§ 4.58 p.m.
§ Lord Vinson rose to call attention to the regulations that affect the job creating potential of small firms; and to move for Papers.
§ The noble Lord said: My Lords, I am grateful for the opportunity to introduce this debate. Its underlying purpose is to help the process of job creation.
§ Earlier in the year, the Prime Minister, Tony Blair, met up with his fellow socialists in Vienna to make the reduction of unemployment a top priority. I do not doubt his sentiments but, alas, the road to the dole queue is paved with such good intentions. His words say one thing; his deeds do the opposite.
§ Since January this year an avalanche of new regulations has hit the business sector, and hit the small business sector particularly hard. The overwhelming evidence is that caring Euro-socialism has been a disaster for workers, creating unemployment in France, Germany and Spain at levels not seen since the Great Depression. Minimum wages, welfare cultures and protection against unfair dismissal have been the caring themes in these countries and have been shown in practice to be destructive of jobs.
§ By contrast, in one month alone this year, the United States created more jobs than France and Germany have done in 10 years. But the Government load on yet more illusory protection. Small businesses suffer most from this. They do not have large personnel and legal departments to absorb the deluge of extra information and bureaucracy.
§ We cannot dismiss small businesses as though they did not matter. Every statistic clearly shows that it is to small businesses we have to look for the creation of jobs. It is large firms that are downsizing, and all large firms originally started as small businesses. It is worth repeating that the vast majority of businesses are, by any definition, small. Firms employing fewer than nine people make up 94 per cent of all businesses in this country. Such small firms—and farms—employ over 10 million people, well over half the total of non-government employees, and the figure is rising. That is why their welfare is so desperately important.
§ There are two primary causes of unemployment in the United Kingdom today; first, over-regulation; secondly, the excessive taxation of labour thereby raising its cost. If we raise the price of anything, people use less of it. The unemployment remedies mostly emanating from Europe exacerbate both maladies. Unemployment, to some degree, is a national self-inflicted wound. Here society is increasingly making more formal what should essentially be less formal; that is, the process of buying and selling one's labour. In so doing we have frustrated the natural workings of the exchange of labour and thereby destroyed the opportunity for the unemployed to re-enter the labour market by the part-time route.
§ The Government are well aware that employment growth in continental Europe in the past decade has been only in the public sector; there has been virtually no overall new employment created in the private sector at 1233 all. They have destroyed the flexibility of their labour market. Unwittingly, that is what many on the Benches opposite seek to achieve. I am sure that they do not do so deliberately, but they should remember the cautionary tale of Gulliver's Travels: no one single thread held him down; but a thousand made him immobile.
§ The price of excessive job protection is job destruction. Perhaps I can illustrate that by a typical, but true, example. Mr. Evans and his wife ran a small health shop in Braintree last year. She found the work heavy and the business was not paying well so they decided that she would find an alternative job and he would advertise for a part-time assistant.
§ A Ms. Hill, aged 22, was one of the five applicants who filled in the questionnaire giving details of their previous sales experience and family situation. Mr. Evans shortlisted three of them, including Ms Hill, and telephoned her. The conversation was going quite well until she told him that there was something she had not said on the form; namely, that she was six months' pregnant. To which, perfectly understandably, Mr. Evans said that there was no way he could take her on because he had to have somebody who could look after the shop while he was out on deliveries, apart from which she would have to move heavy boxes as well as take down and put up the shop's metal shutters.
§ Under the circumstances, there is not a soul in this House who would not have reacted in the same way as Mr. Barry Evans did. He did not want somebody who would be here today and gone tomorrow and who was not capable of doing the job in the first place. Why should he take her on if she was unsuitable? At this level the law must recognise intrapersonal human relationships. However, a week later he received a registered letter asking him to appear before an industrial tribunal. He was subsequently fined by that tribunal, under the chairmanship of Mr. Robjant, the sum of £2,000 to compensate Ms Victoria Hill for the upset and loss of confidence she felt when she was rejected.
That was an excessive and quite unnecessary application of the law and a denial of commonsense and natural justice. The very nature of the system encourages employees to exploit it. That case is not unique. I hold in front of me a cutting from the Daily Mail 1998, the banner headline of which reads,
Insanity of sex bias laws".
§ It says it all. In the case of Mr. Evans the fine nearly bankrupted him. It was only through the generosity of well-wishers, many of them women, that he was able to meet it and continue in business. What we shall never know after reading about such a case is how many potential small business people were put off and, as a consequence. how many jobs were not created. That type of case could be repeated a thousandfold.
§ Sadly, most career politicians have arrived in power with no more business experience than a smattering of professional work. They have had no contact with the exhausting realities of running a small business, or they would not introduce such crazy legislation. But at least two senior Ministers have come close to the realities and farcicalities of excessively one-sided job protection legislation and I hope they learnt from it. Mr. Jack Straw 1234 had to battle for months over a sex discrimination case in his own electoral office; and the noble and learned Lord. Lord Irvine, was found guilty of sex bias in the employment of his adviser.
§ With a toss of his wig the noble and learned Lord dismissed the case brought against him by Miss Coker as "mischievous". He did not deign to attend the tribunal, to which he sent one of his own officers. An easy way out. but one not possible for the small businessman. He has to suffer all the anxieties, costs and time-wasting by himself. Now, apart from the sex discrimination Act. unfair dismissal and the new 48-hour working time directive, he has even more regulations to look forward to. Incidentally, the 48-hour working time directive was described by the noble Lord, Lord Haskins—Mr. Blair' s better regulation adviser—as "a dog's breakfast". I warmly welcome the presence in this Chamber of the noble Lord, Lord Haskins, who will bring with him much useful and valuable experience. I look forward to his maiden speech today. I am sure that giving it will make a pleasant change from improving dogs' diets!
§ I started up a small business by myself; I know what it feels like. One day I was self-employed and the next I became an employer. At that point we have the whole rule book thrown at us. It is a lonely and tough experience running a business without help with the threat of swingeing penalties hanging over our head if we fail to comply with complex laws.
§ The macro economy is in practice the micro economy writ large. It is at that lowly level that we need to uncover some of the constraints to job creation. I suggest noble Lords opposite talk to small businessmen like plumbers and electricians, perhaps instead of talking to themselves. I make a point of asking such people why they do not take on an assistant or an apprentice as they used to. Invariably the reply is that it is not worth the hassle. The cost of dismissing staff; the threat of prosecution over unfair dismissal often because the employer has technically failed to give statutory written warning when he should have done—something that in practice is extremely difficult to do on a one-to-one basis in a small firm—all make it so unpleasant that they cannot face doing it again. They would rather soldier on alone.
§ As a consequence, hundreds of thousands of potential jobs remain undeveloped in this country today. Unemployment may have fallen, but if we want it to stay down, we must not make it expensive and difficult to employ people. Germany has done so and there we can see that their small firm sector is in decline. Governments need to recognise that one of the primary sources of new employment is self-employed people turning themselves into small businesses; small businesses taking on staff. So every effort should be made to assist and not to hinder that process.
§ My first essential message in this debate therefore is to ask the Minister to consider introducing regulatory exemptions for small firms employing fewer than 10 people where such exemptions do not currently apply and to follow the American practice of wide exemption, which has immensely helped their small-firm sector to create jobs by removing the threat of prosecution. I recognise, of course, that much of the impetus for 1235 regulatory overload derives from the EU. But it is no good Ministers saying that there is nothing we can do about it because it comes from Brussels. We must stop the whole regulatory engine going off the rails and taking employment with it.
When I took up the case of Mr. Evans with the noble Lord, Lord Simon, I asked whether the Government were content with a situation where a self-employed person can be obliged to employ a pregnant woman and so incur some of the costs associated with her condition even though there was no biological relationship between them. To that he replied,
We recognise some individual employers may incur costs in holding a job open for a woman who is having a baby and we aim to ensure that these costs are minimised but we consider that they are outweighed by the benefit".
§ Government Ministers may consider that they are outweighed by the benefits, but, if the small employer does not, he will not hire in the first place. Another job is not created. Such crazy laws are counter-productive. One million small businessmen will not be in a hurry to risk employing pregnant women after reading about cases like the one I have just illustrated. The job market will get harder for women, not easier, whatever the law may proscribe. The sheer complexity of running a business today is a nightmare when one is virtually on one's own. It is very sad to hear the report from The Samaritans that there is a rapidly rising suicide rate in this whole sector.
§ Everyone has rights, except the employer. He can be taken to court at the drop of a hat if he dismisses anyone, yet the same employee can walk out of the job at the end of the week. Increasingly, there is a distinct lack of justice in the present arrangements. So my second key point is that an employer should be able to claim costs when any tribunal finds in his favour. This would go a long way to preventing frivolous and exploitative litigation. This, plus exemption for very small firms from regulatory overload, would do much to improve the situation and thus create jobs.
§ Small firms have rights, too, but no one champions them. Perhaps it is time that we had a small firms disability rights Bill. They, too, are an oppressed minority, the only difference being that, if they fail, all the other minority groups, which depend on the economic wealth that they produce, will go down with them. Our once flexible labour market is beginning to take on the rigidities of its continental counterpart. I hope that the Government will listen to the advice of the better regulations board, and the sound advice of its Minister, and not let the dog's dinner of increasing regulation destroy the wellsprings of job creation through small firms.
§ There is a clear need for a comprehensive agenda to tackle over-complex regulations at source. This is where Mr. Blair should be putting his energies. I hope that this debate will direct his endeavours accordingly. My Lords, I beg to move for Papers.
§ 5.12 p.m.
§ Lord Haskins
My Lords, it is a great privilege to make my maiden speech and to participate in a debate so 1236 dear to my heart. I am very grateful to the noble Lord, Lord Vinson, for his kind comments of welcome and for his shared interest in the digestion of canines. I am chairman of two companies—namely, Northern Foods and Express Dairies—which, until recently, were one. The dairy company is the largest in the country and the food company supplies all of us with some of the most delicious foods that man has ever tasted, supplied through Britain's wonderful retailers. Together, the two companies made £150 million last year.
However, the success of that company is entirely to the credit of my father-in-law who started those businesses from scratch 50 years ago. When I am asked the reason for the success of the company, I always say, "The first £10,000 that Alec Horsley made, from nothing, out of that business 50 years ago". I remind people in the business of that every time; namely, that we, too, were a small business at some time.
I am also chairman of the Government's Better Regulation Task Force. It is an independent task force, I am glad to say, and showing its independence with due verve. I can say that chairing such a task force is the most entrepreneurial task I have ever taken on in my life. As regards any suggestion that the "Yes Minister" series and poor old Hacker were overstating the situation, I can assure noble Lords with great passion that that was a minute understatement of what was really going on.
The task of carrying out this work is such that it is bound to give offence. That is because all of us take a very schizophrenic approach towards regulation. Because regulations are a restraint or a burden, all of us dislike them when they are personally addressed to ourselves. But, at the same time, as individuals we want a safer environment, safer food, safer public transport and more secure jobs, which inevitably lead to more regulation.
Of course, businesses have to bear most of the burdens of modern regulation. Many would argue that the use of regulation can be an alternative, more stealthy way of governments achieving policy ends without resorting to the more unpopular route of taxation. Therefore, regulation can have a very significant impact on the economy, and particularly on the small business sector.
The specific problems that I have observed with the impact of regulation on small businesses are many and conflicting. First, regulation puts them at a competitive disadvantage against their larger brethren; indeed, there is no questioning that. Bigger businesses have the resources to comply with complex regulations. Small ones do not. The problems of payroll regulation are increasingly costly and worrying for small businesses. However, large businesses actually make money out of collecting taxes for the Government.
Secondly, small businesses are often not given enough time to understand and, therefore, comply with new regulations. They should be given more time. Thirdly, because of their size, the regulation of small businesses is inevitably erratic. Therefore, those who choose to ignore the law, for the most part, go undetected—thereby putting themselves at a competitive advantage over those more worthy businesses who go out of their way to comply with regulations.
1237 Fourthly, in areas such as public safety, where small businesses can be as much, or indeed more, of a danger to the public as large ones, there is no case for making a special case for exempting small businesses from regulation because of their size or problems of enforcement. Indeed, generally, small businesses do not see more exemptions as a satisfactory solution to their problems and they have told us so. The task force is doing a lot of work on the major barriers to small businesses—that is barriers to growth—both when they start up and when they begin to grow. People are telling us that, while regulatory barriers do exist, their greater concerns relate to access to financial support and the lack of skills which they find.
Noble Lords may be aware that the Prime Minister is taking a particularly close interest in the efforts of my task force to contain the quantity and improve the quality of new regulations, and to seek ways of reducing regulatory burdens, particularly as they affect small businesses. But, of course, this must be done while at the same time maintaining the Government's policy objectives of a safer and fairer world for all our citizens.
The task force has been pleased with the Government's response so far to many of our suggestions. Ministers have agreed to simplify proposals to regulate long-term care for the elderly and childcare. They are looking sympathetically at our proposals to make it simpler for charities to receive funds from departments—a vital part of keeping charities alive. Under the food standards proposals, Ministers have withdrawn what we considered to be very costly and ineffective plans to license over 600,000 food premises, in favour of a simpler registration system—even though this, too. may be an unnecessarily expensive option. Ministers have also greatly simplified the regulations to introduce the national minimum wage, after discussions with us. So far, I have received remarkably few complaints from small businesses about this major policy proposal. They are looking sympathetically at our proposals—long overdue—to deregulate and liberate the licensing laws of this country.
Thanks to a much greater awareness of the issues, departments now consult with the task force at the earliest possible moment in the regulation-making process. We want departments to seek to get agreement with the task force on all major regulatory proposals. We want the task force to seek out regulations which can be repealed or simplified. We all want small businesses to prosper, uninhibited by costly, unnecessary and disadvantageous regulations, while also complying with those necessary regulations, which provide protection to citizens from unacceptable levels of risk and abuse.
My task force—a splendid, knowledgeable and experienced group of independent citizens, which is well balanced—will pursue these challenging, sometimes conflicting, objectives with enthusiasm and, I feel sure, with the strong, mostly consistent and general support of all sectors of the community, particularly the business one.
§ 5.20 p.m.
§ Baroness Anelay of St. Johns
My Lords, I have the honour on behalf of all noble Lords to congratulate the 1238 noble Lord, Lord Haskins, on his maiden speech. The Government Whips office provided me with the ammunition to fire back at the noble Lord, but the ammunition comprised merely biographical details from Dod. From that I learnt that the noble Lord grew up and was educated in Ireland; that he has worked with Northern Foods since 1962 and he has been its chairman since 1986; that he was a member of the UK Round Table on Sustainable Development; and that he is currently chairman of the Better Regulation Task Force, about which he has spoken today. But, by its very nature. Dod is able only to give a modest view of a person. Perhaps today I may take the opportunity to be immodest on the noble Lord's behalf.
His speech has given us a glimpse of what Dod could not: that he has great expertise and ability which he has used to drive a competitive business further and further to success in what has been an increasingly hostile and competitive environment in both the European Union and international markets. Northern Foods is one of Britain's biggest food manufacturers and supplies all the major supermarkets. I understand—courtesy of the BBC's Internet site—that after linking up with Marks and Spencer to expand into the frozen food market, the noble Lord became known as the man who invented the ready-made meal. I am not too sure whether that should make me grateful to the noble Lord, but I have to convey to him the thanks of my husband, who otherwise might not have been fed over the past years. I can assure noble Lords that ready-made meals have certainly not been dog's breakfasts. We all welcome the noble Lord, Lord Haskins, to the House. I am sure that we all look forward to his contributions to our debates.
I thank my noble friend Lord Vinson for introducing the debate. I should like to draw attention to the impact of regulations on the job-creating potential of the tourism and hospitality industries. The biggest challenge of the tourism industry—and yet its great strengthߞis its fragmentation and its complexity. The industry is managed by about 200,000 businesses around the country, the great majority of which are small businesses. It is our fifth largest industry, worth more than £53 billion a year, and directly accounts for about 5 per cent of Britain's GDP and 8 per cent of all consumer spending. It employs nearly 2 million people, 7 per cent of the UK workforce and in recent years it has created one in six of all new jobs. Given the chance the industry has the potential to create even more jobs, to generate more wealth and to help rejuvenate run-down areas.
That potential for job creation has been seriously threatened by the raft of regulations introduced by the Government. The document of the Department for Culture, Media and Sports, Tomorrow's Tourism, states:Poor regulation is particularly damaging for small businesses who have fewer staff to implement, and are less able to absorb the costs of, regulation".That point was clearly made by the noble Lord, Lord Haskins. Exactly so; I agree. But, despite that statement, the Government have introduced over 2,000 new regulations over the past two years, many of which bear hardest on the tourism industry—the national minimum wage, for example. I take note of what the noble Lord, Lord Haskins, said with regard to complaints to his 1239 task force, but I have seen many complaints and individual examples of hardships caused by the implementation of the national minimum wage.
The problem for decent, hard-working people in smaller businesses is not the cost of paying the national minimum wage, as the overwhelming proportion of them do anyway, but the cost of administering it—the extra paperwork, the extra systems, the extra associated costs and the consequent lower profits, which will eventually lead to less investment and fewer jobs.
For some businesses, like members of the British Activity Holiday Association, which employ large numbers of younger people who are away from home on short contracts, the national minimum wage spells possible disaster. I am aware that strong representations have been made to the Government about the adequacy of the £20 accommodation off-set and whether it will be increased or even maintained. I am also aware that the BAHA hopes to have further discussions with the Government. Last week, my honourable friend Peter Ainsworth referred to this issue in a debate in another place and asked the Minister for Tourism to respond. Unfortunately, she did not do so. Perhaps she simply ran out of time.
I hope that the Minister will be able to tell the House today what progress has been made on this issue. In his other role in the Department for Culture, Media and Sport, I am aware that the Minister is knowledgeable about tourism. I feel sure that he is aware that the BAHA is an employer in a very special situation. It employs young people who see their time with the association as time in which they can develop the life skills which will be invaluable to them in their later careers. Its operations can best be described as being akin to those of the American summer camps—and in the United States those have been exempted from the scope of the national minimum wage.
I turn now to the working time directive, which the British Hospitality Association says has been a major cause of concern. More than any other, the tourist industry needs flexibility in its labour force. It is true that the majority of large corporations in this sector can absorb the extra costs of such measures. They do not want to do so; it will cost them many millions of pounds and it will mean fewer jobs. That was pointed out to me very clearly on Monday by representatives of large hotels and leisure businesses whom I met at the British Tourist Authority's annual trade forum in London. However, the majority of the industry is made up of small businesses which can ill afford the extra costs of bureaucracy. The fixed-on costs of compliance in terms of extra clerical work, computer systems and so on are much the same whether a business is turning over £50 million or £500,000, but the burden is greater on smaller businesses.
Again I should like to refer to the special experience of the British Activity Holiday Association. It is a residential community where the staff are considered to be part of that community. The hours of work have of course therefore never before been measured; it does not have a clocking-on and clocking-off mentality. The introduction of the Working Time Directive to this environment is destructive to the character of the whole system.
1240 Tourism is not an industry that whinges; it gets on with the job. It diversifies; it does what it can to survive and expand; it is not complacent; and it plans for the future. I have read today the West Country Tourist Board's strategy document, which is an impressive and carefully drawn plan for the future of tourism in its region. The British Hospitality Association hopes to create 400,000 new jobs nation-wide by 2005. But it issues a caution: that while the service sector is currently growing, excessive regulation will have only a marginal effect on jobs—that is true—but as soon as there is any slow-down in the economy, however slight, the picture will rapidly change. It points out that the problem with employment regulations in particular is that they create a straitjacket and are not adaptable to changing economic circumstances.
The association points out that it is not necessarily just the individual measure that is seriously damaging but the combined effect of large numbers of such measures, all arriving in a short space of time. The individual proprietor simply does not have the hours in the day to learn about these measures and then to implement them.
When the Minister for Tourism, Janet Anderson, responded to a debate in the other place last week, she recognised that regulations are a burden on the tourism industry. She said:The forum and the summit will be considering that issue". —[Official Report, Commons, 5/5/99; col.877.]But the summit is not until next year, and the future remit of the forum is called into question by Tomorrow's Tourism by referring to it in the past tense. The document refers to the forum as having existed and not having a future existence. Can the Minister tell the House what will be the future remit of the forum with reference to regulations? What guarantee is there that the Government will act upon its advice?
I hope that the Government will take note of the concerns of the tourism industry and stem the flow of regulations that affect it adversely. I hope they will consider amending those which are already in place.
§ 5.39 p.m.
§ The Countess of Mar
My Lords, I wish to express my thanks to the noble Lord, Lord Vinson, for bringing this matter to your Lordships' attention today. I declare an interest in that my husband and I run a small family farm where we produce quality black Welsh mountain lamb, breed pedigree Blonde cattle, and sell unpasteurised goats' milk and speciality cheeses made from that milk.
We too often lose sight of the fact that farming is a business and that small farms are small businesses. We all know of the parlous state of agriculture. We have heard Ministers exhort farmers to diversify. Millions of pounds have been disbursed in Area 5b payments and central and local government grants to encourage this process. Food producers hear Ministers tell them, on the one hand, that they are in favour of small specialist businesses; that they are supportive of enterprise. On the other hand, instead of listening to small food producers, the Ministers seem to be deaf to the problems created by draconian legislation that puts these same enterprises out of business.
1241 In the Guardian last weekend, the noted food writer, Joanna Blythman, wrote an article on small food businesses under the strap,If the bureaucrats pt their way, our independent producers may soon he out of business".She was commenting on a recent meeting of independent producers that I attended, where representatives of over 2,000 small businesses expressed their concern that this Government's policies are putting at risk over 100,000 jobs—a disaster far bigger in scale than the parlous state of the Longbridge car plant which so recently exercised Ministers.
All the representatives present at that meeting were agreed on three things: that the scale of the impending disaster was unprecedented; that the cause was not any single impost, but the cumulative effect of many different measures; and that the disaster was largely unrecognised.
The latter, particularly, is the great tragedy, occasioned not least by the fact that when small businesses go to the wall they do not shed thousands of jobs from one plant with dramatic scenes to delight television producers. Instead, anonymously. up and down the country, they put up their shutters—no drama, no television cameras, no MPs standing at their gates declaiming government policies and demanding rescue packages. They drift away in their ones and twos, each with a personal tragedy that goes unheard and is disregarded. These tragedies, repeated daily, represent hundreds of jobs and blighted families. If the current thrust of government policy continues, they will soon represent thousands, then hundreds of thousands of skilled, rewarding and fulfilling jobs lost, maybe for ever.
I turn to Joanna Blythman's article for an explanation. She then turns to the noted food safety expert, Dr. Richard North, for the answer. He reports that, since the salmonella scare 10 years ago, 9,000 small egg producers have gone out of business, without any corresponding reduction in salmonellosis. Whenever there is a problem, he says, the drill is the same: "Round up the usual suspects (small producers) and give them a hard time". People go into specialist food production because it is something they enjoy and believe in, not because they expect to make money. If you drown them in controls, they lose their incentive to continue and withdraw from the aggravation.
Is the Minister aware that some MPs have been led by officials to believe that small food businesses are purveyors of germs? Does he appreciate that most rural food producing businesses are run by families whose interests are to produce quality products to the highest standards? It is not in their interest to produce food that will bring the wrath of officialdom upon their heads and lose them custom. Officials find them difficult simply because they do not fit into the industrial food producer mould; their very independence is their downfall.
MAFF has recently issued draft Dairy Products Hygiene Regulations, running to 165 pages. The last regulations are only four years old. Arthur Cunnynghame, 1242 chairman of the Specialist Cheese Makers' Association, of which I am a member, has said:They are so hideously complicated, you need a PhD in microbiology and a corporate lawyer to interpret them. The cost of such professionals is not a problem if you are a huge dairy churning out thousands of tonnes of cheese, but it is yet another stray to break the back of the small cheese maker".It appears that there is a requirement that every hatch of cheese should be microbiologically tested. Some of my batches consist of only one or two cheeses. Even if I could afford the tests, I would be left with no product to sell.
Mr. Cunnynghame recently met the Minister for small businesses. It was with despondence that he came away from that meeting. The Minister was able to offer little but sympathy.
I turn now to the Meat Hygiene Service. It has featured much in the news and in Parliament of recent weeks. First, there was the instruction that, in the interests of hygiene, all hairy cattle should have their underbellies shaved. Hairy cattle are hairy because they live out of doors. Many only see their human owners from a distance. In other words, they are wild. To bring these animals from their hill grazing into a yard and get them into a cattle crush is no simple task. To attack them with noisy electrical clippers is a recipe for a very short life. It is hardly surprising that more than 200 farmers and slaughterhouse workers in Scotland alone have suffered serious injuries. Even with the evidence of this human carnage, the Meat Hygiene Service resists any sensible change, such as clipping the animals after slaughter, because the hair might contaminate the slaughterhouse. To add insult to injury, there is no shred of evidence that the campaign has prevented as much as a single case of food poisoning.
There are numerous examples of the inappropriateness of legislation in this field, such as the requirement for eartags which rip animals' ears, causing them pain and infection; washing animals before they go on a long and stressful journey to market or abattoir with animals from other farms when their automatic response will be to produce copious sloppy faeces. It seems that they were dreamed up by a pen-pusher in a thickly carpeted office who has no concept of the practicalities or of animal behaviour.
On 21st April 1999, the Minister of Agriculture announced that the £20 million burden for specified risk material inspection would not be imposed upon abattoirs for this year. The Government would commission a study to examine the dynamics of the slaughtering sector and of the impact of the charges on abattoirs and producers. On 7th May 1999, a consultation document was sent out to a very limited number of interested bodies. This was received on 10th or 11th May. Replies are required by noon on 17th May 1999. The questions in the document are complicated; the recipients will need to consult with their members, some of whom will be unavailable during this week. What of the Cabinet guidelines which state that there should be at least eight weeks allowed for a consultation process?
In these graphic, if rather personal, examples is an illustration of the attitude to small producers embodied in this Government. Legislation that is introduced in the interests of consumer safety seems to cause Ministers to pay little heed to the safety or welfare, the survival or 1243 prosperity of the people who actually produce the food. Ministers simply obey the diktats of their experts and officials who tell them that absurdity after absurdity is necessary in the interests of consumer safety. Is the Minister aware that in 1996 32 people sadly died from food poisoning? However, 84 died from falling off chairs or out of bed. When are the Government going to oblige us to sit and sleep on the floor in the interests of consumer safety?
The utterance of the mantra "consumer safety" by a tame expert immediately makes a Minister putty in the hands of his officials. Nothing, it seems, is too draconian, too absurd or too costly if it means improvements in consumer safety. Herein, I believe, lies the nub of the problem: the cult of the expert. Only yesterday the Minister of Agriculture told the committee in another place that he had to take heed of expert specialist advice when considering whether to remove the beef on the bone ban.I am not entitled to inflict my personal view",he said. He could not reject the,clear-cut advice of a health professional".The question is, why can he not do so? He refused to ban the sales of unpasteurised cows' milk, against expert advice, on the basis of consumer choice.
If we are to have Ministers at all—and who better to represent the consumer than an elected Minister?—then it is their judgment, their good sense, that should prevail. They should not be slaves to their advisers, or, as Edwina Currie told the BSE inquiry, simply be there to rubber-stamp the officials' decisions. Does the electorate vote for MPs who subsequently become Ministers in the expectation that they will simply be the spokesmen and spokeswomen for unelected officials and advisers? I think not. Do voters expect their elected representatives to take heed of their wishes and weigh them in the balance with other advice before coming to their own considered judgment? I think so.
Noble Lords will know of my interest in organophosphates. It was government legislation that compelled farmers to dip their sheep in organophosphate dips. As a result, there is evidence that many of those farmers have become ill. Shortly after the present Government were elected, the parliamentary organosphosphates group met the then Minister of Agriculture, Mr. Jack Cunningham. We asked why the promised moratorium on organophosphate sheep dips had not materialised. The Minister told us that he was obliged to take the advice of his scientific committees, and that the advice was that the dips were safe if used in accordance with the manufacturers' instructions. Therefore, there would be no moratorium. He told us that that was confirmed by counsel's opinion. I studied the legislation very carefully. All it said was that the Minister "shall consult with", not that he was obliged to accept the advice.
In several Written Questions, I asked for clarification. First, I was told that the obligation was enshrined in EU and UK legislation. When I asked exactly where in the legislation it was enshrined, I was told in effect that actually it was not in the legislation and remained to be tested in the courts. Are the officials always right?
1244 If we explore the detail of many of the imposts we are told that we must obey because they come from the EU, we tend to find evidence of the peculiar genius of our civil servants in expanding the provisions of EU law, or its enforcement, to make UK law much more onerous than it need be, matched only by the compliance of Ministers, who seem to be all too readily gulled into believing what their officials tell them.
Do we want to see the survival of the small independent businesses that are the backbone of our economy? If we do, we need Ministers with a healthy dash of scepticism, and with the vision to see how the influence of multinational companies and supermarkets has crept into and taken over government decision-making processes. We need Ministers who will take time off to think through the actions which are proposed. I understand that Clement Attlee used to retreat to the lavatory for an hour or so when he needed time to think. We need Ministers who will question the advice they receive and not simply act as the mouthpiece of their advisers and officials. Most of all, we need Ministers who possess the same courage and independence of spirit so amply present in those who are prepared to invest their talent and possessions in businesses.
§ 5.42 p.m.
§ Lord Kimball
My Lords, when my noble friend Lord Vinson cast his fly upon the waters of your Lordships' House, I doubt whether he realised what an important rise he would get out of the pool of better regulation.
We are all grateful to the noble Lord, Lord Haskins, for his excellent maiden speech. It was most important that he should have been here for this debate, even though, dare I say, he seemed a little immune from the kind of troubles I have from small businesses.
As your Lordships know, the business of small businesses is not small within the United Kingdom economy. After all, they have created 2 million jobs in the past five years, and 97 per cent of all the United Kingdom's firms employ fewer than 20 people. We cannot afford to strangle the employers of half the total employees within the private sector. What a blizzard they have to stand up to! To stifle enterprise and initiative and erode our competitive position there are the working time directive, criticised vigorously by the noble Lord not long ago in another context, the minimum wage, the working families' tax credit; and the childcare credit; the disabled persons' learning credit; and the student loan repayment administration regulations. It is a massive infliction.
As the noble Baroness, Lady Anelay of St. Johns, said, there have been 2, 400 new regulations since May 1997—an extra £5,000 a year on all businesses. And what do we have going through the House at present? The Employment Relations Bill, with the automatic recognition of unions and immunity from the sack for union leaders. We all know that the unions pay a very large subsidy to the party opposite, and during the negotiations on that Bill there were threats of the subsidies being withdrawn. There was a call for an emergency conference and withholding funding. The party opposite was bought and paid for by the trade union lobby in regard 1245 to this legislation. It is sleaze with damaging consequences in unemployment and reduced prosperity for the small businesses of this country.
Your Lordships are familiar with Parkinson's law, "Civil servants exist to grow their own jobs": the health and safety inspectors, the fire inspectors, the building regulation officers, the environmental health officers, the wages inspectors and the VAT officers. "VAT officer" is the most overworked description in the English language at present. Often with degrees from some rather bogus new university, which should only be a polytechnic, they are nothing more than inspectors. They are very friendly; they are nattily dressed: they are paid for by you and me. They take up a vast amount of precious time and drink prodigious amounts of coffee.
When the Minister replies he should say that he will seriously consider that any firm employing under 500 people should be allowed to charge the Government for the time spent on compliance. That would very effectively concentrate the minds of those who make the regulations.
The noble Lord, Lord Haskins, made in another context a serious attack on the working time directive. He also made another comment—that the Government do not now allow enough time for consultation. It is understandable. Vs, e now have an unprecedented number of advisory bodies—440, containing approximately 6,000 so-called experts. I believe that the staffing of these advisory bodies is putting a strain on our excellent Civil Service, so much so that the normal standards are being dropped, creating the impression that the Government have made up their mind on another slice of socialist dogma and are only pretending to consult in order to cover their subsequent actions.
I had experience with the rural England discussion document. One would have thought that it would come from the Ministry of Agriculture, but it actually came from the Department of the Environment, Transport and the Regions. A 15,000-word submission was returned in answer to all 11 questions. That submission had the ringing endorsement of the Standing Conference on the Countryside. But as the consultative document made no mention of the largest employer in rural England—country sport—I had the impression that the alliance's submission was not to the civil servants' liking.
I wish we could bear in mind that the imposition of the values of the urban majority on the life of the rural community is a form of dictatorship. The quality of democracy is the protection it affords to minorities, not the domination it gives to majorities. The consultation process should at least be genuine.
Then we have a. great statement by the Prime Minister that he is so much in favour of the way America has grown. The great thing in America is the wonderful contribution that small businesses have made to the dynamo of America's growth. Why? Because the American Government have not done anything about them; they have left them severely alone. Any business in the United States with a turnover of less than 500,000 dollars a year has no minimum wage, no ethnic quotas, no disablement facilities and certainly no equal pay, and it can fire people with or without cause. I see no 1246 sign of such steps being taken here. All I can say is that, whatever it may say, the party opposite gives the impression of being entirely tied to its trade union paymasters
§ 5.49 p.m.
§ Lord Haskel
My Lords, I congratulate the noble Lord, Lord Vinson, on raising a very important and difficult matter. It is important because, as he said, regulation affects the productivity, prosperity and competitiveness of our economy. Equally important, however, it affects the quality of life and fairness of our society. Regulation is difficult because it has to achieve a balance between the two.
Perhaps I may pray in aid the words of Isaiah Berlin, who often drew our attention to these mutually irreconcilable and conflicting values which are the price of a liberal society. He said that tolerance enables us to balance these conflicting values. The problem is that the noble Lord, Lord Vinson, and I would not agree on the degree of tolerance required. If we did, there would be no need for regulation because voluntary agreements and codes of practice would do the job.
Noble Lords are concerned about regulation destroying jobs. They are right; so am I. That is a concern. But perhaps I may draw a picture of what an unregulated market-place would look like. Some companies would exploit and deceive their customers through monopoly power. They would use it to destroy the small firms that we are debating. They would exploit their workforce through discrimination and unfair employment practices. They would pollute the atmosphere and endanger life and limb with their working practices and products. Where would our savings and pensions be without regulation in the financial services sector? None of us would want to live in such a society. Of course, some would behave differently. Rowntree, Cadbury, Leverhul me and Simon Marks did not need regulation. They realised that a free-enterprise economy cannot be justified purely on the grounds that it is good for business; it has to be good for society as a whole.
However, regulation also took on other aspects, such as the aspect of bureaucratic control and the quick political fix. Regulations were an easy way of making life simpler for the Government by standardising products and services, thereby inhibiting innovation. New regulation was an easy, knee-jerk political gesture by a government under pressure from an interest group. The legislation on dangerous dogs and on trade union check-off comes to mind.
It is also easier to make regulations universal instead of selective. Of course, there is no need to throw the whole hook at everybody. In fact, many regulations need not apply to small companies. Many small companies are owner-managed and so have no need for the regulations which apply to larger firms, such as those regarding the separation of the duties and powers of shareholders and directors.
It seems to me that there are two kinds of regulation. The first stops people doing what at the time was perceived to be the wrong thing and the other attempts 1247 to encourage people to do the right thing. In either case, we have to be selective. I think that in recent years we have come to recognise this, particularly with the introduction of the Better Regulation Task Force, so ably led by my noble friend Lord Haskins, and by the business test panels. As my noble friend explained in his excellent and informative maiden speech, through those organisations the Government have come to realise that modern regulation is not about restricting people's freedom to be innovative; it is more about encouraging best practice in order to create a fair society and a thriving economy.
I should like to consider some of our more recent regulatory legislation in rather a more balanced way than that adopted by some noble Lords so far. Perhaps I may take an easy one first. I refer to the Late Payment of Commercial Debts (Interest) Act, which has not yet been mentioned. No one can doubt that it encourages best practice and helps small businesses.
A more difficult example is the national minimum wage. I must advise the noble Lord, Lord Kimball, that even small firms in America are subject to a national minimum wage. Admittedly, it varies from state to state, but companies there are subject to a minimum wage. The issues raised by this example are typical of Isaiah Berlin's "mutually irreconcilable values". That is why it needed months of research and investigation by the Low Pay Commission to arrive at a compromise. Perhaps it is too early to say whether the minimum wage has or has not helped firms to maintain a more committed workforce with reduced staff turnover. Presumably, the Low Pay Commission is monitoring that.
Where I think that small companies really do benefit from this legislation is that those regulations, together with other measures such as the working families' tax credit, help to remove the poverty trap making work pay better than benefit is an important reason why there are now more people in work in this country than ever before. That must be of help to small businesses.
The noble Lord, Lord Kimball, suggested that the Employment Relations Bills is a sop to the unions. I see it as a way of avoiding conflict. Again, there has been a lot of negotiation and discussion over that Bill. When we debated its Second Reading on Monday, I made a forecast, which I now repeat. I said that I thought that the Bill would very soon cease to be a matter for discussion because the basic decent minimum standards that it lays down are already carried out by most reasonably run companies, large and small. The Bill hardly affects those companies. It will affect poorly run businesses and bad employers, but I do not think that they will be able to withstand modern competitive pressures anyway. So I categorise that Bill as one which encourages firms to do better by adopting best practice in order to survive.
The regulations in the Social Chapter are a mixed bag, but many relate to parental leave and the rights of part-time workers, many of whom are married women. I would group those under family friendly regulations. On many occasions your Lordships' House has debated the importance of the family and has consistently called for more understanding of the pressures that modern 1248 working life puts on the family. Those regulations are designed to achieve precisely that. They bring the pressures out into the open and systemise ways of dealing with them. How much better it is to do that than to force people to conceal family problems and perhaps lie about them to their employers. Can I categorise those regulations as helping best practice? I think that I can.
There has also been legislation to protect whistle-blowers and to speed up the resolution of disputes. The noble Lord, Lord Vinson, is concerned about small employers being taken to industrial tribunals. The Employment Rights (Dispute Resolution) Act, which received Royal Assent on 8th April, is specifically designed to speed up the resolution of such disputes by informal arbitration instead of going to industrial tribunals.
In addition, I advise the noble Lord, Lord Vinson, that any employer, large or small, involved in a dispute with an employee must seek the assistance of ACAS. I was an employer in the textile industry for 30 years. I can assure the noble Lord that that industry knows all about small companies. When I was involved in disputes, I found ACAS very helpful and professional. It favoured neither one side nor the other and avoided quite a lot of the nonsense about which the noble Lord spoke. Of course, if an employee is determined to have his day in court, there is little that anyone can do about it; but the same applies to disputes with neighbours over the garden fence.
I too am concerned that over-regulation will impede the nation's productivity and the ability of small firms to employ people and to flourish. However, improving the nation's productivity and the success of small businesses depends on a lot more than just regulation. It depends on investment, training, skills, innovation and, crucially, management introducing best practice. I have tried to show that some recent regulations and legislation have helped to do precisely that—encourage best practice. Certainly, there are other ways of encouraging best practice. There is the work of the Best Practice Division of the DTI and presumably the new Small Business Service. Firms in supply chains can insist on best practice from their suppliers. There are voluntary codes of practice. But regulation by legislation does not exclude these. It closes the loopholes and sets the often minimal standards.
Regulation is not all static. There is a dynamic element. It is important to differentiate between the two. This work is being carried out by our own Better Regulation Task Force and the Business Test Panels set up by the European Commission and the Internal Council. In nine countries, including the United Kingdom, these test panels act as a test market to assess the regulatory burdens on business of new legislation. I hope that the Government will encourage this work, including the work of the Better Regulation Task Force, for there is a price for regulation. Let it advise if it is a price worth paying.
§ 6 p.m.
§ Lord Taylor of Warwick
My Lords, it was the comedienne, Victoria Wood, who uttered the rather dubious prayer, "Please God, let me prove that winning 1249 the lottery won't spoil me". For many, starting one's own business is a lottery with no guarantee of success.
I am privileged to be a vice-president of the Small Business Bureau and president of the African Caribbean Westminster Initiative. Both of these national organisations have given me some insight into the opportunities and problems facing the small business community. I also speak from personal experience as a director of a small company.
Having said that, I acknowledge that my business experience is far short of that of the noble Lord, Lord Haskins. I take this opportunity to welcome the noble Lord to this House. I believe that we all agree that he will be a great asset.
There is no doubt that the future of small companies is vital to our economy. They form the majority of businesses in this country. There are 3.7 million small firms contributing 40 per cent. of turnover and employing 50 per cent. of the private sector workforce. Nearly 95 per cent. of them employ fewer than 10 people.
When I was a full-time barrister the rules of life seemed relatively simple. My experience in the criminal courts had taught me, for example, that one should never buy a portable television set in the street from a man who is out of breath! Furthermore, video recorders described as "genuine Victorian antiques" are usually from a less than honest source.
But starting a small business takes one into another world where one feels a little like David surrounded by an army of Goliaths, including the Working Time Directive Regulations and the Minimum Wage Rules. Clearly, some regulations are required, especially to protect health and safety. But it is the cost and the complexity of the system which is wrong. Since May 1977, when the Government came into power, they have imposed over 2,000 new regulations. I believe that it now 2, 400, but who is counting?
The Institute of Chartered Accountants estimates the extra cost of regulation on the average small business to be £5,000 per year. That sum is enough to close down some firms or to deter others from even starting. The Confederation of British Industry, the Institute of Directors, the Federation of Small Businesses and the Forum of Private Business are all critical of the present situation.
The noble Lord, Lord Haskins, acknowledges—and one is grateful for it—that the compliance with regulation impacts far more on small firms. Large employers can delegate or hire more management to cope with the additional administration. The small businessman usually has fewer options. The sole trader often has to divert time away from his business to ensure compliance with a whole raft of rules. The sheer number of new regulations means that smaller companies are sometime unaware of the latest obligations that they have to comply with. So time is spent trying to find out and then there is a rush to avoid penalties for missing the deadlines.
To most small firms finances are critical. For many, the most beautiful words in the English language, apart from the Bible and Shakespeare, are "Please find cheque enclosed". Noble Lords may agree that the phrase has a 1250 certain ring to it. So the last thing that a small businessman wants is to become over-regulated to an extent which actually inhibits wealth creation.
The problem has particular resonance for the ethnic business community. I helped to form the African Caribbean Westminster Initiative because I was aware of how difficult it is for black and Asian business people to attract funding from mainstream financial institutions. To tie them down also with excessive regulation is to keep them at the starting block with less chance of competing.
The Federation of Small Businesses, representing 130,000 firms employing 1 million people, has called for a single inspectorate to deal with regulations such as those affecting health, safety, fire and the environment. These agencies have responded by saying that no one agency could ever be expected to handle all these issues. Quite frankly, I have sympathy with that response. But the problem is that that is exactly what the small business owner is expected to do.
The noble Lord, Lord Haskins, does not appear to be complacent about the situation. He may agree with me that the Working Time Directive, certainly in its initial form, was clumsy and unclear. The Government introduced it in a rush with no parliamentary debate. It may be that they were worried about being taken to the European Court. The leaflet explaining the directive contains 72 pages. The problem is that it had a number of errors. I believe that it is on its third reprint at the Department of Trade and Industry to get it right. If the department is unable to get it right how can the small businessman do so?
As regards the National Minimum Wage Rules, I notice that they were introduced on All Fools Day. I make no other comment about that. The DTI did provide a 112-page guide, but firms were given just three weeks to comply, to get it right by day one or face criminal conviction and a fine of up to £5,000 for not complying. Bearing in mind that the rules cover temporary staff, seasonal workers, piece workers and includes bonuses, but not free meal vouchers, this task is not easy for anyone let alone the small employer. The Government seem to be operating on the principle: "If you can't convince them, confuse them. "
I accept that simply exempting small firms from regulation would not be right, especially in areas such as food safety. But, as suggested by the Confederation of British Industry, regulators should put more emphasis on helping firms comply, rather than punitive enforcement.
I understand that there are more than 30,000 regulation enforcers at the moment. But one of the problems is that local authorities put different amounts of resources into enforcement. So a small business in one area could be subject to visits from one inspector after another while those in another area are less scrutinised. Even where advice is given, inspectors from different agencies have been known to give conflicting advice to the same business.
1251 As regards employment, we know that small companies in America are not covered by many of the business regulations. They seem to do very well. But their employees can enforce their rights through the legal system and frequently do.
There is a strong argument for a freeze or amnesty on many more regulations at least for the rest of the year. We should remember that small firms are already trying to cope with pressures from the introduction of the euro and the need to prepare against the millennium bug. It seems to take more brains and effort now to comply with the myriad of regulations than it does to actually make an income.
There should be at least an annual statement to Parliament on the cost of regulation and the Government's plans to reduce that cost in the following year. I would also welcome a minimum period of consultation; for example three months, on each new regulation, with organisations like trade associations. There could also be a similar period of notice, within which to give firms time to prepare.
I have a business friend with an exceptionally creative mind. But just to keep his small company going amidst the sea of regulations, he feels unable to employ more people to make the business itself grow. As he told me, "John, I started out with nothing and I still have most of it".
It is time for a better balance and greater understanding of the difficulties faced by small firms. Over-regulation is the enemy of job creation. We must not forget the old saying that you cannot fish and mend your nets at the same time.
§ 6.9 p.m.
§ Baroness Byford
My Lords, I rise today in defence of small businesses generally but particularly small rural businesses that tend to be separated by distance from specialist assistance. Not for the rural business a quick trip for photocopies, replacement stationery or lunchtime baps. Similarly, they lack the casual contact with one another and with professional firms that can occur throughout the day in town and city. Membership of luncheon clubs, golf clubs or even the chamber of trade is more difficult for the man and woman who is situated five, 10 or 20 miles into the countryside.
The noble Lord, Lord Simon of Highbury, speaking in Monday's Second Reading debate on the Employment Relations Bill, said that its purpose wasto create an understanding between employers and employees". —[Official Report, 10/5/99; col.967.]I submit that its effect will be to isolate even further those rural businessmen and businesswomen who will now have to cope with union recognition for firms with just 20 people and three months' unpaid leave for maternity and paternity. One wonders whether this will extend to both parents simultaneously where they work within the same small business. Ten per cent. of the workforce is to have three months' unpaid leave. That is interesting, even mind-boggling. There is also to be 1252 time off for domestic incidents. I point out that neither the Bill nor its proponents has yet defined what constitutes a domestic incident.
In his speech on Monday the noble Lord, Lord Simon, told us that he had spent five years as the head of British Petroleum. I am sure that he is highly qualified to pass judgment on big business, but I wonder whether such accreditation fits him to comment, nay legislate, on a myriad of small businesses affected by a confusion of rules and regulations. Moreover, he told us a little later (at col.971) that the cost of his legislation would be,about 5p a week per employee".According to my elementary mathematics, it will cost £1 per week, or £52 a year, for the owner of a 20-strong business to implement and fund what the Minister described (at col.966) as,a radical, forward-looking package of measures".I turn now to the existing burden of regulation, and I use that expression advisedly. I provide another quotation, this time from my noble friend Lady Miller who said in Monday's debate (at col.974):statutory instruments are no substitute for an Act of Parliament, which receives the scrutiny of the two Houses on three separate occasions, whereas a statutory instrument is considered only once and cannot be amended: take it or leave it. Parliament has to accept the bad provisions or throw the good ones out with them".The Nottinghamshire Chamber of Commerce and Industry has told me that in its latest quarterly survey 41 per cent. of manufacturers and 31 per cent. of service providers quoted legislation and administrative burdens as being of greater concern to them than in the previous quarter. They have suggested that the Government allow a learning space of at least four months between the approval of a regulation and its coming into force. I was interested to hear the noble Lord, Lord Haskins, in his very good maiden speech suggest that there should be perhaps a time delay. This only highlights a situation typified by the beef-on-the-bone ban where a series of industries covering a great many firms, large and small, was given only 24 hours to implement that ban.
Regulations emanate from the Government but we must not lose sight of those that are prompted by European directives. I recall a problem on Radio 4 last year in which the representative of a cheese manufacturer stated that the cost of complying with European health and safety and hygiene rules had put a number of his competitors out of business and that he had survived only by virtue of the fact that he was a charity (Camphill Trust).
The noble Countess, Lady Mar, has consistently, and today, reiterated her concerns about the increasing burden of legislation on small businesses. The NFU claims that 62 per cent. of farmers now obtain part of their income from diversification. Ten years ago off-farm income was only 20 per cent. of agricultural earnings. Nowadays, particularly on lowland cattle and sheep farms, the majority of earnings comes from agri-businesses of one kind or another.
I am also very concerned not only about the legislation with which small businesses are quite happy to comply but the fact that, particularly in the farming industry, small businesses should be allowed to compete 1253 on a level playing field. On 21st April in the other place my honourable friend Mr. Tim Yeo asked the Minister, Mr. Nick Brown, whether it was true that French pig farmers received extra financial aid. He wished to see proof of it. Today, my honourable friend has provided a press release which shows clearly that additional subsidies are being paid to French pig farmers. In a speech given by the Minister, M. Jean Glavany, to France's National Federation of Pig Producers he spoke of an extra 150 million francs having been given to the pig industry since he became Minister.
If small businesses are to compete surely they should do so in an even-handed way. If that does not happen it is the responsibility of the Government to ensure that it is looked into. The pig industry is in crisis, as one or two noble Lords know only too well. All I ask is that our pig farmers and others are able to compete on a level playing field and that where that is not so our Government refer the matter directly and quickly to the European Commission.
We in this country have set down standards for our industries with which people are quite happy to comply. However, recently I spoke to a small business person who is a farmer and ice-cream maker. We have laid down national standards on environmental and health issues. However, in her case part of the farm is in one district and the ice-creamery is in another. The district councils interpret: the standards in a totally different way. That is a matter of very great concern, and I hope that the noble Lord will look into it.
The noble Countess, Lady Mar, referred to the plight of small businesses particularly within the farming industry. Sometimes one is tempted to query figures when one is on the receiving end of a stream of complaints about the effects of bureaucracy and our work here. There is the problem related to matching European funds, for example for environmentally-friendly schemes. Recently, a scheme for recycling a two-year backlog of waste plastic materials held on farms was itself delayed when the Welsh Office refused to match a successful hid from Europe for money. That is one example, and there are many others.
I thank my noble friend Lord Vinson for enabling me again to stress that small firms often become big businesses. The noble Lord, Lord Haskins, touched on that point. It is my profound hope that they will continue to do so in future. Earlier this year, I went to the Country Living Fair at Islington. I was encouraged more than anything else by the Prince's Trust pavilion, which was put aside for 80 young people to show their skills and entrepreneurship. It was exciting to share their ideas, hopes and drive. My hope is that the Government will realise that small firms must not be overburdened but be allowed to grow, so that those little acorns will be allowed to grow into bigger businesses.
All successful businesses perform a tax-gathering, information-supplying, statistics-compiling faction for central government. Large businesses can support the costs by incorporating those functions in other tasks. Small businesses have to employ somebody else or take time out to undertake that work themselves. I remind your Lordship of Lord Simon's 5p per week per 1254 employee for running the proposed employee relations legislation. Such glib statements accompany the cost analysis of many government proposals hut the reality is far more onerous. Small businesses suffer disproportionately from laws and statutes. In Europe, derogations are often applied to small businesses, whereas in the UK we seem to specialise in making life even more demanding on them by adopting standards that are even more stringent than those of our competitors—simply gold plating.
§ 6.21 p.m.
§ The Earl of Kintore
My Lords, I thank the noble Lord, Lord Vinson, for introducing this important debate. I take part as a Fellow-elect of the Small Business Fellowship of the Industry and Parliament Trust, and I declare an interest as president of the Institute of Certified Bookkeepers.
Small businesses are being strangled from trying to comply with regulations, and the costs for small business are disproportionate. A study by the University of Bath in 1995/96 showed that the compliance cost to employers of operating pay-as-you-earn, expenses and benefits in kind, national insurance, statutory sick pay and statutory maternity pay was £288 per employee per annum for firms with between one and four employees. That compares with as little as £5 per annum per employee for companies employing 5,000 people or more.
Another frequently heard complaint is that businesses act as unpaid tax collectors for the Government. It is probably correct that business tax administration should take place on business premises, but could not the Government recognise that businesses and small firms in particular are providing a free and efficient tax-collecting service? That service should surely be paid for, by allowing businesses to retain a small proportion of the tax raised. That simple gesture would raise the morale of small firms no end. If it would be too expensive to apply that measure to all businesses, restrict it to firms with, say, up to 50 employees. France, Germany and Holland have schemes to compensate firms for their VAT compliance burdens that allow them to retain some of the tax collected.
Small businesses up to a certain size enjoy exemption from some of the more onerous regulations. The noble Lord, Lord Haskins, whose maiden speech I enjoyed immensely, is quoted as saying that some firms are deterred from going beyond the point at which they are exempted from some regulations. I am sure that he is correct. As we want small firms to grow, the answer seems to be double the exemption criteria. I hope that the Minister will not say that is impossible because our European partners would not understand. They probably do not understand the rules of cricket either.
The noble Lord, Lord Haskins, is also quoted as saying that Ministers spend far too little time considering enforcement when legislation is planned. Perhaps we could look to Scotland to solve the problem. I am delighted to see that the Minister with responsibility for trade in Scotland is in his place. I welcome also the appointment of the noble Lord, 1255 Lord Steel of Aikwood, as the first Presiding Officer of the Scottish Parliament. Presumably we will be able to welcome him to these Benches when he attends this House.
The Scottish Parliament is to be a unicameral House, and planned legislation will go out to consultation and be thrashed out in pre-legislative committees—so that when legislation is passed by that Parliament, it should work.
It would be churlish not to recognise the lowering of the small business tax rate in the last Budget and that interest rates are moving the right way. However, with all due respect to extremely hardworking small business Ministers at the DTI, I fear that not much more will be achieved until there is a complete change in the way that we regulate small businesses in the United Kingdom.
§ 6.26 p.m.
§ Viscount De L'Isle
My Lords, I add my thanks to the noble Lord, Lord Vinson, for sponsoring today's debate. He has much practical experience in his own right and is a respected past chairman of the Rural Development Commission. My late father taught me among other things never to disturb him when he was reading The Times or drinking his port; and that self-interest never lies. So I declare an interest as a small businessman in varying enterprises including land ownership, agriculture, tourism and retail—and as the holder of a sub-post office franchise from Post Office Counters Limited.
The creation and maintenance of a viable rural economy has long been of interest to me—not only out of self interest but so that I may help to improve the lot of my fellow country dwellers. The noble Lord, Lord Haskins, would call it best practice. In the gracious Speech at the beginning of this Session, we heard about the Government's wish to promote entrepreneurship. It is from small beginnings that many successful business grow.
The country has a good supply of redundant agricultural and industrial buildings available for conversion, to rent relatively cheaply as work space. They are a good starting point for small businesses. It is irritating to hear from the Islington Tendency that such conversions only profit the landlord. At Penshurst, we are proud to have managed the creation of more jobs in our workshops than have been lost to agriculture since 1945. Three start-up businesses have expanded into much larger companies.
We would be able to create more workshops but for a perverse written planning appeal, when the inspector admitted that a building had been on the site but chose to ignore it for the purpose of the appeal. My only recourse would have been to the High Court, when the cost of the case would have been greater than the rental income would ever have been. One really must have common sense in rural planning decisions.
The threatened loss of the sub-post office in Penshurst some years ago encouraged me to take on the franchise. The sub-post office provides all the normal services. The most profitable is the paying of old age pensions, 1256 Giro benefits and postage stamps. It seems a little illogical to me that if one buys 26 1p stamps to send a first class letter, rather than one 26p stamp, the sub-postmaster will receive more money at the end of the year. It is probably a symptom of past regulations. I seem to recall that before British Telecom was privatised one could have one's telephone mended by the GPO only on a Saturday or Sunday because that is when the engineers were paid double time.
The closure of the only food shop in the village forced me to open a village store. I was pleased to hear from the maiden speech of the noble Lord, Lord Haskins, that the proposed licence fee will not now go ahead. It seems illogical that my shop, which has perhaps 50 or 60 lines, would pay the same amount as Mr. Fayed would pay for Harrods food hall.
As the owner of a two-pump filling station, I must accept that safety is important when dealing with petrol storage. I am rightly expected to keep accurate statutory records of fuel deliveries, sales and stock sold so that one is able to tell at a glance whether there is any seepage of petroleum spirit either into the atmosphere or the ground. However, as a belt and braces operation, and at some considerable cost, I am expected to have the fuel tanks pressure tested once every two years. It costs something like £1, 500 for five tanks. It seems a rather overbearing amount of regulation.
Where the village high street still exists it is faced with ever more draconian regulation which drives out any possibility of a living wage. As the owner of an historic house and garden open to the public for seven months of the year, I employ a large number of part-time staff. I believe that all members of my staff are fairly rewarded for the work they do. Indeed, I have always believed the adage, "If you pay peanuts you get monkeys". The Government's signing up to the European work directive has meant that every part-time member of staff who works one day a week for more than 13 weeks will receive three days' holiday pay; and from 23rd November of this year that will rise to four days. It seems illogical that people who are paid at a higher rate because they are temporary staff should then receive holiday pay as well.
I imagine that such regulation is driving up costs throughout the tourist industry. In small businesses, the introduction of unpaid paternity leave, maternity leave, and statutory sick pay means that it is difficult to get cover, or one often pays twice for the same job.
Small firms are faced with an array of regulatory bodies: Inland Revenue; Customs and Excise; the Health and Safety Executive; the planning authority; and the Environment Agency, to name but a few. Each agency considers its particular brand of bossiness paramount. The poor employer has to deal with all those demands as well as run his business profitably. The decision to take on more labour is often coloured by the need to keep more records for the many statutory returns, while struggling to meet deadlines and keep the bank manager happy. It is safer and easier for an inspector to say no than to consider an economic and sensible alternative. We should never let the best be the enemy of the good.
1257 The anarchic nature of free enterprise can be quickly stifled by too much regulation. It must be the duty of the Government and the legislature to keep the amount of regulation to a sensible minimum. The effect of our deliberations, and of those in another place, often translate into draconian measures by those who implement legislation. One would hope for a proactive relationship with regulators rather than a vindictive reactive one.
§ 6.35 p.m.
§ Lord Rowallan
My Lords, I declare an interest as the owner and director of several small businesses. I am often forced to ask myself why anyone would want to start up a small business. There are so many rules, regulations and laws which make life impossible that we must be mad to contemplate it. There is a battery of red tape to stop one from succeeding and to drive the unwary back to employment, or unemployment, rather than their desired role of employer.
In a tongue-in-cheek manner I wish to take your Lordships through the imaginary beginnings of a small business. First, you need to find a place to run your business. It sounds logical and seems easy until you start looking around, and then it becomes remarkably difficult. Having found it, you are faced immediately with a large insurance bill. You must have liability cover, employee cover, fire and theft cover and many more.
Then you have the joy of paying business rates, and for the pleasure of paying those rates—taking people out of the dole queue and helping the business profile of your local authority area—you will have the great joy of joys: your refuse will be collected. But you will not have a vote in the local elections and so will have no say in who your local councillor is or the political make-up of the council.
Then you probably have to go to your local council to arrange a change of use for your chosen venue in order to comply with the local district plan. In the case of agriculture, farmers are being asked to diversify. They move from being rate free to being rated. That surely has to be the biggest disincentive of all.
Now you have a business and it has been registered in the local authority's record. The next step is visits from health and safety and environmental health officers and the fire brigade. They all tell you different and converse things. That necessitates an annoying and boring round-robin series of meetings until the common denominator is found.
The most extraordinary situation arose in my equestrian centre recently. The environmental health and health and safety officers insisted that we had a small door put into one of the walls of our riding school so that people could get out. I pointed out that right next to that area was a 15-foot by 15-foot door which would make it easier for people to get out if there were a rush because of some crisis. The only people who paid any attention to me were the fire brigade. After a long series of arguments it was agreed that I would not have to put in a five-foot door when there was a 15-foot door within one foot of that area
1258 Now you have your business and a venue so what do you need next? You need employees. The only problem is that you cannot have those you want. You cannot apply for females only or males only; and you are discouraged from discriminating on age grounds. You definitely cannot choose on grounds of colour or race. Even when you have made your choice, the potential employee whom you turned down can claim that you chose the person you did because he was a Scot and you chose an English person, or because he was white and you chose a black person, or vice versa; or, as the noble Lord, Lord Vinson, said, you chose a non-pregnant person rather than a pregnant one.
After all that, you have your employees. They must only work a certain number of hours. They must be paid the minimum wage as set down in law. You must give them PAYE status and you must quickly understand how to work out wages. You cannot claim that they are all self-employed and give them each £100 a week cash in hand, or whatever you decided to give them. That would be far too simple. We all pay our tax returns now through self-assessment. But you are not allowed to call them self-employed persons and let them work the figures out for themselves. You are now an unpaid government tax official. But do not get the figures wrong because you cannot claim back from your new employee any overpayments or mistakes you have made.
You must also remember that if an employee is sick he must be paid. If she becomes become pregnant you must keep her job open for her, even if you do not know whether she will come back after the birth of the child.
You must also decide whether you are going to opt to be VAT registered, and if you do that you must fill in the necessary returns each quarter. Again. do not make any mistakes, as you will have to pay for these with interest at a punitive rate. Ignorance is no excuse. Again, you pay to do this, but you had better do it, even if you have not got the time to do it and your business needs your attention on the shop floor rather than in the office. Oh, you can employ someone to do it for you, but if they do it wrong it is still your fault because you have not given them the right information.
Now your business is up and running and you have to fill in your annual returns for Companies House, and, guess what, if you are late there is another fine: automatically £100. The bank, if you are in the unfortunate position of having an overdraft, wants you to make a profit and it only accepts that you are doing that if you have to pay tax. You may feel that you should keep that money, reinvest it in the business before the year end and use creative accounting. You realise that you would be better off not paying the tax, but the bank cannot see that and so the man who should remain in his cupboard—your friendly bank manager—more often than not loves to come out of his cupboard and asks to see you. He is now concerned that the bank's money is at risk. You point out that your overdraft interest payments are paying bank employees' salaries. But he is not impressed by that and he says he wants to discuss the matter with his superior, who is probably a 1259 computer. So instead of reinvesting you pay the corporation tax and trust that the bank knows best. The moral of the story is, do not have an overdraft.
Now everything is running smoothly, the business is going, you are making money; but one of your employees is not pulling his weight. He really needs to be sacked because he is destroying the morale of the rest of the workforce. If you do not do this in the correct way you can be sued. It is your business: you should be in charge, but you are not. In the Daily Mail today there is a little story in Lynda Lee-Potter's column which runs:Sales co-ordinator Natasha Jeary was sacked because she had agoraphobia, which made her afraid of travelling and of public places.She's now been awarded £7,000 after the Exeter employment tribunal ruled that her bosses breached disability regulations by sacking her because of her condition".As Lynda Lee-Potter asks, what use is a sales co-ordinator who cannot travel?—about as much use as a chauffeur who cannot drive. I think she has got it right.
Even if you do sack someone properly, you can still be accused of bias in your sacking. If you are a male, females can destroy you with allegations of a sexual nature in retaliation, destroying your business, your personal standing in the community and your marriage. Naturally it sometimes happens the other way round, as no one likes to be sacked. As someone who has been sacked in a previous incarnation, I can assure your Lordships that it is not a pleasant experience.
In another of my businesses we were in fact accused and taken to an industrial tribunal by someone whom I had taken on who had AIDS and I knew had AIDS when I took him on. As your Lordships will know, I take on ex-prisoners and I have taken on a variety of people. I do not think I could ever be accused of bias in any direction at all on that score. He was quite ill and after a period of employment in my business he decided that he had to go to hospital to get himself sorted out for a bit. When he came back he carried on working and he worked very well, but then certain other things happened and unfortunately our ways had to part. I was absolutely shocked when a week later a letter came through the post saying that I had sacked him because I had just discovered that he had AIDS. Nothing could have been further from the truth: he knew that, I knew that and it was a question of proving it to the industrial tribunal. It took an enormous amount of time and amount of money and I certainly had other things that I wanted to do. In the end the case was proved in the right way and everything was okay. However, it just goes to show in what a difficult position employers can be placed.
So now the poor old small business man has the industrial employment tribunals to deal with. They tell you what you are going to have to pay by way of compensation to the employee you have sacked because of his or her incompetence. Who would be an employer today? The law is definitely against the employer and does everything to protect the employee. Of course not 1260 many years ago employees definitely needed protection, but we have surely adjusted the balance too far the other way.
I have had a bit of fun in this debate and I want to thank my noble friend Lord Vinson for introducing it. I have taken things to an extreme; I accept that. However, all the scenarios I have mentioned are possible. The system must be simplified. The small business employer does not have the resources of the big business owner, as we have heard from several noble Lords. We must do something to remedy this, and soon. Too much of our economy relies on small businesses. Too many business men and business women are running themselves into the ground just trying to keep their business going and provide employment in their area, and this group of people should not be allowed to go under beneath a welter of rules and regulations.
I should like to make one comment on the subject that my noble friend Lord De L'Isle mentioned. If it is possible for someone who runs a small post office to get commission on sales of stamps, pension payments and so on, surely it must be possible for small businesses to get something back for the work that they do—totally unpaid at the moment—in the form of tax collection.
§ 6.45 p.m.
§ Baroness Sharp of Guildford
My Lords, from these Benches I would like to thank the noble Lord, Lord Vinson, for promoting this interesting and very useful debate and to compliment the noble Lord, Lord Haskins, on his excellent maiden speech.
From all the tales of woe that we have heard from the Benches next door to me here, it is surprising what a vibrant sector the small firms sector is in this country. If we take the small firm as being a firm with fewer than 500 employees—that is actually the definition adopted by the National Statistical Office—they constitute 99.9 per cent of all enterprises in this country and they employ 62 per cent of the workforce. Since 1979 the best estimates are that they have created over two million jobs, and, as the Annual Abstract of Statistics also shows us that between 1979 and 1998 a net 1.5 million jobs have been created in the United Kingdom, it indicates that the small firms sector has more than compensated for falls in employment in other sectors.
Perhaps there should be a few caveats. The fastest growing sector among the small firms has been the very smallest sector, the self-employed. We have seen the proportion of the self-employed rise from 6.6 per cent in 1979 to 13.6 per cent today. It has more than doubled, and represents a faster rate of growth than any other sector. Secondly, we have actually seen a drop in employment in small firms of 200,000 between 1996 and 1998. There was a drop of 200,000 in the numbers relating to small firms and particularly in this very smallest sized category. However it reflects the tougher conditions that manufacturing industry is meeting in the relative recession that we have seen over the past year
As many speakers have pointed out, regulations in this country fall disproportionately on small businesses because they cannot afford the specialist compliance 1261 staff that the larger firms can afford. Therefore in terms of cost per employee or even in terms of overall cost, this is often disproportionately high for small firms.
We have had sterling speeches from a number of speakers, including the noble Viscount, Lord De Lisle, the noble Lord, Lord Taylor of Warwick and, in particular, the noble Countess, Lady Mar, who have told us how small businesses, and particularly small rural businesses, have been suffering. In this respect I should like to draw the attention of your Lordships to an Early Day Motion being put forward in another place by my friends on the Liberal Democrat Benches. It occurs to me that perhaps some noble Lords may like to ask some of their friends to sign this Motion. It draws attention to a survey by the Institute of Chartered Accountants, revealing that some small business advisers believe that the annual cost of implementing new legislation is more than £5,000 for small businesses. It points out that this is a very significant sum for small businesses and it calls upon the Government to carry out an immediate audit of the regulations affecting small businesses and to establish a statute for ameliorating these difficulties. It further requests the Government to commit themselves to ensuring that future legislation will not add unnecessarily to those burdens; to produce an annual impact assessment detailing the costs of all new legislation specifically upon small businesses; and to exploit fully the opportunities offered by the Internet for streamlining the administrative demands upon business.
As I say, we have heard a good deal about the burdens imposed by European legislation and in particular, the problems encountered by small fanners and rural business. Yet, wearing our other hats, as consumers, we are concerned about food safety, about outbreaks of e-coli and that we should have internationally comparable food standards.
If we look at European legislation, there is little doubt that over the years, there has been a good deal of gold-plating by both governments. There is considerable evidence that in other countries—and some of your Lordships have mentioned this—such legislation is not implemented as meticulously as it is in this country. In some of those countries, that legislation is not regarded as the great burden that it is in Britain.
In that respect we all welcome the Better Regulation Task Force mentioned by the noble Lord, Lord Haskins. But there are other lessons which we need to remember and think about. It is important that we should try to engender different attitudes among those whose responsibility it is to administer the legislation. In Britain, there has often been a problem of double-banking of legislation because we have not repealed UK legislation when it has been superseded by European legislation.
We should also like to see more business-friendly enforcement. Enforcement officers should try to be more helpful towards small firms in relation to compliance and be advisers and counsellors rather than prosecuting for non-compliance. It is unfortunate that current performance targets set in the Department of Trade and Industry frequently reward officers in terms 1262 of the numbers of prosecutions they make, rather than in terms of the numbers of small firms which they have helped to comply with the legislation.
I wish to draw your Lordships' attention to research which has been undertaken to look at what it is that creates employment in small businesses. It is extremely valuable to look at what it is that creates the jobs rather than what destroys them. In particular, I wish to mention three pieces of research which are relevant to the issue.
The first piece of research is by Professor David Storey who, for the past 10 years, has run the Economic and Social Research Council unit on small firms research at the University of Warwick. Among other things, he was investigating the position of fast-growing small firms. He found—many people already knew this—that most employment growth comes not from general growth of all firms but from one or two firms growing very rapidly. Birth and death rates among the population of small firms are extremely high. Those which survive create jobs.
Those firms which grew most rapidly and generated the highest profits and growth of employment were the small high-tech firms, often led by a scientist or engineer with a PhD.
We need to see what hampers those firms. The noble Lord, Lord Haskins, pointed to that. The research shows clearly that it is not regulation which inhibits the growth of those firms but access to finance and entrepreneurship. I for one welcome what the Government are doing to promote both venture capital in this country and to train our scientists and engineers who have doctorates in science and technology in management techniques because we need those new entrepreneurs for the future.
That research by Professor Storey has been complemented by further work by Professor Derek Bosworth who is now at the Manchester Business School but he undertook the research when he was at Warwick. He looked at a sample of firms in the Midlands, cross-cutting large and small firms. Among those, he found that only half the firms undertook anything which they called R&D and only half of those firms employed a graduate scientist in R&D. But he also found that those companies which employed graduate scientists, whether in R&D or in the company as a whole were generally more successful and gained faster in profits, turnover and market share than their competitors. Those firms which had a graduate scientist or engineer on the board of directors did even better. Those which had an R&D department and employed graduate scientists and engineers in that department did best of all.
He found that confronted by stiff competition within the global world in which many of those companies operate, those which had an R&D department moved to redesign their products and moved upwards with higher value-added products, whereas those without any resort to science and engineering frequently tried to compete in terms of price and found themselves going under.
Finally, I draw your Lordships' attention to what I call some action research that was sponsored not by the Economic and Social Research Council but by the 1263 European Union under its structural fund in Liverpool. That took place from 1992–94 when there was in Liverpool a surplus of those graduating from the science departments at the two universities—Liverpool University and John Moores University. It was an initiative which took some of those unemployed scientists, trained them for six months in management techniques and then offered them to the small firms in inner city Liverpool on the basis that if they wanted them, they could take them, and if they did not want them, they would be taken back again.
There were problems. Some people were extremely doubtful as to whether they had any use whatever for a graduate among the staff. But the majority of firms took them on. At the end of the year, the EU paid their salaries as interns for a year and offered to take back the graduates. Almost all those small firms said, "No, no. You cannot possibly take them back. We will pay their salaries. And have you got any more where they came from because we found them so useful?".
I believe that in this country we are confronted by a very real problem in terms of innovation; namely, that it is not our large firms which fail us in that respect but, because we have a large number of small firms which are not using up-to-date techniques, they are failing to create jobs. It is the entrepreneurial firms which create jobs. It is vital that we should get scientists and engineers into small firms.
Yes, it is certainly true that regulations are disproportionately expensive for small firms. It is often difficult for them to comply with them. But I echo the words of the noble Lord, Lord Haskins. By all means, let us be vigilant and let us keep the regulations to a minimum. Let us beware of the gold-plating of the regulations. But let us also beware of prejudice and let us heed the results of research. Jobs are being created by the small innovative firms. The key constraints on their expansion are not regulations but finance and skills. We need to concentrate our attention at least as much on those issues as we do upon regulation.
§ 6.59 p.m.
§ Baroness Miller of Hendon
My Lords, like other noble Lords who have spoken today, I congratulate my noble friend Lord Vinson on the excellent way in which he introduced the debate, and thank him for doing so. I am particularly interested as I was a member and director of the Small Business Bureau until I was appointed to the Front Bench of the previous Government in 1994.
I am also particularly interested because I started my own small business in 1972 which I ran and developed into an international business covering three countries by the time I left it in 1998; but not, I hasten to say to the noble Lord, Lord Haskins, as successful as his father-in-law obviously made his. Judging by the standard with which he spoke in his maiden speech today, I am quite sure that his father-in-law must be delighted with the way in which he runs the business. On behalf of all noble Lords, I welcome him to this House.
1264 Inevitably, many contributors to the debate have focused on the potentially disastrous effects of the national minimum wage, the forthcoming Employment Relations Bill and the Working Time Directive. I, too, shall touch on those matters, but first I should like to talk about the difficulties for small businesses.
Businesses have troubles that are started by government. I refer not just to this Government but to every, successive government. Such troubles are caused because government departments seem to be unable to grasp one simple elementary fact; that is, that small businesses are not the same as large businesses. There is a difference between, say, Sainsburys and the local corner shop. The local bicycle repair business is vastly different from Fords. There should be different degrees of regulation and control to which they should be subjected. Many noble Lords have mentioned that today. Small businesses simply do not have the internal resources to put in place the record-keeping requirements imposed on their businesses, nor the money with which to pay professionals to do it for them.
The vast majority of businesses in this country are small and medium-sized enterprises. The directors and their families are also often, indeed usually, the shareholders. The complex rules of meetings, delivering and filing of accounts are totally irrelevant. Every year a limited company has to file a document at the companies registry called an annual return. There are dire financial and personal penalties for failing to do that in time. Why, I ask, do small family companies where the directors, shareholders, registered office and capital remain unchanged year after year have to do more than fill in a simple form asking, "Have your particulars changed during the past year; yes or no?" Why do small private companies have to file their accounts every year, under ever escalating automatic penalties starting from £100 for being late by one day? Indeed, my noble friend Lord Rowallan mentioned that point. It cannot be to inform potential creditors. There are months from the end of the financial year before they have to be filed so they are virtually worthless except to make work at the companies registry. Unincorporated businesses do not have to file their accounts publicly.
Only this weekend we read in the Sunday Times that the Government are about to demonstrate their aversion to the public finance initiative by axing the Pathway Project to computerise social security payments through the Post Office. Indeed, the Benefits Agency wants to pay them through the banks. That is despite the fact that a high proportion of the recipients do not have bank accounts and the banks purportedly do not want this time-consuming business.
It is also despite the fact that the Post Office may have to axe thousands of sub-post offices which depend upon customers collecting their benefit and spending some of it in the shop. The National Federation of Sub-Postmasters has estimated that 5,000 sub-post offices, which is nearly a quarter, might have to close. I very much hope that my noble friend Lord De L'Isle will not be one of those affected. These are the same 1265 sub-post offices far which the Labour Party, while in opposition, shed crocodile tears when the subject of privatisation of the Post Office was floated.
I turn to the topical subject of the national minimum wage, the Employment Relations Bill and the Working Time Directive which I believe will have a devastating effect on British commerce, especially on small businesses, to say nothing of employment prospects for unskilled and young persons.
The Government set up an advisory body called The Better Regulation Task Force. I note that the noble Lord, Lord Haskin, informed us that it is an independent organisation. I also note that the noble Lord, Lord Haskel, called it "our task force". I certainly do not blame him for laying claim to it. Half of its members consist of representatives of small businesses, including one from the Federation of Small Businesses.
Prior to the passing of the National Minimum Wage Act, the task force gave the Department of Trade and Industry certain advice which the Government ignored. The task force loses no opportunity to repeat in its various reports and consultation documents that its criteria for good regulation are transparency, accountability, consistency. proportionality and targeting. Its advice under the heading of targeting welcomed the idea of an enabling Bill, giving the Secretary of State power to make detailed regulations because:It means that where regulations need to be changed or fine tuned in the light of experience this can be done by sample means".What do the Government do in the face of that advice? Under Clause 2(8), Clause 3(3) and Clause 4 the Secretary of State expressly forbade himself from making any regulations which allowed for variations between different areas, different sectors of employment, undertakings of different sizes, small businesses or persans of different ages or different occupations. In other words, in the face of those recommendations of their own advisers they set their face against any form of flexibility which is absolutely necessary in dealing with small businesses. They did it in such a way that no matter how cogent a case there might be for derogation from the national minimum wage in special cases, the Secretary of State could wring his hands and say, "I'd like to help you but I do not have the power".
I proposed an amendment, both in Committee and on Report, removing those self-imposed obstacles and giving the Secretary of State power to vary the national minimum wage in any way, for any purpose and for however long he chose to do so. The amendment was the only one that was passed in this House. Incidentally, my noble friend Lady Anelay mentioned the British Activity Holiday Association. That association would have benefited from that amendment. Its members came and lobbied me on that matter. Were the Government grateful for this aelpful, constructive and totally discretionary new power I gave to them? No, they were not. The Minister rejected it. In the other place they described it as a wrecking amendment. Wrecking? All it did was to give the Secretary of State a discretionary 1266 power to use or not to use as he chose. All it did was to follow the advice of the Better Regulation Task Force, as I believe the Government should have done.
The task force recommended:any form of record which enabled an employer to demonstrate compliance with the act should be acceptable".Following the specific advice of the task force that the record-keeping requirement:should he non-bureaucratic and minimise the need for additional documentationI proposed, in the interests of making life simpler for small businesses, that PAYE records should be. just one such method as an alternative to whatever else the Secretary of State might propose. What happened? The Government rejected my amendment and produced a set of draft regulations that would have entailed the employment of a team of accountants and statisticians on every single pay day.
Fortunately, however, common sense broke through. Regulation 38 now provides for the records to be:sufficient to establish that the employer is remunerating the worker at a rate at least equal to the national minimum wage".That was just as I had suggested. Why did the Government give me such a hard time? Why were they so negative? The reason is that the needs of small businesses are really at the bottom of the Government's priorities. The task force expressly advised that:the absence of records should not be a criminal offence".But, Section 31(2) makes an employer who fails to keep or preserve records liable to a fine on the highest legal level; a maximum of £5,000. I believe that is pure intimidation, especially of and bully boy tactics against small businesses who might not have the means or possibly are too ignorant to even keep the records. No major public company, or one which can afford to employ book-keepers or accountants, will find any difficulty with that.
I turn briefly to the Employment Relations Bill at present before your Lordships' House. I say "briefly" because some of your Lordships will have heard me speaking to it for some 23 minutes the day before yesterday. Your Lordships will be most relieved to know that I do not propose to repeat all of my arguments made then. We shall certainly have plenty of time to go through them point by point in Committee.
For the moment, it is sufficient to say that the proposals for maternity leave, paternity leave and waiting-for the-TV-repair-man-to-come leave will all rebound most severely on small businesses while adding to the overheads and reducing the competitiveness of all businesses. The noble Lord, Lord McIntosh, did not answer my question on Monday when I asked for a definition of the so-called "domestic incident". I hope he will be able to do so—I do not suggest today—certainly before Committee stage.
Small firms with, by definition, few employees will be the most hard hit by employees being able to take time off for some personal problem that could be dealt with at some more convenient time.
Then we come to the working time regulations. This concept was originally contained in the Social Chapter from which the former Prime Minister negotiated 1267 Britain a complete exemption. However, the Brussels bureaucrats and the socialists controlling the various organs of the EU ruled that it was a health and safety measure over which Britain had no exemption—a piece of legal chicanery which deserved an Olympic gold medal for sophistry.
The former Prime Minister protested, but to no avail. It would not have mattered anyway, because no sooner had this Government taken office and without even stopping to take off his jacket, the present Prime Minister was on his way to Brussels, biro in hand, eagerly asking where the dotted line was for him to sign up to the Social Chapter with what many of us believe to be its costly job-destroying provisions. The devastating effect of that directive on small businesses has already been commented on and I shall not repeat it. But what is disgraceful is the way in which that regulation was sneaked on to the statute book. It was laid before Parliament on 17th August during the last Summer Recess. It came into force before Parliament had any opportunity to discuss it. No wonder the task force complained about government failing to allow time for consultation; no wonder the Government are contemplating amending the regulations before they have barely come into force.
I should like to summarise the effect of the regulations the Government introduced in their first two years and which they described as business legislation: minimum wage regulations, £2.4 billion a year (the Government's own estimate); working time regulations, £2 billion a year (the Government's own estimate); Employment Relations Act, £60 million a year (the Government's own estimate); administration of working family tax credits, student loan repayments, stakeholder pensions and disability discrimination compliance costs, a total of another £322 million. That is a total of £4.75 billion a year, apart from the over £300 million non-recurring set-up costs. That is a burden on the whole of British industry and commerce.
According to the Daily Telegraph of 26th April, the noble Lord, Lord Haskins, said,The cost of small businesses complying with employment regulations is disproportionately high".He went on to say,the level has been reached where they present barriers to the growth of small companies…especially from the Working Time Regulations".I was going to say that he described the working time directive as "a dog's dinner", but I believe my noble friend Lord Vinson described it as "a dog's breakfast". I am sure the noble Lord, Lord Haskins, will be able to tell me which meal he did describe it as; in any event, I could not have put it better. I shall be interested to hear the Minister's response to his colleague's comments.
It is abundantly clear that the Government surrender to Brussels and the Government's legislation has been based on political considerations that do not have concern for the commercial interests of the United Kingdom, the interests of commerce generally and small businesses in particular. I believe, unfortunately, we may all have to pay for this folly.
§ 7.13 p.m.
§ Lord McIntosh of Haringey
My Lords, I am grateful to the noble Lord, Lord Vinson, and all who have taken part in the debate. I say that sincerely, though the thrust of the debate has inevitably been critical of the Government. I do not complain of that. I am grateful also, despite that fact, that my noble friend Lord Haskins has taken this opportunity to make a maiden speech. If that was a non-controversial speech, I wonder what his speech would be like if he were freed from the confines of the traditional maiden speech.
I am clearly not going to get away with a whitewash in my noble friend's presence. All I can do, as humbly as I can, is set out what the Government are planning to do about the undoubted burden of regulations on small businesses. Let me start from that common point. I shall say what we are planning to do about it and try and give some answers to the specific questions raised.
As everybody else began by declaring interests and qualifications, let me say that in humble contrast to my other noble friends who have spoken—my noble friends Lord Haskins and Lord Haskel—I ran a business for 30 years which started as a small business and ended as a small business. So I had the disproportionate burdens that have been described right from the beginning.
But in all of those 30 years, from 1965 to 1995, I did not recognise the vast majority of criticisms made by noble Lords opposite; I much more closely recognised what my noble friend Lord Haskins said. The problems for a small business are, above all, finding the working capital and the development capital to get going and continue—in other words, the bank manager rather than the state—and in finding skilled staff to do the work. Those are the two real difficulties.
§ Baroness Byford
My Lords, I thank the Minister for giving way. I believe the Minister said he was in business between 1965 and 1995. I am sorry to interrupt, but my reason for doing so is to say that we have had a plethora of regulations coming in, within the UK and particularly from abroad. The noble Lord would therefore find it much more frustrating now than he did then.
§ Lord McIntosh of Haringey
My Lords, I shall come to the numbers. However, I have to say now that this is a timed debate and I shall not be able to give way to interventions as I was able to do on Monday on the Employment Relations Bill.
As I said, the second difficulty of being a small business was in finding skilled staff. It was not employment relations that were the problem—they were in place for nearly all of the period in which I was in business very much as they are now—it was the lack of skills in the workforce in this country and the lack of continuing education and training for adults. That was certainly the responsibility of the last government, but probably goes back to previous Labour governments as well. I do not want to make a point of that. I was fascinated by the research described by the noble Baroness, Lady Sharp, and I shall have to read carefully what she said, think about it and write to her if I can make any positive contribution to her points.
1269 So I simply do not recognise what is described as being the position of a large number of small businesses. That is not because in any way I underestimate the importance of small businesses to our economy. The noble Lords, Lord Vinson and Lord Kimball, and the noble Baroness, Lady Sharp, all referred to the statistics. Our figures say that 99 per cent of UK businesses employ fewer than 50 people; that they provide 46 per cent of jobs in the private sector and account for 42 per cent of turnover. If we add that to the job creation figures of the noble Baroness, Lady Sharp, we see how important they are.
Let us be clear. The Government cannot make small businesses succeed; but we can help in three ways. We can give help to ensure that those with the will to succeed have a fair chance to do so by providing a supportive and stable economic environment. The most fundamental difficulties I had in those 30 years were the huge swings in business confidence that undermined our customer base in the market research business, which some noble Lords might think is a little remote but it certainly is not. Then we can tackle specific barriers to performance and growth, including regulation, and provide high quality support services. We are committed to doing all three of those.
First, the stable macro-economic environment is already paying dividends. Inflation is under control. Interest rates have come down 2.25 per cent since last October. Long-term interest rates are at their lowest level for 40 years and the public finances are in good order. Of course there have been difficulties for some time with the strength of the pound. That is a problem which exists in many parts of the world. Manufacturers in Europe are struggling as a result of the global downturn and the decline of exports to the Far East. But the figures seem to suggest that this is getting better. However, we still need to take action to address the longer-term performance of the economy and in order to do that we have to close our performance gap with our competitors through productivity and enhancing businesses' ability to innovate ahead of the market. That is what small businesses in particular can contribute to the process.
So we must encourage enterprise. That was the first of my suggestions of things that we could do. We have created the Enterprise Fund, a new fund to support the financing needs of small and medium-sized enterprises. It is worth £160 million over three years and includes a more cost-effective Small Firms Loan Guarantee Scheme and support for regional venture capital funds specialising in the provision of small-scale equity. We also intend to provide tailored business advice and support to at least 10,000 innovative high growth potential start-ups by 2001. Funding of £20 million will be available for that over the next three years, together with a further £20 million to help small firms realise the benefits of communication and information technology.
When I think back to when I started in business, I sometimes wonder how we ever managed without PCs, accountancy programs, payroll programs, VAT programs and even a photocopier. Surely it must be a 1270 minimum aim that any small business which comes within the scope of regulation should have the benefit of electronic processing.
In addition, we have heard much talk about costs. The Budget contained a raft of measures aimed specifically at the business community: the reduction in the starting rate of corporation tax at 10 per cent; the cut in the small companies' tax rate to 20p. in the pound, down from 23p. as at the election; a 10p. starter rate of income tax for the self-employed; and a I p. cut in the basic rate for next year. All small businesses will benefit from the additional £325 million being set aside for small and medium-sized enterprises to write off 40 per cent of all they invest in plant and machinery in the coming year. There is also the new Enterprise Management incentive scheme to provide more generous tax-advantaged equity-based incentives to attract successful managers to the new companies that our economy needs. Smaller businesses should also benefit from the new R&D tax credit for small and medium-sized enterprises—a boost of some £150 million a year.
I do not deny some of the figures as regards the cost of regulation, but they must be set against the help which is being directed specifically to small businesses. We are of course aware of the burden of regulation. We know that the burden is harder to bear for small businesses. We inherited regulatory control systems from the previous administration and we have gradually come—perhaps too gradually—to the conclusion that that administration did not deliver what it wanted to achieve. It tended to come into play too late in the policy-making process and looked at individual measures in isolation, with little appreciation of the cumulative effect on business.
I believe that we addressed the latter in the Modernising Government White Paper published in March, which includes improvements to the Regulatory Impact Assessment system. That means that the Cabinet Office Regulatory Impact Unit will have to be consulted on all regulatory impact assessments on both primary and secondary legislation. There will be a forward programme of regulatory proposals over the next three years, including European Union proposals, to enable Ministers to decide collectively on the overall shape of the regulatory programme and how to cut it down. We have asked the Better Regulation Task Force, led by my noble friend Lord Haskins, to spearhead the Government's drive to remove unnecessary regulation from the statute book. So there is no doubt that we are trying in many ways, through central government, to relieve the burden of regulation which has been described.
The third element that I referred to was advice and support. That is why we decided to set up a new Small Business Service. We found that traditional government structures have not worked to the advantage of small business. We agree with the noble Baroness, Lady Sharp, that what we should be doing is helping small firms to comply, and not setting targets for prosecution. Therefore, for the first time we are creating an institutional structure which reflects the importance of small business. The new body will have three main functions: first, it will improve the quality and 1271 coherence of government support programmes; secondly, it will help firms meet the demands of regulation, working with the Regulatory Impact Unit and the Task Force; and, thirdly, it will act as a strong voice for small business at the heart of government.
I will have to race through the answers to specific questions, but I shall do my best. Perhaps I may, first, talk about the number of regulations. The noble Baroness, Lady Byford, intervened at one point, but I was interested in the question put by the noble Lord, Lord Taylor, namely, "Who's counting?" Well, we are counting; and, indeed, we have counted. In terms of the total number of regulations, including those which do not impact on business, the numbers have varied over the past five years between 3, 200 and 3, 400 and there is no pattern of increase whatever. The number of regulations imposing costs on business in 1995 was 180, in 1996 it was 209, in 1997 it was 168 and in 1998 it was 199. Therefore, there is no good evidence to show a significant increase in the number of regulations. I say that in the face of what has been said by a number of speakers about surveys on the impact of new regulations.
One of my favourite surveys is one which was not referred to in the debate, but it has been quoted in a number of press reports during the past month. It was produced by Peninsula Business Services and the first question was:Do you wish that employment legislation was easier to implement?I have to tell your Lordships that 16 per cent of those surveyed wished that it were easier to implement while 84 per cent appear to have said, "No"—so presumably they wanted it to be made more difficult. We shall not satisfy them.
On the cost of implementation, it seemed to me that the noble Baroness, Lady Byford, simply did not believe my figures on the Employment Relations Bill. I think that the Opposition had better look at the Regulatory Impact Assessment. No criticism was made of it when it was possible to do so on Second Reading. We will welcome debate on the assessment. The amount of £60 million a year is small compared with the benefits which we have been able to introduce as a result of the last two Budgets.
I had hoped to say a few words about enforcement, but no speaker referred to it. I wanted to do so because I wanted to congratulate the noble Lord, Lord Vinson, on his work at the time of the Deregulation and Contracting Out Act 1994 and on his contribution to the creation of Sections 5 and 6 which very much improved the enforcement provisions. I hope that the noble Lord will be pleased to hear that we are looking at them again in the hope of improving them further.
On the issue of small firms exemptions, the noble Lord, Lord Vinson, asked for a blanket exemption for small firms, while the noble Lord, Lord Taylor, asked for a freeze until the end of the year. However, I believe that my noble friend Lord Haskins answered that. With all the contact that he has had with small businesses, he simply said that small firms are not looking for that. Of 1272 course, there are many exemptions for small firms, for example, there is a threshold for company accounts below which companies only need to file abbreviated accounts, and there is also a threshold below which there is no statutory requirement to have accounts audited. Moreover, in comparison with most other European countries, there is a very high VAT registration threshold and there are of course the lower rates of corporation tax to which I referred. There is a threshold for statutory union recognition under the Employment Relations Bill. Indeed, there are plenty of examples of tempering the wind to the shorn lamb, but that does not appear to be a major issue in the representations being made to the task force.
The noble Lords, Lord Vinson and Rowallan, made particular points about employment tribunals. We certainly recognise that there is always a possibility of what we call "blackmail applications" being made to employment tribunals. The Employment Rights (Dispute Resolution) Act 1998, to which my noble friend Lord Haskins referred, encourages alternative forms of dispute resolution. It enables ACAS to find and promote a scheme for the arbitration of unfair dismissal as a speedy, formal and private alternative to tribunal proceedings. Much has been said about the Employment Relations Bill. Perhaps it would be better to leave discussion of that Bill until the lengthy debates that will undoubtedly take place.
In responding to the noble Baroness, Lady Miller, I failed to give her a definition of "domestic incidents". I am not able to give her a definition but I can give her examples of what is in and what is out. What is in are certainly things such as the sickness of family members and others or being called to a school; what is certainly out is being called to the TV repairman, as the noble Baroness suggested. I was going to use the example of the lost hamster.
I am surprised that the noble Lord, Lord Kimball, in particular, should repeat the canard that we are tied to trade union paymasters. If he looked at the history of the Employment Relations Bill he would recognise that it has arrived as a result of 18 months intensive consultation with employers' organisations and with trade unions. He will find that, in general, employers' organisations are as satisfied with the provisions as the trade union organisations. I will pass on from that Bill because there is so much we can debate on another occasion.
The noble Baroness, Lady Anelay of St. Johns, asked me about the tourism industry. Yes, of course we recognise the position of the tourism industry. She is wrong in thinking that Tomorrow's Tourism is a government statement only. It is a government statement in association with the industry itself, which was responsible for a very large part of it. It is very much an independent report on what needs to be done.
The noble Baroness mentioned particularly the British Activity Holiday Association and the problem raised by Peter Ainsworth about the £20 accommodation offset. That has been referred to the Low Pay Commission, which recommended that there should be no immediate change. However, there will be further monitoring, a 1273 further report and further evidence from the new earnings survey of 1999. In contrast with the statistics of the noble Baroness, the report issued by Coopers and Lybrand and the London Business School identifies low pay in the tourism industry as a factor which undermines morale in the industry rather than a factor in the other direction. As to the working time directive, as I am sure the noble Baroness will now recognise, the regulations do not require the keeping of logs of hours worked—and, yes, the forum will continue.
I shall have to write to the noble Countess, Lady Mar, the noble Baroness, Lady Byford, and the noble Lord, Lord De L'Isle, about sector-specific cases. It would have been impossible for me to have been briefed on such cases. The noble Countess made many points about the plight of small farms, the Meat Hygiene Service and so on. With the help of MAFF, I shall write to her on those points.
We accept and understand some of the criticisms of the way the working time regulations were introduced in the first instance. We recognise that the original leaflets were too long, too complicated and sometimes even wrong. a point made by the noble Lord, Lord Taylor. But we are making changes to the guidance to reduce the burden on employers. We have made every effort to deal with the undoubted difficulties which arose then. Fortunately, they do not appear to be arising with the national minimum wage.
I have taken longer than I wanted in reply to the debate because I try to answer as fully as possible the points made by noble Lords. However, I cannot reply to the noble Baroness, Lady Byford, about French local government boundaries. That is a little bit beyond my remit.
§ Baroness Byford
My Lords, I may have confused the Minister. There are two separate issues. The ice-cream farmer is in this country; this has nothing to do with France. I hope that Hansard will show that I have not misled the noble Lord.
§ Lord McIntosh of Haringey
My Lords, I will read what was said in Hansard. I thought it was two French local government boundaries.
I repeat my gratitude to the noble Lord, Lord Vinson, and to everyone who has taken part in the debate. I repeat the assurances that the Government greatly value the contribution of small businesses. I hope that we have shown that we intend to do not only as much as reasonably possible but sometimes as much as unreasonably possible to improve the prospects for small business in this country in every way we can.
§ 7.36 p.m.
§ Lord Vinson
My Lords, at this latish hour in the evening I know your Lordships would not wish me to open up too many of the points made in the debate. We have had such a good-natured debate that it would be wrong for me to raise any particularly contentious points.
1274 We have much to learn from the American scene and how the Americans interpret and enforce regulations. I wish to make it quite clear that I recognise that there is a place for regulation; however, I do not recognise that there is a place for overregulation.
We have been lucky to have the noble Lord, Lord Haskins, here to make his maiden speech. I am sure that he has seen the House at its best.
I am fond of looking to America because we have so much to learn. It is always 20 years ahead in terms of its economic and often legislative development. I once saw a sign outside a town in the mid-west which said, "As you come to our town here, please remember that a smile is a curve that helps straighten out a lot of things".
We have had a good-humoured debate but behind it has been a heartfelt and deeply experienced expression of the realities of the world. I welcomed the Minister's sympathetic summing up, but there is one point I would like to leave with the Government Front Bench. When we talk about SMEs we muddle together—the muddle has been made by a number of speakers today —firms employing 500 people with firms employing one. They are totally different animals and legislation should and must be framed to recognise that fact. The global expression "SME" means nothing when it is related to the realities of the precise size of the firm on the ground. The self-employed person taking on one man and thereby turning himself or herself into an employer is a critical point that legislation should examine.
I thank noble Lords for the great support we have had today. I hope that many of the good ideas that have been put forward will be taken on board and digested by the Government. I know that they have at heart the welfare of this very important sector. I beg leave to withdraw the Motion for Papers.
§ Motion for Papers, by leave, withdrawn.