§ Mr. Bernard Jenkin (Colchester, North)
I beg to move,That this House recognises the vital importance of small and medium-sized businesses in the wealth-creating process in this country: welcomes the Government's initiatives in lifting the burdens of excessive taxation and regulation which stifle enterprise; and strongly endorses the Government's clear commitment to the creation of the right climate for sustainable growth, in which initiative and enterprise can flourish.As a new Member with a first and somewhat unanticipated opportunity to choose a motion for a whole day's debate on the Floor of the House, it does not fall naturally to me to lead a charge on the big interests or to attack the big issues. Nor do I seek to speak for powerful lobbies or for big corporations, although I declare that I am an adviser to one of them—Legal and General Group plc.
It is my role to reflect the concerns found in the high street in North Colchester and in every other constituency. If I am able to reflect the realities facing my constituents, the House should put it down to sheer beginner's luck.
I tabled the motion because, of all the effects that the recession is having, the effect on the lives and well-being of those who own, run or work for small and medium-sized enterprises is greater than the effect on any other group of people, yet it is on those people that eventual economic recovery will depend.
Small and medium-sized enterprises should not be treated as the exception for which a short day's debate and a small division of the Department of Trade and Industry will suffice. Small and medium-sized enterprises are not the exception but the rule. There are thousands more small firms than large ones. They employ 60 per cent. of the private sector work force, if we take small and medium-sized enterprises to mean those with fewer than 200 employees. They account for 60 per cent. of total turnover. Yet it is small firms that feel most under pressure in the recession, most put upon by the banks, most burdened by regulation, and most neglected by Government policy.
Whatever the short-term problems may he, we need to look constantly to the long-term objective, which is that long-term economic growth can be achieved only by nurturing that sector. My small part in all this is that before I came to the House I was a venture capital manager for six years. Before that, I worked in industry, for the Ford motor company, so I do not apologise for my lineage or background.
I want to set out today the problems that many small and medium-sized enterprises in North Colchester appear to be facing; some suggestions and solutions; and an explanation of how the role of the Department of Trade and Industry and the small firms unit could be strengthened to take a more active role in the formulation of all Government policy as conducted by all Government Departments as it affects all businesses in the United Kingdom. Government cannot be reminded too often: policies that purport to be good for business must he good for small business; otherwise they miss most of their market.
In the department for the citizens charter—the Office of Public Service and Science—the citizen now has an undisputed champion in Whitehall to generate creative 1087 friction among the great Departments of state. Friction creates heat which, in turn, can create light, and better policies. Cannot small and medium-sized businesses have a similar champion?
It is a cliche to say that small businesses are the backbone of the United Kingdom economy; it also understates their importance. They are the economy's flesh and bood. Firms consisting of fewer than 20 employees employ a third of the total private sector work force and, as I have said, small and medium-sized firms employing fewer than 200 people represent 99.5 per cent. of the companies in this country and some 60 per cent. of turnover.
Such firms are the seedings and saplings of British industry: some of them will become the large companies of tomorrow. They have an unrivalled ability to create jobs. Between 1985 and 1989, small companies created 1 million new jobs in the United Kingdom. That was the reward for measures that we adopted throughout the 1980s, which led to the rebirth of the enterprise culture.
Between 1963 and 1979, the number of manufacturing firms in the United Kingdom increased by only 30 per week on average, but between 1979 and 1990 the rate of increase was 100 per week. There are now 420,000 more firms than there were in 1979.
Even today, in the teeth of a vicious recession, business starts continue to keep pace with business failures. In 1991, NatWest and Barclays both reported estimates that there had been a total of about 480,000 business starts—the same figure as in 1990. That was made possible by measures introduced by the Government. Taxation has been simplified and personal taxation reduced to improve incentives. Corporation tax has been reduced—particularly for small businesses. Inheritance tax has been reformed, capital transfer tax on lifetime gifts abolished and a comprehensive bad-debt relief scheme introduced. Other welcome measures were mentioned in yesterday's autumn statement—not least a further reduction in interest rates.
Other initiatives and programmes include the enterprise allowance scheme: 560,000 people have benefited from the enterprise allowance scheme and two thirds of them are still in business today. The DTI's enterprise initiative brought practical help and strategic management advice to thousands of companies, with financial support for consultancy projects to encourage the use of outside expertise as a regular part of management strategy. We have had business training programmes, the loan guarantee scheme and the business expansion scheme—pump-priming the small firms' equity market, which, in the early 1980s, transformed the expectations of the entire venture capital industry.
The training and enterprise councils probably represent the most significant development so far in the provision of support services for small firms. With the involvement of local business men, the TECs will deliver the Government's training programme locally, tailoring it to local needs. Finally, we are test-marketing the concept of one-stop shops for all DTI services. They will also act as a gateway for more specialised advice and services from the DTI, the TECs, other Government Departments and venture capital companies.
§ Mr. Dennis Skinner (Bolsover)
The hon. Gentleman mentioned TECs. I read a report in the Derbyshire and north Nottinghamshire coalfield paper to the effect that, in that area, nine out of 10 of the young men and women who had been on courses finished up without a job. It was as bad as that, and that was before the projected pit closure programme.
Will the hon. Gentleman bear in mind the fact that there are about 20 small businesses employing fewer than 20 employees in each pit village? If 31 pits close, and 31,000 miners are thrown out of work, the effects will be multiplied in the pit villages. In addition to the miners, about 100 people in each village will be thrown out of work. Most of them will be engaged in small businesses. We have all received letters from small businesses in those areas, many of which were represented at the recent demonstrations. Will the hon. Gentleman agree to support the Opposition in voting against the Government if they prepare to close any of those 31 pits when the review returns?
§ Mr. Jenkin
The important point to remember about the tragic closure of pits throughout the country, and the scars that their closure leaves, is that British Coal Enterprise plays an important role in placing people in new jobs. If I recall correctly, BCE has an 86 per cent. success rate in placing British Coal employees.
§ Mr Jenkin
I may be wrong, but that is the figure I recall.
Moreover, I remind the hon. Member for Bolsover (Mr. Skinner) that we were given doom-laden forecasts about steel towns such as Consett and Corby and told that their economies would be devastated, but in those places the culture of enterprise has transformed, and new businesses—which have a future, create wealth, bring revenue and contribute to our economic welfare—have been created.
§ Mr. Campbell-Savours
The hon. Gentleman is partly right, but he fails to realise that, when Corby and Consett were in difficulty, their local economies were almost isolated from the national economy and unemployment was much lower. That meant that the state and enterprise —industry, the banks and the private sector—could concentrate resources on developing those areas. Now the whole country is in difficulty and we can no longer isolate areas as effectively. That is the point that my hon. Friend the Member for Bolsover (Mr. Skinner) sought to make.
§ Mr Jenkin
I pay due regard to the hon. Gentleman's point that, in future, it will be more difficult to deal with black spots in the British economy because we are in the depths of recession. But it ill befits Labour Members to give the Government lectures on how to rejuvenate the economy as a whole and unemployment black spots. After all, faced with the same problem in the 1970s, the Labour Government did precisely nothing.
§ Mr. Iain Duncan-Smith (Chingford)
Does my hon. Friend agree that this matter should be considered against the background of the early 1980s, when the same doom-and-gloom merchants were saying that the creation of small businesses was quite impossible and that only the 1089 big businesses could do anything? In fact, the opposite proved to be the case: we created 1 million new jobs in areas in which everyone had said that that was impossible.
§ Mr. Jenkin
I agree with my hon. Friend 100 per cent. I remember hearing the forecasts of the Cambridge Economic Policy Group during the 1970s. We were told that we would have 6 million unemployed by the mid-1980s. That did not happen because small businesses created jobs and filled the gaps left by the old and dying industries. I should find it more encouraging if Labour Members were interested in Britain's future rather than in the preservation of Britain's past.
§ Sir Michael Grylls (Surrey, North-West)
The hon. Member for Bolsover (Mr. Skinner) referred to pit closures. In 1991—in the depths of the recession—9,482 jobs were created in the pit closure areas, so it can be done, although I wholeheartedly agree that we need to increase the programme and try harder. The hon. Member for Bolsover should know better than to make silly remarks. He is supposed to know the coal areas. He had better go and learn something from British Coal Enterprise, which has a remarkable record. He should praise what BCE has done and encourage it to do more.
§ Mr. Jenkin
I agree with my hon. Friend that we might have more respect for the Labour party and the unions if there were an organisation called NUM Enterprises, but there is not.
During my preparations for the debate, I sought input from local businesses in my constituency and from local business organisations. From the submission of the North and Mid-Essex chamber of commerce, it seems that Colchester would benefit from one of the one-stop shops to which I referred earlier. The submission states:In Colchester we need more help for exporters. The Chamber has positive indications from its documentation service that exports from this area are on the increase. We should be nurturing and encouraging that. But the nearest dti adviser who is able to visit firms for face to face consultations is based in Norwich. To overcome this weakness, we provided an export clinic, jointly with the dti, last week and it was attended by 40 prospective exporters—but to mount it we had to obtain sponsorship from the private sector".I ask my hon. Friend the Minister to set up one of his pilot schemes in Colchester with a DTI export executive because that would be good for Britain's balance of payments.
By far the biggest complaint from businesses in my constituency relates to late payment of debt. The Forum of Private Business estimates that nationally £50 billion worth of debt is overdue on the balance sheets of small firms. Of that, £20 billion is owed by big corporations and Government organisations. I have also been told that the national health service and local authorities of whatever party are among the worst offenders. Surely the public sector can he properly regulated to pay up on time.
Public authorities very often pay higher prices, or are able only to tender to fewer suppliers, because of their bad payment record. For private sector defaulters, I would support the three recommendations of the Institute of Directors: there should be easier access to the small claims court; there should be voluntary codes of good payment drawn up by professional bodies; and, perhaps most interestingly, the DTI should establish an office to deal with late payment complaints against public bodies, including European institutions and international bodies.
§ Dr. Keith Hampson (Leeds, North-West)
Will my hon. Friend consider the converse of that problem? Often there is no cash coming into small firms, but there is a continual demand for cash from them, particularly from the VAT man. There is no cash there, but the computer automatically slaps a large fine on those companies and that only compounds the problem.
§ Mr. Jenkin
I accept my hon. Friend's point; and I will comment on VAT later.
The second most common complaint is related to the problem of late payment of debt, which involves rogue directors. My local chamber of commerce complains thatfraudulent operators are able to circumvent the law, walking away from debts and continuing to trade in the same premises, with the same people in the same line of business but with a slightly different business name.That particular item is the highest priority concern of the members of the Forum of Private Business, with 75 per cent. of respondents highlighting it as a concern—perhaps the other 25 per cent. were the problem. Is the Insolvency Act 1986 working as effectively as it should to ban directors who have been trading fraudulently?
The third complaint is that business men find pay-as-you-earn and the national insurance administration more complicated than appears necessary. How much does it cost a small business to employ someone at, say, £150 a week and how much does that man take home? The Library has kindly provided me with the figures. After employer's national insurance charges of £12.90 and notional additions to costs to allow for statutory sick pay, holiday pay and additional administration, the total cost of the employee is between £170 and £200 a week. Furthermore, the employee will pay his own tax and NIC, so he takes home only £121.30. Therefore, the take-home pay amounts to little more than 60 per cent. of the costs to the employer. If tax and NIC could be rationalised, we could ameliorate the problem.
§ Mr. James Couchman (Gillingham)
May I point out to my hon. Friend that the happy way in which we introduced the 20p in the pound tax rate added hugely to the burdens of those of us who still prepare a manual payroll?
§ Mr. Jenkin
My hon. Friend has made an interesting and illuminating point which I am sure my hon. Friend the Minister has taken on board.
I want now to consider the VAT regime. The year-on-year increases in the VAT threshold have been very welcome and have enabled 50,000 businesses to stay out of paying VAT. I also welcome the fact that Customs and Excise is presently conducting a wide-ranging review of the VAT civil penalty regime, and I am pleased that the serious misdeclaration penalty was changed in the last Budget to remove 75 per cent. of cases from payment of the penalty. However, would not my hon. Friend the Minister welcome a discretionary penalty regime which reflected the scale of the sin, intention and ability to pay the penalty?
Moreover, will my hon. Friend the Minister ask his colleagues at the Treasury to look again at the changes to be implemented on 1 January in advance of the single market? The changes will represent a considerable additional administrative burden and they are causing widespread concern.
1091 My constituents are also calling for less regulation. The Forum for Private Business's third priority of concern is for regulations to be simplified.
May I be forgiven for pointing out that it was Lord Young who, way back in the mid-1980s, first talked of a "bonfire of controls". However, it seems that we have not seen much smoke yet.
The Institute of Directors has pointed out to me that someone wishing to start a new limited company employing two people would have to read 26 documents totalling 269,200 words taking 24 hours and 27 minutes to read. In August, the IOD published a list of 50 licences which could be scrapped. There is also the vexed issue of EC directives.
In an Adjournment debate a week or two ago my hon. Friend the Member for Woodspring (Dr. Fox) ably exposed the Ministry of Agriculture, Fisheries and Food as the source of excessive regulation on abattoirs rather than the EC directive upon which pretext the regulation was based. Similarly, the IOD has attacked the Department of the Environment for an excessive interpretation of an EC directive on the energy efficiency of boilers. Surely those are all causes where the DTI small firms division should step in to sanitise some of the enthusiasm of other Departments.
The final area of complaint that I must report to the House concerns the role of the high street banks. First, I must say how grateful I am that they have taken such trouble to ensure that I am fully informed on the subject —no less gentle or persuasive than my Whip last week. I stress that the House must understand that they are facing difficulties every bit as severe as those faced by many small businesses.
On a personal level, it cannot be much fun being a bank manager in the current climate and being faced with the choice half a dozen times a day of extending the risk on a particular loan or of calling it a day. The banks are facing huge challenges—deregulation; increased competition; technological change; overcapacity; erosion of profits; capital adequacy; scandals like BCCI and Blue Arrow; and the effects of the recession whose fallout ends up on the banks' balance sheets at the end of the day.
The banks recognise that the survival of small businesses is as much in their interests as in the interests of the economy as a whole. Their actions are louder than my words and it is something of a relief that they appear to be responding to public concern.
§ Mr. Anthony Steen (South Hams)
Is my hon. Friend aware that many small banks in rural areas charge excessive interest to small enterprises? They have absolutely no right to charge 5 or even 8 per cent. over base rate and they tend to cripple those who are most likely to go under.
§ Mr. Jenkin
My hon. Friend has made an interesting and valid point.
It is something of a relief that the banks appear to be responding to public pressure to alter their minimum lending rate policies. The National Westminster bank and Barclays have announced revisions to their policies so that they can continue to pass on the full benefit of base rate cuts to their small business borrowers. No doubt others will be following.
1092 But there seems to be a cultural problem about institutional lending to smaller enterprises, and it is probably exacerbated by the recession. Perhaps we could learn from the German experience. There is also the perceived equity funding gap. We could certainly look at further reform of capital gains tax to try to stimulate that sector. Forty per cent. is a punitive rate for an entrepreneur to pay after he has taken all the risk and put in all the work to build up a small business.
I have had discussions with one of my former employers, the venture capital provider, 3i, on this subject. I do not know what else the Government can do to plug the equity gap. I note my noble Friend Baroness Denton's comment in her speech in the other place on Wednesday that perhaps we should seek an institutionrather like 3i in its early days"—[Official Report, House of Lords, 11 November 1992; Vol. 540, c. 216.]to lend and finance at the very small end. 3i sets a good example in Birmingham in that respect, as my noble Friend pointed out, where it is working with the community. We need to look to community-based institutions at local level to achieve what we want.
Earlier this year I was working on a study with the Business in the Community organisation on just such proposals. The final document, called "Investing in Community Enterprise", is well worth reading and I commend it to my noble Friend and my hon. Friend the Minister.
The importance of small and medium-sized enterprises cannot be overestimated. Much of great value has been achieved, but there is much more to be done; or, in the case of the Government, much that they should stop doing.
I return to the central point. The small firms unit of the DTI is responsible for 99.5 per cent. of businesses in this country. That is my right hon. Friend the President of the Board of Trade's biggest responsibility. Let his Department take the lead over others in the protection and promotion of the interests of small and medium-sized enterprises. It is his responsibility to intervene before breakfast, lunch and tea in the affairs of other Departments as they affect small and medium-sized enterprises. We should adopt a new way of thinking. The DTI should be the small firms department. My right hon. Friend the President of the Board of Trade is no less than the small firms Minister sitting at the Cabinet table.
§ 10.1 am
§ Mr. Dennis Skinner (Bolsolver)
During the past several weeks, I have been inundated with complaints from firms, mainly small businesses, in my constituency and elsewhere about the effect of the threatened pit closure programme on their ability to survive. I have been a Member of this House for 22 years. Generally speaking, I have not had too many contacts with business people, but in the past few weeks I have received more than 500 letters, many of them from small business men and women from all parts of Britain, saying that they will never vote Tory again. Their names and addresses are available for anybody to inspect. In their cry from the heart, they say that they are in the depths of a recession. They went through a recession in 1981 and managed to survive when others did not, and now they are going through a second tranche.
In my constituency, a business—Hirst—was set up recently in a little village called Creswell, where a pit had been closed some time before. That firm wrote to me and said, "We have just heard the bad news. In view of the 1093 difficulties that we faced before and the closure of Creswell colliery, we have had to lay off five people. We have to tell you, Mr. Skinner, that if the 31 pits close, and many of them are within a radius of about 20 miles of the village— approximately 14 pits—we will have to close the whole operation." That is typical of the letters I have received.
I have heard today in the interventions and cross-talk that, somehow or other, British Coal Enterprise Ltd. has been doing a sterling job in areas where pit closures took place. British Coal Enterprise Ltd. claimed credit for jobs that other people have managed to get. In Scotland, Wales and other parts of regional development areas, development agencies managed to get a few jobs in the areas, and British Coal Enterprise Ltd. claimed credit for the lot. That is one of the biggest confidence tricks ever carried out by any agency. We must bear it in mind that the agencies were set up in 1984–85 in the middle of the last pit strike. My hon. Friends who hear talk about British Coal Enterprise Ltd. jobs must remember that it double-counted jobs that were due to somebody else's efforts—local authorities, development agencies and so on.
In my constituency there are villages in which pit closures have taken place. Because of voluntary redundancies, some miners had a chance to go to another pit village. The same is true in the constituency of Mr. Deputy Speaker, my hon. Friend the Member for Pontefract and Castleford (Mr. Lofthouse). Male unemployment in some villages is between 30 and 40 per cent. That is hard to believe, but it is true, because, generally speaking, pit villages are very self-contained. They rely on their pit and on the ancillary industries that are directly or indirectly related to the colliery. When a pit closes, one can guarantee that about another dozen or 20 firms will go down the pan.
We have been led to believe that, after the pits have been closed, a magic wand will be waved by British Coal Enterprise Ltd and various other agencies. We have been given the impression that jobs have been created by small businesses, big businesses and so on. That ain't true. In Langwith, in my constituency, where a pit closed in the late 1970s, early 1980s, male unemployment is more than 40 per cent.
I have referred to the prospects of young men and women seeking jobs. About four or five weeks ago, before the announcement of the 31 pits to be closed, I read in the Worksop Guardian that local training and enterprise councils had conducted a survey and found that nine out of 10 young men and women on TEC courses have not been found a job. That was before the announcement. Can hon. Members imagine what life in coalfield areas will be like if those pits close?
It is high time that we examined what is' really happening in Britain. Not only have we had a recession followed by a deep slump, but some measures announced yesterday showed that the Government will not do a great deal to solve the problem. [Interruption.] Somebody is moaning on the Conservative Back Benches. I can understand why. I must tell Conservative Members who waved their Order Papers yesterday that some of the prospects for job creation that were put forward by the Chancellor will not reach fruition in many areas of Britain.
There was mention of local authorities being allowed to use a very small proportion of their capital receipts based on the number of council houses that are sold next financial year. That will not make much difference. It 1094 would be very helpful for small businesses if some building firms in pit villages and elsewhere were able to start employing young men and women, some of whom have been employed in the mining industry. They would love to be able to do it.
When I left school, I had the opportunity to work for a firm building houses. That was in the late 1940s and early 1950s, under the Labour Government who started the massive house building programme. I had the choice of working for about 20 different building companies and I could have worked for other small businesses making pipes, and all the other things associated with building the welfare state. I had a choice in life. It was not the greatest choice of all time—I did not go straight into Standard Chartered bank, like some Conservative Members, after being turned down as a bus driver; I went down the pit. But I had a choice. We are living in a society where young men and women do not have a choice. My choice was meagre, and for some people it was better in those years.
Conservatives talk about unemployment as if the Labour Government left 3 million out of work. Even though I often opposed that Government vociferously, the number of people out of work then was never more than about 1.25 million, which was the total when we left office in 1979. For the greater part of Labour's time in office it was much lower. I did not agree with the public expenditure cuts and I helped to defeat the Government on one of those ill-fated nights in 1976, and on other occasions.
However, let us put things in perspective. Many small businesses were thriving then. Now, for every week that passes they are falling by the wayside. The latest figure is 76 failures every working day—three every hour. Between us, the hon. Member for Colchester, North (Mr. Jenkin) and I have been on our feet for about 40 minutes, so two firms have gone bankrupt while we have been speaking; and the chances are that many more will do so before the day is out.
§ Mr. Alan Duncan (Rutland and Melton)
Does the hon. Gentleman agree that one of the main sources of opportunity for the young people that he has described to set up businesses and contribute to their community and their future would arise if the county council, which he so wantonly supports, contracted out far more of its work? He should forget about the sort of Stalinist economic structure that he likes.
§ Mr. Skinner
I do not take lectures from Tories who are not content with one job but moonlight and take others. Many people on the Conservative Benches—I could name them if I wanted—not only pick up £30,000 as Members of Parliament, but pick up money on the side, working in the banks and law courts.
§ Mr. Skinner
Yes. The hon. Member for Colchester, North said that he was working for someone else. He is not content with the income he gets here, although 4 million people are out of work.
As for Derbyshire county council, let us put it on the record that when the Labour party was elected in 1981 it said in its manifesto that it would not go in for compulsory redundancies. The council has a proud record of ensuring that it does not add to the dole queue and, as a result, when 1095 it went back to the Derbyshire electorate in 1985—not to Conservative Members—it was returned with a bigger majority. In 1989, the electorate spoke again. People liked the idea of having the cheapest school meals in Britain, free home helps and all the rest. By and large, small business men and women in Derbyshire joined typical Labour voters to ensure that, despite all the attacks from the Tory-based media, the Labour county council got another majority, so it is still in power. The Labour party still has a fair majority and the people of Derbyshire like what it is doing. The voters have spoken three times in succession, so they do not need any lectures from moonlighting Tory Members of Parliament.
§ Mr. Jenkin
Is there not a slight irony in what the hon. Gentleman is saying about compulsory redundancies? No one likes the idea, but even the Labour party has to implement compulsory redundancies. Is there not an element of hypocrisy when councils posture in front of their electroates and buy off the consequences of compulsory redundancies, at the expense of the taxpayer, of wealth creation, and ultimately of the jobs and opportunities that he is lamenting?
§ Mr. Skinner
It is a pity that the hon. Gentleman was not listening earlier. I told him that when Labour was in power I did not support the increase in unemployment. I did not support it when I was a member of the national executive either. He can complain to someone, but he must not complain to me, because my record on such affairs is apparent. He has no need to look into a crystal ball—just read the book.
I was talking about the fact that young men and women want jobs. If we assume that all those pits close, it will be even worse for young people wanting work. In the Bolsover, Chesterfield and Mansfield areas, in South Yorkshire and in the remaining scattered coalfields in south Wales, the north-east and Lancashire—where the last pit is to close—unemployment totals in some travel-to-work areas will be well over 20 per cent., and well over 50 per cent. in some pit villages.
Nothing that happened yesterday offered any hope to young people wanting a job. The mini-Budget launched a spiteful attack on low-paid workers and will mean less purchasing power in the economy to create much-needed growth. Generally speaking, low-paid workers spend all their money, and they spend most of it in small businesses. If we take money away from them, the economy will go down further and further and the growth that the Chancellor talked about will not materialise.
If small businesses are to be given a chance, one measure could be taken that would increase the purchasing power in the economy and take money from people who can best afford it. The result might be a reduction in the unemployment total. In the Thatcher years—in the first 10 years of Tory government — £ 26.2 billion was given in tax cuts to the richest 1 per cent. of the population. That is a lot of money. Yesterday, the Chancellor should have said, "We're going to take that money back. The country's in a mess. We're not going to call on working class people to carry the burden. We're going to get back the £26.2 billion that was given to the richest 1 per cent. in tax cuts." That would have helped to balance the books.
1096 The Government could have used some it to narrow the public sector borrowing requirement from £37 billion to £30 billion. The Chancellor could have used some of it to bolster the national health service, which would have created more growth among the small businesses which supply it with goods and services. We could have doubled the amount of money that we give to pensioners, because about 80 per cent. of that would be used to increase spending power and small businesses would reap some of the benefit.
We could have used some of that £26.2 billion to repair schools. There is an estimated £4 billion backlog of school repairs, and most repairs are carried out by small business enterprises. If we launched a campaign to repair those schools, some of which are derelict, and to provide inside toilets for little toddlers who will be skating across the playground in winter, we could start making the economy, and small businesses in particular, boom.
§ Dr. Hampson
Does the hon. Gentleman agree that the abolition of the Ryrie rules in the Treasury will benefit large projects—many imagine that they relate especially to those projects—and small ones, such as insulation work in hospitals? The abolition of the rules will enable small projects to be undertaken with private money.
§ Mr. Skinner
The hon. Gentleman is right about the principle. The trouble is that yesterday not much money was shoved across, so there will not be much of an improvement. If the principle is sound
§ Mr. Skinner
I appreciate that it was in the Labour party manifesto. It is one of the policies that have been stolen by the Conservatives. Yesterday, the Government grabbed a couple of our policies, but instead of doing something positive, they merely accepted principles.
I return to the issue of local authority housing. There is £5 billion-worth of capital receipts, and, by and large, every local authority in Britain uses small businesses to provide services. If the Government had used the £5 billion-worth of capital receipts in a positive way, a house building programme would have been created that would give many people the chance to have a roof over their heads.
Such a programme would bring many small businesses back into operation and thousands of construction workers would come off the dole. When people come off the dole they start to pay tax and insurance, so the Government have less to pay out in dole money. It is costing £30 billion a year to finance the dole queue. The more that we cut into that pile of money and the pile of human misery that is known as the dole queue, the more revenue the Government receive in tax and insurance payments. That creates an upward spiral. For so many years now we have been suffering the consequences of a downward spiral. Although the Government pinched an idea from the Labour party, they did not do a great deal with it.
If we used the £26.2 billion that has been given to the richest 1 per cent. of the population in the way that I have described, we would help small businesses and cut the massive dole queue. We would give young people the chance of work. I do not know how teachers manage to motivate the young men and women who are in our schools. What can they say to them? When I was at school, 1097 they said, "Pass your exams and better yourself." That is what was said in my area. That was the philosophy that prevailed.
The other week I went to Shirebrook school on its speech day. I spoke to many young lads. Present also were people from various enterprises that are still in the area, including small businesses. I asked how the teachers motivated young men and women to take their exams and to pass this, that and the other when they have brothers and sisters who have never had a job for four or five years. At the same time the Government complain about crime on the streets, for example.
We are creating a society in which new generation after generation is witnessing mass unemployment and no prospect of work. Against that background, the Government talk about helping small businesses.
§ Mr. Harold Elletson (Blackpool, North)
Before the hon. Gentleman moves on to talk about crime, I wish to take up one of his spending plans. Perhaps he will tell us whether he supported the motion that was passed at this year's Labour party conference that called for a massive increase in pensions, and whether he agrees with the Opposition spokesman on social security, the hon. Member for Glasgow, Garscadden (Mr. Dewar), that the proposed increases would cost taxpayers about £25 billion. How would the hon. Gentleman go about paying for such an increase in pensions? In making that provision for pensioners, how does he imagine that he would be able to produce the sort of help that he is talking about for small businesses?
§ Mr. Skinner
I talked earlier about clawing back the £26.2 billion that went to the richest 1 per cent. of the population. I would use some of that money to increase pensions. There are other areas in which there is a great deal of public expenditure. For example, I would cancel the Trident project. That would save £10 billion. I would use some of that money to bolster the welfare state, to build more houses, and to give pensioners more money. I would stop the business whereby the top four clearing banks have received £5 billion over the past 10 years in written-off debts. The country is strapped for cash, but I have read in the Library that National Westminster, Barclays, Midland and Lloyds have received £5 billion from the taxpayer to write off debts. It really is fanciful. Yet the Government call upon nurses and other low-paid workers—those on just over £100 a week—to carry the can for the mess that they have created. It is incredible.
If the hon. Member for Blackpool, North (Mr. Elletson) is worried about where the money would come from, he should understand that there is plenty of money in the country. There must be if some Tory Members have six or seven jobs apiece. I am an anti-marketeer, which means that I am not convinced about Maastricht or anything else. Every family is paying £18 a week to prop up the common agricultural policy and the fraud that is run by the mafia in Italy and elsewhere within the Common Market. I would make a big hole in the money that we give to the Common Market.
I am sure, Mr. Deputy Speaker, that you wish me to ensure that I confine myself to talking about the Economic Community in terms of small business. I have done so because, as was said earlier, most business in Britain is small business. I heard somebody say on the wireless the other day that small business represent about 60 per cent. 1098 of all businesses. I think that the hon. Member for Colchester, North quoted a figure that was somewhat similar. If we talk about business in Britain, we are, to a great extent, talking about businesses with fewer than 200 employees. There are many more with fewer than 20 employees.
I could find the money quite easily. Apart from what I have already said, it is time that we did several other things. The measures that were announced yesterday will not add up to a row of beans. It is interesting to read some of the small print in the so-called quality press this morning. The headlines look good, but underneath them there is the suggestion that there could be much more trouble ahead and that there will be a harsh Budget next March. Of course, such a Budget will attack small businesses as well as everyone else.
The measures that the Chancellor of the Exchequer announced yesterday enabled Tory Back-Bench Members to wave their Order Papers. It is significant that the hon. Member for Colchester, North did not pay too many compliments to the Chancellor when he moved his motion. I do not think that he said, "What a wonderful job you have done." The hon. Gentleman has probably read the newspapers.
§ Mr. Jenkin
I wish to place on the record my congratulations to my right hon. Friend the Chancellor of the Exchequer on an excellent autumn statement, which was realistic, tough and especially good for small businesses. Included within it was the abolition of car tax, the extension of first year capital allowances, and many other measures that will help small businesses, not least the reduction in interest rates, which will be good for small businesses that are borrowing.
§ Mr. Skinner
I am sure that the Chancellor will know before the day is out that the hon. Gentleman is not keen on some of the Government's policies and that he praised him only when I deliberately provoked him to do so.
We are talking about taking measures to make small businesses flourish. Apart from the steps that I have said I would take to get the money, I would tax the Queen and all the hangers-on.
§ Mr. Skinner
I agree, but, according to all the surveys, about 80 per cent. of the population would be very pleased. I know one or two business men and women who would say, "That would not put much money in our pockets but it would be symbolic and it is something that should be done." I do not want any lectures from Tories about there being a lack of money.
We must defend our manufacturing base. The number of people engaged in manufacturing has fallen to 4.5 million. Over the 13 years of Tory government, there had been a 30 per cent. fall. Over that period, the greatest slice ever has been removed from the manufacturing base. There are fewer employed in manufacturing today in Tory Britain than are employed in hotels and shops.
I am not knocking those who have to work in hotels and shops, most of whom are part time and low paid. Of course, the Government add those part-time workers to their employment figures to make it appear that there are more people in full-time work than there really are. I do not knock those people's efforts in the service industries, but we cannot live by bread alone. We must build up 1099 Britain's manufacturing base. If it goes any further down the pan, Britain will end up as a third-rate economy like some of those in the far east.
§ Mr. Duncan-Smith
I used to work in manufacturing industry. It is important to note that during the 1970s its competitiveness declined rapidly under the Labour Administration. There was a shake-out in the 1980s which resulted in vastly improved productivity and rising exports of manufactured goods. I was, in part, involved in that process. The Government's record on manufacturing industry is good and there will be further improvements in the 1990s with increases in productivity and exports.
§ Mr. Skinner
One can find all sorts of small anecdotal examples. I am talking about the general sweep. There was a massive decline in manufacturing industry in 1981. The hon. Gentleman called it a shake-out, but the truth is that some manufacturing industries never recovered. In the east and west midlands many businesses went under, never to recover.
The recession has achieved something else. Generally, people thought that unemployment happened only in the north, in the Celtic areas of Scotland and Wales and in the heavy industrial areas of the north-east. Many people in the south below the Trent, where many Tory Members of Parliament have their seats, did not fully understand the implications for them when employment reached more than 3 million in 1981. They did not know much about unemployment, although they felt sympathy for the unemployed when they were marching. Now, with the Tory Government having created the deepest recession since the 1930s, the people in the south understand what unemployment means. Every family either has someone within the family or knows of someone who is suffering the effects of unemployment.
That is why there was a sea change in opinion a few weeks ago and why many people from the south joined the miners' march. Many small business men joined it. One stood on the platform with me and said, "I have voted Tory all my life. I have never been on a platform and I don't know what to do because I have never had a microphone in my hand before." However, he managed to splutter out the words, "I'll never vote Tory again because my business is being threatened."
The slump is spreading like a cancer across Britain. The tin-pot measures that the Chancellor announced yesterday are just a flea bite. They will take purchasing power out of the economy. Asking low-paid workers to accept only a 1.5 per cent. pay increase means that they will be unable to spend the money that they should have had, which will lead to an even deeper slump.
Local authorities use many small businesses for the supply of services. The Chancellor said yesterday that there would be a 3 per cent. increase in the money allocated to local authorities, but that is not true. Those authorities have already spent more than was anticipated last year, so that the real increase in allocation will be only 0.5 per cent. With an inflation rate of between 3 and 5 per cent., in reality there will be a massive reduction in the amount of money that local authorities can spend. That will result in a reduction in purchasing power.
Tory Members waved their Order Papers yesterday, but it is a different story this morning. People have woken up 1100 to the fact that the Chancellor's statement is not quite what it seemed. Small business men throughout the country have read the small print and found the Government's insurance policy. Once they had read the tabloids, they knew that it was a different story.
If the manufacturing base is to be rescued, something else must be done. I know that this will be controversial, but I shall say it anyway: the Government should introduce import controls. If we are to plan our internal economy, there must be a limit on how far we can refuse to plan it externally. I accept that some of my hon. Friends take a different view, as do the tin-pot Liberal Democrats who rescued the Government when they were in dire trouble. I certainly do not need any lectures from them.
As a socialist, I have always believed in planning the economy. If the strong are to help the weak, there needs to be both a regional and a national plan to achieve that. I have always thought it odd that some in the Labour movement who share my philosophical views shy away from admitting that if we are to plan the internal economy we must plan it externally, as far as that is possible. Of course, we cannot plan everything externally, but we can have an effect.
When people say to me, "Stop the import of coal", I ask, "Does that apply to other manufactured goods as well?" They say, "Oh no." Is not that funny? Some 19.6 million tonnes of coal were imported into Britain last year, which resulted in the loss of 19 pits and 19,000 jobs. Can that continue? Most people say, "Cut coal imports." I believe that there should be controls across the whole of the economy and it is high time that the Government took that on board.
It would also help British businesses, large and small, if exchange controls were reintroduced. After the Tories were elected in 1979, we were told that they could not be introduced because of the Common Market and all that rubbish. Is not that funny? On black Wednesday, the Chancellor, instead of giving £10 billion to those in need and to help boost the economy, threw that money at the stock exchange. The City financiers, who are represented by many Tory Members, lined their pockets. One of them said that he had picked up £2 million in three hours. In total, the country probably lost about £2 billion. The other £8 billion might come back to Britain, but we lost £2 billion through having to buy back the pound at a lower rate because of the devaluation.
Exchange controls should be introduced. Following black Wednesday, three countries in the Common Market did just that, yet we had been told that that was impossible within Common Market rules. If the economy is to be planned for the benefit of the people, exchange controls must be reintroduced.
§ Mr. David Shaw (Dover)
The hon. Gentleman has been a regular visitor to my constituency over the years. Has he ever told the ferry workers in Dover that he wants import controls that would restrict the freight imports that support most of the ferry industry and provide revenue? Has he told them that exports would he lost because the continent would not take our exports if we imposed import controls?
§ Mr. Skinner
I have heard that story before. People say that if we impose import controls other countries will retaliate. How could Germany retaliate when our balance of payments deficit with that country is so high? Germany 1101 is doing very well out of Britainit is even selling us some of its coal at £110 a tonne, when Britain can produce it for less than £40 tonne. I do not believe all that nonsense. It is the same with Japan. The Japanese sell more goods to us than we sell to them. They have some fancy ideas to stop imports—for example, they will not import some oranges because they say that they are too big for Japanese stomachs. There are all sorts of regulations. I do not believe that nonsense. I would say to those people down at Dover that if they accept my policy the result will be that we will export more and get more trade and business. I know that the Tories believe in the philosophy of market forces; I do not.
I remind Tory Members that what the Chancellor did yesterday was to intervene a little—not much, just a little. I do not know whether the hon. Member for Dover (Mr. Shaw), who is a keen market forces philosopher, agrees with some of the little efforts to intervene. Does he? He is not sure. I do not know whether he is nodding or shaking his head. Perhaps he is after a job. He may think that if he says the wrong thing here he will not get a job.
We have already ruled out the hon. Member for Colchester, North, who moved the motion. He put his foot in it by not praising the Chancellor in his half-hour speech. Now the hon. Member for Dover is not sure what he ought to do. He knows that there will be a reshuffle shortly. He knows that small-business-type Tory Members will be shuffled on to the Front Bench. About five Cabinet Ministers will get the chop. I think that they should all go, but it is generally reckoned that about five of them are in serious trouble.
There is a battle royal between those who want to get rid of the right wing of the Cabinet and some who want to get rid of the left wing of the Cabinet—[Interruption] The hon. Member for Chingford (Mr. Duncan-Smith) says that he is one of those, so he must be after a job as well. However, he has not praised the Chancellor either.
We are talking about small business. We are talking about the small business of the Government because they are operating on only a small business level. The country is going down the pan and the manufacturing base is being destroyed daily. There is talk of shutting another 30-odd pits, which will result in many more people losing their jobs. It is high time that we had a change of Government so that we can start planning the economy instead of having pay freezes and pay cuts for low-paid workers. Low-paid workers are having to carry the can for this nasty little Government. It is time that we had a Government who will look after workers, not the bosses.
§ Mr. Graham Riddick (Colne Valley)
I had intended to welcome the fact that the hon. Member for Bolsover (Mr. Skinner) was making a speech in the Chamber instead of what we are used to hearing—the daily soundbite. However, in view of the interminable length of his speech, I find it difficult to welcome it. Perhaps the hon. Member was trying to make up for the lack of time that he spends on Committees. I am not sure when he last served on a Standing Committee that considered a major Bill.
§ Mr. Skinner
It was last year on the Coal Industry Bill. I have never been opposed to serving on Standing Committees; I oppose the sloppy consensus of Select Committees.
§ Mr. Riddick
I wonder how many Committees the hon. Gentleman has served on in the past five or six years.
§ Mr. Skinner
When I first became a Member, I was anxious to understand the procedures of the House—
§ Mr. Skinner
I volunteered to serve on the Committee that considered a housing Bill. Consideration of that Bill lasted for six months. One week we went Upstairs on Monday morning at 10.30 and sat until Friday afternoon. I never left the building for a whole week and never put my mac on in the cloakroom —
§ Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)
Order. It might be a good idea to get back to the debate on small business.
§ Mr. Riddick
I know that it was a mistake. I gave the hon. Member for Bolsover an opportunity to continue his rant. He gave the game away when he said that he was talking about the general sweep of things. He showed today that he is not good at talking about detail.
I was absolutely appalled at the hon. Gentleman's attack on British Coal Enterprise. It was absolutely disgraceful. British Coal Enterprise does a good job of trying to create new job opportunities in the mining industry. The hon. Gentleman should be ashamed of himself for that attack.
My hon. Friend the Member for Colchester, North (Mr. Jenkin) was too modest by half. I congratulate him on an extremely good and able speech. He pinpointed several serious problems which confront small businesses. He referred to the problem of late payment. There is no easy solution to that problem. However, we all hear about it from our small businesses.
My hon. Friend referred to the problem of fraudulent directors and the problems caused to small businesses by banks. Some banks have a minimum lending rate of about 8 per cent. As we reduce interest rates to below 8 per cent., banks will not be able to reduce the interest rates that they charge their small businesses. I hope that the banks will be able to do something about that. Indeed, there are signs that the banks are doing something. This week, Natwest announced that it is trying to address that particular problem.
I should like to apologise to the House and to my hon. Friend the Minister for having to leave early; I need to get back to my constituency in Yorkshire. I am sorry that I shall miss the speech of my hon. Friend the Minister, because he always gives a scintillating performance. His speeches are usually brilliant.
I agree with the hon. Member for Bolsover on one matter—the need to address the problem of unemployment. It is small businesses which will create the new employment that we all want to see. New employment will not come from the big companies; big companies tend to shed labour. I fear that that process will continue.
When I had a proper job, I worked for Coca-Cola and Schweppes. That company has built a new canning factory near Wakefield. It employs about 200 people to produce the same number of canned drinks as were produced previously by 1,800 people in other factories. That is a massive productivity gain. However, it shows what happens to employment.
Small businesses are vital to the economy. As my hon. Friend the Member for Colchester, North said, there are 1103 about 5 million small businesses in Britain. They employ a third of the private sector work force and produce almost a quarter of the total United Kingdom turnover. Small businesses have been one of the success stories of this Government.
Between 1979 and 1990, 1.5 million more people became self-employed. In 1978, under the last Labour Government, small business closures exceeded start-ups by 100 a week. By 1989, after 10 years of a Conservative Government, start-ups exceeded closures by 1,700 a week. The manufacturing sector grew strongly. There was a pattern of sluggish long-term growth between 1963 and 1979. The number of manufacturing firms increased by 1,500 per annum, or 30 a week. Between 1979 and 1990 the increase was 5,000 a year, or 100 a week. Obviously, that is good news.
That good news did not happen by accident; it was the result of the Government changing the climate. The Conservative Government made it worth while for people to work hard and be successful. They reduced income tax and reformed capital taxation. They reformed inheritance tax so that people who wanted to work hard could pass on the fruits of their work to their children. We reformed the corporate taxation structure so that small businesses were not penalised for making profits.
Over the years, the Government have introduced several schemes, including the business expansion scheme, the enterprise allowance scheme and the loan guarantee scheme. It is amazing how many people took advantage of the enterprise allowance scheme and started small businesses, even though it provided only £40 a week to unemployed people. The scheme has certainly been a great success.
In my constituency of Colne Valley, the textile industry has been in serious long-term decline for many years. Yet in the past few years, many new jobs have been created, not by big firms or Government Departments relocating to Huddersfield or Colne Valley but by small firms starting up and individuals seeking to make their own way in life. There are lots of old mills in my constituency which have been converted into small workshop units and in which a lot of small businesses are situated. The most vital task is to create the right economic climate.
The Government encouraged enterprise, kept inflation low, controlled public spending, sustained moderate taxation and created freer and more open markets.
Things started to go wrong when we played around with the exchange rate mechanism. I believe that the ERM is at the root of the recession. It all started in 1987–88 with my noble Friend Lord Lawson, then Chancellor of the Exchequer, who started to shadow the deutschmark, and we joined—it seemed for good—in 1990. I did not support that decision, and in a vote in the House I quietly abstained. I did not support the ERM then, and I do not do so now.
The lesson is that when a Conservative Government, the Labour party, Liberal Democrats, Trades Union Congress, Confederation of British Industry, Treasury and the Foreign Office all agree on a particular course of action, one can be sure that it is the wrong one. The ERM has proved to be a very big mistake. Interest rates were kept too high over the past six to 12 months to maintain Britain's position within the ERM.
1104 I view 16 September not as black Wednesday but as golden Wednesday—the day when the Government and the British people were provided with fresh opportunities. I find it frustrating that company directors cannot resist the lure of the exchange rate mechanism because of their desire for stable currencies. In a MORI poll conducted a week after black Wednesday, main board directors were asked whether the pound should be allowed to float freely. At that time, 48 per cent. said that it should. Two weeks ago, the directors were asked the same question, but the figure had fallen to 30 per cent. It appears that many directors have short memories. They ought to bear in mind the wider implications of fixed exchange rates.
§ Mr. Jenkin
May I reinforce my hon. Friend's point about the opinions of businessmen? Does my hon. Friend recall that during the 1970s the Confederation of British Industry advised Governments that it would be unwise to legislate on industrial relations? The perceived wisdom of the CBI is not necessarily justified by history.
§ Mr. Riddick
It is important to maintain today's climate of opinion, which is one of some hostility to fixed exchange rates and to rejoining the ERM. We must encourage business leaders not to take us down that road again—and we must persuade our colleagues in the Government not to do so.
My right hon. Friend the Chancellor of the Exchequer has set out clear monetary indicators, which he will follow. Just as we were able to control money supply and inflation in the 1980s by paying attention to monetary indicators, we can do so again in the 1990s. After all, the Germans do not look to exchange rates so much as to their domestic monetary situation in deciding interest rate levels.
§ Mr. Jim Dowd (Lewisham, West)
Will the hon. Gentleman clarify that point by his own definitions, does he unreservedly condemn the profligacy and incompetence of the Chancellor's actions on 16 September, in attempting to keep Britain within the ERM?
§ Mr. Riddick
I explained that I do not support the ERM—but once we joined it, we were obliged to try to make it work. I was relieved when we came out of the ERM, because that provided the opportunities to reduce interest rates. The Government's economic policy is now on the right track. We have reduced interest rates. They have fallen from 10 to 7 per cent. over the past seven to eight weeks, which will help businesses to invest, consumers and mortgage holders—and that must be good news.
I also welcome yesterday's autumn statement. I ask the hon. Member for Bolsover to note my belief that it was an excellent statement by my right hon. Friend the Chancellor, who is providing help for those sectors of the economy that need it—the wealth creators. Unless wealth is produced in the first place, the Government cannot spend on schools, hospitals and other public services. My right hon. Friend was right to increase first year capital allowances, which will also help industry and encourage investment, and the abolition of car tax will assist the motor industry.
Tight control of public spending is vital, and I hope that we will hold to the figure of £244 billion over the next year. I am so pleased to note also that spending on education is to increase. Education is of crucial importance and I am pleased to see that its budget was not cut. I trust that there 1105 will be a massive increase in grant-maintained schools because the better the education that people receive, the better will be their prospects for the economy of the future.
The difficult times have led to more calls from some quarters for the Government to have an industrial policy. I view these calls with some foreboding. Although I believe that the Government should be in the business of helping industry, I dread any return to the days when the Government tried to pick winners —when politicians and civil servants attempted to determine long-term strategies to conquer particular industrial sectors.
Industry should be calling for the kind of industrial strategy in which the Government take practical steps in areas where they are directly involved. We saw that in yesterday's autumn statement. The Government should also be reducing paperwork and red tape and establishing a hands-on approach by British embassies to help exporters. We should also be changing the culture in schools, so that manufacturing is viewed more favourably. The chattering classes, who tend to support the Labour party, talk of the importance of manufacturing industry —but, my God one thing that they do not want is for their children to work in it. We must also tackle, although there is no easy answer, the scourge of small businesses—late payment.
I was interested to read the press release on the paper issued by the Institute of Directors calling for the abolition of a number of licences. That would be a useful step. The institute referred to the licensing of late night cafes, driving instructors, ear piercing and tattooists, scrap metal dealers, private hire care operators, seafarers employment agencies, game dealers and entertainment booking offices. There is a whole host of licences that would be scrapped. I hope that my hon. Friend the Minister will consider that.
§ Mr. Elfyn Llwyd (Meirionnydd Nant Conwy)
Quite apart from licences, does he agree that there was nothing in yesterday's statement to help small businesses. In due course would he care to justify the iniquitous uniform business rate in the context of small firms?
§ Mr. Riddick
If a 1 per cent. cut in interest rates does not help small businesses, I do not know what will. Interest rates have been cut by 3 per cent. over the past few weeks so that is obviously a great help. There were a whole host of other measures as well.
I was intrigued by the licences highlighted by the IOD that are issued by the Ministry of Agriculture, Fisheries and Food. The institute suggested that among the licences that should be abolished are those for the approval of a bull as a semen donor, the processing of bovine semen, the supply of bovine semen, running a bovine semen shop and farm storage of bovine semen. There are licences for all those processes. If the institute has its way, bulls will have a field day. There may be good reasons for some of the licences that I mentioned, but I hope that the Government will be able to scrap a number of them.
Many businesses are also concerned by the introduction and increasing stringency of fire regulations. A small retail business in my constituency has been plagued by the West Yorkshire fire authority in connection with regulations, and I think that my hon. Friend the Minister should examine the position.
I hope that my hon. Friend will report on the success of the deregulation unit in the Department of Trade and Industry. I think that, in future, we should examine every 1106 piece of legislation that comes out of every Department and to see what effect it will have on industry, whether it will provide more controls and give industry more work to do. If the answer is yes, we should think twice about whether the legislation is necessary. As we all know, the Food Safety Act 1990 has imposed more regulation and red tape on small shops and businesses in our constituencies, and environmental measures have had a similar effect. In my part of the world, the textile industry has been particularly badly hit by such measures.
I am certain of one thing: we cannot rely on the Labour party. Labour does not understand small businesses and entrepreneurs. It wants to load industry with costs through the social charter; it has opposed all our changes and reductions in capital taxes. Its spending plans would necessitate massive rises in personal and corporate taxation, and, as we know, a Labour Government failed industry and small businesses.
The Conservatives understand private enterprise, free markets and small businesses. We understand the agony that some businesses have experienced as a result of the recession. That is why we want to recreate the right economic conditions—conditions that include low inflation, moderate taxation, well-controlled public spending, minimum regulation and policy stability. Following our withdrawal from the ERM and yesterday's autumn statement, I am confident that we are recreating the conditions that brought us success in the 1980s, and I believe that we can achieve similar success in the 1980s.
§ 11.2 am
§ Mr. Malcolm Bruce (Gordon)
Two aspects of the speech that we have just heard gave me cause for concern. First, although I have no real problem with the idea that licences should be continually reviewed and updated, the hon. Member for Colne Valley (Mr. Riddick) seemed to imply that we should return to the bad old days before the introduction of factory Acts, environmental protection measures and so forth. Such legislation was introduced not out of a malicious desire to interfere, but to ensure that "clean" processes operated and that account was taken of the need to be good neighbours and provide safe working conditions. If the Conservative vision of free enterprise involves deregulation to dismantle those conditions, I do not think that it is the kind of future that many people wish to see. When we tear up regulations, we should be careful not to tear up those that were introduced for good reasons.
Secondly, the hon. Gentleman's peroration about the Conservatives' understanding of small businesses would be a little more acceptable if the present climate were different. After 13 years of Conservative Government, more small businesses are failing than at any time in our history. That is not a spectacularly successful record or one that makes many small business people feel that they are benefiting from a Conservative regime. Indeed, all too many of them are suffering from the concentration of economic power that the Government have brought about, and from their failure to recognise the need for a level playing field to enable small businesses to compete, thrive and grow rather than being gobbled up and squeezed out of operation by the predatory nature of big business.
§ Mr. Riddick
I accept that many small businesses are going out of operation, but that is not just because of the recession; it is also because the Government have brought 1107 about the creation of so many new businesses—a record number. More new small businesses are being created every week than are going out of operation. That did not happen under the Lib-Lab pact in 1977–78.
§ Mr. Bruce
As a matter of fact it did, but for a different reason. As a direct result of our insistence, there was a Cabinet Minister for small businesses at that time.
I was coming to the point that the hon. Gentleman raised. I believe that people with enterprise and ideas who want to run businesses should be actively encouraged to do so. They face a number of restrictions and difficulties at present, and the Government should act positively to end those difficulties. Before exulting in the hon. Gentleman's claim that more and more small businesses are being formed and citing it as a demonstration of enterprise, we should examine that claim a little more closely—even if it is statistically true.
At a time of massive business failures, cuts and closures, trying to find a way of earning a living through the creation of small businesses may be the only way forward for those who have been made redundant or unemployed. Too many such people, however, are ill-prepared and ill-financed; they know nothing of the area of business that they plan to enter, and therefore they are almost doomed to failure. We must recognise that that is not a particularly dynamic and successful part of the economy.
The hon. Member for Bolsover (Mr. Skinner) spoke of the effect of pit closures on many mining communities. The same applies to the reduction of employment in manufacturing in many parts of the United Kingdom. The fact is that people with considerable experience and skills in factory or coal mining work may not immediately translate into successful entrepreneurs. Some do, of course, but it is unrealistic to expect all of them to—and they certainly cannot do so without a great deal more practical help and support than they currently receive.
In the context of the autumn statement, the main problem for the whole business community is a lack of confidence. It is too early to deduce that, following black Wednesday, we have a completely new economic policy that will transform the economy. The fall in interest rates may look very good in the short run, and of course many people will welcome it; but so many people have suffered so severely that a number of them will be helped only to repay some of the debt that they have accumulated, rather than to invest for the future.
Exporters—traders in general, in fact—must judge the likely stability and predictability of exchange rates over time. We tend to forget that many manufacturers have to import raw materials. It is extremely difficult for them to absorb a 20 per cent. increase in costs in the space of a few weeks during a recession, but the Government do not seem to understand that.
Even manufacturers who may see a prospect of an easier export market must accept that in the time that it takes them to get their products on to the market and to be paid, the exchange rate may move in the opposite direction. Similarly, the current interest rate reductions may not be sustained if there is severe pressure on the pound. It will be some months, at least, before there is sufficient confidence that the climate is stable enough to lead to a substantial increase in new investment. I think that some Conservative Members are becoming carried 1108 away by their enthusiasm for the post-ERM position and are refusing to acknowledge the existence of real uncertainties that are likely to last for some time.
I wish to concentrate on the problems of cash flow and indebtedness. I believe that—contrary to the rather optimistic assertions made by the hon. Member for Colchester, North. (Mr. Jenkin)—the banks, having been squeezed by recession, are now intensifying the squeeze on many small businesses to protect their own interests. The practices of many banks are reprehensible and should be investigated; codes of practice need to be altered radically.
A constituent of mine has suffered considerably at the hands of one of the Scottish banks—admittedly, partly owing to problems of his own making. It is now four years since his farm was forced into liquidation; during that period, he has faced enormous difficulties in trying to establish that the bank, having sequestrated his assets, disposed of them in a way that showed a proper duty of care to him and to other creditors in the business.
My constituent had not just a farm but a mineral extraction quarry on the farm that had generated substantial revenue before his farm was sequestered. He had it independently valued at between £1 million and £4 million. After sequestration, the bank put the farm on the market but placed no valuation on the mineral deposits, which could have made all the difference, not only to whether my constituent got anything out of the process but to whether his creditors got anything out of it. All that the bank cared about was to obtain enough money to cover its debt. It was prepared, therefore, to sell the farm at below its full market valuation.
I do not believe that banks should be allowed to behave in that manner. There should be some means of testing whether they have demonstrated a duty of care not just to their shareholders but to other creditors. Banks always take the first charge on any business but do not always exercise it in what I regard as a responsible way. Most hon. Members and most businesses have no idea what the real bank interest rate is or what the real bank charges are. If we sat down and worked it out, we might be astonished at how much the banks are taking from us without even the courtesy of telling us how much it amounts to, or why, or when.
Last month, I received the annual letter from my bank in which it said that it was renewing the arrangements that had been provided for the previous year. I am led to believe that £35 will be deducted from next month's account—the bank's charge for the privilege of sending me that letter. That is an outrageous practice.
§ Mr. Bruce
I may take the hon. Gentleman up on that. He will be disappointed, however, to know that the Liberal Democrats and the Co-operative bank have an extremely good and close working relationship, as a party. I agree that the Co-operative bank has qualities that other banks 1109 do not enjoy. The reality, however, is that most banks have introduced charges and vary the interest rate levels that they charge in circumstances which, in my view, do not benefit small businesses. That is leading to an increasing chorus of dissent.
An article in the Financial Money Guardian states:Hold it—this is a stick-up!The stick-up is by the banks of their customers for the charges that they have introduced. In the past, banks have lent imprudently. During the great "triumphs" of the Thatcher years, they put money into property developments which have now gone sour. They put more money into third world lending and third world contracts which have not been honoured. Millions of small businesses here are paying for those bad decisions by the banks. Probably everybody with a bank account is now paying for Canary Wharf and third world debt by means of their interest charges. That is unacceptable.
§ Mr. Bruce
They may have got tax relief on it, but they sustained the losses and those losses were passed on to their customers being overcharged by as much as 3 per cent., and in some cases more than that. An investigation is taking place to try to find out who has been overcharged and whether they should be repaid.
§ Mr. Duncan-Smith
The hon. Gentleman has been knocking the banks. I am the last person to rush to their defence, but I thought that the policy of the Liberal Democrats was to encourage lending to the third world. As the hon. Gentleman attacked the banks for lending to the third world, it strikes me that he is trying to have his cake and eat it.
§ Mr. Bruce
That is a different subject. The way in which lending to the third world is conducted is inappropriate. We do not approve of much of that lending. The big corporations have diverted money into projects that have often been environmentally damaging and have not helped poorer people. Consequently, those projects have gone sour. We are certainly in favour of increasing aid and lending to the third world, but the way in which that lending is structured is unacceptable. I am not prepared to stand up and say that farmers in my constituency should be bankrupted because the bank involved has misjudged its lending elsewhere, either in the City of London or in the third world. Those losses should be carried by the shareholders, not by the customers. I was trying to highlight that injustice.
Many small businesses are locked into deals with the banks by means of a minimum lending rate that is not geared to the banks' minimum lending rate, to ensure that in the present climate, when the minimum lending rate is coming down, the banks' margins go up. Banks should be obliged to pass on any benefit they get to their customers, especially their small business customers.
Many Conservative Members claim that they know about business and imply that the Opposition do not. I have run a small business. When I went to see the bank manager before setting it up to discuss with him what arrangements I could make, and on what terms, the first thing he said to me was, "How much is your house worth?" He never looked at my business plan. He said, "I do not understand your business; I am not interested in your business plan. I am only interested in how much your house is worth." He then got me to sign a personal 1110 guarantee for the full amount of the offer, but, because I was setting up a new business, he charged me a premium rate of interest on the fully secured loan. I do not regard that as risk taking. I regard that as robbery.
§ Mr. Bruce
Yes, absolute extortion; yet that is the way the banks behave every day.
As it was a publishing business, I needed to acquire some publishing and word processing equipment. The suppliers said to me, "As you are a new business, we shall extend no credit to you. We want a bank letter of credit up front before we will deliver the machines." Every way one turns, one is faced with increased costs, compared with those of established, larger businesses. One is squeezed by the bank and the suppliers. No wonder many businesses find it extremely difficult to get off the ground. I should point out that my business was not one of those that failed. I have no connection whatever with it now, but that small business is successful. However, the way in which the business was launched very nearly took us over the edge in the first two years. We had no help from big business or from the banks.
I wholly support the action group that has been formed, consisting of people who have suffered as a result of the banks' actions. It is to make detailed proposals. They ought to be taken fully into account. I hope that the Government will listen to those people. Legislation on the late payment of debt, particularly by big businesses, will have to be introduced. In a recession, too many big businesses decide that they are going to survive at the expense of their small business customers. That is unacceptable and is not in the national economic interest.
§ Mr. Bruce
The hon. Gentleman is absolutely right. In its early days, Tesco financed its expansion entirely by that process. For a large business simply to delay payment—which may add up to millions of pounds—to a range of suppliers by an extra two to four weeks is a very substantial cash advantage. That is why I believe that people who say that that is bad and ought to be stopped will have no effect. I do not see how it can be stopped other than by legislation that leads to automatic interest surcharges on late payment.
§ Mr. Couchman
Does the hon. Gentleman agree that many small businesses, whether or not they establish proper trading terms with their major contractors, are loth to take action against them because those contractors may be their only customer, or at least their main customer? If the small businesses press too hard for payment, they may find that they are set to one side by the main contractor, with the result that another firm benefits.
§ Mr. Bruce
I agree with the hon. Gentleman. I have been in that situation. Companies cannot afford to offend their main suppliers—they cannot bite the hand that feeds. Payment should be by agreed terms and any delay should be subject to an automatic surcharge. I cannot see any other way of reversing the process.
Unfortunately, one or two hon. Members, have been disparaging of local authorities' role in developing small 1111 businesses. Local authorities play a useful role in helping to promote and assist small businesses, not least because they have local knowledge that other agencies cannot bring to bear. Gordon district council's economic development unit has been able to provide practical, down-to-earth assistance to many small businesses, which have acknowledged to me that that has sometimes made the difference between weathering a storm and achieving expansion. It is not always a matter of money; sometimes the unit can guide small businesses through red tape or the way in which planning applications are dealt with. Those applications can be processed either in a way that is helpful or in a way that can destroy business. Sensitivity and understanding are critical.
District and regional councils in my area have stepped in when companies have got into financial difficulties and have offered practical assistance by taking over premises and leasing them back, releasing capital to restructure the business. It is a risk and it does not always work, but on balance the community has benefited through businesses and jobs being saved and, subsequently, jobs being created. If the Government do not recognise the role of local authorities or squeeze them so that they are unable take such action, no other agency is likely to step in and fill the gap. The role of local authorities should be acknowledged and recognised.
Mention has been made of the venture capital or risk capital gap facing small businesses. This is a particular hobby-horse of mine. I believe that it is a very genuine problem and some imaginative measures are necessary to deal with it. I have explained why the banking sector is failing many small businesses. It is not providing the support that they need and it is imposing charges that can prove fatal and are contrary to creating a healthy business climate.
Often small businesses are expected to provide finance from resources wholly secured against the personal capital of the individuals involved, yet they are in markets where bigger businesses can get wholly unsecured capital at more competitive rates. Small businesses have to have some additional advantage—the imagination of their product, which gives them a competitive edge, the hours that they are prepared to work or some other factor. There should be access to capital funding that is assessed properly on the basis of the commercial risk but is not always fully secured by the personal investment of principals in the company.
The Chancellor acknowledged yesterday that the problems in the housing market are a significant source of the lack of confidence in the economy. Over the years, many small businesses have financed their expansion on the basis of the security of the bricks and mortar of their principals. We must find a better way of financing small businesses, because in a recession, when the value of property falls and often the equity in a property falls below the borrowing secured against it, banks are not willing to lend and company directors are not willing to take the risk of borrowing against that lack of security. We shall have to re-inject confidence in the housing market over a significant period before getting out of this hole, but in the meantime we must look for a mechanism that will provide risk capital to small businesses without requiring the security of a house to be put on the line. Banks must 1112 recognise that that will secure a successful, thriving small business economy, to the benefit of the whole of our society and big and small businesses alike.
If we do not act now, the recession will go on longer because there is a lack of confidence to invest in the future, and I am afraid to say that lower interest rates are not enough to resolve that. I hope that the Government will recognise that if ever there was an opportunity to introduce less secured risk capital for small business, this is it. If they can bring that forward in the next year, they may begin to get business confidence going and small businesses thriving again.
§ Mr. David Shaw (Dover)
I congratulate my hon. Friend the Member for Colchester, North (Mr. Jenkin) on securing this debate on small businesses. As chairman of the Back-Bench Conservative small businesses committee, I welcome his appointment as secretary of the committee; I know that it will prosper with him as its secretary.
I apologise for the fact that, because I have to attend my constituency advice bureau, I shall have to leave before the winding-up speeches. I enjoy the speeches of my hon. Friend the Minister, and I shall make a great effort to read his interesting speech on Monday in the Official Report.
The importance of the small business sector has been highlighted by Conservative Members. My hon. Friend the Member for Colchester, North mentioned the significant employment gains that have been made by the small business sector. Even in the depths of recession, there are some 400,000 business starts each year. We may ask why, and the answer is that, just as people want to own their own homes, they want to start their own businesses.
We must continue to encourage small business men and women. If society's values are right, no one should receive greater applause from the public than the business man or women who meets the pay cheque at the end of the week or month. Meeting the pay cheque is a great skill which should be widely respected and well rewarded.
Sadly, there is little or no encouragement from the Labour party. We were entertained by the hon. Member for Bolsover (Mr. Skinner), but in his 40-minute speech he did not mention the word "profits". He criticised the education system, and I accept that he knows what a good education is. Indeed, he had one at grammar school. But, I wonder, would the hon. Member join me in arguing that our education system should include small businesses as a subject on the curriculum?
I also wonder why the hon. Member for Bolsover is now advocating import controls. His advocacy is significant, because he turned Labour party policy on Europe in the past few weeks and managed to make it vote against the Maastricht Bill. He alone did that. What he advocates today becomes Labour party policy tomorrow. Perhaps import controls will be Labour policy, if not tomorrow perhaps by the end of next week.
§ Mr. Shaw
The Labour party may vote against the GATT agreements.
I enjoy the possibility of facing my electorate in Dover knowing that I can say that the Labour party wants to impose import controls, which would damage the ferry 1113 industry of Dover tremendously. I am grateful that the hon. Member for Bolsover has come out today with what should be true Labour party policy.
We should be depressed if we looked at the Labour party manifestos of 1979, of 1983 and of 1987. I cannot find there any mention of small businesses or any advocacy of support for them. In the 1992 manifesto, the Labour party mentioned small businesses, but we know that Labour promised support for everything in a manifesto that was long on promises and short on credibility.
I could not find any mention of profits in any Labour manifesto or in any other Labour document. I invite hon. Members to say whether they have ever heard a Labour party spokesman explain why business needs to earn profits. Have hon. Members ever heard a Labour party spokesman ask or answer the question about how businesses earn profits?
§ Mr. Jenkin
I recall a Labour party document on the economy which criticised the level of profitability in some British businesses on the ground that it added to inflation. Can anyone imagine the logic of criticising the profits made by big businesses on the ground that they add to inflation? What a distorted sense of priority the Labour party must have.
§ Mr. Shaw
My hon. Friend is correct. To the Labour party, profits mean inflation. Any business man or anyone who understands business knows that approximately one third of profits goes to the Government in tax, approximately one third goes into investment, and approximately one third is retained by the business for working capital and for future expansion. Without profits, we have no businesses.
If the Labour party cannot utter the P word—profits —how can it have a policy on business or on small business? Why do Labour spokesmen never explain to their supporters the need to earn profits? Is it because the Labour party's foundations are still firmly based on a bedrock of envy? For a Labour party politician to go to Labour party meetings and to argue the case that businesses need profits and must make profits might offend the base of the Labour party's support.
I will refer to the Government's many achievements in connection with small businesses. The 1980s were a successful period for small businesses. There were low income tax rates, there were incentives to start and to expand small businesses, and there were incentives to invest. The business expansion scheme and venture capital finance meant that far more finance was available for small businesses. It is important that many of those policies are continued and that finance is readily available for small businesses in the 1990s.
The Government recently raised the VAT threshold and many small businesses, especially the really tiny ones such as the guest houses in my contituency, could become VAT-free. That has been immensely helpful to the really small guest houses in Dover and in other areas.
Small shopkeepers have had the deferral of the increase in uniform business rate this year. That deferral has been popular in Dover and Deal, and in other constituencies where there are many shopkeepers.
§ Mr. Jim Cousins (Newcastle upon Tyne, Central)
How does the hon. Gentleman respond to the fact that the Government have just announced that the maximum uniform business rate poundage is to be levied next year? 1114 Will that not be far more significant for many small businesses than anything in the autumn statement yesterday?
§ Mr. Shaw
All small businesses have to pay a certain amount in taxation. There is no question but that there must be a contribution to local services. I am sure that the hon. Gentleman, whose party always advocates massive expenditure in public services and in local councils, accepts that we have to raise some finance from small businesses. However, the deferral this year has meant a one-off, significant improvement in the cash flow of small businesses. Although I should love another deferral next year, I am a realist. The public expenditure position is such that we shall have to ask small businesses to make that contribution next year.
§ Mr. Cousins
Is the hon. Gentleman telling the House that he is happy that a small business in his constituency which pays the uniform business rate will help to subsidise the introduction of the council tax? Does he see that as a right use of small businesses and their incomes?
§ Mr. Shaw
I pointed out to the hon. Gentleman that there has been a one-off deferral this year which has benefited small businesses immensely. Next year, small businesses will not see an increase in the proportion that they will donate to the totality of the expenditure towards the council tax. The Treasury will find the resources to support the council tax from other sources and not from the uniform business rate, which will not go up by more than inflation.
The Government, through the Local Government Finance Act 1988—I was a member of the Committee that debated the Bill—capped for the first time the maximum that small businesses would have to pay in annual increases to the level of inflation. That was very significant. It was Labour councils that squeezed small businesses with 60 per cent. increases in rates. Opposition Members cannot support Labour councils that increased rates for small businesses by 60 per cent. The Government have now ensured that the uniform business rate cannot go up by more than the level of inflation, whereas Labour councils introduced real increases.
§ Mr. Cousins
I should very much welcome the hon. Gentleman's travelling from Dover to Newcastle to explain to my small business constituents why they will have to wait another eight years for the full benefit of the rate revaluation that accompanied the introduction of the uniform business rate. Perhaps the hon. Gentleman could encourage the Government to move a little faster.
§ Mr. Shaw
I assure the hon. Gentleman that I am prepared to speak to any suffering small business man in a Labour constituency and to explain why he should vote Conservative and why he should stay with the Conservative party.
Another Government achievement is that, for the first time, they have tried to tackle the issue of late payment. It is a difficult and sensitive area. If the matter is mishandled in the private sector, it could result in many small businesses losing business and contracts. The Government have been responsible in insisting on prompt payment by their contractors to sub-contractors. That means that there will be a greater emphasis on big companies making prompt payments.
1115 I also congratulate the Government on the introduction of one-stop shops. Please may I have one in Dover, and please may we ensure that one-stop shops are introduced all over the place as soon as possible?
Conservative Members have been challenged to say that we support the Chancellor and his autumn statement. I said that I did in every media opportunity yesterday and I say so again in the House. I greatly regret that I was not called yesterday by Madam Speaker. Many Conservative Members wanted to speak so that they could say that they supported what the Chancellor had done.
Forty per cent. capital allowances are very good news. For the past two years, I have advocated the inclusion of such a measure in Finance Bills and I shall continue to advocate that the allowance should be retained. The interest rate reduction to 7 per cent. is very good news for small businesses. The maintenance for capital expenditure on schools, on the roads programme and on the health programme is very good news. Small businesses will benefit from that.
My only regret about the autumn statement is that the poor media were wound up to expect really bad news. Their computer systems were rolling and the words were already on the screens from which the broadcasters read in the expectation of delivering bad news. How could they deliver bad news when we have a 1 per cent. reduction in interest rates and when all the key capital programmes are retained? The only conceivable bad news was that the public sector payroll would have to be curtailed in the way in which the private sector payroll has been curtailed in the past few years. That was fair news, not bad news.
I have a few suggestions on small businesses for the Government to consider. Red tape is always with us. I should like the Government to abolish red tape for businesses employing five people or fewer.
§ Mr. Elletson
My hon. Friend is suggesting a few ideas for the Government to consider. Does he agree that tourism plays an important role in the economy that has hitherto not been as widely recognised as it ought to have been? Tourism is also a sector in which small businesses are especially active and on which thousands, if not millions, of people's jobs depend. Does my hon. Friend further agree, therefore, that the Government should consider new ways of supporting and developing the British industry, which is a world-beating, world-class industry and which is experiencing difficult times as a result of the world recession?
Tourism could do with all the extra support that it can get from the Government. We need a proper tourism strategy to assist the English tourist board and other national and regional tourist boards to promote holidays and visits to England and the other countries of the British Isles. Will my hon. Friend join me in urging the Government to consider that question?
Does he also agree—
§ Mr. Deputy Speaker
Order. Interventions are supposed to be brief. I appreciate the fact that the hon. Gentleman is trying to get his point across, but may I ask him to bear that in mind? Mr. Shaw.
§ Mr. Shaw
I welcome my hon. Friend the Member for Blackpool, North (Mr. Elletson) to the House, not least as I knew him before he came here. As one would expect, 1116 given the constituency that he represents, he is a strong advocate of tourism. Employees, self-employed business men and others employed in the industry in Blackpool, North may be justly proud of their representative's advocacy of their cause, from which they will no doubt benefit. Such is my hon. Friend's enthusiasm that he wanted to make a double intervention.
§ Mr. Elletson
On that point, does my hon. Friend agree that the withdrawal of grant under section 4 of the Development of Tourism Act 1969 from England but not from Scotland and Wales has discouraged the development of tourism in England, and that that is something which the Government should reconsider?
§ Mr. Shaw
I take note of the technical detail that my hon. Friend adduces. There is no question but that any change to the Development of Tourism Act—especially the change that he has assiduously discovered—should be considered carefully by the Government. No doubt this is a matter of considerable concern to my hon. Friend's constituents and he advances a good case for examining that section of the Act and considering whether we can continue to support tourism under it.
I was referring to red tape. I believe that, for businesses employing five or fewer people, the form-filling exercise should be restricted to one day a year, which could be national small businesses form filling day. I recommend that that day should be a bank holiday for large businesses and public sector companies, and hope that those working in such enterprises, who would have no forms to fill, would go to church and pray for the small business men and women as they fill their forms.
On that day, and only on that day, would small business men be required to fill out forms for the Inland Revenue and the VAT man and in respect of statistics collected by the Government. The Inland Revenue and the VAT people should be banned from requiring forms from small business men at any other time of the year.
I repeat that I refer only to really small businesses employing five people or fewer—the businesses that find form filling such a problem. I know that my right hon. Friend the Secretary of State for Employment is keen to abolish the communist May day bank holiday. I suggest that it should be replaced with another socialist, bureaucratic, communist-type bank holdday that would benefit small business men, who will no doubt have the sympathy of those who work in the public sector and large companies who will join together to pray for the health of the small business sector.
§ Mr. Dowd
The hon. Gentleman is clearly an enthusiastic advocate of small business. Perhaps he can give me some advice. Sainsbury's, which is generally recognised as a well-run and laudable organisation providing good value for money and good service, proposes a major development in Lewisham. That development is bitterly opposed by all the small local businesses, many of which employ fewer than five people. What advice should I give to whom in those circumstances?
§ Mr. Shaw
That is my advice to the hon. Gentleman.
Let me commend to the Government an idea about taxes. The first £5,000 of small business profits should be tax free to enable small businesses to pay for audit requirements, if they are limited companies, and for bureaucracy and form filling. That would be the Government's contribution to small business and no doubt would he widely welcomed.
I would also suggest that, until a small business has £100,000-worth of net assets, it should not pay corporation tax. Everyone in the country should have the right to start a business and build it up to a new asset value of £100,000 before having to pay tax. That would provide a secure base and would mean that many more small businesses would survive recessionary and difficult periods. They could survive a major customer going bankrupt and other similar problems that small businesses face.
I repeat that I welcome the 40 per cent. capital allowances, but feel that they should be permanent for all businesses, whether small or large.
I also advocate a potential benefit for small business women and women who work in small businesses. At present, child care facilities—workplace nursery schemes —are available to Whitehall civil servants and to many who work in large companies. Why should child care be available only to the children of bureaucrats and people who work in large companies such as banks? Why cannot we have tax relief for small business women and women who work in small businesses?
More should be done to give tax relief for investment in small enterprises. The business expansion scheme is due to cease operation at the end of this year. I hope that I shall not reveal any confidences if I say that, having attended a dinner at which my right hon. Friend the Prime Minister was present last night, I have been encouraged to feel that small businesses are on the agenda for next year's Budget. If the Prime Minister can ensure that the Chancellor never allows them to be dropped from that agenda, we shall be very supportive of his Budget next year, as we were of his autumn statement yesterday.
We need a replacement for the business expansion scheme. We should encourage small businesses and improve the climate in which they operate through education. Why cannot the national curriculum include small business? It is all very well teaching English, our native language, and mathematics—and perhaps, on the practical side of mathematics, a little finance—but, as historically we are supposed to be a nation of shopkeepers, why do not we teach small business, one of the nation's historic subjects?
I also believe that the Government have a role in monitoring the banks. Many hon. Members have referred to the increase in margins that the banks have required of small businesses during the recession. That is especially wrong in view of the fact that many of the banks' losses are due to loans to large companies and to the third world.
The training of bank managers can always be improved. It is never of a high enough standard. The Government should require bank chairmen to consider their training policies regularly so that businesses can increasingly borrow money based on their cash flow and not based on the security of people's homes.
I commend to the House the way in which the DTI consultancy scheme is operating. The scheme is very useful, but will my hon. Friend the Minister consider 1118 whether it can be further improved? I wrote to a Minister in the DTI recently about a business in my constituency. I did not know at the time that the business was receiving help under the consultancy scheme in respect of quality assurance standard achievement. That was good news, but I had written because the business man had lobbied me to discover whether he could receive help under the marketing consultancy arrangements.
I was disturbed to find that we had supported the business man in respect of quality assurance standards, but when that was achieved he could not be helped in respect of marketing because he had already been helped in one project. If we were to go the whole hog, he would he helped to produce his product to a high quality and would then be helped to market his product in this country and in Europe. The consultancy scheme should be available not just initially to produce products well, but for the second stage to market those products.
The Government have done much to help small businesses, but more can always be done. I argue that more should be done to help small businesses.
§ Mr. Nick Raynsford (Greenwich)
I want to begin by disabusing the hon. Member for Dover (Mr. Shaw) of some of his illusions and prejudices about the experiences of Opposition Members by declaring an interest. I am a director of a small business which, like many other people, I set up when I faced redundancy five years ago. I have subsequently operated that business through very difficult times and have provided employment for a limited number of people. It continues to operate in these difficult times. That has given me some experience of today's subject for debate.
I congratulate the hon. Member for Colchester, North (Mr. Jenkin), who sadly is not in the Chamber at the moment, on his good fortune in securing the debate and on his good judgment in choosing this important subject of small businesses in Britain today.
He was right to emphasise the importance of small businesses in the British economy. They are a substantial component in the economy and will be of increasing importance in changing economic and technological circumstances in which there will be an ever-greater emphasis on creativity, the need for rapid and flexible responses to changing technology and an emphasis on innovation, new ideas and technical solutions to existing problems. Additionally, small businesses are crucial as one of the few options available to people who are losing their jobs in so many areas where large businesses are failing as a result of the tragically damaging recession in which the country is sadly locked at the moment.
However, it is important to flag up two crucial caveats about the context in which small businesses operate. The first is that small businesses cannot, in general, operate in isolation. Many of them are dependent on large businesses in their areas for a significant part of their order books.
There was much discussion in the mid-1980s about the way in which clusters of small businesses developed around large firms. That created a virtuous economic cycle in which small and large businesses contributed to the economic well-being of the area. Sadly, the converse is also true. In areas where the recession is hitting most severely, 1119 there is the contrary phenomenon of small businesses failing because their order books have been hit by the reduction in the work, or even the failure, of larger firms.
My hon. Friend the Member for Bolsover (Mr. Skinner) rightly reminded us of the problems facing mining communities at the moment. Many small businesses may fail if the pits close and the main economic lifeblood of the area is no longer available.
The second caveat is obvious. It is the very high failure rate among small businesses and among businesses as a whole. Failures have reached unprecedented levels and we must not overlook the disastrous personal hurt and hardship which flow from that. Many people have invested a life-time's experience and all their savings, and have devoted an inordinate amount of work and personal commitment, into building up a small business. However, they now face the end of their dreams because they cannot keep the company alive in the current tragically difficult circumstances. Where a business has been founded on loans secured against a home, there is an even greater personal problem because people face not just the loss of their business, but the loss of the family home.
In such circumstances, it is important to stress that however crucial small businesses are to the British economy, we cannot look solely to small businesses to pull Britain out of recession. I must disagree with the suggestion of the hon. Member for Colchester, North that the DTI should become a Department for small businesses. There must be a strategic approach to business as a whole. The DTI has an important role to play and we should like to see it playing a more active and interventionist role supporting all types of business—small and large—and acting in our national interests like the equivalent Departments in countries such as France and Japan which act consistently and decisively in the interests of businesses of all sizes to ensure that they can compete successfully in the international market.
Of the detailed concerns raised by the hon. Member for Colchester, North, I want to comment on late payment, VAT and the services provided by the banks. There is no question that late payment is a crucial problem for many small businesses that have tight cash flows. However, from my experience, that problem cannot be attributed uniquely or even disproportionately to late payment by public sector organisations. Some public sector organisations are slow in paying, but so, too, are many private sector organisations. The problem of non-payment and total default is largely found in the private sector. It does not arise in respect of public sector credit.
Measures to encourage and require prompt payment are necessary, but they should be handled sensitively. We should not forget that small businesses can sometimes be slow in making payments if they do not receive what is due to them on time. Delayed payments can be a means of avoiding financial difficulties. There should be measures to ensure and promote prompt payment, but we should not forget that late payment can often be a lifeline to a small business that might otherwise be in difficulty if it had to meet all its bills on the day that they fell due.
I have been surprised by the number of firms that have approached me over the past seven months—since I have been the hon. Member for Greenwich—with serious problems caused by VAT demands. Customs and Excise 1120 have pressed rigorously for payment on time, without any concern or sympathy for the practical difficulties facing those firms. When I have taken up such cases—I have taken up several—with Customs and Excise, I have generally received a sympathetic and helpful response from head office. In some cases it has been possible to ensure that pressures are diminished and that agreement is reached with the firm to enable it to pay over a period. At least two firms have been saved from closure and liquidation. That makes sense. It can be in no one's interest, and certainly not in the interest of Customs and Excise, to force a firm into bankruptcy, which would preclude the possibility of outstanding VAT being paid in full and would result in other creditors failing to be paid. Indeed, people who are dependent on the firm would risk losing their jobs or contracts. There is much sense in adopting a more realistic and sensible approach.
When a business is going to fail, that approach may not be appropriate, but where allowing the rescheduling of VAT payments can enable the survival of a business which is otherwise sound and has good prospects of survival it must make sense. We should urge the Government to take a more sympathetic approach, and we should urge Customs and Excise to take a more sympathetic and flexible approach, deal with cases on their merits, and agree to reschedule the payment of VAT when doing so will prevent a firm from going into liquidation.
We also have to promote an entirely different approach by the banks in their treatment of small businesses. How many cases have been brought to hon. Members by small businesses telling us about unacceptable behaviour by the main clearing banks imposing extortionate charges? The hon. Member for South Hams (Mr. Steen) rightly raised that point in an intervention. From my experience, I can only endorse his point about businesses being charged extortionate rates instead of appropriate and fair rates of interest.
Often, there is a harsh response, leading to the closure of a business when it is in difficulty, by banks which promoted their services by talking about how sympathetic they are, how flexible and understanding they will be, how they will listen to the business and how they will help it in its formative years. However, as soon as the first difficulty arises, the bank turns the screw, reduces the overdraft facility, calls in the loan and forces the business into liquidation. How many cases have involved businesses that were essentially sound but could have continued if the bank had been more realistic, understood short-term cash flow difficulties that businesses face, and been prepared to support those businesses through their difficult time? Sadly, all too often in their attitudes to small businesses, banks display the same short-term thinking and the same lack of understanding of the needs of business and the British economy that they have demonstrated in their lending policy in respect of very much larger ventures.
I believe that we must do all that we can to encourage the banks to avoid that chronic short-termism which has been such a damaging feature of British banking practice and take a more realistic and more sympathetic approach in which there is a closer association with businesses and a greater understanding of their needs and a willingness to support them through difficult times. Not only a code of good practice but a change of attitude is required in relation to banks and small businesses.
The hon. Members for Colne Valley (Mr. Riddick) and for Dover (Mr. Shaw) are no longer present as they have 1121 to visit their constituencies. I, too, have to visit one of the larger businesses in Greenwich this afternoon, so I will not be able to stay until the end of the debate. I apologise to the Minister and to my colleagues on the Front Bench for not being present. I shall be visiting a business which is crucial to the economic well-being of my constituency.
The hon. Member for Colne Valley suggested the removal of requirements to satisfy fire regulations and the hon. Member for Dover advocated the abolition of red tape for businesses employing five people or fewer, 'which is an entirely inappropriate approach. I do not encourage the proliferation of form-filling and red tape, but there are certain requirements which, in the public interest, must be maintained. Fire safety is absolutely crucial.
I refer to one example. There are a number of small businesses running hotels or houses in which several people are living, often in the most squalid and dangerous conditions. We know about them when a scandal occurs, when a hotel or lodging house burns down. One such incident occurred this year in Hove, causing death or injury to a significant number of people. It is unacceptable to put the public and the people living in such places at risk to try to encourage a few irresponsible entrepreneurs to make more profit.
§ Mr. Couchman
My hon. Friend the Member for Colne Valley (Mr. Riddick) was not complaining that we need fire regulations and proper inspection; he was complaining about the constant ratchet effect of tightening the regulations, which can result in this year's fire officer's proposals for fire safety being derided by next year's inspector as inadequate and often wrong-headed.
§ Mr. Raynsford
I am grateful to the hon. Gentleman for his intervention. I was about to make a plea for the tightening up of fire regulations in relation to houses in multiple occupation. The present regulations do not ensure adequate safety for people living in such houses, and the rate of accidents and deaths is unacceptable. Responsible business people and responsible entrepreneurs accept that there must be a proper regulatory framework to deal with the public interest in matters of such importance. As I have said, I do not advocate a plethora of red tape and regulations just for their sake, but in crucial issues such as fire safety we cannot possibly afford to scrimp and reduce standards.
It is important to distinguish between measures that will encourage responsible businesses and responsible entrepreneurs who are going to try to make their profit in a way that provides a genuine service to a high standard to the public and those who are trying to make a profit at the expense of other people, often putting people's lives at risk.
As I have emphasised, small businesses are vital to the needs of the country. More needs to be done to assist and support them. I pay tribute to the imaginative ventures in many parts of the country to encourage and support small businesses. In my constituency of Greenwich, a local enterprise board was set up by the local authority in conjunction with private sector interests. It is a separate company—it is not part of the local authority, but it receives support from it—and it is making important contributions to assisting small businesses and newly established businesses in the area. Advice, training, the provision of small factory units and workshops and assistance on a variety of technical issues are available 1122 from that small initiative. I have already seen the value of its work since I became Member of Parliament for Greenwich at the general election.
I am always disappointed when I hear Conservative Members' blanket condemnations of public sector initiatives. We should encourage precisely those initiatives involving the public sector, working in co-operation with the private sector. We should not knock them. I should like a more positive response by Conservative Members to such initiatives which local authorities in great financial difficulty—my local authority is certainly one—are taking to try to help business.
§ Mr. Dowd
Does my hon. Friend agree that such extremely valuable but none the less discretionary services provided by local authorities in combination with private undertakings are the first to come under threat when local authority budgets are so constrained that they can barely meet their statutory obligations in other sectors?
§ Mr. Raynsford
I thank my hon. Friend for that intervention with which I concur. It would be tragic if such imaginative initiatives were put at risk because authorities face financial difficulties. I am not experienced in the detailed arrangements in Lewisham, but no doubt it is taking similar positive measures to those in Greenwich.
It is important to support and encourage small businesses, but it is an illusion to believe that they alone can solve our economic problems. The measures announced in the autumn statement will be insufficient to generate a full and lasting economic recovery. We need more; we need a real industrial strategy and a strategy for tackling unemployment. As part of that, we need measures that will assist small businesses to grow, to continue in operation and to survive the difficult pressures that they are facing. In some cases they will grow into large businesses, which will contribute more importantly in the future.
§ Mr. Anthony Steen (South Hams)
I liked the speech by the hon. Member for Greenwich (Mr. Raynsford), which contained some interesting thoughts, many of which could have been expressed by one of my hon. Friends. Perhaps the hon. Gentleman might consider crossing the Floor when he next makes a speech like that, because it contained many things with which Conservative Members would agree.
I hope that I shall be forgiven for not following the speeches of many other hon. Members. Most speeches today have taken about 20 minutes; some have taken about 40. I shall make a short speech, because although other speeches have been interesting and stimulating, mine might be improved by trying to keep to the traditional 10 minutes.
I congratulate my hon. Friend the Member for Colchester, North (Mr. Jenkin) on his skill in winning the debate. Friday debates are always worth while.
I shall home in at once on the subject of red tape and bureaucracy. The centralised bureaucracy of communist regimes did not work and tended to stifle local enterprise. In this country, we have tended to avoid that mistake and have not suffered from the excesses of centralisation and over-bureaucracy; as a result, we have an enterprise culture. In the past decade, as I am sure the hon. Member for Greenwich will agree, I sense that bureaucracy has 1123 increased and that many more rules and regulations have pulverised and unnecessarily destroyed many small enterprises. Taken alone, new safety, health and security measures may appear sensible and responsible and appear to have little impact on small enterprises, but, when taken together, they can have a crucial impact. During the recession, which we have all been enduring, those rules and regulations bite most and can entirely destroy a small business.
The recession of the early 1970s and 1980s tended to reduce the amount of manufacturing. It rooted out many of the large industries. The hon. Member for Greenwich mentioned its impact on small companies. Out of the slump in the 1970s and 1980s, tens of thousands of small firms sprang up. The Government have encouraged them and promised them better times and it is up to the Government to protect them now when times are bad.
The autumn statement will do much to stimulate the economy, especially in the south-west. My right hon. Friend the Chancellor has introduced some excellent macro and micro-economic measures.
I shall now concentrate on the attitude of public officials to private enterprise, which has not been discussed in the debate. That attitude has damaged many of our businesses. Central Government, quangos and local government officials do not always seem to regard enterprise as a flower to be cultivated. Private enterprise is seen as a weed which needs to be rooted out and choked rather than a flower that must bloom. Not only do we seem to pass more regulations here than many other European countries, but our officials pursue those regulations with the vigour and tenacity of a west highland white terrier or a Jack Russell. They are not merely efficient; often they are officious.
I shall cite an example along the lines of the VAT case mentioned by the hon. Member for Greenwich. In Dartmouth, a successful company, Western Approaches Yachts, has been making steel-hulled boats. It employs five skilled men and for four years it paid its VAT on time. It was late for the first time because of the boat show. Not only has the company been told to pay the VAT, but it has been punished with a penalty of £1,200, which is equivalent to the wage bill for one week. The VAT people are inflexible and are not prepared to compromise. Following the experience of the hon. Member for Greenwich, I intend to approach them.
Our job in government should not be to root out and to destroy private enterprises but should be to help them when they are going through a difficult time. Take the uniform business rate. Perhaps it should be adjusted yearly according to a company's profits in the previous year. There should be a relationship between the rate and a company's ability to pay and profitability.
Consider the health and hygiene regulations. Many smaller hotels and guest houses in my constituency cannot afford to introduce them all at once. There were no widespread outbreaks of illness and poisoning before they were introduced, so why must they be implemented so speedily now?
Trago Mills is a fine small retail company situated in Devon and Cornwall, which decided to build new headquarters. The company was told that it could not do so without following the building regulations, which 1124 included installing a lift to enable handicapped people to be interviewed for jobs. It cost that company £30,000 to install that lift. Although the company has advertised jobs and has a lift costing £30,000 to take handicapped people to the first floor, it has not received one application. That is a good example of a bad regulation. If the company had not installed the lift, it would not have received permission to build the new offices.
I wish to mention what is happening in the Department of Trade and Industry—a subject mentioned by my hon. Friends the Members for Colne Valley (Mr. Riddick) and for Dover (Mr. Shaw). There is something called the deregulation unit in the Department. It is buried deep in the Department's corridors—I am not sure where—and, as you will know, Mr. Deputy Speaker, its job is to consider every statutory instrument and Bill to find out their effects on small industries and businesses. That procedure is called compliance cost assessment.
§ Mr. Cousins
I am looking forward to pressing the Government on that matter. There are not merely officials, but a whole raft of advisers involved in the operation. There is also an entire structure of committees, chaired by the chairman of Slough Estates, the property company. It would be nice to know what was going on in all those committees, would it not?
§ Mr. Steen
I should have looked forward to hearing the hon. Gentleman's speech, but for the fact that I, too, must go to my constituency, which is a bit further away than those of other hon. Members who have spoken. I shall read what the hon. Gentleman has to say.
What are those officials doing if they are allowing regulations to be introduced that would cripple small firms? Public officials whose job should be to help small enterprises, should go out of their way to find the means to assist small enterprises and to ensure that new regulations are not passed in Parliament if they would have a negative impact on small business. Many small businesses in the south-west are facing cash flow problems and financial difficulties. Those who are involved in compliance cost assessment are accepting regulations without having any idea of the impact that they will have on small businesses. Perhaps my hon. Friend the Minister will be able to tell us how many of those engaged in CCA have worked in a small business. How many of those people know what they are talking about?
Is my hon. Friend the Minister aware of what the President of the Board of Trade is doing in the EEC? Does he appreciate there is a little group of civil servants that is exactly like the CCA group? It is called the fiche d'impact. Whenever EEC regulations emerge from Brussels, a team of our civil servants considers their impact on small firms in the United Kingdom. I want to know how many of the regulations that have emerged from Brussels over the past two or three years have had a fiche d'impact. If they have all had fiches d'impact, the findings have all been wrong. We all know that EEC regulations disadvantage British industries.
It might help the House if my hon. Friend the Minister were to place in the Library CCAs of all regulations that have been passed in the House since the Government were elected. I hope that we can see the assessments and the regulations that it was considered would not have an 1125 impact on small firms. Perhaps the President of the Board of Trade will take similar action in respect of the regulations that stem from the EEC.
It seems wrong that regulations from Europe should be enforced with tremendous enthusiasm, but unilaterally, by our officials in the United Kingdom when in other European countries—especially Greece and Portugal—the same regulations are not enforced at all. Perhaps the most damaging action that we are taking against small firms is enforcing upon them, without regard for the impact that they will have on their profitability, regulations which other European countries are not implementing. If we wish to achieve a level playing field, we should not enforce regulations here until other European countries enforce the same regulations. It may be that the best way to proceed post-Maastricht is by way of cross-enforcement, so our inspectors go to Greece, for example, to enforce regulations and to ensure that there is compliance.
Rules and regulations should be introduced to help small firms. Our officials and bureaucrats in central Government and local government should be instructed by Ministers that their sole role is to serve the small shopkeeper and the small firm. They should be told that their job is not to make life difficult for small businesses; instead, they should be instructed to help small businesses in every possible way. I am not concerned that Napoleon called us a nation of shopkeepers. I am worried that we are becoming a nation of public officials and bureaucrats.
§ Mr. Jim Dowd (Lewisham, West)
I shall follow the example of the hon. Member for South Hams (Mr. Steen) and speak for only a short time. I am not sure whether I shall be as successful, or unsuccessful, as he.
I have not run a small business, but I have worked in large, medium and small businesses over the years. Given the way in which the House operates and the way that the Inland Revenue treats me. perhaps Members are small businesses.
Small firms are extremely important and significant. They are often centres of innovation. "Risk taking" seems to be a shorthand description of their activities, but it is not solely a matter of taking risks. Indeed, that description suggests that the activities of small businesses are reckless. It is more a matter of using imagination and responding to changing needs and opportunities. Small businesses are often far more flexible, imaginative and willing to adapt and change than many of their larger counterparts.
Some say that the plight of small businesses has never been so great and that their prospects have never been more bleak. That is because many of them were once large businesses. The Government's policies over recent years have had that effect.
I wish to concentrate on the relationship between small and large companies. I might as well join all those who have contributed to the debate in roundly condemning the banks for their performance and their attitude towards small businesses. It seems that many of them will use the interest rate cut—if not the one announced yesterday by the Chancellor of the Exchequer then the one after that, assuming there is one—not to ease the burden on their customers, especially small businesses, but to make up their margins. I join all those who would condemn that 1126 action as unreasonable. It may be that one or two of the banks are having a twinge of conscience about that, but that is not adequate.
The hon. Member for Gordon (Mr. Bruce) talked about the Co-operative bank. I take the opportunity to place on the record the considerable acheivement of that bank in the immediate aftermath of black Wednesday. It issued a statement to all its customers to inform them that it would never, in any circumstances, use the proceeds of the accounts of customers—all of whom are British citizens—to indulge in speculation against their currency. That is an example which our large financial institutions should follow. Such action would benefit customers and the nation generally.
My hon. Friend the Member for Greenwich (Mr. Raynsford) talked about local authority support for small businesses, enterprise and start-ups, as far as it is able to offer it. In fairness, local authorities co-ordinate what assistance is available from the Department of Trade and Industry and other Departments. The more enlightened of our urban authorities have a good record in trying directly and indirectly to assist. In Lewisham, the small business advisory centre cannot make outright grants or loans, but in certain circumstances it can provide assistance with the tedious form filling and accountancy to which the hon. Member for Dover (Mr. Shaw) referred.
Local authority contracts are valued. Conservative Members often act in an atavistic way at the mere mention of local government. They tend immediately to condemn all its workings. Yet many small businesses are only too willing to take on local authority contracts and to work with authorities, because they know that they will be paid. The time that passes before payment is sometimes to be deplored, but, as my hon. Friend the Member for Greenwich said, local authority contracts are secure and small businesses are very willing to take them up.
Regulation of the relationship between small and large companies has been neglected. I used to work for GEC. I am sure that it is now a far better organisation, but it used to impose a contract on suppliers that stated clearly that they would not be paid in fewer than 90 days from the date of invoice and that, in some circumstances, they might not be paid for 120 days—four months. There was nothing underhand about that as it was clearly stated in the agreement that had to be signed by suppliers before they would be accepted by GEC. I am sure that all hon. Members regard such muscle flexing in the marketplace as reprehensible. Regulation is obviously needed.
§ Mr. Duncan-Smith
I, too, worked for GEC for a while. I recently spoke to Lord Prior about the issue that the hon. Gentleman has raised. He assured me that GEC has reviewed many of its policies and is now being much fairer with its suppliers—although some of that would bear scrutiny.
§ Mr. Dowd
I am sure that my status was a great deal more lowly than that of the hon. Gentleman. As I said, I assumed that improvements had been made. After all, there is great scope for doing so.
I want to raise another issue on which some action has been taken recently by the Office of Fair Trading, but only after considerable prompting over a long period. It is the behaviour of newspaper publishers towards the archetypal small business, and the one that springs most readily to most people's minds—the corner shop newsagent. I am 1127 sure that other hon. Members were also approached by local traders when The Daily Telegraph—sometimes known as the Conservative party house journal—inflicted a new arrangement on newsagents, through the wholesalers, under which their margins were cut overnight. It could not be called an agreement because it was one sided and unilateral. The Daily Telegraph even took out court injunctions to prevent any of the retailers from reducing their orders.
It is one matter if firms want to put up their prices—and understandably most would be reluctant to do so—but it is quite another if a firm does not just increase its prices but says to its retailers, "Not only will you pay those increased prices, but we will take you to court if you do not." If the marketplace is to have the freedom for which it is renowned, there must be the freedom to withdraw custom.
I am delighted that the Office of Fair Trading has agreed to investigate what I believe to be an abuse by The Daily Telegraph. I am not singling out that newspaper, as I believe that it is acting as a standard bearer for the rest of what used to be known as Fleet street—our national press.
However, I am not certain that the Office of Fair Trading will examine every aspect of the arrangement. The wholesale operation within the newspaper distribution sector would bear considerable scrutiny. It is anticompetitive and not in the best interests of the newsagents and other small businesses.
§ Mr. Couchman
I have pursued the issue of The Daily Telegraph's arrangements and I understand that the reduction in margins applies to the Saturday issue. I asked the newsagents' association what had happened to the cash, as opposed to the percentage, margin. That has actually increased by 25 per cent., which is quite interesting.
§ Mr. Dowd
I am not sure how that carries the argument forward. The newsagents have a unanimous view about the arrangement and they have no doubt that it is injurious to their interests. I will ask them whether they are complaining to me that The Daily Telegraph has insisted that they have 25 per cent. more. I suspect that they are not.
There is a slight paradox in many of the speeches by Conservative Members today. They claim that, by definition, regulation is bad and that it is conducted by bureaucrats or agents of the state—yet it is clear that in some areas regulation is necessary to ensure a fair deal for small businesses. Only the most ideologically blinded do not recognise that the argument is not between the command economy—with total regulation and the manufacture of markets, which clearly do not work—and the Friedmanite excesses on the right—which also clearly do not work, as can be seen in many South American economies. The argument about the existence of the market rests on the degree of regulation that a market needs in order to be most beneficial to those who are in it and the consumers who use it. That is the only argument. The degree of regulation that is necessary will vary from market to market.
Opposition Members do not share the belief that minimum regulation is always the best level. There is an optimum level of regulation. My hon. Friend the Member 1128 for Greenwich (Mr. Raynsford) made it clear that there is an optimum level of regulation when he referred to some of the services, especially as they relate to public safety and the safety of individual employees. I am not sure of the code words used by the modern Conservative party, but small businesses and support for deregulation seem to have assumed an almost quasi-religious significance for some people. They trot out totems, imagining that they expand the bounds of human freedom by merely recanting them. That is not the Opposition's view of it.
When some of the wilder exponents of the argument talk about abolishing regulation, they conjure up images of wanting to go back to some of the worst excesses of exploitation of workers and customers which took place decades ago.
The hon. Member for Dover (Mr. Shaw) said that meeting a pay cheque is the highest achievement that one can make. I do not disagree that that is an achievement; it is one for which those who work for companies should be grateful. However, when it is elevated almost to a mystical significance of absolutism the argument gets out of proportion. All those who contribute to the success of private or public sector companies or undertakings deserve congratulation as long as they provide a service and are trading profitably and energetically. There will be an absolute test and it will be that companies and undertakings provide services and are successful in so doing.
The hon. Member for Dover referred to the autumn statement and the disappointment of the media in it. That is no surprise at all. He was feigning his response to the statement. The Government's disinformation team spent the entire week employing its snow-job, saying how bad everything would be and how the Government would do a range of things which they never intended. That was done simply so that anything done against that background of public expectation which was not a total disaster could then be held as a triumph. That is exactly what happened yesterday.
As my hon. Friend the Member for Bolsover (Mr. Skinner) said, a colder assessment during the light of day shows that the chickens are coming home to roost. I am looking at the headline in today's Evening Standard about tube and rail investment, "London has been betrayed". The story says that London tube chiefs are looking at investment plans that have been slashed. They feel that they have been betrayed in view of the promises that were made last year. That is part of the full import of yesterday's statement.
Hon. Members will be able to read the article later, but it says that up to 7,000 jobs will be lost, many of them in small contracting businesses that support not simply the Jubilee line but much of the work that is going on in London Transport.
The hon. Member for Dover mentioned form filling. We all have a degree of sympathy with him on that. The matter needs to be examined. I make a plea to the Minister to ensure that, wherever possible, the forms are written in what has become known as plain English. The forms should be simplified so that people can deal with them as quickly as possible. Unfortunately, it is simply unavoidable that all businesses, organisations and undertakings must make an account of their activities. Those accounts must be verifiable at a later date.
The victims of VAT are spread far and wide. The former leader of the Conservative group on Lewisham 1129 council was hauled up not long ago for failing to complete the VAT returns for his business. In dealing with VAT demands, the Customs and Excise authorities could do no worse than to take advice from the Inland Revenue when it deals with matters such as corporation tax. Businesses in my constituency find the approach of the Inland Revenue in pursuing corporation tax infinitely more understanding and preferable to the brutal way in which the Customs and Excise go about enforcing VAT requirements.
It is common currency across the House that the Government must provide responsive support for small businesses so that they can play their part and meet their responsibilities to both the local community and the nation.
Mr. James Coachman (Gillingham)
First, I congratulate my hon. Friend the Member for Colchester, North (Mr. Jenkin) on winning the ballot for this morning's debate and on choosing this subject. It must be rare indeed that within three days of one another both Houses of Parliament have chosen the subject of small and medium-sized enterprises for a debate. It is entirely appropriate and relevant to debate the matter now because the state of the economy is heavily bound up with the future of small and medium-sized enterprises.
I must declare my interest, as many of my colleagues and some Opposition Members have done. I always declare my vested interest, partly because it establishes a credential to speak on the subject. I still run my family's business—I am sure that if the hon. Member for Bolsover (Mr. Skinner) were in his place he would rubbish me—in a hands-on manner. It has been in my family for 80 years and operates seven public houses which formerly were tenanted but are now leased in London. We have an annual turnover of perhaps £2 million and we still count ourselves as a small business. We face the same problems as all small businesses in these difficult times.
Although I am not unique by any manner of means among hon. Members, I think that I am one of a small minority who is still engaged in what was pejoratively called trade in my grandfather's day. There is still a tendency to look with disdain on those whose business is engaged in buying and selling products or services for profit. I well remember being taken to task by one of my barrister colleagues for referring inadvertently to the licensed trade as a profession. "Profession!", he said. I was not allowed to forget my impertinence by him of a higher calling. I suggest that people both in this place and outside still sneer at the profit motive.
I shall certainly give praise where praise is due to my right hon. Friend the Chancellor of the Exchequer for his autumn statement yesterday. It would be extremely churlish not to applaud the several important initiatives that he has undertaken. Undoubtedly, the abolition of car tax will be welcomed by the manufacturers, spearheaded by our former colleague Sir Hal Miller.
The measures taken to allow local authorities to use their capital receipts for the forthcoming year, and the money made available to the Housing Corporation to reduce the unsold residential property overhang will certainly help to stimulate house building. The construction industry has undoubtedly suffered most grievously in the recession. Of course, not only the construction industry suffers in these times. So many other businesses, 1130 including removal firms, solicitors, people who supply building materials, DIY stores and furniture stores depend on a buoyant housing market. I am sure that the relief that my right hon. Friend the Chancellor has given to the building trade will be welcome.
Like my hon. Friend the Member for Dover (Mr. Shaw), I welcome the increase in first-year capital allowances; they should certainly help many businesses to invest.
Yesterday's 1 per cent. drop in interest rates, which followed the 2 per cent. reduction made when Britain left the ERM two months ago, will be widely welcomed by the many businesses to whom the cost of borrowed money is a crushing overhead. I repeat my declaration of vested interest in that regard.
My right hon. Friend the Chancellor was right to flag up a warning to banks in respect of the artificial floors that many of them instituted by imposing minimum lending rates, which mean that further cuts in the base rate are of no value. The money that my company invested in the building trade over the past 18 months was borrowed on terms that require interest of the bank base rate plus 2.5 per cent.—but no less than 9.5 per cent. It seems likely that many companies are caught by similar terms. I hope that the banks will do something about that—but not just for my sake. After all, I agreed to those terms—albeit at a time when 9.5 per cent. interest appeared very modest.
In the course of my brief contribution to the debate on the Loyal Address, I expressed a certain cynicism about the role then played by the banks—or perhaps that which they were not playing—in an attempt to lift the economy. I shall not repeat my remarks except to plead again with the high street banks to start helping their small and medium-sized customers invest for the future.
The British Chambers of Commerce reports that small firms involving fewer than 200 people—but which in total employ 12 million people or 60 per cent. of the non-governmental work force—account for 99.3 per cent. of insolvencies. That is a horrifying statistic. Small firms have frequently failed and gone bust because their bank pulled the plug. The BBC also comments that it is no longer only badly managed companies that fail. Many do so because of late payment of debt. I doubt whether the answer lies in the statutory imposition of trading terms. Some firms would use it as an extension of their existing credit terms.
GEC was cited by two Members on opposite sides of the House as one of the worst offenders in that respect. It is the largest employer in the Medway towns in my constituency. GEC would claim that part of the trouble is that the Government pay very slowly for the work that the company undertakes—particularly for the Ministry of Defence. It behoves local and central Government to take a lead in rapid payment, to serve as an example to slow payers—who seem content still to live off the backs of their subcontractors.
I said in an earlier intervention that small companies contracted to large businesses such as GEC and major defence and construction companies are worried about losing their main customer if they press too hard for payment. If something can be done, it is more likely to be achieved through education than statute.
Another reason for company failures is the current chronic lack of consumer confidence. I only hope that yesterday's autumn statement will lead to a gradual 1131 rebuilding of consumer confidence, because that will more certainly lead us to recovery than any fiscal step that my right hon. Friend may take.
My noble Friend Lord Weatherill, who until recently chaired the proceedings of this House with such distinction, chose to make small businesses the subject of his maiden speech in another place. He reminded their Lordships of the many years that he worked for his family tailoring business. He is a formidable champion of the 97 per cent. of all businesses that employ fewer than 20 people, for my noble Friend acknowledges the enormous contribution that small firms can make to recovery. He is conscious, as I am, of the continuing, burgeoning bureaucracy that so bedevils them. The House professes to unshackle business men of administrative burdens and to deregulate, but at the same time we and the European Community produce monstrous legislation.
I entirely agree with my hon. Friend the Member for South Hams (Mr. Steen): the Food Safety Act 1990 will impose burdens at all stages in the production, distribution and selling chain. No one—from the sheller of peas to the seller of the humble chocolate bar, via the grandest of restaurateurs—will be able to ignore the Act. Moreover, it follows all the other legislation that affects small businesses: legislation governing health and safety and employment protection, not to mention the Inland Revenue and Customs and Excise, of which I have all too recent experience. Welcoming their representatives to one's premises is always an uncomfortable experience, even when a routine inquiry is all that is involved.
According to the Federation of Small Businesses, the average owner of a small business spends at least one day a week satisfying the requirements of Government bureaucracy—and I believe that that is a gross underestimate. The problem is not just the time taken up by form filling; the worst feature of bureaucracy is the confusion and worry that it causes. Many owners of small businesses find it very difficult to keep pace with the imposts of the Government and EC. Even if they can find out what is expected of them, they cannot afford the specialists who are employed by large firms to keep abreast of legislation.
Even if a business man manages to keep up with the legislation and manages, to the best of his ability, to apply it to his firm, he can expect no consistency in regard to inspection. As I said to the hon. Member for Greenwich (Mr. Raynsford) when he was talking about fire regulations, no one wants bad fire safety standards to apply; but it is not on to expect a fire officer who has applied a particular set of conditions to a major building project in year one to institute a completely new set in year three, when his successor claims that the original conditions are inadequate or, indeed, totally wrong. People in the fire service should look out for such behaviour. The same applies to environmental health officers, whose lack of consistency in applying regulations is notorious throughout the country.
The Inland Revenue and Customs and Excise carry out regular and routine visits to businesses. Often they find nothing seriously wrong, but they will always try to expose some minor infringement: that, after all, is what justifies the visit and the salary. They then tend to submit huge, potentially fatal claims covering six back years. Not only 1132 are such claims extremely worrying for the businesses concerned; more important, fighting them will cost an enormous amount in professional fees and time, and frequently ends in a settlement amounting to a few hundred pounds. The Revenue and Customs and Excise incur no penalty in such circumstances. I think that the Government should act. I fear that we owe a great debt to the good Professor Keith, who was at the bottom of many of the current regulations governing PAYE and Customs and Excise payments.
Ministers must bear a much heavier burden in helping to stimulate the economy and to provide a catalyst for recovery. They would do well to pay attention to small and medium-sized companies, for it is from them that the recovery in jobs will come. We have heard much heroic talk about the shrinking of the manufacturing base, and the hon. Member for Bolsover gave us a wonderful tirade about the contrast between the present low level of manufacturing employment and the great days that he remembers. Let me cite my recent visit to CAV Lucas, when I was shown an all-singing, all-dancing machine that was said to perform 27 different tasks and to do 81 jobs in three shifts. It was managed by a single operative on each shift, which meant a net loss of 78 manufacturing jobs. There is no doubt that much of the erosion of the manufacturing base, in employment terms, is due to the introduction of automation.
I believe that small businesses will give us the new jobs that will help recovery. It is essential for Ministers—not just officials—to consider all legislation with a view to deciding what the burden on business will be. If those burdens and imposts are considered to be too heavy, they must set the legislation to one side. We cannot continue to have our time, as managers, taken up entirely by having to satisfy the whims of Government bureaucracy. That is so important that a group of Ministers, at Minister of State level at least, should consider the issue. I apologise to my hon. Friend the Under-Secretary of State for Technology, if that is regarded as something of a slight. Ministers of all the Departments involved, in terms of their impact on industry, should meet and report regularly and should seek to ease the non-fiscal burdens on industry and commerce. That would contribute to the renaissance of our business base. it would make the United Kingdom even more attractive to companies from the United States, Japan and other Asian and Pacific countries that seek a European base and which find attractive our language, tax regime, industrial relations and attitude to the social on-cost of labour.
I end, as I began, by congratulating my hon. Friend the Member for Colchester, North on his choice of subject. I must also apologise to him. I fear that he may find himself very lonely at the end of the debate. I, too, must leave the House to attend to the needs of my constituents in my constituency surgery. I apologise also to you, Madam Deputy Speaker, for my absence at the end of the debate.
§ Mr. Malcolm Wicks (Croydon, North-West)
I, too, welcome the debate and thank the hon. Member for Colchester, North (Mr. Jenkin) for introducing it. I intend to deal with some of the smallest businesses—the small shops. We were reminded earlier that it was Napoleon who described us as a nation of small shopkeepers. I 1133 remembered that it was a great European who said that, but I could not remember whether it was Napoleon, Jacques Delors or Lord Tebbit.
Small shopkeepers are a particularly neglected group in our debates in the House. They are also neglected by the big institutions. However, in my constituency, the small shop is a crucial feature of the local economy and, therefore, of the national economy. Small shopkeepers work tremendously hard and show much enterprise and energy. Many small shops are run by those whom we refer to as the ethnic minorities. Many Asian businesses form a vital part of the economy and a vital part of our communities. I say "communities" because I am struck by the fact that shops often form the most crucial parts of those communities. When shops close down throughout Britain, and certainly in Croydon, that is bad news for shopkeepers and customers. It is also bad news for the local communities. Many elderly people rely on talking to shopkeepers. It forms a major social contact for them. They do not get that contact in the Sainsbury's or Tesco's. We are therefore talking about shops in both the social and the economic sense.
Many shops are now bruised and battered and feel under threat from many sources. Many shops are boarded up. Recently, I have spoken to between 40 and 50 shopkeepers in my constituency. With few exceptions, the impression I gained was that many are clinging on by their fingernails to economic survival. The events of the next few weeks and months will determine whether they survive.
Many shopkeepers feel betrayed by those who purport to discuss economics and economic policy. They feel that there is a general lack of understanding of their position. They certainly feel neglected. I believe that they are neglected by what I describe as the big institutions—the media, in terms of their reporting of economics, the finance pages, the City pages, the finance houses and the large companies. They say little about the small shops. Despite the lip service that they pay to small shopkeepers, when the Confederation of British Industry and Institute of Directors plead on behalf of their members to the Chancellor of the Exchequer and the Prime Minister, they often talk about large industry rather than small shopkeepers.
Political parties have often served small shopkeepers badly. That is certainly true of most Conservative Members, who have greater understanding of finance houses, large companies and landed interests than of the small shopkeeper. Historically, that has been true of Labour Members. We have better understood large industry, trade unions and workers in large enterprises than we have shopkeepers. Labour Members' attitudes are now changing, but hon. Members should self-critically examine how well they speak for small shopkeepers.
I wonder how many members of the Treasury and Civil Service Select Committee are shopkeepers. I heard that only one member of the Home Affairs Select Committee is not a lawyer. I wondered whether that meant that there were too many lawyers or too few on the Committee. I suspect that few members of Select Committees and of the other institutions of the House that are concerned with economics and finance are greengrocers or hardware merchants. It is important that such people are represented on Committees, because, despite this debate, we usually neglect such matters.
Small shopkeepers are at risk on a number of fronts, and many hon. Members have articulated better than I the 1134 different factors that they are facing. The vital factors are recession and unemployment, because more people have less money in their pockets or purses to buy goods in shops. The explanation of the collapse of some small shops is clear.
Interest rates have been a crucial factor. Of course we welcome the fact that they are coming down, but I sometimes think that the small shopkeeper must feel bemused and bewildered by the rollercoaster that has become macro-economic and monetary policy. He or she must wonder why the economics of the fishmonger or greengrocer should be affected by something called the ERM or about the monetary policy of the Chancellor of the day. What thread links those great economic debates to the economics of the small hardware shop, the finances of the greengrocer in Norbury or the economics of the pharmacist in Thornton Heath? Those people want stable finance and money policies, but they have not had them in recent years and, I suspect, recent decades.
Hon. Members have spoken of the impact of the business rate. Rent reviews are another aspect. The VAT authorities and the other institutions and policies seem to betray a lack of understanding and insensitivity to the needs of small businesses and small shops. That is my experience, but I need not add to that subject.
Hon. Members have spoken of the banks, and I repeat some of those remarks. Banks are regarded as fair-weather friends by small shopkeepers. Last night, I said to a business man, "I have seen the advertisements on the television. There is a friendly bank manager and a special person looking after small businesses. He looks a nice chap. He comes along to your house and shop, looks at the production line, shakes you by the hand, pats your children on the head and is even pleasant to the dog." I shall not repeat the words of that small business man, but he did not recognise the bank manager.
Why should banks, which made colossal mistakes and thereby incurred huge debts on foreign enterprises, take it out on the shopkeepers of Croydon or Britain, who are the links that we need to develop? When the going gets tough for shopkeepers, the banks cut up rough. That is not on and we should debate that more.
I apologise for the fact that constituency duties meant that I could not be here for the whole debate. I do not know whether other hon. Members have touched on the aspect of planning and transportation. To what extent do out local and national authorities, when talking about planning and transportation issues, have regard to the small shops? There is a crucial link.
People in my constituency are worried about the red routes. They may make sense in terms of speeding cars through communities, but the shopkeepers tell me that they make no sense if people cannot park near or outside shops and pop in to buy things. People in Croydon see the red routes policy as a threat to the local economy and to shops. Those are important matters.
If planners allow more and more superstores and supermarkets to be built on the outskirts of our towns and cities, it may be good news for the superstores, and for those who shop once a week in great Volvo estates and who have refrigerators in which to store the goods. It is not such good news for the shopkeepers. or for the elderly, for single mothers and for those without cars who want to shop in local shops. Planning authorities should take into account the impact on small businesses and small shops.
1135 I shall not say much about Sunday trading, which we shall discuss on another occasion, except to say that it is related closely to this matter. Sunday trading is bad news for small shops. If we allow Tesco and Sainsbury to open on Sundays in flagrant breach of the law, there is an impact on small businesses and shops.
The managing director and chairman of a local bakery wrote to me recently. The bakery bakes the products and then sells them through shops. He said that, although trade had been increasing by 5 to 10 per cent. over a year, there was now a decrease in trade of between 5 and 10 per cent.—and more in some shops—on Saturdays and Mondays because of Sunday trading. The managing director writes:The only outcome for us will be some very drastic pruning and offloading of our lower-taking shops, which in turn will put a lot of people out of work.The issue of Sunday trading will be debated on several fronts, including the moral and theological fronts. It also needs to be debated in terms of the impact on local economies and on local shops.
Our perspective today is needed in a number of our debates on economic policy, on finance and on much else. There is a sense in which the pharmacist, the newsagent and the small grocery, multiplied many thousands of times across our nation, are as important to our society, to our community and to our economy as are ICI and Hanson. It is time that we debated their concerns more often and more rigorously. I therefore thank the hon. Member for Colchester, North for giving us the opportunity to debate this crucial matter.
§ 1.7 pm
§ Sir Michael Grylls (Surrey, North-West)
Our debate today, ably introduced by my hon. Friend the Member for Colchester, North (Mr. Jenkin), who gave a tour d'horizon of the problems facing small firms today, takes place against a background of world economic downturn. I suspect that the worries expressed in our debate are mirrored in almost every other country. The state of small businesses in the United States is not very good because its economy is also in a downturn.
We should be grateful to my right hon. Friend the Chancellor of the Exchequer for a measure in the Budget just before the general election. That measure would not have been taken up by the Labour party if it had won the election. In the Budget, the inheritance tax for small businesses was effectively abolished. The Small Business Bureau and the Union of Independent Companies, which represents middle-sized manufacturing businesses, have been campaigning for that for years. We have been asking for that welcome change for about 10 years.
If a Government and a society are to encourage people to risk their money, time and often their houses in building up a business, it is not only sensible but right that they should be allowed to pass that business on intact to the next generation—whether it be family or managers. It is an economic fact that almost no business reaches its optimum size in one generation. It is generally family businesses, built up over many generations, that progress.
The penal rates of capital inheritance taxation that pertained until the time of the previous Budget made matters very difficult and were very damaging over a long period. We can rejoice at that change; even if, in the middle 1136 of a recession, it is not something about which every firm is thinking the most, that fundamental long-term reform is crucial.
During the 1980s, as a result of measures taken to encourage entrepreneurship, many new very small businesses came into being. Such businesses have become a feature of British industrial society. The encouraging thing about the difficult days through which we are living is that the rate of birth of new businesses has been maintained. The fundamental changes that were made in the 1980s encouraged people in the hope and belief that it was worth while starting their own firms.
At the other end of the scale, we have a large number of very large firms that are among the most successful in the world. What we lack is a sufficient number of medium-sized, family, owner-managed businesses in the middle—not only in high tech but in engineering. To sustain an effective and competitive economy, one needs a vast number of middle-sized businesses employing 200, 300 or 500 employees. One of the great successes of Japan and Germany has been that they have had a substantial number of those firms. In Germany and, to a degree, in Japan, competition policy has been aimed at the preservation of medium-sized firms and at encouraging their growth.
We would be wise to fill that gap in our industrial society. Very small firms are all very well, but we should pay more attention to independent medium-sized businesses, and my hon. Friend the Member for Colchester, North was quite right to include medium-sized firms in the motion. We must do everything that we can to try to fill that gap.
One subject that has been much talked about—quite rightly, given the present climate—has been the problem that many of our smaller and medium-sized businesses have faced in their relationship with their banks. There are two aspects to that problem. The first is the rate of interest charged, and the conditions of lending imposed, by the banks. There has rightly been much criticism of the banks for charging small firms too high a rate of interest. It seems odd that we treat businesses so differently, given that we recognise the need to help young fragile people to get on their feet and become adults, so that when they fly the nest they can look after themselves. Large firms receive the special preferential interest rates. They can even borrow on the Eurodollar market. However, small firms pay penal interest rates. No doubt, it may be said that such firms are more at risk, but that is not a sensible way of doing things.
As we criticise the banks, it is vital that we recognise that they have faced severe problems. Like all of us, they have made mistakes. Indeed, they have made mega-mistakes which made very large holes in their balance sheets. As responsible private sector organisations, the banks must restore their balance sheets. However, that must be achieved by prudence. It must not be achieved at the risk of damaging too many of our smaller firms.
§ Mr. Malcolm Bruce
The hon. Gentleman is making an important point which follows on from an issue that I raised earlier. Should we not convince the banks that the argument about greater risk is not true? If small businesses are required to put their houses on the line, the banks have more security than they have from large corporations which, during a recession, leave the banks exposed. The 1137 argument that the banks are entitled to charge premium interest rates to small businesses does not even stand up on risk assessment criteria.
§ Sir Michael Grylls
I accept the hon. Gentlemen's point and I agree with him. I was making the point for argument's sake. It was by no means my argument.
Although there is a problem with interest rates, we must also consider an issue that is fundamentally of more long-term importance, because I believe that the banks will rectify the interest rate problem as a result of public pressure. The minimum lending rate has dropped. All hon. Members must maintain pressure on the banks in that respect.
The more fundamental problem is that we do not have a tradition in Great Britain of long-term structured lending to medium-sized firms or what we might colloquially call "industrial banking". Ours has been a more mercantile lending system—lending for trade rather than for long-term investment. That is not necessarily the fault of the people who run the banks in 1992. It is a long-term historical problem. It is part of our culture and I am not sure how it grew up.
Somehow, we must persuade our financial institutions that they must consider long-term secure lending. The Opposition may have a lot of fun ribbing us about the problems facing the country because of the recession, but even they know that recessions will come around again and that there is such a thing as an economic cycle. It is like the weather cycle of sunshine and rain. We will certainly have more recessions. They will occur regularly.
If there is no system for long-term lending for firms to invest in expansion projects, to develop products and market them and to do all the things that firms must do to be successful and compete in the world at large, the disaster that we face now with too many successful, profitable firms being put out of business simply because the banks have run into problems and need to bring money in to rebuild their balance sheets will be repeated in the next five, six or seven years.
When the banks want to rebuild their balance sheets, they do not go to the unsuccessful firms that are about to go bust, because they would not get much money from them. They go to the more successful firms and tell them that they must cut their lending from £500,000 to £300,000 or £200,000. The banks do not say that they are doing that because they need the money, but that is the truth of it. It is appalling to do that to successful businesses and we must resolve that problem.
The banks have been too reliant on using the trick or gadget of demanding a floating charge over all the assets of a company. That is almost unique to Britain. That restricts competition and, more important, results in the banks being cavalier about lending. If one has a floating charge on a company, one lends to it and then says, "It is all right, we can just pull the plug and we will get it all in again." There is a big difference between a floating charge and a single charge over an asset.
My hon. Friend the Minister is generous, and if he were to lend me £50,000—a small sum for him—to build a new factory, he would say, "I shall lend you that money. but I should like a charge over the asset that I have helped to create by my loan to you," and I would not quibble. However, if he said—I am sure that he would not because he is an extremely progressive Minister—"I want a charge over the whole of your business, including all the assets 1138 that I have not helped to create," that would be wrong. That is the difference between a floating charge and an actual charge. We need to examine that matter. It is a hangover from an old-fashioned industrial society and we should chuck it out the window. If that is not done by legislation, I hope that the banks will do it voluntarily, although I am not too optimistic.
There was an interesting maiden speech in the other place on Wednesday by Lord lnchyra. He is the director general of the British Bankers Association. I read his speech with great interest. Obviously, he is a gentleman with great experience and knowledge—much more than mine—of the banking world. However, there was a whitewash. There was not much mention of the cases that I have described in which profitable firms are being pushed out of business because the banks need the money again. I shall quote a couple of lines from his speech. He said:What I regret that I do not have is a figure for the percentage of borrowing customers who are struggling to stay afloat. However, I am told by the banks"—
§ Madam Deputy Speaker (Dame Janet Fookes)
Order. I am sorry to interrupt the hon. Gentleman, but it is not our custom and it is not in order to quote speeches in the other place unless they are Government policy represented by a Minister.
§ Sir Michael Grylls
I stand reprimanded, and I shall throw away my copy of Hansard. Suffice to say that Lord Inchyra was saying that he does not have the figures but that four out of five cases manage to keep going. There is a problem and it needs to be looked at. It is a challenge to the Government to see what can be done about it.
It would be worth while for the Government to look at an interesting institution in Frankfurt in Germany, called KFW. My German is not very good, but if I may without another admonition from you, Madam Deputy Speaker, because of linguistic difficulties, I shall quote the title. It is, "Kreditanstalt fur Wiederaufbau". In other words, that financial institution was set up at the end of the war, using money from the Marshall aid funds for reconstruction in what was then West Germany. It has been outstandingly successful. It is able to make structured loans for fixed periods to small and medium-sized firms. It has been promoting the interests of small and medium-sized firms in the German economy since the end of the war. It has about DM100 million on its balance sheet to lend. Under statute, that organisation is allowed to lend to German firms operating in other EC countries. Therefore, it is allowed to make long-term loans to German firms operating in Great Britain. It is allowed to lend to British firms operating in west Germany or to firms owned in any other EC country that operate in Germany. The only firms that do not get the benefit of such a good form of borrowing are British firms operating in Britain. That cannot he sensible.
Obviously, there is not time today, but the Government should consider the structure of the KFW. I hope that they will link that with consideration of how to resolve the difficulties of providing long-term secure money. I know that the banks will say, "You don't know what you're talking about, of course we lend long." There are loan agreements, such as small business development loans, but if one looks at the small print on the back of the piece of paper, it states that the loan is "repayable on demand." The manager who arranges the loan probably does not even mention that and the business man thinks that he has a loan that is repayable over seven years, but it is really no 1139 more than an overdraft, which is also repayable on demand, as everyone knows. That is the problem that our businesses have to face and too many of them are suffering because of that small print.
Many financial institutions say that we should provide more equity for small businesses. There is a role for equity in small businesses, but most people who have started and are running their own firms do not want to bring in outside equity. If they did, they would work for a big firm. They want to keep the equity in their control, not dilute it. It might be all right for the owner of a high-flying, high-tech company to part with 40 per cent. of its equity, because the other 60 per cent. will be worth an awful lot of money —it will probably be virtually as good as 100 per cent. However, the owners of most engineering businesses, which do not have such a high growth rate, are reluctant to part with equity to outside investors. They should have the same facilities as equivalent firms in Germany and Japan and should be able to borrow for their needs on a fixed, structural basis.
A distinguished entrepreneur in the United States, George Zalucki, who is also a great psychologist and friend of mine, wisely said, "If you don't understand the invisible, you will never achieve the impossible." In these circumstances, the invisible is getting into the mind of the entrepreneur and not merely telling him to get in more equity when it is not what he wants. Entrepreneurs want to be able to borrow on secure terms so that they know that their firms can survive if there is a recession—and there certainly will be other recessions. That is the challenge facing the Government and I hope that some progress will be made in that direction in the years ahead.
§ Mr. D. N. Campbell-Savours (Workington)
I shall speak only briefly. May I express the apologies of my hon. Friend the Member for Croydon, North-West (Mr. Wicks), who had to leave after speaking to catch a plane?
My credentials for speaking in the debate are that I am one of the few £100 entrepreneurs in the House of Commons. I am certainly one of the few entrepreneurs on the Labour Benches. I left business in 1977 to come into Parliament in 1979, and for about 10 years, I experienced the issues that hon. Members have mentioned in this debate.
When I left my business we were exporting throughout the world the product that I had designed and manufactured in Lancashire. Many problems confronting business men today are the same as those that I experienced, although to a lesser degree, at that time. I was driving through my constituency the other day thinking about that time and wondering how people manage to survive in today's conditions. When I discuss such matters with companies in my constituency I find that conditions are worse today than those that I remember during the worst periods of the late 1960s. Yes, that was under a Labour Government, and conditions were difficult, but they were not as bad as they are today. We had problems in the 1970s, but they were not on the scale of those that are now being experienced.
There are several areas in which the Government can help small businesses. There are measures and initiatives that are as valid today as they were many years ago. If it 1140 is true that we shall not have domestic consumption-led growth and that to some extent revival of the economy is to be based on export-led growth, we must have an export strategy. Yesterday, in the autumn statement, the Chancellor of the Exchequer announced some concessions on the ECGD front, but we must go much further than that. The Government must devise a strategy to promote exports and to help those in business into export markets. There are many companies that, despite all the information that is made available by various Departments, do not understand how to get into export markets. That might be because there is a tradition in the United Kingdom of not learning a foreign language to the standard required to enable one to converse properly with people overseas. It might be that there is antagonism towards people in other parts of the world when it comes to trading with them.
We must ease companies into export markets, and the best approach is to help them in market research overseas. I accept that help is given by the commercial sections of our embassies overseas, but far more work should be done on market research overseas and on the identification of products that can be produced in the United Kingdom. Far more help should be given to enable people to participate in exhibitions of British products overseas. That means an expanded role for what we used to call the British Overseas Trade Board. When I was in business, the board had an important role to play. The subsidising of stands at foreign exhibitions overseas and the sponsoring of exhibitions by regional enterprise agencies and by the Board of Trade should be at the top of the agenda. In every way we should help our exporters to identify markets.
There is another area that is worthy of further consideration, and that is factoring and invoice discounting. Given the expense involved with the premiums that are paid to the companies that act in this area, invoice discounting and factoring have become, to some extent, unpopular. They are, however, good ways of raising money in businesses. I do not want to depart from Labour policy, but I think that there is a role for the state to play in further examining the part played by the invoice discounter and factorer in helping small businesses to survive, especially in the present difficult conditions.
How often do we come across companies that have long debtor lists and are owed far more money than they have borrowed from the banks? If only they could turn their debts into real cash, they might be helped through the difficult conditions that they are now experiencing. As I have said, there is room for some further consideration on that front.
There are major problems in my constituency. The Government could take an initiative and help small and medium-sized companies to survive by acting on enterprise zone strategy. I am sure that Ministers will recall that I was one of the few Labour Members to support the zones in the early 1980s. The right hon. Member for Henley (Mr. Heseltine), who is now the President of the Board of Trade, gave Workington an enterprise zone, and we have made it successful. It did not lead to a sort of Hong Kong economy, which many said would happen. The enterprise zone worked and many modern factories were opened. They are now, of course, suffering from the recession. Unfortunately, a number of them are empty.
In my view, these matters are cyclical and are only aggravated by Government policy. The reality is that at some stage in future the empty factories will be reoccupied. 1141 The real problem is that they are no longer in an enterprise zone. The Government should not think only in terms of creating new zones. Instead, they should be thinking of expanding existing zones, particularly where there has been success, as in Workington. I have corresponded with Ministers on that matter, but, to date, their policy remains not to expand existing zones. That is a mistake.
Another concern about the future for small businesses is regional policy. My constituency is part of the northern region. The Minister has visited west Cumbria and is aware of the problems. If we lose development area status it will be a body blow to our economy. It will destroy our opportunity to attract companies and jobs. It would be devastating and it cannot be allowed to happen. Indeed, it is the universal view in the county, irrespective of political persuasion, that it must not happen.
If my area does not meet the statistical criteria today, it certainly will within the next 13 months. It can almost guarantee that by the end of 1993 a further 1,300 or 1,400 jobs will be lost, certainly in my constituency, bringing our unemployment rate to 17.7 per cent. We could not attract industry in the conditions that would be created if we were to lose development area status. I ask the Minister earnestly to consider the matter.
Only this morning I received a letter from a constituent about his problems with his bank. He owns a hotel. I have had a number of similar letters during recent months and on a number of occasions I have directly approached regional managers of banks to try to renegotiate debt facilities. My constituent wrote to the National Westminster bank:I am writing to you, as the head of Small Business Services, to question your policy of setting a minimum rate of interest on loans to small businesses.When my wife and I took out a mortgage with you to expand out business in 1988/9, we were told that this was standard policy with all banks; however, I have recently learnt that it is in fact the policy of only yourselves…Whilst it is true that this condition is pointed out at the time of applying for the loan, it is surely also true that there can be little justification for such a large increase to your own profits in this way. If, as is hoped, the Government lowers interest rates to 6 or even 5 per cent. in the near future, it will be for the express purpose of helping the economy to grow again by allowing people like ourselves to invest. It will not be to allow banks to line their own pockets.I hope you can give me an assurance that this practice is under urgent review and will be brought to an end in the very near future so that your customers can join with those of other banks and help lift this country out of recession.That letter could have been written by hundreds of thousands of proprietors of small businesses throughout the country. The banks must get off their backsides and recognise that people are dependent on their lending policies. They can destroy businesses overnight. I understand that the banks have problems because they have to offset large debt lists that have been created over recent years, but I do not want the small businesses in my constituency to be wiped out.
I can think of two or three occasions during the past few months when I have intervened, looked at a company's books, made my own evaluation and then gone to the regional manager of the bank to argue that it is being too aggressive and that if it were to give the company more time it would survive. Only because of my intervention have such companies been saved. Of course, I have been approached by companies with unsatisfactory books and I have refused to intervene. One retains credibility in these 1142 matters only by arguing good cases. There have been occasions when banks have tried to wipe out decent companies and I appeal to them to review that practice.
§ Dr. Keith Hampson (Leeds, North-West)
Before I whip through the many points that I intend to make, I wish to congratulate my former Select Committee colleague, the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins), on his elevation to the Front Bench. I trust that he will long remain an Opposition spokesman.
I very much endorse the comments about banks and borrowing rates. I also believe that exhortation about the late payment of bills is not enough.
Another point that is often overlooked relates to bank borrowing. Small companies depend on and supply large companies. Large companies are suffering now, but when they expand they often put horrendous demands on small companies, which are their suppliers. It is hard for those small companies to find the necessary investment, which is large compared to the capital base of the company. I wonder whether the banks or, indeed, the general financial system reaches down far enough to small companies. In other words, the smaller a manufacturing firm—say, one which employs fewer than 30 people—the larger is the proportional increase in capital base required to respond to any increase in demand, yet the lower is its ability to command loan finance. Lord Walker's regeneration agency should examine that matter when it comes to developing the regions and depressed areas.
I was surprised to read in The Times today that the chief executive of the Forum of Private Business said:It is regrettable that the main benefit will be to big business while small businesses are left to pick up the crumbs.It is obvious that there is no such entity as a small business as such. The vast majority are dependent on big businesses. They are the component suppliers and service suppliers. We are moving ever closer to a pyramid system in which larger companies on the European and global scale pull behind them a plethora of small companies. That is why many small businesses have been created. So the measures to reduce interest rates and to assist the car industry—which pulls in the component manufacturers—and a range of other measures dealt with in the autumn statement will help directly to recreate confidence among people whose wealth base has fallen as a result of the drop in house prices. That is fundamental.
No business man will accept incentives to expand unless he sees the prospect for increased orders. Unless we can persuade people to spend, there will be no prospect of increased orders. That is largely the dilemma of reliance on interest rates.
Our economy has a debt load twice that of France and significantly more than that of Germany. As in the United States, the recovery is slow. Our debt load is higher than that in the United States. Their interest rates are slightly more than half our interest rates. As recovery is slow, it is necessary to fill the gap with public programmes such as the Chancellor announced yesterday. They will have a stimulating effect.
For example, it is largely overlooked that to allow higher education institutions to borrow against their Exchequer-funded assets will have a dramatic effect on a local scale. The potential effect on a city such as Leeds, 1143 which has 30,000 students and two huge universities, could be dramatic. There will he a knock-on effect throughout the Leeds economy and small firms.
§ Mr. Cousins
Can the hon. Gentleman tell us what additional public spending beyond existing plans was announced yesterday?
§ Dr. Hampson
I shall not do it now. My point is that a dramatic change in Exchequer rules such as the waiving of the Ryrie rules would have a significant effect. Some hon. Members, including the hon. Member for Newcastle upon Tyne, Central, have argued for universities to have the freedom to borrow against their assets. We have seen local authorities use the potential to borrow against assets to the point of abuse. However, such a freedom could have a remarkable effect. It is not just about the capital injection that is given to institutions. They can now raise their own capital to a remarkably greater extent.
I welcome the partnership between local and central Government. Both play a part in public programmes. There are problems with the limits that are placed on local government. However, it is vital for a city such as Leeds to set out the essential priorities. The Royal Armoury relocation from the Tower of London to Leeds has potentially the most dramatic economic effect on the Leeds economy. It will transform the inner part of Leeds and the effect will ripple through Leeds to the regional economy.
The construction and design of the building will have an impact on the economy, as will the tourists who visit it. That could start next year, provided that the Government's £20 million is supported by contributions from Leeds and the private sector. I hope that they will consider that a priority use of their funds, and that the urban development corporation—whose proposal and land it is—will not have its budget cut. I note that UDCs—one of the best concepts launched by the Government—have had their overall budgets cut by one quarter. I trust that shortfall is accounted for by the lack of need for the huge programmes that were instigated in the London docklands and that those of smaller UDCs, such as Leeds, will be preserved.
Leeds also has the superb idea of establishing a northern version of the national film theatre, linked either to the urban development corporation or the Quarry Hill theatre. That would provide a significant stimulus at relatively little cost.
The British economy embraces far too many legislative requirements and regulations, many of which are suited more to big companies than to small firms. Large organisations can usually handle planning issues more easily than can small businesses. In many instances, local authorities are even worse than the Europeans. The difference in requirements across local authority boundaries must be examined, together with the zealousness of local authority officials in implementing them.
Councillor Nigel Francis of Otley is a market trader who wrote to tell me that one day, out of the blue, two local health inspectors descended on the street market to implement the Food Hygiene (Market Stalls and Delivery Vehicles) Regulations 1966, which require every stall to have running hot water, a washbasin, and a nail brush. Is it seriously suggested that a trader who sells raw potatoes needs hot water to wash his hands in case he dirties them? 1144 Is it suggested also that Cllr. Francis, who sells packaged sweets, must have a sink and hot water on his market stall? That is entering the realms of lunacy, and is wholly detrimental to trading and success.
Even if many regulations were stripped away, companies would still need help in coping with those that remain. The Government must drive ahead with the deregulation unit and the provision of general advice to small firms. More than 60 per cent. of companies are ignorant of Department of Trade and Industry initiatives. The figure is probably dramatically higher for small businesses. A report by Cambridge university's small business research centre, "The State of British Enterprise", states:There is a strong link apparent between the amount of external advice taken and the rate of growth of small businesses.We must get the one-stop shop concept working as fast as we can.
As the hon. Member for Workington (Mr. Campbell-Savours) said, with the single market in mind we must pursue the concept of export clinics and export clubs. Many firms do not know of their existence—or they may not exist in certain areas. The Government could give a little help in the campaign to save the NatWest's scheme involving 4,000 small business advisers. Accountancy advice is of particular importance. A partnership is available, and small business advice days could be held throughout the country, rather than be staged just here and there, in a hit-and-miss fashion.
Britain must also establish more trade with eastern Europe. How on earth can a large business, let alone a small or medium-sized firm, know of the opportunities that exist? I have argued for some time that the Government should establish an east European trade centre. Most embassies like the idea, and are willing to second commercial staff to such a venture. All the east European countries, and possibly the Baltic states, would have in one place a showcase for their products and an opportunity to make known those that they want to buy. Conference and other facilities could also be provided. It could be placed next to the European bank for reconstruction and development. Instead, our only advice centre—the East European trade council, which is funded by the Government—is sitting in a flat in Artillery row. It is too small to cope even with existing demand. If we take such matters more seriously and ensure that companies receive the necessary advice, they will be able to operate.
I know that we must improve standards, but it is essential to the resurgence of the economy that we help the construction industry, and small builders in particular. The small builder is the man who can pick up the small schemes, both private and public; he is the man who can take up labour immediately, as rapidly as he sacks it when times are bad. Everyone is currently asked to try to meet the BS5750 standard, but councils such as Bradford now allow no one to tender without it. It is very difficult for a small builder to achieve that standard, and it involves a good deal of paperwork. At this stage in the economic cycle, councils should not be imposing such requirements.
Bradford also says that tenders will not be put out unless they are in packages of £3 million. It is gathering together all the smaller packages that it used to offer to builders. Many builders cannot afford such tenders. For heaven's sake, let us have a partnership between the Government and the public works programmes, the local 1145 councils and the private sector; but let us get our act together and provide the right advice. We should minimise regulation, and stop coming up with more and more burdens—for that is what we seem to be doing, almost arbitrarily, even in the midst of a recession.
§ Mr. Iain Duncan-Smith (Chingford)
I congratulate my hon. Friend the Member for Colchester, North (Mr. Jenkin) on his excellent choice of subject. It is an important subject, and one which matters; and it is close to my heart.
During a recent conversation, I asked why the Conservative party was so fascinated—even obsessed—by small businesses. The answer is that small businesses are really about individuals, about dreams and aspirations and about the creation of new ideas. New ideas create jobs, and jobs mean that people have extra money to spend. Good, solid Conservative principles are at the heart of the matter.
My hon. Friend the Member for Colchester, North described the creation of 1 million new jobs in the 1980s as a great success story, and pointed out that some 60 per cent. of turnover in the economy is due to small businesses. We should understand why the country is so deeply affected by the creation of new jobs via small businesses. The hon. Member for Croydon, North-West (Mr. Wicks) cited Napoleon's observation that this was a nation of shopkeepers. Napoleon, of course, meant that as an insult: he intended to block off Britain from Europe, so that we would immediately go under. But we took it as a compliment, because we have always been a nation of shopkeepers, traders and small businesses. We have always led the world with our exports per head of population, and we still do: we export more per head than Japan, the United States or Germany. We have been world traders and small business men—and the two are closely connected, because small businesses grow and feed into larger businesses.
The business culture of any nation that does not provide for small businesses is essentially moribund. It is the seedcorn of small businesses that grows into larger businesses. That process is desperately important; in this case, it really is a question of looking after the pennies and letting the pounds slowly take care of themselves.
If we examine the history of the British economy, we can chart some of the decline in the 1930s with the collapse of small businesses. There was a net decrease in the number of small businesses from the 1930s until the late 1970s, which exactly mirrored the steady decline in the economy from the high peaks of the early part of the century. It was not until the late 1970s, and particularly under the Conservatives in the 1980s, that there was a tremendous surge of net growth in businesses, which reversed that trend. All the graphs clearly demonstrate that fact.
Small businesses face what I regard as three very important problems. Reference has already been made to them, but I want to stress them again. The first problem is bank lending. Small businesses face their biggest problems in their first three or four years. They are heavily indebted to and deeply reliant upon bank reasonableness, in the sense of how those loans are pushed or taken back. During that critical period, small businesses need the banks to work in partnership with them, not against them. As soon 1146 as times grow hard, small businesses do not want the banks to withdraw their loans, particularly if the problem is not one of their own making.
During the late 1980s, the clearing banks undertook a massive lending programme for property development, particularly commercial property development. Anyone with a commercial property portfolio could, it seemed, walk through the door and obtain vast sums of money from many banks. Small businesses had to sweat blood to get money from the banks and had to put up vast amounts of collateral. The banks had one rule for commercial property developers and another for small business men throughout the country.
It is interesting to note that in 1987 bank lending to property development increased by 40 per cent. In 1988 it rose by 53 per cent. In 1989 it rose by 62 per cent. and in 1990 by 33 per cent. Those are staggering figures, for by 1990 we had already begun to experience a downturn., a recession. Nevertheless, the banks were still dramatically increasing the amount that they were lending for commercial property.
If we were to run end to end all the office space available in central London, we should find that there are about one and a half square miles of unused floor space. That is mostly due to some of the most irresponsible lending that I have ever read about. It has caused a tremendous problem. Now that we need more money to be injected by the banks into the economy, we find that they are unable to do that. They are holding at inflated rates vast amounts of commercial property that they are unable to sell.
The banks have therefore turned to small businesses. They regard them as liquid assets and want to realise some cash to keep them going from month to month. If small businesses are facing a few problems, the banks are tempted to close them down quickly so that they can take back their assets and make something out of them, thus enabling the banks to keep their cash flow running. I do not want to bash the banks, but this is a big problem area which has not been looked at. The banks owe a debt of responsibility to small businesses and should be far more reasonable about the way they treat them, in the light of the way they have lent money in the past.
As for late payment, I referred earlier to a conversation I had with Lord Prior of GEC. It is beholden on big businesses to make sure that they stick to the letter of their agreements. If they have a 90-day payment term, they must pay within 90 days. It is no good stretching it to 95 or 100 days. It is those five to 10 days which crush small business. There is a flow down of debt. It ends up with the smallest person at the bottom. He ends up holding the total parcel of debt for British business. It is unfair on such people and immoral.
Before I became a Member of Parliament, I worked in business. We paid particular attention to making sure that we dealt fairly with our suppliers. We ensured that we could make savings by asking them to reduce their costs and prices to us, but we said that there was no point in crushing a company until it went to the wall because we should then have to look for another supplier. Big businesses must show a sense of responsibility towards small businesses. It is a partnership. If the one treats the other well during a recession, one hopes that the converse will happen when times are better.
Many hon. Members have mentioned the payment of VAT. It would be perhaps a little kinder if some of the pressures of VAT bills were seen in the light of moneys 1147 owed by bigger business to smaller business and if the pressure that is put on small business by Customs and Excise were tempered a little. I do not know whether that is feasible.
I congratulate my hon. Friend the Member for Colchester, North on chosing an excellent topic which drives to the heart of Conservative philosophy. I have no doubt that the subject will run and run and that Conservative Members must support it fully. It is deeply important to the survival of business and I offer it my wholehearted support.
§ 2 pm
§ Mr. Jim Cousins (Newcastle upon Tyne, Central)
I join in congratulating the hon. Member for Colchester, North (Mr. Jenkin) on his choice of subject for debate. It is surprising that he did not choose to exercise his power of timing rather better, a day after the autumn statement, and press the Government further on the absence of an industrial strategy, especially for small business, that was so evident in the statement, in which small business played such a minor part.
Several hon. Members have commented on the problems of the uniform business rate. Again, the Government chose yesterday not to exercise fully their power to increase rate poundage. That has an immediate effect on confidence, especially among small businesses that are trying to function in areas where purchasing power is declining and where they are surrounded by a forest of "To Let" and "For Sale" signs. To have relaxed the uniform business rate or made an exemption for empty properties would have been a powerful signal to small businesses that they have a friend in the Government, but it was not to be.
We must take due note of the fact that, in the rather obscure part that the Department of Trade and Industry played in yesterday's proceedings, the Government have made it clear that the spending power of the Department of Trade and Industry is to be halved in the next five years. That accompanies the cuts in spending on urban development corporations, to which the hon. Member for Leeds, North-West (Dr. Hampson) drew attention. These are not good times for small businesses, which depend on such spending.
What does an effective cut of half in the Department's rate of spending tell us about its commitment to regional grants and regional aid? What does it tell us about innovation grants, for which £50 million worth of applications were made last year but only £3.5 million worth of approvals? A Government truly committed to encouraging innovation among small business would have moved rather faster than this Government have. It is not without interest that in Scotland and Wales, where grants are administered not by the Department of Trade and Industry but by the Scottish Office and Welsh Office, the rate of approval and spend has been rather higher. The Department's performance is not impressive, and reductions in its spend are a bad sign.
It is fair for hon. Members to point out the important part that small business has played and will continue to play in employment and business growth. But it is also fair to point out that in the past few years we have seen skewed growth in small business. The northern regions have 1148 benefited far less from the growth in small business than the south-east and London. I say that in the hope that the Government will launch some programmes to encourage more growth in small business in the north. We, too, should have the right to share in the growth of small business.
§ Dr. Hampson
It is not all bad news in the north. In Otley, Garnetts paper mill has increased its work force from 169 to 231 and a new £1.8 million production line has been installed. It is good management which has turned the mill round.
§ Mr. Cousins
Of course, we welcome the news for a paper mill in Otley. We should have preferred that there was a raft of paper mills at Otley benefiting from the same experience. The hon. Gentleman earlier encouraged local and public authorities in his constituency to raise money by borrowing more on their capital base. He gave the game away about what the Government's true policies were in the autumn statement. The Government basically told the nation that everyone had an increase in their credit card limits. That is no basis for sustained growth in spending and could lead to an increase in the problems of debt overhang which threatens the future of so many small businesses.
In welcoming the growth of small business, it is right to refer to the present position. Company insolvencies are increasing at 25 per cent. a year. Personal insolvencies, which can often be the most tragic, are increasing at 40 per cent. a year. Surely, the Government must do something to relieve the pressure because they have the power in their own hands to do so. Reforms in the workings of the Insolvency Service and in insolvency legislation are long overdue. Reforms could at least assist in the winding down of enterprises that, sadly, are going bust as a result of the Government's policies. The process could take place in a more civilised way and in a way that was less devastating for the households that depend on those businesses.
We are in a grim situation. This year, there will be the 2 millionth VAT deregistration under this Government. Each deregistration leaves behind it a frustrated opportunity, family difficulties and household problems. It adds to the stock of people who are experiencing the pressure of the growth of unemployment, which is entirely planned and entirely the result of the lack of an industrial strategy.
Small business, above all business, most depends on the stability of economic outlook. Yesterday, the Government substituted for a policy of no quick fix a policy of quick no fix. There is no predictability in the expansion that the Government have in mind. An 18-month extension of the relaxation on corporation tax is of little benefit to companies that are trying to plan ahead for the medium and long term. The planned value of the corporation tax concessions is £200 billion. We learned from the autumn statement yesterday that the expected reduction in corporation tax revenue is £2 billion. That reduction of profitability outweighs tenfold any benefit from the relaxation of corporation tax.
The Government have power in their hands which they are not exercising. We have spent too much time in previous debates and in this debate discussing VAT. It is entirely possible for the Government to introduce reforms 1149 in the administration of VAT, without any cost in public money. Such reforms would ease the problems of many small businesses.
It is possible for the Government to be far more vigorous in the pursuit of the late payment problem. The Government have said that they have instructed their contractors to make payments more promptly. It would be nice to be assured that the Department of Trade and Industry, above all Departments, monitored that process, reported on it and ensured that all public bodies kept to that good code of practice.
It would be churlish for a Labour party spokesman not to join in the criticisms of the banks. The Government could do much by encouraging all the clearing banks to have a minimum lending rate equivalent to base rate; that has not been done.
We understand that the Government are to request that companies report on their late payment practices in their company reports. It would be nice to know whether that is definite, and what powers the Government are taking to scrutinise those reports and ensure that they are meaningful.
I have already referred to insolvency. Reform of the insolvency laws is long overdue. There has long been a need to increase the performance of the Insolvency Service to allow for the winding down of small businesses in a more courteous and civilised way.
Much remains to be done about the problem of leasing. Commercial leasehold reform has been in the system for more than five years now and would address many of the problems of small businesses that assign their leases and still find themselves with incalculable legal obligations hanging over them.
The Government could also do something about licensing—a matter to which our attention has rightly been drawn today. It is crazy that a small independent supermarket in my constituency should have to deal with 26 different forms of licensing. The problem is. not necessarily that 26 different forms of licensing exist but that the approach and synchronisation of the licensing authorities are so poor as to stretch the ability of a small independent business to deal with them.
It would be sensible for the Government to organise themselves so that VAT inspections and Inland Revenue inspections occurred in a synchronised way. The fact that small businesses are faced with a constant stream of different inquiries from different Revenue departments places an entirely unnecessary burden on them.
The Government could take many practical measures to improve the financial viability of small businesses. Far more could be done with enterprise funds, particularly in the regions. It is not sufficient to have one or two casual experiments. The funds should be introduced as a national policy and underwritten by the Government.
Given that the Government are criticising banks, it would be nice to think that the premium rates that they charge on their own loan guarantee scheme could be reviewed. If hon. Members are asking banks to bring down their minimum lending rate to base rate, it seems only reasonable that we should ask the Government to do the same for the loan guarantee scheme, which is focused on inner-city areas and areas of Britain where purchasing power is most under pressure.
1150 The Government could do far more for trade missions. It seems extraordinary that, at a time when we are hoping for export growth, spending on trade missions should be declining rather than growing.
As an experiment, the Government are to launch 15 one-stop shops, but with no new money. All the money to finance the experiment is to be clawed back from the existing TEC budget, undermining the TEC's ability to support enterprise and training initiatives in their areas. Something could be done to reduce the huge wastage rate of enterprise allowance take-up, at present financed by the TECs. There has been no movement on such matters. Over the past three years, there has been a desperate need to increase the take-up of enterprise consultancy grants, but such grants have increased by only 3,000 during that period. Far more could have been done by the Department to improve matters.
Let us consider how the Department's main budgets bear on small business. It is interesting to note that, in a tiny corner of the autumn statement, we learnt that the take from the Post Office is to be increased from £75 million to £180 million. That may be an example in which profits do, indeed, equal inflation. At present, we have a freeze on letter post charges. What does the increased take from the Post Office tell us about the Post Office's own charges in the immediate future?
What does the increased predicted take from Nuclear Electric tell us about the future pattern of energy charges when the Government propose to double their take from Nuclear Electric? What does that tell us about energy policy over the medium term? Surely it implies a considerable increase in energy charges. All those matters are of great concern to small businesses.
I wish briefly to refer to the problem in my region. The growth in small businesses in my region is particularly important to secure the region's future economic base. What are the area's chambers of commerce and enterprise agencies telling hon. Members? They are saying that the evidence of a double-dip recession is nowhere more apparent than in the north-east. They have stated:In third quarter, the northern economy suffered a dramatic reversal of fortune. The cautious optimism signalled in a previous survey was swept away by a set of results which show that the region has fallen back to a level to which it plunged 18 months ago, but with prospects bleaker.That is reflected around the country. The most recent surveys show that a quarter of the households in Britain are experiencing and have experienced the difficulties of unemployment over the past two years. That has a direct bearing on the future of small businesses because they are confronting the falling purchasing power of their clients and customers.
The DTI seems to consider its role as one of punkah wallah intervention: it flaps a cooling fan before meal time. Even if the Department is prepared to accept such a limited status for itself and not play a central part in making industrial strategy, it would still be possible for the Department to be far more effective on all the practical matters referred to in the debate. We look forward to the Minister's reply.
§ The Parliamentary Under-Secretary of State for Technology (Mr. Edward Leigh)
I congratulate my hon. Friend the Member for Colchester, North (Mr. Jenkin) on his success in the ballot and on the able way in which he 1151 moved his motion. I also thank the hon. Members who have taken part in this long and wide-ranging debate: my hon. Friends the Members for Chingford (Mr. Duncan-Smith), for Leeds, North-West (Dr. Hampson), for Surrey, North-West (Sir M. Grylls), for Gillingham (Mr. Couchman), for South Hams (Mr. Steen) and for Colne Valley (Mr. Riddick). I welcome the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) to the Dispatch Box and congratulate him on the way in which he made his points. I also thank the hon. Members for Gordon (Mr. Bruce), for Croydon, North-West (Mr. Wicks), for Greenwich (Mr. Raynsford), who made a most thoughtful speech, and the hon. Member for Bolsover (Mr. Skinner) who provided light, if lengthy, relief.
Everyone who spoke in the debate agreed that small firms are a crucial source of new ideas, products and services. They extend consumer choice and provide industry with the flexibility needed to adapt to changing market conditions. They stimulate competition and help individuals to realise personal ambitions. From among their ranks will appear some of the bigger names of tomorrow. If not always beautiful, small firms are usually at least attractive. They are always dynamic and agents for change.
The debate gives the Government the opportunity to assure hon. Members that our long-standing commitment to the well-being of small firms remains undiminished and to set out how we shall continue to help them to start, survive and grow in future. My noble Friend Baroness Denton has talked about hugging small firms as only she can. As I am not the Minister responsible for small firms, I might not express my support in quite the same words. However, I am no less sincere in my and the Government's support for them.
Throughout the 1980s the development of an enterprise culture, mentioned by so many of my hon. Friends in the debate, was a vital element in providing a healthy economy. The Government recognised at the outset that we had to tackle the structural obstacles in the way of a more competitive and successful market economy. We had to help create and generate new economic activity. We knew that the lion's share of that would involve small businesses. We created conditions that made the United Kingdom one of the easiest environments in which to start a new business. The United Kingdom economy now depends heavily on their contribution.
The number of new businesses in the United Kingdom is now about 3 million, of which 97 per cent. are small firms employing fewer than 20 people. Such firms provide 17 per cent. of United Kingdom turnover. I assure my hon. Friend the Member for Colchester, North that our right hon. Friend the President of the Board of Trade views himself as the Minister for small firms in the Cabinet.
Government policy has a number of elements. The first is to get the economic climate for business right. Yesterday, in his autumn statement, my right hon. Friend the Chancellor set out clearly the Government's new framework for economic policy. His statement will boost confidence and promote recovery to the benefit of all enterprises, large, medium and small. The second element of the Government's strategy is to do all that they can to give United Kingdom companies the best possible chance 1152 of winning in world markets. That is why my right hon. Friend the Chancellor made his announcement on the Export Credits Guarantee Department yesterday.
The third element of our strategy is to ensure that all our policies are based on a clear understanding of their implications for our competitiveness. That means that government, and my Department in particular, must be closely in touch with industry's needs and involved in effective dialogue about them. My right hon. Friend the President of the Board of Trade has recently reorganised the DTI to give each industry a recognised and knowledgeable point of contact within government. He set up a new division with the specific task of identifying the factors that are impeding our industrial performance.
The improved understanding that will follow from those policies does not mean that we will seek to take decisions that are best left to individual firms, but whenever an issue arises that affects our competitiveness we can be sure that we will fight for the best possible deal for business, small and large, throughout the United Kingdom.
The debate has centred on three main points: deregulation, late payment and the relationship of small companies with banks. Sadly, because my hon. Friend the Member for Colchester, North and I wanted to give all hon. Members a chance to speak, we have been left with little time. I shall try to cover as much of this complex matter as I can, but I assure hon. Members who have taken part in the debate that I shall ask my officials to examine Hansard so that I can answer in writing any detailed points that I cannot answer now.
My hon. Friend the Member for Colchester, North rightly focused his attention on the importance of minimising burdens on business. I warmly endorse his views. I assure him that the Government's commitment to minimising the burden of taxation and, of equal importance, to significantly reducing administrative and regulatory burdens on business is no passing whim. It is a key plank of our economic policy generally and our policy towards small firms in particular. Much has been achieved, but there is, I accept, much to do. The task remains, and the commitment to tackle that task is as strong as ever.
It might he helpful if I clarify what I mean by deregulation. Its meaning is not always well understood. I assure the hon. Member for Gordon that deregulation does not mean no regulation. It does not mean striking down well-focused and carefully framed regulation, regardless of the benefit that it brings—not at all. We certainly aim to strike out unnecessary regulation while trying to improve the quality of all regulation.
For regulation that is already on the statute book, deregulation may mean refinement to narrow the scope and concentrate on the aspects where the mischief is greatest or on the simplification of provisions so that the purpose of the legislation is clear and unambiguous. Where proposals for new regulation are under consideration, deregulation means ensuring that the proposals are justified and that there is a genuine problem that can be effectively addressed only by legislation. I assure my hon. Friends who made that point, particularly my hon. Friends the Members for Colchester, North, for Colne Valley, for Dover and for Gillingham that we will bear in mind their strictures and advice.
Where the need for regulation is clear, the potential impact on business must be understood. The costs of compliance, which my hon. Friend the Member for South 1153 Hams dealt with, and enforcement costs, too, must be taken into account so that, as well as ensuring that the objective will achieve the expected benefits, we impose the minimum possible burden on business and on the Exchequer.
Our aim is not less regulation, but better regulation. The business of the Government is not the government of business. Since 1979, we have targeted constraints on the freedom of business in all sectors of the economy. There is no time to list all the deregulatory measures that have been taken to benefit business—it would take a long time to do so. We have systematically identified burdens on business and have as systematically set about reducing them, for example, by simplifying tax accounts for small businesses and the VAT return, which some hon. Members have mentioned. We have also streamlined the pay tax tables.
Continuing progress in that area is the aim of the Government's deregulation initiative, which was formally launched in 1985 and is being driven forward by my right hon. Friend the President of the Board of Trade. As a first step, Departments are assessing the body of regulation for which they are responsible, and working to produce a strong programme for action in 1993 and beyond to reduce a burden which in many cases can fall disproportionately on small businesses.
Let me give a few examples. Is it really necessary for a business to apply for three licences to operate a karaoke machine? Surely, all that is required is a sense of humour and perhaps a pair of ear muffs. Can there be a compelling reason for requiring scrap metal merchants to be licensed by the Home Office and registered by the Department of the Environment? With form-filling requirements like that, it is surprising that Steptoe and Son even managed to find time to get their horse and cart out of the yard. What mischief is prevented by banning betting offices from selling cashew nuts and prawn crackers, while allowing them to sell peanuts and crisps?
I know that business licences are a concern for smaller firms. A recent report from the Institute of Directors shows that a number of those licences should be abashed. The deregulation unit is reviewing business licensing requirements and the views of the Institute of Directors are being taken into account. We have already made considerable progress in removing unnecessary licences.
The Government are well aware of the disproportionate effect that excessive or ill-focused regulations can have on small firms—what my hon. Friend the Member for South Hams described as a "crushing" impact.
Late payment of bills was mentioned by my hon. Friends the Members for Colchester, North and for Dover and the hon. Members for Gordon and for Greenwich.
I am aware of the difficulties that late payment of bills can cause to small firms. Any delay in payment due can have significant implications for smaller businesses. It 1154 damages their cash flow and, at worst, can threaten their very survival. Late payment is ethically deplorable and it damages the prospects for recovery for the economy as a whole.
According to recent National Westminster bank small business surveys, late payment and cash flow are the second most important problems facing small businesses, after lack of orders. I also know it generates more correspondence for the Minister for small firms, Baroness Denton, than any other small firms issue.
I am afraid that it must be said that there is no quick fix for late payment; no magic wand that the Government can wave to make the problem go away. If there were we would certainly have waved it before now. Late payment is one of the most frustrating and difficult small firms issues that we have to face. It is not a new problem. I expect that there are still contractors waiting to be paid for the Great Western railway. With the best will in the world, the problem will not be eradicated tomorrow.
I am aware that there are calls for the Government to enact legislation in this area. The Government would riot be opposed in principle to such legislation if we thought that it would work. I want to make it clear that we are riot objecting to legislation on some obscure grounds of dogma. We have expressed our readiness to consider legislative proposals that could have a positive effect on the problem.
What we all have to ask, however, is: would such legislation be effective in reducing late payment? Would it be of real help to the small firms sector? Evidence that a statutory right to interest would satisfy those criteria is so far inconclusive.
It is no accident that the majority of small firms' representative organisations remain opposed to statutory interest. They share our concerns that the practical effects of legislation would, at best, be minimal and that it could damage small businesses. There is good reason to believe that statutory interest would merely be used against small firms, rather than by them— that large companies would be encouraged to impose longer credit terms.
Ministers and officials have devoted considerable time to examining how the problem can be tackled. They have considered also the enactment of legislation. Elsewhere in Europe there is concern about delayed invoices. Contrary to popular belief, late payment to small businesses is not especially a British disease. The experience of our European neighbours—even those with appropriate legislation—demonstrates clearly that there is a lack of evidence in support of statutory interest.
In 1989, the European Commission published the results of an investigation into late payment—
§ It being half past Two o'clock, the debate stood adjourned.