Businesses and SMEs - Motion to Take Note

Part of the debate – in the House of Lords at 11:55 am on 6th July 2017.

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Photo of Lord Leigh of Hurley Lord Leigh of Hurley Conservative 11:55 am, 6th July 2017

My Lords, the wording of today’s debate is, I hope, carefully chosen. It goes to the heart of what our political economy is all about—and, indeed, the very purpose of our Government: that is to say, prosperity and how to deliver it for all our citizens. We Conservatives believe that it is individuals, entrepreneurs and businesses that hold the key to delivering that prosperity, not government spending. Of course government has a role to play in levelling the playing fields to deliver equality of opportunity, but it is business, through the creation of jobs, as the debate’s title suggests, that has the greatest potential to improve life chances.

By now, we all know that the capitalist system is the best system there is for increasing a community’s well-being, but we on this side of the House believe—and should say—that the private sector is better at running enterprises than the state and that a bigger role for the latter, while it may appear superficially attractive, is not a panacea. In fact, for those who can remember, the 1970s speak for themselves as a decade when the state had a far bigger role to play in our economy than it does today—and economically it was a disaster.

The reason I am keen to lead this debate today is that this simple truth is in danger of being lost. The idea is increasingly taking hold, particularly among our younger people, that businesses are not good at improving life chances, and that only big government can do that. Businesses are there to be punitively taxed so their wealth can be redistributed—a necessary evil. This vision is a poor one and we need to do better.

Business, entrepreneurship and wealth creation need to be seen as our best chance to improve life chances. We need to remind all that one of the best ways of improving life chances is to start your own business. We cannot sustain a position where businesses are a soft target for political point scoring, with their role poorly understood or, worse, maligned. Many of us recoil in horror at the prospect of nationalising industries at the cost of billions to be run by civil servants. It is up to us to show that free enterprise is the best and only way to maximise living standards for all our citizens.

Sadly, the covenant between business and society seems to have broken down. Even the relationship between government and business has frayed. When businesses spoke up in the EU referendum, they were not seen as trusted voices, even by their own employees. It was as though they had an interest of its own that was not even aligned with their staff, let alone the rest of the country. One Brexiteer said to me that their campaign received the best boost imaginable when Goldman Sachs was reported as giving Remain £500,000.

In the recent general election campaign, business was conspicuous by its absence. We must hope that it will not be as inconspicuous in the forthcoming negotiations on our exit from the EU because we need its voice. We need to understand the impact that any deal would have on business and to respond accordingly. I believe that its interests should be, and generally are, aligned with those of employees and with the national interest.

What I want to talk about today is how to reset the narrative that is currently engulfing business and the private sector and chart a course towards them once again being seen as trusted actors in our society, our communities and even as part of our political discourse.

If young people want answers to the question, “What does the Government or the Conservative party offer young people?”, I would say it is through our partnership with business, investing in skills to help young people access good jobs, such as the excellent progress on the apprenticeship scheme, or through creating an environment in which people want to start businesses of their own. This is how we improve life chances.

It is a matter of some regret that the Conservative manifesto did not really offer any encouragement for people to be entrepreneurs, start businesses and offer encouragement for rapid growth, so is it any wonder that the business community no longer trusts government—and, even worse, that the public no longer trusts business? The key word I have just mentioned, of course, is “trust”. That is ultimately what we have lost. The Edelman Trust Barometer makes for difficult reading—only 33% trust business today, a historic low. How did it come to this?

I hope your Lordships’ House agrees that entrepreneurs deserve popular acclaim, as do small businesses. Indeed, they are worthy of policy support. This is why, despite the situation I have described, I am still proud of the Government’s historic record on entrepreneurship. Through entrepreneurs relief or the extension of the EIS and VCT schemes, we have successfully made the UK still the best place to start and grow a business.

Having started a business myself and enjoyed the thrill and risk of struggling to survive, let alone flourish, I understand truly that new small businesses rarely have time to raise their head above the parapet—or, indeed, the laptop—and consider their wider responsibilities. Life is just not like that.

This leads us to the conclusion that the real responsibility lies with larger businesses. This is where the reputational damage has been most profound and it is not difficult to understand why. Whether it is aggressive tax planning at many multinationals, such as Starbucks and Amazon—the latter, along with eBay, making it hard for UK retailers to compete owing to offshore, online retailers avoiding, or even evading, VAT—the dubious labour practices at Sports Direct, or shabby treatment of pensioners at BHS, these have become the defining examples of big business. For all these examples we have had rebuttals that the business in question did nothing wrong and that it acted within the law. It is exactly that kind of response that causes trust in institutions to plummet. This needs to change if we are to safeguard the idea that businesses can improve life chances.

The central issue is that when businesses reach a certain size, they become community actors in their own right, alongside government institutions and NGOs. In fact, if you create a new category called economic actors ranked in size, grouping together national GDP data and corporate revenue, of the 100 biggest economic actors, 37 would be companies. Faced with this important responsibility, businesses can go one of three ways. They can, first, continue to maximise profits, obey only the letter of the law and effectively abuse their position; secondly, behave this way but mitigate it with a corporate social responsibility programme that seeks a reputational dividend basically through better PR; or, thirdly, run their business as a genuine stakeholder in the community, recognising the contribution that local business and infrastructure have made to their success.

Unfortunately, business has become synonymous with the first two and not enough with the third. Look at the website of virtually any top 350 company and there will be some community responsibility guff written by a PR adviser that will almost certainly be fatuous. Make no mistake, though: unless we see more of the third route, we will not begin to restore trust in business. Indeed, because they are such significant actors, people may not trust government to hold businesses to account because it is simply not able to—they are too big. This means business must step up on its own.

But I want to use this debate to highlight some positive examples of businesses that share this attitude, which act responsibly and can lead the way for others to follow—not because of the law but because it is the right thing to do. Many noble Lords will know about Marks & Spencer and Plan A. Everyone seems to remember that it was the first to charge for plastic bags before it was the law, but there was much more to it than that. In fact, there were five key benchmarks for it to be measured against: first, become carbon neutral; secondly, send no waste to landfill from its own operations; thirdly, extend sustainable sourcing; fourthly, set new standards in ethical trading; and, lastly, help customers and employees live healthier lives. These are all self-evidently worthwhile aims and something any business should aspire to, but what was extraordinary was that when the board at Marks & Spencer signed off on the plan, it did so thinking it would be loss-making. Here is the point around which this whole debate might revolve. As it turns out, instead of a projected cost of £40 million, it turned into a £50 million gain as consumers responded to this new approach. They liked the clever ideas such as recycling all the plastic hangers they had consumed.

Or take Sellafield in the north-west. It integrates local community needs into its corporate decision-making by agreeing socioeconomic objectives with the local community. For example, its recruitment approach includes targeting local unemployed and underemployed people. This goes to the heart of my earlier point: such is the ability of Sellafield to impact on the community in which it exists, it simply has to take responsibility itself.

So it is not enough for people to rely on government to use the law and regulations to drive better business behaviour; business simply has to step up. I will raise some examples from my own industry, financial services. Of course, I refer your Lordships to my interests in the register. Take Bridges Ventures. Here I want to give credit where it is due. It was founded off the back of the Social Investment Task Force, set up by Labour in 2000 and endorsed in 2013 by David Cameron while he was president of the G8. Its purpose was to invest in business that put social impact before profit.

Surprisingly to many, it has been profitable throughout its life—and by investing in businesses that do good as well as make money. In particular, it has invested in creating jobs in areas of social deprivation, delivering improved health and education outcomes, and even reducing carbon emissions. The Government, its original investor, saw their capital returned and then some.

And Bridges shows us another feature. I have argued that it is the responsibility of large businesses to contribute to their communities—yet, lo and behold, Bridges invests in SME businesses which seek to find ways to tackle societal challenges while maintaining, and often enhancing, capital returns. So it can be done.

In modern capitalism, we may have seen the limits of government, whether national or global, in constraining the actions of multinational corporations, so we should be realistic about what the OECD, the G20 and even the UN can do to set global standards for corporations to follow. Instead, the baton must be picked up by businesses themselves. They need to be rewarded by their customers. If they are not seen to be acting in the interests of the communities in which they operate, we can only hope that a healthy form of populism will succeed in curtailing their activities where international regulation has failed.

Nations may want to throw up trade barriers, set tariffs on goods, and even take control of companies and whole industries, ostensibly in the name of protecting jobs. If they do that, all they will see is, first, a reduction in productivity, followed inexorably by a reduction in prosperity.

So let us single out, identify and praise those initiatives and enterprises contributing the most to our community and apply all the pressure in our power to ensure that others follow their example. I hope that this debate will lead the way and I beg to move.