§ 3.8 p.m.
§ Lord Harrison
rose to call attention to the steps being taken by Her Majesty's Government and the European Commission to promote small and medium-sized enterprises in the United Kingdom and the European Union; and to move for Papers.
The noble Lord said: My Lords, welcome to the wonderful world of small business! It is a world in which my family has been deeply immersed for decades. From travel agent to launderette owner, from bookshop manager to licensee, members of my Labour-voting family have done them all. My parents' firm of waste contractors emptied the latrines of wartime London's Hyde Park and the post-war cesspits of Blenheim Palace. We were, indeed, the southern version of "Where there's muck, there's brass", and we were proud of it. We were proud of being members of that unique community of self-made men and women who see romance in striking out on your own, achieving something by your own hands or in the company of others similarly dedicated to make something that works and pays. That is the untold story of business Britain. Welcome indeed to the wonderful world of small business!
A warm welcome has been given by the present Government who recognise the enormous job-generating powers of SMEs. Thus recent Budgets have implemented new all-employee share ownership schemes, new R&D tax credits for SMEs, a new 10p capital gains tax rate, a new 10p rate of corporation tax for the smallest companies, and the making permanent of the first-year 40 per cent capital allowance.
194 That is all good stuff, but there is much more to do here in the UK. Perhaps I may highlight three areas. I refer first to banks. The recent Cruickshank report identified the £4 billion per year excess profits which banks make from personal and small business customers by charging too much for money transfers and paying too little for deposits. That, in addition to the continuing closures of banks in Britain's rural towns and inner-city areas, is intolerable. Banks have a social function which, if they only had the wit to see it, lays down the firm foundation of future profits. "Short-termism" is a phrase which should be excluded from the banks' lexicon. For the sake of small firms, the Government should continue to act tough with our high street banks.
Secondly, the Government need to spread the news more widely that small businesses are good for you. At the moment, there is a paucity of new SME formation in poorer parts of Britain such as Wales and Merseyside. There are two few women participating in the drive for entrepreneurs and biases remain against go-getters from the ethnic communities. This scandal is, again, partly attributable to the high street banks. A recent authoritative report by the Bank of England details unwitting discrimination practised by banks in their dealings with the ethnic communities. In that respect, perhaps I may say that I look forward to the contribution of my noble friend Lord Patel of Blackburn in his maiden speech.
We must spread our SME net wider. Perhaps I may highlight the situation in schools today where careers advisers are too often dumb in front of an inquiry as to how a young person might be enthused by the exciting world of small business. I am happy to report that my 17 year-old son's school takes this proselytising job seriously with an active young enterprise scheme. "Back to Business Basics" should be Britain's school motto. Business should not be a dirty word in the classroom. We shall widen the base of those confident to come into business only if we catch our buccaneers young and willing.
Thirdly, I welcome the Government's creation of the Small Business Service which, like the SBA in Washington, will become the still, small voice of small firms at the heart of government. For too long, because of the fragmentation of small firms' representative bodies in Britain, that authentic voice has been drowned out; indeed, while ignorant armies clashed by night.
But what of the world beyond Dover beach and Britain's shores? What of our relationship with the European Union and what of the promotion of small businesses in the burgeoning single market? Are we yet blood brothers with our Corsican, Catalan and continental cousins? Well, we are getting there; the more so because our Government take a sensible and pragmatic stance on advancing Britain's cause in Europe. Perhaps I may illustrate that by reference to one of the most tormenting problems of running a small business today: late payment of commercial debt.
195 Recently, our Parliament enacted legislation to outlaw those who cheat early by paying late. An estimated £20,000 million is lost each year to small firms; it might otherwise provide cash flow to help them to survive, breathe and grow. The good news from the Forum of Private Business is that the 1998 Act is beginning to bite. The availability of a statutory right to interest is beginning to inhibit foul play, as it has in other European Union countries such as Sweden where such legislation has existed since the 1970s. But now there is another problem put to me by a Cheshire businesswoman who deals with Swedish suppliers but sells value-added goods on to a big firm locally. She is caught by the double whammy of having to pay early to her supplier in Sweden while receiving payment late in Britain, with attendant cash-flow crises. In other words, British legislation is no longer sufficient by itself to shelter and encourage this and other small businesses who want to carry Britain's flag of enterprise into Europe's single market.
That is why I am pleased that the Government are currently supporting legislation to eradicate the scourge of late payment throughout the whole of the European Union. It must be the priority of government to work with their partners, and with the European Parliament, a co-decision maker on this issue, to clear away the bracken that impedes creation of a true market. Indeed, if there was one abiding message that I would want this debate to carry today, and which my late payment vignette vivifies, it is the imperative for Britain to recognise the primacy of the single market and for the Government to redouble their efforts for its completion. The single market is the magic carpet on which all our hopes ride, and none is a carpet-bagger who seeks that goal.
In 1997, during the British presidency of the European Union, the Government did indeed reaffirm their desire to drive through completion of the single market. More recently at Lisbon, encouraged by Premier Blair, the European Union has renewed its efforts to help small businesses: first, by agreeing to the establishment of a charter for small firms and, secondly, by providing 1 billion euros through the European Investment Bank for SMEs to access vital venture capital. Welcome, too, is the introduction by the Lisbon Council of a European diploma for basic IT skills and the proposal for a rapid agreement on an effective legal framework for e-commerce within the EU. All those initiatives will lubricate the single market.
I rehearse these points because too often in this country we denigrate, deny and despise the work of the European Community. We allow ourselves to bathe in a sea of scepticism about Europe and all things European. The unsought effect of this tidal wave of scepticism is to demoralise British business in its engagement with continental competition. There comes a point where even the most fervent entrepreneur begins to believe the rhetoric that, in the EU, bananas are bent and cucumbers curled with the sole purpose of blighting Blighty.
196 Chief quarry in the sights of the anti-marketeers is the European Commission, which has done sterling work in tackling, for instance, the vexed question of red tape within the single market. The BEST and SLIM programmes reform old rules and simplify new legislation to the benefit of all our businesses. But little acknowledgement is given to the Commission for undertaking the mammoth task of distilling 15 sets of national rules and regulation into one set of EU law which, clearly understood, monitored, policed and enforced, provides encouragement to all potential market participants. Give me, any time, one set of red tape, not 15. The true burden on business lies in retaining 15 unreformed markets—a tangled undergrowth that must be swept away.
To continue that scorched earth policy for business, I look forward to the new programme on SMEs, shortly to be published by the European Commission—a programme foreshadowed by the 1999 report of your Lordships' House entitled Promoting Small and Medium Enterprises (SMEs) in the European Union from the committee chaired by the noble Lord, Lord Geddes. Contained therein are examples of excellent EU initiatives broadening; the base of new entrants to small firms. Women entrepreneurs are a particular resource which we have undervalued as, indeed, are the ethnic minorities, the young and the disabled. I shall place a summary of each of these EU schemes in the Library. Each has the seemingly obligatory acronym: SAFE, EYGE-NET, WEEN, save one entitled "Cross-Border Training: Euro-advisers and Women Entrepreneurs". Here, a network of Euro-advisers is made available to women entrepreneurs to help on all aspects of trading in the single market. Not only are competent Euro-advisers thus created and women entrepreneurs helped, but a booklet is also produced which ensures that useful knowledge gained by this project is passed on to future aspirants. Incidentally, an interesting fact on which to ruminate is that, while women are woefully underrepresented in small businesses, research nevertheless suggests that SME survival rates are higher among women entrepreneurs than men.
I conclude with the single currency. I shall not rehearse the arguments in favour of the euro for those SMEs—often high-tech, highly-capitalised companies at the cutting edge of IT and the Internet—which are already trading in the single market and which readily appreciate that the euro facilitates business. Such firms regret the obligatory entrance fee that has to be paid every time they enter the single market via the pound sterling. I want to comment on the lifestyle small firms, often run by one dedicated entrepreneur, which shy away from any thought of entering the European scene. They, in turn, are the group most sceptical of the euro, yet they also stand to gain from Britain joining the euro. For them, a stable, economic environment is the sine qua non of domestic business success. Mortgages and the cost of borrowing money are their top financial concerns. This longed-for stability is precisely what the euro-zone is now providing to small businesses throughout Europe. Inflation, interest rates 197 and hence the cost of money—each has been lower in the European Union than in Britain for some time; an enormous perk to small and micro-businesses alike.
Of course, in Britain we have had the advantage of the Chancellor's superlative stewardship of the economy as a whole to see us through the problematic times of a strong pound. But when the tectonic plates of dollar, yen and euro grind anew into fresh configurations over the next few years, it may well be the pound that suffers financial shakes and shudders. Then, micro-businesses throughout Britain will resent the second-hand philosophy, falling off the back of Euro-sceptic lorries, which tells them that the euro is bad for Britain. Such cod rhetoric will not bring Britain cash on delivery. The cabotage of money benefits all British businesses, not just road hauliers.
I come to journey's end. Small businesses are big business for Britain today. I hope that the ensuing debate will confirm that truism and bring forth other truths which will lead us at its conclusion to celebrate the wonderful world of small business. My Lords, I beg to move for Papers.
§ 3.22 p.m.
§ Baroness Byford
My Lords, small and medium-sized enterprises are often spoken of in the context of manufacturing units located mainly in towns and employing 50 to 100 people. In rural areas there are often only between one and 10 people engaged in various activities such as farming, agricultural contracting, livery stables, village sub-post offices and so forth. As a woman—the noble Lord referred to the need for women in business—I declare a former interest as a small business woman twice over: first, as a poultry farmer by trade; secondly, by choice as a tennis coach when I ran a tennis school and in fact enjoyed the experience greatly.
I make no apology that I shall home in mainly on the post offices during this debate. After all, they are small businesses. As recently as this morning a member of the board of post offices was explaining how they are converting 300 post offices a week to the new computer technology. By mid-2001 we shall all be able to carry out simple banking transactions at any post office. Deals to do this have already been set up with the four major banks. Negotiations are under way to provide the same service for the remaining big banks, most of the medium ones and some of the building societies.
That is very good news. But in the same programme a lady sub-post mistress said that 85 per cent of all benefit claimants wanted to be able to claim their cash through their giros at the post office. So there is also concern that the Government intend to stop the benefit payments going directly through the post offices and will encourage claimants to have their claims paid through bank accounts. That move will adversely affect small business enterprises in both towns and cities but particularly in the rural village areas. Post offices will be directly affected. Many of them have already gone and will continue to go out of business. This means that people from other small 198 rural businesses will have to go into town to post nonstandard letters, parcels and packages and obtain supplies of petty cash, and the village shop may go too.
We have already seen that farmers are leaving the land at the rate of 20,000 per year. They do not receive redundancy, severance pay or a golden handshake. Many have their pensions in the form of livestock, so they lose that too. A similar fate awaits some of our sub-postmasters if this Government persist in their plans to remove the payment of benefits through post offices. A sub-post office franchise has to be bought and carries no rights of compensation for loss of revenue, even if it is caused through the actions of officialdom or government. Nor do the franchisees qualify for redundancy, far less for loss of value of their main asset, their home, which they may have been building up to fund their retirement as well.
Around 8,000 people will be affected, almost the same number as are likely to be deprived of their employment at Longbridge. There, however, the similarity ends. At Longbridge the Government may be blameworthy for not asking the right questions or for not devoting enough time to the situation, but they are far from the sole cause. However, the mainspring of the threatened post office closures is the Government's repudiation of the original Horizon project. Longbridge workers are overwhelmingly urban-based dwellers. The sub-postmasters who are most likely to be affected are primarily based in rural areas.
Ancillary staff are also involved in post office closures. As these are small businesses, many will be part-timers. Estimates of the numbers vary, but between 12,000 and 16,000 people are likely to be affected. Some 20,000 or more job losses, mainly from villages and small towns, will have a serious impact on rural communities. There will be a loss of ability to buy stamps, to post parcels, to pay bills—particularly important for those who, for whatever reason, do not have a bank account but obtain cash and coin from the post office. Where the post office subsidised and justified a village shop, the ability to buy the essential needs of survival may also be threatened, though in response to my Question I was surprised that the Minister did not agree with that.
The problem is compounded by the decision of several banks (but particularly Barclays in recent times) to close large numbers of branches in large villages and small towns. The net result of the two actions will be to force rural dwellers to spend more time, money and fuel travelling to larger conurbations to do even the simplest things—buy a newspaper, post a birthday card, obtain sugar and milk or pay the council taxes and other bills.
Those people with full faculties and with a current driving licence may not perceive the problem. But pro rata there are many more older people who live in rural areas than in towns. Many are widows living on their own on small means, some without cars and often with insufficient money to travel on a regular basis to town. Quite apart from the fact that they do not want to put their money in the bank, they do not pass the necessary 199 credit checks that the banks carry out. They do not have any substance for which the banks may try to provide added value. When the day arrives that we are all charged for having a credit account, these ladies— and some gentlemen—will have to pay for the privilege of having a bank account that they did not want in the first place.
A further problem is emerging in that many of those small enterprises which combine sub-post office and village shop sometimes act as collection points for repeat prescriptions. Young mums with no car available during the day, elderly people whose driving days are over and the chronic sick of all ages use such facilities. Their usage is set to rise dramatically, as I understand that GPs will now be restricted to monthly prescriptions instead of specifying three to six months' supply at a time, which has been the present practice.
All this is at a time when the Government claim to be cutting down the opportunities for fraud; yet when publicity is given to either the amount of money lost through fraud or to a particularly successful attempt at catching the perpetrators, my impression is that this is usually associated with fraudulent claims. Can the Minister provide the figures for the value of wrongful payments made because of fraudulent claims and because of fraudulent use of benefit books at post office counters? Can he also tell us what proportion of wrongful payments were made at local sub-post offices in rural areas, where very often the claimants are well known to members of the staff?
It so happens that today's debate tabled by the noble Lord, Lord Harrison, for which I thank him most warmly, is opportune. The National Federation of Sub-Postmasters presented a petition to No 10 Downing Street this morning. If I tell noble Lords that it was signed by 3,120,000-plus people, they will have some idea of the great concern that there is out there in the country about the Government's proposals for the changes to benefit payments: 3,120,000 is an awful lot of people asking the Government to think again.
In the Minister's response to my earlier Question today I was pleased to hear that she did not consider that payments would be stopped if people wished to continue to receive their cash through the post office. But I pose the question again, because if the majority of people do not use the system, the financial viability of those very same post offices will be undermined. If they go out of business, it will put people at even greater risk and make them more vulnerable.
The post offices are not only places where people go; they are centres that draw people from the village to its central heart. Pensioners are forced to go out and draw their pensions from these centres. They then meet other people, chat and become involved in the local community. It also means that they do not have to pay bank charges for drawing small sums of money.
At present, post office users also have a free bill payment service. As I said earlier, they can collect their benefits if they wish, and do so without charge. Most post offices are open early in the morning, from nine o'clock, to 5.30 in the evening and on Saturday mornings. Many organisations realise the value of this 200 service. Among those who spoke at today's lunchtime meeting—the Methodist Hall across the road from here was full of people—were people from the National Federation of Women's Institutes, Age Concern, VRSA (of which I am a patron), the Countryside Alliance, the Post Office, the Mothers' Union, the CPRE and many others. This is a very big problem.
The petition signatories are also aware that the Government's action will deprive many sub-postmasters of their living. They are currently paid for each benefit transaction that they undertake. As I said earlier, they will lose between 35 and 45 per cent of their total income if the Government push ahead with this as they plan to do. Many of the people who signed the petition are also aware of some of the unanswered questions; for example, if post offices close, how do the Government propose to ensure that the 1 million emergency payments reach the intended recipients as fast as possible? How can the Government guarantee that mothers will continue to receive child benefit if they cannot claim directly from their post office, which may be forced to close, as I pointed out earlier? Will the Government guarantee that those on low incomes who are forced to open a bank account will never have to pay any form of charges and will never become overdrawn or get into debt because of overenthusiastic selling by third parties? That may not seem likely to most of us, but it could be a very real problem for some families.
Like everyone else in a small business, sub-postmasters are entrepreneurial in spirit and opposed to subsidies—which is one of the rumours. They are keen to embrace new technology, to increase their business, to give customer satisfaction and, it is to be hoped, to enjoy the fruits of their labours later in their old age. However, like most people who live in this country, they look to the Government for support and protection in those areas of their endeavours over which they have little personal control. Does the Minister believe that they will be well served if the Government go ahead with their current proposals? Further, does he feel that the proposed concentration on automated credit transfer will promote small, rural businesses in the United Kingdom?
I apologise to the House for the fact that my speech has concentrated mostly on post offices. However, this is a crucial time. Many of our small businesses in rural areas are reliant on our post offices as a means of survival. Finally, I should like to say how much we are all looking forward to hearing the maiden speech that is about to be made by the noble Lord, Lord Patel of Blackburn.
§ 3.35 p.m.
§ Lord Patel of Blackburn
My Lords, my interests and activities are community relations, regeneration of industry, business development, religious tolerance and understanding and, of course, Blackburn Rovers Football Club. I was at a loss as to which of these interests I should incorporate in my maiden speech. However, in accepting that there is no danger of Blackburn Rovers being relegated this year, or very 201 little likelihood of them being promoted, I felt that there was no point in bringing their situation to your Lordships' notice.
Given my business background in the Lancashire textiles industry, and having served in various capacities with business associated organisations, such as the East Lancashire Training and Enterprise Council, Lancashire Enterprises plc, Blackburn Partnership and Blackburn City Challenge, I felt it appropriate to speak on behalf of small and medium-sized businesses—and particularly those run by businessmen of ethnic heritage origin.
This choice was reinforced when I learned that legislation had been enacted in the other place, which came into force as recently as 3rd April of this year. That legislation brought into existence the Small Business Service designed to assist small and medium-sized enterprises. This new structure replaces training and enterprise councils and other similar organisations. The role of the service is directed towards assisting businesses made up of small traders or partners and businesses with up to 250 employees. At the bottom end of the scale, a small business is described as having between zero and 49 employees and a medium-sized business as having between 50 to 250 employees.
It is the aim of the current Government to ensure that SMEs survive, succeed, grow and move to become world class; to provide a strong voice for small business at the heart of government; and to help small firms in the matter of regulation. In support of this, the Small Business Service is charged with establishing a network of franchises to deliver high quality business support to small firms.
That small business plays an extremely important part in the economy of the United Kingdom is without argument. Statistics published by the Department of Trade and Industry show that small and medium-sized enterprises account for over 99 per cent of businesses in all regions. They have long been recognised as playing a vital role in the economy. They provide new ideas, products and services and, most significantly, jobs. SMEs are the backbone of our economy.
It may come as a surprise to some of your Lordships to learn that India, and particularly my home state of Gujarat, has had a reputation since the 12th century of exporting its people's enterprise and enterprise skills to other countries. These were to the Middle East and other parts of Asia initially and, since the previous century, to the various countries of Africa, South America and, of course, Europe and North America, too. It will be within the knowledge of some Members of this House that one of the most famous and outstanding sons of India, Mahatma Gandhi, practised law in South Africa before returning to India and his life's work. It is certain that it is within the knowledge of all Members of this House that in more recent years people of Indian origin were penalised for being too successful when they were stripped of all their possessions and deported from Uganda by the despot Idi Amin.
202 I welcome and fully support the Government's aims and objectives to improve the quality of support and assistance to small businesses. While congratulating them I draw attention to some of the problems being experienced by ethnic minority-owned businesses in accessing support mechanisms. Why should this be? In my experience there is no deliberate intent to refuse or make difficult access to support services.
Many small ethnic minority businesses are run by their owners and immediate family members. To keep them viable and competitive with larger and longer-established business undertakings, they are open long hours, seven days a week, with those who run them taking no or little time off for socialising or other activities. Because of this commitment and way of life, they do not have time to seek out and acquire aid from support services. Neither are they, unfortunately, members of support organisations such as chambers of trade or chambers of commerce, which provide service and advice on either an individual or a collective basis.
Another area of small business requiring attention is the clothing and footwear industries. By reason of unfair competition from abroad, they are closing down and jobs are being lost. This has occurred, and is still occurring, in my home town of Blackburn and in my red rose county of Lancashire. The term "diversification" comes to mind, along with the question: how does one diversify an existing business, and where does one get advice and support on that? It may be appropriate to paraphrase the old adage, "If Mohammed can't go to the mountain, the mountain should go to Mohammed".
It is essential, in my view, that given the importance of the growing number of ethnic minority-owned small businesses to the future economy of our country, there should be sufficient direct representation of those interests on the regional development agencies, the Small Business Service and their associated franchises. I trust that the House will support that point of view.
Finally, I express my sincere, heartfelt gratitude for the manner in which I was received by noble Lords and by the courteous and competent members of staff. I felt that I was being welcomed into a large family and I shall always treasure the memory.
§ 3.44 p.m.
§ Lord Mason of Barnsley
My Lords, it is a pleasure to follow my newly ennobled friend Lord Patel of Blackburn. I congratulate him on behalf of the whole House. His speech was brief, witty and non-controversial, indeed, a perfect maiden! The noble Lord, Lord Patel, is a renowned counsellor in his community and a major contributor to the Muslim Council of Britain. With that background and knowledge I am sure that his further contributions will be of interest to us all. Incidentally, friends we are but next season that may be in doubt when Barnsley meet Blackburn Rovers!
I am grateful, of course, to my noble friend Lord Harrison for giving us the opportunity to talk about small firms. The Prince's Trust, Business Division, is one of several Prince's Trust schemes to help 203 disadvantaged young people. As chairman of the Prince's Trust division in South Yorkshire I welcome the Government's action in establishing the Small Business Service and other initiatives to promote small and medium-sized enterprises. In this respect I look forward to their support for the kind of micro businesses started by young people that the Prince's Trust helps. The Prince's Youth Business Trust, now the business division of the trust, was formed in 1983. Since then over 43,000 young people have been helped to start their own businesses. That is an incredibly successful national operation. Nearly all of those young people were removed from the dole register. His Royal Highness, whose idea it was, could never have imagined that rate of achievement.
The average cost of starting a new enterprise is in the region of £2,550 per person. If a person between the ages of 18 to 30 has a business idea, takes a business course, prepares a business plan but does not have the finance to start, banks having refused it, the trust as a last-resort financier will examine and launch it. Up to £5,000 in cash grants and loans would be considered. Of those started, the survival rate is encouragingly high with over 60 per cent trading after three years. That is a much higher rate than with conventionally funded businesses.
The trust is funded by donations, private individuals, companies and various organisations, but in addition—this is most important—it has been funded over many years by various British governments. The most recent initiative is the Government's support, backed by all political party leaders, to pledge £50 million over the next five years, with the trust itself raising £50 million pound for pound.
In providing this unique service all over the country, the trust has received funds for schemes funded by the European Development Fund and provided by the European Union. We are also in a partnership with government departments—the Department of Trade and Industry and the Department for Education and Employment—with local authorities, Business Link, TECs and, particularly, with providers of business training; an essential service which is offered free to the unemployed. Among those unemployed are able and enthusiastic people who seek our help.
Earlier I mentioned our rate of success. Throughout the trust's business division we have provided a free mentoring service (business advisers) attached to many of our young entrepreneurs. We have 7,500 of these volunteers who can often make the difference between failure and success. But, again, could anyone have visualised such a massive voluntary attachment to the trust and to our young people? Credit and thanks are due to them all.
As will have been recognised, the majority of our businesses are micro businesses—one or two person businesses. However, some go on to generate growth and employment for others. For instance, the top 50 trust-supported businesses total an annual turnover of £147 million and between them employ over 1,260 staff. That is some enterprise.
204 I am chairman of the South Yorkshire board of the Prince's Trust, Business Division, which comprises another body of dedicated people. We are grateful for the financial support and encouragement provided over the years by successive governments and for the financial help that we receive from the European Union. We look forward to further national support, and from the EU, under the terms of the Objective 1 status recently awarded to South Yorkshire. This should be a much needed boost for one of the nation's most deprived areas.
I should like to inform your Lordships' House that in the past 13 years in South Yorkshire—that is, Doncaster, Rotherham, Barnsley and Sheffield—we have helped more than 2,000 under-privileged young people with funding, advice and practical assistance to achieve their goal of becoming self-employed. In doing so, we have improved their own and their families' lives, while at the same time boosting the local economy. We have injected £2.5 million into the South Yorkshire economy and we are currently taking approximately 150 young persons each year off the dole and into enterprise.
Nationally, with the support of the Government's major funding, we are aiming to expand—to help up to 30,000 young persons start their own businesses by 2005. To achieve this, we need all the help we can get. In this respect, and from my experience, it is my considered view that support in the form of a funding bridge along the lines of the old enterprise allowance—that is, an initial weekly allowance until an enterprise is established—would give these people some financial cover as they take that often daunting step from unemployment to self-employment. I hope that the Minister and his department will give this some thought.
I turn now to BICs (the business and innovation centres), with which I am involved as chairman of the Barnsley Business and Innovation Centre. One of the key principles underlying the Government's approach to small businesses is that of fostering an enterprise culture that encourages innovators and risk takers. That is precisely what the business and innovation centres are designed to do. The Barnsley BIC was established in 1987 with the specific remit of developing innovative technology-based businesses in order to diversify and strengthen the local economy It is part of a European network of BICs—there are around 120 across Europe—and a national network of eight in this country, which are developing a national incubation strategy promoted by the Government.
With the support of the European Commission, of the Government, of the local authority, of British Coal Enterprises in the early days, of the TECs and of English Partnerships, the Barnsley BIC has to date created, established and seen the growth of more than 85 innovation businesses, which support more than 400 jobs. These are within the coalfield area. The positive impact upon the manufacturing supply chain has been significant, with most of these companies serving national and international markets. The reality is that this is the creation of a high technology and 205 innovative culture in an old coal industry area which is effecting a major transformation in business enterprise.
I notice that the DTI's innovation budget is to increase by more than 20 per cent over three years. In addition, I gather that an enterprise fund will provide support for high technology businesses with growth potential. I hope that the Minister will be able to say that the business and innovation centres will benefit from these policy proposals.
§ 3.53 p.m.
The Viscount of Oxfuird
My Lords, I confess that I do not support a football club. However, I do support a club in Calcutta—the Tollygunge cricket club. I have spent many happy hours there enjoying the pleasure of the company of many Indian friends. It was a joy to listen today to the very singular maiden speech of the noble Lord, Lord Patel.
I know that your Lordships' House will have enjoyed the speech of the noble Lord, Lord Mason, which was a clear and incisive summary of the entrepreneurial effects of the Prince's Trust. It is the entrepreneur whom we are talking about today. Small and medium-sized enterprises play a vital part in our economy. Their importance to the supply chain cannot be underestimated—not only in terms of expectation of growth but as a source of considerable employment. I am afraid, however, that many SMEs are currently facing hard times, which are not of their own making.
Noble Lords have made reference to the euro. At the moment, the euro is a weak currency. The strength of sterling is a consequence of that. The boom/bust economy that the Chancellor of the Exchequer wishes to leave behind should be considered in the light of other currencies. It is to be hoped that we can find a way through for sterling which will ensure that our SMEs are not faced with the major concern of massively disparate foreign exchange rates.
The truth is that SMEs are being told by their customers that there is no room to increase their prices— in fact, there is endless pressure on them to reduce their costs—and yet they see an increase in the costs of raw materials because their orders are not as great as those of bigger companies and they do not enjoy the same level of discount.
The situation facing SMEs in the manufacturing sector is difficult. Only yesterday, the Financial Times described what is happening to the machine tool industry. Some 80 per cent of the sector's output is exported. That is important. The Machine Tool Technologies Association (MTTA), the trade body, reported that the sector had cut 2,000 jobs since 1998, accounting for about 14 per cent of its total workforce. Production value has fallen by £100 million in the past year.
The machine tool industry is the pointer of the manufacturing economy. Ever since I started exporting—a very long time ago—people have recognised that the sector is vital to the forecasting of a trading pattern. The machine tool is probably the last 206 item to reach the bottom line of a budget; it is more likely than anything else to be cut when hard times appear to be around the corner. It is the first indicator to manufacturing industry that trouble is on the way. I know this only too well. I worked in the materials handling industry for many years. We always watched what was happening in the machine tool industry; it was from there that we got our information.
Although the MTTA forecasts a small increase in production this year, many companies are expecting little or no rebound due to the problems not only affecting Rover—a big buyer of machine tools—but existing across the board. I am sure that many SMEs, given the opportunity, would say to the Minister, "Please, is there something the Government can do to help?"
SMEs are, of course, very low down the supply chain. A major pressure facing them is "on time" delivery. To achieve this they require accurate information. The Government make great play about the importance of electronic communication and the incentives available to companies to go on-line. But no matter how good the communication systems are, what is important to SMEs is receiving information that is dependable and not constantly changing.
The last debate in which I spoke in your Lordships' House was the Second Reading of the Learning and Skills Bill. At the time, I said that it was an important Bill for industry, not least the engineering manufacturing sector with which I have long been associated. Many in that sector hope that the emerging national and local learning and skills councils will make a real difference to the training needs of their industry. For many SMEs, training does not come very high on their list of priorities. In this ever changing and increasingly competitive world, skilling and reskilling is crucial to survival. Yet, for the majority of SMEs, survival is about the day-to-day running of their companies, ensuring that orders will not dry up. They are unable to give time even to medium-term planning.
According to a survey undertaken by EMTA, the Engineering and Marine Training Authority, the national training organisation for engineering manufacture, a very large proportion of small firms do no training at all. However, those that do train do as much proportionally as larger firms. Engaging small firms is an issue which EMTA believes to be of fundamental importance. But, as EMTA sees it, it is a "Forth Bridge" job. Even to scratch the surface requires working with as many third party organisations as possible, including trade associations, group training associations, TECs, LECs and, in the future, the Small Business Service and its franchises and the local learning and skills councils.
I wonder whether the Minister can help me in relation to the SBS and the local LSCs. It is far from clear what the exact roles of the SBS and local LSCs will be in work-related training. The devil is very much in the detail. I hope that the Minister can assure me that the Government will adopt their own mantra of "joined-up thinking" and give each organisation a 207 clear remit and proper functional links both with each other and regional development agencies to avoid duplication, competition and gaps in the system.
I would not deny that the establishment of the University for Industry and the emergence of "learndirect" and the various sectoral distance learning centres will go some way to help both employers and employees with training. There is need for more flexibility from both the United Kingdom Government and the European Commission in their attitude towards SMEs which embark on training. SMEs complain that those in government are interested only in outcomes. By that I mean that those undergoing training must also be looking to gain qualifications. Certainly, so far as concerns European funding, training is driven by outputs.
Another complaint is that the European Commission funds only companies with a staff of 250 people or below when no more than 25 per cent of ownership belongs to a large company. I understand that Whitehall officials stick rigorously to the rules while our European counterparts —some not so far from our shores—are a little more relaxed. What is needed is flexibility. Many SMEs are making excellent strides in the training of their workforce but there is still much that can be done. I hope that the Minister will be able to address the concerns I have raised.
§ 4.4 p.m.
§ Lord Haskel
My Lords, it is difficult to be a small and medium-sized enterprise. Most speakers know that. They have run small businesses themselves. As far as concerns the Minister, I am of course referring to the textile business that he had in another life more than 20 years ago, not to the grocery business.
As noble Lords know, not only do small businesses have to make a profit, keep the staff involved and the customers delighted; they also have to keep suppliers on the ball and the community happy. In addition, if your business is involved in science, the food chain, natural resources or nuclear power, you can find yourself challenged by a well organised nongovernmental organisation which diverts your time, money and energy away from developing the business; and now you can see your asset value depressed for no better reason than that you are perceived to be part of the old economy.
We are fortunate that people who work in small and medium-sized enterprises are practical, down-to-earth people who can cope with all this while turning their hands to anything and everything. If they did not have those qualities of leadership and adaptability, we should all be the poorer for the reasons that my noble friend Lord Harrison gave when moving the Motion. So when they voice their concerns, the Government would be wise to listen to what small business people have to say.
It seems to me that as well as late payments—a point made by my noble friend Lord Harrison—they are voicing two main concerns at the moment. Both are directly tied to our membership of the European 208 Union. They are: excessive regulation and the strength of sterling. These are legitimate concerns. What should the response be?
First, on regulation, it is important to point out that regulation is not simply a matter of red tape and the command economy. The down-to-earth, practical business people who work in small and medium-sized enterprises realise that. Regulation is also a matter of subordinating economic values to broader social values. They support these broader social values because they, too, have families and children; they, too, have a stake in the community; and they, too, have friends and family who go out to work. So despite the furore over the minimum wage, socially it is right; and so is the Working Time Directive. This is a good piece of family-friendly legislation. It is probably welcomed by most small companies which are just as interested in the balance between home and work because they realise that treating staff badly is no longer an option. Good staff are too scarce and valuable.
The justified complaint is not that these regulations would force small companies out of business: it is that the process of implementation of regulations is itself a burden on small businesses. The intentions are worthy, but even the worthiest intentions must be put into practice with proper care and attention so that they are not burdensome. Here the Government have to perform better.
The Working Time Directive legislation was poorly drafted; it was unclear; and the DTI had to issue several alternations and clarifications. Its implementation was rushed. I am sure that the reason was partly because of the Government's detailed negotiations with the CBI and the unions regarding the legislation. That led to delays and many derogations. Perhaps my noble friend should learn a lesson from that and consider how well the problems of implementation by small companies were represented at the negotiations. There needs to be more and better co-operation between the regulator and the regulated. I believe that the Better Regulation Task Force has that kind of co-operation in mind and I wish it every success.
Like the noble Viscount, Lord Oxfuird, my second concern regarding small businesses is the strength of sterling. On 28th March in a detailed debate in this House we came to the conclusion that there is little that the Government do about this. As for joining the euro-zone, big business is divided. The small business person is helpless. What can he or she do? Move to the euro-zone? That is probably not practical. Trade in euros? That still leaves the small business with the foreign exchange risk, because it pays wages and overheads in sterling. Hedge the currency? That is expensive.
The only real practical response to the strength of the pound—or the weakness of the euro—is for small companies to raise productivity and to become more efficient and more competitive. My noble friend Lord Patel asked in his excellent maiden speech: how can we achieve that? There are many alternatives and the practical small business person will have to choose the best route and the best combination.
209 One way could be to join the knowledge economy. It seems to be working in the USA, even in the textile industry. US businesses appear to be raising productivity by their use of the Internet to speed up production so that there are fewer raw materials, stock and work in progress to finance. Indeed, some companies have eliminated stock and work in progress entirely by using the Internet for mass customisation. Companies are finding cheaper suppliers and services by participating in business-to-business networks. They are also finding more customers through the Internet and are becoming more competitive by using the Internet to cut out the middle men. But the speed at which that is happening varies from industry to industry. In addition, there is an enormous amount of hyperbole to penetrate in order to get at the truth. Small businesses need guidance.
Technology, too, can help small companies to make considerable increases in productivity. But where does a small company with little or no research facilities find that? As well as the innovation centre referred to by my noble friend Lord Mason, the answer could be at the local university or college. The DTI has introduced several initiatives to encourage universities and colleges to reach out to business and to help to develop new techniques, products and services. The universities and colleges need to work with small companies in order to quality for these funds. So there is a shared interest here. In addition, small companies can qualify for the Teaching Company Scheme.
New technologies are often best developed in cooperation with other firms. That is why clusters have been so successful in the biotechnology industry and in the racing car industry. In the Budget, the Chancellor announced a regional innovation fund precisely to fund the formation of local clusters to make it easier for our small businesses to get involved.
Then there is Technology Foresight, which will help small businesses to get a vision of the future in their own particular industry. It is an invaluable tool for the progress and development of small businesses, which on their own do not have the facilities to develop that vision.
I agree with the noble Viscount, Lord Oxfuird, that skills and management training help to raise performance. Time and again, small companies have found how valuable that can be in improving productivity—and not only when there are innovations. Existing methods can always be improved by better skills and training. So many failures of small businesses due to management incompetence could have been avoided by better management training. These are essential aspects of raising productivity. All are supported by the Government. Like my noble friend Lord Patel, I hope that the new Small Business Service will be effective in drawing all these aspects together. Raising productivity is the only practical way for small businesses to cope with the strength of the pound. They deserve all the help they can get. They also need 210 a champion. Like my noble friend Lord Harrison, I hope that the Small Business Service will take on that role too.
The Small Business Service should explain to Ministers that, in the new economy, size matters less. Many big companies have big problems. They are in markets where there is over-production. Consumers are fickle and brand loyalty is declining. The Small Business Service should counsel against size as an argument for grants to maintain national champions. It must show that not enough small businesses have grown into large ones, and that money is better spent on training, improving infrastructure, innovation and information technology. That will help all enterprises, large and small; and it will create small enterprises that will become the large enterprises of the future.
§ 4.16 p.m.
§ Lord Cocks of Hartcliffe
My Lords, before thanking my noble friend Lord Harrison for introducing the debate, I should like to add my congratulations to my noble friend Lord Patel and say how fortunate he is to have a team like Blackburn Rovers on tap, having myself lived for many years on the thin gruel provided by Bristol City. We enjoyed his speech very much and we look forward to his future contributions.
My noble friend Lord Haskel said that most of us have run small businesses. I have never done so. I was Government Chief Whip in another place running a government for some time, but whether that is related as an important function I am not sure. One thing that I will say to my colleagues on the Front Bench is that I should never have countenanced the plethora of amendments to government Bills which seem to appear almost ad lib. It is not necessary if matters are dealt with first. I include that as a mild reproach because it is important that we put these matters into perspective. I have introduced amendments from time to time in this House, but that was to buy off the Conservatives in the Commons. Concessions had to be made from time in order to get the legislation through.
I thank my noble friend Lord Harrison. He is well known for his expertise in this matter. He has given great service to my party with his knowledge of this subject. Indeed, a couple of years ago he produced a booklet entitled Supporting Small Businesses: The European Dimension. I should like to refer briefly to my noble friend's statement on page 5 that,The Single Market is dominated and monopolised by multinationals and larger companies. Such incomplete development fails to bring the benefits of increased competition".That is an important point. Yesterday, there was comment in the press on Tesco's announcement regarding the number of full-time and part-time jobs that it is to create in Britain and overseas. I do not believe that this is all gain.
North of Bristol there is a great shopping centre, Cribbs Causeway. There is a massive Asda hypermarket there which is being modernised. My wife said to me, "Look at the list of things they are going to do here. What is going to be left for anybody 211 else?" So I called in there and copied down the list of what is coming when the development is completed. The list reads: Asda fresh food market; "Takeaway World" and "Deli Express"; beers, wines and spirits cave; papershop for your home and office; toys, sports and bikes; home housewares and textiles; do-it-yourself; health and beauty; pharmacy; optical and photo-shop: baby shop; new George clothing—that is the proprietary brand; and a new Asda café. How many small businesses in that area will feel the pinch when that range of activities is grafted on? There is a finite amount of money to be spent. If one has an enormous development of that kind, others will be badly hurt. Without any consultation, people who have spent half their lives building up businesses will suddenly find enormous companies doing this kind of thing.
There are knock-on effects. I very much agree with the observations of the noble Baroness, Lady Byford, about post offices. Other consequences also flow from such decisions. We are all aware of the activities of spin doctors. Perhaps we can make allowance for this as we are to an extent minor practitioners in the art. This practice has spread to the commercial world. A major company will consult its public relations advisers. They will decide on the line to take and, with a few phrases that they repeat in interviews, will not shift from it.
A recent example relates to Barclays Bank. Noble Lords may have seen the interview on television two nights ago with the director of Barclays Bank responsible for retail banking, John Varley. Time and again he was pressed to say whether the chief executive of the bank would appear to explain just what was going on. He replied that that would not happen and that the public would have to do with him. Obviously, a few key phrases had been decided upon beforehand which he kept repeating. I recall that one of the phrases was, "We must give customer choice". I thought that that was a bit of a cheek. To a simple mind like mine, when one closes so many branches it appears that one is reducing choice. I very much welcome the remarks of my noble friend Lord Harrison at the beginning of his speech. I, too, hope that the Government will get tough with high street banks.
On the front page of today's Financial Times Mr Varley comes out with the following gem. Defending the decision to close all 171 branches in one day, he says:The instability created by protracted closures is considerable. We had an overwhelming obligation to create as much clarity as we could as quickly as possible".That is not bad, is it? What would one end up with if one had to précis that comment for the purposes of an English examination? The "overwhelming obligation" did not extend to the chief executive coming before the public to explain what he was up to. Fortunately, that has been remedied in another place. The Treasury Select Committee, chaired by Mr Giles Radice, is to interview the chief executive. Not even the chief executive of Barclays Bank can refuse an invitation to he interviewed by a Select Committee of the House of Commons. One of the great values of such committees 212 is that people who are as slippery as eels can be called to account. But what does it come to when this step is necessary before those responsible will appear in public to explain such a far-reaching decision? It is a shame that we have arrived at this position.
The practice of "spinning" and involving public relations is setting in. Unless we do something about it, all this talk about accountability and clarity of purpose will mean very little to members of the general public whose real grievances cannot be addressed. I give the example of Bristol where a local brewery was closed with the loss of 70 jobs. I wrote to the chairman of the company and pointed out that some time ago the local Bristolians had not complained when the company had blocked off a road and incorporated it in its site in order (it said) to keep the brewery going. I asked the brewery what recompense would be made to Bristolians for the free gift of a very valuable piece of land now that the brewery was to close. I received a letter from a public relations man, which was really an insult to the people of Bristol. I wrote back to that effect on 7th September of last year. The site, which is in the heart of Bristol, sustained tremendous damage during the war. I pointed out to the company that 1,299 Bristolians had lost their lives in the war and that the brewery was behaving pretty badly, since it had survived the 77 air raids sustained by Bristol. I have not even had a reply or acknowledgement to that letter. My letter has simply been brushed aside as if it is from a moaning chap with no resources behind him who was formerly a local Member of Parliament. The attitude of the company is that it will all go away.
If we talk about accountability and clarity, we cannot let small businesses which are in real difficulties and are threatened by larger ones manage on their own: we must appreciate their problems and do our best to ensure that they get every consideration. Such businesses are the very stuff of our communities and unless we seek constantly to protect them they will disappear at an alarming rate. Therefore, I very much welcome the debate initiated by my noble friend and hope that the Government will be able to give further assistance in this matter.
§ 4.26 p.m.
§ Baroness Warwick of Undercliffe
My Lords, I am delighted to contribute to this debate. I should like to deal in particular with the role of universities in supporting SMEs. In doing so, I declare my interest as chief executive of the CVCP, which is the voice of UK universities. I am especially pleased to speak about this matter because I suspect that not all noble Lords will associate universities with small and medium-sized enterprises, or perhaps see their relevance. I was delighted that my noble friend Lord Haskel referred to this matter.
Just as SMEs have assumed greater importance to the UK's prospects for economic growth in recent years, so the role of universities as partners of SMEs has developed at the same level. As the title of the debate suggests, just as government policy initiatives are increasingly focused on stimulating SME growth—we 213 see the most recent evidence of that in the March Budget—so too has government policy acknowledged the part that universities have to play in this.
SMEs make up the vast majority of businesses in the UK but also vary widely from small "lifestyle", or so-called "Mom & Pop" family businesses, to high-tech, high-growth undertakings. This last group, which is IT-driven, is vital to the economy. Ideas are its key input, along with rights-based sales, and that is where universities become so important.
A timely illustration of this is that today the University of Kent officially opens a new electronic systems design centre with £250,000 of funding from DTI. The centre is concerned with micro-electronics and provides consultancy and support to SMEs on design techniques and technologies. This morning I was at the University of Wolverhampton, which is located in a region rocked by the Rover crisis and facing the loss of 20,000 jobs, not just within Rover but the intricate supply chain of small manufacturing enterprises which have supported the motor industry. I predict that the University of Wolverhampton, together with its further education partner colleagues, will be one of the future sources of regeneration as well as retraining in that region. Just last week it launched a Competitiveness Centre which will offer technology transfer and support to SMEs. With a keen eye on overseas markets, I suspect, it was launched by the chief executive of British Trade International.
I have used the two examples of Kent and Wolverhampton, which are in very different regions, to indicate how the growing involvement by universities in SMEs is one of the key distinguishing changes which have occurred in higher education over the past five years. The most recent national survey conducted by PREST at the University of Manchester describes spectacular growth in links. There has been a 40 per cent rise in external income from such links in three years.
Many of the government initiatives that several noble Lords have mentioned have been in response to trends in universities over the past few years. They are an acknowledgement of the many ways in which higher education makes a positive contribution to SMEs and to the knowledge-based economy. Of course, we all recognise that there are challenges in getting partnerships between universities and SMEs right. In the past there has been something of a communications gap. SMEs have previously had little experience of employing graduates. Some chief executives may not have been to university or may be graduates from many years ago and so have little knowledge of what the higher education sector can now offer them.
In the past, some universities may also have been a little slow in seeing the two-way benefits of a relationship with small and medium-sized enterprises. However, that is certainly changing dramatically now, as I hope to demonstrate in outlining the proliferation of imaginative and cutting-edge relationships which have sprung up just in the past couple of years. Recently, tremendous university effort has gone into 214 identifying training needs of SMEs; into speeding up technology transfer to assist them in achieving business results; and into stimulating graduate employment and employability through student placements. The Government have played a key role in stimulating that work.
The DTI's Science Enterprise Challenge for universities provided funds for eight regional centres. Some, like the Bristol Enterprise Centre, are primarily designed to encourage entrepreneurialism among students and researchers. It was opened on 8th March by Sir Alan Sugar, chairman of Amstrad plc. Others, such as that set up by the Scottish consortium— Glasgow, Edinburgh, Heriot-Watt, Strathclyde and Dundee—include an enterprise management centre. The Scottish one is based in Dundee. It focuses on increasing start-ups through the faster commercialisation of research.
The Government's reach-out fund initiative—HEROBC—has proved an enormous success. The DTI has acknowledged the high quality of bids made by universities to the fund. It is not only the traditional big players—the research-led universities—which figure in that activity. I mentioned Wolverhampton earlier; another example is Huddersfield University, which runs an SME support network as part of its reach-out activity. In the past 18 months it has provided advice to support 60 SMEs. It is a good example of a university which may not be research led, but which is very research active and engaged with SME developments in its region.
From the inception of the HEROBC funding stream, CVCP has been calling for the fund to be consolidated into a proper so-called "third leg", alongside the two traditional streams of funding for the universities for research and teaching. We warmly welcomed the DTI acknowledgement that that fund will continue. My right honourable friend the Secretary of State for Education and Employment referred to the "third mission"—work with business and industry—in his Greenwich speech. That was something of a watershed because it was recognition that the universities' role with business, industry and SMEs is now a major one and that it will increasingly be seen as a core function alongside teaching and research. I must take the opportunity to remind the Minister of CVCP's SR2000 submission, which calculates that around £150 million is needed to put the HEROBC fund on a sustainable basis. We believe passionately that universities' performance in responding to that agenda warrants that investment. I hope that the Minister will take this opportunity to reaffirm the Government's commitment to it.
I mentioned activity at a regional level. The recent Budget made it clear that it is not only an economic agenda that is served by government initiatives and university activity with SMEs regionally. The Chancellor announced a total of £230 million towards innovation, enterprise and the use of IT by business. One of his key points was the need to stimulate economic growth and impetus across the whole of the UK, especially in some of the more economically 215 disadvantaged regions, avoiding a concentration of economic activity within the south-east—welcome, of course, though the pace of growth is.
Universities in all the UK's regions will help to deliver that initiative as key drivers of innovation and providers of expertise. It is not only through support and consultancy to existing and fledgling SMEs in the locality that universities are vital. In recent years, economic developments have given university researchers, especially in science and technology, more opportunities to patent and license inventions and then establish their own businesses to develop and exploit them commercially. Therefore, universities themselves are setting up small businesses, known as spin-offs.
There has been a similar increase in rather lower-tech businesses set up to exploit new sources of knowledge and information. Only last month, the University of Essex announced a £6 million agreement with SME managers to form a start-up company, ilotron. Telecommunications engineers at the university sought out the deal to commercialise their ground-breaking research in the rapidly growing global market for network optical routing. The collaborators hope that the deal will tap into an estimated global market for core network routers worth £4 billion in 2002, rising, it is estimated, to £15 billion in 2005. That is the kind of potential that universities up and down the country can contribute to the cutting-edge areas of business.
Here, too, government policy initiatives have played a role. The DTI's University Challenge Fund provided much needed capital or seed funding, in total worth about £30 million. Twelve universities or small consortia of universities benefited from the fund and will use the resources to kick-start spin-offs or startups. The high quality of bids received has meant that the competition is going to run for another year.
Our debate is concerned not only with UK initiatives to encourage SME growth. At European level, too, policy levers are emerging. The Lisbon Council of 23rd/24th March agreed a new strategic goal for the Union in order to strengthen employment, economic reform and social cohesion as part of a knowledge-based economy. The conclusions of the council include the importance of SMEs in making the transition to a competitive, dynamic and knowledge-based economy. The council referred to the need to create a friendly environment for start-up and developing innovative businesses, especially SMEs. I certainly include universities in the list of institutions.
Here in London, Guildhall University has made the running in work with SMEs with the assistance of EU funding. Much of Guildhall's work stems from the fact that the university is within the European Objective 2 area for London as well as being based in the City. Metro new media is a company wholly owned by the university that provides services to SMEs in Lee Valley. With Middlesex University, Guildhall co-founded East London and Lee Valley Teleregion, offering broad services to over 500 SMEs.
216 Of course, no debate on SMEs can ignore the dot.coms. It is not only blue chip corporations which can engage in electronic trading or on-line shopping. Many industry experts predict that SMEs will benefit also from the new technologies and provide much of the growth in the new e-commerce market-place. Staffordshire University's Innovation Management Centre, for example, has secured funding of £286,000 from European social funding to develop e-commerce strategies and Internet sites for up to 40 SMEs.
I hope that I have demonstrated that universities are aware of the crucial contribution of SMEs to the UK's knowledge-based economy and the work that they are doing to encourage it. I welcome the government's initiatives, which hive really encouraged universities to find innovative ways of working with SMEs. But, as I said, the funding is still limited. A major injection into the HEROBC fund would really enable that work to take off in every region in the UK.
I am most grateful to my noble friend Lord Harrison for providing the opportunity for the debate. I add my words to those of other noble Lords in my warm congratulations to my noble friend Lord Patel for an excellent and most illuminating maiden speech.
§ 4.39 p.m.
§ Lord Peston
My Lords, I thank my noble friend Lord Harrison for introducing this debate. I begin at the same place as he did, which is the state of the economy in general. The best contribution that government can make to industry and commerce is to create a sound economy and to pursue a sensible economic policy, which we have at the moment with low inflation and high employment. I regret that we do not have full employment yet, but I believe that we are on our way. We also have reasonable growth which is lower than I would wish to see. However, we hope that the British economy will grow even more rapidly. All firms gain from a sound economy, but small businesses gain especially—because if there is a downturn, the firms most at risk are the small ones. We experienced that under the previous government.
I turn to the banks which have already been mentioned. Small firms are especially reliant on them for funding. The general view among those I have consulted is that their range of contribution ranges from useless to worse than useless. On the whole, the banks will, as in the old joke, lend one money when one does not need it, but take it away or not extend the overdraft when it is needed.
I was somewhat surprised at the remarks and worries of my noble friend Lord Cocks as regards public relations. I imagine that Barclays Bank spends millions of pounds on public relations and spin doctors, which is a marvellous demonstration of the uselessness of that particular profession. The spin doctors of Barclays Bank, and the hank itself, have done more damage not merely to the image of Barclays, but to the whole of free market capitalism, than any group of international Marxist socialists 217 could ever have aspired to achieve. I do not believe that we should worry about spin doctors as much as does my noble friend.
There is a serious question concerning the financing of small business which needs to be considered. There is a suggestion that there is less than full competition between the banks in their approach to financing small businesses. I believe that they are facing a competition investigation. I look forward to seeing the results. In that connection, I am particularly sensitive to the views of the noble Baroness, Lady Byford. She was quite right to remind us that a great many small businesses are in rural, not urban, areas. They are probably more vulnerable than any others to the various difficulties that we are discussing today.
There is research evidence which shows that the banks are particularly biased in one area. That enables me to congratulate my noble friend Lord Patel. The ethnic community often finds its way into business via small business enterprises. We have had many examples of that. They have found that they need to finance such enterprises themselves from, say, family money because the banks are less than helpful, or they were in the early days.
My noble friend Lord Harrison also mentioned women. They are involved in a smaller proportion of small businesses, but in terms of women's entrepreneurial activity, small businesses are particularly important. We have a great deal of evidence that the banks are biased against women on the normal ground that they will lend money only if one does not need to borrow it. Women have less to offer in respect of assets and support. It is very important to remember how significant small businesses are for those two groups.
I now turn to the Government. I believe that we were brought here to praise them on this matter and, naturally, being a creep, I add my support to them on matters of this kind. But the Government are as bad as any concerning the problems we are discussing. Reference has been made to late payment. I gather that one should never do business with a public authority and certainly never with government because they are the worse payers imaginable. They keep saying, "We are going to improve our ways". It is about time that the Government did so.
I support the schemes, but by the time one has gone through all the negotiations and activities and tried to get money out of a government scheme, one has lost interest in the project that one had in mind in the first instance. When one looks for help, one wants it now and not after about four years of very hard work. Small businesses do not employ many people, so such involvement means that one is using the very valuable assets which comprise one or two people who cannot also be working for the business. I say directly to my noble friend the Minister that it is all very well for the Government to introduce schemes—I support them—but they must be made much more efficient than they appear to have been until now.
218 I turn to the major problem which my noble friend Lord Cocks also mentioned. In practice, the major threat to many small businesses is big businesses. My noble friend mentioned the retail sector. There is the general question of failure to supply; of the cosy vertical integration which we have seen recently as regards Dixons and computer suppliers. With regard to failure to supply, I refer to the ability of small businesses to do so only on poorer terms—not in terms of costs, but of market power. The only body that seems unable to recognise the anti-competitive threat here is that great body, the Office of Fair Trading. The rest of us see it, but the OFT simply says, "We cannot find the evidence". It is astonishing how difficult it is for that body to find evidence of this kind of threatening behaviour whereas everyone else can see it very clearly indeed. Big business really does act as a threat to small business more generally. Therefore, in terms of the X thousand jobs, I congratulate my noble friend Lord Cocks. They are gross jobs—not net jobs to the economy. Indeed, given the Chancellor's policy, there would be no net jobs because the total number of jobs being created is determined by macro and not micro-economic policy. I am glad that my noble friend made that point.
I am grossly unhappy about what I regard as the considerable amount of aggressive and unfair competition today which did not exist in the past. I shall not mention Sainsbury, but I shall mention Tesco instead, as did my noble friend. I believe that Tesco began on a barrow. That shows that one can go from the smallest business to one of enormous size. However, my guess is that at no point was Tesco subject to predatory pricing and all the similar things that would confront a new Tesco. I am most concerned about that matter.
One other aspect of big business has been alluded to. Until I came to your Lordships' House I had no idea of the enormous power of pressure groups. I had never had any experience of them before. But in so much of the legislation that comes before us one sees the enormous power wielded by big business pressure groups. As regards many of the Bills in which I take an interest an enormous amount of material comes from the "big boys". Many of the Bills that we deal with are just as relevant to small firms, but there is no one acting for them in quite the same way, producing the pressure and the amendments. We always know where a large number of such amendments come from. They have not originated in the minds of the noble Lords moving them. We know precisely where they come from. I am very worried about it. I hope, especially in the industrial area, that more than occasionally the Minister will say, "No one else is speaking up for the small firms as regards this Bill, perhaps we ought to do so ourselves".
As an example, I now introduce a genuinely controversial note concerning Rover. An enormous amount of fuss is being made about that company, the loss of jobs and the fact that the Government have to intervene and find millions of pounds. If I were a small businessman about to go broke, I would say to myself, "Whoever thinks about me? I am going 100 per cent 219 broke; Rover is also going 100 per cent broke. Both are 100 per cent and a lot of me amounts to the same as Rover". I do not want to deflect my noble friend from helping Rover if he believes that is what is necessary, but I believe that it would be money down the drain, even if the Government were to find any. However, it is up to the brilliant people in the DTI to do the work. If I were a small businessman sometimes I would say, "Why doesn't someone think of me and not simply say to me, 'That's too bad, but that is the way markets work'?". My reply to Rover would be, "Too bad, but that is the way markets work".
I finally make a few comments on Europe. I entirely agree with my noble friend that when, rather than if, we join the European monetary union—I am sure it will be "when"—the benefits to British industry will be overwhelming. As was pointed out at Question Time, it will be the wish of the British people that we join once they see what is happening abroad. Joining would be particularly helpful to small businesses, especially those which want to become involved in international trade. They will then not have all kinds of currency problems, but will be able to trade in a single currency.
I conclude by repeating the main theme which has been raised. There are great advantages in your Lordships contributing on these matters. However, ultimately we can do nothing. There are only two kinds of people who can do useful things; the first comprise businessmen themselves to whom I say, as a non-businessman, "The best of luck to you"; the second is my noble friend the Minister whose comments I look forward to hearing.
§ 4.49 p.m.
§ Lord Graham of Edmonton
My Lords, I begin, like other noble Lords, by congratulating my noble friend Lord Harrison for giving us the opportunity to debate this issue. I congratulate, too, my noble friend Lord Patel on his speech. I have listened to and enjoyed every speech. They have all conveyed a knowledge of, and a feeling for, the subject which one does not always note in debates.
I am delighted that the noble Baroness, Lady Miller, will speak from the Opposition Front Bench. She is well aware of the problems of small businesses from a successful businesswoman's point of view. The noble Baroness will recall the number of big businesses which were created during the last administration; she may also recall the number of small businesses which were big businesses when her government came to power. I hope that she will join with me in seeking to reverse the trend and ensure that small businesses have the opportunity to grow into big businesses.
I declare an interest as chairman of the United Kingdom Co-operative Council. It appears under category three in the register of interests. The cooperative movement has experience of successful businesses, both large and small. My noble friend Lord Cocks referred to the effect of small businesses as a fall-out from big businesses: the corner shops, workshops, services and factories. I share the view of my noble friend Lord Peston. The factor that affects 220 above all the wealth and health of small businesses is the general economic climate. Many small businesses rely on a successful big business. Therefore the picture is not black and white. One has to recognise that one wins some and loses some.
In the past 20 or 30 years there has been increasing recognition that what one requires in industry and business is a partnership involving management, shareholders and workers. We are all familiar with employee share option plans, stakeholder schemes and the sharing of power in one way or another. I reccgnise that if the Government were minded to be more realistic in giving tax breaks, benefits and grants to enable small businesses to survive and prosper, there could well be a spin off because the pot is limited. We cannot give everyone all they want.
Over the past few years many communities which enjoyed the services of a wide range of businesses have lost most of them. It may be a bus service, a cinema, a pub, a butcher's shop, a bakery, a post office, a bank or a grocery shop. I speak from experience. In hundreds of communities the last vestige of the old order was the corner shop. As other grocers left because they became unviable, the only shop which remained was the Co-op. As villagers became more mobile, they took their business elsewhere.
Do the Government consider the implications of major economic decisions? In the United Kingdom, co-operative societies operate 2,300 food shops, three quarters of them small shops of less than 5,000 square feet. If that seems quite large, let us remember that new superstores are aiming at 100,000 square feet. For example, the Tesco Metro in Wimbledon—it is a very small Tesco—is 10,500 square feet. Co-op shops are spread right across the country from St Austell to Stornoway, Gravesend to Donaghadee, and the Isle of Wight to the Isle of Anglesey. There have been Co-op shops for 150 years.
The co-operative movement does not reap the "peace dividend" in Northern Ireland because its shops have been there all the time. The Co-op has not "returned to the high street" because its shops have never left the high street. Those small shops make an important contribution to the life of local communities. They provide employment to large numbers of people. They allow people to shop in their local area. They provide social contact for the elderly, and parents with little children.
How do the Government regard the consequences of the macroeconomic climate, with the decline and ultimately the death of a village or small community staring them in the face? Are they alarmed, as we are? Do they hold an inquest after the event, as we do? Is there a mechanism, unit or department within a major government department which has the responsibility not only of anticipating the consequences of giving permission for a huge hypermarket but also of cushioning the effect?
In the 1980s, when an industry died, the former Government, although late in doing so, took steps to put something in its place. I see the noble Lord, Lord Elliott of Morpeth, in his place. The noble Lord will 221 remember the mines in the north, and the Consett steelworks. Strenuous efforts were made, recognising that when the major economic imperatives were served, they left a problem for the state. Perhaps I may ask the Government what steps, if any, are being taken.
The European Union is right to seek to promote consumer safety and to provide consumers with information but it must also always consider the impact of EC legislation on small businesses. My noble friend Lord Haskel did not argue that regulation was not needed or that regulation by itself is costly. He referred to the difficulty of implementing the regulations. That should be taken into account.
In this country, the Industrial Common Ownership Movement (ICOM) is a membership organisation whose primary purpose is to promote the democratic control and ownership of enterprises by the people who work in them. It is simply stated. It is a segment of our economy which flourishes but needs assistance. What kind of small businesses do I speak of? I refer to the provision of a foster care scheme, artists' studios, a brewery, an employment agency, an investment cooperative, a doctors' co-operative, a medical centre, a wood recycling scheme, childcare services, a Braille project, environmental services, production and retail of organic produce, buying, rearing and selling of racehorse co-operatives, domiciliary care services, translation services and a driving school. That is a snapshot of a tiny segment of the global and national economy but those co-operatives employ thousands of people who are sustained and serviced by the Industrial Common Ownership Movement. Those people—they have guts, drive and faith—are survivors. However, I hope that in 2000 my Government, which I support and to which I am proud to be attached, will recognise that they need more assistance. There are more than 1,000 worker cooperatives of one kind or another.
They need encouragement and support. They urgently need recognition of the contribution that co-operative SMEs can make to the economy in the form of job sustainability. There are a number of projects, and advice and guidance is available through ICOM.
Co-operative development is sporadic across the UK and is largely dependent upon the existence of a co-operative development agency. There are many ways in which the Government, without being too generous or giving a great deal of assistance, can encourage the growth of such organisations.
A positive programme is required. It should be designed to stimulate and create new co-operatives. A co-operatives Act for which the co-operative movement has asked would provide a framework to take the movement out of the 19th century and place it in the 21st century.
I hope that I have indicated the inevitability of change. When I left school in 1939, I moved into a new world. However, there was a great deal of similarity with the old, with small shops and businesses, and busy, successful, happy little people in communities. 222 Not a great deal has changed. The scale and the consequences have changed, but the spirit of ordinary people to run their own affairs and to manage them, and to take decisions which affect their community, is still alive.
The debate has enabled the Government to pause in their busy existence. They have enormous decisions to make—for instance, those concerning Rover and so forth—but many of the little people have been well served in the debate by Members from all sides of the House speaking from experience. I hope that the Minister will give us and those outside whose problems we try to articulate hope for the future.
§ 5.2 p.m.
§ Lord Pearson of Rannoch
My Lords, I, too, thank the noble Lord, Lord Harrison, for giving us the opportunity to have this debate. I trust that he will forgive me if I take issue with two of his main contentions. He urged us to acknowledge the vital necessity of the European single market—I believe that he called it the "primacy" of the single market—which he went so far as to describe as the magic carpet on which we should all float into the glorious European dream. I want to do a little to bring the noble Lord's magic carpet gently down to earth.
He also had some rough things to say about people whom he called "anti-marketers" and "Eurosceptics". I imagine that he meant anti-European marketers. I would say to him that we are not anti-marketers, although we are becoming increasingly worried about the way in which the single market is developing.
Like most businessmen in the country today, the noble Lord confused the European single market with the former Common Market and more generally free trade. What is worrying some of us is the use by our "partners" of the single market's qualified majority voting system to damage our international interests and some of our interests at home. I mention particularly the art market, the destruction of which has caused enormous damage to many of our small and medium-sized businesses. I could mention dozens of other British interests which have been damaged by European legislation.
Furthermore, I must query his contention that joining the euro would be good for SMEs. The noble Lord, Lord Peston, joined him in that. They contended that being outside the euro was damaging to SMEs. However, not many SMEs, certainly not the smaller ones, do business overseas. After all, only 9 per cent of our GDP is generated with the EU, yet EU regulations and other UK regulations affect 100 per cent of our economy.
That is why the Federation of Small Businesses, at its conference on 25th and 26th March, voted by massive majorities, first, not to join the euro. There was a vote of 64,743 against 13,741. It also voted for the following motion by 66,210 against some 5,600.
This conference feels that if genuine deregulation cannot be achieved through negotiation with the European Union in the field of business laws, the United Kingdom should move towards repealing Section 2.2 of the European Communities ct 1972".223 That, in effect, takes us out of the European Union. The Federation of Small Businesses speaks for some 130,000 businesses and is clearly the largest organisation of its kind in the country.
In addition, the British Chambers of Commerce, which used to be a rather Europhile organisation, is now moving against much of the regulation that is coming our way from Europe and gold-plated by Whitehall. At its Conference 2000 last week, it produced a table of 16 measures which have been introduced since the Government came into power, generating a total cost for UK commerce and industry of some £10.6 billion. That appears to be largely an annual burden, led by the infamous working time directive.
The director-general of the British Chambers of Commerce, in his speech last week, said:We reject Government attempts to redefine our £10 billion cost burden out of existence. The figures we use are drawn from the Government's own documents and include the full cost of implementing regulations, plus the cost of administering them".He went on to quote a figure of 4,000 new regulations introduced by government each year. That comes from the noble Lord, Lord Haskins, the chairman of the Government's own Better Regulation Taskforce. The noble Lord, Lord Haskins, might be slightly over-egging the pudding, but nevertheless that is a staggering figure.
What are the Government going to do about that? They could do much worse than to read again the debate on 18th June last year on the Bill introduced by my noble friend Lord Willoughby de Broke, making it essential to gauge the impact of European Union legislation on this country. I wonder what has happened to that Bill. Do the Government hope that it will gather dust into the long-term future or will they read the debate again and take these matters seriously?
§ 5.7 p.m.
§ Lord Ezra
My Lords, we have had a most useful debate which was so enthusiastically introduced by the noble Lord, Lord Harrison. Noble Lords have taken part with knowledge and experience and we have had a number of constructive proposals. I suppose that the only exception would be the intervention of the noble Lord, Lord Pearson, who continued a major debate which he opened recently on what should be our attitude towards Europe and the case for withdrawing from the EU. It did not appear to be relevant to the subject under debate.
I shall deal with the subject that we are debating under three headings. The first emphasises the importance of small and medium-sized firms. The second acknowledges that the Government have done much to recognise that importance, particularly in the last Budget. The third points out, as have many noble Lords, that major problems remain to be resolved. This is indeed unfinished business.
There is no doubt about the importance of the SMEs. The noble Lord, Lord Patel, reminded us that 99 per cent of all the businesses in this country fall into that category. On the basis of that statistic, we are, 224 indeed, a nation of small businesses. Those businesses cover a whole variety of enterprises, from a large number of sole traders to businesses that employ up to 250 people. They cover the whole area of British enterprise and, more recently, have entered the area of new technologies.
The Government have recognised that and I am pleased that in the last Budget—I like to pay tribute where it is due—they introduced a number of fiscal measures to help small businesses. The most important was the reduction of corporation tax to 10 per cent on firms which earn up to £10,000. They also improved the tapering of capital gains tax, which will encourage investment, and extended capital allowances. These are all important. However, as the CBI said in welcoming the measures, they are, of course, a start. We would like to see more of them.
An important further step taken by the Government is the setting up of the Small Business Service. I believe that it has obtained general support throughout the business sector. It was referred to specifically by the noble Lord, Lord Harrison, in his introductory speech, the noble Lord, Lord Patel, and by the noble Lord, Lord Haskel. I also consider that it is a move in the right direction. Of course, previous governments have taken steps to help small businesses, but I believe that this is an important and imaginative measure.
I was particularly struck by the words in the consultative document which was issued last year that the Small Business Service was to provide,a strong voice for small business at the heart of Government ".I considered that to be of vital importance. Following on from that, I believe that the concept that the chief executive will be consulted on all new legislation likely to affect small businesses is innovative and desirable. The service will also provide what is described as a "local gateway" for advice and guidance to small firms. That will be a substantial task. I hope that, in replying, the noble Lord can tell us that the service will be resourced sufficiently to handle that because the requirements for assistance and advice from small businesses which cover the whole range of our economic activity could be considerable.
Having mentioned the positive steps taken by government, I should like, as many other noble Lords have done, to mention some of the issues which still remain to be done. The noble Lords, Lord Cocks, Lord Haskel and Lord Peston, were among those who referred to this. I should like to refer to two issues, among many, that still need to be addressed.
The first is the problem of start-up finance. That was recognised by the Secretary of State for Trade and Industry when he said in a speech in the other place on 8th March:I accept that, currently, barriers stand in the way of many businesses starting up and obtaining the finance that hey need for success".—[Official Report, Commons, 8/3/00; col. 1077.]He went on to say that many small businesses fail in their first three or four years because they have inadequate finances in their early days. As the Minister indicated, the Government are fully aware of that problem and they are reviewing all the sources of 225 finance that are available. Indeed, they have set up an enterprise fund amounting to £180 million to help with start-up. However, that fund has attracted much criticism because of the complications of obtaining support from it. That was specifically referred to by the noble Lord, Lord Peston, and, indeed, has been referred to by the CBI in an otherwise positive response to the Government's measures. It is being hedged around with so much difficulty that the time spent by small firms in trying to extract finance from it can sometimes be regarded as entirely negative. Therefore, it remains a real problem.
I recently came across a case in point with regard to a company connected with my old industry—the coal industry—that was set up to exploit methane presently being vented to the atmosphere from abandoned coal mines. The company is trying to collect the methane and supply it to local enterprise. However, it encountered great difficulty in obtaining the start-up finance for the project. Eventually, it asked a venture capital firm to help it and now has two mines from which it is collecting the gas. One hundred and fifty disused mines in this country are wasting what would otherwise be a valuable resource. The company is trying to develop it. I believe that it is unfortunate that, whereas the capture of methane from landfill sites receives special support, the firm that had the innovative idea of capturing it from disused mines was unable to obtain the finance. No doubt, if it had persevered for a number of years it might have received government help, but it went elsewhere.
Another issue, referred to also by many noble Lords in the debate today—in particular, the noble Lord, Lord Haskel—is the growing burden of regulation. Of course, many regulations are entirely desirable, but it is the way in which they have to be dealt with by small firms that creates the problem. One puts oneself in the position of a small firm with two or three persons employed. It could be frustrating if a large part of their time is spent unproductively in filling in forms, trying to understand what answers they must give and negotiating with the government departments concerned. It is a problem which I know the Government recognise. I hope that the Small Business Service will address it as something that must be dealt with on behalf of its customers.
I have concluded that, having accepted the important position that small firms occupy in the economy and the many aspects of the economy that they cover—some of those aspects have been mentioned by noble Lords who have spoken—we are moving into a phase where, I believe, practical action is being taken. In the course of our debate today it was satisfactory to hear that everything is not simply being left to government and that there are other initiatives. The noble Baroness, Lady Warwick, for example, told us about the important part that universities play in helping small firms, particularly with the new technologies. The noble Lord, Lord Mason, told us about the Prince's Trust and the remarkable task that it performs, buttressing and supporting what government are doing. The noble Lord, Lord Graham 226 of Edmonton, told us of the concept of partnership, particularly in the Co-operative movement, in which he has played such an important part.
Therefore, we are not turning to government exclusively, but government must set the framework; that is what governments are for. I believe that the present Government are building on what previous governments have done. I do not believe that this is a party political issue. I believe that all governments have recognised this problem. They are building on what has previously been done and expanding on it.
We need to recognise, however, that there are still many problems. Some of them have been mentioned today but there are many others. I am glad also, in spite of what the noble Lord, Lord Pearson, said, that at the recent Lisbon conference there was agreement, largely as a result of the suggestions made by the UK delegation, that special efforts should also be made at European level to deal with the important issue of small firms.
§ 5.19 p.m.
§ Baroness Miller of Hendon
My Lords, I join other noble Lords in thanking the noble Lord, Lord Harrison, for initiating this important and interesting debate, which he did so well. It has encouraged many excellent contributions.
As has been said several times throughout the debate, SMEs are the foundation of our future prosperity. I congratulate the noble Lord, Lord Patel of Blackburn, not only on his excellent speech but also on making his maiden speech on such a very important subject.
SMEs can prosper only if they are allowed to get on with creating profits and, in the same process, creating jobs. There are fewer opportunities now than in the early 1900s for new industries which produce tens of thousands of new jobs. Rather it is the 10 or 20 jobs here, the 50 there and so on which will be the pattern of the future. According to the Federation of Small Businesses, in the UK, over 94.4 per cent of all businesses employ fewer than 10 persons, so they are very small businesses indeed.
Those small businesses do not have internal accountants or personnel officers, so in order to encourage them, first, to start up and then to develop and grow, they really need to be nurtured and not hindered by too much regulation and all the burdens that come with it.
With that preamble, I immediately give a cautious welcome to the launch of the Small Business Service, especially with David Irwin as its chief executive. Mr Irwin demonstrated his independence when he criticised the failure of the Government to produce their promised guidance to the parental leave directive even a week before it came into force. He described that as being "just ridiculous.".
As the noble Lord, Lord Ezra, has just said, it is not just the directives—many of them may be excellent—but the way that they have to be implemented by small businesses that causes the problem.
227 The reason for my caution is that with so many such schemes, the Small Business Service will obviously have to be judged by results. As it has only just been launched, it is obviously much too early to say, but I hope that Mr Irwin will be able to continue as he has apparently begun and be as independent of government as possible. If it follows the model of the American Government's Small Business Administration, his role as chief executive should be nearer to that of an advocate for small businesses. We must hope that Mr Irwin's objectivity will not need to be constrained by the source of funding for the SBS and his lines of reporting. We hope that he will be able to look to all government departments for funding and to reprioritise those funds for SMEs with the backing of all the Ministers concerned. We hope that the Business Link teams, with the expert advisers and counsellors, which will be funded by the SBS, will meet the objective of finding a solution to the manifold problems of small businesses, especially those which are just starting up.
This debate is to call attention to what Her Majesty's Government and the EU are doing to promote small businesses. At this point, I should say that the implementation of many of the directives coming from Europe is placing great burdens on small businesses. I shall concentrate on that. Also, I believe that in relation to some of the Government's legislation, they have not thought through how it affects a very tiny business. It may seem that I am just talking about the bad things but I am quite sure that that will be remedied by the Minister putting the other side of the picture.
Employers are now being burdened with the complicated paperwork and costs (estimated at about £100 million per year) of administering the working families' tax credit. Small firms, by their nature, are likely to be employing a high proportion of the recipients of the payments without having the internal resources to act as unpaid benefits officers. Do the Government really believe that employers will want to get involved in the employees' personal and private family situations? Does anyone believe that that burden will be an incentive to employers to take on staff if that involves administering working families' tax credits?
The part-time workers directive was imposed on Britain this month as a result of the Government's break-neck and irresponsible signing up to the Social Chapter. Part-time workers may now become entitled to the same benefits as full-timers, but there is no definition of a "part-time" worker in the directive, nor, indeed, of a "full-time" equivalent. Employers will be required to provide written statements to part-time employees informing them why they are not to be given pro rata conditions. That will provide a feast day for the lawyers.
But that written statement is not a requirement of the European directive. Chris Humphries, the Director-General of the British Chamber of Commerce, described it as a blunt instrument and 228 accused the Government of gold-plating the EU directives and of imposing unnecessary burdens which small firms will find very difficult to shoulder.
From an entirely laudable ambition to have identical regulations affecting similar goods and services throughout the EC, a giant industry has been spewing out long-winded and verbose legislation of unimaginable prolixity. I remember reading—I only wish that I could have found the quote for today's debate—a comparison between the brevity of the Ten Commandments and the thousands of words that it took to regulate the thickness of the covering on a chocolate biscuit!
But more seriously, the Government never lose the opportunity to proclaim themselves the friend of business, especially SMEs. However, only last week we read of the unfortunate Mrs Janet Stephens who employs just seven people making canopies for babies' buggies. Courtesy of Hector, the Inland Revenue friendly tax inspector, 234 pages, weighing 1¾ pounds—I beg your Lordships' pardon, 795 grams—thumped on to her desk. Your Lordships will be relieved to know that that included a two-page leaflet telling her how more supplies of that bumf may be ordered just in case she did not have enough.
Naturally, I should like to give credit where credit is abundantly due; that is, to the Companies Registry. For years, the Small Business Bureau, of which, before I came to the Front Bench, I was an active member, has been campaigning against the unnecessary complexity and repetitiveness of the annual return which every company must file. Last year, the registry produced a simple new form containing all the data on file and which the company only has to sign and send 'back with any amendments noted. That will certainly save most SMEs time, professional fees and the risk of late filing fines. I believe that that is very good.
Although the Government claim to be the friend of small businesses, they have piled costs and overheads on them. When I was dealing with the national minimum wage from this Dispatch Box, despite my begging them ever so politely, they refused to give similar exemptions which are allowed for small businesses in the United States of America, despite the fact that that country invented the national minimum wage. They even refused to exempt workshops where disabled people work, not for wages but for therapeutic purposes. They refused also to exempt holiday camps, where many of the instructors were simply students taking on a holiday job.
The Government fell over themselves to sign up to maternity leave, parental leave and time off for so-called "domestic emergencies" but alt the same time, they adamantly set their face against exempting the smallest of corner shops and village stores and very small businesses. That was not to conform with the requirements of the single market or even for the sake of uniformity throughout the EU—on the mainland, such exemptions are granted—I believe that it was because our Government were anxious to be seen by their partners in the EU as more European than they 229 are. That little group of regulations alone costs some £5,000 million per year, a large part of it falling on SMEs.
The working time regulations, which were sneaked through Parliament by being laid before Parliament the day before the 1998 Summer Recess, are producing a deluge of paperwork affecting more than 1 million businesses. The Government's own estimate of the cost of that alone is £2,300 million per year every year. By coincidence, that is the same amount as is produced by 1p on income tax—
§ Baroness Miller of Hendon
My Lords, this is a timed debate and I hope that the noble Lord will forgive me. As I do not want to overrun my time, it would be very discourteous.
We seem to have the knack of producing regulations that are more stringent than our obligations require them to be and more stringent than our competitors on the Continent impose on their own industries. That is the point I wish to make. The process, to which I have already referred, we describe as "gold-plating". The Environment Agency, for example, is proposing new regulations on the pig and poultry industries which will cost a reported £1,250 per day to enforce. Those regulations do not apply to the rest of the EU. They do not even apply in Scotland.
On Tuesday last week, the Secretary of State triumphantly announced new regulations relaxing the requirement of SMEs to have their accounts audited, which he claimed would save them up to £180 million per year. I think the phrase "up to" is good, but it might be meaningless, as most of the firms will still need professional assistance to prepare their accounts for tax purposes, and no reputable accountant will probably wish to produce a balance sheet without an audit. However, either way, it is certainly a step in the right direction.
What emerged from the recent Lisbon conference, as from so many similar meetings of heads of state and trade Ministers is, I believe, a lot of lofty rhetoric. I do not doubt for one minute that the heads of state sincerely meant every word of their very high-sounding communiqué. But as so often is the case, it is easier to say the right thing than to do the right thing. Politics proposes, but it seems to me that Brussels disposes.
I have urged the Government during several previous debates to bear in mind that the corner shop is not the same as a giant conglomerate. The noble Lord, Lord Cocks, made that clear when he referred to Asda. It was very careful of noble Lords opposite to refer to Asda and Tesco and to make sure that they did not talk about Sainsbury, but that is just the polite way in which this House conducts its business.
The same rules and regulations which can easily be absorbed by large businesses cause a wholly disproportionate burden to small and medium-sized enterprises. The noble Lord, Lord Graham, was 230 careful to say that he thought I had experience of that. Fortunately, I sold my business before all these rules and regulations were introduced. Looking at them now, standing here at the Dispatch Box, I am glad that I did that.
I ask the Government to examine every regulation they make, not from the point of view of uniformity but of proportionality to small businesses. That is the key point. On his return from Lisbon, the Prime Minister called for reforming the EU. He said that we should encourage the EU to follow the United States and UK models with an emphasis on deregulation and flexible labour markets. But as will be seen from the many examples I have given, we are no less bureaucratic. In some cases, we are more bureaucratic than our European competitors. They are sometimes called our "partners", but we should not forget that they are our competitors.
As Adair Turner pointed out recently, Britain's low unemployment and low inflation reflect the profound liberalisation of the labour market introduced by the previous administration. I believe, therefore, that much of the "knocking" about what we did was somewhat unfounded. I urge the Government not to throw away the advantage gained then. Last year, Britain's commerce was inundated with a record-breaking 3,468 new regulations. We are more than a quarter of the way through this year. I ask the Government drastically to cut the number in the nine months or so left to come.
§ 5.33 p.m.
§ The Minister for Science, Department of Trade and Industry (Lord Sainsbury of Turville)
My Lords, I start by thanking the noble Lord, Lord Harrison, for initiating this debate and, indeed, thank noble Lords for the many interesting contributions. I congratulate the noble Lord, Lord Patel, on his speech. It is always a pleasure to hear the first speech in this House of someone who will obviously be a star performer. We look forward to his future contributions. Perhaps I may say on a personal note that I hope he will continue to champion the cause of small businesses. That is clearly a subject of which he has great personal knowledge.
I welcome the opportunity to respond to the debate on behalf of the Government because I believe that there is a good story to tell. The Government are working to create an environment that enables business to meet the challenges of the modern global economy here in the UK, Europe and throughout the world.
I want to focus on small firms, as did most of the speakers today. As many noble Lords said, we recognise that government does not create wealth; small businesses do. Small businesses are the future of our economy and the Government's role is to create the right conditions for them to thrive and prosper. The following statistics show why that is so important. I endorse the comments of the noble Lord, Lord Harrison, that small businesses are, in fact, big business.
231 There were an estimated 3.7 million small businesses in the UK at the start of 1998—that includes 2.4 million sole traders—compared to just 25,000 medium-sized businesses and 7,000 large businesses. In 1998 2.4 million businesses were run by sole traders or partners without employees. In 1998 small businesses with under 50 employees accounted for 99 per cent of businesses, 45 per cent of non-government employment and, excluding the finance sector, 38 per cent of turnover.
We have heard much about the need to reduce the burden of regulation. We agree that that is central to building a better business environment. I shall turn in a moment to some of the things we are doing on regulation and how we are managing the process to reduce the number. The noble Baroness, Lady Miller, talked about 3,400 regulations. That is last year's figure and is slightly below the average of the former government in their last two years. That figure is not totally reliable. It involves all sorts of things—some of which are not regulations—to control businesses, but also to enable them to do things. However, if we take that figure alone, it is below what was the previous running rate.
We live in a knowledge-driven, global economy, where information and finance can move around the world at the click of a mouse. That affects the way in which people do business. We must ensure that business can take advantage of the new opportunities which now arise with such rapidity. That means providing economic stability, introducing fiscal measures which encourage enterprise and investment, promoting fair competition, investing in skills, encouraging innovation and removing barriers to finance, especially for the innovators and risk takers that generate wealth in the small firms sector.
Our first task over the past two-and-a-half years of Government has been to establish a platform for economic stability and put an end to the damaging cycle of boom and bust. As someone who has spent most of his life in business, there is nothing more damaging for businesses big or small than a boom and bust situation.
We are aware that the strength of sterling causes problems for many businesses. However, taking the point made by the noble Viscount, Lord Oxfuird, I totally disagree with his analysis of what can be done about it. The idea that we should weaken the strength of the pound, which can only basically be done by taking policies which will allow inflation to grow in the economy, is to return to that cycle of boom and bust which is so disastrous for small businesses.
It is worth reminding ourselves that in the late 1980s and early 1990s 1 million businesses went under, 1 million jobs were lost in manufacturing and 2 million jobs totally disappeared. I do not think that that is the sort of situation that small businesses want to see happen again. The people who suffer most from that sort of boom and bust are those people in industries such as the machine tool industry. As was 232 rightly pointed out, they are the people whose investment or sales are cut right back in those periods of recession and slump.
§ Lord Sainsbury of Turville
My Lords, I am sorry; this is a timed debate and there are a lot of questions to answer.
I should like to say also that machine tool manufacturers are the sort of people who can raise their productivity; they can use new technology to improve their performance and take advantage of the schemes mentioned by my noble friend Lady Warwick.
Noble Lords on the Benches opposite may not want to be reminded that the previous administration managed an economy which saw insolvencies peak at nearly 16,000 in one quarter in the early 1990s and the lowest number of business start-ups on record—just 77,000 in one quarter. But over 1.2 million new businesses have started up in the lifetime of this Government. There were over 439,000 new business start- ups during 1999 alone. In contrast, the number of business closures during 1999 (386,000) was the lowest for a decade. I believe this demonstrates that the Government are providing the right economic platform on which all of our small businesses can achieve their full potential.
A major step forward was taken with last month's Budget. As a result, Britain now has its lowest ever corporation rates for small companies and, with the 10p starting rate from this month, the lowest starting rate among major industrialised countries. The measures introduced this year, together with the 3p cut in the small companies' rate already announced, will cut corporation tax bills of small companies on average by nearly 25 per cent.
Budget 2000, as has already been mentioned, set out a substantial package of further tax measures to help small businesses. These include cuts in capital gains tax; permanent first-year capital allowances; 100 per cent first-year capital allowances for investment in ICT by small businesses; an R&D tax credit for SMEs; and a new all-employee share ownership plan and enterprise management incentives giving employee share ownership in the UK its biggest ever boost and helping small firms to recruit and retain the key staff they need to succeed.
In answer to the point of my noble friend Lord Graham, we are taking action to encourage employee share ownership because that is clearly an important aspect of new businesses over a period of rapid growth. A final feature of the Budget was tax reliefs to promote corporate venturing, encouraging large and small companies to work together for their mutual benefit.
Let me now turn to the Small Business Service, which is a key part of the Government's overall strategy to create an entrepreneurial Britain. I welcome the endorsement of my noble friend Lord Harrison and say to my noble friend Lord Peston that one of the prime tasks of the SBS will be to put the 233 viewpoint of small businesses right at the heart of government. It has three over-arching aims: a strong voice for small business at the heart of government; world class business support services; and to mitigate the effects of red tape. And no one should doubt that David Irwin, the chief executive of the Small Business Service, will make a great success of the venture. He has great experience in this area and has already shown considerable independence in that regard.
At the same time, we need to do more in relation to ethnic minority businesses. We are therefore setting up an ethnic minority business advisory forum to act as a sounding board to help to address the kinds of issues mentioned in this debate. I agree with my noble friend Lord Patel that, if Mohammed will not go to the mountain, the mountain should go to Mohammed. In the case of the Small Business Service, it is key that the people involved go out into the field, visiting small businesses, rather than sit in their offices waiting for people to visit them. Small businesses do not have the time.
The noble Baroness, Lady Byford, raised the question of sub-post offices. We will certainly make available what information we have in relation to some of the deficiencies in the current system which lead to considerable opportunities for fraud. We cannot delay the modernisation of the benefits payment system any longer, though in fact there will not be any change to existing arrangements until 2003.
It should be said, on the other side of the equation, that, with the Horizon project, sub-post offices will have the ability to provide more banking services. With the closure of some rural banks, which is regrettable, they will have an opportunity to take their place. It should be made clear that those receiving benefits through sub-post offices will do so without deductions. People will still be able to receive benefits in cash. As I said, there will be no changes until 2003, so there is a lot of time to take account of this.
I agree with the praise of my noble friend Lord Mason for the Prince's Business Trust. It is an excellent and highly successful initiative which achieves both economic and social objectives, and shows how they can be achieved at the same time. The New Deal for young people allows 18 to 25 year-olds to select a self-employment option at the gateway. Young people receive financial support and advice throughout the self-employment route and the guidance of a mentor. But we will always look at new ideas, and are currently looking at professional, regional innovation funds, which could help to fund the sort of innovation centres my noble friend mentioned.
The noble Viscount, Lord Oxfuird, raised the question of the boundary between the Small Business Service and the Learning and Skills Council. There is no specific problem in that regard. The Small Business Service does not have training as a primary target, whereas it is absolutely integral to the objectives of the Learning and Skills Council.
234 I should like to say to my noble friend Lord Cocks of Hartcliffe that, while we want to see small businesses succeed, they in turn must consistently adapt to the changing economic scene and the changing needs of their customers. Regrettably, there will always be failures in management and it is not the role of government to intervene to support those situations. The role of government is to create the right environment and incentives; it is for business to take advantage of the opportunities.
I was delighted by the speech of my noble friend Lady Warwick. She identified something of great importance; that is, the cultural change taking place in our universities. It is extremely impressive. The number of spin-off companies and the research now being done for companies has risen dramatically in recent years. We want to build on the success of Science Enterprise Challenge and the HEROBC scheme. I agree that the universities of today should be at the heart of our knowledge-driven economy. They should not be seen, as so often was the case in the past, as parasites of our economy, but as being at the heart of our knowledge-driven economy. I was greatly encouraged by the way the universities are rising to this challenge and incentive.
My noble friend Lord Graham raised the question of the impact of economic change on urban and rural communities. That is something that both the DTI and the DETR are conscious of. That is why it is essential to promote new sources of growth and jobs created by SMEs as the way forward.
The noble Lord, Lord Pearson, to our surprise, raised the question of Europe. I should remind him of the survey conducted by the British Chamber of Commerce which found that 38 per cent of companies favoured joining or making a commitment to join the euro; 36 per cent were against and 24 per cent were for keeping the options open. Also, the figure of £10 billion needs to be looked at carefully; £7.5 billion of that is the implementation of the working time directive. This Government believe that that was an important and highly desirable piece of legislation. We make no apology for it, nor for the cost involved.
Let me turn briefly to the future. The Small Business Service will make sure that the Government think "small" first. David Irwin has a specific mandate to examine new and existing regulations and is already making his voice heard. To make it easier to remove the burden of regulation, the Government are introducing a Bill that will enable changes to be made without having to wait for space in the main legislative programme.
We have acted to do something about deregulation. The new Labour Government have introduced effective mechanisms for tackling red tape across government. The Government have appointed a Regulatory Reform Minister in each department to examine and get rid of unnecessary regulations and to minimise the burden of any new, necessary proposals by consulting with business.
The Government have established a top level panel to call Ministers to account for the regulatory performance in their departments. These reviews have 235 now begun. Following the meeting on 27th March, the Department for Trade and Industry and the Department for the Environment, Transport and the Regions agreed to a package of specific regulatory reforms. Both departments issued press notices, as well as issuing a joint notice with the Cabinet Office. In the next meeting on 18th April, the panel will scrutinise measures being put forward by the Department of Health and the Home Office to reduce regulatory burdens. Again, a press notice will be issued.
Business has been given a powerful voice in this process. David Irwin, Chief Executive of the Small Business Service, and my noble friend Lord Haskins of the Better Regulation Task Force are both members of the panel. David Irwin's role will be to put the special needs of small businesses at the heart of the Government's regulatory reform programme.
I turn now to some of the specific actions that we have taken to minimise burdens on business. We have merged the Inland Revenue and the Contributions Agency, thus ensuring that companies have to deal only with one organisation and one company audit. This was recommended by the previous administration's deregulation task force in 1995, but was something that that administration failed to do.
We are modernising the weights and measures legislation. So far as concerns the Employment Relations Act, we have exempted employers with 20 or fewer employees from the trade union recognition procedures. We have exempted small shops from the EU requirement to show the unit price of pre-packed goods. We have also exempted employers with four or fewer employees from the requirements to provide access to stakeholder pensions and deduct pension contributions.
Last month, the Chancellor of the Exchequer ordered an investigation into competition in the provision of banking services to see whether the market is working effectively and whether it is serving the interest of smaller firms in the United Kingdom. From the viewpoint of the small business, I believe this to be the key issue. I was pleased that my noble friend Lord Peston raised the matter. Much still needs to be done on the question of finance for small businesses, but we have already taken a number of steps. We shall continue to look at this area and take more steps in the future.
I was delighted that my noble friend Lord Harrison drew attention to the serious harm caused to small businesses by the late payment of commercial debts. The Government are determined to change the late-payment culture that existed under the previous administration. In November 1998 we introduced the Late Payment of Commercial Debts (Interest) Act and we have also taken very strong action so far as concerns government payments. I should point out to my noble friend Lord Peston that the Government have improved the overall payment performance of central government year on year since taking office. We shall continue to publish data annually showing the percentage of invoices paid on time by central government.
236 As this debate includes the European Union, I should also say that I believe the Lisbon summit also moved the date very firmly forward in terms of the enterprise agenda. Some very specific and clear targets were set at that time.
In summary, through fiscal and monetary reforms, the Government have created a sound and credible platform of stability and long-term economic growth. Now, with both the lowest corporate tax rates for businesses ever and the lowest ever capital gains tax rates for long-term investors, Britain is becoming one of the best places for companies to start, to invest, to grow and to expand. That is why we are seeing so much inward investment to the UK at the present time.
The Government want to see a highly competitive environment for business in the United Kingdom, but we also want to make certain that people have the knowledge, skills and equipment to create competitive advantage in the fast-moving economy in which we now live. The Government want to create an environment where opportunities for enterprise are open to all—young or old, male or female and regardless of ethnic origin or where people live—and to make sure that the global knowledge-based economy is a bringer of opportunity and not a threat.
We cannot stop change; we cannot hold back global forces. However, we can provide economic stability. We can provide people with opportunities to upgrade their skills through organisations, such as the University for Industry, and we can provide incentives for innovation and enterprise. In all of this we will listen carefully to the voices of small businesses so that our policies are always attuned to their needs. In the future, the Small Business Service will always make certain that the voice of small firms is heard in all parts of government.
In a period of rapid economic change small businesses are faced with many opportunities, as well as many difficulties. Their speed of response and flexibility gives them a real advantage. I hope that I have made it clear in this debate that the Government see small businesses as playing a vital role in the knowledge-driven economy and that we want to enable and incentivise them to seize the many opportunities that they have for profitable growth.
§ 5.55 p.m.
§ Lord Harrison
My Lords, in concluding this debate, perhaps I may take up the theme of my noble friend Lord Graham of Edmonton who said that he had enjoyed today's debate. I have thoroughly enjoyed it, for two reasons. I enjoyed it, first, because I have learnt an awful lot today about small businesses. I thank each and every speaker for his or her contribution to the debate about the role of small businesses. Secondly, I enjoyed it because of the diversity of views expressed by all speakers. In that respect, I believe that we reflect the diversity of small businesses in Britain today. Indeed, our discussion has ranged from the Prince's Trust to the role of universities, to the problems of post offices and ethnic communities and to the possibilities for workers' co-operatives, to name but a few.
237 We even invaded the football pitch of some of the smaller teams around the country in our debate—for example, Barnsley, Blackburn and Bristol. I wonder why there is no major team in the Premier League whose name begins with the letter "B". However, I recall that Sir Alex Ferguson and his colleagues are in Strasbourg today in an attempt to try to change the Bosman ruling on the single market, which so affects our football teams—especially the smaller clubs.
I should just like to make one remark that I have been provoked into making by the noble Lord, Lord Pearson of Rannoch. I should tell him that life has moved on. I invite him to walk down the Corridor of this House into the Salisbury Room. I do so because he made mention of the art market. I also invite the noble Lord to inspect the catalogues from Sotheby's, Bonham's and other major art houses here in London. If he does so, he will find that even in respect of sales of British paintings the suggested sale prices are now expressed in both pounds sterling and the euro.
During our debate today much mention was made of shops, from corner shops to the major supermarkets. However, this debate has not been a talking shop: we have really made a contribution to the well-being of small businesses. I hope that we can go further in future debates to ensure that small businesses are put at the heart of Britain's business. I thank all noble Lords for their contributions. I am advised that I need to beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.