Small Businesses (Greater London)

– in the House of Commons at 12:00 am on 12th April 1976.

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12.18 a.m.

Photo of Mr Anthony Grant Mr Anthony Grant , Harrow Central

I am grateful for the opportunity to raise the important subject of the burdens on small businesses in the Greater London area. Perhaps I should declare an interest, as the chairman of a small firm.

I should like first to make some general, observations which apply to small firms not only in the Greater London area but throughout the country. I believe that the cause of small firms is as vital as any in our country and economy. They have been victims of the cult of bigness over the past quarter of a century. Small firms either grow or die. They do not stand still. It is ever more difficult these past few years for small firms to grow, and consequently all too many of them have died. Many more will, alas, do so, as witness the great increase in the number of bankruptcies and liquidations in the past two years.

The Minister of State will appreciate that I am grateful to him for being here at this late hour. I know that like me he has had a very long day. The hon. Gentleman will recall that I was responsible for small firms in the previous Administration. I am sufficiently immodest to say that I am proud that I was able to implement nearly all the major recommendations of the Bolton Report on small firms.

But since then inflation has swamped much of the good that was done. I am able to say that the Government have piled on the agony by their taxation policy and by other policies. Corporation tax policy, multi-rate VAT, capital transfer tax and national insurance contributions from the self-employed and small firms have all made the position of small firms very much worse. They have all seriously affected the vital profitability of this sector.

I recognise that there are concessions in the Budget. I pay a sincere tribute to the Minister of State for the valiant rearguard action he has fought on behalf of small firms, but it has been a rearguard action. He has secured corporation tax and capital transfer tax concessions, but it would need much greater concessions than he has obtained and the Chancellor has given to restore the position having regard to inflation, to what it was in 1973.

Concessions have been gained on IDC limits, and to some extent in the reduction of VAT, but none of these concessions should have been necessary. For two years the Chancellor was told that he was wrong in his corporation tax policy and he has now had to backtrack. He was told he was wrong in his policy on capital transfer tax and he has now had to back-track. The Government were told that they were wrong to lower the limits for IDCs in London and the South-East, and they have now had to backtrack and raise the limits. The Chancellor was told that he was wrong to have introduced multi-rate VAT, especially the 25 per cent. rate, which was so damaging. He has had to backtrack on that. The Chancellor has decided to make a concession, but for the life of me I do not know why he could not introduce a straight 10 per cent.

How can small firms plan in such a confused and vacillating climate? What is the form-filling position? It is a burden that has to be faced by large industries, but it is completely oppressive for small firms.

Recently I sought answers from as many Ministers as I could question to discover the precise burden that is placed on small firms. I was told that 11 different forms are required by the Department of the Environment, 11 by the Department of Employment, 15 by the Department of Trade, 24 by the Department of Industry, and 56 by the Department of Energy.

The Treasury had so many different forms that it was unable to differentiate between those given to the individual and those given to companies. However, I was told that the total number of different forms issued by the Treasury is 1,866. By any standards that is oppressive and intolerable. The Minister of State is battling against the total insensitivity of the Treasury and much of Whitehall, and against the positive hostility of some sections of the Government.

In Greater London the small firms provide a better service to the consumer and a wider choice. By and large they are more efficient than their larger brethren. There are nearly 750,000 small firms in the Greater London area with fewer than five employees. They are mostly in the retail sector. There are also many small manufacturing units inside the Greater London area. Both sectors are declining seriously. At the same time, unemployment is rising seriously in an area which has hitherto enjoyed the fullest possible employment.

The increase in unemployment in the Greater London area over the last two years has been no less than 150 per cent. There are 300,000 people now unemployed in the area. There is also depopulation from London and there is an ageing community. Of course it is not appropriate that London should become awash with motor car factories or iron ore factories. It should, as the capital city, offer a broad spread of industry and commerce and not become a vast concentration camp of Government bureaucrats and head office staff and administrators. But this is what is happening, much to the detriment of the character of London and the convenience of its citizens.

Apart from the Government's general taxation and economic policies which adversely affect small firms, there are certain problems which are especially unfortunate in London. The first is that rents and rates are exceptionally high. In particular, the business rate is much too high. Overall business rates in the last year have increased by 55 per cent. throughout the country and a lot more in London. I believe there is one area in which the rate has increased by over 200 per cent. I personally want rates to go altogether, but I believe that there is a case for relief being given to small business from the oppressive burden of the business rate.

Another point—and this is not a party political point—is the rating special surcharge imposed by the Local Government Act 1974. I know that that measure was introduced by a Conservative Government, but it was backed by the then Labour Opposition. That legislation has given rise to a number of complaints in my constituency of Harrow. It gave power to local authorities to raise a surcharge if business or commercial premises were left vacant. This has given rise to injustice, but I am afraid that local authorities are treating the matter rather too rigidly.

One case in my constituency involves the predicament of a shop that was burnt out. The owner had to wait for years for planning permission to be obtained. In the meantime, he was charged £2,000 in rating surcharge for premises which he could not use for his business.

Photo of Mr Anthony Grant Mr Anthony Grant , Harrow Central

I am afraid that I cannot give way; I have very little time left in which to conclude my remarks.

The second point I wish to mention relates to the effect on urban redevelopment. Local authorities are not taking into consideration the planning interests of small firms. Let me give an example. A few years ago a shop was bought by the council by compulsory order for the purposes of road widening. The road plans have not materialised and the shopkeeper keeps getting a lease renewal from the council at regular six-monthly intervals. The shopkeeper has refurbished the shop, but he will not expand it as he had hoped because at any moment he can be ousted from the shop with no compensation.

It is unlikely that a major industrial corporation would be treated as badly. Many of these problems would not arise if local authorities realised the vital contribution small firms made to a metropolis like London and that they have not the resources to be messed about on the scale that has happened in the last few years.

A number of positive steps could be taken. For example, in cases where, as a result of local authority-inspired urban redevelopment, neighbourhood shops were forced away, especially where shops perform vital services, the local authority could let shop premises at rates and rentals below the market rate, provided that this bore some non-penal relation to the profit levels of the shop, which could be monitored by the local authority.

Furthermore, local authorities should be made more aware of some of the wider social implications of their Utopian interventions. These affect not only small firms but the whole social well-being of communities. For example, the creation of huge GLC housing estates at Dagenham between the wars, together with lengthening life expectancy, has resulted in an ageing population. This has led to a sharp reduction in purchasing power for retailers and a marked difficulty in securing labour. The fact affects Ford as well as small firms, but small firms cannot always pay the wages paid by Ford to cover the high commuting costs.

Even with a greater awareness of the vital rôle of small firms in the Greater London area, their lot will continue to deteriorate as long as the Government pursue at national level taxation policies which destroy the incentive to save and work and to create productive assets, vital services and jobs. There is much to be done by Government and local government in this respect.

Smaller firms deserve a better deal, in London particularly and elsewhere generally. Unless something is done to improve their lot in the Metropolis, unless the Government show a lot more understanding of their problems, it will not just be the small firm which will suffer, but the people of London as a whole.

12.31 a.m.

Photo of Mr Gregor Mackenzie Mr Gregor Mackenzie , Rutherglen

I have listened to the hon. Member for Harrow, Central (Mr. Grant) tonight, as I always do, with considerable attention and with respect because he is, as he said, a former holder of the job now done by my noble Friend Lord Melchett and which I did for some considerable time. The hon. Member knows as I do the many problems there are in this job. I am glad that the hon. Member raised some of the problems of small businesses as he sees them and I hope to respond in a positive way to the points he has raised.

While the problems of small businesses have frequently been debated, it has not always been possible for us to agree on what they are or what, if anything, the Government should do about them. Nevertheless, by now at least, the Government's attitude to the small firm sector is well known. I have spelled it out time and again. We are on its side and we will do all we can to help it. We want to avoid discrimination against small businesses in all our policies, although I would be the first to admit that, like our predecessors, we do not always succeed. This is something to which we give our attention continually.

In addition, we want to foster an environment in which the small businesses can flourish alongside the large businesses. This can only be achieved by a blend of policies having a national and specifically regional impact. National policies usually get most attention in our debates. It is right, therefore, that tonight we should devote a little of our time to some of the problems arising at regional level and in particular in the Greater London area, either in spite of, or because of, the policies we are pursuing.

The hon. Member referred to industrial development certificates. The House will recall that last Thursday my right hon. Friend the Secretary of State announced a relaxation of this control in the South-East planning region by raising the threshold for which an industrial development certificate is needed from 5,000 sq. ft. to 12,500 sq. ft. I hope that the effects of this will be noticed quickly by small firms in the Greater London areas of the region in particular.

I realise that there will still be many small firms needing such certificates in the future. I emphasise that no one should be deterred from applying for a certificate since, though control remains an essential instrument of our regional policies, applications for development in Greater London by small industrialists will continue to get the careful and sympathetic treatment that they have always received.

The hon. Gentleman also raised what is for all of us the vexed question of local rates. It is a difficult matter. I know that he understands that. He has raised the specific problem of the surcharge and I will certainly convey his views to my right hon. and hon. Friends in the Department of the Environment. The Government are well aware of the difficulties facing small business men as a result of rating increases across the country, mostly caused by inflation. From reports that I have received I think that those increases are likely to be less on average this year than they were last year. The Government can take some credit for that.

Photo of Mr Stephen Ross Mr Stephen Ross , Isle of Wight

May I put a point about this question of the surcharge? It is the interpretation of hardship under the Local Government Act 1974 that is causing difficulty. I entirely agree with the hon. Member for Harrow, Central (Mr. Grant). Constituents of mine are being charged for premises which are empty when that is not their fault. I ask the Government to give serious consideration to this.

Photo of Mr Gregor Mackenzie Mr Gregor Mackenzie , Rutherglen

The hon. Member for Harrow, Central has also raised this point in earlier discussions with me. I will convey the points that have been mentioned to my right hon. and hon. Friends.

I wish to say a few words about local rates in general. We have had a measure of success in bringing down inflation. All ratepayers benefit from that. More specifically, however, we fully recognised in determining the rate support grant for 1976–77 that in a difficult period for commerce and industry generally the burden of rates is of much greater significance to the non-domestic ratepayer than ever before. This was one of the reasons why the Government held domestic rate relief at last year's levels in money terms. As a result, we have reduced domestic rate relief in real terms and left a greater percentage of the total grant available for distribution to all categories of ratepayer, including the small business man.

London business men, like others, will benefit from this. In addition, they will benefit from the larger share of the rate support grant which London will receive in 1976–77. For the future, I am sure the position of the small business will be one for consideration in the negotiations between Government and the local authority associations for the rate support grant settlement for 1977–78.

I do not deny, of course, that, despite these measures, this year's rate bill will be higher for ratepayers of all classes. However, it should not be forgotten that many small businesses and small shopkeepers in particular will still continue to benefit in London, as elsewhere, from the relief that is available on mixed hereditaments. Also, small business men can apply for a rate rebate on the domestic part of their property. The burden of commercial rates can also be eased by arranging instalment payments with local authorities, which have been asked to be sympathetic to requests for payment by this method and which I am assured are mostly prepared to allow this as a matter of discretion.

I turn now to a point which has not been raised by the hon. Gentleman but I know that it is of concern to him, namely, the question of small businesses in the regional context—the difficulties over premises which are arising, or are said to arise, or to be likely to arise, for a variety of reasons. Hon. Members are well aware, of course, that since the war there has been a very substantial decline in industrial and commercial use in Greater London and in central London in particular. The same is also true of the inner areas of major conurbations elsewhere.

The justifiable public concern over the employment and environmental problems arising in these areas is shared by local authorities and the Government alike. Considerable attention is being paid, therefore, by local planning authorities and by the Government to the causes of decline and the measures that can be adopted to check it and studies that are at present being carried out into the problems of inner city areas include three in the London area. When we have reports on these studies, we shall be able to consider whether any policy changes may be necessary to improve matters.

Meanwhile, in London, for example, the GLC is active in trying to protect, as far as possible, industry and jobs. I have had, as the Secretary of State has had, many conversations with leaders of the council and with London Members, including the hon. Gentleman, about this, and the policies proposed by the GLC for regeneration of the Covent Garden area include the prevention of change of use of industrial floorspace to other uses, and put emphasis on retaining small industries and workshops traditionally associated with the area.

There are other instances I could describe, but I shall not go on as time is short. I hope though that, without sounding complacent. I have shown there is a real awareness of this particular problem and that efforts are being made to deal with it.

I know that the hon. Gentleman has been concerned about a number of other issues. I have referred to one or two of them, as he has. I do not pretend that we have been able to deal with all of them.

There are other problems. It is still very difficult, for example, for manufacturers in London to recruit and retain skilled labour. The small manufacturer employing just a few skilled people can be more at risk from casual losses than large. The problem is one well recognised by Government and is not specific to the Greater London area. It is therefore being tackled on a very wide front.

So far as the burden of costs is concerned, I fear that it just has to be accepted that London is an expensive place in which to run a business of any kind. Regrettable though it may be, this must bear hard on small firms without any resources behind them. Their only real hope of relief from these burdens is a long-term one, and lies in checking this spiral of costs attributable to London's size and congestion, which a somewhat smaller London, if planning aims are realised, might bring about.

I want to finish on an encouraging note. The hon. Gentleman, when he last spoke on this issue some time ago and again tonight, said that I should raise the problem with the Chancellor. I am obliged to him for recognising that I have done so. My right hon. Friend in his Budget has responded in a very positive way to the wishes of the sector in the areas of corporation tax and capital transfer tax. Having read the papers and views of the organisations concerned, I can say that his proposals have rightly been widely welcomed. By the change in tax allowances on the pension provisions which self-employed people make for themselves he has done something useful for this class of business man.

The promised study of medium-term finance will, I know, bear the needs of small firms in mind, and if anything can be done about an investment reserve scheme, this will be particularly useful for enterprises which rely largely on retained profits to finance growth. The extension of stock appreciation relief for a further two years and the assurances about clawback will be more valuable, perhaps, to small firms even than to large.

Perhaps more important, however, the new and imaginative approach to the next phase of the battle against inflation—which is the main cause of small firms' problems—which we are determined to win is of special importance to the sector which suffers most from being dragged along on the coat-tails of massive wage increases in large firms. All this must put the final nail in the lie that this Government are against small business. The Budget is ample proof that we are prepared to do everything sensible and necessary to help small firms. We always have and we always will. Indeed as the Secretary of State for Industry said last Thursday, I shall be announcing some further measures soon. I hope that these measures will be of considerable value to the small firms sector.

We are all indebted to the right hon. Gentleman for raising these problems. We shall certainly take cognisance of them.

Question put and agreed to.

Adjourned accordingly at seventeen minutes to One o'clock.