Innovation (Small Firms)

– in the House of Commons at 12:00 am on 7th November 1997.

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Motion made, and Question proposed, That this House do now adjourn.—[Janet Anderson.]

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry 9:34 am, 7th November 1997

The theme of today's debate is doubly important, as innovation—the successful exploitation of new ideas—is a key factor in the competitiveness of this country, and small firms provide the motor which will push forward wealth creation, employment and quality of life for the benefit of us all.

Innovation is now everybody's business—large and small companies, Government, and the providers of new ideas and techniques in the knowledge base. It is true to say that, the more it is seen as key to competitiveness, the more likely we are to see our companies succeed, grow and prosper.

The United Kingdom has a number of thriving small firms which have based their businesses on the leading edge of technology. They are living proof that it is not necessary to be a big, world-class company such as Glaxo-Wellcome or British Aerospace in order to break new technological ground.

For example, Surrey Satellite Technology operates in a sector traditionally associated with large companies and high price tags. Yet it has built up a valuable and profitable business producing small satellites which perfectly meet the needs of developing countries looking for the benefits which space systems can bring them in such industries as telecommunications. These satellites are both affordable and small enough to piggy-back on the launches of larger satellites.

There are many other examples in the biotechnology and information technology sectors that I hope hon. Members will draw to the House's attention during today's debate.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

I thank the Minister for giving way so early in her speech, and congratulate her on securing today's debate. Surrey Satellite Technology is indeed a tremendous company that is to be congratulated on the great strides that it has made in the space industry in Britain. Will the Minister confirm that that company is part of the university, and that its profits help the university's costs, particularly as students will now be facing charges for higher education?

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

I whole-heartedly concur with the hon. Lady's comments about the importance of a debate, and join her in congratulating the company concerned. She will not be surprised that I do not agree with her concluding remarks, which, if she will forgive me, I found a little muddled.

I am proud to say that the Government have secured the future of higher education by following the proposals so ably made by Sir Ron Dearing. We have a great deal to do to make up for the disastrous state in which the previous Government, of which the hon. Lady was a member, left our education system, but I am so pleased that my right hon. Friend the Secretary of State for Education and Employment has made such a truly remarkable start.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

Will the Minister confirm that the Government have betrayed all students throughout the country by imposing charges for higher education?

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

Of course not. Again, the hon. Lady seems to be muddled. As it is rather early in the morning, I shall refrain from saying anything more cutting.

The Government are reviewing our education base. We have been elected in circumstances in which 50 per cent. of 11-year-olds entering secondary school are failing the basic average standard in the three Rs. As the hon. Lady was an Education Minister in the previous Government, it is amazing cheek that she has the gall to criticise the present Government's excellent record.

Most hon. Members will be familiar with the buzz-words "benchmarking", "spreading best practice" and "mentoring". They all boil down to one simple message: every company, every public sector body, every educational institution needs to be open and receptive and to take a close look at what is happening not only in its own sector but throughout the country and the world. We all need to learn from each other and from our customers how to be the best. The Government are ambitious for our companies; we want them to compete. That applies to the largest company and to the smallest, to the biotechnology company, newly spun out from a university, and to the small retail business next door to it.

Although most of what needs to be done can be achieved only by business itself and by monitoring best practice and putting it into practical use, the Government have a role in helping to set the right framework and spread the message. The Government are trying to do something that most companies find hard and many commentators regard as an impossibility for politicians: long-term thinking. We are not simply planning for this parliamentary Session, this year or this term. We want real stability in our economic, industrial and regulatory policy. Only when we have achieved that will companies feel able to plan ahead with confidence.

As my right hon. Friend the President of the Board of Trade made clear last month in a speech to a 3M/Confederation of British Industry conference, the message of stability—setting clear goals, making them public and sticking to them—will underlie our approach to the work of the Department of Trade and Industry.

An example of such long-term thinking is the foresight programme led by the Office of Science and Technology. Foresight brings together business, the science base and Government to look at future trends in technologies and markets, their interaction and the challenges they pose for developing new skills, managing change and making future investments. I am sure that the House will agree that, with the coming together of our academic base, industry and Government, we can really provide the climate in which our firms can succeed.

For the next phase of the foresight programme, leading up to 1999, we have set ourselves the challenge of involving companies which have not been touched by the programme so far, and of going deeper into those we have touched. Our ultimate goal is for finance directors to take as much of an interest in the foresight programme as research directors. I understand that there is now some evidence of that taking place.

We need to explore the potential of the supply chain in engaging smaller companies in the foresight programme. Foresight offers the smaller company a unique insight into what their main customers are likely to be demanding from it in five years' time. That is a good example of forward thinking and planning. That trend can strengthen only as large companies out-source more and more of their research and development, as well as their production work, to their suppliers.

If the foresight programme is to have its full effect, it must also play its full role at the heart of Government policy on business competitiveness. That need was recognised in the recent report "The Innovation-Exploitation Barrier", issued by the Select Committee on Science and Technology in another place. In our response to that excellent report, we picked up the need to involve small and medium-sized enterprises in the foresight programme, and the need for more co-ordination in government.

When she took up her post, my right hon. Friend the President of the Board of Trade commissioned an audit of the foresight programme across Whitehall. Its aim was to assess the level of departmental activity and identify areas where more emphasis is required. The audit is one of the benchmarks against which future progress and proposals can be measured. The results of the audit were announced last month, and show that there is still work to be done.

Many Departments believe that a lot more can be done through the foresight programme in setting their priorities and formulating their R and D programmes. A ministerial foresight group has been established to provide top-level co-ordination of the programme across Whitehall. I am sure that that will be warmly welcomed by all hon. Members.

Of course, it would be a mistake to see the foresight programme as our only—or even our main—activity in this area. All aspects of our policy have been developed for the long term, in close consultation with business at every step of the way. We are moving purposefully and very speedily to bring about simpler government and cut red tape, which is a real barrier to growth for small businesses. We need constantly to re-examine our practices and procedures to ensure that we are achieving the right balance between the Government's legitimate role in our society, and heavy-handed bureaucracy.

Let us imagine the benefits which could flow, for example, from the introduction of a single form for collecting information for a range of Departments. At a stroke, we could reduce the paperwork that slows down companies, especially small and medium-sized enterprises, while cutting out needless duplication of effort in government.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman Conservative, Billericay

I speak, as I have for many years, as an employer. Is the hon. Lady aware that one of the most obstructive things to small firms' daily life is the business of Government interference in the way in which firms employ people? Does she agree that the Government's decision to sign up to the social chapter, which will inevitably impose more regulations on the way in which small firms take on people, will have a detrimental effect on the growth of small businesses?

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

No, I do not agree with the hon. Lady. She was part of the governing party in the previous Parliament, so I am sure she was aware—indeed, perhaps she even made representations to the effect—that, at the end of that Government's deregulation initiative, they had created more regulations than they had abolished. So we will take no lectures from the Conservative party about deregulation.

Photo of Nick Palmer Nick Palmer Labour, Broxtowe

Those of us who have staggered out at this unearthly hour on a Friday morning are a little disturbed to find Opposition Members using a debate on innovation to trot out their well-rehearsed, discredited campaign themes. I hope that the rest of the debate will focus on the subject that we are here to discuss.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

I am grateful to my hon. Friend. I had hoped that the debate would be constructive and civilised. Even though I am in politics, I remain optimistic, and I am looking forward to the rest of this morning's proceedings.

As I was saying, at a stroke, we could reduce the paperwork that slows down companies, especially small and medium-sized enterprises. Although obvious, such things are not necessarily easy—otherwise, of course, they would have been done long ago. Nevertheless, we shall continue to pursue them; that is certainly one of our goals.

Another task that falls to the Government is the creation of a climate that encourages innovation. In the Department of Trade and Industry, that is spearheaded by the innovation unit. The unit is a mixed team of senior secondees from business and the academic world and officials. They work throughout the length and breadth of Britain. Their role is to challenge the status quo, encourage radical thinking and promote changes in culture and behaviour so that innovation becomes the norm in companies and organisations throughout the economy.

Such an approach has paid off. Examples of the unit's achievements include an improved understanding of the process of innovation, which has been widely acclaimed and adopted by both large and small companies; best practice guidelines on longer-term investment and development for use by company management and investors; and the R and D scoreboard, which is a key annual international benchmark for use by companies and investors. The unit is therefore concerned with creating the climate within which innovation can truly flourish.

Another important ingredient of innovation is looking at options for the future. We need strategic thinking—looking to the interests of industries and firms that have not yet been invented. That is why my right hon. Friend the President of the Board of Trade announced on 23 July that she was considering the establishment of a specialist unit in the DTI. Indeed, I was very struck while listening to her recently speak about future industries. She said that our children and grandchildren would, in the next century, be working in industries of which we had not yet dreamed. I thought that that was a very graphic way of illustrating the tremendous possibilities that investment in innovation can bring.

My right hon. Friend said that she wanted us to develop a much clearer understanding of what the industries and markets of the future, and their particular needs, are likely to be. We need to avoid, as far as possible, taking regulatory decisions now which could limit or kill opportunities for the development of new ideas in the future.

Photo of Ian Gibson Ian Gibson Labour, Norwich North

Does my hon. Friend agree that another exciting initiative is the millennium products venture, in which the creativity of scientists and, especially, young people will be encouraged and rewarded in 2000? No doubt Britain will be at the forefront of some development comparable with penicillin.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

I am grateful to my hon. Friend for bringing that exciting challenge to the House's attention. I had the great privilege of being with the Prime Minister when he launched the challenge on behalf of the Design Council. What was so exciting about that event was the range of innovation and ideas, both from some of our prestigious large companies and from some small companies. For anybody excited by Britain's future, it was a momentous event. I wish to pay tribute to the Design Council for organising the challenge, and I wish it well.

The innovation unit's role will be to build up an understanding, and to ensure that tomorrow's needs inform the thinking of today's decision makers. A steering group is also being established that will look at the barriers to growth faced by small, technology-based businesses and will co-ordinate action to remove those barriers. It will be supported by the Department of Trade and Industry, the Confederation of British Industry, the Bank of England and the Treasury, and will build on the CBI's excellent "Tech-Stars" report and the Bank of England's "Financing of Technology-Based Small Firms" report.

We hope that the steering group will take a close look not only at the problems these firms can face in raising finance but at issues such as building management teams, developing entrepreneurship and market focus and realising the potential of corporate alliances. The Department is interested in the opportunities for large and small businesses to work together for mutual benefit. All those issues are important to the growth and success of a new firm, and we look forward to practical and useful work coming forward from the steering group.

At the outset, I defined innovation as the successful exploitation of new ideas. All the words in that definition are important, and each is vital for national success. It is well known that British scientists, engineers and inventors have more than their fair share of good and creative ideas. In the past, however, we have not been so strong at turning those ideas into commercially successful products and services that people want to buy. Anybody examining Britain's post-war history would accept that, and I believe that both the British economy and our people are poorer for that.

If we are to continue to create the wealth and employment which will secure the well-being of future generations, we need to ensure that our existing industries remain at the forefront of technical and commercial developments, and that we are in the first wave when a new industry or technology comes into being. Nothing is more dispiriting than to see good British innovation and design developed elsewhere, and the Government intend to address that problem.

The seeds for success need to be planted today, not tomorrow. Primarily, they are planted by our companies and individual entrepreneurs, seeing opportunities and moving quickly and effectively to take them. We are now seeing, in some of our newer industries—for example, biotechnology—serial entrepreneurs who start several successful and creative businesses.

As I said, the Government can create the climate which helps that process, but they cannot make it happen. We need to work in partnership. The Government can, however, play a major role as a collector and disseminator of information about what works and what does not work. The Department of Trade and Industry is in a unique position through its sponsor directorates, and through specialist organisations such as the innovation unit, to carry on a close dialogue with companies and other organisations, and to publicise widely what they tell us.

We have found that the most innovative and successful companies, whatever their size or line of business, exhibit some remarkably similar characteristics: leadership and vision; application of knowledge and developments in science, engineering and technology; constant learning from others; high levels of skill and good people management; and, above all, the development of new or improved products, services and processes which are well designed. They must not only meet but exceed the needs and expectations of customers. One of the most pleasurable aspects of my job is visiting some of those companies, which exhibit some, if not all, of those ingredients—the mystery x-factor that demonstrates the successful, entrepreneurial firm.

To succeed, businesses must embrace both the challenges and opportunities offered by fast-moving and longer-term developments in technology and markets. They must be outward looking. They must develop closer links with the knowledge base, whether world-class university or local further education college. Companies of all sizes will find that that brings direct benefits to their business, as well as helping recruitment strategies and getting products to market more quickly.

Another key recipe for success is to learn from and to seek to emulate the best in the field and to be ambitious. I therefore welcome the CBI's campaign to increase the uptake of benchmarking and best practice. As I said in October, I believe above all that our business links network has the potential to transform the performance of our small businesses.

I want to see the creation of a network of business links that delivers high-quality services to all of the businesses in their communities, but business links can help our companies to be world-class only if the support they provide is itself up to that standard. They will need to refocus their services to become more customer-driven, more creative and more entrepreneurial in style. I set out those performance expectations in the document that I published last month.

We have also asked the accreditation board for business links to make the element of entrepreneurship a key part of the accreditation process. From April 1998, each business link will need to measure its impact on the productivity, profitability and export performance of local business. Results will be published in a national league table, to measure progress and to allow each business link to benchmark its performance.

I want to see all our small and medium-sized businesses becoming learning organisations, able to respond to changes and opportunities in their markets as they arise. I am ambitious for those companies, and they deserve world-class business support. I am confident that our business link network will provide it.

To provide a further source of practical help for small businesses, we launched the enterprise zone on 4 November. It provides firms with easy access through the internet to sources of authoritative business information and advice on, for example, regulations, sources of finance and potential export markets. Key sites have been, and will continue to be, identified by experts and will be linked to the enterprise zone.

Through the enterprise zone, small firms can find the information they need quickly and easily. It will also encourage more of them to use the internet as a source of information. Two thirds already have personal computers and modems and are internet-ready.

Following on from that, greater familiarity with the internet will encourage greater exploitation of its commercial potential, and will make it more attractive for information providers to develop material and tariffs tailored to the needs of small companies. We believe that the enterprise zone is a major step forward, as it not only provides information that companies will find valuable in itself, but provides it in a way that will become increasingly important for them to understand in the IT-based world of the future. We developed that project in opposition, and I am pleased that, in its first few days, it has received such a warm welcome from business.

Because of the recognition that information and communications technologies are increasingly vital to the competitiveness of all firms, small or large, the Government are pressing ahead with the information society initiative programme for business. The ISI brings together a range of support for business, focusing especially on smaller firms. It contains elements to help United Kingdom firms develop the fundamental technologies that underpin the information society, and come up with the innovation and new applications of those technologies that businesses and individuals need. Crucially, it aims to ensure that all United Kingdom firms—

Photo of Ian Taylor Ian Taylor Conservative, Esher and Walton

I am much enjoying the Minister's speech, not least because some of it sounds a little familiar. Will she confirm that the IT for all programme, like the millennium challenge, was developed under the previous Government? Will she accept my congratulations on having the foresight to carry those through?

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

As the hon. Gentleman knows, I—unlike some of his right hon. and hon. Friends—am always ready to pay tribute to him and to his work. Certainly he developed the initiative for business while he was in government, and I warmly congratulate him on it. We have extended that initiative further, which is why my right hon. Friend the President of the Board of Trade recently announced that she is to make almost an extra £3 million available for it in the current financial year.

However, I am sure that, as the hon. Gentleman has been following closely, he will also know of some of the new initiatives that have been taken under the present Government. I have just described the enterprise zone, which I am sure he will warmly welcome; I have also mentioned the work that we are now doing on the basis of the Confederation of British Industry report and the Bank of England report, and on examining the relationship between large and small companies. There may also be one or two other initiatives by the new Government that will please the hon. Gentleman.

Photo of Ian Gibson Ian Gibson Labour, Norwich North

Does my hon. Friend agree that the new deal initiative will be formative and encouraging to young people, who are much better informed about the use of the internet, and that it will encourage them to start new businesses? We are talking about more than keeping new businesses going and extending them; we are concerned with encouraging our bright young people to advance their ideas.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

My hon. Friend is right, and one of the key elements of welfare to work and the new deal—one of the possibilities under the employee option—is self-employment, including the appropriate training gateways. That would give a great boost for young people starting their own businesses, and we already know about the great contribution that schemes can make in that regard. Our newest and most creative companies, especially in the high-tech sphere, often consist of very young people making an enormous contribution.

I was talking about advice and information, and about the programme for business. Numerous studies have shown that smaller firms in particular still stand in need of neutral business-oriented information and advice on new technologies. I am therefore especially pleased that there are now nearly 40 ISI—information society initiative—local support centres, based largely on the business link network, helping to provide that service to small firms in their areas, and that more are opening all the time.

Within companies of all kinds, management can provide a lead, set the direction and try to learn from best practice. But even in the smallest company, what turns that into real success is what happens when all the people involved work together. A growing number of businesses are recognising the benefits of unlocking the potential of their people.

In September, we launched the findings of the "Partnerships with People" study. That was carried out jointly with the Department for Education and Employment and 14 other organisations, including the CBI, Investors in People and the TUC. The strong and consistent message that emerged is that sustained success is earned by organisations which share goals, learning, effort and information, and which share culture with all their people.

A sound education system is also essential to provide people with the necessary education, adaptability and skills to participate in and benefit from partnership in the workplace, and therefore play an effective part in the productivity, innovation and quality that create success. The skills audit showed a deficit in skills across the board compared with our major competitors.

Again, the Government have quickly grasped the initiative. My right hon. Friend the Secretary of State for Education and Employment has begun the process of raising the standard of British education to the level of the best. His White Paper on education, "Excellence in Schools", describes how.

However, it is a mistake to think that we do all our learning in the early years of our life, at school or college. Nationally, we cannot raise our levels of skills fast enough by relying on formal education alone. We shall therefore publish our White Paper on lifelong learning in the autumn. That will include a strategy for the new university for industry, which will be of especial benefit to the smaller business.

It is not only within the company that we need a different perspective on innovation if we are to prosper in the long term. The financial institutions and other investors must play their part, too. There must be a more thorough understanding not only of the risks but of the rewards of investing in new companies. Financial institutions can reduce the risk and increase the reward by encouraging company management that is forward looking, innovative and entrepreneurial, and by providing the right kind of finance to help the company prosper—including, crucially, long-term finance.

The equity gap remains a problem for small businesses, especially for businesses looking for sums smaller than £250,000. Business angels play a key role in bridging that gap. They can also help in other ways. Because so many business angels have a business background, they can often provide hands-on assistance in the running and management of the business. To many small businesses, such help is invaluable.

We are now seeing the creation of technology angels, too. It is important to breach the empathy gap and ensure that everybody understands the new technology. [Interruption.] I see that the term "empathy gap" has provoked some discussion on the Opposition Benches. That phrase was first coined by Duncan Matthews, the head of that National Westminster bank's innovation unit. What he meant by it was that the new technology may not always be understood by the financial institutions. That is why it is so important for there to be, as increasingly there is, a good relationship between the financial institutions, the academic world and business. The Government are committed to fostering that partnership approach.

There are currently about 40 business angel networks listed in the leading directory, many of them run by business links. More and more of these are grouping themselves into regional and sub-regional networks. Such co-operation is helpful both to businesses and to investors.

Recently, there has been a great deal of interest in looking at the possible role of a national organisation operating in this field, supported by the DTI, the banks and others. I am pleased that leaders in the field—such as the big five clearing banks and the accountants Kingston Smith—have agreed to work to find a way forward. The DTI fully supports these efforts, and I hope that these discussions lead to an outcome which will command widespread support.

The role of business parks and incubator centres is important, and many of our future high-technology small and medium-sized enterprises will spring from them. In our response to the report on the innovation-exploitation barrier, we have highlighted this issue. We are supporting the UK business incubation centre through sector challenge, which will promote the role of business incubation and help to spread best practice.

We are contributing to a study of the growth of small and medium-sized firms in the Cambridge area, a follow-up to work on the Cambridge phenomenon in the 1980s. We hope to be able to chart the development of the sector in this area, to identify the factors which encourage growth, and to isolate and tackle those which obstruct it. Apart from the excellent university and the science and technical base at Cambridge, there are business angel networks which can provide an understanding of the commercial possibilities of the new technologies. I hope that hon. Members agree that this is a practical response to a helpful and thorough report.

No debate on innovation would be complete without a discussion of our world-class science and engineering base. The Government recognise its importance to our national competitiveness and social aspirations, both through its traditional curiosity-driven research and through the increasing proportion of research which more explicitly has the potential to underpin wealth creation and quality of life. Nor must we forget the contribution made through the education and training of skilled people, who can operate at every level in the work force. That ability is striking in some of the creative companies.

Photo of Ian Gibson Ian Gibson Labour, Norwich North

Does my hon. Friend agree that the big debate on the science base arises from 18 years of destruction by the previous Government? Has not the Dearing report addressed the problems of how to restore the excellent science base, how to invest in it and how to educate young people up to the correct standard? Every meeting that I have attended this week, including meetings at SmithKline Beecham and the Foundation for Science, has addressed the problem of the erosion of the science base after 18 years of Tory government.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

I absolutely agree with my hon. Friend, and I take this opportunity to pay tribute to him for his distinguished work. As the House knows, he is an eminent scientist. One of the very exciting things about the Dearing report is the emphasis it places on some of the things that I have talked about, including encouraging entrepreneurship, the creation of new companies, and the partnership between the financial community and the academic base.

Photo of Mr David Prior Mr David Prior Conservative, North Norfolk

Much as I like the hon. Member for Norwich, North (Dr. Gibson), his comments about the destruction of the science base in this country over the past 18 years were absolutely outrageous. He knows as well as I do about the Norwich research park, which is an outstanding example of a scientific development working with the private sector. You ought to withdraw your support for the hon. Gentleman's comments.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

I must say to the hon. Gentleman—using that wonderful time-honoured phrase "with the greatest respect"—that I do not agree with him, and that I do agree with my hon. Friend. During the past 18 years—despite the record of the previous Government—there have been examples of individual excellence, but we have a long way to go to make up the deficiencies of that Government.

Photo of Ian Gibson Ian Gibson Labour, Norwich North

The Norwich research park was fighting for its permanent existence after the prior options review instituted by the previous Government. There was much lobbying within the House and elsewhere to maintain the science base. Although the research park came through, it had a tremendous fight to maintain its excellence, and it was under pressure.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

I am grateful to my hon. Friend, and I am sure that, as the morning progresses, there will be further discussion.

It is of little or no use for the science and engineering base to produce world-class ideas if our companies lack the capacity to exploit them, and a key element in that capacity is having access to the right people with the right skills. As one of the industrialists in the innovation unit has said, the best vehicle for technology transfer walks on two feet. Companies and educational institutions alike need to see the benefits of working together, and to remain in close dialogue about the precise nature of their skills needs and the ways in which they can be fulfilled.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman Conservative, Billericay

Does the Minister agree that one of the most significant ways in which people learn skills is by working in an organisation and that this particularly applies to people with relatively low skills and poor education? Does she further agree that her Government's policy of introducing a minimum wage will prevent those people from taking a job at a modest wage as a way of paying for their education in skills?

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

I do not accept what the hon. Lady says about the minimum wage, which I see as aiding competitiveness. That is why small firms welcome the minimum wage. But I agree that companies investing in the skills training of their work force can be productive, and I agree also that that can make a remarkable contribution. It helps employee retention, which can be helpful to productivity and profitability. Although the hon. Lady and I will not agree on the minimum wage, we can agree about the importance of employee training.

Deserved credit is due to our science base, but I believe that it must do yet more to seize every opportunity to be even more outward looking, particularly as far as small firms are concerned. The DTI attempts to improve this interaction through schemes and in less formal ways. The teaching company scheme, for example, now aims explicitly at meeting the needs of small and medium firms through its network of regional centres.

We are midway through a study of the key ingredients which make collaborations between higher education and industry successful. When it is published early in 1998, we hope that it will be a useful and practical tool for both parties to use when they are thinking about working together.

I also applaud the efforts of the organisations representing company research directors and university industrial liaison officers, which have produced a step-by-step guide to establishing successful research partnerships. Such initiatives help to demystify the whole process, allowing the rich benefits of working with the science and engineering base to be fully realised to the benefit of all involved.

It is satisfying to visit a small company with few employees which has excellent relationships with its local university. Where there is an exchange of information and students, the small company gains in terms of product development and an enhancement of its productivity.

The Government are committed to forging partnerships for the future involving firms of all sizes and our world-class science and technology base, with the Government acting as catalyst and facilitator. I am confident that these partnerships will grow and develop. Through working together and constantly strengthening the links between us, we are laying the foundations for the country's future prosperity. Innovation and small firms are at the heart of achieving this. I firmly believe that the Government's partnership approach can only add to the competitiveness of our firms, and can truly create a situation in which we can win for Britain.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry) 10:18 am, 7th November 1997

There is no more important part of the business community than the small business sector. Ninety-nine per cent. of all UK businesses employ fewer than 50 people. They produce a third of the nation's output and provide half our private sector jobs. In a lengthy and well-intentioned speech, the Minister has given only one side of the story.

The Minister is not in isolation: every single Government Department has an interest in small businesses, and the previous Government appointed a Minister for small businesses in each and every Department. I tabled a question on 3 November asking the Minister to list the Ministers responsible for small businesses in each Government Department and the dates of their appointment, but I received no reply. Is there still such a Minister in every Department?

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

No, there is not. I should be interested to know what that ministerial group achieved. It certainly did not prevent over-regulation. I said in response to the hon. Lady's written question that I had bilateral meetings on important issues for small business with all my ministerial colleagues, and I told her that the Access Business ministerial group, situated in the Cabinet Office, deals with the very issue of cutting red tape. We aim for a record that will far outstrip the previous Government's.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

From that response it is clear that some Departments have no Minister responsible for small businesses, so of course the hon. Lady could not tell us, as I asked, when they met or what they discussed.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

The Minister knows that she is in government and we are in opposition; it is she who has to answer questions. Why was the decision taken not to have a Minister responsible for small businesses in each Department? We can already see the problems that the Government have created for small businesses. Earlier this week, I received a worrying fax from Sonic Communications, a small company that exports and produces video communications technology, particularly in connection with security.

The company's managing director had received a letter dated 10 September from the Home Office. It said: Dear David,I am writing to advise you that, following a recent decision by the Home Secretary, the Home Office Exports Initiative will be withdrawn after just over a year to cease at 31 October.Together with the trade associations representing the security industry, APPSS and BSIA, I am endeavouring urgently to find alternative ways to support the exporting efforts from this growth industry sector. Did the Minister know that the Home Office exports initiative was being withdrawn? Did the Home Office contact her?

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

Of course I have contacts with other Ministers. As the hon. Lady will know, the export forum, which has just published a report, is considering all aspects of export promotion, in co-operation with industry. She has, if I may say so, rather a cheek. It was the Government of which she was a member who caused great consternation and dismay to exporting companies by their action on trade support for export fairs. One of the first actions of my right hon. Friend the President of the Board of Trade on her appointment was to reverse that decision. That was widely welcomed by our exporters. The hon. Lady may like to think again.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

What a load of tosh. The Minister could not give the straight answer, no, to the written question whether there was a Minister responsible for small businesses in every Department, and she has not answered the question that I just asked her: was she consulted by the Home Office before the initiative was withdrawn? Does she consider that 51 days are enough? Is the Minister of State, Home Office, the hon. Member for Cardiff, South and Penarth (Mr. Michael), responsible for small businesses in that Department as part of the group that she has set up? Did he consult her in any way, shape or form before small businesses had the rug pulled from under them by the abolition of the export initiative?

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

It may be a little early for the hon. Lady, but she must not get into such a muddle. She is talking about a group not having met, but I have already told her that I have bilateral meetings with fellow Ministers on issues of importance to small businesses and that we have set up the Access Business ministerial group. I assume that she is advancing the Opposition's proposals on the subject, but when I asked her to list the achievements of the ministerial group to which she referred, there was a resounding no.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

It is clear from the Minister's furious interventions that she did not know that the initiative for business existed in the Home Office and was not consulted before a small firm was informed that the initiative was being cut. She should immediately contact her opposite number in the Home Office to find out what is going on.

The Association of Police and Public Security Suppliers wrote to the Department of Trade and Industry on 28 August, saying: You may not be aware of a very recent development affecting the Home Office Exports Initiative … which is that the Minister, Alun Michael, is closing the initiative as from the end of October 1997. That is exactly right: the Minister is obviously not aware. The letter continues: Whilst committed financial support will be honoured, the ambitions of the Trade Associations and the security industry are, nevertheless, being left hanging.This move is extremely disappointing to APPSS and, of course, the security industry. As a result of analysis we carried out during this year's Embassy exhibitions, which were supported by the Home Office initiative and by DTI country desks, I recently presented evidence to the Home Office committee of clearly identifiable business returns to industry and therefore to our national export drive, especially in Europe.We have indications on file of new business arising from our Vienna, Madrid and Stockholm/Helsinki events this year.

Photo of Nick Palmer Nick Palmer Labour, Broxtowe

Does the hon. Lady intend to address the subject of innovation before her speech ends?

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

I am awfully grateful for that intervention. It is difficult to see how firms can innovate against this background, and I intend to provide more illustrations of the problems that small firms will face.

The bottom line is that the Minister did not know that the initiative existed, or what was happening to it. She told us that she had had no meetings with any of her colleagues in other Departments; yet she is the Minister responsible for small business.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

It is only 10.27 am, so the hon. Lady is still a little muddled, but if she had been listening carefully, she would have heard that I said only a few minutes ago that I did indeed meet my ministerial colleagues on small business issues. May I also tell her that I am never furious?

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. That is the second time this morning that an hon. Member has not addressed the Chair correctly. I should be grateful if all hon. Members remembered how to do so.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

Please accept my unreserved apology, Mr. Deputy Speaker.

I believe that the Minister said that the Access Business ministerial group had not yet met but, after all, it is quite early in the morning for her, too.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman Conservative, Billericay

Does my hon. Friend agree that all these Government initiatives are very worthy, but that in the end most small firms do not go to the Government for help when they set up; they do it on their own? The one thing that they do not want is the Government breathing down their necks when they are trying to get up and get going. The proposed new Government regulations will have a devastating effect on that initiative.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

My hon. Friend is right, and later I shall come to the devastating effect that the Government's policies will have on small businesses. I suppose that as no Ministers are appointed to be responsible for small businesses in Government Departments, no Minister at the Department of Social Security will be taking on board the interests of small businesses.

This week, I received another letter. It was from Pocketbond Ltd., which makes plastic models and is an innovative and successful company. The letter was to inform me about a matter on which the company has also written to the Minister. I do not believe that, as yet, it has received a reply. The company writes about the Contributions Agency and the imposition of national insurance contributions, which are targeted at small businesses and not payable by big business.

The company is small and has two employees. As it was so small, it was not possible for it to join a company private health insurance scheme, which usually requires at least three to five employees, to provide an employee—who happened to be the managing director of Pocketbond—with private health insurance. It was necessary for him to purchase his insurance in his own name, and the cost was passed on to the company for reimbursement. The Contributions Agency is now claiming that national insurance is due on those BUPA payments, solely because they were invoiced not to the company but to the man himself. BUPA is not subject to national insurance when provided to an employee through a company scheme, but the agency claimed that it must be subject to such contributions if invoiced in the man's name. The managing director writes: This means we are 'taxed' extra via NI contributions because we are a small company.

I do not expect the Minister to remember that case, but as it seems to be an inequality and an unfairness faced by a small business, I ask her to give an undertaking that she will undertake to look into it, reply to Mr. Brook of Pocketbond and see what she can do to champion the cause of an obviously successful small business that has been discriminated against. I hope that she will give me that undertaking.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

Of course, I take letters written by any small business to me very seriously. As I explained, I see my role as meeting colleagues and liaising with them. I am pleased that the hon. Lady is promoting the profile of small firms and talking about the regulatory burdens on them. Will she, therefore, condemn the record of the Government of which she was a member in the previous Parliament, as they over-regulated and added to the burdens on small firms, contrary to the deregulation initiative that they introduced?

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

I wish that the Minister would grow up. She keeps on believing that she is still in opposition and that I have to answer the questions. She has to answer the questions, and the sooner she gets used to it, the better. I am grateful, however, for her undertaking to look into this case. Will she also give an undertaking that she will find out whether a Minister in the Department of Social Security can be appointed to be responsible for the affairs of small businesses, otherwise matters pertaining to them will certainly disappear into obscurity, as they have obviously done in that Department and in the Home Office?

The small business brief is interesting. As the Minister said, one of the most exciting things about it is meeting small business men and women who have been successful—but the Government are seeking to stifle the innovation and progress of small businesses.

I have here another letter. This time, it is from my constituency, from Mr. Wing who works with composers. It sums up what our small businesses are facing. It was addressed not to me, but to the Chancellor of the Exchequer. As yet, no reply has been forthcoming. I think that all three letters to which 1 have referred are still awaiting responses—so much for the rapid reaction to the problems of small businesses. Mr. Wing writes: I have just received a letter from one of the companies that I have a pension with advising me that because of your new tax rules that crept in shortly after the election my pension may not produce the required income. Further they warned me that you might be thinking of abolishing higher rate tax relief on pension contributions. I would appreciate three straight answers ie yes or no to the following questions:1 Will the tax changes on dividends you introduced reduce the value of my pension bearing in mind my pension is invested in a managed fund.2 Are you considering reducing the higher rate tax relief on pension contributions.3 If you do reduce tax relief, have you further plans to tax the self-employed.As a self-employed person, I have no employer to contribute any monies to my pension and therefore have to provide my own pension. Those who are employed pay no tax on their employer's pensions contributions. As a self-employed person I receive no sickness payment when I am ill and therefore have to pay for an insurance to cover any illness for which I receive no tax relief. Those who are employed pay no tax on their employer's sickness contributions other than tax on received income.As a self-employed person I cannot afford to be ill and if I have to have medical attention it has to be at a time to suit me ie 1 must be able to plan my illness and schedule any operation to fit my schedule as the state will not help me. I therefore pay for private health and whilst I am not asking for tax relief on this as it is my right to have the choice, I would point out that, to date, hospital bills etc. for my family have been over £65,000 in the last three years. This is £65,000 that the NHS has not had to spend on my family.

Photo of Stephen Timms Stephen Timms Labour, East Ham

I was interested to hear the hon. Lady's constituency correspondence, but I wonder whether she will now come to the subject of the debate, which is innovation in small businesses.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

Obviously, the hon. Gentleman does not like what I am talking about—the barriers and the stifling that small businesses are facing and will face.

Mr. Wing continued: As a self-employed person I get the distinct impression that New Labour sees the hard working self-employed as a bottomless pit from which you can keep taking without replacing. Yet it is the self-employed who are creating work for others and thus keeping many people in work. I may be a small business, my business has a turnover of under £400,000 and I end up with a surplus of around £40,000. I work approx 80 to 100 hours a week with two weeks holiday. I pay out to other self-employed people in excess of £250,000. Whilst these figures are obviously very small in relation to the economy, they are important and vital to me and those who I engage.

My constituent goes on to talk about living in Haringey in north London, where education standards are poor, and he had little option but to move or have his children privately educated. The letter continues in a vein that shows me that a small business person is absolutely terrified by what has already happened under this Labour Government and by what will happen.

Let us look at what the Minister's Government have done for small businesses. We have had five interest rate rises—the last one was yesterday. If the Minister were running a small business, what would she think of a Government who have delivered five interest rate rises in as many months? What can our small businesses look forward to—the extending of the parental leave directive and a minimum wage with no exemptions? I was grateful to the Minister, who wrote to me on 18 September in reply to a question that I had asked, on whether our small and micro businesses could be excluded from the minimum wage. Her reply stated: No exemptions are envisaged for small businesses.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

I am happy to place the letter on record, although I shall certainly not go through it chapter and verse. The last paragraph states: You also asked whether micro and small businesses will be excluded from the minimum wage proposals. No exemptions are envisaged for small businesses. It is quite clear in black and white.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

The Minister adds that there will be a "wide ranging consultation exercise", but the earlier sentence presumes that there will be no exemptions for small businesses. I cannot see how she can wriggle out of that.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

The House will have noticed the hon. Lady's reluctance to read the rest of that paragraph. May I invite her to do so?

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

The letter states: You also asked whether micro and small businesses will be excluded from the minimum wage proposals. No exemptions are envisaged for small businesses. However, in formulating its recommendation to Government on the initial level at which a minimum wage might be set, the Low Pay Commission will undertake a wide ranging consultation exercise which will include the small business sector.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

That sentence does not affect the fact that the Minister said: No exemptions are envisaged for small businesses. I have now read the letter to the end. I do not believe that that has added to the argument at all. It shows that she has prejudged the matter. Small businesses will not be exempted, but they will be consulted. That is hardly a great comfort to small businesses.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman Conservative, Billericay

In endorsing my hon. Friend's concern about the introduction of the minimum wage, we must not let the House run away with the idea that small firms pay only small wages. Some of the worst payers are the great nationalised industries, such as the health service. It would be interesting if the Minister told us a little bit in her reply about what the Government will do to find the money to improve the wages of people in the health service.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

That would be interesting, and we look forward to it.

What do small businesses face under this Government? They have already faced the interest rate rises and the raid on pensions. They will have to extend parental leave to paternity leave. We have established that there will be no exemptions from the minimum wage. The working time directive, the telephone tax, the fossil fuel tax and the new workers councils are all coming in. At the same time, small businesses will have to go through millennium compliance and euro preparations. My goodness, am I glad that I am not in small business today. With this weight of legislation and all the impositions of this Government on them, small businesses will have a difficult job innovating in that climate.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

The hon. Lady has been very courteous in giving way. I did not catch what she meant by "millennium compliance". What is she suggesting?

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

It may have struck the hon. Lady that we are approaching 2000, and businesses are having to undergo millennium compliance, which takes time, effort and money.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

I agree. That is why the Government take the century date change problem seriously and why we have launched Action 2000 under the chairmanship of Don Cruickshank, whose appointment was announced recently. I think that the House was confused because the hon. Lady seemed to be saying that the problem was a Government regulation or to be implying that it was the Government's fault. I know that the Government's reach is far, but I did not think that our powers extended there.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

The hon. Lady has confused herself. She had better go back to sleep. I know that it was difficult for her to read her official speech so fluently this morning.

All the regulations that the Government are imposing on small companies at the same time as they are having to deal with unavoidable millennium compliance and euro preparations mean that untenable burdens are being placed on our small businesses. The Government have not thought it through. I am most disappointed about the lack of exemptions for small businesses, especially in respect of the minimum wage.

Photo of Stephen Timms Stephen Timms Labour, East Ham

The hon. Lady encouraged the House in the 24th minute of her speech by mentioning innovation. Perhaps she could turn her attention to that, which is the subject of the debate.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

The title is "Innovation and the Role of Small Firms"; I am discussing the role of small business. Mr. Deputy Speaker, I find it impertinent that the hon. Gentleman should try to do your job for you. I believe that I have been in order throughout my speech, otherwise you would have leapt to your feet.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. I think that it would be sensible if we got on with the debate.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

When I wrote to the Minister about exemptions for small business, I wanted to her to take some lessons from the American system. I hope that she will reconsider her response. It is important that our small businesses receive an exemption. In the United States, firms whose annual turnover is less than $500,000 are exempt from the Fair Labour Standards Act 1938. Firms with fewer than 50 employees are exempt from the Family and Medical Leave Act 1993, which provides for 12 weeks' unpaid leave for serious illness, or for the birth or adoption of a child. I trust that when she examines the parental leave directive and looks again at the minimum wage, she will consider exempting small businesses.

The one thing that the Government have done for small businesses is to produce a Green Paper on late payment of debt. The Government intend to legislate along those lines. I am surprised that that is the only tangible product from the Department of Trade and Industry for small firms. It is great hypocrisy that the Government should be considering legislation, which many small businesses do not want or regard as necessary, when they should be putting their own house in order. I tabled some written questions on the matter. I again received poor replies, which did not tell me how many bills were outstanding in various Government Departments. I did, however, get a detailed reply from the Department of Health about NHS trusts. I was very worried by what I received.

Photo of Mr John Wilkinson Mr John Wilkinson Conservative, Ruislip - Northwood

My hon. Friend is saying something of the greatest importance. She is right to castigate late-paying Government Departments, but is not the late payment of debt to small companies a very serious problem for them, especially if they have only one or two suppliers, some of which are large companies that are deliberate late payers? While being critical of Government Departments, will she think long and hard about whether she should oppose in principle legislation in this area, because many small business men would welcome it?

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

I have no problem with my hon. Friend's remarks. If businesses are to innovate and grow, they cannot face having large sums being owed to them, especially by Government Departments

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

No, I am coming to the end. I have been most generous in giving way.

The figure given to me in the written answer was that NHS trusts pay 3 million bills every quarter but that while 80 per cent. are paid on time, 20 per cent. are not. That means that 600,000 late payments were made in the first quarter of this year. If one extrapolates that figure over the year, it reveals that 2,400,000 bills are paid late by NHS trusts to other companies. Instead of producing Green Papers, consulting and murmuring warm words to small businesses, surely the Minister should visit Government Departments to find out about the payment records of her colleagues.

Let me return to my opening remarks: the Government have removed ministerial responsibility for small businesses from each and every Department and instead created an ad hoc group. The Department of Trade and Industry does not know what is going on in other Departments that affect small business, and it is now about to embark on one of the greatest tranches of legislation governing the business community that we have ever witnessed. How on earth can our businesses thrive and contribute to the economy if they are stifled by the Government? The Minister needs to go back to the drawing board and to look at affairs closer to home before she continues her brief. Before legislation is brought before the House, she needs to ensure that she has cleaned up her own Government's act.

I hope that the Minister will offer us some replies to those questions when she winds up the debate, but I am afraid that, in common with her answers to previous questions, she will offer us poor or no answers today.

Photo of Stephen Timms Stephen Timms Labour, East Ham 10:50 am, 7th November 1997

We have just listened to a remarkable speech by the hon. Member for Chesham and Amersham (Mrs. Gillan). The subject of the debate is innovation and the role of small firms and the context for it is the Government's response to the third report of the House of Lords Select Committee on Science and Technology, which was published last month. I do not know whether the hon. Lady has read it or is even aware of its existence. Certainly, she made no reference to it and we are none the wiser as to whether she supports or disagrees with the Government's response to it.

I congratulate my hon. Friend the Minister for Small Firms, Trade and Industry on her achievements and the extent to which she has established the Labour party as the party that listens to and speaks up for Britain's small businesses.

Just after the election, I attended a seminar organised by Barclays bank at Dartford, held to brief the bank's small business customers on the single currency. It was attended by about 60 representatives who without exception believed that Britain would join the single currency as a matter of course in the interests of the British economy and of their businesses.

We know from the events of the past couple of weeks that that view is shared by the former Deputy Prime Minister, the right hon. Member for Henley (Mr. Heseltine), and by the hon. Member for Esher and Walton (Mr. Taylor), who is in his place this morning and who found it necessary to resign from the Opposition Front Bench over the issue. Their view on the single currency is overwhelmingly shared by small businesses up and down the country, but it has been rejected by the current powers that be in the Opposition.

On issue after issue the Conservative party has ceased to listen to small businesses.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

May I ask a question in the same vein as the hon. Gentleman's intervention on me? When are you going to get down to talking about innovation?

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. Can we be rather more careful with our parliamentary language, as it does help the debate?

Photo of Stephen Timms Stephen Timms Labour, East Ham

I will be pleased to concentrate most of my remarks on the subject of innovation, but a response is required to the lengthy speech that we have just heard from the hon. Lady. Not only has the Conservative party ceased to listen to small businesses: on the single currency, it has ceased to listen to the big businesses represented by the Confederation of British Industry. From the Labour party perspective a fascinating change has occurred.

Photo of Theresa May Theresa May Conservative, Maidenhead

Is the hon. Gentleman not aware that the Forum of Private Business and the Institute of Directors, the former representing small businesses and the latter representing large businesses, are against the single currency?

Photo of Stephen Timms Stephen Timms Labour, East Ham

I am well aware of the view of the small business representatives to whom I have spoken, and the view of the CBI, which is shared by the hon. Member for Esher and Walton, who is sitting next to the hon. Lady. That view is very different from the dogmatic view taken by the Conservative party.

My hon. Friend the Minister has been listening to small businesses. She spoke at a remarkable and successful occasion which I attended during the recess—a small business dinner organised by the Greater London Labour party. We used not to have such dinners, but this one was highly successful and well attended. What struck me was the extremely high regard in which my hon. Friend was held by the representatives who were present. What was particularly striking about that occasion was the number of those present who had previously supported the Conservative party—indeed, the person sitting next to me at that Labour party dinner was a full-time Conservative party agent.

The remarkable attendance at that dinner was a striking illustration of the way in which the perception of the parties among small businesses has been reversed in the past couple of years. In large measure that is due to the work of my hon. Friend. The Conservative party has abandoned its previous stance as the party that listens to small businesses. It prefers instead to rush headlong down an ideological cul-de-sac, which is destined to confine it to the margins of politics for years to come.

This week, I was delighted when my hon. Friend the Minister and my right hon. Friend the President of the Board of Trade found time to visit my borough of Newham in east London to launch a new enterprise zone website for small businesses. As my hon. Friend said in her speech, that launch took place at the university of east London small business centre at Stratford. My hon. Friend opened that centre a few months ago and it has proved an enormous success as a resource for small businesses in east London. That is an example of the beneficial changes that are taking place in the economy of east London, and I pay tribute to the successful initiative of Martin Laycock and his team. The centre is a symbol of innovation in small business and it was a fitting place for the Government website for small business to be launched.

There was an interesting earlier exchange in the debate about the state of the science base in the United Kingdom. Although the hon. Member for Chesham and Amersham made no reference to the third report of the House of Lords Select Committee on Science and Technology, it is from that report that the debate arises. It is worth noting the Committee's views on the state of the science base because they reflect the view of my hon. Friend the Minister and my hon. Friend the Member for Norwich, North (Dr. Gibson).

Paragraph 3.7 of that report notes that the Association of the British Pharmaceutical Industry has argued: British companies are increasingly looking abroad for new research partners because they consider the UK science base is declining through under-investment. The report also notes that the ABPI finds the UK science base increasingly wanting. At paragraph 3.8, the Committee notes: we believe that there is growing evidence that some multi-national companies based in this country are re-siting collaborative research overseas in the light of concern about the research infrastructure in the United Kingdom. That point was alluded to earlier by my hon. Friend the Minister and my hon. Friend the Member for Norwich, North.

Photo of Ian Taylor Ian Taylor Conservative, Esher and Walton

These are complex matters, which is why I objected to rather trivial earlier interventions. I, too, have spoken to representatives of the industry, one of whose biggest problems is the increasing complexity and cost of the equipment required to carry out top-quality research at our best universities. I very much doubt whether the Labour Government have got to grips with those matters, which, while not insuperable, require close collaboration with the industry if they are to be overcome. There is a requirement on industry to do more in terms of the equipment at its laboratories, and for a more elitist approach, concentrated on certain excellent centres of research within our university system.

Photo of Stephen Timms Stephen Timms Labour, East Ham

I thank the hon. Gentleman for that intervention and pay tribute to his work in this field as a member of the previous Government. I accept that these are complex matters, but my point is that the United Kingdom science base is in a parlous state and we are losing investment as a result. The Government should turn their attention to that in a way that the previous Government failed to do.

Photo of Nick Palmer Nick Palmer Labour, Broxtowe

I have seen this problem from the other end of the spectrum, having worked in management of a Swiss pharmaceutical company. I asked one of the senior directors whether the company was thinking of expanding its investment in Britain, in view of Britain's relatively low wage levels. He said that it was always nice to pay low wages, but that the industry's primary consideration was whether a country's educational standards and infrastructure were adequate. Wage levels, although a factor in decision making, are not decisive; companies are happy to pay high wages if they get the best people.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. Interventions are gradually getting longer. A large number of Back Benchers want to speak today—including the hon. Gentleman—so could he now briefly put his question?

Photo of Nick Palmer Nick Palmer Labour, Broxtowe

My question is whether my hon. Friend the Member for East Ham (Mr. Timms) would agree that the problems of the pharmaceutical industry and of industry generally under the previous Government have been a significant factor in encouraging overseas investment.

Photo of Stephen Timms Stephen Timms Labour, East Ham

I thank my hon. Friend for making a telling point and I agree with him. The issue of the research infrastructure ought to be at the centre of this debate and I shall concentrate on that subject during the remainder of my speech.

My central point in welcoming the Government response to the House of Lords Select Committee report concerns the problem facing small businesses that want to exploit innovation and research coming from Britain's universities. How do we ensure that that research, much of which is of high quality, is accessible to Britain's pharmaceutical and other businesses?

Large firms can buy research by entering into contracts with universities, but that option is not available to small businesses because there is no mechanism in the UK for packaging university research work for access by small companies. In other countries, the position differs greatly: in Germany, for example, every town has its Fraunhofer institute where companies of any size can buy into research programmes. The Government response to the Select Committee report argues effectively that, if we are to help our small business sector to be more innovative, we need to deepen the links between our small businesses and our universities. I warmly welcome that response and what the Minister has said today, but how can we give our small businesses access to high-quality research? How can we provide the missing research infrastructure so as to enable small companies to benefit from innovations being developed in our universities? If the next industrial era is to be an information age, the extension and exploitation of the knowledge base will be crucial. The Government have recognised the importance of links between universities and industry and intend to encourage their development, so it must be right to develop links between small businesses and universities.

I agree with the Select Committee report that strong and innovative industry is best organised in clusters—whether in the potteries or in silicon valley—which allow firms to sharpen each other's competitiveness and pull in the skills and support services the firms need, in turn strengthening the cluster. Higher education helps industrial clusters to develop, not only by providing links to research, but by investing in the production of entrepreneurial graduates—young people whose studies turn into business ideas and who are then actively encouraged to found new companies. The strongest industry-university links are also regionally based and some colleges and universities need to rediscover their regional roles in society and the economy.

I am especially concerned about strengthening the innovative capacity of small businesses in London. The London Planning Advisory Committee's report "Technology Parks in London" included universities as central partners in the development of the high-quality, high-technology science parks we need if we are to encourage London businesses to be innovators.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman Conservative, Billericay

I agree with the hon. Gentleman that science and technology play an important role. Will he also remember that many entrepreneurs, for example, Alan Sugar of Amstrad and Dyson and his magic hoover—I have one, but it is not called a hoover, of course—are people who learned on the job? We must not block the entry of such people both into work and into innovation by loading them down with Government regulations and controls. Does the hon. Gentleman not agree that we must keep the field open and make sure that the Government stay off their backs?

Photo of Stephen Timms Stephen Timms Labour, East Ham

I entirely agree with the hon. Lady. That is an important point and my hon. Friend the Minister is also committed to that approach.

My point is that there is much innovation in our universities that is not finding its way to commercial exploitation. Today's debate must be about how we can change that so that small businesses have access to that innovation and can exploit it commercially, in the way that the companies that the hon. Member for Billericay (Mrs. Gorman) mentioned have done so successfully. The example that occurs to me is that of Psion, the London-based manufacturer that has raised several of the points relating to access to innovation and university work. Universities can themselves stimulate the creation of new companies; that has happened in Norwich and Cambridge and we should encourage it more widely.

I welcome the points relating to science parks in the Government response. The United Kingdom Science Park Association sets out as its objectives: to promote university/industry linkages and the transfer of technology; to promote the formation of high technology firms; to attract firms involved in leading edge technologies; to create new jobs. I am pleased to hear from the Minister that there is to be a review of the lessons of the Cambridge phenomenon and the experience surrounding the Cambridge science park.

Nearly 10 years ago, I chaired a seminar for interested parties in London to consider how London might learn the lessons arising from the Cambridge phenomenon; but in the 10 years since then, progress has been slow. It is astonishing that London has only 7 per cent. of the quantity of technology park floor space that Birmingham has; and London's quantity of technology park floor space is pathetic when compared with that of any major European city. Technology parks elsewhere in the UK have largely been developed by universities on vacant university land, but London's universities do not own vacant land, so it is not physically possible for them to follow the successful examples of Cambridge, Surrey and Heriot-Watt.

Photo of Mr David Prior Mr David Prior Conservative, North Norfolk

Does the hon. Gentleman recognise that, when looking at London, one has to take into account the City of London, which is probably the most innovative financial centre in the world and is leading the world in a range of financial services and insurance products?

Photo of Stephen Timms Stephen Timms Labour, East Ham

The hon. Gentleman is absolutely right, but there is also a large manufacturing sector in London. I am told that there are more people working in manufacturing in London than in the whole of the northern region. It is therefore vitally important that the businesses that employ those people are innovative and the Government are rightly turning their attention to how that can be achieved.

The hon. Member for Chesham and Amersham mentioned Surrey university. Yesterday, many of us received a letter celebrating 10 years of success from the Surrey research park, which is based at the university of Surrey at Guildford. Dr. Malcolm Parry, general manager of the park, makes the point that the Park benefits the Local Community and County in a number of very significant ways, for example, by the creation of approximately 3,000 high quality jobs and attracting more than £300 million to the regional economy. That sort of example should be replicated much more widely in London.

Earlier this year, the Estates Gazette had an article about the state of technology parks in London. It made the point that London is still short of science park space, but that there are schemes in the pipeline that could fill the gap. It says: One year after the Government Office for London and the London Planning Advisory Committee concluded that a minimum of 200,000 sq m of technology park floorspace was needed in London, only two small schemes have been established—at Brunel University, Uxbridge, and at … South Bank University.GOU's research had found that, compared with other major UK and world cities, London was underprovided.The report … envisaged 10-15 science parks being set up in London, most of them on no more than 10ha, but with two or three big enough to attract inward investment. The article goes on to quote one of the sector's specialists, who says: There is a very real opportunity to combine the skill and experience of science parks in fostering science and technology with the much better approach to master planning, estate development and management marketing found on businesses parks.

One hopeful initiative is the London science park at Dartford. A few weeks ago, I participated in a seminar at the big Glaxo Wellcome pharmaceutical campus in Dartford, hosted by the Member of the European Parliament for Kent, West. Glaxo Wellcome submitted evidence to the House of Lords Select Committee. At the seminar, I met Professor John Parsonage of Greenwich university, the chair of the science and technology parks London group, who is working at Glaxo Wellcome. He is also the chief executive of the London science park initiative.

The university has made an interesting and exciting proposal: a campus for 10,000 students, situated next to a science park, which will be developed on the successful business park model. I commend Greenwich university's work in seeking to develop close links between research and industry, particularly in small businesses, which hold the key to economic development in the Thames gateway area—that whole swathe of land from Canary wharf, where the Prime Minister is attending the Anglo-French summit today, through east London to north Kent, which will be linked by the high-speed rail link to the channel tunnel. That whole region holds immense potential for the innovative small business sector.

A few yards from where my hon. Friend the Minister launched the small business website earlier this week, at the university of east London, detailed planning is under way for the Thames gateway technology centre, which won £8 million in single regeneration budget funding and is an excellent example of the sort of initiative that we need to encourage. It will provide vital research and development support to small east London manufacturing businesses, in partnership with the university of east London and other universities.

The centre plans to bring together research centres throughout the university, allowing them to strengthen each other through co-location, and placing them at a new site in the royal docks alongside a new business park, which will attract innovative small businesses to locate in it. It will pull together the centres for electrical and electronic engineering, manufacturing engineering, product design, information technology, media and communications, graphic design, fashion and marketing and textile design. The aim is to package what is coming out of all those units so that it can be accessed by small businesses. That is the way to stimulate innovation among those businesses, which is what this debate is all about.

I welcome the Government's response to the House of Lords Select Committee report. The new Britain that the Government are building requires innovation and much of the innovation that we need will have to come from small businesses. The hon. Member for Chesham and Amersham was right to draw attention to the importance of the scale of the small business contribution to the British economy. We need those businesses to be innovative. That is what my hon. Friend the Minister was speaking about in launching the Government's response, but there is much to be done to facilitate it. The Government have made an excellent start and I commend their response to the House of Lords Select Committee report and what my hon. Friend the Minister has said this morning.

Photo of Ian Taylor Ian Taylor Conservative, Esher and Walton 11:14 am, 7th November 1997

I declare the outside interests that appear in the Register of Members' Interests, which have some relevance to the broad debate.

I can happily truncate my speech, partly by referring to the debate in the House on British invention and innovation on 1 May 1996 at column 1061, which was initiated by the then hon. Member for Dover—the textual analysis of what I said then would bear some resemblance to what the Minister said this morning. Despite differences that we may have on various issues, there is a continuity between my work as Minister for Science and Technology and the Minister's work. I pay tribute to those aspects.

It is important, particularly for smaller businesses, that that there is continuity in initiatives started under one Government, when the electorate, in my judgment unwisely, decided that we should come to Opposition Benches and that the Labour party should occupy Government Benches. Many business men and women whom I have seen since the election are pleased that those initiatives are still there, and that the applications for the various challenges can continue.

The other reason why I can truncate my remarks is that I suspect that some of my colleagues will be eloquent in their criticisms of the Government in relation to the policies into which they may wander, particularly now that they have signed up to the social chapter. I can leave my colleagues to pick up those points.

I want to highlight the challenges that business faces, particularly smaller business. Fifty-three per cent. of the work force work in companies employing 100 people or fewer, and 98 per cent. of all companies have 20 or fewer employees. It is therefore crucial that the Government's efforts, as my hon. Friend the Member for Billericay (Mrs. Gorman) said, do not get in the way of job creation—the drive, entrepreneurial spirit and enthusiasm that smaller business men and women need to create jobs.

It is an onerous responsibility employing someone. It is an even greater responsibility for someone to try to ensure that he gets cash flow, so that he can pay all the bills regularly. I have advised small companies, and sometimes we get lofty in our debates in the House about the day-to-day practical challenges that business men and women face, so it is essential that we do not try to make their life more difficult.

It is also important, however, that Government understand that their responsibility is to contribute to changes in culture which can—and, in an increasingly competitive world, must—impact on those businesses. One of the sad things I found as Minister was the lack of understanding in the whole innovation process of the work of design.

I too pay tribute to the Design Council. It kindly sent me some figures, which I am sure it sent to other Members, which show the impact of design. I am convinced that that impact is genuine at each stage of the process, not just in the final packaging of a product. The aim is to make the product attractive to the customer, useful to him and with an added value that may demarcate it from a product made by a rival company or by a company abroad.

According to research by the London business school, devoting an additional 1 per cent. of turnover to product development and design raises both turnover and profits by 3 to 4 per cent. over five years. Other people may come up with different figures. The point is that there is a bottom-line advantage in investing in good design and in innovation.

Innovation is a difficult concept to understand, but, as the Minister said, it means making better productive use of new ideas—and of old ones in a new context—and it is crucial for British business to innovate. If there is a generalised criticism of small businesses in this country, it is that their failure to innovate will probably mean that many will fail unnecessarily, to put it bluntly.

Large or medium companies at the forefront of competition increasingly speak about the need to transform their product range every three years. That means that the products that they will make profits from in three, four or five years' time are probably only now being thought through or developed. That is a challenge for smaller businesses. The Design Council's figures, which are more up to date than any that I have, show that just 3% of UK companies have produced a new product in the last five years. In contrast, of the top-performing 25% of companies, 15% had produced a new product in the past five years, and for the top 10%, the figure is 62%".

I hope that small businesses realise the extent of the challenge that that represents for them, and that they must rise to it if they are to develop the new products that will be needed. They should understand the transforming way in which technology is impacting on business, and keep up with the opportunities that technological developments can bring, not only in manufacturing, but in the adaptation of products.

I welcome the Design Council's millennium products initiative. It was right and proper to have a showcase for new products developed by British industry. I draw attention to an initiative which I believe the Minister did not mention this morning but for which I have always been an enthusiast. I refer to the SMART and SPUR initiative—the small firms merit award for science, and support for products under research.

Especially at the SMART award level, the initiative targets companies employing fewer than 50 people, giving them the incentive to work on new ideas and new products. A Government grant can be a godsend to a company that has had no extra funding other than bank borrowing secured on private assets.

There is much talk, and has been much lobbying, about the role of inventors. Trevor Baylis has been very successful with the clockwork radio and is, naturally and rightly, anxious to help other inventors. The difficulty often is that inventors believe that they have the world's greatest ever product, and do not want to share the intellectual property or collaborate. It is a constant effort to encourage them to collaborate.

Sometimes businesses can be sponsors of the development of products. One or two challenge awards are designed to encourage inventors to work with larger companies, so that a good idea passes through what is often one of the most difficult stages—the engineering process to make a good idea into a commercially viable product.

The Year of Engineering Success is another initiative that has continued through the change in Governments. It is designed to raise the status of engineers and engineering in each aspect of our lives, of which it is a crucial part. Engineers are no longer underpaid and not valued by companies. Figures that I recently read show that, of recent graduates entering employment, engineers have a higher average starting salary than many other categories of graduate taken on by companies. Engineers should be regarded as much more central to our future.

We have played around with figures on the science base this morning. The science base in this country is excellent by any standard of measurement. I know that partly because of the way in which Science Ministers or the presidential adviser on science to President Clinton in the United States—the Americans do not have a Science Minister—regularly asked how we managed to do so well in the international league tables from our science base. We have a very high level of output, and our scientists are renowned throughout the world.

The difficulty with our science base is the need to realise that only the best science is worth funding. In the past few years, research councils have communicated the message that we must ensure that we back the alpha plus projects.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford

Does the hon. Gentleman agree that one of the worrying things about the science base is the way in which the capital foundation, the equipment and the infrastructure of research in universities have been eroded in the past several years? That issue is causing anxiety not only in universities, but in the large part of our industry that depends on research and development. That is one of the issues that has sprung from the Dearing report, which has highlighted it, and highlighted the need for large sums of money to stay where we are, not only now but in future, so that we can keep pace with the rate at which equipment is developing?

Photo of Ian Taylor Ian Taylor Conservative, Esher and Walton

I accept some of that criticism. In universities, there are problems with the standard of some equipment—something that emerged in the PREST report about two years ago. That report showed that we should be profoundly worried about some aspects, although in others we were obviously doing extremely well.

The challenge for universities is to find out how to collaborate, among themselves as well as with industry, so that the best equipment will be available in the excellent research laboratories that we shall require. The challenge is also a factor of money. Some equipment that is required for the top-class research, as I said in an earlier intervention, is becoming extremely pricey, and will go out of date fairly rapidly.

All those matters can be part of a cross-party debate if one wishes. It is much more complicated to get to the root of the problem, and I believe that the Minister for Small Firms, Trade and Industry and the Minister for Science, Energy and Industry will wrestle with the problems that I wrestled with—how one persuades universities to understand how to make the best use of their equipment.

I will not name names, but some universities have not done especially well in that regard. A great deal of equipment seems not to be especially highly utilised. Others have done brilliantly. Birmingham university's completely refurbished chemistry department is a joy to behold. It can be done.

Photo of Ian Gibson Ian Gibson Labour, Norwich North

The hon. Gentleman mentioned the need to fund alpha-rated projects. I shall not trivialise the issue, or he will accuse me of doing so later. What percentages of alpha-rated projects were funded between the years 1992 and 1996? Did the percentage go up or down? I say that it went down under your tutelage.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. I am sorry to interrupt. I am sorry to rise to my feet again, but the hon. Member for Norwich, North (Dr. Gibson) again used the wrong terminology in the House. Will he please try to remember?

Photo of Ian Taylor Ian Taylor Conservative, Esher and Walton

The hon. Gentleman is far too shrewd and well informed to think that I have the figures at the back of my mind or to ask the question in that way, because in recent years the quantity of applications has increased so that it is likely that the percentage of grants given will have decreased. That is a matter that he can ponder later.

There is bound to be pressure on research councils such as the Medical Research Council. The quality of research in this country is buoyant—it is very good. The applications coming through are remarkable. It will always be a challenge for any budget that is constrained to meet all the desires of all the scientists in this country.

Labour Members mentioned inward investment. Much of the inward investment has brought with it a science relationship. One reason that Siemens came into the north-east with an investment of more than £1 billion was the quality of the five universities in that region. Siemens has invested in close relationships with the universities, and was attracted by their academic excellence and the openness of our university system, compared with the very closed and rigid nature of the German system.

There are many other examples. Motorola has worked with universities in Scotland. Look at how Sharp has functioned in Oxford and at how some of the biotechnology companies have invested in the United Kingdom. They have continually boosted the science base.

Much of that is blue-sky rather than close-to-market research, but I have never put down close-to-market research. In many cases, universities need to show industry that they are capable of understanding some of the more practical problems faced by industry, if industry is to have confidence in investing in universities' blue-sky research. Thus there is cross-fertilisation between industry and universities.

However, one should not have the impression that the United Kingdom is the poor man in Europe in terms of research because it is the absolute opposite. Some £46 billion of inward investment comes from other partners in the European Union alone, and much of it is closely related to research. For example, in Southampton, Pirelli is doing wonderful work in optical fibres. I do not have time to continue my list of examples but I hope that I have given a flavour of what is happening in that respect.

Technology is vital, and using information technology will be crucial in the future. Many changes will occur over the next few years. Indeed, some people say that the power of computers doubles every year in terms of the capacity of the chip. It is difficult to forecast; real-terms prices are certainly still declining dramatically, which means that over the next few years, the power of a computer at a given price will increase dramatically.

We are seeing a transformation in telecommunications in their broadest sense, allowing businesses to communicate with each other but also empowering smaller businesses to do things which previously only big businesses could do. I refer not just to electronic commerce but to access to information and the ability to analyse information, distribute it and profit from it within the business process—collaborative work that can now be done on line.

All those matters were at the heart of the programme for business initiative that we launched, which was designed to show that small businesses must understand that, if their competitive advantage is to be preserved, they must make full use of those information technology opportunities, or other companies will crowd into their market and reduce their competitive presence.

Having been positive, I want to end on two negative notes. One of Parliament's jobs is to issue warnings when they are required. Two information technology problems are about to run side by side as, sadly, many of the same information technology skills must be used among a limited number of people in the industry. The first problem is the euro, and the second is the year 2000.

On the first problem, a great fallacy into which politicians often fall—some businesses certainly fall into it—is that the euro is only for a few multinational companies and that we need not prepare for it. Another fallacy is that, because it will not be legal tender in member countries until after 2001, it is a long way in the future. For many small businesses, the problem starts now.

For example, if a company like Nissan in north-east England decides to use the euro in all its internal operations from 1 January 1999, one must ask what impact that will have on Nissan's hundreds, if not thousands, of suppliers. Siemens will do the same. I have already mentioned the amount of inward investment from the European Union into this country. More than 200,000 people in this country work directly for inward investors from the rest of the European Union; the normal ratio of those employed in work closely related to that investment is five to eight times that figure. We then have British companies: I understand that Bass Charrington and Marks and Spencer will use the euro in all their internal operations.

Regardless of whether hon. Members like the prospect of the euro—I shall not get into that debate now—I simply say that British industry must prepare for it. If it does not, it will have a profound competitive disadvantage. If the euro is used in all the supply chains and in its Treasury functions, and is the dominating currency used by companies based in this country, small companies will have to adapt. If they wake up to that fact next year, they will start to panic. A second reason why they may have to panic next year is that Cap Gemini, a computer consultant, reckons that up to 29 per cent. of British gross national product could be at risk because of the 2000 computer problem—the fact that computers will fail to recognise the 1999–2000 date change. That may be a gross exaggeration, but Midland bank reckons that one in five small companies will fail as a result of that computer collapse.

British companies will panic next year. The danger is that they believe that the problem need not be resolved until 31 December 1999; yet next year they will suddenly realise that companies with which they have traditionally dealt will no longer be prepared to deal with them if they are incapable of complying with the 2000 problem well before the deadline. BT and some of the banks are already doing that. Indeed, the Government are already doing it. I hope that the Minister knows that the Government, in their technology platform contracts, already say that unless a company can be compliant with the 2000 problem, it cannot tender for technology framework contracts.

Photo of Theresa May Theresa May Conservative, Maidenhead

Does my hon. Friend agree that another serious problem faced by companies is the combination of having potentially to prepare for the introduction of the euro on 1 January 1999, as my hon. Friend outlined, and the 2000 problem, which means that they face the problem of an insufficient number of people with the IT skills to prepare the system necessary for those two events? Does my hon. Friend agree that the industry and the financial sector are seriously concerned about that problem?

Photo of Ian Taylor Ian Taylor Conservative, Esher and Walton

My hon. Friend is absolutely right and puts her finger on the problem. I was speaking about that problem at a conference yesterday. It is a grave concern. My hon. Friends may wish to know that the best reason for the United Kingdom not joining the euro on 1 January 1999 is the information technology reason. The best reason for us not being in the first wave of the single currency is that British business is simply not prepared for it.

The skills base is required to carry out both the tasks I mentioned: adapting to the euro, and solving the 2000 problem. In reality, the euro will not be delayed simply for that reason, however much it might have been desirable that Chancellor Kohl had as clear an understanding as I have of the 2000 problem.

Thus, my warning to British business is that, although the problems seem insuperable, they must be solved. Businesses may have to start prioritising, which means that some functions within the business may not be able to continue. I repeat that the problem will become critical next year, which is why I say that businesses will panic. They will realise that traditional relationships and supply chains will start to be cut off if they do not solve those problems. They will not be able to correct their systems overnight. It takes careful planning and a lot of painstaking effort, and extends into other areas like embedded chips and even personal computers. Even personal computers sold this year were not 2000-compliant. The problem will get no easier unless companies take a careful view of it.

This matter is far too serious to be party political. However, the Government show no sign of understanding, despite Action 2000, the size of the problem in terms of the British economy. I shall not get into a debate about whether the DTI is taking the right steps; I merely stress the implications for the British economy if we do not get it right. It is not a British problem; there is a global aspect to it, and we need to look at that as well and put pressure on many of the forums around the world.

For the British economy itself, whereas the Minister without Portfolio, the hon. Member for Hartlepool (Mr. Mandelson), is planning with excitement the exhibits in the millennium dome and the wonders of the great millennium exhibitions, there may well be in parallel quite a serious hole in the British economy, because of the problems that I have outlined.

Overall, my warning to British small businesses is: prepare for those problems, but, at the same time, look forward and positively at the need to innovate, to use good ideas, to put money into research and development, to co-operate with universities and to collaborate with small and larger companies, if we are to compete properly into the next century.

Photo of Ms Jenny Jones Ms Jenny Jones Labour, Wolverhampton South West 11:39 am, 7th November 1997

I am grateful for the opportunity to make my maiden speech in this debate. Earlier this week, I was asked—not by an hon. Member, I hasten to say—why I had left it so late to make my maiden speech, and why I had not fitted it into what that person called "one of the big debates". For me, this is one of the big debates, on an issue crucial to the House.

The reason I particularly wanted to make my maiden speech today is partly because of my involvement in small business start-ups in the past, and because we all agree on the importance of the small business sector to our economy.

Most of the businesses in Britain are small firms. They employ half the private sector work force, and the Federation of Small Businesses has calculated that, in the past 15 years, they have created 2 million new jobs.

The growth in the small business sector has also led to self-employment appealing to a much wider section of the population. We have heard how many young people now see self-employment as an alternative to unemployment or to staying in an unsatisfying job. We must acknowledge the work of organisations such as the Prince's Youth Business Trust in helping many young people to recognise the appeal of self-employment.

The small business sector is diverse in the trades in which it operates and the structures it embraces. It is no longer just sole traders and partnerships; the sector now includes co-operatives, community enterprises and small companies limited by guarantee.

Government policies and initiatives designed to enable industries to develop and compete in world markets need to understand the specific needs of small businesses. Small businesses are not merely a scaled-down version of larger companies: they are separate entities with separate and special needs.

When we discuss innovation, as in this debate, we need to understand how to encourage small businesses to accept innovation and take up the opportunities offered to them, so that they become more competitive.

I have many small businesses in my constituency. Since I was elected, they have repeatedly raised with me the key issues that concern them. The first is late payments, which is brought up time and again. We must find a way of reversing the growing culture of late payments in our economy.

I would prefer that to be done by voluntary codes of conduct, through information leaflets and by raising awareness, but, sadly, that has not worked. As late payments cause havoc to small businesses' cash flow, particularly during the vulnerable first 18 months of trading, we need concrete measures to encourage a climate of prompt payment. For this reason, I welcome the Government's Green Paper on the matter. Innovation will mean nothing to small businesses that go bust because their customers simply will not pay them.

The second issue is the quality of the support and advice services offered to small business. That will be crucial in encouraging innovation in this sector. Business advice is currently delivered through a network of agencies including business links, the Prince's Youth Business Trust, co-operative development agencies and enterprise agencies. Many of those agencies rely on seconded staff, often brought in from larger companies where they have successfully run large departments, or from local and Government service. The agencies often work on the assumption that, having successfully run a department in a large company, the adviser should know everything there is to know about starting up and running a small business.

Not so. The needs of small businesses are entirely different from those of large companies, and business advice services must reflect that. The result is that in Britain we have a variable business advice service. Some business advisers are extremely good. They may well have come from a small business background and be running a small business themselves. However, some are drawn from much larger companies, and simply do not understand what is involved.

I therefore welcome the Government's proposal to set national standards for small business advisers. We must bear in mind the fact that, if the business advice is wrong, the small business—not the business adviser—will bear the brunt.

I also welcome the proposals which I understand are to be made to ensure that the boards and management committees of business links and other business advice agencies have a strong small business representation. It is crucial that the special needs of small businesses are listened to, understood and met.

The third issue is support services, which will be crucial to encourage small businesses to embrace innovation. Small businesses need a far greater take-up of information technology. We have already heard the figures. Small companies use information technology to a much smaller extent than larger companies, but they must adapt to it in order to compete worldwide. I fully endorse the policies to encourage IT into small businesses, but I am concerned about the way in which support services will be offered to the businesses so that they can take up innovation.

A great deal of training will be required. It must be understood that small businesses do not have the resources or the time to release staff to go on training courses. The training will have to be taken into the companies. Many small businesses turn down opportunities, not because they are not interested or do not realise its importance, but because they cannot release staff to go out of the companies.

I shall give a couple of examples from my town, Wolverhampton, where the university, through the STEP scheme—the special temporary employment programme—places IT students in companies, using chamber of commerce sponsorship, so that the students can work inside the small businesses, examining their IT needs and helping from inside the firm. No staff have to be released.

The university has a newly established science park and has set up what it calls the broadnet—websites for small businesses on the internet. From their premises, those businesses can tap into business information and support services.

I take this opportunity to sing the praises of Wolverhampton university. It is a modern university, dedicated to working with businesses. It has developed the science park, and is using new technology and taking it into companies.

The fourth issue is red tape. There is no doubt that small businesses consider themselves overburdened with the regulatory paperwork they must deal with. I appeal to the Minister to streamline the paperwork that businesses must cope with. As was said, businesses will find it extremely difficult to accept innovation if they are tied up in red tape. That will be a turn-off.

My constituency and the town in which it is situated has a long history of trade and industry. Wolverhampton was founded by a woman more than 1,000 years ago. Lady Wulfruna was a Saxon noblewoman who received a charter from the king at the time, Ethelred, to set up a settlement on the high land. The settlement became known as Wulfruna's Heantun, which became the modern town of Wolverhampton. A Saxon cross stands in the grounds of St. Peter's church, which also had its land granted by Wulfruna, and which testifies to the town's ancient beginnings. Over the centuries, several of the town's institutions continued to be named after Wulfruna, including Wulfrun college, the successful further education college in my constituency.

The entrepreneurial spirit of the early Wulfrunians soon became apparent, and a market was established in the 10th century. Unfortunately, they neglected to get a licence from the king, who took great exception, and fined them before granting them a licence. Wolverhampton soon established itself as a wool trading centre, and in the 14th and 15th centuries it was regarded as one of the staple towns of the wool trade. To this day, that is reflected in the town's coat of arms.

Wolverhampton's prosperity and energy was captured by Turner in 1795, when he painted the town's market. The painting was part of the artist's early work, before what is known as his mushy period. There is a new book in the Library on Turner, but unfortunately it does not include that painting. If anyone wishes to see a print of it, however, there is one in my office in the House.

Hon. Members may not be aware of Wolverhampton's connection with the gunpowder plot. Some of Guy Fawkes's co-conspirators took refuge near the town, and those who gave them shelter were captured and brought to trial in Wolverhampton. They were publicly executed in the town's main square, which is now a pedestrian precinct.

The arrival of the industrial revolution was fully embraced by Wolverhampton, which swapped trade for industry. The wealth of the town continued and grew, and those seeking to make their fortunes were attracted to the area.

Over the centuries, Wolverhampton has welcomed people from many walks of life who are willing to work hard and contribute to the town's prosperity. My constituency's multicultural population is reflected in its wide variety of eating houses and places of worship. The multicultural aspect of my constituency is a strength, not a weakness. From time to time, some have attempted to portray that aspect in a negative light—it happened again during the recent general election campaign, but the people of Wolverhampton, South-West decided that their health service, their schools and their jobs were more important than the colour of their neighbour's skin, and for that reason the victory on 1 May was sweeter than many others that night.

Wolverhampton's economy suffered badly in the 1980s as the manufacturing sector collapsed, but partnership among the council, the chamber of commerce, the university and local businesses has revived the town's fortunes, and it is now an attractive place to do business.

Wolverhampton suffers from a poor national image which is quite undeserved, and visitors to my constituency invariably say that it is much nicer than they had expected.

On a visit to Canada this summer, while browsing through a bookshop I picked up some travel books on the United Kingdom, and was interested to read that Canadians certainly consider Wolverhampton worth a visit.

Clearly, people who have no preconceptions about my constituency find it an interesting and attractive place. Its art gallery is rated as one of the best provincial galleries in the United Kingdom. One of the finest collections of William Morris furnishings and pre-Raphaelite paintings can be found at Wightwick manor, a National Trust property on the edge of my constituency. Bantock House museum has a magnificent collection of Bilston enamels. My constituency also offers a newly refurbished racecourse and the town has many nightclubs.

Last, but by no means least, Wolverhampton Wanderers football club is one of the oldest and most distinguished clubs in the country. Last year, the club unveiled a statue to commemorate one of the all-time soccer greats who used to play for Wolves—Billy Wright. I am, of course, a devoted fan of Wolverhampton Wanderers, not just because the stadium is in my constituency but because some of my husband's relatives used to play for the club, and distinguished themselves in doing so.

Being a Wolves fan can be a somewhat invigorating experience. The club has certainly had its ups and downs in the past, but it is currently going through an up, preferably into the premier league next season.

Finally, I turn to my predecessor. It is customary for a new Member in a maiden speech to talk about his or her predecessor. As the House knows, mine was Nicholas Budgen, who represented Wolverhampton, South-West for 23 years. I feel that I can say without fear of contradiction that Mr. Budgen was a high-profile Member. He voiced his opinions strongly on issues that he considered important. It is not for me to pass judgment on his service as an hon. Member; I shall leave that to his contemporaries and to history. However, my family and I knew Nick Budgen for many years, and during the election campaign he and I attended several public meetings together.

The campaign in Wolverhampton, South-West was robust and energetic, leading the local papers to describe the pair of us as "The Nick and Jenny show—the only show in town worth watching". We both found that rather amusing.

Nick Budgen enjoyed being controversial, and thought nothing of taking on a room full of people in vigorous debate. On several occasions, he reminded me of a child stirring an anthill with a stick just to see what the reaction would be. His wry sense of humour was used to very good effect, although it was often aimed at his own party. He was always polite to me; he never got personal, and he always stuck to the issues.

Several days after the election, Nick Budgen telephoned me to wish me good luck in my new job. I now wish him good luck, as I gather that he has decided to return to the law. My biggest debt of gratitude to him is for his considerable contribution to the success of my campaign, in that, he enabled me to become the first Labour Member for Wolverhampton, South-West.

Photo of Mr Brian Cotter Mr Brian Cotter Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson 11:56 am, 7th November 1997

I congratulate the hon. Member for Wolverhampton, South-West (Ms Jones) on her knowledgeable contribution to this morning's debate. She spoke clearly and raised a number of serious issues, such as late payment and business support.

I whole-heartedly welcome the opportunity today to debate innovation and the role of small firms. As the Liberal Democrat spokesman on small businesses and as a small business man of some years' standing, I have become increasingly frustrated at the often unnecessary pressures that small and medium-sized enterprises face, particularly when those pressures seriously impinge on a company's desire for growth and expansion.

I was glad to hear the Minister refer to a long-term approach. Coming from a background of manufacturing, I also welcomed her commitment in July, when she said: I want to see British innovators and entrepreneurs starting new businesses, particularly in high technology and manufacturing sectors. I shall be watching that space closely.

It has long been a concern of mine that manufacturing has declined. Many promote the cause of financial institutions, but what is money for if not for purchasing? A great amount of purchasing is of manufactured goods.

In almost every issue that I encounter as a politician, whether it be crime, education or charity shops, to name but a few, small businesses are affected in one way or another. Yet, somewhat surprisingly, the integral importance of small businesses to our economy and the country as a whole often goes largely unrecognised—although, all of a sudden, quite a few hon. Members seemed to pop up at Prime Minister's Question Time this week, with contributions that were not all as constructive as they could have been. In the past, there has been a great concentration on big businesses and I hope that, with the new Government, we shall see a change. I certainly hope that that will extend to the media as well.

The Minister referred earlier to the fact that in this country we have not been very strong in converting new ideas and inventions into commercial success. The severe problem has been a lack of willingness on behalf of financial institutions to lend money for new ideas. Perhaps the Minister can do something to encourage more imagination among lenders. Too often, our inventions have gone abroad. Are financial institutions geared up to recognising initiative, or are they more interested in passing money from hand to hand?

In an age of unlimited communication, the customer and community are wiser than ever. Demands and priorities shift radically and subtly, and business must be able to respond. The key difference between small and large firms is their role in innovation. Small businesses often have a niche in the development of innovation because they provide a product or service that is slightly different from that provided by larger firms. That success is unarguable, as small businesses have a larger share of major innovations than their share of employment.

Innovation plays a vital role in a company's competitiveness. Profitability will slowly decrease if a company's sole objective is to keep costs down without paying attention to innovation and innovative processes. Customers will therefore be attracted to new products or services that other competitors offer. That is why this debate is so important. As with dinosaurs, so with companies: it is survival of the fittest rather than the biggest that will determine the economic winners.

As the hon. Member for Esher and Walton (Mr. Taylor) said in his constructive speech, design is vital. We all receive information on that. I agree with him and reiterate the point that an extra 1 per cent. of turnover can lead to an increase in profits of between 3 per cent. and 4 per cent. I very much welcome his contribution about engineers. Many people are concerned that engineers should have their profile raised and be much more readily accepted. I support his concern, too, about the euro and the preparedness for that. Such a large issue merits a speech on its own.

Funding problems, cash flow and available staff mean that a small firm is less likely to be heavily involved in the research process, but creativity must not be wasted. Fledgling enterprises must receive the support of a sympathetic capital framework. For Britain to remain competitive in the long term, we need active government and constructive support for enterprise and initiative that will allow British companies to compete. Most important, we must invest in skills and education. That is why the Liberal Democrats are fully committed to improving education, from nursery level to higher education. We are, as we have said, committed to that principle to the extent that we are prepared to fund it by a penny-in-the-pound income tax policy.

If we provide the young with access to understanding the role and significance of skills and training, the economic benefits will be realisable in the long run. A one-off introduction of skills and training will not suffice. The Government must provide opportunities for retraining and the updating of skills, to avoid falling foul of the fact that rapid obsolescence of skills is a principal characteristic of today's economy.

Furthermore, it is vital that we end the nonsensical competition between educational and industrial sectors for project funding and establish instead a collaborative approach to research and development. Links between industry and academics will ensure that the laboratory breakthroughs of today feed more quickly into the production line innovations of tomorrow.

I should like to take this opportunity to detail some problems that prevent small and medium-sized enterprises from taking more innovative steps. Cash flow is important to enable firms to plan for growth and product development. Two principal factors seriously hinder companies' innovative abilities. The first is business rates. The uniform business rate is indiscriminate and set without reference to the local economy. The UBR has seen strategic growth objectives replaced by a rolling, short-term agenda, which has played havoc with regional and local markets.

In August 1997, a Forum of Private Business survey found that 52.3 per cent. of businesses believed that the UBR was their principal and most frequent concern. The Liberal Democrats are committed to addressing that concern by abolishing the UBR and replacing it with a local site value rating, which would be set and raised by the local authority. That would permit the local authority to respond sensitively and, indeed, sensibly, to the business community and to account more fully for the impact of planning decisions and complex developments on the local economy.

The second factor is late payment of debt, which also cripples small firms. That is why the Liberal Democrats welcome the forthcoming legislation on the statutory right to interest on late payment. That legislation and the reform of the business rates would free up cash flow for small firms. However, much more could be done to improve the situation.

As I have already said, initiative and innovation can be found in small firms. Unfortunately, too many promising business plans, with exciting implications for local and regional markets, fail to make it off the drawing board because of a lack of starting capital. We therefore propose a series of radical measures to ensure that such creativity is not wasted. The Liberal Democrats support the establishment of regional development agencies, which has also been proposed by the Government. We have been hammering away at that idea for years, so we welcome the Government on board. However, we shall examine the final proposals carefully for, in particular, democratic accountability. If the RDAs are to succeed, they must relate to the local community, which is the basis for the whole idea. To ensure effective small business support, the RDAs must have proper access to finance that they can use to support innovation. I urge the Minister to consider that idea carefully.

All those proposals assume that, at every stage, businesses receive the support and advice that they need to develop, innovate and prosper. For a long time, a plethora of business support groups has existed, but unfortunately duplication of work often occurs. The problem requires examination to maximise efficiency—for example, one-stop shops should be encouraged. Too much money has gone to waste. Many firms, both new and established, have never heard of their local business link. Why not? For example, the overall winner of the small business of the year competition said to me recently, when I asked her that very question, that she had not heard of business links or training and enterprise councils. Her business succeeded, but not everybody can do it alone.

It is ludicrous that most business links do not even have rolling programmes or contacts with the high street banks. I spoke recently to a group of some 20 to 30 start-up companies, which were sponsored by a bank. They had been going for some 18 months and a good half had not heard of business links. That is a worrying statistic.

Business links are also notoriously inconsistent. Some are good and some are very bad. For example, the network should be used to encourage innovation in computerisation. However, my experience with my company has been mixed. On one occasion, I asked for help with computerisation from a local counsellor at the local business link, but he did not have any suggestions to make. Yet a few weeks later I approached a computer company and was told that there was financial support through business links, and if I approached a certain gentleman there, he would give me more details. That is rather worrying.

Many business links are not overly concerned with struggling businesses, preferring to concentrate their money and their support on small firms that are already achieving, and therefore do not require so much assistance. That practice ignores the fact that many of the smallest firms are among the fastest growing, and have great innovative potential.

The Minister recently said that the intention was to extend business links down to the lowest level, and I hope that that will happen in practice. I shall be watching developments closely.

The one-stop shop should provide opportunities for business innovation. Such a body would recognise the fact that small and medium-sized enterprises face considerable difficulty in raising capital for investment, especially in securing resources to maintain their existing markets.

In addition to the measures that I have already mentioned, the following factors would ensure that SMEs could be helped to maintain their competitive edge. The Government should work with the banks and the private sector to develop new sources of private finance. Liberal Democrats would encourage the development of grants, equity finance and mutual guarantee schemes.

The adoption of mutual guarantee schemes, in particular, would be an effective support for business initiatives. Such a scheme operates as a sort of co-operative. Firms collaborate to set up a society and establish a pool of money to be available for lending within the membership at a reduced rate of interest, without a requirement for punitive and difficult-to-achieve collateral.

In France, Belgium and Germany, 20 to 30 per cent. of borrowing takes place through similar schemes, with consequent lower interest rates and stronger SME sectors. I hope that the Government will pay attention to that approach and promote it throughout the country, especially through business links.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

Does the hon. Gentleman agree that it would be disastrous if the budget for business links were reduced next year? The Minister has already confirmed that this year it will remain the same as it was under the previous Government, but the budget for successive years is under review. Will the hon. Gentleman join me in expressing concern about the possibility of that budget being reduced?

Photo of Mr Brian Cotter Mr Brian Cotter Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

I agree with you about any reduction in the effectiveness of business links. However, I think the idea is that business links are supposed increasingly to become free-standing and to finance themselves, so the scheme will progress in that direction. I would join you if the Minister, unless she says otherwise—

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The hon. Gentleman must take his seat when I am on my feet. I believe that he was agreeing not with me but with the hon. Member for Chesham and Amersham (Mrs. Gillan), who intervened in his speech.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

May I deal with a misunderstanding on the part not of the hon. Member for Weston-super-Mare (Mr. Cotter) but of the hon. Member for Chesham and Amersham (Mrs. Gillan)? There is no separate spending review for business links—although, of course, every Government programme in every Department is subject to our overall comprehensive spending review. I am sure that the hon. Lady knows that full well, but I thought that I had better pick her up on that little point.

Photo of Mr Brian Cotter Mr Brian Cotter Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

What we look for within the business links system is advice, and I shall touch briefly on some important details. Many small firms are not well aware of how to produce their own management accounts. That is the sort of system that I would hope business links could promote among small companies.

Perhaps one way of helping companies in a financial direction would be a "lend an accountant" scheme. Trainee accountants, in their last month or so, could go out into industry, especially to small companies—not, perhaps, to learn from a company so much as to give it some idea of how it should operate as a small company. Another important factor to which the Minister referred is mentoring, which is vital in terms of business links. A rigorous code of banking practice should be drawn up and the powers of the banking ombudsman reviewed with a view to extending them, to guarantee that banks provide a better SME service.

One further interpretation of innovation is the process of improving business management, which I maintain means more than cuts, downsizing and the bottom line. The challenge is to manage constructively. The management consultants who reported on my small business commented that I had in my business plan a commitment to create jobs and to keep people in work. Why not? It is sometimes easy to sack employees, but it is more difficult to keep people in work. It is easy to create a downward spiral.

I am a member of the Deregulation Committee, which gives me a role, I hope, in bringing innovation to business practice. We need to bring an innovatory approach to how we run and regulate our businesses. I know that the Forum of Private Business has some ideas on reducing the burden of red tape on health and safety. There is a great tendency with the bureaucracy of regulation for it to grow rather like creeping ivy, to slowly strangle business. Regulation often seems to feed off itself; for example, in the past, catering organisations have been required to clean their ceilings twice a day. Frequently, that is not required—it is regulation gone mad, and I hope that the Minister looks at that matter. I am all for health and safety in the workplace, but regulation can be a barrier to innovation, and we should examine the proliferation of rules for the sake of rules.

The ideas that I have put forward today only begin to touch on an important issue. We are at a crossroads—as we have often been in this country—but now more than ever, we must take the right road to high-quality education and training. We must be innovative in our ideas when it comes to business support, so that small businesses can be given a chance to be truly innovative themselves.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford 12:18 pm, 7th November 1997

I congratulate my hon. Friend the Member for Wolverhampton, South-West (Ms Jones) on her maiden speech. I found her account of the origins of Wolverhampton both interesting and informative. I had thought that Wolverhampton had something to do wolves—either the sort that whistle or the sort with four legs. I now know that I was wrong. I welcome my hon. Friend's insight into, and experience of, small businesses, which will be a great advantage to the Labour party in fulfilling its election commitment to small businesses.

The term "research and development" is often quoted as a founding contribution to innovation, but without too much differentiation between what are two quite distinct activities. Research is a process of finding out new knowledge that becomes the raw material and provides the ingredients of development. Development means taking new or existing knowledge and applying it to solve a problem or to create something that people will buy. Innovation involves making a new product that is commercially successful.

We in Britain often congratulate ourselves on the excellence of our research. That is justified: the number of Nobel prizes that we win is out of all proportion to our population, and British research papers are respected worldwide. That is a mark of our ability to produce original work and ideas which may then become the raw material for commercial development anywhere in the world.

As I said in an intervention on the hon. Member for Esher and Walton (Mr. Taylor), there is substantial anxiety about the recent erosion of our basic research. The foresight exercise certainly enables us to identify ways in which science may be boosted, and more work needs to be done, but anxiety remains about the future of the foundation of our scientific knowledge.

The phrase, "invented in Britain, commercialised in the United States" is legendary and should also cause us anxiety. Britain excels in research but has an extremely mixed record in development. Japan, with a much poorer record in original research, excels in development. The United States has an excellent record in research and development and in commercialising the results.

A debate on innovation and small businesses must explore why we are so much weaker at development and commercialisation than at research. The problem cannot be remedied by trying to turn our universities into development institutions; that is not their role, which is to widen and develop the fund of scientific knowledge that is available for subsequent application.

Development depends on knowledge of markets, which universities do not have, and which it is not their role to have. Development is undoubtedly the role of industry and other commercially oriented organisations.

Industry does not need universities to be a cheap source of development effort. That would only deflect them from their principal roles not only of expanding the fund of scientific knowledge but of giving people research and development skills for application elsewhere.

Britain's weakness in innovation lies at the junction between technical and scientific knowledge and market understanding. Some members of the scientific community have displayed a supercilious attitude towards development, suggesting that it is an intellectually inferior activity and that only pure science should be promoted. I hope that that attitude is disappearing; if it is not, I hope that we can do whatever is necessary to disabuse those who maintain it.

Bringing the technical and market sides together does not mean simply getting people who work in marketing in industry to talk to people who work in technical roles in industry. The tendency is for the people who work in marketing to regard the long term as anything more than six months hence, whereas those in research and development consider it hardly possible to achieve anything substantial in less than 18 months or two years. If we are not careful, the whole process turns into a dialogue of the deaf.

Where there is accommodation, the end product will often be the incremental change of existing products or processes or a minor adaptation to new markets. I do not want to belittle that. The progressive and gradual adaptation of any business and product is essential.

In talking about innovation, however, we are talking about substantial changes that widen profit margins and enable a company to take more than a transitory lead over competitors. That implies development programmes that anticipate demands three, four or five years hence. It implies an intimate understanding of what would be the advantages that would bring value to customers. The missing ingredient in many development programmes in Britain seems to be that sensitive awareness of what customers will need in the medium and long term—three to five years hence.

Circumstances in different companies will define how best to plug that gap in market knowledge. In some, the research and development activity may well need to be integrated much more fully with business planning and management. Certainly in some companies research and development activity is treated like a firm of plumbers called in an emergency to deal with a leak: they are not part of the weft and warp of that business's activity. All the evidence shows that, where that is the case, companies do not get the best value from their research and development. In other companies, more deliberate attention needs to be paid to finding out what the markets require and what customers will find valuable.

Where the issue is high technology and two technologies have to be developed and harmonised, there is no substitute for companies jointly working on that development so that one side knows clearly what the other will want. There is no other way to gain that knowledge in the detail that high technology development now requires.

That work is essentially internal to any organisation, but beyond that is the phase of development that we could call development in the marketplace. After all the analysis and technical ingenuity of development, there is a need to check with customers the acceptability of an innovation before any large-scale investment in launching and manufacturing it is made.

Japan is very good at that. Most of the products exported here have been tried out on the Japanese market for several years, and many others never see the light of day in international trade for just that sort of reason. That period of trial, error and adjustment is one reason why the Japanese are so good at development. If it is missed out, there is undoubtedly a danger of major investment being wasted and the company's future innovative activity being discredited among those who think it is best to "stick to their knitting".

That is most particularly a danger in large and more mature companies with major products that are already established. In the management of such companies, there is an impatience with the inevitably small volumes and returns of the early days of a development and a tendency to insist that demand increases more quickly, that everything should be born adolescent, and an impatience with childhood. It does not work. That is the mechanism by which many mature companies kill off potentially successful innovations.

For all those reasons, a strong school of thought with good reason behind it believes that the latter stages of development and the early stages of commercialisation are best carried out in some model of a small company, even if it is within a larger one.

Small companies have the flexibility, speed of decision and informality that best suits innovation. Their problem is raising money for what is inevitably a risky business. Funding innovation is more akin to insurance than to banking. The investor will be rewarded if one out of 10 projects succeed—the insurance basis—rather than taking 10 per cent. from all 10 succeeding. Venture capital organisations tend to understand that. On the whole, banks do not.

Small established companies have particular problems in renewing themselves. Innovation does not depend only on new research—it may be things done a few years ago that apply—but it does involve a small company having someone there to absorb the technology from where it originates. Many small and medium-sized companies do not have that capability, although many have a close understanding of the market and their customers.

In Germany, the problem has been addressed through state-sponsored organisations, such as the Fraunhofer institutes mentioned earlier, that undertake development programmes under contract for small companies. The people involved are often recruited into the small companies, and so the organisations also act as a staging post between academia and the industrial small company. Perhaps similar organisations could be established in Britain associated with our regional universities without detracting from their principal role. It may be appropriate to consider using some of the defence research organisations, which are becoming redundant, for the same role.

I wish to touch on the attempts of the Government and European Union to stimulate innovation through grant systems. Too often, the tendency has been to make them conditional on projects that are distant from the market. That has meant that we have stimulated research projects that have added to the fund of knowledge that goes unused.

The real problem for industry in dealing with innovation is that budgets rise rapidly during the development process without risks being diminished. That is why industry tends to baulk at continuing some of the riskier projects. If we are to encourage innovation, both British and EU schemes for encouraging it by grants need to address that problem and provide the aid much nearer to market, and not be too squeamish about its being near to market.

I commend to my hon. Friend the Minister the consideration of some form of aid for launching products into the early stages of commercialisation, which is an expensive and risky business and, very often, the inhibition on innovation.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman Conservative, Billericay 12:33 pm, 7th November 1997

I congratulate the hon. Member for Wolverhampton, South-West (Ms Jones) on her practical, down-to-earth contribution. One of the things that women bring to the House is a good dose of common sense. While our male colleagues, with the best will in the world, often waffle on about the niceties of a matter, she brought it down to the facts, because of her background as a business adviser and training manager.

I was interested to hear the hon. Lady say that the problem that small firms have with schemes such as business links, mentioned by the hon. Member for Weston-super-Mare (Mr. Cotter), is that they do not have the time, staff or ability to let people go off on all these wonderful courses. Nor do they have time to fill in the endless forms to take advantage of the wonderful grants that are available through the Government, and perhaps the European Community.

The Minister has pledged that she intends to isolate and tackle the factors that stifle growth. I hope that, when she does so, the hon. Lady is on her team, because she has a lot of practical common sense to offer. She told us about the problems faced by the innovative wool merchants of mediaeval Wolverhampton, who had to counter attempts by the king to get in on the act and spoil their efforts to establish the wool industry. She knows perfectly well that similar problems are faced by companies now from the local council's planning man or environmental man, who will not agree to a change of business use for premises wanted by business men. Those are the practical problems that we should talk about in a debate on innovation.

The debate has been stimulated by the Government's response to a report published in another place entitled "The Innovation-Exploitation Barrier". The barriers to exploitation and innovation are largely Government-made. They are the regulatory structures that stop newcomers and entrepreneurs from getting their good ideas off the ground. On the very first page, the report points out that one of the greatest problems is the availability of finance. Many people have a good idea, and translating it into a practical new business is a major problem in itself, let alone obtaining the means to finance it.

Most small business men initially go to their banks, and they often pawn their homes to get the necessary funding. Every time the Government put up interest rates, that creates additional problems for them. After just six months in office, the Government have put them up no fewer than five times.

That means that the business man has to find more money to meet his monthly repayment loans. That is a serious problem. It is all very well for the Governor of the Bank of England and his monetary committee to sit there working out international market movements in currencies, but it boils down to the practical problem of finding the extra money out of meagre profits to meet the loan repayments.

We saw some mega-mistakes in financial wranglings because of the ghastly exchange rate mechanism experiment. Because of that, small firms that had hocked their businesses and their homes to extend their commercial activities went down the pan. That was a dreadful example to us of the way in which such currency interventions can operate, and I am afraid that it was my Government who pursued that policy towards integration with Europe.

I beg the Minister to bring those examples to the attention of her Government colleagues who wish to pursue the idea of joining a single European currency. The problems we encountered will recur, and perhaps no one will suffer more than small businesses and the people employed by them.

I would not quarrel with the idea that the universities produce a great many of our innovative ideas, but we must also remember that many people learn their trade on the job, particularly those who do not do well at school or do not go to university. Let me mention a couple of outstanding examples.

I believe that Alan Sugar is touring the country on behalf of the Government trying to get children at school interested in the idea of business. I hope that he also points out the problems he had when he started on a market stall. He had to go to Korea to get his low-cost computers made. That may have had something to do with funding and the difficulties created by Governments when it comes to employing people. He may have had problems with his local council when it came to setting up his factory. Perhaps the health and safety officer was set to create so many problems for him that he could not produce his product at a price at which he could sell it.

Dyson is another man who had a great idea. He is an engineer who learned his trade as a workman, but he could not get funding here, and had to go to Japan to get his project off the ground. In fact, I understand that the big companies wanted to buy up his idea for a new vacuum cleaner just so that they could shelve it.

All those barriers are practical problems. If the Government want to innovate to get rid of those problems, they should start by considering the system in Italy. There, small firms employing fewer than 20 people, or fewer than five in agriculture, are exempt from most of the petty regulations applying to employment and from social service regulations; as a result, the additional costs of employing people are lower.

In this country, those additional costs are running at 18 per cent. of salary; in Germany, the figure is about 45 per cent., which is why we would be mad to take on the responsibilities implicit in the social chapter. Doing so would make us uneconomic and undermine and begin to destroy our industry—which is doing extremely well thanks to the work of the previous Government.

The first innovation I would recommend to the Government, therefore, is to send someone to Italy to find out about that country's marvellous scheme. The vast majority of large companies—even companies such as Fiat and Benetton Group—make most of their products not in vast factories, but in little back-street workshops and in family businesses that can get on with the job without Government regulations and inspectors breathing down their necks.

Photo of Nick Palmer Nick Palmer Labour, Broxtowe

Although I respect the hon. Lady's enthusiasm for European ideas, does she really think it wise to introduce artificial distinctions between larger companies, which would be required to treat their employees well, and smaller companies, which would be free from restrictions? Would not that lead to all sorts of artificial construction, whereby larger companies disguised themselves as conglomerates of smaller companies?

Photo of Mrs Teresa Gorman Mrs Teresa Gorman Conservative, Billericay

The hon. Gentleman raises an interesting point, but that situation already exists to some extent. The growth in part-time work in this country has more to do with firms, both large and small, trying to get around the extremely expensive and limiting Government regulations and restrictions on employing people than with the jobs on offer needing only part-time workers.

That change from full-time to part-time jobs will continue if the new Government insist on introducing the minimum wage. That is not because small firms pay minimal wages—there is no evidence that they do. It is terribly important that younger people are able to get on the job ladder. Young people with few skills have only one way of learning skills to make themselves more employable, and that is by taking a relatively modestly paid job. It is a way of paying for training, just as those who go to university forgo income for several years as a means of paying for their training. The minimum wage will deprive young people of that opportunity.

The Government often mention the United States when talking about the minimum wage. In the United States before 1948, when the minimum wage was introduced, the unemployment rate among unskilled black young people was roughly the same as that among whites. By 1976, black youths in America were half as employable as white youths, and the ratio has worsened since. Because employers are able to discriminate at no cost—they have to pay the same wage, whoever they take on—they tend to take on white employees. The statistics tell us that mucking about with wages and imposing restrictions on employers leads to a reaction.

The information I have cited comes to me via a pamphlet by Walter Williams, a prominent black economist in the United States. He condemns minimum wages outright, because of the damage they have done to the employability of young black people in America, who tend to have a lower-quality education to offer employers. Our response might be to improve our education standards, but we will need to do a great deal to improve our schools—one way might be to put them in the hands of the private sector.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

Does my hon. Friend agree that the Government show a high level of hypocrisy because they know that the minimum wage will cause job losses, particularly among young people, and that is why the Low Pay Commission has specifically been given a brief to consider 18 to 24-year-olds? The minimum wage will undoubtedly cause job losses, particularly among young people.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman Conservative, Billericay

I absolutely agree with my hon. Friend.

I have pointed out that, although many ideas come from universities—high-tech, biotech, infotech and all the rest—the great majority of new jobs are low-tech jobs, which the Government have also made one of their major targets. Every day, those jobs supply us with our needs, whether they be fast food sandwiches, someone to unplug the drains, or street sweepers. All those jobs are important too, which we tend to forget when we talk about the wonders of new technology.

Perhaps new technology comes down to a new way of recording music or providing entertainment, but low-tech jobs are all valid ways of people earning a living, and they probably provide much more employment than the high-tech element. That is how the small corner shop and the factory under the railway arch contribute, and I implore the Government to understand that their policies of involving themselves in more regulations will have a destructive effect in that respect.

It is all very well to talk about business angels, but they rely on a flow of capital—people's savings—to invest in projects, which they will not do if Government start to increase the cost of money and to make it more difficult to raise capital. People's savings will be taken from them if the Government add on additional costs.

The Labour party's raid on pension funds has already been mentioned. Money will not be taken away, but everyone will have to contribute more to their pension funds. Those funds will inevitably have less money to invest in innovative ideas through business enterprise schemes, and innovation will suffer. Therefore, if the Government are practical and really want to get rid of barriers, I hope that they will reconsider the schemes they propose, not least those making money more expensive, which will undermine the wonderful economic legacy of the previous Government, who delivered one of the best economies in the world.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford

The hon. Lady has several times mentioned her aversion to the social chapter, which gives people security and decent conditions at work. Will she recognise that innovation depends on people taking risks and being creative, and that they will do that only if they are in secure employment? They will not do that if they are subject to the hire-and-fire culture that existed under the previous Government, whom the hon. Lady has supported, off and on, in past years. The policies of total deregulation and of putting people at risk, with people not knowing where their next wage is coming from and whether they will still be employed in a week's time, are total anathema to an innovative culture.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman Conservative, Billericay

The hon. Gentleman must be aware that the previous Government reduced unemployment to an all-time low—despite many of the regulations imposed by the social chapter—but that each new regulation causes a distortion in employment patterns.

The latest, of which I hope the hon. Member for Wolverhampton, South-West might like to remind the Minister, is that firms will be punished if they fail to consult their work force about key decisions. She knows what it is like in a small firm. The idea that an employer must make a decision quickly, but that, before that, he has to run around, tell all his employees and get them into a committee to agree it, is nonsense, yet the Government will innovate all these social chapter requirements, which will have a devastating effect on small businesses.

I refute the idea that security is important in entrepreneurship. It is not. I recommend that the hon. Member for Bexleyheath and Crayford (Mr. Beard) takes a look at that classic of entrepreneurship, albeit in the Victorian era, Samuel Smiles's "Self-Help". It is a wonderful book, recently reissued in paperback. It shows that nearly every innovation—including, I may say, those of Mr. Sugar, of Mr. Dyson, of the man who invented hovercraft, whose name I cannot remember, and of Henry Ford—resulted from the innovators losing their job, being hard up and needing to work their way out of poverty.

These days, people are prevented from doing so by the barriers created by the state to getting a business off the ground. I recommend that the hon. Member for Bexleyheath and Crayford takes heed of the measures that the previous Government introduced to get rid of unemployment, and that he warns Ministers in the present Government that much of what they propose to do is likely to reverse the beneficial effects of those measures and undermine their policy of creating more jobs for youngsters.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman Conservative, Billericay

If the hon. Gentleman contributed that to the debate, I should be extremely pleased, but I am sure that, having made his contribution, he would prefer that I allowed someone else to get in on the act.

Photo of Nick Palmer Nick Palmer Labour, Broxtowe 12:50 pm, 7th November 1997

I declare a general interest in the subject. I have been an owner and publisher of a magazine for 14 years, and I advised my former company in the pharmaceutical industry.

I add my congratulations to my hon. Friend the Member for Wolverhampton, South-West (Ms Jones) on her maiden speech. I hope that, after I have been in the House for many years, I shall have learnt to speak as fluently and confidently as she did.

I support the comments of my hon. Friend the Member for Bexleyheath and Crayford (Mr. Beard), and disagree with the hon. Member for Billericay (Mrs. Gorman) about security being unimportant for small business. I would not dream of introducing a major change in the way my business operated without consulting my staff, and I would be surprised if any business that did so was successful in the longer term. The hon. Lady may agree that a stable environment is important for business; similarly, a stable environment, including some security, is important for the people who work in it.

I shall now discuss the report of the House of Lords Select Committee on Science and Technology, and the Government's response. I very much welcome the general trend of the remarks in that paper, but I have two reservations. The first, which was mentioned by my hon. Friend the Member for Bexleyheath and Crayford, concerns the dangers of the report's undiluted enthusiasm for the commercialisation of universities.

We often hear that universities are hard pressed for funds, and that they produce a great deal of important and valuable research. What could be more natural and more welcome than to reinvest in the university the proceeds of its research? It is motivating for people who work there; it contributes to the economy; surely it is an undiluted good. We should consider what happens in America, where that philosophy is widespread. I do not want to oppose development altogether, but I want to mention some possible drawbacks.

Such a philosophy leads to an excessive emphasis on research leading to immediate short-term marketability. The Select Committee says in passing that the effect is sometimes to undermine a focus on basic science, because it is very difficult to produce a marketable product from basic science. The more subtle and insidious effect in a university is that it tends to upgrade people who can produce a product that can be sold and to downgrade people who have been asked, perhaps for some years, to work in an area that does not happen to have that benefit. We must be careful that any change does not have that effect.

The philosophy has introduced, broadly in the United States and increasingly in Britain also, a reluctance among academics to co-operate to the extent that was possible in the past. There has always been competition between academics, which is natural and welcome, but there has also been a tradition of sharing preliminary results, working together towards a joint goal. Some universities and colleges, in this country and overseas, instruct their staff not to consult staff from other institutions on certain projects, because it might result in another institution achieving a marketable product first.

How can we prevent those side effects without killing the goose that lays the golden egg? We should not allow universities to become primarily dependent on marketing products as a method of finance. We must ensure that the Government continue to be responsible for the bulk of their finance, so that universities are responsive to the national need to upgrade the British people's level of education, giving everyone the best possible chance to produce a successful and congenial society.

My second reservation about the Select Committee report—I heard my concern echoed in one or two speeches today—is a certain insularity. It is the belief that, if a company is to flourish, it must find finance and support from sources in its immediate vicinity. The report says that, unlike in America, venture capital in Britain is somewhat cautious, and banks are extremely cautious about taking risks.

Governments can react to that in two ways. One way, which we all support, is that they encourage British venture capital and banks to take greater risks and try to build up institutions and rules to help them do that. They should also try to help small businesses find venture capital and research partners overseas. The future of markets in Britain is not small groups of companies clustering together against the whirlwinds of the global economy; it is British companies thriving in the world economy, in partnership with research institutions and other companies at home and abroad. The Government's role is to promote that.

What do small businesses most need to help them innovate? Small businesses are not necessarily those formed when someone working in an area sees an opportunity, grabs it and makes a market out of it. While those are welcome, they are not the problem.

The problem arises when a person with a good idea has neither a business background nor widespread contacts, and has difficulty moving into the market. He or she then needs assistance to set up, and advice and support not just with the corporation process, for which there is fairly widespread support, but, as mentioned in the Select Committee report, with patenting and trademarks.

That is such a headache for many small businesses that the Government should consider providing a service to assist small companies to register patents and trademarks, so that each small company is not forced to reinvent the wheel, and to prevent a company from registering a patent expensively, too early or with loopholes, so that it is cheated of the benefits of its innovation. New businesses also need to build research partnerships with related companies so that they can not only use the immediate idea but invest in the future.

Small businesses need to find partners for design, as was said earlier, and for help in marketing. A classic British disease is that we are good at producing products, but not so good at marketing them once they have been produced. Another requirement is access to venture capital.

Those conditions are not unique to Britain. Abroad, services and additional help for new companies to thrive are increasingly provided by internet links and long-distance national support networks. In some countries, that is done in an ad hoc way—individual entrepreneurs are setting up websites offering advice—and in other countries it is undertaken as a coherent strategy.

Even hon. Members who are committed to an entirely free market with no Government intervention may still consider that to be a legitimate area in which Government can be a real help to small businesses, by providing internet support wherever they are across Britain. For that reason, I welcome the enterprise zone initiative mentioned by my hon. Friend the Minister, which bears the potential to be expanded a great deal more.

The present initiative, as I understand it, offers advice on the internet to small companies. That could be expanded into a powerhouse for small businesses, providing an area to seek partnerships, an area to seek technical support, an area to seek finance and an area to market the products in retail virtual malls, as has been increasingly the practice in the United States.

That will be done by individuals across the country in any case, whether the Government do it or not, but we can help to give our small businesses a leap ahead of the competition worldwide if we take the initiative and use the enterprise zone concept to build on the possibility of support for small companies.

I believe that British businesses are increasingly willing to embrace innovation, if there is a stable environment and active Government support, which will help them to take the risk and succeed on the international market. I welcome the Government's commitment to the enterprise zone and their international orientation, and I hope that we will develop those initiatives to provide the basis for a powerhouse of British small business in the future.

Photo of Mr David Prior Mr David Prior Conservative, North Norfolk 1:02 pm, 7th November 1997

I congratulate the hon. Member for Wolverhampton, South-West (Ms Jones) on her maiden speech. We are all pleased to welcome to the Chamber an hon. Member with practical, down-to-earth experience of small businesses. If it is not presumptuous for a new Member like myself to say so, I think that she will make a terrific contribution to the House.

I shall make four points. First, all successful small businesses are led by entrepreneurs. There is a very limited role for Government in innovation. The Government must resist the temptation to interfere and intervene, and leave it to the hundreds of thousands of small business people who run their own businesses and do so successfully.

Secondly, the Minister should not underestimate what has happened over the past 20 years. There has been a radical change in British industry over that time. In south Wales, Scotland and the north-east—the traditional industrial areas—the steel industry, shipbuilding and coal have gone, and have been replaced by a multitude of new factories making new products. We are now the biggest semiconductor manufacturer in Europe. One should not rubbish what has happened over the past 20 years. The reform has had a profound effect on the British economy.

Thirdly, we have focused on high-tech businesses, by and large, today. However, there are many small businesses in market towns and small industrial estates throughout the country making traditional products. For those businesses, innovation is just as important as it is for high-tech companies. The product life cycle has shortened tremendously in the past few years, as rapid prototyping, stereolithography, computer-aided design and more flexible machine tools have made new products quicker to produce. As a result, traditional companies are under the same pressure to innovate as the more sexy high-tech companies, so that sector must not be ignored.

Finally, there will be innovation only if small businesses are successful and make profits. After the first five months of the new Government, the signs are not encouraging. There have been five increases in interest rates, there is an overvalued exchange rate, more regulation is threatened, with the setting up of the food standards agency, flexibility has been undermined by the social chapter, small businesses face a higher pension bill, and the apparent relaxation of planning policy guidance 6 for supermarkets in towns will undermine many small businesses in traditional high streets. In addition, the scope of the competition Bill has been widened to include the vertical integration of many industries, including the pharmaceutical industry, the public house sector and electrical retailing. My hon. Friend the Member for Billericay (Mrs. Gorman) has already mentioned the minimum wage.

After only five months of a new Government, the outlook for small business is not good. We heard the Minister using management speak and business consultancy words such as innovation and benchmarking, but it all comes down to profitability. If businesses are profitable, they will reinvest in new products, design and innovation. If they are under pressure, they will not. I know from my own experience how easy it is to cut back on product development when times are hard. It is one of the first items of spending that small companies can cut out when they have to.

I beseech the Minister to look hard at what the Government are now doing and to do what she can to keep regulation to a minimum.

Photo of Mr John Wilkinson Mr John Wilkinson Conservative, Ruislip - Northwood 1:06 pm, 7th November 1997

I start by declaring an interest as the executive chairman of a small company. Let me say what a pleasure it has been to listen to the speeches today, particularly the maiden speech of the hon. Member for Wolverhampton, South-West (Ms Jones). She represents the west midlands, the vibrant and vigorous powerhouse of industry, business and commerce—the real engine room of Britain's industrial prosperity. It was refreshing to hear a speech that was full of experience and wisdom based on professional experience.

The hon. Lady said that she wanted to take part in one of the big debates. What was particularly delightful about her speech was that although today's big debate has been characterised by some extremely long speeches, hers most certainly was not. It was succinct and to the point, and she set us all an admirable example, as did my hon. Friends the Members for North Norfolk (Mr. Prior) and for Billericay (Mrs. Gorman), who speaks with such authority on enterprise and the small companies sector.

I listened with sympathy to the Minister's speech. It was full of good intentions, and she recited the departmental orthodoxy quite admirably. I am not in any sense being cynical—far from it. However, the hon. Lady is potentially the victim of circumstances quite beyond her control. As my hon. Friend the Member for North Norfolk so eloquently suggested, the prognosis for the small business sector certainly does not look good. The Minister is likely to be the victim of the action or in some cases the inaction and prejudice of some of her ministerial colleagues in other Departments.

We must go to the heart of the matter, which was very well synthesised by my hon. Friends the Members for North Norfolk and for Billericay. Why do people go into small business in the first place? It may be because they have an idea of their own; perhaps they are in a big company and wish to pursue an area of expertise that has not been fully developed in an overlarge organisation; or they may feel that they want to make money. That is what we must emphasise. People do not innovate for innovation's sake. They innovate because they have to maintain their market share or expand it. Ultimately, if they are entrepreneurs, they have to be the driving force of a company that will make money, increase profits and thereby employ people. Such entrepreneurs can offer a future, which they can hand over to their family. I speak most particularly of the family business sector.

As capitalisation of so many small enterprises is low, they are particularly vulnerable to upward changes in interest rates, as my hon. Friends the Members for Chesham and Amersham (Mrs. Gillan) and for Billericay pointed out. We have had five interest rate rises from the Government already. The Government are taking a very relaxed, hands-off approach. The implication is that it is not their fault, because the Bank of England is independent, but five interest rate rises in five months is a bit much. It is symptomatic of something fundamentally wrong.

What is wrong is that the Chancellor—I spoke of the vicarious effect of the actions of the Minister's colleagues on her Department—was not willing to grasp the nettle of burgeoning demand in the economy with a much tighter fiscal stance in his Budget. He was lauded almost to the rooftops by Labour Members at the time, but many of us old lags on the Opposition Benches recognise that, come the winter, there will be much less to cheer about in his Budget.

Interest rates are one aspect that affects small businesses, but there are of course a number of others. There has been allusion in the debate to the effect of the abolition of dividend interest tax relief on pension funds. Some small companies might have to run a pension fund of their own, so they would have to increase their contributions to maintain their employees' pensions at the expected level. Perhaps the employees have personal pensions. If so, small companies would again have to increase their wages for their employees, to maintain the level of pension for which they had planned. Both those instances represent upward pressures on costs and wages.

It is not as if the owners or managers of small businesses did not have enough to do—they do. They have enough preoccupations on their minds. Many of them are one-man bands. I think that it is valid to compare them with the delightful characters who go down the streets of Santiago in Chile with a penny whistle between their teeth, an accordion in their arms and cymbals strapped to their knees. The sound is wonderful and they maintain the tune, but they are working flat out all the time—and so are entrepreneurs, managers and owners of small businesses. They have so many preoccupations, such as pay-as-you-earn, value added tax, the uniform business rate, the demands of planning departments and environmental health, which all have to be addressed.

The Government must be realistic. They have to try to reduce the burdens on small businesses. How can they do so while, at the same time, they have embraced the social chapter? The European Union is not the friend of small business. The Government must abjure some of the delusions with which they came to office. The social chapter and all the directives that will flow from it are one aspect.

Another much more alarming aspect is the process of economic convergence, which is inherent in the process of ever closer union via economic and monetary union, on which we embarked at Maastricht. That will ultimately, in the grand design of the new Labour Government—because that is what they want—lead to our participation in the single currency. What will it mean? It will mean that more of our hard-earned taxpayers' money and the hard-earned profits from our small and medium-sized enterprises will go to the European Union to fund the cohesion fund and the structural fund—the engines whose aim is to build up competitor enterprises in other parts of the Union. That is utterly the wrong approach.

Even if the single currency is achieved, the central bank in Frankfurt will not set an optimum interest rate for small and medium-sized enterprises in Britain: it will set an interest rate that is appropriate for the macro-economy of the European Union. For the success and prosperity of small businesses in this country, we need a Government over whom we have democratic control and who can keep fiscal discipline here. We need a Government who will not have to bail out other countries' pension fund deficits—which we would have to do if we participated in the single currency—and who will keep interest rates low. There is no objective that is of greater importance for small businesses.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford

How did small and medium-sized businesses fare when the previous Government—whom I believe the hon. Gentleman supported—raised interest rates to 15 per cent. plus?

Photo of Mr John Wilkinson Mr John Wilkinson Conservative, Ruislip - Northwood

It might interest the hon. Gentleman to know that I voted consistently against Maastricht, and my constituency association repeatedly submitted resolutions to our party conference that called for a reduction in interest rates, rather than the astronomic levels that were consequential upon our insane membership of the exchange rate mechanism. Incidentally, we shall have to rejoin the mechanism—if the president of the Bundesbank is to be believed—if we are to join the single currency. Furthermore, I did not support the financial perspective laid down at the Edinburgh summit, according to which our country will have to pay 3 per cent. extra in real terms every year until the end of the decade to the European Union.

Our Government should seek to reduce taxes on business and, to their credit, they cut corporation tax by 2p in the pound. This was a great step forward and I whole-heartedly applaud it. However, the Government do not understand the importance of facilitating investment in small companies, especially family enterprises. We should have a threshold for the smallest companies, below which they would pay no corporation tax. It is true of personal taxation, because one does not pay income tax until one has passed a certain threshold, and the same should be true of small businesses. They rely on their profits for innovation, expansion and the creation of new jobs. If a climate of investment is to be fully encouraged, we must also abolish inheritance tax and capital gains tax.

One final aspect of our European policy was discussed in European Standing Committee B on Wednesday and has not yet been resolved—Britain's participation in the fifth framework programme for science and technology. The shadow Minister, my hon. Friend the Member for Chesham and Amersham, played a distinguished part, as one would expect, in the debate in Committee on Wednesday. In this, we are seeing another case in point of the dangers for small business in the European Union. If the EU were a free trade area and nothing else, small business would do well out of it, but it is the process of political construction of a European super-state that will impose burdens on small business, as it will on all our people.

If the Commission has its way, under the programme for science, technology, research and development, this country is likely to be required to pay an extra 25 per cent. over the next five years. We are already the second largest net contributor to the European Union. It will be an opportunity cost to small business, as to the whole of British society, including the British taxpayer.

As for innovation in science and technology, the small countries of Europe are delighted at the prospect of an extra 25 per cent., because they have small science and technology bases. We are at the forefront of scientific and technological innovation in Europe, so we shall bankroll the improvement of science and technology in the smaller countries of Europe, which will ultimately become our competitors.

Through their corporate taxation, our small business men are required to pay for that process. I hardly believe that it makes sense. Their interests are even less likely to be safeguarded when, after the Amsterdam treaty is ratified, we abolish the veto on such matters, and lay ourselves open to the vagaries of majority voting—or rather, to the small countries ganging up against us.

Lest people may think that I am negative, let me add that I am not. I believe passionately in the role of small companies in export. We have not discussed this area of policy in the debate. I am encouraged by the fact that the new Government take a consistent interest in the subject, as did their predecessor.

The export promoters in the Department of Trade and Industry do a wonderful job in lending the expertise that they have gained in trade, commerce and industry, especially to small enterprises, which need help with exports.

Secondly, our much maligned missions throughout the world do an admirable job. I have always found the commercial sections most willing to provide assistance, to answer queries, to give help with leads, to suggest which companies may be appropriate for joint ventures, and so on.

Furthermore, that is true not only of the local commercial section but increasingly of the whole of a British mission overseas, which is usually whole-heartedly engaged, from the ambassador down, in the process of export promotion. There is support for British trade fairs, British trade missions, British weeks and other activities, all of which is fully provided by our missions abroad.

I must add a final plaudit to the chambers of commerce in our country. They may be regarded as somewhat old-fashioned institutions, inasmuch as they are funded by businesses themselves and are not an apparatus superimposed by Government. They are responsive and understand the needs of industries great and small—in contrast to the Confederation of British Industry, for example, which these days is the spokesman for corporatist Britain and does not comprehend the needs of small business in the same way. I hope that the Minister will do everything that she can to support the chambers of commerce.

The debate has been timely and worth while. I hope that there will be realism about the long-term consequences for British business, especially small business, of our Gadarene rush towards participation in a European single currency.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry 1:23 pm, 7th November 1997

We have had an excellent and stimulating debate, and there has been general agreement about the importance of our small and medium-sized enterprises.

There are three main things that we can say about small businesses. First, the experience of the past decade—in this country, the EU and elsewhere—has shown that jobs come from the small and medium-sized sector. Secondly—this reflects on the point made by the hon. Member for Ruislip-Northwood (Mr. Wilkinson) about wealth creation—small businesses are good examples of people creating opportunities for themselves, their families and their communities by rolling up their sleeves and getting on with creating the wealth that this country needs so much. Thirdly, smaller companies are often at the forefront of innovation, creativity and the competitive edge, and they will show the way to rest of this country as we go into the next century.

We have had an excellent debate with many speeches of a high calibre—with one notable exception. I say this more in sorrow than in anger, but I am referring to the speech of the hon. Member for Chesham and Amersham (Mrs. Gillan). If I were being kind—I always try to be kind to the hon. Lady—I would say that her speech was wide ranging. However, she had absolutely nothing to say about innovation. People in our small and creative firms who are following this debate—and who were pleased that the Government had made time for this debate—will be disappointed that Her Majesty's Opposition had nothing to say about innovation.

The hon. Member for Chesham and Amersham referred rightly to regulation, and I share the desire of the Opposition to do something about deregulation. But she has a cheek, considering the record of her party in government. The Conservatives' deregulation initiative, which started in 1994, created 13 times as many regulations as it scrapped, yet the hon. Lady has the nerve to talk about deregulation. Only one member of the previous Government's deregulation task force came from the small business sector. There were more ex-Tory Members of Parliament on the task force than representatives of small and medium-sized enterprises. Half of our task force is composed of small business representatives—a practical example which I hope will delight the hon. Member for Billericay (Mrs. Gorman), who made a good speech about the practical nature of what needs to be done.

The Access Business initiative seeks simplicity in terms of central Government, but also–1 hope this will please the hon. Member for Billericay—looks at local government, and I am delighted that local government is represented. The hon. Member for Chesham and Amersham had the cheek to talk about small firm exemptions, but what was her party's record? The Asylum and Immigration Act 1996 was passed by the previous Government. When in opposition, Labour proposed an exemption for firms employing fewer than 10 people but the then Conservative Government voted that proposal down. She should not lecture us about deregulation when her party's record was so appalling.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

May I congratulate the hon. Member for Wolverhampton, South-West (Ms Jones) on an excellent maiden speech, and ask whether the Minister is now saying that she will reconsider the answer she gave me in a letter and look at the possibility of the exemptions for small firms?

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

First, I join the hon. Lady in paying tribute to my hon. Friend the Member for Wolverhampton, South-West (Ms Jones)—that is at least something on which the hon. Lady and I can agree. I shall return later to my hon. Friend's excellent speech.

We expect some consistency from the hon. Member for Chesham and Amersham. I know that it is the practice of members of the shadow Trade and Industry team to reverse everything that they previously believed, but if business—large, small and medium-sized—is to take them seriously, they must be consistent.

The hon. Lady spoke about what we should do about late payment. The only word for that is the wonderful Yiddish expression, chutzpah. For the benefit of the House, chutzpah is defined by the young man who murders both his parents and pleads in mitigation that he is an orphan. The hon. Lady's speech was a clear example of chutzpah.

Let us consider the previous Government's record on late payments to small businesses: £230 million was owed to small firms, and in 1995–96, the Treasury—let us not forget that the hon. Lady was a Minister—paid 14 per cent. of its bills late. I am not surprised by that record because, as the hon. Lady will recall, the former Deputy Prime Minister, the right hon. Member for Henley (Mr. Heseltine), boasted about "stringing along" his creditors when he was in business.

The Government intend to introduce a statutory right to interest on late payments. I am glad that we issued the Green Paper so quickly and that it had such a good response. All recent surveys, as well as some earlier ones, show that small businesses overwhelmingly support a statutory right to interest—in the most recent, the figure was 80 per cent. The Institute of Directors surveyed its members in response to our Green Paper proposals. There were about 2,000 responses—a very high rate indeed—of which 69 per cent. supported a statutory right to interest.

I am extremely grateful to the hon. Member for Ruislip-Northwood, who has a history of support for a statutory right to interest. I look forward to discussing our proposals with him. I rather wondered, when he intervened on the hon. Member for Chesham and Amersham, whether she was wobbling in her position, and I rather hope that in the end she may see sense and support the Government.

Photo of Mr John Wilkinson Mr John Wilkinson Conservative, Ruislip - Northwood

I thank the Minister for her generous remarks. As we are in a period of bipartisan good will, I want to make some suggestions on the Green Paper proposals. I reiterate that nearly all the small business men whom I have met want either a statutory right to interest or some other statutory mechanism to ensure that they are paid on time and get the benefits of a good cash flow, and I agree with them entirely.

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

I completely agree with the hon. Gentleman and I would be delighted to discuss the matter with him. He will also be interested to know that the statutory right to interest is not the only measure that we propose.

My hon. Friend the Member for Wolverhampton, South-West, in her excellent maiden speech, also spoke about late payment, so she, too, may like to know that, apart from the statutory right to interest, we are working with all small business organisations on credit management and other measures to combat late payment. One small business organisation is to publish league tables to show how companies perform, and it is important for the Government to set tough targets, which we intend to do.

I welcome the remarks of the hon. Member for Ruislip-Northwood and my door is always open to him to discuss further how we can tackle the problem. The issue is so serious that we should all give it our attention.

I am not really surprised that the hon. Member for Chesham and Amersham did not speak about innovations—disappointed, but not surprised—because every working day during the previous Parliament a small business went bust every three minutes; it is not surprising that the Conservatives are embarrassed by their appalling record of boom-and-bust politics.

I mentioned that there had been a number of excellent speeches.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Shadow Minister (Trade and Industry)

The hon. Lady has clearly moved on to other speakers and has finished her analysis of my speech. Perhaps she will comment on the Home Office export initiative matter that I raised. Did she know that it was being cancelled by the Home Office and does she believe that 51 days' notice is reasonable? Did she know, was she consulted and does she think it reasonable?

Photo of Mrs Barbara Roche Mrs Barbara Roche Parliamentary Under-Secretary (Small Firms, Trade and Industry), Department of Trade and Industry

I answered the hon. Lady earlier. If she requires any further details, I will be happy to write to her, as I am sure my Home Office colleagues will be.

My hon. Friend the Member for East Ham (Mr. Timms) as usual made an excellent speech, which is a tribute to his knowledge in this area. Rightly, he spoke about the Cambridge phenomenon and also about the research infrastructure. He paid proper regard to the contribution that science parks and incubators also make in this important area. I think that his points about London were well made, not least because I am a fellow London Member of Parliament.

The hon. Member for Esher and Walton (Mr. Taylor) made some excellent points as ever and I thank him for his kind remarks about what this Government are doing. He made a good point about the importance of design, saying, and I absolutely agree, that all firms should realise the importance of design in a practical way. Design is not a luxury to be added on if time allows. It is essential to business success. It is important not merely to new companies, but to older companies as they refocus. I have seen some good examples.

I also agree about the importance to the development and prosperity of small firms of new technology—and information technology in particular. Given my responsibility for the telecommunications and IT industries, I realise that many new initiatives are coming from that direction.

The hon. Member for Esher and Walton also made a valuable point about new product design, which is particularly important in manufacturing and in industries where products perhaps have a shelf life of two or three years. Tool making is one example of an environment where such a base in skills and design is needed—and computer-aided design clearly plays an important part.

The hon. Gentleman also rightly referred to the century date change problem. That is a very serious problem indeed and that is why the Government have committed nearly £1 million this year to Action 2000 and, I am delighted to say, have appointed Don Cruickshank as its chairman. There will also be a full-time director and staff. The hon. Gentleman was also right to point to the skills shortage in that area. That is why I was delighted to host a skills summit with the industry this summer.

The hon. Gentleman rightly referred to the SMART scheme, to which 1 pay tribute as it has clearly had quite an effect. In that connection, I must mention the teaching company scheme, which is of great value to small business, and particularly the connection with the university. I am pleased to say that it was introduced by a Labour Government in 1975.

Everyone who heard the speech of my hon. Friend the Member for Wolverhampton, South-West appreciated what an excellent maiden speech it was. It came very much from her own knowledge. One of the great pleasures of having the privilege of being a Member of this House is working with men and women who bring to it their knowledge and experience. That is true of hon. Members on both sides of the House and can only add to the quality and value of our debates. I am pleased that my hon. Friend waited to make her maiden speech in this debate. I agree with her remarks on paperwork, regulation and late payment. All those points were well made. The people of Wolverhampton, South-West have an excellent representative.

The hon. Member for Weston-super-Mare (Mr. Cotter) made a well-informed speech that ranged over several important issues. I am grateful for his support for what the Government are doing on late payment. We would wish to talk to him about that. It is an important issue, worthy of support from all parties. I noted his points about business links. I hope that he will appreciate our publication last month of the vision statement for enhanced business links, which has been warmly welcomed not only by the business link network and its staff but by small businesses. The document tries to bring small businesses on board.

My hon. Friend the Member for Wolverhampton, South-West mentioned the quality of advice, which is tackled in the enhanced business links vision statement. We have tried to improve quality at all levels, not only at adviser level but in respect of board development. I am delighted that we will be working with the Institute of Directors on board management.

The hon. Member for Weston-super-Mare mentioned mutual guarantee schemes, which have an important part to play. That is why I was delighted to attend the launch of a scheme by the National Association of Guarantee Societies and the Co-op bank. Business links brought to that scheme the advice that is so necessary for new, start-up and growing businesses.

My hon. Friend the Member for Bexleyheath and Crayford (Mr. Beard) made some good points about our science base and paid a tribute, which I warmly endorse, to our Nobel prize winners. He spoke about the importance of development and of its connection with marketing. It is a similar point to that which was made about design. Marketing is not an add-on but essential, which is why I was pleased to speak at the recent Industrial Marketing Council conference about how to bring together marketing and innovation. My hon. Friend's points were well made. There is Government support for strengthening links between university researchers and business-led development. My hon. Friend the Minister for Science, Energy and Industry will be making some developments in that area shortly.

It will not surprise the hon. Member for Billericay that I did not agree with everything that she said, but there were points that struck a note that I endorse. I wholly disagree with what she said about the minimum wage and the social chapter. At its annual conference, the Federation of Small Businesses endorsed the idea of a sensibly set minimum wage. The hon. Lady knows that the social chapter makes special mention of small firms and states: directives adopted … shall avoid imposing administrative, financial and legal constraints in a way which would hold back the creation and development of small and medium sized undertakings. The point is already covered.

I thank the hon. Member for Billericay for her warm words to my hon. Friend the Member for Wolverhampton, South-West. She was right that the practical nature of my hon. Friend's work will be of use to the House. I agree with the hon. Lady about on-the-job training. People running their own small businesses do not always have the time to go on training courses from nine to five. They often want advice or information at midnight or 6 am. Make no mistake, those are the hours that many small business men work to ensure that their companies are successful. For that reason I hope that the hon. Lady will find our initiatives attractive. We are developing the university for industry so that practical skills training can be given at work. Enterprise zones are another important project. I agree with the hon. Lady that there is something extremely satisfying about seeing young people learning from skilled older people about how a job is done. I hope that we will be able to establish much more skills training at the workplace.

I agree with the hon. Lady about the importance of mentoring. The school tours made by Alan Sugar have been warmly welcomed by them and they are yet another way of communicating to young people the attractions of a career in industry and the fact that entrepreneurship is good.

My hon. Friend the Member for Wolverhampton, South-West mentioned the Prince's Youth Business Trust. A great deal of its work is devoted to mentoring and older, experienced business people have given much back to young entrepreneurs who, in turn, are used as role models.

I was pleased to note that my hon. Friend the Member for Broxtowe (Dr. Palmer) mentioned the enterprise zone and its potential benefits. He also described how research partnerships know no national boundaries. I was in Germany recently with a number of representatives of creative small businesses for discussions with their German counterparts. It was interesting to note how large research projects often lead to collaboration between different countries.

I found the speech of the hon. Member for North Norfolk (Mr. Prior) slightly disappointing because he seemed to suggest that initiatives such as benchmarking are not that important. I fundamentally disagree, as does the CBI. If I may say as gently as I can, that attitude shows how out of touch with business the Conservative party has become.

The hon. Member for Ruislip-Northwood made a charming and courteous speech. It will not come as a surprise to him to learn that I cannot agree with much of his speech, but I find common cause with him about our small business organisations. I find my dealings with such organisations one of the most valuable aspects of my work. The chambers of commerce, the Forum of Private Business, the Federation of Small Businesses, the small firms councils of the CBI and the Institute of Directors play a valuable role in pressing forward the required agenda, and I pay tribute to their efforts.

I also agreed with the hon. Gentleman about the importance of export promotion. The idea of people who have sold themselves abroad then going into government is an excellent one. I have been abroad with such individuals and I know what added value they bring to the country. I note what he said about the uniform business rate, but I gently remind him that it was introduced by the previous Conservative Government. I accept that it has been the cause of great dismay to many businesses and we may have some fruitful discussions about it.

The hon. Gentleman also asked about the mystery ingredient, the motive, which makes people go out and work all hours. What makes them innovators? He believes that the answer is that they want to make money and create wealth. I agree, but they also want to use their great resources and skills to achieve something. The Government applaud their endeavours because they are vital to Britain's future, and we are absolutely determined to give them all the support that they need.

Photo of Bridget Prentice Bridget Prentice Assistant Whip

I beg to ask leave to withdraw the motion.

Motion, by leave, withdrawn.