§ Mr. Peter Temple-Morris (Leominster)
I beg to move,That this House recognises the great importance to the economy of small businesses together with their substantial contributions towards greater prosperity and more employment; welcomes measures already introduced in favour of small businesses; and urges Her Majesty's Government, in recognising their potential for the future, to do everything possible to encourage them.
I welcome the opportunity to have this debate and it is a great pleasure to introduce such an important subject. I am grateful to my hon. Friends and to the Opposition Members who have come here on a Friday, because we all have difficulties on that day. However, the subject is so important that the Conservative Party is well represented and I am pleased to see my hon. Friend the Under-Secretary of State for Industry in his place. We should give him a canter round this important course at least once a year. The previous full-scale debate on the subject took place a year and two weeks ago and a year is long enough to wait to discuss it again.
I hope that my approach to the matter is not over-partisan. There are obvious differences between my hon. Friends and I and Opposition Members about the economy as a whole. There are grave and deep differences on policy that seem to become graver and deeper every day. However, we all join in urging the correctness of our macroeconomic policies by saying that the success of those policies will be judged, whichever policies are correct—my hon. Friend will agree that we believe our policies to be correct—in no small way by the success of small businesses. That is why the subject is precious to Conservative Members.
I have a constituency interest in the matter, although I intend to approach the debate in a national context. In my constituency, there are 600 square miles with many farms and small businesses and it is vital both to me and to my constituents that this part of our policy is successful. A vital reason for introducing the subject is communication with the public, who must be made aware regularly of what the Government are doing. My hon. Friend the Under-Secretary of State, whom I know has been busily engaged on that aspect, will agree that the small business man, the small farmer or the business individualist are often too busy to read Government policy statements and—regrettable though it may seem to my hon. Friends and me—the parliamentary columns of The Times. They must be kept informed.
Perhaps that problem goes beyond the small business man. It is a pity, but nevertheless a reality—although, I am pleased to say, a lessening reality—that the need for 1112 communication applies also to those who are essential to the implementation of the Government's policies. It applies to some bank managers, although fortunately not many, and to academics who could better train our youngsters in the necessity for and the techniques of general business and especially small business.
We also communicate with the Government because they must be made aware of our feelings. That is why we are having the debate again this year. The Government should be given an opportunity to tell hon. Members what they have done and to hear our suggestions. I hope that my hon. Friends, many of whom have been engaged closely in the subject for a long time, will agree that we appreciate the fact that many of the suggestions made by Back-Bench Members while in Government and in Opposition have been implemented by the Government. We now have the opportunity to invite the Under-Secretary of State to account for the last year and to give an interim view on our representations and suggestions.
We are all familiar with the Bolton committee and its recommendations. We should concentrate on the magic figure of under 200 employees for manufacturing industry. That zeros us in on that aspect. The figure is a little misleading and definitions are difficult. The definition of "small" varies. The Bolton committee recommeded the figure of 25 or less for the construction industry. Turnover figures are used for retailing and certain other businesses. The Bolton committee figure is £275,000 for that.
My hon. Friends will be relieved to know that I do not intend to quote a mass of figures from the Bolton committee. I mention the figures to emphasise that definitions are by their nature arbitrary. Foreign comparisons depend upon foreign definitions that are fixed in a slightly different way, although some general messages can be gained from them. Most important, we must maintain a flexible attitude to the definitions.
The subject must be considered in human terms. We are talking about nothing more and nothing less than the industrial and commercial future of the country. That is how important the subject is. We are talking about people and three main areas. I mention them now for the guidance of my hon. Friend the Under-Secretary because when I comment on Government policy and make suggestions later I shall do so under three headings. First, we must encourage people to start in business. Secondly, we must help them to expand their business. Thirdly, and no less important, we must give people the financial independence and security to continue to make a success of their business. I shall cover those three vital aspects in the more detailed part of my speech.
About 1.3 million small firms in Britain come within the definition that I have discussed. They account for about 20 per cent. of our gross national product. About one third of the private sector involves small businesses and about 5.5 million people are employed by them.
More important, perhaps, is the fact that we are talking about a growth area. I do not bandy figures, but in 1980 the decline in small business was checked, in spite of the recession. There were more business starts in 1981. We do not know about 1982. I do not expect dramatic figures for this year, but the decline has been checked. In spite of the recession there are many births and starts.
I am convinced that our future lies with small businesses. As our great traditional industries become 1113 slimmer and lay people off in times of economic difficulty we must look to the small business if the country and Government are to succeed in ther policies.
There is an international element. Next year is the European year of the smaller and medium sized enterprise. That will concentrate our minds on the topic. I hope that Ministers' tasks will be eased by the extra publicity here and in Europe as a whole.
It is relevant that small businesses have been encouraged for a longer time and more effectively in the countries which are our competitors. There is no dispute about that. Other countries have larger small business sectors. That is a commentary on the action of successive British Governments.
The good news is that our position, vis-a-vis our competitors, is improving. I hear from those who have been to Europe recently and discussed the matter with our European friends and partners that we are towards the head of the field, if not ahead, in our tax measures. That is refreshing news and I congratulate the Government.
All hon. Members, including the Minister, are worried because, although we may be ahead in some respects, we are behind in the promotion of the ethos of the small business.
The Prime Minister in the last Labour Government made a desperate appeal to everyone involved in education. He said, "For goodness' sake, social workers may be valuable but we have enough of them. Let's get young people into industry where the production and money is to pay for all the other benefits that society needs." Our young people must be encouraged to go into business. They must have some idea of what to do when they get there.
Management is all-important. It is a mere excuse to say that businesses fail for lack of money or lack of anything else. Nine out of ten businesses fail because of bad management. The message from the House to our educators should be that they must introduce the subject to young people so that they can make a success of our policy while we create the climate in which they can succeed.
I am a Back Bencher who is pleased to support his Government on their small business policy as much as on most other policies. The Government have been sympathetic and responsive. [HON. MEMBERS: "Hear, hear."] I see that my hon. Friends readily agree. Small businesses were infrequently talked about up to the early 1970s. Until then the topic was great industry and macroeconomics. In the early 1970s the Conservative small business committee was formed. A tribute is due to my hon. Friend the Member for Basingstoke (Mr. Mitchell), now Under-Secretary of State for Northern Ireland, who played a large part in setting it up, aided and abetted by the then Minister who has been seconded to the Whips Office. Many others were involved, not least my hon. Friend the Member for Upminster (Mr. Loveridge). Practical developments have followed. My hon. Friend the Member for Upminster has had to leave the country today and therefore cannot be with us. He wishes us well. He is obviously going wherever he is going in the interests of small business.
The Conservative small business committee was followed by the Small Business Bureau. That provides communication throughout the country and I pay tribute 1114 to my hon. Friends the Members for Surrey, North-West (Mr. Grylls) and Luton, East (Mr. Bright) who have contributed so much towards making the Small Business Bureau a success.
Actions followed the representations by the Small Business Bureau and some of my hon. Friends. One of the reasons for today's debate is to continue that process.
Secondly, the Government's approach has been realistic. Small business is dependent on the general economy and we would be naive to pretend otherwise. However, small business can make a valuable contribution by taking up the slack at a time of recession. It can be geared to participate in expansion.
Thirdly, the Government's approach is entirely appropriate. It will succeed because it is a capitalist approach. We are dealing with the private sector and with something that Conservative Members much appreciate and want to encourage. I hope that, within the definition of a mixed economy, Labour Members take the same view. We are dealing with the private sector, individuals, independence, venture, adventure and risk taking. These are all elements that my hon. Friends and I want to encourage. We intensely dislike mammoth State corporations, unproductive bureaucrats and inefficiency. The small business man cannot afford inefficiency because he knows that it will take him out of business. He cannot afford to be overstaffed.
§ Mr.Bob Cryer (Keighley)
Will the hon. Gentleman acknowledge that by rescuing British Leyland, starting a public corporation and giving massive assistance to Chrysler, the Labour Government saved about 10,000 small businesses? Does he agree that many thousands of small businesses depend on the public sector that he is criticising?
§ Mr. Temple-Morris
The present Government have continued to save many small businesses by continuing those policies but implementing them slightly more sensibly. They have created a climate in which new and more active small businesses can be created and in which they can grow. All too often there is a conservative approach to these matters by some elements within the Labour Party. They seem always to seek a preservation of the status quo. Whenever a Conservative Government introduce new measures, we hear from those elements about what the Labour Government did. We are continuing some of the policies pursued by the Labour Government, but we are doing so rather more sensibly. We are introducing innovations. We want the dynamism of the successful small business and we want its profits. Profits are necessary for its investment, its continuation and its future. Incidentally, Conservatives admire the labour relations of the small business. When the boss works with the men he employs, he comes to know them and it is easier for the business to continue without the trials and tribulations which all too often feature in the life of the mammoth corporations to which the hon. Member for Keighley (Mr. Cryer) has referred.
A vital part of the Government's action is communication. My hon. Friend the Under-Secretary of State has travelled throughout Britain on behalf of the Government, and I am delighted to say that he has visited the Leominster constituency. So much depends upon explanation. We are dealing with people who often are not aware of what the Government are doing for them. They 1115 do not have that awareness until a Minister stands before them and presents an explanation. Explanation is essential in motivating the business opportunities programme. It is necessary also to provide counselling for those who wish to start small businesses. The counselling service is operating in my constituency and it has been a great relief to me to know that I have somewhere to send prospective small business men to receive good advice. One recent case has led to a business being formed.
A proper tax structure is also essential. Likewise, it is essential to provide the necessary help and incentives. I congratulate the Government on what they have done and I hope for more along the same lines.
The start-up scheme and the loan guarantee scheme are central to the Government's policy. Both schemes are working well and I salute them. I look forward to my hon. Friend's progress report. I am informed that there is much more borrowing—taking up the loan guarantee scheme and getting into debt—than take-up of the start-up scheme, which means investment in the equity of small companies. The eventual success of the Government's policy will lie in the success of the start-up scheme and getting necessary investment into the equity capital of small businesses. We must concentrate on the means of channelling money into small firms.
It is true that we have the Industrial and Commercial Finance Corporation, but it is a body that needs to regionalise. I gather that it has plans to do so. It must get close to those whom it wants to help. It must not be seen to be a remote City financial institution that is waiting for approaches. It must not be regarded by small business as the financial arm of large business. If it is seen in that light, small business will be put off.
There is a need for a greater variety of small firm investment companies on the United States model, which provides avenues along which small business men can get equity investment. I do not criticise the ICFC. Indeed, I want it to expand. A little competition would not do it any harm. Our main banks should be encouraged to play a great part. Despite all their protestations, I feel that they are more interested in their traditional role of lending than in investment. One reason why so much bank money has gone into fixed and non-productive assets is the inflation that we have had over the years. If we are to break out of the circle, our financial institutions must look more towards equity. That means risk, and we are examining how the Government can support that risk and how small firm investment companies can be established.
I mention just two other start-up measures. It is almost like taking them out of a hat, but I believe that these two are especially relevant and deserve some comment.
In planning, again, communication and education are essential and Ministers and others have been active around the country talking to bank managers and others who are responsible for implementing the Government's measures and contribute in no small way to their success. Although we pass the great framework laws, it is for the local planning officers and the rest to implement them; the effects may be quite frightening if they are not aware of the importance of the proposals.
I share a county with my hon. Friend the Member for Hereford (Mr. Shepherd) who sits beside me here. In my constituency, at least one district council recently played an outstanding part in attracting a small business, finding it somewhere to go and giving it planning permission to go there. Another district council, however, although I 1116 would not criticise it overall, in one instance in which a small business wished to expand, including expansion in exports, took such an extremely conservative view about an area of outstanding natural beauty that it deprived the business of expansion and the area of jobs. In that context, education and communication are vital.
Like so many others, I welcome the industrial buildings allowance and its extension in the last Budget. Representations had been made constantly by Back Benchers and I hope that yet more will be done and that, as financial circumstances permit, the allowance will be further extended to cover commercial properties in general. Most of us wish to see growth in the service sector as well as the manufacturing sector. We should therefore consider extending these advantages beyond merely industrial buildings. I should appreciate, as it were, an interim comment on that as it is an important area in which further progress could be made.
In rural areas such as mine, commercial and industrial buildings are greatly helped by the activities of COSIRA, English Industrial Estates, the Development Commission, and so on. In the spirit in which I said that I intended to introduce this debate, I pay tribute to the development of those activities under successive Governments. Since 1974, in north Herefordshire alone, COSIRA has provided 200 jobs and there are hopes for a further 300 by 1985. I use the term "provide" to mean the creation of facilities for small businesses to get going. That contribution has been assisted in my area not least by a prominent constituent of mine, Mr. David Davenport, becoming national chairman of COSIRA. I put that on record, as he played a great part in the co-operation between COSIRA and Leominster and South Shropshire district councils, yielding the results that I have described.
With regard to Government action to encourage expansion once businesses have been formed, I hope that a reduction in corporation tax is constantly under consideration not only by my hon. Friend the Under-Secretary of State but by the Treasury. Many of us would like to see a graduated corporation tax in this area. This has been urged on the Government before and no doubt will be urged on them again. If we started with rates lower than the sacred 40 per cent., rising gradually to 52 per cent., this would improve and even out the situation and would be much appreciated by small businesses.
In a similar vein, I am greatly attracted by the idea of enterprise bonds, index-linked to put aside for a rainy day and set against future losses. This would encourage venture spirit that is required if our policies are to succeed and small businesses are to flourish.
I shall not spend long on the employment aspect, as I wish to concentrate on small businesses and not to extend my remarks into other areas. Some of my hon. Friends may disagree, but I suggest that the balance of the Employment Protection Act is now about right. Most of the representations that Conservative Members now receive tend to suggest that the entire Act should be abolished or changed. We are told that we have not done enough in one area or another.
Here again, once people are made aware of exactly what we have done they realise that we have gone a long way towards dealing with the situation. A 12-month qualifying period for unfair dismissal and a period of two years for firms with 20 or fewer employees should cover the situation, bearing in mind the need for fairness to both 1117 sides and co-operation between management and unions. In the past, the balance was tilted too far in the other direction.
In this context, the onus of proof at industrial tribunals is important. We know of many examples in which management, particularly in small businesses where there is not much time to play with, decided that the cost in time and money was such that it was not worth contesting the matter as the legislation then stood, so in effect management was subjected to a form of blackmail from the shop floor if it dared to dismiss anyone. The balance is now about right.
Government action on security and financial independence is also important. It is vital that people should feel that they can leave the business that they have built up to their children so that it may continue. Many small businesses are family businesses, so this an important consideration. The Minister will therefore not be surprised when I refer to capital taxation. I welcome the steps that have been taken so far and I hope that there will be further progress in the future. Many small businesses have urged, as I urge today, that in dealing with capital transfer tax the possibility of rollover should be considered as this helps in passing on businesses to the next generation. It would also preserve the equity when the business is sold and tax is eventually paid. On this, I am grateful for the support of my hon. Friend the Member for Surrey, North-West, to whom I have paid tribute for his valuable work in this regard.
I could say more about all this. I have not dealt with various aspects of national policy, for obvious reasons. The debate concerns the role of small businesses. Some aspects of the Budget, such as the national insurance surcharge, greatly affect all businesses, small and large. Rate relief for commerce and industry is another vital consideration. All these considerations, which apply to both small and large businesses and to the economy as a whole, are matters for major Budget decisions. I do not play down any of the other suggestions to help small businesses, but I make this personal submission to my hon. Friend the Under-Secretary of State. I appreciate that he does not have responsibility for these matters, but I hope that, after the necessary action on thresholds, about which there is disagreement, whatever my right hon. and learned Friend the Chancellor has to give will go to business and industry in an effort to get the economy going again and to produce the appropriate effect on employment.
In these debates there is a constant call from Back Benchers for the elevation of my hon. Friend the Under-Secretary of State. I am referring now to the representation of small business in Government. Without wishing in any way to undermine the eventual position that I hope my hon. Friend will hold, I am a little sceptical about the calls for a special Cabinet Minister. I respect those calls but I hope that the whole of the Department of Industry is concerned with small business and that its spokesmen lose no chance to support the role of small business at Cabinet level. My hon. Friend the Member for Surrey, North-West has strong views about the matter and has put them convincingly on previous occasions. In comparison with the number of civil servants in, for example, the Ministry of Agriculture, Fisheries and Food, very few civil servants are concerned with small business matters.
1118 I should be comforted if the Under-Secretary of State's division within the Department of Industry were to be enlarged. I should also be comforted if he or his successor—my hon. Friend will not now be able to nod in assent—were to be given Minister of State rank. That is important in regard to relations in Whitehall, Cabinet committees, and so on. The Under-Secretary of State can now relax but it is important to mention those matters, and he must know that we wish him and his role well.
I have no doubt about the future of small business and I am sure that it will succeed. I have no doubt about the policies of the Government. We want more of the same thing. In creating an almost totally new mood towards small business, I have no doubt that the Government have played a valid role. I urge the Under-Secretary and his colleagues to keep on with what they are doing but always to be responsive to suggestions from myself and my hon. Friends.
§ Mr. Gwilym Roberts (Cannock)
I congratulate the hon. Member for Leominster (Mr. Temple-Morris) on having brought the important question of small businesses to the attention of the House and on linking small businesses with the economy in general.
I have some sympathy with some of the elements in the motion. I also have some sympathy with some, if not all, of the points that the hon. Gentleman made in his speech. For several years there has been general concern over small businesses. There has been a proliferation of organisations to try to help them and Labour and Conservative Governments have attempted to produce some type of structure to assist small businesses. I accept that the present Government, superficially at any rate, have done as much as any Government in that regard.
I am aware of the considerable work that has been done by the small firms division of the Department of Industry. As the hon. Gentleman has suggested. There are considerable difficulties of definition. We have the manufacturing size definition of 200, and we have the Bolton definition, which is very much smaller. The complexities of defining small firms are considerable. Perhaps we over-emphasise the need to define small firms and build rather artificial barriers beween one size of firm and another.
The Department of Industry has recently produced some impressive figures. For a considerable time there was a great lack of information about the number of births and deaths of small firms. One or two of my former colleagues who are now in the Department have done a great deal of work to produce statistics of the births and deaths of small firms. It has been said that there is a tendency for the number of births and deaths to increase.
I shall concentrate on the manufacturing side. In Britain the proportion of employment in small firms on the manufacturing side is very much less than in Japan, Western Germany and many countries which are often regarded as being successful in business terms.
The Government have not only produced more figures than were available hitherto; they have produced various forms of help. In particular, they have provided financial help. The hon. Gentleman referred to the help in regard to taxation. The Government have also tried to produce the sort of structure in which small firms can find access to money. That is a real problem for many of them. I am not 1119 sure that the conservatism of the British banking system can ever be overcome, but even in that area useful progress has been made.
The Government have exempted small firms from certain sectors of legislation—I am not sure that I am entirely happy about it—with the aim of reducing the bureaucratic pressures on them. That has its advantages. Even more important, the Government have tried to provide the management element that is so often lacking in small firms.
On the manufacturing side in particular, small firms are born of ideas, because someone has some sort of technical skill to offer. Whereas the entrepreneur may have great technical expertise, often he does not know the intricacies of our society, the manufacturing problems, the investment problems, the taxation problems connected with VAT, and so on, which arise once anyone forms a small business. In that area the Government have helped small firms considerably, and useful links have been built up with various educational establishments.
On the face of it, the Government have done a considerable amount to help small businesses, but the matter is not as simple as that. The sad fact is that the Government have also produced the sort of economic climate that is not only killing small firms, but is preventing the expansion of many small firms. As all the figures for manufacturing output clearly show, the Government are destroying our manufacturing base. The output of manufacturing industry is now at its lowest level for about 15 years. That is the extent of the stagnation that dominates our economy and the demand in our economy. It kills all types of business, and businesses cannot flourish in any way.
It is true that, on the face of it, there is an increase in the births of small businesses, but that is to be expected when so many people have been made redundant and in desperation are looking for some new avenue. We live in a society that is dominated by the work ethic, and people believe that they must work. The birth figures are merely a reflection of the recession that dominates our economy.
In a constituency such as mine, one is aware of the problems faced by small businesses and the contribution that they can make. We have faced the problem for about two decades. We had a large mining industry, but it declined. We had a great deal of industrial skill, because of our historical industrial base. As the mining industry declined, we faced a secondary problem. There was a great flow of population from the West Midlands conurbation into our area, and as a result there was an enormous growth of small businesses in the area. The overwhelming majority of those businesses were supplying highly skilled engineering components, principally for the West Midlands industries.
Unfortunately, in recent years, although many small businesses have been born, many more have been killed by the lack of demand from the major industries of the West Midlands. We have an unemployment rate of about 25 per cent. That is a reflection of the death of small firms and the lack of expansion. If one person in a business employing three people is put off, that is 33⅓ per cent. of the labour force. That has happened time and time again because of the general decline of industry in the West Midlands, which is largely the result of the world recession, but also because of the Government's recessionary policies.
1120 The position in our part of the world has been made more absurd by some of the attitudes displayed by large industries, which have not always been helpful to small businesses. Cash flow problems have been created for small businesses because big businesses have held on to their money. I am, of course, also sympathetic towards large industries, because they have their own economic problems.
In the West Midlands, some absurd statements have been made by the management of British Leyland. There are 60,000 jobs in British Leyland, which are rightly supported by the public. One would expect British Leyland management to have an equal responsibility to the mass of component suppliers in the West Midlands, but it talks about going overseas for many of its components. It has been retailing imported tools in its Unipart section. That type of absurdity often prevails in large businesses. Cash flow is a difficult problem for small firms. There has been a general fall in demand by large firms for components, because their markets in turn have been trimmed.
The hon. Member for Leominster mentioned the public sector, and in an intervention my hon. Friend the Member for Keighley (Mr. Cryer) said that the public sector market was important to many small firms. The Central Electricity Generating Board and the British Steel Corporation which has virtually been killed off by the Government, and large public corporations of that type, are the life blood of tens of thousands of small firms. Whatever steps the Government take to help small businesses to deal with their individual problems, the gains are more than offset by the general problems of the economy.
The hon. Member for Leominster is right when he says that one cannot divorce the position of small firms from that of large firms, the public sector and the economy in general. The Department of Industry gave me some figures for staff employed at the National Physical Laboratory. It tests a great many instruments, and instruments manufacturers are finding it difficult to get their instruments tested, yet if the Minister examines the figures he will see that financial provision for the NPL has been reduced from nearly 650 to 473 over the past five years.
§ Mr. Nicholas Baker (Dorset, North)
The hon. Gentleman made a point about the relationship between small and large firms. There are things that small businesses can do much better than large businesses. The hon. Gentleman mentioned how British Leyland deals with Unipart. Is he aware that small businesses can export British Leyland parts for British Leyland cars and sell them abroad at lower prices than British Leyland?
§ Mr. Roberts
I accept what the hon. Gentleman says. I have been involved with small firms for many years, and I am aware of the contribution that they can make. My main argument is that, irrespective of the help that the Government have provided—it has only been marginal—it has been more than offset by the damage that Government policies have done to the economy.
If we are to stop killing off small firms and expand them, they must have a market. The need is for growth in public expenditure in the general market, so that there is more money and a greater demand for goods. Before any hon. Member intervenes, let me say that I accept that that will create problems for our balance of payments unless we are prepared to introduce some sort of artificial import 1121 control. Many Opposition Members and, I believe, some Conservative Members accept that if we are to have an expanding market we must have selective import controls. Some of our partners in the EC—France, for instance, never mind the Japanese—can stop the flow of certain imports. If we are to expand our market and stimulate demand in the economy, we must close some of the doors through which imports are flooding.
Whatever the difficulties, the greatest need for all businesses is the stimulation of demand. Only in a growing economy can all businesses flourish. My indictment of the Government is that they have failed to produce the conditions under which industry and the economy can flourish, but have produced conditions that are destroying our economic base. My sad conclusion is that, whatever the Government have done for small businesses, they have failed to provide them with the economic conditions necessary for their success.
§ Mr. Michael Grylls (Surrey, North-West)
I warmly congratulate my hon. Friend the Member for Leominster (Mr. Temple-Morris) on his excellent motion. It has taken a year to get round to another debate on small businesses, but we were all interested in my hon. Friend's comments about Government policy and his hopes for the future. We know what the Government have done, but we are anxious that they should do more.
I gently take to task the hon. Member for Cannock (Mr. Roberts) for his criticism of the effect of the Government's economic policy on small firms. Most such firms are more in tune with the Government's policy than are many larger companies. The debate at the recent CBI conference showed that big business did not agree on its attitude to the Government's policy, but small firms know that if we do not get inflation under control small business will be killed. Small firms are in tune with the central theme of the Government's policy. They know that inflation could destroy their capital base.
However, I agree with what the hon. Member for Cannock said about the public sector. Public sector procurement has an important part to play in creating the demand that small business needs if it is to prosper. The public sector accounts for just under 50 per cent. of our GNP, and the procurement of Government, local government and nationalised industries is huge. It is an enormous market for British business.
It is a pity that over the past few years there has been a trend to centralised procurement, perhaps because government has got bigger, and that has tilted the balance towards the bigger firms. In Britain and, to some extent, in other countries, small firms have been disadvantaged in getting Government orders. That is worrying.
In most advanced countries the small firms' share of public purchasing is about half of their share of GNP. In Britain small firms account for about 20 per cent. of GNP and the percentage of public purchasing given to such firms is much less. In the United States small firms represent 40 per cent. of the GNP and get about 20 per cent. of Government business.
We should not accept that. The hon. Member for Cannock was right to stress that any business needs adequate demand merely to exist. Even in a recession we have tried to cut public expenditure, but we have not done 1122 much, and huge orders are still being placed by the public sector. If we want to give small firms a boost we must tilt the balance back towards them.
It is not enough for the Government to be neutral on procurement. There must be positive discrimination to give smaller firms a bigger chance of obtaining Government business. Obviously, quality, service and price must be taken into account, because there is no reason why the Government should pay more to a small firm than to a bigger company, but we need a tilt in the balance.
A former Secretary of State for Industry told the NEDC two years ago that public procurement should be used to make British industry more competitive. We all agree with that, but I was sad that he included no reference to the need to ensure that smaller business has a bigger share of the cake. I suspect that the present Secretary of State for Industry takes the same view as his predecessor, though I shall be pleased if my hon. Friend the Under-Secretary, who is to reply, tells me that I am wrong. There is not a clear understanding in the Civil Service or even at Westminster that we should have discrimination in favour of smaller business.
It is easy to criticise, but I have a positive proposal to put to the Government. Other countries have various methods of operating the sort of discrimination that I should like to see in this country. I am not sure that I want us to copy the bureaucratic set-up in the United States, but we can learn some lessons from it. Business service centres in the United States help and advise on contracting opportunities and almost hold the small business man's hand to make sure that he gets a share of public contracts. That does not happen here.
The French have an interesting device by which a small firm is given a second chance. If it fails to win a contract but its bid is within 4 per cent. of the lowest bid by a larger firm it is given the chance to have another go.
We all say that we admire Japanese industry and want to learn lessons from it. The Japanese do not adopt a strong interventionist stance, but at least they publish the statistics of Government purchasing policy and its effect on small firms. As the former Secretary of State said, our purchasing policy is to make industry more competitive, but we do not have a policy to give smaller firms a bigger share. Canada also publishes statistics of the small firms' share of public procurement.
That is a mixed bag of aids and interventions to give smaller firms a bigger chance. I suggest that the Government should set up a working party under the chairmanship of a senior and experienced purchasing manager from the private sector—I am sure that any one of a number of large firms would be happy to second someone for that job—and including representatives of the Property Services Agency, the DHSS—the National Health Service purchases millions of pounds worth of goods annually—the Ministry of Defence and nationalised industries. The working party should be asked to report in, say, six months with positive ideas for creating the right sort of discrimination so that we can tilt the balance towards small firms.
The first task is to ensure that we have at least the information. Over the last two years, I have put a series of parliamentary questions to each Secretary of State to try to discover what share of procurement goes to small firms. None has been able to answer. We do not even know. An 1123 attempt should be made to discover the facts and statistics before deciding upon different methods that could help to provide a bigger share for small businesses.
This is a method of helping the cause of small businesses. Much has been achieved in the last two and a half years. It is encouraging that the number of hon. Members taking part in debates on this subject seems to grow on every occasion. That is, I am sure, a tremendous encouragement to the Minister and also to everyone trying to help in this area.
I should like the Minister to examine procurement, especially at a time of recession. It is right that an attempt should be made to provide a bigger share for small businesses.
§ Mr. Geraint Howells (Cardigan)
I have heard three constructive speeches within the last hour from both sides of the House designed to try to help small business men. Most hon. Members will agree that the small business has an important place in the scheme of things. The small business man makes a valuable contribution to the economy especially at a time when it is ailing. We should therefore be grateful for the opportunity once again to discuss the plight of this sector of the economy and to consider what can be done to encourage it. Hon. Members sometimes have different ideas about what constitutes a small business. The Government regard any concern with up to 200 employees as a small firm with a corresponding turnover. They legislate accordingly. The previous Government adopted a similar formula in looking after the interests of small business men.
In constituencies such as mine—rural and agricultural—the majority of firms and businesses employ fewer than 20 people. Often, in retailing or in farming, only two or three people will be employed. If a firm announced that it was moving into Cardiganshire and intended to employ 200 people, the view of the majority of my electorate would be that a major concern had been persuaded into my constituency. In the Cardigan area of the Teifi valley—in places such as Llandysul, Newcastle Emlyn and Lampeter—there has been a high unemployment rate of 25 per cent. for the last 10 years. If it was possible to persuade two small firms employing 200 people to establish themselves in the Teifi valley, there would be no problem. Everyone would find employment. The position varies from one constituency to another.
I have the privilege of representing a constituency where over 30 per cent. of the electorate are self-employed and fewer than 10 per cent. are employed in manufacturing industry. The remainder work in service industries. We are fortunate to have two colleges and other big organisations in my constituency.
Many small business people face unfair competition from big concerns. Villagers in rural areas often depend on a single local shopkeeper. Many of those shopkeepers and retailers tell me that they find survival difficult because big firms are able to obtain goods at much lower rates than are available to them. I declare my interest as a farmer. The local garage man cannot buy diesel oil as cheaply as I am able to purchase it from a depot in Aberystwyth. However, when my tractor breaks down, I cannot ask the depot in Aberystwyth for help. I have to turn to the local garage man. The Minister should investigate the plight of small garages and shopkeepers.
§ Mr. Micheal Colvin (Bristol, North-West)
This is surely a fundamental question of distribution costs. Does the hon. Gentleman agree that the measure passed in the House last night on the introduction of heavier lorries was a good step towards cutting distribution costs to enble the smaller man from whose services I, as a farmer, also benefit to compete more fairly with the big boys in the towns?
§ Mr. Howells
I agree with some of the sentiments expressed by the hon. Gentleman. I represent Cardiganshire. If 38-tonne lorries were sent down the lanes in Mid-Cardiganshire I doubt whether the drivers would find a village, let alone a shop.
As an agriculturist, I pressed hard a few years ago for the setting up of a land bank. My proposals were not especially acceptable to either side of the House. Today, I am delighted that all parties are in favour of setting up a land bank to help young people and to provide them with risk capital. I am sure that the hon. Member for Leominster (Mr. Temple-Morris) will agree. Young people need finance to start off on their own.
I hope that the Minister will say what progress the Government have made towards setting up a land bank or even the appointment of a business man to help the small people we represent. The small firms to which I have referred form the backbone of the rural community. Although they are small and possibly insignificant in the eyes of Whitehall legislators, all have the potential to expand and are important as employers. If every small business in Cardiganshire was encouraged to employ one more person, it would make a tremendous difference to the unemployment figure, which stands at 22.5 per cent. or more in some parts of my constituency.
Another decrease in the national insurance surcharge, or its complete abolition, would also help. I thought that the hon. Member for Leominster was going to suggest to the Minister that the surcharge should be abolished. The hon. Gentleman might, in time, persuade the Government to abolish it. Far more incentives are needed for those wishing to set up their own business from scratch. The Liberal Party has long advocated start-up packages involving legal advice and aid, better credit facilities and special tax treatment going well beyond what the Government offer in their enterprise zones.
I should like to see small businesses have their first two trading years freed from the burden of tax, with special built-in precautions to prevent any fly-by-night entrepreneur taking unscrupulous advantage of such a scheme. It would provide a start which would greatly ease the cash flow problem which businesses suffer at the beginning of an enterprise. If they could plough back profits into their businesses for the first few years, I believe that it would help people starting on their own.
Over the years, the small business sector has suffered from the indifference, amounting to total neglect, of central Government. It is only recently that even lip service has been paid to this sector. I do not wish to detract from the excellent work done by the present Minister, but it seems to me that this sector will not get its due attention until a Minister responsible for the small business sector is appointed at Cabinet level.
No due credit has yet been given to the Lib-Lab pact In 1978, thanks to Liberal pressure, the importance of the sector was recognised for the first time in many years. It was then that, in his wisdom, the Prime Minister agreed 1125 with the leader of my party that we should have a Minister to look after the interests of small firms. Lord Lever, as he now is, who at that time represented a Manchester constituency in this House was given the responsibility of looking after the small business man, and more good was done for small firms during that period than had been done at any time in the previous 50 years.
I recommend an extension of the loan guarantee scheme which was introduced on an experimental basis in June 1981. I should also like to see the development of the business start-up scheme. It would be very interesting if we could be told by the Minister how many small business people have taken advantage of the loan guarantee scheme and the business start-up scheme. In addition, the introducton of small firm investment companies would be a step in the right direction.
Government aid through Departments of State must cease to discriminate against small businesses. Almost every scheme of industrial assistance has a cut-off point—a minimum number of employees or a minimum expenditure—which excludes most new small businesses. Its abolition would mean more civil servants and much greater decentralisation of Government decisions. It would also mean bringing on to advisory committees many professional people accustomed to small business problems which cannot be handled effectively by the traditional advice of groups composed of the great and the good.
The policy of my party and the alliance recommends the development of the joint study by the two parties which is already in progress and the preparation of detailed proposals. I hope that the Minister will give his views on those proposals to give help to our small businesses, which are the backbone of the community.
§ Mr. Iain Mills (Meriden)
I congratulate my hon. Friend the Member for Leominster (Mr. Temple-Morris), whose keen interest in the affairs of industry, especially small industry, is well known in the House. In his very interesting and relevant speech he made many valid points which are likely to encourage the basis of small enterprise.
In backing many of my hon. Friend's suggestions and those advanced in a bipartisan way by other hon. Members, I want to look at some of the fundamentals of the structure of business and industry and compare it with that of our immediate friends, who are also our competitors, in an attempt to see why there is such a burning need to encourage existing small businesses, to provide a climate of encouragement for the seed-corn, future small businesses—the most important part of a country suffering from decades of increasing structural rigidity in its industrial pattern—and to make many big businesses function like small ones by increasing divisionalisation and by an increasing shift towards a number of small, autonomous, self-managing cost and profit centres within big businesses.
I suggest to my hon. Friend the Minister that the last of those is a way in which the Conservative philosophy of privatisation can be achieved, at least in part, in many of our nationalised industries. I have in mind the desire prevalent in big, heavy nationalised industries to have a common pyramidal management structure, leaving 1126 exactly the same problems of structural rigidity from which many large private enterprise businesses are trying to retreat.
It is tragic that a country that still remembers itself as a nation of shopkeepers and small lively businesses has become the poor man of the world in terms of the ratio of small businesses to large ones. The facts are inescapable, and the statistics are rather sad. In terms of business activity, compared with our competitors in Europe we have far fewer small businesses than France, Germany and especially Italy. Perhaps this is a sign that, for whatever reason, the small business has become much less attractive to business entrepreneurs in Britain than it is elsewhere. I ought to say at this stage that I advise the National Tyre Distributors Association, many of whose members are small businesses, although I do not intend to devote much of my speech to tyres.
Looking beyond Europe to the United States of America and particularly to Japan, whose industrial success is an example to many nations, we see the interesting factor that what is often imagined to be the big industrial front of Japan, where the well-known trade names are seen to be large multinational or transnational companies, is sustained almost as a very thin front of industrial activity by a massive body of medium and small industries.
I am informed that in Japan in 1981 there were 6.4 million companies which officially, in the Japanese classification, were small and medium business enterprises. By their categorisation, they employed fewer than 300 workers or operated with less than 100 million yen worth of capital—a difference in definition from our own classification of those employing fewer than 200. But that still shows the unusual aspects of the Japanese industrial success to be due predominantly to the activities of many of these companies, yet in our own industrial structure we see just the reverse, with a shift towards conglomerates and towards larger and larger companies.
I have spent most of my 18 years' professional existence in one part of an industry which affects my constituency of Meriden in a major way. Meriden lies between the big industrial centres of Birmingham and Coventry. It is a popular place for small businesses which supply the bigger factories of Birmingham and Coventry. In the Midlands we tend to predominate in engineering, car production and heavy manufacturing operations. But Japan has no fewer than 830,000 small and medium manufacturing enterprises, or roughly one for every 120 people in the country. That is almost greater than the entire number of small businesses in this country.
It is interesting to see that Japan has twice as many small manufacturing businesses as the United States, and almost 10 times the number in Britain, even allowing for the differences in definition. The scale of the difference between the highly successful industrial structure of Japan and that in this country is perhaps a pointer to the need to move away from our present structural rigidity in the management size of large industrial companies.
There are many reasons for our structural rigidity, but I shall mention only two. The resistance of trade unions and those who support them to adopting more flexible working patterns and the equal, if not greater, resistance by management to adopting better and more flexible working processes has led to the maintenance of that rigidity. Moreover, the re-creation of new small businesses in the past 20 years has been extremely low. 1127 There has been sterility of change in people, products and business. In Japan, however, 50 per cent. of those who were in business 20 years ago have been replaced by an equal or larger number of new entrants. In the United Kingdom, the continuance of the same companies doing the same thing shows our inability to change and adapt to new markets and new products, and in particular to new production processes.
The car and car component industry, in which I take a particular interest, and which was mentioned earlier, illustrates the complete dependence of large Japanese car manufacturers on many thousands of small businesses. Toyota, for example, depends on an input from approximately 36,000 companies, both large and small, to produce just one car. The involvement in that chain of a multiplicity of businesses of different sizes, from the one man and the garage to the immediate supplier, shows the way in which the Japanese industry can respond more quickly than we have done to changes in demand, product or market. The structure in this country contains not only conglomerates of car manufacturing companies, as with British Leyland, but conglomerates of major suppliers, so that the automatic chain of smaller and smaller companies being in a position to be flexible will be restricted. I hope that I shall be forgiven for spending some time on this analysis, but if we are to tell the Government what we believe they should be doing it is vital to understand the basic problem and structure. It is easy to be superficial, but we must understand the realities. Our system is rigid, and it will take more than a few popular Government policies to change that rigidity. It will need a change in attitude of the work ethic of the people in this country, so that they become more mobile—I do not mean in a geographic sense—in terms of risk taking and moving from large to small companies.
I congratulate the Government and commerce on the increasing number of management buy-outs, on both a large and small scale. It helps to break the rigidity when divisions, or whole companies, as in the case of the National Freight Company, can be split off from big conglomerates and managed by the very people who previously depended for their employment on those conglomerates. Many big companies are now splitting off—if not limbs—fingers and toes into small business enterprises. The managers who used to say to the managing director "I need at least 50 people to run this division", having now become responsible for their own cash flows, are inreasing turnover and market shares with a fraction of the original number of employees. There must be a lesson in that.
The evidence on management buy-outs and on the recreation of British industry in small businesses is interesting. I congratulate my hon. Friend the Minister and his right hon. Friend on their statements making it clear that there has been a net increase in the number of new small businesses, with a fascinating turnover in new businesses obviously taking high risks and therefore risking failure. Value added tax returns carried out by the Department of Industry show a 10 per cent. increase in company births from 113,000 to nearly 125,000 between 1980 and 1981. To put it another way, last year the rate of a new business formation was more than 10,000 a month.
§ Mr. Nicholas Baker
Will my hon. Friend accept from someone who is involved in management buy-outs, in the 1128 face of a little levity from the Opposition, that they enable parts of large businesses which otherwise would disappear, and jobs which would be lost, to be preserved?
§ Mr. Mills
I congratulate my hon. Friend, because what he says is valid. The people in the management buyout situation—if I can coin such a terrible phrase—also have the great joy of having their destiny in their own hands, as well as preserving their jobs and future.
Having considered the basis of the change in British society, and having seen how the unbeatable spirit of enterprise of the British people is starting, with helpful Government policies, to re-create many new businesses, I ask my hon. Friend to consider some areas where even more help could be given by minor changes in Government policy or legislative practice —perhaps more of the latter.
I spent most of the last recess visiting large and small companies in and near my constituency—mainly small companies—and a number of common factors emerged—common even with the representatives of large businesses, the CBI and others. I congratulate the Government on their shift on the national insurance surcharge and on their helpful policies, which have encouraged interest rates to drop, thus offering businesses of all sizes last year a bonus in cost reduction of about £2 billion. It is often part of industrial public relations that a great noise is made by those who want changes, while few congratulations are given afterwards, or even recognition that £2 billion has been removed from industry's costs, thus helping not only big industries but many small ones. In particular, highly geared companies whose borrowings have been difficult to finance must be encouraged by the current climate. I can only ask my hon. Friend to encourage our right hon. and learned Friend the Chancellor of the Exchequer to continue the process of giving priority to lowering business costs, thus encouraging businesses of all sizes, and to seeking further changes in the NIS as perhaps one way of doing that.
The drop in the value of the pound, while seen by some economists as dangerous to our fundamental economic processes, leading eventually to higher inflation, should encourage in a small way—although perhaps it has gone too far—many of our small businesses which are involved in exporting. Many companies have told me that we should join the EMS when the pound/deutschemark rate is at 4 or below. This morning we have that opportunity. Perhaps my hon. Friend will comment on the falling pound and its relation to the deutschemark in particular, and the future advantages of joining the snake.
I can see that the change in the pound/deutschemark rate of exchange helps our companies that export to Germany. Membership of the European Community has been of considerable advantage to our small companies in giving them a market which they would not otherwise have enjoyed, with the result that our export trade to Germany has increased to a dominant position, and many companies in my constituency see it as a growing market.
I realise that my hon. Friend is not responsible for trade, but he will know that our right hon. Friends are at the GATT conference. We hope that they are making strong pleas to reduce the growing tide of protectionism, which has been mentioned.
Small companies in my constituency which produce drop forgings would point not only to France but to Spain, where there exists a wholly unfair and insupportable 1129 difference between tariffs. That applies not only to drop forgings but to many car components and, indeed, to cars themselves.
Despite the quota and pricing system that has been agreed with our friends in the EEC, and the voluntary restraint arrangements with foreign steel suppliers, many small businesses —I can think of one, Multi-Screw Parts Ltd. in Coleshill—are faced with increasing difficulty in buying British steel because of the lower prices offered by other countries, not the least of which is Germany. The attraction to buy elsewhere to the disadvantage of British jobs is considerable. I hope that my hon. Friend will comment on that.
I took up with my hon. Friend the Financial Secretary to the Treasury the question of relief from VAT on bad debts when the customer firm is in receivership. Many small companies find that a particular difficulty with the tragically high level of liquidations. The authority does not allow time to pay. It is immediately on a company's back, demanding the VAT, although the goods may not have been supplied. I do not look for an answer to that matter today. I am pursuing it with the Treasury.
More important is an issue that emerged during my meetings in the recess and since. Cash flow difficulties are experienced by small companies as a result of delayed payments from big companies. I have conducted correspondence with my hon. Friend the Minister, and I want to lift a few points from that. I put on record my appreciation and that of my companies for the Government's ensuring that such companies have standing instructions not to delay payments unnecessarily to suppliers of all sizes, which includes many small firms. The nationalised industries have been reminded of the importance of prompt payments, particularly to small firms. The Institute of Purchasing and Supply and the CBI have also issued codes of practice encouraging prompt payment. However, I am glad that the Minister agrees that there is still a problem.
That problem has two aspects—the length of the period for payments in contracts, and the failure to pay within contract time. On the basis of a suggestion made to me by many small businesses, I have said that we should introduce legislation requiring companies to pay for goods or services received within 30 days. If that is not possible, there should be some easy mechanism for small firms to have redress. I understand and appreciate that such legislation may involve undue interference in contractual matters, but the Law Commission reported on the matter and recommended the alternative of a statutory right to interest on overdue debts without recourse to courts. Will my hon. Friend comment on that?
Small firms have great problems when big firms pay bills at the last possible date before the courts descend upon them—not the last agreed date—as part of their accounting practice. I am sure that many hon. Members do exactly the same when they pay their electricity bills. However, while the nationalised industries may not suffer from that, small firms can have serious cash flow problems if they are primarily suppliers to bigger businesses, without general retail or wholesale sales to provide a broader base of payment for their goods and services.
I shall continue to press my hon. Friend on that, as I imagine many hon. Members will, to ensure that some 1130 help greater than that already given will be available, not for public or nationalised concerns, which have been dealt with, but for larger private businesses.
A burning question in the minds of many small business men is the problem of costs about which they can do nothing. These are the costs of nationalised industries. I am sure that my hon. Friend is aware, from the many letters that he must have had from all hon. Members, of the problem of telephone, postal and other charges to small businesses. Will he comment on that? The entrepreneur feels a burning resentment when he sees his risk-taking being threatened by cost increases which he cannot control. Moreover, that arises in a system where the Government have promised to control and restrict public expenditure.
There is a dichotomy between our avowed objectives of more efficient nationalised industries and the ever-rising costs which, if one includes industrial rates, are now quite damaging to small businesses. The same may be said of energy prices, although I understand the complex problems that arise on relativity between electricity and gas and with our competitors in Europe. The Minister might like to know that I am maintaining a lively, if not electric, correspondence with the Secretary of State for Energy on that matter. I hope that at some stage we shall see changes.
May I draw on the good example of an entrepreneur, Mr. Colin Hammond, of Hampton in Arden in my constituency? He often puts to me the case of the one-man enterprise taking on 15,000 sq ft who finds that on rates alone he may be paying £1,500 a year before he has even turned a pound from selling a good or a service. The high cost of industrial rates is an inhibiting factor upon many small businesses starting up and continuing or even prospering. Enterprise zones are to be welcomed, but for small businesses scope is limited.
It is sad that the Green Paper "Alternatives to Domestic Rates", to which we have had no formal response, was on domestic rates and did not tackle the more difficult and fundamental problem of the high cost of industrial and business rates. I hope that my hon. Friend will relate that point to his right hon. Friend the Secretary of State for the Environment. [Interruption.] I welcome colleagues' sedentary comments of support on that matter. It illustrates just how strongly the matter is felt throughout Britain.
I congratulate my hon. Friend on the excellent small engineering firms investment scheme. It has been welcomed in a very interesting way at both ends of the scheme. It has been welcomed by such as the rebuilt and rejuvenated Alfred Herbert Machine Tools Company Ltd., which provides employment in my constituency, Tube Investments Ltd., and others which are making highly automated machine tools. They welcome SEFIS because it will create a better market for British machine tools by providing 33⅓ per cent. of the cost of investment by small firms in certain types of advanced capital equipment. Not only does it encourage the sale and production of British machine tools, but it encourages small British firms to buy them and thereby to compete better with their competitors in the United States of America, Japan and elsewhere. It is an excellent scheme.
As my hon. Friend knows my views well, I say only that we look forward to SEFIS II. I am prepared to donate whatever refreshment is needed to launch such an excellent ship upon the slipway of our industrial waterways should he introduce it. I urge him to do that as 1131 soon as possible. It will be popular with both producers and companies who operate such machines. My hon. Friend knows my views on the likely alterations which will benefit the scheme, and I do not need to go into detail now.
My hon. Friend the Minister's recent reply to me said that, under SEFIS I, 1,755 applications were received in a short period, showing just how widespread the scheme was. Those included many applications from firms in my constituency. Offers of grant were received by 1,355 applicants, and 250 applicants have received payment, totalling almost £4 million. Not many applicants have been rejected—only about 300—and some applications are still being dealt with.
I am also glad to see that the percentage of British bought machine tools was high— about 60 to 70 per cent. That is an extremely good sign of the ability of Coventry and Birmingham manufacturers to produce world quality computer numerically controlled advanced machinery. I wish them all the best.
With the climate of encouragement and the many individual schemes that the Government have introduced, including the loan guarantee scheme and the business startup scheme, there is hope for the restructuring of industry by small business. Hon. Members should bear in mind that my old company, Dunlop, was started by an Irish vet who applied leather to bicycle wheels and ended up with a transnational company with quite a hefty turnover. Many of our seed-corn businesses have the same future.
I welcome the important new scheme on technical education announced by my right hon. Friend the Secretary of State for Employment. I welcome also the pilot enterprise allowance schemes that cover Coventry city, where unemployed people can exercise private initiative without losing their rights to certain benefits. Finally, I encourage my hon. Friend the Minister to continue the good work that he and the Government have started.
§ Mr. Bob Cryer (Keighley)
The hon. Member for Meriden (Mr. Mills) referred to increasing costs and he no doubt had in mind those imposed by the Government on the publicly controlled and owned sectors of gas and electricity. The Secretary of State for Energy announced in the House that there was to be a three-phase increase in prices for them. That affects not only small businesses but the domestic consumer. That should not be forgotten. Of course, the Government did it with glee, because they thought that all the criticism would fall on the publicly owned industries rather that on the Government.
Encouraging small business is not the prerogative of the Conservative Party. Many of the small business men who thought that voting Conservative was the right thing to do have had a rude and nasty shock since the Conservative Party came to power. We recognise, however, that some small business men—a diminishing number—inherently believe that somehow a Conservative Government will benefit them. However, the truth is that the Conservative Government are backed by, and designed to aid, big business. They do not care much about small businesses.
I want to put it on record that the Labour Government encouraged small businesses by, for example, rescuing big corporations such as British Leyland. When we rescued British Leyland and Chrysler, Conservative Members trooped into the Lobby against that proposition. However, as I said in an intervention, if we had not taken that action, 1132 10,000 small firms would have gone to the wall with those two big corporations. Although the operations of Chrysler have diminished—alas, along with many other manufacturing concerns—British Leyland is still in existence. Unfortunately, it does not have a big enough share of the market, but it is being supported by thousands of small firms.
We also extended the small firms advisory service, and introduced the small firms counselling service. That was good because it enabled small companies to benefit from the experience of those in other small firms. We maintained generous tax concessions, both on general taxes and on capital transfer tax. Capital transfer tax benefited small businesses, because it specifically allowed a widowed spouse to carry on a business without the tax demand that operated under the old estate duty.
I mention that, because the present bag carrier to the Prime Minister, the hon. Member for Eastbourne (Mr. Gow), described capital transfer tax as marking the end of family life and the beginning of a Marxist State in this country. Judging by his exaggerated remarks, I felt that it had some value, and of course it did. It benefited, among others, small businesses. We also introduced the small firms employment subsidy, which was a direct cash support for small firms and which supported about 50,000 people. On the advent of the Conservative Government, that subsidy was brought to an end and many small firms then realised that the Conservative Party's concern for small businesses was not as practical as it could have been.
We extended nursery factories built by the English Industrial Estates Corporation to a high standard. Despite great reluctance on the part of others, when I was in the Department of Industry I laid the groundwork for a small firms loan guarantee scheme. I readily admit that the previous Labour Government did not introduce it. If the decision had been left to me, they would have done, because that certainly has been of help. However, we did not allow small firms to reduce their standards of safety or employment. It does a great disservice to small firms to support suggestions—as the Conservative Party does—that the level and standard of employment and safety in small companies should be inferior to those applied elsewhere.
I well remember organisations such as the National Federation of Self-Employed and Small Businesses saying that, if the Employment Protection Act were altered, small firms would take on two or three people and that, as there. were more than 1 million of them, they could get rid of 1.5 million unemployed at a stroke. Strange to say, that has not happened, because the notion that the Employment Protection Act was an inhibition to employment was not borne out by the facts and by the surveys produced by the Department of Employment. Small firms depend on the general state of the economy, as the hon. Member for Leominster (Mr. Temple-Morris) implied. They cannot be divorced from the state of the economy. It is an illusion to suppose that the Government can generate masses of jobs in small firms if demand has been diminished by that very Government's actions through their monetarist policies and their curbs on public expenditure.
When the Government curb public expenditure, they hit the very small firms that they are supposed to be encouraging. For example, more than 90 per cent. of the houses built by local authorities are built not by direct works departments but by the private sector. Many of those companies will be small firms. When local 1133 authorities cut their education services and so on, it affects the many contracts that are given to small firms. That is one important reason for the record of bankruptcies among small firms. The only thing that the Minister can clutch at is that the number of small firms and registrations is increasing. However, to some extent, that shows the despair of our people, because they need to obtain an income and are encouraged to do so by the Government's advertising. I hope that some of those small firms will be successful, and that they will create jobs and opportunities. However, in the present economic climate, many of them are probably doomed to join the record number of closures and bankruptcies.
Economic power in Britain rests not with the small but with the big firms. Small firms should recognise that they have more to fear from big firms than from the helpful attitude of a Labour Government. "Get off our backs and we'll get on with job" is part of the mythology that they created about the Labour Government. The truth is that the big firms often determine the credit. As the hon. Member for Meriden said, big firms often say that the line of credit is being reduced. The Department of Industry can and does play a useful role in encouraging the private and public sectors to pay more promptly, but by and large the public sector has a much better record on paying small firms promptly than the private sector. Large firms frequently buy small firms that they believe to be a future threat and close them down in order to centralise production. However, there is no doubt that large, medium and small firms alike are suffering under the Government. That is why there are 3½ million people in the dole queue.
The Labour Party's proposals to increase public expenditure will increase demand and, as several Conservative Members said, small businesses cannot exist without a reasonable demand for their goods and services. That is true for everyone and that is why there has been such a huge increase in unemployment at a massive cost in public expenditure. It is absurd for the Government to talk about cutting public expenditure when the cost of maintaining the dole queue in lost income tax revenue, unemployment benefit and supplementary benefit payments must be about £10 billion a year. If we could inject money into the economy through local government and the public sector we could generate demand that will help small firms and help to create jobs.
Small firms play a useful role in society. Often, but not always, there is a good working relationship between management and employees and there is something to be said for the idea that communication is better in a small firm. If the managing director comes in at the same time as the work force—not a characteristic of British industry, although it is a characteristic of industry in Western Europe and certainly in Japan—there is a tendency towards better understanding. However, it must be recognised that there are bad employers in small firms. That is why health and safety standards and employment protection standards should apply. Where people work together towards a common aim, for example, in a cooperative, the enterprise is immeasurably superior.
The industrial common ownership movement has encouraged the formation of co-operatives. There has been a significant increase in co-operatives, as people wish to see a better quality in their working lives. They wish to work together and not against one another, which is a 1134 characteristic of much of British industry because of capitalism. The characteristic is sometimes not so apparent in small firms, but it exists because of the system. Co-operation is different, because it means people working together. There is a strong instinct to work towards a common aim.
In 1976, a Private Member's Bill was introduced to encourage the industrial common ownership movement. Funds were provided for its development, but unfortunately the present Government did not renew the financial assistance. That is a pity, because the revolving loan fund and the advisory scheme provided much useful encouragement. The Labour Party will introduce a national section 8 scheme under the Industry Act 1975 to encourage co-operative enterprise and to provide more facilities. I hope that there will be an enormous demand, but we must wait and see.
Workers should have the right to buy their factories. They can apply to the Department of Industry, which will establish a co-operative development advisory board. That board will advise the Secretary of State, who can recommend that the scheme should be supported financially. That is similar to the present section 8 schemes—the so-called rescue schemes—where the industrial development advisory board receives a submission from the selective finance assistance group of the Department of Industry, which is composed of civil servants, and makes a recommendation. The Secretary of State decides whether financial assistance should be given. However, the workers must have the chance to buy their factory at a price reasonable to both parties. Without that, financial assistance will be meaningless.
In the two workers' co-operatives set up by the Labour Government—the Meriden Motor Cycle co-operative and Kirby Manufacturing and Engineering Ltd.—the action of the factory owners was crucial in determining the inferior position from which both co-operatives started. Triumph motor cycles are still manufactured. They are the last vestige of the great days of the British motor cycle manufacturing industry and are fine British machines, although not so many are being produced. But for the assistance provided by the Labour Government, the Meriden Motor Cycle company would be closed today and the name "Triumph" would be just another fond memory.
§ Mr. Iain Mills
I welcome the comments of the hon. Member for Keighley (Mr. Cryer) and agree with him about the quality and motivation of the work force. However, he should be cautious when talking about the full co-operative nature of the venture, because it had to shift away from some of the philosophical aspects of cooperation. However, it is still a successful, dedicated and well-motivated enterprise, which I wholeheartedly encourage.
§ Mr. Cryer
I am grateful for the hon. Gentleman's backing of the Labour Government's action. There have been changes in the day-to-day organisation of that company. The hon. Member for Epsom and Ewell (Mr. Hamilton) is laughing. The Meriden co-operative did not start as an academic example of co-operation. It began with a crisis and not as an apple-pie co-operative. It has lurched from crisis to crisis. In some weeks the cooperative had to telegraph Norton Villiers Triumph for money to pay its wages because the larger company did not take the machines that it had ordered. There were also 1135 arguments about the price of the motor cycle. The distribution was in the hands of Norton Villiers Triumph and any improvements by the co-operative automatically became the property not of the co-operative but of Norton Villiers Triumph. Eventually, the co-operative obtained the Triumph name and the position changed. However, it started from a critical position and there was no fixed and rigid structure. The hon. Member for Meriden talked about rigidity. I hope that he accepts that the Meriden cooperative displays a welcome flexibility. I am sorry that Kirby Manufacturing and Engineering Ltd. is not in operation today. It could also have shown some success.
A criterion of the section 8 scheme will be that the proposals should form the basis for a genuine cooperative. That will be subject to scrutiny by the Department of Industry. We must remember that, although many family firms are dedicated, some families break up their firms because they feud over them. I recall being involved in a dispute between relatives running a small firm. Such was the vehemence of the dispute that they reported each other to the police for making obscene phone calls. A decision had to be made about whether the relatives could continue working together. They could have closed down and moved to a farm in Sussex, for example. In such circumstances there is no point in the workers saying "We want to keep our jobs, let's have a crack at it," because the family may say, "Hard luck: we are going to sell".
My suggestion would stop that. It would stop the takeovers and asset strippings which are all too serious a feature of manufacturing industry. It would prevent so much exporting of machinery to more conducive economic climates. It would ensure some protection. Workers who want to improve and develop a firm would be able to submit their scheme to the Department of Industry.
We have an opportunity with local authorities to provide grant aid to co-operative ventures. There could be a significant development of what the hon. Member for Meriden acknowledges to be a framework for working well together. If we establish a few successes, there will be an urge to follow the example of small and medium cooperatives. In that way we could develop a useful and important form of endeavour.
We must have a change of Government so that a different attitude is developed. I have to tell the hon. Member for Meriden that the hon. Member, whom I shall call the "PUSS-Ind", does not get within shouting distance of the Chancellor unless he bumps into him in the tube, so he will not be able to make any representations on his behalf.
§ The Under-Secretary of State for Industry (Mr. John MacGregor)
That may have been so when the hon. Gentleman was in my position, but it is not so now.
§ Mr. Cryer
I expected the Under-Secretary to say that, but I suspect that the reality is different.
In my constituency 1,000 jobs in the textile industry have been lost since the Government came to office in 1979. About 500 jobs have been lost in the metal industries and 450 in the machine tool industry—the crucial industry that makes the machines to make the machines.
The sad truth is that manufacturing industry is being decimated. Unless there is a change of Government policy to generate that demand and make it more worthwhile to 1136 invest in manufacturing, or unless there is a change of Government, all the hopes of small firms and cooperatives will be diminished. Our first priority must be a change of Government.
§ Mr. Deputy Speaker (Mr. Ernest Armstrong)
I remind the House that hon. Members make a special effort to be here on a Friday. Seven hon. Members still wish to catch my eye and we have just under two hours before the Front Bench speeches. The last two speeches took 50 minutes. Speeches lasting 20 minutes will exclude some hon. Members from the debate. I ask for a little more brevity.
§ Mrs. Sheila Faith (Belper)
Thank you, Mr. Deputy Speaker, for calling me to take part in this important debate. I do not agree with the hon. Member for Keighley (Mr. Cryer), particularly when he calls for a change of Government. I congratulate my hon. Friend the Member for Leominster (Mr. Temple-Morris) on being successful in the ballot. I have always failed in that. I also congratulate him on choosing such an important subject, and on introducing the debate so splendidly.
My hon. Friend spoke in the national context. I shall refer to my constituency. I went to live in the Derby area in 1977. The first thing that struck me was the large number of small businesses there. In Derby's main streets there are still many family-owned retail shops. That is reflected in the service and good labour relations in the businesses.
Compared with my native North-East, the proportion of small businesses in the area is high. As a result, unemployment, although much higher than I should like, is lower than the national average. In most countries with a high proportion of small businesses, such as the United States, Japan and Germany, there is a strong economy. In this country, my constituency has a better economy and less unemployment than other parts of the country and even other parts of Derbyshire, because of the large number of small firms.
Not long ago my constituency was dependent on mining, as was the constituency represented by the hon. Member for Cannock (Mr. Roberts). Once the area contained 19 mines; now there is only one—Cadley Hill at Swadlincote—although about 3,000 south Derbyshire miners travel to the Leicestershire and Northamptonshire pits. They are diligent, conscientious and moderate.
One can imagine what would have happened if Arthur Scargill had been around in those days and how hard he would have fought to preserve those uneconomic and out-of-date pits. Instead of people becoming entrepreneurs and opening useful small businesses, they would have been encouraged by him to fight to save the pits, and that would have affected the profitability of the whole coal industry.
The people became entrepreneurs not only in the traditional industries such as textiles, pottery and engineering but extended their efforts to other industries and because of that diversification my constituency has been cushioned from the worst effects of the recession. It has never received any regional aid and in view of its history that is commendable
Even today people put their redundancy money into new businesses, not out of despair but because of the new atmosphere for initiative which is being rekindled. The small firms service, set up by the Government in 1137 Nottingham, serves my area. It has received many new inquiries recently. About 50 per cent. are from new businesses.
When I was a candidate I was hounded by people who wanted to tell me how small businesses were affected by the Labour Government's taxation and employment protection policies. I was glad when my Government amended the Employment Protection Act and granted exemption from six months to 12 years and for small businesses increased the exemption to two years.
In each of his Budgets, the Chancellor has announced new measures to help small businesses. I particularly commend the business start-up and loan guarantee schemes—which are unique to Britain—and the scheme to help businesses buy new premises.
My constituents approve of the policies. Belper used to be a Labour constituency, but now more and more people realise that the Government's policies are bringing down inflation and interest rates. As my constituents read about the Labour Party's new policies introduced this week, they know that they can have no faith in such pipedreams. The Labour Party would seek to expand the economy while reducing the strength of the pound. We cannot precisely control the pound because we are not insulated from world conditions.
§ Mr. Iain Mills
Will my hon. Friend comment on the fact that no other European countries, including those with Socialist Governments, have adopted that type of reflationary policy?
§ Mrs. Faith
I agree. Some countries—France, for example—are now changing policy and following our Government.
The hon. Member for Cardigan (Mr. Howells) mentioned small shopkeepers' problems. The Asian community provides a splendid service because large families who can work on an informal basis allow flexibility.
Similarly, small grocers in the villages in my constituency give an excellent service. As the hon. Member for Cardigan said, they are focal points and the elderly rely on their service. They are being hit by the supermarkets that are opening in the large towns. Their turnover is down and hence their profits. They are not often blessed with the large families of members of the Asian community and they have to employ staff. Their employees are loyal and anxious to work. Very often, they are women who work part-time hours. I am all in favour of equal pay, but many women would prefer to work for less money if their employers were flexible and allowed them to be at home to look after their children on returning from school. Many would have been prepared to accept a low wage increase. However, the wages councils are insisting that small shopkeepers, despite their reduced profits and lower turnover, pay a 13 per cent. wage increase.
§ Mr. John Grant (Islington, Central)
Will the hon. Lady state the statutory minimum rates that she is talking about and whether she thinks that they are living wages?
§ Mrs. Faith
I do not have the figures with me, so I cannot recite them. However, I know that many people are 1138 happy to work in small firms and would have been happy to accept an increase far lower than 13 per cent. to secure their jobs and the future of the village store.
In my constituency, Mr. Terry Wallace of Windmill Stores, Kilburn, backed by the National Union of Small Shopkeepers, is defying the wages councils and paying an increase of only 6 per cent., which is in line with other firms in the area. I do not condone Mr. Wallace's action. Unlike Labour Members, I do not condone anyone who breaks regulations or rules. However, I sympathise with him. I hope that the plight of those who are trying to provide a service in our villages will be recognised by my hon. Friend the Under-Secretary of State. I hope that he will give some thought to pressing the Government to abolish the wages councils.
I know that the Government are co-operative and responsive because I serve on the Select Committee on Social Services. The Committee examined a scheme for employers to pay the first eight weeks of sick pay. The Committee suggested—it was prompted by the National Federation of Self-Employed and Small Businesses—that the money should be reimbursed 100 per cent. I was a member of the Standing Committee that made that possible. I know how pleased all small business people were about that provision.
During the past few years large public sector firms have had to lay off many employees in order to become more productive and more competitive. We must give all credit to firms such as British Leyland and Rolls-Royce, which employ some of my constituents. They have made tremendous efforts to become more competitive.
At the same time, small firms have managed to maintain the number of people working for them. We must look to these firms for new jobs and for growth in the economy, which is so important if we want to increase the amount that is spent on our social services, as we all do.
I know that my hon. Friend will continue to look after the interests of the important small business sector. I wish him every success and I congratulate my hon. Friend the Member for Leominster on introducing this subject.
§ Mr. John Grant (Islington, Central)
My hon. Friend the Member for Cardigan (Mr. Howells) referred to the work of Lord Lever, and I begin by acknowledging that under the Labour Government and the present Government a number of steps have been taken that have been helpful to small businesses. It would be silly to pretend otherwise. The hon. Member for Leominster (Mr. Temple-Morris), whom I thank for introducing the debate, was right to say that in the end small businesses stand or all fall as a direct consequence of the nation's general economic health.
I share the view that the importance of the small firm cannot be overstressed at a time when there is little prospect of the larger enterprises, both public and private, stepping up employment. Indeed, we see stretching ahead of us a longer trail of redundancy. There is potential in the small firm sector. There must be room for further growth and it is interesting to compare the growth of new small businesses in Britain with their growth in other industrialised countries. I shall not present statistics to the House because they have been referred to by the hon. Member for Meriden (Mr. Mills). It is a fact that the small firms' share of United Kingdom manufacturing industry has risen slightly, but its share is still far lower than in all other Western industrialised countries. 1139 I accept that useful efforts have been made by Governments past and present, and the Social Democrats are not suggesting revolutionary changes. It would be foolish to make such proposals. However, we have proposed a number of significant steps and extensions of existing measures. We think that there are regulations that should be eased for small firms—for instance, a new and less expensive system of incorporation, more help for local authorities with premises and further developments of the business start-up scheme and the loan guarantee scheme. In particular, small firm investment companies, which were originally recommended by the Wilson committee, should be introduced. It is a recommendation that is now much favoured by the Confederation of British Industry as a way of pulling together institutional and individual funds for investment in a wide range of small and growing companies.
To take up the remarks of the hon. Member for Keighley (Mr. Cryer), encouragement of co-operatives is not the exclusive preserve of the Labour Party, as SDP policy documents clearly show.
I was interested to read that the British Technology Group's small companies division hopes shortly to introduce a new financing package for the small company sector. The group is concerned primarily with advanced technologies, mainly in the assisted areas. However, its deputy director feels that there is growing evidence that new and small companies are still encountering difficulty in establishing their technical and commercial credibility with traditional sources of finance. The Government should turn their attention to that.
I am told that those responsible for the loan guarantee scheme burnt their fingers slightly in the early days and, as a consequence, have become ultra-cautious. I am not sure whether that is so, but it has been put to me by the small business sector. I invite the Minister to comment on that when he replies.
We all know that there are no easy answers to our industrial problems. The economic scene is depressing, even allowing for what Conservative Members have said about the falling rate of inflation. I am far from convinced that that trend will continue. In any event, the price of that fall in inflation has been enormous. Industrial production is not reviving; overall, it has fallen by nearly 13 per cent. since 1979, and, if we exclude North Sea oil activities, it is decidely lower than at this time last year.
We are heading for our first ever peacetime annual deficit in manufactured goods for more than a century. There has been a deficit of £125 million for the first 10 months of the year. Manufacturing output is now at a new 15-year low. It has dropped for four successive quarters. We know that one in every five manufacturing jobs has gone since 1979. Overall, unemployment figures are at catastrophic record levels. It is not unfair to refer to 4 million, however much the Secretary of State for Employment seeks to hide that fact with his statistical sleight of hand.
The Government's forecasts are pretty gloomy. Ministers who not so long ago were trying to excite the nation by talking about light at the end of the tunnel are now having to reach for a new set of downbeat cliches. The CBI expects more job losses and decline. No one really believes now that unemployment will not rise still further in the months ahead. Not long ago, the Government were 1140 taking a different line, but now they have been forced to admit that that will happen. That is the climate in which small firms must work.
I agree with the hon. Member for Keighley that public expenditure cuts hit small businesses because small firms depend on public sector contracts. The construction industry is perhaps the clearest example of that. Whenever a big firm cuts back or goes bust, a host of small contractors and subcontractors are hit, as is the general prosperity of the areas in which they operate. It is said that one cannot fall out of bed if one sleeps on the floor, but too many firms are now falling through the floor. For them, it is now a matter of survival.
It is unfortunate that we cannot obtain figures for bankruptcies and liquidations according to the size of the firms involved and the number of workers affected. A figure of 10 per cent. has been mentioned for start-ups, but the crude overall figures for bankruptcies and liquidations are horrifying. In the interest of brevity, I shall not go over all the figures, but in England and Wales in the 12 months to October there were 5,582 bankruptcies and more than 11,000 liquidations. Moreover, I believe that in the last month there has been the highest ever number of bankruptcies and probably the highest or at least the second highest number of liquidations. That illustrates the tale of industrial and commercial disaster.
Small firms also encounter many local problems, particularly with local authorities. The House will not be surprised that I take the London borough of Islington as an example. I doubt whether there is a more barmy local authority, whatever its political colour, anywhere in the country. Many local firms and the rate burden excessive, but in my borough there is now talk of raising the rates by 45 per cent. next year. Indeed, some people say that the increase will be more than 50 per cent. That is a frightening burden which will be bad for business and for jobs in the borough. Some of that can be attributed to the Government's clear policy of starving inner city areas such as Islington and shifting resources out to the shires, but stupid and irresponsible policies by local authorities give central Government every excuse to penalise them. I take a few specific examples.
I am all for encouraging trade union membership and I have no time for back-street sweatshops and exploitation. Small and expanding firms in Islington, however, although unlikely to be heavily unionised, are not on that account necessarily bad employers. The workers may not wish to join a union, although personally I should recommend that they did so. The unions may not be interested in having those workers in membership, as some unions find it uneconomic to service members scattered around the small firms sector. The borough council, however, has now decreed that it will restrict grant aid to firms with 51 per cent. union membership.
The Islington chamber of commerce, which assures me that it is in no way anti-union—in my experience, that is a fair comment—says that it cannot equate that action by the council with the promotion of commercial and industrial activity in what is undoubtedly one of London's worst-hit areas, with more than 25 per cent. unemployment. The chamber of commerce refuses to accept that the objective of industrial and commercial assistance should be the promotion of trade union membership. Its president, Mr. Ron Gillings, has told me openly—I have his authority to quote him—that his members 1141believe that this restriction is primarily to promote the interests of those already employed rather than to develop further industrial activity to benefit the growing number of unemployed".I think that that is a reasonable view. Certainly many employers who might otherwise bring investment and jobs to the area may well be put off, although they might even have been ready to encourage trade unionism, but for the coercion. Whereas I might well support such an approach with regard to Government contracts and equal opportunities policy, in this instance there is no doubt that the council has gone over the top in a way that is counterproductive for the very people whom it claims to wish to help.
I wish to ask the Minister a specific question on the Islington partnership money, although I shall understand if he cannot answer immediately. I understand that 38 per cent. of the 1982–83 money is being spent on economic regeneration, including £635,000 assistance to local firms and businesses. Many of those schemes will help the job situation. I hear rumblings, however, that the Government are unhappy at the apparent politicisation of the funds available, which may therefore be at risk. I would welcome the Minister's reaction to that, although I appreciate that he may have to consult his colleagues at the Department of the Environment. I fought hard for Islington to become a partnership authority and I would deplore anything that would jeopardise that and make the borough even worse off.
The general lack of economic activity causes production and credit problems, discontented managements and discontented workers. That, again, is the view of the president of the chamber of commerce, and it cannot give the Government much comfort. The chamber of commerce feels that there is little sign that the industrial disincentive of rising overheads has been understood or acted upon by those in authority generally.
Another local problem is the squabble between the council and the Manpower Services Commission about the council's role in the youth training scheme. In this regard, the president of the chamber of commerce said:As employers we are prepared to aid MSC training programmes in conjuction with local schools and colleges. Time is running out and we believe that the Borough should give a clear unambiguous lead. We do not see this within the Borough. We see from both Council and the MSC an excess of rhetoric.
It is scandalous that the training and education of young people in Islington should be jeopardised by an absurd doctrinal dogfight. The deadlock must be broken. Perhaps the Minister will bring this to the attention of his colleagues. We need someone to bang the parties' heads together and tell them to get on with the job in the interests of the youngsters concerned.
Meanwhile, the council has had the temerity to advertise for what it describes as aChief Press, Campaign and Publicity Officer"—at a salary of £15,000 a year, which is more than a Member of Parliament is paid—to organise Council campaigns in support of Council policies".Far from practising open government, the council currently boycotts the local press and produces its own propaganda broadsheet, paid for out of the rates. It is now blatantly appointing a political propagandist placing yet another unjustified burden upon local ratepayers.
I could continue at length to describe local shortcomings. For instance, why has the council failed to 1142 apply to the MSC for money from the European social fund for schemes to help training and job creation? I understand that there has been no application this year and that there is none in the pipline for next year. I do not know whether that is ridiculous anti-EC prejudice or sheer incompetence. Either way, the council should get off its backside, put up some viable proposals to the MSC and fight for them.
I am told that the London office of the Department's small business service covers a vast area extending from Cambridge to the Isle of Wight and that its counselling is far less effective than it should be because it is too remote from local situations. I believe that the hon. Member for Leominster suggested that the number of people working in this area of the Department should be increased—in other words, that the bureaucracy should be extended—and I certainly agree with that. I suggest, in addition, that the extended service should be more locally based. A local office in Islington would certainly be most welcome.
I have referred to the need to relax unnecessary bureaucratic restrictions wherever possible. It is clearly right to encourage enterprise and endeavour. Here I take up the comments of the hon. Member for Belper (Mrs. Faith). I want to make a different kind of plea to the Minister, because I have mentioned the back-street sweat shops. The relaxation in restrictions must not be at the expense of employees who are much more likely to be subject to exploitation and poor conditions in small firms than in bigger firms. In small firms they are less likely to enjoy trade union protection and assistance. The hon. Member for Leominster said that he thought that the legislation generally in that respect was about right. I do not agree. I think that the Government have gone too far in the other direction. I hope that the Minister will pay some heed to the hon. Member's words and not make further changes.
I have in mind the insidious attack that has built up over a long period on wages councils, which set statutory minimum wages conditions for workers who are for the most part poorly organised, if organised at all. The Government ought to think again about their retrograde decision to scrap the fair wages resolution, which was introduced by Harold Macmillan. When he introduced it he warned the House of the possibility of some future Government seeking to dispose of it.
The argument in favour of the decision is that the requirements of the fair wages resolution price people out of jobs. Although I would not deny that there are isolated cases at the margins, the Government have not yet been able to produce any worthwhile evidence to substantiate their case. I do not think that any hon. Member would like to spend a week on a statutory minimum wage. We all know the kind of money that is paid in some industries. Successive Government of both major parties have supported the fair wages system and it would be a grave indictment of the Government if they were to succumb to the black propaganda that is being peddled on the question, and which some Ministers seem to be prepared to encourage or incite. I include among those Ministers the Secretary of State for Employment.
Nothing that I have said alters the fact that the business man, the entrepreneur, needs further support and encouragement, and needs to feel assured of advice and co-operation. He needs to know how to get it and where to get it, and to be able to get it quickly. 1143 We can all agree on the need to create more wealth and on the need to achieve a genuinely prosperous society for all our people, but the Government have taken us rapidly in the opposite direction. Small firms have been bruised, buffeted and butchered, along with the rest. Perhaps the Government see them as something of a microeconomic problem, a departmental problem, and I pay tribute to the efforts of the Minister. We are, however, in a macroeconomic mess for which the Prime Minister must shoulder the responsibility and the blame. Overall, the Government have let industry down badly, big firms and small firms alike.
§ Mr. Nicholas Baker (Dorset, North)
It is a great privilege to follow the hon. Member for Islington, Central (Mr. Grant), although I cannot agree with everything in his interesting and knowledgeable speech. He is known in the House for his assiduous attendance and for the devotion that he gives to his constituents.
Like other speakers, I welcome the motion that has been moved by my hon. Friend the Member for Leominster (Mr. Temple-Morris). It is overdue. I am delighted to have the opportunity of paying my tribute to the Minister, whose energy and effectiveness in promoting the small business sector is known to us all.
My hon. Friend the Member for Leominster mentioned the small business ethos in education. When I go to schools in my constituency, whatever the occasion, I invariably ask pupils to consider the possibility of working in a business, large or small. Our education system has tended to divert them away from that consideration.
I think that everyone in the House agrees on the importance of the small business sector of the economy. I think that it is wrong to suggest, as some Opposition Members have, that the small business sector depends entirely on the large business community. In truth, they are interdependent. In parts of the country such as mine, most of the businesses are small or medium sized. It would be very difficult to argue that a large part of Dorset is dependent on large businesses. Nationally, we are all part of one economy.
Hon. Members talk gloomily about the impact upon business sectors, small and large, of the actions of the Government. It would be more correct to talk of the impact of the recession. I hope that we shall be ready for the time when the recession can be seen to be coming to an end. Experience is that large businesses have not been ready for the end of a recession. They have failed to prepare themselves for it in the way that samll businesses have.
I have five brief points to make. The first relates to the manner in which we discuss in this House the capitalist system under a mixed economy. I am sorry that the hon. Member for Keighley (Mr. Cryer) is no longer present. I have the greatest respect for him, particularly when he speaks outside the Chamber, but he and some other Labour Members do not seem to understand the capitalist system that we have in Britain, although the hon. Gentleman comes near to it when he talks about co-operation and about people working together.
The ethos of the company system and the system of company law in Britain is that people came together in order to earn their living out of a business, and to derive profit and jobs from it. That is something that we should 1144 support. Therefore, I support any efforts in the direction of more industrial partnership and co-operation. I am sure that there is widespread support for it.
Some hon. Members seem to have the idea that business is fixed and indivisible. There seems to be an idea that because a business has existed for 50 or 60 years, it must go on, but that is far from the truth. That attitude and the inflexibility of that approach by many politicians—and particularly by Labour Members and Labour Governments in the past—have damaged the interests of large and small businesses, but particularly of small businesses.
My next point concerns liquidation procedures. It is an essential part of our system of companies and businesses that when the purpose for which a business came into operation has gone it should either, as in Japan, move on to something else, or disappear. The people involved should be properly supported when they become unemployed. I am very glad that they are supported much better now than they ever were in the past. They should be helped so that they can become involved in a new business and earn their living from it as quickly as possible. Unfortunately, some elements of the present liquidation procedures kill off businesses which are still viable.
I have in mind the proposals of the Cork committee concerning liquidation. It said that the insolvency procedures are very much out of date and bring about precisely the harm that I have described. Much of the procedure is excessively bureaucratic. The harshness and inflexibility of many of the rules results in essentially sound businesses being lost through company mismanagement when those businesses might be saved. The list of preferential creditors is too long and often militates against the survival of a business. The opportunities for malpractice by directors and manipulators of those businesses are still too wide.
I support the two main proposals of the Cork committee because they apply particularly to the small business sector. The first concerns the appointment of an administrator—someone who could be appointed, when the reorganisation of a company was being considered, with a view to restoring profitability, saving jobs, or to seeing whether a shaky company could be restored to profitability. The administrator would be able also to propose a profitable realisation of the assets for the benefit of shareholders, and in the interests of employees.
The second of the proposals of the Cork committee that I support concerns the use of voluntary arrangements for small businesses, companies and individuals, in financial difficulties, in order to avoid their having to go through the procedures of the court.
Any hon. Members who are involved in court procedures will know that they are long and usually slow. The long and detailed nature of proceedings in company liquidations and the bankruptcies of individuals often destroy businesses which in the interests of society should be preserved. The Cork committee proposals are important. I urge the Minister to add his weight to see that at least some of the Cork committee's proposals, particularly those relating to voluntary arrangements, are implemented during this Session without having to wait to find sufficient parliamentary time to produce a complete package to implement all the Committee's proposals.
My next point relates to rural communities. I was pleased to see that the Minister of Agriculture, Fisheries and Food joined the debate for a short time. I am sure that 1145 was because he realised the importance of farming as a small and efficient business. Farms and estates, whether owned by institutions or by individuals, employ far fewer people than previously.
My constituency is rural, but only 15 per cent. of the people are directly or indirectly engaged in agriculture. That implies that small businesses are coming into rural areas to provide the jobs that farming no longer provides. We should encourage them to do so. We need to have a much more determined approach to tucking small businesses into villages to replace those jobs. Local authorities have an important part to play. I pay tribute to the North Dorset district council which takes an enlightened and sensible attitude towards that.
People who look at and retire to rural areas should bear it in mind that the countryside is not the picture postcard environment that many people who live in inner cities believe. When my ancestor wroteGod made the country, and man made the townhe was making one of those generalisations that poets are allowed. He ignored the fact that the countryside is largely man-made.
I am as anxious as anyone to preserve our environment. I warn those people who contemplate retiring to rural areas that we must accept that rural areas need to have small and growing businesses if they are to remain viable and places where young people and families want to live and work.
I want to say a few words about the attitude of banks, with which I have considerable dealings in the course of my work, to small and growing businesses. Some small businesses will always be small, but others will grow. I believe that it is the job of bankers to pay more attention to spotting the winners. If bankers do not change their attitude, I suspect that it may be changed for them either by politicians or by competition. Many foreign banks realise that a much more flexible approach has to be taken to small businesses than has been the case before. Our clearing banks have not yet learnt that lesson.
My hon. Friend the Member for Leominster mentioned investment in small businesses, and it is absolutely critical to his motion. The shareholding democracy, if one excludes the holdings of pension and investment funds, banks and trusts, is almost further away today than it was when Conservative politicians and others talked about it 20 or 30 years ago.
The list of measures introduced by the Government constitute a minor revolution in the business sector. The business start-up scheme is the greatest single step that has ever been taken to promote the growth of small businesses.
I do not believe that people know that tax relief is available up to £20,000 for investment in small businesses. Although few people have that kind of money to invest, there are many people who pay tax—miners, doctors, and technical college lecturers. Gradually, more and more people who pay tax want to invest their money, perhaps not in the shares of public companies over which they have little control—the stock exchange is a difficult medium to appreciate and distant from them—but, potentially, in bodies in which they can take a close interest and over which they have some control.
The measures that have been taken are an important means of promoting the growth of small businesses and the 1146 health of the economy. However, such measures need more advertisement by the Minister and his Department, and I hope that he and the Treasury will give it.
I am grateful for having had the opportunity to contribute to this important debate.
§ Mr. Joseph Ashton (Bassetlaw)
With respect to the hon. Member for Leominster (Mr. Temple-Morris), this is a piddling little motion. It congratulates the Government on planting acorns, when a forest fire is sweeping through the country and putting people out of work at an increasing rate. The motion congratulates the Government on helping businesses to employ one or two more people. Much more will be needed to stop the rot, but the Government like having 3 or 4 million people unemployed. For all the mealy-mouthed help that they give to small businesses, the Government want to have 50 men chasing every job, because that will drive wages down.
The hon. Member for Dorset, North (Mr. Baker) mentioned farmers. They are a perfect example of what I am saying. In response to the latest wage increase application by farmworkers the farmers have offered no increase to young people, because they know that they can get young labour from the youth opportunities programme. That is the farmers' attitude after being given a 10 per cent. pay rise for themselves through the farm price review.
I have been fighting to save jobs at two factories in my area and have received no help from the Government, the banks or the pension funds. The first case is Harworth Footwear, which employs about 300 people in the mining town of Harworth. It is one of only two places in the area that employ women, and 70 per cent. of the workers are related to miners at the local colliery.
Three months ago Barclays Bank called in the firm's overdraft. The company was breaking even and, with interest charges coming down, it looked like moving into profit in the final quarter of the year. When the bank called in the overdraft the firm had no option but to go to the receiver. It had to find about £450,000 overnight.
The factory was worth about £1.6 million, the company had a good productivity record and it used to sell its high-quality product mainly to Marks and Spencer. The management of the company contacted me and I contacted the mineworkers' pension fund, which is run not by the mineworkers, but by the National Coal Board. I asked the NCB whether the mineworkers' pension fund would put up the money.
The pension fund has invested in the film "Chariots of Fire"—that was a profitable investment—in the Great Yarmouth Centre, in Watergate in Washington and in endless profitable enterprises throughout the world. But would it put money into a mining town to save the jobs of miners' relatives? Would it hell as like.
Mr. Arthur Scargill contacted the NCB, as did local NUM officials and Ray Chadburn of the Nottinghamshire NUM and Jack Taylor of the Yorkshire NUM. The NCB would not budge. We understand that one reason for its refusal to help is that the pension fund has already invested in the Mansfield Shoe Company and does not want to encourage a competitor— even though each company has only about 1 per cent. of the market. We are now putting pressure on Nottinghamshire county council to put up the money. The NCB refused to invest in a competitor, and that is the sort of mercenary attitude that is destroying jobs. 1147 Workers on the shop floor make their pension fund contributions every week. Insurance companies take the money from those in the textile industry, say "Thank you very much" and invest in textiles in Hong Kong, Korea and Taiwan, which results in cheap imports being sucked into this country and the people who paid the cash in the first place are put out of work.
Workers on the shop floor have no say and are allowed no influence on the pension fund trustees. The mineworkers are angry that their pension fund will not invest in their own town and save the jobs of their relatives, but they have no influence in the matter, and the Government are not interested.
The second case that I have been fighting is that of Buxted Chickens in Gainsborough. The factory is across the river from my constituency, but many of my constituents work there. The market for frozen chickens has been falling and Buxted cannot sell as many as it used to. Part of the problem is that frozen chickens are coming in from France and other places on the Continent.
However, the market for fresh chickens is expanding. Hermanns in my constituency, which produces fresh chickens, wants to buy the Buxted factory. About 500 jobs are at stake and I have urged Buxted to take up the offer, but the firm is dragging its heels. The fresh chicken market is expanding because supermarkets get the fresh meat profit of 25 per cent. on fresh chickens, compared with only 5 per cent. on frozen chickens. Therefore, the supermarkets want more fresh chickens.
Hermanns exports fresh chickens to Germany and processes 37,000 birds a day. It has said to Buxted "Sell us your factory. We can get Government grants. We shall save the jobs." Will Buxted sell? Of course not. The reason is that Hermanns is a competitor, even though in a different area. Once again jobs are going down the drain, and the Government will do nothing about it. They will not interfere or get people round the table to negotiate. They will not talk to either side or take any interest.
The Government's attitude towards unemployment is appalling. Not only do they do nothing to prevent it, but they even connive at it, because they believe that unemployment will tame the unions. The Government want to encourage small businesses because they know that it is difficult for unions to organise when a few people work in scattered areas.
However, I should point out that the farmworkers, who have had experience of the difficulty of organising a union when workers are widely dispersed, has gained some muscle as a result of joining the Transport and General Workers Union. The farmworkers have told Buxted that if there is a deliberate closure of the factory they will ask the Labour councils in this country not to buy Buxted chickens.
Local councils, hospital boards and many other bodies under Labour control spend large sums on chickens for school meals and old people's homes. The only way to hit some of these ruthless people who close down factories and will not sell to a competitor is to hit them where it hurts most—in their pocket. An example of what I mean is Ken Livingstone refusing to advertise in a newspaper. That sort of action will escalate if the Government fail to take an interest in bringing people together to try to save jobs.
The Government's differing attitudes can be seen from their treatment of defence industries. Their attitude over the Falklands was that no expense should be spared on training men and applying the whole weight of Britain's 1148 skill and technology to turn out the invaders from Argentina. What happens about the invaders of the steel industry? The answer is "Nothing". The Government sit on their backside. They will see steel towns decimated. They will see imports wipe out places like Ravenscraig, Scunthorpe and the steel towns of South Wales. That is the difference.
The Conservative Party is full of lieutenant colonels. If they are not hon. Members, they are chairman of local constituency parties. The pressure is on Conservative Members because they represent towns with defence interests. Expenditure on defence is £14 billion a year, while industrial expenditure, which creates jobs, is £1.5 billion. Conservative Members do not represent industrial areas. They have never done so. They cater for the South-East and the professional classes of commuter land. They are not interested in the unemployed.
§ Mr. Colin Shepherd (Hereford)
Does the hon. Gentleman not realise that the defence industries employ 600,000 people? Would he like to see those jobs disappear?
§ Mr. Ashton
The hon. Gentleman adds to my point. The Government will look after the defence industries. Why is the same amount of research, money, technology and training not put into the steel industry, the motor car industry, the shipyard industry and the docks? Why do they not receive the same back-up and technology that was provided for our forces in the Falklands? Why are the Government so unpatriotic over waving the flag when it comes to British Industry?
I agree that the farming industry is efficient. The reason is that the industry is based on a combination of planning agreements. Whenever the Opposition talk about compulsory planning agreements—my hon. Friend the Member for Norwich, South (Mr. Garrett) has advocated them as much as anyone—we are howled down. What is the Milk Marketing Board? What is the Potato Marketing Board? What is the Egg Marketing Board? Why cannot we have the same planning agreements for motor cars, for the footwear industry, for energy, coal and other industries? Why should only farming receive this back-up advice, loans, grants and assistance from the Government? The reason is that all the farmers are in the Conservative Party. The rest of industry is regarded as a damned nuisance, and shop stewards and unions as trouble causers. Their support is not needed for the Government to win seats. The Government could not give a damn. That is the top and bottom of it.
§ Mr. Temple-Morris
Is the hon. Gentleman aware that agricultural support policy was created by a distinguished member of a post-war Labour Government?
§ Mr. Ashton
That is what I am saying. It should now be extended to other industries. As the Labour Party, after the war, had the sense to stop the gluts in one product and slumps in another and to organise industry for the benefit of everyone, that should be done now for other industries. They should be treated in the same manner as farming. The Tories do not want to know. They are not interested. The motion will do nothing to solve the problems of Britain.
§ Mr. Graham Bright (Luton, East)
I congratulate my hon. Friend the Member for Leominster (Mr. Temple-Morris) on his motion. It shows that there has been a 1149 tremendous change in attitude in the House and in the country to small businesses. No longer is the small business man the odd man out, as was the case in the past. My experience when I was trying to fight for and to represent small businesses some years ago was that I was looked upon almost as a crank, in much the same way as anyone was who was trying to purvey health foods—and I felt very strongly about that, since I do just that as a small business man.
I also congratulate the Government on their success with the small businesses policy that they have pursued, but I also want to put down one or two markers which I should like to see taken up in the future.
A great deal of gloom and doom has been preached by the Opposition, saying how all small businesses are in trouble and that the economy of the small business sector is winding down. I can only speak from personal experience. I started my business in 1970, and I planned a major increase in it on the very day that I fought the last general election. On that day, I moved into a brand new factory, and the fact that we were expanding and had a new factory to pay for put a tremendous burden on my company. I am pleased to say that only this week we have decided to expand the factory and to take on more staff. I cannot understand why there is all the gloom and doom. There are successful businesses, but they are usually well managed; I pay tribute to my wife in that respect, in that she is looking after my business while I am here.
When my party came to office, it faced a backlog of problems, and it is no use the Labour Party pretending that it all happened once we had a Conservative Government. We were suffering from low output, low profitability and bad industrial relations. We were also suffering from escalating public expenditure which was sucking money away from much of industry and certainly from small firms. But we have been able to change that.
§ Mr. Bright
No. I have just started. The hon. Gentleman will have a chance to speak in a moment.
We have been able to change the state of affairs that we encountered when we came to office without resorting to massive public borrowing, which would have starved our small businesses even further. We have pursued the course recommended by the right hon. Member for Cardiff, South-East (Mr. Callaghan), who said that if we went in for more public borrowing we would create hyperinflation and still more unemployment. I have a copy of the right hon. Gentleman's speech in which he said that at a Labour Party conference.
The other action that we have taken to encourage small businesses is to allow managers to manage again and to enable entrepreneurs actually to run their own businesses. That has given a lot of confidence to small businesses and to people to start up small businesses.
I accept that problems remain and that the Opposition have every right to stress them. I applaud them for doing so, because, like them, Government supporters constantly stress problem areas which small businesses have to face, but I am surprised that the Opposition express such faith in small businesses when I look at their publication "Labour's Programme 1982", because that envisages providing a statutory mechanism for employees in private 1150 firms to take over their assets and turn them into workers' co-operatives, paid for by the taxpayer, with no mention of consultation with the owners of those businesses.
That is an odd way of encouraging people to bother to start their own businesses and create new jobs. It is not the sort of encouragement that I expect. Heaven help us if we ever get a Labour Government who implement policies of that kind. Nothing could discourage anyone more from going into business for himself. It is confiscation from anyone who is successful. If that is the attitude of the Opposition, they will never get anyone to start a business of his own.
We had to face the fact that the public sector has been growing and that that has starved small businesses of cash. We have tried hard to change that. The Government have introduced some useful schemes, to which I shall come in a moment. One of the problems facing small businesses is the deterrent effect of capital taxation. There is a natural and legitimate desire on the part of parents and grandparents to provide for their descendants, but capital gains tax makes no allowance for inflation. It is charged at a lower rate than income tax, which is an enormous incentive to sell small businesses. That is bad. We all appreciate the value of small businesses, because they are more flexible and ofter more productive than larger firms. This policy often forces them to sell out to larger concerns. Therefore, we should look at that tax and its effects.
Corporation tax badly affects the small firm. The last Budget introduced some useful moves, but I suggest that we should have an index which backdates capital ownership. A small firm which started with as little as £200 or £300, when capital gains tax first came into being, is at a great disadvantage if it is now worth £20,000, because there is no way in which it can upgrade itself. Anyone investing in the stock market can upgrade by the bed and breakfast method, but the small company is at a disadvantage, because it cannot do so. I hope that the Government will look at this problem and perhaps introduce further measures in next year's Budget to enable small companies and small investors to upgrade their investment.
Capital transfer tax was highlighted by the Bolton committee, which said that any tax of that nature inhibited the growth of small family firms. In particular, it said that it damaged firms which had 100 or more employees. Those are the firms that we should encourage, because they started small, have grown and are coming into the medium-sized sector and offering the jobs that we are looking for. The Labour Government introduced capital gains and capital transfer tax, both of which took effect at the same time. Without doubt, that was the most serious threat that family firms have ever had to face in their continuing struggle to survive.
Capital transfer tax deters people from providing a business that will continue and be handed down to the next generation. Perhaps the Government will consider what I call tax credit certificates, which would enable a family firm to make provision for tax during the lifetime of the current owner. Clearly that would help, and it would not take tax away from the Government. In fact, the Government would benefit, because they would get the cash in advance from the purchase of the certificates. Certainly it would help the changeover which often breaks the small firm.
The funds generated by small businesses should be retained for their internal use, and not be drained away. 1151 We should aim to remove checks on their growth and the incentive to sell. That may be possible in the long run only if we integrate income and capital gains tax and replace capital transfer tax with, perhaps, an accessions tax. The Conservative Party is thinking of positive measures to build on the advances that have already been achieved.
Companies have had to face comparable tax problems in the past. We all know how large corporations have benefited from the ability to deduct the interest that they pay on their borrowings from their corporation tax liabilities. They have enjoyed the bulk of the aid and allowances that that provides. There is even evidence that they have been able to buy up small firms as a result.
The Government's success in raising the levels at which lower and full rates of corporation tax apply has been welcome. I know that from my own experience. However, stepped rates, involving a marginal penalty between them, still encourage firms to avoid crossing them. Any barrier that we build is bad. There is a hub in the middle of corporation tax which causes people at present to start putting on the brakes when they approach the magical figure of £225,000.
We should seriously consider a graduated corporation tax which recognises that the small company should be able to make a profit that can be reinvested before the payment of corporation tax. Why not give a tax-free allowance—perhaps as small as £3,000—which would encourage small firms? After that, there could be a graduated corporation tax, with the smaller firm perhaps paying only 10 per cent. initially. That would encourage companies to invest money in the firm.
Many people have mentioned the attitude of banks. I agree that it is difficult for the small business man to borrow money. However, it is infuriating for him to make a profit only to see it being scooped away from him when it could have been reinvested to provide more machines and jobs.
Coupled to that is an idea for enterprise bonds that I have floated on several occasions. My hon. Friend the Member for Surrey, North-West (Mr. Grylls) mentioned it this morning. I should like to see small firms with the flexibility of large firms. Large firms can often switch funds around, particularly in a group of companies to minimise the effects of corporation tax. I propose that a small company should be able to buy enterprise bonds rather than pay corporation tax. That money would be held by the Government, on which they would pay an index-linked return. The Government would still have the money to invest in Government stocks, and so on. The company could then redeem those bonds for expanding the business, not for anything else. The Government would not be losing anything because that money would be reinvested in industry to create more jobs.
At the moment, the small company has great difficulty in making such an investment because, as I know from my own experience, it is much easier for a large company to invest £40,000 in one year and obtain relief, but it is much more difficult for the small business to do that. It might take three or four years for a small company to save up that amount. These bonds would achieve that end. It would save such companies from wasting money because often, rather than pay tax, small companies buy desks or cars that they do not want. That is the last thing that we should be encouraging. It would help to generate internal funds, which would be a good aim.
1152 The business start-up scheme has been mentioned several times this morning. It is unique. When I visited Germany and America in the summer it was interesting to find that representatives of other small businesses looked at this scheme with considerable interest and wanted to follow it. However, it is too tightly controlled. We should allow the working directors and employees to invest in their companies and still obtain relief. We should encourage people to invest in their firms. We could also consider overcoming the problems of those trying to avoid tax. It is important to encourage working directors and employees to invest in their companies.
The loan guarantee scheme has been a tremendous success. It should be extended further to ensure that there are adequate funds all the time. We should increase the £75,000 limit to, perhaps, £250,000. The sum could be even higher, particularly for special cases involving the creation of employment or export opportunities. The question of the scheme losing money has been raised. However, if we are to create jobs and export opportunities, there is no reason not to expect to make a loss of 1 per cent. or 2 per cent. on the scheme.
Small business men are also concerned about the powers of entry of inspectors. There are about 500 classes of official inspectors with the power of entry. There should be one statute so that everyone knew exactly where they stood. Perhaps I might dare to suggest a general inspectorate. Inspectors could then look at several things when entering premises and that would obviate the need for all the different people with a statutory right to enter a firm.
We should continue to encourage the whole concept of small business. The education system may be at the heart of the matter. All too often, young people are not encouraged to work for themselves. They are led to believe that they should leave school and work for a company or in the Civil Service. They think that they should work for someone else for ever and a day. However, it is important to encourage schoolchildren to believe that they can start businesses. It is exciting to start a business and it demands many skills. It is impossible to take only one course when going into business. Many people make the mistake of talking about small business men, although half the time they are not small business men but engineers, craftsmen and so on. Those people have to draw on the other skills that they learnt at school. Therefore, it is important to know the three Rs as well as manual skills, and we must encourage schoolchildren in that way.
There has been an increase in the number of people taking an interest in working for themselves while attending colleges for further education. That increase has been dramatic in recent years. That enthusiasm should be fuelled so that we can scoop up all those who have gone through the education system and give them the skills they need to create their own businesses.
I am well aware that other hon. Members wish to speak. I had prepared a long speech, covering many aspects, but I have flitted through it. The subject is most important and I commend the Minister on the job that he has been doing. I believe that 95 different measures have been introduced for small businesses. That is marvellous, but I should like the figure to be doubled. It is a challenge, but I am right behind the Government and the Minister. We have a programme for small businesses and we have got it rolling. Let us keep it moving and ensure that we 1153 recognise that small businesses have a part to play. I want the emphasis to be placed specifically on small businesses instead of on large companies, with the small firms tagging behind.
§ Mr. Deputy Speaker (Mr. Bernard Weatherill)
Order. I have been informed that the Minister and the Opposition spokesman would like to begin their concluding speeches at 1.40 pm. Five hon. Members now in the Chamber have intimated their wish to take part in this important debate. That means that they have rather less than 10 minutes each. I hope that hon. Members will bear that in mind.
§ 1 pm
§ Mr. John Spence (Thirsk and Malton)
I congratulate my hon. Friend the Member for Leominster (Mr. Temple-Morris) on bringing forward the motion and also on his comprehensive presentation of the position of small businesses and the Government's work in relation thereto. I, too, represent a rural constituency with many small businesses. It was said earlier that it is not true that God made the country and that man made the town, because much manpower goes into making country life worth while.
My hon. Friend mentioned communications and I hope that I shall not omit that point in my brief speech, because the communication of our work to those who are interested, and who would be interested if they had the knowledge, and communication through the banks are very important.
I am sure that my hon. Friend the Minister had a hand in designing some of the business studies courses for the new schemes operated by the Manpower Services Commission through agencies such as universities and business schools. The courses are extremely valuable and full credit should be given to those concerned with them.
I must also mention the proposals of the Cork committee on liquidation and bankruptcy. The old-fashioned British approach to liquidation and bankruptcy will harm industry. We live in an uncertain period and the idea of asking someone to act on behalf of shareholders and to look after their interests, with a view to seeing whether a business can be salvaged, would be a major step forward. It is well-trodden ground in other countries and works satisfactorily. I do not see why we should not do it in Britain. During the past 10 years we have seen the resurrection of the small firm and an appreciation of its importance. Through the work of my hon. Friend the Minister during the past three years, the change in attitude towards small firms has been dramatic, wise and encouraging.
My hon. Friend the Member for Luton, East (Mr. Bright) mentioned the 95 separate measures to help new and existing small firms. It is sometimes said that most of those measures are directed towards new firms only and that existing firms do not fare well, but 90 out of the 95 measures also help existing firms. My constituents are pleased about the measures for both new and existing firms, because we have no giant enterprises offering much employment and depend very much on the small enterprise.
1154 New firm formation in my constituency is good and growing. Recently I attended a meeting of the Ryedale branch of the National Federation of Self-Employed and Small Businesses. I left that meeting feeling confident that there was a determination to overcome unemployment by the creaton of new enterprises and that people were approaching the matter vigorously on a local basis. Local authorities and private enterprises in Thirsk, Malton and in adjacent towns such as Pickering should be congratulated on their efforts to build suitable workshops and factory premises for new small firms. However, I must highlight the assistance given by the start-up scheme and the allied loan guarantee scheme. Both schemes are successful and I am confident that they will continue to be. Starting up in business involves overcoming two major difficulties—acquiring premises and obtaining financial backing. My hon. Friend's help is significant and effective in overcoming those hurdles.
Hon. Members have mentioned the role of the clearing banks in establishing new and existing firms. The major clearing banks are becoming more aware of the opportunities for profitable business in lending to the small and new firms sector. The banks are making an effort to market their services. I should like them to take a more aggressive approach, particularly in rural areas such as my constituency. The bank representatives should visit firms more instead of expecting the principal of a firm to go to the bank's doorstep.
The banks should be more explicit in their advertising, so that the man with practical skills knows that he is just as welcome and is as attractive an investment for the bank as any other customer. In rural constituencies the local newspaper is superior to, and more intimate than, the big spread in the national dailies.
I should like the Under-Secretary to consider some improvements in the loan guarantee scheme. In the preparation of my proposals I am indebted to a constituent, Mr. James Maude, whose commercial consultancy business deals with many companies that are just starting up. In a letter he says:In regard to the actual implementation of the Scheme, it should be said that, in the first flush of enthusiasm, it did start well. The period between a Bank submitting an Application and, following Department of Industry approval, first date of drawdown, all legal formalities having been completed, was four weeks. Two months ago it was ten weeks: now it is twelve weeks.He says that presumably the period will lengthen. Demand for the scheme is probably considerable and beyond the Government's expectation.
Mr. Maude says that another drawback is thatNo contact is permitted between the recommending Branch of a Bank and the Department, thus, no case can be termed as 'urgent'. The Department will, presumably, take its normal course of consideration, and, in the meantime the Applicant, and his Bank, is required to wait. This is not conducive to efficiency and cannot be in the Government's declared interest of supporting Small Business.As I mentioned … the Scheme is conceptually first-class … I believe, however, that remedies could and should be considered and implemented if it is intended by the Government to continue the Scheme.
The remedies recommended by Mr. Maude are as follows:1. The Guarantee should be given for 100 per cent. of the proposed advance, without the concept of 'additionality' being applied.1155 I shall not explain the concept of additionality, because it is a technial term of which the Under-Secretary will be aware. The letter continues:2. The Government should make a charge, calculated upon Turnover, which is the only figure in a Profit and Loss account not subject to interpretation, payable quarterly in arrears, with no Guarantee Fee. This would have the effect of:
- (a) creating a discipline of the assisted Company producing quarterly management accounts and
- (b) creating an ongoing cash flow/profit to the Government."
The third recommendation is thatin consideration of 2 above the Government could, instead of charging an 'additional rate of interest', subsidise the Bank interest charge from Cash Flow generated.
The fourth recommendation is thatThe scheme should be extended to include the financing of corporate acquisitions. A Small Business can grow, and hence increase earnings and employment either by: (a) organic expansion … or (b) acquisition.At present a small firm cannot, through the scheme, acquire another firm that may be in difficulty or going out of business. The paragraph continues:If all established Small Business were able to finance the purchase of ailing but complementary companies within the Scheme, employment would be maintained which otherwise would be lost.
Finally, I wish to underline the effect that the policy is having as it is being implemented in my constituency, which is in North Yorkshire. The best and most balanced commentary appears in a paragraph of the North Yorkshire Second Annual Review of The Economic Development Strategy for 1982. It reads:Although unemployment in the County is still rising, the year ending 31st July 1982 has been marked by a number of more encouraging trends. Significant progress has been made towards increasing expansion and relocation opportunities for businesses of all types. Many new initiatives to encourage job creation have been taken during the year, and trends in unemployment, vacancies and redundancies have improved markedly from the very adverse situation of 1980–81. Too many jobs are still being lost locally but the prospects for future growth have improved and the outlook for the coming year is more optimistic than at the corresponding time in 1981.With that optimistic approach in mind, I must give my hon. Friend the Under-Secretary of State and the measures that he has introduced full credit.
§ Mr. Colin Shepherd (Hereford)
I am grateful to be given the opportunity to contribute to this interesting and stimulating debate. Before launching into my three main topics, I express regret that the hon. Member for Bassetlaw (Mr. Ashton) is no longer in the Chamber. I was struck by the outstanding ignorance of his remarks on business analysis. It disappoints me that the hon. Gentleman peddles such ignorance in the form of wisdom from time to time in the columns of a national daily newspaper. That is mind-bending.
The reference of the hon. Member for Bassetlaw to Barclays Bank stunned me. I am an active member of a small to medium sized company and I find that his description of the performance of Barclays Bank bears no relationship to the way in which it services my company. I must give Barclays Bank its due for the way in which it has looked after the small company of which I am a member. It has looked after itself and its interests in the company as the holder of the overdraft. However, its representatives have visited us and volunteered and given their expertise. I wish to put the record straight about 1156 Barclays Bank. There may be more to the story than we have heard from the hon. Gentleman and I shall be interested to learn whether that is so.
There is difficulty in defining what constitutes a small business. The Bolton report sets a level of 200 employees for a manufacturing enterprise. My company is a manufacturing enterprise with 140 employees. The company does not consider itself necessarily to be a small business. It is an integrated company with a visible and definable end product. It has about 500 suppliers, half of which are smaller than itself. The range from one-man bands to GEC. About 100 of these suppliers are engaged in manufacturing industry themselves. The company has about 300 material suppliers of all different sorts, shapes and sizes and about 100 service suppliers that include, for example, photographers.
It is an immense problem to sort out exactly what constitutes a small enterprise, given the interdependence of businesses in the manufacturing and trading sectors. My hon. Friend the Member for Meriden (Mr. Mills) referred to the 37,000 or more contractors involved in the supply of the Toyota car. That certainly bears comparison with the complexity of my own small company within the total structure. Supply complexes of this kind employ more than 40 per cent. of the country's industrial work force.
It is also difficult to define what is to be regarded as a small business. The relative importance of my company to its home town of Ross-on-Wye is in the same proportion as that of Talbot to Coventry. If my company disappeared, the impact would on unemployment be the same in percentage terms as the impact on the Coventry area if Talbot disappeared. Given the nature of small businesses, it is difficult to lay down hard and fast rules. To that extent, it is difficult to define where smallness ends and bigness starts. Therefore, although I do not often agree with the hon. Member for Keighley (Mr. Cryer), I agree with him that small businesses cannot be separated from the economy per se.
I greatly welcome the motion of my hon. Friend the Member for Leominster (Mr. Temple-Morris). It sets out precisely all that is good. My hon. Friend is to be congratulated on bringing this matter to the attention of the House so that the House in due course may bring it to the attention of the country by whatever means it can. I must, however, strike a warning note that has not so far been struck. I refer to the danger of putting small businesses on a pedestal. Although they contribute enormously to the health and wealth of the country, there are dangers in singling them out and defining their situation too closely.
There have been requests from various parts of the House today for special treatment for small businesses. I do not deny that in the course of my own company's growth from a one-man business in 1956 it has from time to time benefited from measures designed to help small businesses, although nothing like so many as there are today. I sometimes wonder whether we should have taken the same path if there had been as many incentives, or., as it were, distortions, to decision as now exist. It is all very well to call for selective treatment in terms of Government procurement, but what happens when a company approaches the threshold beyond which there is no differential treatment? Does that inhibit decisions that would lead to growth? I agree that Governments can be very bad payers. In that regard, the French arrangement whereby an agency guarantees 90 per cent. within 45 days is not a bad idea. 1157 The main danger of putting small businesses on a pedestal is that it may give their proprietors and operators a false sense of security. For instance, a number of businesses around the Forest of Dean developed their activities to supply a company called Rank Xerox in Mitcheldean employing about 3,500 people. Then, of a sudden, Rank Xerox changed its technique of making copies and dozens of small businesses that had come to rely on that company for their bread and butter found themselves cut off without any orders.
The hon. Member for Keighley referred to the Government sustaining British Leyland in business. The same worry applies there. A large number of small businesses still depend on BL. If I depended on BL for my business, I should be terrified,. I should be looking around for alternative sources of business. Businesses can go wrong through having all their eggs in one basket. That false sense of security worries me. We must not take too many decisions which enshrine the status of small business as though it were something special and different in the economy. That aspect has to be taken into account when deciding how to proceed with the development of the small business.
My hon. Friend the Member for Dorset, North (Mr. Baker) has already mentioned the rural areas in his excellent speech. I congratulate the Government on what they have done to sustain the balance of employment in the countryside. It is a major problem, almost as great as that of sustaining the balance of employment in the great industrialised areas, because employment scenes change also in the countryside.
I should like to give lollipops where lollipops are due. It was under the previous Labour Government that the Development Commission embarked on its full programme of providing factories in rural areas. The present Government should be given credit for sustaining and encouraging that programme. I have been told today by the Development Commission that something is afoot. It gives the lie to the gloom and doom merchants who say that nothing is happening in the country. I understand that in the six months to September the Development Commission has completed 50 units and let 92 units, providing an additional 2,000 sq ft of manufacturing space for the creation of new jobs. That shows that something is happening in the undergrowth, and it is the small business sector that is responsible.
It is interesting to note the present rate of 2.85 jobs for every 1,000 sq ft of space provided by the commission. The cost is £10,500 per permanent job, with a payback of two to four years. That is a good investment and I hope that the Government will take due note of it.
English Industrial Estates, which now has the responsibility for management of the Development Commission units, must make sure that it maintains the light touch of COSIRA and the Development Commission. I have had a case showing a very heavy-handed approach to tenancies and expansion. That can be a major disincentive if it is allowed to continue.
It has been said that the Government should be ivolved in changing attitudes towards the rural areas. I believe that the attitudes of the planning authorities have been very much changed by the Department of the Environment circular No. 22/80. It must be very frustrating sometimes to the Under-Secretary of State for Industry that he has to 1158 be so dependent on the Department of the Environment, but it shows that my hon. Friend is doing a very good job in maintaining pressure on and working with the Department of the Environment in order to get freedom of movement. The Secretary of State has also shown a fine understanding in achieving that freedom of movement.
The Government responsibility is for creating the right climate and the fertile condition in which small businesses can start. We have had outlined to us today the various actions that the Government have taken. It gives me immense pleasure to watch the way in which the measures have been utilised in my part of the world. Many of the new businesses would not be in business were it not for the Government's consideration and care in getting the climate right.
We have heard today about bankruptcy statistics. I urge the Minister not to be frightened by bankruptcy statistics. We should be encouraged by the start-up statistics and by the differential between the two sets of statistics. Provided that we are getting a net increase, we are on the right track. It is interesting to note that 80 per cent. of new jobs come from companies less than six years old.
The motion has been described by Labour Members as mealy-mouthed, short-sighted and superficial. It is no such thing. Hon. Members should remember that if no seeds are planted there will surely be no crop.
§ Mr. Michael Colvin (Bristol, North-West)
I congratulate my hon. Friend the Member for Hereford (Mr. Shepherd) on his constructive speech. Even the curate's egg of a speech made by the hon. Member for Keighley (Mr. Cryer) was constructive, as, indeed, all the speeches have been. I congratulate my hon. Friend the Member for Leominster (Mr. Temple-Morris) on introducing the motion.
It is important that every year we debate small businesses because we have an Under-Secretary who is responsible for them. My hon. Friend the Member for Luton, East (Mr. Bright) once described him as the listening Minister. He is a listening Minister, but he is also a Minister of action. He has done a great deal in the past 12 months for small businesses and will do a great deal for them in the next 12 months. That is why—if there has not been a general election—we ought to be here again next year discussing the same subject. If we have a general election, we shall no doubt still be standing here discussing where we go henceforth.
For the past 35 years, there has not been a Government who have not acknowledged the importance to our overall economic position of our small business sector. Words are one thing; action is different. Successive Governments until the present one have paid no more than lip service to the needs of the small business man. One must question why, traditionally, there have been so few small businesses. The contribution of small businesses to the gross domestic product in Britain must be one of the smallest in the Western industrialised world, although we know that their job creation potential is one of the greatest.
I want to explore briefly two aspects of small business that other hon. Members have not covered. One deals with further incentives to start up small firms, and the other covers the important subject of training.
During the Summer Recess, the officers of the Conservative Party smaller businesses committee had the good fortune to travel to Bonn to discuss with our German 1159 friends why in Germany the smaller businesses sector is 50 per cent. larger that it is in the United Kingdom. The basic answer was a historically healthier economy based on sound money with low inflation and low interest rates.
My hon. Friend the Member for Meriden (Mr. Mills) was right to say that the falls in bank rate this year—seven of them in all—amount to some £2 billion worth of assistance to the business sector. We should like to see also some fall in local authority rates. There has been much talk of the possibility of derating. I was told in answer to a parliamentary question the other day that a 15 per cent. derating—which is what the CBI would like to see for business and commercial property—would cost the Exchequer only £400 million. We should consider that most carefully. It is because of the sort of policies that the German Federal Government have pursued over the years—policies that this Government are now pursuing successfully—that the tide is beginning to turn in favour of the small business community.
The Germans were envious of the United Kingdom and in particular of our new enterprise packages. We have now had three. They were envious particularly of our novel business start-up scheme.
The Germans have come forward recently with two suggestions that I should like the Minister to consider. The first one, which was put forward by the previous Administration, was interesting. It was to allow tax relief to those who were prepared to set aside out of their normal income the equivalent of about £1,500 per annum, which would be entirely tax free, into a fund where it would sit for 10 years earning interest, provided that within those 10 years—10 years was the maximum—it was reinvested in a new small business.
It is a good idea, but I think it is a little bit long-term and would take time to mature. That is why I believe that the alternative scheme that has been put forward by the new Kohl Administration is probably more interesting. It combines a subtle element of both stick and carrot. The Government would like to compel those earning more than 50,000 deutschmarks a year—about £10,000 to £12,000 per annum—who are liable for tax, to pay into a special Government fund an additional 5 per cent. of their tax liability.
The money would sit for seven years earning no interest. The loan fund would be used by the Government to inject finance into construction projects. That sort of scheme is not particularly popular, though it would help the construction industry.
The carrot part of the scheme is the escape route from it. A person could claim exemption from contributing to the Government fund by producing proof that he had invested five times his 5 per cent. tax liability—25 per cent. of his total tax liability—in a new small business.
The German Government are, in effect, having at each-way bet on a two-horse race. They will get either a lot of new business finance from people who are saving 25 per cent. of their tax or the injection of a lot of money into the construction industry, which is labour intensive anyway. Our Government should take a close look at that scheme.
It is interesting that there is to be a stipulation in the German Government's second scheme that participants are connected with the business that they are to help set up. One fault of our start-up scheme is that those who get tax relief to invest in the scheme are not allowed an immediate connection with the business. That provision ought to be changed. The German scheme would be particularly 1160 attractive to farmers and landowners who are already making use of redundant agricultural buildings for small businesses, under schemes operated by COSIRA.
Those are two interesting financial incentives to start up new firms. We also noted in Bonn that many German small business men are part-timers. Our Government have recently introduced the work-sharing or job-splitting scheme. It is a good idea and where it has been tried—in GEC and Barclays Bank—it has worked. However, the scheme is primarily designed to ease people into retirement and to be an inexpensive way of creating extra jobs.
The snag of the scheme is that many will be deterred from participating because of the financial disincentives and the so-called poverty trap. Why should we not adapt the scheme to accommodate those who would be prepared to split their jobs and use the spare time thus provided to set up new businesses on their own? That may already be possible, but more may be required by way of financial incentives, which is why I suggest that anyone who is prepared to take the plunge in a new business should be allowed to retain free of tax the first £5,000 profits in the first five years of operation. Of course, there is always the chance that the part-time small business could become a full-time job, in which case even more work would be created. Those are just two ideas that I should like to see included in the Chancellor of the Exchequer's next enterprise package.
Most small business men get no training. The recent international industrial small businesses conference in Torremolinos identified the lack of training as one of the major defects in the British system. Our education system has never adjusted itself to the needs of the small business man, who is having to cope with business planning, costing and budgetary control, cash management and forecasting, marketing, selling abroad, taxation and information processing, to name but a few.
Unless a business man can do those things, he often cannot benefit from some of the schemes that the Government are providing for him. He just cannot understand them. In the loan guarantee scheme he has to produce a cash flow and someone has to teach him how to do that. For most small business men it is a do-it-yourself operation.
However, there is a chance that we shall be able to produce the answer to that problem. Our regional management centres, which are based on polytechnics, and incorporate various specialist departments from local technical colleges and polys, are combining to run a pilot scheme for the Open Tech.
Not much has been heard in the House about the Open Tech. Within it lies the opportunity to give small business men and those in their firms the training in management that they require. This training has not been possible in the past because of problems of time and space. I wish success to the Open Tech idea, now well off the ground in pilot form in the South-West region and run by Bristol polytechnic. It could provide tailor made training courses for small business men.
The Conservative Party believes in a property owning democracy. The reforms introduced on home ownership are enabling many people who never dreamed of owning their own homes to join a once elite club that has now become a mass movement. Property can be a business as well as a home. The encouragement given by the Government to help small business men has done more in 1161 three-and-a-half years to extend the property-owning democracy into the business sector than I ever thought possible. We are bringing new jobs to areas hardest hit by the world depression and providing the Conservative answer in job creation.
§ Mr. Tim Renton (Mid-Sussex)
I congratulate my hon. Friend the Member for Leominster (Mr. Temple-Morris) and the Minister, because they have both been crusaders for small businesses.
I wish to speak about further help for those starting up businesses of their own for the first time. My hon. Friend the Member for Luton, East (Mr. Bright) said that he would like another 95 Government schemes to help small businesses. I do not agree. We have enough schemes. What we need to do is to simplify them. I refer particularly to the business start-up scheme and to the change in company law which enables companies to buy in their own shares—a development with which I was associated when the Conserative Party was in Opposition. Both are helpful, but they are so complicated that it is difficult for any individual to wend his way through the maze to use these ideas unless a good trained accountant is standing by his side. In many instances, the opportunities made available by the Government are not being used.
The Inland Revenue has become so anxious to block tax evasion loopholes that it undoes the good intentions of Ministers. I should like the Minister and his colleagues in the Treasury to take a stronger grip on the Inland Revenue now, so that when they are returned to power as the next Government creative ideas for the fiscal encouragement of small companies are not always blocked by the Inland Revenue in the name of stopping tax evasion.
I should like my hon. Friend's Department to speed up the payment of research and development grants. A small firm in my constituency making central magnetic cores for night vision—a high technology product—almost went bust a few weeks ago while waiting for the payment of a research and development grant by the Department of Industry and the payment by a major British company, whose name is a household word, of the invoices for the supply of pilot products. It is dreadful that a new company should almost be submerged because of those twin difficulties.
A great deal has been heard in the debate about the role of clearing banks. I have no doubt that it is primarily to the banks that new start-up companies must look for money. Although there have been improvements, there remains an enormous variation between banks and their branches in the relationship and understanding that exists between individual branch managers and small businesses.
I urge the clearing banks to introduce training courses for their managers to teach them how to handle the entrepreneur who goes to them with a business proposition for the first time. They should be able from their branch offices to write the business plans for those entrepreneurs, help them forecast their profits and losses and cash flows and, above all, not take mortgages on their houses when lending them money. If an entrepreneur gets it wrong fairly the first time, it is essential for him to be able to start again without all his personal assets having gone sour in his first attempt.
1162 I am convinced that we are not likely to see in my lifetime any new plant sites in Britain employing 10,000 people. We shall not see any new Longbridges, any ICI Billinghams or any BSC Port Talbot works. That means that we have to help a great many new companies come into being, each of them perhaps employing 100 people. By definition, as Clive Sinclair said, these people will be pirates rather than captains of industry. Therefore, it is the duty of the Government to provide rules in terms of taxation and so forth which are flexible enough and for the banks to finance flexibly enough to encourage the future creators of wealth and jobs to take the first difficult steps of forming their own first small companies. It is out of those first steps that the jobs of the next generation will be created.
§ Mr. John Garrett (Norwich, South)
I congratulate the hon. Member for Leominster (Mr. Temple-Morris) on his motion, which he introduced in an interesting and moderate speech. I find it difficult to disagree with the motion. The hon. Gentleman has raised an issue which is of great concern to us all. I think that we all agree about the importance of the small business sector, which undoubtedly has been neglected by Governments in the past.
Britain has a relatively low rate of formation of new businesses, as the Bolton report pointed out 10 or 11 years ago. This has been studied at great length and is attributable to our banking, to our financial services, to Government policy and even to cultural influences which have determined that the country shall be a big firm country rather than having a large small firm sector.
Small businesses, whether privately owned, municipal or co-operatives, can give strength and flexibility to an economy. It has not been mentioned so far, but all the indications are that the new technologies, especially in data transmission, will add to the development of small businesses in that what formerly would have been done on a much larger scale can be nucleated into people with access to each other through the cabling systems which we are to discuss in the coming week.
The hon. Member for Leominster made some useful suggestions to the Minister, and I look forward to his replies. I hope that the hon. Member will be satisfied with them.
In an eloquent speech, my hon. Friend the Member for Cannock (Mr. Roberts) discussed the damage to small businesses in his area. I mention in passing an intervention in my hon. Friend's speech by the hon. Member for Dorset, North (Mr. Baker), who I am sorry is not in his place at the moment. It was an attempt to knock British Leyland, and in my view it was ill-informed. He said that small parts suppliers could undercut British Leyland in terms of delivery and in terms of spare parts, even for Leyland vehicles. It has always been the case that small parts operations can undercut the original equipment supplier. That was true when I worked for a privately-owned company in the motor industry, and it happens because such suppliers carry no inventory, offer no service and cream off the high volume, high turnover parts. That does not mean that necessarily they provide the full service that the customer requires. Eulogies to small businesses can go too far, as the hon. Member for Hereford (Mr. Shepherd) pointed out. 1163 My hon. Friend the Member for Keighley (Mr. Cryer), in order to set the record straight, set out the achievements of the Labour Government in aiding small firms. I am proud of what that Government started. He referred to the importance of co-operatives, to which I shall return in a moment.
My hon. Friend the Member for Bassetlaw (Mr. Ashton) referred to two important cases, and I look forward to the Minister giving his views on them.
The hon. Member for Leominster said that he would avoid a discussion of the economy. As the lady said, "He would, wouldn't he?" But it is important for at least a minute or two to set the small business sector in the general economic and industrial context.
The Financial Times of 13 November, in an article headed:No sign of upturn for industry",said that manufacturing output had just fallen to its lowest level for 15 years, and added:British industry remains firmly stuck in recession and there is little sign of any upturn … Industrial production in the third quarter this year was no higher than in the second quarter … When North Sea oil activities are excluded production was 1 per cent. lower than at the same time last year. The output of manufacturing industry slipped … to a new 15-year low … The Confederation of British Industry has warned that manufacturing industry faces further decline over the coming months, with fresh job losses on the way. The Government, in its latest eonomic forecast which accompanied the Chancellor's statement on Monday, is taking a similarly gloomy view, in sharp contrast to ministers' earlier optimism over recovery prospects".
The article concluded:The economy as a whole is expected to stagnate for the rest of this year, and well into the next before beginning to pick up in the spring".For the many small businesses hanging on for the upturn, that makes alarming reading.
Studies, surveys and my own experience in advising and rescuing small businesses lead me to believe that the main determinants of small business activity and small business formation are demand and interest rates. Clearly both those factors are formative influences on business confidence. Interest rates are now more favourable, but for how long? Expensive money is an essential part of monetarism, as Professor Milton Friedman has always said. Therefore, we cannot be sure that interest rates will remain low for a long time.
There is no sign of an upturn in demand, and that is crucial. The current Treasury forecasts shows that the total growth in demand in 1983 will be about 1½ per cent., and manufacturing output is due to rise by 1 per cent. That would not make much impact on unemployment. Those forecasts are now believed to be optimistic, in that the Treasury took a sanguine view of the rate of world recovery from recession. Surely that is the worst possible scenario for business confidence—to be faced with barely 1 per cent. increase in manufacturing output in the coming year.
Industry is now operating at lower levels of output than during the three-day working week. The industrial situation in Britain is now critical by historical standards. In the first 10 months of this year Britain had a deficit in trade in manufactures for the first time for more than 100 years. The Government's excuse, of course, is the world recession. It so happens that our recession is worse that that of any other developed country. Since the first half of 1979 the United Kingdom economy has contracted by 2¾ per cent., while our major competitors have expanded by 1164 anything from 0.75 per cent. in the United States to 9¼ per cent. in Japan. Our fall in manufacturing output is the worst of any industrialised country. Thus, we have a uniquely severe recession, forced on us by monetarism, in addition to the downturn caused by world conditions.
The CBI's latest quarterly survey, at the end of October, showed a continuing decline in business confidence and a serious further decline in orders. Indeed, 75 per cent. of the respondents said that they were operating below capacity after drastically cutting capacity in the preceding years, and 94 per cent. said that their main constraint was lack of demand. The CBI itself saw no upturn. It thought that capital investment would fall by about 5 per cent. next year.
Where, then, are the markets for small businesses? The hon. Member for Luton, East (Mr. Bright), who unfortunately is not in his place, told us that he, in his own entrepreneurial capacity, had found a niche in the health food business—due, I am sure, to his knowledge and skill as an entrepreneur, or perhaps as a slimmer—but he is one of the few people who have found an expanding market in which to make profits.
All this is reflected in business failures. According to figures produced by Trade Indemnity, business failures rose sharply in the third quarter to an all-time high for the period—about 35 per cent. above the same period last year; an increase of one-third in a single year in business failures. The Department of Trade's figures for insolvencies bear out that trend. The latest survey of the Association of Independent Businesses, known to hon Members as a small business organisation, shows that the optimism in the early months of 1982 has vanished, with turnover and employment in absolute decline.
A year ago the Association of Independent Businesses said:Many firms that have survived so far have had their resources so severely depleted that they may not be able to tolerate continued recession or to take advantage of any upturn.
Since then the position has deteriorated. This year the chairman of that body wrote about the Government's small business measures:Close inspection suggests that considerable ingenuity has been applied to place some of those measures in a small-firms package and that most of the measures will affect few businesses only occasionally.He knows more about this than I do, and therefore I am willing to believe that what he says is true.
Last year the Prime Minister boasted that 10,000 new businesses were being formed every month. It was pointed out that 10,000 a month was the lowest rate of new business formation since the. Customs and Excise register was first formed in 1973, and we did not hear that statistic again.
If one looks objectively at the record for the last year or so, one sees that the birth rate of small firms is just about in balance with the death rate. However, it is as well to remember that small firms usually employ more people at their death than at their birth.
One small business sector of great national importance is the building industry. It has the advantage of being able to respond quickly to an increase in demand, it has a high labour content and—a great blessing nowadays—a low import content. About one-fifth of all small businesses are in the building industry and the performance of that industry has an influence throughout the sector. I am sure that Conservative Members will agree with that. 1165 One quarter of the building industry's workers are now unemployed at a time when we need thousands of new houses, miles of new sewers and water systems, and other public works. Construction output has fallen by 17 per cent. since 1979 and by 3 per cent. this year alone. Bankruptcies are at an all-time high.
The volume of output from the construction industry—essentially a small firm industry—is lower than at any time since 1961 and there is no sign of improvement on the horizon. It is still declining rapidly. Orders fell by 6 per cent. in the three months to August.
The recent inducement to increase spending on construction in the public sector—the "spend, spend, spend" announcement of the Secretary of State for the Environment—has been described by the Federation of Civil Engineering Contractors as a classic case of too little too late. New work simply cannot be ordered in time to be of any immediate benefit to the industry.
I see from glancing at today's paper that a sensible suggestion by the Department of the Environment for the authorisation of two years' spending on construction by local authorities at one go in order to give the building industry some continuity of demand has been turned down by the Treasury. I hope that the Department of Industry will support the Department of the Environment by going back to the Treasury about this stimulus to the construction industry and the many small firms in it.
According to press releases which descend from the Department of Industry like confetti, 91 new initiatives have been taken to assist small businesses. It is generally accepted that the most important of those is the small firms loan guarantee scheme. That has not been mentioned much today, but I should like to ask the Minister several questions. There is much press comment and speculation about the default rates of those small firms which benefit from the scheme. The Sunday Times has quoted a 9 per cent. default rate by companies receiving loans—three times the originally predicted rate. At that level, the scheme ceases to be self-financing.
I understand that the senior general manager of Barclays Bank, the second largest lender in the scheme, with £40 million at risk to 1,000 firms, says that the failure rate is 20 per cent. If that is true, it is unsupportable according to the Government's criteria on the introduction of the scheme. With a default rate of 20 per cent. it is a different scheme—some secret lifeboat for bad risks that have been dumped on the banks. If that is true, the banks have simply been transferring their worst risks to that scheme.
Forty per cent. of advances under the scheme have been going to existing companies, ostensibly for expansion, but probably for existing bank customers in trouble. The Midland Bank apparently wants the scheme to be extended to avoid a number of major companies on its books—70 of them, employing 35,000 people—going to the wall. The Minister should answer those questions about the small firms loan guarantee scheme. The scheme is progressive, but if the figures are right it is clearly turning into something very different.
The Minister can, and does, produce booklets on aids to small business. However, in real life small business men tell me that relatively few of them are of much use. The Minister will be familiar with a case in his constituency, with effects in mine, which has been widely reported in 1166 the local press. I refer to the proposed Breckland Poultry Co-oprerative at Attleborough. There, 20 redundant workers, led by the indefatigable Mr. Hendrie—with whom the Minister will be familiar—have been trying for two years to create a business out of the wreckage of a closed-down poultry processing plant. Their market forecasts and costings have been scrutinised by consultants, banks and venture capital organisations and have been agreed as realistic. It has never been suggested that that prospective enterprise is not viable. Those involved lost six months because the Breckland district council took that long to turn down a planning application for a purpose-built factory. They need £15,000 to £20,000 in bank overdraft facilities. They have been shunted from pillar to post. Throughout, they have fought for their own little business. They are still in with a chance. The Minister may know that a crucial meeting takes place today. However, it has taken enormous dedication for those people to hang on.
What lessons does the Minister derive from the struggle being conducted in his constituency? Is there no better way of helping workers who want to start up their own businesses? Will the Minister expand the Co-operative Development Agency? Will he produce schemes to enable such people and small companies to survive, or are co-operatives out of line with his ideology?
There can be no doubt that there is an increasing awareness of the importance of small firms in our economy. Banks are being more helpful, and I am pleased to note that local authorities have taken a lead in establishing and helping small businesses. The city of Norwich is typical of the local effort. I represent that city and it is a natural location for small businesses. The Norwich Enterprise Agency Trust, representing the business community, the University of East Anglia and the city council—Labour controlled for 50 years and doubtless to the end of time—provides assistance to new small businesses. In a year its work has led to the establishment of 37 small firms involving 70 jobs. The city's employment promotion committee has helped in the creation of 150 jobs in the past couple of years. After all that work, half of that gain was wiped out, at one blow, by the collapse of one small construction engineering firm announced last week: a victim of the fall in public and private capital expenditure and a victim of the Government. Therefore, we are back at square one, minus a half.
In the north, of course, where a steelworks can close and 3,000 workers can lose their jobs at one go, the task of replacing employment on that scale by small firms is almost impossible. It would take a municipality 20 years or more to replace the lost jobs. The introduction of 91 small business measures is helpful. No one would deny that. Some of them are bound to have an effect. However, the application of such measures when the economy is in decline and demand is virtually non-existent is like attending to the woodworm when the house is on fire. We now need a massive stimulus to demand, particularly through public works, building the public infrastructure that the country needs, and offering British industry protection from imports—in other words, planning the growth and development of businesses both large and small.
The small business community needs expanding markets, but the Government offer them a future of contraction. The Government's policy of monetarism, 1167 which really means driving down inflation by causing unemployment, has grossly damaged the prospects of small businesses in the country. That is the message that should go out from the House today.
§ The Under-Secretary of State for Industry (Mr. John MacGregor)
It is a pleasure to have a debate on small businesses under your chairmanship yet again, Mr. Deputy Speaker, because in your previous capacity on the Back Benches and in many other ways you did a tremendous amount to assist small businesses, and much of the work that led to the Bolton report was due to your efforts. I was delighted to say the same to you in a similar debate at almost exactly the same time last year.
I congratulate my hon. Friend the Member for Leominster (Mr. Temple-Morris) on choosing this subject, and I am happy to accept his motion. I also congratulate him on his excellent introduction to the debate. He was well informed, as one would expect, because of his great interest in the subject. My constituency, with 600 square miles and packed with 160 towns and small villages, is almost identical to his. My background has been helpful in my present job, as it was to my hon. Friend in his contribution to today's debate.
My hon. Friend referred to his desire to have a full day's debate on the subject almost exactly one year after the previous debate and to give me an opportunity to talk about developments since then. He called it a "canter round the course". The constructive and positive attitude of my hon. Friends and of most Opposition Members has been helpful and encouraging. I shall proceed in that vein. I shall try to follow the pattern with which my hon. Friend began the debate, although, as I am sure he will appreciate, the time available and the many points raised mean that I may not be able to cover everything.
I need not begin, as I did last year, by justifying the Government's heavy emphasis on small businesses and by dwelling on statistics, because they have been dealt with comprehensively in the debate. However, I have two comments about statistics. First, I accept that for many years the statistics on small businesses have not been good enough. That is why last year, using the VAT statistics—which are the best available, although not perfect—we tried to improve the position. We can compare statistics for only two years. I say to the hon. Member for Norwich, South (Mr. Garrett) that the earlier Customs and Excise statistics do not compare with the present ones.
Statistics show that in the first year births and deaths were roughly equal. Last year, there were 15,000 more births than deaths. That is encouraging, because I accept that there will always be a fairly rapid turnover in small businesses. Inevitably, statistics cannot show the employment figures. Many of the firms that closed will have employed more people than the firms that started, because births often start slowly. But it is important to emphasise the fact that, as I have seen from visits to many small businesses during the past year, some firms grow rapidly and create jobs quickly. I visited one firm in north Norfolk that started with only the entrepreneur. Today, he employs 70 people in a comparatively small town.
We can have accurate employment figures only if we put another question in the VAT questionnaire. Therefore, I have consulted small firms' organisations about whether they would wish to give us a better demonstration of what 1168 is happening or whether they would regard it as yet another imposition. I await the results, but I make that point because we shall not obtain accurate figures unless a simple question about employment is inserted into the questionnaires.
I agree entirely with those of my hon. Friends who said that it is always difficult to make international comparisons, but on most bases for many years we have had a smaller small business sector than our more successful overseas competitors. I agree with everything that my hon. Friend the Member for Meriden (Mr. Mills) said about the importance of small businesses to the Japanese economy and especially to the car industry. The Government's small business policy is to get the small business sector up to the same level, as a proportion of the gross domestic product, as it is in our more successful competitors.
Many hon. Members mentioned individual schemes, and I shall do my best to answer as many points as possible. However, like the hon. Member for Norwich, South, I must first say something about macroeconomics. My hon. Friend the Member for Surrey, North-West (Mr. Grylls) was correct—I say to the hon. Member for Norwich, South that I meet thousands of small business men in my duties—when he said that, generally, small businesses are in tune with the Government's central theme. By that I am sure that he meant that they agree with the emphasis and priority given to bringing down inflation and interest rates—we are all aware of the international difficulties involved in that—and to reducing industrial costs. I have received support for the objectives and a warm welcome for the considerable success of the last year.
The Government have reduced interest rates and the national insurance surcharge, which the Labour Government imposed and which did much to harm employment in small businesses. The Government have taken energy and other measures in the past 12 months. As a result, since we last debated small businesses in the House a year ago there has been a £3.5 billion improvement in cash benefits to industry and commerce. Small businesses are benefiting as much as any other businesses from that enormous improvement in cash benefit, and they recognise it.
I am constantly urged to increase Government expenditure in all directions. I have two priority objectives. The first is to consider whether a scheme is likely to be cost effective for the taxpayer and the second is to consider whether it will interfere with achieving our general strategy. That is what small businesses want me to do.
I shall make only one comment on the Labour Party's alternative proposals. If the massive stimulus to demand which the hon. Member for Norfolk, South called for was approved and the measures in the Labour Party's document were adopted—that is, if reflationary policies were adopted—interest rates and inflation would increase substantially. That would be to the detriment of small businesses.
My hon. Friend the Member for Meriden referred to the macroeconomic scene. He said that many small businesses had complained in the last two year about the increase in public sector costs compared with what they receive in the market place for their goods and services. I understand and sympathise with their complaint. That is why we have put heavy emphasis on pulling round the nationalised 1169 industries and on increasing competition within the nationalised industries and why we have adopted privatisation policies. The emphasis that we are putting on injecting competition where possible into the public sector monopolies and on privatisation is not based on an ideology. We want to put on the large public sector monopolies the pressures that apply in the free market place to small businesses. Whenever I explain that to small businesses, I receive a warm welcome. They recognise that we are trying to impose on the nationalised industries all the conditions that make small businesses efficient and effective.
In the last three years, 96 schemes or measures have been introduced by the Government to help industry. An interesting hallmark of the schemes is that they are successful in terms of take up and in terms of economic impact and cost benefit to the taxpayer. I accept the enormous challenge involved in communicating the schemes. My hon. Friends the Members for Leominster and Dorset, North (Mr. Baker) dwelt on that. It is not surprising because we are talking about a significant sector of the British national economy which is spread throughout the country. We are talking about a range of measures, all of which are not necessarily appropriate in certain conditions. This is an endless task on which a great deal of my time and effort should be spent and on which, legitimately, a modest amount of Government money should be spent. That is one of the reasons why I travel around the country so much. My aim is to get feed-back and to communicate Government measures. That is why we have recently been promoting another advertising campaign for the small firms' service. It is why the British Overseas Trade Board's small firms assistance section will be launching a marketing campaign and why I shall be instituting a further marketing campaign of Government measures, both early in the new year. Bearing in mind what has been said in this debate, I believe that these campaigns will have support.
I find it especially difficult to make it understood that some of the broader macro schemes are of especial significance to small firms. I have in mind some of the measures that have not been referred to so often today. There are the support-for-innovation measures, which were formerly known as product and process development schemes. There are also regional selective assistance schemes under section 7 of the Industry Act 1972.
In special development areas where there are clearly serious economic problems there is nearly always an over-concentration on the impact of regional development grants. This means that the other measures of assistance available from the Department tend to be overlooked. That is why I am putting such emphasis on them. The schemes are extremely relevant to small firms and many small firms are taking them up.
There are no statistics that relate directly to small firms for the support-for-innovation schemes, but if project size in the support-for-innovation schemes correlates roughly with company size, it can be said that over 30 per cent. of projects approved under the products and process development scheme went to small firms. They were for projects under £100,000, and nearly 70 per cent. were for projects under £250,000. This suggests that a large proportion of firms making applications are in the small 1170 to medium category. This is because the larger companies have difficulty in meeting the additionality criteria in respect of small projects.
In 1981–82, 61 per cent. of all offers of regional selective assistance went to companies employing fewer than 200. That is a sign that many of the schemes are appropriate to small firms. I hope that by giving the figures I shall encourage others to take them up. It is said that in some instances there has been a slow response from the Department. I have been conscious of that and the Department has been trying to streamline the schemes. We have been achieving considerable success in reducing the amount of time that the Department takes to respond.
Communication is extremely important. Although the Government are doing a great deal to help small firms, there will be no economic benefit for small firms, the Government or the nation unless there is a much greater awareness of the schemes.
Several of my hon. Friends and the hon. Member for Norwich, South referred to the loan guarantee scheme. I understand that 6,959 guarantees have been issued to a total loan value of £232.4 million. Half have gone to new businesses and half to existing businesses. Roughly half have gone to manufacturers while the other half have gone to construction, retail and other services. I frequently find that there is a belief outside the House and among some bank managers that the loan guarantee scheme is only for the manufacturing sector. This is another indication of communication breaking down. It is relevant to say that half of the loans went to the service sector. The average loan was slightly more than £33,000. This shows that the scheme is intended for smaller companies.
The hon. Member for Norwich, South talked about losses under the scheme. The scheme is experimental. Undoubtedly we shall learn from it and we shall observe shifts as it proceeds. That is the whole point of an experiment. The Department has now paid out in respect of about 160 claims from the banks amounting to £4.5 million. That figure must be seen in the context of nearly 7,000 guarantees having been issued. The Department receives premium income throughout the life of outstanding loans. It is now clear that payments will be greater than income in this financial year.
I make two points about that. First, with very few exceptions, those figures relate to loans in the early stages or certainly in the first year of the scheme and one would expect some adjustment in the banks' appraisal processes as they gain experience of the scheme.
Secondly, my hon. Friend the Member for Luton, East (Mr. Bright) suggested that this was one of the best ways to create new jobs and one of the most cost effective for the taxpayer. I believe that that will prove to be true. I give the figures from one bank. In July this year, the Midland Bank considered the 871 businesses to which it had so far granted guaranteed loans. It found that 2,800 new jobs had been created with the help of scheme lending. It must be remembered that until a claim is made under the guarantee arrangements, the loans involve no cost at all to the Government. I believe that at the end of the experimental period we shall find that this has been an extremely effective way to create new jobs. Nevertheless, I am undertaking a second review of the scheme and will certainly examine this aspect closely.
I must tell the hon. Member for Norwich, South that the first review showed that it was certainly not true that 1171 the amount that he suggested was going to companies in distress. If there was any such amount, it was a minuscule proportion of the total. I have satisfied myself about that.
§ Mr. John Garrett
Perhaps the Minister will help us further. I realise that he is trying to be helpful, but he is not answering the question in the terms in which I asked it. I asked about the percentage of failures. Press comment has suggested anything from 9 per cent. to 20 per cent. Without a pocket calculator I cannot put the figures given by the Minister into those terms. Perhaps he can tell me now or get someone else to help him with that question.
§ Mr. MacGregor
The proportion at this stage is clearly well below either of the figures quoted by the hon. Gentleman. It must also be seen in the context of a developing scheme. I should be chary of drawing too many conclusions from very early figures.
The second review is now well advanced and I expect to have the results before the end of the year. This is important, as the present level of demand means that the full £300 million allocated for the scheme will be exhausted by early next year. That again shows the success of the scheme.
My hon. Friend the Member for Luton, East spoke of raising the limit above £75,000. I am aware that that has been urged and I shall certainly look at it in the review. We hope, however, that early 1983 will see the introduction of a new form of European Community finance for small and medium-sized firms. Under the new Community instrument, loans will be available from European funds for investment in fixed assets, through banks and finance houses, by firms with up to 500 employees. The loans will be for a fixed term and at a fixed rate of interest, but they should be cheaper than comparable lending by United Kingdom banks and financial institutions. In contrast with the existing European Investment Bank loan schemes, these loans will not be limited to assisted areas but will be available throughout the United Kingdom.
I cannot go into more detail at this stage, as there is still work to be done talking to potential agents and finalising the necessary exchange risk cover which the Government will provide to make the loans attractive to United Kingdom firms, but the scheme has the makings of a valuable contribution to the investment packages currently available to small firms and is to some extent in the area that my hon. Friend has in mind.
My hon. Friend the Member for Meriden referred to the small engineering firm investment scheme. So far, 1,363 firms have been offered help and 276 have already bought the equipment and claimed grants of more than £4.5 million. Payment of grant is now running at about £500,000 per week, so it looks as though we shall certainly have allocated the full £30 million originally allocated to the scheme.
My hon. Friend is entirely right in saying that the response from the machine tool industry in Britain was encouraging in that 57 per cent. of the machines that the applicants intend to buy are British—a higher percentage than might have been expected from recent years' experience. Our review of this scheme also showed that it achieved the objectives that we had in mind. It helped firms to invest in advanced equipment now rather than later. It helped them to go up market for more advanced equipment than they could otherwise have obtained, and 1172 in a number of cases it enabled them to invest in the first place when they could not have done so without the grant. I believe it achieved its objectives.
I urge those firms which have received offers to place orders as quickly as they can, because that, too, is a way in which the machine tool industry can be assisted. Once offered, the amount of grant is fixed. Therefore, it is in the company's own interest to make the investment as soon as possible. We must be looking now for ways in which to innovate in order to remain competitive as markets become more vigorously contested. I hope that small firms which have had the grant offer will consider taking it up as quickly as possible.
I was encouraged by what my hon. Friend the Member for Leominster said about the view that was being received from overseas that the Government are well ahead of the field—that is, the developed countries in general—in the way in which we give tax incentives to small businesses. That is the feedback that I have been getting.
I was particularly interested in my hon. Friend's point that equity investment is just as important as loans. He will have noted the emphasis that the Chancellor of the Exchequer has given in the last two Budgets to enterprise measures and help for small firms. That is a remarkable contrast with the attitude of the previous Labour Government, except in the dying stages when Lord Lever introduced one or two schemes.
The business start-up has rightly been described as a radical and generous scheme. So far, it looks as though about £13 million has gone through the approved funds. We cannot tell how much investment has gone through direct investors. We shall not know that for some time, until the full Inland Revenue returns come through, but there is evidence that it is gradually getting through and that more and more people are coming to see that the complexities that they thought existed are not so formidable when they tackle them in practice.
I know well the arguments that the CBI is putting forward concerning the small firms investment companies. We are examining them. It is an important point, because it shows that venture capital and equity investment in small businesses, of which there has been a serious lack in years gone by, does not just come through the business start-up scheme. I am also encouraged by the growth in the number of firms offering venture capital, including firms coming from the United States of America. I have just visited the United States to look at this aspect. There is a great deal now going on in Britain that I regard as very encouraging.
§ Mr. Renton
Will my hon. Friend look again at the business start-up scheme? I am under the impression that the take-up is still disappointing, and that the major reason for it is the complexity of the Inland Revenue rules.
§ Mr. MacGregor
That is very much a question for the Chancellor of the Exchequer, but I know that he is looking at it.
My hon. Friend the Member for Surrey, North-West mentioned public sector purchasing in his interesting speech. I agree with him that public sector purchasing provides substantial opportunities for small firms which can compete vigorously for business. It also provides, in many ranges of products, an extremely important source of potential customers. That is why I have been keen to see what more can be done to remove avoidable obstacles that may block access for small firms to public sector contracts. 1173 I am not saying that smaller suppliers should be given privileged access or preferential advantages, although I noted what was said about discrimination being tilted that way. I believe that easing the way for them to compete on even terms is in the mutual interests of purchasers and suppliers.
Let us remember that the competitive qualities of small suppliers and their flexibility in responding to demand can bring important advantages or large purhasers, as we have been reminded. I have taken a particular interest in that subject, which was one of my reasons for visiting the United States. It is for that reason that I have been having a review undertaken in my Department of small firms' access to Government contracts. My hon. Friend the Member for Leominster made various suggestions and I am continuing to review the position closely.
I am pleased today to be able to announce three measures resulting from the review which will simplify tendering and approval procedures for small firms. Those measures have gained acceptance among the major purchasing Departments and we are now considering the details of implementation.
First, suppliers to most Government Departments will now be exempt from normal approval procedures for contracts under £2,000, and we shall be looking closely to see whether that limit can be raised.
Secondly, we shall now allow non-approved firms to tender for non-urgent contracts and be subject to approval afterwards.
Thirdly, Departments will regularly review their approved lists and encourage new suppliers, and will rotate invitations to tender among suppliers in so far as that is consistent with getting good value for money.
It is, of course, just as important for small firms to have easy access to information about contract opportunities, to understand the procedures, and to know who to contact in the purchasing organisation. It was for that reason that we published our booklet for small firms "Tendering for Government Contracts", which gives specific information on all those points.
I have been anxious that, even when small firms get the information, they may sometimes be unreasonably blocked in getting to the contract stage. These measures will help considerably to deal with that and ensure that they get a fairer crack of the whip.
I noted also what some of my hon. Friends said about payment of bills. I urge large companies constantly to pay bills promptly. There is a small improvement in the Administration of Justice Act 1982, which I hope will come in force in the spring 1983, which will help in that respect.
I note also the comments about public sector organisations, nationalised industries and Government Departments not paying their bills promptly. If anyone has any clear evidence of that, I should be happy to consider taking a further initiative, because the Government have urged that bills be paid promptly.
I agree with the comment made by some of my hon. Friends about planning and premises. Local planning authorities have an important part to play in encouraging small businesses. I accept the point made by my hon. Friend the Member for Dorset, North about encouraging new residents in villages. I have the same problem and constantly stress the need for a balance.
1174 We have an encouraging tale to tell. The impact of the industrial buildings allowance changes has meant a tripling of the provision of small premises in the past year, but the English Industrial Estates Corporation and the Development Commission are now concentrating on small units. In the 12 months to July 1982, over 500 small units were completed by the EIEC. A further 430 are under construction and 500 more are planned. The significant fact is that there is a rapid take-up of letting of small units in the EIEC and elsewhere.
I want to refer to advisory services and management education which has been a steady theme throughout the debate, and which I welcome warmly. It is an unglamorous area and sometimes a difficult one on which to concentrate. I believe that considerable benefit can be given to small firms by providing better advice at the appropriate stage, usually from business men, and by providing better management education for those who want to start a small business.
My Department's small firms service has found the demand for its services doubling in the past two years. That is why I have increased the service considerably, especially in the range of counsellors who are the business men who provide the advice.
I shall be opening shortly a further new centre in Reading, because of the heavy demand on small firms services in London and the South-East. I recognise that that is not Islington, but there is an enterprise agency in Islington which I have visited. We have to achieve a balance in where we put the small firms service. The constituents of the hon. Member for Islington, Central (Mr. Grant) can get through to the centre immediately on Freefone 2444.
Some comment was made about the need to increase the number of people in my Department who concentrate on the small firms side. We have succeeded in getting the overall numbers in the Department of Industry down in line with Government objectives, but we have almost doubled the number of people who concentrate exclusively on small firms. We have achieved our objectives and higher priorities.
I believe that a great deal of that kind of help and advice can be given through the private sector, which I wish to encourage, and that is why I strongly welcome what has been done by the local enterprise agencies. After a small start four years ago, there are 83 established local enterprise agencies, with 64 in the pipeline. I believe that the tax relief we gave this year will help them.
§ Mr. John Wells (Maidstone)
rose in his place and claimed to move, That the Question be now put; but MR. DEPUTY SPEAKER withheld his assent and declined then to put that Question.
§ Mr. MacGregor
I agree with what my hon. Friends have said about the need for more management education. That is taking place. I also agree about the importance of changing attitudes, which is why I spend much of my time in the industry education unit in my Department. If we can do more to encourage improved attitudes at school towards enterprise and small business, we shall achieve as much in the long term as we shall gain from the 96 measures. My hon. Friends will know that we have been taking a number of initiatives in that direction, with the full support of the Department of Education and Science.
§ It being half past Two o'clock, the debate stood adjourned.