commission, which also looks after the rural community councils, has a very important role to play, and I think it would be a great pity to see it upset.
The other anxiety which I have at present concerns the current use of CoSIRA's resources. I am afraid that all business support organisations—wherever in the world—have their critics as regards this matter. However, the position at present is that CoSIRA loans are currently available for the CoSIRA development areas, Government assisted areas, and elsewhere only in what are known as "established pockets of need." That situation has applied since the cutback that was announced in December 1978, which produced a considerable amount of alarm and despondency in the approximate two-thirds of the country which were not in the CoSIRA development areas or the Government assisted areas.
Those areas which were excluded had never been excluded since the setting up of the Rural Loan Fund. I believe that 480 it was caused by a sudden increase in demand for loans. No doubt times were difficult, and that is why there was a sudden surge. However, I am not sure that the situation was as well managed as it might have been—it was certainly unfortunate. Therefore, there has been criticism. Of course, there is a school of thought that small business should be supported wherever it is, irrespective of other environmental considerations; in any case the impact upon employment is likely to be small until the firm becomes larger. Let the new businesses play their part in assisting employment later, as they grow, but do not deny help at the outset because the business is in the wrong area.
I think that perhaps the foregoing would not be entirely within the Development Commission's terms of reference, which are, after all, partly environmental. So, while recognising that there is increased need in the CoSIRA designated areas which would include, for instance, the hill country where matters are very difficult, nevertheless there are pockets all over rural England where there is trouble and where village communities are having difficulty in keeping going. Even in counties where employment may be fairly high overall, there may be villages within 15 or 20 miles of towns with high employment that will take a step back unless something is done. Such villages may well find that their schools have to close and that is the beginning of the disintegration of a village community. It is worrying to see this embargo. One very much hopes that it will be reviewed very shortly. I hope that Her Majesty's Government will keep a close eye on this and review it as soon as possible.
I very much hope that something will be done by way of guaranteed loans or, better still, by way of an equity scheme, to push this whole matter along, in which CoSIRA will doubtless share. Let us hope that progress will soon be possible and that the rather typically British period we have just had following the report of the Bolton Committee in 1971, of looking in one direction while progressing rather steadily in another, will now end.
§ 4.51 p.m.
§ Lord MONSON
My Lords, I, too, should like to thank the noble Baroness, 481 Lady Sharples, for giving us the chance to debate this extremely important subject. It is heartening to note how every quarter of the House, irrespective of politics, has been of one mind in this matter. I shall be brief as I want to concentrate upon only one point, on which the noble Baroness touched briefly in her opening speech.
So far the debate has tended to centre upon what Government should or should not do. Certainly there are all sorts of ways in which small business are hindered by Government policies, some of which have been mentioned by noble Lords: an astronomically high minimum lending rate, outdated company law, an excess of bureaucratic form-filling, the onerous provisions regarding maternity leave and other aspects of employment protection legislation, and so on.
However, it is not only the Government, of whatever political persuasion, who are at fault. There is another guilty party. Big businesses, or to be more accurate, a segment of big business, is also to blame for some of the difficulties in which small businesses find themselves. In this context I use the term "big business" to embrace not only private enterprise firms but also nationalised industries and Government agencies. All too often nowadays big business uses small business as a source of cheap credit. It does this by deliberately delaying payment of its suppliers' or sub-contractors' bills for months on end, in some cases for as long as six months. All too often when a small firm that is hit by this sort of practice objects, as understandably they tend to, a form of intimidation is used on the lines of, "If you keep on pestering us, we will start buying our components from another firm when the current contract expires".
The consequence of all this is that the small business either has to borrow at quite exorbitant rates of interest in order to keep its head above water or it sinks straight away. I submit that this policy, in which certain large firms tacitly indulge, is not only immoral but also extremely foolish and shortsighted; because the more rapidly small businesses vanish from the scene, the more certain it is that the political consequences will ensure that big business, or at any rate the private sector of big business, will eventually follow suit. Therefore, I would urge 482 the guilty firms—and thank goodness they are only a minority—to consider the implications of what they have been doing and to start behaving in a more considerate and responsible manner.
§ 4.54 p.m.
Lord WALLACE of COSLANY
My Lords, first, I should like to congratulate the noble Baroness, Lady Sharples, for having secured first place in the ballot, which I know somewhat startled her originally, but in the end it has resulted in a first-class debate. I should also like to congratulate her on her speech, which was clear, efficient and straight to the point and which has received a great deal of support from Members both behind me and in front of me.
This is self-denial day, or something to that effect, because I want to give the Minister adequate and ample time to reply to the many pertinent points that have been made. He may take note that we are waiting for answers. Concern about the well-being and future of small businesses is not the sole prerogative of any particular Government. The previous Labour Government had a good record in this field. The firms had a Minister in the Cabinet and it is a great delight that my noble friend Lord Lever of Manchester, the Minister who was in the Cabinet, was able to speak today. All of us acknowledge and admire the work that he put in. In addition, he was assisted by a nominated junior Minister responsible solely for small businesses.
I shall not deal too much with manufacturing businesses, but the noble Baroness made a number of points with which I want to deal. The first point I want to raise has just been made by the noble Lord, Lord Monson. I refer to the action of large companies in enforcing 90 and 100 days' credit from small suppliers. In fact, it can go further than that, as the noble Lord, Lord Monson, pointed out. This applies not only to firms with Government contracts, but to many other firms as well. As I know from past experience, bureaucracy is not unknown in large-scale private enterprise. Much of it is due to inefficient office management. These delays in payment are a scandal—there is no other word for it. The CBI themselves have expressed extremely strong views on the point. 483 Obviously small firms waiting for overdue payment from their larger brethren are faced with serious problems. Although the Government can take action only on their contracts, they can also express strongly-worded advice using their ample publicity resources. This is a rather difficult point, but it is true that there may be those among us who can exert influence on this matter. I shall leave the point there.
I am afraid that I cannot completely agree with the noble Baroness that the training levy scheme should be abolished because of hardships to small businesses. Some small firms are exempt anyway. A recent report by the CBI states that:An acute shortage of skilled workers is limiting the growth of many small and medium-sized companies… The quality of apprentices in a wide range of skills had risen over the past two years (to the beginning of 1979), but the number had been inadequate for some time and still appeared to be falling.The exemption of small firms from paying the levy does, in turn, provide special problems regarding training provision for such firms. Training boards do help in many cases through advisory services, through grants for key training activities and through organisation of courses of management training. The Manpower Services Commission was to review the levy arrangements in 1979. I do not know whether any firm decisions have yet been reached, but, with new technologies so much in evidence these days and with the allied development of new small firms, training of key workers in particular is an absolute necessity if success and growth are to be achieved.
As I indicated to the noble Baroness before this debate, I should like now to turn to another type of small business, that of the little shopkeeper. I am glad that a number of noble Lords and Baronesses have referred to these people. Their shops are often grouped in neighbourhood shopping centres on housing estates. The amenity value of these centres must not he overlooked, particularly to the old, to women with small children and as providing the widest possible range of goods. I have such a centre near my home; it is named the Oval, but it has nothing do to with cricket. It is so named because of a small, oval-shaped, open park plentifully planted with rose bushes.
484 But it is not roses all the way for the small shopkeeper there or elsewhere. This is the point, and it is a very serious matter indeed. My noble friend Lady Gaitskell, who was to have taken part in this debate but who has had to leave, was going to raise a similar point. It would seem that the speculative landlords have moved away from dwellinghouses to the small rented shop property market. As a result—and I can vouch for this—sudden increases in rents, some up to and over 300 per cent., have taken place, imposing real hardship to many in a way that would not be tolerated in a housing situation. As a customer, I have been in touch with my local shopkeepers and also with the Sidcup section of the Chamber of Trade executive, and they have suggested that the powers of the fair rents officer could be widened to include small shops, sonic with small flats above. A limit, possibly based on rateable value, could be set and could be subject to annual review.
This is a serious situation. I do not like to see people who have given value and service being forced out of business and away from their livelihood. I plead with the Minister to give an undertaking that he will at least look into this particular problem of small retail businesses which is so widespread and still spreading.
I was not surprised when the shopkeepers and the Chamber of Trade asked for a reform of the rating system—long overdue—which they say should be based on ability to pay. In that, their customers heartily joined them. As with many other small businesses, the present massive interest rates may well prove to be the final straw. The cost of bank overdrafts needed to finance stocks may be just bearable if a price war is avoided, but a reduction in margins will drastically reduce the viability of small retailers who trade on a range rather than volume. They suggest the reintroduction of some form of price maintenance as a small price to pay for protecting so valuable an asset to local communities.
I pay tribute to the small shopkeeper. To many of us in these days of mass manufacture of foodstuffs they are a great necessity. I am lucky. In my little shopping area I have a baker who bakes his own bread. What a contrast to the wrapped plastic monstrosities that we buy 485 elsewhere in supermarkets. I am lucky again in that I have a butcher who does not sell pre-packed meats from refrigerators as they do in the supermarkets. He cuts his joint according to the customer's requirement—and often tells me, when my wife sends me shopping, to tell my wife how to cook it. They render a personal service. They know us and we know them, and yet they are being kicked around in the fashion that I have stated. They do not want much, but they want to survive, and Britain needs them to survive if we are to preserve our community life.
To return to the type of businesses that form in the main the subject of this debate, and certainly in the mind of the noble Baroness. The noble Baroness mentioned that the infant mortality rate amongst them is high. Success and growth can also induce mortality with Big Brother's takeover (often by a multi-national) bringing redundancy, unemployment and despair to those workers who have played their part in building up the business. I knew a Mr. Morphy and a Mr. Richards many years ago. Only last week, under unfortunate circumstances, I met a lady from the United States who had been one of the eight original workers who started that little firm. She came back to the Cray Valley and the factory had gone, and a lot of the workers have had to find work elsewhere. They have been taken over, and one enterprise with a well-known name has disappeared.
Britain's small businesses have, over the years, pioneered many new developments. I carry on from the noble Lord who flourished matchboxes in the Chamber; fortunately they were empty, or he would have been arrested by Black Rod. Where today are British motor-cycles, weaving machinery, typewriters, sewing machines, radio equipment, and many other items now ranking as major imports? This, alas, is not a new process. It has been going on for years. I commend to the House the series of articles on the subject appearing in the Guardian newspaper this week.
My Lords, "Buy British" is re-emerging as a slogan. One noble Lord has already uttered the words. That is all very well in itself, but what we have to ensure is that our newly emerging small businesses, when they develop and grow in a highly competitive world, remain British and 486 sell to the world. That, in a nutshell, is Britain's greatest industrial and economic problem.
My Lords, before the noble Lord sits down, may I say that he mentioned very truly that the noble Baroness's remarks had received substantial support from speakers both in front of him and behind him. Would it not be fair to add to the record that they also received support from those on the right and the left'' I would refer to both the second speech, that of the noble Lord. Lord Byers, and, I think, the seventh speech, that of the noble Lord, Lord Roberthall. I think that is worth noticing. It is something rather unique about this debate.
§ 5.7 p.m.
§ The MINISTER of STATE, DEPARTMENT of INDUSTRY (Viscount Trenchard)
My Lords, may I join those who have already thanked my noble friend Lady Sharples for introducing this debate at this time and for the way in which she introduced it. It was a speech full of knowledge and information, and the timing was excellent so far as Her Majesty's Administration are concerned. So many of these matters are currently under review. If I may, I shall leave the urgency in the tone of her speech and the way that she recommended her specific measures until the end of my remarks.
I too had noticed that we had apparently complete, all-party, whole-House agreement on the importance of this subject. Such total agreement on the overriding importance of small businesses, together with the tributes that have been paid to British talent, made me wonder how it can be that we can be sitting here, when we are all agreed, recording that far too few British small businesses exist, which is true. My right honourable friend the Parliamentary Secretary, David Mitchell, who has continued the deep studies to which the noble Lord, Lord Lever, made a major contribution, is convinced that we probably have 40 per cent. fewer small businesses on a pro rata basis than Germany, which he thinks is about the 487 average for Europe. How can this be with all-party agreement about their enormous importance?
My right honourable friend has also tried to compare the birthrate of new businesses in this country. As noble Lords will know, this is difficult but it is certainly much less than in some other countries. I believe that the birthrate is more important than the point which the noble Lord, Lord Wallace, has just raised in relation to takeovers. Small businesses, as usually defined by the Government, include businesses with under 200 employees in manufacturing, and similar definitions elsewhere. As the noble Lord, Lord Gisborough, pointed out, they employ 6 million people, which is a quarter of the working population. But I believe that the birthrate is more important than the natural evolution which, as some of them get bigger, leads to some of them deciding rather than go public on the market and raising their money that way, to join another business which they believe will promote their expansion in the most efficient and congenial way.
There is no doubt about our past poor record and the need for improvement, and there is no need to convince this Administration. I shall during the course of my remarks list some of the things we have already done which underline the fact that we believe this is an area of major need. It is not, as many noble Lords have said, that the large businesses of this country are not very important and have not got a major contribution to make to the economy, but in the area of employment, and new employment particularly, the small business has a disproportionately good role to play. It also has always been responsible, outside major scientific breakthroughs, for a very high proportion of innovation and therefore it is vital for the future.
I cannot possibly deal with all the many valuable contributions that have been made in this debate. I will ensure that where I have been asked specific questions and do not have time to deal with them—and there will be some of those—I will write to the noble Lords concerned. I also assure the House that all the points mentioned will be taken into careful consideration by my right honourable friend. Noble Lords also know that, 488 speaking from this Dispatch Box, particularly on matters which concern the future of our fiscal arrangements, a Government spokesman cannot go into the degree of detail that he would perhaps like to do in relation to many of the suggestions which have been made.
I shall leave out of my remarks a very important area; I shall come back to some of the points which the noble Lord, Lord Wallace of Coslany, just made, but in the main I shall have to leave on one side the wider implications of the social problems in the rural areas of the small village shops and, to a degree, of the small corner shops. All of these areas are being studied either by my right honourable friend the Secretary of State for the Environment or by my right honourable friend the Secretary of State for Agriculture, Fisheries and Food. These are vitally important questions, but I think the main thrust of my noble friend's Motion is along the lines of the main contribution to the British economy that small businesses can make.
I say straight away that I know of no threat that my colleagues in any department have made to CoSIRA in the way that the noble Lord, Lord Davies of Leek, suggested. We have reviews in all areas,—new Governments always do—but no threat has been made at any time, and as I go through the various important parts of this question I shall refer to the part that CoSIRA is playing.
While looking, as I shall try to do, at the many special aids which already exist for small businesses and at the possibilities for more special aids for them, I should start by saying that I am a little nervous of the phrase which I and some of my colleagues have used in the past—the word "package"—and I am a little frightened of the idea of the all-embracing organisation for small businesses because so many of the measures that can encourage small businesses are measures which affect the general industrial climate and they are therefore vital to all the main departments of Government, as I am sure the noble Lord, Lord Lever of Manchester, would agree. Therefore, one cannot look at them totally separately and, for the same reason, it is extremely hard, as it were, to look at this as a once and for all problem and produce a complete, comprehensive wonder package with a department with absolute powers to 489 put in it. I prefer to think of it as the continuing, steady implementation of steps, some of which have been taken by our predecessors; some have already been taken by my Administration, and more are under consideration and will be brought in as appropriate and by the appropriate department.
The great dependence of small business on overall conditions is therefore something on which I should like to comment. I think it is clear from what my noble friend Lady Sharples said at the outset that the special American arrangements started at a period of many American bankruptcies, and there is no doubt that the special arrangements played a major part in triggering other attention from private institutions to be given to this problem. There is equally no doubt that, these general conditions having changed, we find that the major portion of the financing of American small business is now done by the institutions, which are doing a fine job.
It is hardly surprising, with the United Kingdom profitability of recent years, and with the controls we have had on industry as a whole—and the United Kingdom profitability of business as a whole has been less than that of our major competitors by a long way—that the normal institutions have not financed to the degree they should have the new business area where risk is also a factor. Would you put up equity, if you had equity, when income tax has been running at 83 per cent., or 98 per cent. on unearned income, in small businesses that you happened to know quite well and knew the proprietor whom you would have liked to back?
We cannot divorce the general conditions from the plight of small business now, and to a large degree it is the general conditions in which this country's industry has been placed in recent years that account for the fact that our small businesses are so far behind other people's; yet there is all-party, all-House agreement about their importance. One cannot divorce the position of small business from capital taxation as well as income tax, and I cannot add to what my right honourable friend the Chancellor of the Exchequer said at Budget time last year, that he is studying the problems of capital taxation. One 490 cannot divorce small business from planning generally. There are particular problems for small business which we understand and are studying.
I now come to special measures which have been taken and to deal with some of the suggestions about new special measures, and I start with the question of organisation. We have of course studied from the Bolton Committee what those in the past have said who have considered this subject, and what they have said about organisation on the part of the Government to encourage small business. We believe that a Minister reporting to an important Cabinet Minister—reporting to my right honourable friend the Secretary of State—so that there is representation at Cabinet level, is the best way to co-ordinate all the important steps that need to be taken by all the main departments of Government. Because of this overlap with the general conditions as they affect business, whoever is appointed, it is in fact not possible to divorce many of the ideas mentioned today from the normal departments of Government. It is perfectly possible to have one Minister and a small staff, with a Secretary of State who is vitally interested in the regeneration of industry, responsible for co-ordinating all the areas. I have taken note of what the noble Baroness has said and of her clear description of the American situation; and reply that it has been studied in depth by my right honourable friend. I believe that exact copies are seldom very effective.
Let me turn to some of the measures that have been taken but have not been mentioned. On 7th November my right honourable friend announced a scheme in the Eastern Region involving the Small Business Counselling Service—which is his responsibility—and the Post Office Staff Superannuation Fund. This is a pilot scheme putting together the expertise and knowledge of small firms held by expert counsellors and the cash of a large pension fund. I believe that putting together expertise and cash is the key to providing finance for small business with small risk of loss. We very much hope that this experiment will prove successful, and if it does, we have every intention of expanding both it and the counselling service.
At this moment I should mention CoSIRA. They, too, have vetted many 491 small businesses and then persuaded many large banks to advance money against their vetting of the risk area. These schemes are carried out without guarantee. We are looking at the whole question of guarantees and at many other possible fiscal measures; but guarantees are always costly, and inevitably guarantees will be given in areas where loans would have been advanced without them; and we have very little money. So while we acknowledge that there is a financial gap and that all will not come right, even after industrial conditions in this country have returned to the degree of profitability to which we hope they ultimately will, we believe that there is more than one way to be considered as to how to fill that gap.
On 24th July we announced that we were amending by order the Employment Protection Act—a subject raised by several noble Lords—and there are also measures incorporated in the Employment Bill. Between them these cover the qualifying period for unfair dismissal complaints, which was increased from 26 to 52 weeks for small businesses, and a compulsory period of notification of redundancies affecting less than a hundred people, which was reduced from 60 to 30 days. In the Employment Bill there are four provisions of considerable importance to small businesses, and in view of the lack of time I do not propose to record them all, as they will probably come up when that Bill comes into the House; but a very considerable amount of action has been taken in that area.
With regard to form filling and statistical returns, rather than take up the time of the House—which I have not got—I would refer your Lordships to Hansard of this House of 15th November, columns 1381–82, relating to my Answer to a Starred Question and to my supplementary answers, which showed that this Administration had taken decisions cutting out a million statistical forms out of some four and a bit million.
At this stage I must rebut a suggestion by the noble Lord, Lord Lever of Manchester—and I do not in any way want to detract from the many important matters that he brought to our attention, nor from the action that he had carried out on small businesses. For the reasons that I have already outlined I believe that 492 this Administration have kept the good work going at a rather faster rate.
I shall write to the two noble Lords who have raised points regarding VAT. Of course we are fully aware of the impact of inflation on the limit of turnover at which VAT becomes payable. There already exist what are called special schemes which have been devised by Customs and Excise to try to simplify the matter by avoiding work for small businesses on every transaction. There are EEC constraints overall on exemption levels concerned.
I should like for a few moments to deal with factory building. We have introduced a new pilot scheme by the EIEC to build small factory units ranging from 500 to 1,000 square feet, and this is being carried out in the North. It means that, together with the excellent work of the Development Commission and the local authorities, we shall keep the small factory building going. It is a very good sign that all these small factory buildings are taken up so quickly. Indeed, the speed at which all offers are taken up is a sign that perhaps at last small business in this country is moving. If the experiment under the EIEC is successful, we shall certainly consider extending it.
In the time remaining I shall end my speech by saying that much is being done by private agencies, by private firms, large firms and banks—and this is more than was the case. I have in mind the London Enterprise Agency, the St. Helens Enterprise Trust, and the Birmingham Venture. All these consist of large firms working in partnership with small firms to help develop inner cities. I shall give a detailed answer in writing to those noble Lords who asked how far the Inner Urban Areas Act has yet been used in relation to loans and improvement areas.
§ So, my Lords, to wind up, let me return——
§ Lord DAVIES of LEEK
My Lords, will the noble Viscount translate the initials EIEC? I do not know what they mean.
§ Viscount TRENCHARD
My Lords, they stand for English Industrial Estates Corporation, which I think most noble Lords will know about and which undertakes the Government factory building programme in the assisted areas. I am sorry; I have got into the jargon habit.
493 The urgency of the situation is understood, and I very much thank the noble Baroness for her timely introduction of this debate. I believe that we shall not answer her request for an immediate package or a copy package, hut that, as time goes by, she will not be disappointed by the degree of attention that this Government and their main departments will give to the small business area.
§ 5.30 p.m.
§ Baroness SHARPLES
My Lords, I am extremely grateful for having had the opportunity to initiate this debate, and I am even more grateful for what has happened during the course of the afternoon. The speeches from all sides of the House have been varied and extremely interesting. My noble friend the Minister has dealt with nearly all the points noble Lords have put to him, and has assured us that, otherwise, he will write to us. Our time has been very short, for so much needed to be said, but it has been a wonderful and informative afternoon. My Lords, I beg leave to withdraw my Motion.
§ Motion for Papers, by leave, withdrawn.