§ Mr. Tony Speller (Devon, North)
I beg to move,That this House requests Her Majesty's Government to consider appointing an unpaid anomalies commission to identify the illogical legislation that imposes a burden upon small businesses and voluntary services.Let me set the scene. If the examples that I use come principally from North Devon, that is not because they are unique but simply because I know them best. Having had the good fortune to draw first place in the ballot, I decided to seek the help of my constituency to identify the greatest problems at a time when we have an economic crisis and, to an extent, a social crisis in our land and when our resources are inadequate for all the things that we should like to do. I chose this subject principally because during the week of the ballot I received two communications—one from a garage proprietor in Bide ford, and the other from a solicitor in Barnstaple. Both made much the same points. They said that, although they support the Government in the work that they seek to do and support free enterprise and the voluntary services—and there are close connections between these—they are worried about the problems that everybody involved in small business is experiencing.
The garage proprietor said that not only the principals but its 12 employees had to face the high mortgage rate. The firm itself is affected by the high interest rate which has to be paid upon borrowed capital. Confiscatory tax legislation has been the rule for so many years that it has been impossible to raise capital for expanding one's own business from within that business Capital can be raised by selling and, after capital gains tax, reinvesting, but it is the bank manager and not the family who provides the finance for the small firm today. Ploughing back profits into a business has become an unprofitable occupation when the profits are taxed so heavily.
1718 The solicitor's arguments were similar but were made from the other side of the desk. He said that his clients are small business men, private individuals, small firms and the employees of councils—men and women of good will and of honour. Their problems are the same. They support the Government, but they fear the short-term consequences of present policies. In order to check out the feelings of the people of North Devon, I circulated about 100 voluntary organisations, small business organisations, chambers of commerce, trade unions, trades councils, local manufacturers' associations and, among voluntary services, the Red Cross. St. John Ambulance, the WRVS and many other bodies which do good for the community.
As a result of those 100 inquiries and some publicity in the press, I was rewarded twofold with 200 answers, all expounding individual problems. I shall explain some of them to the House. The replies came not only from the small businesses which are pressed by the galloping inflation of the past, which, alas, is continuing, and with the escalating interest rate. The voluntary services also express their problems, most of which relate to straightforward anomalies.
For years, perhaps for centuries, Governments of all colours have for the best reasons in the world as they saw them enacted laws and councils have introduced byelaws ad infinitum. They have been passed as a result of someone saying, for example, "Would it not be a good idea for a full bottle of aspirin to be kept in all works' first aid boxes?" That is a fine idea, but once one aspirin is removed the bottle is no longer full and therefore a breach of the law is committed.
I suspect that every one of us, and certainly every business man, is in breach of the law, as is every motorist, every day of the year through the intention neither of the Government nor of the individual concerned. There are so many small anomalous laws that it is difficult to conduct one's daily life in the absolute certainty of behaving totally legally.
In the mail this morning I received a letter from BL Ltd. requesting support for the early injection of £200 million and up to £1,000 million of Government funding. In North Devon and throughout the West 1719 Country, when hundreds of millions of pounds are being considered, we wonder who will bail out a firm that goes bust for want of £1,000. The small enterprise, the small family firm, if given sufficient encouragement—I mean not fiscal encouragement but a stop to fiscal discouragement—will provide jobs and prosperity.
As many hon. Members on both sides of the House have bemoaned recently, large firms cannot go on saying "You must bail us out. You must support our industry, which is in need of urgent surgery because it is no longer able to face the future." We must bring up the smaller businesses to replace the larger businesses that can no longer support themselves.
§ Mr. Bob Cryer (Keighley)
Does the hon. Member accept that, if a large industry such as BL is bailed out, it preserves thousands of small businesses which would otherwise go to the wall? Does he accept that, when the Labour Government supported BL and Chrysler and preserved 300,000 jobs directly, over 10,000 small manufacturing and service firms each employing fewer than 200 people were also saved?
§ Mr. Speller
That is a valid point, but we must ask how long the nation can go on paying people to be in jobs if these jobs are not productive. I accept that many a small firm has gone into liquidation when a big firm has crashed. There must come a time when we must say "Enough is enough" to a firm which cannot make a product which people want to buy at a price that they are prepared to pay. Small businesses sometimes seem to exist to provide the taxes for the big nationalised businesses to continue making losses. Without decrying the industries to which the hon. Member for Keighley (Mr. Cryer) referred, I believe that we should support the small growing and thrusting industries first.
Our main need in North Devon is for roads, infrastructure, railways and communications. It is no good allowing a small industry to flourish if it cannot get its products to the market without expending much time and cost. The Government have received the report on the North Devon link road. I trust that they will give it urgent consideration. Development area status has been removed 1720 from two-thirds of my constituency and I do not wish the Government to leave only cart-tracks along which we must transport our good and modern merchandise to the big and growing markets, not only in this country but overseas, where we seek to help our balance of payments. We experience difficulty in getting goods to the ports. Once they get to the ports and into Europe there are no problems, but the problems of getting them to the ports are tremendous.
Tied in with the matter of major roads and link roads are the problems of infrastructure. It is no good building a motorway link if after travelling along it one cannot get off that link at, say, Barnstaple and on to Bideford or Ilfracombe. The Government must think in terms of central funding for the larger roads, even if they are not the main arterial roads.
To my surprise and gratification, the trades councils of Bideford and Barnstaple, with the manufacturers of the area and the chambers of commerce and trade, asked that I raise the question of communications as presenting problems to their small businesses. The businesses in my constituency are all small, but they all work together. Demarcation disputes are virtually unknown, because our average factory employs 50 to 60 people. Such a size provides an efficient factory which can grow. Everyone knows everyone else. They live together, work together and share the same voluntary services.
Some councillors and members of our education authority also stress the need for roads because they know that if there are no jobs for the young people those young people will have to swell the pools of unemployment in the big cities where the pavements are not paved with gold. The tremendous problem has always been that as the young people have grown up they have had to leave home through lack of jobs in our area. Those jobs could be created provided we did not legislate against small businesses and provided some of the anomalies were removed.
In considering roads and infrastructure, we should also bear in mind coasts. Maritime counties have remarkably beautiful coastlines. It is equally remarkable how expensive they are to maintain. District councils have to fund most of the costs, and that should be borne in 1721 mind by the central Government, because if the rates burden becomes intolerable it will mean the death of the small business that has to pay the rates burden, which is getting heavier each year. Here the question of future taxation at all levels causes me the gravest disquiet.
Trade unionists in my constituency talk about low wage rates. They are right. Wage levels in our part of the world are diabolically low, and that is because we have never had the encouragement or ability to expand as small businesses should.
Here I mention the next anomaly. If a person is out of work through no fault of his own and gets half a day's paid work and, quite properly, reports it to the local office of the Department of Health and Social Security, he will be docked a full day's benefit. It is typical of the anomalies of our land that those who are honest and do not wish to work in the black economy, reporting when they have found some work, are docked a full day's benefit for half a day's work. Sadly, in the West Country the day's work can be worth less than the day's unemployment benefit. It is ludicrous that a man should get more money for not working than for working and that a man can do better through being dishonest and not reporting his work than he can in full and gainful employment.
I am honoured and delighted that my hon. Friend the Under-Secretary of State who is responsible for small businesses will be replying to the debate. Over the past five years, when troubles have come to small businesses it has been my hon. Friend to whom we have turned for help and advice. It is a great pleasure to see him in his present position, able, we trust, to help us and lend a friendly ear. Perhaps he will give a friendly hand from time to time.
I hope that my hon. Friend will take on board—a new parliamentary phrase that I have learnt in the last few months—my plea that the Government, having removed our development area status, will not remove also the opportunity for us to participate in the section 7 grants and the various allowances that are available from Europe. We speak often of the evils of Europe. I think we do so because we do not get the money from Europe. A few 1722 pennies of European money might change attitudes tremendously.
Surprisingly perhaps, organisations representing old-age pensioners have also written to me at length about their problems. Where do they fit in with the small business sector and the voluntary services? It is fascinating how many people, having ceased full-time work, keep the voluntary services alive. One repeatedly encounters such problems as those concerning the orange badge scheme for the disabled. The police apparently cannot operate it effectively and there have been abuses of it. We return to the old problem, however. It is an anomaly that a limbless ex-Service man in many cases may not qualify for an orange badge, yet ex-Service men particularly should be given, if not priority, at least as fair a crack of the whip as anyone else.
A branch of St. John Ambulance pointed out another anomaly concerning not small businesses but taxation. Should you require a commode, Mr. Deputy Speaker, you would be able to purchase one free of VAT. However, a bedpan is subject to VAT. If that is not an anomaly, what is?
I have touched on only the fringes of the problems I find as I travel my constituency, and I return now to two particular areas of industry that are of great importance to everyone outside the big cities. The first is agriculture. It is probably the most efficient small business and is certainly the most efficient small industry in the country. Those of us representing agricultural constituencies are grateful for the revaluation of the green pound. It will give considerable heart to our farmers who have been hit so badly by the escalation of their costs while their income has been held down. We are grateful for that and for the hill compensatory allowances, which have helped considerably. The devaluation of the green pound will help them even further.
There are still, however, at least two areas in which agriculture needs help. The first is in respect of marginal land. Marginal land bears no relation to Keynesian economies. It is the less good land, normally fairly high up towards the hills, but not actually nominated a hill area. There are 2.5 million acres of such land which, with a little encouragement, could produce more food. Anything that helps 1723 our balance of payments must be welcome. If we could help in respect of marginal land, it would have the greatest benefit for my constituents and for people in many agricultural areas.
For the second area, I return to the question of our friends in the European Community. What an anomaly it is that France should appear to be able to operate the Community for its own advantage entirely. When I visit my constituency and see the empty green fields—not unlike the Labour Benches today—not with Labour Members but with a few sheep here and there, I think how many more sheep we could raise if only we could get the French to allow our lamb and our sheep meat into their markets. It is totally intolerable that they can send their cauliflowers through Plymouth to our markets but that they will not accept our lamb into theirs.
§ Mr. Speller
The question of the small shopkeeper versus the supermarket—or, more correctly, the hypermarket—is one that they will ensure that there is equity and that they will force our products into French markets or keep French produce out of ours.
If one speaks of small businesses, one speaks of small shops. I entered the House as a small shopkeeper feeling that after the general election we should see a vast resurgence of small business triumphant. I believe that only three hon. Members are connected with the retail trade—my hon. Friends the Members for Ludlow (Mr. Cockeram) and for Hove (Mr. Sainsbury), although I am not sure whether he can be called a small shopkeeper since his name adorns almost every High Street, and myself. Is it not strange that the nation of shopkeepers produces only three shop keeping Members of Parliament?
Small business men are too busy earning their own living and paying their taxes to keep less efficient nationalised firms in business, to take part in the political life of the country. It may be for that reason that they seldom understand the ways of the House. They are not alone in that.
It is felt throughout both small businesses and the voluntary service community that we are not as sympathetic as we should be. We have such legislation as the Sunday trading laws, which contain 1724 many anomalies. Several books could be filled with lists on that subject. For example, I understand that one may buy a razor blade on a Sunday to cut one's corns but not to shave one's face. It is amazing that one is not able to buy the Bible in hardback on the Sabbath but that one can buy pornography in soft-back. Aircraft can be sold on a Sunday, but woe betide the shopkeeper who sells fresh meat. That means that every shopkeeper who seeks to give a seasonal trade, as we do in the West Country, is always at risk. Apparently, pet food cannot be sold on a Sunday. How does a shopkeeper explain to his customer who asks for a tin or two of pet food that, although the shop is open and the staff are present, he may not sell that which is to be seen on the counter? This is the sort of petty anomaly that must be changed before it strangles us.
§ Mr. John Fraser (Norwood)
The hon. Gentleman mentioned a number of anomalies, about which the House will be concerned. Why does he believe that their removal will specifically help small businesses? Surely, if supermarkets open on a Sunday, that will drive the small trader out of business.
§ Mr. Speller
The question of the small shopkeeper versus the supermarket—or, more correctly, the hypermarket—is one of freedom of trade, which I, and I trust all my colleagues, support. If a supermarket can offer a better price by fair trading, inevitably the housewife will shop there. I do not see any anomaly in assisting supermarkets or small shopkeepers. Many supermarkets are run as small family businesses which have expanded into that area. There is no anomaly in saying that a supermarket as well as the corner retailer should be able to sell Kit-e-Kat on a Sunday.
I turn now to the typical small village shop—the sub-post office. I learn with horror—that is not putting it too strongly—that there is talk of withdrawing from the Post Office the payment of various benefits, especially those to the pensioner. If that is done as an economy measure, it will be the most false economy that the country has ever seen. Without the income that they receive from the payment of various benefits, most of the small sub-post offices—which are actually the cheque cashers of the community—will 1725 almost certainly close. That is a matter that should be considered with the greatest care, especially if it is suggested that benefits should be paid by direct debit through banks. One will not find many old-age pensioners in the West Country who understand the direct debit system. The village shop-cum-sub-post office is very much the backbone of our rural community.
There are anomalies also in tourism. It is my understanding that most industries can claim a 50 per cent. allowance on industrial building, but in the catering and hotel field it is 20 per cent. I do not know why that should be, and I doubt that anyone knows the answer. It probably came about through two separate Departments producing two sets of regulations.
If tourism is to become a truly growth industry—which it could and should be—it is vital that we aid the industry to upgrade the quality of its accommodation. There is no shortage of bedrooms in hotels, but there is a vast shortage of quality bedrooms. If the Government can assist the industry, we shall receive a benefit beyond measure as people find that they can stay in as much comfort in Ilfracombe or other parts of the West Country as they can in the bedroom with bathroom automatically provided on almost every package tour to the Costa Brava.
Tied in with tourism is the question of pollution on our beaches. Who is responsible? It appears that no one is responsible—or, rather, that several could be responsible. If a dead horse is washed ashore, who has responsibility? If more filth comes ashore in the form of plastic rubbish or oil discharged by tankers in the Channel, the cost of dealing with the problem eventually falls on the local councils and ratepayers. Coastal protection and pollution control should be funded centrally.
This is not a subject for a great debate. I am not seeking to alter the laws of the land. I hope that I have made a case, albeit not a great case, for the smaller businesses of Britain, such as tourism, agriculture and small shopkeeping. I hope that the anomalies will be considered and perhaps cleared away. If we do that, there will not be so many petty 1726 ways in which one can break the law and be brought to court.
Respect for the police force and respect for the law go hand in hand. One can break the law without meaning or wishing to do so—as one does if driving a vehicle of any size from Exeter to Barnstaple So many continuous white lines have to be crossed that it is no wonder that the bus company does not provide a bus. These are the sorts of way to break the law without wishing to, and these are the anomalies that have to be taken into account. We must find an efficient way to identify and remove them.
I spoke earlier of the connection between small business and voluntary service. It is a close connection. Show me a small shopkeeper, solicitor, business man or industrialist and I will guarantee that his wife will be working for such organisations as the WRVS, the meals-on-wheels service or some other caring organisation. The husband will be supporting his own association, be it a professional association or a quasi-social one such as Rotary Lions or Round Table. There are many small organisations throughout the country which do a great deal of good, making no fuss about it and seeking no payment in return.
For the only time in the debate, I now raise a point of some aggravation. There is a magazine relating to those who are paid to look after the socially deprived. It is called "Social Work Today". It is quite an interesting magazine which is largely comprised of advertisements for posts in the social services. A couple of weeks ago it requested people to place more and more advertisements as they helped to pay for the magazine's campaign against Government cuts in expenditure. In other words, the more it could get local government to spend on advertisements, the more funds it would have to oppose the Government.
I have never been quite so affronted by any such association before. I find that the current issue of the magazine states, quite simply, that there is to be a "day of action". That is its right and its prerogative. It asks:Would your branch be prepared to take part…?That is its right. It asks:Roughly how many will be able to attend?1727 That is fine. However, it then asks:Are you prepared to involve clients and if so give approximate numbers?Here is a professional organisation supported almost entirely by members in the public service, its magazine is supported almost entirely by public service advertisements, yet it suggests that the unfortunates, the "clients" dealt with by the social workers, should be roped in and used for the petty political purposes of that group.
This is where our country has gone so wrong over the services provided to those in need. The voluntary services such as the WRVS, the Red Cross, St. John Ambulance, cancer research and muscular dystrophy groups and many other caring associations work without reward. They see those who work for reward—for monetary gain—apparently undermining the basic cause held dear by the voluntary services, which is to help people irrespective of class, creed, colour or anything else. They would never use those in need as an instrument to further their own pecuniary or political ends.
I turn to the question of fund-raising and another almost unbelievable anomaly. If one collects, as many banks do with a box on the counter, for a cause such as cancer research and more that £100 in any one collection is taken, that sum must be certified by a qualified accountant. He can be a chartered accountant or an incorporated accountant, but the collection cannot be certified by the bank manager in whose branch the box is and whose clerks did the counting.
What sort of logic is it which says that if more than £100 is collected—the case I cite involves a bank in South Molton—an outside accountant must be found to certify the amount collected? The accountant must produce a certificate. Presumably, he will charge for doing so, which reduces the takings of the good cause, the cancer research fund being the cause in the case which I have used as an illustration.
What sense is there in that? It is, of course, a left-over from days many years ago when to collect £100 in a small town was something of great note. But that is no longer so, and the law must be allowed to come up to date.
What sort of sense is there in what some county authorities are now doing 1728 when making economies—we accept that economies are necessary—if they charge those in their care who are handicapped and least able to understand the changes small sums of money for their lunches? The collection costs are almost inevitably greater than the revenue involved and the distress is considerable.
I referred earlier to the social work industry. There is a similar major industry that has built up. I refer to the training industry. Small firms pay vast sums to be told by somebody how to train without being told what to train. This has become an industry which battens upon smaller firms with no appreciable result. I find this totally immoral at a time when we know that there is need for economy. Never mind the political arguments. Every hon. Member is aware of the need for good and careful housekeeping. But still the volunteer is discouraged, and discouraged, in particular, by the professionals who feel that work done without pay is work which should not be done at all.
In this connection, we have to remember that the proportion of older people in our population will continue to grow. In my own area, for example, we are thinking in terms of about 25 per cent. of the population being of retirement age. If we do not change this anomaly so that people welcome and encourage volunteers, we shall have such problems in looking after the aged that the nation will not be able to finance the necessary services through any professional sources.
I am coming to a conclusion, hon. Members will be happy to hear, and I refer now to my suggested anomalies commission. An unpaid anomalies commission is, of course, in itself an anomaly, since unpaid quangos are strange beasts. I do not seek a commission under the chairmanship of some learned gentleman to report after several years, the report then to be shelved by the Government of the day, of whichever party, and thereafter to be dusted off occasionally.
What I seek is simply a postbox. Every small or large factory worth its salt has its complaints book or suggestion box. I have been in the House but a short time, and I am glad to see a band of new Members here in my support, but I suggest that we in this place are sometimes 1729 more aware of what we think people should do than of what people themselves think they should do.
It is my belief that the anomalies, only some of which I have touched upon, could well be considered through the medium of an official postbox—I mean just a postbox—with minimal staff, and the members of the commission perhaps meeting quarterly. They would not be paid because they would come from the very groups which complain so much about the anomalies.
My friends in the trade union movement and the trades councils are always telling me of anomalies which affect their interests and concerns. Similarly, my friends in the chambers of commerce and the NFU bring forward anomalies. Again, my friends in the voluntary services throughout the country say that they could do much more if only others stopped interfering with minor regulations.
I close with the example of a most unexpected letter which I received from the Motorcycle Action Group in North Devon. I must be honest and tell the House that when this group asked me about crash helmets some time ago I replied as the parent of a teenage son who had, alas—and inevitably—a Japanese motor cycle that crash helmets were a good thing. But this example epitomises the kind of "good idea" law that I have in mind. People are killed on motor cycles as a result of the head hitting the road or whatever it may be, so we say "Let us have a law to make people wear crash helments."
I have always believed that to be right. But recently I inquired about the facts through a parliamentary question. I do not say that I did it to placate the motor cyclists' group to which I have referred—that would be the wrong word—but I wanted to know the incidence of deaths per 1,000 motor cycle accidents before and after the passage of our well-meaning legislation. The answer is that the incidence is unchanged. The average was 1.6 I think that 1.55 is the actual figure now, virtually the same as it was before the legislation was passed.
The reason is not hard to find. We passed the law because it was thought to be a good idea and then, having passed 1730 the law, we sat back, feeling that we had done our duty. Now young people wear space-age astrodome helmets which cut off hearing and peripheral vision. Those of us who used to go about wearing helmets with bits of leather at the side could hear perfectly well. With the modern helmet, often one can neither hear nor see. Therefore, people are not killed so much by direct impact on the road or the kerb but by being throttled by the strap, by additional accidents because they cannot see or hear other vehicles approaching, or even on occasion by the helmets themselves disintegrating.
It is typical of us that we pass a law for good reason but never look at things afterwards to see whether anomalies are inherent in it or are created by it. I dare say that we shall do precisely the same fairly soon on the question of seat belts.
I mention that example to show how Members such as myself, considering ourselves reasonably intelligent and sane, nodded in agreement to the passing of yet another law that imposed yet another restriction without realising that the restrictions which we imposed on the one hand might lead to at least equal danger as a result.
I hope that the House will give a sympathetic hearing to my case, and I hope that Her Majesty's Government will think it worth while to examine my very simple idea, which says, in effect, "Once a year, let us have a clear-out." Let us get rid of these minor anomalies. They interfere with our trade in our shops. They infuriate customers. Certainly our customers from overseas will never understand why they cannot buy fresh meat on a Sunday, yet they can buy tinned meat.
Anomalies of this kind may seem too petty to occupy the time of the House, but this is none the less a problem which should engage its attention. I speak as a small shopkeeper, and I have one or two friends in small businesses sitting adjacent to me today. We know of all the frustrations.
I cannot resist telling one small story before I finish. There is in Barnstaple an excellent fish and chip shop which I patronise. When it rains, I stand in the doorway to partake of my evening chip. 1731 The gentleman who runs that excellent establishment—he comes from overseas—asks me "Please stand outside in the rain, because otherwise I must charge you VAT as you are consuming your fish and chips on the premises." I suspect that the ordinary British "chippy" would not take the same attitude, but this gentleman has great respect for our laws, as have we all. We must make sure that our laws are not brought into disrespect.
§ Mr. Guy Barnett (Greenwich)
The hon. Member for Devon, North (Mr. Speller) is to be congratulated on his success in the ballot, and even more, if I may say so, on his choice of subject. In speaking of small businesses, he said that the subject was not one for a big debate, and there I would disagree. I regard it as an extremely important subject, and that is why I am delighted that the hon. Gentleman has given us the opportunity to give attention to it.
It is clear that the hon. Gentleman has done a good deal of research in his own constituency, and it is clear also that a good deal of that research he has not, as it were, had time to present to the House, but I certainly congratulate him on such work as he has been able to do and encourage him to do more. I agree entirely that there has been a tendency for the House to pass legislation without giving proper consideration to the likely effects of it upon minorities or certain sections of the community.
Without question, small businesses have suffered as a consequence of well-meaning legislation passed by Governments of both parties, and we have probably not been vigilant enough as a House in ensuring that legislation does not have harmful consequences. I am sure that it was a good thing for the hon. Gentleman to present us with anomalies. I hope that all hon. Members will do so, to demonstrate some of the damage done in the past as a consequence of well-meaning legislation that has had unforeseen and damaging consequences for small businesses.
I am less happy about the hon. Gentleman's proposal to establish an anomalies commission. I am not sure exactly what he proposes. At one stage he referred to it as a postbox. I have difficulty in equating a postbox with a commission. 1732 I imagined that his proposal to set up yet another quango would not commend itself to the Under-Secretary of State. The role of that quango would surely be precisely the role of the House and of hon. Members.
I encourage the hon. Gentleman to consider private Members' legislation as a means of putting proposals before the House to amend legislation that is clearly anomalous and damaging to small business.
The hon. Gentleman commented on the small number of hon. Members who have run small businesses or who have been shopkeepers. I cannot claim to have been a shopkeeper, although I know a good deal about running a small firm. My uncle ran one for over 10 years. I have taken a great interest in everything that he has done. Several members of my family are running small businesses, and I hope that the House will bear with me when I claim that I can quote from direct experience of that sort as well as from other sources.
The hon. Gentleman referred to the weight of legislation that affects small businesses. There are two factors that the House should take into account. I am told by those in my constituency who run large and a small businesses that factory inspectors and others sensibly turn a blind eye to the harmless abuse of regulations or law. I am told that they are prepared to stretch a point when it is clearly nonsensical for a small business to have to obey the letter of the law in the same way as a large business.
It has been put to me, and it has been said in the House, that small businesses should be exempt from certain regulations, the suggestion being that small businesses should not have to obey, for example, the same safety and health regulations as those observed by large businesses. I am totally opposed to that argument. Surely a good small business man would be opposed to the suggestion that he should be allowed to run his business with health and safety regulations, for example, of a lower standard than regulations applying in larger businesses.
I am proud of many of the small businesses in my constituency. They observe high standards. Some of them have standards of industrial relations, for example, 1733 that are higher than those observed by larger organisations. There is often a better atmosphere and a closer relationship. That is to be expected when a business is relatively small and there is a small number of employees. It is then possible for the manager or director to get to know all the employees personally.
Small business men—I know many of them—are not asking for concessions. They are proud of their businesses. They feel that they can compete perfectly adequately but that they need special assistance or special concessions.
The Labour Government gave a great deal of attention to the problems of small businesses. I was involved, with my hon. Friend the Member for Keighley (Mr. Cryer), in organising and chairing a number of small firms conferences in different parts of the country. The Labour Government decided to do that for three main reasons. First, they reckoned that there was a lack of good communication between the organs of central and local government and small businesses. They felt that that was especially evident at local government level. They considered that there had been a lack of proper communication for many years and, therefore, alack of understanding why a local council should think it right to take certain action. Equally, the Labour Government considered that local councillors and council officials lacked understanding of the damaging consequences of certain policies or decisions to business in their areas. That is a well-known tale.
In 1977 the Labour Government issued a circular that was designed to encourage local authorities to take an active and positive interest in small and large firms and to develop a good communications system with them. Many local authorities, including my own, have employment development officers. One of their tasks is to ensure that good communications are open and that local firms understand the council's policies and feel free to criticise them. They ensure that the council is in no doubt about the possible consequences of planning delays, planning decisions or transport decisions. Their task is to acquaint the council of the effect that those decisions will have on the success or otherwise of local firms.
1734 In many areas—especially in the inner cities, as a consequence of the initiative of the Labour Government—there are a new atmosphere, a new relationship and better communications between local authorities and businesses.
The second reason for the Labour Government thinking that conferences were necessary was to enable the representatives of local government who attended them to listen to those involved in small businesses and to take note of what they had to say. Obviously it is not possible to achieve everything in a day's conference, but as a consequence of some of the conferences that were held I believe that consultative committees or similar bodies have been established. These are voluntary bodies. Local authority representatives and representatives of both sides of industry meet from time to time to thrash out problems and difficulties and to discuss proposals. Such a body has existed for the past eight or nine years in the local authority area in my constituency. It has been highly productive in achieving good policy and good understanding. I am proud of its success.
The third purpose that the Labour Government had in mind was consultation leading to the working out of practical solutions to the problems facing small businesses. They felt that it was possible for local authorities to be much more helpful than in the past in meeting the needs of small business.
It is possible that one of the reasons why planning is in the dock, in the context of the economic development of Britain generally, is that our planning system has been concerned almost exclusively with land use and not with economic requirements. It is extraordinary that we talk about planning in one sense when we are really talking about development control. When we talk about planning in another sense, we are really talking about economic planning. There is the dichotomy between land use planning—the type of planning that is undertaken by the district and the county—and the recently abolished economic planning councils, which had a good deal of responsibility for drawing up economic strategy in the regions.
It was a retrograde step when the Government abolished the economic planning 1735 councils. They gave us a great deal of valuable advice. We did not always accept it, but it gave a good and reliable picture of the economic problems of the different regions. It is sad that the Government have abolished them. They made an important economic input into our overall planning system. Now they have gone. Nevertheless, those conferences were the start of a recognition of the need for co-operation between small businesses and central and local government. Let us be under no illusion about this.
I have heard Government supporters talking about the future of business, industry and the country and suggesting that it would be best for the Government to minimise their activity, set these people free and let them go ahead. Nothing could be further from the truth. A good deal of the evidence that I can quote suggests that successful small businesses and development can be achieved when central and local government and Government agencies act in a constructive and helpful fashion.
The House should be under no doubt about the importance of this. In the 1980s we face the so-called electronics, or microchip, revolution. That is bound to produce, amongst other things, an unstable and, indeed, a worsening employment situation. Consequently, whichever Government are in power must think of ways of developing employment opportunities, especially for young people. Small businesses are generally more labour-intensive than large firms and are likely to remain so. Therefore, they will be an important source of jobs for young people who leave school and other forms of education and training.
The best small firms are innovative and develop new ideas and processes. A relation of mine runs a small firm developing new products of different kinds. It is a small partnership involving a number of fairly highly qualified people and a staff. The only way in which that firm can survive in the area of electronics and other products of value is by being innovative, by keeping up research, developing new products and keeping ahead of the market. We must think carefully about such firms and the contribution that they may make. However, they cannot make the contribution we want with- 1736 out the constructive assistance of the Government.
Occasionally, the hon. Gentleman gave the impression that he thought small businesses were little shops, garages and the chap with a lorry who ran errands. I think of the small business of the future as a sophisticated operation with highly qualified people, capable of innovating, developing new products and playing an important part in the export market. A partner of the firm to which I referred has recently developed a new product in Nigeria. That is an indication of what such a firm can do.
What are the requirements? How can the Government help? First, the Government can provide assistance, or make it possible for small businesses to occupy the land and buildings that they need. One of the most remarkable stories is the record of the new town development corporations. Recently I was not surprised to hear my hon. Friend the Member for Harlow (Mr. Newens) expressing grave concern about the Government's decision to sell off to private purchasers land and buildings belonging to development corporations. He expressed that concern on behalf of himself, the trade union movement, the Harlow district council and especially the managers of small firms in Harlow who recognise that in the development corporation they have a first-class landlord, who is devoted and dedicated to the needs of those firms.
I was responsible for new towns in the previous Government. I discovered the degree to which corporations could make their management policies for land and buildings relevant to the needs of the firms. A small firm may not remain small. It may become medium-sized or large. When I visited industrial estates run by development corporations, I met many people running small firms who said "We are becoming too big for this factory, but we are not worried. We know from the development corporation that as soon as we need it there will be a larger factory into which we can move and develop. Then we can take on more people." That was an exciting contribution by a public corporation. Frankly, I am doubtful whether a private developer or property owner, with his commercial criteria, can be quite as responsive to the 1737 needs of industry as a publicly run corporation.
§ Mr. Archie Hamilton (Epsom and Ewell)
As the proprietor of a small business, I find myself besieged endlessly by circulars from estate agents offering me other factories into which I may move my business. I do not find the private sector at all inadequate in this area.
§ Mr. Barnett
I am sorry. I do not know from which area the hon. Gentleman comes or what the business demands are there. Obviously there will be a variety of situations in different parts of the country.
Some kinds of accommodation available on the market are totally unsuited to the needs of particular firms. In docklands for many years we have had the great problem of outdated factories, built 100 or more years ago, which are quite incapable of supplying the needs of local firms. Now we are beginning to put it right. However, it has been a problem.
The accommodation that must be put up by development corporations, local authorities or private developers must be adaptable to a variety of needs. The innovative firm probably needs to be half-way between an office and a factory. It needs office accommodation, perhaps a drawing office and a place where production goes on. The accommodation must be adaptable to a variety of needs to accommodate the new firms.
Central and local government have a positive contribution to make. Many local authorities run excellent industrial estates, sometimes in co-operation with property firms, which provide the help and support needed by small businesses in terms of suitable accommodation for their work.
In the past, planning has been criticised as being unhelpful. Some Government supporters suggested that the solution was, perhaps, to get rid of planning altogether and establish planning-free zones. I am totally opposed to that. In the past we went wrong because our planning system did not have the right priorities. Planning will be as important as ever in ensuring that the needs of small and large businesses are catered for. One of the main needs was highlighted by the hon. Member for Devon, 1738 North when he referred to the issue of transport. That is another input that comes from national and local government. It is vitally important that businesses should be well represented in the decisions made on those subjects.
I could quote the need for training. We have not yet provided, or thought through, the training needs of small businesses. They fall outside the industrial training boards to a large degree. Obviously small firms do not have the same incentives as large firms to engage in training. In future there will be a need for high-quality skill training for small industries.
Another issue is the need for finance for the small firm that wants to expand. Frankly, my impression is that the banks and other financial institutions are generally unhelpful and, in many cases, incompetent.
I refer first to the banks. I am told by my local development officer that banks rarely, if ever, will give more than a 50 per cent. loan for the expansion of a firm, expecting the other 50 per cent. to be self-generated. That has the inevitable consequence of creating appalling liquidity and cash flow problems, and often making the firm insecure during a period of expansion. The firm might even face the possibility of bankruptcy. At a time when they could be helpful, the banks are not giving the help that they might. The joint stock banks have frequently been criticised for their caution in lending. The same criticism can be made of other financial institutions. I believe that I am right in saying—the Minister may be able to advise me further—that unit trusts are under certain statutory limitations as to the forms of lending that they can undertake. That is a pity.
One hundred years ago, people probably put a proportion of their money into something safe, such as Government stock, and invested another proportion in reasonably safe firms. They then had a flutter with the other 5 or 10 per cent. That flutter was very important in lending capital to a firm which might be highly successful. Equally, it could be money lost. The financial institutions which handle enormous sums of money now, in terms of pension funds and so on, are not prepared to have a flutter because they are incompetent and lack the technical and technological knowledge to 1739 decide what is a good investment. A merchant banker told me recently that his house had lent money to an innovative firm and he got his fingers badly burnt. That happened because, although the employees understood balance sheets and that side of the business, they had no understanding of the technological viability of the proposal. One of the major criticisms that can be levelled at many institutions is that the employees lack the technical and technological know-how to enable them to appraise a proposal satisfactorily.
Sometimes, even when the information is available it appears not to be used. The previous Government, under their industrial strategy, set up sector working parties. There is a mine of information available. It would be useful for a potential lender, wanting advice on where to put his money, to look carefully at a profile of the industry in which he intended to lend and to study reports of the sector working party to find out its assessment of the industry. We must get that right if we are to help small businesses to expand and develop.
The hon. Member for Devon, North mentioned the relationship between large and small firms. Large firms have repeatedly been seriously criticised as a consequence of their failure to pay bills to small firms. I am delighted that the CBI has spoken out on that issue. I am prepared to name some firms which have a particularly bad record. When the bills are not paid on time, immense problems are created for small firms with massive cash flow and liquidity problems. Many large firms do not pay large bills until they receive a solicitor's letter.
§ Mr. Archie Hamilton
Is it not also true that many of the large firms which do not pay their bills on time are those which have the largest resources?
§ Mr. Barnett
That is also true. I am grateful to the hon. Gentleman for his help on that point.
The Government are pursuing some relatively unhelpful policies in this respect. The hon. Member for Devon, North referred to the cost of borrowing as one example of a policy that could be damaging to any prospect of expansion in the small business sector. The House will 1740 also wish to discuss a number of other related matters, to which I shall merely refer before I finish my speech.
How can a small business man, who wishes to test a new product to make sure that it operates, get any help from the Government to enable him to do that? The Irish Government give some assistance to small firms. I believe that that kind of assistance could be valuable in Britain. Greater help could also be given to smaller businesses in respect of the export credit guarantee scheme.
I wish to emphasise what I said about the relationship between large and small firms. Some hon. Members may have heard of a body set up recently called London Enterprise Agency, and also the proposal that a body should be set up to examine the possibilities of closer relationships between large and small firms in particular areas. The name suggested for such a body is "local enterprise trust". Managers of larger firms in an area would meet managers of small firms to try to work out ways in which they could be of assistance. I spoke to a senior director of a large multinational company and asked him why he felt that his company had a responsibility to small firms in Britain. I asked whether there was a motive. He said that in a large company such as his, it was likely, over the next decade or so, that he would have to make many people redundant. He said that it would be easier if he knew that there was a small business sector in the area which could employ people of high skill and considerable experience who had been made redundant. He said that he wanted to see a viable economy. He realised that his company would not sell so many of its products if the economy was depressed.
Small firms have difficulty in bringing together people of different disciplines and skills. Small companies need a person who understands finance, or perhaps an inventor or a manager. Many small firms fail because they have no employee who understands the financial side of the business, or perhaps no one to develop new products, or they may get into trouble on the labour side of the business.
We must think of ways in which we can make it possible to break down some of the curious barriers in our society between people of different backgrounds, 1741 skills, training, and so on. One of the problems is that people whose skills and knowledge are complementary do not meet and, therefore, do not provide that balance of skills that can make it possible for a small enterprise to succeed.
§ Mr. Jack Aspinwall (Kingswood)
It is with great pleasure that I make my maiden speech today in support of the motion of my hon. Friend the Member for Devon, North (Mr. Speller), which calls attention to the problems of small businesses and voluntary services.
First, I should like to say a little about my constituency. Kingswood is situated on Bristol's east fringe, or perhaps I should say that Bristol is on Kingswood's west fringe. It is a hybrid constituency taking in parts of Bristol South-East, Bristol North-East and South Gloucestershire. My first predecessors were the right hon. Members for Bristol, South-East (Mr. Benn), my hon. Friend the Member for Christchurch and Lymington (Mr. Adley) and Sir Frederick Corfield, who represented South Gloucestershire for 19 years and who is now a judge. I am sure that the House will congratulate him on his appointment.
My immediate predecessor was Mr. Terry Walker, who worked extremely hard on behalf of his constituents and was a Second Church Estates Commissioner. He has now settled down happily in the realms of small business and I am sure that the House will join me in wishing him every success. A new Member understands the position of his predecessor only when he takes his place in the House, and Terry Walker put a lot of effort into the care of the constituency. I wish him well.
As the name implies, Kingswood comes from the Royal Forest of Kingswood, which once covered the whole of South Gloucestershire. It is in the county of Avon. The traditional industry was coal mining and it has not been unknown for mine shafts to appear in inopportune places from time to time, even in this modern day. Today the industrial scene is more diverse and there are many satellite, small engineering and manufacturing units, principally related to the aircraft industry. There are groups engaged in 1742 manufacture in the boot and shoe industry, brushes, clothing, tools, instruments and foodstuffs. We also have strong connections with the printing, packaging and press fibre industries. There are many family-owned small businesses. Down the eastern side of my constituency there is a rural aspect, and farming and market gardening are well established.
Kingswood has made substantial contributions to history and it has significant connections with the religious revival of the seventeenth and eighteenth centuries. Even today a symbolic beacon shines forth from Hanham Mount where George Whitfield and John Wesley preached to the mining community.
The constituency is now inhabited by many people who work in the commercial and industrial worlds of Bristol and Bath and in the aircraft industry at Patch way and Filton. The outstanding qualities of my constituency are its stable and reliable work force and its outstanding performance in caring. I am unashamed to say that there are more good causes and that more money is raised for caring purposes in my constituency than, proportionately, anywhere else in the United Kingdom. I shall come back to that later.
In these days of attacks on the media, I can only quote my experience in my constituency. It is truly well served by the Bristol Evening Post, the Western Daily Press, the New Observer and the Avon Gazette. The New Observer and the Avon Gazette both cover almost the exact boundaries of the constituency. All the papers often run crusading campaigns for the benefit of the people and the editors and staff are to be congratulated on their balanced coverage. Of course we must not forget BBC, HTV and Radio Bristol, which provide excellent television and radio programmes of high standard.
I have been in this House since May and I am humble and proud to be here. I have experienced many kindnesses from the Officers and staff of the House at all levels. I take this opportunity as a new Member to thank everyone for all the help, encouragement and understanding that I have received. I am particularly grateful to my hon. Friend the Member for Gloucestershire, South (Mr. Cope), whose constituency adjoins mine, for all the help and guidance that he gave me when I first arrived here.
1743 I turn now to the voluntary services and call attention to the fact that there is an enormous dynamic resource available throughout the country which is under-utilised and to which many pay lip service. Voluntary organisations have been hit in two ways since the Budget. First, the reduction in the standard rate of tax deprives voluntary organisations of about £3 million a year in recoverable tax, and the increase in VAT has added £4 million to £5 million a year to the cost of running those organisations. Secondly, public expenditure cuts have hit voluntary organisations, albeit unintentionally. Local authorities have passed on, and will continue to pass on, cuts to local voluntary bodies because of the natural instinct to preserve their own services and in some cases because of "no-redundancy" agreements with local authority staff.
Many voluntary welfare organisations are active in my constituency. They cover a wide age range and cater for the differing needs of varying groups of people. Traditionally, there has always been a large number of clubs for elderly people. These meet regularly, often on a weekly basis, and provide their members with the opportunity for friendship, fellowship and social activity. Often they arrange outings to places of interest or recreation. Examples of this type of organisation are the Old land Good Companions Club, the Young at Heart Club, Kingswood, the Merry Moments Club, Cadbury Heath, and the Evergreen Club, Longwell Green. Basically they all exist to provide social activities for their members and operate on a self-financing basis in that the organisation hires a hall and members' regular subscriptions pay for the use of the hall and its facilities. To that extent, such groups are financially self-contained.
Also within the constituency there are various old people's welfare organisations catering for the elderly, the frail and particularly the housebound. These organisations' activities extend beyond work of a purely social nature into the realms of welfare work as such. Perhaps the most established old people's welfare committee in my constituency is the one at Mangotsfield, which runs a day centre, has its own minibus for transport purposes and carries out a visiting and wel- 1744 fare service for the sick, frail and housebound. Generally this committee provides a service which is complementary to that of the social services department.
Other old people's welfare committees are just as well organised. For example, the Kingswood and Hanham old people's welfare committee and the Warmley old people's welfare committee have members' subscriptions but also rely on donations from well-wishers and money from other sources.
There are various other voluntary organisations within my constituency which exist to meet the needs of certain groups of people. An example of this is the Old land Common mothers' group, which is a support service for young women who need to learn basic mothering, house management, budgeting, food preparation and cleaning skills. Also, there is the Kerb Tappers Club, which meets on a monthly basis and provides social facilities for up to 30 blind and partially sighted persons. Another example of the specific type of voluntary organisation is the Avon North society for the mentally handicapped, which exists to provide help and guidance to parents who have a mentally handicapped child.
Among other voluntary organisations in Kingswood are the groups which seek to improve the quality of community life by providing activities across a wide spectrum for all the family—the folk centres and community associations, of which there is a considerable number.
Various groups exist to provide care to groups of people to sustain them in their daily lives. Examples of these are the Hanham day centre for the elderly, the Staple Hill day care centre for the elderly and the Clock tower Association at Warmley, which deals with young people.
In addition to the voluntary organisations actually in Kingswood, help is also given by voluntary organisations which exert influence and provide services in my constituency. Examples of these groups are Age Concern, Avon community council, Bristol and district retirement council, the Spastics Society, the Multiple Sclerosis Society, the Bristol marriage and family guidance council and the Bristol association for mental health.
1745 These voluntary organisations provide community life of high quality. Yet, despite this, it is true to say that although such organisations work with great dedication and enthusiasm, their efforts are fragmented. This is probably the most important point to make about voluntary groups of all descriptions working in my constituency. Each group must have been created originally to meet a defined need, felt by an individual, a small group or a section of the community. The voluntary organisation was created as a direct response to this need. Certainly there is a pattern to the voluntary organisation provision within my constituency but it is very haphazard.
Interestingly enough, it is difficult to obtain a comprehensive list of voluntary workers. No such list exists. However, there is an immense amount of public good will, good neighbourliness and community spirit. Many people are prepared to provide help in a variety of different ways to those who are less fortunate than themselves, the disadvantaged, the sick and the elderly or those who are in trouble.
Voluntary effort is fragmented. Existing organisations work within their defined terms of reference, usually without reference to any other voluntary group. They do not meet to gain strength from corporate endeavour. When the a question of the reception of Vietnamese refugee families into my constituency arose, the challenge was taken up by the Kingswood Council of Churches and the WRVS. Other organisations might equally have come forward but the Council of Churches took on the main responsibility after the housing units had been provided by the Kingswood district council housing services department.
Many voluntary groups in the constituency, as a by-product of their activities, raise money for a worthy cause. The Down End Round Table recently had a surplus of about £2,000. It had great difficulty in finding a project or an organisation to which the money could be given. Many organisations are in much greater need than others of financial assistance. If there were a mechanism by which groups which are prepared to raise money became knowledgeable about particular financial needs within the con- 1746 stituency, it would be a simple matter to channel available moneys to the right quarters. All in all, with regard to the pattern of the operation of voluntary service within my constituency, it is haphazard in the extreme. That pattern could well exist in many parts of the country.
One of the most striking factors with regard to the future is that in Kingswood, as in other parts of the county, there will be an increasing number of elderly persons in proportion to the rest of the population. Let me provide the House with some population statistics to give an indication of the projected trends. In the United Kingdom there are 7.8 million people aged 65 years and over. They represent 14 per cent. of the total population. The high rate of increase in that age group is slowing down but the numbers will not reach their peak until 1990, when it is estimated that there will be 8.4 million people aged 65 years and over. They will represent 14.7 per cent of the total population. Within that group, those aged 75 years and over have more need of help and assistance than the others. They are expected to increase in numbers by nearly a quarter, from 2.8 million in 1975 to 3.4 million in 1995. The number of people aged 85 years and over is expected to rise even more rapidly, from about 500,000 to 700,000 by 1995. At that time, they will represent 1.3 per cent. of the total population.
In my constituency, the total population in 1971 was 77,810. In 1978, the Registrar General's mid-year estimate was 81,100. That shows an increase, over the seven years, in the number of persons over 65 years of age from 8,111 in 1971 to the estimated 9,340 in 1978. Therefore, the population projections indicate that there will be a sharp increase in the numbers of elderly people over the next decade. The elderly are those who need most help and support from young able-bodied persons in the community.
With regard to the question of making voluntary welfare organisation stronger in the future, the Kingswood and North Avon area social service panel is currently considering the feasibility of creating a council for voluntary service. Such a council will work under the overall umbrella of the excellent organisations, the National Council for Social Service and the National Council's standing con- 1747 ference of councils for voluntary service. It is estimated that there are 120 such councils throughout the country. They provide a focal point for voluntary caring and effort.
I compare my local community health council, with its paid secretariat in lavishly equipped offices on a prime site, with the enthusiastic band of volunteer helpers who run the Citizens Advice Bureaux and who operate in less salubrious conditions. If they were supported and helped further, they could make a greater contribution to human happiness as well as save the statutory authorities a great deal of money.
Only this week in my constituency the manager and staff of a local supermarket—for the third time—organised, cooked and donated a Christmas dinner and provided entertainment for over 200 elderly and disabled persons. There were over 50 volunteer drivers, including a group of young employees from the South-West gas board. Too often, we read about bad episodes concerning the young. If only people could see the care with which a double amputee is lifted into his wheelchair, they would understand the meaning of the words "volunteer" and "caring".
The experiences in the voluntary services in my constituency reflect the position throughout the country. There is a tremendous reserve of resources available to make a substantial shift from the statutory to the voluntary sector in terms of delivery of the welfare services. This would bring about a substantial net gain to society. If the Government adopted a policy of broadening the base of welfare provision, encouragement should be provided by ensuring the maintenance and increase of grant aid to voluntary organisations. Corporate donors from industry and commerce, as well as individuals, should be able to donate to voluntary organisations in a way that ensures maximum fiscal relief. By encouraging, where appropriate, contract work by voluntary organisations on behalf of central and local government, by encouraging matching grants between Government and non-Government sources of money and by weighting the urban aid programme and the rate support grant in favour of the voluntary sector—so that local authorities are encouraged by beneficial financial 1748 arrangements to favour voluntary organisations—great benefit would be reaped.
The nation can be proud of its voluntary workers. Their contribution, no matter how small, is appreciated greatly. I hope that my maiden speech goes some way towards expressing the gratitude we all feel so strongly towards them. I sincerely hope that the Government will take note of some of the points that I have raised in support of the voluntary workers and the excellent services that they provide.
§ Mr. Stephen Ross (Isle of Wight)
It is a great pleasure, as a Liberal, to congratulate a former Liberal, the hon. Member for Kingswood (Mr. Aspinwall), on his maiden speech. Obviously, I would prefer him to be sitting on the Liberal Bench. Nevertheless, I am sure that we all listened with great interest to what he had to say from his obvious knowledge of the voluntary services. I wonder whether he now supports Bristol City, Bristol Rovers, Liverpool or Everton. I can tell from his voice that he still retains the Scouse accent.
I am particularly grateful to the hon. Gentleman for remembering a former Member, his predecessor Mr. Terry Walker, who was a Church Commissioner. Most hon. Members knew him well and recall him with considerable affection. Certainly he was always kind to me, and if the hon. Gentleman happens to run into him in his constituency I hope that he will mention my remarks to him. I am sorry and sad that political life has the effect of losing such people.
The hon. Gentleman was right to pay tribute to the prowess of his constituents. He obviously has considerable knowledge of them. From my brief knowledge of them, they are independent-minded people who have done a great deal for the prosperity of the country. I am sure that we all much enjoyed his contribution and we look forward to hearing him again on many future occasions. He was luckier than I was when I first came to the House—he had someone to show him around. Nobody showed me around. In fact, I could not even find anywhere to sit down for about three weeks. Nobody wants a Liberal sitting with him.
I also congratulate the hon. Member for Devon, North (Mr. Speller) on raising 1749 the subject of small businesses, although I am surprised that he suggests in his motion another quango, even if its members would be unpaid. I should have thought that that idea would not necessarily go down well with his Front Bench.
We have heard a speech on the voluntary services, and I do not wish to follow that aspect, except to say that I believe that they are, as the hon. Member for Kingswood has said, in good shape, although they would benefit from some sensible changes in the application of VAT. Obviously, we will come to depend more on volunteers in the Health Service.
On the Isle of Wight we still have an anomaly in that one of our ambulance services, in the west part of the island, is run by volunteers, which is a cause of complaint among the professionals. Recently they had to buy a new ambulance and, because they are volunteers, they had to pay VAT. If an ambulance is bought by the National Health Service, no VAT is payable. I took up the problem with the Treasury at the time, but there was no way round it.
That is the sort of problem to which we should pay attention. If we are to help volunteers to give more assistance to the NHS, I hope that the Government will see what can be done about such difficulties.
I am fortunate to represent a constituency which can still boast a plentiful supply of innovators and an excellent, though unfortunately more limited, pool of skilled men and women. We have largely what is left of the light aircraft industry. I have just accepted a position as non-executive director of the Polatis—Britten-Norman company. It was a British company, but it is now Swiss-owned. It was formed by Desmond Norman and John Britten. They developed the Islander after a time spent crop-spraying and it is probably the most successful plane ever built in Britain. Regrettably it is now built in Romania. Fairey went bust because it introduced a manufacturing line in Brussels and overproduced the plane. About 160 or 170 were being turned out each year and the demand was more like 70 or 80. However, we still customise and finish the plane and it is delivered from the island.
1750 I am delighted that Polatis is to expand its activities. I am grateful for the encouragement given to the firm by the previous Government. They wanted Britten-Norman to go to Short's, but my protest did not fall on deaf ears and the Government did not stand in the way of the takeover by Polatis. I believe that that will be to the advantage of my constituents.
We now have Desmond Norman back on the island developing a Firecracker aircraft and Robin Britten, the brother of John who has died, having made money out of managing pop groups, is putting money into the light aircraft industry on the island and developing the Sheriff, which is named after John Britten, who was once sheriff of the island. There is hope for the future there and I hope that the Government will give what encouragement they can.
The island is obviously a boat-building centre. We have some of the foremost designers there. Peter Thorneycroft is one. I am having a running battle over the question of the Osprey, in which I have the support of a number of Conservative Members. That boat was designed by Peter Thorneycroft, and hon. Members may have read recent articles about that matter in The Times.
We also have the output of Fairey Marine, the former Groves and Gutteridge firm in East Cowes. Sowters, another boat building firm, is developing a new lifeboat, the Earl Mountbatten class, and David Cheverton is producing a new module type of boat which has been designed with the help of British Steel. That is one area where British Steel could be working in an expansionist way, as against the retraction that is going on elsewhere in the industry.
Fairey Marine was in trouble when the main Fairey company went into receivership. That was when I first came into contact with the National Enterprise Board. The work force of about 100 and the management told me that they did not want to be taken over by Trafalgar House or Rank International because they expected that those companies would shut the firm and adapt the site for use as a marina. They wanted to stay in boat building and were keen that the NEB should take them over.
I made their wishes clear to the Government and the NEB was successful. 1751 The company has been most successful since then. I have no objection to the idea that it should go back into the private sector, but I ask the Government at least to make sure that the company stays in manufacturing. Is it possible to get an injunction in that respect?
As a chartered surveyor, I know exactly what happened during the property boom of the early 1970s. An enormous amount of the capital accumulated in this country has come from property development and not through industry, which has provided too small a return to be of interest.
The manager of an Isle of Wight company that makes marine engines telephoned me one day and said that the firm would be closed within a few days unless I could find someone to invest in it. I did not know what to do, but I got in touch with the NEB, which came up with an offer of £100,000 investment if the company got some proper management. Eventually there was a change of policy and someone else put in money at the last minute, but it was an indication of the role of the NEB. It acted quickly, investigated the company and came forward with an offer. I believe that the NEB should still be encouraged to play that role.
I am constantly amazed at the breadth and scope of the activities of small firms on the island. We manufacture about one-third of the kettle handles in Britain and we have a laundry service which takes laundry back to the island from London, serves the Aldershot military establishment and takes the laundry of tankers and other ships. We have three vineyards, a firm producing perfumes and others growing roses, carnations and other flowers under glass.
All those firms are having a hard time, being hit by inflation and rising fuel costs. They were established despite having extra transport costs, which are totally unsubsidised, by being separated from the mainland. Not since the late 1950s or early 1960s have we had the benefit of any financial aid through development grants. However, I recognise the impetus that that help gave us in 1958 when the old Saunders Roe company got into difficulties over the cancellation of a rocket plane. Money was made available by the then Government, and I pay tribute to my predecessor as Member 1752 for the Isle of Wight because he played an important role in that matter. The assistance brought in modern technology and companies such as Plessey and Thorn. It encouraged Saunders Roe to amalgamate with Westland and eventually to form the British Hovercraft Corporation. It is a great sadness to me that we have not developed the hovercraft to its full potential, but the company has 2,200 employees.
Of course, when the modern technologies are brought in they attract the small lighter industries that become established to supply the vital component parts.
I mention those developments because they show that if public money is properly spent it can play a large part in providing the necessary impetus to regenerate industry in parts of our country that have suffered from high unemployment as a result of the rundown or collapse of some older industries.
We on the island also owe a great deal to the Development Commission and the Council for Small Industries in Rural Areas, which goes back to the Liberal Government of 1909. A great deal of money has come to the island through that source, both in providing new factories and offering assistance to smaller firms. Unfortunately, COSIRA does not seem to have much money available. I hope that the Government will see what they can do to help, because if the council cannot make loans, which in some cases have been promised and held back, as has happened to at least two small firms on the island, that is a short-sighted view.
I asked a question of the Secretary of State for the Environment and received a reply from the Minister responsible for sport, who, I suppose, is responsible for COSIRA. I suggested that the council could be used to subsidise some of the high interest rates that small firms are having to pay. I received a sharp "No", but that was a course which the council had suggested that it could carry out.
I owe a great deal to banks, both in money and in thanks. I have paid enormous sums in overdraft interest and I am disappointed with their attitude towards industry. They are too short-sighted. Whenever the Government put up interest rates, the banks make huge profits and I bitterly resent paying Lloyds Bank 17½p 1753 every time I write a cheque. Some of the charges are geting beyond reason.
If money supply has to be curtailed—and there is an argument for that—why do we always have to put up interest rates? Cannot we freeze more of their assets? Cannot we give directions to them about the people to whom they should be lending? Let us discriminate positively in favour of manufacturers. Unless we do that, we are in trouble.
I should like to see the clearing banks put up a pool of, say, £150 million. After all, Lloyds has made more than £120 million in the first six months of its financial year, and I have no doubt that Barclays will make profits of £500 million. Could not they get together and make an offer to our small businesses—the entrepreneurs about whom we always hear from Conservative Members—which I very much want to see encouraged, and perhaps come up with some ideas backed by a pool of £150 million? Let them do the necessary investigating. They have the expertise and the knowledge to look into projects and get them properly costed.
Half the trouble with the small business man is that he does not know the people who can do that in the first instance and so does not present his case adequately. Let the banks see whether there is a future in a business suggestion and let them offer some money and take a share in the equity. That would be one way of getting projects of this kind off the ground. If the banks cannot be more imaginative, frankly they will deserve to be nationalised. If they do not come up with some bright ideas now, they will be letting us down.
I happen to believe in a mixed economy, but, in my view, the State has a major role to play in stimulating industry—and not only in terms of taxation and general legislation.
I remember vividly going to Japan three years ago. It was not my first visit. I was there in 1945, too. With other hon. Members, I was taken round a substantial number of modern industries. I remember going with the present Secretary of State for Energy and the right hon. Member for Worthing (Mr. Higgins) and every time we went into a firm their first question was "From where did your 1754 starting capital come?" Every time the answer was "From the State." They paid it back, of course, but it had come from the State.
In my view, it is total nonsense to adopt the attitude which is against any sort of State financial assistance to regenerate or to get business going. I am sure that Labour Members will differ from me. I do not want the State to dominate or control totally. I am not opposed to what the present Government are trying to do with the aircraft industry and civil aviation. It is right to try to get a mixed role. However, I think that the Government should hold more than 50 per cent. of the shares. But I see the State as the only answer to getting us out of our present difficulties.
I speak as a small business man. I have never worked in a large firm since leaving the Royal Navy in 1948. I was in the property business, working as an agricultural auctioneer. I was not very proud of what I was doing in the property business, so I took up farming. I thought that I should be creating something there. I am no longer engaged in that activity. I have two sons who are agricultural workers, but I no longer own a farm. However, I own a china shop, and my wife owns a bookshop. I have provided facilities with some older premises in Newport on the Isle of Wight enabling a furniture maker, a book binder, a potter, an architect and a double glazing firm to set up in business. There is one more vacancy if anyone else wants to come in.
§ Mr. Archie Hamilton
Perhaps the hon. Member would care to tell the House whether he relied on Government subsidies to get into these enterprises?
§ Mr. Ross
I assure the hon. Member that I did not. Perhaps he would care to talk to my bank manager about my overdraft. I have had no State help.
My fondest ambition is to set up a self-financing management co-operative—some sort of credit union—enabling me finally to extricate myself from the clutches of the clearing banks. A small start to this was made under the last Government, and I am sure that we should be moving on with it.
I recall reading about the Mondragon experiment in the Basque area of Spain and what had been done there since 1958 1755 to get small industries off the ground by means of a co-operative and forming their own bank. With interest rates running at 20 per cent. or more and with the marked reluctance of most clearing banks to give meaningful help to the small entrepreneur, I fear that many excellent ideas are stillborn. Others fail because insufficient time is given to get them established. We badly need some State guarantee scheme to those banks which will advance money.
We also need a commitment—as I said earlier, I think that it should be purposely discriminatory—to a fixed and reasonable rate of interest. We cannot go on having small firms take up loan capital at 8 per cent., only to find the next minute that it is 12 per cent. and then 17 per cent. There is no way in which firms can plan like that. We should have a fixed rate and, in my view, it should be no higher than 8 per cent. to people in manufacturing, because, if we do not have people in manufacturing, we as a nation are in dire trouble. I have in mind especially those engaged in exporting and producing goods to replace imports.
The Wilson committee made some suggestions on these lines, and we read in the press that the Secretary of State and the Minister are giving serious consideration to what they can do to help small firms facing high interest rates. But unless we can expand our smaller industries in a positive way—and we see the success in the United States—giving priority to those in new and more advanced technologies, we shall continue to fail as a nation. In my opinion, this is a matter of the utmost importance which should be decided very soon.
Another factor which affects this type of firm very seriously is the up and down movement of exchange rates. I heard recently from one firm that it had done a very good deal selling boats to Singapore but wished in the end that it had never seen it. When the deal was done, I imagine that the pound stood at about $2.30, but it dropped to nearer $1.90. A small firm cannot cope with a fluctuation of that kind, and some stability is essential. I would love to see a stable pound again. There is no doubt that some stability would help the smaller firm.
I have a few other ideas. I am sure that the Minister will agree with me, 1756 but I appreciate that it needs EEC consent. If only we could raise the VAT threshold to, say, £30,000, we could save a great many jobs. I appreciate that the money coming in today between £10,000 and £30,000 pays for the collection. But if we could only get EEC consent to that, it would be of enormous help to many of our small firms.
There should be more opportunities for small firms to share in public tenders as main or sub-contractors. They are too closed in many areas. We also want a fairer approach to national insurance and pensions. I know from correspondence that I have had that a review is under way in the Department of Health and Social Security. I hope that we shall hear about that today.
I, too, believe that we should change our present rating system. However, in the meantime, again we should discriminate positively in favour of small firms and give them some relief on rating assessments. We cannot keep pushing the burden on to them. Perhaps we should fix the figure arbitrarily at a rate able value of £1,500 or below. I should like to see the rating system replaced by a site value tax or a local income tax. But when we talk about doing away with rating altogether—and I know that the present Government have not said that; they have talked only about the residential side—we have to beware of the Irish experience, which did not go down very well. People have been marching the streets since then because they reckon that their taxes are far too high. If the burden is pushed from one, it must go on to the other.
I want to see far wider share ownership and profit sharing among work forces. In my main town the other day I walked past a store and saw that it was laying a carpet in the square. It is a furniture firm and happens to be a subsidiary of Harrods. I said that I was very honoured that it was laying a carpet for me as I walked to work because I was delighted to see that it had been successful in introducing a profit-sharing scheme. Those concerned looked at me blankly, but I told them that that was at least one advance for which they could thank the Liberal Party. We got the necessary provision into the Budget the year before 1757 last. I hope that the Government will expand it. It has been successful, and I am certain that it is the right approach.
We Liberals have always talked about a varied payroll tax. Perhaps employee surcharges could be reduced to exclude the newly established concerns and give some help to them.
I agree with the suggestion that I have heard about introducing less onerous planning requirements. However, I do not think that we should get rid of planning altogether. What is more, the general public would not wear it, anyway. I am a conservationist, and I want to see planning maintained. I am very glad that we have a planning system. However, some authorities are far too timid about giving consent in respect of older premises which could be used very cheaply. One Government supporter spoke about modern factories being on offer. I suspect that they are fairly highly rented, although I do not know the part of the country in which they are located. Any new building will cost more, however. I have had experience of that recently, and, in my view, we need to be more sensible about it, just as we do about extensions.
Once there is a county development plan, it should be honoured. A certain amount of blame in this connection attaches to Governments of both parties. Our county development plan was approved in the early part of this year. It stated distinctly that the development of in-town stores would been encouraged. It did not want the hypermarket type of development on out-of-town sites. That would be dicey, anyway, with a resident population of 115,000. Yet, within a few months, the Government have agreed with an inspector and given approval to the third attempt to construct a 60,000 sq ft out-of-town store. That was a totally wrong decision. After the county development plan was confirmed, International Stores invested £2.5 million to £3 million in an in-town store at Newport, Isle of Wight. That is half completed. The Co-op intended to do the same. One wonders whether the plan will go ahead. The site has been bought but now stands idle. I would appreciate consistency by Departments of State in such matters. A lack of morality has been revealed.
1758 We need the understanding and co-operation of the Inland Revenue. Firms will be in trouble over PAYE and VAT. One of my tasks has been to plead with enforcement officers in Worthing and elsewhere. The enforcement officers have their job to do. I pay tribute to collectors of taxes. They are, on the whole, sensible about the matter. The collector in my constituency bends over backwards to help. But more problems are likely to be encountered. There will be need for perseverance and encouragement from Ministers.
I have tended to skate over these matters. I cannot, however, conclude my observations without expressing my foreboding at the state of our country and its future prospects. I am no economist, but my antennae warn me of the likely consequences of continuing rigid monetary policy as the cure for inflation. It will lead to more bankruptcies and much higher unemployment. I wish to see less public money spent more efficiently. One all-purpose authority on the Isle of Wight would be a good move. I do not wish to see the National Health Service dismembered or old people's homes closed. Unless there is some relaxation in present financial policy and a real attempt made to achieve greater co-operation throughout industry, I am pessimistic about our future.
There are a few hopeful signs. I attended recently a meeting, at its request, of the Confederation of Shipbuilding and Engineering Unions. I have to admit that previous meetings have been disappointing because discussion has centred on trivial matters such as parking restrictions. This time, the unions wanted to ask me what had gone wrong and what could be done to put matters right. They were as worried as most of us about what was happening at Meccano. They wanted to know why the Meriden co-operative had not been more successful. I should very much like to see that co-operative succeed. I would like the Government to help. It is a great effort.
I rode to work on a BSA Bantam. I should like to see my son riding a British motor cycle for a change. He is now riding his third Japanese model. The workers at Meriden have shown that they deserve support. I should like to see the Government taking a more helpful attitude.
1759 There are signs in all walks of life that people are concerned about what is happening. If the co-operation that this country needs can be achieved on both sides of industry, and if the Government will revise their thinking and provide incentives that are so badly needed—they will have to be provided by the State because they will not come from outside—there is still a chance that we shall hold our own with the rest of the Western European industrial nations.
§ 1.4 pm
§ Mr. John Browne (Winchester)
It gives me great pleasure to follow, from the Government side, the maiden speech of my hon. Friend the Member for Kingswood (Mr. Aspinwall). My hon. Friend represents a constituency close to the area where I grew up. I should like to join the hon. Member for Isle of Wight (Mr. Ross) in congratulating my hon. Friend on an excellent speech, which I, as a small business man, thought superb and well delivered. I admired particularly my hon. Friend's praise of his predecessor and of his neighbour, my hon. Friend the Member for Gloucestershire, South (Mr. Cope), for his help.
I was impressed by my hon. Friend's remarks relating to the growing problem of the aged in our country and the enormously increased responsibility of the young and middle-aged in shouldering that problem. I was encouraged to hear how efficiently voluntary organisations are overcoming that problem. I know that I speak for other hon. Members when I say that I look forward to further contributions by my hon. Friend.
Napoleon once described England as a nation of shopkeepers—in other words, small business men. It was largely on the backs of small business that Britain became Great Britain. It is interesting to note that, at a time of dramatic industrial decline in our country, small business has given way to State ownership in many major areas of business. Despite that, small business still contributes over 40 per cent. of our gross national product and provides over 40 per cent. of the jobs in our country.
One of the biggest issues facing not only this country but the world is job creation. This means not merely the creation of jobs but the creation of profitable jobs. The jobs created by small 1760 business, almost by definition, have to be profitable jobs. In the United States, two-thirds of new jobs in the past five years were created by companies employing fewer than 20 people. It is known that small business men and business women are not only hardworking but highly productive. They are, on the whole, very good employers. They are innovators who create new products, find new markets and, therefore, contribute, in a disproportionate fashion, to the increase of our gross national product.
New products mean new, profitable jobs. Now, profitable jobs mean a truly higher standard of living for all. If we are to regain our past national success as a developed, technological nation, we must encourage small business, not discriminate against it.
I now turn to the policies of Her Majesty's Government as I see them affecting small business. The present Government's policies rely for their ultimate success upon a free market. I believe, therefore, that the Government must ensure that a free market actually exists. In the past, we have seen small business and free enterprise squeezed out between two giant monopolies—the monopoly of the State employer and the monopoly of the huge trade unions. I am pleased to see that the Government are now setting about restoring a democratic and free market to this area of the economy.
I hope, however, that my hon. Friend the Minister will press my right hon. Friend the Secretary of State for the Environment to encourage local authorities to open themselves to free enterprise and to shake off much of their expensive and uncompetitive direct labour departments. As an ex-councillor, I feel certain that there are major areas of savings to be made. Ratepayers' and taxpayers' money would be saved. The efficiency and quality of the services offered by local authorities would be increased.
I should also like my hon. Friend to press my right hon. Friend further over planning permissions. This process should be speeded up. Long delays over planning permissions affecting small businesses have occurred in my constituency of Winchester. My right hon. Friend should also encourage local authorities to treat small businesses as the darlings of the nation and not as oddities. There 1761 should be no harassment by local government. Will he also press local authorities to be more efficient in dealing with small business men and women, to keep appointments and to avoid consuming their time and secretarial time unnecessarily? If private business, for instance, is to pay for planning appeals, local authorities must do the work for which they are paid. So often there are long delays and missed appointments by local authorities.
I am pleased with the Government's experiment in building workshops in double-sized garages in certain areas. Litton Industries, one of the giant conglomerates in the world, was founded in a back-street garage in California. I agree with that approach, but I urge the Minister to remember that many small businesses, particularly new ones, look for premises near where they operate and not just on a scrap of old Government land miles from anywhere. Flexibility of location matters as much as availability.
I was pleased to hear that the Chancellor intends to make long-overdue changes in the rules affecting capital transfer tax, and, I hope, capital gains tax, because they directly discourage enterprise. Their reform will achieve one more push to the rekindling of enterprise in place of the growing feeling of anti-enterprise in this country.
Interest rates are hurting all of us who have mortgages and overdrafts, but they particularly affect small businesses. They are discouraging entrepreneurs and new business. I make no secret of my agreement with the Government's monetarist policies. I agree that interest rates had to be raised above the rate of inflation to create a negative "carry". I admire this Government's courage in being the first Government since the growth of inflation after the war to lift interest rates above the inflation rate. My only worry is that the aggregate money supply—
§ Mr. D. N. Campbell-Savours (Workington)
If inflation rose to 24 or 25 per cent. next year, would the hon. Gentleman really favour interest rates above that level?
§ Mr. Browne
It is not a question of favouring them. I do not like high 1762 interest rates. I have an overdraft myself. High rates are painful. The question is, do we wish to kill inflation or do we not? One has to control the money aggregates and raise the rate of interest above the rate of inflation. The tragedy is that both Conservative and Labour Governments have not had the courage to do it. Otherwise, we should be talking about raising interest rates only above 8 per cent.
§ Mr. Browne
I am not saying that I would favour high interest rates; I would only see them as a necessary step to take, but they would be painful.
My concern is that, although interest rates should be raised above the level of inflation, it need be for only a relatively short time, provided that the monetary aggregates are controlled and that they expand only in line with the growth in the gross national product. My worry is that our monetary aggregates, although they have been pulled down by the planned monetary policies of the Government, are still expanding faster than the increase in our national wealth. I believe that we shall see higher interest rates for longer than would otherwise have been the case if those aggregates had been brought immediately under control.
I am therefore worried that more small businesses will go bankrupt than would otherwise would have happened, that unemployment will be higher and that the entrepreneurs upon whom our future as a developed nation so desperately depends will be discouraged from expanding or—even worse—from starting new enterprises. That is a serious worry. I urge the Minister to press the Chancellor to reconsider the problem of monetary aggregates.
I am also very pleased with the Government's plans to improve the flow of capital to small businesses by setting up a link between the Small Firms Information Centre and the Post Office superannuation fund. The flow of capital to new small businesses is vital. This is a difficult area, particularly in Britain. After a long period of penal taxation we have virtually killed off all venture capitalists—those who have the money and the time 1763 to investigate venture capital opportunities. I hope that the new rules will allow more venture capital to be created both within small businesses—in the form of retained earnings—and outside, by leaving individuals more money to spend as they wish.
I agree with the hon. Member for Greenwich (Mr. Barnett) that there is a need for technical competence in assessing venture capital investments. This is a critical problem which deserves deep Government thought and consultation with the banks and other financial institutions. Somehow, we have to create an effective conduit between the sources of capital and the entrepreneur which will fill the gap created by the death of the venture capitalist and the new gap created by the huge leap in the complexity of modern technology.
The problem with the banks—I speak as a banker—is that most bank managers know their customers and understand finance but their prime job is managing the branch. Today they do not have the necessary advanced technical knowledge. Technical knowledge is increasing enormously all the time. Also, they do not have the knowledge of the new markets. When assessing a venture capital deal, it is no use just saying "This is a good chap or a good woman with a good idea". One must ask whether the idea will sell in world markets. That link must be found somewhere.
Our future as a productive developed nation, our future employment in profitable jobs and our future standard of living depend on the encouragement and success of new small businesses. I thank this Government for what they are trying to do and for what they have done and I urge them to press ahead with measures related to taxation, interest rates, employment protection legislation, unfair State competition, planning procedures and guidelines, venture capital and loan guarantees.
§ Mr. Stuart Holland (Vauxhall)
I congratulate the hon. Member for Kings-wood (Mr. Aspinwall) on a maiden speech which drew attention to the problems of the elderly and of voluntary bodies. I shall return to those matters later.
I was almost provoked by the speech of the hon. Member for Winchester (Mr. 1764 Browne) because several of his points struck me, and, I my hon. Friends, as irrelevant to the present problems of small business. For example, he said that new products mean new jobs, without apparently being aware that many new products which are now being introduced on to the markets by big or small firms tend to displace rather than create jobs. Most of our innovations are process innovations; they are not product innovations. Thus net unemployment is created.
§ Mr. John Browne
The United Kingdom is unsuccessful in this context. What the hon. Member for Vauxhall (Mr. Holland) says is true, and one of the reasons for our lack of success is that we are not in the entrepreneur game; we are in the heavy big business game. But many of our heavy big businesses are either dead or dying. I agree that we have process innovations. I am not against the big companies and their process evolution. We are no longer in the market for small business and revolutionary leaps in product.
§ Mr. Holland
With respect, the point made by the hon. Member does not meet my argument. The case was made by the Chancellor of the Exchequer in the debate on the Queen's Speech in relation to this specific problem of the role of innovation and small business.
In singling out my hon. Friend the Member for Oldham, West (Mr. Meacher) and myself in that debate, the Chancellor claimed that our criticisms of the monetarist policies pursued by the Government would be refuted by evidence. He then gave evidence from the the United States economy, not from our own economy. He gave evidence of the growth of small firms according to a Massachusetts Institute of Technology study. It was not a specific MIT study, but it came from a source associated with it. It shows the growth of small firms in the United States economy during a period of lavish spending on advanced technology, aerospace programmes and the NASA programmes. The reason why small firms in the United States economy have taken a larger relative share of the increase in the number of jobs is the major decline in employment in big business.
Many of us on the Opposition Benches feel that reliance on a free market—as 1765 recommended by several Conservative Members—is all very well in principle, but, in practice, what are the conditions in which the market is free? Effectively there is unequal competition between big and small business. The biggest problem for small businesses is neither big Government nor big unions but the rise of big business itself. The increase in the market share of large as against small enterprises in the post-war period in this country has been dramatic. In construction and insurance, six companies control about half of the assets. In banking, through mergers, three companies control almost 95 per cent. of deposit banking. In manufacturing enterprise, the top 100 companies have increased their share of output and employment from one-fifth to nearly one-half in the years between 1950 and 1970.
Because Governments have failed to account properly for the relative market shares of big and small firms, we are still dependent on the evidence on market shares by different categories of business in the 1968 industrial census. We have monthly trade figures and retail price indices but only a 10-yearly industrial census. If any Government are serious about paying attention to the problems of small business, I suggest that it is incumbent upon that Government to account effectively for the share of big business itself.
There is a further point on the relative growth of employment in small versus big business. If the Chancellor of the Exchequer had referred to evidence from the British rather than the American economy—fulfilling his function as Chancellor of our Exchequer rather than that of the Secretary of the United States Treasury—he would have seen from evidence by John Firn, formerly of Glasgow university, that in the Scottish economy small enterprises are growing only in those sectors of the economy which are in decline. In other words, big business has had the sense to withdraw from many of these sectors because there is no long-term or permanent development prospect.
These sectors include the traditional industries with which we are familiar, such as small-scale manufacturing processes, textiles, shoe-making, woodwork, and repairing. The logic of the situation 1766 is that 2 million jobs have been lost in manufacturing over the last decade. They are unlikely to be restored either by big business or small business unless there is an overall change in Government policy.
The big firms within our system—we are talking about 140 firms which command more than half of the economy—represent less than 1 per cent. of the number of enterprises in that system. The other firms—accounting for between 90 per cent. and 95 per cent. of enterprise—contribute only 20 per cent. of GNP and about 24 per cent. of the net output of the private sector.
These small firms are suffering a shrinking share of overall output. They are increasingly being prevented from diversifying into modern markets, not so much by high taxation—though I grant that taxation in itself can be a problem—nor by Government intervention. The last Labour Government simplified many procedures to facilitate some of the activities of the small firms. Those firms are prevented from diversifying by the ruthless internal logic of the market itself.
One cannot break into certain modern markets today unless one possesses the financial muscle to force a way in where big business is already concentrated and the technical and organisational capacity to produce with major economies of scale. This is shown by the figures on the stability of big business concentration in the United Kingdom, the United States and Europe.
In the United Kingdom the top 100 companies have massively expanded their share of the market. Thrusting new small and medium companies have been unable to break through. In this process the top 100 companies have managed to expand their share very substantially through taking over small and medium enterprises. In other words, half of the expansion between 1950 and 1970 was characterised by the takeover of other enterprises.
In the United States, in the 25 years since the end of the war only two or three of the top 100 companies fell out of that category. All of the new entrants into the top 100 came from the category of the next 150 firms in line. Even in an allegedly free market economy, where tax systems are different from ours, it is 1767 rare indeed for a small or medium firms today to break into the big league. The logic of that is simple.
It may be the case, though it could be challenged, that Britain's greatness was built on the backs of small shopkeepers. I suggest that it also had much to do with such early multinational companies as the East India Company which operated on a giant scale. That company became the police, the army and the State in a wide area of the world. It can be argued that at a certain stage Britain grew great on the backs of the small shopkeepers, but the situation has changed because of a paradox which is not recognised by the Government. When competition rewards the enterprising with success, the result is an increased market share. In other words, one of the fruits of competition is that enterprises grow larger, both absolutely and relatively. If that process continues, after a certain point those firms which have been rewarded grow yet bigger and approach monopoly. That is the qualitative difference which took place in our economy between 1950 and 1970. It is not simply a quantitative expansion. There is not only a quantitative difference when the top manufacturers increase their market share from one-fifth to about one-half of the market; there is a qualitative change. In individual markets, that means that two or three firms come to constitute 85 to 95 per cent. of the market and are in a new situation of joint monopoly.
The paradox is that monopoly is not an abuse of competition but the consequence of competition. If those who are enterprising are rewarded, they will grow. As they grow, they increase their market share. This has major implications in terms of Government policy. The hon. Member for Isle of Wight (Mr. Ross) and others have said that in public purchasing policy the Government do not distinguish adequately between large and small firms. We give massive slices of public money to industrial giants without effectively negotiating the terms under which it is done.
We could take a leaf out of the United States' book. There, federal contracts are granted on certain terms. First, a certain proportion of those contracts must be with small firms, secondly, a certain proportion must be firms in the inner cities, and, thirdly, a certain proportion 1768 in some cases may go to enterprises in black areas or to black-managed enterprises.
However, we shall not transcend the problem of the growth of small firms simply by discriminating in favour of them in public spending. We must have policies that go beyond that. The weakness of the motion lies in its implicit illogic. It is all very well to request the Government to identify "illogical legislation" which imposes a burden on small businesses and voluntary services. But one of the greatest implicit illogicalities is monetarism. The Government do not yet seem to have grasped the fact that public spending is not a drain on small businesses but that small and big enterprises live off spending by the public sector.
Nationalised enterprise does not represent about half the total enterprise in the system. The nationalised industries account for only about 15 per cent. of the total value of goods and services. Even on a simple arithmetic basis, and certainly with an average resource content of public spending, £85of £100 of public spending goes to private and not to public enterprise.
The Government have not grasped the problems which relate to interest rates. If demand and sales are continually cut, the unit costs of enterprise are increased. They have certain fixed costs. Not all costs are variable and they cannot be shed at will. By raising unit costs through fewer sales, inflationary pressures are increased. That is a further paradox. In practice, deflation and monetarist expenditure cuts increase inflationary pressures. The way to avoid high interest rates, with their particular incidence on small firms and a higher rate of inflation, is not to cut public spending but to restore and expand it. To do that, we should focus public spending not only on the types of services which are largely voluntary but on the restructuring of small firms in inner city areas.
We should be considering a range of new policies based not—as suggested in this motion—on identifying the logic of an unpaid anomalies commission, which is probably the most Alice-in-Wonderland quango of them all. Instead we should be thinking of the specific problems of small enterprises and how to deal with them. The problems cover 1769 such simple and basic areas as premises, production, finance and markets. If we deal with those problems rather than simply with tax structures, we shall enable small enterprises to overcome unequal competition because they will be complementary to rather than competitive with big businesses. This is the heart of the matter.
The pursuit of the logic of equality of competition causes more monopoly. However, a policy which made small firms complementary to big firms and different social groups complementary to each other would unleash the enterprise and initiative of trade unions and people on the shop floor. That is preferable to a policy which recognises only the enterprise and initiative of those who want to make a personal profit.
It is crucial to remember that the death or euthanasia of a small firm, in the inner cities in particular, is related in part to the death or retirement of the entrepreneur. Often the entrepreneur can no longer guarantee that his son or daughter will take over the company or run it as efficiently. The co-operative formula, which has been advocated by many of my hon. Friends, has failed in individual cases not only because of half-hearted Government support but because of the dire conditions under which it was attempted.
Kirkby Manufacturing Enterprises and Meriden are two examples of the co-operative formula being operated after private capital failed. If we are to avoid further accelleration of the small firms death rate, we need a co-operative formula for a transfer from the small owner-entrepreneur before the enterprise is in difficulties. I have always been critical of across-the-board, generalised incentives. None the less, we should consider an incentive formula which would apply when an entrepreneur of 45 or 55 years of age who has not modernised sufficiently realises that he has neither an heir nor the prospect of selling the company on the market. Such an entrepreneur could then transfer ownership to the work force over five to 10 years or to a municipalised enterprise operating under workers' control. That would create an inbuilt incentive for an existing enterprise and an established workforce, whether of six, 16 or 60 people, during a 1770 transfer period from the owner-entrepreneur to co-operative ownership and production. Whether the final responsibility for the co-op lies simply with the workers concerned or with the municipal authorities it would be unrealistic to think that the co-operative formula could of itself transform the prospects for a small enterprise.
Going beyond the co-operative formula, there is also a need for intervention through new forms of finance and new injections of capital. Here I think that the contribution of the hon. Member for Isle of Wight was most useful in stressing that the NEB, far from being an incubus in the private sector, as some Conservatives have suggested, had a quite fleet-footed capacity to intervene in medium-sized firms on many occasions. My only criticism of the board's role in that respect—and I speak as a co-author of the original proposals for such a board—was that as we originally conceived it the NEB should have been focused on big business. There should be more local enterprise boards in parallel with the Scottish and Welsh Development Agencies. These boards should have the funds and capacity to identify small and medium firms in which they could take a shareholding and, in that sense, underpin them against the predatory takeover activity of larger firms.
In this respect, such boards might operate regionally in, for example, the North-West, the North-East, the South-West or, in London, at the level of the Greater London Council. I would not be surprised to see a proposal emerge shortly from certain circles for such a Greater London enterprise board.
But there are further factors in respect of the simple points about production, finance, premises and markets which would not be assured simply by an enterprise board. If large and small businesses are to be complementary with one another, there will have to be an element of planning. Many of the small firms that have survived against the massive trend of monopoly have done so as satellites of larger businesses. The small firms have become specialist subcontractors. In many cases where the labour skills and expertise exist in a workshop which otherwise is under-invested and not up to date, the Government, rather than attacking 1771 the principle of planning, should support a policy of regional economic planning councils complementary with the regional enterprise boards of the kind I have just proposed.
Not least in relation to a planning function, facilities should be established for small and medium enterprises to generate an effective export capacity. Here we see a staggering contrast between what the Secretary of State for Industry has said about the role of small enterprise and the facts of export performance. The right hon. Gentleman has said in the House more than once that he intends to unleash the initiative of millions of firms in this country. I do not know which millions of firms he is thinking of in terms of the export trade. The facts are that some 30 firms represent 40 per cent. of Britain's visible export trade, some 75 firms represent half of that trade, and about 220 represent two-thirds of it.
According to Department of Trade figures, there are only about 10,000 firms in the United Kingdom engaged in regular export. The others are one-off exporters. According to a more devastating report by the British Export Trade Research Organisation, whereas in individual foreign markets the Germans and Japanese station 10 or 11 sales staff abroad, British firms, on average, from a sample of 175 firms, have either no one or only one person. The report made a quite relevant cricketing analogy, saying that if we hoped to win in the export league against a German or Japanese eleven we should do better than put just one person or no one in the field.
Here again, private enterprise has failed to provide an adequate export performance, and there is a strong case for public intervention to support and promote those relatively small firms, especially in inner cities, which do not have the capacity either to produce or to organise their local production for the export market. In other words, I recommend that the regional enterprise boards and the regional economic planning councils should have the capacity to establish export holding companies to represent individual small and medium enterprises, especially from inner city areas, in foreign markets.
1772 Bearing these issues in mind, I should like to comment on the observation of the hon. Member for Winchester on Litton Industries. It is all very well to say that Litton Industries started in a backyard and to admire how much it has grown. But Litton Industries grew as a conglomerate taking over firms and not by actually producing. One of the firms that it took over was Imperial Typewriters. It ripped off the new investment that Imperial had made in this country, transferred it to the Netherlands and brought back to Britain the clapped-out equipment of the typewriter company in that country. Litton's financial success in taking over companies lay in its asset-stripping activities and in running down a viable enterprise in this country.
§ Mr. Archie Hamilton
It seems a strange economic argument that one should pick up a whole mass of plant and move it from one country to another. Was that action not a reflection on the work force provided in the Netherlands compared to that here?
§ Mr. Holland
As it happens, the new typewriter which Litton then produced under the Imperial brand had been designed and prototyped in the United Kingdom at the very plant which Litton then closed. Surely the decision was a reflection on private sector judgment, since if the work force was adequate to develop a product it should have had the ability to see it through in production.
§ Mr. John Prescott (Kingston upon Hull, East)
The firm that closed with 2,000 redundancies, to which my hon. Friend has referred, was located in my constituency. The workers took over the plant. A survey done by the Government afterwards found that the workers in that plant were as efficient as those on the Continent but that the investment here was years behind. The problem facing Litton was not only in closing its plants here but in the fact that it had over-stretched itself in America, where it was desperately short of capacity. Its commercial judgment had got it into trouble, and it turned to Europe for the solution to its problems.
§ Mr. Holland
I am grateful to my hon. Friend for his intervention, which certainly reinforces my argument.
1773 The problems of small firms are caused not simply by big business or big unions but mainly by the rise of big business. Competition leads to monopoly and is not simply an abuse of monopoly.
If we are to transform the position of small firms and boost the employment created by them, we must think in terms of their being complementary to rather than competing with big business. That could be achieved by way of co-operatives and new public or municipal enterprises on the basis of a planning formula involving public spending aimed at regeneration by increasing demand. That would be in contrast to the Government's policy, which seems to be summed up by "If at first you do not succeed, cut, cut and cut again." That policy amounts to a formula which actually means that "If at first you do not succeed, you will fail, fail and fail again by cutting rather than by expanding demand and investment."
I shall speak briefly on the other main item in the motion. The voluntary services will hardly be helped by an anomalies commission. The fundamental illogic in the Government's policies towards voluntary agencies is that, as in other respects of economic policy, they have failed to account properly for the value that is being given by voluntary services in the system as a whole.
In my constituency and in the Lambeth, Lewisham and Southwark areas, the Government are proposing to withdraw even the partial financial assistance that they give to voluntary bodies dealing with the rehabilitation of offenders, services for detoxification and assistance to alcoholics. There is a serious prospect that next year a centre for 900 men—many of whom are alcoholics—in the Camberwell area will be threatened with closure. The proposed projects of Consortium for detoxification units would enable an alcoholic to go neither to prison nor unnecessarily into hospital at greater cost but into a residential centre. I regret that its proposals were not endorsed by the relevant Minister of Health under the previous Labour Administration and have not been reinstituted by this Government.
In such cases, as with the National Association for the Care and Resettlement of Offenders, the public receive value for money when they contribute 1774 public, funds. NACRO argues that, in a period of four years, on a share of the number of people who have been prevented from returning to prison because of the voluntary services provided, its expenditure should be put across the prison costs which would have occurred over that period. On current estimates, it costs between £110 and £120 per week to keep a prisoner in gaol. On that basis, we estimate that NACRO had saved the Exchequer about £250,000 on a quite small-scale project.
The Government are suggesting that charities and voluntary agencies such as these should be charged VAT, which is hardly the way to gain an adequate return on money invested. If voluntary agencies are to turn wholly to the private sector, it is unlikely that many will survive. If they do not survive and there are closures of centres for the single homeless and the rehabilitation of prisoners and alcoholics, the indirect cost to the Exchequer could be large indeed and certainly in terms of millions of pounds.
There is a link between the two main items in the motion. We are caught in a vicious circle—a Catch-22 position—between the decline of small firms, which lowers the tax base within inner city areas, meaning less revenue to local authorities, meaning less capacity by local authorities to assist voluntary agencies, and the Government's shortsightedness on overall public spending, their policy towards small enterprise, and their policy towards voluntary agencies.
§ Mr. Archie Hamilton (Epsom and Ewell)
I find the speech of the hon. Member for Vauxhall (Mr. Holland) quite remarkable. We have record interest rates, yet he is recommending not a decrease in public expenditure but an increase. It was announced today that minimum lending rate is 17 per cent. I have to ask myself "If we are to live with increased public expenditure and accordingly increased public borrowing, what would be the interest rate?"
The hon. Gentleman also suggests that small businesses should gain through subsidies from Government agencies. I find that remarkable. It is more sensible to advocate that small businesses should keep more of their profits rather than 1775 setting up even more bureaucratic organisations to pay out taxpayers' money. The other remarkable aspect of his speech was that there was absolutely no reference made to productivity when he drew comparisons between the public and private sectors. That is one of the main problems that Britain suffers from at the present time. The productivity of the nationalised industries and the public sector is bad.
§ Mr. Stuart Holland
It is clear that the hon. Gentleman has not grasped the essence of my arguments. High interest rates are due to deflation rather than public spending. It is what is done with public spending that matters and whether it is deployed in the modernisation of capacity, which makes it possible to raise productivity. The problem is essentially one of under-capitalisation and insufficient investment per worker—the car industry is a well-known case—rather than one of the public spending. If we consider the record of public versus private enterprise, we find that in the 1960s, when the modernisation programmes under public ownership of gas, electricity and so on had time to take effect, productivity was uniformly higher in public enterprise than in private enterprise.
§ Mr. Hamilton
The question of interest rates is extremely remarkable because I understood that interest rates were dictated by the demand for money. It strikes me that if the Government were pre-empting whatever money there was around, going for as much money as they could get, that would force up interest rates. A large public sector borrowing requirement must mean, automatically, the necessity for high interest rates. One cannot get away from that position.
I am not an expert on productivity in the public sector in the 1960s. There is no doubt in my mind that the nationalised industries compare extremely badly with the private sector in terms of productivity.
I congratulate my hon. Friend the Member for Devon, North (Mr. Speller) on introducing the motion and giving us the opportunity to discuss the problems of small businesses. It provides an opportunity to review many of the excellent steps that have been taken by the Government to try to solve some of the 1776 problems facing small businesses. It also provides an opportunity to suggest one or two areas where the Government may consider taking other steps which would further their declared policy to be nice to small businesses.
I am sure that hon. Members on both sides would agree that our economic performance in the past 15 to 20 yeas has been deplorable. Our competitors have done better, we have declined in international economic importance and we now have the status of a third-class Power. There are many reasons put forward for our failure—monopoly union power, low-grade management and social structures that are unhelpful to economic growth. All these reasons are, in part, true.
There is another cause of our failure, and that is the mindless pursuit of size at whatever cost. That has been a fundamental cause of our economic decline. We have larger and larger companies, less and less efficiency, bigger and bigger balance sheets and less and less communication for both employees and customers. We see across the country these great directionless monsters, sliding out of control with many moving remorselessly towards bankruptcy. These hopeless leviathans are all to often set on their course by meddling Governments, and their retreating managements spend more time locked in fruitless combat with the bosses of unions, often in monopoly positions, than in ensuring the survival of their businesses by making money. The problem with these leviathans is that they live and work in an atmosphere far removed from the everyday life of ordinary people; they become insensitive to the demands of the customer, and all too often they fail to satisfy their employees, too.
In contrast, the small business man has to get on with his workpeople. He has to give them job satisfaction, since otherwise he will not keep his staff. The small business man has to be lean and hungry to survive, since no one will work for him if he cannot offer creative jobs. He is never, or only rarely, in a position to pay the top rates. Nobody will buy his goods if they are defective or not delivered on time. No one will bail him out if he gets his sums wrong—and why should they?
1777 The Government are dedicated to the cause of individual freedom. The uncontrolled growth of huge corporations, whether owned by the State or otherwise, does not serve that cause. If we want to live in a free society, we must encourage diversity, and nowhere is this more true than in the economic sector of our society. We must create a climate in which small business can flourish. Governments must do everything they can, whether through taxation changes or altering employment and planning legislation, to encourage enterprise.
Not only must we encourage diversity but we must not be afraid of the logical consequences of that philosophy. The Government's actions to restrict the monopoly power of the Post Office and other public corporations is to be welcomed, but we must go further in both the public and the private sectors. The interests of all concerned in business—shareholders, workers and management—would be better served by smaller and more efficient enterprises.
In addition, we have to face the dark and unpleasant reality that several of our nationalised monopolies are in such trouble that they are fatally diseased. They have in many cases outgrown their purpose and lost the confidence of their work force as well as of their customers. These great lumbering beasts, like long-extinct dinosaurs, have failed to adapt, and they are so sick that some of them do not respond even to huge injections of other people's money—in other words, our money, taxpayers' money.
When these monsters fall, they dash themselves in pieces, and it is the small businesses which have to pick up the pieces. We see this in South Wales and the other depressed areas. It is the small business man who can use the resources of manpower which are released when these crashes occur. It is the small business which can use the skills which are suddenly available. That is why it is not just important but vital for the survival of our nation and the way of life that we cherish that Governments should concentrate on giving the incentives and opportunities needed in the small business sector so that it may thrive.
For that reason, I welcome the action of my hon. Friend the Under-Secretary of State with responsibility for small busi- 1778 nesses in cutting out so much of the appalling official form-filling which we have had to put up with for so long.
I recall that when we were in Opposition we tried to persuade the Labour Government to cut out these forms as far as possible. They took no notice of our pleas. They simply appointed a big business man—incidentally, a millionaire—to look after the interests of small businesses. They made sympathetic noises, but there was very little action. The present Government have reduced the number of statistical forms by 1 million, and we are encouraged to learn that there is every intention to proceed with that good work, particularly in the Departments of Employment and of Trade.
I turn now to one piece of legislation which has had almost exactly the opposite effect to that intended. I refer to the so-called Employment Protection Act, which has destroyed many hundreds of thousands of jobs in the small business sector. Every time an industrial tribunal reached one of its particularly silly decisions—at great cost in time and money to both employer and taxpayer and, incidentally, no cost whatever to the employee—thousands of other small business men went on the defensive and refused to expand their work force. For every job protected, two were stillborn. That is why I welcome the Government's action in directing the industrial tribunals and extending the qualifying period from 26 weeks to one year for unfair dismissal.
In addition, the Government's plans set out in the Employment Bill to finance secret ballots and to restrict secondary picketing will be very welcome to the small business sector. So far, so good.
§ Mr. Campbell-Savours
The hon. Gentleman refers to the impact of employment legislation. When I first saw the motion, I thought that one or two hon. Members on the Government Benches might be tempted to fall into that pit. I refer the hon. Gentleman to the Department of Employment Gazette, in which an article was published giving an account of a survey of businesses. It is interesting to note the response to this question:What would you say have been the main difficulties you have faced in the past year in running your business?Only 2 per cent. mentioned employment legislation. Surely, that well reveals the 1779 great disservice which is being done to an excellent piece of legislation by the way it has been used by the Government and their supporters to discredit the previous Government's policies generally.
§ Mr. Hamilton
When in Opposition, we were in constant contact with organisations of small businesses and independent businesses. One of the main complaints which they were always raising was the problem of people being discouraged by what happneed in industrial tribunals and by the immense costs which employers were incurring in having to make representations to them. Indeed, public opinion has been absolutely astounded by some of the amazing decisions which have been reached, which seem in the past to have acted grotesquely in favour of the employee and against the inerests of the employer.
It has, of course, been the small business sector which has found it most difficult to adapt to the requirements of the industrial tribunals. On the whole, large businesses have vast personnel departments and are used to all the nitty-gritty of employment problems. The same is not true of small businesses, where very often it is the man in charge of the business who is in any case responsible for industrial relations.
§ Mr. Hamilton
I have no idea. All I am saying is that this is the information which we were getting when we were in touch with organisations representing small business.
Another aspect of our economic life, which will have grave consequences for us all if it is allowed to continue unchanged, is the closed shop. To those of us who believe passionately in the rights of the individual, the closed shop is morally repugnant. Many people share this view across the country, as is indicated by opinion polls. In particular, it is shared by the vast majority of men and women who are engaged in small businesses. It is precisely the small employer today who is threatened by the imposition of the closed shop inasmuch as these arguments would normally have been thrashed out by now among the larger businesses, and the smaller employer stands to lose so much by having a closed shop imposed.
1780 I am afraid that I do not consider that the Government's plans to compensate those who lose their jobs as the result of a closed shop being imposed go far enough by half. I accept that many large employers claim that their closed shops help in collective bargaining and fear the inconvenience and other consequences of having those closed shops made illegal by Government legislation.
Therefore, in the spirit of compromise, I suggest to the Government that legislative steps be taken to make two prosions with regard to the closed shop: first, no new closed shop should be created in any business; second, all closed shops should be banned in companies employing fewer than 100.
We have to face the fact that small businesses in general are more profitable, productive and efficient and better neighbours than are large ones. One reason must be that they have so far escaped the deadly embrace of monopoly union power.
These steps should also show concern for the freedom of individuals at work and stop the process, which is spreading through industry today like a cancer, whereby if a man has no union card he has no job.
Taxation is another area in which small businesses welcome Government action, especially in reducing income tax. Nevertheless, it must be accepted that a 3p reduction in the standard rate is only a start. With national insurance also taken into account, taxpayers are still losing 36.8p in every extra pound earned. On that basis, it is infinitely preferable to do an evening job for cash than to work overtime. It is a tragedy that so much engineering expertise is wasted by skilled men driving minicabs or painting a neighbour's spare room when they could be making a contribution to our manufacturing industries. This is a waste which British industry can ill afford.
Moreover—here I take up the point made by the hon. Member for Greenwich (Mr. Barnett) when he spoke of the problems of getting finance into industry—I should like to see radical reforms in personal taxation with regard to small businesses. Many small enterprises start with a good idea, but it is too simple to say that the only other ingredient for success 1781 is money. More than that is needed, namely, management skill.
There are those who are brilliant and able to invent. There are others who are brilliant and able to manage. All too rarely do the two attributes find themselves combined in the same person. If we want to have successful new enterprises exploiting original ideas, we must combine brilliant ideas with good management. The creation of a working prototype takes the inventor only a quarter of the way down the road to business success. He must also manufacture the product in quantity, sell it and make a profit. To achieve that, he needs the skills of an experienced manager.
I urge my hon. Friend the Under-Secretary of State, and I entreat the Chancellor of the Exchequer, to bring the inventor and the proven manager together by making investments in small companies deductible from earned income. The tax payable on the sum involved should be deferred until the assets purchased have been sold or, alternatively, written off as losses.
Britain's future lies in the rebuilding of its prosperity through the rejuvenation of enterprise and risk-taking. Technological changes offer us a challenge, yet for so many the silicon chip is regarded merely as a threat. We have the ingenuity and we now have the right Government. I am convinced that Britain will accept the challenge. There is no reason why small business should not make the future ours. There is no chance of our solving the economic problems with huge, unwieldy corporations, public or private. Our only hope lies in the resourcefulness, courage, tenacity and the sheer guts of the individual Briton who wishes to do something for himself, his family and in consequence the nation. Our duty in the House is to encourage him in every way possible.
§ Mr. John Fraser (Norwood)
First, I congratulate the hon. Member for Devon, North (Mr. Speller) on introducing the subject for debate. The hon. Gentleman showed a certain amount of disillusionment over the first few months of a Conservative Government. He referred to mortgages and interest rates. I also congratulate the hon. Member for Kingswood 1782 (Mr. Aspinwall), who made his maiden speech. The hon. Gentleman will be in for a few unpleasant surprises as Government public expenditure cuts begin to bite, for example, on the voluntary organisations in Bristol, as they do in Lambeth and other city areas.
The motion calls attention to the problems of small businesses. I shall try to put matters in their correct perspective. I suggest that the greatest problem faced by small business is the policy of the Government. That has been said in various ways by a number of Conservative Members during the debate.
This type of debate illustrates the way in which the Conservative Party masquerades as the friend of the small business man. In turn, it has received support from small business men in elections. The support that the small business man gives to the Conservative Party is based more on sentimentality than on sense. It is based on a belief in a kind of sympathetic magic rather than on the appreciation of reality.
Every small business man knows—all electors know—that the Conservative Party is the party of big business, of the powerful and of the privileged. The sympathetic magic part of the equation is that the small business man who wants to become a big business man somehow feels that by associating himself with the party of big business he will be transposed into a big business man.
I hope that the Conservative Party will not jib about that. It fought the election upon its declared belief in inequality. It cannot complain when it hears the allegation that I have made. By the process of thinking that I have described, which has no logic attached to it, the small business man falls for the blandishments and the masquerading of the Tory Party and those who pretend that they have a closer association with small business and have their hearts in it.
I shall quote from an article which states that public schoolboys do not engage in big business. We have had the usual lectures today from guards officers, sons of the aristocracy and those who have gone into merchant banking, who have probably never put their hand to a bacon slicer in their lives. As I said, the Conservative Party masquerades as the party of small business. If we 1783 examine the facts underlying our economy and the performance of each Government, it will be apparent that there has been rather more hope given to the small business man—the same applies to farmers—by Labour Governments than by Conservative Governments.
If the small business man was under a spell that the Conservative Party was his friend, the exorcists have arrived. They are none else than the Prime Minister, the Chancellor of the Exchequer and the Secretary of State for Industry. I shall quote from a speech made by the Prime Minister shortly before the election. Minimum lending rate at that time had temporarily risen to 14 per cent. The right hon. Lady said:an increase in interest rates to 14 per cent. is a potential disaster for home buyers.So it is. She continued:it is the home buyer and the small business who are going to pay the price for the Government's economic failure."—[Official Report, 26 November 1979; Vol. 974, c. 951.Minimum lending rate is now 17 per cent. Exorcist No. 1 has sent the message to the small business men.
§ Mr. Archie Hamilton
Will the hon. Gentleman comment on the level of interest rates that would have obtained if we had embarked on the much enlarged rate of public expenditure that was planned by the Labour Government?
§ Mr. Fraser
There is no necessary connection between the rate of interest and the degree of public expenditure. I am strongly of the opinion that when unemployment is growing at an alarming rate, that is the very time to intervene with public expenditure to restore the equilibrium within the economy, not least to the benefit of the small business man, who is the least equipped to survive the rigours of an economic recession, which comes from worldwide recession but which is being exacerbated by the Government's policies.
§ Mr. Stuart Holland
Does my hon. Friend agree that, although Conservative Members are convinced of the link between the level of public spending and the level of interest rates, there is no evidence that they can cite from any monetarist origins, including their famed guru, Professor Friedman, that demonstrates such a link? In practice, public spending 1784 which generates income that is taxed brings revenue to the public whereas a cut in spending that reduces, among other things, profits means that tax receipts are reduced. That has not been grasped by Conservative Members.
§ Mr. Fraser
Interest rates have been raised, and probably will be raised even further, not only for the reasons that have been given by the Government but because of the abolition of exchange control. Money will flood out of the country the first time that the Government face a major sterling crisis. It has happened to all Governments of all parties. The moment that happens, the Government will have to use the interest rate weapon. That will be the only weapon left to them. There will be many other reasons for high rates of interest apart from the relationship between interest rates and public expenditure.
I return to my exorcists. The Prime Minister and the Chancellor of the Exchequer have been sending their messages to the small business man. They have been trying to disabuse him of the idea that the Conservative Party has ever been the friend of the small business man. He has the message from the VAT man. The rate of VAT worries many small business men who trade on the High Street. The message was given when the rate of VAT was virtually doubled, contrary to the concrete assurances that were given in the election campaign by the Chancellor of the Exchequer.
The small business man has the message from the building societies. Many small business men use the mortgage on their houses to finance their businesses. I have a good deal of practical, direct experience of these matters as a solicitor who has practised in South London. The small business man has the message from the VAT man, the building society manager and the bank manager. The latter has told him "The rate of interest is increasing to astronomical heights. If you want to borrow any more money if you are in difficulty, there is a credit squeeze and I shall not be able to give it to you." He has those two messages.
Another message is that the RPI figure has gone up from 10 to 17 per cent. within seven months. It is likely to go up to 20 per cent., as we shall know when the 1785 January figures are published in February next year. The small business men in Devon and other development areas have the message that they will not obtain development grants in future. That will hit the small business man much harder than big businesses. The small business man, by definition, is tied to an area. If he is in a development area, he has no choice about moving elsewhere. However, the large multinational firms and the companies which can obtain finance from foreign sources, or move from one part of the country to another, are not so much affected. The small business man in the development area is much more affected. He has the message as well from that source. He has the message from the Treasury forecasters, who say that next year production will be reduced, not increased.
The small business man, especially the retailer, likes the jingle of money in the customer's pocket. If one runs a stall in East Street or Brixton, or sells gifts in North Devon, that is the sound one wants to hear. One wants to see the man with credit card backing spending in one's shop. The shopkeeper does not want to hear the rustle of increased rates notices from the building society. On all those scores the message has come through that the Tory Government are no friend of the small business man or the retailer. The policies of the Government are calamitous.
Let me turn to the record of the Labour Government on small businesses. Contrary to conventional wisdom, Labour Governments have always had an interest in the development of small businesses as they understand that it was the antidote to the development of monopolies and big business. I do not intend to give a comprehensive list—
§ Mr. Archie Hamilton
The hon. Gentleman referred to the problems of monopolies. I was under the impression that the Labour Government created a few. For instance, they put the shipbuilding interests together. How does the policy of nationalisation fit in with an antimonopoly policy?
§ Mr. Fraser
We could discuss these matters at greater length. The supply of ships for international shipping is an internationally competitive matter. There 1786 is a great deal of international competition. There should be planning and a proper structure for our shipbuilding industry. I refer to the supplying trades providing goods for a shipyard. A large proportion of what goes into the manufacture of a ship is not made in the shipyard but is made up of the small components that eventually comprise the large vessel.
I know of no small business men in my constituency who are worried about the nationalisation of shipbuilding. I doubt whether many in North Devon are worried about that. They are worried about the preservation of the Appledore yard. That yard was under a threat of collapse when Court Line, a private enterprise firm, went to the wall. There was a risk that one of the most modern shipyards in the country would close. I have been there. I know the shipyard. I talked to the staff and saw the place. It is under cover, to start with. The staff were afraid that a successful shipyard would go to the wall. The workers and the suppliers to that shipyard in North Devon greatly welcomed the intervention of public money to save jobs and a highly competitive international enterprise.
§ Mr. Stuart Holland
Does my hon. Friend agreed that it is surprising to hear from the Government that public ownership and nationalisation are bad? Baldwin, when given the chance either to leave the electricity industry as a public utility under private control or to nationalise it, effectively went for the nationalisation solution. He said that he could see no reason to allow privae enterprise to reap a monopoly rent. The monopoly was imposed by a technical solution of the distribution of grids rather than by any other factor.
§ Mr. Fraser
I shall not be drawn too far. Much of British capitalism was not built by small business men becoming big business men. It was built in many cases by the aristocracy who came to the House and obtained powers to build railways. They obtained monopoly powers and powers of compulsory purchase. They created large enterprises, often monopoly enterprises. A combination of powers was given by the House of Commons and the House of Lords. The aristocracy and those with large concentrations of 1787 money were able to create those enterprises. However, I shall not be drawn any further in that direction.
Let us examine the record of the Labour Government in respect of small businesses. First, they did not introduce VAT. They certainly did not increase the VAT rate to 15 per cent. across the board. They simplified the arrangements for traders. Under the 1978 Budget, the non-registration limit was raised to £10,000. They had a Minister in the Cabinet, as well as a nominated junior Minister, responsible for small businesses. There was a great deal of confidence in that arrangement. In the November 1978 survey, 22 per cent. of small firms said that they were thinking of taking on extra labour in the forthcoming year, compared with 12 per cent. of large manufacturers. I wonder whether there is the same degree of optimism in small firms one year later—after only a few months of a Tory Government.
The Labour Government were fully alive to the central problem of loan and equity capital. One example was given by the hon. Member for the Isle of Wight (Mr. Ross) of how national intervention in the source of funding would have been capable, if money had not come from elsewhere, of saving a firm. We were alive to that central problem of the small business. The Wilson committee recommended better methods of trading and equity capital, the mini-market system for small companies' equity capital, and dealt with the problem of raising guaranteed finance. At any rate, last year the firms could afford to repay the loans that they required. I shall return to the question of equity and loan capital. It is central to the problem of the small business, especially the one that wants to grow.
A wide range of tax reliefs was introduced for small businesses. Relief for capital transfer tax was increased to 50 per cent.; there was relief on the transfer of minority holdings and exemption on the apportionment of trading income, which was raised to £25,000 per annum. That was a valuable assistance to small business men. Then there was the Inner Urban Areas Act. I shall not describe its provisions in detail. It provided for local authorities to lend up to 90 per cent. to small firms and for the acquisi- 1788 tion and conversion of premises and other activities.
The Inner Urban Areas Act demonstrated the sensible faith that the Labour Government had in small firms being able to regenerate our inner cities. I should like large firms to return to Lambeth and other parts of South London. The truth is that they will not come back. That has nothing to do with a Conservative or a Labour Government. It has to do with the entire economics of running a large firm. They will not come back to the city centre, or only rarely. The hope is that the small business which grows, or the small business which can remain in existence as a co-operative, will be capable of keeping and expanding the employment potential of our inner city areas.
Contained in the Inner Urban Areas Act is not just the legal machinery but the finance to do that. Counselling was greatly increased. There were the beginnings of an experimental scheme in the North-East under which the National Enterprise Board joined the Midland Bank to assist in the growth of small firms. There was the beginning of the bonfire of forms introduced by Lord Lever. The Government must recognise that they were able to derive advantage from the work started by the Labour Government in reducing bureaucracy and form-filling by small firms. Low-interest loans were available from COSIRA. There was the relaxation of planning restrictions under the planning circulars sent to local authorities, encouraging them to give preference to industry, and especially small industry, when granting planning permission.
I believe that the previous Labour Government and the one before that showed a real and urgent appreciation of the value of the small firm. The Labour Government also created the economic climate in which these firms could develop.
The Minister poured cold water on the Wilson committee. He claimed that it had missed the point and that there should be tax concessions. But, for many small firms, corporation tax is voluntary. The Minister made that point in an article in The Guardian.
What has the Minister done about it? First, he has told us that the most important need of the small business man 1789 is that of venture capital. I agree with him, but where is the big scheme for guaranteed loans and finance? This was the sort of thing that he was so keen on before he came to office. Where is that scheme now? All we have so far is a pilot scheme to provide finance for small firms with a link between the Department's small firms service and the Post Office superannuation fund. We shall want to hear a lot more about the provision of guaranteed medium and longterm equity in loan finance for small firms if there is to be any fundamental change.
Secondly, the Minister is to provide small firms with double garages. I genuinely wish him success, but I think that the economic climate will make it more difficult. There was a time in the United States when a potential President promised one chicken in every pot and one car in every garage. Then it was to be two chickens in every pot and two cars in every garage. Then came the slump and it finished up with two chickens in every garage. I hope that the Minister's garages are occupied by manufacturing firms rather than by people raising chickens. The economic climate is of considerable importance.
Thirdly, we are to have a further increase in counselling. I hope that the combination of advice, a pilot scheme and a double garage will be the start and not the finish. A great deal more needs to happen and there must be a greater degree of Government intervention. The small firm complains about its disadvantage vis-à-vis the large firm. The large firm can get finance from its bank, it can raise money on the stock market, it can issue a debenture and it can issue a prospectus under the Companies Act. But small firms cannot afford to do that. They have to pay a higher rate of interest when they go to their banks. They get shorter-term finance and they cannot go to the Stock Exchange. There are all these differential disadvantages compared with the large firm.
Therefore, the only way to deal with these matters is to give preferential treatment—more favourable tax treatment—to the small firm and to intervene to provide a differentially more advantageous source of finance than the firm has at 1790 present. The Minister shakes his head, but that is what happened in the United States and that has been the experience with COSIRA, which has been successful in the rural areas. One cannot do this without a degree of Government intervention which gives a relative advantage to the small firm over and above the situation in which that firm finds itself.
What are the problems? One must be quite clear about the small firm that one intends to help. The term "small firm" is used very loosely. It is true that small firms provide about 25 per cent. of our employment, but I do not think that the Government need to make a great economic strategy out of helping all the small grocers or all the one-man retail shops. That should not be the object of the exercise. We are looking for growth in small manufacturing, technical and trade professions. I do not include solicitors, accountants or barristers because they are already looked after quite well. However, the man who wants to enter manufacturing or the provision of technical or exporting services is the one who really needs help.
We need to help people, not to stay the same size but to grow. There is no great problem about staying the same size. The small business man regards growing bigger as a problem. Associated problems are getting the risk capital and loan finance to expand. The other main problem is that of entering business at all. Thus, it is not really so much a question of being discriminated against if one stands still. There are considerable advantages for a small firm in standing still. Everyone understands that the availability of that sort of capital is lacking at the moment and that there needs to be a more flexible system for the provision of capital. I believe that we need, as the Wilson committee fore-shadowed, a guaranteed loan scheme.
There is the question of taxation. I shall not say much about this as a problem. Perhaps there is a problem sometimes in obtaining funds inside business or in the transmission of business from one party to the other. But we should recognise that in this country small firms possess some pretty large tax advantages which are not possessed by large firms or those people who are under PAYE. My authority for saying that comes not from some Labour publication but from 1791 The Economist, which believes that small businesses have done rather well in tax matters.
Depending on the legal form that the small firm takes, tax reliefs include the deferring of tax payment for three years for the unincorporated firm, which is indulged in by many firms working on an invoice basis. The owner of a business can claim business deductions for expenses with a strong personal element. This includes cars, telephone bills or business premises. No one can kid me that that is not a widespread practice among small businesses and the self-employed.
The Economist does not mention this, but one can always put one's wife on the payroll. Provided she is put down for £1,044, she will not have to pay a national insurance contribution and her money is tax-free. That tax advantage is used by many small business men. Also, there are start-up losses for the first three years and some of the losses from a business can be set against PAYE. Incorporated firms pay corporation tax at a special lower rate and there is no capital transfer tax for transfers between spouses. Also, there are considerable reliefs for the transfer of business premises, and on retirement those reliefs are generous. Therefore I do not think that we should talk small businesses into this pessimistic mood in which they believe that everything is against them.
In fact, many things run in their favour. Indeed, I quote from an article in the Financial Times which saysJohn de Bruyne, managing director of Gordon-Keeble, which makes and markets medical laboratory products, maintains that"—contrary to the case that had been put earlier in the Financial Times—Britain is a haven for entrepreneurs.He wrote this during a period of Labour Government.In the past four years he has established a rapidly-expanding company which exports about 60 per cent. of its products, including sales through its US associate.This business man says that he finds no difficulties at all and that there are a lot of myths put around—possibly by the Minister who was pretty good at this when he was in opposition—and he then says:My public school contemporaries"—there are a few of them here todayare not busy building up small businesses and I often feel that my educational back- 1792 ground is a handicap when I am trying to manoeuvre a truck at the head of the queue in a strongly unionised depot in order to make the next cross-Channel ferry. Still, I should not complain, since the shortage of entrepreneurs leaves the field open for the rest of us. The Government"—he is talking about the Labour Government—is not hamstringing the entrepreneur. The recipe for success is the same in Britain as everywhere else. Simply ensure that your product can meet or exceed the best international standards of design, quality and style and then move Heaven and earth to honour your delivery dates.That is a pretty glowing article. Nevertheless, we make a mistake by believing that so many problems beset the small business man that he cannot make a success of his business. I remember a furniture factory in Waltham Abbey that had been set up for only about six years. Nearly all its growth took place under the period of the Labour Government. The firm's output grew by 1,000 per cent. or 10,000 per cent.—it could possibly be the latter, I do not remember. About 98 per cent. of its production was exported in an extremely competitive furniture market. There is no difficulty for those who have drive and the co-operation of their work force to set up a small business.
The main problem for a small business is access to capital, both loan and equity capital, in order to grow. Taxation may be another problem in certain circumstances. The third problem for the small firm is the big firm. The problem is in the profile of the market in this country. About 100 of the largest United Kingdom companies control more than half the manufacturing output of the country. The middle section has been taken out of the market. Medium-sized firms have been taken over and there is an imbalance in the way in which small firms grow. It may well be that the concentration and dominance of certain firms has a great deal to do with that. We tried to relieve some of the problems in the Unfair Contract Terms Act. Often, when I talk to small business men about business terms, I find that the harshest terms are those imposed not by the Government but by large businesses which write exemptions in their small print. For small firms, there is no way of negotiating the terms upon which they buy from a large company. In many circumstances, there is not much room to negotiate terms of credit or discounts.
1793 I believe that the outlook is not optimistic for small firms at the moment. That is largely to do with the nature of the economic climate—the increase in VAT and interest rates, the tight monetary policy, restriction on funds and the Government's ideological opposition to intervention. I believe that intervention is one of the ways in which the small firm can be helped. The hon. Member for Devon, North calls, with the best intentions, for the setting up of an anomalies board. In conclusion, let me tell the hon. Gentleman that I find that the biggest anomaly of all is that small business should have any further belief in this Government.
§ Mr. Graham Bright (Luton, East)
Time is catching up on us, and before I make my main remarks I should like to say something about the importance of the small business sector.
Small businesses perform two important functions in the free enterprise economy. First, they provide a most important outlet for managerial innovation. That can be innovation of the service type, by providing an existing service in a new and cheaper way, or it can be innovation of the product kind, that is, by introducing new goods on to the market. Small businesses are particularly effective in those roles. The second characteristic of small businesses is the high proportion of labour that they employ. Over25 per cent. of Britain's existing work force is employed in the small business sector. They also take on proportionately more workers than any other sector when the economy expands. Therefore, the stimulation of the small business sector has a vital part to play in Britain's economic recovery.
In America, a study was published this year by the Massachusetts Institute of Technology, which reinforced earlier but more limited British studies. It showed that 88 per cent. of new jobs in America between 1969 and1976 were provided by small businesses. About 66 per cent. were provided by firms employing fewer than 20 people. Firms less than five years old created 80 per cent. of those jobs. This country can learn a great lesson from that. It was also found that small firms come up with four times as many innovations per research 1794 development dollar spent as medium firms and as much as 24 times as many as big firms. That stresses the important role played by the small business.
The British small business sector faces problems similar to those encountered by small businesses in Europe and in North America, but in this country they represent a rather smaller sector in relation to the size of the other economies.
I should like to deal with the combination of capital gains tax and capital transfer tax. Those taxes affect the survival of many small firms. Capital transfer tax effectively prevents families from passing on a company from one generation to another. Because of the low annual gifts exemption limit—it is now £2,000–it is difficult to get over that problem. There is an anomaly which my hon. Friend the Member for Devon, North (Mr. Speller) might like to take on board. If I were to pass on a £10,000 stake in my company to my heir, and supposing the tax was £2,000 on that, my gift would become £12,000. However, that would not be allowed because the tax would be on £12,000. It is an ongoing problem.
Value added tax is a good example of where the burden of administration is borne by the business community. Small businesses in which the labour of the proprietor and his relatives is vital are severely hit by demands for information from the Inland Revenue or the Customs and Excise. They are also subject to poorly-controlled inquisitorial visits by officers from those Departments. We should look at the possibility of introducing a statutory code of practice to be applied by the Treasury to ensure that Inland Revenue and Customs and Excise inspectors go through proper procedures, especially in VAT cases.
The Employment Protection Act has been touched on briefly in the debate. I should like to make a comment about the quote from The Economist. One business man said that the Act makes it easier to get rid of one's wife than an employee. The hon. Member for Norwood (Mr. Fraser) quoted statistics on the matter. But there is a difference between small firms which have been affected by the Act and those which are genuinely concerned and frightened of it. A survey carried out by the Small Business Bureau showed that 80 per cent. of 804 firms complained 1795 about the Act because it discouraged them from taking on more staff. There is a great difference between an Act discouraging and an Act having a positive effect.
I make a plea to the Under-Secretary that the Government should look carefully at the possibility of introducing proprietary companies. Perhaps we can examine that idea in the next Companies Bill. There is a great deal of difference between a giant concern such as ICI and the local chemist's shop. Obviously ICI has to produce detailed accounts and is responsible for many thousands of pounds of shareholders' money. The information contained in reports of large concerns is obviously vital, but figures in a small family firm are basically historical. One knows exactly what is happening on a day-to-day basis. I should like to see the introduction of a provision to save small family concerns having to go through the charade of complying with existing regulations.
Many of our competitors, particularly the United States and Japan, have detailed loan guarantee schemes. As the dead wood is being shaken out of our business, it is important that we should start to plant new trees. A loan guarantee scheme could provide the money for start-ups. Many high-flying executives who are put out of work because of redundancy or become fed up with the large concern for which they work are capable of setting up on their own. They have the experience and the expertise, but they lack capital and we ought to help them to innovate and generate new business.
I know that the Government are concerned about the cost of such a scheme. Whenever one is taking a risk, there must be a loss somewhere along the line, but that must be balanced against the possibility of generating thousands of new jobs and profits, from which the Government will take their share in tax, as they will from the wages of the workers who are taken on.
The key factors in the small business sector are the burden of taxation and the availability of credit. The Government are known to be sympathetic to the needs of small businesses and to be willing to act on their behalf. This is the appropriate time to press for major action in the next Budget. The support of smail 1796 businesses can be the key to Britain's economic recovery if only the opportunity is taken.
§ Mr. George Foulkes (South Ayrshire)
I had hoped that I should be able to move the second motion on the Order Paper. It is a great disappointment to many of us that we have not been able to reach it.
I shall make a few comments on the motion under discussion which I should otherwise have made in moving my motion, first, because the motion of the hon. Member for Devon, North (Mr. Speller) includes a reference to voluntary services, although there has been little discussion of their role, and, secondly, because small business men, like the rest of us, eventually grow old and suffer the same problems as other elderly people. Of course, some are also disabled.
I had intended to mention a number of matters of direct interest to small business men. For example, it is deplorable that the Government have not introduced a national concessionary fare scheme, which was included by the previous Government in a discussion document. Such a scheme would have allowed elderly and disabled people to travel at half price on all transport systems in every part of the country.
§ Mr. Alfred Morris (Manchester, Wythenshawe)
Is my hon. Friend aware that many hon. Members will much regret that it seems unlikely that he will be able to move his motion? It is extremely important for elderly and disabled people, and we hope that he will have the opportunity to move the motion in the near future.
§ Mr. Tristan Garel-Jones (Watford)
On a point of order, Mr. Deputy Speaker. Am I right in thinking that the understandable attempt of the hon. Member for South Ayrshire (Mr. Foulkes) to move his motion together with the motion under discussion is out of order, and that the intervention of the right hon. Member for Manchester, Wythenshawe (Mr. Morris) is also out of order?
§ Mr. Deputy Speaker (Mr. Bernard Weatherill)
No. As long as the hon. Member for South Ayrshire (Mr. Foulkes) relates his remarks to matters such as 1797 voluntary services, which are part of the first motion, and does not go into his own motion—he must not attempt to move that in the middle of the debate on the first motion—he will be in order. I shall be listening carefully.
§ Mr. Foulkes
I thank you. Mr. Deputy Speaker and my right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris). It has been noticeable that the Government business managers have been wheeling in one Conservative Member after another to enable the debate on the first motion to continue and to ensure that we do not get on to the second topic.
§ Mr. Foulkes
It is most regrettable that this situation has arisen. Those outside will not understand it.
§ Mr. Major
The hon. Gentleman has made a most unfair attack. One of his hon. Friends spoke for 36 minutes, and it was sheer, dire, verbal anaesthetic for us all. He intervened five times and has now gone home. It is disgraceful to accuse the Conservative side of the House of trying to pack the debate.
§ Mr. Deputy Speaker
Shall we attempt to get back on course? The hon. Member for South Ayrshire (Mr. Foulkes) should not go into what people outside are thinking but should relate his remarks to the motion under discussion.
§ Mr. Foulkes
I have made my point, Mr. Deputy Speaker.
The national concessionary fare scheme which the previous Government intended to introduce would have enabled many old people to get to small businesses and would have helped those businesses to prosper more, since old and disabled people would have been able to get to them without having to pay extortionate and ever-increasing fares. That is relevant to small businesses.
1798 I also mention the Government's public expenditure cuts, because they relate directly to the motion. The public expenditure cuts which local authorities are having forced on them by the Government result in local government having substantially to cut grants to voluntary organisations. The Conservatives are guilty of a dangerous piece of double-think on this issue. They are cutting back the money made available to local authorities, which means that the statutory provision in terms of home help and meals on wheels services is having to be reduced. But then they suggest that the voluntary organisations might be able to restore those services and that more should be done by voluntary effort.
That is a strange attitude for Tories to take. There are services which the voluntary organisations rightly and successfully can provide, but they do not include those which the statutory organisations are at present unable to perform, and it would be wrong if they tried to provide them.
The irony is that, because the Government are pressing local authorities increasingly to save money, cuts are being made to the very voluntary organisations which might improve and develop the services. If I had been able to speak at greater length, I should have pointed to a number of examples of local authorities—including those of Newcastle, Oldham and Leicester, and in other parts of England as well as in Scotland—which are being forced to reconsider their grants to the voluntary organisations.
The voluntary services are suffering because of this Government, and that is why my motion is so relevant to that moved by the hon. Member for Devon, North.
Another aspect is that old and disabled people are suffering from inflation. The Government have almost doubled the rate of value added tax. This affects old people, and it affects small business men even more. It means that old people have to pay hugely increased costs for clothes, household goods and services which are vital to them. That in turn means that small business men find it difficult to maintain their trade.
The Government's economic policy is affecting small business men adversely. It is affecting the elderly and disabled equally adversely. In my view, it is 1799 totally unnecessary. The Government say that our national borrowing is too high. In reality, however, our public sector borrowing requirement is lower than that of many other countries which are more prosperous. It is lower in real terms than when the Conservatives were last in power. The Government say that we spend too much on the public sector. I can tell them that we spend less than most of our partners in the European Community.
What makes the misery of old people who face the coming winter even worse than it would otherwise be—
§ Mr. Foulkes
Without going into that, Mr. Deputy Speaker, what makes the plight of the small business man worse than it otherwise would be is that the Government's economic policies are totally unnecessary. That is why the future looks even more miserable than ever.
§ 3.2 pm
§ Mr. John Major (Huntingdonshire)
I begin by congratulating the hon. Member for South Ayrshire (Mr. Foulkes) on his brevity. It is a refreshing change today. I was very pleased that he bore in mind the fact that there are other hon. Members waiting to speak. I shall follow his good example and be relatively brief.
I cannot proceed, however, without congratulating my hon. Friend the Member for Kingswood (Mr. Aspinwall) on his excellent maiden speech. He spoke most movingly on the subject of voluntary service. It is clear that he has a great affection for the principle. I am sure that we all look forward to hearing him on that and other subjects on many other occasions in the future.
I know that my hon. Friend, as we all have done, has agonised over his maiden speech. I was advised by an hon. Lady when I was agonising over my own that making a maiden speceh was rather like having a baby: it was terrible before-hand, it was an awful effort during delivery, but one got a marvellous night's sleep afterwards. After his splendid speech, I am sure that my hon. Friend will sleep very well tonight.
1800 We have come a long way since the principle of the 1960s when the fashionable philosophy was that big was beautiful. Over the years, we have come to recognise the value and to understand the problems of small business rather better. However, I am afraid that we recognise the value and understand the problems rather better than we have got round to finding solutions to the problems.
Having sounded that rather sour note, I think that we should not undervalue what has been done, especially in recent months. If business men had been told in March of this year that by Christmas the Government would have cut income tax substantially at all levels, eased the investment surcharge, development land tax and stock relief, raised the level at which corporation tax started and, notwithstanding the rate being as high as 15 per cent., introduced a single rate of VAT, I think that they would have been both astonished and delighted.
In that connection, perhaps I might take a moment to pay a sincere tribute to my hon. Friend the Under-Secretary of State for his remarkable work in Opposition to advance the cause of small businesses. Government supporters are delighted to see him in a position where he can put all his work to good effect during the months ahead.
To be strictly fair, if we had also said to small business men that there would be a 17 per cent. minimum lending rate, they would have found much of their delight ebbing away. I do not propose, having spoken on the subject before, to be seduced, so short is time, down that road in any detail. It is my conviction, contrary to what I thought—if it is not unnecessarily provocative to say so—was the economic drivel of the hon. Member for Vauxhall (Mr. Holland); that interest rates cannot fall until and unless public expenditure falls and remains at a lower level than in recent years.
I wish to turn to a practical problem that has been brought to my notice in a number of ways in recent months. Several hon. Members have touched upon the matter. It is the problem faced by small firms when they outgrow their initial structure. These firms have progressed beyond the bare bones with which they began and need loan capital and equity capital to expand. I can give a practical illustration from my own constituency 1801 within the last few days. Two business men, young men in their early forties, both immensely able, decided five years ago to go into business on their own. They purchased a service firm. I will not identify the nature of the business. It would regrettably identify the firm in Huntingdonshire.
When the two men purchased the firm, it was under-capitalised and making a loss. They increased the capital against the security of their own personal assets. In five years, they had corrected an ailing balance sheet. Their turnover has multiplied many times. They have established a growing clientele and a very good business relationship.
The firm is now in profit. Whereas a small number of people were formerly employed, the firm now employs 15 and is looking to employ more. It is on a sharply rising trend of business and doing marvellously well. But, despite the various areas said to be open to achieve equity and working capital, the firm is finding difficulty in expanding its capital base and providing sufficient working capital with which to grow. That has happened despite the work of ICFC and COSIRA. May I say in passing that I hope that COSIRA will be permitted to continue its good work in years to come?
The problem faced by my constituents is not unique. The fact that it is not unique shows the importance of the problem. Many companies face similar problems. But those companies must grow if we are to have a successful and expanding economy and sufficient jobs. That is the dilemma that we face. Do we subsidise them? A subsidy, in the sense that it would be understood by the hon. Member for Norwood (Mr. Fraser), is not what we have in mind. It would be inconsistent with our philosophy.
Ideally, it is said, new equity comes from retained profits and working capital from the banks. In the real world, the sort of firm about which I am talking, making the transition, as all small firms must, to a larger scale of business, is not able to fund that sort of expansion out of retained profits. At a time, largely due to inheritance, when we probably face a recession in 1980, it is even less likely that the operation can be funded in that way.
1802 A small firm, at an embryo stage of development, finds itself highly vulnerable as it seeks to move into a different scale of operations. It is said, in terms of working capital, that banks exist to fund established companies at that stage of development. I am bound to say that I am not as sanguine as some of the banks that they provide the right sort of capital at that stage of development. I agree with the hon. Member for Greenwich (Mr.Barnett).
I should like at this stage to enter a special plea with the Minister. I hope that the Government will not bury entirely the interim Wilson report entitled "Financing of Small Firms", especially one part, to which I should like to refer. On 12 November, my right hon. Friend the Secretary of State for Industry confirmed to my hon. Friend the Member for Luton, East (Mr. Bright) that the Government were examining the possibility of a loan guarantee scheme for small businesses involving the assistance of the clearing banks. Later, on 4 December, my hon. Friend the Under-Secretary of State for Industry, in a written reply, advised my hon. Friend the Member for Surrey, North-West (Mr. Grylls) that the matter was still being examined. I formed the impression that his reply was rather chilly. I hope that the chilly reply was Civil Service prose and not Government policy.
I hope that the Government will examine the loan guarantee scheme further. I hope that they will be able to implement it. I do not propose, at this late stage of the debate, to rehearse in detail the pros and cons, but I believe that the Wilson committee's comments merit careful consideration on this point.
The committee reached its conclusion after examining the experience of other countries. Any Government commitment would be a contingent liability only, given the great operation proposed, in concert with the clearing banks. In paragraph 29 on page 28, the committee said:We recommend that a publicly under-written loan guarantee scheme, with a limited subsidy element and some part of the risk retained by the banks, should be set up on an experimental basis".That is a modest but worthwhile proposal and I hope that the Government will give it a fair wind.
1803 My hon. Friend the Member for Surrey, North-West has already asked the Minister to issue a consultation paper to examine such a scheme further. May I add my weight to that request? I hope that, in this limited and modest way, the Government will play a role in assisting the equity and working capital finance of small firms.
§ Mr. D. N. Campbell-Savours (Workington)
It is customary with me to make a brief speech, but on this occasion, particularly considering what happened in the steel debate last night, I have a right to time and I intend to exercise it.
This is an important debate. It is a tragedy that it turns on a narrow motion, which fails to divide areas of small business into service, trade, smaller industry or small business generally. One has to divide the subject before one can make an effective analysis of what has gone on and what has gone wrong.
The motion also fails to include reference to a general policy for the promotion of smaller industry, particularly as it affects the regions. I had hoped that this Government would provide some time over the last few months for a debate on smaller industry, but I am told that their legislative programme precludes their doing so.
We in Workington do not underestimate the important role that smaller industry has to play in future. As we now look forward to periods of increasing unemployment, we look to smaller industry in our fight to resolve those problems. We need a regionally oriented small industry promotion policy.
Over the last five years, there has been much fashionable talk about smaller industry but, despite some initiatives and developments under the former Government, not much action. I pay my respect and gratitude to the The Guardian for its positive introduction of a page dedicated to small business, edited by Clive Woodcock, because that has played a prominent part in the development of the debate on this matter.
As industries, particularly larger ones, close, many of us look to the smaller industries to take over and we must hope 1804 —and expect—that a fair debate will develop. Yet, in the debate that has already taken place, by failing to tackle the root problems we have failed to help smaller industry. I divide those problems into two sections—the problems in smaller industries in the regions, and those of smaller industries in the central conurbations.
In the regions, the problems are transport to the markets, general communications and small local markets. Local markets have an important part to play in the development of smaller industries, most of which begin by supplying their immediate locality. Another problem in the regions is that of higher prices for the supplies and services that the industries themselves need. That is a severe impediment to many of us in the development areas. There are problems in securing premises, particularly in the development areas, where there is not enough property available to small businesses.
Small manufacturers in the central conurbations have two major problems—lack of premises and cash flow. I shall discuss cash flow problems in a wider context. The study published by the Department of Employment to which I have referred related to employment protection legislation. That study revealed a major problem. It said:The respondents were then invited to list all the main difficulties they faced. Employment legislation was mentioned by 6 per cent. of respondents, ranking equal thirteenth. Fourty-four per cent. mentioned financial problems".Those financial problems stem from the way the banking system is organised in this country. The Government should take a positive decision on the establishment of a bank the objective of which would be to support the smaller manufacturing sector of our economy.
I wrote a document some years ago in which I referred to a regional development bank. The former Member for Rossendale outlined those broad proposals in the House two or three years ago. I proposed the establishment of a regional development bank managed by the State. The interest rates charged would depend upon the region. The criteria that would govern the level of interest rates charged by that bank would 1805 be the level of unemployment, the relationship between vacancies and unemployment in an area, or the unemployment multiplier.
In other words, in a part of the country where unemployment was particularly high the interest rates charged would be lower than in other parts of the country. The rates would be subsidised. In that document I proposed an import substitution discount on interest rates whereby if the Government designate certain products as necessary in the interests of an import substitution policy those products would attract interest rate subsidies.
From the Socialist point of view, I advocated what I called a social control discount arrangement whereby companies that were willing to introduce certain forms of industrial management—forms that I believe will be introduced in the later 1980s—would attract a certain discount on their interest rates. The loans would not be on general overdraft only. Such loans would be in an important new form; they would be on discounted invoice values. In other words, they would provide an incentive to companies to shift their goods and then claim the special cheap money available from the bank. I believe that that would be a positive incentive and would certainly help smaller manufacturing industry.
I have considered the question of the guaranteeing of these loans. I suggest that the Government consider introducing, through the bank, a system of credit guarantees in the form of a post-dated cheque whereby the purchaser, at his option, would be able to sign a document which underwrote the position of the person borrowing from the bank. Thus, a small industrialist going to a bank for money would not need to put himself in hock as he must do under the present system. Many smaller industrialists now have to provide evidence of value of goods or worth at a bank before they are able to raise money. Such a system often defeats the objective of providing funds for the small business sector.
The system that I am proposing would dramatically improve the gearing of companies. Before I came into the House, I was an entrepreneur—one of very few on the Labour Benches. My experience is that the small industrialist becomes a 1806 banker. He lends money to his buyers and to the people that he supplies. The problem is that a small company which extends three months' credit and whose turnover is £1 million a year could, in the cycle of distribution, be permanently lending to other people as much as £200,000 of the vital capital which should be used to expand that business. Some small firms get round that by discounting their invoices. But most small companies cannot afford that level of expenditure and the cost of that form of interest.
During the Committee stage of the Competition Bill I mentioned the trade between large and small manufacturing industries. Large manufacturers often demand the right to extended credit. That damages the interests of the small manufacturing industries. I ask the Minister for Consumer Affairs whether she would consider establishing a code of conduct. Companies could register that they are willing to comply with that code so that suppliers and others know with whom they are dealing.
I turn to the question of premises. I am aware of the efforts of the English Industrial Estates Corporation, the county industrial development units in the regions, the Departments of Trade and Industry, through advance factory allocations, and the new towns. We need a policy which will provide cheap nursery units. It is not good enough to talk about rentals costing £1 or £2 per sq. ft. for the man who wants to start an engineering workshop in the regions. We must find a way of providing cheaper space. A price of 25p or 50p a square foot would be realistic. Many small manufacturers require cheap space and low overheads in the early days of their industrial endeavours.
The regional local authorities should consider setting up municipal enterprise boards with the right to invest in small manufacturing industries and to hold equity. They could work in conjunction with a regional development bank to raise the necessary capital.
Various charges and costs fall on the backs of smaller companies, particularly in the regions, which are unfair because they fall to a lesser extent on industries in the main conurbations. The Government could act in that respect. For instance, if one of my constituents who runs a small industry wants to telephone a 1807 buyer or supplier, his call will cost him more because he is further away from the main centres. His telephone bills will be greater than those of a firm operating in one of the main centres.
The Government should examine the possibility of regional freight subsidies. If a business man in West Cumbria wants to send a 40-ft. articulated lorry to London, it costs £340 return. Somebody in the home counties can send the same lorry full of goods to London for between £50 and £75. Transport costs are a positive impediment to small industry and to larger industries which may otherwise move to the development areas. A special system should be developed throughout the country.
The Government should also examine energy costs. In the light of successive Governments' preoccupation with the supply and demand of energy because of international prices, the Government should consider introducing variable energy charges. Items such as gas and electricity should be cheaper in the regions and more expensive in the main conurbations. That would have a true effect in that it would help us in the regions to attract much of the industry that at the moment sees no benefit in going there because the incentives do not exist.
We should also consider the whole question of trade exhibitions and how they operate nationally. Most of smaller industry recognises the need to expand and will naturally exhibit in places such as the exhibition centres in Birmingham, Earls Court, Harrogate, Brighton and elsewhere. There is room for the Government to step in here and help the smaller business man, particularly the smaller industrialist in the regions, by paying most or all of his trade exhibition charges. That would be a positive help to smaller manufacturers because trade fairs and exhibition charges are a large sum in their budget. Such companies treat trade exhibitions as a vital element in expansion, the provision of jobs and the creation of profitability.
Some of my suggestions may appear costly, but if the Government channelled some of the money that they make available under the Industry Act 1972 into far more incentive-based forms of subsidy to the benefit of smaller manufacturing 1808 industry, I would find that perfectly acceptable and I would vote for it. The problem is that over the years regional aid has not been incentive-based. In Japan and Southern Italy much of the capital is laid out on the basis of incentives.
There is an army of civil servants in this country collecting statistics on trade and industry. I often wonder what happens to that information. Members of Parliament can draw upon it in the Library and study it, but if that information were supplied to smaller industries in a comprehensible form they could make much more of it than we do in discovering which new products to make. There is a Government document giving the overseas trade statistics of the United Kingdom. If one flicks through its pages, one sees millions of pounds, vast quantities and statistical columns relating to all sorts of products all of which could be made in the United Kingdom. The problem is that all the information that is available in the Departments of Trade and Industry is not getting through the system.
The Government would do well to consider introducing a simplified form of documentation. It might cost several million pounds. However, we should think in terms of what it would create by way of new manufacturing processes. The information could be fed through the system to manufacturing industry to guide the people who design new products and plan markets in the vital decisions they take. That is done to a certain extent in Italy. People from the Ministries circulate throughout industry explaining what should be made, because clearly it is in the national interest that certain products should be produced at home.
I know that the Conservatives will violently disagree with me on my next point. There is a clear and positive impediment to the development of smaller manufacturing industry and small businesses generally. It is the existence of inheritance. If one subscribes to theories about individual initiative, freedom of enterprise and the right of a man to stand on his own two feet, one must take that to its logical conclusion. Very often, those on the Government Benches forget that much of the damage that is done to this possible growth area of the economy 1809 is done by the right of one generation to transfer to another generation large tranches of inherited wealth. If you wish to create a system which is based on real enterprise—
§ Mr. Deputy Speaker
Order. I am sorry to interrupt the hon. Gentleman, but I am not creating any system. Hon. Members might do so.
§ Mr. Campbell-Savours
I apologise to you, Mr. Deputy Speaker. If hon. Members wish to create a system where incentive is real and where real gains can be made by going into industry, they must increasingly penalise those who have the right to transfer their wealth through inheritance. When the passing on of wealth is no longer possible on the present scale, we shall be able to create a nation of people who are far more willing to act on their own account and play their part in the development of the economy. That is a crucial point.
§ Mr. Gerry Neale (Cornwall, North)
I shall detain the House for a few moments only.
I am a small business man. I am not a shopkeeper, but I have an interest in a number of small businesses. I do not know whether I am qualified to call myself an entrepreneur, as the hon. Member for Workington (Mr. Campbell-Savours) did.
The hon. Member for Norwood (Mr. Fraser)—who has left the Chamber—showed a considerable cynicism for Conservative Members and their interest in small businesses. I come from a constituency, North Cornwall, where, according to the National Federation of Self Employed, we are in the top five of the league of constituencies for small business content. On all the definitions made of small businesses, every locally based industry in my constituency falls within that classification. Apart from the statutory bodies, the total employment strength is in small businesses.
The hon. Gentleman seemed to argue that the small business community in his constituency did not have much to say about nationalisation, nationalised companies and the support for them. He should come to North Cornwall and tell that to the small business community. I 1810 strongly suspect that if his argument about his party doing so much for small businesses had been true, not I but an hon. Member on the Labour Benches would have been returned at the last election.
I touch briefly now upon some points ably made by the hon. Member for Greenwich (Mr. Barnett) on planning. There are certain changes going through under the Local Government, Planning and Land Bill—I am sure that it will soon pass into law—that will greatly assist the speeding up of the process on planning applications. The most important factor that the hon. Gentleman brought out was the lack of consideration given to economic matters within planning applications and the effect on small businesses if refusals are made when they apply to enlarge premises to meet their requirements.
One factor that has been missed is that it is the processes under the use classes order requiring planning consent for changes that cause delay and added bureaucracy. Through misunderstanding, or lack of understanding, within the local planning committees, small businesses do not obtain the consents required.
Reference was made to the circular issued by the Labour Government on the speeding up of the planning process. I feel that both the Labour Government and my right hon. and hon. Friends then in Opposition came to apply themselves to the problem of small businesses simply because of the pressure which arose in the small business community for its case to be heard. There was, I am sure, no other reason. Governments must realise that they cannot impose a macro approach on the small business community and hope that that will change the small business world.
The issuing of Government circulars on planning made no difference to the authority on which I served as a member of the planning committee. It made no change in the approach to the consideration of applications coming from small businesses. We must therefore find ways by which we free the small business community more in its desire to thrive and its need for change or extension in its premises.
I very much hope that my hon. Friend the Under-Secretary of State will bring 1811 every pressure to bear on his colleagues to ensure that changes take place in the planning law to facilitate growth in all areas, and especially in Cornwall, where we depend so heavily on small businesses.
§ The Under-Secretary of State for Industry (Mr. David Mitchell)
I congratulate my hon. Friend the Member for Devon, North (Mr. Speller) on securing the opportunity for the House to discuss this important motion. My hon. Friend calls attention, first, to the problems of small businesses and, second, to the problems of the voluntary services. Third, he calls for consideration of the appointment ofan unpaid Anomalies Commission to identify illogical legislation that imposes a burden upon small businesses and voluntary services.I congratulate my hon. Friend on the vigour with which he pursues the representation of his constituency and his constituents' problems. He insisted that I visited his constituency a few weeks ago. He arranged that I should meet the North Devon manufacturers to hear their views at first hand. He seeks to worry the life out of Ministers on the problems of North Devon and the community which he represents, and he certainly does it very well.
Again today, as he has on previous occasions, my hon. Friend stressed the need for a North Devon link road, the Barnstaple bypass and other communication links. I think that he is the only Member of whom I have heard who has ever persuaded British Rail to bring one of its fast new trains into the centre of his constituency as an experiment to prove what could be done to improve the rail link there. He has now circularised 100 organisations and drawn an immense trawl of information on the problems and worries of small businesses and others.
I shall, if I may, return to the points made by my hon. Friend the Member for Devon, North. I wish at this stage to join other hon. Members in congratulating my hon. Friend the Member for Kingswood (Mr. Aspinwall) on his maiden speech. He showed humour. He aroused our interest and held it. He held the attention of the whole House as he described his constituency and some of its special problems. He referred to Bristol as a suburb of Kingswood, and I have to apologise to my hon. Friend for 1812 recently—without realising it—crossing the border from one to the other without first telling him that I would do so.
I think that the House should know that my hon. Friend the Member for Kingswood is a remarkable new Member in that he won a seat on his local authority from the opposition, he went on to win a seat on his county council from the opposition, and he then went on to win a seat in this House from the opposition. So no one can say that my hon. Friend has come by any route other than the hard one. He is already secretary of the parliamentary committee for health and social security, and I am therefore not surprised that he stressed the evergreen flow of voluntary activity, as well as the population trend and what it means for his constituency.
It is important that local government should not fail to recognise the cost effectiveness of a little help to unleash quite considerable voluntary effort, or to realise that some authorities could accidentally, in their economies, not get their priorities right in terms of the most cost-effective way of securing the objective of helping the weakest in the community. I join my hon. Friend in paying tribute to the selfless service which is given by so many people in our voluntary groups throughout the country.
My hon. Friend the Member for Devon, North and many other hon. Members have talked about the level of minimum lending rate and the cost of overdrafts. They referred to the cost of borrowing if someone is seeking to finance the growth, or even the maintenance, of a business. My hon. Friend drew attention to the position of a garage proprietor in his constituency. He mentioned a solicitor who had referred to the problem when discussing the difficulties faced by his clients. The matter was taken up by the hon. Members for Greenwich (Mr. Barnett) and Isle of Wight (Mr. Ross), my hon. Friend the Member for Winchester (Mr. Browne) and the hon. Member for Norwood (Mr. Fraser), who spoke from the Opposition Front Bench and who injected a party political note into our proceedings.
Minimum lending rate at its present level is a shock to the business community. It can be accepted only if it is explained how it has happened and what 1813 we are seeking to achieve. I shall put matters into context so that the House may know what we are doing and why we are doing it.
The Government received a legacy from the Labour Government that they did not expect. It was rather like President Carter's arrival at the White House, when he is alleged to have said that the situation was, to his horror, as bad as he had been saying during his election speeches. We knew that last year Britain had barely paid its way in the world in spite of a £3,500 million uncovenanted benefit from North Sea oil. What we did not know, and what Labour Members and the Labour Government did not know—there is no party political bias in these remarks—because of a strike by those operating the computer system that is used to present the export figures, was that in the first quarter of 1979 we had swung into a £1,000 million deficit in spite of an increasing contribution from North Sea oil. We inherited that legacy with a money supply that was out of control and a programme of increased Government expenditure of no less than £3,500 million. There was a programme for increasing expenditure when the nation was producing less from its manufacturing industry than it had produced five years before.
We also inherited the Labour Government's record of assistance to small businsses, to which the hon. Member for Norwood has referred. However, he did not say that during the lifetime of the Labour Government bankruptcies reached the highest level ever recorded in the small business sector. The level was higher than those that were reached in the depths of the depressions of the 1920s and 1930s.
Why did that happen? It occurred because of the effects of inflation. Inflation is a destroyer of businesses. It makes every business cash-hungry. Every business requires more money to achieve the same sales.
§ Mr. Stuart Holland
If the hon. Gentleman is persuaded that it is because of inflation that the level of bankruptcy rises, how does he account for the fact that high rates of bankruptcy occur during major recessions, such as those that were suffered in the 1930s and 1970s, 1814 when firms lose sales? In the 1930s there was no inflation. In any event, inflation increases cash flow to enterprise. It is hardly the cause of the problem.
§ Mr. Mitchell
If the hon. Gentleman had been involved in running a business, he would know that the reality is that year by year the overdraft increases with the pace of inflation because there is the need to have more money. There comes a stage when the bank manager says. "I am sorry but you cannot go any further".
Either one must restrict the growth of one's business or put up the shutters. Because of those two factors and the level of bankruptcies, the previous Government did much damage to the small business sector. We inherited an economy in which they had stoked up inflation. Of course, inflation is not new. We sometimes talk about it as though it were a new phenomenon. The Romans tried it. The Emperor Diocletian wanted the funds to pay for an unpopular war and a massive increase in Government expenditure. How did he finance them? He said that he would not make himself unpopular by raising taxation but would raise funds by another method. He minted extra coins and doubled the money supply.
The Government inherited a rapidly increasing money supply that was virtually out of control. We are determined progressively to reduce the money supply. However, as it is reduced we must make choices that we were not obliged to make previously, when money was printed. We must choose between Government and private sector expenditure. We seek to cut the pace of Government expenditure as quickly as possible. The difficulty is that that takes time. Anybody who runs a business knows that. When we succeed in doing that, we shall be able to reduce the minimum lending rate. With a high MLR we are ensuring that the private sector cannot spend the money that is now being pre-empted by the Government. When the Government cease to pre-empt the available resources, funds can flow into the private sector.
I give that explanation as it is important for the policy to be understood. Our constituents should understand why we must go through this difficult phase, 1815 otherwise desperate destruction will be wrought if inflation is allowed to run rampant.
I join my hon. Friend the Member for Devon, North in deploring the "fight-the-cuts" campaign by a voluntary service magazine. The problem is not that the Government spend so much but that as a nation we can afford so little. We must create the wealth before we can spend it. We must bake our cake before we eat it. Sometimes people try to do the reverse.
Small businesses are a major source of wealth creation. They contribute to our quality of life by providing diversity and variety for the individual. As my hon. Friend the Member for Luton, East (Mr. Bright) said, they also provide 25 per cent. of the jobs at present. They are the seed corn from which middle-sized businesses will come in a decade. If there is not a massive increase in the births of small businesses, there will not be the middle-sized businesses on which our daily bread depends.
§ Mr. Mitchell
I shall deal later with the hon. Gentleman's points.
My hon. Friend the Member for Winchester referred to Napoleon having scoffed at us as a nation of shopkeepers. That is an interesting point, which I looked up. It is a mistranslation. Napoleon did not say that. He said that we were merchants and merchant adventurers. Indeed, he underrated us. Parliament and the country often underrate what our merchant adventurers could do if they were given sufficient encouragement.
My hon. Friend the Member for Luton, East referred to the United States study which showed that companies with under 20 employees and new companies were net creators of jobs over a lengthy period. He is absolutely right. We must give priority to such companies. I had hoped to spend more time in dealing with the details of what we seek to achieve. We have far too few small businesses. We need more. There are too few because the burdens, hurdles and barriers have been too great, and the incentive to jump them has been too little. The Budget was the first step on the road to recreating the incentives which are needed.
§ Mr. Michael Grylls (Surrey, North-West)
Will my hon. Friend comment on the suggestions that have been made about a loan guarantee scheme? Many people feel that such a scheme would be a great help in the interim while the Government are trying to change the climate in favour of private enterprise. That will take time, but small businesses do not have time. A loan guarantee scheme would help.
§ Mr. Mitchell
I shall deal with that point later.
On the subject of the pattern of taxation, I should like to parody a certain advertisement. Tax cuts are the energiser which reach the parts of the body that no other medicine can reach. I think that my hon. Friends will agree with me.
My hon. Friend the Member for Devon, North dealt with the problem of farmers. He will forgive me if I do not go into that problem in detail. Farmers are important small business men. As my hon. Friend said, it is important that the green pound should cease to have a distorting effect. Our farmers should be able to compete fairly with those on the Continent. The green pound gap has been reduced from 27 per cent. It was 9 per cent. a few weeks ago, and we have since had a further 5 per cent. devaluation. We are on the way to removing the artificial distortion caused by the funny money. I hope that we shall succeed in removing the other distortions within the EEC which inhibit our farmers from being able to take advantage of their greater efficiency.
My hon. Friend the Member for Winchester referred to the need for more money to be invested in small businesses. The outside investor is enormously important. The hon. Member for Isle of Wight referred to the need for funds for COSIRA. I also regret that that organisation ran out of money earlier this year. But that was nothing to do with the Government. The rumours that the Government cut the finances available during the current year were not true. The demand for funds outran the amount available. COSIRA has now made agreements for finance with a number of institutions, including the National Westminster Bank, the Midland Bank and ICFC, to the tune of £14 million, which should help substantially.
§ Mr. Stephen Ross
I welcome that. But that method does not always work. I hope that it will work in this case.
§ Mr. Mitchell
We should like to know of instances of viable projects which COSIRA would have financed.
My hon. Friend the Member for Winchester said that the banks were being somewhat conservative. He referred to the need for them to extend their barriers on lending. I agree with that.
I now turn to the loan guarantee scheme about which my hon. Friend the Member for Luton, East, and my hon. Friend the Member for Surrey, North-West (Mr. Grylls) spoke. The Government are considering a range of measures which will help with the financing of small businesses. It is a matter to which we are giving careful consideration. A trial scheme is being run in Wales, where the Welsh Development Agency is acting as a guarantor, in partnership with three of the major banks. We should see how that works out and consider what should follow from it.
I turn to the barriers and burdens that were described by my hon. Friend the Member for Devon, North, who spoke of anomalies—of Sunday trading problems such as buying pet food. I agree that the good Book encourages one to feed one's animals on a Sunday. I also concede the irritations of standing outside the fish and chip shop in the rain to avoid VAT. My hon. Friend outlined many petty ways in which the law is practised. It is important that we should understand that this affects people's motivation. I agree that there is an unease and an uncertainty and that people feel rather like Gulliver—tied down by a multitude of small, individual strands.
My hon. Friend proposed an anomalies commission with quarterly meetings and a national suggestions box. That is an interesting and thought-provoking idea. I go along with its purpose but not with my hon. Friend's method. I believe that it is Parliament and Members of this House who form a standing commission for anomalies and that Ministers should always be ready to consider representations from Back Benchers on this subject.
§ Mr. Speller
I am greatly encouraged by my hon. Friend's words, and if there is a new Standing Committee of the House 1818 for handling anomalies on an impromptu basis I shall at a later stage seek leave to withdraw my motion.
§ Mr. Mitchell
I believe that the House itself provides the machinery for dealing with anomalies and that Ministers should always be open to hear the points that Back Benchers raise. I have made very careful note of all the points raised by my hon. Friend during the course of this debate. My door, as a Minister with responsibility for small businesses, is more open than any door in my Department has ever been before to organisations that represent small firms.
My hon. Friend the Member for Epsom and Ewell (Mr. Hamilton) raised a number of questions, including the matter of questionnaires. I am happy to tell him that we have saved half a million questionnaires from going out to the desks of small business men. These statistical inquiries, for those who are connoisseurs of useless information, represent a pile of paper that is bigger than Big Ben.
I shall give details of another relief from burdens that we are able to announce this week. From 31 December companies which are neither holding nor subsidiary companies, with a turnover of less than £1 million, will not have to make disclosures in the way that they have had to do in the past. Substantially less exposure of turnover and salaries of individual directors will make many small business men feel that they have the same privacy in their affairs as the ordinary citizen expects and normally has in this area.
There is a great deal more that I would like to say, especially about the points raised by the hon. Member for Workington (Mr. Campbell-Savours). I shall make some points about premises and planning which the hon. Member for Workington should not overlook in his call for public expenditure on provision of premises. He suggested rents as low as 50p a square foot. It would be impossible for the Government to provide all the finance that is needed to provide all the small premises that we want up and down the country. We must rely on the private sector to provide a large proportion of it. But the private sector will not do that if one builds accommodation alongside at subsidised rents such as to 1819 drive out the private provision which we need to encourage
My Department has commissioned Coopers and Lybrand to investigate the position of small firms in relation to premises. They will look at the supply and the demand to see what we can do to encourage more provision by the private sector and ascertain what more provision can be made by the Government.
My hon. Friend the Member for Cornwall, North (Mr. Neale), in a short but vigorous speech, drew attention to planning and the way in which it can damage the prospects of small businesses. The opportunity of harnessing together the self-interest of the small business man and the national interest, creating more wealth in the country, is something which we should encourage. The Government will seek to crusade for the birth of more small businesses once we have dealt with the problems of inflation and the damage that it does to the whole of our society—to the opportunities for people to save and the opportunities for business to expand. Nothing is more important than that at the present time—
§ It being Four o'clock, the debate stood adjourned.