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Self-Employment

– in the House of Commons at 4:23 pm on 15th February 1988.

Alert me about debates like this

Photo of Mr Robert Jones Mr Robert Jones , Hertfordshire West 4:23 pm, 15th February 1988

I beg to move, That this House calls upon Her Majesty's Government to ensure that its policies and procedures maintain the substantial increase in self-employment: calls attention to the encouragement given to it by the Government's policies of encouraging enterprise and individual initiative; and calls on Her Majesty's Government to reduce obstacles to the spread of self-employment.

I begin by declaring three interests. First, for over 10 years I have had a friendly association with the National Federation of Self Employed and Small Businesses Ltd. and have co-operated with it on many projects, both before coming into the House and since. I should like to place on record a personal tribute to the work of its former parliamentary officer, Mr. John Blundell, and its present parliamentary officer, Mr. Ralph Jackson, who work hard for the cause with which they are associated. Secondly, since October 1987, I have been the co-proprietor of a small business involved in the manufacture of high quality furniture for kitchens, bathrooms, bedrooms and public houses. In my interest in that area I have come across some of the problems of small businesses. Thirdly, two years ago I was the co-sponsor of the Right to be Self-Employed Bill that was introduced by my hon. Friend the Member for Stirling (Mr. Forsyth), who, I am glad to say, is now the Parliamentary Under-Secretary of State for Scotland.

I welcome the fact that my hon. Friend the Minister of State, Department of Employment, will speak in the debate. Like manyof his predecessors, he has taken a close interest in the health of the self-employed sector and I pay tribute to his work. It contrasts with many of the activities of the Opposition parties. Given the paucity of the attendance of Opposition Members this afternoon, their interest in the self-employed must be in doubt.

Photo of Andrew Welsh Andrew Welsh , Angus East

I hope that the hon. Gentleman does not include the Scottish National party in that. My party and the Liberal party have both taken a great interest in the self-employed. Indeed, I was personally involved with the beginnings of the national federation. If the hon. Gentleman is criticising, he should direct his criticisms accurately, rather than inaccurately.

Photo of Mr Robert Jones Mr Robert Jones , Hertfordshire West

I would happily exempt the hon. Gentleman were it not for the fact that during my period of office on Fife county council, prior to reorganisation, the Scottish National party's representatives on that council were extremely hostile to small businesses. I advise the hon. Member for Gordon (Mr. Bruce) that I shall comment on the alliance, or the mis-alliance, in due course. Perhaps it would be better to wait for that.

I attended the 1982 Labour party conference—not, I hasten to add, as a member of the Labour party, but as an observer. During that conference a debate was held on local government and a motion was passed urging Labour groups in local authorities to take action against contractors. Section (b) stated that they should insist that contractors are bona fide and employ all the people who are working for it (ie, not self-employed)". That illustrates the attitude of the Labour party to the self-employed. I shall be interested to hear the contribution of the Labour Front-Bench spokesman in explaining how his party is now terribly sympathetic to the self-employed, whereas historically the reverse has been the case.

The hon. Member for Angus, East (Mr. Welsh) referred to the party of the hon. Member for Gordon and perhaps I should say—

Photo of Barry Sheerman Barry Sheerman Shadow Spokesperson (Education and Employment)

Does the hon. Gentleman not know that the Balcombe committee, which was set up by Tony Crosland and the Labour Government 19 years ago, created the job of his hon. Friend the Minister responsible for small businesses and that there has been a continuing interest in, and promotion of, small businesses by Labour Governments and by the Labour party when in opposition? We have nothing to be ashamed of on that score. Let us get the record straight in historical terms.

Photo of Mr Robert Jones Mr Robert Jones , Hertfordshire West

Working parties are no substitute for policies. It is this Government's policies that have been conducive to the growth in self-employment. It is significant that under the previous Labour Government self-employment declined.

I referred earlier to the hon. Member for Gordon, who was alleged to be a friend of the self-employed. When the Right to be Self-Employed Bill received the leave of the House to be introduced, I put a press release in my local paper welcoming the measure. My then SDP opponent, Mr. Nick Hollinghurst, described the Bill as barmy and irresponsible. That hardly indicates that he was sympathetic to the self-employed. Nor was he well-informed, because the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) voted for that Bill, as did other alliance Members.

Mr. Eric S. Heifer:

Will the hon. Gentleman give way?

Photo of Mr Robert Jones Mr Robert Jones , Hertfordshire West

Not at the moment.

The Government have done much to promote self-employment and to redress the imbalance of the 1960s and early 1970s, when the figures for self-employment were in decline. Since 1979 the number of people becoming self-employed has risen by more than 1 million. At the beginning of the year the total number of people classified as self-employed was 2.7 million—just over 10 per cent. of the total labour force. The reasons for that growth are many, but the principal factor has been the general ethos of the Government and their determination to remove the state from the activities of businesses, and the sustained drive for deregulation and a lessening and removal of some of the onerous burdens that affect small businesses.

Among other Government initiatives is the enterprise allowance scheme, which became national in 1982, and which has helped 300,000 previously unemployed people to set up and run their own businesses with some initial state support. Provision has been made for more than 100,000 new entrants this year, and some 110,000 people in 1988–89. That emphasises the popularity of self-employment.

The loan guarantee scheme, introduced in 1981, was designed to supply finance to small businesses to which no conventional loans were available. Despite initial teething problems, the scheme has been popular with very small firms which found it difficult to attract start-up investment finance, and about 20,000 guarantees have been issued. Those measures greatly help the self-employed and, together with general economic progress, highlighted by tax reductions, there has been a sustained attempt to create a conducive climate within which businesses, and specifically the self-employed, can thrive.

Despite the many excellent Government initiatives to promote self-employment and the small firms sector, which is reckoned to constitute one third of the economy and to contribute 20 per cent. of the GNP, some areas need attention if the self-employed are to sustain their renaissance. We can help to encourage the numbers of the self-employed by stimulating growth through taxation initiatives and by introducing greater flexibility and mobility in the labour market by clarifying the status of self-employed people.

The taxation or employment status of people regarded as self-employed is the key to the growth in self-employment. There is much case history about the definition of self-employment which often confuses people, and which, together with the statutory definitions, form a mosaic of conflicting rulings which need to be resolved. Tax inspectors determine employment status according to section A of the Income and Corporation Taxes Act 1970. North sea divers are exempted from schedule E employment status under the Finance Act 1978. There is another definition in the Employment Protection (Consolidation) Act 1978. Perhaps the most ridiculous definition of self-employment comes from the Health and Safety at Work etc. Act 1974 which states that a self-employed person is someone who is gainfully employed in Great Britain otherwise than in employed earners employment, whether or not he is also employed in such employment. It is no wonder that with such terminology the DHSS has been called the author of modern Church liturgy.

The case law definition comes down to whether individuals are or have been performing a contract of service—that is, employed—or are under contracts for services — self-employed. Individuals should have the right to determine their own classification of status, bearing in mind that they have to make a decision about the benefits and disbenefits of self-employment.

The one-customer test is particularly absurd. Under current classification criteria for self-employment, supposedly operated jointly by the Inland Revenue and the DHSS, a contract with one customer alone would not constitute a contract of service or self-employment, but would be a sign of employment. It is also absurd that the criteria that can be applied to reclassified self-employed individuals in the private business sector are not applied in a similar way to those who receive state support for their business ventures.

It seems natural that if people are made redundant from a business because it has decided to carry out that particular service by contract instead of by direct employment, they should club together to form a group which would then bid for the work that they had previously carried out. Under such circumstances, the Inland Revenue normally regards those people as directly employed. Clearly, it is a halfway house between their previous employment direct with the company and going into business with more than one customer. Similarly, if someone is employed to carry out a computer contract and contracts to a company, installing programmes and ironing out any gremlins in it, that work may well continue for one or two years, or for more. The Inland Revenue would regard such a person as employed rather than self-employed, although, manifestly, that is an increasing trend.

As retirement tends to occur earlier, there has been a growth in "release and re-engagement". This is where senior staff are released from direct employment but are able to continue to do work for their companies, thus easing the burden of retirement. This is to be welcomed, but the Inland Revenue does not see it in the same way.

Photo of Mr Richard Page Mr Richard Page , South West Hertfordshire

Does my hon. Friend agree that someone starting in business for the first time is unlikely to start with a bank of 40 or 50 customers, but is more likely to start with one or two customers with whom he has personal contact in a particular industry? Would it not be more fair for the Inland Revenue to make a judgment on the start-up of new companies after three or four years to see whether their customer banks have expanded, instead of hitting them hard on day one?

Photo of Mr Robert Jones Mr Robert Jones , Hertfordshire West

I agree with my hon. Friend's first point. He has great experience in small businesses and has played an important part in promoting their interests. I am concerned about the second point. If there were a review after three or four years and the Inland Revenue reinterpreted the employment status of an individual, that could create a large and unwelcome tax bill for the person concerned. Therefore, I do not entirely agree with my hon. Friend.

Photo of Mr Richard Page Mr Richard Page , South West Hertfordshire

I do not want to leave the House with an impression that I was trying to put any tax on small businesses. I suggested that if after three years a company had not made a breakthrough and achieved a wider bank of customers, the Inland Revenue should say, "Unless you can demonstrate that you have more customers, we may have to interpret you on the basis of being employed by the company." However, I was not suggesting any form of back taxation.

Photo of Mr Robert Jones Mr Robert Jones , Hertfordshire West

I thank my hon. Friend for his clarification, and I agree with his point.

Perhaps it would be helpful if I gave an example of that. The partners of a light engineering firm in Slough, called Andron Engineering, were told by the Inland Revenue that eight of their engineering sub-contractors should be put on PAYE. Those self-employed engineers had their own keys, worked hours to suit themselves, and during that year had worked for other companies, as was shown by their respective tax returns.

Another example is that of a husband and wife team, Tom and Rita Fearon, who had worked for many years as self-employed children's entertainers. One of their contracts was with Pontins holiday group, where they undertook to work a summer season for roughly three months. Pontins assured the partners that they were confirmed as schedule D taxpayers and were self-employed for national insurance purposes. That did not stop the local tax office querying their status under that particular contract.

I move on to the question of 714 and 715 certificates — the particular interest of the hon. Member for Liverpool, Walton (Mr. Heffer). In the construction industry in the 1960s and 1970s, mass tax evasion led to a tightening of the rules regarding contracts and subcontracts, and through successive Finances Acts the eventual establishment of 714 and 715 construction industry tax exemption certificates. At that time many people regarded such certificates as little more than a licence to work. Others saw them as the legitimate way to self-employment, as they virtually meant that their tax status was inviolate. In practice, and especially latterly, the system, in seeking to regulate lump workers, has meant that it is expedient for many contractors to designate their skilled work force as self-employed sub-contractors and for both to enjoy whatever substantial benefits accrue. The test of the criteria or eligibility for the certificate is not always strict and certainly does not consistently conform to other criteria of the Inland Revenue and the DHSS.

I should like to quote from a speech by my hon. Friend the Member for Stirling. He said: That system is thoroughly wicked. It effectively operates as a licence to work. To get an exemption certificate to be treated as a self-employed sub-contractor, one must show that one has been employed for three of the past six years. If one cannot show that, one cannot become self-employed."—[Official Report, 4 February 1986; Vol. 91, c. 148.] That is plain discrimination against unemployed people and is quite outrageous.

I should like to make some suggestions about where we go from here. First, the Inland Revenue should be obliged to publish its criteria for judging these matters so that they can be debated and properly challenged. Secondly, it is vital that we have an independent appeals system that can judge this, quite apart from the Revenue. Thirdly, it should be axiomatic that people are self-employed, if that is the status that they seek, unless it can be proved otherwise.

I shall now move to other matters which are of concern to self-employed people and which need action. The first matter is the retention of profit. The self-employed unincorporated business is currently at a disadvantage in terms of taxation compared to a limited company. That is because the profit from that business is taxed in the same way as personal drawings from the business and there is no ability to defer part of that profit for future investment purposes. That is quite unlike limited companies, which have some form of deferment arrangements.

If the self-employed, small, unincorporated businesses had some control over funds for the exclusive use of investment in the business or for employment purposes, it would greatly help the newly established small firm and give encouragement to more people thinking about self-employment. They have to struggle in the early years, especially when tax and inflation wipe away their endeavours.

The operation of the business expansion scheme is also a problem, because its increasing institutionalisation and that of other funds means that it is much easier to raise sums in excess of £100,000 than it is to raise lesser sums. That is clearly an impediment to the smallest businesses about which I am especially concerned.

I shall make one point about planning. There is still too much hounding and persecuting of small businesses. There should be only three relevant criteria: whether the business is causing noise problems, problems of pollution or traffic problems. The simple existence of a business operating in a redundant farm building or something such as that should not of itself be sufficient grounds for the local authority to take action against it.

The matter of Government inspectors has been of great concern to small businesses over many years. Although the Government started to do something about this, legislation is such that a great deal more bureaucracy seems to have sprung up. A study by the Forum of Private Business reported a couple of years ago that someone starting up in business had to do more than 24 hours of essential reading. This included reading on VAT, tax, health and safety requirements and employment regulations. I went into business fairly recently and I can confirm that an immense amount of reading has to be done in order to be familiar with such matters.

The National Federation of Self Employed and Small Businesses Ltd. published a report entitled "An Inspector at the Door", which detailed more than 200 different authorities which had a great number of inspectors who had the right to enter, search or seize and so on. That report was published in 1979 and it led to a review of those powers, which saw about 30 of them being scrapped and another 50 being revoked. Unfortunately, new provisions seem to have turned that tide and, to give one example, data protection legislation has resulted in more powers for inspectors.

If the Government are to maintain an equitable balance between enforcing the law and relying on the business community to act as unpaid tax collectors, the role and the powers of inspectors should be subject to some scrutiny. Each Government Department, possibly with guidance from the Enterprise and Deregulation Unit, should undertake yearly reviews of the number, type and extent of its own inspectorate, together with the levels of financial penalties that it can impose. More powers should be reduced than should be produced.

The final sector in which beneficial action can be taken is that of the public sector contractor. It is quite difficult for a small business to get beyond the tender lists held by local authorities and Government Departments. Some countries set aside a percentage of work each year for which small businesses alone can bid, and the evidence shows that rather good value can be obtained from that. I commend that system to the Minister.

This is a short debate and I do not wish to occupy an undue proportion of it. The self-employed have an enormous amount to contribute to our society, both by their intrinsic economic efficiency and through the self-reliance and independence that they promote socially. All the measures that the Government have taken have encouraged the growth of that sector, and I hope that during the coming years they will do more so that Britain can generate even more self-employment and raise it to the level of self-employment that exists in our competitor countries.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Energy and Climate Change), Shadow Spokesperson (Environment, Food and Rural Affairs) 4:45 pm, 15th February 1988

I welcome this debate because we all recognise that the expansion of self-employment in small businesses in recent years has been and can continue to be an important source of new employment and wealth.

It is worth looking at the pattern of self-employment because we need to get to the bottom of why it is that in certain areas a high proportion of people are self-employed while in other areas the proportion is low. We need to see what can or should be done to try to alter that. An interesting point is the myth sometimes put about that self-employed people are by definition high earners or particularly wealthy. The proportion of self-employed people is highest in rural areas. Those people are the providers of essential services for the community and are often on small incomes in relation to the services that they provide. It is sometimes difficult for them to provide all the services that the Government expect of them.

A year ago I asked a question, the answer to which included a list of the proportions of self-employment in every constituency. The highest percentage is in rural constituencies in the Highlands of Scotland, in Wales and in the west country. The lowest percentage is in urban areas, especially urban areas in central Scotland. The middle range is in the suburban and rural areas in the south of England. That shows that, in a country such as Scotland, overall the percentage of self-employment is very low. However, the reason for that is fairly apparent: the opportunities are not so great.

That brings me to my second point. Why can people in some parts of the country thrive in self-employment? The most important answer is that they can find a market. The ability to find that market is the most important reason why a business can thrive and prosper. That is why the many areas of Britain that are most deprived are not getting their full share of self-employment.

Access to finance, especially finance to start a business, is crucial. There is clear evidence that the availability of risk capital is somewhat variable. The joint stock banks tend to look for security, for personal guarantees. If a self-employed person tries to launch a limited company, the immediate objective of the bank is to circumvent the whole benefit of limited liability by demanding that personal guarantees are put up front. It is an obvious disincentive to anybody starting a new business if he has to put everything on the line, especially if he is moving into an area where he could be competing with larger established businesses that could effectively cut him out.

Photo of Mr Andrew Rowe Mr Andrew Rowe , Kent Mid

Does the hon. Gentleman agree that the loan guarantee scheme, which was an imaginative attempt to circumvent this problem, has been much less useful than it should have been because the banks have continued to insist on a level of security that is completely absurd?

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Energy and Climate Change), Shadow Spokesperson (Environment, Food and Rural Affairs)

I wholly concur with the hon. Gentleman's comments. I have had complaints, as I suspect has the hon. Gentleman, from people in my constituency who feel that they have been led up the gardent path in terms of the availability of finance. They have found that the security requirement has been such that they might well have wasted their time. We must find a way of improving the method of financing.

One proposal which is worth exploring, and which the Government could usefully initiate, is to promote the establishment of local investment companies or local banks that would specifically provide risk capital, some of it unsecured, for small businesses — both established businesses wishing to expand and new businesses wishing to come on to the market. Of course, the proper safeguards—trustworthiness, the assessment of a business plan, general professionalism and understanding—should be taken into account, but it is unreasonable automatically to expect every applicant to put up his entire life savings without security when he advances a potentially viable idea out of which the backers can make money collectively but for which it is difficult to secure risk capital.

This idea, which my colleagues and I have put forward for some time, is now supported by the CBI as an appropriate venture. It marches sensibly alongside the enterprise trust scheme, although it should be separate from it. Enterprise trusts have expanded rapidly in recent years and been valuable in providing new and existing businesses with practical advice on how to proceed. Often that advice is not to proceed—good advice, if one's idea will not stand up—hut at other times people are advised before they start their businesses how to ensure the greatest chance of success. The evidence is not so much that enterprise trust schemes have been responsible for creating jobs or for ensuring that businesses are better, but that they have ensured that a higher proportion of businesses succeed rather than fail in the first year, which is the regrettable experience for many.

The back-up of local investment banks providing risk capital for investment separate from, but marching alongside, the enterprise trust scheme would be extremely valuable. It would help if some funds were diverted from the City. Too often those funds are concentrated on large projects, because providing the finance for small projects is thought to be too fiddly, cumbersome and tiresome and because many of the City institutions do not have the necessary knowledge of the locality or the individuals to feel able to put up the money with any reasonable chance of a return. There is much evidence to show that such a development could have the double benefit of helping individuals to move to self-employment, thereby strengthening the economy in those areas.

Crucial to the new, successful, self-employed business is the ability to find a viable market. Without it, no amount of finance, advice or tax breaks will ultimately succeed in making a business successful. In a number of ways—the hon. Member for Hertfordshire, West (Mr. Jones) touched on them—central and local government could help to strengthen the market that is available to small businesses. Local authorities and central Government agencies should be encouraged to give small businesses a fairer opportunity to compete for contracts. I do not ask for positive discrimination—of course, the taxpayer and the ratepayer must be protected in terms of getting value for money—but the local authorities and agencies should ensure that small businesses get full and equal opportunities. Many of us have heard the complaints that small businesses are effectively prevented from taking such opportunities.

Large businesses have a responsibility to consider buying services from small businesses. The main customer for small business is often the bigger business. Large businesses have not been as helpful as they could and should be to small businesses.

Photo of Mr Robert Jones Mr Robert Jones , Hertfordshire West

One problem with large businesses placing custom in the direction of small businesses is that the large businesses do not pay on time. In a way, that is more of a disadvantage than not getting business in the first place. GEC is an outrageous late-payer.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Energy and Climate Change), Shadow Spokesperson (Environment, Food and Rural Affairs)

I do want to comment on that particular example, but the hon. Gentleman was anticipating a point that I was about to make.

In recent years there has been a tendency for large companies to become much larger and for the corporate headquarters to draw into themselves companies that they have absorbed, bought out or merged with. The consequence is that more and more goods are bought centrally. Central purchasing tends to be directed towards the locality of the corporate headquarters and companies that are known to those headquarters. The opportunity for small businesses to supply locally is thereby proportionately reduced.

I understand that in Liverpool the local enterprise trust and the local council put pressure on Marks and Spencer to buy a significant percentage of goods locally. Marks and Spencer agreed to increase its local purchasing by 1 per cent. The upshot was that there was a useful injection of purchasing into the local economy, but it was interesting that this boosted the profitability of those goods to Marks and Spencer, which had not previously made the effort to find companies that could supply locally. Those companies were not big enough to supply the whole corporate enterprise, but they could supply the local branch. A mechanism that encouraged large businesses to behave in that way would give many small businesses the opportunity to supply goods which they are currently prevented from supplying.

The hon. Member for Hertfordshire, West touched on the fact that often big businesses do not pay fast enough to enable small businesses to do business with them. The small businesses cannot afford to fund the slow payment of some large companies. Action is needed to ensure that small businesses can guarantee prompt payment and not be penalised by the fact that they have secured that business.

The impact of large retailing developments on small local retailers is a controversial and difficult issue but it concerns retailers throughout the country. One may argue that consumers must have choice and the opportunity to buy competitively-priced goods at attractive stores. We must recognise, however, when we read in local newspapers that a major corporation is to establish a large development that will employ hundreds of people, that often those jobs will be at the expense of jobs in firms that will be put out of business by that expansion and that the net effect will not be so beneficial overall. There are many examples of the predatoriness of some large corporations. They are by no means necessarily as efficient or as knowledgeable about the local market as the established companies, yet they have the resources to squeeze out their competitors and draw business up from the smaller businesses below them.

The hon. Member for Hertfordshire, West referred to the somewhat arbitrary changes in the definition of self-employment. Do not the Government intend to give a clearer idea of the definition and how consistently it can be applied?

The new proposals from the Department of Trade and Industry—the Department for Enterprise, as we are now supposed to call it — have raised questions as to the availability of advice from consultants. I have mentioned aspects which are more important than a consultant's advice. In any case, the enterprise trust scheme is doing a good job for little or no charge. The Government's proposed fee for consultants seems to be betwixt and between: it is not enough for a good consultant, but it is more than necessary for basic advice. I have certainly seen one or two newsletters which state that the quality of advice will not be of a particularly high standard.

The implication and impact of rates and rating changes on small businesses must also be considered. As a Scottish Member I found the whole rating debate on the introduction of the poll tax slightly bizarre. When we had our revaluation in Scotland the uproar came from small businesses. The National Federation of Self Employed and Small Businesses was one of the leading protagonists in criticising the Government and in demanding change. The immediate abolition of domestic rates was then proposed, with a deferred proposal to change the business rate. But many of the small business people with whom I have dealt feel that the change will be worse than the existing system. The uniform business rate will not help them. Indeed, in many cases it may make their circumstances even worse.

The proportion of turnover spent on rates is, generally speaking, higher for small businesses than for big businesses, so the burden falls unevenly on them. The uniform business rate is not the answer to the problem. I urge the Government to consider a system of business taxation that takes some account of the ability to pay and allows for local variations. A consequence of the change is that local authorities will have no incentive to be efficient in order to attract and encourage the development of new businesses in their areas.

Small businesses are often literally one-man or one-woman businesses, and the burdens imposed on them in terms of financial difficulties and administrative requirements are often extremely demanding. I ran a small business and can certainly testify that the endless form filling required caused genuine anxiety compared with the fundamental job of finding the market and ensuring that the product or service is delivered on time and competitively. The Government should do more to reduce that burden, instead of continuing to treat small businesses as their unpaid tax collectors; to provide some assistance to allow small businesses to cope; and to ensure that they are given the practical support that may make life easier.

What most people setting up in business find irritating is, first, that they must put up securities against borrowing; secondly, that they are a bad risk compared with established businesses, so they must pay a higher rate of interest; and, thirdly, that they must spend the first few months setting up systems for VAT, sickness benefits and other administrative burdens to please Government Departments. The Government have set up those systems, always thinking in terms of large companies which have the bureaucracy to deal with them and underestimating the difficulties facing small businesses.

Small business self-employment will be a growing component of employment, but there are great unevennesses in different areas. We must find ways of encouraging people to develop businesses, we must give them the necessary finance without always demanding securities and imposing penal rates, and we must ease the administrative burdens. If we do that, some areas, which so far have not shared fully in the prosperity from which most parts of the south are benefiting, can start to have a fuller say. I hope that the Minister will address some of those issues.

Photo of Mr Graham Bright Mr Graham Bright , Luton South 5:04 pm, 15th February 1988

Much of what the hon. Member for Gordon (Mr. Bruce) said will strike a chord on this side of the House. I was particularly interested in his point about directing money from the City to many of our small start-up buinesses. I believe that we must pursue that.

I welcome today's debate on the self-employed and congratulate my hon. Friend the Member for Hertfordshire, West (Mr. Jones) on choosing this subject. It is important for the House to recognise the vital contribution that self-employed people make to Britain's economic prosperity. All too often in the past that contribution has been overlooked. Perhaps it is even more important to acknowledge the challenge facing them as our economic recovery gathers pace.

The truth is that for many years after 1945 successive Governments were preoccupied with policies designed to serve the interests of large organisations. We went a long way towards the corporate state, with huge public corporations, nationalised industries and public utilities striking deals with excessively powerful and privileged trade unions. In that process, the House was partially eclipsed and the interests of the self-employed, private individuals, small traders, professional people and small businesses were disregarded. As a result, the nation was impoverished, not just economically but socially and politically.

It was not surprising that the number of self-employed people had fallen dramatically by the time the Bolton committee of inquiry reported in 1971. What was surprising was the fact that so little was done until 1979 to relieve the burden of taxation and regulation pressing down upon them.

My hon. Friend the Minister is perfectly entitled to claim the credit on behalf of the Government for the transformation in the situation since then. There has been a remarkable expansion in the number of self-employed. A decade ago, there were only 1·9 million, and today there are more than 2·7 million — an increase of 800,000. Almost one in 10 of the work force now works for himself or herself. The figures for VAT registrations and the labour force surveys show continuing growth. It is heartening to see that about half the new jobs created since 1983 have come from self-employment.

We are witnessing part of the economic and social revitalisation of Britain. I do not accept the criticisms that the decline of the old manufacturing industries with their grotesque overmanning could have been avoided. These changes have taken place all over the world, and we could not have insulated ourselves against them. It is not in anyone's interests to deploy our work force inefficiently.

Nor do I agree that putting out subsidiary functions to competitive tendering is self-defeating. If large corporations or Government Departments can secure better catering, cleaning or secretarial services from outside agencies, the savings can be used to perform their essential tasks more efficiently. I seriously question whether we have yet gone far enough in opening up nationalised industries, local authorities, and big business and, dare I say it, even the National Health Service, to this process.

I am a strong supporter of the Government's measures to reduce the burden of taxation and regulation. They have undoubtedly helped to stimulate the number of those setting up in business on their own and to improve the prospects — this is particularly important — of those already in self-employment. But getting the state off the backs of the people is only the first step. There are other problems that must be positively tackled if we are to build on the success we have already had.

The great bugbear for people setting up on their own is red tape. There is still a great river of it flowing out from the town halls, the Inland Revenue, the Customs and Excise, and so on. It deters new entrants to business and actually encourages the black economy. We all know of people who will do household or other jobs for cash, provided that there are no records and no questions asked. That is deplorable.

A prime policy objective for the future must be to reduce the tidal flow of bureaucratic paper. I see no reason why a simplified system of business regulation should not be introduced, with all the statutory obligations for new small businesses with regard to health and safety, fire precautions, insurance, employment protection and sick pay set out on a single A4 sheet of paper. My hon. Friend the Member for Hertfordshire, West mentioned the inspectorates. I am frightened every time I look at the number of such inspectorates. I believe that we should have one inspectorate rather than so many. I also believe that a standardised form setting out tax and national insurance on one sheet of paper is perfectly feasible.

I am aware that a White Paper on deregulation is to be published in the summer and that the enterprise and deregulation unit of the DTI considers all new proposals regarding requirements for businesses. However, the burden of compliance on the self-employed and their operations is not generally known or appreciated. Figures supplied by Graham Bannock and Partners — the country's leading small firms' consultants—suggest that small businesses and the self-employed have to bear a burden of compliance that is seven to 10 times greater than that borne by large firms. That cannot be right. For example, ICI and other such large firms have advisers to help them overcome all the mountains of paper and regulations. In comparison with ICI, we must remember that the small business man bears a burden that is seven to 10 times greater.

The problems are illustrated further by considering our VAT system. I have always believed that VAT has the merit of making small firms keep proper records. That element of discipline is desirable as it enables small firms to know how they are doing and whether they are about to face trouble before they go broke. However, the United Kingdom system is more complicated than elsewhere in Europe. As a result, it imposes a disproportionate burden on self-employed traders compared with larger firms. The cost of administration is also proportionately higher, even though input tax can be reclaimed. I am talking not about upping the thresholds, but making the system simpler and reducing the burden.

In general, the tax system encourages investment in property, pensions, insurance schemes and quoted shares. The hon. Member for Gordon also mentioned this. However, the tax system does not offer any comparable incentives for investments in small, self-financed enterprises. Therefore, small firms and newly established self-employed people are at a disadvantage.

I do not expect my hon. Friend the Minister to offer us a preview of the Budget. None the less, I hope that he will convey to my right hon. Friend the Chancellor of the Exchequer—as have my colleagues on the Back-Bench Committee on smaller businesses and the Small Business Bureau—our concern about the weight of taxation and the demands of the Inland Revenue and Customs and Excise on the self-employed.

A reduction in the standard rate of income tax will undoubtedly be welcome. What would be even more welcome would be a simpler tax regime with far fewer forms. That is the only way to diminish the attractions of the black economy. That must be an important task for any Government to consider. Such measures are, of course, in the interests of large firms as well as the small ones. A competitive environment offers the best guarantee of the efficient use of our resources. Large companies must be encouraged to contract out as many non-essential functions as Government Departments, local authorities and the nationalised industries have done.

Small and large firms must make every effort to pay their bills promptly. We all know of companies, some of them big ones—GEC has been mentioned—that are not prompt payers. Recently, as a small business man, I had a run-in with a large distribution group. Fortunately, I was in a good position because not only was I supplying that group—it owed me a vast sum of money—but I also suddenly discovered that it was supplying me. I owed that group a small sum of money, but there appeared to be one rule for the rich and one for the poor. That company demanded payment from the small trader within 28 days, or no goods. However, as a small trader I had to give that company 120 days credit on some occasions. That is an example of the big company making money out of a small company.

Photo of Mr Graham Bright Mr Graham Bright , Luton South

I do not want to name it, but it is one of the large food distribution companies.

Photo of Mr Graham Bright Mr Graham Bright , Luton South

All I would say is that it deserves the Booker prize.

It is not always clear when bills become due. I believe that if legislation was introduced it would make contracts much more complicated. However, big companies must be educated in this matter by the Government, the CBI—I am pleased that the CBI has put its weight behind such a campaign—and by the House.

Photo of Mr Robert Jones Mr Robert Jones , Hertfordshire West

My hon. Friend says that the CBI has put its weight behind that campaign. Does my hon. Friend agree that it could put more weight behind such a campaign if it expelled those firms that broke its guidelines on the payment of bills?

Photo of Mr Graham Bright Mr Graham Bright , Luton South

That is certainly an interesting concept for the CBI. Unfortunately, the CBI derives its income from those very companies, and that makes it rather difficult. However, if such a measure was introduced it would certainly concentrate minds. Perhaps the small firms section of the CBI could push for such a measure. If small, self-employed traders have to wait too long for payment they will simply not be around to offer competitive services in the future. We must consider that problem.

When there are large numbers of self-employed, operating small and medium-sized enterprises, the best conditions for sustained economic growth exist. They provide a pool of enterprise that stimulates the exchange of information and technological advance. Some of those firms will grow into substantial businesses. However, in Scotland, the north-west and the north-east, where such people are thin on the ground, we find over-mature, declining industries and pools of unemployment. That is the price we have had to pay for neglecting the self-employed and small enterprises until 1979.

The Government have laid the foundations for economic recovery. The benefits are now coming through in the form of rapid growth, a rise in real incomes and falling unemployment. What we must now do is to ensure that the burden of taxation and of regulations is reduced still further. Removing the obstacles to self-employment is the way forward to a more competitive and flexible economy. I know that the Minister understands that and I believe that the House and country will support him in achieving those objectives.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton 5:17 pm, 15th February 1988

I join the hon. Member for Luton, South (Mr. Bright) in thanking the hon. Member for Hertfordshire, West (Mr. Jones) for tabling the motion.

I believe that there has been some confusion over the question of small businesses and support for them, as against the concept of self-employment, particularly in the construction industry.

I have a great feeling for small businesses. Most of my family were small business people. After coming out of the armed forces my father became what was known as a "snob", though not in a certain sense of the word. He was a shoe repairer and shoemaker. He was a small business man. I had uncles who ran fruiterers, florists and butchers shops. I understand the struggle that small business people have and the difficulties that they face, especially nowadays, when we consider the growth of monopolies and the fact that small business men have increasingly been pushed to the wall. Indeed, the hon. Member for Luton, South made the case for the small business man against the monopoly, whether private or public. I have great sympathy with that. None of us in the Labour party has ever argued that everything in this country should be run and controlled by large corporations and monopolies, which push small business people to the wall.

If my wife wants to have her leather bag repaired, she does not go to a large company in Liverpool—there is nobody there to do it anyway. She goes to a small business man, who does a fine job. The Soviet Union and East European countries are having to take such things on board. If one wants things done at that level, one must go to the small business. No Socialist has ever argued that there is anything wrong with small businesses.

Mr. Heifer:

The hon. Gentleman would not let me intervene—

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

The hon. Gentleman did not offer. I shall not make a long speech. I wanted to make this point.

When I was a Minister at the Department of Industry, the Labour Government encouraged and helped small businesses. A section of our Department was concerned only with assisting small businesses. No one in the Labour party has ever said, "Crush the small business man." On the contrary, we have been very much in favour of helping to extend and develop small businesses.

Photo of Mr Robert Jones Mr Robert Jones , Hertfordshire West

I am grateful to the hon. Gentleman for giving way. Can he remember saying on 4 February 1986: it is rubbish to suggest that the answer to our unemployment problems is self-employment. It has done great damage to the people of this country and to our industries". —[Official Report, 4 February 1986; Vol. 91, c. 149.] How can the hon. Gentleman justify what he is saying now, having said that?

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

The hon. Gentleman has just made the point that I was coming to. I was talking about the construction industry. I was born and bred in it, and spent my apprenticeship and worked in it most of my life, apart from my years in the war, when I was in the Royal Air Force. That is a different matter. The hon. Gentleman is confusing helping small businesses with the growth of so-called self-employment — lump labour — particularly in the construction industry. That has been pernicious, dangerous and has not helped the industry—it has done the opposite. That is the point that I wanted to make.

Competition leads to the growth of large companies and monopolies, and the destruction of small businesses. If Conservative Members do not understand that, they do not understand the nature of the society in which we live. Competition does not lead to the growth of small businesses. It leads to the very opposite. It leads to the growth of monopolies, and monopolies destroy competition. If Conservative Members do not understand that, they do not understand capitalism or the society in which we live. It is no good the Conservative Whip, the hon. Member for Staffordshire, South-East (Mr. Lightbown), laughing. That is the truth. Monopolies grow out of competition and destroy small businesses in the same industry. On an international scale, the great international corporations take over and, even on that scale, squeeze out other people.

The Government have been much in favour of privatisation in the aircraft industry. One of the competitive firms has now been taken over by a bigger firm. A private monopoly, as opposed to a public monopoly, is growing up. If Conservative Members do not understand that, they do not understand the nature of the society in which we live.

The hon. Member for Hertfordshire, West referred to the CBI. The idea of the CBI expelling those who break its guidelines is ridiculous. Those concerned know where their bread is buttered and who determines the position in industry. I see that Conservative Members are with me on that. It is true, and they know it, as I know it.

People like myself in the Labour party were against lump labour in the construction industry. I tried to introduce a private Member's Bill to ensure that lump labour was outlawed from that industry. It was not passed by the House, but the Labour Government tried to introduce such a Bill. We were defeated in the election in 1970, and the Bill fell. The Bill raised the question of what was happening to people who were not paying taxation or national insurance. The Government had to act. Even the Conservative Government rightly had to act on that issue. That is why we had 714 and 715 tax certificates for the self-employed. It was not the best way to deal with the matter, but it brought in revenue for the Government which otherwise would have been lost. It was wrong that those who were employed by direct labour—whether private or public—had to pay taxation and national insurance, but that those who were not were getting away with it and not paying their contributions to the nation. The Conservative Government had to introduce the new measure, because it was vital that people paid their contributions.

Let us look at lump labour, or self-employment, in the construction industry. It has been growing, certainly under this Government. Let us consider the problems that it causes. Despite the mass unemployment in the construction industry, we are now beginning to suffer because in certain areas we do not have the skilled labour that we should have. How do we get skilled labour? In the old days, large firms and local authorities employed apprentices. The apprentices were trained, and when they had finished that period of training—whether it was after five or seven years—they were able to do the job that was required of them as trained workers.

I am a joiner, and every time I come into the Chamber I look at the beautiful woodwork. It could have been done only by the trained joiners of my trade. I am always proud of that. When I look round, I think what a wonderful job those joiners did. When I worked on the big liners that sailed from Liverpool and I went into a first-class cabin or a great dining hall, I admired the beautiful work that had been done by trained joiners.

But what happened? My Government rightly decided to allow local authorities to have housing action areas where there could be modernisation to bring the houses up to a good standard. Bathrooms and so on were put in. Because we did not have the trained workers, the cowboys moved in. In those areas, people were sometimes worse off after the development than before the non-trained workers went in. That is what has happened in the construction industry. There is now a lack of skilled personnel. The work being done on some sites is not as good as it should be, because the workers have not been trained.

Training is only one aspect of self-employment. There are also the cowboys—half-trained, under-trained, non-trained—who move in, believing that they are trained workers. The result is a poor job. It upsets me that some employers, especially in the construction industry, put their hands on their hearts and say that they are not in favour of lump labour, but then, behind the scenes, encourage it because it removes their overheads. They do not have to worry about them and can avoid them. In this way they also avoid payment if there are accidents on the job. One of the problems in the industry is the growing number of people who are injured — largely self-employed people who are not receiving the support they would have received if they had been directly employed. Usually, they do not have a union to fight for them, and are thus left in a position in which they should not have been left.

So far I have discussed training, health and safety, the lackof apprenticeships and the cowboys who have spread through the industry. People like me are not against small businesses. We want them to develop, and we shall encourage and help them. We believe that the banks should help them, without charging high interest rates. It is marvellous when someone who has been made redundant starts up a small business on his own, develops it and realises his potential. We are not against that, and we never have been. However, we are against self-employment in the form of lump labour, which is undermining one of the greatest industries in this country. Sooner or later, we must control it.

Many years ago, when we started developing in the big cities, in urban areas and in housing action areas, I suggested to my union that we should organise teams of our people to take on the contracts for this employment. It did not agree with me—or rather, it ignored what I said, so I assumed that it did not agree with me. Fair enough. However, in the long run, if we are to deal with these matters, self-employment will not be the important issue. There will have to be a growth of co-operatives at local level to do the job. I want the trade unions to play a full part in that and to involve themselves in the co-operatives' development.

The hon. Member for Hertfordshire, West has raised an important matter today. I did not know that Hertfordshire, West was on the Hemel Hempstead side. I was born and bred in Hertfordshire, which includes Hertford, Ware and Hoddesdon, and that is where I learnt about small businesses. My people were involved in them.

We in the Labour party are not against small businesses. We are against the growth of self-employment in the construction industry. It is undermining and doing great damage to an important industry.

Photo of Sir John Cope Sir John Cope , Northavon 5:33 pm, 15th February 1988

I congratulate my hon. Friend the Member for Hertfordshire, West (Mr. Jones) on his luck in the ballot, and even more on his choice of subject, as did the hon. Member for Liverpool, Walton (Mr. Heffer).

The encouragement of self-employment and small business is central to our concern to encourage innovation, enterprise and growth. As has already been mentioned, many people tend to think of the self-employed as one-man or one-woman businesses; but, of course, self-employment covers all unincorporated businesses, whether or not there are employees in them—there often are — and partnerships and unincorporated cooperatives. In fact, self-employment covers anyone who is working, does not work for a company and is not an employee.

The growth in the numbers of self-employed has been a striking feature of employment trends since 1979. My hon. Friend the Member for Luton, South (Mr. Bright) said that in that year it was estimated that there were 1·9 million self-employed workers. That had risen to more than 2·6 million by 1986—a rise of more than 40 per cent. That growth is continuing strongly now. The ratio of self-employed to employed is now about one in nine, and the growth in self-employment has occurred in a wide section of industry — manufacturing, construction, transport and services. I accept what the hon. Member for Gordon (Mr. Bruce) said about the differences in the scale of self-employment in different parts of the country, but growth has occurred in all the regions of Great Britain. For example, there has been a 61 per cent. increase in Yorkshire and Humberside and at the same time an increase of 36 per cent. in the northern region, so the growth is widely spread.

The Government believe that self-employment has an important role to play in the regeneration of the economy and the reduction of unemployment. It brings benefits to individuals, to businesses and to the economy. The hon. Member for Walton made an interesting point about competition. He seemed to think that competition always works against the small business. It can work against it at times, especially if there is a monopoly, but often the small business can take advantage of its competitive edge and flexibility to make competition work in its favour. That is why there has been such a growth of small businesses in recent years.

The growth of self-employment has shown that there is a wealth of entrepreneurial talent in this country —among unemployed and employed alike—which, in the past, has been somewhat stifled by the economic climate but which, in the right economic climate that we now have, can flourish. Self-employment is a source of enterprise, innovation and growth and an important means of fostering the enterprise culture. It is also a valuable source of employment, a seedbed for new business formation, and one of the ways of increasing labour market flexibility, to the benefit of industry and the consumer. All those things are advantages to the economy, to the country and to individuals.

Self-employment provides opportunities for people to be their own bosses and to develop their own business ideas, entrepreneurial skills and job satisfaction. Many people, particularly women, also enjoy the flexibility in working hours that self-employment can provide; it can help them get on with the rest of their lives, too. Such independence of action also means that self-employed people must take far more responsibility for their own future — not only responsibility for the risks of their businesses, but for the provision of their pensions, and so on. However, the continuing growth in self-employment shows that people are willing and able to take the risks and responsibilities because of the satisfaction that they gain.

People, not Governments, create jobs. What we can try to do — and have done, I think, with success — is to create the conditions that encourage the growth of new and independent enterprises. That is the foundation of our employment and economic strategy. Our task is to remove the disincentives to enterprise so that people can exploit their potential and skills for their own good and that of the economy. A number of the steps that we have taken as part of that task are directly concerned with encouraging the creation and growth of small businesses, including those of the self-employed.

The flagship of all our efforts to support small business is the Government's small firms service, which offers a comprehensive nationwide service to all small businesses, giving advice on any relevant topic or problem, backed up by an excellent counselling service. No one in business, or thinking of going into business, is too small to qualify for help.

The small firms service is an important gateway for business in Government Departments, including the established DTI schemes and the new ones announced recently. It is a valuable institution and I am keen that it should be developeed to realise its full potential. We should ensure that it is known to everyone who might be able to benefit from it. It is expanding. In 1986–87 it handled over 280,000 inquiries and held over 38,000 counselling sessions. That represents increases of 12·3 and 8·8 per cent. respectively on the previous year's business.

I am anxious to do more to make that valuable service more widely available. The computerised reference book is central to the information service. It is a substantial database and is of direct relevance to small businesses. It is the main tool used by the inquiry officers when people call at or telephone the small firms centres.

The reference book has sections detailing all the relevant Government schemes and gives particulars of the various interfaces between Government and business, including matters such as patents, company formation, export assistance, ACAS and more obvious matters. It has a section on Government purchasing. I very much agree with what was said earlier about Government purchasing, particularly the fact that small businesses can provide value for money when supplying to Government as well as to large companies.

The reference book contains a lot of information about training schemes and courses — not only Government schemes, but all the others—that are available in the area of the small firms centre and nationally. Open and distance learning are important to small businesses.

The reference book contains information on where to go for help with all sorts of problems. It gives particulars about franchising, European Community information, and so on. There is a national reference book that contains much national information, and regional reference books, held in the local offices, contain more local information.

I can announce that we have decided to make the small firms service's computerised reference book available to outside bodies, together with an updating service. It will be available to firms on their own computer systems, and they will be able to read it direct. Comprehensive and up-to-date information is essential to small businesses, not least on the purchasing side. Many other organisations, such as local enterprise agencies and chambers of commerce, make substantial use of the small firms service information when dealing with members and clients. Access to it at present is by telephone, but we shall improve on that in the way that I have just announced.

Local enterprise agencies have become a vital source of assistance to businesses. They are able to offer advice and counselling that is of particular relevance to those starting their own businesses, and they are of great help to businesses that are already off the ground.

Photo of Andrew Welsh Andrew Welsh , Angus East

The Minister mentioned the many incentives that are available, to which we give a broad welcome. However, is he aware that other parts of Government policy act as a disincentive? Is he aware of an article in today's Glasgow Herald, which points out that many small businesses in Scotland are currently at a tremendous rates disadvantage? That will be insignificant compared to the problems that will arise if the uniform business rate is introduced in Scotland but not elsewhere in the United Kingdom. Is he aware of the many problems that that will pose for Scottish industry, especially small businesses?

Photo of Sir John Cope Sir John Cope , Northavon

I am not sure whether that is relevant to this part of my speech. As a rule, I do not see the Glasgow Herald very promptly, although I am devoted to it. I shall look for the article that the hon. Gentleman has mentioned. The issue of rates in England and Wales is under discussion elsewhere.

In many cases, local enterprise agencies provide a wide variety of services, including managed workshops, financial advice and other specialised forms of assistance. There are nearly 400 local enterprise agencies, which are supported by over 3,000 companies, organisations and individuals. It is extremely important that those agencies should keep their roots local and in the private sector. There is a need for a period of strengthening and consolidating established local enterprise agencies. We shall not see much more of the rather explosive growth in the numbers of agencies that we have seen in recent years.

The Government want local enterprise agencies to be firmly-based permanent features of the local economies in which they operate. It is important that they retain their independence and do not become permanent pensioners of the Government, with all that that implies for governmental and parliamentary direction and interference in their work. The local enterprise agency grants scheme is geared to that end. Agencies are encouraged to play a focal role in networks of organisations and people who are similarly committed to helping economic growth.

Many different groups of people are seeking to start their own businesses — young people, women, ethnic minorities, and so on. LEAs must be aware of the needs of those specialised groups. Moreover, it will contribute to the strength of the LEA movement if they can assure that, where appropriate, they make special provision for those particular groups. Some agencies are designed to help certain groups, but I hope that such agencies will contribute to the common effort to assist small businesses and that they will not over-emphasise different sectors.

One of the most successful programmes of the Department of Employment is of particular benefit to the unemployed—the enterprise allowance scheme. It helps the unemployed to start their own businesses by paying them an allowance of £40 per week for one year to help to overcome the disincentive of the loss of benefit as soon as they stop being available for work. I am glad to tell the House that more than 315,000 people have taken advantage of the scheme to start their own businesses or to become self-employed on an individual basis. Over 100,000 places are available this year, and there will be 110,000 next year.

The scheme does not simply provide jobs for people during the year in which people receive the allowance; it encourages—and is intended to do—the formation of viable businesses, preferably those with a potential for growth and job creation. Recent survey results showed that, of those who received the allowance for one year, 65 per cent. were still trading three years after starting up. At that point, for every 100 businesses still trading, 114 additional jobs have been created. Those results are encouraging, but we must not be complacent. We are examining ways in which the survival, growth and job-generating prospects of those in the scheme can be enhanced.

By way of encouragement to those who may be considering entering the scheme, I shall mention two examples of how it has helped unemployed people to set up successful businesses. First, four unemployed people on Merseyside formed an independent bus company called Fareway Passenger Services in February 1987. It now operates a fleet of 25 buses throughout the Merseyside area, and I am told that it employs more than 50 people.

A slightly younger business was started by Mr. David Rafferty, from Northumberland. He joined the enterprise allowance scheme from the dole in April 1987.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

The Minister has mentioned bus services. However, deregulation meant that a number of employees were thrown out of work. Although a small company may have achieved growth, the number of workers in the industry has not been enhanced.

Photo of Sir John Cope Sir John Cope , Northavon

The service to the public has certainly been enhanced in some areas, and that has enhanced the number of people working on the buses and able to supply the service. The point of bus deregulation was to permit people to start bus services wherever they thought that they were required, and I believe that that, too, has been achieved.

I was about to tell the House about Mr. Rafferty from Northumberland. In April last year he started Superior Cleaning Specialists. He had been unemployed for some time, but he identified a gap in the market and succeeded in winning a contract with British Telecom to clean telephone kiosks in Edinburgh. He now has over 100 employees and a turnover of more than £500,000 in a year. Thus, an unemployed person has started a very successful business with the aid of the enterprise allowance scheme.

Of course, not all businesses which take advantage of the scheme grow quite as quickly; nor can they be expected to do so. However, my examples show how the scheme can enable entrepreneurial talents among the unemployed to flourish. It has also contributed to the re-establishment of the enterprise culture. People are aware that, through the scheme, they have a chance to create their own businesses, even if they are unemployed. We have therefore deliberately kept the administration of the scheme as simple as possible, so that applicants are not deterred by bureaucracy. Moreover, we do not intend to pick winners from among the applicants. That is always very difficult to do with new businesses starting, and I do not think the Government are well placed to do it. In any case, it would conflict with the idea of the scheme.

Young people are another group to whom we give special attention. We believe that self-employment can provide them with many opportunities. About a quarter or those joining the enterprise allowance scheme are under 25, and measures aimed specifically at encouraging them include the technical and vocational education initiative, and the various schemes that help them to try out businesses while they are still at school.

The House will also know of the success of the youth training scheme. The Manpower Services Commission intends that, by 1990, enterprise training will be made available to all YTS trainees as an integral part of their courses. The introduction of enterprise training into YTS will be project-based and in partnership with the YTS managing agents.

My Department is also supporting the Prince's Youth Business Trust, which helps 18 to 25-year-olds who wish to become self-employed or to expand their existing businesses. We match the money raised by the scheme pound for pound until 1989, to make loans to young entrepreneurs. That is likely to result in a contribution by the Department of some £15 million by that time.

There are other schemes of the same kind, but I shall only mention Project Fullemploy, which provides young people with enterprise training, and is particularly concerned with establishing access to training for ethnic minorities.

In the past, there has been a temptation to think of self-employment as primarily a male preserve. Of course, that is not true at all. Self-employed men still outnumber self-employed women, but self-employment among women has almost doubled, from 356,000 in 1979 to 708,000 in 1987. That is a much steeper rise than for men.

Photo of Mr Andrew Rowe Mr Andrew Rowe , Kent Mid

The Minister may wish to note that a new organisation has been started called Women Into Business, which is showing a remarkable capacity to attract and encourage women entrepreneurs.

Photo of Sir John Cope Sir John Cope , Northavon

I am indeed aware of that organisation, and I commend its work.

The Government also believe that self-employment and the establishment of small businesses can help to tackle the difficulties faced by some of our inner cities. We recognise that, while self-employed people running small businesses offer excellent potential for the creation of wealth and jobs and revitalising areas, they can face particular disadvantages in the inner cities. That is why the small firms service and the enterprise allowance scheme are made particularly readily available to local businesses and residents in such areas, together with the other national initiatives offered by our Department and other Government Departments.

Finally, let me mention the Manpower Services Commission's training for enterprise programme, which aims to equip potential and existing entrepreneurs with the skills and knowledge required to encourage and develop small businesses. More than 100,000 people will be helped in 1987–88, at a cost of £19·3 million. That is another important initiative.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Energy and Climate Change), Shadow Spokesperson (Environment, Food and Rural Affairs)

Does the Department accept that there is a need for an additional source of venture capital for small businesses? I appreciate that the Minister is concerned with grants aimed at training for enterprise, but does his Department believe that it could promote initiatives to encourage the setting up of local investment banks or financial companies, as the CBI and others suggest?

Photo of Sir John Cope Sir John Cope , Northavon

We are always willing, particularly at this time of year, to listen to proposals involving finance. However, the hon. Gentleman cannot expect Ministers to comment on them in advance of the Budget. I am, of course, very conscious of the suggestions made by previous bodies to which the hon. Gentleman has drawn attention.

I have been outlining the various measures that the Government take to encourage and assist the creation of businesses. It would be illogical if we were also burdening them with a mountain of Government regulations resulting in a disproportionate cost to small firms, and there is always the danger of that happening. My hon. Friend the Member for Luton, South rightly emphasised the necessity for continuing and renewed vigilance, and for the greatest possible efforts to reduce the administrative and legislative burdens that the Government impose on businesses, especially small businesses.

It has been suggested that people should be able to choose self-employed status for tax and other purposes if they wish, without having to argue about it with the tax authorities. However, if we were to allow the individual to choose whether to be treated as self-employed or employed, I have no doubt that some firms would see it as being to their advantage to classify all their employees as self-employed, and so avoid their obligations as employers—not least the obligation to collect PAYE tax and national insurance. That is why the proposal is usually expressed not as a simple matter of providing a choice, but as a matter of changing the rules in less sweeping ways. It is also why it is, I believe, necessary for the various Government agencies involved to retain the ability to argue about the facts in individual cases, rather than merely having to accept the decisions of others.

We are very conscious of the problems of those individuals whose status is not clear-cut. That is why we have taken action to alleviate the difficulties faced by some self-employed people in establishing their status for tax and national insurance purposes. When people start up in business as self-employed, they wish to ensure, as quickly and simply as possible, that they will be treated as self-employed for tax and other purposes. To overcome the problems, the Inland Revenue and the Department of Health and Social Security, with our support, have taken a series of measures. They have issued better publicity on what constitutes self-employment — for example, the Inland Revenue leaflet "Tax: Employed or SelfEmployed"—and people are encouraged to seek advice.

Since April last year, each tax and social security office has had one official responsible for decisions on employment status, which can save people much time in explaining their circumstances. They can request a written ruling on their status, which will remain in force unless their circumstances change. It is perhaps still more important that a ruling by one Department will be accepted by the other, which ensures consistency and saves time. We are continuing to monitor the position to ensure that the measures alleviate the problem sufficiently.

I thank my hon. Friend the Member for Hertfordshire, West for the opportunity to discuss our policies and the measures for securing the continued growth of self-employment. I have noted the suggestions made by my hon. Friend and by others. No doubt other suggestions will be made, and I will consider them with care. I am sure that my right hon. and hon. Friends in the Treasury will take pleasure in examining the suggestions that concern them, and no doubt there will be many in that category.

My hon. Friend the Member for Hertfordshire, West is aware that the Government fully share his concern to encourage more growth in the number of self-employed people and in the number of small businesses generally. More people recognise the opportunities that exist in the United Kingdom today. People have the confidence to set up their own businesses in the knowledge that if they are successful they will be rewarded for their enterprise. Indeed, the country as a whole will be rewarded by their enterprise. I am glad to commend the motion to the House.

6 pm

Photo of Barry Sheerman Barry Sheerman Shadow Spokesperson (Education and Employment)

I also congratulate the hon. Member for Hertfordshire, West (Mr. Jones) on choosing self-employment as the subject for this afternoon's debate. It would be wrong of me to cast doubt on some aspects of the hon. Gentleman's motion. However, the Opposition consider the specific terms of the motion to be far too congratulatory of the Government. Part of my duty will be to expose the differences between the Opposition and the Government on this subject.

The Government are extremely good at presentation. Indeed, if they get top marks for anything, they get them for presentation. However, the presentation and the hype do not always lead to a true presentation of the facts as most objective observers would see them. This is certainly the case with self-employment and small enterprises. The present official Opposition, like previous Labour Governments, are tremendously in favour of small businesses and self-employment, as long as that self-employment is carried out for the right reasons, that what people choose to enter freely is rewarding, and that it leads to a reasonably good life for those involved in it.

One of the problems that we face in the debate is that the Government repeatedly present the facts in a distorted way. Very often self-employment can be a brutal and unhappy experience. It can often lead to an unhappy home life, insecurity, low pay and other uncertainties. The cost in human terms might be great. Someone may lose a job and then invest savings and lose them as well, in a vain and ill-advised attempt to embark on self-employment. Self-employment is excellent where it is right for an individual. However, it is not the be all and end all, at all times, for all people.

I corrected the hon. Member for Hertfordshire, West earlier when he did rough justice to the historical record. The fact is that in 1969 a Labour Government initiated the small business enterprise bandwagon. Tony Crosland, that much respected figure on the Labour party Benches, as the then President of the Board of Trade, set up the Bolton committee to consider ways to help develop small enterprise and small businesses, and to develop the environment in which those businesses could grow. Certainly the efforts of Harold Lever—now Lord Lever—in that direction are well known. The Bolton committee recommendations — many of which were accepted by the then Labour Government —led to the creation of the post now held by the Minister of State, Department of Employment, with its responsibility for small businesses.

I listened to the speeches made by Conservative Members and by the Minister with some surprise. The Minister did not refer to the role of local government in this very important area. I have visited many new enterprise initiatives around the country. The Minister has also visited initiatives, and he cannot be unaware of the fact that local government — consisting mostly of Labour-controlled local authorities — has made an outstanding contribution in terms of a partnership between the private and public sectors. Where that relationship is at its best it provides the environment for small businesses and self-employment to develop much more rapidly than they would normally do so. I have seen local economic development units in local authorities working closely and happily with local businesses to achieve common objectives.

The Labour party should receive credit for the wide range of initiatives that it has promoted for small businesses and self-employment. I want to refer to an example that the Minister has glossed over. ILEA has developed a scheme in association with the London enterprise agency, which is considered to be one of the premier agencies in the country. They have constructed the London education business partnership. The aim of the partnership is to bridge the gap between school and industry. The partnership between ILEA and local business is regarded as one of the most interesting and innovative in the country, but we have not heard a word about it because of the Government's prejudices against local government.

We cannot take all the credit for helping and encouraging people into self-employment. Sadly, the Government have done their best to force people into self-employment in the most savage way possible. We can draw a parallel between what is happening now and what happened in the 1930s. As unemployment went through the roof in the 1930s, self-employment was the only bitter alternative for many of our citizens. The Government have glossed over the fact that for many people self-employment is not something that they rush to, welcome or embrace because it is a wonderful life. For some people it is the only alternative at a time when unemployment has risen by between 300 and 400 per cent. It is no wonder that self-employment has risen by 40 per cent., when unemployment has risen by 400 per cent. under this Government.

We must get the perspective and the balance right. We should not claim that for some people self-employment is not rewarding, good or a better way of life, but we must recognise that many people are forced into self-employment. Some people invest their life savings or redundancy payments and then lose that money. The Minister referred to two glowing examples of people on the enterprise allowance scheme who had done very well. I could recite a catalogue of people who, perhaps inadvisedly, were forced to make some provision for their families and their future, who did not end up employing 50 people or making a £500,000 turnover. I could refer to people whose experiences were worse than that.

I do not want to dwell simply on that side of the coin, but we must recognise the reality. I believe that in the 1980s we have replicated the experience of the 1930s. Perhaps the Minister would like to challenge me on the statistics. I recently read a research paper by Dr. Martin Binks and Dr. David Storey. According to their research, 50 per cent. of self-employment start-ups are what they term "desperation led".

People did not embark on self-employment because they saw a hole in the market or because they had a wonderful innovatory idea. They did so because there was no alternative for them. Perhaps that introduces a note of reality into the wonderful hype that the Minister has given to self-employment. Given that, under the Government, unemployment has increased by 2 or 3 million, none of this is surprising.

Set-up rates may have been high since 1979, but, on the dark side, so have failure rates. Two thirds of small firms still operate on such a shoestring that they cannot offer good wages and conditions to staff. Surely the Government must recognise that. The general household survey and the labour force survey show that low wages and uncertainty are features associated with many self-employed people. Sixty five per cent. of start-up schemes never create any jobs at all, except for the people who found the schemes. That is another part of the story that we did not hear from the Minister.

The Labour party recognises the need for enterprise. For example, it had a policy of extending the enterprise allowance scheme to firms successful in creating jobs during their first year. I should have thought that the Government would have taken that on board by now. We do not begrudge the fact that the enterprise allowance has given many people the opportunity to have a go in small businesses. As a nation we should be tackling new markets and technology and trying to create wealth, so small businesses with potential for growth must be identified and winners picked.

The enterprise allowance scheme has been in place long enough to have been modified and developed to help those businesses with an opportunity to move forward to grow. The hon. Member for Hertfordshire, West, who is not in the Chamber at present, believes that there is no Labour party policy for small enterprises. We always have a manifesto for small businesses. The manifesto that I helped to launch just before the last general election included many changes and modifications to the law that would have made small businesses grow more rapidly.

Photo of Mr Andrew Rowe Mr Andrew Rowe , Kent Mid

May we take it that the policy of municipalisation, which was rampant in the Labour party in the late 1970s, is now a dead duck and that legislation such as the West Midlands County Council Bill, which would have municipalised half the small businesses in the west midlands, will never appear again?

Photo of Barry Sheerman Barry Sheerman Shadow Spokesperson (Education and Employment)

The hon. Gentleman knows very well that what he calls municipalisation was part of a policy of partnership between democratically elected local authorities, local businesses and local trade unionists. We try to foster such creative partnerships, and that is what we were trying to foster when we launched our 12-point plan just before the election last year. Part of our emphasis was on a shift away from Whitehall to the communities in which jobs and wealth creation are needed.

If the Minister considers the history of the past nine years, he will see that hon. Members have shown repeatedly that the real gap in financial provision is in the £100,000 and less category of finance. If one wants £1 million or £2 million, one can get it from the City. One can obtain finance in the £100,000 to £1 million league, but sensitivity to local needs, personalities and markets must come from the local area. That is why local government were so successful with local business and why the small business lobby wants to return to such a partnership. Creating such a local enterprise partnership to encourage small business growth is what the Labour party is all about.

The Minister spent some time talking about local enterprise development. When local enterprise development is good it is very good, but when it is not so good it is pretty average. We need to generalise and spread quickly what is happening in the best areas of that partnership between the private and public sectors. The Minister did not suggest that the Government were planning to spread those best practices sufficiently rapidly to those areas that need help.

That part of our policy was very valuable, as was our emphasis on building in training. I was pleased to hear some of the Minister's remarks, but it was a case of too little, too late, when he referred to building enterprise training into the education system and youth training. Labour Members have been recommending, since the inception of the youth training scheme, that enterprise awareness should be taken seriously and not be seen merely as a couple of hours thrown in during the first week of youth training induction.

The Labour party has presented many policies to the electorate and the Government to improve the conditions in which small enterprises can flourish. The Labour party realises, much more than the present Administration do, that if this country is to be fit to move ahead and create wealth in the difficult conditions of competition over the next 10 or 20 years we must go in for high technology. Technology does not stand still. If we compare this country with West Germany, the United States and Japan, we see that small to medium companies in the hi-tech area are not developing as rapidly as are our international competitors. Some of the small start-up schemes never employ anyone, and we are lagging behind seriously in establishing the small to medium firms which will be the technology leaders over the next 10 to 20 years.

The gloss of public relations from the Department of Employment and the Department of Trade and Industry, or the Department for enterprise—I am not quite sure what it is called these days—does not fool people. I wish to refer to the remarks of my right hon. Friend the Member for Islwyn (Mr. Kinnock) when he recently addressed the British Institute of Management's annual dinner. He said that we need enterprise in Britain and an enterprise culture, but, unless it is linked to an investment culture, a research culture and an education and training culture, it will not mean very much at all. Without these other vital ingredients, the enterprise culture may be not so much a culture as an adventurous spasm, thrilling to some while it lasts, but transitory and ineffectual in its results.

Labour Members care very much about wealth creation. Self-employment and small businesses have an important part to play in that, but the Government are hoodwinking the nation if they believe that they are progressing as rapidly as they should in that vital area.

Photo of Mr Christopher Gill Mr Christopher Gill , Ludlow 6:19 pm, 15th February 1988

Thank you, Mr. Deputy Speaker, for calling me in this important debate. On only one previous occasion have I had the pleasure of addressing such a crowded House.

We are a nation with few natural resources. We have some coal, and some gas and oil. Therefore, as a nation we have little to sell other than our labour. As one of the world's most populated countries, we have a surfeit of labour. Fortunately, as a race, we have always demonstrated resourcefulness, inventiveness and independence which have, in large measure, compensated for our lack of natural resources. Our place in the history of the world is in no small measure due to these attributes, which today are so typical of the many people who have become self-employed.

Anyone who has chosen to become self-employed will testify to the fact that this is not a soft option—quite the contrary. Sadly, in this post-war period, there is too much evidence not of encouragement but of downright hostility towards the small businesses and the self-employed. Regrettably, this hostility has stemmed largely from Governments — not just central Government but local government. The self-employed have been on the receiving end of blatant political hostility and a torrent of legislation by which successive Governments have sought to regulate and control the wealth-creating sector of the economy. This includes consumer protection legislation, employee protection legislation and fiscal legislation, where the employer now stands firmly in the shoes of Government as the unpaid collector of taxes.

What of the employer? To my knowledge, there is no protective legislation for him. Nor until recent times has there been much by way of recognition or reward. The Government have changed much of that. Today there is more incentive, more reward and more encouragement for those who demonstrate enterprise. It is important to recognise that the average entrepreneur—because that is what everybody starting in business is—does not look for Government assistance. On the contrary, all he wants is for the Government to keep out of the way. He wants not handouts but an environment which is sympathetic to business and in which enterprise and initiative can flourish. That means not more but less legislation and not more but less Government involvement.

The small business man seeks an environment in which he can do what he is best at—running his own business, identifying markets, satisfying those markets, buying and selling at a profit and employing people. Businesses which are established on their own are likely to survive on their own. I welcome my hon. Friend the Minister's examples of the unemployed who have become self-employed, but we must appreciate that not all unemployed people are frustrated entrepreneurs who can do a crash course in business studies and become tomorrow's employers. In the main, entrepreneurs are born, not made. In the main, they neither want nor expect the state to prop them up. Sadly, in this as in all other nations, they represent only a tiny fraction of the population.

For this reason, we must nurture and encourage these people. The future health and prosperity of the nation depend on them. We must do what we can to facilitate their progress. Here I pay tribute to my hon. Friend the Member for Hertfordshire, West (Mr. Jones), who has proposed constructive improvements in this important sector. I also congratulate the Government, who have done more than any other Government since the war to nurture the small business sector, on their progress to date. I wholeheartedly support my hon. Friend the Minister's initiatives to reduce the burden of bureaucracy on small businesses and to create a climate in which they can prosper and grow.

Photo of Andrew Welsh Andrew Welsh , Angus East 6:24 pm, 15th February 1988

I congratulate the hon. Member for Hertfordshire, West (Mr. Jones) on initiating this debate, because he has done a great service to the self-employed and small businesses, and to the House, in attracting attention to this important sector. However, I take issue with him over his remarks about the Scottish National party. The SNP was the first party to appoint a parliamentary spokesman on this subject. It then became trendy, and the other parties did so. The SNP also controls the Angus district council, of which I was provost, which was drawn out for particular attention by the National Federation of Self Employed and Small Businesses and congratulated on its attitude and cooperation with non-domestic ratepayers, in consultation on rates. The SNP is proud of its record in assisting what we believe is a vital sector of the Scottish economy.

The Government are proud of their record, but for Scotland a caveat must be made, because figures given by the Minister to show increases in the number of self-employed do not apply in Scotland. Between 1979 and 1986, the number of self-employed rose by 40 per cent. throughout the United Kingdom but by only 19 per cent. in Scotland. Between 1983 and 1986, while it rose by 28 per cent. in the United Kingdom, it rose by only 14·5 per cent. in Scotland. I should like those figures to be vastly improved, because there is great scope for increasing the amount of self-employment and the number of small businesses in Scotland.

One of the problems is that Parliament is not built to discuss the problems of the small businesses and the self-employed. It is designed for the two-party system. It is entrenched in vested interests—the management on the one side and the trade unions on the other. Last week's debate on employment showed this vested interest gulf only too clearly. This is all happening at the centre of British political power. The system is designed to suit the unions or the management, and no one seems to speak exclusively for the self-employed or the small businesses. Perhaps that is not a complaint but a hope, because if their cause were taken up across the parties it would be of benefit to the economy.

The Bolton report, which was itself a breakthrough, is now more a historical document, and it must be updated to meet present-day needs. The period of discussion to which the hon. Member for Huddersfield (Mr. Sheerman) alluded has produced a recognition of the role of small businesses. There has been some advantage in the form of special small business governmental organisations — I acknowledge the Government's move on this — and a Minister for small businesses. In spite of all that, as yet there is no integrated small business or self-employed policy in the United Kingdom.

If the self-employed and small businesses are to play a more important role in the economy, there must be a more serious attempt to meet their specific and specialised needs. There should be a package for them which would shore up their weaknesses, caused by their size and their starting difficulties, and which would also play on their strengths. In particular, I point to the problems over the status of the self-employed and their classification. An act catering for the self-employed would clearly define who the self-employed are and would greatly assist them in carrying out their tasks. Special attention must be paid to the early days of such small businesses in terms of advice, back-up services and finance. There is always the irony that once they are established everyone wants to give them funds, but when they need the cash and are being established people do not want to know them.

The self-employed require a taxation package to allow them freedom of decision making and maximum help, especially in the first years of any new business. The self-employed must be given a better deal on the welfare state and various benefits. Benefits should be available, if they are available at all, to all citizens. The self-employed get a poor deal in terms of the benefits from which they are excluded. That acts against the self-employed and must be considered.

I should like to see the role of the Scottish Development Agency extended to allow assistance in the retail and service industries, as happens with the Highlands and Islands Development Board. Current regulations favour industrial or manufacturing processes at the expense of valuable opportunities in the retail and service industries. There is room for great expansion there.

I should like to ask the Minister questions relating to the unified business rate and the 1990 revaluation. When will small businesses be told the exact level of the unified business rate? When will that become "uniform" throughout the United Kingdom? I hope that I have intrigued the Minister enough for him to rush out and buy the Glasgow Herald, because the article in that paper points to some real fears and difficulties for businesses in Scotland. The Government must act to clear up the fears and worries facing small businesses and the self-employed over the present rating system and the proposed unified business rate.

Currently Scottish businesses are being massively disadvantaged when compared to their Welsh and English counterparts because of our increased rates burden. That burden has less to do with any local government spending than with the Government policy of withdrawing rate support grant. It is a worry because Scottish businesses will face yet another revaluation in 1990 and everybody knows the problems that hit them during the previous revaluation.

People want to know the details about how the unified business rate will work. Will it appear in 1992 throughout the United Kingdom as was scheduled or, as is becoming increasingly more obvious, has that timetable now gone? Will Scottish businesses again be the losers because we have a tax burden shared nowhere else in the United Kingdom? I should like to hear an answer to that question, whether now or at an early opportunity. I noted that the Minister, perhaps wisely, skated over such questions.

That tax is a potential death trap for Scottish jobs and businesses and is causing great concern. I remind the Minister of what was said by Bill Anderson, the Scottish secretary of the National Federation of Selfemployed and Small Businesses. He said: A uniform business rate is likely to hit industry and commerce in lower rated areas and could clear businesses out of rural Scotland like the highland clearances. How will any of that "encourage" the self-employed and small businesses as this motion urges us to do? It will do the very opposite.

The Government must carry through their promise to recognise the role of the self-employed and small businesses in germinating new ideas and new services and providing the yeast for the industrial system. Although a start has been made, I believe that co-ordination in the form of a package for the self-employed and small businesses must be created. That package should include finance, welfare, back-up and resources. Do that and Parliament will at last be recognising the true importance of small businesses and the self-employed to our economy, and that is a day I shall certainly welcome.

Photo of Mr Roger Knapman Mr Roger Knapman , Stroud 6:33 pm, 15th February 1988

As the richness of an area lies in the energy of its people, I am truly a lucky man to represent Stroud. Within the towns and valleys of that part of Gloucestershire there is a great diversity of interests and enterprises that readily adapt to ever-changing markets. When my hon. Friend the Minister has finished reading the Glasgow Herald, he may care to look at the business section of The Times today. There is a headline which states: Pagoda winner for tents that are too hot to handle. The article goes on to say: Traditional bedouin tents are facing a new and startling rival in the desert—a high-tech 'space cover' produced by a fledgling company in the chillier climes of Stroud in Gloucestershire. That company has received £2·7 million worth of orders in the first year. The article goes on: Several Arab states, including Saudi Arabia, the United Arab Emirates and Oman, have been among a score of countries queuing to buy the Pagoda tents". It may interest hon. Members to know that one of those pagodas will be displayed in the exhibition hall in about a month. As they give protection from hot air, I can recommend close inspection.

In addition, and only last week, I received a letter about another company which said: We are a relatively young company, incorporated in 1984 for the purposes of supplying solutions to Engineers, based on personal computers. As a husband and wife team, we set out with minimal capital and have now grown to provide employment in this area for a staff of 10 … The climate for young companies, like ourselves has never been better, owing to the management of our excellent Government who have set the long-term future of our country on course. Our products and services are aimed at the small to medium sized companies who have the foresight to invest in new technology for designing and manufacturing their products. As with most young companies, we are reasonably proud of our enterprise and long term success and would like to share our news. We anticipate having an official opening". In the last month I have met two high-tech firms which together employ more than 250 people in my constituency. They were both founded in the past 10 years. In fact, they were both founded and funded by people still in their thirties who have good ideas and, just as important, the energy to implement them.

There are many other companies like that and their contribution is vital. The traditional large employers in my constituency, and I suppose in many others, have declining labour forces. The traditional employers in my constituency are largely engaged in engineering, textiles and the manufacture of diesel engines. They have one thing in common — they employ less labour than they did 20 years ago. For instance, the manufacture of diesel engines employed 4,000 people at its peak, but it now employs 1,300. It is equally certain that in future they will become more capital-intensive and even less labour-intensive; that is if they are to be able to compete in the future.

It is a great privilege to be self-employed and we must do all we can to encourage such people and help them to achieve success. Initially, the self-employed are likely to be not just managing director but designer, shop floor worker, financial controller, teamaker and bookkeeper. Any new business is more likely to survive those first few crucial months if the founder's mind can focus on the business rather than on peripheral activities such as puzzling over national insurance contributions.

How can we help the growing ranks of the self-employed, which are increasing at the net rate of some 500 every week? Increasing the threshold for VAT purposes would certainly help in the near future. Increasing the threshold at which a full audit becomes compulsory would be useful. In this country we have more auditors as a proportion of the total population than any other major country. Let us look again at employer-employee relationships in small firms. Surely it is essentially an agreement. At its most basic it is the payment of money in exchange for the provision of a service, either full or part time.

What is the difference between an employee and a sub-contractor? Why should they be taxed on different bases? The Inland Revenue should not be obliged to differentiate between an employee who works for one person and is provided with a hammer and a sub-contractor who works for perhaps two people and, more importantly, supplies his own hammer. By all means let us ensure that employers subtract the standard rate of tax from payments to all those supplying a service in the form of labour, but let us simplify taxation and the deductions from wages and salaries so that each looks after his own. Perhaps it is too much to hope that every employee with a small firm could be a sub-contractor.

The pattern of employment is changing fast. The taxation of employed people has changed little, but I suggest that it should change more.

Photo of Mr Frank Haynes Mr Frank Haynes , Ashfield 6:39 pm, 15th February 1988

I shall be brief in the interests of other hon. Members who want to speak. I have an association with the National Federation of Self Employed and Small Businesses in Nottingham. We meet regularly to discuss various problems.

I should like to refer to what the Government said in 1979, pre-election and after the election, and since about self-employment and small businesses being the areas in which jobs will be made. I take note especially of the end of the motion, stating that the House calls on Her Majesty's Government to reduce obstacles to the spread of self-employment. I congratulate the hon. Member for Hertfordshire, West (Mr. Jones) on his motion and accept that part of it to which I have just referred. Indeed, it is those obstacles about which I should like to speak.

I am bothered by big businesses steamrollering little businesses. Not long ago I experienced that in a public inquiry concerning a massive retail firm that wanted to set up a store just outside my constituency. The end result would have seriously affected many small businesses, employing a fair-sized number of people in my constituency, which would have closed.

I want to make a political point. Indeed, I feel that I must do so because the big steamrollering firm that I am talking about contributes to Conservative party funds. That is not helping but hurting. The Minister is ducking out because the issue of East Midlands airport concerns other Departments, such as the Department of Transport and the Home Office. Several small businesses in my constituency do a fair amount of exporting. However, they find difficulty at the airport because not enough customs officers are on duty to clear the warehouses so that those exporters can bring in their products, put them on the aircraft, and fly them out. If the warehouse is chock bang full because there are insufficient customs officers to do the necessary inspections, those small firms that are making a massive contribution, not just in my constituency, but right across the country, have to lay off people.

I praise some of the things that the Government have done concerning the self-employed and small businesses. I praise also Nottinghamshire county council, which has done a marvellous job. I served on that council for 15 or 16 years before I came to this place and realise exactly what it is doing. Its industrial development committee is doing a marvellous job. I praise councillor Paddy Tipping, who is leading the committee in the direction that it should be going, by providing land on which entrepreneurs can set up small businesses and create employment, because there is a fair amount of unemployment in my constituency. Therefore, I have nothing but praise for what Nottinghamshire county council is doing. That relates also to Ashfield district council and to the cooperation between the county and the district in what they are doing to encourage small businesses to create jobs and to help the economy.

Small businesses are upset about the incoming poll tax. It is no good the Minister saying, "It is not the responsibility of the Department of Employment", because there is a connection. The Minister must consider this and use his influence and that of his Department on the Department of the Environment. The self-employed people I have met are frightened to death that they will go out of business because of the pressure that the poll tax will put on them. They do not know what is going on or what will happen if the community charge goes on the statute book. Therefore, I ask the Minister to talk to the Department of the Environment and to cool it off because the direction in which it is going will not help small businesses or the self-employed.

I have made my point and hope that it will be considered in the interests of those people who are trying to set up firms in my constituency and, at the same time, give employment to those who do not have it.

Photo of Mr David Atkinson Mr David Atkinson , Bournemouth East 6:44 pm, 15th February 1988

If there is one measure which will be of immense help to small businesses and the self-employed, and which will help to reduce the black economy, it must be to raise the VAT threshold to a much more realistic figure. I have called for that consistently, as have many of my hon. Friends over the years.

If the turnover for VAT registration were £100,000 today, it would effectively release hundreds of thousands of small businesses and entrepreneurs from the time-consuming burden of VAT registration and administration. It would cost the Treasury nothing because the cost of administration is about as much as the revenue obtain from that source. Indeed, it serves only to keep civil servants in jobs unnecessarily.

I shall, of course, be referred to the European Community's sixth directive which prevents such an initiative on our part unilaterally. However, the Minister will be aware that such a move is recommended in the White Paper "Lifting the Burden". I hope that the Government will not allow themselves to be beaten on such an initiative which must surely benefit all small businesses throughout the community.

I want to use the opportunity of this debate to refer to a situation allowed under current law which detrimentally affects self-employed traders and those operating small businesses in areas subject to a local redevelopment plan. It arises from the experiences of several of my constituents, which have since been confirmed by a report last month from the local ombudsman.

Briefly the facts are as follows. In 1980, my local borough council began to prepare a plan designed to revitalise a local shopping centre. The draft plan, published in 1982, contained proposals for the pedestrianisation of a busy local high street, the construction of a new link road to take the diverted traffic, and the redevelopment of the area including a new bus station and multistorey car park. Thus, it involved two local authorities; the borough council as the developing authority, and the county council as the highways authority.

Today, nearly eight years later, while most of the properties concerned have been purchased by the developer, no start has been made on the development. As the House will appreciate, the effect of the uncertainty and of the inevitable blight on business has been devastating on some of those who live and work in the area. Three such people complained to the local ombudsman that, in their view, there had been an inordinate delay on the part of the local council in implementing the development.

In his report, which was published last month, the ombudsman accepted that there had been certain delays but stated he did not see them as being of the council's making or that they could realistically have been foreseen. He did not, therefore, uphold the complaint. He did, however, accept that there had been maladministration in the way in which the council had responded to the blight notices that had been served — in seeming not to be concerned at the hardships caused by the time taken to determine which of the two authorities was the appropriate one upon which to serve blight notices under the Town and Country Planning Act 1971. He recorded the sad case of one of my constituents whose blight notice on the borough council resulted in a counter notice, reference to the Lands Tribunal, ultimate reference to the Secretary of State whose decision was then the subject of a judicial review, and a fresh counter notice.

As the House knows, the findings of the local ombudsman are not for us here but are for local councillors to determine in the light of the remedies that the ombudsman has proposed to compensate for the injustices caused to the complainants.

However, in the light of that experience and, I am sure, many hundreds of others throughout the country, it must be right to ensure that when a council decides to prepare a local development plan it should be absolutely clear which is the "appropriate" authority before it publishes that plan so that blight notices can be served and accepted without delay as soon as it appears that hardship is threatened.

Furthermore, the statutory compensation code as it stands today does not allow businesses the same loss payments as are allowed, as a moral gesture, to those residents who will be displaced from their homes. Few councils will exercise any discretion to compensate for the anxiety and hardship which blight imposes on businesses affected by such plans. The lives and livelihoods of self-employed people are at stake. I believe that the House should no longer tolerate such a situation and I hope that the Minister will take note in advance of the further representations that I propose to make.

Photo of Mr Andrew Rowe Mr Andrew Rowe , Kent Mid 6:49 pm, 15th February 1988

I shall be brief because time is very short. I wish to make three points. First, it is encouraging to find that, at least at rhetoric level, there is considerable agreement in the House about the important part to be played by self-employed people.

It is not unreasonable to make a distinction between those who are self-employed by choice and those who are self-employed by necessity. I accept the Opposition argument that we need to do more to make sure that those who are self-employed by necessity get the support that the Minister is busily engaged in extending to them in a variety of ways. I hope that they will be able easily to obtain information about where to go for help, and that they will go for help early enough to be able to benefit from it. Too many people seek help too late.

Secondly, although it will not happen this year or next year, we need to change the benefit rules so that people can ease themselves into self-employment by working part time in a way which does not deprive them of the benefits to which they are entitled. The enterprise allowance is one method of doing that. I had hoped that it would be part of the introduction of a whole range of attacks on the tremendous barriers against self-employment. I believe that the black economy would shrink dramatically if people were allowed to top up their benefit to the taxable level openly by working as self-employed people while they tested the market to see whether they could grow a business.

Thirdly, I should like to re-emphasise the point made by my hon. Friend the Member for Hertfordshire, West (Mr. Jones) about the bumph that falls on the desk of anyone rash enough to imagine that he would like to take on an employee. That is probably the largest single reason why so many self-employed people remain at the level of employing themselves alone and do not take on anyone else. We have to make a distinction between those who have one or two employees and those who go the whole way. At the moment that would be quite impossible.

Some big companies come in for a lot of stick in the debate, and some behave extremely badly, but there are some remarkable examples of companies that have taken imaginative steps. I found on my desk the Shell guide to would-be suppliers, a remarkably clear and admirable publication for small firms to study. I very much hope that many other companies will follow suit.

There is the great experiment of what is called the Xanadu option whereby Rank Xerox could provide full-time employees who wanted to become self-employed with a network build-up for their small businesses. It has been an enormous success and was very well worth doing.

As the secretary for the all-party group on franchising, I must say that, for those who find that being self-employed without any back-up is too frightening, franchising is filling a remarkable gap in the market, is growing extremely fast and is encouraging a large number of people to go into business.

Photo of Mr Jacques Arnold Mr Jacques Arnold , Gravesham 6:54 pm, 15th February 1988

I have a considerable vested interest in the subject as I represent the borough of Gravesham. Only eight years ago, the economy in my borough was based on heavy industry, and during the recession there was a decimation of employment within those industries, yet the borough recovered, largely due to the success of a considerable number of brand new businesses and self-employed people. In the census of 1981, the borough of Gravesham had 3,657 self-employed people. Today there are well over 5,000. That is due not least to considerable practical initiatives by central and local government.

This afternoon my hon. Friend the Minister for Employment spoke about the work of the enterprise agencies. I should particularly like to commend the Gravesham enterprise agency which is financed mainly by local industry, commerce and banks. It works through taking in people with ideas for small businesses and presenting to them the facts and the problems of going into business, particularly the problems of marketing. The most valid question that it asks such people is, "Why should anyone buy products from you? Why should anyone use your services?" A significant number of people have good ideas but have not thought about marketing.

The results of the Gravesham enterprise agency are quite significant. Of those who have consulted the agency, 29 per cent. have gone on to self-employment and have set up small businesses. By asking the enterprise agency to sort out their ideas, they have achieved a failure rate of only 10 per cent. compared with a normal rate of some 30 per cent., which shows the quality of such an agency. I should like to get across to my hon. Friends on the Front Bench that those enterprise agencies are based on the community and on the voluntary participation of industry and commerce and they have great value.

Although I have great enthusiasm for the Government's small firms service, I believe that we should take care not to extend it at the expense of support and encouragement to the enterprise agencies. I have seen such enterprises springing up in my borough because of the provision of starter units which have been a great success and are a basis for future growth. I commend such activities to the House.

Photo of Mr Robert Jones Mr Robert Jones , Hertfordshire West 6:56 pm, 15th February 1988

We have had an excellent debate, and I should like to thank all hon. Members who have put their points of view on this important issue. No doubt the Minister will carry away a great bag of suggestions to pass on to other Departments and to consider in his own Department. That was one of the purposes of the debate.

Hon. Members have spoken from personal experience and from experience in their constituencies with advisory groups that help small companies and the self-employed and from their contacts with such pressure groups as the National Federation of Self Employed and Small Businesses. I am sure that that has led to a better-informed debate.

The message of the debate is clear. I draw the attention of the House to the comments of Graham Mather of the Institute of Economic Affairs in an article in the Journal of Economic Studies: Self-employment is the employment success story of the year since 1979. It is growing. It could grow faster if the remaining legal obstacles were removed. The result would not only be more jobs, but more independence and personal provision, not only more flexibility in the labour market but more choice and freedom to choose a congenial pattern of work. To the economic benefits would be added the social benefits of fostering a work force confident in its own capacity to make an independent contribution to economic growth. Those are laudable aims. They are the aims of laudable people who often sacrifice the benefits that others receive through the welfare state to pursue their own ideas and careers and the development of the products and services that they can offer to the community. They are estimable people, and it is appropriate that the House should spend some time in addressing them.

After such a good debate, it is only right for me to say that the matter has been common to all political parties, whatever their ideological stance on the question of self-employment. The aim of encouraging small businesses is surely common to us all, and I hope that that will result in yet more policies that will lead to further regeneration and growth in this important sector.

It being Seven o'clock, the proceedings lapsed, pursuant to Standing Order No. 13(8) (Arrangement of public business).