House of Commons Hansard Debates for 31 Jan 1990

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Winterton, Mrs Ann

Winterton, Nicholas

Wood, Timothy

Tellers for the Ayes :

Mr. James Wallace and

Mr. Archy Kirkwood.

NOES

Beggs, Roy

Cohen, Harry

Cryer, Bob

Forsythe, Clifford (Antrim S)

Meale, Alan

Molyneaux, Rt Hon James

Skinner, Dennis

Smyth, Rev Martin (Belfast S)

Walker, A. Cecil (Belfast N)

Tellers for the Noes :

Mr. John D. Taylor and

Mr. William Ross.

Question accordingly agreed to.

Resolved,

That this House welcomes recent progress towards liberal democracy in the countries of eastern and central Europe ; endorses progress towards the political and economic integration of the European Community ; and calls upon Her Majesty's Government urgently to recognise that this country's future depends on Britain playing a full and wholehearted role in the development of the new democratic Europe.

Mr. A. J. Beith (Berwick-upon-Tweed) : On a point of order, Mr. Deputy Speaker. I wonder whether the fact that no amendment to the motion had been tabled, and therefore the process of the vote was very short, caused some confusion among Labour Members. I was very surprised to go into the Division Lobby on a motion which invited the support of the whole House for democratisation in Europe, yet Labour Members were unable to bring themselves to vote for it. That is the new model Labour party.

Mr. Deputy Speaker (Sir Paul Dean) : The hon. Gentleman knows that that is not a point of order, but he has got his point on the record.

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Small Businesses and the Self-employed

7.15 pm

Mr. Matthew Taylor (Truro) : I beg to move,

That this House believes that the undermining effect of high interest rates combined with the impact of the Uniform Business Rate and revaluation in England and Wales, will have a catastrophic effect on small businesses and the self-employed ; further believes that the effects of bureaucracy, employee poll tax defaulters and the late payment of debt will increase the number of bankruptcies within the small business sector throughout the counties and regions and nations of the United Kingdom ; and urges Her Majesty's Government to take immediate steps to extend the relief associated with the introduction of the Uniform Business Rate, to take the opportunity of the Budget to improve the fiscal climate for small businesses and to enter the Exchange Rate Mechanism of the European Monetary System in order to improve the economic environment within which small businesses and the self-employed operate.

Mr. Deputy Speaker (Sir Paul Dean) : Mr. Speaker has selected the amendment in the name of the Prime Minister.

Mr. Taylor : I welcome the opportunity afforded by the Liberal Democrats to debate the needs and difficulties of small businesses. Just before the debate the Minister told me privately that he also welcomed today's debate because we rarely have the opportunity to discuss these matters. The Liberal Democrats tabled the motion because we believe that there are important issues, developments and difficulties facing small businesses and we wanted to give the House the opportunity to debate them. I hope to suggest some practical measures to relieve the difficulties that small businesses are experiencing.

The Government claim that a number of advances for businesses have taken place since they took office. We certainly acknowledge that there have been advances for monopolies and the privatisation of monopolies. There have also been some advances for other businesses--I would not wish to pretend otherwise--but recently the Government have created significant difficulties, particularly for small businesses. In election after election the Government described themselves as friends of small businesses, but business men and women tell me that the Government's present policies prove them to be anything but that. It would be interesting to see an opinion poll showing the reactions of small business men to the pressures of interest rates, business rate changes and new bureaucracy and red tape that are being imposed on them by the Government.

The economic situation is worsening for businesses of all sizes, but small companies that are particularly vulnerable to those changes and are in a relatively weak position to negotiate with banks and to defend themselves against those changes suffer especially. After 10 years of Conservative government which were ushered in on the grounds that we had to tackle inflation and promote competition, we now have an inflation rate comparable to that which obtained at the end of the Lib-Lab Administration. For all that Ministers say, our competitiveness cannot be described as good either, for we have a record trade deficit--the only obvious accurate way of measuring whether our businesses can compete effectively with businesses abroad.

The latest quarterly report from the Confederation of British Industry suggests that Britain is once more on the brink of a recession. We are smitten with high interest rates and high inflation. For all the Government's boasts about

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new businesses, there was an increase in business failures in 1989 for the first time in five years. The latest CBI survey shows that business failures in 1989 rose to 18,000, which was a 10 per cent. increase over 1988. The CBI also states that we may see a substantial rise in bankruptcies, a further 1 per cent. rise in inflation and a £2 billion shortfall in investment, all due to the Government's policies. That is hardly a sign that Thatcherism has overcome the inherent weaknesses in the economy.

From a Government to whom they once looked for support, small businesses now face the uniform business rate, revaluation, continued high interest rates, skill shortages, increased administrative burdens and an unsustainable exchange rate. The National Federation of Self Employed and Small Businesses states that high interest rates are proving a huge burden on small businesses. They create a climate of uncertainty and make it harder for those businesses to expand. The federation cites a number of examples of the way in which businesses have been hit. For example, a small manufacturing company with six employees in Berkshire is behind with orders. It cannot reinvest in new equipment and is having to turn down orders. A 20-year-old family business in Mid Glamorgan is prepared to state publicly that it is threatened with liquidation within two years if interest rates remain at the present level or are raised. I have spoken to business men in my constituency and I am aware of a dramatic change over the past few months in their attitude to the Government. Local businesses have called a meeting in my constituency on Saturday evening because they have been made desperate by the Government's policies. Those are the problems that small businesses face in this enterprise culture.

Mr. Peter Thurnham (Bolton, North-East) : When the hon. Gentleman spoke to small business men in his constituency, did he find that they valued the fact that his party--under one name or another--helped to keep the Labour party in government for four years with all the great "benefits" that that Government gave to small businesses which were closing down then far quicker than they are now?

Mr. Taylor : Small businesses look back on the influences that the Liberals were able to exert on that Labour Government. They are aware of the cuts in inflation that happened then. They are also aware of the fact that the Liberals managed to have a Minister responsible for small businesses appointed to the Cabinet. That Cabinet post has disappeared and the responsibility has been moved from the Department of Trade and Industry to the Department of Employment. Obviously the Government do not consider small businesses to be a vital part of our industrial base or its power house. They regard them simply as a vehicle for employment legislation.

Mr. Roger Knapman (Stroud) : Since the Liberal party was the power house at the time, will the hon. Gentleman explain why currently there is an increase of 1,200 new small businesses every week, while under the Lib- Lab pact there was a decrease of 100 businesses a week?

Mr. Taylor : One of the peculiarities of the Government's boasts about the growth in businesses is

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that they ignore the fact that the businesses that are created are often tax shelters and not real businesses. Other people trying to create real new enterprises, for example, through the enterprise allowance scheme, find it increasingly difficult to do so. People trying to maintain their self-employed status are also having difficulties.

Mr. Alex Carlile (Montgomery) : Does my hon. Friend agree that the only fair way to judge the statistics about small businesses is to look at all the figures, including the number of liquidations? Does he agree that bankruptcies and liquidations among small businesses are running at record levels and that that is a direct consequence of the Government's economic policies that are crippling the small business man's cash flow?

Mr. Taylor : Many people have told me that they are threatened with bankruptcy and liquidation-- [Interruption.] Small business men will not respect Conservative Members if they laugh as I describe their problems. Small business men will also not be amused by the Government's shilly-shallying and ducking of the measures that could reduce inflation and interest rates.

The Government must seriously consider the need to join the exchange rate mechanism of the European monetary system. That policy option is staring the Government in the face. Whenever a Minister leaves the Cabinet, it seems it is only a matter of days before he announces publicly that we should have joined the ERM of the EMS, although the Minister was not allowed to say that while he was in the Cabinet. That stubbornness is illogical and it is not supported by the serious economists and business groups. It is also patently damaging to the prospects for British business in Europe and to our ability to play a full part in developments in Europe.

The Liberal Democrats have consistently favoured membership of the ERM. The Conservative party has said consistently that it favours membership one day, but it sets blocking conditions, and every time the Cabinet meets we know that membership will not be on the agenda. Unfortunately, the Labour party's position is no better as it ducks and blocks the issue. We hear fine words, but no real intention to act on them.

The most important step that we can take to help businesses in this country at the moment is to reduce interest rates. We can do precisely that by joining the ERM.

Mr. Jeremy Hanley (Richmond and Barnes) : The hon. Gentleman will recall the White Paper which the Government published five or six years ago entitled "Lifting the Burden". It listed certain burdens on small businesses. The hon. Gentleman will be aware that the vast majority of those burdens have now been lifted as a result of Government legislation. However, one burden--statutory audit for small companies--has not been lifted. What is the policy of the hon. Gentleman's party on that?

Mr. A. J. Beith (Berwick-upon-Tweed) : I wonder what the Government's policy on it is.

Mr. Taylor : Perhaps the Minister can tell us later what the Government's policy is. I intend later to outline a number of measures that I would like to introduce to cut the red tape and bureaucracy which currently face businesses.

The problems of interest rates have been debated endlessly in the House. Therefore, I want now to turn to

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considering the blow falling on many businesses, especially in the south and south-west, caused by the introduction of the uniform business rate and revaluation.

For all Ministers' claims, the UBR will have devastating consequences for small businesses. Indeed, the largest part of my mail bag comprises letters about the UBR. In introducing the UBR, the Government have moved the initiative away from small businesses back to the Inland Revenue. The changes cut the links with local councils and they remove the right of local businesses to appeal after six months, and that latter change is inexplicable because only the Inland Revenue will benefit.

A good example of the problems caused by the UBR and the revaluation can be found in a family hardware business in the heart of Truro. In my constituency, the UBR has meant an increase of nearly 10 per cent. over the old rating system. That extra money, which is being levied from our local businesses, is to pay not for extra local services, which perhaps those businesses could accept, but for cuts in rate levels in other parts of the country where service levels will continue to be protected. Taking money from one of the poorest parts of the country to fund areas with high levels of services is regarded by people in my area as quite unacceptable and inexcusable.

Mr. David Nicholson (Taunton) : What would the hon. Gentleman say to small businesses in my constituency? They are facing difficulties, not from the UBR which, on present rateable values, would be lower than the present rates in Somerset, but from the revaluation. Would his party abolish them or postpone the revaluations still further?

Mr. Taylor : If the hon. Gentleman gives me a moment, I shall answer his question.

The proposed transitional relief scheme goes some way to helping small businesses. It was precisely because I foresaw the massive difficulties when I served on the Committees that considered the Local Government Finance Bill and the Local Government and Housing Bill that I have consistently pressed for transitional relief measures, and we have only gradually seen the Government start to introduce them. Today we have outlined a series of measures further to help businesses facing massive revaluation problems. First, we strongly believe that transitional relief should be applied to all businesses that exist in April 1990, regardless of whether they subsequently move their premises. There are several important reasons for doing that.

It will cause great difficulties for businesses that need to move, for whatever reason, to be outside the relief scheme as soon as they leave their current premises. That serves as a hindrance to business expansion and it will cause difficulties for businesses seeking to sell premises as buyers will be few and far between if relief will not apply to them. It will also hit businesses that are trying to trade down as a result of the increase in their rate bills. By moving to smaller premises, they may still end up paying the same or greater rates than they pay in their existing premises because they will not get transitional relief. Also, the people from whom they are renting premises will be put in a strong bargaining position.

Any decreases in rents that might otherwise have arisen from the changes will not take place because people involved in leasing premises and rent negotiations will know that if a business moves they will lose transitional

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protection. Most ironic of all is the fact that, although the Government have not extended transitional protection to them, a business moving to an office where it will gain from the changes will still get gains phased in over a period. It is a no-win situation. Every which way they go, it seems that they will have to pay more than they paid before. They cannot escape that. I wonder whether Ministers intended that or whether they understand the impact that it will have on small businesses.

Secondly, I call on the Treasury to contribute funds to ease the implementation process. I should like it to undertake a series of measures to help to ease burdens on companies that are being hit most by the revaluation process. I do not believe that there is any logic in doing that unless the Treasury is prepared to take on at least a part of the burden, otherwise other companies that may deserve to benefit from the changes will see their benefit put off even further into the future. It is an obvious moment for the Treasury to make a contribution to earning the money that it will claim from businesses at a later date. [ Hon. Members-- : "The taxpayer, the taxpayer."]

Mr. Simon Hughes (Southwark and Bermondsey) : My hon. Friend is being interrupted by Conservative Members saying, "The taxpayer, the taxpayer," from a sedentary position. Would they like honestly to answer the question raised by the hon. Members for Richmond and Barnes (Mr. Hanley), for Beaconsfield (Mr. Smith) and so on? Would they prefer the taxpayer to assist the transitional arrangements, or would their constituencies, with an increase of more than 140 per cent. because of revaluation, prefer that there is no taxpayer assistance and that businesses should bear the whole burden? Unless they can answer that question, they should support my hon. Friend and our proposals.

Mr. Taylor : That is precisely the point that I have been making. My hon. Friend is quite right.

Mrs. Edwina Currie (Derbyshire, South) rose --

Mr. Taylor : I think that an eager volunteer wishes to respond.

Mrs. Currie : If the hon. Gentleman has heard me speak on this subject before, he will know that my local business people face substantial reductions in the business rate. We are very grateful. It means that at last we can see the regeneration of our area. As for the point that the hon. Member for Southwark and Bermondsey (Mr. Hughes) invited the hon. Gentleman to make on his behalf, putting 2 billion quid back into the economy all in one go in the way that was suggested would be inflationary.

Mr. Taylor : I have mentioned several non-inflationary actions that we can take. It is inflationary for the Government to pay off their debts because they dare not spend the money that they are currently attracting. That is a mistake, and they should not be engaged in it. Nothing is more important than building up and protecting our existing businesses. It is no good for the country to help at the margins of inflation if, in the process, the Government again bankrupt businesses that will provide the dynamo for solving current problems.

Mr. Hanley rose --

Mr. Gary Waller (Keighley) rose --

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Mr. Taylor : Conservative Members are seeking to intervene. I have given way a considerable number of times. I want to continue with my points on how we will tackle revaluation.

Thirdly, the relief scheme should be extended to cover more premises by adjusting the size of businesses for which transitional relief is available. Small business organisations have been pressing Ministers for that, and some have pressed for large increases, and possibly a doubling of the size of the premises involved. Although I would not necessarily argue for going the whole hog on that matter, we need increases. I suspect that all hon. Members are aware of businesses that have been hit and have been outside the small business category but yet, in every other sense, should surely be eligible for help.

Mr. Waller : Will the hon. Gentleman give way?

Mr. Taylor : I have already said that I wish to finish the points that I want to make on this subject.

Fourthly, relief should be increased. The limits on increases on rates--15 per cent. plus inflation for small businesses--should be further reduced to 10 per cent. Bearing inflation in mind, we are still talking about a crippling series of increases over a long period. Although some businesses can quite easily cope with such increases, others, mainly smaller local businesses with only one premises in town centres, are finding it extremly hard to cope. Frankly, there is little prospect of increasing their turnover or profits at a rate that would allow them to pay.

Fifthly, the transitional relief scheme should be extended to allow small businesses the necessary time to adjust. The present system covers most businesses. I applaud the Government for giving them some time to adjust. However, it does not allow for many businesses with large increases in their rates bills, which, even at the end of the period of transitional relief, will still find that they are faced with a large lump sum increase. During Prime Minister's Question Time last week, the Prime Minister said that the Government would look at that matter and might be amenable to extending the specified period. I hope that the Minister of State, Department of Employment will be able to elaborate on her comments and confirm that the Government will ensure that that is the case. That would provide a large measure of security to businesses that have been hardest hit by the changes. Those proposals are positive measures to help businesses through the painful process of the introduction of the UBR and revaluation. However, they can only mitigate the effects of the UBR and revaluation. No amount of improvements can make ideal a system that was ill -conceived in the first place, though I put those suggestions before the House in the hope that Ministers will take some of them on board to provide a measure of relief.

We need, however, to review the system on which business rating is based. We should consider a system of land value taxation. That would broaden the base of the rating system and tackle some of the advantages that developers and speculators gain from the present system. As well as broadening the tax base, it would contribute to many other desirable improvements, such as the regeneration of our inner cities by removing the incentive for business men to hold on to inner city sites and not to

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develop them. It would also remove the fear that improving land and property would increase the rates burden and encourage improvement of buildings.

Administration would be easier because the system would not require intrusive checking on what improvements have been made. Crucially, the system would be run by local authorities. That would preserve an essential link between businesses and the community and ensure democratic local accountability. The uniform business rate destroys that principle and centralises power.

There should be an investigation into a rolling programme of revaluation to avoid lump sum changes and politically motivated delays which ultimately make the position worse. That is precisely what happens now. If we can overcome such delays through a rolling programme of revaluation, businesses will benefit.

Our proposals for the transitional relief scheme would bring great advantages to small businesses. Our preferred system of land value taxation, combined with full membership of the European monetary system, would create a programme for change that would give small businesses the backing that they deserve.

I said earlier that I wished to cover administration. I call on the Government to do three things. First, they should explain why, reportedly, Ministers will not support the Bill to be introduced by the hon. Member for Hampshire, East (Mr. Mates) on Friday to give companies a legal right to interest on unpaid bills. The phenomenal sums owed to businesses by major concerns and Government Departments are a disgrace. The Bill would provide a measure of relief from that.

Mr. Michael Mates (Hampshire, East) : I am grateful to the hon. Gentleman for mentioning my Bill. I thought that it was a relatively modest measure which would cause no trouble across the party divide and would be of help to small business men. Unfortunately, it is now clear that the Government are not in favour of it. I suppose that the cynic in me will say that it is because I propose to apply the measure to the Government so that they pay their bills on time. I understand the Treasury's reluctance to accede to the Bill. I hope that both Conservative and Opposition Members will be here on Friday to show the massive support of small business men throughout the country for my measure, which is designed purely and simply to help them in these difficult times.

Mr. Taylor : I hope that many of the hon. Gentleman's colleagues will be present on Friday. After all, they are the largest group in the House. If his Bill is not passed, we shall ensure that it is in our programme for the next election. I hope that he can convince his party that it should be in its programme for the next election. I have probably spoken for longer than I should have. I cannot cover all the points that I had hoped to cover, but I believe that the Minister will find that I and my hon. Friends have outlined a programme to help small businesses through their present difficulties, which have been caused by the Government. It would bring a degree of cheer to businesses around the country if the Minister would say that he was prepared to accept it.

7.44 pm

The Minister of State, Department of Employment (Mr. Tim Eggar) : I beg to move, to leave out from "House" to the end of the Question and to add instead thereof :

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"congratulates the Government on creating an environment in which enterprise and small businesses are flourishing, and urges the Government to continue pursuing the policies which have led to a record increase in the numbers of self-employed and new business formations, as confirmed by the increase in registrations for value-added tax.".

I begin by congratulating the right hon. Member for Yeovil (Mr. Ashdown) and his hon. Friends on choosing this subject for debate. It is useful from time to time to have a discussion on small businesses and the self- employed. However, I regret the extraordinary wording of the motion. It completely ignores the tremendous success of the small firms sector over the past 10 years. That success shows in the business climate established by the Government's policies, which favours enterprise and rewards risk taking and initiative. The current climate is in dramatic contrast to that created by the previous Labour Government, supported, of course, by their Liberal allies. The climate of the late 1970s was one in which small businesses were held back by punitive taxation, record levels of inflation and excessive union power.

We took up the challenge to reinvigorate the economy by stimulating enterprise and encouraging innovation when we came to power in 1979. Over the past 10 years small firms have been, and will remain, a top priority for this Government. We have ensured that small businesses have been left free to get on with their role of creating wealth and jobs. The resurgence of small business in this country is described in the Employment Department's recent publication "Small Firms in Britain".

These are some of the facts. Self-employment has risen by more than 60 per cent. over the past 10 years to stand at over 3 million. The early signs are that VAT registrations in 1989 show a net increase of 80,000, an average net gain of over 1,500 businesses a week--nearly 25 per cent. higher than in 1988.

Mr. Alex Carlile : The Minister said that self-employment had increased. Of course, that is welcome. Does he agree that the strict rules imposed by the Inland Revenue on people who wish to be self-employed are restrictive and discourage self-employment? Many people work for one employer at a given time but would like to work for many others. The strict interpretation of the tax rules excludes them from doing that. I have written to Ministers about that on several occasions with no positive reply.

Mr. Eggar : I understand the hon. Gentleman's point. With respect, it does not detract from the considerable increase in

self-employment. A 60 per cent. increase over the past 10 years is a major achievement. I do not understand why the motion does not give recognition to the Government for their achievement in creating small businesses and increasing the number of self-employed.

I said that indications showed a net increase in the number of businesses of over 1,500 a week over the past year. To set that in context, we estimate that there were 80,000 new VAT registrations last year alone. Between 1974 and 1979--the period of the last Labour Government--the net increase in VAT registrations over the whole five-year period was just 85,000. Last year alone there were almost as many new registrations as during the whole period during which the Labour Government were in power. During that time the hon. and learned Gentleman and his hon. Friends claimed to influence the Labour party for the better.

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The "Small Firms in Britain" booklet showed that, of the estimated 2.5 million businesses in Great Britain, 96 per cent. are small firms employing fewer than 20 people. These now account for 36 per cent. of non-Government employment compared to only 27 per cent. in 1979, and make an enormous contribution to the economy. In addition, nearly half a million unemployed people have also been helped to set up their own business through my Department's enterprise allowance scheme.

We have achieved those remarkable figures by reducing taxation, scrapping unnecessary controls and cutting red tape. We have left business men free to make their own decisions and to take the rewards with the very minimum of Government interference.

Mr. James Wallace (Orkney and Shetland) : I do not in any way dispute the figures that the Minister has just given to show the increase in self-employment during the past 10 years, but does he accept that at a time of increasing unemployment--it has almost trebled since the time of the Lib-Lab pact--a large pool of people have been necessarily forced into self-employment because they have been forced out of employment?

Mr. Alex Carlile : That is the context.

Mr. Eggar : The hon. and learned Gentleman is wrong again-- [Interruption.] Well, we have created nearly 3 million new jobs in this country since 1983. We now have over 1 million people more in employment or in self-employment than in 1979. The facts do not coincide in any way with the assertions made by the hon. Member for Orkney and Shetland (Mr. Wallace). I realise that he is short of research assistants, but he should learn the basic statistics. The response to our policies for small businesses and the creation of employment has been tremendous.

The achievement of the small firms sector is the achievement of these thousands--and now millions--of people who have made the conscious decision to branch out on their own during the past 10 years. They have made their own assessment that the conditions were favourable and have identified the needs of the market and of their customers. Hundreds of thousands of individuals have taken the opportunity to put their ideas into action.

Mr. John Lee (Pendle) : Would my hon. Friend care to comment on the fact that in this important debate on this important sector of the economy the Labour party has in the Chamber only its official spokesman, a Whip and one Back-Bench Member who himself is probably nearer a large than a small business?

Mr. Eggar : The vacant Opposition Benches obviously speak for themselves. While I was giving those figures for the net increase in business VAT registrations, I was indeed looking at the hon. Member for Great Grimsby (Mr. Mitchell) because he probably would have registered for VAT back in the early 1980s and so would not have featured in the net increase last year. The hon. Gentleman may wish to comment on that point when he seeks to address the House later. As I have said, the Government have worked steadily to reduce the disincentives to business initiative that we inherited from the last Labour Government. Taxation has been reduced and simplified. Every Budget since 1979 has seen reductions in taxation of one form or another.

The reduction and removal of unnecessary and restrictive controls has been extended to other areas.

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