Small Businesses (Hansard, 19 February 1981)

§ Lord Orr-Ewing
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

The Minister of State, Department of Employment (The Earl of Gowrie)
My Lords, the Government have already introduced a considerable number of measures designed to help small businesses prosper. How many 774 small businesses are formed in 1981–82 depends on a number of factors, not least the continuing fall in inflation and the state of world trade.

§ Lord Orr-Ewing
My Lords, is my noble friend aware that the continuing fall in the rate of inflation will be of considerable help to all industry, but particularly to the small businesses? Can he say what progress the Government are making in introducing new measures to help small businesses, which will be further advanced in the Companies Bill that we shall be debating next week? Can he say whether he is in touch with the Small Business Administration in the United States, which has existed for 25 years now, and whether we will garner the best ideas from their experiences and perhaps introduce them here?

The Earl of Gowrie
My Lords, we are in touch with the United States, and I have had very useful meetings with Professor Birch of the Massachusetts Institute of Technology, who has some interesting facts and even more interesting ideas about small business formation. However, I am not convinced that to copy the American procedures of administration would be right in this area.

§ Baroness Birk
My Lords, is the Minister aware that, with bankruptcies running at a conservative figure of about 150 a week, there would be 78,000 bankruptcies in a year compared with the figure that the noble Lord, Lord Orr-Ewing, gave, which I notice that the Minister did not even accept? Would it not be better if the Government's economic policies were aimed at keeping from bankruptcy the small businesses that exist now?

The Earl of Gowrie
My Lords, I certainly do not accept the figure given to me by the noble Baroness. Statistics on the small business sector are scarce and notoriously difficult to derive from existing sources, and we are trying to improve that. As to the question of bankruptcies, fierce recession and counter-inflation policies contribute to bankruptcies, but not of course on anything like the scale that galloping inflation would.

§ Baroness Sharples
My Lords, will my noble friend accept that this morning I was told that 80,000 new businesses had started and that considerably fewer had failed in the last year, and that a great deal of publicity is given to bankruptcies and not to successes?

The Earl of Gowrie
My Lords, I very much welcome my noble friend having come to my aid. I have rather churlishly to stick on the fact that statistics in this area are difficult. That is not an excuse for not trying to improve them and one of the things we are doing is to try to improve the methods by which we quantify both the birth and death rates of small businesses.

Lord Paget of Northampton
My Lords, will the noble Earl confirm that a great many of the small businesses which are driven out of business do not actually go bankrupt, but just wind up? Will he also confirm that the number of small businesses that were 775 trading at the beginning of 1980 and which have now ceased to trade is way in front of 100,000?

The Earl of Gowrie
My Lords, with the same caveats about the statistics, I broadly agree with the noble Lord. When I met Professor Birch—and, again, I must point out that he was talking in an American context—one of the things he said to me was, "You over here are much too frightened of bankruptcies. It is essential to have a rapid turnover of business".

§ Lord Mackie of Benshie
My Lords, will the Minister not agree that the biggest help that the Government could give to small businesses would be to reduce the bank rate so that they could borrow money at a decent figure? May we expect this in the course of the spinning of Government policy, which now appears to be taking place?

The Earl of Gowrie
My Lords, I agree with the noble Lord that lower interest rates would be very desirable, and I hope that all noble Lords who call for increases in Government spending in one area will recognise the effect on interest rates in another.

§ Lord Seebohm
My Lords, perhaps I could bring some further comfort to the noble Earl and say that the Industrial and Commercial Finance Corporation, which is the largest specialist institution dealing with small companies, financed in the financial year which is just ending well over 400 start-up companies, which is 32 per cent. more than last year. It has put out, or will have put out in the next few days, about £100 million to small businesses, which is over four times what it did five years ago.

The Earl of Gowrie
My Lords, I could not ask for comfort from a more authoritative source, and I am most grateful to the noble Lord.

§ Viscount Hanworth
My Lords, for my benefit, and perhaps that of the House, can the noble Earl define what are small businesses from the point of view of this Question and of his statistics?

The Earl of Gowrie
My Lords, I think we would really need a debate for that, but I am thinking in terms of up to 25 employees; that kind of scale.

Lord Wallace of Coslany
My Lords, apart from the question of high interest rates, is the noble Earl aware that small businesses would benefit considerably from simplification of VAT so far as they are concerned, and some Government assistance in dealing with exorbitant rates charged to small businesses by speculative landlords, and that small businesses also have a problem in so far as local government rates are concerned?

The Earl of Gowrie
My Lords, I am very glad that the noble Lord tacked the latter part of his supplementary on to the former, because obviously it is most important that local authorities, in deciding on their expenditure within their rate support grant limits, 776 do look at the effect on business, large and small, of unjustified or excessive rate increases.