Businesses and SMEs - Motion to Take Note

Part of the debate – in the House of Lords at 12:15 pm on 6th July 2017.

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Photo of Lord Shipley Lord Shipley Liberal Democrat 12:15 pm, 6th July 2017

My Lords, I thank the noble Lord, Lord Leigh of Hurley, for giving us the opportunity to debate the role of business. I agree with him that this debate is about delivering prosperity for all. Wealth creation matters, and the private sector must lead that wealth creation, but that can be helped by socially responsible business activity. I agree with the sentiments of the noble Baroness, Lady Dean of Thornton-le-Fylde, that building communities, place-making and helping young people are central to a healthy society.

Business should not simply be about maximising profits or maximising shareholder value to the exclusion of other benefits. The CBI’s Great Business Debate identified that only just over half of the general public think that business makes a positive contribution to society. Given the taxes businesses pay and the jobs they create, this should not be the public perception. That it is means that we have to work harder to make the role of business better understood and better supported by the public, and by “we” I really mean businesses themselves, though there are policy changes the Government could lead.

We need to ask ourselves why people react so negatively. There are several reasons. Too many businesses have reputations for low pay, zero-hours contracts and instability of employment for their employees, and at the same time there is seen to be excessive pay for a few. In addition, in many larger companies, shareholders are felt to be more important than stakeholders, and since those larger companies account for 40% of all jobs, maximising shareholder value at the expense of other values can impact negatively on spreading wealth, improving life chances and social mobility, and investing for the long term in communities.

There is a distrust of businesses that make big profits at the expense of their employees or of their communities more generally. Business has to put social benefit higher up its list of values and objectives, not least because consumers are now much keener to buy products which are environmentally sustainable and socially responsible.

We should question whether businesses do put the communities where they operate first. In some cases, they do, but I fear that in too many cases they simply do not. Hence, in small towns, the closure of a big employer can have devastating consequences for the economy of that town as a whole. When a company makes a decision to send jobs overseas to achieve what are sometimes comparatively low savings in costs, it can have a significant effect on people who used to have those jobs. That is not to urge protectionism, but it is to urge social responsibility.

The number of private sector businesses has risen from 3.5 million in 2000 to 5.5 million last year. This results in part from a rising population but also from a big rise in self-employment. What can business do to improve its standing? First, onshoring and reshoring jobs should be encouraged by both government and by business itself. Businesses should note that productivity of employee-owned businesses is growing faster than the economy as a whole. It was up 60% in the last year, with 200,000 employees in employee-owned businesses. Such businesses can be a much better way to do business, and I thank the John Lewis Partnership for its briefing for this debate which drew those facts out.

We should be promoting social accounting—employee training, employee well-being, good supply chain policies and social and environmental impacts should all become more important for companies. The lead that companies such as Unilever have been providing is, in my view, a good example. I should like banks and lenders to think more about regional investment for the long term, not in terms of making a quick profit in the short term. I wish larger businesses would pay their bills more quickly to smaller businesses and I hope that all businesses will take active steps to help us reduce youth unemployment. There are 800,000 young people under 25 who are not in employment, education or training, of whom 42% are looking for work. All businesses have a role in helping here: some provide excellent examples of training schemes and apprenticeship schemes and we need more.

As for what the Government can do to improve matters, I suggest that local enterprise partnerships should be asked to promote social enterprise more. The Government should review the Companies Act to make stakeholder interests more equivalent to shareholder interests. I should like the British Business Bank to address regional investment imbalances more than it may be doing. There is evidence to suggest that it is not the lack of funding which is a barrier for new or expanding SMEs; rather it is access to sound information and advice on finance options. The Government need to take another look at business rates. It is clear that some small firms and businesses feel penalised by business rates in their current form, not least in the retail sector, where they face enormous competition from the internet. Perhaps the Government should review start-up allowances for SMEs, to help with living costs for those setting up new businesses in the first few weeks of that new business. I know that the Government plan to move ahead speedily with faster broadband, but they need to make sure that they deliver. I am also not convinced that, for very small companies, digital tax returns five times a year should be seen as a priority. Perhaps it can be for medium-sized businesses, but for the very small ones, it is an onerous duty.

In the current economic climate business needs stability in which to flourish. Brexit is adding uncertainty; the level of consumer debt may limit business growth; we have rising inflation, and there may be a rise in interest rates. Cost pressures for small businesses are at their highest level for several years, which may restrict wage growth for small firms’ employees. I think small businesses are going to need help with Brexit, particularly where they have never exported anywhere other than the EU. The Government’s industrial strategy must generate small business growth, not just growth of very large companies. I remind the Minister of the importance of international students. In my view, they are key to enabling SME creation and expansion and they should be taken out of net immigration numbers.

In conclusion, I draw attention to a helpful new index on SME business health produced by the Clydesdale and Yorkshire Banking Group. It says that the business health of SMEs softened in the first quarter of 2017. The Government need to do all they can to reverse that, because SMEs are the engine room of the British economy. Above all, we should urge business always to remember its stakeholders. Simply aiming for profit and shareholder value is not the way to build strong, socially responsible businesses.