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My Lords, it is a pleasure to follow the noble Viscount, and I may comment on some of his remarks in due course. We are indebted to my noble friend for securing this debate and for the compelling speech with which she introduced it. She covered much of what I might have wanted to say with greater insights than I can offer.
I have two matters by way of introduction: since I intend to identify what I regard as the obstacles to business growth, and in doing so venture some criticism of the Government, I say to my noble friend the Minister, who is also a fellow Cumbrian, that I acknowledge the many good things that the Government have done. Not least, they have gone a long way to bringing under control the public finances, which had reached such a terrifyingly bad state of affairs. I echo other noble Lords in congratulating them on their moves in regard to education. Secondly, in the matter of declaring a personal interest, I refer noble Lords to my entry in the register of interests. However, having checked with the Companion, I think that on this occasion I am required to be more a little specific. Accordingly, I declare personal interests through my family’s business in south Cumbria, consisting of farming, forestry, mineral extraction, aggregates, housebuilding, leisure and National Hunt horseracing.
My noble friend Lady Neville-Rolfe has great experience and standing in the business world, whereas the cohort to which I belong is the SME sector. I also talk regularly with SME friends and neighbours, especially where they are engaged in the field of high-tech. There is strong evidence of a worrying decline in business confidence, and I think it is widespread. Not only has investment in small firms fallen for four consecutive quarters, but 72% of businesses in the sector have no plans for capital investment in the months ahead. I do not think the prospect of leaving the EU in itself is the cause of these trends; in fact, many seem to welcome it. Innovative entrepreneurs tell me that they are not even greatly exercised by the thought of leaving on WTO terms. There are, however, two Brexit-related issues that do have a bearing, in addition to the one mentioned by the noble Lord, Lord St John. First, there can be no doubt that the interminable process has inflicted serious damage on business prospects. Secondly, the avoidable collapse of net migration from the EU from 189,000 to 74,000 has resulted in difficulties in accessing suitably skilled staff in certain parts of the country. The figures speak for themselves—one in five small employers rely on staff from the EU.
There are in this country 5.7 million small businesses; that is over 96% of the total. Between them, they generate £2 trillion, or 52% of all private sector turnover. I am led to believe that they contribute handsomely to the Exchequer, but I have been unable to locate the figure—perhaps the Minister might help me when he comes to reply. The sector employs 16.3 million people, or 60% of all private sector employment. About 5% of them export to the EU; many of them do not export at all. Some 96% of businesses employ fewer than 10 people.
The SME sector is in trouble, and the Government appear to be blind to its problems and deaf to its appeals. The obstacles to success encountered by this sector are numerous, but I am especially struck by three figures: between 2016 and 2017, the proportion of SMEs that found the burden of rates and taxation was a barrier to success rose from 36% to 41%—the noble Viscount, Lord Chandos, and I might have a discussion about that, because it seems to conflict with his view; in the case of skills shortages, the proportion rose from 30% to 37%; and regulation and red tape as a serious inhibitor of growth went from 42% to 46% in the same period.
On this last point, it is complete nonsense for noble Lords on the Benches opposite to suggest, as they often do, that we want a bonfire of regulations. We want to keep regulation to a reasonable minimum; we want it to be simple and proportionate. To that extent, we are probably in agreement with the noble Viscount. I would welcome recognition from the Government that the imposition of regulation always falls disproportionately on the SME sector, a fact that large companies exploit when lobbying in Brussels so as to disadvantage their smaller competitors.
I appreciate that, taken individually, the enterprises we run are utterly insignificant. However, collectively, it is surely the case that the sector as a whole is by magnitudes the most important in the country, outside perhaps that of financial services. It should hardly need saying that among those in this group are literally all the big players of the future. The Minister will rightly point to small business relief and rural rates relief. However, qualification for those depends more on property values and service provision—for example, a rural post office—than actually providing sustainable employment in the rural community.
In our family business, we find that the margins are generally squeezed to the point that we are postponing and cancelling agreed investment. This is for the first time in half a century. This little incident illustrates my point: as a consequence of one of our recent mineral activities, we inadvertently created a new environment for the great crested newt, which lost no time in adopting it. We then proposed to undertake additional works, to the detriment of the newt’s habitat, and were quite rightly and by law required to rehouse this charming amphibian and do so under expert supervision. The newt was duly found an alternative home. I tell this story to point out that the cost of this came to £150,000 and led directly to the abandonment of a very substantial investment and the creation of about 15 permanent jobs. It is a question of proportionality.
The problem is largely cultural; by degrees, an official class has developed a hostility to those it is meant to serve. This is particularly in evidence among planners, quangos and various agencies possessed of doubtful lines of accountability. The Government can and should do more to address the problems of productivity, public sector procurement—where SMEs are still very largely excluded—technical training and of course business rates.
Those who nourish our nation’s prosperity and on such a scale, as do a number of my neighbours in Cumbria, deserve better. I ask the Government to rethink their attitude to the sector, renew their efforts to understand its troubles and cherish a little all those millions of men and women on whom our future and prosperity depend.