§ [Relevant documents: Thirteenth Report from the Trade and Industry Committee Session 1998–99 HC 330 and HC49 Session 1999–2000 (Government Reply).]
§ Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Dowd.]
§ The Minister for Small Business and E-Commerce (Ms Patricia Hewitt)
I am delighted to open our debate this afternoon on small firms, particularly because this is a happy side effect of Opposition Members' disgraceful behaviour in the House last night: the beneficial effect of not taking the Electronic Communications Bill in the House this afternoon is that I am able to be present at this debate. I want to put on record my thanks to my right hon. Friend the Minister for Trade, who would have opened this debate if I had been piloting the Bill in the House.
We are discussing an important subject and a sign of the importance that we attach to it is that we held a similar debate in June 1998 and a further debate in June 1999 on innovation and enterprise, both of which covered issues of importance to small businesses. I hope that we shall have an equally constructive and helpful debate this afternoon on how the Government can create the conditions in which more small businesses can start, survive and succeed.
Hon. Members will be aware of the wide-ranging report published last October by the Select Committee on Trade and Industry. I am delighted to see my hon. Friend the Member for Ochil (Mr. O'Neill) here. In line with one of the Committee's recommendations, I am delighted that our debate will cover the wider enterprise agenda.
There is another reason why the debate is timely. I had the good fortune this morning to speak at the ceremony for the Parcelforce small business awards, which is one of the largest and best-established of the small business awards programmes. I am delighted that Parcelforce had more than 2,000 entries for the awards whose winners were announced today. That is a tribute to the spirit of enterprise that is alive and well in our country.
It is not Government but business that creates wealth. In the knowledge-driven economy, small businesses are the source of innovation, enterprise and growth. That does not mean, as some in the previous Administration made the mistake of believing, that Government can walk away and tell business to get on with the job. Our responsibility as a Government is to create the conditions in which business can succeed. That is what we are doing. The first and perhaps most important condition for success is an end to the boom and bust that has been so disastrous for investment and business for the past two decades. The first and continuing achievement of my right hon. Friend the Chancellor of 266WH the Exchequer is to steer a course of economic stability and growth. Taking politics out of decisions on interest rates has ensured not only that interest rates are at an historically low level, but that businesses can plan with confidence for a future of stability.
§ Mr. Christopher Chope (Christchurch)
On a point of order, Mr. Deputy Speaker. It will have come to your notice that the annunciator states that a debate is taking place here on small arms. Is it within your capacity to have that corrected?
§ Ms Hewitt
Thank you, Mr. Deputy Speaker. I am under no illusion as to what we are discussing.
We have put an end to that damaging cycle of boom and bust, which saw interest rates peak at 15 per cent, and remain in double figures for four years. The economy that we inherited was set to repeat that damaging cycle. We now have a new and credible framework of monetary policy, inflation is historically low and is expected to remain close to the target figure, and the number of employed has risen by 700,000 since the general election. Virtually all that growth in employment has occurred in the small and medium-sized enterprise sector. More people in this country are in employment than ever before. Levels of joblessness are at a 20-year low. Youth unemployment is down by more than 70 per cent. and long-term unemployment by more than 50 per cent. Those are achievements of which the Government can be proud.
Of course, the climate for small businesses is good. Barclays bank estimates that approximately a quarter of a million businesses started up in the first half of last year, which is more than started up in the first half of the previous year. Almost one million new businesses have started up under this Government. That is a higher average for each quarter than for the first half of the 1990s. In marked contrast, the lowest number of business start-ups on record—a pathetic 77,000 in one quarter—occurred under the previous Government.
While building a firm foundation for stability and success, we have also taken steps to ensure fairness for workers, families and communities. The hon. Member for Tiverton and Honiton (Mrs. Browning) will probably tell us about the iniquities of regulation. Doubtless she and some of her right hon. and hon. Friends would like workers, some of whom are employed by small businesses, to continue to be paid a pittance and work excessively long hours with no right to paid holidays. We will not accept that. We believe that fairness and enterprise go hand in hand. That is what good, successful employers and businesses believe as well. We want our companies to compete on quality, not on the basis of how badly they can get away with treating their employees.
Of course, it is often difficult for small firms to access the support that they need, and especially sources of finance and information. We are working not only within Government but in partnership with the private sector and the not-for-profit sector to deliver the services and support that small businesses need. In particular, we are creating the new Small Business Service, which is a 267WH key part of the strategy to create an entrepreneurial Britain. Hon. Members are, I hope, aware that the results of last year's extensive consultation, together with our response to the issues raised, were published yesterday. I am delighted to say that there are 700 high-quality replies to that consultation from a wide cross-section of people, including representatives from a number of firms.
The new Small Business Service will build on the real advances made by the creation of business links. Everyone acknowledges that business links was a great improvement on the complete confusion that existed six or seven years earlier, but it is still not good enough. Small and medium businesses tell us constantly that quality is uneven. Some of the links deliver excellent services, but others are proving inadequate. For some years, the focus has been on larger businesses with high growth potential, so it can prove difficult for the sole trader and those who want to take up self-employment to get practical help.
First, the Small Business Service will help us to create the world-class business support services that our small and medium-sized businesses deserve. Secondly, it will help us to cut red tape. Thirdly, it will help us to simplify and streamline the support services that the Government offer to business. There is a large number of excellent programmes, but the number is so large that the small business person can sometimes have difficulty finding his or her way through. The Small Business Service will help us and it will help the small business customer.
As hon. Members can see from the response to our consultation, we are on the right track. Business across the country has given our vision for the Small Business Service a real welcome. Now we have to deliver on that vision, which we are doing by franchising through business links. We are asking the existing business links partnerships to make the first proposal for that new franchise, but making it clear that if the quality does not match the standard that we demand for our customers, we shall go out to open competitive tender. There are no illusions about the challenge for quality that we are setting for business links.
At the end of last year, my right hon. Friend the Secretary of State announced the appointment of David Irwin as the first chief executive of the Small Business Service. He has an outstanding record in the north-east as chief executive of Project Northeast, an entrepreneurial and largely commercially funded organisation. Its mission is support for start-ups and for small businesses. He will take up his post on 6 March, but I am happy to say that, thanks to e-mail, he is already closely engaged with officials in setting up the Small Business Service. I am sure that hon. Members will join me in welcoming David to his new post. He is ideally placed to develop the Small Business Service into the organisation that we and small businesses want.
Some of those who responded to our consultation questioned whether the chief executive would carry sufficient weight with Government. I can assure hon. Members that he has the confidence and the backing of the entire Government. He will have an independent right of direct access to the Prime Minister if there is an issue of particular importance. He will attend key 268WH ministerial meetings at which small business issues are discussed. He and the Small Business Service will have the right, but also the responsibility, to scrutinise all proposals for regulation and to examine in detail those that may affect small business, to ensure that the litmus test of thinking small first—thinking about the impact on the small business, the owner manager, the sole trader—is the starting point when considering the implications of regulation. He will also be a member of the new star chamber, the ministerial panel for regulatory accountability chaired by my right hon. Friend the Minister for the Cabinet Office. That panel will call to account Ministers from every Department, including my own, for their regulatory performance and programmes.
We want to deliver world-class business support services to the whole of the entrepreneurial community. That must include women entrepreneurs, who form a growing proportion of that community, although they are still under-represented in this country compared with, for example, the United States of America. It must also include entrepreneurs and potential entrepreneurs from the Afro-Caribbean and other minority ethnic communities, who have not, in the past, felt that the mainstream business support services understood their needs or responded well to them. We must also reach out to support the development of both social and commercial enterprise within the most disadvantaged areas. Regulation is of particular concern to small businesses. We are determined to address that through the Small Business Service, through the existing task force on better regulation, and now through the new ministerial panel on regulatory accountability.
I must also refer to the extraordinary comments made this morning by the British Chambers of Commerce. I have great respect for that organisation, and for its director general, Chris Humphries. In my experience as Minister with responsibility for small business, I have found it a valuable source of advice and information on what is going on in the business community and on all its concerns, but the numbers that it published this morning about the so-called regulatory burden are nonsense. I notice that, an hour or so ago, it issued a revised version of those numbers. They are coming down hourly, but there are at least two difficulties with the numbers issued. The first and most important is that they include the so-called burden of the benefits to workers of the working time directive.
The working time directive is about paid holidays for employees and making sure that they are not forced by their employer to work 70, 80 or 85 hours a week to the detriment of their own and their family's health and often to the detriment of customers and the productivity of the business. There are real benefits to employees from the working time directive, but those are the costs that the BCC has included.
§ Mrs. Angela Browning (Tiverton and Honiton)
Does the Minister agree with Lord Haskins, who described her Government's stewardship of the working time directive as a dog's breakfast?
§ Ms Hewitt
The hon. Lady overlooks the fact that we consulted business carefully about the way in which we should implement the working time directive. In response to that consultation, we have significantly 269WH changed the administrative way in which it will be implemented. The administrative costs included in the business burdens listed by the British Chambers of Commerce are out of date. They are figures that would have existed for the old way of administering the directive, but because we have listened to business and got rid of the record-keeping requirements that increased red tape and administrative burdens, we have got rid of them.
The same is true of the minimum wage. The British Chambers of Commerce has included a substantial figure, although it has changed a couple of times already today, for the administrative costs of the national minimum wage; but we listened to business on how the national minimum wage should be implemented and, having listened, we decided not to pursue some of the options that had originally been proposed in the consultation, including the option to include the minimum wage on the payslip, with the effect that the administrative costs to business of the national minimum wage are virtually zero.
§ Mrs. Browning
In tidying up some of the nonsense around the administration of the national minimum wage, has the Minister also removed the requirement in statute for directors of limited companies to pay themselves the minimum wage, whether they want to draw that salary or not?
§ Ms Hewitt
I am not sure that I immediately know the answer to that question, as I am not the Minister with direct responsibility for the national minimum wage, but I shall come back to that point, if I may.
I also want to draw the Chamber's attention to an extremely interesting interview on the BBC's lunchtime business news with one small business man, the director of Rowan Yarns, an excellent company, in Holmfirth. He said that he ran a successful small firm by employing good people, and that he got good people—most of his work force are women—by ensuring that they could balance work and family and did not have to sit at work worrying about their families all day. He is perfectly happy to pay a decent wage and to have good conditions. When the interviewer said, "But surely you have noticed this terrible increase in red tape and administrative burdens over the last two years," he said, "No, actually, I haven't noticed anything of the kind and I think that what's happening is right."
Finally on this point, I want to draw the Chamber's attention to the recent report of the Organisation for Economic Co-operation and Development, which examined administrative and economic regulations in the member states and concluded, on the basis of an exhaustive analysis, that the country that imposed the least administrative and economic regulation on its businesses, large and small, was the United Kingdom. We are determined to do even better, but let us not exaggerate the position that we start from and let us not confuse fair standards for employees that will help businesses to improve the quality and productivity of their work force with administrative costs, which we should simplify and strip out wherever possible.
§ Ms Hewitt
That is another happy example of consulting with and listening to small business. We knew that small businesses were particularly concerned about payroll administration and the implications of the working families tax credit. We consulted them on a proposal to introduce a payroll voucher, which would have helped with the costs of payroll administration, but they told us clearly that they did not want that, but rather the kind of one-to-one advice that the Inland Revenue can provide. Just before Christmas, my hon. Friend the Financial Secretary and I announced that investment was to be put into expanding the Inland Revenue's NESI—new enterprise support initiative— scheme, which enables new businesses, in particular, to get tailored advice on how to administer their payroll.
One of the best ways of slashing administrative costs, including those of payroll administration, is by exploiting information and communications technology. I should like to dwell for a moment on electronic commerce.
§ Mr. Chope
Regarding payroll, it was said at the time of the previous Budget that a substantial sum—about £70 million—was to be made available to the Small Business Service to administer the payroll. Now that it is no longer to be charged with that responsibility, is that £70 million still available to help small businesses in other ways?
§ Ms Hewitt
As I have already said, we are investing in an expansion of the Inland Revenue's one-to-one support service for small business, because that is a service that small business wants. When we publish the budget for the Small Business Service, the hon. Gentleman will see the full figures. He will also see, in April, the launch of an immensely exciting new initiative—an internet-based gateway to all Government business support information and services, aimed directly at the small and medium-sized enterprise sector. It will be available on-line—for those who are on-line— or through a call centre or through advisers for those who want indirect access.
It is essential that our small businesses exploit to the full the power of electronic commerce. We have in our country some world-class small businesses that are helping to lead the way in e-commerce.
§ Mr. Brian Cotter (Weston-super-Mare)
Will the Minister expand on that? I believe that a trial scheme is in operation whereby when one registers as a self-employed person, one can fill out a form that can then be distributed electronically. That is a welcome development. How is that progressing, how quickly is it to be expanded so that it can be used more widely, and how many people are aware of its existence?
§ Ms Hewitt
I was delighted to find that shortly after coming into Government we ran an experiment that took the four forms that someone becoming self-employed had to complete, and turned them into a single form. As the hon. Gentleman said, it was then 271WH trialled as an electronic intelligent form. The single form is still in use, and I have asked officials to ensure that it is one of the services that is offered as part of the electronic gateway for the Small Business Service. It is an excellent initiative that needs to be made more widely known and available. It is just one small example of the power of electronic commerce to transform the ways in which small businesses interact with Government and, by doing so, reduce their administrative costs.
I am worried that although there are some shining examples of firms exploiting e-commerce, if one looks across the piece at our small—especially very small-firms, they are lagging behind. Our benchmarking study, published last year, suggested that our smallest firms were at the bottom of the G7 league table for the use of information and communication technology. They cannot afford to be left behind in that regard because within a year or two the internet will be as common and as essential to business as the telephone is today.
We have rolled out across the country information society initiative support centres and ISI local centres. I opened one in Luton yesterday. They are already delivering objective advice to small businesses in plain English. That advice is driven not by the desire to sell a product but by business needs and a desire to establish how information and communication technology can be applied within their business.
The results are outstanding. Optimum Designs, based in Wigan, is a sportswear firm, and it was one of the first companies to come to the ISI centre. It was given help in setting up a full e-commerce transactional website. As a result, during its first 12 months of internet trading, its turnover increased tenfold. Across the country small businesses have experienced extraordinary increases in markets and extraordinary reductions in the cost base. That shows the power of electronic commerce and explains why I am so passionate about the synergy between the two parts of my ministerial role.
Our country led the world into the first industrial revolution. We are determined that we should be the winners and leaders in the new knowledge-driven economy in which small businesses have a vital role to play.
I have not been able in the time available to describe many of the other programmes and support services that we are working on with businesses. I look forward to the rest of the debate and to responding to the points that hon. Members raise.
§ Mrs. Angela Browning (Tiverton and Honiton)
I declare two non-registerable interests as a former director of the Small Business Bureau and the current president of Women into Business; neither post has been remunerated.
I am delighted that at long last a debate has been devoted to small business. When the Labour party came to power, it promised an annual debate on this subject. When the then Financial Secretary, the hon. Member for Hornsey and Wood Green (Mrs. Roche), presented the first small business debate, she flagged it up as an event that we could look forward to. During 272WH the past year, however, and despite many promptings from the Dispatch Box from Conservative Members, the Government have not made time for a debate dedicated to small business. We are glad that the debate is being held today, although it is late. Conservative Members would have preferred it if the debate had taken place on the Floor of the House. That would have given due recognition to the importance of this sector of our economy.
The Labour Government are now into their third year. I listened carefully to the Minister, who gave the impression that during those three years things had only got better for small businesses. In fact, the reverse is the case.
The Prime Minister characteristically pledged before and during the general election that this Government would cut red tape. He said that they would not impose burdensome regulations on business because they understood that successful businesses need to keep costs down. In November 1997, he discussed the importance of investing in people, skills and technology rather than regulation and the imposition of constant burdens on employers, and he added that he wanted to reduce costs and burdens. That signalled for the first time a different direction.
The information that the Minister cited from British Chambers of Commerce and the figures that just about every small business organisation has presented during the past year show that, as a result of the Labour Government's initiatives during their first two years in power, there are additional regulatory burdens on business, especially on small businesses. The problem is of such proportions that now, in year three, it is starting to do significant damage.
I share the Minister's enthusiasm for the event that she attended this morning, at which she presented small business awards. Through Women into Business, I run an annual business award scheme, so I know how encouraging it is to see businesses flourishing and being recognised for their success. However, I hope that the Minister will take seriously what she hears today. She should acquaint herself with something other than celebrating those who have done well; she should focus on those who are failing under new Labour.
The Government's record on business, enterprise, and especially small business, was summed up in the 13th report of the Trade and Industry Committee, which was published last year. It stated:From the situation as we saw it a year ago, where there seemed to be something of a policy vacuum on SMEs, we have moved to one where there is at least some risk of an excess of loosely connected and apparently uncoordinated policy initiatives shooting off in all directions, generating noise and interest, but not commensurate light.This debate— the so-called annual small and medium-sized enterprises debate—should provide an opportunity for the Minister. I have heard nothing, apart from what she said about the future of e-commerce in this country, with which I agree, that can be described as anything other than abject complacency on the part of the Government.
The Minister will not be surprised to know that hon. Members of all parties have studied the information released by the British Chambers of Commerce in the past 24 hours. Its base line is constructed on compliance 273WH cost assessment figures supplied by the Government. If the Minister is saying that those assessments are wrong, as a result of putting right the mess that the Government made of at least 20 pieces of legislation, we would welcome that, but we shall press her for revised, accurate figures. She will understand our suspicion about the Government's figures on business, the cost to business, and support for small businesses, given that the 13th report of the Trade and Industry Committee questions the happy-clappy way in which Ministers use figures to repackage good news and, as we have heard this afternoon, suppress bad news. I give the Minister 10 out of 10 for consistency, because that is the approach not only of her and her Department, but of the whole Government.
What has happened in the past two to three years under new Labour? The British Chambers of Commerce, the Institute of Directors, the Centre for Policy Studies, the Federation of Small Businesses, the Forum of Private Business, the Confederation of British Industry, and all the other recognised business organisations, recognise the burden on business, as the British Chambers of Commerce described it, created by £10 billion of Labour red tape. The blame is laid clearly at the door of the Government. There is a burden barometer, which shows that, from day one, this Government have been ideologically driven. One of their first acts was to sign up to the social chapter, which allowed the application not only of new legislation but of retrospective legislation to which other European countries had signed up. That is beginning to hurt, and it is storing up problems for the future. If it hurts now, it will become very painful in the coming years.
The problem, of course, is that the smallest businesses feel the pain far more than those with an in-house lawyer, who sorts out the legal side of compliance, and a payroll department, which can deal with administration. The bigger businesses will also eventually feel the cost, which will filter through into competitiveness. The smaller companies feel the pain first, however, and they are beginning to shout. Instead of being complacent, the Minister should listen to what they are saying. This is not about tossing statistics between bodies—a million here or a billion there over two, three, four or five years—but about individual businesses and people. The Government have made a virtue of people. The Minister is right to say that people are important in business. Employers need to have highly skilled people and to ensure that morale is high.
What the Opposition predicted when we saw the tide of legislation that the Government have rushed to implement is beginning to materialise. The rhetoric was apparent from the start. In tandem with the rush to increase the cost, regulation and administration of small and medium-sized enterprises, the Government established the better regulation task force—not the deregulation or less regulation task force, but the better regulation task force. What a mockery that made of how they imposed the working time directive, the minimum wage and other horrors on business. There was nothing businesslike about the Government's actions. There was no recognition of the lead time that businesses need to change systems, brief their staff and comply with the 274WH law. That is an important consideration because most of the legislation imposes heavy penalties if the letter of the law is not followed.
§ Ms Hewitt
Is the hon. Lady aware that the British Chambers of Commerce told the Low Pay Commission that businesses recognise that a low-wage policy leads to a vicious circle of low morale, low performance and low productivity? Does she realise that the British Chambers of Commerce, unlike the Conservative party, supports a minimum wage and that the Confederation of British Industry described the introduction of the minimum wage as a model of how to legislate?
§ Madam Deputy Speaker (Mrs. Gwyneth Dunwoody)
Order. Interventions must be brief, even if they are ministerial.
§ Mrs. Browning
Thank you, Madam Deputy Speaker.
The minimum wage was debated in the House, but having got it on the statute book, the Government have not been businesslike in their use of secondary legislation or in the advice that they have given to businesses on how they should apply the legislation in the workplace. They have shown no understanding of how businesses, especially small businesses, work. They must get to grips with the fact that it is a burden for businesses to read and apply, with only a few weeks' notice, what is contained in a document that has more than 100 pages. By definition, a burden is a cost on business. Individual documents might seem significant, but the cumulative effect of more than two years of a continual tide of regulation is starting to damage British business.
§ Ms Linda Perham (Ilford, North)
Does the hon. Lady agree that part of the remit of regulation is to help and guide business, which is the case with telecom licences? The Conservative Government introduced about 3,000 regulations for each of the last three years of their Administration.
§ Mrs. Browning
I will come in a moment to what the Conservative party intends to do to save British business from the consequences of this tide of regulation. The hon. Lady is right: the point is how regulation is applied. Her intervention could not have come at a more opportune moment.
§ Mrs. Browning
We will keep that between ourselves; it might not do the hon. Lady's career much good if the Whips hear that.
A report produced only last week by Peninsula, the Manchester law company, showed the biggest ever increase in the number of businesses seeking advice on how they should apply legislation and revealed that more than 32,000 more calls were made this year than last year. Businesses are spending more and more time that they could use to do business ringing up for advice and trying to find out how they can do the Government's business, which is to apply all the legislation that they are imposing. More than two years ago, the Opposition predicted that the burden on 275WH businesses would become so great that it would start to affect their success and competitiveness. Indeed, Peninsula predicted in its report that more business failures would result. That announcement comes on top of the Dun and Bradstreet report of 4 January, which clearly showed that business failures increased by more than 12 per cent. in 1999, which is the third largest increase in a decade. The report also revealed a fatality total of 830 businesses going under a week, which is the highest for five years.
I remind the Minister of the economic scene that she set at the outset of her remarks. She spoke of low inflation, low unemployment and the right economic backdrop for business growth. If she believes that the economy is so wonderful and that the Treasury's economic management is so good, she must wonder why more and more businesses are going under. The two arguments do not correlate. What does she think the answer is? Why are more businesses going under in the wonderful economic environment that the Government claim to have provided? They will find that the answer lies in what they have done in just over two years. They have increased taxes on business and the cost of regulation.
Whatever the benefits of low unemployment and of lower inflation or lower interest rates—I remind hon. Members that interest rates are now creeping up—they are overtaken by the Government's own hands and by their intervention in taxing and regulating to such an extent that it is causing business damage. Unfortunately, predictions from organisations considering the trends show that we can expect those circumstances to get worse and not better during coming years. "Things can only get better," somebody once said; and Labour Members still believe it.
One of the things that Britain must do if it is to succeed and to use the excellent talent that it has in small firms is to enable small businesses to grow into medium-sized businesses. For many years, our competitors such as Germany succeeded in doing so, although circumstances there are not looking quite so rosy now. We have lessons to learn from such countries on how to grow small businesses into medium-sized businesses. Many factors, such as access to capital, are involved, and they are all subjects for legitimate debate.
Only last week, I visited a medium-sized company that has been kind enough to prepare for me some details of its regulatory burden. It currently employs 400 people and has grown from a small company to its present size. It has examined its revenue and regulatory costs in relation to its financial figures for the end of 1998. Subtraction of those costs from the company's revenue reveals that its regulatory burden is the equivalent of 8.4 per cent. of its operating overheads, excluding depreciation. The regulatory cost represents 46.3 per cent. of its profits after tax and is the equivalent of 193.6 per cent. of its corporation tax payments.
Despite the rosy picture of the economic climate painted by the Minister, other factors burden business. The factors are not obscure: they are immediately apparent to anyone when the regulatory burdens are broken down. Regulatory charges, environmental taxes, compliance costs, health and safety and employment burdens—and, gosh, employment legislation has grown 276WH so much in the past two years—represent a significant burden when added to the requirement to pay corporation tax and the other necessary charges on the company's accounts.
The Conservative party will take no lessons from new Labour. Neither business nor we shall be lulled into a false sense of security, feeling that all is well and that everything will get better. The Government will shortly precipitate a downturn typified by business failures unless they act.—[Interruption.] The Minister laughs. If she thinks that the Dun and Bradstreet figures are funny or if she is prepared to dismiss small business failure, fair enough. Let us say that that is the price to be paid for the happy-clappy-keep-em-all-happy song. If she is not prepared to take the issue seriously, the problem that I have outlined will be accelerated over the coming two years.
§ Mrs Browning
Whenever a statistic is heard, the Government, and especially this Department and this Minister do not want to believe it and so pluck another out of the air. The Minister will have seen the Dun and Bradstreet figures and heard what I said about the law firm that studied the problem of the burden placed on business in the Manchester area. The problems are having an effect not only individually on businesses but cumulatively, and they are starting to bite into the country's economic success.
We would not merely create more star chambers and similar bodies, holding dinners at Lancaster house as a first act. The new deregulatory hope for the country started with a dinner at Lancaster house with a few representatives of the companies in the FTSE-100—not many small businesses there. Is that the priority and the way in which deregulation will be advanced—with talk and proposals for better regulation, but with no commitment to rolling back regulation? The Conservatives will roll back regulation, making significant changes to the culture in Whitehall.
I was formerly a Minister in the Ministry of Agriculture, Fisheries and Food—they know all about regulation there, believe me. The Minister has an opportunity to roll back regulation. If we are to have more than words, she will have to be pretty smart. We will introduce regulatory budgets, with every Department and Secretary of State reporting not only to the Cabinet Secretary but to Parliament. Departments will report on reductions in cash terms, against a declared budgetary target, in the regulations impacting on business for which they are responsible. Only by our reducing the cost impact on business will businesses start to feel the burden less. If the Minister does not act quickly, she will have passed the point of no return.
§ Mr. Martin O'Neill (Ochil)
The hon. Member for Tiverton and Honiton (Mrs. Browning) began by complaining about the delay in holding this debate. Listening to what she said, I thought that she could almost have been speaking on 2 May 1997 because she 277WH seemed to have ignored everything that the Government have sought to place on the agenda for the small business debate. She delivered a meaningless, spiteful rant about regulation and said nothing about anything else relating to small business. She sought to disparage the obvious facts about the improved economic climate of which my hon. Friend the Minister spoke at the start of the debate.
I remember visiting small businesses in my constituency during the 20 years for which I have been a Member of Parliament and being told that they had terrible problems with interest rates. Rates are now low; I would like them lower. I would like us to enter the European monetary system at the appropriate time, so that we may enjoy the interest rates that our colleagues in Europe currently have. I do not know whether the hon. Lady would like us to reduce the burden by taking that route. If she answered at all positively, I am sure that the bleeper would quickly go off. I do not know whether we would welcome her into our ranks as a bleeper refugee, but there is always rejoicing in heaven when a sinner repents.
I remember complaints about inflation of 15 to 20 per cent. in the early 1980s, about the problems of the burdens that were going to be on small businesses and about having to deal with high wage rises. Some have had to deal with big wage rises because of the introduction of the national minimum wage. Sadly, the working terms and conditions of people working in small businesses in this country have often been inferior to those of people working in larger businesses. They have had to put up with low pay, and holidays, time off and family-friendly conditions have been given grudgingly. The boss was delightful and he really liked the employees, but he usually exploited their proximity and close relations.
Such employees were often open to the abuse of their reasonable freedoms, including the right to be free from wage exploitation and poverty pay. If enforcing those freedoms requires detailed regulation because mean-minded employers will not meet their social and legal responsibilities, so be it. They must be told about such matters because, in the past, left to the free market, far too many employees of small businesses did not get a decent living wage.
§ Mrs. Browning
Why does the hon. Gentleman think that hon. Members of all parties are being inundated with correspondence from people saying how unfair the Government's parental leave directive is because it is unpaid? The wealthy and those on good salaries can take advantage of it, but not others. It is immaterial whether one supports parental leave. Is it not strange that the Government have introduced a popular measure but expected business to pick up the tab?
§ Mr. O'Neill
Most current public expenditure is paid for by taxation, which the hon. Lady's party never ceases to try to find means of reducing. It is a bit much for her to say that parental leave is good and that the 278WH Government should fund it. Those who run businesses must consider their social as well as their financial responsibilities. Those social responsibilities extend to their employees.
I should like to proceed to speak briefly about another matter, Mrs.—I mean Madam Deputy Speaker. I have known you for so long as "Mrs. Dunwoody" that your elevated title escapes me at times.
§ Madam Deputy Speaker
Order. I do not mind what the hon. Gentleman calls me, so long as he does not call me some of the things that I have been called in the Labour party.
§ Mr. O'Neill
I do not know whether I should call you comrade, Madam Deputy Speaker.
The debate ought to be taken seriously. The Conservatives could have used one of their Opposition day debates had they thought the subject that important. We have seen the emergence of the Small Business Service, the appointment of David Irwin and the encouraging willingness of the Government to study the American model of small business administration. The presence in the United Kingdom for the past 12 months of Philip Lader, the United States Ambassador, who was head of the Small Business Administration there, has been helpful. He did that work as a member of one of the early Clinton cabinets, because of the separation of powers and the way in which they run their Government. That kind of appointment is not possible in the United Kingdom, but we have a reasonable compromise. David Irwin is at the heart of the Government machine. He is not accountable in the sense of being required to come to the Floor of the House, but he can, and I am sure will before too long, be invited to the Select Committee, which I have the honour to chair. We are very interested in that.
Doors were opened to us in the United States through the good offices of Philip Lader. We were able to have lengthy discussions with several of the players in the Small Business Administration, which has been in operation since the 1950s. It was introduced by a fairly right-wing Republican Administration, led by President Eisenhower, but has built up over the years expertise in assisting small businesses and an ability to identify their problems. Its cumulative experience has allowed advice and assistance to be provided through a sophisticated mentoring scheme.
When, before the general election, we considered the operation of business links, we found it disturbing that its advice and mentoring service had several shortcomings. I do not want to be offensive to the people who were involved in it, but some were failed business people who did not have the get up and go to start a business again and were looking for the soft option of explaining to people how they had gone wrong and telling them, "Make sure you don't do as I did; do as I say." That is a perfectly legitimate view, but not really the positive approach for which one would hope. We want a mentoring scheme in which the mentors have been successful people, able to show best practice.
If we can do something about the insolvency legislation, which is, as it were, pencilled into the Government's agenda at present, we shall have a greater tolerance of business failure. Of course it is distressing to 279WH see businesses go to the wall. However, especially in the case of small businesses, we do not want the people involved, who often lose many of their assets and even their homes, to be denied access to financial support and even to the mainstream of business life. That is almost kicking people when they are down. A consensus exists and the draft legislation on the issue has been broadly welcomed. I hope that it will be presented to the House.
We should recognise that we need a climate of economic confidence in the country and in business, so that business people will be prepared to come back after things have not gone right for them. Some of the mentors whom we met in the United States said that they gave most support to, and most wanted to encourage, the folk who had failed—because they would not fail again, given half a chance; they would not want to go through the trauma. There are, in the bones of the Small Business Service, causes for optimism about those matters.
With respect to the payroll service, matters need to be cleared up. The Government were going to introduce something that might have involved the R-word, but cast their net wide, consulted, and came up with something else. One of the good things about them is that they occasionally find the time to pause and reflect. They are often big enough to admit that they may have got things wrong and there might be a better approach. The Conservatives' rather mean-minded approach of dwelling only on the imposition of particular types of regulation, in support of objectives with which they disagree, is unfortunate and is skewing the debate.
The Electronic Communications Bill is important, because if the American experience shows anything, electronic commerce can enable small businesses to widen and simplify their marketing through the use of websites and networking. Businesses are flourishing in a way that was never imagined by using those facilities. Admittedly, America is a big country and has always had the network of the catalogues—Sears Roebuck culture—to a far greater extent than here. Women who worked in major textile mills in my constituency bought many of their clothes and Christmas presents through the Littlewoods catalogue, but in America many more people have been used to living in remote places, far from the main street store, and have chosen to shop in that way.
We do not have so much of the American communications-retailing culture, and we have the terrible problem of having to pay for local telephone calls. That has resulted in businesses being reluctant to become involved in electronic commerce, or to go on the net, because of the fear that keeping lines open for 24 hours a day, 60 minutes per hour, would cost a fortune. Indeed, an American to whom I spoke was incredulous when I explained our problems with the local call syndrome. He said that it was rather like going to a shopping mall and being given a meter that requires one to pay for every minute spent in the mall.
There are encouraging signs. Hon. Members on the Select Committee have successfully twisted BT's arm. It was no secret that we were to interview the Director General of Telecommunications at 10 am. Lo and behold, on the same morning BT produced the first packageoffering free internetaccess℄not just for 280WH getting on the internet, but for using it. Admittedly, there is no such thing as a free phone call, just as there is no such thing as a free lunch. However, there will be more opportunities, through packages, for freedom from anxiety about an open telephone line capable of receiving calls 24 hours a day through e-mail.
§ Mr. Nick St. Aubyn (Guildford)
Will the hon. Gentleman join me in regretting the feebleness of clause 10 of the Electronic Communications Bill£ Does he agree that it should tackle the problem more effectively and that an attempt should be made to get BT to act faster and sooner£ Without fast action we—I mean small businesses, in particular—will be losers in the matter of access to the net.
§ Mr. O'Neill
One of the hon. Gentleman's problems is that he has perhaps forgotten in his impatience that we live in a free enterprise economy and that it is not always possible, even for Governments who from time to time want to be interventionist, to interfere in the markets— especially regulated markets.
§ Mr. O'Neill
No, it is not a monopoly market— perhaps it is oligopolistic, or has a dominant player, but there is a fair amount of competition. There are about 35 players in telecoms. I am groping for a figure, but my point is that the market is not helpful in several respects, because of the dominance of BT. However, BT is the big tanker that takes a while to turn around. It is turning because smaller players are coming into the game and nibbling away at its market share. It has moved, and the Government are to be congratulated on that. Nothing in law requires the Director General of Telecommunications to get BT to move.
The original question was whether the Government were doing anything. I said that it was the regulator's responsibility. It would be open to legal challenge were the regulator to be given the power to intervene and dictate to a single company in a free market.
The climate in telecommunications is changing. BT is moving. We had to kick it, shove it, embarrass it and abuse it in the Select Committee. A bit of rough trade goes on there from time to time—in the best sense of the term, I hasten to say. We have seen the beginning of a movement. When the biggest player moves, I think that there will be a significant change. We are putting the legislation in place. We have been able to avoid some of the worst excesses that were being forced on us by the forces of darkness in terms of key escrow and the restrictions on electronic commerce, but step by step the pieces are being put in place.
We must weigh up the initiatives that the Government are suggesting and the current economic climate. Only 12 months ago we were hearing sad noises about big business, the macro-economy and the whole British economy, to say nothing of the European economy, which Conservative Members do not like and know nothing about, although that does not prevent them from expressing opinions on it; ignorance has never been a barrier to expressing opinions in the House.
In the past 12 months we have seen a transformation and a consolidation in our economy. There is nothing to suggest that that will not continue in the months ahead.
281WH The moaning and, as we say in Scotland, the girning and greeting that we have heard about regulation will be put into perspective and we will see that it is just a minor irritation in the development of small businesses, for which the Government deserve a great deal of credit and the support of the House.
§ Mr. Brian Cotter (Weston-super-Mare)
I want to fire two shots over the bows in both directions. I welcome today's debate. I was concerned that it would perhaps not take place and that it would clash with the Electronic Communications Bill, which many of us are interested in too. I must also refer to the appalling behaviour of Conservative Members last night, which resulted in the business being changed, but let me move on in a more constructive manner.
§ Mr. Cotter
In the short time that we have I want to concentrate on the debate.
The Minister rightly referred to the economic background, which was helpful. I should repeat that I run a small business. It is an interest that I have declared, but perhaps I should declare it publicly again in this debate. Currently I am struggling to keep it well on the rails. I want to express a small concern about one aspect of the country's economic performance—the high value of the pound. It does not necessarily affect small businesses directly—it does not in my case—but it affects many of my customers, who find it increasingly difficult to trade. I shall not drift into a big discussion of how I feel that that could be improved, but the Minister knows some of the Liberal Democrat views about that.
As we all know, small businesses remain an extremely important part of the economy, with 3.7 million in the United Kingdom, and they have been an important sector for the work force. The debate gives me a good opportunity to talk about the Small Business Service, to which the Minister referred. I welcome it, because I hope that it will genuinely replace the past proliferation of bodies such as the training and enterprise councils, business links and enterprise agencies, which perhaps waste money and resources. As the Minister has said, some of those bodies are not performing particularly well, and we look to this new organisation to make up that deficiency.
I am worried that the chief executive, who will bear a great responsibility on the small business community's behalf, will not be directly responsible to Parliament, and we shall have to approach the Minister on such matters. The hon. Member for Ochil (Mr. O'Neill) referred to the United States example, where the chief executive responsible for small businesses is a member of the Cabinet. I hope that the new organisation will adopt a direct approach and, unlike past organisations, accept responsibility. I look forward to hearing the Minister's views on that.
Extensive reference has been made to regulation, which is of increasing concern to business. As the Minister and others will argue, regulation is necessary to create the conditions in which employees and businesses can thrive. In that respect, the Opposition's worries about the national minimum wage have proved to be 282WH totally without foundation. Nevertheless, I hope that the Small Business Service will examine regulation on behalf of business people.
The latest survey by the Forum of Private Business shows that employment regulation is an issue of importance that is second only to business rates. I shall not say too much about business rates this afternoon, except to note that many firms that the forum represents are particularly worried about that issue.
The need for deregulation is clear. Recent research by the Institute for Fiscal Studies found that administration costs fall disproportionately heavily on small businesses. The estimated administration cost of hiring one person was £330 for small businesses, and £404 for businesses inexperienced in the attendant bureaucracy. However, the equivalent cost for businesses that employ more than 5,000 people is only £5. That is a tremendous difference. Employees of a small business often have to fulfil a number of different roles, and I can attest to the difficulties that such businesses have in finding, employing and training suitable people.
A number of worries have been expressed about regulation. We support the working families tax credit in principle, but we are concerned about its implementation. Moreover, it has undoubtedly placed an extra burden on the small business community.
Despite the Minister's comments, hon. Members were concerned about the way in which the working time directive was implemented. There was insufficient debate in the House, and very little notice was given to business. Certainly, my small business received little information on it.
An announcement was made this week about consultation on a part-time workers directive. Again, the time scale is short: regulations must be enforced by 7 April. That will not allow sufficient time for the consultation to be properly carried out, for Parliament to have a proper opportunity to debate it, or for small firms and other firms to get advance notice of what is coming up.
Another matter of grave concern is the glib presentation of impact assessments relating to Bills. Often, impact assessments are not linked to Bills until shortly before Second Reading. Ideally, they should form part of the Bill when it is first published, so that the potential cost effects can be properly considered before it progresses. Furthermore, impact assessments are often put together in such a way as to be misleading. I intend to continue to address that matter on behalf of my party in future. For example, the impact assessments that were produced to accompany the Employment Relations Bill estimated the average cost to employers of implementing parental leave to be £140. However, that figure was reached by estimating the total costs to the 15 per cent. or so of employers that were likely to be affected, and then dividing them by the total number of employers. That figure was completely meaningless, and obscured the far more relevant figure of £935, which appears in black and white as the estimated cost to a firm of arranging cover for one individual taking parental leave. I should like to see more precise figures and a better impact assessment process. Impact assessments are often narrow in concept. I look forward to the Minister's response to those points, today or in the future.
283WH There should be an annual general impact assessment to consider all the regulations that are introduced and provide some clear figures on the total administrative burden that weighs on small businesses. The House should be able to consider and debate the costs on an annual rolling basis. The Government have made it clear that they intend to make regulation as fair and light as possible. They should have the courage of their convictions and allow us to assess the impact as the year goes on. I shall say no more about regulation, as I am sure that the subject will arise again.
Several Government actions have not been helpful. For example, the changes to capital gains tax made a mockery of the plans of many retiring small business owners who had anticipated that the sale of their business would provide a nest egg for their old age. A recent debate on sub-post offices revealed the great uncertainty that exists about their future. I am sure that other hon. Members have met sub-postmasters and mistresses who are worried about their nest egg and the way in which they were led to expect that certain aspects of their business would continue.
In the interests of giving other hon. Members a chance to speak, I shall refer only briefly to the Government's actions in respect of IR35, which have created difficulties for many small contractors. I merely flag up that I do not intend to lose sight of that. It was an unnecessary use of a sledgehammer to crack a nut, and it will return to haunt the Government in due course.
Consultation on legislation and impact assessments are crucial. People who run small businesses are slightly ahead of civil servants in their knowledge of the problems and difficulties involved. I welcome the interchange programme, whereby civil servants and others can acquire experience in companies, but the scheme relates only to large companies. They work for two years or more in the Shells and BPs of this world, but I suggest to the Minister that consideration should be given to expanding the interchange scheme to include the smallest companies so that civil servants and, perhaps, Ministers could sit alongside a small business owner—for example, the owner of a garage or small shop—for a week or two. They would then see for themselves the real problems facing small businesses. There is a great lack of knowledge about the smallest of businesses. That comes up time and again. Large businesses receive appreciation of their problems, but small businesses do not, as I know to my cost because I ran a small business in years past and had to do the VAT books and so on at 1 and 2 o'clock in the morning.
The hon. Member for Ochil referred to the Electronic Communications Bill. We all agree that electronic communication is a tremendous challenge and a great opportunity for small and other businesses but, as I said when discussing the Bill, it must be made absolutely clear, particularly to small businesses, that it is not simply a matter of obtaining a web site and plonking something on it. An article on e-commerce in The Guardian today stated thatwe're not quite there yet, US retailers made billions from wired consumers last Christmas but they also lost billions. One source estimated that poorly designed websites cost American retailers six billion dollars in potential sales".284WH I shall not continue, but there is much more in the article.
I make a plea for the Small Business Service to consider the matter seriously. The Minister said that she had opened a centre yesterday and referred to a firm that has done extremely well, but for every one that does extremely well, many struggle to take on new ways of business. I plead with the Minister to ensure that small businesses are able to appreciate the pros and cons of e-commerce opportunities.
The hon. Member for Ochil referred to mentoring and the concern that many of us feel about the quality of the advice given to small businesses and of mentoring schemes. I have been involved with the Prince's Youth Business Trust and I am sure that the Minister knows how effective that has been in following through its support for small businesses, shown in its success rate. In general, two thirds of small businesses in this country fail and only one third continue for more than five years and become successful. The British Chambers of Commerce stated that one of the aims of the Small Business Service is to encourage more start-ups. I would say, what about carry-ons? It is important to help firms to carry on, because it is no good having many start-ups if not many carry on. A crucial element is to ensure that business mentors are properly accredited. That has not happened in the past and an accreditation scheme should be put in place so that we can assess their worth and ability.
I want to give other hon. Members an opportunity to speak in this welcome debate. We must watch carefully the development of the Small Business Service, which I expect will replace the previous system and be more effective. Throughout the coming year I shall inquire or make speeches about progress in this regard.
§ Mr. Tony Lloyd (Manchester, Central)
The Minister made a profound point when she said that the Government's most important act was to create an economic climate in which small businesses could flourish. In fact, the Government have created a climate in which business can flourish. Small businesses flourish when they trade with larger businesses, and vice versa. It is vital that all parts of the economy have such opportunities. That is the single most important task that the Government have performed.
There was a brief but interesting exchange between the Minister and the hon. Member for Tiverton and Honiton (Mrs. Browning), the Opposition spokesperson. The hon. Lady said that we would have to go back five years to find a period when business failures were worse than they are currently. That was one of the last years of the previous Conservative Government, who had a disastrous record and who failed to create a climate in which small or larger businesses could function.
I warmly endorse my hon. Friend the Minister's comments on the importance of providing adequate services for`the development of businesses among Afro-Caribbean entrepreneurs. Despite the fact that that community is now well established in this country, development of Afro-Caribbean businesses has been hindered. We need to examine why they have not grown and what can be done to rectify the problem. There are 285WH examples of good practice—I pay tribute to the Cariocca business park in my constituency, which is Afro-Caribbean led and which has helped to ensure that people have access to appropriate advice and mentoring. The important concept of mentoring was discussed by the hon. Member for Weston-super-Mare (Mr. Cotter). It is particularly important when there is a thinness of culture—people should have access to others who can add practical value in terms of management and business operation.
§ Dr. Ashok Kumar (Middlesbrough, South and Cleveland, East)
My hon. Friend mentioned the Afro-Caribbean community. Does he agree that the Asian community has made a tremendous contribution to the business sector? Who would have believed 10 or 15 years ago that the success that it enjoys would have been possible? Despite the difficulties that ethnic minorities generally face, the Asian community has done well and we should recognise its tremendous spirit. Thanks are due to many Labour local councils and authorities for the help that they have given Asian businesses.
§ Mr. Lloyd
I join my hon. Friend in suggesting that Labour councils have a particularly good record. A quick walk around the centre of my constituency and the centre of Manchester would reveal the dynamism of Asian-run businesses. Asian businesses have bought older properties in the centre of Manchester and helped to ensure that it once again experiences enormous economic dynamism.
Perhaps I should be slightly pedantic and point out that that dynamism involves only a subset of the Asian community. My hon. Friend anticipated a point that I wanted to make. Such access is patchy. The Bangladeshi community, for example, does not enjoy the same business success as the Indian and Pakistani communities. We need to address the cultural phenomenon that might be involved.
I put in a special plea for the newer communities that arrived here recently, including the Somalian community. Its members lag a long way behind in the development of entrepreneurial skills. The nature of our economy in recent years means that they also lag behind in the access that they have to conventional employment. It is especially important to examine what can be done for more marginal communities, or for those most recently arrived. I hope that the Minister will consider that.
A number of inter-related issues influence small businesses. I am a little impatient with the view that the small business sector is monolithic; it is neither monolithic nor homogenous. Practice varies enormously within it, as all the studies indicate. The companies that we look to for growth are well defined: they are well managed, they tend to be newer and they are in an innovative sector. However, we have to be careful not to be over-enthusiastic about the small business sector. If we think, "Small business good, everything else not so good", a number of things will follow. First, we will ignore the real problems that affect small businesses, although the Government are now addressing those problems. Secondly, we will ignore the fact that outrageous practices exist among small businesses, which we must also address.
286WH This country still lags behind in business innovation. That is not primarily a problem of small businesses. If we compare the best firms with the worst firms, however, we find that training costs range from £294 per employee per annum down to £34 per employee per annum. Sadly, the bulk of those at the top are larger firms and more innovatory companies, while smaller firms tend to be heavily clustered among those at the bottom. The failure of small firms to invest in training and innovation must be addressed. A big gap exists, so we should not be starry-eyed.
I recently had an opportunity to see how exporters operated, and was struck by the relative dearth of small British firms. Compared with German exporters, for example, British small firms are significantly underrepresented. The Small Business Service has a significant role to play in export promotion, and in working with the DTI and the whole Government system to encourage small firms to be more export oriented.
We should also recognise that the management of small firms varies enormously. Some are well managed and dynamic, and look to growth. Some, however, will never grow and do not seek to grow, which we should also accept. We do not look to the sole trader to be the engine of growth. However, some firms, which are not well managed and do not look for anything more than stagnation, are grossly underperforming. That management issue should be addressed, because it has consequences for innovation and investment. It also has consequences for regulation, which I shall discuss in a moment. The Small Business Service should encourage dynamic management attitudes and the strategic management of firms.
I am extremely impatient with the rosy view that regulation is bad and deregulation is good. That is nonsense; it has no basis in common sense or economic efficiency. When small firms are asked whether they want to play on a level playing field or whether they want to compete with firms who are engaged in the most dodgy, outrageous practices, time after time good firms say that they want regulation that works. I shall give examples of unacceptable practices by small firms, which I hope the Opposition will join me in condemning. They are practices that have no place in modern society.
§ Mrs. Browning
I echo the hon. Gentleman's emphasis on the need for a level playing field. When the Employment Rights (Dispute Resolution) Bill went through the House, Conservative Members tabled an amendment to the effect that companies employing fewer than 50 people should be exempt from the legislation. That would have brought the regulations into line with those governing European companies, so that United Kingdom companies would not have been placed at a competitive disadvantage to those in mainland Europe. However, the Government rejected the amendment and set the level at 20 people rather than 50.
Is the hon. Gentleman worried that there is now no level playing field because the Government refused to accept a principle that we thought fair—that UK companies should work on the same basis as European Union companies?
§ Mr. Lloyd
At least one part of the hon. Lady's argument is simply wrong. All the evidence suggests that 287WH the United Kingdom does not have an over-regulated economy. The Minister referred to the OECD report, which makes it clear that, when measured against a comparable group of international traders in modern, efficient economies, Britain is at the bottom of the regulatory pile. That was an extensive study by the OECD, and we must take it on board in saying that Britain is not over-regulated.
There is always a problem with cut-off points for small firms. A firm employing 25 people is more likely to compete with a firm employing 15 than with a firm employing 10,000. These limits are extremely arbitrary. Moreover, a firm that would have been described as a small firm at the time of the Bolton report, a long time ago, employed considerably more people than a small firm does today. The definition of the term "small firm" has changed.
I shall cite the example of a shop in the north-west of England, in which four workers are employed. An employee who started work in June 1999 asked for, and was refused, paid holiday and was told that entitlement to paid holidays would begin only after 12 months' employment. The shop refused to allow its staff a meal break in an eight-and-a-half hour working day, although that is illegal. When the employee asked for a payslip, she was told merely that everything was in order. That is an example of a bad employer who is breaking the law and needs regulation.
Let us take the further example of a firm employing a 20-year-old. Instead of paying her £3 an hour to which she is entitled under the minimum wage legislation, it has dropped her wage to £2 an hour. I wonder whether the Opposition spokesperson can justify paying a 20-year-old £2 an hour as an acceptable living wage in today's world. I certainly cannot. When challenged about why he had not issued that employee with a payslip, the employer told her that it was because he could not afford to employ an accountant.
Those are examples of atrocious employers who need regulation. I make no apology for saying that I am convinced of the reasons why I am a member of the party of government, rather than the party of opposition, when I hear the arrant nonsense that regulation is bad and deregulation is automatically good. That describes not the better regulation that the Government want to introduce, but the deregulation that the Opposition favour. I am also convinced that the people of this country will continue to vote for the party of Government and not for the Opposition.
§ Mrs. Browning
A balance must be struck. If one is keen on deregulation, or a light touch of regulation, that does not mean that one is a total free marketeer. Is the hon. Gentleman aware that, during the previous Parliament, I tabled an amendment to a Conservative Bill that gave part-time workers the right to a payslip?
§ Mr. Lloyd
I congratulate the hon. Lady on that. It is remarkable, however, that it took her own efforts to 288WH persuade the previous Government to introduce legislation whose importance is so obvious to all of us. Perhaps that explains why she is a little confused. She is a natural regulator who is now in the ideological trap of the Opposition and is having to work hard to justify her own unsupportable position.
§ Mr. St. Aubyn
Not only my hon. Friend the Member for Tiverton and Honiton but members of the previous Conservative Government should be appalled by the hon. Gentleman's comments on their efforts to tighten health and safety regulation. How does he reconcile Conservative Members' actions in that regard with his statement that they are against regulation?
§ Mr. Lloyd
I am happy to debate health and safety at any time. Under the previous Government, this country experienced a deteriorating health and safety record and the erosion of regulation. That especially affected small firms, whose employees are extremely vulnerable to a lack of regulation. Without health and safety inspectors, small and large firms did not perceive any pressure to maintain their health and safety records. More people in small and large firms continued to die under the previous Government because they ignored health and safety and underfunded the Health and Safety Executive. Labour Members do not need any lessons about that.
This is an important debate. We need to examine the role of small firms and how we can make them more dynamic. The Government are doing many of the right things, but I appeal to my hon. Friend the Minister: we must get away from a culture of saying that small firms are automatically dynamic and good when not all of them are dynamic and some are awful. In particular, we must get away from the idea that small firms are entitled for those reasons to plead for deregulation in all circumstances. We want better regulation and a bonfire of irrelevant regulation. We also want regulation that strikes a fair balance between the rights of employees, customers and other stakeholders and those of employers. My plea is that we should never lose sight of the fact that the Government must create that central balance. If we take the nonsensical view that regulation is bad and that deregulation is good, we do so at the expense of millions of our fellow citizens—not only employees but customers and other stakeholders—who will not thank us.
§ Mr. Christopher Chope (Christchurch)
That reminds me of when I joined the House and was mistaken for my hon. Friend the Member for Gainsborough (Mr. Leigh) by a colleague who wanted to give me a drink and lobby me to vote for him for chairmanship of a Select Committee. As a new boy, I accepted the drink and said that I did not think that hon. Members who were not Select Committee members had votes on their chairmanship. My colleague then asked, "Who are you?" I was immediately forced to abandon my drink, and he rushed off to lobby the correct person. You are therefore not alone, Madam Deputy Speaker, in having muddled me up with another hon. Member.
289WH It is a great pleasure to participate in the debate. Having served on the Health and Safety Commission during much of the previous parliamentary Session, I should tell the hon. Member for Manchester, Central (Mr. Lloyd) that his remarks about health and safety are far removed from the facts. I shall not go into the matter in detail, but I remind hon. Members that the health and safety record was improving as a result of the previous Government's policies.
I am also suspicious about the suggestion of the hon. Member for Manchester, Central that we should not go overboard in supporting small businesses. His remarks chimed conveniently with comments made by the Trades Union Congress in a letter discussed in the Trade and Industry Committee earlier this week. The letter stated:It is also questionable that small firms should have extra incentives simply by virtue of being small or because more small firms in the economy is automatically a good thing…the role of small firms in improving productivity growth, enterprise and innovation does not sit easily with the facts…In order to significantly raise national productivity and investment rates, it is the behaviour of the corporate and public sectors that is key.That is the traditional view of the Labour party. It is obviously the view of the Trades Union Congress, which is concerned that more than half the people who work in this country are employed by small firms employing fewer than 100 people. I suspect that one reason why there has been so much delay in the Government's introduction of a substantive programme of assistance for small firms is that they were interested in window dressing, propaganda and seductive words before the general election. They found, when they got in, that the TUC and others—the big battalions, the corporate side and the public sector—were lobbying strongly against the interests of small firms and as a result they thought that the best thing would be to go slow on the matter. Thus, there was no proper debate last year, and this year's debate is being curtailed. It will be three hours rather than the five hours that the Government promised would be the norm every year during their tenure of office.
On the theme of actions speaking louder than words, and to illustrate the Government's indifference to the problem faced by a small firm in my constituency, I shall explain what happened to Coulton Instrumentation, of Christchurch, which wanted to export valves to another country. A representative of the firm telephoned the Department of Trade and Industry on 2 February 1999. He asked for the department responsible for exports to Iran, and was put through to someone on the middle eastern trade desk. He explained that the company was quoting for a project in Iran and needed advice, as it had never supplied Iran before. He described the goods involved and gave the name of the firm's customer to the gentleman on the DTI desk, who telephoned the same day and advised that the customer was known to the DTI and that there would be no problem in securing payment. The firm asked whether any special documentation was required for Iran and was told no. It was encouraged to go ahead and proceed with the business.
The firm was under the impression that it had received the complete picture and that the person to whom its representative had spoken was able to speak on behalf of the Iranian desk. It became clear after the firm had produced the goods and was in the process of exporting 290WH them that it was wrong to have accepted the information from the DTI at face value. On 12 August Customs and Excise at Heathrow stopped the control valves from going on the flight to Iran and wrote requesting further technical information. The firm telefaxed copies of the information requested by return and a few days later chased Heathrow customs to find out what was happening. A representative spoke to Mr. McFarland from the Customs and Excise export enforcement team and explained that the firm had contacted the Department of Trade and industry about the matter and had not been given any special instructions. His words were:If you go to the DTI Iran trade desk they will encourage you to export. But if you go to DTI export control, they will do their best to stop you. That is a very silly situation.He said that the firm forwarded the documents to the DTI. On 19 August, the firm chased Heathrow customs again and was advised that it could be up to two weeks before it received a reply from the DTI. On 24 August, it received a letter from customs stating that the DTI had decided to request an export licence application. That was the first time that that small firm, which had not exported to Iran before, had heard that it needed to obtain an export licence. The matter did not end there. Even at that stage, the Department of Trade and Industry and the Government could not get their tackle in order to enable the export to proceed. After the firm contacted the DTI helpline to request an application form, it received information on how to apply, but no form. It repeated its request for an application form, which arrived on a computer disk.
The firm wrote to Iran to obtain the necessary end user's undertaking, which it had to telefax to the DTI for confirmation that the form had been completed correctly because the instructions were ambiguous. Ambiguity is a major burden on small business. The firm telephoned the DTI three times in one day for a response to the telefax. The last call was transferred to four different people. No one could help. It was eventually referred to the supplementary notes in the standard application form. By 20 September, some 11 days after the firm first asked for the information, no reply had been received and it had no alternative but to assume that the end user's undertaking had been completed correctly. The application form was then sent to the DTI with a covering letter explaining that the firm was short of time because its letter of credit was due to expire in three weeks. It asked for assistance in processing the application.
The DTI wrote back the following day confirming receipt of the document and allocating a reference number to the export licence application. Some 10 days later, the firm called the DTI to find out how the application was progressing. It was told that it would take between 10 and 20 days to process. The individual to whom the application had been allocated said that licence processing was a sensitive political issue and that other Departments had to give their approval. She advised that the application was booked to go to an interdepartmental committee meeting on 12 October. As the delay was being caused by three Government Departments and 12 October ws a long way away, the managing director of the small firm wrote directly to the Prime Minister and copied the letter to the Secretary of State for Trade and Industry. He described the efforts 291WH that had been made over many years to produce exports for Britain and appealed for intervention in this problem. The firm also wrote to its customer and requested an extension of the letter of credit. It was told over the telephone that all other European and American-owned suppliers to the project had made delivery on time without export control problems. It is a major issue that our firms are burdened with controls that their competitors do not have.
On 12 October, the firm contacted Mr. Peter Reed of Dorset business link. The hon. Member for Manchester, Central said that we need to get business links or the Small Business Service involved in helping small firms to export. I hope he listens carefully to what happened. Dorset business link spoke to Jayne Carpenter, the head of licensing at DTI export control, who was aware of the letter that had been sent to the Prime Minister. She advised that the application had to go before the interdepartmental committee and that the delay was outside her control. It is not much use having a small firms service that can intervene at the highest level of Government to remove red tape and bureaucracy and enable goods to be exported if the head of the relevant Department cannot assist.
On 13 October, the firm received a reply made on the Prime Minister's behalf by Mr. Coupland, the correspondence secretary at No. 10. He advised that the letter had been passed to the Department of Trade and Industry and that it would send back any comments direct. Fortunately, the firm received from its customer an extension of its letter of credit. On 14 October, it telefaxed the Department of Trade and Industry person allocated to deal with its application, to find out whether a decision had been made on the meeting that occurred on 12 October and whether an export licence had been granted. It was told in response that its licence had not been considered in that meeting but that another meeting was scheduled for 18 October.
On 15 October, the firm telefaxed the head of export licensing and asked for help to shorten the delay. She telefaxed back by return, apologising for the conflicting information and stating that although she was unable to give a definite time scale she thought that it would take roughly a further six to eight weeks for the application to be processed. She explained that the application had to be considered by an interdepartmental committee consisting of representatives from the Department of Trade and Industry, the Foreign and Commonwealth Office and the Ministry of Defence.
In desperation, the firm sent another telefax to the Prime Minister explaining that the problems had increased since it had last written. It said that in its opinion the Department of Trade and Industry was unable to meet its obligations to exporting companies and asked again for the Prime Minister's personal intervention. By that time, the House had returned from the summer recess. I tabled four parliamentary questions to the Department of Trade and Industry about the licence application, and it is a fair summary to say that I received completely inconclusive replies. I emphasised in the questions that the issue had been drawn to the attention of the Ministers concerned and 292WH that I hoped that we would be able to resolve the problem and ensure that the export could be carried to a successful conclusion.
The firm was then told that it would take much longer for the application to be dealt with and that it should obtain yet another extension to its letter of credit. Having obtained an extension to 15 November, the firm was informed that the application would not be dealt with until between 1 and 15 December. It then obtained a further extension. You will not be surprised to hear, Madam Deputy Speaker, that the licence application was not dealt with by that time, which meant that by Christmas the company had still not received a yes or no to its application. The firm is keen to increase its export business—
§ Mr. Chope
The hon. Gentleman asks whether it is still interested, but I shall tell him what has happened now. It is now four months since the application was accepted for processing by the Department of Trade and Industry. Mr. Coulton, the managing director of the firm, wrote to me on 11 January. His letter states:Words will not begin to express my feeling of absolute frustration. This application has been the subject of four parliamentary questions, two letters to the Prime Minister and a letter to the Secretary of State for Trade and Industry, yet no one can advise when a decision will be made".Unfortunately, the decision was made by his customer, who decided to cancel the order for the shipment of control valves, which was afterwards placed with a company in Germany. Mr Coulton wrote to Customs and Excise, which had been holding the goods since its intervention in August, stating that he would arrange for the valves to be collected and returned for disposal.
That is the reality of how joined-up government is treating small entrepreneurs eager to export and to back Britain. It is absolutely disgraceful that people write to the Prime Minister and to the Secretary of State for Trade and Industry but receive no adequate response. I hope that the Minister will apologise unreservedly to the firm and ensure that it receives compensation for its ordeal. I hope that she will ensure that the systems are changed within Government so that timely decisions are taken on export applications. If ever there was a deterrent to small businesses trying to build export trade, that experience is surely an example of it.
I can regale the Chamber with another example from my constituency, of a different firm involved in selling replacement parts for aircraft. Some very large operators are engaged in that business; they can get an export licence from the Government that covers a range of products so that they do not have to make a licenceby-licence application. The firm in my constituency is too small to qualify for such a licence so it has to make applications to the Government case by case for permission to supply spares to aircraft in countries such as Pakistan and India.
The firm is at a disadvantage because other, larger firms can export on the basis of a list approved in advance. If the Government were interested in helping small businesses and creating a level playing field, one might expect that in return that firm would be able to get timely consideration of its applications, but it cannot.
293WH The company keeps phoning me and telling me about its frustrations. It asks, "How can we possibly build a niche export business to provide spare aircraft parts if we do not get at least some assistance from the Government and the Department of Trade and Industry?"
I have given two examples of the Government seriously letting down small businesses in my constituency. My third example is of a completely different kind of small business: a doctor who runs a small general practice in West Moors. He wrote to me recently stating:The Department of Health has just issued yet another version of the NHS prescription form FP10.The letter goes on to say:This is the third version we have had in the past year. The previous style was in use for 20 years or more. In the past we have at least been able to use up the old stock before switching to the new ones, but on this occasion we have been told to return the old stocks to the health authority for destruction. We have sent back a considerable number of boxes, several months supply.The doctor wanted to be able to use the old forms. He suggested to the Department that supplies of cut sheet prescription forms could be produced to allow the use of modern laser printers—they are cheaper to run, and faster and more secure than the old slow and noisy dot matrix printers. He was told by the Government, who are geared to modern technology, that funds were not available for that purpose. That general practitioner was trying to get up to date and asking for prescription forms that he could use with his modern laser printer, but it was not possible.
That is another, real, live example that shows that for all the Minister's rhetoric about how the Government will encourage new forms of commerce and e-commerce they cannot even provide forms in a way that will enable my constituent, Dr. Blackmore, to operate more efficiently.
From my constituents' experience, the Government's performance in respect of small businesses is lamentable. From the proposals for the Small Business Service and the rough document that was issued yesterday—it was stapled together in what was obviously a last-minute, desperate measure—it is clear that there is no consistency about what is meant by a small firm. The people who will serve on the Small Business Service council will be representatives of not only small but medium-sized firms, yet we know that 94.7 per cent. of all the firms in this country have fewer than 10 employees. They are effectively microbusinesses. Another 4 per cent. have between nine and 100 employees. But it seems that the small firms body that is to be set up will be run by representatives of much larger firms. There is all the difference in the world, thankfully, between a microfirm and a small firm. If the Government are committed to small businesses, there is no need for medium-sized businesses to be represented on this new, small firms organisation.
We do not even know what the budget for the organisation is. As part of what I think is a concerted delaying tactic, the Government are again saying that they will leave it to the new organisation to work out its programme and prioritites. The chairman has only just been appointed and will not be paid until next month or the month after. Another six or nine months will pass before there is a clear policy and, by then, the 294WH Government will have been in office for three and a half years. If ever a Government should be indicted for not getting down to the business, this Government should be for their attitude towards small firms. Something serious must be done about that, and I hope that we shall have another debate on small firms soon, not in a year's time, so that we can hold the Government to account. At present, they think that they can rest on their laurels and on some clever wording.
In conclusion, I remind hon. Members of the statement that was made in the so-called "Small Business Action Update" issued in June 1998, on which much reliance was placed in our previous debate on small firms. It stated:On 25 March, the Minister for Trade announced a new package of export support which will mainly benefit small firms".I hope that the Minister will realise from what I have said today that, whatever that package was, it was not fit for the purpose.
§ Ms Linda Perham (Ilford, North)
I am pleased to have been called to speak in this debate. Small business and enterprise has been a particular interest of the Select Committee on Trade and Industry in the past year and, as a member of that Committee, I have taken part in hearing evidence and have been fortunate enough to have the opportunity briefly to visit the United States, where we could compare, exchange and learn from experiences in the UK and the USA. My hon. Friend the Member for Ochil (Mr. O'Neill) has covered part of what we did there.
In this small business debate we are in a position to welcome the advent of the Small Business Service, which starts in April. This is a great step forward, which I hope will be acknowledged by small businesses throughout the country as an indication of the importance that the Government attach to them.
Barclays bank estimates that there were 470,000 new business start-ups in 1999. Others have said that the small business sector is of enormous importance to the UK economy, and I agree. The hon. Member for Christchurch (Mr. Chope) mentioned the statistics for small businesses. The Department of Trade and Industry's statistics for small and medium-sized enterprises in the UK show that 94.4 per cent. of businesses employ fewer than 10 people and 99.6 per cent. employ fewer than 100 people.
In London in particular the growth in jobs that has been achieved in recent years has been largely in the so-called microbusiness sector, to which other hon. Members have drawn attention. The latest figures from the Federation of Small Businesses in London show a growth of 14.4 per cent. among companies employing fewer than five people between 1995 and 1997. John Emmins, who chairs the FSB in London, said on 8 December 1999:We have always been convinced that any future growth in London's economy will come from the microbusiness sector, typically those firms employing between one and four workers. More importantly, it is from this sector that we can expect job creation which may lead to everyone's golden scenario, namely full employment.The prospect of that golden scenario prompted many of us to enter the House and remains a policy priority for the Government.
295WH However, that Federation of Small Businesses report, which is based on annual employment surveys, makes less happy reading in respect of the retail sector. The revitalising of our high streets is largely dependent on the growth of small traders. We have, after all, been famously called a nation of shopkeepers. There is growth, and there is enormous potential for further growth, but consistent help of the highest quality must be provided.
My hon. Friend the Minister mentioned encouraging the involvement of women in small and medium-sized enterprises. The Select Committee was heartened by its visit to the United States last May, when we met the head of the American small business administration, Ms Alvarez, and heard about its initiatives. As my hon. Friend the Member for Ochil said, Ms Alvarez's appointment to a Cabinet post demonstrates the importance that the USA Government place on small businesses. We also visited Sweden last month, and learned about the help that is given to Swedish women entrepreneurs.
The East London small business centre reported 255 business start-ups in the 18 months before December 1999, 42 per cent. of which are run by women. Ethnic minority businesses, which constitute an important sector in north-east London and elsewhere, as hon. Members have noted, accounted for 34 per cent.
My hon. Friend the Minister for Small Business and E-Commerce called for integration of the support offered to small businesses, and a drawing together of the different strands of provision that are funded by the Department of Trade and Industry, the European Union, the single regeneration budget, chambers of commerce and local government. Indeed, the Federation of Small Businesses has called for some time for a one-stop shop or single gateway for small businesses. The list of topics that need to be addressed is long, and includes credit, export advice, employment legislation, health and safety, value added tax, other taxation and insurance arrangements, benefits, national non-domestic rates and utilities. Bringing all relevant expertise under one roof will be difficult, but that is what the SBS—and, of course, small businesses—must try to do.
The need for integration will be quickly and specifically highlighted by the development of plans to spend funding achieved through European objective 2 status. Those areas that are granted such status will benefit fully from funding only if they enmesh their plans with those of other agencies and funding streams. The role of small businesses will not be maximised unless they are brought into the planning stage. In London, the detailed plan for objective 2—the programme complement document—must be ready by the end of the year.
Steps have also been taken in London to achieve a single franchise for the SBS. That has not been an easy task. The Government office for London has had to contact about 170 interested organisations, some 87 of which are business links partnerships. During the 296WH process that the Government office for London endorsed, Lord Sawyer was drafted in to chair the meetings. His brief included being able toflush out hidden agendas and hold the ring",which sounds like a cross between Dyno-Rod and Lennox Lewis. Hon. Members will note that I was careful to mention a British boxer.
I stated my commitment to the concept of business links partnerships during a debate in the House on 19 June 1998. Indeed, last year, in my own constituency, Business Links London East received a nationwide best practice accolade for providing a business support service that helped local business to improve turnover and profits.
Notwithstanding the general benefits of integration and partnership to which I have referred, I hope that the vital role of local government in supporting small businesses is given the recognition that it deserves. Councils are key providers of services such as planning, environmental health, licensing, car parking, town centre management and waste collection. Legislation will shortly impose on councils a statutory duty to develop local economies.
The importance of the contribution of local councils to economic development has never been greater. If the SBS is to achieve the success that we all wish for, it must obtain and maintain the best possible links with local government. In turn, local government will be failing itself and its supporters if it does not recognise the benefits of establishing a close relationship with the SBS at the appropriate level. It is inconceivable that any council's local economic strategy can be realisitic if it does not stress the importance of small and medium-sized enterprise.
We must tackle the integration of the regional development agencies. RDAs are being heralded in some quarters as the most dramatic development for UK businesses in many decades. If that is to be so, there must be a clear understanding of what is best done by the RDAs and where the SBS should concentrate its inevitably limited resources. In London, those questions will need to be addressed when the London development agency is up and running and the Greater London Authority and the Mayor are giving it the democratic guidance that it will require.
I have some queries about the SBS. Who will propose and approve its performance indicators? As the years go by, we shall need to know whether it is as successful as we hope and expect that it is going to be.
The SBS's remit is to help firms comprising up to 250 people. I am worried that too much emphasis may be placed on the higher end of the scale, thereby diluting the help that might otherwise be concentrated on the smaller firms. However, I have been somewhat reassured by the Minister's opening remarks, by the Government's reply to the Select Committee report—which recognises the need to develop a differentiated approach in supplying advice and services across the range—and by the announcement on 20 September 1999 of the Business Volunteers Mentoring Association to help start-up firms.
The SBS may have the specific expertise to assist cooperatives. If new mutualism is to be the exciting development that some have said that it will be, the SBS 297WH could act as a catalyst for the development of cooperative enterprises. However, it will need to have the relevant experience and skills if it is to do so.
My last two queries are about the level of funding of the SBS—especially given that it is not to have the payroll service—and whether the chief executive will be free to publish his views on regulatory legislation, particularly where he considers that small businesses' concerns have not been addressed.
I conclude by drawing hon. Members' attention to the excellent work that the Government have undertaken in encouraging small businesses. The tax regime has been improved by the new lop rate of corporation tax and £20 million has been invested in venture capital to finance high technology businesses in their early stages. The great injustice of late payment, which is a real problem for small businesses, has been tackled. The SBS is clearly another major step in the right direction. All that good work means that a thriving small business sector will play a substantial part in the continuing success story that is the British economy under a Labour Government.
§ Mr. Nick St. Aubyn (Guildford)
It gives me great pleasure to speak in a debate on small business, as the chairman of a small business and someone who has been involved in the sector for 10 years. During that time, I had the experience of a company that hit the rocks, although I am glad to say that on that occasion nobody was hurt.
At one point, I had close contact with clothing manufacturers in Wales. Hon. Members who tell us about the effects of the national minimum wage should be aware that the minimum wage has lost the Welsh clothing industry thousands of jobs. Thousands of people have gone from low pay to no pay. Much as we want to see a high wage, high performance economy, the proper route to achieving that is through investment and the development of the real economy, rather than artificial measures that, unfortunately, often do far more harm than good.
E-commerce, will have an important impact on the small business sector. My hon. Friends and I regret the fact that Labour Members have no stomach for a fight and that the Minister and her colleagues preferred to give their hundreds of Labour Back Benchers an early night—none of them is here today—than to put yesterday's business through in the time available, so that we could have discussed the Electronic Communications Bill on the Floor of the House today. That is what happened during the past 24 hours and the many millions of people who want early implementation of the Bill will be disappointed that the Government gave it so little consideration when determining the business of the House this week. We know from the Second Reading debate on that Bill that the Government do not understand the importance of the sector. I am thinking of IR35 and the effect that the new tax rules will have on small businesses and information technology providers generally—there are many in my constituency—who were accused by the Minister in the House a few weeks ago of being tax dodgers.
It would be helpful if the Minister would clarify whether she believes that every small business man who takes legitimate steps to avoid taxation is behaving in 298WH the same way as people who illegally evade taxation. Does she consider those two actions as one and the same? If so, and if her Government intend to portray tax avoidance as illegal tax evasion, the framework within which small businesses must operate in this country will be so discouraging and difficult that many will give up entirely. People in the IT industry can often choose in which jurisdiction to operate and will decide to operate elsewhere. The Government's aspiration to gain the lion's share of e-commerce trade for the United Kingdom will remain merely that—an aspiration.
Related to that problem is that of the temp-to-perm regulations, which we await with great interest. I know from small firms in my constituency that many people believe that the Government do not understand the need in a flexible economy for the easy hiring and engagement of temporay employees or the value to businesses of being able to translate them into long-term employees without the sort of penalties which the Government initially contemplated with their original temp-to-perm regulations and which many fear will still come about when we see the full details shortly.
To put the matter in context, I have been advised by local firms that the cost of employing outside contractors to undertake IT work for a small business will rise by 25 per cent. on an hourly basis as a result of the implementation of IR35 and the expected temp-toperm regulations. How can small businesses invest in new technology—we all agree that they must do so—when the Government are increasing their costs by 25 per cent. per hour? The Government are imposing that appalling burden on small businesses as we speak.
§ Mr. O'Neill
I am a wee bit at a loss. If I choose to employ a plumber, I like to think that he is paying his tax, which is reflected in the bill that I pay. Why should people in the IT business be different from the plumbers I employ to fix the sink in my house? Why should one group of workers be subsidised by the rest of us because of a loophole in the tax system, which the Government are now choosing to fill?
§ Mr. St. Aubyn
I am sure that every IT contractor would be delighted to be treated as a self-employed business man, as is the hon. Gentleman's local plumber. The problem is that self-employed IT workers are treated more like employees than like the local plumber. Although they are employed to fix problems in the system, they are not allowed to charge on the same basis as local plumbers. That explains why costs are going up and why the best and most able IT people, who use the current rules to accumulate capital to invest in their business and to employ more people, will leave our shores and find a better environment, such as that on the other side of the Atlantic, where their skills will be better appreciated. If that happens—there is every sign that it may—it will be the best rather than the majority of IT workers who will leave, although the others will suffer as a consequence.
I am deeply concerned about the cost of access to the internet. We heard earlier about how the gainsaying of the Select Committee on Trade and Industry persuaded British Telecom to move a small distance in the right direction. I am reliably informed that the current estimates are that British Telecom's windfall profits from IT connections are in the order of half a billion 299WH pounds a year. Another consequence of the IT revolution is that British Telecom's revenue from international traffic is probably much lower than it expected for the same period. However, a strategic issue is involved that goes beyond the interests of a monopolistic—or, as the hon. Member for Ochil pointed out, perhaps I should say oligopolistic—supplier. If businesses are to be connected to the net as quickly and effectively as their counterparts in other countries, those costs must be reduced dramatically. British Telecom's high connection charges have held up development, which has had on-going, long-term costs to our economy. That is a more important consideration than the individual interests of a firm, although those interests still deserve to be considered. The Government had an opportunity to deal with that issue in part III of the Electronic Communications Bill but they failed to do so, and that failure will return to haunt them. Britain has a golden opportunity to become the major player in Europe in the world of e-commerce, but the Government are losing that opportunity through their lethargy and inaction, and their failure to grasp the real and difficult issues that are involved.
I am aware that many other hon. Members want to speak so I shall conclude by making one more point. The changes that e-commerce involves are not encouraging for many small businesses. In the long run, the portals to commerce that the new framework will produce and the way in which distribution will be conducted mean that a small number of e-commerce companies will control the gateway to customers. It will be hard for many small businesses to get through that gateway at a price that gives them a decent return. If they are to do so, they must be allowed to have access to the new technology and to get on top of it as fast as they can. The Government failed to give them that opportunity because they failed to tackle the problems that I raised. Their failure will impoverish small businesses in this country.
§ Dr. Ashok Kumar (Middlesbrough, South and Cleveland, East)
I shall not respond to the doom and gloom that we have heard from the Tory Benches this afternoon. I want to bring optimism and light into this Chamber. I have much to say but, in view of the time, I shall try to be brief. I shall say a few words on the needs and aspirations of small firms in my constituency and explain how the Government's policies are helping them grow and prosper.
Only last week I was privileged to open the new premises of a small firm called TAS Fleet Trainers. It was started by one of my constituents, Lyn Treadgold, who spent a decade and a half working for others—and for herself—as a driving instructor before she realised that her talents could be used more laterally. The growth of two and three-car families means that there is a need for more driving instructors. Tighter insurance requirements and a tougher driving test, with a written exam built in, meant better driving instructors. Because of changes in the structure of daily work, more people are becoming more mobile in their working day. The growth in personal service industries has resulted in more people on the road, and more people meeting and 300WH working with other people in their homes, offices and workshops. However, the sheer growth of such mileage can have a down side. I read recently that 25 per cent. of all road accidents involve people driving as part of their work routine. That figure hides personal misery and linked insurance premiums and overheads.
Lyn Treadgold's idea was to combine her talents as an advanced training instructor with the needs of local companies for advanced fleet driving trainers. That training combined elements of advanced driver training with defensive car driving techniques, which cut down on road accidents and improved the overall quality of open road driving. Therefore, the road became a safer place for the general public and firms were helped to avoid pain and cost. Most importantly, it helped to keep people alive.
Lyn Treadgold's idea meant setting up her own business and employing other driving instructors. Local agencies in my area helped that idea become a reality. Tees Valley business link helped her with the initial business plan and her cost projections, employment services helped her find the right people to employ, and Redcar and Cleveland borough council, which is in my constituency, helped by providing premises in a small, easy-in easy-out business centre. The centre is based on a conversion of the old Redcar railway station, and the station offices, booking hall and concourse have been converted into a large number of individual units. The borough council also employs a centre manager and staff, who act as the front desk for the tenant. Lyn Treadgold was therefore helped by a government agency, a local business support system and a local authority. Those agencies, which worked in partnership with the banks, and, of course, Lyn Treadgold herself, turned this bright idea into reality.
I am sure that such stories are replicated all over the country, as older industrial structures based on large employers and mass production techniques change to a structure based on small firm creation, management buy-outs and spin-offs. Those structural changes have a big impact on areas such as Teesside, where heavy industry has been combined with developing technology. Our chemical industry is changing from being a big bulk producer dominated by a small number of world-class firms to one where smaller batch production of higher value-added products is becoming the norm. Our engineering industry once specialised in large fabrication for the old, heavy, iron and steel and shipbuilding industries, and has had to adapt historical in-built skills to cater for the new precise instrumentation needs of a steel industry that now competes on quality rather than quantity. Our offshore engineering sector is undergoing structural decline as the depletion of the North sea reserve gathers pace, but it has pioneered advanced undersea engineering techniques.
The workers in those industries still have those skills in their brains. Many of them are looking to apply them in newer, more advanced manufacturing techniques. Many of them are looking to sell their skills and ability through self-employment or starting their own firms. Society can also utilise many of those skills. For example, as a result of climate change, a large part of the UK and many parts of the developing world need new forms of flood defences and new techniques for marine management. The subsea engineering techniques 301WH developed by the Teesside offshore industry could be developed and adapted to help those regions and countries. I am sure that there are many other examples.
The Government's programme for small firm support will help those dreams to become a reality. I am particularly excited that much technically innovative work is being helped through by the expansion of the DTI's innovation budget. Locally, small firms and agencies, such as the Middlesbrough-based CAD/CAM centre, and high-technology centres, such as Cleveland Innovation, are making full use of the opportunities offered by this expansion, which they match with specialist European Commission funds to provide a comprehensive package of support for local companies and budding new Teesside innovators.
Such agencies can network with other local business centres to ensure that technical innovation goes hand in hand with the development of high-quality training and retraining facilities, and with bodies such as the local branch of business links, so that financial advice, mentoring and business plan development can be offered under one roof. Local authorities can also help through the provision of specialist accommodation, such as the Redcar business centre that I mentioned earlier, with direct finance through loans, grants or loan guarantees and with help in finding a way through the licensing or planning maze. The Government's plans to consolidate this by setting up a comprehensive Small Business Service based on the business links network must be welcomed.
I give a warm welcome to all the policy initiatives that the Government are adopting to help small businesses and their trading needs.
§ 5.6 pm
§ Mr. Kerry Pollard (St. Albans)
As chairman of the all-party small business group and from running my own microbusiness before I came to the House, which began with two employees and went up to 25 within four years, with a corresponding increase in throughput, I know how the small business sector operates and what it needs. I can remember hoovering up before I went home at night and putting the milk bottles out.
The small business sector is vital to the success of the British economy, with 38 million small businesses representing 55 per cent. of private sector employment and 45 per cent. of gross domestic product. Those figures highlight the importance of small businesses to our economic future as the engines of job creation and growth.
I am delighted that the Prime Minister recognised the importance of the sector by changing the ministerial post from Under-Secretary to full Minister of State. We are indeed fortunate to have such a high-calibre Minister in my hon. Friend. The small business sector also has friends in high places, with Ministers in the Treasury and the Department for Education and Employment who were former small business Ministers. The Government recently appointed David Irwin to head up the new Small Business Service, and I was pleased to hear his pledge to tackle the problem of red tape for small businesses as a matter of urgency.
The Government have introduced new employment legislation to create greater fairness at work, including the minimum wage, the working hours directive and the 302WH working families tax credit, but the cumulative effect of the deluge of new regulations is a matter of concern, with the full onus of compliance on the small business owner. In small firms with only a few workers, resources are taken away from the main task of making money to concentrate on employment and other legislation. The higher administrative burden for small businesses, particularly as compared with bigger businesses, adds greatly to the cost of compliance. I am therefore gratified that red tape is high on the new SBS agenda and that it will act as a single gateway for small firms, to ensure easy access to Government services.
The Government are firmly committed to stimulating the creation, competitiveness and growth of new and small business. The European awards for the spirit of enterprise have just been launched by my right hon. Friend the Minister for Energy and Competitiveness in Europe. Through that initiative, small and medium-sized enterprises can gain wider recognition and business exposure. The awards, which are backed in the UK by the DTI and across Europe by the European Commission, are made at regional, national and European level, giving us an opportunity to acknowledge new and developing businesses and encourage entrepreneurs. This year is the first time that the awards will be held in the UK, although they have been running in other European member states since 1991.
In my constituency, businesses are almost exclusively small and medium-sized, with many fine examples of enterprise and the growth of e-commerce. One example is Hocking NDT, a high-tech business that exports worldwide, which was started some years ago by Don Hocking from a shed in his garden. It now employs high-calibre people and is an important part of our local and regional economy. There are many similar companies.
§ Mr. Pollard
He has moved on to two sheds.
The all-party small business group with responsibility for furthering the interests of and providing feedback on small business in Parliament maintains close links with small business organisations such as the Forum of Private Business, the Federation of Small Businesses, which represents more than 180,000 independently owned small businesses throughout the United Kingdom, the Small Business Bureau, and the associations of chartered and certified accountants. Those groups have provided a great deal of relevant reserch that is useful to the Government in conjunction with the direct feedback that they receive from their small business members. They will want to work closely with the new SBS to co-ordinate further the support for the sector. All those groups are putting names forward for the council that will manage the SBS, contrary to what has been said.
In addition to the increased administrative burden and costs of compliance that are associated with red tape, a key problem for the small business sector is that of easier access to finance. Evaluation of the Government's small firms loan guarantee scheme is taking place with lenders. Furthermore, although I welcome the new lop corporation tax rate for small 303WH companies and the extension of the 40 per cent. capital allowance for small and medium-sized enterprises to encourage investment and growth, I endorse the view that small businesses should be encouraged to retain cash in the business, perhaps by reducing tax rates on profits that are returned to it. I look forward to seeing further improvements in those measures to assist the small business sector.
§ Madam Deputy Speaker
May I say that several hon. Members have made extensive use of copious notes? They know that the reading of speeches is not permitted, which I am sure they will bear in mind. I recognise that the use of notes is acceptable and prompts other than electronic reminders sometimes have to be used when an hon. Member makes a contribution. Does Mrs. Browning want to speak again?
§ Mrs. Browning
I do, Madam Deputy Speaker.
Two clear messages have come out of the debate. First, we can all flag up, with great pride and pleasure, successful businesses, especially smaller businesses, that are in our constituencies. Secondly, although we had a flourishing small business sector—the hon. Member for Manchester, Central (Mr. Lloyd) commented that we are known internationally as a low-regulation country—that did not happen by accident. We have that reputation because in the years of Conservative stewardship, we had specific policies that were aimed at creating a low-regulation country. We saw the definite advantages of that for the business sector and the overall growth of our national economy.
However, almost every business that I talk to mentions the cumulative effect of two years of relentless regulation. We hear the same cry from a range of businesses. Businesses from all sectors, large or small businesses, the Confederation of British Industry and organisations that represent smaller firms all send the same message: regulation is at the top of their list of concerns and they want the Government off their backs.
We heard a great deal about another Government task force that is determined to tackle regulation. I challenge the Minister on that. Our debate has rightly focused on the burden of regulation that is placed on small businesses. Week after week, the Opposition face another regulation that the Government want to add to the burden. Only last week, I prayed against the Minister's regulation to introduce statutory works councils at a cost to business of £850 million. In opposition, we must pray against regulations to bring to the House an open debate about the damage that the Government are doing.
From the contributions, especially from those of Ministers and other Government Members, it is clear that there is an ideological divide. We are pilloried for supporting deregulation. I am sorry to pick on the hon. Member for Manchester, Central, but what he said was pertinent. I gave him a clear example from the passage of what became the Employment Relations Act 1999. The Conservative party tabled an amendment to exempt from a regulation companies of fewer than 50 employees because companies of that size had such an exemption under equivalent European legislation. The Government opposed the amendment and made our companies reduce the ceiling to 20 employees.
304WH The Government talk about the level playing field, but what is that if, when we compete with German, Italian or French companies, we find that we must work to different rules and that the Government deem it appropriate to handicap them further?
§ Mr. McWalter
Will the hon. Lady try to resist treating trade unions as if they are an encumbrance to business? Whatever the size of a business, good relations between trade unions and management are of real benefit, helping to secure improvements in health and safety, better conditions and a happier work force.
§ Mrs. Browning
I shall resist doing what the hon. Gentleman referred to because there has been a clear change in the relationship between the trade unions and companies. That has arisen because of the trade union reforms under the Conservative Government of the 1980s, by which power was returned to trade union members.
Good communications between management and work force, whether via a trade union or not, do not require statutory works councils with their attendant costs. Those of us who, like me, worked in British manufacturing in the 1970s and early 1980s—I then proceeded to run my own business for 10 years—knew that there had been a sea change. That change was necessary both for the work force and for the management—I could be critical of managerial practices from the early 1980s. Much of the Government's action to put affairs on a statutory basis has been unnecessary.
The Government will be judged by their actions, not by their words. I have heard nothing to make me think that there will be fewer regulations for me to pray against or that the pound cost burden on business will lighten. I assure people that the Conservative party will put right the Government's failures when we come to office.
§ Ms Hewitt
May I begin by asking for your assistance, Madam Deputy Speaker, with an intervention with the authorities of the House? We have had blessedly little hot air during the debate, but it would have been nicer had more heat come from the radiators in the Chamber.
Even in freezing temperatures, we have had an extremely interesting and valuable debate. I was impressed especially by the thoughtful and well-informed contribution of my hon. Friends the Members for Ochil (Mr. O'Neill), for Manchester, Central (Mr. Lloyd), for Ilford, North (Ms Perham), for Middlesbrough, South and Cleveland, East (Dr. Kumar) and for St. Albans (Mr. Pollard).
I should respond to the case of Coulton Instrumentation, raised by the hon. Member for Christchurch (Mr. Chope). Of course, I apologise to 305WH Mr. Coulton—he did not get the service that he should have had. Such problems happen even in the best-run businesses and Governments.
§ Ms Hewitt
I completely understand—the hon. Gentleman could hardly have made the point clearer. I shall personally get a report on what happened in the case and the reason for the delays.
I did not have time to mention British Trade International, a joint venture of the Department of Trade and Industry and the Foreign Office. It will put together all our export development and export support work and information about potential markets. It is already doing excellent work to support small businesses that want to move into new markets and is planning to put on line export control data for countries such as Iran, where restrictions are in place. I shall find out whether that information can be put on line even more quickly to ensure that businesses and people advising them have access to the most accurate and up-to-date information available.
I urge hon. Members who have constituents with urgent business problems of the sort under discussion not to waste time and to bring their problem to me. I do not promise that I can always provide a solution, but I promise that I shall try and that I will learn the lessons from such problems to try to ensure that the service is better in future.
§ Mr. Chope
What more should a constituent do than write directly to the Prime Minister, who promised that he was making contact with his own Government? I, too, took up the matter on the telephone, and spoke to a Mrs. Carpenter, although I was not going to mention that. I hope that the Minister is not suggesting that my constituent was at fault.
§ Ms Hewitt
Of course I am not, but as my right hon. Friend the Prime Minister is so exceptionally popular he receives an exceptional number of letters. It is therefore difficult to obtain fast replies, especially on complex problems. I am saying simply that if hon. Members speak directly to me or to one of my colleagues in the Department, we will try to sort out their problems quickly, which is what Mr. Coulton and others in his position needed.
The hon. Member for Tiverton and Honiton (Mrs. Browning) spoke about deregulation and suggested that the Government were not doing enough. She will not mind if I remind her of her words. She said that as a Minister in the previous Government she would be the first to say that they did not do very well on better regulation. Having admitted that the Conservatives did not get it right after 18 years, it is a bit much for her to complain that we have not got everything right in the first two and a half years. As she rightly said, there is a powerful Whitehall culture and a complex and deep-seated bureaucracy that will sometimes make regulations and guidance much too complicated and will fail to sort out some problems as quickly as they should be sorted out.
306WH With the backing of my right hon. Friend the Prime Minister, we are trying to put in place powerful forces for better regulation. That is the point of the new ministerial panel, the new Small Business Service and the better regulation task force, and it is enormously important.
My hon. Friends the Members for Manchester, Central and for Middlesborough, South and Cleveland, East rightly referred to the entrepreneurialism of many Asian communities. In my constituency city of Leicester, the Indian community in particular has generated vibrant and dynamic small businesses, as well as rather large businesses, often from almost nothing, which is what many in that community had when they arrived in Britain. We must not only celebrate that and other such success but support enterprise in other Asian communities and in the Afro-Caribbean community, which have other problems.
I am happy to say that I shall soon announce the appointment of the chairman of the new ethnic minority business forum. I hope that its membership will soon be in place, to ensure an early meeting. That organisation will work alongside the small business council, and the two bodies, which will no doubt have some overlapping membership, will give the Government a sounding board and a direct voice on the experience of a range of small business people from exactly the sort of diverse background to which my hon. Friend the Member for Manchester, Central rightly referred.
My hon. Friend the Member for Ochil and the hon. Member for Guildford (Mr. St. Aubyn) referred to the importance of bringing down the cost of telecommunications to enable business to connect more easily and cheaply to the internet. I entirely share their concerns; the cost of off-peak, weekend access to the internet, which a residential customer might use, is among the cheapest in the world, but the peak-hour, weekday access is undoubtedly too expensive. I want those costs to continue to fall much further and faster and I want a greater variety of tariff packages, including the option of a flat-rate subscription without a taximeter running for every extra minute of the call.
§ Mr. St. Aubyn
Will the Minister briefly explain why she has not tackled the problem in clause 10 of the Electronic Communications Bill?
§ Ms Hewitt
I am sorry; we are near the end of the debate. We will get the costs down and get the tariff packages right by driving competition further into the telecommunications marketplace, as we are doing, and by having tough and effective regulation, which Oftel is delivering. Last week, Oftel had a useful meeting with the internet service providers, with BT and with other interested parties. They will shortly settle interconnection charges with BT for internet access 307WH which will enable a range of tariff packages, including unmetered access, to be introduced within the next couple of months. After that, there will be the introduction of digital subscriber loop technology, local loop unbundling, third generation mobile and fixed access, broad band wireless, all of them intensifying competition in the local loop and bringing costs down. That is part of getting the infrastructure and the conditions right for business success. Our commitment to e-commerce success means that we will do that extremely energetically.
The hon. Member for Tiverton and Honiton asked a question about the minimum wage and company directors. The minimum wage, rightly, does not apply to office holders, which includes directors of companies. She continued to complain about what she called overregulation and what we know as fair standards for workers. It is not only Government Members who regret the position of the official Opposition on the matter; millions of employees and hundreds of thousands of small business owners regret the fact that we have an official Opposition who believe that wages should be allowed to fall through the floor, but do not believe that employers should have a right to paid holidays and a modest right to unpaid parental leave. It is an absurd position, but if the Conservative party had the chance to implement such beliefs it would mean a 308WH real fall in living standards for millions of ordinary people in this country who have benefited from the minimum wage and from the working families tax credit, which the official Opposition are also committed to repeal. That is not the way to create the conditions for business success.
The way to do that is to ensure that we get the macroeconomic conditions right, as we are doing, and that we get the tax environment right, as we are doing by cutting corporation tax rates to their lowest ever and by introducing a 10p starting rate of income tax which will benefit the several million self-employed people who run small businesses.
The way to get the conditions right is to get the infrastructure right, as I said, and to ensure that we regulate when necessary and when the benefits clearly outweigh the costs, as my hon. Friend the Member for Manchester, Central said, very eloquently. When we regulate, we will ensure that we do it in the most effective and simple way possible, always using the litmus test of thinking small first. That is precisely what we shall do to ensure that under our stewardship small businesses in our country continue to flourish and that more of them start, survive and succeed and become world beaters in their own right.
Question put and agreed to.
Adjourned accordingly at twenty-nine minutes past Five o'clock.