Small Firms (Hansard, 26 January 1988)

§ Mr. Cope

[pursuant to his reply, 18 December 1987, c. 830]: In my earlier reply at the above reference I promised to write to my hon. Friend and place a copy of my reply in the Official Report. The full text of that letter is as follows: On 18 December you asked for a list of the measures introduced by the Government since 1979 to encourage small firms. I am now able to let you have the information you requested. A copy of this letter will appear in the Official Report. In 1979 responsibility for the small firms sector resided with the Department of Industry. Responsibility was transferred from the amalgamated Department of Trade and Industry to the Department of Employment on 3 September 1985 to give a sharper focus to the promotion of enterprise and its potential for job creation. Government policy throughout has been to concentrate on tackling the particular disadvantages faced by people setting up a new business or wishing to expand an existing small firm.

Finance The availability of finance to small firms has been improved by: The Loan Guarantee Scheme, introduced in 1981 to facilitate the supply of finance to viable small firms where conventional loans are not available, possibly due to lack of security or track record. The Scheme was extended for a further 3 years in the 1986 Budget. The premium paid by borrowers was reduced from 5 per cent. to 2.5 per cent. of the guaranteed proportion of the loan, which remains at 70 per cent. To date 18,741 guarantees have been issued with a total loan value of £627.42 million. The Business Expansion Scheme, introduced in 1983, provides income tax relief on new equity investment in unquoted trading companies. The life of the scheme was extended indefinitely in the 1986 Budget. In the first two years of the scheme's operation some 1,500 companies raised £252 million, half of which were small enterprises seeking to raise amounts below £50,000. The figures include 88 companies which raised finance in both years. The Venture Capital Scheme encourages the provision of 162W finance by enabling individuals and investment companies to set capital losses on disposal of shares in unquoted trading companies against income. The Enterprise Allowance Scheme was inroduced on a pilot basis in 1982 and nationally from 1983 to assist people who have been unemployed and in receipt of benefit to start their own business. Over 300,000 unemployed people have been helped by the Scheme. Provision for 102,500 entrants has been made for 1987–88 and 110,000 places in 1988–89. Greater emphasis is now being placed on counselling and training for applicants.

Premises The Small Workshops Scheme stimulated private sector investment in small industrial premises. From March 1980 to March 1985, a 100 per cent. initial building allowance was given for capital expenditure on the contruction of small workshops. English Industrial Estates Corporation (EIEC) has concentrated on providing premises for small businesses (up to 2,500 sq. ft.). Special rental and tenancy agreements have been devised to meet the needs of small businesses and entrepreneurs. EIEC works with a number of public sector agencies—the Department of Trade and Industry, the Development Commission and universities. Similar programmes are undertaken by the Scottish and Welsh Development Agencies. The Department of Trade and Industry announced on 12 January 1988 that they will be paying special attention to increasing managed workspaces in inner city areas.

Training The Manpower Services Commission has developed a range of training programmes and has particularly refocussed its adult training provision to take greater account of small firms' training needs. The Training For Enterprise programme (TFE) aims to equip potential and existing entrepreneurs with the skills and knowledge required to successfully launch, manage and develop a small business. The TFE budget has increased greatly since 1979/80; in that year 120 people were helped by the programme at a cost of £0.42 million, in 1986/87 67,000 people benefitted at an expenditure of £18.6 million. Estimates for the current financial year are for £19.3 million and 68,000 people.

Government Purchasing The Government has improved small firms' access to information about purchasing departments, their procedures, requirements and points of contact. A Department of Employment booklet on "Tendering for Government Contracts" has been supplemented by some individual departments' own publications and information published on Prestel. Tendering and approval procedures have been simplified by exempting suppliers to most Government departments from normal approval procedures for contracts under £10,000, by allowing non approved firms to tender for non-urgent contracts subject to subsequent approval and by encouraging Departments to make regular reviews of tender lists to encourage new suppliers. The Ministry of Defence launched a small firms' initiative at the end of 1986 to increase competitive opportunities for small firms. This included the creation of the Small Firms Advice Division within the Procurement Executive to supervise the initiative, to advise on the development of MOD policy towards small firms and to offer a variety of advice and information to small firms wishing to obtain contracts. Another part of the initiative is aimed at enabling innovative small firms to obtain a greater share of MOD's research funds.

Innovation The Small Firms Merit Award for Research and Technology (SMART) was run for the first time in 1986 to encourage small firms and potential entrepreneurs to put forward innovative ideas that cannot attract existing sources of funding. The scheme is to be expanded. The Support for Innovation Scheme was introduced in 1981 by the then Department of Industry to offer firms 163W assistance with Research and Development projects. The programme was reviewed in 1985 and the emphasis shifted towards collaborative research, advisory services and improving skills. Small firms are subject to a simplified appraisal process and so far 50 per cent. of participants in the scheme have been small firms. A change in emphasis was announced by DTI on 12 January 1988 to switch support from single companies to support for collaborative research and technology transfer particularly between industry and higher education institutions. The Teaching Company Scheme was set up by the Science and Engineering Research Council and the Department of Trade and Industry in the mid-70s. The Scheme promotes close active partnership between Higher Educational Institutions and companies to work on major industrial problems such as the application of new technology. There are currently about 275 programmes and in 1986–87 total funding for the Scheme was £10 million split between DTI, the Research Councils and Industry. United Kingdom industry has a high regard for the scheme and it had led to the recruitment and satisfactory integration of high quality graduates into small companies, especially those with no graduate employees. On 12 January 1988 the Department of Trade and Industry announced that the scheme is being substantially increased and that it will put greater emphasis on the projects of small and medium sized firms.

Taxation Both small companies and unicorporated businesses are benefiting from tax reductions. The basic rate of income tax and the "small companies" rate of corporation tax have been reduced to 27 per cent. The highest rates of income tax have been substantially reduced. The capital gains tax exemption limits have been increased to £6,600. Retirement reliefs have been extended to cover retirement at 60, retirement through ill health and disposal of shares in family holding companies of trading groups. In 1987 the ceiling for retirement relief was raised to £125,000. Indexation has been improved and extended as have rollover reliefs. Reliefs have also been introduced to facilitate the incorporation of businesses, and losses on loans made for business purposes can now be offset against capital gains tax. Significant changes to capital transfer tax were introduced between 1979 and 1985 to increase thresholds from £25,000 to £67,000 and increase rate bands. From 1981, only transfers within the preceding ten years were taken into account in assessing cumulative total CTT liability. In 1986, the charge on lifetime gifts was abolished and the tax renamed inheritance tax with the threshold increased to £71,000 with further increases in rate bands. In 1987 business relief was increased from 30 per cent. to 50 per cent. for minority holdings over 25 per cent. in unquoted companies, the threshold was increased to £90,000 and the rate bands reduced from seven to four. These changes will further facilitate the transfer of business from one generation to the next without the need to dilute assets to meet the consequent tax liability. Income tax relief is available on personal borrowings raised to make investments in partnerships, close companies, co-operatives and employee buy-outs. Relief is also available for interest on loans to partners buying plant and machinery for use in their partnership business. Losses incurred in any of the first four years of trading by a new business carried on by an individual can qualify for special income tax relief. This can be obtained against earnings during a three-year period before the new trade started. Expenses incurred in the process of setting up a new business are now deductible from subsequent trading profits so long as the expenditure is undertaken in the three years prior to start-up. In 1987 a package of measures was introduced to lighten the VAT burden on small businesses including the option of cash and annual accounting for businesses with turnover up to £250,000, the registration threshold has been increased to £21,300, the period in which businesses are obliged to register extended to 30 days and simpler schemes have been introduced for small and medium-sized retailers.

164W

Deregulation Over the past three years, reducing the burden of administrative and legislative burdens on business —particularly on small businesses—has been established as a major part of the Government's efforts to promote enterprise. Although prime responsibility for deregulation lies with the individual departments, work is co-ordinated centrally by the Enterprise and Deregulation Unit (EDU), which is now located in the Department of Trade and Industry. The EDU also helps with the development of policies across Whitehall to encourage enterprise more generally. Achievements to date are set out in the White papers "Lifting the Burden" (July 1985 Cmnd. 9571) and "Building Businesses … Not Barriers" (May 1986 Cmnd. 9794) and the report to Parliament "Encouraging Enterprise" (May 1987). This Department has produced a simplified guide to employment legislation for small firms' advisors, along with a model employment form and notice board kit aimed to help small firms in particular. In March the Department published a cartoon leaflet and series of fact sheets on employment law, designed to help those employing people for the first time. In addition, the Advisory, Conciliation and Arbitration Service has published a booklet for small firms with information on various aspects of employing people.

Advice A major priority has been to make information and advice more accessible to small businesses and the self-employed through the Small Firms Service, Local Enterprise Agencies (LEAs), the Employment Service's Jobcentres and the publications "Action for Jobs' and "Guide to Enterprise". The Small Firms Service is a nationwide service which offers free information and impartial and confidential counselling on all aspects of starting running and developing a small business. During the 1986–87 financial year the Small Firms Service dealt with 310,000 enquiries in Great Britain and over 38,000 counselling sessions in England alone. The first three counselling sessions for a business are free, a modest charge of £30 (including VAT) is made for any subsequent sessions. To encourage the development of LEAs the Local Enterprise Agency Grant Scheme (LEAGS), a five year scheme of financial assistance designed to establish a network of viable self-supporting enterprise agencies, was introduced on 1 April 1986. LEAGs aims to encourage greater private sector support for the agencies (by being prepared to match it, up to a limit, with Government support). Approximately £2.4 million in grants was made available in the first year to about 170 agencies. A further £2.75 million is being made available in 1987–88. To encourage private sector support for LEAs, the government made provision in the 1982 Finance Act (Part III section 48) for tax relief on contributions to approved agencies by a company or unincorporated business. The Council for Small Industries in Rural Areas provides rural small businesses with advice through 33 offices on local opportunities and conditions, business management, marketing and technical advice, skills training and financial service. Until recently outside consultancy advice was subsidised through the Business and Technical Advisory Services (BTAS) run by the Department of Trade and Industry BTAS provided subsidised consultancy to small and medium sized firms on design, marketing and quality management. Advice on advanced manufacturing technology was also available. The Business Improvement Services package of schemes run by the Department of Trade and Industry, aimed to help small firms in areas affected by job losses in particular industries—steel, textiles, ship building, deep sea fisheries and tin-mining areas. Grants were available for consultancy advice on marketing, financial management, the application of computers arid licensing in of products and processes, as well as for common services for groups of small firms and investment projects. Comparable schemes were operated by the Secretaries of State for Scotland, Wales and Northern Ireland. On 13 January 1988 the Department of Trade arid Industry launched the "Enterprise Initiative", which offers access to and financial support towards the cost of specialised consultancy in a number of key management functions. This is targeted at firms with fewer than 500 employees.

165W

Marketing Throughout 1987, this Department, together with the Manpower Services Commission, Lloyds Bank and the Institute of Marketing sponsored a series of workshops designed to show managers of small firms how to improve their competitiveness by the implementation of practical marketing techniques. In addition, with funds provided by the Department of Employment, CoSIRA is currently offering grants to assist small rural businesses to improve their marketing and sales to trade buyers.

Health and Safety The Health and Safety Commission's Small Firms Working Group, chaired by a CBI nominated Commissioner, has special responsibility for the interests of small firms. A number of publications aimed specifically at small firms, have been produced and distributed — for example, the leaflet "500 dead" and a model guidance document designed to help small firms prepare their policy on identifying and controlling the risks within their businesses. The Health and Safety Executive is also preparing a general guidance handbook on health and safety aimed particularly at small businesses, which will be available shortly.

Support in particular sectors The Government sponsors the Co-operative Development Agency. The Co-operative Development Agency and Industrial Development Act 1984 provided additional funding, effectively extending the Agency's mandate for a further six years, and gave it limited additional powers. The Small Engineering Firms Investment Scheme (SEFIS) was a short term scheme set up by the Department of Industry which closed for applications in September 1983. It operated in two phases to help small engineering firms to invest in particular types of advanced capital equipment.