Businesses and SMEs - Motion to Take Note

Part of the debate – in the House of Lords at 2:08 pm on 6th July 2017.

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Photo of Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip) 2:08 pm, 6th July 2017

My Lords, I congratulate my noble friend Lord Leigh on securing this debate. I appreciated his thoughtful remarks and agreed with a very large part of his speech. The House has benefited from some passionate speeches from several distinguished business leaders and leaders of important institutions in the UK.

I agree with the noble Lord, Lord Tunnicliffe, that there is a consensus in the House on the importance of businesses, small firms in particular, because of their influence on their economy and broader prosperity. They are indeed the wealth creators. As my noble friend Lord Fraser said, their taxes fund our public services. They are the employers who create opportunities for a fulfilling career. They are the beating heart of the UK economy, and we should be doing all we can to ensure that they grow and prosper.

We start from a strong position. The figures are impressive, as my noble friend Lord Popat said. There were a record 5.5 million private sector businesses at the start of 2016, as was mentioned by the noble Lord, Lord Shipley. This is an increase of 97,000 since 2015 and 1,015,000 net new businesses since 2010. Employment is also at a record high, with 372,000 net new jobs created in the past year, bringing the total to just under 32 million people in work. In fact the employment rate, at 74.8%, is the highest since 1971.

My noble friend Lord Popat commented on productivity. He was fairly blunt—he said we have a major productivity problem and made some comparisons with Germany. Let us be clear that this is certainly a challenge. It is not really clear why the UK’s performance has been so poor. Economists refer to the productivity puzzle. It is not a puzzle we will solve today. Technical skills, investment and entrepreneurship all play a part. However, we can identify one factor: productivity is the value-added per hour worked, and since we now have the highest-ever number of people in employment, some of those marginal jobs add less value and bring down the average. Countries with higher taxes and less flexible labour markets have higher productivity at the cost of lower employment. This is the trade-off which we should bear in mind. These are important issues that we are strongly seeking to tackle.

Entrepreneurs create wealth. As my noble friend Lady McGregor-Smith said, the Government’s role is to put in place the best possible environment in which to start and grow a business together with a tax system that ensures the benefits are shared fairly. Several noble Lords spoke about the importance of universities and social enterprises, notably the noble Baroness, Lady Dean, and the noble Lord, Lord Shipley. I agree with those who have urged us to consider all businesses. We have heard about the importance of universities and social enterprises, employee-owned businesses and housing associations. All these have an important role to play; they are very much part of the Government’s vision and will be included in the industrial strategy, which answers the question asked by the noble Lord, Lord Tunnicliffe.

Let me mention some of the actions on tax that the Government have taken since 2010. We have reduced the rate of corporation tax from 28% to 19% and plan to reduce it to 17% by 2020, benefiting 1 million companies. We have cut income tax bills for 31 million people by raising the personal allowance to £11,500 and have plans to raise it further to £12,500 by 2020. We have introduced the employment allowance, giving 1 million employers up to £3,000 off their national insurance contributions bill. We have introduced a national living wage of £7.50 per hour for all employees aged over 25 and we have extended small business rate relief, which means that 600,000 small businesses no longer pay business rates.

The noble Lord, Lord Shipley and my noble friend Lady Neville-Rolfe looked at business rates and the advantages of going online. They are right, but they will recall that at Budget 2016 the Government announced cuts to business rates worth some £9 billion over the following five years. These reductions go some way to redress the balance since the benefits are felt by businesses on the high street rather than those operating solely online. However, the Government are actively considering what further steps they could take without seeking to penalise successful online businesses and their contribution.

Some have suggested that these cuts in corporate taxes go too far. They may be interested in a recent analysis by accountancy firm PricewaterhouseCoopers of 100 large companies which between them collect or contribute 13% of all government tax receipts. In 2016, the year in which corporation tax was cut to its lowest-ever level of 19%, receipts from this tax increased by 9.2%, so low tax rates help competitiveness, improve confidence and can lead to increased resources for our public services.

My noble friend Lord Popat spoke about issues involved in setting up a business. He said that sometimes it feels as if one’s hands are tied behind one’s back and questioned whether the business environment is supportive and competitive. It is worth noting that the World Bank ranks the UK seventh in the world for ease of doing business, ahead of Germany, France, Japan and the United States. Of course, we should not be complacent. There is much more to be done, but it is worth putting a bit of balance to his statistics.

The Government have a role in fostering innovation, enabling the growth of emerging businesses that are pioneering new technologies and new business models. These new businesses raise productivity, offer high-quality jobs and boost UK export opportunities. For example, the UK has one of the largest aerospace industries in the world and has pioneered new technology for modern satellites. The Space Industry Bill, which was announced in the gracious Speech, will enable the licensing of commercial spaceflight, including rockets, space planes, satellite operation, spaceports and other technologies. British businesses are at the forefront of this so-called rocket science.

In her passionate speech, the noble Baroness, Lady Lane-Fox, spoke about digital skills and encouraging technical and digital skills in terms of signing a new digital ethical charter. At the same time as our tech sector is thriving, with London confirmed as the number one destination for tech investment in the EU, too many businesses lack the skills they need. We engage with business organisations regularly on these issues, as I am sure the noble Baroness is aware, but I am grateful to her for her personal commitment and her actions to ensure that the benefits of the technology are accessible to all.

The noble Baroness, Lady Lane-Fox, spent some time in her speech focusing on the value of digital skills. The noble Lords, Lord Tunnicliffe and Lord Palmer, also spoke on this subject. The noble Baroness is right that small businesses and the self-employed are missing out on business opportunities and achieve lower productivity because too many of them lack these skills. This issue needs to be tackled around the country, particularly where small businesses operate. The Government have supported and invested in the creation of a network of growth hubs to provide businesses across England with tailored advice and support at local level. There are now 39 growth hubs, one in each local enterprise partnership area, providing much-needed access to impartial and co-ordinated business support to 100% of the registered business population in England. Growth hubs provided intensive support to 47,618 businesses, including in digital skills. The Government will continue to focus on this important issue, working with growth hubs and the technology sector.

We should also not forget the social benefits to communities and public services that flow from innovation. Technology is supporting our social care system, for example, by helping older people remain independent in their homes for longer, and the UK’s growing education technology sector is supporting children to achieve in the classroom. The UK’s world-leading research base is a vital part of these success stories, including universities, Innovate UK and the network of catapults that bring together innovative businesses and accelerate the development of new products and processes.

That gives me an opportunity to praise the noble Baroness, Lady Dean, for bringing up universities, particularly the University of Nottingham. I congratulate the university on its gold award. Universities are businesses that have a vital supportive role in this country, not least in employment and in focusing on the needs of students.

Equally important is access to finance across the country, catalysing growth and private sector investment. The British Business Bank in particular, which several noble Lords mentioned, is core to our ambitions to ensure that all businesses can secure the right finance at the right time to achieve their goals. The bank invests alongside the private sector through guarantees and co-funding. The Start Up Loans company, a division of the bank, has already helped more than 44,500 entrepreneurs to realise their goals by lending more than £284 million, and the bank’s programmes have enabled £3.4 billion of finance to more than 54,000 established businesses. Last autumn, the Government provided £400 million of new funding for the bank’s venture capital programme, which will unlock a total of £1 billion of investment into innovative firms. The bank is ensuring that equity funding is available to businesses in all parts of the UK. The £400 million Northern Powerhouse Investment Fund is already active and the £250 million Midlands Engine Investment Fund is expected to launch shortly.

I have outlined the role of government, but I want briefly to acknowledge the important point that my noble friend Lord Leigh alluded to about creating a balance. That balance is important in terms of having necessary taxes imposed on business but not to the extent that its behaviour becomes detrimental to wealth creation. I could say more about that, but it is an important point to make as part of this debate. What should we expect of businesses themselves, particularly those larger companies whose actions shape public opinion? In a word, we expect them to act responsibly: this is definitely a theme that has come out during this debate. In thanking my noble friend Lord Shinkwin for his contribution, I note the importance of business’s role in supporting people with disabilities. I reassure him that, in developing our industrial strategy, we have already met representatives of Disability Rights UK, which responded to the strategy consultation. Responsible businesses ensure that they pay their fair share of tax, treat their employees with respect and pay their suppliers on time.

There has been a strong emphasis today on social responsibility, but there is also moral responsibility and I will move on to the issue of prompt payment, raised by my noble friend Lady Couttie. As she reminded us, late payment is a pressing issue that disproportionately affects small businesses. The noble Lord, Lord Shipley, raised this, as did my noble friend Lady Neville-Rolfe. I am delighted that she contributed again today. She brings back to these Benches, from the Front Bench, huge business experience and a wealth of success from her ministerial responsibilities. The Government are tackling late-payment culture through a package of measures, including requiring large businesses to report on their payment practices and performance; creating the prompt payment code; and appointing a Small Business Commissioner. I reassure my noble friend and the noble Lord, Lord Tunnicliffe, that the recruitment of the Small Business Commissioner is well under way and I am assured that the commissioner will be appointed later this year.

Greater transparency will enable suppliers to judge for themselves which firms pay their bills promptly. The prompt payment code sets the standard for best practice between organisations of any size and their suppliers. All the Government’s strategic suppliers have signed up to the code. They have committed to pay 95% of invoices within 60 days and to work towards adopting 30 days as the norm. The Small Business Commissioner will support small businesses in resolving payment disputes and avoiding similar issues in the future. Most importantly, the Small Business Commissioner will set about encouraging a culture change in the way large businesses pay their suppliers. My noble friend Lady Couttie hoped that reform of the courts will be business friendly. I reassure her that the needs of business are being taken into account in these reforms. The Small Business Commissioner, once appointed, will be well placed to ensure that the reforms have the intended effect and facilitate the recovery of trade debts by businesses. Taken together, these measures should encourage a real change in payment culture, helping small businesses to access the cash flow they need, so importantly, to invest and grow.

My noble friend Lord Leigh mentioned the importance of trust and I will focus on this issue. One way in which businesses can restore public trust is through greater transparency, not only in their payment practices but in their operations as a whole. Quoted companies are now required to set out, in their annual report, how they take into account the interests of employees, customers, suppliers and the environment. They are answerable to their stakeholders on this, not just their shareholders. All firms with a turnover greater than £36 million now produce an annual statement setting out how they are combating slavery and human trafficking. Transparency builds trust and disclosures such as this are an important element to restore faith in responsible business.

Several speakers identified the role of business in improving life chances. We should recognise the real contribution that businesses make to social mobility. The Social Mobility Commission, in partnership with the Social Mobility Foundation and the Corporation of the City of London, are studying how businesses can help people from all social backgrounds to progress and improve their life chances. The top 50 UK employers which have taken the most action to improve social mobility in the workplace were announced on 21 June. We believe this to be the world’s first social mobility employer index. Some 17% of these firms now set social mobility targets as part of their business strategy, recognising that doing the right thing also makes good business sense.

My noble friend Lady McGregor-Smith spoke about the social mobility index and I pay tribute to her tireless work in this area. As she said in her recent report:

“Every person, regardless of their ethnicity or background, should be able to fulfil their potential at work. Diverse organisations that attract and develop individuals from the widest pool of talent consistently perform better”.

That is the business case as well as the moral case and I think that the whole House will support that statement.

Businesses up and down the country are going beyond their legal obligations and making a real difference wherever they operate. As my noble friend Lord Leigh put it, they run their business as a genuine stakeholder in the community. For example, as my noble friend Lady Bloomfield mentioned, Timpson, the retailer, employs ex-offenders and offers them a new start in life. National Grid recruits young people not in employment, education or training and equips them with skills for the future. As my noble friend Lady Rock said, Siemens contributes to the increasingly vital engineering skills that are so needed for our country. As the noble Baroness, Lady Greengross, mentioned, Anglian Water, recently awarded Responsible Business of the Year, has halved its carbon emissions on capital works through long-term relationships with its suppliers. Many of these companies are members of Business in the Community, the Prince of Wales’s network for responsible businesses. Its 800 members take action on employment, enterprise, education and the environment. They are acting responsibly and meeting their business objectives. The noble Baroness, Lady Dean, made important mention of social housing and housing associations. I agree with her that the role of housing associations goes beyond the provision of homes: they are actively addressing issues such as employability, parenting and excessive debt as part of the mix.

Through charitable giving, the wealth generated by businesses and entrepreneurs directly supports education and the arts. Private donations accounted for 18% of the income of arts and culture organisations in 2015, rising to 29% of income for smaller organisations with income of less than £100,000. That is a total investment of £480 million from private sources, an increase of 21% on the previous year—

“primarily driven by high-value individual donations”,

according to the Arts Council. This is important as we make ever-greater efforts to value the arts and their contribution to our well-being and, indeed, our economy. I think of the impact that the Symphony Hall has had on the regeneration of Birmingham, or the Baltic Centre for Contemporary Art in Gateshead.

An example that may be less familiar to your Lordships is the Auckland Castle Trust in County Durham, whose project has the potential to bring some 750,000 visitors each year to Bishop Auckland, create more than 600 jobs and bring economic benefits of some £45 million annually. The £300 million investment is being raised overwhelmingly from private sources: a great example of philanthropic vision. My noble friend Lady Bloomfield cited some interesting examples from the City and beyond. She spoke about the moral and economic case for contributing to the community—and she is absolutely right.

Our economy faces challenges as we exit the European Union. The Government will seek to give business as much certainty as we can and we will continue to work closely with the trade unions, in particular, with employer representatives and with businesses themselves. My noble friend Lady Neville-Rolfe stated that business needs a sense of vision and options for the post-Brexit world. She rightly pointed to the need for a clear vision for that. The industrial strategy White Paper, which the Government intend to publish this year, will build on the proposals we put forward in January and the many representations we have received. It will set out a shared vision of the way ahead. Businesses have demonstrated their resilience through the financial crisis and their ability to grow and offer employment to more people than ever before.

My noble friend Lord Popat urged the Government to be bold and I believe that we are being just that. As my noble friend Lord Shinkwin put it, rather succinctly, let us always remember that the NHS, schools and other vital public services rely on the wealth created by entrepreneurs through the businesses they have built. Let us celebrate the contribution they make and ensure that their voices are heard in the decisions that lie ahead.