Small and Medium-sized Businesses

– in the House of Lords at 2:47 pm on 16 March 2006.

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Photo of Lord Harrison Lord Harrison Labour 2:47, 16 March 2006

rose to call attention to government assistance to small and medium-sized businesses; and to move for Papers.

My Lords, the Government have been good for small businesses. Their crowning achievement has been to run a sound economy, with low inflation and stable interest rates resulting in 54 quarters of GDP growth in the United Kingdom. Small firms are doing well, with 1,500 start-ups every working day. The business survival rate is also up by 2 per cent since 1967. The launch of the small business service, the strengthening of Business Link, the reduction of corporation tax and the creation of a single tax department are just some of the flanking initiatives that have reinforced that macro-economic stability. Each initiative has contributed to building into small businesses a growing confidence in the confidence to grow.

But we cannot be complacent. The January CBI small and medium-sized enterprises trends survey saw a fall in the volume of new orders, so today's debate is timely in advance of the Budget and the forthcoming discussion of SME policy by the EU heads of state at the spring Council. Given that there is now a firm and welcome political consensus in this country that small firms are vital to Britain, and that a stable economy is central to their health, I welcome a debate on how we enhance the micro-economic climate to strengthen small firms—a debate, perhaps, that avoids the sterile ideological debates of the past, which saw the major parties too often forget, forgo or forswear the small-business sector.

I shall talk first about the Budget and then about the European Union. I hope that my noble friend has read the two excellent pre-Budget submissions to the Chancellor by the Forum of Private Business and the Federation of Small Businesses, each of which brims with ideas worthy of serious consideration. I shall pick out but a handful. Will my noble friend clarify whether national insurance is a hypothecated levy or a general tax? Whatever it is, it is clearly regressive and a burden on payroll administration, and hence a disincentive to recruitment. Does my noble friend agree? As a Labour Peer, I celebrate the success of the national minimum wage and its carefully phased introduction.

But the time is drawing near for us to find an equitable rate for the minimum wage, which can then be uprated annually in line with inflation. This would give to small firms the certainty to plan and expand.

Similarly for business rates, which should be brought into line with the lower levels of business rates enjoyed on continental Europe. Does my noble friend harbour, like me, the particular anxiety that this can sometimes be an unfair tax, representing a disincentive to firms which need space as part of their core activity? The emphasis, of course, is on space and not on profits.

I have two suggestions in respect of VAT. First, could my noble friend commend to the Chancellor a zero-rated VAT trading scheme whereby VAT is charged only at the final stage of consumption where all the previous traders in the supply chain are themselves VAT registered? This would cut out a spool or two of unwanted red tape. Secondly—an idea already being piloted in the European Union—I suggest the application of a reduced rate of VAT on labour intensive jobs. This will help the so-called "Lifetime" small firms, a sector often overlooked by policy makers. Let us be bold and introduce a phased approach to VAT registration. A series of gently rising hurdles is better than the "Fosbury flop" of precipitate VAT registration, which currently leaves too many small firms for the high jump.

While I am on the subject of jumping through hoops, perhaps I may turn to the SME's ability to comply with legislation. Some commentators favour a system of exempting the smallest firms from some health and safety legislation, but I flinch at the thought of small firms being outside of the net of good law on health and safety at the workplace. A more fruitful approach is the phasing-in of commencement dates for compliance, giving small firms additional time to prepare for and finance compliance with new legislation. There is the additional advantage that small firms can then learn from the experience of larger firms, which may well be in their supply chain and already have gone down that path.

Such phasing-in of the law is precedented by the excellent late pay legislation brought in by the Government. Can the Minister give an update on this legislation and tackle the continuing problem that many small firms face of having the fear of upsetting their relationship with the bigger firms they supply when requesting interest on late payment? This is a right that is not always being observed. Indeed, according to the research carried out by Leeds University Business School and the Federation of Small Businesses, some 2,200 publicly quoted leading firms in the United Kingdom are still flouting the reporting regulations which require them to publish the actual number of days that they take to pay on their invoices. Furthermore, does my noble friend recognise that payment periods have still not significantly shortened, as had been hoped? And yet there are larger firms, such as the fashion chain Next, which literally do just that—pay bills the very next day—and remain successful firms. Is it not time that their welcome practice became fashionable? What more can HMG do to strengthen the late payment legislation?

That brings me on to another theme, which has been pressed upon me by, amongst others, the City of London's Mr Bruce Hunt and the FSB. Not all Acts of Parliament are excellent pieces of legislation. It is a hazard of our job that we, as legislators, like to legislate—it provides our raison d'être—so perhaps I may suggest to my noble friend how we might enshrine into law the Better Regulation Task Force's alternatives to regulation check lists. Requiring the Secretary of State to sign an affidavit on the face of the Bill that all alternatives to legislation had been studied and rejected as inadequate for the job in hand would have the salutary effect of making us pause and thoroughly explore the alternatives—including, on occasion, doing nothing.

It was welcome news last week to learn that the OFT was reviewing the practices of supermarkets and whether their all-powerful position in the market place compromises fair competition and penalises small businesses—especially the corner shop, some 20,000 of which, since 1997, have indeed shut up shop. Will my noble friend look, in particular, at a situation which vexes smaller traders—that is, the off-shore VAT loophole whereby some supermarkets are channelling through the Channel Island of Jersey low-value consignments, such as cheap CDs and DVDs, thereby exploiting EU exemptions on charging VAT on goods in the €10 to €22 range? The Treasury is thought to be losing some £80 million a year from a loophole exploited by companies such as Tesco, ASDA and Amazon. What can be done?

I know that it is not in his brief, but will my noble friend reflect on last night's passing of the Second Reading of the Education Bill, which will, of course, mean that more businesses will have a stronger interest in our schools? If that is the case, what more can be done to introduce, as it were, small firms on to the school curriculum and thereby encourage our young people to think that small business might represent a good idea for a career?

Returning to his DTI responsibilities, perhaps I may raise with my noble friend the implementation of the waste electrical and electronic equipment directive, which has been dogged by yet another announcement last December of a fourth delay in its implementation. What is happening? This has spread confusion and uncertainty among small firms. Will my noble friend ensure that the small chemical firms are not snowed under by red tape in applying the otherwise very important REACH directive?

Perhaps I may now turn to the advice given to small businesses and Business Link. I hope my noble friend will take time to study the Cambridge Centre for Business Research's recent survey which suggests that Business Link has successfully established itself in the business community but perhaps should focus less on so-called hard targets, such as growth and profit, and more on soft help—such as brokerage—and putting firms in touch with each other which can literally forge business links. I also would endorse my noble friend's consideration of the CBR's view that devolving Business Link to the RDAs may not be wise.

I turn now to the issue of women and small businesses. Statistics show that women are more successful than men in sustaining a small business once the hurdle of starting up has been surmounted, but few of them go on to grow into bigger businesses out of the small acorns that they plant. These glass doors to entry and the glass ceilings to progress are still representative of a debilitating prejudice against women's businesses. But things are on the move. I attended the All-Party Parliamentary Small Business Group meeting with the EOC to discuss the Work and Families Bill. I think that the Government are taking positive measures there to cut the number of the estimated 30,000 women who at present lose their jobs because of pregnancy and restore to them the ability to contribute to small businesses.

Turning to the EU, does my noble friend acknowledge that the single European market is itself in danger of going into reverse because of the rise of narrow nationalism on continental Europe? The services directive, for instance, is serviceable, but hardly the best that we could have done. In the light of the tide of nationalism, I encourage Her Majesty's Government to renew and redouble their efforts to press on with the Lisbon agenda. I am alarmed, however, by the Government's hesitation, in the face of some virulent, home-bred anti-EU prejudice, to roll out the Euro Info Centres network, whose prime task is to cut to the quick the advice given to small businesses about EU initiatives appropriate to their needs. Can my noble friend report on what is happening to these important Euro information centres?

Before I leave the subject of the EU, I pay tribute to other British initiatives promoting small firms in the EU, including the Small Business Bureau and the British Chambers of Commerce link-up with Microsoft to focus on the small business environment and raise awareness of e-security. I welcome the ACCA's focus on such issues as access to finance and to publicising Eurobarometer's statistic that half of all owner-managers still find difficulty in accessing loans from high street banks—an old sore. The Minister should also come down like a ton of bricks on our EU partners who, according to the Commission's European single market scoreboard, are still falling woefully short of applying legislation that has been agreed at Brussels. If we are not serious about completing the single market, why should small firms compete in it?

Finally, I celebrate the creation of the Genesis Initiative, begun by my noble friend Lord Randall. It brings together small firms and their national federations within the EU to ensure that Europe is indeed open to small businesses.

I deviate here just to make mention of the Legislative and Regulatory Reform Bill. This has a very worthy purpose in trying to cut down on the amount of old legislation, which needs to be weeded out. We need to slash and burn the red tape that impedes our small businesses, but not on the pyre of parliamentary scrutiny.

In that spirit, I hope that we can engage in a useful debate on small businesses and improve that micro-climate in which they can thrive and prosper. I beg to move for Papers.

Photo of Lord MacGregor of Pulham Market Lord MacGregor of Pulham Market Conservative 3:02, 16 March 2006

My Lords, I congratulate the noble Lord on securing this debate and particularly welcome the subject he has chosen. I was one of the very first Ministers for small business—or, as it was unkindly described, the small Minister for business—in the early 1980s. A lot of the measures to which the noble Lord referred had their origins in many of the measures we introduced in the early 1980s—the loan guarantee scheme and the small firms service, the predecessor of venture capital trusts. I could go on and on. I want to pick out three features of that period which struck me.

The first was the need to bring about cultural change in the attitude towards small businesses and the self-employed. There was apathy at best, often antipathy, to that sector. Secondly, I found that as I was going round the country explaining all the measures we had introduced, the reaction from local government and the general business community was, "Why are you spending so much time focusing on small businesses? It is only the public sector and large businesses that actually create jobs". We have learnt since that it is the other way round—the small businesses have created so many of the jobs in the private sector.

The third aspect was the educational point; the noble Lord referred to it, and I particularly agree with it. We were trying to encourage enterprise and risk-taking and to see the prospect of good careers in small businesses and self-employment brought home in the schools. It simply did not exist then, and I had to do many things to try to bring that about. I learnt then that there is such a range in the small business sector that one could talk for ever about self-employment or companies employing 250 people or more.

I can make only two points today, but first I want to say a word about the general background. The enterprise culture is much stronger today. It is a measure of how far we have come that a noble Lord from the Labour Back Benches has initiated this debate. He talked about a consensus; I can tell him that in the early 1980s, there was no consensus. It was our government who were pushing the case for small businesses and the self-employed, often to the then Labour opposition. The noble Lord would not have initiated such a debate in the early 1980s, and I am delighted that he has done so today. But we still have a long way to go, and I particularly agree with him on the educational front.

We are now in a new environment. The new threat to continued expansion of the SME sector is the globalisation of the world economy and the huge new competitive pressures that we are facing, especially from India and China. A substantial proportion of our manufactured goods are coming from there. I believe that it is a considerable factor in the low inflation environment in which we live, and clearly the consumer benefits most of all. We are in a particularly benign period. It can be envisaged that those countries and the businesses in them will exercise their muscle as they see their growing ability to gain sales, and so on. If there is a currency change in those areas, we may well find that the cost of the goods coming in ceases to be so low. We need to ensure that our SME sector continues to grow and is not wiped out by these low-cost economies.

The impact on the small business sector is considerable. We know about the loss of so much manufacturing, but much of this has been associated with small businesses and the jobs that go with them. It is no accident that much of the dynamic of the small business sector in this country is in the service industries.

It is not just a question of the low cost—these competitors come from a less regulated environment. This brings me to my first point, where I agree very much with some of the noble Lord's points. The Institute of Directors has 53,000 members, more than 75 per cent of whom are in SMEs. In a recent survey it carried out, asking which were the most inhibiting factors to the growth of those businesses, the regulatory burden came out top, with 57 per cent responding. It was way ahead of government assistance or anything else.

I have also been through a lot of the detailed case studies that were carried out on the back of that result. There is a heavy financial and managerial burden of regulation on big firms. They can withstand that, but small businesses cannot. I do not have the time to go into detail, but the list of areas where burdens affected business was impressive. I do not underestimate the difficulties of dealing with this. There is always a justification for new regulation; there is always pressure from the media and elsewhere. There is media condemnation if the Government do not act; there is endemic gold-plating, not least in this country, from European initiatives. I well understand that Ministers and civil servants often judge themselves by the amount of legislation they take through and the amount of response they give to pressures for further regulation.

We need a cultural change in the media and in public debate so that there is as much emphasis on wealth creation as there is on the constraints on and criticisms of the wealth creators. I have two or three things to say in this regard. One way of getting that cultural change is the emphasis that should be put, and is being put, on regulatory impact assessments before anything comes before Parliament. I should like to see particular emphasis on the burdens on the SME sector. It is also important to have post-regulatory impact assessments so that we look at the impact of regulations and other things that we have put through.

The Better Regulation Task Force talked about "one in, one out". Departments should not introduce a new regulation without destroying or removing a regulation at the same time. I well understand the difficulties involved in that, but nothing has happened, and I believe it is a discipline that should be adopted as far as possible. Ministers and departments need to be judged on their success in achieving it. In other words, what a lot of small businesses are saying is, "Get off our backs" or, as my noble and learned friend Lord Howe of Aberavon constantly puts it, "For God's sake, leave us alone". One might almost say that the biggest growth in employment under this Government has been in the public sector, where success is often judged by how meticulously one carries out one's regulatory role, and whose salaries are paid for by the private sector firms on which it piles the pressures. I know that that is a caricature—I can pick holes in it as much as anyone—but there is some truth in it.

The second point to which I draw attention is the position of venture capital trusts. I declare an interest as an investor in one or two, and as a non-executive director of a firm which has a minority interest in one group. In 1983, I encouraged the setting-up of the British Venture Capital Association, which is now flourishing. Private equity-backed companies are now making a major contribution to the economy and its competitiveness.

During the five years to 2004–05, the number of people employed in the UK by the private equity-backed companies increased by an average of 14 per cent per annum as against the national private sector employment growth rate of 0.3 per cent. Those companies employ 2.9 million people in the UK, which is 19 per cent of UK private sector employment. I could cite many other factors to draw attention to the growth and success of private equity-backed companies.

More than three-quarters of private equity-backed companies believe that without private equity the businesses would not have existed at all or would have developed less rapidly. Venture capital trusts are only one part of this, but they play a significant role by concentrating on providing seed corn to companies at an early stage of development, especially in the innovative, high-tech and often high-risk sectors. I hope that the Chancellor will maintain the 40 per cent tax relief for investment in the VCTs. He should certainly do so for the year ahead, while further evaluation of how effective it has been in creating jobs and helping those companies is done.

It is also necessary to change the limit of £1 million for investment in an individual company and the restriction on gross assets to only £15 million. That was imposed in 1995. There is clear evidence that it is companies above that level which need the venture capital investment. The limit has not even been indexed, and it needs to be looked at again.

My final suggestion is a government initiative on public-sector purchasing from small companies. I looked at this idea way back in the 1980s, but there were not enough small companies then to respond to it. However, in the United States, the Small Business Administration has been charged since 1953 with ensuring that small businesses win a fair proportion of government contracts. Today, 23 per cent of the $200 billion federal budget must be spent with small businesses. Small businesses need income as well as equity. It is time to look again at this idea, because it would be of considerable help to many of those hi-tech, small companies.

I am delighted that the noble Lord has introduced this debate, because the emphasis on small businesses is absolutely right.

Photo of Lord Dykes Lord Dykes Spokesperson in the Lords (Europe), Foreign & Commonwealth Affairs 3:13, 16 March 2006

My Lords, the noble Lord, Lord MacGregor, made many valid points, one of which was that—I do not in any way wish to offend our Labour Party colleagues on the government Benches—a Labour MP or Peer would not normally have raised a subject such as the future of small businesses in the old days. I am sure that they did from time to time, but one did not notice it so much. Since 1997 and the Government's self-evident commitment to business, there has been a total change. I suppose that there is now a meeting of minds between the main political parties in this country that small businesses are crucial. I thank the noble Lord, Lord Harrison, for initiating this important debate. Given his experience in the European Parliament, I might try to deal with a few European points later on, as did he.

The detailed Written Answer which Alun Michael, the DTI Minister, gave to Mr Barry Sheerman in another place on 12 October last year provided a helpful working definition of the role of small businesses. It sounds trite and axiomatic, but it needs to be repeated many times to remind us all about the importance of small businesses. I use mainly the word "small" rather than "medium", whatever we think constitutes a medium-sized enterprise. Mr Michael said:

"Small businesses make a major contribution to the health of the economy, helping to boost productivity, increase competition and innovation, and generating employment, which is why the Government's aim is to make the UK the best place in the world to start and grow a business".—[Hansard, Commons, 12/10/05; col. 505W.]

That is a valid quotation and it should be remembered by all of us. It is a difficult business environment for large-population countries in the European Union such as Britain, France and Germany to create. One would expect it to be achieved more easily in smaller countries and in countries that are so small that they can easily make themselves into tax havens. Ireland is an example of a smaller-population country where that transformation in the way in which the promotion of small businesses is thought about—along with larger business which have come to Ireland in recent decades—has been a notable feature.

As a Liberal Democrat, I like all that part of it, but I do not like it when it approaches the excessive hire-and-fire American mentality, which one is also seeing in the Republic of Ireland. I hope that one will not see too much of that in Britain. The essence of small businesses is that they should be part of the community, even where they have a small number of employees. Those employees, who one hopes would become shareholders and directors as well in those various small businesses, should have confidence in the possible continuity of the business, depending on what it is. However, businesses come and go. As we know, that is the law of marketplace. There is nothing that one can do about that; that is the hidden hand and we have to accept it.

In the same Written Answer, Alun Michael rightly referred to Business Link and all its activities. As he said in his lengthy Answer, it provides,

"support to over 670,000 businesses. Nearly 500,000 of these were existing businesses, the remainder, individuals thinking of, or in the process of, starting up a business".—[Hansard, Commons, 12/10/05; col. 503W.]

That is an enormous number. I hope therefore that large companies have the grace, which they often do, to admit that small businesses are the lifeblood of this country. Napoleon said that Britain was a nation of shopkeepers, but, even in those days, it was also a nation of interesting small businesses. Farms are increasingly becoming small businesses too during the painful transition that they are now experiencing. They need help as well.

I have with me the Business Link's No-Nonsense Guide to Small Business Funding. I am sure that there is still a Macmillan gap in this country, which was discussed in that famous investigation under the Harold Macmillan government of the gap in financing for vulnerable, emerging ventures with seemingly shaky credentials. That was because they and their ideas were new. That gap persists, although one could say that the range of financial intermediaries now offering assistance to companies has grown in variety and scope.

I commend the document. I thank the Government for having encouraged it. It is very easy to read. We all know the traditional adage that if you are a genuine entrepreneur you do not need this panoply and framework of assistance, and the bureaucracy and advice from governments and their underlying agencies, that you can do it yourself. But the small business federations know that that is not true. This is a co-operative partnership between Government, local authorities and, now, regional authorities more and more to help businesses. The way in which the document is written is encouraging, unlike the turgid documents one used to receive in the old days.

We need to tackle the Macmillan gap which still exists even if it is, relatively speaking, on a somewhat smaller scale. Not all brilliant, innovative ideas are taken up by the banks. That can be frustrating for interesting, new, innovative small businesses because the banks can react over-cautiously or deter applicants by asking for excessive, almost existential, security collateral which, naturally, puts off people when they realise that their own family would be at risk from the collateral they are asked to supply at the very early stages of the creation of a small business.

I refer to the question of European aid. It is my primordial interest and responsibility as spokesman of this party for the EU. Although some would say that this must be, inevitably, mainly a national effort, focused on the United Kingdom's own national services for encouraging small businesses, the European Union and the Commission have a great role to play. As Members of this House who follow these matters will know, that includes direct aid to businesses, mostly—I believe I am right in saying—if they are directed towards trans-national purposes in their endeavours.

There are many small businesses—now, inevitably, mainly on the Continent because the Channel divides us. In Kent and north-western France there are interesting examples of new small business co-operatives. There is a lot of co-operation and activity between Kent as the county council and the Nord Pas de Calais departmental council and region of that area of France. They are working closely together to encourage enterprise and innovation on a small and medium scale. I believe that those matters should develop rapidly in coming years. In the 10 new member states many people want to be involved in individual and small-group entrepreneurial exercises, encouraging small companies. The Polish plumber in the UK, Germany or France—Polish plumbers are accepted psychologically more now in France, even though numbers may be small, as in this country—will probably develop businesses rapidly and become numerous Polish plumbers as the movement of working small-business immigrants continues throughout the Union.

The structural funds are provided directly through the national bodies—

Photo of Lord Vinson Lord Vinson Conservative

My Lords, I thank the noble Lord for giving way. Before the noble Lord passes from the benign or otherwise influences of the EU, would he care to mention that the surveys of small firms, and many larger ones, show that over 40 per cent of the regulations that they find so inhibiting and damaging come from the EU? I imagine that that more than counterbalances any of the aid which it gives to Europe in the first place, which is redistributed back to this country and falls finally, if at all, on small businesses. There is a huge negative flow of so-called help from Europe of massive over-regulation. I hope that the noble Lord will mention that before his remaining two minutes are up.

Photo of Lord Dykes Lord Dykes Spokesperson in the Lords (Europe), Foreign & Commonwealth Affairs

My Lords, that is a tendentious comment made by people with an axe to grind against Europe. I do not accept it. If one takes the evidence given by people who are asked properly about the service of the European Commission and the Union, they welcome them. Time does not allow me—particularly after that intervention, with which I do not agree—to go into the details of these matters.

In case the Minister has a chance to respond to these matters later, perhaps I may ask what is happening with the Marco Polo programme in the European Commission range of subjects. That seems particularly interesting. I refer also to EUREKA, a network for market oriented R&D. That is at its very early stages and, therefore, there cannot be a lot of criticism if the Commission is not promoting itself. I welcome an answer to the question posed by the noble Lord, Lord Harrison, about what the European information centres are achieving.

In conclusion I refer to two major areas. I apologise for the inevitable brevity. The European Investment Bank deals only with large corporate investment projects. I should like the EIB to be able to deal with smaller and medium-sized businesses, allowing for the practicalities of arranging the modalities of that kind of support programme. Perhaps the Minister will have time to deal with that issue.

Finally—inevitably, it is an axe to grind but an important one—when one considers the expense which small businesses entail in Britain changing into the euro currency, and vice versa, it is time now that the banks reduce their charges to small business for that kind of service. Is it not even better if the Government decide at long last that they can be bold and brave enough to join the euro?

Photo of Lord Cobbold Lord Cobbold Crossbench 3:23, 16 March 2006

My Lords, I, too, thank the noble Lord, Lord Harrison, for introducing this important subject today. It is topical, too, because today sees the publication by European Union Sub-Committee A, of which I have the honour to be a member, of its report entitled A European Strategy for Jobs and Growth, which updates progress on the so-called Lisbon agenda and is aimed at the forthcoming spring ministerial meeting. The Lisbon agenda dates from the year 2000, and was a bold initiative to reform Europe's national economies to improve their performance and close the gap with the United States by 2010. At the halfway stage last year it was recognised that little progress had been made, and the agenda was relaunched with greater focus on the key economic priorities of more jobs and growth. That is where small- and medium-sized enterprises come in, because SMEs are a vital key to both job creation and growth.

In its written evidence to our committee, the Federation of Small Businesses quoted from a 2003 report by Trends Business Research, which claimed that during the period 1995-99 SMEs were the major job creators in the UK. Furthermore, the very smallest firms of one to four people contributed most to job creation. The statistics are impressive. There are an estimated 20 million SMEs in the European Union providing employment to 65 million people, equivalent to two-thirds of total employment and approximately 65 per cent of GDP. The European Commission, in its most recent annual report on the national action plans, which are submitted by member governments in accordance with the Lisbon agenda, underlines the importance of SMEs and suggests five measures that should be taken to promote their growth.

I quote from our report:

"By 2007, Member States should each set up a 'one-stop shop' to assist future entrepreneurs and allow businesses to fulfil all administrative requirements in one place . . . The average time to set up a new business should be halved by the end of 2007, and then to one week or less . . . Entrepreneurship education should be provided as part of the school curriculum for all pupils . . . Each Member State should properly measure administrative burdens, while the Commission will propose ways to reduce costs on businesses arising from EU rules . . . The Commission will remove the obligation to notify certain categories of small state aids, which it believes should help SMEs".

Those are all admirable objectives, recognising the importance attached to SMEs at the European level, but it is up to national governments to put the recommendations into practice. The UK has a reasonably good track record. For example, we have the highest VAT threshold of anywhere in Europe, at about £60,000 turnover. There are problems with VAT, which have already been referred to. We also provide five days of enterprise teaching to all pupils aged between 14 and 16.

Inevitably, though, there are some negative factors. I have one example from personal experience, and here I declare an interest as an owner-operator of a tourist business in Hertfordshire. Like many small businesses, we employ a relatively large number of casual staff on a seasonal basis. This year we learn that we are required to pay holiday and sick pay to our casual employees. This seems to be an unjustified extra expense, and is a considerable administrative burden.

Reverting to the positive, I shall mention one area that I believe is very important: the link between university research departments and commercial development, the all-important conversion of new ideas into viable businesses. For that purpose several universities have already established innovation centres that assist in the creation, funding and growth of new businesses. In his written evidence to our sub-committee, Mr Walter Herriot, managing director of the St John's Innovation Centre in Cambridge, reminded us that:

"R&D turns money into ideas, innovation turns ideas back into money".

I am very fond of that phrase.

I know the Government take this subject very seriously. Indeed, in his verbal evidence to our sub-committee, Mr John Healey, Financial Secretary to the Treasury, stated that:

"The responsibility for encouraging greater collaboration between universities and business . . . has been given to our regional development agencies, who are set to invest this year probably in excess of £300 million across nine regions to support this sort of move".

The importance of SMEs to our present and future economic health cannot be overstated, and I trust that in his reply the Minister will confirm the Government's strong commitment to that sector at both national and European level.

Photo of Baroness Howells of St Davids Baroness Howells of St Davids Labour 3:29, 16 March 2006

My Lords, I, too, thank the noble Lord, Lord Harrison, for raising this debate, which gives the House the opportunity to debate medium and small businesses. Despite all the regulations referred to by other noble Lords, I feel confident about this debate because I know I have a good story to tell, as I speak of the Caribbean black businesses. I am a patron of the European Federation of Black Women Business Owners set up by Miss Yvonne Thompson CBE. At present, the register is about 15,000, and we suspect that the number of millionaires is around 800 and rising.

The birth of the black business sector is fairly recent but nevertheless remarkable. First-generation migrants saw education as their most important goal for their children. By the 1970s, it was becoming increasingly obvious that an economic base was critical for sustainability. There was much discussion among the community, seeking ways to bring this about. Several conferences were held and many attempts at niche businesses began slowly to appear, using the skills already in the community to facilitate entrepreneurship. The biggest problem was finance. I recall one conference at which a young bank manager said that he,

"did not lend money to black people on principle".

We never heard what the principle was.

Despite such amazing arrogance and many obstacles, the present-day story is one of success. A study by the London Development Agency found that 8 per cent of British black women have an interest in starting their own business. The range of businesses is also significant, from funeral directors to radio station owners, hairdressers to PR consultants, care homes to retail shops. There are also many builders. The list is endless, both niche and mainstream. The Government's objective of increasing small business is reflected in London by the LDA's enterprise programme, which includes a range of activities at various levels to support small businesses.

Sarajeet Soar, in an article in 2001, written for the book, Community Economic Development, noted that national programmes to promote ethnic minority businesses are reactive, ill-conceived and badly targeted. That may still be so, but the European Federation of Black Women Business Owners has accepted that the Government can only do so much and is acting as an enabler itself. It organises events that connect and inspire minority businesses, such as breakfast meetings, conferences and award ceremonies, the object being to explore and explain government initiatives. Business networks are formed to support both existing and potential businesses. There is also training for business advisers, providing tool kits to access finance through the Government's small business schemes and to encourage banks to be more flexible. Microfinance and business enterprise has helped entrepreneurs to break out of a real poverty trap, enabling them to provide better living standards for their families and home ownership away from the run-down estates of first-generation migrants.

The United Kingdom has benefited from the competitive advantage of diversity. Productivity has been enhanced. The United Kingdom is able to sustain a key role in terms of both the national and international economy. There is now empirical data to show that diversity and economic strength are interrelated, on which the Minister might like to comment in summing up.

However, some problems are still around. We need policy makers to realise that it is both useful and appropriate to treat certain groups as a special category—such as in horse racing, where handicaps are quite normal, I believe. It is clear that there is need for special business support, and that it is greater in some ethnic communities than in others. On the question of finance, it is accepted that black minorities are not now disadvantaged in terms of start-up capital from banks and other formal sources. This applies to their propensity to raise some finance from their own communities. The African Caribbean community still has less success in accessing bank loans to expand its businesses. In view of that, it would seem that the Government need to make African Caribbean black entrepreneurs a greater area for proactivity in sustaining their businesses in the second and third years of trading.

Despite these many remaining obstacles, I believe that the Government have done well. I am quietly confident that this country will see a growth of entrepreneurship among the younger generation aided by technology and that it will sustain diversity as a business asset within the United Kingdom.

Photo of Baroness Byford Baroness Byford Shadow Minister (Food & Rural Affairs), Environment, Food & Rural Affairs 3:35, 16 March 2006

My Lords, as always, it is a great pleasure to follow the noble Baroness, Lady Howells of St Davids. It is good to hear news of business success in her community, and we congratulate her on that.

I thank the noble Lord, Lord Harrison, for introducing this debate, and it is good to be able to participate in it. The noble Lord takes a great interest in small and medium-sized businesses, and he paid tribute to what the Government are doing for small businesses. I listened to his speech with great care and made a list of up to 10 things that, rightly, he hoped the Government would do. I want to highlight one or two of them as I think they will be referred to by other speakers and obviously they have a direct effect on small businesses.

One is the growth of the minimum wage and its effect on small businesses and on the employment of women in some very small businesses, including those in rural areas. The noble Lord also mentioned business rates—a matter of great concern. VAT was another item that he placed on his wish list. The subject of late payments or the payment window is enormously important. Small businesses are often fobbed off in that regard but they are least able to carry that sort of burden. The Government may well say that they understand that there is a problem, and perhaps the Minister will comment on that. Late payments, in particular, are a great burden.

The noble Lord also touched on a matter of great interest to me: supermarkets and convenience stores. I would add to that those who supply them. It is all very well for supermarkets to be told by smaller shops that they have control but, ultimately, it is the people who supply them in the first place who end up at the bottom of the heap.

Another point made by the noble Lord that I wish to pick up is the regulatory burden. My noble friend was right to imply that 40 per cent of that burden comes from the EU. I do not think that that is a political statement; it is a fact, and it is one that needs to be addressed. Most businesses will say, "We are happy to get on and do business but we don't want to be burdened with regulation. We accept that some regulations should be there but, if we can minimise them, so much the better for all of us".

This is an important debate. Small businesses are crucial to the success of business in this country in the long term. The Small Business Service estimated that at the start of 2004 there were some 4.3 million businesses in the UK. Small and medium-sized enterprises together accounted for more than half of the employment—58.5 per cent—and a turnover of 51.3 per cent in the United Kingdom. So we are not talking about small beer; they are very important businesses.

I return to the matter of burdens. The burdens barometer of the British Chamber of Commerce showed that by last year the cost of regulation had risen by £14 billion from £38.5 billion to £52.7 billion since 1998. Regulations cost £10 billion in 2001 and they have now increased more than fivefold. An average of 15 new regulations are made every day—an increase of 52 per cent since 1997. The one thing that business can do without is yet more burdens.

I want to mention, in particular, the employment of women. I have a good friend at home who runs an extremely successful beauty and hairdressing salon. That is particularly important because she employs a lot of female labour. Some of the regulations that are coming out relating to the employment of women who take breaks to have children are becoming very burdensome for that type of business.

I also want to refer to business support schemes. In a recent report, the CBI criticised the Government for failing to offer adequate support for small and medium-sized enterprises. The CBI said that the grants and support schemes on offer were "confusing and inconsistent". It estimates that there are just over 2,500 different schemes on offer in England alone, but said that,

"no one can really be certain".

Where grants and so on are available, can we also simplify them? Far too much time is being spent trying to research what can be obtained and from where. There should be a simpler way.

I mentioned payments earlier, particularly as I wish to put a rural perspective on this debate. Noble Lords who have listened to us know well that we have been chasing up the whole question of the single farm payment and delays within the Rural Payments Agency. In a Written Statement today, which I am very sorry was not an oral Statement, the Secretary of State, Margaret Beckett, announced the replacement of Johnston McNeill as the head of the RPA by Mark Addison on a temporary basis. That has been in response to the debacle going on in that agency, but the smaller farmers get hit the most. The noble Lord referred to them as small businesses; they are indeed businesses, not there for the good of their health.

On Tuesday, the RPA gave an update on current processing, with the total number of fully validated claims a mere 58 per cent so far. That means that approximately 69,800 claims have been fully validated but 50,600 have still not been. Earlier last week, I spoke to a near-suicidal lady who has submitted her claims for mapping. Her mapping had then been sent back and corrected but when the next lot came back, more fields had been missed off. It is beyond a joke; I cannot speak strongly enough about that.

The RPA reported that, as at 14 March, only 7,539 claims had been paid, a mere 6.2 per cent. We were told that the bulk of those claims would be paid by the end of this month, but only 6 per cent have been. The RPA says that it has issued 32 per cent of confirmed statements, leaving around 67 per cent not validated, with a small number still to be sent out. Where are we going there? It is a real disgrace.

I had a longer speech, but have had to cut it. Remaining on the rural scene, I will refer to rural post offices, which the Minister and I have talked about, over the counter, ad infinitum. Royal Mail has now admitted that it could be left with just 4,000 post offices because, while a decade ago 90 per cent of Post Office business came from the Government, by 2010 it estimates that will only be 10 per cent. How is that going to be effected? Mainly, perhaps, by the suggested withdrawal of the Post Office card account.

The Minister is well aware of my berating him on this topic. We warned him, when he brought the Postal Services Act 2000 through, that that would happen. It is a shambles, and something over which the Government should really hang their heads in shame when post offices are so key, particularly in rural areas. The banks and many rural shops have gone, yet the post offices are still there—though for how much longer, we do not really know.

Lastly, I return to the question of supermarkets and convenience stores. I attended the Association of Convenience Stores meeting last week; its figures are chilling. As has already been said, some 2,000 small shops have disappeared since 1997. However, of the garage shops and those convenience shops that go with them, some 800 closed last year. They seek fairness and competition, but they do not think that they are being fairly treated. They do not see why the low cost of selling should put them at risk. They look to the land banks that some of the bigger supermarkets have acquired and the planning permission that has been granted by local authorities.

My last point concerns extending Sunday trading hours. The noble Lord, Lord Harrison, has given us an opportunity to raise it today. I am extremely grateful to him. I hope that, in putting the rural perspective, it will raise the issue with your Lordships because so many rural small businesses play a major part in the success of business throughout the UK.

Photo of Lord Williams of Elvel Lord Williams of Elvel Labour 3:45, 16 March 2006

My Lords, like other noble Lords, I am grateful to my noble friend Lord Harrison for securing this debate and introducing it so eloquently. By the way, if I may say so, it was rather cheeky of the noble Lords, Lord MacGregor and Lord Dykes, to say that we were not interested in small and medium-sized enterprises when we were in opposition. I remember when I sat exactly where the noble Baroness, Lady Miller of Hendon, sits when I covered the DTI portfolio, and I am glad to see the noble Lord, Lord Vinson, in his place because he will remember this. I kept banging on and from time to time I made pacts with the noble Lord, Lord Vinson, to ensure that these matters were duly debated in this House. Of course, the noble Lords, Lord MacGregor and Lord Dykes, were not here at the time.

This is certainly an important matter and, as other noble Lords have pointed out, small and medium-sized enterprises are great generators of employment. The number of jobs created by start-ups is estimated to double in Wales over the next five years. At the moment, 7 per cent of the Welsh adult workforce—95,000 adults—work in small and medium-sized enterprises, so the importance of the matter should not be underestimated.

I will be relying very much on a survey that has been conducted by Babson College and London Business School, which was published last week. It measured the level of entrepreneurial activity between countries and between regions within those countries, and what makes a country or region entrepreneurial. The survey used a measure entitled the total early-stage entrepreneurial activity rate—if noble Lords can get their minds around that rather complicated expression. In the United Kingdom, we are more or less in the middle of the range of countries covered in entrepreneurial activity. We are better, oddly enough, than Germany, France, Austria and the Netherlands. We are worse than Ireland, Australia, Chile, Brazil, the United States, China and, going right up the scale, Thailand and Venezuela.

Wales has lower entrepreneurial activity than other regions in the UK apart from the north-east and the north-west. In comparison with similar economies in the world—New Zealand, Iceland and Ireland—we in Wales are badly failing. On the other hand, we have some pluses. The survival rate of start-ups is higher in Wales than in London and the south-east. The Welsh are more optimistic about their future in small enterprises and less worried about the possibility of failure. East Wales and, notably, mid-Wales, where I live, seem to be doing rather better than west and south Wales. Alas, to return to something that the noble Baroness, Lady Byford, and my noble friend Lord Harrison said, the number of women on start-ups is only half that of men, which we need to address.

Other minuses are that a large proportion of the start-ups are from immigrants or in-migrants either from England or, oddly enough, from Northern Ireland. We have fewer start-ups from ethnic migrants from other countries either in the EU or outside it, so there is also a relative paucity of what are known as business angels—private individuals who will support new businesses as and when they come for funds.

Much of this is a matter for the Welsh Assembly Government. I do not wish to tread on toes, but it is clear that in Wales—a paradigm for the rest of the United Kingdom—we have to encourage the pluses and try to reduce the minuses for start-ups. As noble Lords have said, start-ups will provide a major source of employment in years to come.

First of all, there is the importance of education. I shall go back in history for those of us who remember. The tremendous upsurge in the West German economy after the war was almost entirely due to the mittelstand, middle enterprises. This was, not least, because the Germans of the day were educated into an entrepreneurial activity, because their families had been in the same businesses for generations. Education—vocational training—is vital to make sure that people understand about starting up a new business and how to get involved.

An odd feature of this report—it is true of Wales and, I imagine, of the rest of the United Kingdom—is that those with a master's degree are much more likely to take the risk of going into their own business than those without one. The difference is statistically established. Therefore, we must try to get more people to take master's degrees if we want this sector to flourish.

Then there is the question of relative youth. As is probably true of the rest of the United Kingdom, in Wales those in the 18-to-24 age group are much less likely to start their own businesses than the older age group. They are not risk averse. A lot of them say that they would like to start their own businesses, but are worried about starting a career that may end in failure at the age of 30 or 35, when it is difficult to get a job with an established company. Something needs to be done about that and I will come to what I think might be done.

As many noble Lords said, we have an upsurge in regulatory burdens. The problem in Wales is that these regulations are frequently in two languages, which makes filling out these forms even more difficult for those who speak neither Welsh nor, sometimes, English very well. That is a simple and practical problem, but something we have to address.

When I was sitting in the place of the noble Baroness, Lady Miller of Hendon, I used to complain about the regulatory burden, the lack of finance, the political leadership and the services available to small businesses. I was usually stonewalled by the then government Front Bench. The arguments are, I am afraid, still the same.

As far as finance is concerned, I appreciate what the noble Lord, Lord MacGregor, said about venture capital trusts. It would be a good idea to encourage the major clearing banks of this country—which, after all, are making tons of money—to allocate a certain percentage of their profits to the sort of venture capital trusts that he described. It would not be difficult for the banks. They could even be given tax relief. They would not have a problem with cash flow. They would be able to pretend and even put themselves about as being virtuous, which sometimes banks need to do. They would be seen as pillars of job creation in the community. I would have thought that that was a worthwhile idea for the Minister to study.

There is the question of the services available. In Wales we suffer, for instance, from broadband not being available throughout the country. That is an important service for small businesses. In mid-Wales, half the county of Powys has no broadband at all. Somebody—I say to the Minister—ought to invite BT to pay a little more attention to those areas where there are positive possibilities for starting up enterprises, and encourage it to extend its broadband range there.

Finally, I believe that it is possible to improve on what we are doing at the moment. I do not think that what we are doing is bad—we are in the middle of the range—but it is possible to do better. If we were to do better, we would not just double the number of people in work in small and medium-sized enterprises, but treble it. That might go some way to mitigating the problem with pensions that exercised your Lordships earlier this afternoon.

Photo of Baroness Cohen of Pimlico Baroness Cohen of Pimlico Labour 3:55, 16 March 2006

My Lords, I too thank my noble friend Lord Harrison for introducing the debate. I intend to talk about the Alternative Investment Market. That market was not, in fact, initiated by government, but it has most certainly been actively nurtured, given a favourable tax regime and defended from rather heavy-handed regulatory proposals, which were introduced by the European Commission in the early stages of the financial services action plan.

That market, which perhaps is not widely known to your Lordships' House, is of vital importance to the growth and development of small businesses in this country because it is the mechanism that enables many small and medium-sized enterprises to find the finance to grow and become larger businesses. AIM was designed and is regulated by the London Stock Exchange. I remind the House that I have the honour of being a director of the London Stock Exchange, as noted in the register. Indeed, I have had that honour since 2001, since when, barely a day has passed without someone bidding for us.

One of the many reasons why we are so attractive to bidders is that jewel in our crown: the Alternative Investment Market. In the development of any commercial enterprise there comes a moment when it needs more cash than the family resources can find or than the banks will lend, and outside finance has to be sought. Historically, before the Alternative Investment Market, this was the point when many businesses failed or stagnated because they were simply not big enough to stand the expense and regulatory demands placed on those wanting to put their companies on to the main market. Even among those who succeeded in getting their companies on the main market, there was a long steady history of failure because those companies were too early in their development to deal with the demands and tensions placed on them.

The development of AIM, which started as recently as 1995, was to fill a gap which is not entirely coterminous with the Macmillan gap but has something in common with it. That is why the Stock Exchange introduced AIM with an initial 10 companies. The intention was to make this a market which enabled small and medium-sized companies to gain visibility and to raise money as quickly, cheaply and informally as possible. Companies entering AIM are introduced by a nominated adviser, rather worryingly always abbreviated to NOMAD. There is no minimum size required of those companies and they do not need to put any of their shares out to public issue, which is often useful if one is a founder wanting to grow one's company before selling bits of it off. Also, they do not require a trading record.

That is by contrast with a company that is trying to put itself on the main market. Such a company has to go through the long, time-consuming process of producing a prospectus, which is now regulated by the UK listing authority. Companies in that position must have £700,000 in equity capital and a minimum of three years' trading record. As one can see, it is really quite demanding and well beyond a small company that wishes to raise some money.

In the past 10 years, AIM has become an important part of the UK financial architecture, playing a vital role in delivering the Government's enterprise agenda and providing a valuable staging-post to companies moving between private equity financing and full listing. It has grown phenomenally from 10 companies in 1995 to over 1,400 today and it now supports the capital-raising needs of 1,200 growing businesses from all across the United Kingdom and 226 international firms from 25 different countries. It is quite difficult to imagine what we did without it. It has developed into a national asset. A leading accountancy firm called it,

"the most successful small to medium cap market in the world".

AIM is now the second-largest European market, by number of companies, and I shall allow you to guess which is the largest European market. It is indeed the London Stock Exchange. AIM has become so successful that it is attracting attention from our European colleagues. In a speech last year, the former German Finance Minister, Hans Eichel, described Germany's flotation of growth markets as a painful experience and said that the Ministry of Finance was looking closely at trends in other countries where the ability to raise capital for young, innovative companies worked more efficiently. He singled out AIM as a successful model. In another recent study by the respected US think-tank the Milken Institute, the United Kingdom came first for access to capital for smaller companies. The report made specific mention of the United Kingdom's vibrant equity markets as a reason for its success and AIM is a fundamental part of that.

The point of AIM is that it is justifiably very popular with investors. They welcome the opportunity to invest at early stages. They are glad to have companies drawn to their attention and their faith has been justified. What makes the market so successful where markets such as Germany's Neuer Markt failed? First, it is diversified. AIM has companies in 33 sectors from oil and gas to software and computer services; from speciality finance to pharmaceuticals and biotechnology. It is not immune to market turbulence; nowhere is, but the broad base of business sectors has enabled it to survive, when others like Neuer Markt and Easdaq simply failed.

The second feature is the strength and liquidity of the secondary market. Liquidity is an important subject. It is what makes the difference between being able to borrow money and not, and being able to borrow money at fine rates. Last year, 108 million shares were traded on AIM with a value of £42 billion; that is 80 per cent of AIM's total market cap turned over in a year. That growth in liquidity was driven by the expansion of institutional investor interests, not just private investors. Virtually all major international institutions are now prepared to invest in AIM stocks and they account for 41 per cent of the market by value.

A third and rather more esoteric reason for AIM's success is the power of the technology that drives it and the introduction of SETSmm, the hybrid electronic order book which combines electronic trading with our established market maker system. It has been a proven success because it refines liquidity. It is quick and efficient and we rolled it out to the small capital market last year. It is an extremely important mechanism which no other European country has for channelling money into smaller companies and as such is of vital importance.

Indeed, the London Stock Exchange is now engaged in discussions with investors, advisers and intermediaries to recreate in Europe the unique community that makes AIM so successful in London. Local nominated advisers across Europe, if the plans come right, will act as a pipeline for companies coming to AIM, and local member firms will provide liquidity, ongoing research and local distribution to investors. That should help to foster the entrepreneurial culture in Europe as well as here with all the benefits of economic growth and wealth creation that that brings.

I would therefore like to say to the Minister that it is vital that the tax and regulatory environment in which AIM operates remains. AIM was carved out of some of the more potentially damaging effects of the prospectus directive introduced as part of the financial services action plan, and it is important that the Government continue their good work in ensuring that regulatory or tax changes do not damage the successful market. If they do, it is the small and medium-sized businesses on which so many of our hopes are set that will be the losers.

Photo of Lord Borrie Lord Borrie Labour 4:03, 16 March 2006

My Lords, my noble friend Lord Harrison began his speech by demonstrating how, through the creation of a successful macro-economy, small and medium-sized enterprises have been assisted immensely. He also pointed out that the Government can bear in mind the interests of small and medium-sized enterprises, and the interests of the public in the success of those enterprises, through the many ways in which the Government are able to influence the micro-economy. The Budget next week, for example, may help business by laying the foundations for what is called a new Hollywood, developing our national strength in fashion, design, media and communications.

The reduction in red tape was bound to be a topic. I think that as soon as "small business" is mentioned Her Majesty's loyal Opposition immediately think of red tape. However, as my noble friend Lord Williams of Elvel, said, that is not a problem that has arisen only since 1997. But it is a vital issue, and the Government have worked hard on it, especially through the Better Regulation Task Force, and in new legislation, such as the Company Law Reform Bill, which our Minister on the Front Bench today is responsible for on a day-by-day-by-day—I do not know how many days—basis. That Bill allows private companies to do without the formalities of annual general meetings, making it easier for shareholder decisions to be taken by way of written resolution, and so on.

The Government have commissioned a review, which has not been mentioned so far this afternoon, to assess the additional and unnecessary burdens placed on business by gold-plating EU-based laws. Mr Neil Davidson QC is seeking concrete examples to back up the long-standing gripes of SMEs about gold-plating. I do not use "gripes" to indicate complaints with no substantive backing to them. Here is an opportunity for the friends of the noble Lord, Lord MacGregor, in the Institute of Directors and elsewhere to make their points known to the inquiry. But much regulation, for health and safety in particular, for the well-being of employees and for consumer protection, is essential. As my noble friend Lord Harrison said, small businesses cannot be excused from that—they cannot say, "Because we are small, we don't have to comply".

The noble Baroness, Lady Byford, referred to a hairdressing salon having certain difficulties. I have no doubt that if I knew the details I would be as sympathetic as she is. However, we do not have to go back so many years to find that hairdressing salons were among the most exploitative and abusive of women's rights in terms of their long hours and low pay—and as for getting maternity leave, you must be laughing. We should not forget history when we realise that there are regulations that need to be conformed to by small businesses.

Photo of Baroness Byford Baroness Byford Shadow Minister (Food & Rural Affairs), Environment, Food & Rural Affairs

My Lords, I was not in any way decrying the position, as obviously it is right to have that sort of regulation. All that I was trying to say was that it is increasingly an additional burden because of the length and complexity of regulations that are now in being.

Photo of Lord Borrie Lord Borrie Labour

My Lords, I am happy to hear the noble Baroness say that. I was going to say something that I think she will agree with—that today, with the regulations that we have, what is really important for small businesses is the ability to get advice on how to comply, and that enforcement should be proportionate and light-touch. The forthcoming Local Better Regulation Office will advise and help companies on compliance with regulation. Surely we can all agree that that is at least as important as inspection and enforcement and the heavy hand of regulation.

I declare an interest as the vice-president of the Trading Standards Institute. Trading standards and environmental health laws are primarily for the benefit of the public. None the less, it is in the interests of all businesses to know that other businesses have to comply with these regulations, because that is vital to a competitive economy. Nothing will irritate small businesses more than to know that their rivals in the same lines of business are somehow getting away with non-compliance.

I am currently the chairman of the Advertising Standards Authority. If advertisements mislead as to the price of goods or the price of services or in some other way, complaints from competitors are looked on at least as seriously as complaints from the general public. Sometimes complaints about advertisements from competitors are more knowledgeable, the competitors knowing more about technical detail and being able to back up their complaints and concerns with expertise. If these complaints turn out to be justified, the advertisements will be stopped and both the rivals and the public will benefit.

Business complaints to the Advertising Standards Authority are merely an example of what I now wish to refer to, namely complaints to all sorts of regulatory bodies, including the Office of Fair Trading and the Financial Services Authority. They are all indications that business—including, most importantly from the point of view of my noble friend Lord Harrison, small business—can do a lot to help itself achieve its just deserts.

I use the word "whistleblowing" now, because, although it is sometimes thought of as a sneaky thing to do—which is unjustified—I would say that whistleblowing, when in the public interest, is not the undesirable action of a sneak, but a justifiable process to enable regulatory bodies, paid for by the taxpayer, to do their job that much better for the public good. One recent example noble Lords—in particular the noble Baroness, Lady Miller of Hendon—will recall is the Enterprise Act 2002, which was guided through the House by the Minister. It gives official recognition to the merits of justifiable whistleblowing by providing an incentive to a member of a price-fixing cartel—probably one of the less important members—to "split" on his fellow members. The benefit will be a reduced penalty. It was an odd idea, borrowed from the United States, but, I think, a valuable one.

There are many things small businesses can do to help themselves. Joining a reputable trade association is one. Trade associations are consulted by the Government on all sorts of matters. They can help a company with their collective and long-standing wisdom, providing advice on human resources problems, training facilities and legal advice. SMEs cannot have all these resources in-house like a big company; nor can they be expected to know all there is to know about their obligations to employees, consumers and suppliers. The payment of a trade association's subscription can be a very worthwhile investment. It is crazy for SMEs to imagine that they can entirely go it alone in this complex world and yet succeed. Sometimes small businesses are their own worst enemy, railing at the familiar scapegoats of the Government, local authorities and—as the noble Lord, Lord Dykes, will know—Brussels, without taking even the most obvious steps to help themselves acquire the skills they need to run albeit a small company, and to handle customers, employees, suppliers and, indeed, those men from the inspectorate of the regulatory body.

Photo of Lord Fyfe of Fairfield Lord Fyfe of Fairfield Labour 4:13, 16 March 2006

My Lords, I congratulate my noble friend Lord Harrison on initiating this afternoon's debate. In his introduction the noble Lord demonstrated his very wide knowledge of business, not only in this country, but in Europe. I would like to focus, briefly, on retailing. I should declare something of an interest: I was chairman of the Co-operative Group (the CWS) and chief executive of the Midlands Co-operative Society. I do not claim to be an expert. I am always extremely suspicious of people who are described as experts, because they often masquerade as something they have not quite achieved. Nevertheless, I have operated superstores, supermarkets, convenience stores and other activities such as travel agencies and indeed funeral operations, though I will not regale your Lordships' House with my experience of the latter operation.

In Britain we should be proud of our retail industry. It is innovative and imaginative. It has pioneered lots of activities and initiatives throughout the world. Indeed, it is widely respected and envied for that degree of expertise. It employs about 12.7 million people. It is the biggest employment sector in the land. It is highly successful and is copied throughout the world.

However, that very success contains dangers. In an unregulated superstore environment that success can cause tremendous damage to rural communities and sentiments. I am concerned about the number of villages—indeed, small towns—that have almost been devastated in retailing terms by the impact of one or two supermarkets or out-of-town superstores—superstores being defined very simply as those with a selling space in excess of 25,000 square feet. That success also has its drawbacks because it impacts on local communities and on small local shops.

I was at exactly the same function as the noble Baroness, Lady Byford, last week. We were entertained, and I suppose we had our ears twisted, by the Association of Convenience Stores. But I stress that they were not looking for something for nothing. They were not looking for handouts. They were simply looking for a fair deal for the future of their type of stores. They are vital to the local community. They are just as vital in a small community as a local church and—dare I say it—a pub, or a school. They are a meeting place. People congregate there to discuss local issues and the free and fair interaction of values and principles. So they are vital. And that degree of vitality spreads, because local businesses in turn divert a lot of their expenditure to other local businesses such as solicitors, tradesmen and other work people throughout that town or village. If a large superstore comes into operation it is clearly done centrally; it is not done in a small town or village. So other people within the community suffer from the lack of the facility.

Having very briefly described that background, I turn to what can be done to help small businesses in a sensible and practical way. One thing that should be done is tighter guidelines from central government to local authorities on planning consents for out-of-town superstores. This has developed into a free-for-all in recent years and it is quite often a matter of what is politely called planning gain. It is less politely and perhaps more accurately called cheque-book planning. It often means that a superstore comes along and is invited by the local authority to develop a superstore with certain conditions: "Will you provide a new bypass? Will you provide a new community centre? Will you provide a new meeting place? Will you provide a doctor's surgery?" and so on. Often, the operator that offers the most attractive "planning gain" is the one favoured irrespective of demand in the community for the facility offered. We should do something somewhere about so-called planning gain or cheque-book planning.

Sunday trading is another vital aspect of limiting the damage to small shops. There is much talk at the moment of deregulation, and Tesco, Asda and some of the DIY operators are, unsurprisingly, campaigning very strongly for deregulation. Superstores are currently restricted to six hours' trading on a Sunday. If deregulation comes in, I have no doubt that that will be 24 hours within a very short time. That can have a massive impact on small shops, which, it is anticipated, could lose more than 3 per cent of their turnover. That does not sound a lot on the face of it, but it can have a significant impact on turnover because retailers work to very narrow margins. Therefore, there is a very real danger.

Another fatuous argument sometimes used to support the development of superstores is that they will create employment. We are all familiar with the banner headlines, "New store proposed—250 new jobs will be created". Frankly, that is absolute nonsense. Research indicates very clearly that 250 new jobs may well be created at that location, but 400 or 500 jobs may well be lost in other locations in the vicinity. So that is not at all a viable argument.

Another aspect that I shall mention very briefly and which the Government should act on—I will be very interested to hear the Minister's response on this—is the predatory pricing policies that are often employed by the major superstore groups. Selling at less than cost price is commonplace, and prices revert to their normal level once the local small opposition has been vanquished. Even in the United States of America, there is, I believe, legislation to prevent that. It is interesting that the largest retailer in the world, Walmart, has 18 per cent of the US food market share, which is significant, against our largest food retailer, Tesco, which has an almost 30 per cent market share. So even the Americans realise that some legislation is necessary to curb predatory pricing and below-cost selling. I would be interested to know what the Minister has to say about that and about Sunday trading and more tightly regulated planning conditions.

Photo of Baroness Miller of Chilthorne Domer Baroness Miller of Chilthorne Domer Spokesperson in the Lords, Environment, Food & Rural Affairs 4:23, 16 March 2006

My Lords, I thank the noble Lord, Lord Harrison, for introducing such an interesting debate that has attracted such a wonderful range of speakers. I have learnt something from every one of them. Before I make my contribution, I must declare an interest; I have finally been tempted back into retail after many years. At the end of this month, I am opening a small—and evidently doomed, to judge by the figures—shop selling local food. So I have been listening to contributions this afternoon with great trepidation. However, I live in hope that the market is about to recognise the value of small retailers generally. I was very heartened last week by the OFT's albeit interim decision to refer the grocery market to the Competition Commission. I would certainly urge it to follow up the decision, and I might return to that in detail if I have time at the end of my contribution.

The noble Lord, Lord Harrison, referred first of all to Business Link, and I must say from my recent experience with a new start-up that the Business Link website is fantastically helpful.

I concur with the point made by the noble Lord, Lord Borrie, that one should join a reputable association such as the Federation of Small Businesses. I again give an example from my recent experience. These days, any small business needs a chip and PIN machine so that, we hope, it can take amounts of more than £10, but the percentage charged by the companies on every sale is really quite large. However, should you belong to the Federation of Small Businesses, the percentage drops dramatically and the saving will pay for your subscription to the federation in absolutely no time at all. So that is the kind of real help that belonging to an association can give.

The noble Baroness, Lady Byford, referred to the CBI's wish for a one-stop shop for grants and support schemes. I think there needs to be a one-stop shop for small businesses that couples together both the grants and support schemes and the regulatory issues. While, as I have said, the Business Link website offers a great deal, it depends on the fact that you already have a computer and that you already have broadband. I was very interested in the opinion of the noble Lord, Lord Williams of Elvel, that not all of Wales is covered by broadband. When I raised this issue in your Lordships' House in the debate on the rural economy, I stated that there were still gaps in broadband coverage. The Minister for Defra, the noble Lord, Lord Bach, came back on this and said that 99 per cent of rural areas were covered by broadband. It may be a difference in the definition. I am sure the Minister will be able to tell me the definition of "broadband" and whether the Government are counting in ADSL lines, which are substantially slower.

Given his long experience of this issue over time, the contribution of the noble Lord, Lord MacGregor of Pulham Market, was very thought-provoking. Since he made his contribution, I have been dwelling on the point he made about us now living in a globalised economy and the consumer benefits of that. But the theme that has come through today is that we are at once a country of both consumers—when we benefit from the market—and of people who depend on being employed by that sector. People wear twin hats: they are consumers at one moment but, if the small and medium-sized business market suffers particularly, they become out-of-work consumers, which really does not help them at all. The relationship is very fragile and should be borne in mind. When we are looking at issues such as what is good for the consumer—which the OFT will be considering—we should take into account that we are not simply consumers but employees as well, as are our relations and so on.

As I expected, of course, European regulations were raised. I absolutely agree with the noble Lord, Lord Borrie, that we need regulations. I was therefore surprised by the contribution of the noble Lord, Lord Vinson, when he intervened on my noble friend Lord Dykes and seemed to imply that if we did not have Europe we would not have any regulations.

Photo of Lord Vinson Lord Vinson Conservative

My Lords, it is not that I was against regulation per se; I was against disproportionate and excessive regulation, much of which, in the eyes of commonsense, does not appear appropriate. That is what is pouring out of Europe and that is where the objection comes. It is deeply felt by small firms on the receiving end.

Photo of Baroness Miller of Chilthorne Domer Baroness Miller of Chilthorne Domer Spokesperson in the Lords, Environment, Food & Rural Affairs

Fortunately, my Lords, I have to hand an example of why that is not the case. Europe is doing something about waste reduction, pollution and many of the serious issues on the environmental agenda. If Europe addresses those issues, it often allows a national government to pursue things it might have found politically difficult at home in the first instance. However, how the national government implement those regulations is critical.

I draw the Minister's attention to one regulation which is causing an awful lot of trouble for small businesses. I refer to the Waste Electrical and Electronic Equipment directive, which is causing trouble because of the Government's delay. Some 50,000 small businesses will be affected by this directive, but UK implementation has been delayed four times. The Environmental Industries Commission cites the DTI reasoning of continuing concerns from business, but in fact none of its members has apparently been consulted. The real concern of small business is not that nothing should be done about waste electrical goods—it is about the uncertainty of how to make investment decisions in such an unsure regulatory situation. The Government really must make these decisions more quickly. When a directive comes in, they need to give the business sector some certainty.

With regard to the decision of the Office of Fair Trading to refer the supermarket and grocery sector to the Competition Commission, I agreed with the concerns expressed by the noble Lord, Lord Fyfe of Fairfield, about supermarkets and planning gain—what are commonly known as 106 agreements. The larger supermarket can offer a community all sorts of gains such as a new roundabout or the solution to highway issues. That makes it much cheaper for the local authority in the short term because the supermarket can pay for all those things. But if the cost in the long term is either what the New Economics Foundation aptly called "clone town Britain" or, even worse, a very dead high street because all the business has gone to the out-of-town superstore, it is not planning gain but planning loss. It just looked like gain in the very short term.

The entry of supermarkets into the local format is particularly concerning. I do not need to rehearse that because we have debated it in your Lordships' House previously. But it concerns me that a supermarket chain can have a supermarket in one town and then take over the convenience store, particularly in a small market town where anything else is a bus ride away. There is now a four-week consultation period; should the decision be supported, I believe the Competition Commission is likely to investigate this for up to two years. Is there any chance that that could be done slightly more quickly? As we have heard, we are losing 2,000 shops a year. That is serious, and the longer this situation continues, the worse it will get.

It is a mark of the times that there is a very entertaining television programme based on whether people are truly entrepreneurial and have backed up their entrepreneurial ideas with facts. I refer, of course, to "Dragons' Den". I do not think that even five years ago we would have seen that as a television programme to capture the imagination. It has, and I regard that as a sign of optimism.

Photo of Baroness Miller of Hendon Baroness Miller of Hendon Shadow Minister, Trade & Industry 4:33, 16 March 2006

My Lords, I begin by declaring three small peripheral interests. First, I am a founder member of the Small Business Bureau, a pressure group that campaigns on behalf of small businesses. Secondly, I am a director of and shareholder in a group of family property companies, many of whose investments consist of properties let to small—sometimes very small—companies. As such, I am well aware of the problems that some of our tenants have which, in turn, impinge on the rents as well as the wages that they can afford to pay. Thirdly, I started and ran my own business, which I sold out in 1990.

Like other noble Lords, I want to thank the noble Lord, Lord Harrison, most sincerely for having introduced this debate, for having spoken so excellently and, as a result, for having had so many wonderful contributions from all around the House. They have been so numerous that I hope your Lordships will forgive me if I do not mention them all.

We have had several debates on small businesses in recent years. Concerns about them are raised in the course of discussions on other subjects; for example, the Company Law Reform Bill which is progressing through the House. The noble Lord, Lord Harrison, rightly called attention from the government Back Benches to the assistance given by the Government to small and medium-sized businesses. I would certainly not wish to decry or diminish any of the efforts that the Government are making.

No one who has listened to our various debates and discussions, or who has read the stream of articles in the financial press, can be unaware of the almost immeasurable importance of SMEs to the economy and employment. Noble Lords who are sufficiently interested in the subject to have been here today know the statistics very well. I shall not repeat them, because I want to use my time to say other things.

I mention, however, the plight of small shops, which form a large part of the small business sector. I shall not mention post offices, because my noble friend Lady Byford did that so well. The recent report of the All-Party Parliamentary Small Shops Group of the other place makes a gloomy assessment of the prospects for the traditional high street. I wish my namesake, the noble Baroness, Lady Miller, very well in hers. She should gloss over those sorts of fears, because I am sure that she will do very well.

It is not the Government's fault if customers choose to vote with their feet in favour of cheapness and economy, but, as the noble Lord, Lord Fyfe of Fairfield, said, the effects can be devastating for communities. The Government have some influence, however, over the granting of planning consents for new, giant out-of-town shopping centres. I hope that they listened carefully to what the noble Lord said about that. They have influence also over the savage parking restrictions which prevent local shopping in favour of the out-of-town centres with unlimited parking spaces.

The Competition Commission, of which I used to be a member, is commencing a new investigation that is limited to supermarkets, but the Government need to look at the wider implication of the possibility, forecast by the other place, of some high streets becoming deserts, occupied only by hairdressers, building societies and charity shops. Again, I shall not rehearse what the noble Baroness, Lady Byford, or the noble Lord, Lord Fyfe, said.

Despite the Government's concerns and efforts, all of which I fully acknowledge, there are still some large policy and practical shortcomings which it is essential that both the Government and the EU try to put right. The current definition of a small business is a business which has a turnover of less than £2.8 million, a balance-sheet value of under £1.4 million and not more than 50 employees. The European Commission, for its own purposes, adopts wider financial parameters. However, as I have often said in debates such as this, the vast majority of small businesses do not have 50 employees. Ninety-seven per cent of small businesses in the United Kingdom employ fewer than 20 people. Nevertheless, they produce more than 58 per cent of its employment, as my noble friend Lord MacGregor pointed out.

The small business that I founded and ran for 19 years employed fewer than 20 people. Many businesses employ only four or five people, often comprising mostly of family members whose living is the small business, whether it is the ubiquitous corner shop, the newsagent, the hairdresser or the dry cleaner. The Federation of Small Businesses is lobbying the European Commission to adopt a definition which contains three graduations, including very small businesses. Those graduations are: up to five employees; from five to 20 employees; and 20 and upwards. I would be interested to hear from the Minister whether the Government have any views on that kind of proposal.

As I have frequently argued—I am glad to see that is gradually being recognised—what is appropriate for a major industrial business is not necessarily suitable for a small engineering firm. What is right for the big four supermarkets is sometimes entirely wrong for the local convenience store. The noble Lord, Lord Harrison, will know only too well from his experience as a former MEP about the torrent of complicated, lengthy and over-prescriptive directives that pour out of Brussels. I am not talking about the health and safety regulations which the noble Lord, Lord Borrie, mentioned, and which all businesses, whether small or large, need to implement. One size emphatically does not fit all. It does not even fit all those which are currently lumped together as small businesses. Over 99 per cent of United Kingdom businesses are classified as small and are responsible for almost 47 per cent of non-government employment.

I shall not comment on the increase in regulations because my noble friend gave the numbers clearly. The noble Lord, Lord Borrie, cited the noble Lord, Lord Williams of Elvel. It is not true that there were as many in the past as now. In 2001, regulations cost business £10 billion. They have now increased more than five times. As my noble friend said, 15 new business regulations come into effect every single day. I wish to counteract the idea that it was always so. It is an increase of 52 per cent since 1997. As Bill Midgley, President of the British Chambers of Commerce, said,

"The big issue as the Budget approaches is to reduce the burdens on business in an increasingly competitive global economy".

As my noble friend mentioned, that is where we are competing today.

In 1997, the Labour Party manifesto promised to cut unnecessary red tape. The Government told my honourable friend the Member for Rutland and Melton that only 27 regulations had been amended or reformed under the Regulatory Reform Act 2001 while, during that same five years, 17,800 new regulations were introduced. That is worth thinking about.

It follows from the figures I have quoted as regards the numbers of small businesses in relation to the size of the economy that a vast proportion of that regulatory expense falls on SMEs, including small and very small businesses which are those least able to afford it. The social aspects of the recent employment legislation, as well as the Work and Families Bill we are currently discussing in this House, impinge most heavily on small business and very small businesses which are least able to cover staff taking parental and adoption leave, time off for family emergencies and so on. We support those changes. But can the Minister comment on how that burden could be eased for small businesses? I shall be glad to hear his response. Only yesterday a colleague showed me a form regarding the national statistics—the monthly inquiry into the production industries. The form requires information under nine different headings. To work out the figures for the ninth heading of the Annual Business Enquiry, Part 2—it was dealing only with the numbers employed in different areas—took more than a day. That is a very difficult task for a small business.

I refer now to the organisations set up by the Government with the objective of assisting small businesses: the Small Business Service; Business Link; the Small Business Council; the Ethnic Minority Business Forum; the Small Business Task Force; the Capital for Enterprise Board; the Finance & Investment Board, and so on. Those are no doubt worthy bodies. However, the CBI said recently that although there are 2,650 different grants and schemes on offer in England alone, they are often "confusing and inconsistent". One of the problems is not knowing where to go for information.

I conclude by saying that although some of my remarks may appear critical—I hope that the Minister will think them only slightly critical—I do not doubt the Government's good intentions about what has often been called the engine of the United Kingdom economy. All noble Lords and I wish to do is to spur them on to further efforts on behalf of SMEs, especially very small businesses, and to reduce the burdens they have to bear.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation) 4:45, 16 March 2006

My Lords, I am delighted to be taking part in this debate today. It has been extremely interesting, and I thank the noble Lord, Lord Harrison, for initiating it, and for speaking so eloquently on behalf of small businesses.

Small and medium businesses, as the noble Baroness, Lady Miller, said, are the engine-room of the UK economy, and invariably face the biggest hurdles when trying to grow. The Government recognise this fact and are determined to provide the best possible conditions for them to be able to innovate and grow. It is a remarkable fact that 99.9 per cent of all UK businesses are small or medium sized. There are in fact only 6,000 businesses in this country that employ more than 250 people.

Small businesses account for more than half of all private sector employment—that is, over 12.6 million people. I say to my noble friend Lord Williams that if we were to triple that, we would be doing extremely well. Indeed, almost the entire population would be working for small businesses. They account for over 50 per cent of new jobs in existing companies, and 85 per cent of new jobs in new businesses. I agree with both the noble Lord, Lord MacGregor, and my noble friend Lord Cobbold that small business is key to our economic success. It is also true, as the noble Baroness, Lady Miller of Chilthorne Domer, said, that things like "Dragons' Den" suggest that there is a change of culture in this country, and that being an entrepreneur is becoming something young people in particular aspire to.

As I address the points raised in this debate, it would be useful to remember the progress the Government have made on the economy as a whole and on small and medium-sized businesses in particular. I agree with the noble Lord, Lord Harrison, that the Government have focused on conditions for small business, and have been good to SMEs. Above all—this is enormously important for small businesses, in my experience, and one cannot say it enough—we have created and maintained a stable macro-economic environment for the past eight years. For small businesses, that is one of the most important things one can do.

There is no doubt that SMEs are in good shape at the moment. We have a record number of businesses, around 4.3 million, over 600,000 more businesses than in 1997 and almost double the number a generation ago. The business startup rate is 1,500 per working day. Business failures are low too, the lowest since records began in 1993; 92 per cent of UK businesses registering for VAT in 2003 were still registered a year later; and SME productivity growth is higher than that of all firms over the 1999–2003 period.

We have also made life easier for business. We have cut corporation tax, simplified VAT registration and set the highest VAT threshold in Europe. Back in 1997 budding entrepreneurs faced a pile of paperwork and a long wait to begin trading. Today you can register your company electronically and be up and running in just one working day. My noble friend Lord Cobbold quoted from an EU report about halving the time it takes to set up a business. The fact that we are doing it in one day is probably a satisfactory target to have reached.

In 1997 enterprise was not sufficiently rewarded. Many investors in new entrepreneurial business faced a 40 per cent tax rate on gains they made in risky long-term ventures. Today, if business assets have been held for two whole years or more, only 25 per cent of the gain is charged to tax, giving an effective rate of 10 per cent rather than 40 per cent. The Government have also encouraged go-ahead businessmen and women to take risks with the Enterprise Act 2002, not least by reforming insolvency law to remove much of the stigma associated with honest business failure.

We have made it easier for business to access finance. We have provided a government-backed guarantee of 75 per cent on loans to small businesses. In 2005 the Small Firms Loan Guarantee supported over 7,000 business loans, underpinning more than £400 million of bank lending. We set up nine regional venture capital funds, which have invested almost £42 million in 134 companies; and we have launched the Early Growth Fund, with 34 small businesses benefiting from around £500 million. We have also sought to increase the opportunities for all, which is why the Government support the "Make Your Mark" campaign and its annual enterprise week.

A total of 408,000 people attended the 2,215 enterprise week events held across the country last November. Those events were organised by more than 700 organisations, with the support of more than 3,800 businesses, which highlights the high value industry places on this initiative. We have rationalised the range of Department of Trade and Industry business support products from more than 180 to nine. I still believe that there are too many schemes, however, and that rationalisation has a long way to go to narrow those down and make them more focused.

Small and medium-sized business can also access a range of business support from Business Link, which provides an excellent service. More than 670,000 businesses now use Business Link every year. It is dedicated to helping businesses innovate, improve, grow and become competitive, and the award-winning Business Link website provides authoritative information from over 40 government departments and agencies.

However, we can and still need to do more. I believe that there are many potential entrepreneurs among women, minority ethnic groups and young people, whose energy and enterprise we need to unleash. Let me give two or three statistics that show what opportunities exist to create more entrepreneurs in this country.

If women started businesses at the same rate as men, we would have 150,000 extra start-ups each year in the UK. That is why we are setting up a new task force on women's enterprise, to advise the Government on further action. If under-represented minority ethnic groups had the same self-employment rate as other groups, there would be more than 70,000 extra self-employed people—a 67 per cent increase in self-employment in under-represented groups. That is one of the reasons why we set up the Phoenix fund in 2003 and recently announced £250 million of funding for enterprise in disadvantaged areas under the local enterprise growth initiative.

If young people aged 20 to 29 had the same self-employment rate as people aged 30 to 39, the number of young self-employed people would double. That is why we have worked to put enterprise firmly within the school curriculum, making £60 million available each year to provide five days' enterprise activity for all students between the ages of 14 and 16. If young graduates had the same self-employment rates as other young people aged 20 to 29, there would be 30,000 more young, self-employed graduates—50 per cent more. That is why we have set up the National Council for Graduate Entrepreneurship. So far, over 2,800 university students have attended the flying start rally to turn their business ambitions into reality.

Noble Lords will appreciate that several of the matters raised during today's debate, particularly those raised by the noble Lords, Lord Harrison and Lord MacGregor, will be considered by the Chancellor in the light of the forthcoming Budget next Wednesday. I have noted that the Federation of Small Businesses and the Forum for Private Business have specifically raised issues to do with corporation tax rates, the VAT zero rate trading scheme, VAT on hot takeaway food, the offshore Channel Islands VAT issue, national insurance and the national minimum wage. Noble Lords are right to raise these as matters of importance to small businesses, but they will recognise that these issues now rest with the Chancellor, and we must await the outcome of his deliberations. I am sure that he has considered carefully the representations by the Federation of Small Businesses and the Forum for Private Business.

On these occasions, the subject of regulations is always the biggest issue. I must deal with what I think are a number of mistaken ideas. The issue of regulations is huge, and one that we need to tackle, but we should have two points in mind. The first is that no country has dealt with this issue significantly better than we have. People always point to America. I have done business in America, and I can tell the House that given a choice between regulations in this country and dealing with the legal system and lawyers in America, I would pick regulations in this country every time.

My second point is that we must base our calculations of the regulatory burden and its costs on sensible figures. When people talk about the level of regulations and the fact that there are 15 new regulations a day, they are referring to the number of statutory instruments. Ninety per cent of those statutory instruments have no impact on businesses at all. In fact, in 2004, 48 per cent of all statutory instruments related to temporary road repairs—that may be a commentary on our society but it is not a burden on small businesses. We should get away from the idea that statutory instruments are any kind of measure of the burden on business. Many other SIs related to issues such as preventing money laundering, disease control, free school meals and combating late payments, all of which are highly desirable goals.

The noble Lord, Lord MacGregor, raised in favourable terms the situation in China and India. I do not think that we should seek to emulate in this country the environment, the environmental controls or the factory conditions in China. It seems to me that conditions in China are like those that existed in Victorian England, and that is why it was necessary to have social and environmental controls. The situation in China can be tolerated when one's living conditions are dictated by wages just above the starvation level, but they are not conditions that we in the developed world would tolerate.

I make a final point on regulations to the noble Lord, Lord Vinson. Many of these regulations come across my desk and they are in fact European regulations which replace national regulations. To that extent, although there is a burden on business in learning the new regulations, they are part of opening up the internal market and enabling businesses—particularly small businesses—to trade across the whole of Europe with consistent standards. That makes it easier for businesses to trade in Europe. So, again, we should be careful about saying that any European regulation is an additional burden; in some cases, it is a rationalisation and, although there may be temporary problems in adapting to it, it gives businesses the opportunity to trade freely across Europe.

As I said, we regard regulations as a major problem and we are tackling that. We have stripped away regulatory burdens on businesses wherever possible. We have exempted nearly 900,000 companies from audit requirements on their accounts as a result of raising the annual turnover threshold from £1 million to £5.6 million, and that has saved companies £94 million a year. As has been said, we have provided the highest VAT threshold in Europe. Since 1 April 2004, firms with turnovers of £60,000 or less have not had to register or pay for VAT, and we have reduced the payroll burdens on 1.2 million businesses by paying working tax credit directly to individuals rather than via employers.

We have made a whole series of changes to employment regulations—the minimum wage, the right not to work more than 48 hours a week and four weeks' paid leave and so on. The figure quoted as the cost of the burdens to industry is £50 billion, but, again, we must be clear about what that figure includes. The administrative burden accounts for a tiny proportion of it. The main part of it is the cost of giving those benefits to people. If people want to attack that figure, it is not enough to say, "Get rid of the burdens"; they have to say, "We want to go back on all those proposals". They have to say, "We don't want a minimum wage, we don't want the right not to work more than 48 hours a week and we don't want people to have four weeks' paid leave", because that is what the £50 billion relates to. In fact, the cost to employers is around 1 per cent of the annual wages and salaries bill for the economy as a whole, or around £4 per employee per week. There is no evidence that regulations are damaging the performance of the economy—in fact, the UK regulatory burden compares well internationally.

I turn to the question of access to finance. As has already been said, the Milken Institute said that Britain was the best place in the world for entrepreneurs to raise capital, while the World Bank has named the UK as among the best places in the world in which to start and grow a business. I have given some examples of how we have improved that situation. I agree with the noble Baroness, Lady Cohen, on the importance of the AIM market, which is one of the most significant changes for small business in recent years. It is important for two reasons, being not only about the ability of businesses to raise finance but enormously important in providing an exit route for venture capitalists and business angels. It is only when that exit route exists that people will consider investing in the earliest stages of businesses.

The Government are also delighted that the AIM market is trying to become a truly pan-European stock market for hi-tech businesses. If it can become the European equivalent of NASDAQ, that will transform the position of fast-growth, hi-tech businesses since it will enormously increase the liquidity of the European market for such ventures, which is the advantage held up until now by the United States. I assure the noble Baroness that the Government will do nothing to hinder the growth of that market. If, as I suspect, the best thing that we can do to help is to stay out of the whole thing, we will do that.

The noble Lord, Lord Cobbold, raised the question of knowledge transfer from universities. That is one of the great success stories of recent years. We have had a series of schemes—the University Challenge competition, the Science Enterprise centres and the HEIF programme—which have transformed the scene for university spin-outs. To give just one figure, in the last two years, 20 businesses which were university spin-outs were floated on the stock market. The market value of those companies today is £1 billion, so the old story that British universities were no good at spin-offs is no longer true.

The question of young people was raised by the noble Lords, Lord Harrison and Lord MacGregor. We have provided £60 million per year to support a new focus on enterprise education for all key stage 4 pupils. That includes the equivalent of five days enterprise activity, such as running a realistic business, which builds on existing work-related activities such as work experience.

Several noble Lords raised the question of supermarkets—one of the few subjects which I talk on in your Lordship's House which I know something about. It would not be appropriate for me to comment on such issues as predatory pricing, Sunday trading or Section 106 agreements, where the House might not believe me. I will get one of my colleagues at the DTI to write to noble Lords on those issues. On the Euro Info Centres network, the Commission is currently reviewing the business support services that it offers to SMEs. Meanwhile I can tell the noble Baroness, Lady Howells, who raised the issue of black and ethnic minorities that we have started to do some work in that area. In December 2004 the Chancellor asked the National Employment Panel what could be done to increase employment and business growth among ethnic and minority groups.

I have not dealt with all the issues but on any key ones I shall write to noble Lords. In conclusion, we have done a great deal in recent years. There is still more to do, and I have given some indication of the opportunities that exist. The Government are determined to go on helping small business and create the best possible conditions for those small businesses to innovate and grow.

Photo of Lord Harrison Lord Harrison Labour 5:04, 16 March 2006

My Lords, in concluding this debate I make three quick points. First, I shall dispute tongue-in-cheek with the noble Baroness, Lady Byford. She said that small businesses are not small beer, but my wife and I enjoy a pub lunch every weekend in Cheshire, the Wirral or north Wales where I usually partake of a small beer. But what interests me is the number of small breweries that are growing; they reflect what we want small businesses to do—to diversify and provide the service that some of the slower giants feel unable to provide in the way that we want.

Secondly, I take up the theme offered by the noble Baronesses, Lady Miller of Hendon and Lady Miller of Chilthorne Domer. This has indeed been an excellent debate and one which has provided food for thought for all of us concerned with small businesses and conducted with absolutely the right spirit. I also thank the noble Lord, Lord Sainsbury, for participating today. As the noble Lord, Lord Borrie, noted, he has been consumed with the Company Law Reform Bill. I know that he has had some difficulty in finding time to take part in this debate and offer us his views and thoughts.

My third point entirely excludes the noble Lord, Lord Sainsbury. With respect to noble Lords today who have shown great knowledge and understanding of small businesses, there is one reform that we can perform in this House to help small businesses. We must increase the number of us who have deep experience of small businesses. I have no objection to people coming to this House who have made pots of money, but I would like to see a few more who have made pots or pans or things that reflect the lifestyle small businesses that make up the vast majority of small businesses in this country. I hope that that is taken on board in the future.

Once again, I am thrilled to have participated in the debate and thank all noble Lords and the Minister for so participating. With that, I beg leave to withdraw the Motion for Papers, although I hope some day to receive those Papers that we are always promised.

Motion for Papers, by leave, withdrawn.