Small Businesses

Petition – in the House of Commons at 12:00 am on 25th November 1977.

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3.2 p.m

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

I beg to move, That this House is concerned about the impediments to the expansion of small business and light industry caused by huge rates of income tax at all levels, the present system of capital taxation, the high increase in local taxation, the heavy burden of controls and regulations, the intricacies of employment legislation, the handling of planning applications, and the volume of legislation in general; and therefore calls on the Government to take early and decisive action to liberate this important sector of the economy so as to stimulate productivity and ease the burden of unemployment. My chief motive in bringing forward this motion arises from a visit to the British Export Trade Centre in Tokyo. There was an exhibition of furniture manufacturers and all of them could be termed as running small industries. The message they gave us loud and clear was, "We can compete with the Japanese, but when you get home tell the Government to get off our backs. We are being taxed at twice the rate of our competitors, and that is a great disadvantage to us."

The second reason why I have put forward this motion flows from the fact that I have always tried to take a part in the activities of light industry. Before I came to the House, I was a director of a small company which made scientific glass for the medical profession. Further more, as a Member of Parliament representing a large area in North-East Essex I keep in touch with the activities of the varied light industrial firms there and in other parts of the country. I wish to emphasise that the message I received from the furniture manufacturers last April in Tokyo—a message underlined by visits to 20 factories in the last few months in North-East Essex and elsewhere—is "Please tell the Government to leave us alone". They have also made the plea "Cannot you ask the banks and institutions to help us a little more?"

The third reason for tabling this motion arose from my concern at the fact that our future as an industrial country depends on four main industries. I refer to our agriculture, which consists of many small units and which is supremely successful; the City and its activities, which again is in small units which are enormously successful; the hotel and tourist industry; and advanced technology, a small but flexible industry. However, the latter industry lags very much behind the others I have mentioned. The spur for increasing growth and dealing with unemployment must come from light industry and small businesses. They must be given the incentive to go ahead. A new spirit and a revitalised energy must be reborn.

The two prongs for success are to get the Government off the backs of industry and persuade the banks and institutions to help more. At present the banks are investing only about 3 per cent. of their resources in small businesses. As Britannia has three prongs, we must have more help from the Government. They should concentrate their help on seeing that technology is right, as some of the small engineering businessmen said to me in East Anglia recently. Of course technology is expensive but one can see the amount of help that the Japanese and Germans have given to technology. The Government should help in that sphere.

Alas, light industry is drowned in a sea of Government controls and regulations. In each successive quarter of 1976 Socialist measures resulted in the highest number of liquidations since 1914.

The disappearance of these firms will result in fewer choices of employment and increased imports, when trade picks up. That will have serious consequences to the balance of payments.

When one talks to people on the shop floor in factories the subject invariably comes round to tax. One often hears the comment "What is in it for us, working as we do three days for ourselves and two days for the Government?" Direct tax on the average wage in this country is 20 per cent. In France it is 7 per cent, and in Japan it is 7 per cent.

Management often asks why it should shoulder extra responsibilities when the pay differentials have become so low. It is depressing to think how the present system is stacked against expanion and enterprise and against getting the best out of hard working skilled and energetic people.

The boss often asks "Why should I build up my industry?" In light industry the boss often works alongside the men on the shop floor. Capital tax is weighted heavily against him. Why should the small industrialist have to pay capital gains tax if he wants to transfer his assets to his successors to keep the business intact? Capital gains tax should be tapered off. An allowance should be made for the time an asset is held and for inflation.

Worse than capital gains tax is the threat of the wealth tax. What a disincentive that is to any industry, particularly to the small firm that wants to go ahead. The sooner the Government can say that this proposal has been put into the Transport House wastepaper basket the better. What are the Government's intentions in that respect?

The bosses say "Yes, I have n ore orders but I would rather stay as I am than take more risks. It is not worth while to take on added responsibilities." This is depressing in such a key sector of the economy which would be so ready for expansion if so much were not loaded against it.

I suppose that these days the small businessman should be thankful for small mercies and that the VAT exemption rate has reached £7,500. It should be £10,000. It would be if it had not been for the squalid manoeuvring of the Liberal Party Members who ran away from what they voted for in Committee because they were afraid of losing their jobs.

Have we grasped how detrimental local taxation is to small businesses? There has been a 71 per cent. increase in four years and a 450 per cent. increase since 1964.

If taxation is not a bad enough deterrent to the small business and light industry, will the Government consider again the heavy burden of controls and regulations which weigh down light industry and small business? Have the Government taken in the amount of legislation which must be read, digested and acted upon and which takes up so much time and trouble? Imagine running a small business as well as coping with the question of employee protection, training boards, redundancy payments, wages councils, contracts of employment, trade descriptions, Factory Acts, Companies Acts, multi-rate VAT, PAYE, corporation tax, capital gains tax, prices and profit controls, Fair Trading and Sex Discrimination Acts, shops, offices and railway premises regulations, health and safety at work legislation, hire-purchase regulations and credit licences, not to mention the 750,000 forms requiring an answer which were sent out last year by the Department of Industry alone. Now the self-employed builder and sub-contractor must have licences, with their photographs on, in order to work. This is all becoming so much like 1984 and Big Brother. No wonder there is a cry to the Government to get off people's backs.

There are, however, worse restraints holding back initiative. Do the Government realise how much the complications of the employment legislation are working against expansion in small industries? I heard the Secretary of State for Employment deny that during the debate on the Gracious Speech. He could not have visited factories similar to those which I have visited in the last few months.

Under the Employment Protection Act large redundancy payments must be made for dismissed employees. Appeal notices mean that industrial tribunals must be attended, needy paper work and time off for the boss. Is it not a question of using a hammer to crack the nut of the bad employer? The wrongly-named Employment Protection Act is making employers increasingly reluctant to take on new workers when they realise the difficulty of laying them off. It may protect existing employment, but the tragedy is that it is a deterrent to new employment.

In the debate on industrial tribunals the Secretary of State said that he was proud that there were no exemptions from the Employment Protection Act and that he had not created two categories of employee. He has failed to recognise that smaller firms do not have the opportunities to redeploy labour which larger firms have. A reasonable exemption level would be 20 employees, though the level need not apply to all sections of the Act.

The Government should pay more attention to the training of skilled labour, of which there is a definite shortage. This matter will be extremely critical when expansion occurs. It will undoubtedly be a serious bottleneck, especially in small industries, as it is now. It must be made more worthwhile to take on apprentices. To this end the differentials for skill in industry must be improved. When will the Government face this reality?

I assure the House that there is nothing more depressing than to visit a small industry with one apprentice and to heat the boss say "I had another one a few weeks ago, but he left for an unskilled job because here there were no incentives". We must watch this situation, otherwise we shall not achieve the potential growth in light industry.

There is over-protection of labour at the small ports. How will the Government reconcile making the small ports work efficiently with the extraordinary provisions of the Dock Work Regulation Act? Perhaps they do not intend to carry them out now that the Lib-Lab pact has come into being. If the small ports are to work efficiently, something must be done about this iniquitous Act.

Light industry and small businesses can also be helped in respect of planning applications. I hope that a new sensitive approach will be adopted to the question of planning applications, especially in the inner city areas. It is recognised as a necessity far more on the Continent, and particularly in West Germany, than it is in the United Kingdom. A balance must be maintained between jobs and homes in the inner city areas. I am glad that the Conservative-controlled Greater London Council has put very reasonable proposals to the Chancellor of the Duchy of Lancaster to ensure that a correct balance is maintained between jobs and homes in the inner city areas.

Worse still is the amount of legislation that we now produce. In 1975 and 1976 we had 3,000 pages of legislation 'each year. In 1924 there were only 515 pages. In 1912 there were 244 pages. The Government must realise the burden that they are placing on the small employer and the small industrialists before he can start producing. Is it any wonder that industry is suffering from indigestion? The curbing of further legislation must take priority over the introduction of more and more laws.

I want the Government to get off industry's back. At the end of October the Government acted after great pressure had been exerted from all quarters. The action was better late than never, but the measures were so small in comparison with what needs to be done. We should stop at nothing short of a re formation with a capital R, of light industry and small business. That is why we have a Small Business Bureau at Conservative Central Office. We regard it as a vital aspect of policy.

Photo of Mr Geraint Howells Mr Geraint Howells , Cardigan

I have listened to the hon. Gentleman with interest. Will he give due credit to the Liberal Party for once and concede that during the past few months we have brought pressure on the Government and we now have a Minister giving consideration to the plight of the self-employed and small firms?

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

I should like to be generous to the Liberal Party, but I am afraid that I cannot be in any way in dealing with the hon. Gentleman's intervention. If it had not been for the Lib-Lab pact, there would already have been a change of Government and a Conservative Administration would now be carrying out the very measure that I am talking about.

The £72 million that the Government provided in the mini-Budget—that will be the amount in a full year—is chicken-feed compared with what should be done. If the hon. Member for Cardigan (Mr. Howells) is proud of that chicken-feed, so be it, but let him spur on the Government and tell them that they must do a great deal more for light industry and small business.

We need an industrial renaissance, not complacency. We do not want the weak-kneed acts that the Government are now carrying out, constrained as they are by the debt into which they have placed the country. A far greater mobilisation of resources is needed. As John Bolton said when he quoted Hamlet in his excellent article in The Times on 2nd November: For this relief much thanks; 'tis bitter cold, And I am sick at heart. For small industry it is still bitter cold, and those involved are still sick at heart. There is still much more that needs to be done. The improved capital gains tax relief is important, but the rate of taxation is still three or four times higher than the German level. Are the Liberals proud of that?

Far more generous provision should be made to encourage new industries that are starting up in business. In Germany there is a 10-year tax holiday on export profits. In the United States investors are able to charge losses against their taxable income. Measures along these lines are needed if we are to make the progress that should be made. Other countries have given far more encouragement to light industry and small business.

There are three-an-a-half times as many small firms in manufacturing in West Germany than in the United Kingdom, and they account for 43 per cent. of employment in Germany as against 30 per cent. here. Although our 30 per cent. produces 20 per cent. of the GNP, we should not take that for granted. We should be able to produce much more.

Light industry plays a similarly important role in Japan. The banks in Japan have given much more support to the industry than our banks have given our light industry. In finance in Japan, banking has been prepared to give backing to small industries and to take risks in a way that is unknown in the United Kingdom, as is also being done in Korea and Hong Kong. It is the results that count, and they have been extremely successful. Combined with a union structure based on the company, not the national union, it has led to vast increases in productivity. I am certain that we can match this if banks will take more risks and think more positively in supporting light industry. We need a complete change of attitude, especially from local bankers in their communications with head offices. During Japan's economic miracle, Japanese banks loaned three or four times the proprietors' net assets to get expansion and productivity to the heights that they reached. As John Bolton said in his article on 2nd November, Can't we get at least a 10 per cent. expansion of what are today's ' prudent banking limits?' We have to improve communications so that the ICFC and the banking head offices can be in closer touch at an earlier stage with light industry on the ground, especially with firms in the export field, particularly small firms such as those that I visited recently in North-East Essex. I want to preserve the independence of those firms and to prevent takeovers, which have been all too frequent. I want the dynamic of small industry to mushroom from small beginnings rather than have the centralised control of large industry.

I must not be too critical of the ICFC because, referring to one company in my constituency, which is a leading company in the chemical industry in this country, it was through investment from the ICFC that it started on its success story, which has been a very real success. That was imaginative financing, and I want that imagining financing to continue throughout our economy.

For example, in regard to the Export Credits Guarantee Department, I am in touch with a firm in the export trade which, because of its size, is complaining about lack of help in obtaining ECGD facilities. The minimum level at which ECGD facilities become available for buyer credit guarantees is for capital goods contracts of £1 million and over. ECGD is prepared to provide cover against United Kingdom cost increases in capital goods contracts, but only on contracts worth more than £2 million and which have a manufacturing period of at least two years. This gives little or no support when it is most needed There is a feeling that both the ECGD and the banks maintain a system whereby, when a business is well-established and financially stable, it is easy to obtain support. But that is not when the support is needed. The support is needed in the circumstances that I have described. This feeling must be broken down.

The Government should look again at the dead weight of deferred tax on stock appreciation, which restricts companies' capacity to borrow and is a deterrent to expansion when such lethal liabilities hang over a company. The Government's help in allowing the initial losses against earlier income is a small help, but this applies only to unincorporated businesses. The need is for a complete tax holiday for the first five years of a genuine starting up of a company, provided that the company's profits are ploughed back.

To sum up, we must make it worthwhile to work, to save, and to build up businesses. Over all the enterprise in light industry and small business hangs a sword of Damocles—namely, the wealth tax. Will the Government renounce this once and for all? Until they do, the potential of those who wish to build up businesses and to save will be destroyed. I do not know whether the Minister supports a wealth tax. I have heard him support it when he was not on the Government Front Bench. I know that the Labour Party NEC supports it and I know that some Liberal Members support it, including the hon. Member for Cornwall, North. Those good Liberal advisers of yesteryear wanted to level up, not level down. Now the Liberals have joined those who preach for an age of egalitarianism, which we know means equal shares of less and less.

Why should capital gains tax, in spite of the mini-Budget of October, still be three to four times the German level? We cannot help the poor by destroying the rich. No wonder the national cake, after four years of Socialism and despite an increase of 190 per cent. in the average wage, is only 2 per cent. bigger than it was four years ago.

We must make it worth while for people to work. How absurd it is at present that we all feel that we are working three days for ourselves and two days for the Government.

For the small business man, the VAT unit should at least be double the figure it was when it was started—£10,000, not £5,000. That would have been a fact had it not been for the actions of the Liberal Party. How can it be worth while to expand a business when the Employment Protection Act means that a small business might have to face huge redundancy payments if it has to cut back because of a recession? We must get the Government off the backs of small businesses.

Light industry and small businesses have it in their power to help relieve the appallingly high rates of unemployment and low productivity at present prevailing. But that can come about only if the impediments to enterprise and initiative are removed once and for all and the Government get off the backs of the British people.

3.27 p.m.

Photo of Mr Max Madden Mr Max Madden , Sowerby

I am grateful to the hon. Member for Harwich (Mr. Ridsdale), whose constituency I know extremely well, for giving the House the opportunity to discuss the small business sector. The hon. Gentleman will not be surprised to hear that I am not in wholehearted agreement with everything that he said, but I have sympathy with some aspects of his speech and shall refer to them later.

I begin by referring to the temporary employment subsidy. That has been a useful measure to a very large number of small businesses throughout the country since it was introduced by the present Government as a means of avoiding redundancies, safeguarding jobs and providing a number of small companies with the chance of survival. The subsidy is due to expire in the early part of next year. I should like the Minister, when replying to the debate, to assure the House that the subsidy will be continued in its present or a similar form.

My hon. Friend will not need reminding that about 80,000 workers in the textile and clothing industries are in work as a direct result of the temporary employment subsidy. In the Halifax travel-to-work area, about 1,000 jobs have been safeguarded since 1975 by the subsidy. Indeed, applications in respect of 200 workers are currently being considered.

Yesterday I was at a meeting with a number of textile employers. The managing director of an Oldham textile firm told me that his firm had literally survived because it had been successful in securing a temporary employment subsidy. The subsidy had allowed the firm to invest in a new technological development within the textile industry, it had now got over the hump, and it was looking forward to the future with far more confidence than it had several months ago. That is a typical example of the benefits of Government financial support. I am sure that none of the recipients of the TES in the small business section would ask the Government to get off their backs in that respect.

I asked the official spokesman for the Conservative Party in the debate on the previous motion what its attitude to the temporary employment subsidy was. I was not surprised that I did not get an answer. I hope that the hon. Member for Basingstoke (Mr. Mitchell), who, I gather, is to speak for the Conservative Party, will be able to tell me and the textile workers of the North-West and Yorkshire, and others throughout the country, what the attitude of the Conservative Party is to the temporary employment subsidy and, indeed, will be able to confirm the comments made by the right hon. Member for Leeds, North-East (Sir K. Joseph) on 8th November, when he said: My right hon. and hon. Friends believe with me that rescues and subsidies do great harm because the expectation, or hope, of rescue tends to prevent companies putting their own house in order and they tend to create a pursuit of subsidy in firms rather than a pursuit of profit. They blunt competitiveness in that way."—[Official Report, 8th November 1977; Vol. 938, c. 513.] I should like the Front Bench spokesman for the Conservative Party to confirm or deny whether that opposition to company rescue and subsidies of all sorts represents official Conservative policy.

I join forces with the hon. Member for Harwich in referring to the need for the financial institutions, the clearing banks and even individual bank managers to adopt a much more understanding and sympathetic attitude to the financial needs of small businesses. The truth is that there is plenty of money sloshing about but there is at the same time a great unwillingness to invest in manufacturing industry and an unwillingness on the part of many financial institutions and bank managers to back those wishing to set up in business for the first time or to back new ventures.

We need a change of attitude and policy on the part of the financial institutions. I refer here to the comments of Clive Sinclair, as reported in the Observer of 30th October. When Mr. Sinclair proposed to develop a particularly interesting advance in television, he went to the City. The report tells us that He did not expect much help from the City, but was infuriated by the attitude of his clearing bank.They were appalling—worse than useless utterly unhelpful and uninformed. In Germany, they would have taken some of the shares themselves. But they did not come to the mill, they did not understand the problem, and all they suggested was that I went into receivership—which would have absolutely destroyed the company.At this point, he approached the NEB, whose then head, Lord Ryder, sent his financial Fifth Cavalry riding into Equity Gap. The NEB invested £650,000, seeing big opportunities for the tiny television. That is one of the most useful roles played by the National Enterprise Board as an agency to channel in a highly selective way much-needed investment into high technology and high-risk areas of British industry.

Again, I shall be grateful if the hon. Member for Basingstoke, as official spokesman of the Conservative Party, will—unlike his predecessor in the previous debate—confirm or deny that it is official Conservative policy, if his party is elected to power, to smash the National Enterprise Board and repeal the Act under which it operates, thereby at the same time throwing into unemployment the 250,000 workers in subsidiaries of the NEB.

Another of the problems created by the conduct of the financial institutions was recently highlighted in a letter from a constituent of mine, Mr. L. F. Cockcroft, who is Chairman of Heatherdale Fabrics Limited, which is based in Todmorden, also in my constituency. This company has been able to invest in textiles and has received considerable financial assistance and advice from the Department of Industry. That is another useful illustration of the benefits of financial assistance and guidance from Government Departments. However, in his letter to The Times Business News, dated 17th November, Mr. Cockcroft says: … although it is held that there is no lack of funds for industrial investment, there are many qualifications. One is that of the attitude of certain financial institutions to the valuation of physical assets, however modern, for notional break-up values, if those assets are outside the main conurbations. It was understood that one such institution 'automatically writes down' an open market valuation, even a 'costs actually incurred' basis by about two-thirds if the property is outside a major population centre. That type of valuation is clearly a serious handicap to areas such as Calderdale, in West Yorkshire, which is in great need of new investment both to expand existing industries and to attract new employment and new investment.

We see the policies described in that letter as acting against the best interests of the sort of areas about which we are greatly concerned, areas which have suffered the consequences of the first Industrial Revolution and are suffering the employment losses brought about by such schemes as the wool textile scheme. There are areas where we need to see the parallel creation of employment to off set the losses in employment that have occurred as a result of industrial development over the past two decades.

We rightly hear much about the needs of small business men, but their case is often presented by self-appointed spokesmen, many of them from the Tory Party, who serve the interests of small businessmen extremely badly. There are dangers of presenting their case in a biased and exaggerated way. This is something of which the small business sector should be extremely wary.

We must recognise that small business men and employers generally have rights and obligations. Those who invest capital in businesses have rights which must be protected and obligations which must be met. Equally, those who invest their lives and the lives of their families in small businesses and companies also have rights and obligations.

Employers must be expected to observe good industrial relations practices. They should be obliged to observe health and safety regulations and to recognise employment rights. I am suspicious of all Governments, all bureaucracy, and all officialdom, and I want to see the reduction of as many as possible of the difficulties that they inevitably create. But we must recognise that the Government have an overriding responsibility to ensure that the oil revenues that we discussed in the earlier debate are used to regenerate British manufacturing industry and are used within the public sector, which is needed as a complementary aspect to that investment programme, to ensure that we bring down unemployment and maintain and increase the social wage at the same time.

That is the challenge. I should like to hear from my hon. Friend the Minister about the positive action that is being taken to help small businesses—action which I believe is significant and which is being seriously distorted and underestimated by our political opponents.

3.38 p.m.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

The House should be most grateful to my hon. Friend the Member for Harwich (Mr. Ridsdale) for having initiated this debate. His closing words summed up clearly the position facing the smaller business world and the challenge of today, when he spoke of the need to make it worth while to work and worth while to start and expand a small business. Under present circumstances it is not worth while to do those things.

My hon. Friend said that the touchstone of the Government's good faith in the matter was whether they were prepared to abandon their proposals for a wealth tax—a question that hangs over the whole issue of starting, expanding or building up any enterprise. The Minister has come to us hotfoot from a conference in Lambeth. I hope that he has managed to absorb a little religious fervour for the smaller business world—a fervour that certainly has not been apparent throughout his political career.

There is a genuine welcome across the House for the emphasis that the Government are now placing on the importance of small businesses. We know that this is a pre-election year and we hope that we shall be able to see some of the things promised by the Government being carried out. Most of the measures that Ministers have so far announced undo part of the damage that the Government have done since they came into office. They are, none the less, welcome. I only wish that they went further and undid more of the damage.

I turn now to the background. We had the inspired leak yesterday that there is to be a dramatic increase of 2 per cent. in the minimum lending rate. No amount of tinkering with the economy by Ministers can overcome the damage caused by that sort of action. If, since business men are motivated by profits, there is a major increase in minimum lending rate, it will inevitably cut profits and investments. It will prevent marginal small businesses from starting or expanding—and what small business seeking to expand is not marginal at the time it starts? There can never be the assurance at the time it is begun that an expansion will work.

If this increase in minimum lending rate goes through, not only will there be fewer small businesses, and more of them closing down; there will be an increase in the number of unemployed. I hope that the Minister can identify the numbers who will be unemployed as a result of that action, if it happens.

The hon. Member for Sowerby (Mr. Madden) praised the temporary employment subsidy. It is better than "nowt". I am bound to say that small businesses are permanent employers and do not require subsidy. They are a far more humane method of dealing with the problem of unemployment than tinkering around with such schemes as the temporary employment subsidy. What is needed is something that provides longterm permanent work with the prospect of expansion. That is what small businesses provide.

Photo of Mr Max Madden Mr Max Madden , Sowerby

I entirely agree with the hon. Gentleman. Can he say whether it is official Conservative policy to support or oppose the temporary employment subsidy, and whether his party would support its extension from the beginning of next year?

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

I am pleased that the hon. Gentleman recognises, by his great interest in our views on this subject, that we shall be forming the next Government. I do not have to tell him that until we know the context of the situation when we come into office—whether there are 2 million unemployed, or more or less—we shall not be in a position to answer such questions. I can assure him that long before we take office we shall spell out these matters to the country in detail.

The smaller business sector has four needs at the present time. The first is the opportunity to start. The second need concerns finance, with which my hon. Friend the Member for Harwich dealt effectively.

The third is the need for the Government to get off the backs of the smaller business sector. Again, I was interested to hear what my hon. Friend had to say about that.

The fourth need concerns the whole area of incentives. I am right to say that there is no difference of opinion across the Chamber about those needs. When we begin to look at the practical details, however, we find that there is a great deal of difference.

Let us consider the first need—the opportunity to start. Let me give a practical illustration. We have heard small businesses described as seed corn. If that is so the self-employed are the wheat germ in the seed. Let us look at the practical ways in which the Government can help. Builders are having a tough time just now. The building industry is one in which there are many small firms. The building trade is facing serious problems.

Through the Property Services Agency the Government provide £383 million-worth of new work and £296 million-worth of maintenance work. That is over £600 million-worth of work each year. It is today a requirement on the receipt of the contract from the Property Services Agency that one does not employ self-employed persons. I cannot think of a more outrageous snub to the self-employed or to those who are seeking to start a building business.

My first question is: will the Minister give an undertaking today that he will make representations about the withdrawal of that condition? I hope that he will be able to give us that assurance.

I turn to the question of finance. Of course, one needs to save to be able to start. One needs a private backer, because one is seeking to do something in respect of which no institution using other peoples' money could reasonably be expected to take risks. One needs to be able to retain one's profits and to plough them back, and one needs to be able to borrow. The Government have made all these things more difficult. Saving against the current levels of taxation is extremely difficult. Where can one find a private backer against a background of 98 per cent. investment income tax? What wealthy man would put money at risk into such an enterprise, with the chance of getting 2 per cent. at the end of it?

One could mortgage one's house for £10,000 and put that money into a small business. One would get 10 per cent. on one's money—£1,000 and dividends—but one would not have enough money to once take one's wife out to dinner in the West End as a result. Of course that means that there are no private backers.

I come to the whole area of borrowing. The Government have had an ambivalent attitude to stock relief. A company can borrow against the value of its stock. A large company is able to borrow against the value of all its stock, but with a small company the bank manager will inevitably say: "There is a stock relief double tax liability. While you have that hanging over you we cannot lend against it. We can lend pound for pound against the free assets of the business." Those are some of the practical ways in which the Government can help.

Unfortunately, time does not allow me to go on very much longer, but I should like to say that the Minister and his Department have the responsibility for a large number of questionnaires which form part of the overheads to which my hon. Friend the Member for Harwich referred. I hope that the Minister will have a close look at some of these. I have one of them here, and I should like to give him a copy of it. There are 20 pages of detailed intensive inquiries which have to be filled out. Much of the information would be available from the company's accounts or from its VAT returns. Why does not the Department go to Companies House, to the VAT computer, or to the Inland Revenue, instead of taking up the time of individual business men and adding to the overheads and the strains that they have to suffer?

We have had a useful but brief discussion. I want to sit down now, because I have put specific questions to the Minister and I hope that he will be able to shed light on them. But I want to say how right my hon. Friend the Member for Harwich was in saying that unless we get the matter of incentives right, unless we get greater relief on capital transfer tax, unless capital gains tax no longer applies to the passing of a business from one generation to the next, and unless there is a reduction in income tax, we shall not see that spark which is needed to start off new businesses and make them grow and develop, so creating jobs.

3.50 p.m.

Photo of Mr Bob Cryer Mr Bob Cryer , Keighley

It is characteristic of Opposition Members that they tend to take a gloomy view of small businesses. It is a view that I reject entirely. There is much to be gained from looking at small businesses across the board and finding that enterprise and initiative are being utilised, that research and development is taking place, that in some cases employment is increasing, and that expansion is occurring.

I congratulate the hon. Member for Harwich (Mr. Ridsdale) on initiating this debate. Nowadays I do not seem to get many opportunities to speak on the Floor of the House, in comparison with my previous life. It is a contrast that I do not like very much, and the more opportunities that hon. Members take to introduce debates on small businesses, the happier I shall be.

I shall try briefly to answer some of the matters that have been raised before dealing with some of the Government contributions to the small business community.

My hon. Friend the Member for Sowerby (Mr. Madden) put forward a number of interesting arguments. I must draw the attention of the House to his deep and continuing interest in small businesses. He has been present throughout our proceedings today in order to be able to participate in the debate. In his constituency, there are many small businesses, and it is due to his initiative that the English Industrial Estates Corpora-lion is examining the possibility of undertaking the conversion of old factories into nursery units for small businesses and doing a feasibility study, the results of which we hope to receive very shortly.

The temporary employment subsidy and the question of its continuation are being considered by the Department of Employment. I shall draw the remarks of my hon. Friend the Member for Sowerby to the attention of the Secretary of State for Employment, because I know how important they are and how valuable TES is to the textile industry especially and to a large range of firms, including many small ones.

Zoning for lending purposes by financial institutions is a very serious matter. I shall investigate the issue and write to my hon. Friend with details of my investigation. If what he says is of substance, quite clearly it places many of our regions at a severe disadvantage.

The hon. Member for Harwich raised a number of interesting matters, with many of which I disagree. I have met many lively and enterprising firms which do not share his view that life is so gloomy that they are intimated from expanding and innovating. These firms stretch right across the country. In the past few weeks, I have been to Cambridge, Corby and Peterlee to visit a number of them. They were not a representative "good" sample, because when I visit small firms, which I do on a regular basis, I try to ensure that whenever possible firm are picked at random, so that I am not presented only with firms that are doing especially well.

I noted the hon. Gentleman's concern about large firms taking over small ones and possibly closing them down. I am sure that his concern is shared throughout the House. It may be that decision-making takes place in a head office 100 or 150 miles away, or even abroad, and the small firm is closed down as a result. In a private enterprise competitive system we must accept that a race is implied in competition, and that that sometimes happens.

Despite what the Opposition say, the Government do not have wide powers to control the commercial decisions of the private sector. We recognise that it is important for many small firms to stay independent so that the decision-making remains in a locality and is not moved out. That is very often important for the preservation of jobs in many areas where, unfortunately, the level of unemployment is too high.

As for taxes, I should point out that we give a 100 per cent. tax allowance against corporation tax for investment in plant and machinery. This is one of the most generous allowances in Western Europe. In Norway, it would be necessary to pay a 13 per cent. tax on investment in plant and machinery. Clearly there is a great incentive and inducement to invest in plant and machinery.

We also provide assistance of one sort or another, not specifically to small firms —although that is true in certain areas; for example, in special development areas where we provide assistance to firms with fewer than 50 employees to take on additional people—and that is being closely checked to make sure that it really acts as an inducement. It is a pilot survey. But that is money going directly to small firms. For example, in 1976–77 regional preferential expenditure amounted to over £700 million. Section 8 expendi- ture, out of the Conservatives' own Act, in nationwide schemes affecting a variety of industries, which the sector working parties and the Department of Industry in conjunction with the industries concerned have recognised that they need some sort of assistance to develop, is running at about £2 million a week. Small firms are eligible for these schemes

It is true that some of the schemes are better formed for larger concerns, but small firms are not excluded. In the ferrous foundry scheme, for example a large proportion of the successful applicants are firms employing fewer than 200 employees. We are providing assistance. In today's Guardian, if the hon. Member for Harwich will cast his eye over it— if he can tear himself away fom his Daily Telegraph—mentions a range of schemes which are available from the Department of Industry.

I have noted the hon. Member's points about ECGD, but I am sure, equally, that he will have noted that on 26th October the Chancellor of the Exchequer, when making an announcement about the schemes of assistance by the Government —I am sure that the announcement was welcomed everywhere—mentioned that the Government had introduced a scheme through the Department of Trade whereby 50 per cent. of the cost of exporting into a new field can be met by a loan which will be recoverable by sales in the export market. It applies across the board, but we believe that this will be particularly important for small firms. That is real assistance directed towards exporting, which, as a nation, we need.

The Labour Government have been evolving a policy for small firms. It is not a sudden jump, or a sudden interest. It is worth reminding the House that it was in 1969, under a previous Labour Government, that the Bolton Committee was set up to examine the range and opportunities of small firms. It was a result of the recommendations of that Committee that, for example, the last Conservative Government established a small firms information centre. This Government have recently extended that service by having a sub-office established in Liverpool. We have established a number of counselling services. We had a pilot scheme in the South-West Region —a counselling service specifically designed for small businesses to use the expertise and knowledge of business men. We have now extended that to the Northern Region, and we are extending it nationwide over the next 12 to 18 months, as rapidly as we can.

We have a collaborative scheme, so that if small firms wish to work together to improve their marketing, their purchasing, their accounting, their employment position, or whatever, we are prepared to give them a grant of up to £5,000 for a feasibility study to assist them in this.

We have recently introduced a manufacturing advisory service—again that has been done in conjunction with industry —for the metal-working trades, for firms employing roughly between 100 and 1,000 people, so it covers small firms. We have introduced this service specifically to try to improve that sector of industry, which is very important.

The question of tax has been repeatedly raised today. We have introduced alterations in the capital transfer tax. We have introduced an increase in the allowance on the valution of a business for CTT purposes. We have increased it from 30 per cent. to 50 per cent. CTT, incidentally, is a great demonology of the Opposition, but it is worth pointing out that for small businesses it represents an improvement because under the old estate duty if a spouse died it meant that the remaining spouse often had to face the payment of tax.

It is quite true that with CTT one cannot die conveniently, as was possible under the old estate duty, but it is a fairer tax for that, and the rates are no higher than estate duty. With our allowances we have made it very much more preferential. This specific incentive is to try to encourage small businesses to remain in business and to develop. In addition, exemptions from CTT, which the Chancellor of the Exchequer announced on 26th October, were raised from £15,000 to £25,000.

The Opposition maintain an extremely partisan attitude and do not express anything about these moves except in the most churlish terms. We have also increased the reduced level of profits tax from £30,000 to £40,000, with tapering relief, so we make specific improvements and exemptions for small businesses.

Lastly, whilst I shall take aboard the points which—

It being Four o'clock, the debate stood adjourned.