I welcome this debate without reservation, as it provides the House with an opportunity to discuss a matter of national importance. The part that small firms play in the economy is vital to the future prosperity of this nation. It is a mark of the importance that the Government attach to the small firms sector that this debate is taking place in Government time.
I am only sorry that I shall not be able to attend all the debate. I have a small business matter of my own to attend—the christening of my son in the Crypt. It is ironic that I was standing in this very spot when he was born, as you will recall, Mr. Speaker. While I am keen to create employment in all sectors, I have no wish to provide additional business for the divorce lawyers, which I undoubtedly would if I were to miss his christening. I hope that the House will understand if I slip out for part of the debate.
The Conservative party is well aware of the crucial role that small firms play in the economy of our society. Above all, we recognise that small firms provide the seed corn of future employment. It is a fact that between 1971 and 1981, nearly one third of the jobs created in the private sector were with firms with 20 or fewer employees. What has been termed the fertility ratio of jobs generated to employment share suggests with some consistency that the smaller the firm, the greater its potential to create jobs.
We have also witnessed an enormous surge in self-employment, which is now standing at 10 per cent. of the employed labour force—the highest level for over 60 years. The American experience over the past few years also shows that small firms are at the forefront, and in that country they have provided two out of every three workers with their first jobs. It is indisputable therefore that in creating employment all the evidence points towards the vital importance of small firms in the creation of jobs. Nevertheless, I am conscious that we still need better information in this sector.
My difficulty is that I am also anxious not to add to the burdens of small business men by asking them to fill in more forms to get such information. Therefore, I have decided on two initiatives. First, I have recently asked for an urgent and detailed examination to be made of all existing official information. Secondly, information collected commercially for credit rating purposes has been used to establish the job-creation potential to which I have referred.
Given this potential for the creation of jobs, I am delighted to tell the House that the figures for the start-ups of small firms remain encouraging. Whereas they were running at some 160,000 a year in the early 1980s, there is evidence that the rate has now increased to some 180,000. At the same time, the figure for closures has remained at an annual level of around 140,000. Shortly I shall refer to some of the measures that we are taking which are aimed at helping existing small firms to survive, and indeed thrive.
However, the point that I wish to stress is that overall there has been an impressive and rising surplus in start-ups over stops since 1980. The stock of businesses has increased by some 140,000 since 1980, and all the signs are that the small firms sector will continue to expand. This will create a wider and more stable industrial base, a welcome change from the past when it was the fashion to concentrate too much—some would say overmuch—on large firms and thus rely on too narrow a base for creating employment and wealth.
Because many small firms have the advantage of flexibility over their larger counterparts, this also means a more flexible and adaptable industrial base. These advantages mean that it is usually the small company sector that provides the breeding ground for the entrepreneurial talents that we need — the talents to innovate and create not just products but whole new industries upon which nations depend for their industrial rejuvenation.
Therefore, it is clear that if we neglect our small firms sector, we also neglect our future and are more than likely to suffer a fate that is the industrial equivalent of the fall of the Roman empire. On the other hand, if we nourish and allow the sector to realise its full potential, we shall not only enjoy a higher standard of living throughout our lifetime but will provide future generations with the investment that they need to do the same.
This Government have made it clear that they will assist in the laying of the foundations for that future. They demonstrate that commitment quite simply by having a Minister with special responsibility for small firms, an appointment which I am proud to hold. My role has been reinforced by the support I enjoy from my right hon. Friend the Secretary of State for Trade and Industry and the welcome appointment of my right hon. and noble Friend the Minister without Portfolio, Lord Young of Graffham, who among his many responsibilities concentrates a significant proportion of his time on small firms. There can be no doubt that this Government have also demonstrated their commitment in practical terms by doing more than any other previous Government to help small businesses.
While these facts are not open to dispute, it would be an utter falsehood to suggest that we are now content to rest on our laurels. While our policies are beginning to pay off, there is still much to be done. Of course it is unrealistic to expect an overnight transformation in the fortunes of the small business sector, when for too long that sector has been depressed to the extent that the entrepreneur was rapidly becoming an extinct species in the United Kingdom. Considering the gloom-laden, state-regimented economy left by our predecessors, it is no mean task to create a society where enterprise and initiative are admired and in which people are willing to take risks. I believe it is to the great credit of this Government that we are succeeding in changing the attitudes of business men and the attitude of the public towards business.
The hon. Gentleman may have missed what I said earlier. The important point is the number of start-ups and the difference between the number of startups and stops. The surplus, to which I referred earlier, is the most important figure. The net increase—births over deaths—is the highest ever on record.
I sense from the considerable feedback I get from the small business community that there is a much greater willingness to take the risk of starting or expanding a business and a much greater awareness that the responsibility for success or failure lies in the hands of the small business man himself.
We have an enormous problem. There are still too many people in this country who disparage wealth creation and enterprise, who regard profit as a dirty word. If we are truly to succeed, then we need to create an enterprise culture where business is respected and admired, because it is business that creates the wealth to pay for the amenities and services we expect.
I was therefore heartened by the words of the right hon. and learned Member for Monklands, East (Mr. Smith) who said earlier this year that he "believed in wealth creation". Unfortunately, the right hon. and learned Gentleman's deeds as always fail to match his words. Does he really believe in the Labour Party's propaganda that the imposition of penal taxation on all those earning more than £20,000 a year will assist in the creation of wealth, or that the answer lies in a massive expansion of the public sector? Does that create wealth? If he believes that, he has never listened to anyone who actually has to run a business. For if industry and commerce are to flourish, it means creating a climate in which people can compete and have the necessary incentives to do so. It means supporting the abolition of price controls, pay controls, dividend controls and exchange controls to help create a society based on initiative where rewards are commensurate with risks.
It also means supporting our fight against inflation and it means striving to reduce taxation so that enterprise receives its fair reward. Under this Government, the tax regime for small businesses has been transformed. Corporation tax has been reduced to 30 per cent. for small companies. The abolition of the national insurance surcharge has been welcomed by businesses, both small and large, and the changes to employers' national insurance contributions announced in this year's Budget will also help small business men to take on additional employees. I was particularly pleased that the restructuring of national insurance contributions reduced the burden on self-employed business men. In addition, significant changes have also been made to capital gains tax and capital transfer tax to restore incentives and make it easier to pass on a business to members of a family; and more favourable tax treatment of share options for employees should enable small business men to attract high calibre executives.
The establishment of a climate conducive to enterpreneurship and business formation has been complemented by exciting developments in the financial sector. The establishment of the unlisted securities market in November 1980 has enabled small firms to raise, in some cases, quite considerable sums of money at relatively low cost. The Government have also played their part by setting up the business expansion scheme. Preliminary results for the first year of its operation indicate investment of over £100 million in some 500 small companies by more than 15,000 individuals. Investors have been prepared to take risks that they would previously have avoided; and, perhaps just as importantly, it has opened the eyes of many small business men to the benefits of raising finance through equity investment, a lesson learned long ago by the Americans. These are very significant advances, but I am keen to encourage an even greater awareness of the benefits of the BES scheme.
The development of the USM and the introduction of the BES have resulted in a rapid growth of the venture capital industry. In 1979 there were no more than 20 specialist sources of venture capital in the United Kingdom. Now there are over 100. The industry's own estimates of investment activity in small businesses in the United Kingdom show a rising trend, from around £100 million in just over 300 firms in 1982 to £200 million in well over 500 firms in 1984, and these figures exclude the efforts of ICFC Developments in over-the-counter markets have opened up yet more sources of finance for small firms. I believe that the expansion of institutional activity in this area is a welcome development. I shall naturally continue to urge institutions to maintain and increase their commitment to the small firms sector. Investment, of course, is not just a matter for the City. I am encouraged that several BES funds have been set up in the provinces specifically to channel investment into good local projects.
Local enterprise agencies, professional advisers and others with local knowledge and an interest in local economic development can also help spread awareness of investment opportunities and bring investors and businesses together. Individual investors or small local groups of investors should be more involved. I believe this can be particularly useful in filling the generally recognised gap in the supply of equity capital in small amounts—say, between £15,000 and£50,000.
While developments in small firms equity markets have brought a new and exciting dimension to the small firm sector, bank lending remains the main source of finance. The loan guarantee scheme which we introduced in 1981 has not only brought much-needed finance to many small firms but has been an invaluable education to bank managers. I believe that as a result of the scheme the need to appraise and monitor projects carefully is more widely appreciated by the banking sector.
If we are to succeed in creating an enterprise culture, its encourgement should come from the education as well as the financial system. It is no accident that whoever is the Minister for small firms is also the Minister with special responsibility for industry and education links. I believe that young people should gain a much fuller understanding of the value of commerce and industry while they are still at school. This is not in conflict with any educational ideas but is fully consistent with the needs of education to prepare young people for life in all its many facets. This must be the ultimate in practical education.
My Department has been involved in promoting links between industry and education for a number of years, but we hope during 1986—the year that has been designated as Industry Year by the Royal Society of Arts—to make a significant contribution towards promoting an enterprise culture. That is why we have set ourselves the target of encouraging every secondary school to run some form of mini-enterprise activity. Our target is only one of a range of activities which will take place during Industry Year to bring schools and industry closer together. If all our young people could have some practical experience of commerce, even in a very simple and uncomplicated way, before they leave school, they may be in a better position to think about starting up small firms or going into self-employment, not as a last resort but because it can be exiting, challenging and rewarding.
My hon. friend may recall that I recently reminded the Secretary of State for Education and Science that there was great benefit to gain in terms of employment opportunities if we could educate the teaching profession, in particular careers masters, at every school in the nation, in the ways of the entrepreneur and the small business man and about the way in which small businesses were started. I pointed out that it was their responsibility to educate children as they approached school leaving age into the opportunities that were available if only the youngsters were given the right type of education.
I agree with my hon. Friend. In the past, there have been difficulties getting messages across from the teaching profession—that has been happening on many fronts — about the importance of wealth distribution as opposed to the importance of wealth creation. I believe that the situation is better than it has been for a considerable time. I recall that when I was at school, which was not that long ago, the chap who was given the task of being careers master always seemed to be selected because he was not particularly good at games. The situation has certainly improved since then.
In Industry Year 1986 we have a golden opportunity to get those messages across. Teachers whom I met during small firms local enterprise week were, in relation to the issue of industry eduction links, positive in their approach. They may not have agreed with me politically, but they intended to do their best to produce an exciting programme for the youngsters in their charge.
We recognise that not all those in education will go straight into business or that, even if they do, they may lack the necessary skills to make the enterprise successful. Thus, the MSC's training for enterprise programme aims to increase significantly the amount of training being undertaken by those planning to go into business and those already in business who are struggling to survive.
Training can, of course, take many forms and small business men, with their limited time, can often benefit more from the increasing provision of more flexible and accessible facilities, such as the MSC's computer-based training initiative.
Others, too, are playing an important part in this sphere. They include local enterprise agencies, private training providers, local authorities and small business clubs. Distance learning courses are also increasing and my Department liaises closely with the MSC and many of the other private and public sector training providers to ensure that programmes developed for the small business man are appropriate to his needs.
The House will remember that a theme of the highly successful small firms local enterprise week 1985 —apart from the point to which I referred when replying to the intervention of my hon. Friend the Member for Norwich, South (Mr. Powley)—was the encouragement of better links between training providers and the small business sector.
Anybody can style himself an entrepreneur, but not all are good business men. Vital areas of expertise for all businesses are finance and marketing. If financial control is lacking, the business can fall apart. Similarly, producing a product or service without testing whether it is what the market wants is a recipe for disaster.
The Government can help to fill those gaps in management skills. The business improvement service operating in steel, shipbuilding and textile closure areas offers 55 per cent. grants towards various consultancy costs, with particular emphasis on marketing and financial consultancy, and 70 per cent. grants for market studies. I am pleased to report that there has been an excellent take-up of those schemes.
More widely, the Government have sought to encourage the professional advisers to take particular account of small firms' needs. The greatest concentration so far has been on financial advice. We recently ran a series of seminars targeted at accountants and bank managers. Throughout, our aim has been to increase awareness among such people of the needs of small firms and to persuade the firms themselves of the value of good professional and marketing advice.
The need for greater awareness of marketing is also recognised among the many support organisations which help small firms. Marketing problems formed a significant element of the 35,000 counselling sessions provided through the small firms' counselling service last year. The recruitment of counsellors specialising in marketing is a vital element in meeting business needs in this important area.
I am also pleased to note that a number of local enterprise agencies are now running courses on marketing skills. But, although much has been done, I am the first to admit that much still needs to be done.
I have mentioned two specific areas where more attention is essential if small businesses are to succeed. In addition to those skills, small firms need a much wider range of advice. It should not always be the Government's job to provide that advice. Indeed, many new sources of advice on training are already established or becoming available. However, those sources are not always used and there is a lack of awareness both of the need and of what is available.
Perhaps the best known source of advice available to the small business man is the Department of Trade and Industry's small firms service. That provides a nationwide network of centres, the services of which range from dealing with relatively simple requests for advice to providing full counselling services. The Department's small firms service has successfully increased the number of business counselling sessions by a further 20 per cent. This is no mean achievement in our efforts to fill gaps in management skills.
In the last three years, there has also been a remarkable growth in the number of local enterprise agencies, and the small firms service has adapted its role to work with those agencies. The number of local enterprise agencies has grown from about 50 three years ago to 266 today. With others in the pipeline, I fully expect to hit the target—which I set when I came to office—of 300 later this year.
Local enterprise agencies play a vital role by bringing together private sector sponsors in particular communities with the aim of stimulating and improving local economic activity and growth. Agencies may receive central and local government support, but their real roots lie with their private sector sponsorship. That also gives them strength in that they are truly local in nature, and they can mobilise various sources of support for small firms in the community, using local knowledge and expertise.
The Minister came to my constituency in February and will recall meeting representatives of the west Sussex area enterprise centre, representatives of the local business club and many small business men when he visited industrial sites and opened factories.
In his view, from going around the country, how far is the co-ordination and collaboration between such groups working? What more needs to be done, and how far does he see the local authority having a role to play in the process?
Partnerships are springing up all over the country in the various communities, concentrating on the importance of helping small firms at the local level. I was extremely impressed with what my hon. Friend showed me when I visited his constituency.
Many small business clubs have been started by local enterprise agencies and it is well known in the part of the world that my hon. Friend represents that the local enterprise agency has been an enormous success. I have said at Question Time that the loss rate among small firms that have been helped by local enterprise agencies is much lower—about 8 per cent., or one in 12—over a period of about three years, than the failure rate among other small firms—which is about one in three—over the same period. It is clear, therefore, that the hand-holding support is working. The proof of the pudding is in the eating.
I am grateful to local authorities for supporting local enterprise agencies. I am pleased to say that about half the existing local enterprise agencies are operating in areas where Socialist, Liberal or SDP councillors are in control of the local authority and that about half the authorities are Conservative controlled. That is good, because I want a bipartisan approach to be taken on this issue.
During the last Department of Trade and Industry Question Time, I gave an assurance—although this was not a matter for my Department—that the Department of the Environment was considering that matter. The Government have no power to scrap that body or any equivalent body that is controlled by county councils outside London.
I am grateful to the hon. Gentleman for giving way now because he may not be in the Chamber later when I hope to catch your eye, Mr. Speaker. The hon. Gentleman has talked about the growth of enterprise agencies. My island's enterprise agency has been in existence for about four years, and the hon. Gentleman visited it a year or two ago. What hope does he hold out for the future of financing enterprise agencies from the public and private sectors? What pressure is he putting on his colleagues, particularly in the Treasury, to provide incentive schemes so that the agencies can continue to flourish?
I was certainly impressed by the enterprise agency that I visited when I accompanied the hon. Gentleman on a visit to his constituency. I am sympathetic to his point, in that I recognise that a number of enterprise agencies are looking to the Government for a further indication of clear support. The Government give support through 100 per cent. tax relief for contributions in cash or kind to enterprise agencies. In many instances, we offer pump-priming support from our regional offices.
There is, however, one difficulty, which I am sure the hon. Member for Isle of Wight (Mr. Ross) accepts. If the Government were to come in in a big way and contribute more than 50 per cent. of the total sponsorship of an enterprise agency—I am sure that the hon. Gentleman agrees, knowing the way in which the Government work, that he who pays the piper calls the tune—we would want to control the agency. If the Government controlled the enterprise agencies, that would utterly destroy the movement and the ethos behind it. We are certainly considering the matter to which the hon. Gentleman referred.
One type of small firm that I have not yet touched on is the co-operative. Our commitment to the co-operatives, unlike that of our opponents, is not based on some sinister ideological intention. It is a recognition of the fact that co-operatives bring together the interests of those working in an enterprise with the realities of making that enterprise succeed. They also offer to those people who might never start a business on their own account a way of doing so, by allying themselves with like-minded individuals. In view of the potential that co-operatives contribute to the creation of new businesses and jobs, they are entitled to receive the same assistance that we give to small businesses generally. In addition to that assistance, the Government support co-operatives through sponsorship of the Co-operative Development Agency. Last year, legislation was enacted to provide the Co-operative Development Agency with funding for a further six years and, at the same time, to widen its functions.
There is no doubt that the CDA has made an important contribution to the notable growth of industrial co-operatives from 300 in 1981 to more than 1,000 at present. It would seem that we have done more for the co-operative movement during the past five years than the Labour party has done during the past 50 years. I am confident that, with the support we are providing, the CDA will continue to play a major role in developing the small firms sector.
On top of the activities that I have just outlined, the Government have further demonstrated their commitment to encouraging people to create their own jobs with the introduction of the enterprise allowance scheme. This scheme assists people in receipt of benefit to start up their own businesses by providing them with a weekly allowance during the first year, which helps cover that difficult time when benefit payments have ceased and the new business has not yet had time to generate a secure income. Since it was introduced less than two years ago, more than 85,000 have joined, and the strength of demand has enabled the Department of Employment to expand the scheme this year by a further 25 per cent.
The final issue that I wish to mention is public procurement. The Government spent £9·5 billion on goods and services in 1983–84. Our aim is to ensure that the barriers to small firms participating in this multi-million pound business are removed so that they can compete effectively with others. At the same time, it is important that the procurement organisation should have the best value for money. Government purchasing is a complex business. The more that can be done to clarify and simplify purchasing procedures and requirements, the greater the opportunity for small firms to compete.
We have done a lot already. For example, the financial and commercial information required from firms seeking to qualify as Government suppliers has been standardised. In addition, the need for approved status has been waived for most Government contracts up to £10,000, thus making it easier for small firms to win small orders. We must always be on the lookout to do more. I welcome the recent appointment of Mr. Mike Willacy to head the new Government central unit on purchasing which is currently being set up. The unit's objective will be to help and advise Government Departments on how to adopt a more commercial attitude to buying goods and services. I know that Mike Willacy will be as keen as I am to ensure that small firms have an equal opportunity to compete for Government contracts.
This is an important subject, and I believe that the Government have an impressive story to tell. We have not been idle on the subject of small firms, and the results prove that what we have done has been worth while. I am proud to commend the Government's record to the House.
I am sure that hon. Members well understand the reasons why the Under-Secretary of State has to leave us during the day. We wish him and his family a very happy occasion. I commiserate with him, as I am sure do all hon. Members, at his having been trapped at the Dispatch Box at the time of the birth of his child and virtually at the christening. We are delighted that at least he managed to be present on a perhaps more important occasion!
I have an interest in small firms through Job Creation, which is an organisation that I helped to establish a few years ago. My experience in learning to understand the problems of small business has been very interesting. Despite the attempt by the Under-Secretary of State to politicise the issue, I believe that there is a consensus about the desirability of stimulating more small industry. All parties, not just the major ones, agree. The Labour Government, like the present Administration, included in cabinet a Minister with special responsibility to oversee this aspect. During the period of the Labour Government that person was Lord Lever.
The Under-Secretary of State referred to small business schemes. I remember financing experimental work in Bristol and, against advice from some sources, establishing the first experiments in building small units. Certain sources advised me that I should not do so because the units would cost 15 per cent. more per square foot to build. I felt that if they cost 15 per cent. more to build, but were let, they were probably a better investment than cheaper units that stood empty for years.
The Under-Secretary of State baited us about the Co-operative Development Agency. As he is well aware, I set up that agency, thereby fulfilling a commitment that the Labour party had made to its co-operative colleagues. We are committed to taking the process further to encourage the establishment of a network of co-operative development agencies throughout the country. We recognise the difficulties involved in funding cooperatives. The Under-Secretary of State said that all the aid that is available to small businesses is available to cooperatives. I understand what he meant, but he should bear in mind that certain schemes, such as the business expansion scheme, exclude the co-operatives because of the structure of their shareholdings, and so on. The Government have tried to fill the gap for other sectors of small industries but not for co-operatives. We want more to be done about training in this respect.
We must not lose sight of reality. No one, including the Under-Secretary of State, is suggesting that small firms will be the solution to unemployment of 3·5 million. That is not to say that small firms do not make an important and valuable contribution towards meeting the needs of the unemployed. For those who find work in a small firm, it is a 100 per cent. solution to the problem that they face. It would be ludicrous for anyone to disdain the opportunity for local generation that small firms offer.
We must bear in mind that the creation of more small businesses does not automatically mean that there will be more jobs. We tend to replace medium and larger units, which are being destroyed by the bankruptcy process that my hon. Friend the Member for Hammersmith (Mr. Soley) described, and often replace them with tiny units that offer negligible employment. Nevertheless, they are welcome.
The Minister's reference to the fall of the Roman empire when he discussed small businesses is a delightful testimony to his enthusiasm, although perhaps casting a slight doubt upon his sense of perspective. For some decades in the post-war period, we forgot the history of the development of industry. Every city had its seed-bed locality in which new industry was developed. The back streets of Birmingham became home for much of the electrical industry. We know what happened in the east end of London, Manchester and so on. During the euphoria of the post-war period of international growth, there was some profligacy in the way that we dealt with small firms.
In inner London, for the most desirable of environmental reasons—I am not criticising, as it was something that needed doing, but the consequences must be faced—we lost 45 per cent. of the jobs. That was not the result of regional or new town policy. It was the result of the innovation of the bulldozer. For perfectly acceptable and desirable social reasons, we cleared away the seed-bed areas, which were becoming living and industrial slums, without recognising the need to put anything in their place. No one worried about the loss of the business minnows because there was a great deal of growth elsewhere. No one was developing policies to meet the need for the easy development of new small business.
Does the right hon. Gentleman accept that a serious problem arose in the late 1940s under the Labour Government—I do not criticise them for this—in what the Town and Country Planning Acts tended to stifle and over-regulate? Should we not be seriously considering ways and means of enabling the areas to which the right hon. Gentleman referred to develop domestically based jobs within homes in the age of the new technologies?
I am aware of the hon. Gentleman's long interest in this matter and the proposals that he has put forward in his Bill. He has anticipated points to which I shall refer later.
I wish to refer to the "burdens" document that the Government have produced. Under the pressure of unemployment, everyone is beginning to rediscover the process of developing and stimulating new local businesses. We are beginning to realise that within any community, however small, there is a considerable capability to set up small businesses that has often been suppressed or is constrained by pressures which, with a little thought, can be fairly easily removed. The fear that he will lose everything and become bankrupt is a major constraint on someone going into business. We see that in areas of high unemployment where, in some cases, people receiving substantial redundancy payments have to decide whether to back their skill with some of their money or protect the only small nest egg that they have ever had.
The pressure not to chance one's arm and go into business on one's own is enormous. One of the greatest pressures is the property pressure. All of us who have had experience of the Government approach to that recognise that Government, constrained by the requirements of the Comptroller and Auditor General, consider property from one point of view and look for 25-year leases, with dilapidations clauses and so on. However, the type of person about whom we are talking, who wants to have a go, who has a little capital and know-how and who has a product in mind, dare not contemplate the inevitable bankruptcy that would follow from taking on property on that basis.
In recent years, the development of the easy-in, easy-out workshop contract—the successor of the old railway arch—has been evolving. It is a piece of low-value property, which meets safety requirements, that a person can use. He can enter into a commitment for perhaps only one month ahead. He can then try his own thing, see whether his product will work and whether he has a business without risking his family prospects. The same applies to finance. The only capital of such an individual in most cases is his skill, his know-how and his idea for a product. He has no idea how to produce a business plan. He probably does not know that such a thing exists. That is not his fault. People made redundant have often been employed in big firms doing little jobs. By that I mean in perspective, in terms of what they see and the range of work that they do. If they take on the responsibility of a small firm, even if it has only three people, they have to encompass the range of capabilities and responsibilities that go with running a business, often with limited knowledge. That is why organisations such as enterprise agencies become important. Finally, there is marketing. That is usually a part of the business of which they have no knowledge.
Those constraints exist and must be removed. They are being removed. That has been happening over the past 10 years. It started with an industry with which some of my colleagues have associations—BSC (Industries). That organisation identified the constraints and set out to try to remove them in steel redundancy areas and by identifying them began to develop some solutions that have been followed by other organisations.
Different forms of support have developed from that analysis. From the Government has come the small business division, which was operating under the Labour Government. It has developed, and I am glad about that. It started as an experiment. We did not know whether it would meet a need or whether it would prove to be unsuitable. We evolved the use of the retired consultant to give free consultancy advice.
There has been a gradual and genuine attempt by all Administrations to find ways of meeting the needs of the people who want to set up small businesses. That has been taken a stage further by the local agencies. We must recognise, as the Minister said, that we cannot expect the Government to fund them all without some control. That is the way in which the Government operate. It is the nature of the way that they are responsible for their cash. There is another aspect of that. It is not possible for the Government to operate at that level throughout the country. Even the existing agencies such as the Scottish and Welsh Development Agencies are limited as to how far down they can go into the micro-sector to help the establishment of small businesses.
Local assistance is essential, and I am delighted that it is evolving. The most cosseted form of help is the management workshop, where a manager manages the workshop, is paid from the rents of the businesses there, and acts as a built-in uncle and adviser to all those who are making their first venture into setting up a small business. That is desirable, and a logical, but not rapid, progression.
May I intervene, because the right hon. Gentleman may not return to enterprise agencies? This may be an opportunity for the right hon. Gentleman to say that he broadly supports the movement. He has already made it clear that he may wish to take that line when he develops his theme. In my speech I made it clear that a bipartisan approach to local enterprise agencies was essential. I would not deny that some enterprise agencies are wobbly. Not all are perfect, nor could they be expected to be. In view of the right hon. Gentleman's question at last trade and industry Question Time, it is desirable to clear the air on this issue. I know that on many of these matters he is extremely positive.
In the organisation to which I referred, we pioneered what we called the consortium, in which we brought together a local authority and private industry, either the industry which declared the redundancies or, since all too often such a firm could not provide the cash, which was why it had declared the redundancies, other firms within the area to help finance job creation activities in the area. I am committed to that, and I suspect that I was committed to it several years before the hon. Gentleman. I do not mean that in a disparaging sense, but I was involved before he was. I advise him to consult his advisers, some of whom consulted us.
Many enterprise agencies are good, as I said in my question, many are innovative and doing good work, but some are talking shops. There is nothing wrong with recognising the fact that some of them serve a cosmetic rather than a practical purpose. The hon. Gentleman has so sold himself the idea of the agency that he will not recognise that in new projects there are sometimes problems that need to be dealt with. A problem of enterprise agencies—this is not their problem because we have not yet resolved how to tackle it—is that they have no performance criteria to work to.
I shall give an example, but not name the organisation because that would be unfair. It was most hospitable when I went to see it and it is dedicated to what it is doing. The agency was not doing it right, but it was dedicated to trying to do it right. The Government are concerned about value for money. That organisation had nine secondees and three secretaries. I asked how much the organisation cost to run. The local authority representative said, "I don't know what it costs altogether. It costs us only one secondee and a small amount of support money." I then asked the person in charge what the whole operation cost. He said, "I don't know. There are nine of us from my sort of level of middle management. Not one of us is costing our firm less than £20,000 a year." In other words, the secondees cost at least £180,000. To that must be added the cost of the secretaries, and the rental and operating costs. I estimate that the unit costs at least £250,000 a year to run, yet no one has even bothered to work it out. It does not matter to the local authority because it has to meet only a small amount of the cost, nor does it matter to the Government because they are not meeting any of the cost.
We must recognise that in most cases the agencies are doing a worthwhile job which the Government cannot do, in that the agencies operate at a level where Government cannot operate, and hold hands in the nicest, most positive and constructive way. However, as resources are limited, whether they come from Government, local government or even the private sector, we must ensure that they are put to a worthwhile and positive use. That is why we want to work towards clear objectives and measures of performance.
I think that the right hon. Gentleman misunderstood me. I am desperately trying to help him. I am suggesting that perhaps the umbrella organistion, which has responsibility for the community's enterprise agency business movement, would be somewhat unnerved by his question at trade and industry Question Time. The only difference between us is his use of the term "talking shop". Whatever enterprise agencies are, they could never be talking shops. I admit that, in some areas, they may not be as effective as they might be.
If the right hon. Gentleman has read a recent study about enterprise agencies, he will know that the cost per job is certainly value for money. The cost per job has been estimated at less than £500. The example that he gave the House of an enterprise agency with about seven secondees is most unusual. Most enterprise agencies have one director, often not even a deputy director, and one secretary, and the right hon. Gentleman knows that.
I am aware of that. However, the hon. Gentleman does not seem to want to face issues that exist. I am aware of the activities of Business in the Community. There is nothing for us to disagree about. If some enterprise agencies are talking shops, why not recognise the fact? If some do not use resources effectively, surely a Conservative Minister — [Interruption.] With all respect, the hon. Gentleman is at the start of his ministerial career—I wish him well—but for him to sit there and say happily that none of the agencies are talking shops shows a certain naivety and an unwillingness to face reality. I was trying to develop a consensus approach on small businesses, but the hon. Gentleman appears insistent that we shall not have one.
The right hon. Gentleman was right to point to the costs of running a particular enterprise agency, and to say that we should expect value for money. Did he ask other questions, such as how many businesses the agency had set up, and how many jobs it had developed and created? That way the black picture that he pointed may seem less gloomy.
I asked precisely that question and the enterprise agency answered it with great honesty. It said that it could not really say. Some Conservative Members are showing their naivety about how the agencies operate. Merely talking to someone does not create a job. If a person wants to set up a business, wants help in consulting a bank manager, and gets help, it does not mean that the agency has created the business. I suggest that the Under-Secretary returns to his Department and asks his officials to give him a breakdown of the figures to show how they arrived at the £500 cost per job. He may discover that that bears little analysis. That is true of the cost per job in all sorts of agencies. The same used to happen with the old development agencies and development corporations. If they had consulted a person in Japan five years ago, come to this country and set up a completely different project, they were likely to have that person in Japan in their list of the people whom they had consulted and been influenced by.
The trusts, agencies, workshops and advice services have all done good in increasing the survival rate of firms. That has been the big change. Reference has been made to the number of new businesses, but over the years there has been very little change in the number of new small businesses as a proportion of existing stock. The difference lies in the rate of survival, and that has a lot to do with such things as the small firms service and the agencies. The Minister lays great claim to the Government's achievements, but between 1979 and 1982 there was a dramatic fall in the birth rate for small businesses. The rate picked up again in 1983, but even then to only slightly above the 1979 level. I noticed that when the Minister drew his comparisons, he was careful to use the dates of his own party's disasters as the base date for his measurements. If he had gone back a few more years, he would have found that the position now is perhaps slightly better than before, but not much better.
The biggest difficulty for small businesses is the first two years. However, it is interesting to look back over a longer period. For example, half the businesses in existence in 1971 had disappeared by 1981. Of those that remained, 80 per cent. still fell in the same size band. They had not grown. Thus, 50 per cent. of those businesses had disappeared, and 80 per cent. of the remainder were still in the same small band. Only 0·2 per cent. had grown to have 1,000 or more employees. I do not make that point in a knocking sense, but merely to show that the small firm is limited in its use as a solution to our unemployment problems. Sometimes, the Minister seems to portray it as the solution to them.
Furthermore, the situation favours the south-east rather than the more needy areas of the country. The highest proportion of small business births is in the south-east and the lowest death rate is also in the south-east. Moreover, the highest proportion of high tech industries is to be found in the south-east. The Minister is discovering that it is not always easy to identify or co-ordinate the correct policy. In the last decade, the Bolton committee was set up after pressure from business and the CBI, complaining about the flood of forms and about the fact that small businesses found themselves snowed under. It must, then, have been a rather bitter experience for the Minister to receive a recent memorandum from the CBI complaining about the weakness of statistics for small businesses. I commiserate with the hon. Gentleman, because that just goes to show that some people cannot be pleased. When the request for a reduction in the amount of form-filling was made, a warning was given that there would inevitably be a reduction in the quality of statistics. Thus, although the policy decision was willed, the consequences are now bemoaned.
I have already mentioned the difficulties of co-ordination. The Minister can boast about what the Government have done for small businesses while, behind his back, another Department introduces a statutory sick pay policy. Indeed, according to one survey, that policy has meant that two thirds of small firms say that they will employ fewer disabled people because of the risks involved. Furthermore, 26 per cent. have said that they have switched some of their staff from full-time to part-time work; 54 per cent. have said that they have difficulty with administering the system; 60 per cent. have said that they have now altered their employment intentions, and 90 per cent. have said that they now pay much more attention to the medical records of applicants. The Minister may have his finger in one hole in the dyke, but his colleagues down the road in Whitehall have got the bulldozers and demolition teams out to remove the rest of the dyke.
Despite the eulogies, the Government's policy is sometimes inexplicable. We have already heard about the advantages of the small unit. Indeed, I have mentioned its value, and the Minister has nodded his approval. But who ended the small workshop scheme in March of this year? In a recent submission, the CBI has said that there is now a danger in some areas of the supply of premises of fewer than 1,000 sq ft drying up. Those are the very units that the small workshop scheme would have helped.
Is the right hon. Gentleman aware that in a large part of the country it has been demonstrated beyond peradventure that it is perfectly possible to build and run such small workshops at a profit, and that Government assistance is not as necessary as it was when the scheme began?
The hon. Gentleman is preaching to the converted about the merits of such schemes. Indeed, I have spent several years trying to convince other people of the value of such schemes. But one big difficulty is that one cannot persuade the property developers in the south-east to go outside that area or to take any interest in developing workshop schemes, because the small units represent bigger administrative problems for them, and consequently more uncertainty. As a result, private money has been reluctant to move in. That is one reason why the Government introduced the scheme; they wanted to encourage such ventures. However, they have now abandoned it.
Will my right hon. Friend bear in mind the example of Cambridge city council, which has set up a considerable number of workshops? Initially, council money was used, but a good return and profit was made out of the workshops, thus creating space for jobs. The private sector would not move in initially.
There is enormous scope if the local authorities are given the necessary power. Such workshops can be run highly profitably. That is why we are committed to making resources available to the local authorities.
The right hon. Gentleman may like to know that the initiative for the enterprise mentioned by the hon. Member for Islington, South and Finsbury (Mr. Smith) came between 1976 and 1979, when I had the honour of being the leader of a Conservative Cambridge city council.
I am delighted at the coincidence of timing, because the years between 1976 and 1979 were the very years when I was the Minister responsible, and I am therefore sure that our encouragement enabled the project to get off the ground.
The Government's position becomes even more incredible when other factors are taken into consideration. After all, a Government who say that they are doing everything they can to help small businesses with their financial problems have removed capital allowances. Capital allowances to them, of course, are things that worry the great big firms. But it means that the unincorporated firm has lost the advantage of the allowance and the stock relief, and receives no compensatory benefit as a result of any tax changes flowing from that decision. Thus, the situation has been made more difficult for an important part of the small business sector.
Sometimes the Government do not always achieve their objectives. Of course, that is true of every Government. Many projects are brought forward with good intentions but are found to need amendment. I am not being critical, because I think that the new scheme has been worth while. However, with regard to the business expansion scheme, I ask the Government to consider the fact that the terms on which it operates inhibit the ability to operate overseas. In addition, there is the well-known criticism that funds are not normally provided below the level of £100,000. That is not the sort of funding needed at the smallest end of industry.
The paradox is that the system provides money up to the £100,000 level under the loan guarantee scheme. The old scheme was set at the £37,000 level which was much better for small businesses, but that was neutralised because it cost too much. The Government are unwilling to put their money where there mouth is.
Knowing the right hon. Gentleman as well as I do, I know that he wants to be fair. He knows very well that there was a good reason for the removal of capital allowances. That action was taken to make corporation tax generally fairer. The rate of corporation tax has been reduced from 42 per cent. to 30 per cent., so the standard rate for the smaller firm is now the same as the standard rate of income tax. There is a good deal of sense about that. The right hon. Gentleman should know that 90 per cent. of all small firms are incorporated. Only the very few in the unincorporated sector have been affected in the way that he has described.
The hon. Gentleman has conceded my argument. He has admitted that the unincorporated sector is affected adversely. He rightly says that 90 per cent. of small firms are incorporated. That suggests that 10 per cent. are not. The Minister has spoken of the many small businesses that exist, and 10 per cent. of a large number is a significant number. That means that many small businesses are much worse off than hitherto. I am glad that the hon. Gentleman has been able to provide corroboratory evidence of my case.
The Government initiated a survey of the burdens on small businesses and thereafter produced a Green Paper. The Opposition go along entirely with the idea of removing unnecessary burdens from industry. We support any moves to simplify the procedures that confront small businesses. I am in favour of that policy as long as it does not add to the risks that are faced by employees or consumers.
There is a danger of being a little dewy-eyed about small businesses. There are many delightful, encouraging and highly innovative small businesses but it is a sector in which cowboys are to be found. The Under-Secretary of State for Trade and Industry draws in his breath. That reflects the degree of rose tinting on the spectacles he wears when he reads his briefs. Anyone who conducts constituency surgeries will be aware of the problems that are created by the cowboys at the small end of industry.
The Government's study was based on a small sample and the interviewers said that most of the representatives of small business to whom they had spoken had not considered the problem seriously. That suggests that they were not conscious of the existence of the problem.
The Government are talking of eliminating the statutory audit and reducing the requirements to file accounts. That may be an excellent approach from the point of view of easing the work of the small firm, but if the Government are not careful they will exacerbate the problem of raising capital and obtaining loans. That can be described as the No. 1 problem or the No. 2 problem, depending on whom one consults. The inevitable consequence of being unable properly to assess risk is to make it more difficult for a firm to obtain finance.
The Government talk about reducing licensing. I took the Consumer Credit Bill through the House in 1974 when I was a member of the then Labour Government. I would deplore any attempt to exempt any firms from the net of consumer credit licensing. The 1974 Act was a consensus measure. It was devised by the present Foreign Secretary and I picked it up when the Labour party formed a Government and enacted it. It was introduced because of the problems caused by loan sharks. There was concern throughout the House at the activities of some of these individuals when allowed to act without regulation.
It is the Government's policy to abolish wages councils. I find that somewhat anomalous in the light of one of their other objectives. The Government say that it is important to widen the income gap between those who are out of work and those who are in work, in order to encourage people to work. It seems that at the same time they are saying to the lowest paid that they intend to take away the safety net that is provided by the wages councils, so as to reduce their income to social security standards. That is an utterly illogical posture.
The most dangerous part of the Government's policy for alleviating the burdens on small businesses lies in their approach to safety. Self-regulation is potentially incredibly dangerous. Only 22 of the 200 companies referred to in the survey quoted safety as a problem for them in terms of a work burden. On the other hand, the Comptroller and Auditor General was reported in the press on 5 June as saying:
Information from both the Factory Inspectorate and local authorities suggests that in recent years economic circumstances have deterred many smaller businesses from maintaining good health and safety standards.
The report tells us that some small businesses and subcontractors have
failed to achieve acceptable standards. That imposed an additional workload on inspectors … when their numbers had fallen. Between 1979 and 1984 there was a 13 per cent. reduction in Health and Safety Executive staff.
In the wake of that, the Government are talking of safety self-regulation.
A 1981 study of machinery accidents in manufacturing showed that 50 per cent. occurred in firms employing fewer than 100 persons and that over 10 per cent. occurred in firms employing one to 10, although these firms accounted for only 5 per cent. of employees. The construction industry provides a graphic example. In 1983 the Government backed with the industry the "site safe" campaign. The factory inspectorate was concerned at the rate of death in the industry. Deaths increased from 129 in 1981 to 149 in 1983. Major injuries rose from 1,766 to 2,272. However, during that time of increases in deaths and major injuries, the number of employees in the industry had fallen from 1,090,000 to just over 1 million.
It is important to maintain proper and reasonably balanced levels of health and safety standards, but will the right hon. Gentleman accept that the examples that he has given fall within a period when health and safety legislation has been in force? Therefore, a significant number of the accidents to which he referred, regrettable as they are, may have occurred in circumstances which were more or less inevitable.
Does the hon. Gentleman not appreciate my concern about what has been happening during a period of regulation? There must be grave doubt about what would happen if there were deregulation, especially in a sector of industry that has a high casualty rate in terms of its own survival. It is often under great financial pressure; therefore, there is great psychological and financial pressure to cut corners. In conjunction with the Government's proposals on safety, they are talking of enabling firms to sack employees more readily by
removing the protection of wrongful dismissal. However, a recent report—"Health and safety at work April 1985"—stated:
The attitude of site managers was found to be poor. It was such that site management pressure was applied upon individuals to perform under conditions where they felt it was unsafe by the expedient of suggesting that they … could be dismissed from the site.
We are talking about deregulation for people who, under the existing system, are willing to use the threat of the sack to stop complaints about low safety standards. There is also a danger of removing the unfair dismissal protection from workers.
I can understand the Minister's enthusiasm to do all that he can to help the small businesses. We share his genuine enthusiasm to remove unnecessary and avoidable procedures and inhibitions on small firms, but we must proceed with great caution on safety. We endorse the objective of stimulating more new businesses and of enabling more businesses to survive. We want to stimulate the local generation of business, but we do not think that the Government are on the right course in some of their proposals.
It is a tribute to small businesses that we are spending a whole morning debating them. Ten or 15 years ago there would have had to be some special justification for our spending so much time talking about small businesses. Today we are given the opportunity to review the achievements of small businesses and to put forward ideas for the future.
Many people regard small businesses as second rate. Slowly, that attitude is changing. Now people are taking more interest in small businesses. That applies particularly to young people leaving school. Many young people now see a more assured future in the small sector than in the large sector. Multinational companies have been shedding labour. The more massive the investment, the more likely it is that jobs will go.
About 1·5 million small businesses in this country employ about 6 million people and produce about one quarter of our total output. Small businesses cover every sector, including manufacturing, construction, transport, the professions and the service industries. In many cases small business means best business. It is best because it offers managerial innovation and a much higher standard of service. It is best because it is efficient. Above all, it is best because it is flexible.
Small businesses are a vital seed bed for new businesses. They offer new managerial talents the opportunity to be tried and tested. A person can be tried and tested better in a small firm than in a large firm because of the overall umbrella of responsibility that has to be taken compared with larger firms.
Small businesses vary tremendously. There is a lot of difference between a small manufacturing company and a small shop and between a small hotel and a solicitor. Small firms have in common their small share of the market and personal management. The differences—I underline this—are as important as the similarities. If we do not recognise that, we shall offer only blanket answers to complex questions. There is small and small. We cannot discuss small businesses in general terms. We have to dig deeper.
The Minister talked about the success of small businesses in America. We often have to underline what is happening in America because the Americans have a small business administration that provides facts. Therefore, more information is available in America, so that it is possible to calculate that 88 per cent. of new jobs came from small businesses last year. That is good news if one considers IBM and General Motors and the vast corporations in America.
I genuinely believe that small companies will make a major contribution to creating new jobs for the future. In America 80 per cent. of jobs created in the last five years were generated in companies which were less than five years old.
It is not just that, but an attitude of mind. The small business revolution has been going on in the United States for a long time. When Bolton examined the problem in 1971, he discovered that there were one third fewer births of small companies in Britain than in America. The attitude is not new. America's attitude has been different for many years.
Is it not also true that the ability to retain a business in its early years and the profits generated have proved to be a tremendous engine in the growth of small businesses in the United States?
That is one of the factors. I do not want to be dogmatic and point to only one factor.
The decline of small businesses in Britain started at the turn of the century. A number of factors have accelerated the decline, such as the state's role, intervention by local government and nationalisation. Many factors have helped to stifle small firms. There has been an increase in red tape in the tax system, PAYE, national health insurance, employment laws, labelling regulations — even trade unions have helped to stifle small businesses.
At one time everyone believed that biggest was best. The tax system positively encouraged large corporations to merge. About 50 per cent. of our output is in the hands of 100 companies. That is wrong. There are more mutinational companies here than in the rest of the EEC. That shows that we have been supporting large multinationals at the expense of small businesses.
The Bolton report in 1971 was incredibly good, but its tragic failure was that, although it recognised the problems, it did not make many specific recommendations about the tax and regulations systems, employment laws and planning controls which tend to stifle small businesses.
Despite that being recognised, we continued to introduce employment protection and sex discrimination measures, all of which treat the small corner chemist shop in exactly the same way as ICI.
In the mid-1970s, people such as Lord Lever and my hon. Friend the Member for Hampshire, North-West (Mr. Mitchell) began to campaign on behalf of small businesses, with the result that when the Conservative Government came to office in 1979 they were able to accelerate the process and introduce many new measures to help small businesses. Some of them were outlined by the Minister this morning.
When I first came to the House, I campaigned vigorously for the loan guarantee scheme. It has been much maligned. Although it has cost a good deal of money, it has created about 40,000 jobs, and 14,000 small firms have been assisted.
My hon. Friend the Member for Norfolk, South (Mr. MacGregor) introduced the small engineering firms investment scheme. It was a great success and over-subscribed, and had to be reintroduced at a later stage. I hope that the Miniser will take an interest in that area and help to encourage more high technology investment in small firms.
The business expansion scheme has been extremely successful and there is every indication that it will accelerate. The right hon. Member for Swansea, West (Mr. Williams) mentioned small business units. There has also been great success in that area. When I started my business in 1970 I had to scour the countryside to find somewhere to start; it was almost impossible to find a suitable place. Today throughout the country there are small business units and their growth is accelerating. I disagree with the right hon. Gentleman's comments in that respect. Private developers are finding that they are profitable. I am pleased to see the development of small estates of such units, with overall management facilities provided, such as accountancy and telephone answering. That is the second stage of development, and I welcome the initiative taken in that area. There is also the small firms counselling service, which was mentioned by the Minister. That is of great benefit to small firms.
Perhaps it is a mistake to use the term "small business men". Nothing happens to one overnight on setting up a small business. I may have a small business, but I am perhaps larger than I should be, especially as I deal in dietary foods. Seriously, I think that it is a mistake to use the term "small business men". They are craftsmen with a particular skill, and putting a lathe into a workshop does not make a man a business man overnight. Anyone starting a business has to deal with the problems of marketing, cash flow and so on. I am a marketing man, and when I went into business the best piece of advice that I had from my accountant was, "It goes in on the right and out on the left." That shows how much I knew then about book-keeping. I had to learn about book-keeping. On starting a business, one has to make oneself a business man as well as make the business a success.
I like to have a go at the farmers, and as the Member for Luton, South I can do that. There are 230,000 farmers in Britain and they provide 600,000 jobs. They have a Cabinet Minister, two Ministers of State, a Parliamentary Secretary, and 14,000 civil servants. The small business sector, comprising nearly 1·5 million business men and providing 6 million jobs, has half an Under-Secretary of State to look after its interests, together with a small band of dedicated staff.
In case the Prime Minister reads Hansard, I should like to make it clear that I am not advocating that the small business sector needs a Department the size of the Ministry of Agriculture, Fisheries and Food, but I believe that it should have at least a Minister of State to look after its problems, with the power to co-ordinate his efforts with those of other Departments. It is crazy that the Council for Small Industries in Rural Areas is still administered by the Department of the Environment. Administration should be confined to one area.
I should like to see a Select Committee set up to deal with small businesses, not simply to look at their problems but also to monitor legislation. I have already referred to legislation which treats small and large businesses as though they are the same. Such a Committee could consider the effect of legislation on small businesses. In many cases, rather than offering help to small businesses, it would be better to find ways of getting off their backs.
It would be useful to have an annual report to Parliament on the state of small businesses, on the lines of what is done in the United States. There could be a standing conference of small firms, with an independent institute to look after their interests.
Although the Government have done well to bring corporation tax down to 30 per cent., the jump was too rapid; there should have been a graduated process. The important point in a small company is to be able to retain profits. I am talking of profits of about £2,000 or £3,000 which can be ploughed back into the company. Ludicrous things go on in small companies. Often a man will buy a Mercedes or a new desk and office equipment when he should be saving the money to buy a bigger piece of machinery. Business men often fritter away money in trying to dodge the tax man.
Education has already been mentioned. Small businesses particularly need people with multiple skills and discipline. In setting up a small company it is not possible to stick to one's trade. When I started in business and persuaded an engineer to join me, he had to do everything. He had to understand electronics; he had to do some plumbing, carpentry and toolmaking. To create more small businesses we need more people with multiple skills. For those skills we have to look to the education system. We need not only manual or craft skills; people must know something about book-keeping and marketing, and how to convince a bank manager to lend money. In addition, people must have the right attitude of mind to be successful in a small business.
I recall the story of a colleague in the House whose daughter was graduating from Cambridge. When she told one of the professors that she was going into a small business, he said, "You are too intelligent for that." That sort of attitude has to be overcome.
A programme of management training for small firms is needed. The polytechnics should be providing courses of training in business studies and in industrial technology. They should be providing the sort of people that we need in Britain to create small firms. Polytechnics could play a bigger role in linking their studies with industry. There are excellent science parks in Cambridge and elsewhere. There should also be mini-industrial parks linked with polytechnics. It would help polytechnics and industry if they could combine in that way.
I welcome what the Minister said about Government procurement and purchasing policy. In the United States, 30 per cent. of Government expenditure is guaranteed to go to small businesses. I hope that we can move towards that target.
I hope that we will also consider rating reform for the small business man as well as for the domestic ratepayer. We ought also to review planning legislation. We build industrial estates away from houses, yet we apply the same planning regulations there as are imposed on developments next to residential areas. That is silly. We ought to allow much more freedom from planning controls, at least on industrial estates.
As I said earlier, this is an important debate and I welcome it. The success of small businesses can now be measured. If we are to contribute in the industrial world and make an impact on our tragic unemployment, we must continue to press for a strong small business sector.
I was glad to hear the Minister say that 140,000 small firms have been set up since 1980. As so many large firms have gone to the wall, it is good to know that some of the slack is being taken up elsewhere.
The Minister referred to the number of start-ups, but there have been a tremendous number of bankruptcies and receiverships under this Government. On a number of occasions in the early days of this Administration, business men, usually young men, said to me, "I voted for the Government, and I am a small business man, but I am afraid that they are going to see my boots off." I concede that I have not heard such comments in the past two or three years, so I accept that, although the Government did not make a good start, they have done quite a lot to encourage small businesses.
Many of the firms that the Prime Minister calls new businesses are virtually shadow companies and little more than book entries in the register of companies. Some are run by men who use redundancy pay to set up in business.
Perhaps it is, but unfortunately many of those men do not have the necessary experience and will get their fingers burnt. However, it is a free country and they are entitled to do that, though it is unfortunate that some will set up in business without getting proper advice.
I accept that many useful changes have been made, including the abolition of the employers' national insurance surcharge. The more restrictions that are removed from small businesses the better, though I add the caveat that there should be no cutting of corners in health and safety regulations.
In the light of the number of people employed in small businesses, the Government should not abolish the wages councils. Many businesses would take advantage of the abolition of the wages councils to depress the wages and conditions of many of their employees.
The Minister referred to the links between commerce and education. Some unfortunate views are expressed on that subject. The Minister referred to an enterprise culture and the Secretary of State for Education and Science has been speaking about the topic recently. It has been said that the Education Act 1872 was passed because of the need of industry and of the expanding British empire for clerks who could read and write. The Government's idea of education seems to be that people should be prepared for industry and virtually nothing else. We may one day even see a Secretary of State for Education and Science telling us that we do not need professors of Greek.
That is not what education is about. All my experience before becoming an hon. Member was in business, so I do not speak from an elitist or academic point of view. It is important to have a connection between education and commerce, but I regret that the Government are over-emphasising that need.
Small businesses are important in Scotland. Firms employing fewer than 200 people account for one quarter of employment in manufacturing industry. Of course, some would regard such firms as fairly large businesses, but we have not defined what is a small business.
One of the biggest problems affecting small businesses in Scotland is rates. We have suffered much more than England and Wales, because we have had two rating revaluations while they have had none. It seemed for a while that the Secretary of State for Scotland was about to commit political suicide because of the appalling rate increases that fell on businesses and domestic ratepayers in Scotland. A £50 million rescue package was eventually cobbled together, but it seems that, because of the formula used, only £30 million will be taken up, and the rest will be retained by the Treasury.
I suggested in a recent speech that the maximum rebate for a firm should be £10,000, so that money would be left in the kitty to help more small businesses. Unfortunately, that idea has not been adopted. Small concerns have received only a limited benefit so far. I hope that the Under-Secretary of State for Trade and Industry will press the Secretary of State for Scotland to make the remaining £20 million available.
I welcome the Under-Secretary's approval of co-operatives. I am glad to see that he has no political hang-up about the word "co-operative" and I welcome his assurance that some assistance will be given to co-operatives. They are important in Scotland, and particularly in my constituency.
In November 1982, there were only 43 co-ops in Scotland. By the beginning of this month, there were 134, employing 2,000 people. They are important in an area which has the highest unemployment in the country. They are a hopeful sign and I hope that the Government will continue to help by giving increased financial assistance towards the establishment of co-ops. I am glad that there is no division on that point between the two sides of the House.
I broadly agree with Schumacher's view that small is beautiful. I welcome the support given to small firms, because I believe that large firms, like other large organisations, can get out of human control. Small firms make a valuable economic contribution and engender independent character in the people running them. That sector deserves the full support of any Government and I welcome the Minister's speech as a sign of his attitude.
The House will be devastated to learn that I shall not be speaking for very long. I have discovered that verbosity does not emphasise or strengthen any argument that any hon. Member wishes to make, anyway.
I greatly enjoyed the speech of the right hon. Member for Swansea, West (Mr. Williams). I welcome his conversion to the cause of the small business sector. I only wish that he was supported today by more than two of his hon. Friends. The absence of Opposition Members shows that the real belief in the small business sector is held by Government supporters and not by Opposition Members.
One of the questions that we must ask ourselves is why we should support small businesses. Philosophically and politically they are more in tune with the Conservative party, which perhaps is enough in itself. However, we should consider some of the deeper reasons.
The Minister mentioned the employment opportunities in small businesses. I believe that today we are paying the penalty in employment terms for not showing greater interest in and giving greater support to the small business sector 15 or 20 years ago. We do not have the companies employing 200 and 500 people today because the firms were not started 15 or 20 years ago. They were on the continent, and that is why the unemployment problems there are less than we are experiencing. We look to the small business sector for the flexibility to bring in innovations. In the rather hackneyed phrase often used, we look to them to plant the acorns that will grow into the oaks of tomorrow.
I look to small businesses to provide other advantages. I look to them to provide import substitution and more exports. We have to support these two areas, because the smaller businesses provide the very fibre of our economic culture.
I am disappointed that the loan guarantee scheme has had such a high rate of failures. It was not set up as a social service. It was set up to provide finance for our small businesses to grow and, while we could argue about the high rate of interest and say that it almost militated against success in some areas, I am disappointed at the success rate of the scheme. I shall not go into the reasons for the lack of success, but the banks have not picked sufficient winners. If I were a director of a bank, that would worry me when I carne to examine my management structure.
That takes me to the business expansion scheme. I should like to see it take up the loan guarantee scheme in that it should be allowed to provide loans as well as equity capital. There would have to be protections, of course. It would be necessary to make sure that the equity borrowing ratio did not get too much out of kilter. It would have to be within limits, and there would have to be limits on the interest rates which could be charged. But, overall, it could give a small business a capital financing package with interest rates that were a sensible proportion of its new costs.
The same rules should apply. People using the business expansion scheme should have to put in their money for five years. But it would have another advantage, because so many small firms discover when they go to the business expansion scheme that they need too much capital to get started and that, in getting it, they give up too much of the equity in their new companies, which they are reluctant to do. It is part of the ethos and thinking of a small business man that he runs his company; he does not run a company where he is managing other people's money.
If this idea could be taken up, I hope that the evaluation by the business expansion scheme of any new idea would help to improve the rate of success, which has not been evident with the loan guarantee scheme. It has worked for the local enterprise agencies. I see no reason why it should not work for the business expansion scheme.
I referred earlier to the need for more exports. I pay tribute to the improvements in the British Overseas Trade Board under the chairmanship of Lord Jellicoe. We have seen the board provide a more enthusiastic service to our exporters over the year or so in which he has been in charge. However, I make the plea in passing that we examine the possibility of changing the name of the board, possibly by bringing in the word "exports". In my view we need to make it sound a little more positive. The big companies know what it is about, but the present name means very little to smaller companies.
The British Overseas Trade Board provides many valuable services, and small businesses should know more about them. I should like to think that my hon. Friend and his Department could forge closer links with the services provided by the board and the smaller businesses. The board has produced an excellent booklet, "Help for Exporters". I should like to think that every small business man knew about it. I have asked some, and they do not even know of its existence. I ask my hon. Friend to do all that he can to strengthen the links between the board, the local enterprise agencies, the banks, trade associations and chambers of commerce so that small business men know that there are opportunities to export and that we have the supporting services to provide them.
I also ask my hon. Friend to add to his burdens/investigation a close examination of the necessary paperwork involved in exporting. Small business men to whom I have spoken shudder at the complexity of the forms that they have to complete before they can export. I hope that something can be done to simplify matters.
I hope that my hon. Friend will consider the two main topics that I have raised. I also apologise to him and to the House as, unfortunately, I shall not be here to listen to my hon. Friend's concluding remarks since I have an important constituency engagement later in the day.
I congratulate the Minister on his engagement later today. Unfortunately, that is the only congratulation that I can offer him, because we have heard from him the usal excuses about the plight of small businesses.
The Minister fairly and properly complimented Opposition Members as well as his own supporters on recognising that successive Governments and local authorities under both Labour and Conservative control had introduced and supported schemes designed to help small business. However, the Minister should know better than anyone else, given his departmental responsibilities, that the Government are primarily responsible for the plight that small business has been in since 1979.
During the Minister's speech I asked him about the number of compulsory liquidations and bankruptcies that there had been, and he tried to get round my question by saying that there had been more start-ups. However, we all know that the rate of increase was dramatic. The Minister must have seen the graphs produced in a number of magazines, including British Business, showing the line of compulsory liquidations and bankruptcies going through the roof between 1980 and 1984.
The Minister sounded like a first world war general being quizzed about the appalling losses on the western
front—"We are sending far more men over the top than before." That is the failure of this Government. I take that argument a little further, because it is worth quoting the hon. Gentleman's own departmental report. "Burdens on Business" concluded:
Recession, poor demand, low consumer spending due to unemployment and growing poverty are therefore the most influential factors in the state of small firms.
That report was produced for the Minister's Department, and he knows that those are the most influential factors.
In debates such as this it is very instructive to look back to the promises made by political parties at the time of general elections. If we go back to 1979, we find the Conservative party saying that it is the duty of a Government to create the climate in which wealth can be created and small and big firms can prosper. On that, they are damned for their failure. We all know that the primary reason in the early stages was the inability of the Conservative Government to control interest rates, which dramatically affected the collapse of the small business sector. Now, the small firms have been devastated by the general recession.
Before the hon. Gentleman gets carried with his rhetoric, I should remind him that small firms were not mentioned in the Labour party manifesto of either 1979 or 1983. My hon. Friends have referred to the fact that Labour Benches are sparsely filled in this debate, and we have said that we are the party primarily concerned with small businesses. Where is the concern for small firms expressed by the Labour party? Where was it in the two manifestos?
The Minister has put his finger on the all-important difference between the two parties. We do not make promises that we cannot keep. The Minister has recognised the strength of what I am saying. The Conservative manifesto made promises to small businesses, but nothing happened. However, Labour Governments and Labour-controlled local councils have done things. They have set up small enterprise units and so on. The Local Enterprise Development Unit was set up in Northern Ireland. The Greater London enterprise board was set up by the Labour-controlled GLC. The Government are trying to abolish that and the west Yorkshire enterprise board.
In the past few days, the Minister, along with others, has started to worry about the abolition of GLEB. I served on the Committee that considered the Local Government Bill, which abolishes the GLC and the metropolitan county councils. The Minister's colleague in the Department of the Environment was saying that the board would go unless other local authorities funded it. In the past few weeks, the pressure on the Government to support it has increased. That pressure, mainly from small businesses, has been so great that they have had to back down.
That is the point. It is not pieties in manifestos or ritual incantantions made to local chambers of commerce but the facts of what parties have done when in government that is important. Those facts include, since 1979, not only high interest rates, to which my hon. Friend has referred, but something that has been a devastating blow to local businesses everywhere—the high exchange rates in the early years of this Government. The general collapse of our manufacturing base on which so much of our small business depends is another vital factor.
My hon. Friend embellishes my point. It is important to be aware of the fact that the Minister knows that from his friends in business and the survey from his Department. The Government have not done anything about the problems, and the Minister's speech today did not focus on any of the points that his survey pointed to as being problems for small businesses.
I am appalled by the number of retail organisations in my constituency that are going to the wall. British Business has shown that about 21 per cent. of retail businesses have gone bankrupt or into compulsory liquidation. Another sector that has been dramatically hit is the construction industry. Today there are reports that the House-Builders Federation has complained about the Government's inability to control the cost of land, on which there is inflation of 1,000 per cent. It is telling the Government that the construction industry is suffering dramatically because of the Government's policy on housing, or should I say lack of policy on housing. The climate that the Government have created is making it murder for small businesses and large firms alike to survive. There is much truth in the saying that the quickest way to get into a small business is to start off with a large one. At least one does it rapidly that way.
The hon. Member for Luton, South (Mr. Bright) criticised the education system because teachers do not encourage sufficient awareness of, and interest in, business. He said also that not sufficient is being done in the post-school sector. A Government who have launched so many cuts in education and who treat teachers as second-class citizens not deserving of a salary comparable to those in European countries do not have the right to criticise teachers for not providing the sort of educational environment that they want to see.
There is also the problem of people who want to get into small businesses and who are trying to do business studies at polytechnics and adult education institutions. They find it infinitely more difficult to get access and grants to such establishments than it used to be. For the first time in many years, it is impossible to be guaranteed a place in a university even if one has all the qualifications to go there. That is the extent of the Government's attack on the education system, which translates into the general economic climate.
Not many months ago, the Government used to say that local authorities setting high rates were one of the causes of the collapse of small businesses. One of the reports to the Department of the Environment shows that high rates are not the major factor that they were made out to be. Even where they are, curiously enough, rates under this Government have gone up dramatically fast in both Conservative and Labour-controlled authorities because of the Government's economic policies.
The Government talk about supporting the Greater London enterprise board and enterprise boards and zones in other areas, but they clamp down on both the expenditure and the general powers of local authorities. That makes it more, not less, difficult for local authorities to support business of any kind. This economic climate, referred to in the Minister's departmental report, is a point to which the Minister failed to address himself.
Many small businesses in my area, particularly in the retail trade, are getting no joy out of the Government. The right hon. Member for Western Isles (Mr. Stewart) talked about people in his constituency telling him that the Government were driving them out of business. An hon. Member who is not from my party has expressed a view that has been expressed to me on many occasions by businesses in Hammersmith. They recognise the major problems. Shops are closing down in such areas because of the lack of demand, high unemployment and poverty. The retail trade knows that better than almost anyone else. Other people are becoming aware of it. In particular, the construction industry is aware of the effect of Government cuts on all sectors of construction, whether it is in housing, factory or hospital building. Many such businesses are going to the wall.
Unless the Government do something to improve the general economic climate, we shall continue to bounce along the bottom of this recession. There is no evidence of a significant revival although we have had constant talk from the Government about how the revival is just around the corner.
The inflation rate is up again. The Chancellor promises that it will come down at the end of the year. He says that he predicted the increase and now he is predicting the decrease. We have had all these promises before, but small businesses in Hammersmith are saying that they do not see things getting any better. That is the message coming home. The Minister can come out with all the fancy little schemes that he likes — which I support fully — but unless the Conservative party does something about the general economic climate, small businesses will continue to be decimated.
There is clear evidence from the debate of the strength of feeling among hon. Members about the future of small businesses. In this country, although 96 per cent. of our businesses are small, they employ 25 per cent. of the work force. That means that 4 per cent. of all British companies employ 75 per cent. of the work force, leaving them particularly vulnerable at times of recession. The Government have demonstrated their serious commitment to small firms by their actions. In 1983, some 47,000 new businesses were started—twice the increase of the previous year.
The steps that have been taken were documented by the Under-Secretary of State. Many of my constituents have benefited from the business expansion scheme and from improvements in the tax system: capital gains tax, capital transfer tax and particularly—a matter that has not been referred to previously in this debate—improvements in the national insurance contributions and the abolition of the national insurance surcharge. I shall refer in particular to the enterprise allowance scheme. This has benefited about 66,000 people setting up in business. It has helped those who previously had been on benefit and has provided a very much more cost-effective way of creating employment than many of the other schemes that have been suggested.
The search to remove regulations and burdens on business is widely welcomed. So many people ask, "What is the point of taking on somebody? What is the point of trying?" It is not necessarily the finance that deters them but the hassle and the complications, the 99 steps that one has to take to start up a business and employ somebody.
Nobody suggests that we should make people at work less safe. I quote from the Secretary of State's remarks in his introduction to "Burdens on Business":
Controls are necessary in some areas to ensure that the market works humanely, fairly and efficiently. These must be maintained. But we can reduce regulatory burdens, without destroying the essential protections for employees, consumers and the general public.
That point is echoed in the White Paper "Employment: The Challenge to the Nation". It says:
A very large amount of Government (and European Community) regulation accumulated in times of fuller employment. Whatever the merits of particular items, the total effect, imposed across the whole of industry, is often now to deter employers—especially small ones, without time and staff to master the complexities—from taking on workers; and the careful pursuit of externally-guaranteed protection against disadvantage for every individual circumstance can thus yield, for many more people, the severest disadvantage of all—the lack of a job. The Government has no intention of sweeping aside sensible safeguards and protections; but the balance needs to be looked at afresh in the light of today's priorities.
That view will be shared by very many people.
I welcome the steps that the Government have taken in developing their advisory services. They have made it simpler for a business man to receive help. I welcome also the development of the enterprise agency movement. In my constituency, the Blackwater Valley enterprise agency is a remarkable example of collaboration between local firms and the local authority, providing help effectively and efficiently. We learn that the usual rate of one in three firms failing in their first year has been reduced in areas with an enterprise agency to one in 12. The Under-Secretary of State's documentation of the growth in enterprise agencies is a striking example of what can be achieved with political will.
We should not just ask what Government can do but what industry can do, private and public, and what all of us can do. There have been many examples throughout the country since 1979 of large industries taking an interest in the development of small businesses. They have created jobs, wealth, employment and exports. I pay credit to the Confederation of British Industry's "Can you make it?" fairs, which provide examples of products that Britain is not making but which could easily be produced here. One should look at what Pilkingtons at St. Helens has done and similarly at what ICI has done to help people to set up on their own. That applies also to Marks and Spencer and BSC (Industries). It hopes to create 50,000 jobs by 1987.
I must emphasise that it is not simply donations of finance and possibly the loan of premises or equipment that is the answer to the problem. Frequently the key is the loan of experienced personnel. In enterprise agencies and many other projects throughout the country those with experience of setting up businesses are helping those who are starting up in business. It should not only be those who are approaching retirement who are giving this help. Some of the most enlightened firms are using their high fliers, who are awaiting a job change, to help with ideas. As a result, their best people are offering help to those who are just setting up in business.
Many other voluntary groups and projects are involved. "Instant Muscle" is a good example of a group that helps young people on a co-operative basis. "Head Start in Business", organised by Education for Industrial Society, is another example. It, importantly, has developed an idea called "Business Mates".
Reference has been made to enterprise agencies being talking shops, but those who set up in business need somebody to whom they can talk. It is a very lonely and stressful time. The idea behind "Business Mates" is to find a kind of godfather who is employed in another industry, whom one can go to see once a month to talk about one's difficulties and sort out, for example, the problems of financial control, marketing or problems associated with the local planning authority and the myriad complexities that have to be faced by anybody who may have a good idea but needs to put it into practice.
May I take this opportunity to refer to an enterprise in which I have great pride, although it is by means of a rather tenuous association? Ray Tindall, the chairman of Tindall Enterprises, who is the chairman of the board of one newspaper and the proprietor of another in my area, has bought some property locally and set it up for local nursery industries. Through the local newspapers he has recruited people who need premises. They can occupy the premises rent-free for a year. He has also generated the interest, good will and concern of the whole community. The result is that accountants, solicitors, and others who have technical advice to offer are coming forward, recognising that there is a need for their help. They can then move on to many other developments. In Godalming, for example, there is the Old Mill project, a private development. Communal secretarial resources are provided. There is a telephone answering service. When one is setting up in business, there must be somebody to answer the telephone. It is vitally important that customers should not be turned away, and when one is doing all the other jobs at the same time this is the kind of service that is worth having.
I take issue with the hon. Member for Hammersmith (Mr. Soley), who mentioned education. At a time when there are record pupil-teacher ratios and record expenditure per pupil, many of us believe that the standard of education of pupils who are being prepared for the world of work is appalling low. I was informed recently that of the 400,000 youngsters on the youth training programme the average achievement was one CSE each. This is a poor preparation of our youngsters for work.
In reference to the White Paper produced by the Secretary of State for Education and Science entitled "Better Schools", he says:
the Government believes that, not least in the light of what is being achieved in other countries, the standards now generally attained by our pupils are neither as good as they can be, nor as good as they need to be if young people are to be equipped for the world of the twenty-first century. By the time they leave school, pupils need to have acquired, far more than at present, the qualities and skills required for work in a technological age. Education at school should promote enterprise and adaptability in order to increase young people's chances of finding employment or creating it for themselves and others.
That is the goal that will be shared by very many of us.
I hope that next year, which is to be Industry Year, all schools will do what has been done so well in community service. During the past decade most schools have organised some kind of community service — lovingly described by my own children as "Granny bashing"—whereby one visits an old lady to do her garden or something of that kind. However, if our youngsters are to be prepared for the world of work they have to know the economic facts of life and to understand that unless we can generate the wealth with which to build hospitals, schools and provide all the material that is required to fulfil their ideals and aspirations, we have no future.
I am pleased to say that in my constituency some of the Farnham schools are organising work experience for those in their fifth year at school, but this is still too rare. The young enterprise scheme, now involving 17,000 teenagers nationally, hopes to move to 30,000 in the next few years. This has been in existence since 1963. The technical and vocational education initiative is another example of linking schools with the world of work. By a succession of White Papers and documents—not just "Burdens on Business" but the White Paper on employment and the White Paper, "Better Schools" — the Government are changing the climate of opinion not just for small firms but for industry as a whole. A major factor at the root of our relative economic decline has been the low regard in which industry has been held.
Sir Geoffrey Chandler, the director of Industry Year 1986 and a former director-general of the National Economic Development Office, wrote in an interesting article in The Times:
We are a country of paradox. We are a resourceful, inventive, and intelligent nation, excelling in the arts, producing more than our quota of Nobel prize-winners, capable of harnessing a collective will to defeat external aggression. In British industry, both manufacturing and services, can be found individual examples of excellence which match any in the industrialised world. Yet in general British industry has performed and is performing worse than its competitors. It has become increasingly clear that the supposed causes of our poor performance are in fact symptoms of a deeper cause—of a set of attitudes and an inherited culture which put industrial activity at the bottom of the social pecking order.
For this we are all responsible. We therefore all bear some share of blame for the present level of unemployment, whether as directors, managers, trade unionists, teachers, governments, churchmen or simply parents. Our education has been predominantly academic, leaving children ignorant of how the country earns its living, and has failed to develop the talents of making and designing. The fundamental connection between quality of life and industrial success is not understood. It is hardly surprising that our industrial performance has reflected the low esteem in which society holds it. We are—and I suspect have always been — an industrial country with an anti-industrial culture, and in this we are unique in the world.… Industry Year seeks to transform that.
I hope that hon. Members who feel strongly about the future of small firms agree that the Government have achieved a great deal to change the climate of opinion, to generate community support and give backing to carry those reforms and improvements forward into next year, Industry Year.
I listened with interest to the speech of the hon. Member for Surrey, South-West (Mrs. Bottomley). I agree with her that much of today's important debate is about changing attitudes. I also agree that it is important for us to generate and instil an ethic of enterprise and incentive in our youngsters. She made an important point in stressing that.
Our difficulty in discussing this whole subject concerns the number of issues that arise, and that has been demonstrated in this short debate. Many issues have been raised and we do ourselves no service if we do not accept that Government find it difficult to cope adequately with it, with so many Departments being involved. After all, so many aspects of our lives — industry, retailing, finance and the rest — impinge in this area. We must not, therefore, underestimate the problems facing any Government in trying to provide for the important sector of the nation's life that we are debating.
The hon. Member for Luton, South (Mr. Bright) was right to say that the Government should give more recognition to that problem by beefing up the way in which they deal with the subject, perhaps by giving the Under-Secretary full ministerial powers, as a Minister of State, at the Department of Trade and Industry. Indeed, that would be the least that we could do to celebrate the christening that will take place later today in the Palace of Westminster.
It is also important for us to seek common ground across parties, and we have managed, by and large, to do that today. Indeed, I find that Friday debates are by far the most satisfying in the House. Those in which I have participated have been more measured and relaxed, and they are generally far more philosophical than some of the normal rubbish that we get during the rest of the week.
We in the Liberal-SDP alliance have honest credentials in discussing this subject. Our whole approach and style to the broad political issues are in tune with the needs of the small business sector. The emphasis that we place on decentralisation, devolution, participation and profit-sharing are well-established Liberal policies and are part of our philosophy. They give us an important part to play in the debate and we have an honourable and creditable tradition in this whole area.
Has the Minister had time to study the report that was done by the Economist intelligence unit for the United Kingdom organising committee for the European year of small and medium-sized enterprises, which was published in 1983? It undertook a 10-country study of the problems experienced by small businesses, and some of the findings were worrying.
We came out badly in all the league tables that the report produced. For example, we came tenth out of 10 in employment in the small business sector; we came ninth out of 10 in disclosure requirements, burdens which have been under investigation by a ministerial committee; we were equal last in the protection given to small businesses by monopolies and mergers legislation; and we were ninth in the availability of subsidised loan capital as a proportion of total bank lending to small businesses. We did reasonably well only under the heading of tax incentives. However, that was in 1983 and in the Finance Act 1984 the situation changed. For unincorporated businesses, the change was for the worse.
I hope that the Minister will study what is happening in other countries, particularly in Europe. I appreciate that he will be going to America. I hope that he will not be away for too long, and I look forward to hearing his comments when he returns from the United States.
The hon. Member for Hammersmith (Mr. Soley) was right to say that the small business sector cannot be considered in isolation from the rest of the economy. A recently produced CBI report dealt with a study into the characteristics of the economic behaviour of small businesses in the period 1979 to 1985. The report, produced in May 1985, stated:
By far the most important factor limiting capital expenditure for smaller firms over the period has been uncertainty about demand. On average, 57 per cent. of firms specified this factor, whereas for larger firms the average was 45 per cent., producing a 25 per cent. higher level for smaller firms.
If the Minister is doing his job assiduously, he should be making strong representations to the Treasury about that, because capital expenditure by small businesses is as important a factor as it is for firms in other parts of the economy.
If we examine the way in which interest rates and exchange rates have been changing—there has been a 25 per cent. change in the latter since January of this year — and in particular the way in which local authority rates in Scotland have increased, we see the need to study the problem of the lack of demand as it affects the small business sector.
I must make a parochial point in view of the fact that much of what has been said in the debate has been about the home counties and the south. An honourable exception to that was the speech of the right hon. Member for Western Isles (Mr. Stewart), who made a useful contribution.
All the schemes of which we are speaking — the business expansion scheme particularly springs to mind — have in the past been too biased in favour of businesses in the south as opposed to those in the northern part of the country. That has been partly due to the fact that savings institutions are centralised in London. The Trustee Savings Bank Bill, which is languishing deep in the recesses of the other place, could have provided a good opportunity to bring about more decentralised financing of businesses.
Hon. Members have not yet referred to rural areas, such as the Scottish Borders, which have a different perspective. They contain small communities which do not talk in terms of business expansion schemes. The majority of small businesses in the Borders area would not know what £500,000 looks like, although, of course, the area includes well-established knitwear and hosiery industries which compete internationally.
There is a way forward, and I have considered it in some detail in relation to my constituency. We should give the local talent — for example, bank managers, accountants—[Interruption.] That talent as well, if that is the way in which hon. Members' minds are working. I am endeavouring to treat the subject with the seriousness that it deserves. We should instil in the minds of the key people in the community—bank managers, accountants, solicitors and directors of local colleges of education—the information and knowledge that is floating about in places such as London and the offices of the Department of Trade and Industry. If we did that, things would begin to sizzle. If bank managers were given the authority and support that they need to provide local money, unincorporated business would start to sing in a way that it has not been singing so far.
Unincorporated businesses have lost out in a big way, especially through the Finance Act 1984. They lost the advantage of first-year capital allowances and stock relief without being given any compensating reduction in tax rates. The CBI document has suggested a number of ways to lessen the effects of the prejudice from which unincorporated businesses have suffered. Each of the three suggestions in the CBI's paper merits examination, although they may not all be acceptable in their present form. The suggestion that only withdrawals from a business should be taxed at higher than the basic tax rate should be seriously considered. The Government should also consider the suggestion that there should be a flat rate percentage deduction from profits to compensate for the loss of plant and machinery capital allowances. If we allowed an investment reserve in calculating taxable profits, future investment could be charged against that reserve. If the reserve was not used within a certain period, it would come back into taxable profits.
The Bolton report in 1971 was a seminal piece of work. I do not believe that Governments of either persuasion have given sufficient weight to the conclusions that were reached in that report. We could gain a great deal from studying the content of that committee's report. Deregulation is one aspect that greatly worries me. The Government may have difficulty in getting support for their changes in this direction. To a certain extent, I favour deregulation, and I believe that some of the planning and licensing regulations that the Government have inherited from the past could be abolished to advantage. The Minister in the other place who is examining this matter must be particularly careful when considering the employment protection that is available to employees of small businesses and the health and safety requirements.
I am greatly concerned about the thrust of the Government's policy. The proposal to abolish the wages councils is not an especially good idea and the changes announced in the Budget with respect to unfair dismissal procedures is a retrograde step. The Government's moves with respect to maternity rights, health and safety regulations and statutory sick pay regulations are not sensible and will cause small business more trouble than they are worth. As if that were not enough, the Secretary of State for Social Services is asking small businesses to pay family credits under the scheme that replaces the family income supplement scheme. I believe that, when small business finds out what is involved, deputations will come to see the right hon. Gentleman and he will receive the odd letter on the proposals. There will be the odd flea in his ear about the combined effect of these measures.
I hope that there will be an early response to the Binder Hamlyn report on the discounts issue. Large retailers have acquired monopolies in a number of industries, thereby prejudicing our smaller businesses. [HON. MEMBERS: "Look who is here."] I did not see the hon. Member for Hove (Mr. Sainsbury), or I would have said that louder. There is a big problem in the way large businesses take a long time to pay their debts to smaller businesses. I have experience of that in my constituency. I believe that the Keith committee's proposals for enforcement of VAT, which have been considered by the Standing Committee on the Finance Bill, will cause great heartache to some businesses until the new procedures are established.
The hon. Member for Surry, South-West made an important point about training. I believe that the developments in distance learning, with local help being available through local authorities and local colleges of education, is a positive and helpful move. I am a little nervous about the influence that the MSC is beginning to accumulate. That body is not directly responsible to any elected authority and large sums of money are available to it. I am worried about the MSC getting out of control.
It is important for the small business sector to get a fair share of defence contracts and central and local government expenditure generally. Nothing would do more for areas such as the Scottish Borders than if local authorities were given more money to spend on such things as housing and improvement grants. If the Government deployed their spending power to the advantage of the small business sector, that would do nothing but good.
If the Under-Secretary of State succeeds in making inroads into some of the problems that we have been discussing, the black economy may be more containable. The black economy is flourishing because of the difficulties to which hon. Members have referred. The alliance recognises the work that the Under-Secretary of State is trying to do. We believe that a small business sector has a vital role to play as the sub-contractor and supplier of essential industries. It is vital that we do everything that we can to make it easy for small businesses to prosper.
Like the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), I welcome the fact that the debate has been mainly constructive. Hon. Members have been considering the problem of and the work that has been done with small firms. My hon. Friend the Minister explained the initiatives and moves that have been and are being taken by the Government. I welcome them. I was encouraged by the support that the right hon. Member for Swansea, West (Mr. Williams) gave to the measures, and I pay tribute to the work that he did.
In Warwickshire and Nuneaton there has been a bipartisan approach towards trying to improve the lot of small firms. I pay tribute to the Warwickshire enterprise agency which, in the two years that it has been set up, has done a magnificent job, particularly in helping the enterprise allowance scheme. People who want to set up a business and those in existing businesses receive excellent advice from the enterprise agency.
Many enterprise agencies are well supported by local authorities of different political persuasions. I am worried by the fact that sponsorship often comes from large national companies—Marks and Spencer, some of the banks and so on. The welcome large increase in enterprise agencies must be applauded, and I do that. However, some of the smaller enterprise agencies must be advised about seeking sponsorship from sources other than those large national organisations. We can no more look to those large organisations than we can to Government to sponsor every enterprise agency. We may need to consider that problem in the future.
In Warwickshire, the county council and the local councils have been providing small units. Had my hon. Friend the Member for Norwich, South (Mr. Powley) not been present, a little of what I am about to say might have been considered heretical. Those local authorities have built small units which have been taken up. That is the important point. We may want to build more. Not every council is a housing authority and not every council has a large amount of capital floating about.
I ask my hon. Friend the Minister to speak to the Ministers in the Department of the Environment about some of the effects of the reductions in the amounts of capital receipts that can be spent. When local authorities are considering building small units to help small firms, there could perhaps be some exemption or reduction of the 30 per cent. limit on capital receipts. That would encourage the building of small units.
My hon. Friend said that the information and training available must be appropriate to the needs of small business. That is important. Many of the courses run by technical colleges, polytechnics and the MSC and privately are general. Organisations may have specific needs. They may be manufacturing a complex product which involves complicated processes — supplies and machinery. They may require only simple information on marketing but complicated information on finance. It is important that courses and information are broken down into simple units.
It has been said that we need multi-discipline people with a wide range of knowledge who can do many jobs. That is important. They must be able to assimilate information, buy they can only do that to a limited extent in subjects of which they know little. Simple information must be provided on marketing and so on. That becomes more important for the one-man business.
My hon. Friend said that the banks are still the greatest lenders of money to small business. That also causes problems. Banks may not appreciate the risks involved in small manufacturing businesses. They have many difficulties that do not apply to many other small firms. They may be sub-contractors and have to complete orders before receiving any money. Supplying big businesses can be difficult because they often do not pay on time. If a bank expects repayment of X amount per month, it will not get it without causing cash flow problems for the small company. Banks must have a wider understanding of the problems. It would be a tremendous help if banks had a greater understanding of how small businesses obtained their money. They could then take the actions that would help small businesses.
"Burdens on Business" has been mentioned as being a helpful document. Forms have been mentioned. I should perhaps declare an interest. I sometimes lecture at the Civil Service college. I wish to pay tribute to the work that has been done in the Civil Service. An initiative was taken two or three years ago to improve forms in the Civil Service. A great deal of work is being done by forms units which have been set up in almost every department. That has benefited the public and to some extent small business. That work is continuing, and many benefits will come from it. I hope that the Government's initiative and their support will continue and will be given a fairly high profile.
This seems a wonderful opportunity to mention the fact that a recent experiment in Bristol has shown that if we get the claimants or the business men, who want the money, to play a part in designing forms, we obtain an extraordinarily good result. That may add to my hon. Friend's already considerable wisdom.
My hon. Friend makes a good point. The people at the sharp end who use the forms probably have a tremendous contribution to make. A great deal needs to be done to simplify forms.
Advice available to small businesses is good, but a great deal needs to be done to simplify it so that people can understand it readily. Some firms are still a little frightened about going to the Department of Trade and Industry because they are not sure that they will understand all the information. Such firms are still hesitant about taking the action that they should. A great deal needs to be done to encourage small firms to seek the information that is available and work on it.
There are other burdens. Fire and health and safety regulations are difficult for small firms to understand. Sometimes there seems no sense in the enforcement of such regulations. Although we appreciate the need for fire precautions, some small firms do not see the sense in some of them. Some reform of the regulations would be welcome. However, that must be carefully monitored because there should be no risk to the health or safety of people at work.
I am still a supporter of the wages councils. I do not want them to be abolished. People must know what is going on and be able to work on it. If information on wages is not easy to understand, there will be difficulties. My main plea to my hon. Friend is that we continue to improve the position and take action in line with that suggested in "Burdens on Business". Let us do that quickly, but we must ensure that people can understand everything easily.
When I first decided to ask to speak in today's debate I intended to spend the whole of my time talking about "Burdens on Business"—the Government's document, properly encased in covers of a deep blue—which sets out in many ways the Government's central philosophy on small firms. I shall refer briefly to it because other matters have since arisen to which I wish to address my remarks.
"Burdens on Business" encapsulates clearly the difference of approach between the two sides of the House. In it the Government identify the removal of controls and the relaxation of standards as the major way forward for the future development of small businesses. There is something to be said for streamlining, simplifying and relaxing some unnecessary controls, but the Government go wrong in a major way in a series of recommendations to relax the safeguards for employees in small firms. I shall fight stongly to protect those safeguards, which exist to protect employees.
The proposal on page 6 of "Burdens on Business" about unfair dismissal cases, for example, suggests that cash deposits for some or all complainants, to be refunded or forfeited at the discretion of the industrial tribunal, be paid before an action can be taken to a tribunal. If the Government are seriously suggesting that individual employees dismissed without much money to their name should be forced to pay a cash deposit before they can seek redress from a tribunal, they are suggesting charging for the process of obtaining justice. I cannot possibly condone or approve of that. I hope that that will be one of the items in "Burdens on Business" about which the Government will have serious second thoughts before they propose any legislation.
The philosophy of restructuring the system of safeguards and relaxing the system of controls is to a large extent unnecessary. Page 31 of "Burdens on Business" shows that employment legislation is mentioned by only 5 per cent. of the businesses consulted in unprompted questioning as one of the major burdens and restrictions on them. Yet, throughout the document, the Government give employment legislation as a major factor harming the development of small businesses. Employment legislation rightly exists to protect the interests of employees, and it must continue to exist to do that.
The difference of approach is obvious. The Government seek to relax what they see as unnecessary controls, which the Opposition see as necessary safeguards. As an alternative approach to the development of prosperity in small firms and businesses—both sides of the House wish to see and encourage that—we would argue for the proper economic climate in which those firms can prosper. To prosper in a proper economic climate those firms need seed funding, which must often come from the public sector rather than the private sector.
In my constituency in the heart of London we have seen considerable activity during the past three years by the Greater London enterprise board. The work of GLEB seems to be a good model of what can be achieved to promote employment and to develop small firms and businesses. Many, but not all, of the businesses are co-operatives. The cost to GLEB of providing jobs is about £4,500 per job. That is GLEB's investment in economic activity in London. We should set that £4,500 per job against the cost of keeping a worker on the dole. If that is taken together with the money paid in unemployment benefit, and lost income tax and other effects on the Government purse, the sum works out at about £6,000 a year. It would pay the Government to set up other agencies such as GLEB to promote employment, because it would save them money. It costs more to keep workers on the dole than to use agencies such as GLEB to promote industry, employment and small firms. However, there is a key difference in philosophy. When local authorities other than the Greater London council have approached the Government or written to the Prime Minister saying, "Look, we have the ability to create jobs more cheaply than it costs you, the Government, to keep people on the dole," the Government have answered that they are not prepared to supply the money.
Does the hon. Gentleman agree that, under the community programme and the youth training scheme, the same sort of opportunities are open to people to be employed as are available through the enterprise boards, at an amount less than that paid to those on the dole? Does he not want to encourage that?
I cannot agree with the hon. Gentleman. The work available under the so-called youth training scheme, which in far too many cases does not provide good training, and under the community programme is temporary. It does not provide a permanent job for the employee, nor is it a permanently created enterprise for a locality. There is a profound difference between the temporary fire-fighting exercise, in which the Government are engaged in YTS and the community programme, and the genuine long-term creation of enterprise, employment and long-term jobs, in which enterprise boards throughout the country are engaged.
I am interested in the hon. Gentleman's remark that GLEB is creating jobs at a cost of about £4,000 each. The information I have is that the approved revenue grants to GLEB are about £23,500,000, its capital loans are about £14 million, and that most of its property purchases are done on GLC mortgages. As I understand that the total number of jobs created so far is slightly fewer than 2,000, it appears that we are looking at a different set of figures.
I am afraid that I cannot agree with the hon. Gentleman. I shall come to the detailed figures for GLEB's funding in a moment, but the net cost — obviously one must take into account the return on investment—works out at about £4,500 per job.
A year or so ago, my hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson) asked what the average cost had been of creating jobs under the Government's enterprise zone policy. He was told that it was £18,000 per job. Enterprise zones, of course, are supposed to involve deregulation, derestriction and other factors which form the kernel of the Government's philosopy, as set out in "Burdens on Business". Thus, on a pure value-for-money basis, the work carried out by GLEB clearly bears comparison with the Government's stated policies.
Hon. Members may know that GLEB is largely funded by means of revenue grant from the GLC. Under the terms of the paving Bill that was dragooned through the House last year, the GLC applied to the Secretary of State for the Environment for about £20 million of funding in this financial year. It sought approval to make that money available to GLEB. However, the right hon. Gentleman refused to allow the GLC to make £20 million available, and said that he would let the GLC make only £4·9 million available for the first three months of this year.
Consequently, all the new projects that GLEB was considering funding have had to be put on ice. This year, GLEB has been unable to support any new projects. At a meeting only two days ago with representatives of the Department of the Environment, GLEB was again refused permission to support any new enterprises or initiatives. But it was said that if a firm structure of accountability to the boroughs could be agreed and if documents could be fully prepared and signed, money might be made available. Although GLEB and the GLC both gave firm guarantees to the Government that they were prepared to enter into such an arrangement with the London boroughs, because of the possible abolition of the GLC the Government would not allow GLEB to receive any further funds from the GLC at this stage for the promotion of new initiatives.
About 20 new projects and 1,000 new jobs are at stake. Having identified and assessed those projects, GLEB is prepared to put money into them, but is unable to do so because of the Government's decision. Those 1,000 jobs for Londoners are being held up by the Government's deliberate decision. That is the reality of the Government's commitment to small firms in London. Despite all the fine words that we have heard today, that is the reality for small firms that are promoted by GLEB with GLC money.
However, the Government have very generously said that there might be some room for manoeuvre on projects that are already supported by GLEB, but that possibly need new funding. They have said that they might be prepared to look at such projects, and to allow the GLC to give some money. The total proposed by the GLC is £4 million. I hope that the Minister will let us know what the Government propose to allow. He should bear in mind that there are other projects at stake, including the much-publicised electricity-powered bicycle initiative, which already has orders from round the world. It could take off, and is waiting only for the Government's decision.
So for GLEB has done some very good work in order to create and protect jobs in London, but the Government's record in the past few weeks has not been good. I hope that Ministers at the Department of Trade and Industry will use all their influence with their compatriots at the Department of the Environment, who have the task, under the paving Bill, of scrutinising money that goes from the GLC to GLEB. I hope that Ministers will use all their power and influence to ensure that the money that the GLC wants to make available to GLEB, which could create jobs and help proven projects to get off the ground, is used to that end.
If the Government are as concerned about small businesses and the co-operatives as they say, they could overcome their ideological objections to the Greater London enterprise board and the GLC. The Government should say, "Yes, we are prepared to support the creation of good jobs in good enterprises. We are prepared to allow the money to be used to create jobs and to support small firms in London." Those jobs and enterprises are desperately needed.
I apologise for my croaking voice, but I have a sore throat and I shall make only a brief speech.
I welcome the debate because it gives us the opportunity to describe some successes of the Government's economic policy which have been proved in the market place.
Between 1945 and 1979 we experienced a period of unprecedented stagnation in our industry. Our share of world markets declined, profits declined, we nationalised industries and protected markets. Unemployment started to rise. That trend was accompanied by a significant lack of new business—in short, a lack of enterprise.
We were the leaders in the first two agriculture revolutions and of the heavy and light industrial revolutions, but we appear to shun the technological revolution.
Since 1979 a new wave and spirit of enterprise has emerged and it is affecting our country now. According to what is happening in my constituency and many others, Britain is on the move. That is beginning to show in the statistics.
Investment surveys, the CBI survey and yesterday's announcement about British Telecom profits are initial signs of the fact that British industry is on the move and doing much more international business. The Government have dramatically improved the climate for enterprise. What is more, they have improved the climate for capital investment by treating capital better. They have also encouraged the country, rather than to shun technology, to embrace it.
I pay tribute to the Minister—I wish him luck in his current activity—and to the Secretary of State and the Prime Minister for the great effort that they have made. We needed a tremendous change of attitude, not only in Government, but in the Civil Service and in Britain as a whole. True successes have emerged and much has been achieved but, as the Minister said, much more has yet to be done.
New and small businesses are key to the achievement of a technological revolution, to new ideas, new products and to new sources of high profit margins. They are the key to the creation of new jobs. About 66 per cent. of all new jobs are created by companies employing fewer than 200 people and about one in four of our working population is now employed in such companies. In the United States about 29 million jobs have been created by new and small businesses in the past five years. One is criticised sometimes for describing what happens in the United States, but it is an empirical example of the kind of results we can expect down the road.
I shall now refer to some specific actions taken by the Government.
The Government have encouraged an environment for enterprise and for treating capital well. That in itself is a great success. We must now go to the second phase, which involves not just changing attitudes but establishing new and good habits.
Secondly, I address myself to capital. I entirely support the loan guarantee scheme, but it is limited. Indeed, all debt is limited. The key financial factor in the funding of venture capital and new business is equity capital. There is a huge difference between debt and equity. I took up that theme when introducing the Wilson report in January 1981, but I shall not go into the details because of the lack of time.
Government policy has encouraged a greater flow of equity, which is the key part of the funding of new businesses. The Government's policy on this front includes the lowering of tax rates and changing capital transfer tax rules. This has led to more venture capital being in the hands of those who are likely to invest it in new and small businesses. This capital will be directed no longer to the great pension funds, commercial banking institutions and building societies or into the hands of Government, which in turn tend to buy Government gilt-edged securities or invest exclusively in the shares of major corporations. Individuals are the best venture capitalists.
We have seen the start of the unlisted securities market. Legislation has been placed on the statute book to allow enhanced employee stock ownership. Even more important than that in many ways is the legislation that the Government have placed on the statute book to allow companies to buy their own shares in the form of Treasury stock. This means that when an entrepreneur starts his business, he will not be so worried at the beginning about selling his own equity and yielding a percentage of the company to venture capitalists. He will know that he will be able to buy shares back into the company from the market place at a later date.
I support the business expansion scheme. It is yet to be proved whether it is entirely successful, but my gut feeling is that it is. There is a problem in obtaining statistics from new and small businesses. The supplying of statistics places another burden on those who have to complete the necessary forms. I am sure that the scheme will prove to be a success, but it should be extended much further and simplified. For instance, the five-year lock-up period is too long and should be reduced to three years. Much closer family relations to the entrepreneur should be allowed to qualify within the scheme because they are the very people who know the entrepreneur. The essence of venture capital is in backing individual managers and entrepreneurs.
Capital gains tax is a disincentive to invest. I believe that it yields only about 0·25 per cent. of Government revenues. Its abolition is long overdue. Contrary to the view expressed by the right hon. Member for Swansea, West (Mr. Williams), who advised caution, the Government should advance boldly in extending the BES and in abolishing capital gains tax.
Much has been done to improve planning. Circulars 16 and 22 of 1984 and circular 1/85 were excellent but there remains an enormous problem in interpretation at implementation level. There is much work to do in encouraging local authorities to be more sympathetic in their attitudes and to interpret sympathetically Government circulars on behalf of small firms. We must ensure that more work is done to change the attitudes of some enforcement officers. We must encourage them to adopt a more positive approach to small businesses and new businesses when it comes to planning issues and the interpretation of regulations.
I shall quote briefly from a letter of 10 June that I received from the Department of the Environment. It reads:
As a result of a fundamental review new building regulations are due to come into force by the end of the year. These will be simpler and more flexible in form, giving wider exemptions and simplified procedures for minor works.
That is very good news.
My hon. Friend the Member for Norwich, South (Mr. Powley) commented on education. Much has been done to try to orientate those who are involved at the skills level. The Government have endeavoured to ensure that the education system responds to the needs of industry. There has been an effort to educate and orientate those involved in marketing to recognise the product mix of design, quality and delivery, and so on, instead of selling on price alone.
However, there remain two glaring omissions from the curricula in our schools—typing and accounting. I have tried in vain for over five years to get the Secretary of State for Education and Science to incorporate those two subjects into the curricula of state schools. Typing is the bridge between man and the modern machine, and particularly between man and the computer, which is probably his most valuable business tool. A basic knowledge of accounting gives the entrepreneur a very good picture of whether his business is likely to be profitable and where shortfalls are likely to occur. In addition, he does not have to hire a full-time accountant—which is very expensive—until much later in the business start-up phase.
The Minister's report entitled "Burdens on Business" is excellent. It is a great step forward and a tribute to him. I have the privilege of being the chairman of the Conservative Back Bench smaller businesses committee. Under my two predecessors, John Loveridge and my hon. Friend the Member for Luton, South (Mr. Bright), the committee had a significant influence on Government policy on new and smaller businesses. The committee has considered the Minister's report, and I pay tribute to Mr. Murray Charlton, who gave us great assistance. In welcoming the report, we have a few suggestions to make.
We feel that it is not sufficient to identify areas where burdens can be removed. Positive action is needed, first, to remove existing burdens and, secondly, to establish a procedure so that subsequent legislation can be scrutinised prior to implementation, to avoid the reintroduction of unnecessary burdens on small businesses. I therefore support the suggestion that a Select Committee should be set up to monitor legislation from the point of view of new and small businesses.
One of our final conclusions is our concern that it may prove difficult to relax even the most widely recognised and accepted hindrance by persuasion alone. The report, in chapters 5 and 6, discusses what needs to be done to cut the burden, but none of the steps summarised is other than an exhortation to regulatory agencies or on the availability of better information for business men. Although both are good news, we feel that there should be some co-ordinated legislative action to enable the interests of small business men to be safeguarded and promoted. In this respect may I draw the attention of the House to early-day motion 717, signed so far by 115 Members, which urges each Government Department to report to Parliament exactly what it has done in trying to reduce burdens in favour of new and small businesses.
Here I come to the question of discrimination. The successful nurturing of this area of new and smaller businesses is the key to the technological revolution and to our survival as a developed nation. We have 30 years of backlog—30 years of an absence in the creation of new and small businesses—to make up. I urge the Government to make haste and to be bold. I urge them not to hesitate in discriminating in favour of new and small businesses.
We already discriminate in many other areas of life. We discriminate in favour of the young, the small and the new, in regard to animals and raising plants. Why not discriminate in favour of the sowing and growing of new seed for businesses? One such discrimination could relate to the time qualifications for the operation of the unfair dismissal rules. Such discrimination should be used as the cutting edge or pilot scheme for the general business environment.
I thank the Minister and the Government for their very considerable efforts, often against stiff resistance. I agree that much more has to be done. I urge the Minister to move forward, not with caution but boldly, to change attitudes and to instil new habits. I emphasise the need for coordination of Government activity, to show by example that the Government are prepared to take risks and to be enterprising in boosting this essential part of our economy.
I always ask the industrialists I meet whether they are optimistic or pessimistic. I have to tell the hon. Member for Winchester (Mr. Browne) that neither they nor I are as optimistic as the hon. Gentleman appears to be. The main employer on the Isle of Wight is Westlands, which employs 1,500 of my constituents, so I am feeling rather worried today.
I think that I can fairly claim to have played a major role in establishing the enterprise agency in my constituency. I have had the honour to chair it since it was set up four years ago. Therefore, I know a little about the problems of small businesses. Indeed, I am a small business man. I have three small retail units and I am the immediate landlord of a covered market, which cost me a great deal of money and comprises a bakery and 11 other units. I also have two small industrialists as tenants.
The Minister responsible for small businesses has visited my constituency twice and knows something of our problems and of our efforts to overcome them. We have an unemployment rate of over 17 per cent., in the winter, although it goes down a little during the summer. We are grateful for the Minister's interest.
Our enterprise agency has played a constructive role in helping small firms to get established and to overcome various crises. However, I am worried about the future financing of the agency.
The agency employs a director, a competent secretary and three girls, funded by the Manpower Services Commission, who run the databank. They change every year; we have to find girls who have been unemployed for over six months. The databank is being used increasingly by local industries who pay for the service, but our annual budget is less than £30,000. We may be able to continue the funding for another year, but it is doubtful whether it will go on for two years.
The agency project started when someone actually read a speech that I made in the House. Shell and Lloyds Bank became our founder backers. They gave us a guarantee of backing for three years and have fully honoured that undertaking. Indeed, they have gone on for longer than they originally intended, but, not unnaturally, they and some of the bigger firms on the island feel that we should be looking elsewhere for our finances or should become self-supporting.
The board of the agency discussed the problem and agreed that it would be unwise for the agency to trade on its own account. That would be one way of financing the agency, but all sorts of complications would arise.
I have written letters galore to fellow surveyors and estate agents, who sell houses to people who move to the Isle of Wight, but we have had little help from that source. However, I pay tribute to local accountants and members of the Law Society who are contributing to our funding. Unfortunately, it is not nearly enough to sustain us. Local authority support has been helpful—as the leader of the council, I made sure that it was—but all authorities are in increasing difficulty because of rate penalties.
Tax incentives are helpful, but more is needed. Therefore, my first request is that the small businesses Minister should urge his colleagues, particularly the Chancellor of the Exchequer, to introduce incentives to local people to contribute to our funding. A 50 : 50 scheme would be a good idea. The Government could promise to match locally raised funds, pound for pound. If we raised £5,000, another £5,000 would come from the Government. Alternatively, the shackles should be removed from local government so that councils can do more. However, it is extremely important to keep private sector support and, whatever method of financing is found, we must encourage donations from private companies.
I am convinced that high interest rates have a more crippling effect than anything else on small firms. A firm gets off the ground, but it has three or four years in which to establish itself and is paying interest rates of perhaps 13·5 per cent. or more. It can never reduce its obligations to the bank. Frankly, the guarantee scheme makes matters worse because it merely adds to that rate of interest over a three-year period.
When I was chairman of a small sub-committee of the county council, concerned with employment promotion, we set aside the product of a penny rate—about £150,000 — from which we were able to make grants and loans to small firms in the Isle of Wight if they were in difficulty or wanted new equipment. It was not a question of simply throwing the money at them. Requests had to come through the enterprise agency. They were vetted fully by the treasurer's department and the banks were brought in. If any cause was felt to be worthy of support and the banks could not help, in most cases, we went ahead. The sums involved were quite small—£2,000, £3,000 and perhaps up to £5,000.
We also committed £25,000 a year to the Industrial and Commercial Finance Corporation—what is now known as the three Is, Investors in Industry—to enable it to lend to local firms at subsidised rates of interest. It is at present around 9 per cent. Some dozen firms have been able to benefit from that scheme. It is a very good scheme. It costs us £25,000 a year. We underwrite the lost interest to the three Is. It has greatly helped firms to be able to borrow money at more reasonable rates of interest.
We also have a couple of small groups interested in investing venture capital. However, we find them too demanding. They want absolute certainty before they are prepared to invest. They are not prepared to take risks. I accept that the Isle of Wight is not the safest place in which to invest money. But some ventures which we have considered to be well worth supporting have been turned down. Would-be investors have been too critical in their requirements. The idea has not been a success.
Such countries as Australia, the United States and France all run some sort of subsidised scheme to help small industry. I would positively discriminate in favour of wealth creators. If we were able to introduce some sort of two-tier scheme of interest rates for that purpose it would be an extremely good idea.
We watch the activities of authorities such as the Welsh Development Agency. Almost every night we see on our television screens the invitation, "Come to mid-Wales", and all the glittering offers that go with it. The Highlands and Islands Development Board has produced a booklet. Even Northern Ireland has its Local Enterprise Development Unit to assist small industries. I am extremely envious of what they have available to them. I do not begrudge them such facilities, and I wish them all success. However, the Isle of Wight has the highest unemployment level in the south of England, and we have been refused assisted area status. That was a major blow because it could have provided the sort of help that we need. Instead, firms in my constituency are invited to move to mid-Wales and other places, and it is heartbreaking. The people running those firms come to me as their Member of Parliament saying, "What have you to offer? I can move there and do not have to cross the Solent every time I want to bring in or take out goods. I am being offered some glittering prizes to go. What are you prepared to do about it?" We simply cannot match those offers.
I accept what the hon. Gentleman says about Wales generally, but I remind him that mid-Wales has had its assisted area status withdrawn by the Government and has nothing to offer. Indeed, the hon. Gentleman's compatriots in that part of Wales are at present promising virtually everything. I gather that the hon. Gentleman does not agree with his own party's platform.
I have seen films about the Welsh Development Agency within the last couple of months. Incentives are still available. But all that I am saying is that to an area of high unemployment it is extremely upsetting when a train arrives, parks itself in a siding at Portsmouth town station and telexes small firms on the Isle of Wight inviting them to cross the Solent to see what is on offer.
I am not criticising the right hon. Member for Swansea, West (Mr. Williams) or any of my colleagues. I merely say that we have not got our regional assistance programme right. We should be discriminating positively in favour of people who are creating employment and wealth wherever they are, whether they are in the Western Isles, mid-Wales or the Isle of Wight. That should be the policy.
We are grateful to the Development Commission, which has not yet been mentioned in the debate. We are a rural development area in its terms, and it has been extremely helpful to the Council for Small Industries in Rural Areas and to English Industrial Estates. In co-operation with the county council, we have built a whole host of small units. It is about to embark on a big one in a former boatyard. I put on record how grateful we are to the chairman of the Development Commission and the people who work for COSIRA, and for what they have been able to do for us, even though it is limited.
The local authority also has joint schemes with entrepreneurs. We have revitalised the old J. S. White's shipyard, which has some 12·5 acres, and created a substantial number of jobs there. However, we cannot match the money that is on offer in assisted areas.
On tourism, I am afraid that we look with great envy to north Wales and places such as Rhyl, with its wonderful sun centre, which has had about £1 million spent on it from the EEC regional fund. Had we been an assisted area, we would have qualified for help out of the same fund. We have had no new hotel since the war, although there have been modernisation programmes. Access to the fund would have helped us enormously.
Money has been spent through local authorities more wisely, and has shown a better return to the taxpayer, than some of the MSC schemes, grateful as we are for those. What has come from the local authority has shown a decent return to the taxpayer. We have invested £300,000 in our sector of the old shipyard and are in receipt of rental income which exceeds £55,000, which is not a bad return. I wish that the Government would have more trust in local authorities and their efforts to help small firms and create jobs and wealth. Our best hope of economic recovery lies with local initiatives, not central Government direction.
I have to confess failure, after several attempts, to set up co-operatives. However, the tide may be about to turn, with a small bakery in which my son has an interest. Some six youngsters in their 20s, and one man of 50–odd, have come together and taken over a bakery, which will form the first co-operative of any size on the island, despite a number of attempts. The reluctance of employees to sink their redundancy money in a risky enterprise and to accept managerial responsibility is usually the stumbling point. Perhaps the next generation, in whom I have great faith, will be prepared to take greater risks. We must hope so, and I believe that they will do it.
I end where I began, with loans and interest rates. I have no complaints about banks. Most local managers are extremely helpful—I have to say that because I owe them so much money myself. However, while money remains so expensive, small firms face enormous problems often with growing overdrafts and with no end to the problem in sight. The sooner that we can get interest rates down to deal with that problem, the better it will be for all of us.
I am happy to follow the hon. Member for Isle of Wight (Mr. Ross), not only because of the content of his speech but because I am a constituent of his. I can confirm that, as he rightly said, it is an island bristling with small businesses, but with a great many problems. However, I do not want to go down that path because it would be repetitious.
I shall speak about the point made by my hon. Friend the Under-Secretary about procurement. It may be a happy coincidence, but my hon. Friend the Minister for Information Technology is now on the Front Bench. In his previous incarnation, he was Minister of State for Defence Procurement. He and my right hon. Friend the Secretary of State played a central role in moving towards much greater competition in procurement policies. I pay tribute to what they both did.
It was nothing less than a scandal when we came into office to find that 80 per cent of the contracts for the Ministry of Defence went out with no competition at all, and no tenders. I am sure that the right hon. Member for Swansea, West (Mr. Williams) will agree, although this may be an odd thing for a Tory to say, that this was a scandal and many large firms had their noses in the trough, without much competition. There has been an improvement. I understand that the figure of 80 per cent. is dropping quite steeply. That is where we should start. It provides the best opportunity for small firms.
The approach of hon. Members is sometimes wrong. The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) referred to small firms being provided with a fair opportunity to gain Government contracts. I quibble over the word "fair". We are not referring to fairness. We need to be practical. We shall get value for money if small firms are involved in Government procurement contracts. That is a more hard-headed and less emotional approach.
I was responsible recently, with my hon. Friend the Minister of State for Defence Procurement, for sponsoring a four-man mission, led by Mr. William Poeton, to the United States to study defence procurement and the lessons which could be learned. I received the report of those experts 24 hours ago, and it makes interesting reading. It homes in upon competition, break-out programmes and getting away from the British system—still very deeply ingrained in the Ministry of Defence and in the other large areas of Government purchasing—of choosing a big contractor and allowing him to get on with it.
There is sense in that approach in terms of manpower economy, for he is made responsible for putting everything together and choosing whether or not to subcontract part of the main contract. However, the Americans have discovered that this is not always the most efficient method, providing the best value for money. They have devised more competitive purchasing methods by breaking out a contract and examining what parts of it can be offered to small and medium-sized firms. The procurement officers are involved in this task. It is not left just to big firms to reach a decision. If it is a suitable contract, one breaks it out and then decides whether or not to set aside part of it for competitive tender by small firms only.
Although there ought to be competitive tenders, small and medium-sized firms should not always be made to compete against the giants. There must be competition, but for part of the business firms ought to be able to compete against others of a similar size. It may be thought that I have fallen into the trap of becoming emotional and wanting to be kind to small firms. That is not so; but if part of the business is set aside for small firms, better value is achieved and more money is saved.
I should like to quote two figures that are relevant. The break-out of programmes was started in 1984 in the United States. Although it is only a limited programme, $200 million was saved in the first year, and in the first quarter of this year $50 million was saved. Big savings can be made if contracts are divided up and small firms are encouraged to compete for tenders. The effect will be beneficial. First, money will be saved. Secondly, more of the smaller and medium-sized firms will be involved as prime contractors, not always as sub-contractors. If a small manufacturer is to be innovative, he cannot always be left at one remove from the purchaser. He must be involved in innovation and he must be in direct contact with the customer, whichever Government Department it may be.
There seem to be some lessons for us there. The question—it may be too early to ask it; the position will have to be assessed by the Government—is whether we could transplant that American idea into the British system. I may be thinking pessimistically, but perhaps our system, coupled with the Government's drive to reduce the Civil Service, is working against that type of idea. We must be flexible, and I agree that we must reduce the overall size of the Civil Service. However, we could allow for a small expansion.
We must remember that the policies which I have described have been implemented in the United States by 150 civil servants. Therefore, we are speaking of very small numbers. That total could be divided by four or five if the idea were adopted in Britain. The savings would not only pay for the additional staff but produce the considerable figures to which I have referred.
A question mark must remain over whether the Government are prepared to be flexible enough in their Civil Service policies to allow for a modest expansion to carry out such a programme. I cannot answer that. Only the Government can, and I agree that it needs thinking about.
I have another pessimistic thought in wondering whether Whitehall, the Civil Service, the Government machine and perhaps the big firms would be prepared to change course and take that route. We have had 40 years of taking the wrong route—of encouraging bigness and economies of scale—whereas the Americans have gone in the opposite direction. The whole basis of their philosophy, in seeking to encourage smaller firms, dates back to the 1940s when they geared up for the war effort. They saw that they could never produce enough armaments by relying on the big firms alone. They realised that only by gearing up the nation's small and medium-sized industries could America achieve the required rate of armament production to fight the war.
The philosophy of a practical need to get a job done was, therefore, born during the war. Now we have a different practical need—to make the British private enterprise system more efficient, more competitive and therefore more able to create the jobs and solve the problems to which the hon. Member for the Isle of Wight and others have referred.
That is a national need, but it means—this is why I am pessimistic—a dramatic change in attitudes on the part of all of us. It involves our saying that we shall make an effort to act somewhat differently and to move away from what we have been doing in the past.
Two years ago a key official from the SDA in Washington came to a hearing that we staged in Edinburgh, which I chaired. That young man, addressing an invited audience, declared, "There is no free lunch for the small business man." That remark stuck in my mind. It is true. There is no free lunch, and there should not be a free lunch for him. He should be more efficient and innovative to enable him, in terms of Government procurement, to deliver better value for money.
The Government have that challenge. Will they accept it? The report of the private mission may be a help in changing attitudes. The basis of it runs on the same lines as the Government are following—value for money and making the private enterprise system more efficient—so it should help to lubricate the wheels.
My hon. Friend may be aware, in respect of the small business innovation research scheme which is operated in the United States, that an official from my Department went on the mission that he described. My Department is looking at the matter very closely indeed as a possible way forward.
That is very encouraging. The innovation research grant is a hard-headed way of giving the minimal amount of money, monitoring progress, and giving no more money if the project does not succeed. If it succeeds, private sector money is brought in—this is not unlike what happens with enterprise agencies—and the project continues. The grant is the seed, and it is a practical and sensible means of delivering the goods. It will achieve what the Government want—greater innovation and value for money. I hope that this scheme will be examined, and that it will begin in the months ahead.
I welcome the opportunity to participate in this debate on small businesses, because I recognise their importance to the economy and future employment. Like other hon. Members, I recognise that small businesses will not solve unmployment problems, but that is not to say that they are not important. They have a role to play, and we must ensure that they prosper and are given every possible encouragement.
Like the hon. Member for Isle of Wight (Mr. Ross), I believe that local government should be encouraged by central Government and be given every possible support. Unfortunately, the Conservative party does not have the same confidence in the abilities of local government to deal with problems.
I recognise the problems that can face new industries establishing themselves. One of the first jobs with which I had to deal on being elected to Parliament concerned a small firm. It had moved to a new factory estate which had been established by Burnley borough council, but was unable to obtain from the electricity and gas boards the energy supplies that it needed. Those boards wanted deposits in advance, but the firm was unable to pay them because it was putting all its capital into the equipment and materials needed to begin manufacturing. I am glad to say that I was able to resolve the problem. During the past few weeks, that company won an order from the United States to provide more than £1 million-worth of goods. Those two years of growth show what can happen if people have confidence.
Another successful firm in my constituency is AMS Limited, which exports goods all over the world. That firm has won the Queen's award for exports in industry on two successive occasions. That speaks well of the way in which it has developed. I went to that factory last year when it was presented with the Queen's award. The company planned to open an extension within a few months. It pointed out that it was fortunate in that its bankers had been willing to give help during the initial phase. It is a matter not only of the bank to which the small firm goes but of the bank manager. He must have the foresight to appreciate the proposal's merits and the company's prospects. AMS Limited is so successful that, having extended its premises only a year ago, it intends moving to a larger factory. With the assistance of Burnley Borough council, the factory will be sited in the enterprise zone. The number of people that it employs will be increased. It is significant that 23 is the average age of the employees at that factory.
I recognise the family reasons why the Under-Secretary of State has not been able to remain throughout the debate. As I represent the constituency next to his, I know that he is well aware of the number of small firms in Burnley. During the past two years, the hon. Gentleman has visited several firms there. Burnley borough council has always tried to encourage small and large new industries in the town, to attract new jobs and to ensure that existing jobs remain.
The Government often tend to assume that Labour-controlled authorities do not wish to maintain a good relationship with industry. That is not true. The council on which I served was very much aware that the town would die without industry. We maintained a good liaison with industry. Chairmen of key committees and council officers visited different industries to see how the council could assist, what their problems were and what their complaints and praises of the council were. That was successful.
Before I finished as leader of the council and was elected to the House, the council set up a community enterprise committee. That is now beginning to establish itself. I hope that it will do a great deal more successful work. One of the committee's jobs was to ensure that there was co-ordination between the bodies that were available to assist people who were trying to maintain and run a business or to establish a new one. I was worried that there was a proliferation of organisations duplicating the work, and therefore sometimes wasting resources and causing confusion about where people should go for assistance.
It is important to make it as easy as possible for people to know where to go for help if they need it. I have discovered over the past two years that it is not just the small firms that do not know where to go for help. Surprisingly, some of the big industries which find it difficult to obtain Government grants do not know where to go. Many organisations do not kow how to use the system to obtain the assistance to which they are entitled.
I shall tell the House what Lancashire Enterprises Limited and Lancashire county council have done. LEL has made a significant contribution in Lancashire. Lancashire has traditionally been hard hit at times of unemployment because for many years it relied upon the cotton industry, which has been severely reduced, and on mining. Mining has been eliminated in most of Lancashire. The remaining collieries of the Lancashire coalfield are in Merseyside or Greater Manchester. There are no working collieries in the northern part of the county.
Lancashire county council established LEL in 1982 with the object of creating jobs, which is what it has done. In the past three years more than 3,000 people have been given a new start in life through the direction of LEL. More than 2,200 jobs have been created or sustained and over 800 training places supported. The numbers are increasing all the time.
The more important and impressive fact is that, while doing that, LEL makes a profit trying to assist industry and create jobs. In its second year, it returned a trading profit of £288,000 and for the last financial year, which ended on 31 March, it is forecasting a profit of about £700,000.
LEL has been successful in attracting finance from private sources into Lancashire. That is significant. It is not using just local government. Its power to attract private finance shows the confidence of investors. In company investments alone, for every pound that LEL has invested, approximately £2 has come from outside sources. That is encouraging for Lancashire. Since LEL has been established, experience has shown that that locally based agency is fully committed to the people of Lancashire. Its pioneering initiative has achieved national recognition as a model for economic development agencies. Its activities encompass industries ranging from investments in companies to workers' co-operatives, and from industrial property for rent to high technology training.
It is significant that LEL has invested in 29 companies to date, whose activities vary from high technology to crisps. They are all important for business and jobs. It is also noteworthy that the areas that LEL has affected are spread throughout Lancashire. It is not concentrated in one corner or section of the county. LEL has also developed 16 industrial and commercial properties for rent as prime sites in many towns throughout the county. It has also trained 800 jobless school leavers and long-term unemployed through imaginative schemes to equip them with the skills of the 21st century.
While on the subject of the long-term unemployed, it is worth noting that in Lancashire 46 per cent. of those unemployed have been unemployed for more than one year. That is most distressing. I am especially worried about the long-term and young unemployed. LEL has established a unique scheme to help small business men through the Lancashire and Merseyside Fund Company by using funds from LEL and capital from outside institutions to assist their expansion. The normal venture capital for assisting a project is about £100,000.
LEL has created the Lancashire Co-operative Development Agency, which promotes the establishment of working co-operatives. Already 20 workers' cooperatives are in business, thanks to that agency. LEL is also interested in tourism, which is a major and growing industry in Lancashire, not only in the coastal regions and the Lake District, but in my constituency where we have attractive scenery and there is a future in tourism if we tap the resources.
LEL has backed enterprises which are important to Lancashire's future by commissioning wide-ranging reports to help recovery and to investigate problems affecting specific industries, such as engineering, fishing and footwear. That shows that Lancashire is prepared to act with the help of private capital, and with the county council and local borough councils working together to assist industries, especially small firms and businesses. The positive attitude shown by LEL and Lancashire shows what can and should be done. I hope that the Government will ensure that the maximum support is given to such projects.
Everything that I say today should be heard against the background that the Government and their succession of energetic small firms Ministers have done a remarkable job, many of the details of which have been spelt out in earlier speeches. I wonder whether more would have been done if their responsibilities had merited Cabinet status. My hon. Friend the Minister has an especially fine reputation for being a good listener, and I am personally sorry that his need to establish a fine reputation as a Christian father has meant that he is not able to be present to listen to my remarks.
The recent announcement of the waiving of restrictive conditions on the allocation of contracts under £10,000 by public purchasing authorities is the latest in a long line of welcome improvements. I hope that we shall continue to see a wide range of them, including some of those suggested by my hon. Friend the Member for Surrey, North-West (Mr. Grylls).
I have no doubt that the Government's heart is in the right place or that Conservative policies operate to help the small firm, in marked contrast to the philosophy and practice of some Labour-controlled authorities. In London, small firms have died, rather like Londoners in the great plague, substantially because of the swingeing increases in rates in Socialist boroughs and the greedy precepting of the GLC.
Yet the GLC has established the Greater London enterprise board, about which we have already heard so much. Indeed, I am sorry that the hon. Member for Islington, South and Finsbury (Mr. Smith) left the Chamber before I had a chance to take up some of his surprising information. I understand that that little venture has so far received in capital and revenue allocations some £75 million of ratepayers' money. However, I must not be unfair. Its aim is to create jobs-jobs which, on the whole, Labour boroughs have destroyed over the years. Indeed, it claims to have created nearly 2,000 jobs. But that is quite expensive as the product of £75 million, although GLEB is no doubt worth it to the profligate Left as a source of endless Labour propaganda, free of all democratic control and set up in such a way that it will live, Labour Members hope, independently and long after the GLC has disappeared.
It came as no surprise to me that there should be a motion on the GLC's agenda next week calling for an inquiry into the operations of GLEB. I urge Labour Members not to feel that the word "enterprise" necessarily guarantees some benevolent machinery.
I am proud of the Government, and if I mention particular areas for further action I do so only to help the Government in that regard. I have three things in mind. The first concerns finance. There is no doubt that it is still very difficult for would-be entrepreneurs or small firms seeking their first expansion to find sums within the £15,000 to £30,000 bracket. Furthermore, it is offensive that time and again such people should be told by the clearing bank managers, "It is a pity you don't want £150,000, as that would be much easier." They mean that it is not cost-effective for such important and busy people to spend their time examining a proposal and suggesting improvements while at the same time facing a real, if relatively tiny, risk. The great institutions, of which branch managers are the local representatives, would rather lend billions of pounds to Mexico than thousands of pounds to Mrs. Smith, and recent history suggests that the banks might benefit from a redefinition of cost-effectiveness.
I am aware that many of the banks are beginning to take that sector seriously, but far too many of their branch managers have very little understanding of the real needs of small firms. It is those very small loans that are the crucial equity gap. It was precisely to fill that gap that the loan guarantee scheme was conceived. I well remember that when I was one of the tiny group from the Small Business Bureau who was trying to sell the idea of the scheme I got more free lunches than I have ever had since, as the banks tried to rubbish it.
That scheme was an essential tool in the cultivation of small firms, and it was of particular value to the middle-aged family man or woman who was prepared to commit all of his or her time and imagination, but not all the children's security. Now the scheme has been quite emasculated by, I am sorry to say, our own Government, and the number of people helped by it has fallen sharply. In the first five months of this year, the number of loans taken out under the loan guarantee scheme fell to 30 per cent. of what it was in the previous period. The worst of the changes recently introduced is the requirement that an applicant must already have fully committed any personal assets, including his home, to secure a conventional term loan or overdraft before a guarantee can be considered.
I have a constituent, a young middle-aged woman, whose husband had an accident and will never work seriously again. She has succeeded in building up a very small specialist business. She has obtained orders from the United States for that business, yet she cannot get £25,000 because she is told that unless she is prepared to mortgage the whole of the house—she has already mortgaged part of it—she will not be considered as a serious business person. That is disgraceful.
The loan guarantee scheme which has created jobs at £1,750 per head is the cheapest of the schemes to create jobs. It is an admirable scheme, but unless it is improved and brought closer to its original concept it will die. It is interesting that all the clearing banks now want it to live. They are all enthusiastic about it. One banker said to me that if the Government let it die it will be taken as a clear sign that the Government are no longer serious in their desire to support the small firm.
Almost every local enterprise agency has been supported by the local clearing banks. I pay tribute to them for that. However, the banks are beginning to contemplate withdrawal to allow others to take their place. If the banks' contribution comes from their public relations or community responsibility budget, that makes sense. Perhaps it is time to move to some other project, but it would be a suicidally short-sighted decision. An example is Lloyds, which has supported 100 enterprise agencies. That support can either be regarded as a good neighbour contribution by a major financial institution or be treated as the first mesh in the bankers' assessment of small firms.
The Minister confirmed earlier that, whereas the usual death rate of small firms is one in three, the local enterprise agency's death rate is one in eight. The message is clear. The banks should be invited by the Government to consider dividing their interests in local enterprise agencies and to regard them as an integral part of their vetting and support for small firms. Thus they would secure and improve the operation of those crucial agencies for the future.
We now know a lot more about what is needed to help small firms. An explosion in courses and advice has taken place. The local enterprise agencies, the Manpower Services Commission, business schools and further and higher education colleges and even voluntary organisations such as Young Enterprise are playing their valuable part. But what about professional education? The key supporters of small firms are bank managers and accountants. Yet, as the Coopers and Lybrand report says, they do not believe that they have a role in providing advice. They wait to be approached.
Not only is there need for change: there is plenty of scope. In Victoria, Australia, a large examinable part of a chartered accountant's course is run by the Victoria small firms agency. Banking and accountancy students could and should do some of their on-the-job training in small firms or in enterprise agencies. We need a co-ordinated examination of the education and training of everyone who is important to small firms.
In and out of Government the attitude to the entrepreneur and the self-employed person is suspicious, envious and destructively wrong. The recent implementation of the Keith committee's proposals are an expression of the exasperation with the persistent non-compliance by firms of VAT regulations. That is understandable and perhaps inevitable.
The Customs and Excise says that at any one time 85 per cent. of all registered traders are technically in default. One must therefore ask whether the system carries within it the seeds of non-compliance.
The Minister must be worried that, according to the Small Firms Research Trust survey, compliance with Government requirements has risen to third place in the list of problems experienced by small firms. To introduce new penalties to punish non-compliance with VAT is like a town with no car parks trying to deal with traffic congestion by increasing parking fines.
Worse than that is the general assumption that small firms and the self -employed are the principal creators of the black economy. A typical example is in the recent quarterly economic review by Professor Minford's unit at Liverpool university. In an article on the black economy the authors state as an unchallengeable fact that it is the self-employed who have the best opportunity to benefit from the black economy. That is untrue. Experience tells us, and studies such as that from Pahl of Kent university have proved, that it is employees who have the best chance effectively to operate in the black economy. It is in fact the electricity board worker who uses his employer's van and tools to rewire people's houses over the weekend. It is the direct labour road works team who will offer to tarmac one's garage approach. It is the National Health Service consultants who are under examination for blurring the boundaries between private and public medicine.
It is high time that all of us, but especially the Government, the Inland Revenue and the newspapers, understood that the self-employed and small business proprietors are wrongly regarded as the principal rip-off artists in our society. Of all the wealth creators, they are the loneliest, the longest working, the least supported and, in many instances, among the worst remunerated in society. I look to my Government to add to all their other efforts that of sustaining the small entrepreneur with admiration and approval instead of allowing the present climate of suspicion and envy to continue.
I welcome the debate on small firms and propose to speak briefly and mainly on attitudes, objectives and reasons and to give examples of and make comparisons with small firms in Britain and abroad. Until the Conservative party won the general election in 1979, Britain had lost the will and the feel for enterprise. We had lost the opportunity to develop the ethos of enterprise which lies at the heart of a small firm. With some reservations, I recommend hon. Members to read Samuel Smiles. I do not agree with all that he wrote, but on reading his books—one book alone sold as many as 250,000 copies, which was a greater number than that achieved by most other 19th century novelists—and making due allowance for the times in which they were written, I was given much food for thought. He wrote at a time when virtually all firms were small. Many were becoming larger, but Samuel Smiles and his generation in the 1850s and 1870s knew and understood how to combine enterprise, self-help, risk and compassion. They started from scratch. There were no large corporations, no state involvement, no bureaucracy and no social security. Small firms made things from nothing.
We see the efforts of that generation from the other end of the telescope. We have the apparatus of the state, bureacracy and social security, and most of this framework is necessary. Much of it is what those in the mid-Victorian period sought, but it has now become out of hand. It is my belief that it has stifled the enterprise which produced it. If we reduce wealth, we reduce the capacity to pay for public services as well as increasing the prospects of unemployment.
The mid-Victorians sought a mutual partnership of private and public provision very much like that which is rightly proposed in the Green Paper on social security, which has been produced recently. The public element in the equation—this is perhaps inevitable in our relatively new democracy—has swamped the enterprise which paid for it. We need to restore the balance.
I recommend a more modern book to the House which was published only last year by George Gilder, entitled "The Spirit of Enterprise". He criticises soulless academic economists and praises those who make our wealth. He illustrates by case histories how those who are imbued with the energy and spirit of enterprise breed new wealth. He animates the statistical labyrinths of departmental analysis with insight into what creates wealth and jobs and shows how it has been done. It is achieved by hard work, thrift, savings, vision, disposable personal wealth, seizing opportunities and being free to do so. It is not brought about on the backbone of official statistics. It is a different world from the dull, boring, over-cautious, negative, unenthusiastic and half-hearted world that we see around us so much today. There is risk and enjoyment in the life of the real entrepreneur, but he must be given the opportunity to breathe. As Gilder says, the entrepreneur
is not chiefly a tool of markets but a maker of markets; not a scout of opportunities but a developer of opportunity; not an optimiser of resources but an inventor of them; not a respondent to existing demands but an innovator who evokes demand; not chiefly a user of technology but a producer of it".
He criticises our failure to pass on to youth the source of affluence and the possibilities of their lives, and the introverted self-indulgence of those educators, politicians and intellectuals who deny youth the adventure of life and the capacity to stand on their own feet.
There are too many Jeremiahs wringing their hands and indulging their consciences when we should be encouraging young people to be enterprising in this immense time of change, and to make and create small firms. But they need the environment in which that can be done, and it requires the bustle of business and trade.
Gilder illustrates the stealthy and unannounced euthenasia of the entrepreneur. He criticises the shifting of the burden of tax from corporations to individuals, and the institutionalising of private savings. He advocates the reduction of personal taxation so as to leave disposable wealth in the hands of people who can create real jobs. He criticises the tax havens, the export of capital, tax exiles, and the creation of traps for small business men in a captive capital market.
In comparisons between the United States, Britain and Japan since 1918, one finds that it is largely the real rise in personal taxation that has stifled and destroyed the spirit of enterprise and destroyed jobs. Gilder shows how Harding and Coolidge generated a boom in the United States in the 1920s with tax cuts, while we increased our taxes into a depression. He shows how our highest and most progressive rates during the 1940s ended by increasing the tax rates of the poor by four times more than the payments of the rich. He criticises our tax perks, which tie down British business men to a corporate structure and to governmental dependency.
Gilder argues that Japan, with its low inflation of about 2 per cent., and low unemployment of about the same rate, owes much to the tax-cutting policy of Tanzan Ishibashi, Minister of Finance in the 1950s. Gilder argues in a book, written for Americans in the United States and not for our consumption:
Britain could still become the Japan of the late 1980s. Its leadership is committed to reversing the record of decline. The results of changing course, however, cannot be computed on any econometric model of the existing economic structure".
He puts his faith in people of all classes and all walks of life. They can become the entrepreneurs, and then perhaps bigger firms, but the spirit comes from within the individual, provided the external conditions are right. Then people can save. The Japanese have a massive savings rate which, with low taxes, has induced low interest rates. We must study their example and learn from it. High interest rates are one of the most frequent complaints of the small businesses in my constituency, and we must implement policies to bring them down.
My argument for the small firm is partly based on the need to fill the gap in employment induced by the massive change in our economy, particularly since 1973, but actually present for decades before then. It is also based on the need to provide, within the hearts, minds and pockets of people grown used to state provision, the idea that they can and must do more to help themselves. It is not fair on children coming out of schools for them to have been educated into unemployment before they leave. Why can they not be taught, as was said earlier, the rudiments of running a small business as part of the curriculum? It does not all have to be picked up as they go along. In Japan there is even a small and medium-sized enterprise university.
Does the small firm work in practice or is ii mere ideology? A report based on a sample of 5·5 million businesses by the Massachusetts Institute of Technology a few years ago showed that 88 per cent. of net new jobs in the United States between 1969 and 1976 came from small businesses and that 66 per cent. came from employing fewer than 20 people. Small businesses in the United States account for 38 per cent. of gross national product, create two of every three new jobs and produce 2·5 times as many innovations per employee as the large firms.
Against that background it is worth noting that over the past 10 years, employment in the United States went up by 21 per cent. whereas ours went down by 4 pet cent. Moreover, 80 per cent. of new businesses in the United States start in domestic premises. During that period, young and younger companies produced $2·3 billion in tax, compared with the older companies, which produced a mere $1·5 billion. Smaller new companies in the United States, which produced 34 per cent. more jobs, also produced 34 per cent. more in taxes.
Of course, we have had, and still have, difficulties, but that was inevitable, as Mitterrand and Gonzalez and now Mr. Lange in New Zealand have discovered in their Socialist countries. There is no easy answer. Much depends on the spirit of enterprise within each individual and, in turn, within each small firm and on their willingness to work, compete and innovate and so to create new businesses and jobs.
We must implement the right policies and we must have a clear policy of broadcasting in our schools and in every other way the virtues of small firms. I do not underestimate the importance of manufacturing industry. Without doubt, it has played an essential part in driving the engine of the United States economy, but it is worth noting that between 1973 and 1983 the United States had a net growth rate of 13 million jobs. About 15 million jobs have come from the service sector and few of those are in Government services, unlike the position in many other countries in the Western world. Over that period, the United States suffered a net loss of 3 million jobs in manufacturing. Those figures reflect the United States' amazing growth in the new technologically based and invariably small firms.
We have much to learn and small businesses, like any others, must produce better goods and services than our rivals abroad. We cannot say that too often. In past times of economic difficulty, the small firm, through the enterprise of its owners, managers and workers, has come to the rescue of the British economy. We must continue to provide the environment in which that can be achieved again.
It is a pleasure to follow my hon. Friend the Member for Stafford (Mr. Cash). Gilder's book will obviously become compulsory reading.
There have been a number of good contributions to the debate, not least by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). I am pleased to hear that he has an eye for local talent. We knew that he was a well known pavement politician, but he is also obviously a budding Casanova in his constituency.
Before talking about small firms, I wish to mention one large firm that employs many people in Yeovil and is responsible for many jobs in small firms throughout the country. The Minister will be aware that, since the collapse of the Bristow Rotorcraft bid, Westland Aircraft plc has been in crisis. Its share value fell another 30p today to 60p, from a bid price of 150p. I urge my hon. Friend the Under-Secretary to ask the Secretary of State for Trade and Industry to make a statement about Westland on Monday. Answers are required to a number of crucial questions. The company is of strategic importance; it is our only indigenous helicopter manufacturer and it would be a disaster if it collapsed. The Secretary of State for Defence must give us information about two crucial orders—the AST 404 and the EH 101. I hope that my hon. Friend will speak to his boss and urge him to make a statement on Monday.
I welcome this debate. It gives the Government a chance to tell the House and the country of their excellent track record over the past six years, and I congratulate my hon. Friend on his part in that.
During the past two years I have had a chance to visit most of the small firms in my constituency. I believe that they are the key to the future of north-west Norfolk in terms of employment and the economy. My local authority signed an overspill agreement 20 years ago with what was then the London county council, and we have a very wide industrial base. But it would be unrealistic to expect another large company to come to King's Lynn or to west Norfolk to help solve the above average regional unemployment problem. I look to the small firms sector to solve the problem, and we are making considerable progress. During the past two or three years many more jobs have been created in the small firms sector in King's Lynn, and we have many more self-employed people.
One of the most crucial developments over recent years has been the setting up of a local enterprise agency in King's Lynn. It is not yet set up, but it is on the end of the runway and about to take off. I congratulate Martin Crannis, who has been chairman of the steering committee which has done so much work in the background to set up the LEA. I also congratulate the chief executive of the borough council, John McGhee, who has also played a very important part. I thank the Minister for his encouragement. Looking at examples elsewhere in the country, I am convinced that this local enterprise agency will have a profound impact on job creation in west Norfolk.
Visiting the small firms in my constituency, I get a good deal of feedback. Of course they want lower interest rates. They want better roads, better communications and a better infrastructure generally. Obviously I am fighting hard for that. They are now operating in a far more favourable environment. However, there are still problems, not least those burdens that a number of hon. Members have discussed and also the desperate shortage of equity finance for the smaller firms.
I welcome "Burdens on Business". It contains many excellent suggestions. I welcome especially the call for an annual report. My hon. Friend the Member for Surrey, North-West (Mr. Grylls) mentioned the importance of setting up a Select Committee on small businesses. I should like to see the present deregulation unit kept going, not as an ad hoc committee but as a permanent committee to monitor burdens and, above all, to look out for new ones which might crop up in new legislation coming before the House.
My hon. Friend the Member for Mid-Kent (Mr. Rowe) and a number of others underlined a repeated complaint about the attitude of officials and officers of different Government Departments, agencies and other bodies.
My hon. Friend refers to the attitudes of officials. Is he aware that Mr. David Dexter, the distinguished former chairman of the National Federation of the Self-Employed and Small Business and a constituent of mine, has written to me today expressing his concern about the widening of enforcement powers in the Budget and the extension of penalties for late returns? Is it not about time that we stopped piling the attentions of obnoxious officials on the job creators and listened to their advice?
My hon. Friend could not have put it better. That was the very point made by my hon. Friend the Member for Mid-Kent, who likened the situation to a town with a major car parking problem and no car parks stepping up fines and penalties for parking offences. This highlights a serious problem. If "Burdens on Business" is to have any impact—I hope that many of its proposals are implemented—the attitude of officials must change.
We are fortunate in Norfolk and East Anglia generally because the attitude of officials there is positive and pro-business. However, in Japan, Germany and America, officials arrive at a company's premises with a completely different attitude from that seen here. They arrive wanting to co-operate, to help, and to crack problems. Here, far too often, they arrive in a deeply suspicious, almost antagonistic, mood.
I came across a horrific example the other day. It was not in my constituency, and I shall not mention names. It concerned a small retailing firm that got behind in its VAT payments. It had a series of correspondence with the Customs and Excise. It agreed that it would start paying its VAT on time, although there was still a small amount of arrears. The managing director wrote to the Customs and Excise and explained that he would be away for two weeks on holiday, and that the problem would be sorted out in three weeks' time. A week later, a bailiff appeared on a busy Tuesday morning, in front of all the customers, and demanded a cheque. My hon. Friend the Under-Secretary knows the concern felt on the Back-Bench committee about such cases. The report on burdens will be worthless unless the attitude of officials can be changed.
We have made considerable progress. My hon. Friend the Member for Winchester (Mr. Browne) rightly spoke about a new work ethic and a new business enterprise culture being created. Tremendous strides have been made over the past six years. A new work ethic is developing, and that is almost entirely due to the small firms' sector. Therefore, I welcome the Minister's proposal and his enthusiasm for creating mini-enterprises in schools. If children can be brought up from an early age to believe in the importance of business and enterprise and the social respectability and acceptability of going into business, we will make progress. I urge my hon. Friend to continue his excellent work, because if this progress is not maintained, we shall not solve the desperate unemployment problem.
Some weeks ago my hon. Friend the Under-Secretary visited my constituency to see at first hand the revolution that is taking place in Basildon. I hope that he feels that he was warmly received. Local businesses were delighted with his visit. At that time, he was not wearing the hat that he now wears—that of the Minister responsible for waste. Had he been wearing it, he would have wished to spend some time examining the carryings on of our Socialist council.
Some months ago, my right hon. Friend the Minister for Trade also visited my constituency, and I know that local businesses found his visit a tremendous boost to their morale.
Perhaps I should explain what I mean by a revolution in Basildon. When the town was first dreamt up 40 years ago, it was designed with a view to having large firms on our industrial estates. The majority of the population also worked locally. However, over the years markets at home and overseas have changed and Basildon has tried to meet the changes. It has not been easy, and at the moment, unfortunately, there are nowhere near enough jobs for those who wish to work.
However, the town is managing to respond successfully to the obvious need to develop small firms of all descriptions. At the moment we are engaged in a substantial campaign to promote the goods and services that Basildon can offer. Our slogan is, "Basildon means Business". This is not fiction but fact. We are in the process of building the largest covered shopping centre in Europe. If only we could get more road signs erected to tell people where Basildon is, I am sure that the enterprise would be a tremendous success.
The Government have already done much to encourage small businesses. Business is assisting itself as well. In Basildon, the largest companies have rallied round to support the local enterprise agency, which is doing a marvellous job under its director, Denis Pigden, whom I know the Minister has met. With the assistance of the banks, the development corporation and the council, together with companies such as Shell, GEC Avionics and Pafra Ltd., the enterprise agency has given over 1,000 counselling interviews, of which over 50 per cent. were start-up advice interviews. From disc jockeys to computer software, the agency has assisted new enterprises to start up and successfully to continue trading as small businesses.
The Government have achieved a great deal but much still needs to be done. I conducted a small survey in my constituency and the dominant theme throughout was the difficulty of obtaining capital, either equity or running capital, from hidebound banks. The banks have played an important role in Basildon and many of them have shown vision. However, the local enterprise agency vets many of the small businesses and finds it frustrating when the business plans that it has assisted in putting together are rejected by banks that are unwilling to inject venture capital.
There is more venture capital now than at any time hitherto and many enterprises have taken advantage of it. Nevertheless, venture capital seems to be devoted to those with a proven track record and sufficient assets to cover failure. Three local industries told me that although the banks supported them during the recession they have been unable to expand because of the lack of risk capital. These are solid businesses with a sound base, an excellent work force and fine management. I should be grateful if my hon. Friend the Under-Secretary of State could explain to the banking institutions that to strike out into the unknown, no matter how well researched, requires some trust and much risk that cannot always be covered. Banks cannot continue to define risk as short-term Government stock. I pay tribute to those banks that realise this and provide real risk capital.
I turn to the relationship between big and small business. While there have been superb examples in Basildon of assistance and tie-ups, the vexed question of payment times has also arisen. The House is only too familiar with the problem of large businesses extending their credit, sometimes for as long as six months. One answer to that problem would be to cease trading with bad debtors. However, as the director of Hindbest Ltd. in my constituency told me only last Saturday, a light engineering firm such as his cannot afford to lose such a big customer, even if it is a bad debtor. Government action is necessary to ensure that the use of the money of small firms by large businesses to save their own interest charges is made an offence.
I am convinced that a major simplification is needed of the regulations covering all businesses. The teams that carried out research for "Burdens on Business" found that many firms are unaware of the compliance cost in time taken to complete Government paperwork, either because the work is delegated to people who are already doing the paperwork or because the cost is passed on to the public. I have discovered that exactly the same applies in Basildon. One form could be produced by each Department of State to cover the range of duties and responsibilities of small firms to that Department. One business man told me that tender documents quote other regulations that prove to be either impossible to find or, when they are found, impossible to understand. He agreed that his trade contains many regulations and that most of them are necessary; it is just the understanding of them that raises doubts.
Sadly, there is a firm in my constituency, Meatal Ltd., that is employing only 35 people although it has the capacity to employ 100. It cannot do so, however, because of the severe cash flow difficulties that are caused by the Intervention Board for Agricultural Produce taking more than six weeks to process repayments. I realise that this matter is not the responsibility of my hon. Friend the Under-Secretary of State, but I take this opportunity to mention it.
All hon. Members know the old Chinese proverb that to open a shop is easy but to keep it open is difficult. I pay tribute to those men and women who initially gamble everything, including their own houses, in order to set up a small firm and who work morning, noon and night to eke out a living for themselves. From such enterprise, employment opportunities for others often arise, but many of us appreciate the initial agonising decision of whether to gamble all.
Last week I opened a new factory in my constituency for Laser Lab. While the company is fronted by an Australian, it is an example of the triumph of British design in technology. We must stop knocking ourselves. Although we may smile at the American approach, we should sing our praises more strongly and follow the example of Members of Parliament and be immodest in our approach.
I can never understand the attitude of Labour Members to business. They always seem to be hostile, viewing profit as a dirty word. Small firms are the lifeblood of the nation. I cannot believe that the Government will let them down.
I commend the Government's programme on small businesses. The Government have offered practical help to small firms and will continue to do so. I am grateful for a programme that has helped businesses to start and has encouraged their continued trading.
Much has been said about the enterprise agencies. They have been extremely successful, with a tenfold increase in the past four years. Much has been said about the enterprise allowance scheme, which has helped 66,000 people in the past, with plans for helping another 180,000. The business expansion scheme has done much to help small businesses. The small firms service is excellent and has helped nearly 300,000 people with difficult and complicated problems.
Courageously, corporation tax has been reformed in a way no other Government would have dreamt possible. Under the loan guarantee scheme, introduced in 1981, more than £500 million has been produced for 16,000 businesses. That scheme has been a great success and it would be disastrous if it were not extended beyond the end of this year. The new business improvement service, launched only six months ago to help small firms, has made £63 million available by way of grant. It all represents a package of which we can be proud.
While commending the Government, I also commend the work of the Minister with responsibility for small businesses. He is tireless in promoting small businesses and has led from the front and by example. Metaphorically, he is one of the founding fathers of the enterprise agency system. Literally, he is the founding father of Edward David Trippier, and I happened to be on my feet speaking when the news of the birth of Edward David was announced to his father.
I was also in the Chamber when his father named Edward David, normally the right of the Speaker. I am proud to be speaking now and to have been present in the Chamber before, during and after the christening of the latest of the Minister's small enterprises. This small business has grown, and I congratulate him on the day of his son's christening in the Crypt.
I also thank the Minister for opening in my constituency this week London House, a new system of business units, a concept that is spreading. Firms at the units share space, reception facilities, security and communication systems. I reiterate some remarks of my hon. Friend the Member for Basildon (Mr. Amess) in that I hope that, as Minister with responsibility for waste, he will concentrate hard on filling his bins with red tape and unnecessary forms.
I also commend the Government's action on privatisation — in the National Health Service, in schools, in the Ministry of Defence and in local authorities — because that has helped to create many small businesses.
The Labour party would claim that it showed initiative through Lord Lever and others. Lord Lever once said—his remark has been quoted many times since—that, in this context, big oak trees from little acorns grow. Why, then, does the Labour party, at the time of every Budget and in every part of its administrative programme, create for the big oak trees lashing of defoliant in terms of its taxation and employment measures?
It is a sad day when the Labour party concentrates on liquidations. Labour Members have said that there have been 17,000 liquidations during the last year for which figures are available but have ignored the 100,000 new companies and 100,000 other businesses that have been formed during the same period. It is rather like saying that at Kew gardens, which is in my constituency, they only pull up flowers. They do not—they have to prune to make a healthy garden. The Labour party has ignored the planting that has been going on in small businesses.
The Institute of Chartered Accountants has carefully considered Lord Young's White Paper "Burdens on Business". The institute believes that an examination of the possibilities for a major simplification of pay-as-you-earn and national insurance contribution procedures should be given high priority. This could help small businesses, not only because the change might reduce the burden on all businesses but because a commitment to change would be seen as symbolising new Government attitudes over a much wider area. Proposals to change PAYE and NIC regulations would need to be considered in the light of the cost of retraining staff, but we believe that the change must be of a radical nature to generate sufficient continuing benefits. There is little merit in just tinkering with the present system.
The institute believes that it is desirable to consider possible systems for integrating PAYE and NIC in a combined rate. It is essential to examine carefully the benefits and disadvantages of both cumulative and non-cumulative systems from the viewpoint of the employer, the employee and the Inland Revenue. It is necessary also to examine further ways of reducing the administrative burden by simplifying the complex PAYE and NIC systems.
The VAT requirement means that small businesses have more detailed systems of book-keeping than would otherwise be the case. Although that brings benefits, in the smallest businesses those benefits are often outweighed by the additional costs and time commitment that are required to keep appropriate records and to understand the complexities of VAT regulations.
It cannot be stressed too strongly—hon. Members have done so many times today—that the increasing complexities of VAT make it a difficult tax for anyone other than an expert. Although many retail schemes are intended to help business men, they are an imposition on the smaller trader and the complications are out of all proportion to the benefits. A higher threshold would ease this burden on the smallest businesses. The Institute of Chartered Accountants would like the VAT registration limit to be substantially increased and says that a system of voluntary regulations below the limit should be encouraged where this is of benefit to the business.
Value added tax is a major cash flow item in a business, and we believe that the current system is utterly unfair. We would like to see a cash received, cash paid basis rather than the current system. This could greatly help small businesses.
The ICA has also made recommendations on statutory sick pay. This is an extremely difficult system which perhaps should be integrated with the PAYE and NIC systems.
I commend the Government, especially the Department of the Environment, for their help in trying to smooth out planning, fire and building requirements. They have done a great deal in encouraging local authorities to be more efficient, but this is still one matter in which small businesses are especially disadvantaged. One of the problems with the planning, fire and building regulations is that no one really appreciates the costs—not only the direct costs—in waiting, reapplying and redesigning. This hurts the spirit of a business that wants only to expand and succeed.
Employment protection and other environmental factors must be examined, carefully for the sake of small business. Of course we need employment and consumer protection to protect the disadvantaged. However, we need to weigh up whether advantages flow from that legislation or whether it helps to encourage unemployment.
Massive changes in accounting and auditing requirements are forecast in various documents, including the Green Paper "Accounting and Audit Requirements for Small Firms" which was published last week. The Institute of Chartered Accountants is not at all frightened by the Green Paper. It is carrying out a wide investigation among its members to ascertain what they think is best.
The private exempt company, abolished by the Labour Government in 1967 in a political move to punish small businesses, should be resuscitated. Such companies should be exempt from audits and some requirements of the Companies Act 1981. Shareholders, however, should be allowed to insist upon a full set of accounts.
Limited liability is a privilege, and all privilege must bear responsibility. We must protect creditors and shareholders and make directors and managers accountable, but there is no need to do that at unnecessary cost.
The Institute of Chartered Accountants believes that annual returns should be radically changed. In a modern world, there is no need to have annual returns filled out each year. They should be provided on a computer-based system that notifies changes.
It would help all small businesses if financial literacy were more general. A lack of financial understanding in society has contributed to many of the country's economic problems. This matter should be investigated in more depth.
The Insolvency Bill will help to produce a regime of greater protection for many small businesses. The preferential status granted to the state, which helps to cripple so many small creditors because the state takes all the money available, will not be welcome. The rest of the Bill will be welcome.
I hope that the result of the reforms that I have mentioned will improve the climate for enterprise, but it may well reduce Government revenues or statistics available for governmental analysis. If the Government were to reduce their revenues, and if the statistics were not available, that might be an investment in greater revenue in the future from small businesses. An increase in profits and thus taxation will outweigh the disadvantage to the state and will reduce the costs of unemployment to the state.
I am grateful for the kind comments that have been made by right hon. and hon. Members about my happy family event today. My hon. Friend the Member for Surrey, South-West (Mrs. Bottomley) mentioned the importance of godfathers, and I agree with her. For the benefit of the House, I have brought along the godfather who presided at the christening. The things that I will do to keep in well with the Ministry of Defence and to ensure that small firms have a fair crack of the whip from defence procurement—asking my hon. Friend the Under-Secretary of State for Defence Procurement to be a godfather.
I have been impressed by the enthusiasm, and in many cases passion, that hon. Members have for this important topic. I was struck by the fact that many hon. Members are actively involved in the small firms sector within their own constituencies. It goes without saying that most hon. Members would normally be involved in practically every major aspect of life in their constituencies, but it is clear that many contributors to the debate take a special interest in small firms locally and, most notably, in local enterprise agencies—for example, my hon. Friends the Members for Norfolk, North-West (Mr. Bellingham), for Surrey, South-West, for Hertfordshire, South-West (Mr. Page), for Mid-Kent (Mr. Rowe), for Basildon (Mr. Amess) and for Richmond and Barnes (Mr. Hanley), and the hon. Member for Isle of Wight (Mr. Ross).
It is important to stress the importance of local involvement in small firms and their encouragement within the community, because I believe that indigenous growth locally offers the solution to many of the problems which beset the nation—problems which were identified by my hon. Friend the hon. Friend the Member for Surrey, North-West (Mr. Grylls) and by the right hon. Member for Swansea, West (Mr. Williams).
It is clear that the most important priority for any Government is to help to create the right economic environment in which industry of all sizes can succeed. I believe that that is not enough. It is a responsibility of Government to emancipate entrepeneurs and to reduce the burdens, be they administrative, legislative or fiscal. We have a responsibility to reward risk-taking, initiative and enterprise.
We are making considerable progress on all those fronts, but I am still not satisfied that at community level the regeneration of the small firms sector is being tackled in the form of a partnership, bringing together the leading influences within that community and concentrating upon indigenous growth.
The reason why I have laid such stress on that aspect, both now and during the past two years when I have been Minister with responsibility for small firms, is that I have come to terms with a simple but essential fact. That is, that a conscientious Member of Parliament could pull out a prayer mat every day and pray that a large company, such as ICI or GEC, will soon open a subsidiary firm in his constituency, which would help enormously to absorb the unfortunate people who are in the dole queue in that community. Of Course, he may be on his knees for a considerable time. Indeed, he would have been on his knees for a long time under the Labour Government. I am not making a political point.
However important it may be for hon. Members, local authorities and the Department of Trade and Industry to concentrate on matters such as inward investment, I am convinced that the major impact, which would have a dramatic effect in reducing the unacceptable level of unemployment, would be caused by a concerted effort to foster the growth of fledgling companies, to encourage people from within that same community to consider self-employment as an option, and to encourage established firms which may employ fewer than 20 people to expand.
I was glad that the right hon. Member for Swansea, West stressed the local aspect. That is why I am so keen — some would say fanatical — on local enterprise agencies, and why, wherever possible, the approach to the problem should be bi-partisan. In response to an intervention, I said that it was important that about half the local enterprise agencies in the country were in areas where the Socialists controlled local authorities, about half where the Tories controlled them, and obviously some where the Liberal and SDP parties controlled them. I welcome that support. I first thought of the idea of a small firms local enterprise week in 1984 to get the message down to grass roots level about the support available for small firms.
An important reason for the need to have a small firms policy is the notoriously difficult problem of attitudes, which my hon. Friend the Member for Winchester (Mr. Browne) pointed out. Times are now changing, but we have suffered for decades from a culture which has esteemed the distribution of wealth above the means of creating that wealth. Business was seen as somehow second rate, and not enough of the more able people entered business and trade, as my hon. Friend the Member for Luton, South (Mr. Bright) pointed out. To make money was seen as not quite moral. Such attitudes ignore the social and economic benefits that profitable business brings in terms of jobs, our general standard of living and our ability to afford welfare services. Such attitudes have affected our valuation of all businesses, whether large or small. However, they have been particularly unhelpful when it comes to encouraging people to consider the route of self-employment or the contribution that they might make to small businesses and entrepreneurial activity. That point was made by my hon. Friend the Member for Surry, South-West.
I must say to the hon. Member for Islington, South and Finsbury (Mr. Smith) that the Government aim to create a society in which people make their own choices and take responsibility for their own decisions, in which rewards are related directly to individual effort, in which people have a stake in its success, and in which individual initiative rather than Government intervention provides the driving force.
If we are to change Britain from a dependent to a self-reliant society, from a give-it-to-me to a do-it-yourself nation, it means creating an even stronger and more dynamic enterprise culture, which accords an enhanced status to the entrepreneur and offers him the rewards to match, as my hon. Friend the Member for Stafford (Mr. Cash) rightly pointed out. There is no doubt that the small business environment provides the ideal outlet for the expression of that positive approach to self-reliance. My task as Minister with responsibility for small firms is to help nurture that positive approach.
Wholesale subsidisation of industry, which was the message I was receiving loud and clear from Labour Members, would be a wasteful use of public money. Obviously, there are priority cases, such as the redevelopment of areas suffering from large scale closures, where assistance from the Government is vital. Government support for small industry must be carefully tailored to provide the most cost-effective use of the money available.
I assure the House that our objective is to create a new culture in which enterprise is valued and accorded greater status and material reward. I want to encourage a new generation of people to come forward who consider it to be their role to employ others rather than to expect others to employ them. That would result in a renaissance of self-confidence and risk taking, which would unleash the employment potential that we know is there. The case for promoting small businesses is far more than economic. Small businesses are central to the sort of society that this Government are seeking to create. The society that we are seeking is based on enterprise and the independence of individuals rather than the diktat of Government. It is a society based on freedom.