§ 11.7 a.m.
§ Mr. Paul Dean (Somerset, North)
I beg to move,That this House recognises the importance of the self-employed and the small independent business in the industrial, commercial and social life of the nation; accepts their major contribution to the maintenance of employment and the restoration of Great Britain's economic health; and calls on Her Majesty's Government to find means of alleviating the taxation and other burdens which threaten their existence, and to conclude as 826 quickly as possible the reviews of national insurance provision for the self-employed both at home and within EEC.I hope that the motion will commend itself to the whole House and that the Government will accept it. Friday is an opportunity for calm, constructive debate and that is the spirit in which I have drawn up the motion and in which I move it.
This is the first occasion in over 11 years in the House that I have been lucky in the Ballot. As chairman of the Conservative watchdog group for the self-employed, I am delighted to have this opportunity. I am also delighted to see on the Opposition Front Bench my hon. Friend the Member for Basingstoke (Mr. Mitchell), who is Chairman of the Conservative Smaller Business Committee. It is also most encouraging to see a large number of my hon. Friends present for the debate, an unusually large number on a Friday. I am grateful to the Minister of State, Department of Industry for his attendance, but I understand that he has now handed over responsibility for small firms to his noble Friend Lord Melchett, who sits in another place.
I come from a self-employed family with a small business—namely, farming. My father was self-employed all his life, and was also a small employer of men who worked on the farm. I have personal experience of self-employment and small businesses, and also of VAT—or, perhaps to be more accurate, my wife has, because she handles my VAT for me.
There are two themes I should like to commend to the House. The first is the importance of the self-employed and small businesses in our national life and in the fight to overcome our present economic difficulties. The second is the need for a more effective voice for them in the counsels of the nation in Whitehall and Westminster.
I am deliberately coupling the self-employer and small businesses. Although there is a great diversity in the group—ranging from medical consultants to small shopkeepers, from barristers to barrow boys, from farmers to building subcontractors—there are common characteristics and problems. Many self-employed people are also employers.
The first theme is the role of the self-employed and small businesses in the life 827 of the nation. I believe that their importance needs greater recognition, their qualties need encouraging not penalising, and their problems need better understanding.
How do they feel at present? They feel that their existence is threatened by increasing tax burdens. They are being driven almost to explosion point by a growing multitude of regulations, controls and forms. They feel harassed by bureaucracy and "Big Brother." They feel that they are struggling against indifference and hostility in high places. No wonder they feel this way when they can point to so many instances of the scales apparently being weighted against them.
There is the instance of the supplier who will supply only in quantities that are too large for the small trader. There is the big organisation which squeezes the small firm by not paying bills promptly. There is the complexity of VAT and the harassment to which small businessmen feel they are subject as a result of the way in which VAT is administered and collected by the Customs and Excise.
I quote one example from the many letters that I have received dealing with the complexities of VAT. It comes from an antique dealer in Salisbury. He writes:In the course of my work it was necessary to dispose of a collection of some 50 items of Chinese jade and hardstone carvings on behalf of a client. … Profit and loss calculation for income tax purposes was simple and was done by the accountant during the yearly audit. But in order to provide the information required to satisfy the VAT authorities and account for the exact amount of VAT through all the stages of this particular transaction it was found necessary to make 12 separate entries and eight separate calculations each to three places of decimals for each separate item. Using my own calculator this took me and my son four hours and 20 minutes to complete—nearly nine hours between us. And for what? Just £8–17 VAT to be paid on a final commission of £102.That is a fairly typical experience. No wonder this antique dealer goes on to say:The complexities of VAT are, without a shadow of doubt, interfering with the efficient running of businesses by self-employed business men. Direct losses are resulting and it just does not make sense except to civil servants.828 That is a fairly common reaction. I plead with the Government, now that we have had some years' experience of VAT, to have a searching look at its complexities and to find ways in which the arrangements can operate more satisfactorily and with fewer difficulties for those who have to make the returns.
There is also this question of form filling. It may seem a trivial matter, but to the small trader it is a major consideration. It is work that he has to do himself—or that his wife has to do—after a day's work, or quite often on a Sunday, when most people are having a day off. I quote one of many examples I have had. This is an agricultural sub-contractor in Worcestershire who also does contruction and sub-contracting work. He employs six men but because of the variety of the work he handles he is in contact with a wide range of Government Departments and agencies. They all create paper work. He reckons that it takes him between 12 and 16 hours every week to complete this paper work and that it costs him about £20 a week in terms of his time.
It is against that background of frustration that the self-employed have felt angrier about the increased national insurance contributions. They have to pay their fair share of the rising costs of pensions like everyone else. The previous Conservative Government provided for this in the new arrangements for the contributions for the self-employed and for the employee. But this Government have substantially increased those contributions and the self-employed rightly feel strongly that this is unfair. I am glad to say that in the latest increase in contributions, which was announced late last year and which comes into operation this April, there has been some redressing of the balance.
I beg the Government to realise that the self-employed still feel strongly that they should have some tax relief on their contributions. There should be some element of the contribution which is tax deductible in the same way as the contributions of the employer.
§ Mrs. Elaine Kellett-Bowman (Lancaster)
Does not my lion. Friend agree that this is a particularly difficult matter for farmers and those in similar occupations whose gross income is taken into 829 consideration and whose income on capital is taxed as though it were earned income? Can that practice be gone into carefully, because it is driving many people into bankruptcy?
§ Mr. Dean
I am grateful to my hon. Friend for making that point. There is a strong case here in favour of the farming community. Many of the arguments also apply to small businesses of other kinds. I urge the Government to consider this subject again.
There is also the range of benefits available to the self-employed. There is the fact that they have second-class status in the EEC. I know that the Government are considering this subject and I urge them to press ahead as quickly as possible to a satisfactory conclusion.
There is no doubt that there are widespread suspicions of the Government's overall intentions. This is hardly surprising when the self-employed see the Government apparently encouraging local authorities to go in for trading. The West Midlands County Council Bill is a good example of that. The self-employed people see the growth of the public sector through nationalisation and the Community Land Act. They observe the Government introducing the closed shop with no effective right of appeal for individuals through the Trade Union and Labour Relations Bill. They see attacks on independent schools and private health services.
No wonder the doctors are suspicious of the Government's intentions and feel that there is an intention to undermine the freedom to practise their profession without undue political interference. No wonder sinister motives are suspected when the Government demand photographs from subcontractors. No wonder organisations like the National Federation of Self Employed and the Association of Self Employed People have sprung up, or that the Association of Independent Businesses and Chambers of Commerce are so active. I am delighted that these organisations are in being. They have important work to do and I say good luck to them.
If we kill off the small man in business, we shall kill many of the qualities which built Britain, the qualities we need to restore our moral fibre and economic health. If we want to find private enter- 830 prise, entrepreneurial skill, invention and innovation, where do we look? We look first to the small, independent commercial or industrial firm. If we want to find a shining example of productivity, we look to British farms, farmed in most cases by the owner-occupier, to small family businesses. If we want a good example of personal relationships at work, we look to the small firm where the men know the boss and the boss knows the men. If we want an example of long unsocial hours being worked in service to the community, where shall we find it? The doctor and the shopkeeper are two good examples.
Why is this? I think that the Bolton Committee put it very well when it referred to the "intense commitment" of the owner-manager. In the professions it is because of the high standards instilled by long training and qualifications won on merit. The Bolton Committee made this point extremely well about the small business, and it applies equally to the self-employed. It said on page 342 of its Report:The contribution of the small businessman to the vitality of society is inestimable. The qualities of vigour, enterprise and ambition which characterise so many of them have made them natural community leaders, and they have been benefactors to their localities, to the arts and in many other ways which help to make life meaningful and pleasant. Above all their spirit of independence is a strength to the nation, as deeply needed now as it has ever been.There is another reason, in my view, which is important. It is that we live in the days of the ailing giant, the large nationalised industry, the large public corporation with a poor track record and an insatiable appetite for taxpayers' money. All too often this begins to look like brandy for geriatrics. I should prefer to see us putting a little more orange juice into babies with growth prospects. That would be a better use of taxpayers' money. The notion that biggest is best is wearing very thin these days.
There is another and very topical reason for the importance of the small firm. It relates to the grim unemployment situation that we face. There are about 800,000 small firms and about 2 million self-employed in the country. They provide jobs for about one-third of the work force. If each of those 800,000 small firms took on one additional man, 831 that would almost halve the unemployment figure. On the other hand, if each of those 800,000 firms sacked one man, what a difference that would make to an already grim situation!
Earlier this week, I heard a very interesting analogy put by the building, civil engineering and extractive industries in the South-West of England. They are going through a difficult time with new orders still falling off and, therefore, with a threat to employment. They point out that together they employ about the same number of people as does Chrysler. But there has been no rescue operation for them.
In the interests of employment, I beg the Government to look at the tax position of the small businesses. Tax bites hardest on the privately-owned business which relies heavily on ploughed-back profits and self-financing. There would be a real fillip to these businesses and to employment by some relief in the Budget.
On 23rd January the Association of Independent Businesses wrote to the Chancellor of the Exchequer, and I quote briefly from its letter where it refers to the taxation of capital. The association refers first to the comment in the Bolton Report:We are very concerned at the increasing tendency towards the taxation of capital—whether unintentional … or deliberate.The letter then goes on:The control of capital is of course essential to an independent business. The prospect of increasing the capital is the main incentive to run such a business efficiently. Therefore the increase in taxation of capital in recent years threatens the viability of the privately-owned business sector.Dealing with corporation tax, the association makes the point that the present system favours the company with high distribution—that is, the private company. I hope that the Government will seriously consider these constructive suggestions about the tax problem which the Association of Independent Businesses recently sent to the Chancellor of the Exchequer.
Then there is the vexed problem of VAT, especially the penal rate of 25 per cent. on small businesses like boat builders. There is also the problem of the commercial rate burden. I beg the Government to consider carefully all 832 these factors and the contributions that relief in these areas could mean to the difficult economic and employment situation that we face.
My second main theme is to call for a more effective voice for the self-employed and the small business. I do not mean more interference and more bureaucracy. That is the last thing we want. Talking to this section of the community the message comes through loud and clear that they want the Government off their backs, but that they need a more effective say before decisions are made.
On 1st December last year I put a Question to the Minister of State. I asked him what meetings he had arranged with the representatives of the self-employed and the small businesses about the proposals in the Queen's Speech. I thought that, as the Queen's Speech said that the Government were consulting the TUC and the CBI, they would be taking similar steps in this area. The Minister of State told me that he had had none, and he went on to explain why he thought that an initiative by him was not necessary.
I felt that that was a very disappointing answer. Surely he should have taken the initiative himself by calling them together and asking them for their comments on the Government's programme. The Government are always consulting the TUC and the CBI, and so they should. But there are millions of workers outside the TUC, often in the small firms, who feel that they cannot be represented effectively by the TUC, and there are small firms which feel, rightly or wrongly, that they cannot be represented effectively by the CBI.
§ The Minister of State, Department of Industry (Mr. Gregor Mackenzie)
The hon. Member is putting forward a very constructive point of view. But we have some difficulty. We have two or three associations. Fairly regularly I meet the small firms' officials from the CBI. I should not like it to be thought that we do not consult the CBI. Of course, it is up to the CBI to put forward the points of view of its own small firms sector. I know the officials of the small firms sector of the CBI, and I meet them regularly.
§ Mr. Dean
I am grateful to the hon. Gentleman for that intervention and I appreciate the difficulties involved where there are a large number of organisations. I shall be making some suggestions in this regard which I hope will be of help.
On 11th December last year I put a Question to the Prime Minister. I asked him whether he would allocate to a senior Cabinet Minister special responsibility for the self-employed. The right hon. Gentleman answered, "No." His reason was:… matters arising from the diversity of the activities and interests of the self-employed do not form a coherent whole, important though they are, and are better handled on the basis of existing ministerial responsibilities."—[Official Report, 11th December 1975; Vol. 902, c. 648.]I felt that the Prime Minister gave me my point. I know that not everyone would agree that it would be wise to have a senior Cabinet Minister with this responsibility. But in my judgment, because the activities are so diverse and concern so many different Departments, if there is to be an effective voice in the Cabinet and in the formulation of Government policy, it is necessary to have a senior Cabinet Minister who can ensure that those problems are brought together and seen as a whole.
I emphasise that I am not suggesting a Department. The last thing that I want is another Department of State. I merely suggest a Minister with an effective co-ordinating role. In making that suggestion, I am not casting any aspersions on the Minister of State and what he has done. I am merely saying that if this co-ordination is to be effective, it must be done at Senior Minister level.
§ Mr. Robin Maxwell-Hyslop (Tiverton)
Has my hon. Friend in mind someone like the Chancellor of the Duchy of Lancaster, who cannot be very heavily engaged now that his activities in Chrysler are over?
§ Mr. Andrew Welsh (South Angus)
Is the hon. Member aware that the situation in Scotland is even worse? There is no one in the Scottish Office with responsibility for the self-employed. Will the hon. Member bear that in mind in his comments?
§ Mr. Dean
I am grateful for the hon. Member's support.
For my suggestion to work effectively we shall need an effective parliamentary watchdog to keep tabs on what the Cabinet Minister is doing. I should like to see a new Select Committee or a sub-Committee of the Expenditure Committee given specific responsibility in this area.
Another suggestion has been put by the Bristol Chamber of Commerce, Industry and Shipping in a letter to local MPs. The letter says:the Chamber of Commerce and Industry movement in the United Kingdom is at a serious disadvantage compared with almost every other country in the world and certainly our EEC counterparts in that we are voluntary bodies attempting to do the impossible with our limited resources. In many other countries. Chambers of Commerce and Industry have statutory recognition and wider membership and a well-defined role in the wealth creating sector of their country, namely industry and commerce.This is an interesting suggestion which deserves consideration if we are to find ways to get this more effective voice in both Whitehall and Westminster.
I have endeavoured to concentrate on the themes and illustrate them with examples. We are dealing not only with the contribution the self-employed and small businesses can make to the British economy, important though that is, but with the quality of life, with diversity of choice, independence and initiative—important constituents of the British character.
We need big firms and we have many very good ones. We have the big nationalised industries, but we also need the independent small firms, the one-man shows, to get a balanced, healthy and prosperous society. We must redress the balance and stop worshipping uncritically at the altar of bigness. We must pay more respect to the qualities of smallness. If this debate makes a modest contribution to redressing the balance, it will have done some good.
§ 11.33 a.m.
§ Mr. Mark Hughes (Durham)
I rise with some diffidence, because for nearly 20 months my ability to speak on this subject has been constrained by the fact that I have been a PPS at the Treasury. I trust the Minister will not find it surprising if I say that were there to be a vote on this motion, I should have great pleasure in supporting it.
The contribution small businesses can make is nowhere greater than in the hard-hit depressed industrial regions such as my own in the North-East. Their contribution to employment and vitality in a region is nowhere greater than in this sort of area. The assumption is frequently made in certain parts of the Labour movement that small businesses exist only in Tory areas. That is totally fallacious. We need small businesses in Labour areas rather more than they are needed in Tory areas.
One of the difficulties confounding the whole of the series of debates I have listened to on this topic is the inability to dstinguish between the self-employed and their national insurance position, which is a relatively narrow subject, and the infinitely bigger problem of what we are to do about the industrial, commercial and social lives of small independent businesses. I hope the hon. Member for Somerset, North (Mr. Dean) will forgive me if I do not touch on the insurance side, but concentrate on the business element.
Together wtih the National Federation of Self Employed, I put three suggestions to the Chief Secretary to the Treasury regarding the administrative burden placed on small businesses by VAT. I hope they will be carefully considered by my right hon. Friend the Chancellor of the Exchequer when he is framing his Budget.
The first is that VAT should be calculated and payable on an annual basis, with quarterly settlements on account. There would be one final settlement, simultaneous with the end of the Inland Revenue year. Accountants in a firm could make that major settlement so that, having made payments on account, they would not suddenly be faced with a large VAT bill. I know that this is done in many European countries. 836 Monthly settlements lead to greater administrative difficulties.
Another suggestion is that if in the movement towards closer harmony with Europe we are forced into having more multiple rates of VAT, as in France and Italy, it might be necessary to consider the introduction of a compound rate for individual firms. Where a firm pays VAT at one rate on a certain proportion of its turnover, at another rate on another proportion, with perhaps some of the turnover being zero-rated, the Customs and Excise should consider whether there could be a single compound rate for each firm on the basis of information already available on the previous year's activities. I do not know whether there is a call for such a system. It would be up to individual traders to decide whether they wanted to use it if it were available, but the case for it needs to be examined very closely by the Treasurey and Customs and Excise.
I am terrified that with EEC harmonisation we shall find ourselves greatly out of step with our Common Market partners over the lower limit of VAT. Our starting point for VAT is double that for the next highest rate in the EEC. In Belgium VAT starts on a turnover of £800 a year. If we harmonise down to that, it will be to the detriment of the small businesses. We want the EEC to harmonise up to our level. I know that I shall have the support of the hon. Member for Lancaster (Mrs. Kellett-Bowman) in the European Parliament if any proposals are put forward from the Commission which will adversely affect small businesses in this respect.
One problem which presents more acute problems for small businesses than for larger concerns is the ability to grapple with inflation accounting. Not only inflation but the problems of inflation accounting have hit the business community severely. The larger firms have the power to buy in expertise, but the small businesses have great difficulty doing that, and it is not an expertise which can be mugged up overnight. It is a difficult technical problem. Much of the trauma facing small businesses results from inflation and from the hesitancy they exhibit in getting to grips 837 with the new set of problems that inflation is forcing upon them.
None of our historic experience of running a business enables us to cope with inflation of 20 per cent. The rules show us how to run a business with inflation of between 2 and 4 per cent., or even perhaps up to 5 per cent. a year. That experience in many cases can be detrimental in attempting to cope with inflation of 20 per cent. plus.
Another genuine problem facing small businesses is how to restructure their companies and the whole of their investment stockholding and so forth in the face of current and possible future rates of inflation. This is a burden which the Chancellor's stock relief scheme will go a long way to help if they get their accountancy procedures right. One of their problems, however, is that their bookkeeping is so rudimentary that they are scarcely able to take advantage of some of the more complex tax provisions which are available. They give members of the accountancy profession tremendous headaches because they cannot provide the information which will enable their advisers to adopt the proper procedures to avoid paying excessive tax.
The hon. Member for Somerset, North mentioned the commercial pressures exerted on the small businesses in times of difficulty. It is clear that big business is not the friend of small business. When liquidity tightens, it tightens very hard on the small concerns. The big corporations do two things simultaneously. They delay their payments out while demanding speedier payments in. This is one of the nutcracker squeezes put upon small businesses by both public and private corporations, a practice they have adopted ruthlessly over the past 18 months, causing untold damage.
Perhaps I may utter a few words of caution. Many of us accept that small businesses and the self-employed person possess many admirable characteristics. However, they are not only the seed corn of commercial life, but contain some of the wild oats of social drop-outs. There is sometimes a difficulty for Government to distinguish between seed corn and wild oats. The need to remove clear and distinguishable abuses has led to the imposition of clear and, in many cases, scarcely tolerable controls.
§ Mr. Kenneth Lewis (Rutland and Stamford)
Does the hon. Member accept that a lot of large businesses have been indulging in wild oats activities in recent years and that some of them have been very costly to the taxpayer?
§ Mr. Hughes
I accept that entirely. No farmer would question that the most difficult weed of all to eradicate is the wild oat, and that once he has it in his corn crop, it is almost impossible to get rid of.
§ Mr. Hughes
The hon. Lady has analysed precisely the position of the Chancellor. He has now acquired the modern techniques to distinguish between the wild oats and the genuine seed corn.
However much we Labour Members would like to see the small businesses brought into the pre-budgetary consultative procedures, their independence makes it difficult for them to speak with one voice. Clearly, it will be crucial that the self-employed and the small businesses should be in accord with the next phase of the incomes policy. They have a role to play in determining what that policy should be, but who speaks for them?
Their very independence, which is the hallmark of their strength, is the cause of some of their weakness. By definition they cannot be expected to speak readily to Government with one voice. They will always tend to split off into varying pressure groups with occasionally conflicting interests. However much one may laud their characteristics of enterprise and work, they carry within them a certain unwillingness to combine, and that makes it difficult to bring them into negotiations.
However difficult this may be at a national level, in the context of the EEC it could be disastrous. Unless the small businesses can acquire access to the back rooms of Brussels—
§ Mr. John Gorst (Hendon, North)
Does not the hon. Member agree that these businesses require not just fertile soil in which they can grow but a certain additive of fertiliser in the form of Government encouragement? What does he believe the Government can do positively in that direction?
§ Mr. Hughes
I have already suggested some areas in the administration of VAT where I think the Government could make a positive contribution. Though it would be improper for me to judge whether those suggestions would be administratively feasible, some of them are at least sensible enough to stand examination.
The relief of personal and corporate taxation in this middle band—as the Chancellor said in his now famous television interview—must be an essential part of the regeneration of British economic life. Included within that relief by definition must be a large number of small businesses. I expect that it was precisely with them in mind that the Chancellor was speaking in the television interview. I must not expand the metaphor too far, but that is where I would seek not merely the fertiliser but the soft rain and sun to flow from the Chancellor later this year.
In the context of the EEC structures we shall get a flow of bureaucratic decisions which will severely affect the everyday life of small business men. After only six months as a member of the European Parliament, it seems to me that there is no effective voice—apart from the agricultural voice—inside the structures of the Community expressly looking after the interests of the small business man. The need for a Minister of Cabinet rank in this country is as nothing compared with the need for a Commissioner in Europe charged with the task of looking after the small businesses of the whole Community.
The impact of the multiplicity of regulations emanating from Brussels is infinitely greater upon the small businesses than upon the great international combines. Unless collectively the Community and its institutions are seen to give benefit to small businesses and ordinary people, our membership of the Community will have been a complete disaster.
§ 11.52 a.m.
§ Mr. Marcus Kimball (Gainsborough)
It is refreshing to hear from the Labour Benches such a positive and constructive call for a reduction in taxation for professional people and small businesses as was made by the hon. Member for Durham (Mr. Hughes). It was one of 840 the most cheering speeches I have heard in the Chamber for a long time.
I think that all Opposition Members would follow the hon. Gentleman in his two other suggestions for a composite rate of VAT and better representation in Brussels for small businesses. I was encouraged to hear from someone who had worked in Europe for the past six months a tribute to the work done by the National Farmers' Union in its organisation in Brussels. I hope that the hon. Gentleman will follow some of my hon. Friends in agreeing that some of the excessive burdens carried by small businesses, for which the Labour Party is largely responsible, should be removed.
I am glad to see that the Minister of State, Department of Industry is to reply to the debate. I hope that I shall not stretch your tolerance, Mr. Deputy Speaker, by paying a tribute to him for the part he played in taking swift action when the largest employer in my constituency found itself in serious trouble early this summer. The Gainsborough constituency had the highest level of unemployment in the Midlands. That level would have been a great deal higher if the Minister and his officials had not acted so properly and wisely in July and August. I hope that I shall not dilute that tribute to the Minister's efficiency by saying that I should like to see the same generosity, sensitivity and efficiency in dealing with the problems of the small businesses which are now the largest employers in my constituency.
Our last debate on this subject was on 4th November 1975. Since then the Government have created a smokescreen by suggesting that there has been an improvement in our economy. The only improvement in our economy that anyone in business can see is a small drop in the Bank Rate which reduces the expenses of borrowing. Apart from that, any self-employed person, professional person or anyone struggling with a small business has exactly the same problems today as he had last November and has had for the past 18 months.
The order of priority is now slightly different. We are all expectantly awaiting the report of the Layfield Committee on rates, which will be the next most important development for all small business people and professionals. It is, perhaps. 841 too much to hope that the Layfield Committee will do something more about local government finance and end housing subsidies. One of the greatest unfairnesses that is apparent in towns and villages is that a person who is earning good wages in industry may be living in subsidised council accommodation next door to a person who is struggling to pay off his mortgage and buy his own house. If there is to be immediate relief on rates, that is the area in which action should be taken, but I realise that it is unlikely to be taken by the Labour Government.
In discussing business problems with a self-employed person this time last year, I found that the first matter on which I was tackled was the increase in the national insurance contribution and the removal of the tax concession to the self-employed on their contributions. That problem is still with us. It has not been resolved, and the Government have shown a remarkable lack of sympathy towards it.
Today that problem does not have the first priority with the self-employed and the small business man. The multiple rate of VAT is now the greatest problem. I shall not weary the House with a long list of anomalies. The hon. Member for Durham had an interesting solution, and I hope that the Minister will give that solution his serious consideration. From the Conservative point of view it would be much easier to go back to the simple 10 per cent. rate of VAT. In that simple form many of my hon. Friends and I support VAT, but the multiple rates have created an administrative burden for the self-employed, who are the hardest hit by it.
Big firms employ cashiers and accountants, whose salaries are chargeable against profits, to do this work for them, but the self-employed cannot do that. In a constituency like mine the business community is made up of the people who run the post office, the garage and the village shop. The most enterprising are the blacksmiths who have become agricultural engineers and taken on work for the local engineering works. In country constituencies canvassing is not done in the same way as it is in the towns. If one goes into the village, one fills up with petrol and buys a bar of chocolate from the shop but can no longer buy a book 842 of stamps from the local post office because it is no longer in existence. A canvasser in a village takes the temperature of his supporters and discusses local problems.
I find now that a whole range of new problems arise in running a small business. They are not the problems that used to be discussed this time last year, not just the multiple rate of VAT and the VAT inspector. It is now the safety inspector who comes to the fore in discussing business problems. If the safety regulations imposed by the House were enforced to the nth degree by the safety inspectors, many small businesses would be forced out of business.
In a small business which is just being started up, profitability depends on making the best use of well-maintained, sound, old and reliable equipment. The cost of conversion and reguarding is in many cases crippling. The cost of re-equipping is manageable if a firm is making a substantial profit, because it can write off the new machinery, but that is not always the case. No one wants people to work with dangerous equipment, but the cost factor is an enormous burden on many small firms.
§ Mr. John Lee (Birmingham, Handsworth)
The hon. Gentleman cannot have it both ways. Is he suggesting relaxation of safety regulations? My constituency has a lot of hack street factories where the accident rate is very high. Horrible accidents have taken place because of outdated and unguarded machines.
§ Mr. Kimball
I accept that. I am pointing out that the safety regulations are a severe burden on small businesses. I understand how the hon. Gentleman feels about the question of safety. All I am doing is pointing out that safety measures are yet another of the burdens which have been heaped on small businesses.
Then there are the problems created by the recent Employment Protection Act. My hon. Friend the Member for Somerset, North (Mr. Dean) made a valid point about small businesses where they may need to employ an extra man. In any business these days, one thinks hard before taking on extra men. Certainly, if one employs five men one draws back from employing a sixth and thereby 843 coming within a different category of the employment regulations.
Quite apart from the financial considerations, an employer has to take into account that it is now very difficult to dismiss someone he employs. As the case history under the Act builds up, and cases of wrongful dismissal are decided by tribunals, employers will become more and more reluctant to take on more people if they can possibly avoid doing so. Worse still, however, is the case in which dishonesty is involved. In many such cases an employer in the past would not call in the police but would simply give the man his notice. But it is impossible now to sack a man for small dishonesties without giving him written warning and thus incurrring all the unhappy atmosphere in a small business which stems from such a situation, with all the other employees knowing all about the case.
I hope that my hon. Friend the Member for Basingstoke (Mr. Mitchell), who will wind up the debate from the Opposition Front Bench, will say clearly that if we are given an opportunity we will extend and not reduce the period for the penal provisions of the Act to come into force. I dread to think what will happen when the full effects of the equal pay and sex discrimination legislation have permeated through to all businesses. The effect will be very marked in many cases.
I hope that in winding up this very important debate my hon. Friend will say that we will give serious consideration to extending the time for the Act to come fully into effect, that we will have no more burdensome and unnecessary safety regulations, based on the Gowers Report, for a long time to come, that we will return to a single rate of value added tax and that we will look actively at the report of the Layfield Committee and consider how we can reduce the burden on small businesses.
§ 12.5 p.m.
§ Mr. Ernest G. Perry (Battersea, South)
I congratulate the hon. Member for Somerset, North (Mr. Dean) on winning the Ballot and selecting this subject for debate, a subject which can arouse feelings among hon. Members on both sides of the House. We, like him, feel that 844 in the last few years many of those engaged in small business have been hard hit. The subject was well chosen. The hon. Gentleman was very tolerant in his attitude. He deserves our congratulations because the debate has brought out the fact that many of us are concerned about recent legislation and the plight of many people in small business.
The hon. Member for Gainsborough (Mr. Kimball) blamed the present Government for most of the ills of small business. I was glad that the hon. Member for Somerset, North did no such thing. Most Governments from time to time have laid upon small business men further regulation upon further regulation. I want to take the hon. Member for Gainsborough to task for inferring that the present Government are wholly responsible for the situation. I do not know what the analogy he tried to draw between the owner-occupier and the council tenant has to do with small business.
The hon. Gentleman said that it was not right to have for small businesses the safety regulations which apply in big businesses because they cost money. I lived on commission for over 35 years doing insurance with many small businesses. I found that they were most concerned with safety regulations. They wanted to observe them and did not complain when they had to put them into operation. It is not quite the thing for the hon. Gentleman to infer that small businesses do not conform to the regulations.
§ Mr. Kimball
I certainly would not suggest that small businesses break the regulations. I am sorry if I misled the hon. Gentleman, but the impression I wanted to convey was that it is an enormous burden on small businesses to comply with the regulations.
§ Mr. Perry
I agree that the burden is costly, but the cost has to be faced in any kind of business.
As I have said, I worked in insurance with small businesses and I know the plight they are in. The main arteries of our industry are the big firms like ICI, the motor companies and others. But feeding into them are thousands of small firms—for example, those which supply them with finished parts in order to complete the end product. These large 845 firms do not themselves make a product right from start to finish. A product may go along a whole chain of businesses until it is perhaps in a firm with two or three lathes and employing four, five or 10 people in premises which may not be ideal for such production.
These small businesses are all the time channelling lifeblood into big business, and very often after doing so they have to wait literally months for their money. This is another of the problems of small business. Because of the long chain of connection between big and small business, the small business man has to have a comparativery enormous amount of capital because he has to wait so long for his money. Many small businesses are in trouble these days because of having to wait so long to recover from big firms the money they have laid out.
A suitable scheme should be worked out in order to help profitable and useful businesses of that nature. Instead of having to rely on an overdraft from the bank at 15 per cent., surely it would be possible for them to be granted some form of loan from a State organisation enabling them to continue in business.
I do not wish to deal with professional men or the service industries but rather with those industries which make some contribution to our main productive effort—the small engineering firm, the small woodworking firm and the small furniture firm. I have in mind particularly the reclamation industry, dealing with glass, plastics, metals, rags, paper, rubber, jute, soap and fats. Businesses of this sort suffer from a disability right from the start. Often when they have found premises and make application to the local authority for planning permission to carry on business, they are immediately named as an obnoxious industry. Very often they cannot find premises at which labour will be available because the local authority will not permit the trade in question to be carried out.
All the trades that I have mentioned are most necessary for our economic life I have particular experience in selling insurance to people engaged in these industries. They used to tell me of the difficulties they had in finding suitable premises, because the local authorities did not like the nature of the business or because people in the area did not want 846 to be near someone sorting out metals or rags. These are, in the main, businesses employing between 10 and 20 people.
There are firms engaged in the polishing of aluminium strip. It is usually polished not at the place of manufacture but at some little factory employing a small number of people. There are also small firms engaged in furniture repairing. They, too, very often find it extremely difficult to carry on their work because of the kinds of difficulties to which I have referred.
If a small business man has been successful in finding premises and getting planning permission so that he is able to install his machinery, another difficulty is that he can usually get a lease for only seven years. If he is lucky he may have one for 21 years, with options at seven years and 14 years. After building up his business, paying off his debts and so on, he often finds, when the lease is due for renewal, that the rent is to be doubled or trebled. This is yet another obstacle facing the small business man. This is happening all the time, especially in cities, where enormous property development is taking place, with whole areas being laid waste.
I urge hon. Members to have a look at the old Covent Garden Market area, where there are hundreds of small businesses which have functioned for perhaps 100 years. Today many are threatened by large-scale development with some big authority taking over, and the need for the small business man is not considered. Often he has to get out and find other accommodation, and today he finds this most difficult, particularly in the inner parts of London. This is one of the reasons why in London so much small industry is being lost, simply to make way for big commercial office development or, perhaps, for housing. These small and most necessary industries or trades have together employed thousands of people in the past in London, but they are being driven out because of their inability to keep their premises or find suitable new accommodation.
The small business man employing from five to 50 people has always had a hard time. He has always had to wonder whether he will be able to meet the wage bill at the end of the week. Very often he has to go to the bank and 847 produce documents to show that he has just obtained a big contract from a large firm and has been promised payment in three or six months. He also has to purchase his raw materials for conversion into the finished article. Most of the time he is supplying his own money in order to keep big businesses going. If he does not have the necessary capital, the bank may lend him £5,000 but the interest will be at 14 or 15 per cent.
The small business man, therefore, has a great burden to carry, and yet he plays a vital part in making the parts required to keep big businesses going. I am perturbed, as are many hon. Members, about the obliteration of our small firms. I am sure that the motion will bring their difficulties into the daylight and draw attention to what they are suffering at the present time.
If the motion were to be put to the vote today I am sure that the Minister would accept it gracefully, and I should certainly support it. I am sure that all hon. Members will agree that the debate so far has been well worth while.
§ 12.17 p.m.
§ Mr. John Loveridge (Upminster)
It is a pleasure to have heard the sympathetic approach to the problems of small businesses expressed by the hon. Member for Durham (Mr. Hughes) and the hon. Member for Battersea, South (Mr. Perry). Small businesses are indeed upset by the innumerable problems facing them at the present time.
The problems that come to them from Government sources are cumulative. It is not any one tax or measure but the cumulative effect of a number of them that is knocking the small business man so hard that he does not know whether he is coming or going! He has to contend with capital gains tax, capital transfer tax, multiple rate VAT, and income tax at 83 per cent.—or even at 98 per cent. if he has enough investments resulting from the successful operation of his business. He also has to contend with the Employment Protection Act, the Price Commission, equal opportunities legislation and new safety regulations.
All these things place a greater burden on the smaller business man than on the large business, because the smaller business man has only a small management 848 staff available—sometimes perhaps only himself. He has to deal with everything more or less by himself and, as the hon. Member for Durham said, he does not have the necessary expertise, nor can he purchase it.
The law is very complex and uncertain in its drafting in many of these measures, so that it is impossible to ascertain the true position with certainty until case law has been built up. The small business man cannot, therefore, obtain from accountants or solicitors the true answers to many of the questions he puts, because no such answers exist.
The hon. Member for Battersea, South rightly referred to the difficulties of small businesses in getting premises. The new and increasingly complex types of planning permission make life much harder for them, and yet the jobs these firms do are vital to the economy. Often they could not be done economically by a large business. These small firms often exist on the fringe of some massive business, providing many necessary facilities both cheaply and well.
The Government could intervene, I suggest, in order to help these small businesses by providing guarantees of new premises, so that when large-scale city development took place there could be zones in which they could be resited. The Government could set up special areas—perhaps outside a city—to which small businesses could be attracted. Perhaps in the first instance they could be subsidised to a small extent. There would be nothing wrong in that.
Very often these small businesses are worried because they do not know whether the Greater London Council wishes them to be in London or whether the Government wishes to drive them out of London, as has been the policy in the past. In addition, they do not know whether they will be able to get industrial development certificates for expansion without moving to an area in which they know they cannot continue to operate successfully.
There is another factor. Because of the effects of very high taxation on the profit margins of small businesses, they are in more difficulty in getting a loan because they cannot convince the bank that they can necessarily service the loan, 849 particularly in difficult times in the business cycle. If, in addition, a business has had some success in the past and, in order to develop securely, safely and soundly, and not on a fly-by-night basis, it has put money into bricks and mortar, factories and equipment to a degree that it might now be threatened—and, if the business is particularly large, threatened with extinction—in order to meet and pay capital transfer tax, this must have a profound effect on the willingness of a bank to lend to such a business for further expansion. The banks would say "Where shall we get our money back if all this is sold and broken up at the end of a life or two lives?" It is in this sphere of capital that the wild oats element to which the hon. Member for Durham referred is perhaps most frequent. Often businesses go into liquidation because they expand beyond their capacity to obtain liquid cash merely to service the rate of expansion. They are doing well. They cannot fail to succeed, except that they have not the actual cash to finance the borrowing required for raw materials because they are paid in arrear instead of in advance. If the whole position over bank loans is to become more difficult, as I believe it is, we shall force businesses more and more into the position where they are threatened with bankruptcy by their very expansion. That is wholly wrong.
In exports it is harder for the small business than for the large business. I have an instance in which the might help. I remember his saying in December last:My concern as a Minister in the Department of Industry is to ensure that small companies which can benefit from export services can be helped.Will the Minister therefore look at the rise in industrial premiums on individual declarations? In 1971–74 these were £5 for three years. In 1974–76 they have gone up to £10 for two years, and in 1976–77 the cost is to be £50 for one year. That is a 30–fold increase. That is not the way to encourage the small firm to export. After all, exports, as the Government have reminded us, really are necessary.
These small people are beset from all sides. The smallest of all are inhibited by the new regulations. The other day a constituent came to see me. He said 850 that he had a very small business and that he did not know whether to try to expand because he could not make head or tail of the pamphlets which he had collected about the new laws. He said "I cannot understand them and I have not got the time to try to understand them." He added "I want to get on. I want to buy a third lorry. Tell me what I should do." What Member of Parliament can tell such a man how he should do his business? He was frightened by the multiplicity of the regulations.
Then there is the case of the medium-size business. In recent weeks a man with a medium-size firm came to see me. His problem was that he had built up a successful heating and ventilating engineering firm but he had discovered that the gas board was entering into competition with him now that all the natural gas conversions have been carried out. The firm seemed to be satisfied with its figures. I had no means of checking, but I suspect that the figures were right. The gas board was getting only a quarter of the rate of productivity in installing new central heating which this firm was able to achieve, but the gas board was still able to underquote this private firm because it was doing the business at a loss.
There is always difficulty in trying to cost detailed applications of the output of work of large firms. None the less, this is an experience which so many of us have had from time to time that I ask the Minister to see whether there is not a measure of unfair competition threatening this particular breed of medium-size firm. I have in mind, for example, the threat that municipal competition offers, with endless capital behind it, with no means of checking the costing, and possibly with an endless subsidy as well. Many medium-size businesses will not continue with their expansion because they fear that they are expanding into a dangerous zone in which they may be destroyed.
Then there are the larger small businesses, those which surely the nation needs most. One such example came to my attention a little time ago. A man had a turnover of £500,000 which he had built up in connection with a specialist product which only he knew about and understood. He was making a profit of £100,000. One may say that that is a 851 very good profit and that he had nothing to worry about. He was not worrying about his wife and family and the comforts that could be obtained. He was worried about something else.
That man had satisfied himself through a pilot scheme which he had set up, which seemed to be workable and which showed that he could bring into this country £5 million-worth a year of manufacturing, which was on his plate to be given to him, and it was so serviced that the money would come in advance without liquidity problems. He said "What am I to do? If I go on as I am, I shall be comfortable. If I expand to £5 million, which I am certain of being able to do, and I can see a possibility of expanding to £30 million in the future, I shall be burdened with immense debts and yet I shall have little more money for my family than I have now." He said "I think what I shall do is not to accept the offer that I have had. I shall instead merely take a fee of about $20,000 in the United States and give the benefit of this business to the United States. I do not see the financial strength available to me, with the rate of taxation which exists, to encourage me to expand, much though I would like to do it for Britain." There is the seed corn, not at the bottom level but at the higher level, being destroyed at the start of its real take-off point.
There are the large small businesses, those which have prospered and put capital back and perhaps have some millions of pounds of assets behind them. If that money has not already been given to a second generation, if it is still in the hands of the original owners, who are often still young, fit and vigorous, they may not have foreseen the incredible impact of capital transfer tax at the higher rates. For example, in a business of £1 million with one owner, two-thirds of the whole of the value of the business would be required to pay CTT on the death of the owner. I am not taking into account the limited concessions which are available at the moment. I appreciate that there are some concessions at the lower end of the scale. I am talking about a business with £1 million clear of concessions. What bank would lend against that security to see 852 that the business could be continued after the death of the owner.
What would happen to the business? It might be sold, but it would probably be sold at a very low price, because often it is only the family, who have struggled over the years, who know the technicalities about these businesses. Alternatively, it would be broken up and sold in parts and the business would be dissolved. The family would get at least £200,000 or £300,000 net out of that by the time they paid the fees involved. True, the family would be all right in comparative cash terms—they would have the cash—but the country would be worse off because the business would be destroyed. That is the objection that we on this side of the House have to the high rates of CTT on the largest of the small businesses.
Then there is the effect on the staff of such businesses. These businesses require highly skilled and competent management. Often they need more able and adaptable management than larger businesses, because very large businesses can have a member of such staff in each section but a small business requires men who are very adaptable and who understand technicalities in many different fields. How will they feel if they come into such a business knowing that the liability to taxation will almost inevitably destroy the business on the death of the proprietor? It will become impossible to get the high-grade staff who are needed to carry forward these businesses.
Next there is the question of how much the staff should be able to earn. We know the figures. The Diamond Commission, in Volume 3 of its Report which has just been published, tells us that management in this country receives only 50 per cent. or 60 per cent. of the net return which it obtains in France, Canada or the United States. The Government must look at this question of management returns, because management is being forced away from the active entrepreneurial system into the security of the State system—which is the spender, not generally the earner—or, even worse, is being forced right out of Britain to countries where it can do better.
I was glad that my hon. Friend the Member for Somerset, North (Mr. Dean) mentioned in both his motion and his 853 speech the importance of the small business sector for the maintenance of employment. No party or Government can view the present unemployment figures without a sense of shame at the indignities caused to the unemployed and the real distress which will be created as tax refunds, redundancy pay and savings run down.
The small business sector is especially squeezed by high unemployment. As the hon. Member for Battersea, South told us, the small business is the lifeline into big business. It is the beginning of the long chain of business. But, as the hon. Gentleman said, small business men are squeezed because big business is itself squeezed and squeezes them more in turn.
It is difficult to obtain precise figures to show how the small business is hit more by the slump than are other sectors of the economy, but we know the general situation. Our capacity to produce in this country is vastly under-used. We are getting the output of a three-day working week in five days. As Lord Keynes remarked long ago,The existence of surplus equipment is likely to lead to the entrepreneur working at a net loss.This applies even more to the small business than to the large.
The rates of unemployment in the small business sector, therefore, are almost certainly much higher than the average figures available to us from the Department. Since it is this sector which is bearing the heaviest proportion of the lost jobs, it is this sector in particular which needs a boost, yet it is this very sector, as has been said, which is the most beset not only financially but by the new laws so badly drafted.
Fortunately the Chancellor of the Exchequer has acted, though rather late, by exempting stock values from the effects of inflation for tax purposes. That was of great benefit to the smaller business, but he gave no guarantee that that exemption would be carried forward. Yesterday the Chancellor said that he would introduce something in his Budget, but he gave no certainty; and certainty is what both small and large businesses need. They need certainty for confidence to invest for the future. But he has offered uncertainty yet again. Will the Minister please explain to the Chancellor 854 the true effect of this uncertainty on the small business community?
Although I have said that it is difficult to obtain precise figures showing the extent of excess unemployment in the smaller business sector, I have some figures showing the relative position as between the private and the public sectors. These latest amended figures—excluding the construction and vehicle industries because they cannot readily be broken down—show that from June 1974 to October 1975 unemployment in the private sector doubled but in the public sector it rose by only 36 per cent. in those same 15 months.
I suggest that the smaller business sector and the private sector as a whole need reflationary measures. I am asking not for general reflation of the whole economy but for reflation in that part of the economy where there is clear room for growth. The reflation which Keynes called for to conquer unemployment in the old days is needed again today, but it is not needed generally. It is now being applied to the wrong part of the economy. Deflation has never been applied to the public spending side of the economy, which is still running at an inflationary level and exerting its pressure on the economy. We hope that the White Paper in February—delayed from last November—will show that improvements will be made.
On this side of the House there is much sympathy for many of the objectives which Labour Members and their party hold dear. I have always deeply respected their sense of compassion towards the unemployed. Yet it is a curious fact that every Labour Government in the past 50 years left office with unemployment substantially higher than it was when they took office: more than double in 1929–31, more than double in 1945–51, though on a smaller scale, up 50 per cent. in 1964–70, again on a smaller scale, but now, in the period 1974 to date, already more than double and on a massive and alarming scale. However one takes into account that the unemployment figures may be inflated, the effect is none the less devastating for those who are without jobs.
Is there not some reason why unemployment always rises under Labour in spite of Labour's compassion for the 855 unemployed? I believe that there is a simple reason. Labour believes in low profits, having lost sight of the fact that high profits are the true earner for all the community, social services included. It is no wonder, therefore, that there is no confidence for reinvestment under Labour Government policies. If the Government would adjust their policies as the hon. Members for Durham and for Battersea, South suggest, there would be greater hope. Good luck to them in the counsels of their own party.
§ Mr. Ernest G. Perry
The hon. Gentleman has spoken of the record of unemployment under past Labour Governments, and he referred in particular to the minority Government of 1929–30, when unemployment steadily rose. I remind him that right up till 1938, with seven years of a National Government composed mainly of the Conservative Party, unemployment was still nearly 3 million. The hon. Gentleman should bear that in mind.
§ Mr. Loveridge
The hon. Gentleman has his figures wrong. In fact, unemployment fell substantially. The peak period was the winter of 1933—January or thereabouts—and after that it fell very substantially. However, I am not arguing that at the moment. Admittedly I am trying to make what amounts to a party point in the sense that I am drawing attention to what I regard as the reason why unemployment rises under Labour, but I am none the less not excusing the fact that unemployment has risen under the Conservatives also at times.
As I have said, Labour believes in low profits. Low profits after tax lead to low investment, which leads to low output, which leads to low sales, which lead in turn to fewer jobs. It is as simple as that, and therein lies the answer. I urge the Government to recognise the truth of what I say and encourage the high profits which can restore the nation to prosperity.
I ask the Government to get on with that. Let them do it even if it diminishes our chances of driving them out! If they do not take the course of action prescribed, undoubtedly the British people will get rid of them. They will drive them out if they do not pay heed to the lesson.
§ 12.41 p.m.
§ Mr. J. Grimond (Orkney and Shetland)
I congratulate the hon. Member for Somerset, North (Mr. Dean) most heartily on his motion calling attention to the problems of the self-employed and small businesses. I agree with every word in it.
I want to underline some of the points that have been made during the debate. I start by agreeing with what has been said about the difficulty of finding premises for small businesses, and I hope to make some constructive suggestions. In this regard we should look again at the planning laws, regulations and fashions. The fashion for totally segregating business from residential areas is wrong. It imposes heavy burdens on people who travel, it is often an economic handicap and it is socially undesirable.
The hon. Member for Durham (Mr. Hughes) mentioned VAT. I, too, wish to stress that the Government must turn their face against multiple rates of VAT. I hope that the Government will look closely at the hon. Gentleman's suggestions about the administration of VAT.
There is one specific point to which I wish to draw attention. I think I am right in saying that if someone employs a contractor to repair or improve his house the contractor can reclaim VAT but that if the householder does the job himself he cannot do so. This merits looking into, because in my constituency there is a severe shortage of building labour owing to the oil industry. It has long been a tradition that people there repair and improve their own houses, and it is undesirable to impose extra taxes on them for so doing.
Only a few days ago a merchant in North Shetland came to me with a 3-in.-thick volume of the regulations with which he has to comply in dealing with VAT. He cannot run his business and do all this paperwork. If he were not highly conscientious he would do better to join the Civil Service, but if everyone did that there would be no production.
I come next to the question of small businesses being squeezed. I agree that many small businesses suffer from the fact that large firms insist on instant payment of their debts but do not pay similarly in return. There is a limited amount that the Government can do about that, but 857 I draw their attention to two aspects in this regard.
One aspect is the repayment of income tax, rebates, credits and so on. Far be it from me to blame income tax officials. They do a marvellous job. In fact, I do not know how they cope with all the changes in taxation that we make in this House, but for goodness sake let us stop. The income tax authorities are miles behind in their work, and this causes considerable difficulties.
There is also the question of grants. Some of the grant-aiding bodies are becoming rather bureaucratic, and many small businesses which are entitled to grants often find that it takes a long time to get them.
§ Mr. Gregor Mackenzie
I should be grateful if the right hon. Gentleman would clarify the point he made about grant-aiding bodies. Is he talking about regional development grant offices, or about COSIRA?
§ Mr. Grimond
I do not want to delay the House by referring to particular cases, but I shall write to the Minister about some of them. The Highlands and Islands Development Board was approached by a boat-building firm at Stromness, and it took the firm six months to get an answer. Help was ultimately provided, but by then the firm was in difficulties.
I now come to the question of seed corn and wild oats. There can be no doubt that it is when the big companies get into difficulties that there is trouble in the economy. When small companies get into difficulties they do not create nearly so much of a problem. It was the fashion a few years ago to proclaim that bigger was always better. We remember the "white heat of the technological revolution" and the way in which, by throwing innumerable companies together under expert management, we would surge forward to the age of Concorde, prosperity, full employment and no inflation. We know what has happened to that.
One of the great protagonists of that idea was the Secretary of State for Energy. The concept was wholly misplaced not only from an economic point of view but also from a social one. Big firms create economic and social prob- 858 lems which are one of the banes of our present situation. I recommend hon. Members to read the remarks of Peter Jay on the whole question of size from the point of view of the social and economic aspects of our present situation.
Further, there is the question of production. What the country needs is production. Like all Members of Parliament, week after week I receive demands from somebody for higher pay, or less taxation, and very often for Government action and more officials. I have taken my courage in my hands and I now write back saying "I have every sympathy with your views, but who will take less? There is a limited amount of production. If you want more officials, and if you want more pay, somebody has to take less. Who will it be?" I seldom get an answer. The fact is that we cannot afford more non-productive officials. We ought to concentrate our efforts on encouraging enterprise and production, and particularly new enterprise.
There is a widespread belief that all one has to do is provide capital, find a nice man who is fairly competent, and anyone can run a business. I know from personal experience that that is not true. There are many people in the north of Scotland who can take a fishing boat to sea. There are far fewer people who can bring it back, in good and bad weather, full of fish. There are many people in my constituency who think that they can run a wool business. They can make a woollen garment for £5 and sell it for £4.50, but that does not last. The number of people who, year after year, can make a garment for £5 and sell it for £5.50 are much fewer. Whatever capital is provided, we must encourage those people.
Among small businesses I include crofters, fishermen and farmers. The great difficulty facing the small business today is that much of the recent trend has been against it. I very much hope that after listening to the all-party agreement in this debate the trend will be altered.
The next problem is that of inflation and taxation. The weight, difficulty and complexity of our taxation makes many people feel that all the risks they have to take in running a business are not worth it. Secondly, there is a need to employ specialist services, such as accountants. 859 Big business can afford to carry accountants, but small businesses cannot. In my part of the country such advice cannot easily be obtained. The Government pass legislation which requires ordinary people to get expert advice—I have in mind the Crofting Act, the Community Land Act and many others—but there is no advice to be obtained in my part of the country, and if someone does manage to get such advice it is exceptionally expensive.
There are innumerable provisions covering employment. People are frightened to take on staff, because they cannot cope with all the paperwork. I was in Scotland a few days ago and I found that in a certain area of high unemployment those concerned were not taking advantage of the Youth Employment Act. This is a good measure, and I asked people why use was not being made of this Act to carry out some much-needed work on housing. The person to whom I said that replied, "I do not think I am capable of doing the clerking and administration work." That means that an excellent Act is not being fully utilised.
It is necessary to consider the national insurance contributions that apply to the self-employed. It was noted by the public that we decided that MPs were not self-employed at the very moment when the contributions were increased to such a high level. That was under Conservative legislation.
I have already mentioned VAT and others have mentioned rates. I very much hope that something will come of Layfield. It is clear that we must reduce the volume of legislation and that we must consider more carefully the effect of legislation. If the Dock Work Regulation Bill is enacted in its present form, it will mean disaster in many parts of my constituency. It will entail dockers having to load small boats on the outer islands of Orkney and Shetland. That will add enormously to costs. At present the work is done by crofters and casual labourers.
I have already received letters from small businesses, including crofters and fishermen. It is said that if they are faced with the extra cost of employing dockers they will have to go out of business. Freight charges are already extre- 860 mely expensive and entail a heavy burden. There is every indication that the burden will become heavier.
I know that this is not exclusively a matter for the Government, but I think that the Government should consider greater variation and more ingenuity in our treatment of legislation. This is one of the strongest reasons for home rule in Scotland in whichever form one wants it. We should be able to tailor our legislation to suit our circumstances. The Government cannot alter circumstances. It is clear that geography and traditions have imposed different circumstances in the north of Scotland as compared with the south of England.
Rural services are of great importance to the self-employed and those engaged in small businesses. I congratulate the Post Office on running milk-carrying services. They are most excellent services. However, they should carry passengers as well. We should have combined services of that kind. I think that the Government and local authorities could make use of such services. For example, their officials could use them. I constantly hear people inveighing against the private motor car and urging the beauty and convenience of public transport, but I notice that those beliefs are not always put into practice. Some years ago I was entertained to lunch by the London Transport Board. I discovered that every person associated with that enterprise who was sitting round the table had arrived at the office that morning in a chauffeur-driven black car. They did not travel on the tube or on local buses. That applies to many local officials.
I sympathise with the need for safety regulations. Anyone who has studied the appalling fire tragedies in Scotland is likely to be seriously concerned. However, the regulations should be tailored to suit different circumstances. I am told that in the North of Scotland a fire escape with iron steps had to be altered. I cannot vouch for this but I was told that it had to have wooden steps or specially-treated steps because in conditions of severe frost those who might have to use the escape would suffer the risk of slipping. But that is not a great hazard in Orkney and Shetland. Although we have very bad weather we seldom have severe frosts. I think that people will always manage to get down a fire escape 861 if they are being pursued by flames. I believe that that applies even if a fire escape has iron steps.
§ Mr. Welsh
Is there not also cause for concern about regulations regarding MOT tests? The effect of the regulations is that very often small businesses in rural areas cannot carry out the tests as they cannot afford the equipment. The result is long-distance travel and great inconvenience and expense for people living in rural areas.
§ Mr. Grimond
I am sure that the Government will recognise the hon. Gentleman's point. That is a problem that exists in my constituency. There has been a certain lack of flexibility also from time to time in the operating of licence tests.
A further difficulty for those running small businesses is that it is now necessary to insure against public liability. It seems excessive to ask small businesses on the outer islands of Orkney and Shetland to insure against that liability to the extent of a quarter of a million pounds. It must be remembered that the island communities depend entirely on small businesses.
I have tried to deal with the general impact of the present situation on small businesses in Scotland. I believe that it is of vital importance to the economy and to our social life that the self-employed and the small business are encouraged. In my constituency that is doubly necessary as there is no possibility of running the economy except by small businesses. There is no possibility of maintaining the fishing, agriculture and crofting unless we encourage the small fishermen, farmer and crofter and the small merchant and manufacturer. What is highly desirable in the country as a whole is of absolute necessity in the North of Scotland and on the islands.
§ 12.56 p.m.
§ Mr. John Lee (Birmingham, Handsworth)
In a wide-ranging and general debate it would be surprising if there were not some measure of agreement between the parties. I have pleasure in taking part in the debate as I belong to a profession which is self-employed in its definition and uncombinable even to the extent of some other persons who are also self-employed. I also have pleasure 862 in representing a part of a city which has a large number of small businesses of considerable importance to the life of the nation and especially to the life of the West Midlands in their delicate relationship with the giants in the motor industry.
I join with others in congratulating the hon. Member for Somerset, North (Mr. Dean) on raising this subject, but I think it right to draw a line as to the amount of agreement that is appropriate. Although one or two of my hon. Friends have tended to encourage the special pleading which has been engineered by the Opposition regarding small businesses, not all of them are so small. The hon. Member for Upminster (Mr. Loveridge) went through a number of different categories. There must be limits.
I echo the views that have been expressed about VAT and the views expressed by the hon. Member for Gainsborough (Mr. Kimball) to the extent that he lamented the neglect of local government finance. It is necessary to remind the House that the hon. Gentleman's Government wasted an enormous amount of time restructuring local government and neglected to put right the system upon which it is financed. That Government bear as much blame as anyone for the present unsatisfactory situation.
It is part of the irony of this debate that, while not specifically enjoined upon us by the Common Market, VAT is one of the forms of taxation which was expected to be implemented as a result of our joining that organisation. Reductions in VAT rates are being urged by certain Members, but that runs counter to the policies that apply in some of the member States that have been in the EEC for longer than ourselves. I campaigned in one election for the total abolition of VAT. As a person who does not believe in indirect taxation beyond the absolute minimum, I am opposed to the VAT concept.
I sometimes think that I therefore am in a better position to say "I told you so" than some of my hon. Friends and Opposition Members who supported our entry into the Common Market, as well as some of those who have given up the struggle to get out, as I myself have not, I sometimes wish that the late Gerald Nabarro was still around and able to 863 take part in these debates. For all his faults, year after year he used to run rings round purchase tax anomalies. He drove more than one Chancellor of the Exchequer to put right some of the absurdities in the application of that tax.
I believe that the multi-rate system of VAT is indefensible in operation, and I am not optimistic about the chances of its being changed under any Government. The likelihood is that the rate of taxation will increase. We shall find that, far from its being simplified by being levelled down, it is more likely to be simplified by being raised to a higher rate. Therefore, hon. Members who complain about a 25 per cent. rates of tax on yachts will probably not get much change out of any Government.
In a debate of this nature the subject of competition is at the forefront of my mind when I hear Opposition Members talk about the difficulties and traumas of small business men. I am reminded—I hope that nobody will put a sinister construction on this—of Lenin's remark that one cannot have an omelette without breaking eggs.
Mr. Alan Lee Williams (Hornchurch)
No. It was the Webbs.
§ Mr. Lee
That is a rather safer source.
Opposition Members are not consciously indulging in cant, but their speeches contain a degree of muddle-headedness when they talk of competition. If it is effective, in the end competition causes casualties. The progress of British business in the last half century has been marked—and this is the case in every other country—by a gradual diminution of the total number of businesses that exist independently of one another and the gradual growth in size of the survivors. Less than 50 years ago Unilever and ICI were almost unique since they were the two large businesses in the country. Nowadays, largeness is the pattern of most significant economic activity. I am not saying that there are no specialist industries even in these days that are important, but that has been the tendency overall.
Let me give an example of an industry which has been the subject of numerous debates in the last year—namely, the motor industry. At the outbreak of the 864 1939 war, there were 33 independent motor manufacturers. By 1955, just over 20 years ago, that number had subsided to 25. In 1974, when the present Government took office, the number was down to 11, which included Rolls-Royce which was being bailed out by the Government, but in terms of real significance we are down to three or four. That pattern is not confined to the motor industry, but has a much wider application.
Are Opposition Members—and I direct this question particularly at the hon. Member for Somerset, North—arguing in favour of the busting up of large businesses? It is not just a matter of largeing whether the wickedness of Governments, the vagaries of taxation, the complications of accountancy, or the rates of taxation are responsible for the situation. The Opposition claim those factors to be the principal sources of difficulty for small businesses, but I believe that the most important threat to the small business is the large business. Are Opposition Members seeking to take a stand against the tide? Are they going in for what Theodore Roosevelt once called "trust-busting" activities?
It is worth remembering two recent Acts of Parliament dealing with monopoly. I refer to the Monopolies and Mergers Act 1965 and the Fair Trading Act 1973, both of which were passed under a Conservative Government. Those measures laid down criteria as to monopoly situations. The 1965 Act, if I remember correctly, gave as one of the criteria the question whether a third of a firm's activities was involved in monopoly. In such a case it was thought that the situation required investigation. The 1973 Act reduced that figure to a quarter. The operative sections of that Act are Sections 6, 7 and 8.
I looked at those figures in regard to both Acts because they applied during the Conservative Government of 1970–74. I think I am right in saying that in about 27 instances reference was made for investigation under the monopoly legislation currently in force. In only four of those cases was action taken to stop the mergers under investigation. It is true that there were other cases where, as a result of adverse publicity, or for other reasons, the projected mergers were abandoned. So these could be put on the 865 same side of the balance, but the overall picture was that even under the terms of Conservative legislation there were fewer monopoly cases in which action was taken to stop mergers than cases in which they were allowed to continue.
The significance of that is that the Conservative Government at that time—and, indeed, past Conservative Governments—took the line that large-scale organisation was unavoidable. All Governments face the problem that, to be viable, the size of an organisation must be so great that its operations straddle national boundaries.
One argument advanced by the protagonists of the Common Market is that this country is not large enough to cope with the multinational organisation and that we have to join in commercial confederations to be able to stand up to it. However, that is no answer, because in some instances—for example, the oil companies and the motor industry—the size of the concerns outruns even the size of the Common Market. Thus, even if the Common Market were desirable for other reasons, it is not large enough to cope with the oil giants.
I am not blind to the problems that arise in large organisations. We are all aware how impersonal they can be and how difficult and bureacratic for those who work in them. It is commonly accepted that one of the reasons for industrial unrest in large-scale organisations is not just the issue of wages or conditions of work, but the sense of frustration arising from the remoteness and inaccessibility of management.
I have every sympathy with hon. Members who represent what I will call—and I do not mean it rudely—fringe areas of the country and who suffer from a feeling of remoteness—physical and psychological—from the centres of power. We have to make up our minds whether we believe that it is feasible to break down large organisations, to bust them into fragmented and competitive units. The United States did this with the oil industry. It broke down the gigantic Rockefeller octopus into separate and competing institutions but then that was economic activity on a much larger scale than anything we can have in this country.
§ Mr. Donald Stewart (Western Isles)
Would not the hon. Member agree that 866 although one of the arguments for these huge amalgamations is the resulting economy of scale, in practice that never works out? Does he agree that British Leyland has shown itself to be a poorer organisation than its component parts were?
§ Mr. Lee
I am not sure that I agree with the hon. Gentleman about that. I still believe that, from a point of view of world marketing, research and, say, the provision of a career structure for the able and ambitious executive, the large organisation provides the answer. I shall look at the other side of the argument because I do not pretend that I am wholly sold on the large organisation. What has been said about Leyland is applicable to a number of other large organisations which give the impression of floundering around like a lame or arthritic elephant.
One of our weaknesses is that we have been so far behind other countries in management training. If we are compared with the United States or Germany it will be found that only recently have we taken to training management and accorded that discipline importance and prestige. There is nothing in this country comparable with the Massachusetts Institute of Technology and the master of business administration degree. The absences of such things are significant factors in the chronic failure of so much management. When such weaknesses are endemic among managers responsible for large organisations, the results are correspondingly worse. The history of Chrysler and Leyland bears this out in slightly different ways.
As a counter-argument I might be asked whether I believed that there was no future whatever for anything other than the large organisations. A large organisation has to be under State ownership. That is the only way we can keep tabs on it. It is one of the oddities of political life that when we look at the situation in some Communist countries it seems that the small organisation and business is safer than it is in this country. In those countries all large-scale organisation is nationalised and is not in a position to go on the prowl buying up the smaller businesses. I do not say that it is necessarily more efficient as a result. I am stating what the situation is.
In this country, if a small business wants to expand, it has to seek capital 867 from outside itself. That must be the situation with the level of taxation in a modern State. It was true during the Barber bonanza when £3,000 million was remitted in taxation and all that we had was a property boom, not an investment programme. Small businesses cannot rely upon retained profits. They must go to the banks or engage in share flotation.
If a company goes to the bank—and here I agree with what some Tory Members have said—it does not get much encouragement. The hon. Member for Upminster gave some interesting examples of the difficulties lying in the way of a small business seeking capital for enterprising purposes. What happens if a company turns to share flotation? It is immediately open to the risk of a takeover bid. The whole history of business during the 1950s can be summed up as the adventures of Mr. Clore, Mr. Cotton, Mr. Wolfson and others going round as a raiding party and buying up various businesses.
One of the rare occasions upon which these people were defeated was when the Savoy Hotel directors ingeniously vested their shares in the pension trustees so as to baulk a take-over bid. By the terms of their trust, the trustees were not able to alienate the shares and it was not possible for a would-be bidder. I think Clore in this instance, to obtain majority control. It is not much use looking to share flotation.
I wonder, however, whether something might not be done about the banks. How much guidance has been given by any Chancellor in recent years to the joint stock banks, which are the biggest single source of finance for companies? How many local bank managers—they may be described in some advertisements as "Your friendly local bank manager"—receive assistance and guidance on this subject of providing finance for enterprise, export-oriented enterprise in particular? I do not think that very many do.
I have been trying to get some answers on this out of the Treasury by way of Written Question. I know that it is not always an easy thing to do, because a Written Question is a good soft option for a Minister. It is easy to give a non-answer. That seems to have been my experience lately. Although my criticism 868 is directed at my right hon. Friend at present, it is a criticism that could be directed at former Chancellors. I do not believe that we use our existing banking system nearly well enough in this context.
More controversially, if only a portion of the funds provided by the fringe banks—some of them thoroughly disreputable and rescued as part of the City's lifeboat operation two-and-a-half years ago—had found its way into the more enterprising businesses, into the export earners or the small businesses seeking to become larger and improve productive capacity, how much better it would have been.
Instead the money went into all sorts of property speculation. In some cases it was taken overseas and in yet others it was used for undesirable activities that do not bear examination. There is certainly room for improvement here. We should examine how legitimate it is to assist small businesses without trying to run counter to the whole trend, which is towards fewer but larger organisations.
§ Mr. Nicholas Winterton (Macclesfield)
The hon. Gentleman mentioned the takeovers and mergers in the 1950s and 1960s. Will he also bear in mind estate duty, death duty, and now capital transfer tax, which inevitably will force many small companies to look to be taken over so that people can retain some of their own assets for themselves?
§ Mr. Lee
I hear what the hon. Gentleman says. He is right to say that taxation in one form or another is a difficulty which stands in the way. It may be a problem that we shall never resolve until we have a new Companies Act. That is how we can more realistically segregate a person's private wealth from his business wealth. I do not think that we can do much until we have a new Companies Act.
But it is all very well for the hon. Gentleman to throw strictures at these forms of taxation. The purpose behind them was to stop sources of wealth which had been accumulating from escaping taxation. But, having made due allowances for the unfortunate side effects of that, he must not blame just this Government for the situation, because it is a situation of long standing.
I want to refer briefly to a piece of long forgotten legislation which might 869 be more reasonably used. Many years ago, a Liberal Government passed a piece of legislation called the Limited Partnerships Act 1907. It was an attempt at a compromise between the benefits of partnership and the benefits of company incorporation. It prescribed for the constitution of partnership businesses in the following ways. There would be full-time partners who would bear the difficulties and burdens of unlimited liability, which is the situation with regard to an ordinary partnership, and those who would get the advantages of limited liability.
There have been very few incorporations under that legislation, so far as I am aware, but I wonder to what extent the use of that Act, suitably amended, might be invoked to assist the medium-size business where capital is required on not too large a scale but on a larger scale than is required for the very small business and provided by the use solely of the banking systems. I cast that out as a suggestion. I do not know whether it has occurred to those right hon. and hon. Members who are more connected with business than I am. It is still on the statute book. It has lain dormant for many years. But it has advantages which have not always been appreciated.
I turn to one other aspect of this subject which has nothing to do with the business side. It concerns the professions. As a member of a profession which is unorganised and, some would say, unorganisable, at the risk of being unpopular with my professional colleagues, I stick my neck out and say that the time is approaching when there should be a national legal service somewhat on the lines of the National Health Service. At a time when the National Health Service is not at its happiest, this may not be the most propitious moment for venturing such a suggestion. But I think that it would be a way in which we could extend the service of the legal profession a great deal more widely, especially in civil litigation. What is more, it might help to still some of the criticisms—some of which are based on ignorance, some on malice, but a few with a grain of truth in them—which are levelled at the legal profession by some of my colleagues.
I make that suggestion knowing that legislation will not see the light of day for a while, because I know that the Government have a great deal on their plate at 870 the moment. A great deal was done some years ago by Lord Gardiner when he was Lord Chancellor in extending legal aid in criminal matters. But there are still several areas of legal activity—for example, defamation—where there is no legal aid and where it would be right for people to receive assistance. We have had the same problem with some of the tribunals to which the legal aid system does not extend at the moment. If there were a national legal service, it would be hard to see how it could fail to envelop the whole compass of litigation.
§ Several Hon. Members rose—
§ Mr. Deputy Speaker (Mr. Oscar Murton)
Order. The Chair appeals to the House. On present reckoning, there are 14 right hon. and hon. Members who are desirous of taking part in the debate. In their own interests, brevity would be very helpful.
§ 1.25 p.m.
§ Sir John Langford-Holt (Shrewsbury)
I shall try very hard to follow your advice, Mr. Deputy Speaker.
This debate has ranged far and wide, from the MOT test in Orkney and Shetland to polished aluminium in Battersea. I intend to confine my remarks to a very narrow topic, but it concerns the very type of person about whom we are talking when we discus small businesses and the small man. I want to consider shops and the application of the Shops Acts.
Any law which is in operation has first to have a purpose. From time to time Government supporters differ about that purpose and about whether it is good or bad. But it must be necessary. Secondly, it must be seen to be logical. Unfortunately, all too often our laws are seen to be anything but logical.
The Shops Acts were devised and designed at the turn of the century presumably with the purpose, first, of protecting the welfare of employees and, secondly, oddly enough, of preventing competition.
I intend to deal only with the early closing provisions of the Shops Acts and our present-day attitude to them. I ought perhaps to say that on 11th February I hope to introduce a Ten-Minute Bill on the subject, the purpose of which is to exclude from the early closing provisions of the Shops Acts firms which 871 are wholly and exclusively operated by their owners—and only those firms. My idea at the moment is that an owner shall be a person owning 25 per cent. or more of the business. If four owners are considered too many, it could be 33⅓ per cent., 50 per cent. or even 100 per cent. I have no fixed views on it.
The reception that I have had since I announced that I was to introduce this Bill has been extremely interesting. There has been no objection at all, except from the Lord's Day Observance Society which, understandably and rightly, sees in it the greater trading which may occur on Sundays. But legislation of this kind is strongly supported by the small shopkeepers themselves. I have been very impressed by the volume of corerspondence that I have received from them.
This is one simple area in which we in this House can help to offset the enormous advantages that the Tescos and Woolworths have over the little man. If my Bill is successful, he will be open when he wants to sell goods that he owns to anyone who wants to buy them. As soon as any shopkeeper employs someone, however, he will go outside the provisions of my Bill.
The law does not say when shops may open but specifies only when they must close. It is a crazy situation. They may stay open until 9 o'clock one night of the week—they have to close by 8 p.m. on other nights—but they can then open again at one minute past midnight and stay open for the whole night. The law says that shops must close at 8 p.m., although they are allowed to stay open until 9 p.m. on one night designated by the local authority. They also have to close at 1 p.m. on one other day designated by the local authority, in agreement with the traders concerned. These are the general rules, but at this point the law becomes an ass because the exceptions and anomalies are legion.
A shop may stay open for as long as it likes for the consumption of meals on the premises. One may eat in the shop but may not take a sausage roll out of the shop. Another regulation, which goes back to the beginning of the century, is that it is in order to take partly-cooked trout to be eaten off the premises but no other sort of meat can 872 be taken. Tobacco, sweets and ice creams can be sold in theatres to the audience, but if somebody comes in off the street and has not actually been into the theatre he is breaking the law if he buys an ice cream. This rule also goes back to the turn of the century where there were music halls and theatres with two houses a night. Shops may stay open to sell magazines and newspapers on approved railways stations—I am not quite sure what is an "approved railway station"—but not elsewhere. A shop may stay open to sell petrol for cars, cycles or aircraft, provided that it stays open only long enough to serve a customer. Presumably it has to close between customers.
There are also two strange embargoes. One cannot buy meat after hours—unless, of course, it is cooked—and one cannot sell fish and chips on a Sunday, because it was believed when the Act was introduced that the smell of fish and chips was offensive to people going to church. But one is allowed to have a Wimpy or to go to a take-away Chinese restaurant.
§ Sir J. Langford-Holt
I had thought of this point, but, not being a consumer of steak tartare, I considered it a little bit high-falutin' to include it in my examples. However, it is relevant because steak tartare is consumable on the premises, but it is basically raw meat. It is another of these very strange anomalies.
I hope that the Government will consider these points before I seek to introduce my Bill, which I regard as simple and logical. Its effect would be limited except for the small firms and businesses which are having one hell of a time trying to compete with the enormous multiple stores that are smothering our High Streets.
§ 1.34 p.m.
Mr. Alan Lee Williams (Hornchurch)
The hon. Member for Shrewsbury (Sir J. Langford-Holt) has done a service to the House and the country by drawing attention in a witty way to some of the absurdities in the laws and regulations affecting shops. If he will forgive me I shall not follow him, though I found 873 myself in considerable agreement with much of what he said.
The essence of this matter was referred to by the right hon. Member for Orkney and Shetland (Mr. Grimond) when he spoke of the need to move away from the fashion of bigness and amalgamations towards a more balanced position. He said that he thought the present Secretary of State for Energy was responsible for this fashion in the 1960s and the 1970s. I do not know whether that is true, although I agree that my right hon. Friend showed some enthusiasm in that direction. However, if the right hon. Gentleman looks into the matter a little more deeply he will find that for a long time it has been the fashion for the TUC, the CBI and Governments to talk about the need for bigness. Under successive administrations, tremendous damage has been done to our industrial capacity in manufacturing by rationalisations. They have damaged not only capacity but also employment prospects.
I am not saying that I am against all rationalisation. There is considerable evidence that it can be helpful in modernising certain industries. We have to be very selective, however, and not talk in broad terms. In the industry of which I have some experience—the Thames lighterage industry—I can see the case for the rationalisation from hundreds of firms at the end of the war to the few now remaining. It makes a lot of sense, but it has also created difficulties. Although most of the rationalisations could be fully supported, the result has been that the tonnage handled by the industry has declined steadily year after year. One cannot ignore the technological aspects which are, perhaps, more responsible for rationalisations, but I am left with a nagging doubt about whether the rationaliation ending with only four companies in the industry was wise and whether that has not contributed to the decline of the industry.
I never underestimate the capacity of the Scottish nationalists to raise these issues when I am trying to put a point as objectively as possible. I do not go along completely with what 874 the hon. Member for South Angus (Mr. Welsh) says, but there is a grain of truth in what he was arguing. There is a certain amount of disenchantment about bigness on both sides of the House. It takes time for that to sink through to the official Government machine. There is inevitably a big time lag.
I have been looking at what the Government have done to assist smaller companies. I hope I shall not completely destroy the speech of my hon. Friend the Minister of State. I do not know how big the story is, but I hope I shall not pre-empt him by telling the whole story.
One form of assistance given by the Government was the import quotas imposed on cotton yarn from Spain and cotton yarn fabrics from Portugal. There was also an important voluntary agreement with some Eastern and Central European countries restricting their supplies of leather footwear to this country. Production in these countries has the full backing of the State and their imports represented a threat to our footwear industry. The Government's action is to be welcomed. The Government also helped small firms by relaxing hire-purchase restrictions on, for example, furniture, caravans and boats. This has been of great help, and I know of several cases in my constituency where it has been very warmly welcomed.
Last December my right hon. Friend the Chancellor of the Exchequer announced the extension of the job creation scheme for which he budgeted an extra £10 million. He also announced the temporary employment subsidy which was extended to smaller firms, extending the coverage of jobs by an extra 10,000. In addition a total of £200 million has been allocated by the Government for the acceleration of capital projects and the modernisation of smaller industry, and a further £50 million was made available in April in the Budget to provide projects already planned but shelved or postponed to induce smaller companies to go ahead with them before the upturn in world trade.
An additional £50 million was made available for the modernisation and restructuring of certain ferrous, foundry, machine tool, clothing and other industries with emphasis on helping the 875 medium-size firms. In addition another £80 million was offered for capital projects in September, and in November there was another £20 million for similar modernisation projects.
My hon. Friend the Minister of State may intend to mention some of those schemes when he replies to the debate. They are measures which I have been able to dig out with the help of the excellent research facilities in the House of Commons. It is only fair in this sort of debate to indicate when a realisation exists in Government circles of the difficulties of the medium-size firms.
We should therefore consider the motion in the name of the hon. Member for Somerset, North (Mr. Dean) against that background. He moved the motion in a constructive way. Although we have not always been able to agree during the debate, it has indicated a general feeling that medium-size firms need assistance. I hope that my hon. Friend the Minister will bear this in mind when he goes back to his Department and that he will come up with further measures of aid. The steps taken so far go only halfway to solve the problem of giving much-needed assistance to these concerns which in the end will help the prosperity and employment of many throughout the country.
§ 1.43 p.m.
§ Mr. John Wakeham (Maldon)
I have spent the whole of my working life as an employee, a shareholder and a director of small companies and as a chartered accountant advising small companies. I therefore declare an obvious interest in the debate. There are many problems which small and large businesses have in common. I shall be brief and direct my remarks to one aspect on which the problem facing these two sectors varies considerably, and that is in the provision of working capital.
The provision of working capital is high on the list of problems of small firms at any time, but this situation has been exacerbated after three years of hefty inaction. Perhaps I may deal with the myth surrounding trade credit. It is enshrined in the excellent report of the Bolton Committee, which states at page 183 that trade credit is an extremely important source of capital for businesses 876 of all sizes. Superficially that may be so, but, to coin a phrase, one man's creditor is another man's debtor. Over business and commerce as a whole the situation is balanced out, which means that business and commerce derive no credit from the trade creditor-debtor system. At the retail end a considerable amount of credit is advanced to private consumers. This leaves industry and commerce as a net provider of credit rather than a net borrower. We must examine the relationship in a company between creditors and debtors to consider whether that company gets working capital from this source or whether it provides working capital for someone else.
The Bolton Committee's Report also said that there was very little difference in the use of trade credit by small and large companies in similar trades and industries. However, that was four years ago and a lot of water has passed under the bridge since then. There is still a considerable amount of evidence indicating that manufacturing is a net provider of capital and that the retail side is much more likely to be a net borrower There was an interesting article in the Financial Times earlier this month which said that if the trade creditor-debtor situation was eliminated there would be a net flow of about £450 million into the manufacturing side of industry.
There are many practical indications of a switch in the balance of working capital away from the smaller firms to the larger ones, with the difficulties that this presents for the smaller manufacturing firms. There are two reasons for that. First, credit management in this country—as the Bolton Committee's Report rightly said—is, by comparison with many of our industrial competitors extremely poor. However, it has been improving and it continues to improve fast with the bigger firms because they, unlike their smaller counterparts, now employ much more sophisticated techniques than hitherto.
The second and much more significant reason is that the bigger firm has the necessary financial muscle to force the smaller concern to give it longer credit or to force it to pay "on the nail". This has had a much more significant effect on the working capital problems of small companies than has 877 the attitude adopted by the banks in lending to them.
I sometimes wonder whether the banks realise that the spectacular performance of some of their bigger customers in dealing with liquidity problems might be the cause of the liquidity difficulties of, say, 20 of their smaller customers. By and large this is not a problem in which the Government should become directly involved. There is, however, an area in which the Government can and should help. They should ensure that Government Departments, nationalised industries and their major contracting customers set a first-class example in operating credit in accordance with their agreements. The Government should consider whether any major company which failed to pay its trade creditors was a suitable recipient of Government contracts.
§ 1.50 p.m.
§ Mr. Guy Barnett (Greenwich)
I join in the tributes to the hon. Member for Somerset, North (Mr. Dean) for selecting this subject for debate and for the way in which he introduced it. We are debating a subject of major importance to which the House has given far too little attention. One reason for its importance is that it covers such a wide variety of situations and problems. The ingenuity and inventiveness of our people have played a large part in our history in the building up from small beginnings of new businesses and the exploitation of inventions. If through default or active policy we drive out the small business, we are bound to do grave damage to our economic and social life.
As we are dealing with such a wide range of problems, the debate is a little difficult. If I have a criticism of the hon. Member for Somerset, North it is that he included the self-employed in his motion. In effect, we are discussing the professional man, the odd-job man, the small shopkeeper and the man who runs a business employing up to 50 people. It is not easy to discuss such a wide variety of businesses at one and the same time.
There is a less savoury aspect to some small businesses. We know of the problem of the "lump," which comprises self-employed people but does not operate legally the tax and insurance side of the business. There are also other types of 878 self-employed persons and small businesses for which I hold no brief.
Small businesses need premises, and many valuable small businesses in Greater London and other big cities have gone out of existence because of large redevelopment schemes. Small businesses have been driven out because of the construction of urban motorways and the redevelopment of large areas. Birmingham City Corporation has been more imaginative in its approach and has gone out of its way to make provision for small businesses.
The Secretary of State for the Environment has a responsibility to issue a circular containing instructions or advice to local authorities about the need to make provision for many kinds of small businesses when they are undertaking large redevelopment schemes. Where a certain area in a large city or urban area has been famous for certain kinds of operation, the maximum consultation should be undertaken to ensure that such highly specialised activities are maintained and encouraged.
§ Mr. Anthony Grant (Harrow, Central)
Is the hon. Gentleman aware that that is precisely what my right hon. and learned Friend the Member for Hexham (Mr. Rippon) did when he was Secretary of State for the Environment in the previous Conservative Government? He gave that guidance to local authorities specifically at my request.
§ Mr. Barnett
I am delighted to hear that the then Secretary of State for the Environment did that at the hon. Gentleman's request, but there are local authorities that are not following that advice.
Now that Parliament has passed the Community Land Act, the responsibilities of local authorities will increase considerably. As time goes on, an increasing proportion of land suitable for commercial and industrial use will be owned and managed by the local authority. In several provincial cities that I have visited local authorities have laid out industrial estates and gone out of their way to make it possible for small businesses to operate and to provide employment. A close relative of mine runs such a business on such an estate. When local authorities are disposing of land under the Community Land Act for commercial and 879 industrial purposes, it is important for them to ensure that the best possible opportunities are available to small as well as to large businesses.
A certain amount of criticism has been levelled at the tax provisions—capital transfer tax, inheritance tax and death duties—that have been included in legislation over some decades to prevent the passing of wealth from generation to generation. I am not certain that these criticisms are altogether justified.
Most hon. Members who have constituencies which contain industrial areas make a regular habit of visiting factories and talking to the managers and trade unionists. From my observation of the scene it is apparent to me that we are in a dynamic situation. For example, when I visit one firm in my constituency I see over the mantelpiece in the manager's office a picture of a bewhiskered Victorian gentleman—probably a hard task master—who, with considerable initiative and ingenuity, built up the business from nothing. He passed the business on to his son, and there is no record whether the son ran the business well or badly, but his grandson ran it very badly. There is no guarantee that a family business which is passed from generation to generation will be well run. There is an example of precisely that pattern in my family. We should therefore be careful before suggesting that exceptions be made to allow small businesses to pass from generation to generation.
The small business has a vital part to play in ingenuity and inventiveness. Three members of my family have recently run or are running small businesses which they have built up from nothing. I know of several people—one a member of my family—who originally worked for a large firm but out of frustration because the firm was unwilling or unable to exploit an invention left and set up a small business to develop that invention, which is now being successfully exported all over the world.
That is the area on which we ought to be concentrating. We ought to be making it possible for a young man with a lot of energy, ingenuity and training, who finds himself frustrated in a big organisation, to set up on his own. My relation received enormous help from an organisa- 880 tion of which many hon. Members are aware, the International Finance and Credit Corporation. The help was not just in terms of a loan to enable him to do the job; he also received advice about accounting procedures and about whether he would be wise to invest. It is in such an area that the greatest value can come from an organisation of that kind.
So often, the person who is inventive, or who can perfect a new invention and wants to develop it, is just the person who has not the financial or accounting skills needed to enable him to start a small business. The criticisms of the joint stock banks should be taken to heart by the Government, who should consult them about how to make it possible for them, in addition to Finance for Industry and other organisations, to get through the kind of advice, back-up and assistance which these young people very often need to enable them to get a small business off the ground.
I turn now to another aspect which has only been lightly touched upon in the debate but which is important and deserves consideration—the role of the small shop. Every hon. Member will agree with me that the small shop plays an important part in the community. I had a lot of contact some years ago with a small shopkeeper who was playing a massively important part in the local community, not just in terms of supplying goods but providing advice, support and help to customers in the vicinity. He was becoming almost an unofficial marriage guidance counsellor, adviser and helper.
Do not let us underestimate that sort of thing, or the value of the chap behind the counter who has a kind word and a bit of help and advice and, above all, is prepared to listen to people with problems who do not know how to sort them out.
No doubt it is economically desirable to have places like Sainsbury's in large cities, but I believe that those of us who represent urban constituencies are becoming increasingly aware, through our advice bureaux, that a lot of our fellow citizens have no one to talk to. I believe that the small shopkeeper has played an incalculable part in meeting such a need and it would be sad if that role were to disappear.
881 But the final vital point is that the small businessman cannot opt out of society. He is an inventive man. He may be eccentric and he may be unwilling to conform, but, nevertheless, on questions of safety, industrial relations and so on, and, indeed, taxation, he has to follow the line and adopt the best management practices possible.
But in order to enable him to do that and to live in the sophisticated and complicated modern world we have to give him all the support we can. This House must be a great deal more careful about some of the legislation it passes which places complications not only on small business but on all business and which in the end has the effect of being expensive in terms of time and, in larger undertakings, of the employment of specialised staff to sort it out. At the same time, we have to see the small business man playing a part in the community, depending in some instances upon the various kinds of support, whether provided by organisations like the one I mentioned, or by State or semi-State organisations.
I have no doubt of the part that the small business men have to play as a dynamic element in the development of industry. By its nature, in our technologically changing society industry is moving and changing. In that sense, the small business of yesterday may well best become part of a big group or large organisation of today. The small business which is struggling to get on its feet today is the one on which we should be concentrating our attention, not the small business of yesterday which might better become part of a bigger organisation or, indeed, go out of business altogether.
§ 2.6 p.m.
§ Mr. John Hannam (Exeter)
We are extremely grateful to my hon. Friend the Member for Somerset, North (Mr. Dean) for giving us once again the opportunity to debate this very important subject. I shall he brief not only because so many other hon. Members want to speak but because of the urgent request for sustenance coming from inside me.
In repeated debates we have pressed the facts of the present situation facing the small business sector. About a year ago, I warned the Minister who was then responsible for small businesses that if the 882 Government did not change their policy, he would become a Minister without small business. That situation is coming to fruition. Since then, we have seen the introduction of the multirate value added tax, of inflation, of increased national insurance contributions and other measures which are decimating the small business sector.
My hon. Friend ably underlined the problems facing small businesses. We are in a crisis situation. Since last year, the number of bankruptcies in the small business sector has increased by about 40 per cent. and the exodus of the self-employed and other wealth creators out of the country is increasing alarmingly. We have heard of the obvious case of the small shopkeeper, but we must also remember the writers, the doctors, the scientists and others, even including our ex-boxing champion, who have decided to leave the country because of over-taxation and the threats of bureaucracy.
My pre-parliamentary career was in the small business sector, so I can speak with some knowledge and conviction of the sacrifice and the risks involved, working sometimes seven days a week and having to plough back all the profits except a small proportion to meet essential family requirements, and perhaps with wife and children also working. When one needs assistance from the banks it is often not available, but one is offered it when it is not needed. Frequently, the bank borrowing is up to the hilt anyway. What is the advantage?
Until recently, these people believed that they were fulfilling some central purpose in the structure of our society. They were providing services in the corner shop, or in professional trades, or in our artistic heritage. It was accepted that risks must be taken, and they were willingly taken. It was accepted that small businesses were the acorns of large industry. But now all too often the risks have become too great a burden to bear. The policies being adopted by the Government are extinguishing the entrepreneurial backbone of the country.
This debate is a somewhat rare event, because not only have hon. Members agreed on the problems facing small business, but they have put forward a whole range of constructive suggestions about how those problems can be overcome. My fear is that, as so often in the past 883 with many of these debates, the suggestions from both sides of the House will go unheard and unheeded by the Government. I sincerely hope that the Minister of State will deal with some of the constructive suggestions concerning VAT, the structure of payments, and other matters.
I should like to draw the Minister's attention to one part of the small business sector which in my own region, the South-West, will be in grave danger of total collapse if help is not forthcoming very quickly. It is an industry upon which we shall depend if the upturn in the British economy takes place in the next year or two. I refer to the building and construction industry.
On Monday, a deputation of West Country architects, builders, trade unionists, surveyors, civil engineers and local authority employees came to Parliament and held meetings with all three of the major parties. A petition was presented to the Prime Minister at No. 10 Downing Street. That petition called for special emergency action to save the construction industry in the South-West. In our region most of the firms in that industry are small and self-employed and therefore it is relevant to the debate to highlight its problems.
In the debate on unemployment last night one point that came through clearly from the rambling verbiage of the Secretary of State for Employment was that the worst-hit industry throughout the country is the construction industry. Yet this is the one industry which will be needed to spearhead our economic recovery and revival if and when investment and expansion return.
In my region the figures are appalling. They are getting worse every month. More than one-eighth of all workers are in construction, mostly small firms and self-employed. The percentage of unemployed in this month's count in the South-West region is 18.5 per cent. compared with 4 per cent. in 1973 and 6.3 per cent. in 1974. We have an above-average level of unemployment generally in the region of 8.9 per cent. There is now an average of 18.5 per cent. in the building and construction industry.
Broken down for the western counties of Devon and Cornwall, the figures are 884 far worse. In Devon there were 15.8 per cent. unemployed in the construction industry in November, rising to 17.6 per cent. in December. In January the figure has topped 20 per cent. In Cornwall the figure is 28 per cent., with pockets of unemployment in certain areas as high as 57 per cent.
This is indeed a crisis situation. New orders for construction are falling at a rate of 23 per cent., compared with 8 per cent. nationally. New commissions to private architects have nearly dried up, except in the house building sector. Industrial development certificates issued last year are down by a half. With local authorities' capital programmes slashed by two-thirds and as wages eat into their budgets, the immediate future is not just bleak but absolutely disastrous.
The policies of the Government in penalising the small builder, the small business man, the self-employed and the private landlord—plus the unbridled inflation we have been experiencing—are all combining to suffocate this vital industry in our region just at a time when it should be training the young apprentices in the skills that will be needed for the houses, factories and other components of an expanding economy that we hope to see in the not too distant future.
What should the Government do to avoid the catastrophe of the collapse of the building industry in our region? I am not calling for vast increases in public expenditure—though, heaven knows, a fraction of the Chrysler figure devoted to this industry would solve our problems. The call being made from the South-West is for much the same requirements as are needed by all small firms and self-employed. Many instances have been cited by hon. Members today.
First, we should like to see relief from VAT for all building materials, repairs and servicing. We should like to see a withdrawal of the unnecessary and damaging multi-rate VAT, which is affecting quite a number of industries in the region, and a return to an overall flat rate of 10 per cent.
Secondly, we should like to see the processing of new projects scheduled to begin in two years' time brought forward so that architects and planning departments can begin the work which would enable their redundancies to cease and 885 also facilitate the spread of the work into other firms. This is referred to as a "moving shelf", which at the moment has come to a grinding halt.
Thirdly, the Government should reverse their decision to limit the house improvement grant to £175 rateable value. In an area like the South-West—with its high rateable values because of its particular holiday and retirement characteristics—that figure is far too low, and it is depriving many small builders of the kind of work which would normally ensue from improvements to houses and rented accommodation. If the limit were raised to £350, that would provide a welcome stimulus to a large area of building work for small firms.
Fourthly, we should like to see some of the vital drainage and sewerage schemes brought forward, because the development of many of our industrial trading estates and housing estates will depend upon these schemes.
We have a grave emergency facing us in the West Country—far worse than that in any other part of the United Kingdom. I received a complacent answer from the Minister on 1st December when he said that the measures being taken for the whole country were spinning off into the South-West and that there was no problem. But the imposition of high taxes, price restraint, national insurance contributions, and now the extra work arising from the implementation of the Community Land Bill are crushing our small firms.
A representative of small businesses sent me an advertisement which appeared in the Daily Telegraph on 21st January 1976. The Land Authority for Wales was advertising for professional and administrative staff. It requires a deputy director of land management, and the salary offered is from £8,650 to £11,000. There are two posts for area land managers, and the salary offered is £7,750 to £9,350. A chief planning officer is required at a salary of £8,650 to £9,798. A senior financial assistant and a senior draftsman are also wanted. A range of new posts are now being created, totally unnecessarily, in order to implement legislation passed by the Government.
The high salaries paid throughout local government are having a very serious effect upon competing small businesses in 886 the areas concerned. They find themselves totally unable to match the kinds of salaries being offered. That is yet another aspect of the problem.
There is a total stifling of free enterprise and endeavour in this country. I hope that the Minister will deal specifically with the crisis facing us in the South-West in the housing and construction industry. The same problems are faced throughout the small business sector in the whole country, and a crisis point has been reached. It requires urgent Government action.
§ 2.8 p.m.
§ Mr. Andrew Welsh (South Angus)
I congratulate the hon. Member for Somerset, North (Mr. Dean) on introducing the motion. I assure him that it has the support of my party.
It should come as no surprise to the Government that the self-employed and small businesses are once again the subject of debate in this House. This debate follows a whole series of such debates and parliamentary motions designed to draw the Government's attention to the very real grievances of the self-employed and small businesses.
The people in this section feel themselves to be under siege at the moment from all sides because of taxation burdens, paperwork, red tape, bureaucracy, Government inspectors and, most of all, inflation and the effects of the continued decline of the United Kingdom economy.
Small businesses and the self-employed are asking the Government for help and for consideration of their circumstances. I hope that the Government will listen to that plea. The self-employed are highly diverse and wide-ranging individuals, multi-occupational and multi-skilled. There are window cleaners, lawyers, doctors, farmers, fishermen and so on bringing a great deal of skill, expertise and employment to the economy. They feel that the Government have failed to understand their problems. I hope that the Government will treat them with much more sympathy.
If the Minister does not believe that these grievances are felt, I ask him to look at the number of self-employed associations springing up all over the country. They show that the feelings are held nation-wide.
887 The self-employed feel burdened by red tape and bureaucracy and that they are being inspected and pressed by officials into some kind of submission when all they want to do is to go about their business, carry on their trade and make a reasonable living thereby contributing to society. That would seem to be a reasonable attitude and outlook in life. There are, however, many obstacles which lie in their way.
The taxation structure seems basically designed to weaken them in that task. Capital transfer tax is having a disastrous effect on family businesses, and this is a sad mistake. I ask the Government to consider adopting the SNP proposals which would protect the smaller business man and would place the main burden of these taxes upon broader shoulders which are more capable of bearing it. The day—which appears already to have arrived—when a man cannot hand on his business to his son or daughter is a sad one. Value added tax is iniquitous in its application and in its method of collection. Hence it has led to the grievance that people are forced more or less to be unpaid tax collectors. I suggest that it is one of the prices we have to pay for Common Market membership. It is galling to the small business man to have to realise that this useless, unproductive mass of paper work is designed to prop up the beef and butter mountains of the common agricultural policy.
I ask the Government to adopt the SNP suggestion that the VAT threshold be raised to enable self-employed persons and small business men to escape the clutches of this tax. If the Government will not change their mind about VAT, I ask them to think about some form of relief, or even payment, for the time spent by small business people and the self-employed in gathering this tax on the Government's behalf. At the very least, I hope that the Government will simplify VAT and will consider adopting many of the suggestions made in this respect today.
The greatest bone of contention must be the 8 per cent. levy paid by the self-employed for absolutely no benefit whatsoever. My party has consistently opposed this levy, which was introduced by a Conservative Government and taken up by the succeeding Labour Government. 888 I ask the Government to consider giving some form of recompense in return for these payments. I have in mind the reciprocal health agreements of the Common Market. It is ridiculous that refugees and stateless persons should have more rights than the self-employed have in this sector. The self-employed person would be better off if he were unemployed, because at least he would not have to pay through the nose for benefits which he does not get. I ask the Government to extend as far as possible social security rights which we all take for granted and extend them to the self-employed.
I should like to raise a side issue, though an important one, concerning the Common Market. Can the Minister indicate the present state of play concerning the draft proposal for a directive on Common Market law on commercial agencies? This is important to self-employed persons and small businesses. I believe that the United Kingdom is the odd man out in these negotiations. What are the Government's views? Are they in favour of this directive or are they against it?
There is a definite need for Government recognition of the importance of the self-employed and the small business man to our economic life. As part of that recognition, I should like to see the establishment of a Minister with responsibilities for the self-employed. I note that there is no one in the Scottish Office with such responsibilities, and I should like to be told that such a Minister is contemplated or considered in the Scottish Assembly, should it come to pass.
I earnestly ask the Government to look again at the effect of their legislation on key areas and groups of self-employed—for example, farmers and fishermen. Fishermen are facing rising costs, as well as the expense of safety regulations, which can be added on to conservation problems, when the basic stock of their existence is being wiped out by various fishing methods. Scottish inshore fishermen face the prospect of going out of business. They are self-employed persons. They share the problems of the rural areas. If they go out of business in what is euphemistically called restructuring, there is no alternative for them but to go under.
889 I ask the Government to learn from countries like Norway, which by deliberate Government policy is helping the self-employed and small businesses by stopping the depopulation of the north and of coastal areas. There is a good lesson to be learnt there, and I hope that the Government will learn and act. Otherwise, for groups of people like small traders the outlook is definitely bleak.
This is the age of consumer protection, and quite rightly, but it seems to many small traders that they are being left out of this system. Who protects them? When a customer complains, it is usually the shopkeeper who pays up uncomplainingly. But the fault may well lie with the original manufacturer. I believe that the Common Market is looking at this matter with a view to introducing legislation to help the small trader. I should like to know what the Government's views are and what measures they have in mind.
On the subject of small businesses, will the Government look again at the insurance regulations and the demand by local authorities for £250,000 for insurance from small firms? This is a heavy burden for the small man, and I should like the Minister to consider the creation of reasonable exemptions, with safeguards of course, to small firms to enable them to survive.
In the rural context, the small business man is "on the spot". If he is put out of business by unnecessarily strict regulations, his place will have to be filled by the tradesman being called in from outside, causing unnecessary expense, delay and frustration. Therefore, I ask the Government to consider reasonable exemptions from the regulations so as to allow small local firms to continue to give their present services.
The Government's legislation to combat the "lump" system is, I suggest, unnecessarily heavy-handed in its application. I have heard complaints from law-abiding citizens who feel bound up in the same legalistic net as the fly-by-night cowboys, and they do not like it. Could the form-filling be made more simple than it is? One constituent of mine told me "The rich can aye look after themselves." There is a grain of truth in that. My plea is basically for the smaller business man and the self- 890 employed person. By definition they have a smaller profit margin on which to exist. Therefore, extra tax burdens hit them especally hard in times of inflation.
§ Mr. Hamish Gray (Ross and Cromarty)
I accept a great deal of what the hon. Gentleman is saying, but how does he relate this to the action of his party, which on so many occasions has supported practically any Socialist measures introduced by the present Government?
§ Mr. Welsh
That intervention sounds rather like a Conservative Party political broadcast, with which I do not agree. If the hon. Gentleman looks up our record on small businesses and the self-employed he will find that we are quite straightforward in our policies, which can hardly be called Socialist policies.
Self-employed persons and small business men are asking themselves "Is it worth while trying to stay in business? "The loss of a shop or a local service is important to the rural areas, the suburbs and the towns. If small businesses are not to survive and thrive, this will lead to the inevitable and logical conclusion of all of us working for the State, for local government or for multinational enterprise, the only local shops being the supermarkets or hypermarkets. That is not a necessary or desirable trend but it is being accelerated by present Government policies.
If we are not careful, we may be on the way to losing the individual service and commitment which represents the very best of the present system. This will be a great pity and a loss to the community. My plea, therefore, is for the small firms and those who are the very lifeblood of our present economy at local level. These people are capable of responding and making a unique and important contribution to our economy. I ask the Government to accept their individuality and to allow the self-employed and small businesses to make this contribution by recognising and responding to their obvious needs.
§ 2.30 p.m.
§ Mr. Tim Sainsbury (Hove)
The hon. Member for South Angus (Mr. Welsh) has added another voice—and, I suppose, another party—to those congratulating 891 my hon. Friend the Member for Somerset, North (Mr. Dean) on introducing the motion, and he has added a voice also to those who have expressed support for it. I believe that he used the expression "under siege", and that at least makes a change in the analogies and metaphors of a more rural nature heard so far.
We have had references to wild oats and to seed corn. I shall try to resist the temptation to introduce more military or farming analogies, especially as I have to declare an interest as a farmer and as a director and shareholder in small businesses, in spite of the complimentary remarks of the hon. Member for Greenwich (Mr. Barnett), who referred to another perhaps rather larger business with which my name is somewhat more connected.
For want of a better one, I shall use the definition of "small business" which the Bolton Committee used—that is, a business employing 200 or fewer employees; and if I use any statistics in my speech, as I fear I may, those statistics will be based upon that definition.
The reason why I contend that we should regard the motion as of special importance, and why I hope that all hon. Members on both sides will support it, is that there is no other part of our society in which one can see so directly as in the small business the dependence of employment upon investment, which in turn depends upon confidence. If the present Government and their successors—I should say the same of their predecessors—could bear that factor constantly in mind in everything they do which affects small businesses and the self-employed, they would be more effective in helping this vital sector of the economy.
Small businesses are, indeed, vital. Those of us who sat through the many hours of interesting evidence presented to the Select Committee on a Wealth Tax cannot but have been impressed by the amount of evidence about the size and importance of this sector of our economy. Both the CBI and the Unquoted Companies Group gave that fact special emphasis, and we were glad to have evidence also from the Department of Trade to the effect that this category of company is contributing 20.6 per cent. of net industrial output.
892 The Bolton Committee showed that about one-third of all employment was in the small business sector. In some areas the proportion is higher. In retailing, to which there has already been reference, more than half of all employment is in small businesses. In catering, which has so significant a role in our tourist trade—which is a major foreign currency earner now—about three-quarters of all employment is in small businesses.
The figures are fairly conclusive. This is an important sector and one of special significance in certain respects. Its role was clearly brought out in the Bolton Report, and I shall now draw attention to two or three of the many points in favour of the small business to which the Bolton Committee directed attention.
Paragraph 19.5(iv) of the Report stated:Small firms add greatly to the variety of products and services offered to the consumer".In any debate about the self-employed and the small business the consumer deserves mention, and I think I am right in saying that that clear mention has now come for the first time. It is well known that small businesses and the self-employed add greatly to the variety which can be offered to consumers, and they are particularly well suited to provide specialist services which add much to the quality of life.
The small business has another role, which also was brought out in the Bolton Report in these terms:In an economy in which ever larger multi-product firms are emerging, small firms provide competition, both actual and potential and provide some check on monopoly profits, and on the inefficiency which monopoly breeds.Perhaps some of us on this side would wish to have small businesses in railways and buses and in post office services, because they might play a rather valuable role in attacking the inefficiency which monopoly breeds.
Another advantage of small firms is the extent to which, by their very nature, they tend not to make the major mistakes which other businesses are prone to fall into. They avoid producing the super-high-technology, perfect product which calls for vast capital cost but which, unfortunately, as the producer later finds out, has no market. In general, they 893 avoid very high technology and they avoid high energy consumption. They concentrate on things which are perhaps somewhat more everyday, more practical and often more useful to the consumer, because they know that their survival depends upon their so doing, and they cannot afford, and do not normally take, the sort of risk which could put their businesses out of action.
Obviously the size of the small business sector in this country is difficult to determine, but the Bolton Committee produced a table which revealed facts which I find extremely disturbing, in view of the role of the small business in checking competition and providing variety, as well as innovation, to which several hon. Members have referred.
It is disturbing to find that, to the best of the Bolton Committee's knowledge, based on the evidence produced, the United Kingdom has a substantially smaller proportion of its manufacturing employment in small establishments than has any of our major rivals. The figures show the United Kingdom with 31 per cent., whereas in other, very successful countries, we find the figures as follows: Switzerland 61 per cent., Sweden 53 per cent. and France 51 per cent.—that is, with considerably more of their employment in small businesses.
I believe that one of the reasons why the economies of those countries have got on better than ours lies in the fact that their greater ratio of employment in small businesses has continued and has not been discouraged by Government action. I am sure that we should be more efficient in this country if our small businesses were similarly encouraged and were able more effectively to play their role in our whole industrial scene.
Confidence is the vital factor. Those of us who sat through the many hours of work of the Select Committee on a Wealth Tax were unhappily aware that confidence was not nowadays to be found in great abundance in the small business sector. Faced with the possibility of a wealth tax, added to all the other tax burdens to which hon. Members on both sides have referred—I welcome what they have said—many small businesses told us that it would be the last straw. We had evidence that businesses were not investing because of the threat of a wealth tax.
894 The Chancellor of the Exchequer told us in the Green Paper that he might consider reductions in taxation if a wealth tax was introduced, but it seems too often to be supposed that such reductions would be related to the investment income surcharge. The reduction or elimination of the investment income surcharge, desirable and proper though that would be if we had a wealth tax, as an alternative method of trying to achieve that rather mysterious objective of horizontal equity in respect of investments would not help most small businesses. Their earnings come in the form of earned income or, even if in the form of dividends to sole proprietors, are treated as earned income. Therefore, it would be no help to the small business sector to reduce taxation on unearned income as compensation for the introduction of a wealth tax. I ask those responsible to bear that very much in mind, and I earnestly hope that the Chancellor will do so if he should turn his mind again to that question.
I scarcely need add my voice to all those already raised on the subject of the capital transfer tax. The retiring president of the CBI said:Combined with the new capital transfer tax the effect of the expected wealth tax may well be to limit the existence of many private companies to a single generation—if that. And there is good reason to suppose that this is deliberate.I hope that the Minister can assure us that his Government have no intention of so arranging their tax legislation or any other legislation that small businesses are necessarily confined to one generation. I can think of no step more likely to erode the confidence of the small business man, who almost always concentrates on building up something which he can pass on to succeeding generations in his family.
The damage which such an imposition can do is fully recognised in the tax systems of our European partners. Our top rate of capital transfer tax on a business being passed to a son or near relative is 75 per cent., but the next highest rate among our Common Market partners is 20 per cent. in Denmark and France. That is an astonishing difference, and it is another aspect of the attack on confidence in the small business sector that has followed from the introduction of capital transfer tax.
895 Many hon. Members have referred to form filling, and I add my voice in support of those who have said that this is a most time-consuming affair. The Bolton Committee recognised the point and said:Since most of the burden of form-filling in the small firm falls on the proprietor, there must clearly come a point at which the cost of collecting better statistics or of new administrative procedures … outweighs their value.I ask the Minister to look at some of the activities of his Department. I have with me a delightful form, PQ390. That number would never be reached as a Parliamentary Question, but that is what the Minister's Department calls the form—the "Business monitor, engineers, small tools and gauges". The first thing is that even if it was of any interest or use to the many small businesses that I have in my constituency which fall into the category of engineering firms producing small tools and gauges, it is not much use if it is produced six to nine months after the information is gathered.
I do not know whether the Department finds this voluminous information useful. There are 62 questions to be answered. I assure the Minister that this is of no use to the vast majority of small firms which have to fill in these forms four times a year along with many other forms.
A second-generation family firm of toolmakers finds it surprising that a firm of toolmakers is asked to state every quarter how many artificial limbs it has made. I suggest to the Minister that the information could be gathered as accurately and at a great deal less cost if sample surveys were used and if trade associations were considered as an alternative.
The real message that I wish to send out is that if the Minister is to respond to what he said on 26th January in reply to my hon. Friend the Member for Shoreham (Mr. Luce)—my close friend and neighbour in more senses than one—thatThe particular needs of small firms are kept under review and taken into account in all our policies".—[Official Report, 26th January 1976; Vol. 904, c. 6.1]we must have action, not words.
The Minister said earlier that he frequently talks to the CBI. Why should he expect every small firm to belong to the CBI, and why should he expect the 896 CBI, which represents, or tries to represent, the whole of British industry, to reflect adequately and entirely the views of small businesses? It is the Minister's duty to contact every organisation which represents small firms and talk direct to small firms and the self-employed. He will then understand better how vital they are to employment, to investment and to competition and the additional element of vitality which they add to our economy. If the Minister were to do that he would be a little more reluctant to participate in continuing to erode their ability and attacking their incentive to invest, because that is what he is doing every time he attacks the confidence of that sector.
§ 2.44 p.m.
§ Mr. David Mitchell (Basingstoke)
I join hon. Members in congratulating my hon. Friend the Member for Somerset, North (Mr. Dean) on his choice of subject—the problems of the self-employed and small business man—and on the fair and reasonable way in which he put the case, showing in his role as special watchdog for the self-employed just how much he understands their feelings and motivations and the way in which they feel themselves to be under attack. My hon. Friend looks after the special problems of the self-employed. Before I came to the House I was a full-time small business man. I declare a continuing interest there, and I want to look at what we are discussing from that point of view.
I am sure that the terms of the motion commend themselves to the whole House. Certainly many hon. Members on both sides of the House have expressed their support for the motion and I hope that the Minister, whom we are delighted to see here, will feel able to accept it.
The motion recognises the contribution made by small businesses to British industry, to the commercial life of this country and to employment and job creation, and this is an important aspect. Yesterday we debated the serious concern of hon. Members on both sides of the House about the rising level of unemployment, and one must remember that the small business sector provides 34 per cent. of the jobs outside the public sector.
That is a substantial tranche, and I see the cruel dilemma in which the Minister 897 and the Government stand today because below the Gangway those hon. Members who abstained from supporting the Government last night are clamouring for more egalitarian taxes. Hon. Members below the Gangway on the left wing of the Labour Party are anxious to see a greater attack on the family business and on those who are higher earners, or have high incomes, or have unearned income, yet the more they carry out these egalitarian measures the more the Government damage the independent business sector, and in so doing they increase unemployment. It is a cruel dilemma for the Government to find themselves in that situation.
Small business not only contribute a great deal to employment but they provide about 25 per cent. of the production the GNP, and one finds that a dominant sector of the economy of the regions is in the hands of small businesses. Their health is, therefore, of unique importance. Their inventiveness and the way in which they provide so many of the new ideas and new products upon which the future of this country depends is of great importance. My hon. Friend the Member for Hove (Mr. Sainsbury) drew attention to the diversity that small businesses give to our economy, to our environment and to our social life, and that feature, too, is of great importance.
The Minister is responsible for industry, and he is very much concerned, as I know the rest of the Government are, about the whole economic cycle and ensuring that productive resources will be available once the world economy and our own pick up from the current depressed state of trade. But when they pick up they will do so with new firms, new products and new ideas. The big firms which were at the top of the previous cycle of trade will not represent the big area of production next time. It is therefore important for the small business sector that the Government should encourage the small firms and the growing firms. The Government should encourage those with new ideas and not spend money on providing bureaucratic nests for lame ducks.
My hon. Friend the Member for Gains-borough (Mr. Kimball) commented on how helpful and considerate the Minister of State has been, but he went on to say that there had been no improvement 898 since the last occasion on which the House debated the problems of the self-employed and the small business man. Alas, that is true. I agree that the Minister is the kindest, nicest and most sympathetic man in the House, and that makes it difficult for Conservative Members to attack him, but we are concerned not with whether he beats his wife, or goes to church regularly on Sundays, or how nice a man he is, but with the Government's record, for which he is answerable in the House.
I must say to the Minister that that record is not good enough. On many occasions I have defended the Government from the charge that they are doing nothing. That charge is not true. They have increased corporation tax, introduced the 8 per cent. levy on the self-employed, multi-rate VAT, capital transfer tax and threatened us with a delayed wealth tax and employment protection legislation. All this has had a profound impact on the small business sector.
§ Mr. Michael Marshall (Arundel)
Will my hon. Friend add to his list the Equal Pay Act? Coupled with the £6 per week increase, that Act is having a direct effect on many small businesses. They are having to absorb large increases irrespective of whether they have a large staff of women. This is leading directly to short-time working and lay-offs, especially in the glasshouse industry.
§ Mr. Mitchell
My hon. Friend speaks with experience of particular problems to which I hope the Minister will give his attention.
There are many areas in which the Government's legislative programme has damaged the small business sector. It cannot be said that the Government have done nothing. The trouble is that they have done nothing useful.
I turn from what the Government have done which has damaged the sector to what they have not done, where we can expect the Minister to give us some positive assurance as to the Government's approach to problems which are worrying many of us. Many of those worries have been expressed today, but they are also felt and expressed by many outside organisations such as the Association of Independent Businesses, the National Chamber of Trade and the Small Firms' Council of the CBI. A whole host of 899 trade organisations and others have come to us to express their concerns and worries.
My hon. Friend the Member for Upminster (Mr. Loveridge) spoke of the need for confidence. How right he is! Confidence is the important factor. But nothing could be designed to knock the confidence of the smaller business sector in the West Midlands more than the West Midlands Bill, with its proposition that a local authority should be able to set up as baker, butcher, flower and vegetable grower and seller, petrol station owner, estate agent and chemist. Whatever sector is mentioned, the Bill gives the local authority the power to set up in competition with private enterprise, particularly small businesses. Ratepayers' money will be used to drive small businesses out of business. There will be artificial competition.
Has the Minister advised his right hon. Friend the Leader of the House not to find parliamentary time for the West Midlands Bill? As the hon. Gentleman is the defender of small business men, we are entitled to know whether he has given that advice. Secondly, I must ask him the question put by my hon. Friend the Member for Exeter (Mr. Hannam), my hon. Friend having great concern about the serious unemployment in the building industry. There is a serious threat to the small builder with the enactment of the Community Land Bill and other legislation. Development decisions are now in the hands of local authorities as planning authorities. The ownership of development land will be in the hands of local authorities. A ministerial colleague of the hon. Gentleman in the Department of the Environment is urging that there should be a massive expansion in direct labour departments of local authorities. That expansion can only be at the expense of the building industry and especially small building firms, the very people whom the hon. Gentleman is supposed to defend.
I ask the hon. Gentleman to make representations to stop this mad drive to damage the small building firm by a massive extension of the direct labour force.
§ Mr. Mitchell
My hon. Friend draws attention to an even more alarming development.
I agreed with the hon. Member for Durham (Mr. Hughes) that traders should be allowed to pay VAT on a quarterly basis as estimated, and then have their auditors making the final arrangements for squaring up any errors at the end of the year. The VAT legislation was introduced in 1972 and it gave a £5,000 turnover exemption for the small firm. I ask the hon. Gentleman to ensure that that exemption is brought into line with inflation. If it was right for the exemption to be £5,000 in 1972, it should now be £8,520. No doubt by the time we receive the Budget and by the time the Finance Bill is enacted, £9,000 will be more appropriate.
Will the hon. Gentleman ensure that the burden of VAT is eased for small firms? In his role of defender of small business men, will he consider the training board levies? He will know that the Bolton Committee found that the small firm could not benefit from the levy system. The argument is set out in the Bolton Committee's Report and I know that the Minister is familiar with it.
Exemption from paying into most training boards is based on the wages paid by a company during the year. As inflation drives up wages it is necessary for the exemption limits to be raised similarly. If that is not done, firms will find themselves driven into paying the levy because of inflation and not because they are able to benefit from the activities of the training boards.
My hon. Friends will be aware that between 1974 and 1975 wage levels increased by 25.5 per cent. However, exemptions for training boards were lifted by only 17.3 per cent. Therefore, there is a substantial backlog. I hope that the hon. Gentleman will make representations to his right hon. Friend the Secretary of State for Employment to ensure that exemptions for small firms from paying the levy are lifted in line with increased wages throughout industry.
901 In the formulation of Government economic policy practically no account appears to have been taken of the situation of the small business. We have the NEDC agendas, Government consultations with the CBI and talks at Chequers on economic problems, but we do not see the problems of small businesses being discussed on those occasions. They should be and those problems should be at the centre of Government policies.
My hon. Friend the Member for Maldon (Mr. Wakeham) drew attention to the importance of investment and the difficulties facing the small business sector. No doubt the Minister will say that there is not a cash shortage for many small firms, because the Chancellor of the Exchequer provided in his Budget for stock relief. But the only companies that could obtain relief were those able to borrow enough money to buy stock. The smaller businesses could not afford to do that and they did not benefit. But even if they did benefit, they are now saying that the Chancellor has only postponed rather than forgone that tax liability. A small prudent business man may have that money, but it is in reserve for the time when his tax bill comes along.
Will the Minister represent to the Chancellor of the Exchequer that he must clarify the uncertainty about stock appreciation relief? Is it to be a permanent forgoing of tax, or is it only a postponement for which a business man must make provision? We should like an assurance on that important point.
All these are areas in which we have a right to expect the Minister of State to protect small businesses. We are disappointed that the Minister with these responsibilities has not shown himself able to do so. We were glad to see that he was given a second Minister to help him. Lord Melchett, has been added to the Government team. I suppose that this is an example of the new economic law that two can do as little as one.
The noble Lord is reported as having said recently:I can assure you that the Government won't hesitate to introduce measures designed to help the small business sector should this seem to be desirable.I emphasise the phraseshould this seem to be desirable"!902 My hon. Friends have already mentioned the number of bankruptcies among small firms.
My hon. Friend the Member for Exeter said that the number had increased by 40 per cent. I believe that my hon. Friend underestimated the figure. Today the bankruptcy figures are higher than they have ever been since figures were first recorded in 1914. On that basis we have the Minister's No. 2 saying that we can be assured that something will be done if it is desirable. For heaven's sake! How many people have to go bankrupt before it becomes desirable for the Government to do something about the problems of small business men?
I turn to the important problem mentioned by many of my hon. Friends—namely, the number of regulations and their complexity. My hon. Friend the Member for Upminster, the hon. Member for Greenwich (Mr. Barnett) and the right hon. Member for Orkney and Shetland (Mr. Grimond) all drew attention to the complexity of the web of controls, regulations and orders in which the small business man is trapped.
I asked the Library to provide a list of those pieces of legislation involving regulations about price control, consumer protection and all the rest of it. They are now laid on the Table and hon. Members will see that end to end they are 6 feet long: 6 feet of statutes! They comprise the amount of complicated work with which the small business man has to cope. How can a small business man handle that load of work?
§ Mr. Gregor Mackenzie
Perhaps the hon. Member for Harrow, Central (Mr. Grant) will view those Acts with some little degree of concern when he realises how many of them he put on the statute book.
§ Mr. Mitchell
My hon. Friend says that he did not put any on the statute book. I am not suggesting that all these measures were placed on the statute book by the present Government for they were not, but over the years one Government after another have added to the burden. The totality of those complications is so great that it drowns the ability of the small business man to get on with the job and run his business. He is beset by 903 hire-purchase controls, consumer protection, health and safety at work regulations, provisions on sex discrimination in employment, as well as by regulations on national insurance, employer's liability, compulsory insurance, fair wages, equal pay, shops, offices and railway premises, and all the rest of it. There is VAT with its endless statutory instruments. There are regulations governing the payment of wages, employers' protection, redundancy payments and so on.
The reality is that there is far too much legislation. I ask the Minister to examine these matters and to see where it is possible to exempt small firms from some legislation. In all future measures Governments should consider the best way in which small businesses can be exempted from many of the restrictions to which I have referred.
Small businesses require three things. They require time and money. They do not want subsidies. They want their own money to be left in their businesses to invest as they think right so that the businesses may be built up and the customers may be satisfied. That is how a successful business is built. Thirdly, they want an understanding of their motivation. The supreme need of today is for us to harness the motivation of the small business men so that we can have risk-taking, investment and the building-up of the enterprise we are lacking.
The motion specifically calls on the Government to find means of relieving tax and other burdens threatening the existence of small businesses. The House will want to hear what the Minister has to say on this. He should accept the motion and tell us that we can expect action from the Government in the next 12 months.
I hope that he will not say, as he has said on many occasions, that matters of finance and financial incentives to small businesses are for his right hon. Friend the Chancellor. I sought to ask the Chancellor on 18th December whether financial incentives were matters for him. I received the following reply:The Chancellor of the Exchequer has asked me to let you know that your Question for oral answer … about financial incentives for small businesses … is one for the Secretary of State for Industry.904 I rely therefore on the Minister to give us the answers today.
§ 3.8 p.m.
§ The Minister of State, Department of Industry (Mr. Gregor Mackenzie)
I am sure that we are all grateful for the opportunity given to us by the hon. Member for Somerset, North (Mr. Dean) to discuss this subject today. I have always respected the hon. Member's interest in and knowledge of insurance and pension matters. He will not think that I am flattering him over-much if I say that when he was a Minister I found that, although he did not always give me the right answers, he gave them in a nice way and showed a proper compassion and concern. The hon. Member was an exceedingly helpful Minister. Now that he is taking an interest in small firms I say, "Welcome to the club. We are delighted to have you".
I express my gratitude to all hon. Members who have put forward, in a sympathetic and understanding manner, a number of constructive suggestions. This has been a useful debate. I shall ensure that the points which have been raised are passed to my colleagues who hold responsibility in those sectors.
I know that for a time it has been said that the present Government have been piling legislation upon small firms. It was fascinating to see the huge array of statutes which the hon. Member for Basingstoke (Mr. Mitchell) put on the Table today. I had not realised that there were quite so many volumes, and I confess that I have not read them all, but what is significant is that Governments of both parties have been responsible. Sometimes people outside this House and from time to time people inside it make it appear that all the problems of small businesses are the result of Socialist prejudices of one kind or another. Clearly, however, that is not the case.
There are a great many factors which make life difficult for the small business man, and I hope that it is accepted in this House and that it will be accepted in the country that this Government are not hostile to the small firms sector of British industry. On the contrary, we recognise the very vital role which the small business has to play in our community and we are determined as best we can to 905 establish a climate in which these companies can prosper.
When we were in power some time ago, my right hon. Friend who is now Secretary of State for the Environment, because of his concern and worry about small businesses, set up the Bolton Committee to look at the whole range of difficulties that small firms were facing. It is to the credit of the hon. Member for Harrow, Central (Mr. Grant) and his right hon. and hon. Friends that they put into effect many of the recommendations made in the Bolton Report. There is a genuine interest on both sides of the House, as has been exemplified today, to see that these smaller firms are able to operate effectively, for all the reasons referred to during the debate.
Any Government have to put Acts of Parliament on the statute book for the general benefit of the community, and the present Government, like their predecessors, try to look for ways to ensure that small firms are not hit too hard by any particular decision. From time to time measures are taken to do this. Whenever I see a Bill before any of my colleagues, I point out where there may be difficulties. But the hon. Member for Harrow, Central, with his experience of doing the job now performed by my noble Friend Lord Melchett, knows that it is difficult.
Mention was made of employment protection. I thought about this the other day. If we completely exempted small firms from the terms of the Employment Protection Act, we might find ourselves in great difficulty. It might be that employees of small firms would decide that they did not want to work in small firms and that they would be better advised to go to firms where the benefits of the Employment Protection Act applied. All these considerations have to be borne in mind when we are making decisions of this kind.
§ Mr. Arthur Jones (Daventry)
I hope that the hon. Gentleman will not think I am introducing a contentious issue, but by their Community Land Act the Government are saying that no freeholds will be available on industrial development schemes. An essential feature in a small business is to own the premises in which it operates, because that provides security on which money can be borrowed. It is a significant disadvantage to small 906 businesses not to be able to acquire their freeholds, which will be denied to them under the terms of the Community Land Act.
§ Mr. Peter Hardy (Rother Valley)
It is fair to say that, in a number of cases that I know of where we have private industrial estate development, the people developing the estates retain the freeholds, so that even in the private sector small business men do not get the freeholds they may desire.
§ Mr. Mackenzie
Many questions have been raised in the debate, and I knout one or two hon. Members still wish to speak. The hon. Members for Basingstoke and Somerset, North asked about a voice for small firms and whether the Government listened to them. The hon. Member for Somerset, North quoted an answer I gave him some time ago. It is up to the small firms themselves to judge how best to represent their case to the Government. We have various contacts and meetings with the CBI and the TUC. The CBI has a very effective organisation looking after the interests of small firms and I meet its officers regularly. We discuss various matters and I constantly listen to what they have to say. We adopt this approach with most organisations which make approaches to the Government. It is for the small firms to decide who should be their voice. I am not going to make a choice and say that only the CBI or the Small Firms Association should come to see me.
The hon. Member for Somerset, North also suggested that there should be a senior member of the Government to represent the interests of small firms in the Cabinet. This point has often been put by hon. Members opposite, but it is a matter for the Prime Minister, who makes dispositions of this kind. Far be it from me to answer on his behalf. We now have an additional Minister within the Department of Industry who not only works with me on matters concerning the Post Office and regional policy but has taken over the job which I enjoyed and which was done by the hon. Member for Harrow, Central in the last Conservative 907 Government. Lord Melchett has been given special responsibility for small firms. He is a very vigorous, energetic youg man and he is taking his task very seriously. I know that he is doing a lot in this direction. Having once had the responsibility for small firms one cannot forget them, and I shall continue to work to promote their interests in the Government and throughout the country.
My hon. Friend the Member for Durham (Mr. Hughes) referred to the representation of small firms in the EEC. That is a novel concept to which I am unable to reply today.
The hon. Members for Basingstoke and Somerset, North and my hon. Friends, including the hon. Member for Battersea, South (Mr. Perry), have all emphasised the substantial contribution that small firms make to employment in this country, especially now when all of us, no matter what colour our political views, find the level of unemployment unacceptable. I hope that the small firms will take up the challenges they will be given when we have the upturn in trade.
To our more paritisan opponents, not so much in the House as outside, who label the Government as the enemy of small firms and claim that we are responsible for the unemployment in the small firms sector, I say that I have some experience of small firms in my private life and I well remember the sort of difficulties and employment problems we faced in 1973. We had shortages of bottles, paper and wrapping materials because of the lack of planning in the run-up to the Barber boom, as it was referred to at that time.
Those of us who were in business before the General Election in 1974 will remember the very difficult time which the smaller firms experienced because of the three-day working week. It had a tremendous effort on their employment prospects, and no one can put the responsibility for that with this Government. In my area larger companies were able to tolerate some of these difficulties, but the smaller firms ran into particular difficulties late in 1973 and early in 1974.
My hon. Friend the Member for Horn-church (Mr. Williams) asked what sort of schemes would be put forward. My right hon. Friend the Chancellor of the 908 Exchequer has already announced certain measures in anticipation of the upturn in trade. These have included proposals to accelerate investment totalling about £300 million. I accept the criticism that some of the schemes do not apply to small firms, but the prosperity of the larger concerns is helpful to the smaller companies which supply them. Without embarking upon sweeping inflation, my right hon. Friend has therefore made a valuable contribution to the health of certain industrial sectors which embodies an important spin-off for small firms.
People tend to forget that small firms get precisely the same kind of assistance under our regional policy, particularly when they are situated in areas of high unemployment, as the large firms. This includes the regional employment premium, the regional development grant and other incentives. I acknowledge the part played in this respect by the hon. Member for Harrow, Central and his colleagues when he was at the Department of Industry. People talk as though the small firms get nothing, but they forget the substantial Government funds which are put into these companies.
§ Mr. Guy Barnett
My hon. Friend has made the important point that the small firms get these regional aids. Is he aware, too, of the situation in London where the grants are not available? Small firms are at a particular disadvantage as against the larger concerns, which may have undertakings in the regions which enjoy these benefits and which are therefore better equipped to survive difficult economic circumstances.
§ Mr. Mackenzie
I understand the problems of unemployment in London. These considerations are taken into account in framing industrial development certificate policies. Our regional policy is flexible. We shall bear these difficulties in mind when we consider the study of our inner city areas.
The smaller companies are affected by two major problems, the first of which is inflation. It hits particularly hard at small firms. The best way in which we can help this sector is to bring inflation under control and to get the economy moving. Yesterday my right hon. Friend the Chancellor indicated our achievements in the fight against inflation. My friends who work in small businesses 909 constantly press upon me the need to win the battle against inflation and they are encouraged that something is being done.
The hon. Member for Basingstoke asked me to clarify what the Chancellor of the Exchequer said yesterday about stock appreciation relief, and the hon. Member for Somerset, North and others said that there was uncertainty about it. I shall raise the matter with the Chancellor of the Exchequer and write to the hon. Members concerned as soon as I can.
The hon. Member for Somerset, North and others raised the problem of the ailing giants and the squeeze by big businesses on small companies. Before coming to the House of Commons one of my concerns was that it was not only the Government, by legislation and taxation, which put pressure on smaller companies but that large companies in the private sector and in the public sector often exerted pressure. It is difficult to deal with trade credit problems—one of the main concerns of small firms—by legislation. I have raised the question with the nationalised industries and have asked them to be as helpful as they can to small companies in this respect. The private sector has to put its own house in order. I raised the matter with the CBI some time ago.
§ Mr. Peter Rees (Dover and Deal)
We spent some time last week debating the extra £100 million which is to be voted under the Industry Act. How many small companies will be considered for subventions under that Act? We know all about the big companies—the Chryslers of this world—which are being generously treated by the Government, but how many small companies and self-employed will be eligible for that benefit?
§ Mr. Mackenzie
The self-employed are not entitled to any money under the Industry Act. I am surprised that the hon. and learned Gentleman, with his great knowledge of the law, should ask me that question. I refer him to the Industry Act, which I am sure he will find useful reading for future debates on this subject.
My hon. Friends the Members for Greenwich (Mr. Barnett) and Battersea, South referred to inner city development.
§ Mr. Ernest G. Perry
A great many big firms have left inner London in the past 10 years to go to the provinces. That movement has caused the demise of hundreds of small firms which carried out ancillary work for the big firms. What help will be given to small firms in inner London?
§ Mr. Mackenzie
I answered that question a few moments ago. A study of the effect of redevelopment on inner cities is being conducted and we shall bear that matter in mind.
Several issues have been raised about the Employment Protection Bill which have been answered in other debates.
Several hon. Members were concerned about the West Midlands County Council Bill. Before becoming a Member of Parliament I spent a long time in local government. I want to see a sensible degree of municipal enterprise, and I am sure that no one fears that kind of competition. It is up to the sponsors of the Bill to persuade hon. Members what should be their attitude to it. The Government are still considering it, and no doubt my colleagues in the Department of the Environment will give their views when the Bill is discussed.
A number of issues have been raised in relation to Scotland by the right hon. Member for Orkney and Shetland (Mr. Grimond) and the hon. Member for South Angus (Mr. Welsh). The hon. Member for Basingstoke also referred to Scotland, and we Scots very much appreciate his concern for our welfare. The right hon. Gentleman asked about certain exemptions from Acts of Parliament. I do not think that he, being so fervent a Scot, would want me to say that our standards in Scotland should necessarily have to be lower than those in other parts of the United Kingdom. Perhaps I misunderstood his point about the Fire Precautions Act, although I led for the Opposition when it was going through the House, but I would not want what he suggested to happen.
The right hon. Gentleman seeks special aid. The work done by the Highlands and Islands Development Board and the Development Commission for Scotland has been particularly valuable. But many of these are matters which, under the 911 Government's proposals, will be properly for the Scottish Assembly to consider. The development of the oil industry has, of course, been helpful in Scotland not only to large companies but to small companies, and as a Scot I hope that it will be helpful to other parts of the United Kingdom so that we may all benefit.
The hon. Member for Shrewsbury (Sir J. Langford-Holt) made a highly entertaining speech about the Offices, Shops and Railway Premises Act. That is a matter for the Department of Trade. I appreciate, of course, that the points he was making were serious, and we take them seriously.
A number of issues have been raised about taxation, particularly value added tax. All I can promise is to be a good sounding-board in passing the points made to my right hon. Friend the Chancellor of the Exchequer. My right hon. Friends in the Government will certainly read the debate, and I have no doubt that when my right hon. Friend the Chancellor of the Exchequer is preparing his Budget he will take into consideration the representations made today and that they will also be taken into account in the announcements which he said yesterday he would be making in the weeks ahead. I am sure also that my right hon. Friend the Secretary of State for Social Services will bear in mind the points made about national insurance. I understand that a review is taking place of the positon of the self-employed.
A number of hon. Members, particularly those on this side of the House, said that they were concerned about the expertise of small firms. That point has also often been made by Opposition Members when we have talked about taxation and regional development grants. They say, in effect, that the large public companies know how much they can get out of the Government in the regional employment premium, grants and so on but that some small firms miss out because they have not the legal or accountancy expertise.
We have tried to help by the introduction of the small firms information centres, which are particularly helpful to the smaller companies. We have also introduced a pilot scheme for North-East 912 England in which older business men are helping younger men who want to expand their businesses. This is done on a voluntary basis. It is a particularly useful scheme and I pay tribute to those who work for its success. All in all, from the Department of Industry's point of view, the work we try to do to channel and harness the interests of the small firms is extremely worth while.
I do not minimise in any way the importance of the contribution of the self-employed, although I have not been able to deal with it at any length. We do not have in the Government any one Minister who takes a central look at the problems of the self-employed. That has been pointed out by my right hon. Friend the Prime Minister, and I think that he is right. It is best dealt with by the departmental Minister concerned.
As Minister responsible for the small firms sector, I act as a listening post within the House of Commons for small firms, and I shall certainly pass on to my hon. Friend the Under-Secretary and to others the seriousness with which hon. Members in all parts of the House regard the present situation.
I read the motion with the greatest possible care. I accept the speech made by the hon. Member for Somerset, North, but as regards his motion there may be those in the Government who would find it difficut to accept the motion as worded. However, I promise the hon. Gentleman that, whether we accept or reject his motion, I certainly accept the spirit in which it has been put and I assure him that we in the Government are anxious to do as much as we can to assist the small firms sector.
§ Mr. Paul Dean
I am obliged to the Minister, but the position in which the House now finds itself is a little unsatisfactory and a little vague.
The Minister said on a number of occasions that he will bear in mind certain points and bring pressure to bear concerning other points. While fully appreciating the Minister's difficulties, I suggest that this really is not good enough. The hon. Gentleman has said that he personally accepts the spirit of the motion. I am sure he does. We all know that he has a genuine interest in this problem and will do his utmost to persuade his right hon. Friends that 913 action is needed, but he is now under an obligation to advise the House of Commons and the House of Commons has to make a decision. I must therefore ask the Minister to go a little further.
If the Minister is saying that the Government accept the spirit of the motion but are a little concerned about one or two words in it, that is good enough. I hope that the Minister will make that clear and will go on to agree that accepting the spirit of a motion means that actions will follow from it. Is that what the Minister is saying? I hope he will assure the House that that is the case. It will be very difficult for the House of Commons to make a decision on the motion until we have a little more guidance from the Minister.
§ Mr. Mackenzie
I found the speeches quite acceptable, and I am willing to pass on what has been said, but I cannot accept the implication in the latter part of the motion to the effect that "taxation and other burdens "threaten the existence of the small firms sector. I do not feel that, on behalf of the Government, I can accept the totality of a statement like that.
§ Mr. Deputy Speaker
The Chair hopes that three or four more hon. Members may be able to catch the eye of the Chair before the debate ends. I therefore appeal to hon. Members to be brief.
§ 3.38 p.m.
§ Mr. Peter Hardy (Rother Valley)
I shall be brief, because I did not attend the House today in order to take part in this debate. The next motion on the Order Paper, on steel, is in my name, and I regard that as a subject of vital importance to my own constituency and to many others. I had hoped that the debate on the self-employed would be concluded some time ago.
I recognise the importance of the subject, but it has been shown in the debate that many hon. Members take too narrow and too short-sighted a view. They have considered the self-employed in isolation, but the self-employed are an inextricable part of our society. It is wrong to look at their problems in isolation from the rest of life.
In the steel-producing areas, thousands of people who are self-employed or in small businesses depend upon the vigour 914 and health of that basic industry. Indeed, if the small business is to succeed, the great industry has to prosper.
It is because of my anxieties on behalf of the small business man, and everyone else in my constituency and in the constituencies around by own, that I tabled the motion that we ought to be considering now. I had hoped that we should get from the Government a reassurance and an affirmation that the long-term investment plans would be maintained. Unfortunately at 3.40 p.m. there is certainly not time for the House to consider that. It seems a pity that the House of Commons has devoted time to ice cream, half-cooked tripe and sauce tartare, but no time to the future of an important industry so basic as steel. I am very disappointed about that. I hope that the Government will take note of that disappointment, because I am sure it is shared not merely by my constituents but by hundreds of thousands of people in the steel areas, and I gather that that view is shared by many hon. Members.
I hope that since hon. Members opposite could not restrain their own loquacity—[HON. MEMBERS: "Oh!"] If hon. Members look at the list of those who have spoken in the debate today, I am sure that they will find that the list of those speaking from this side of the House is very short. My hon. Friends clearly understand the nature of the problem.
As I said, if the small firms and the people dependent on them are to thrive, the basic problems of the day have to be properly attended to, and it is a pity that this House has not attended to steel. We have no time to deal with the problem now. I hope that those hon. Members who have sat waiting to catch the eye of the Chair, as I have, will get a moment in which to speak, but since the House has not had an opportunity to consider steel today, I hope that the Government will find time to provide us with that opportunity in the very near future, because that, unlike some of the points made by hon. Members opposite, is vital.
§ 3.42 p.m.
§ Mr. Anthony Grant (Harrow, Central)
I make no apology for intervening in what I regard as a most important debate. I start by observing, in sorrow but not with surprise, how very poorly the Minister of State has been supported by his 915 own side. This demonstrates Labour Members' knowledge of and interest in the subject.
I first declare an interest, not only as a predecessor of the Minister of State, but as the chairman of a very small company. I believe that this is one of the most important sectors of our economy to which Parliament should apply its mind. I take the view that the small firms are the best innovators, that they provide the best choice to the consumer, that they are much more flexible than the larger sector.
I totally reject what the Minister of State said about the three-day week, because small organisations have told me how they were able to adapt efficiently in those circumstances far more than were the big companies. According to the Bolton Report, they are more efficient by and large than their bigger confreres. What is perhaps most important of all is that they enjoy far better industrial relations than do the large companies. There is a better individual rapport between the owner-manager and worker than there is in a great company, and that is probably the reason why the TUC received the Bolton Report so unfavourably, because it could not get its clammy hands on the small firms sector.
The Minister of State was good enough to point out that virtually every recommendation in the Bolton Report mentioned by hon. Members was implemented by the previous Government, either by myself or by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). We dealt with the worst vices of the close company legislation. We took immediate action on the industrial training levy, although I agree that this needs to be dealt with again. Even on form filling, we centralised within Government the Statistical Department. In 1973 I moved an amendment to the Finance Act which altered the law for obtaining information for VAT purposes which, if it had been in force earlier, would have exempted about 100,000 retail firms from having to partake in the small firms' census. I could list a whole range of other matters—small firms, information centres and the rest—but I leave it there.
With the best will in the world, I knew as Minister what a struggle it was to get 916 anything done for small firms, even though the Government were wholly sympathetic to private enterprise and small businesses. It was a formidable task. I believe that the present Minister of State is probably the only member of the Government with any experience in small business, being a small business man himself. He is probably the most sympathetic member of the Government. But not even he, with the aid of one junior Minister in the Lords, no matter how charming he is—and no matter if he had half-a-dozen junior Ministers with him—will ever succeed in breaking through the web of hostility which I believe to exist within the Cabinet, unless he himself, or the voice of small firms themselves, can in some way be heard within the Cabinet.
The Minister assured us that he would pass on—I have no doubt that he will, in his usual charming way—all the queries about taxation that we have rightly put to him. But what will happen? They will only be passed back to him again. Back they will come; one of us will put down a Question, and it will be transferred from the Treasury to the Department of Industry or somewhere else. The Treasury keeps itself entirely incommunicado on this subject. No matter who the Minister is or how nice he is, we shall achieve no progress and get no satisfaction and the small business sector will receive no benefit or relief from all the clobbering it has received unless there is a stronger voice in the Government and, what is more, a greater will within the Government to deal with this fundamental problem.
In order to leave others of my hon. Friends a little time to speak, I end now on this note. The Minister of State and some of his hon. Friends in the Government believe in a mixed economy. There are others who do not. By definition, a mixed economy must have a thriving private sector, but there is no hope of a thriving private sector if we destroy the essential foundation of small firms from which alone the large can develop.
§ 3.48 p.m.
§ Mr. Richard Luce (Shoreham)
I am conscious that the selfishness of hon. Members, sometimes including myself, often denies to others the opportunity of having their say and putting their case 917 to the Government, and I shall therefore scrap almost the whole of the speech that I had prepared and make just one point. First, however, it is my duty to declare an interest in that I am chairman of three small businesses. The fact that they are small is probably due to my being chairman, but none the less I have that interest to declare. Also, since there have been references to innovation, perhaps I ought also to say that I am honorary vice-president of the Institute of Patentees and Inventors.
I am delighted that hon. Members on both sides have acknowledged the inherent value of smallness. This is so whether we are talking about business, about Government bureaucracy, about schools and education or about local government. But it is of particular value in small businesses, especially at the local level, in human relations, good industrial relations, good communications, the in6ependence of the individual, the adaptability and flexibility of (he small business, and good relations with the customer, as well as in the provision of a good deal of employment and the way in which the small business spurs competition and creates wealth. Above all, however, the value of the small business lies in the way it stimulates innovation, a matter of profound significance for our future.
The climate is not right today to encourage those qualities. As so many hon. Members have said, after analysing the present climate one can come to no conclusion but that there is an iron curtain of obstacles against encouraging people to set un in business, let alone to expand their business. The obstacles have been described so well by hon. Members on both sides that I need not go over them again.
To a great extent, our country's future wealth depends upon innovation. The fact is that a high proportion of inventions in this country come from individuals and small businesses. That is so whether we go back to Newton, Watt, Faraday, Whittle or, more recently, Cockerell, or whether we consider float glass, telequipment or nitrogen plant, which have all stemmed from very small businesses.
The critical factor is not the inception of the idea but its development from the prototype to production facilities, sales 918 and marketing. As the Bolton Report highlighted, that is a process which demands many resources. Successive Governments have paid inadequate attention to these matters. There is not an effective lubricating machinery for taking good inventions from inception to implementation. The climate is totally discouraging.
I want to see the Government take a lead by providing better machinery for co-ordinating all available facilites, ranging from the NRDC to the Institute of Patentees and Inventors, university research, research associations, the City ICFC, TDC and businesses themselves. The co-ordination at the moment is totally and utterly inadequate.
We have talked about taxation, and the Government must set a lead in creating a climate in which people are encouraged to innovate. That is not the situation at present. We must examine the whole issue of risk invention and the United States system of over-the-counter share markets for small companies. We must look again at patent fees, which have doubled in the past nine months. That is the sort of increase that is totally discouraging to the inventor. We must encourage research facilities at universities to be harnessed to the interests of small and medium-size businesses. We must look again at education facilities for small businesses. When people want to start a business, the present facilities that are available are inadequate.
I stress that there is the lack of a good climate for encouraging innovation. If the Minister will take that on board, we shall have made some progress.
§ 3.52 p.m.
§ Mr. Walter Clegg (North Fylde)
I have often heard in debates similar to this the lack of concern felt by some Labour Members about the effect of taxation on businesses. Some Labour Members seem to believe that we can continue piling tax upon tax without such action having any effect on business men. That is not true. Before coming to the House this morning I checked on the situation in my constituency, and in Fleetwood last year 35 shops closed. In Barrow-in-Furness, just across Morecambe Bay, 50 shops closed. That is a great number of shops in two comparatively small towns. If that situation 919 represents the position throughout the country, as I fear it does, there is much evidence that the Government's taxation policies are doing harm.
However much I admire the Minister of State, I should have preferred the presence of a Treasury Minister. The best that the Government can do for the small business and for business men generally is to leave them with more of their own money to spend. Not enough has been said about the tremendous burden of taxation which prevents the expansion of businesses. The heavy burden of taxation also prevents many people from working and many people from building up capital to start on their own. I do not believe that we shall get anywhere in defeating this problem until the tax burden is reduced.
It was said only recently that 60 per cent. of the nation's resources was now going to the public sector. That is an absolute nonsense. Our resources should be concentrated on the private sector. The Chancellor must restrain taxation and leave industry, large and small, with sufficient money to develop. If he does not do so, we shall have an even more tragic situation.
§ 3.54 p.m.
§ Mr. Arthur Jones (Daventry)
It is essentially taxation upon which the interests of the self-employed in the small businesses turn. That has been emphasised by my hon. Friends. If we continue to tax away profits without some form of special arrangement, how can the small business build up its capital assets to enable it to expand its facilities and extend its activities?
There is no doubt that taxation is the main burden for private industry, particularly in the small sector, and it is here that the most worthwhile endeavours can be made. The small business man should be given a chance to own his own freehold premises. I mentioned this to the Minister during an intervention that he allowed me to make during his speech.
I think, too, that the planning authorities can do a lot to help the private sector. This was mentioned earlier with regard to London in particular, but it applies to the villages as well. We are all concerned about the extension of municipal- 920 isation and the high level of wages in the public sector, and there are a number of ways in which positive steps can be taken to help the self-employed and small businesses. That is fundamental to the character of our society.
Without individual wealth there can be no freedom. Capitalism and the success that has flowed from it have provided the high standard of living that we enjoy in this country and that is enjoyed in the Western world as a whole. It is doomed if the self-employed and small businesses are not able to flourish.
As a country we must ensure that the skill, talent and enterprise that we have in small businesses are adequately rewarded and that thrift is encouraged. In that way individual liberty will be preserved. That must be the common aim of all those concerned for the future wellbeing of this country.
§ 3.56 p.m.
§ Mr. John Cope (Gloucestershire, South)
The House knows that I am a director of a small manufacturing company. The Minister said that this had been a useful discussion, and I agree with that, but his reply was useless. It was full of sympathy, but no help. The Minister has been connected with the Post Office for so long that he is now acting as a post office, as it were, for small businesses, and passing on the points that are made without replying to them.
One example is the Employment Protection Act. The Minister told the House that he had said that there could be difficulties in this kind of legislation in that nobody might want to work for small firms. Even if the Act does not apply, small firms should have similar or higher standards in order to attract people. They must be left free to take their own decisions. Generally, the difficulty facing small firms is that they are carrying the can for the nation's economic plight—what the Chancellor last night called the worst recession since the 1930s. The public sector is isolated from the problem. Large firms are also being isolated from it by the Government, and it is the small firms sector that has to carry the can for the Government.
I draw the attention of the House to an advertisement to attract members of my profession—accountants—to have more 921 say in the nation's business. Hon. Members might think that it is an advertisement to attract them to this place, but it offers ambitious accountants £6,365 a year to work in the Department of Industry and have more say in the nation's business that way. The advertisement says:Today, national business problems are more pressing and more complex than ever before, and economic planning and control are seen as fundamental. …That is rubbish, and I believe that that is at the centre of the problems facing both small businesses and the nation itself.
§ 3.58 p.m.
§ Mr. Michael Marshall (Arundel)
The legislation which the Government are opposing across the board, whether dealing with VAT or equal pay, is having a disproportionate impact on small businesses. The point that has been made again and again is that unless the Government can reorganise their own internal organisation so that small business carries some weight at Cabinet level, we shall never, as my hon. Friend the Member for Somerset, North (Mr. Dean) said, get success within small businesses.
Question put and agreed to.
Resolved,That this House recognises the importance of the self-employed and the small independent business in the industrial, commercial and social life of the nation; accepts their major contribution to the maintenance of employment and the restoration of Great Britain's economic health; and calls on Her Majesty's Government to find means of alleviating the taxation and other burdens which threaten their existence, and to conclude as quickly as possible the reviews of national insurance provision for the self-employed both at home and within EEC.