House of Commons Hansard Debates for 31 Jan 1990

Column 385

unknown. It is all new money. However, it has tended to go to firms with a high growth rate. Perhaps we should worry about the plodding firms such as the good, steady engineering companies that do not have a high growth rate and so are more difficult to finance.

I am sure that the problem of high interest rates will be temporary, and I hope that most of our firms can cope with them. It is a problem of today, but it will not be the problem of 1991. I am not suggesting that we should pat ourselves on the back because there is always more to do. The small business sector suffered 40 years of neglect until 1979 which cannot be rectified in just 10 years. It needs another 10 years of Conservative government to improve the climate in the ways that my hon. Friend the Minister explained so convincingly in his speech. I hope that very shortly we shall be given the opportunity for that further 10 years.

8.49 pm

Mr. Geraint Howells (Ceredigion and Pembroke) : As a very small business man, Mr. Deputy Speaker, may I begin by declaring my interest, as usual, and thanking you for calling me in this important debate for the small business man. This country was built up by the vigour and enterprise of small businesses and the self-employed, but they are now being squeezed to death by the power of the big battalions and the lack of concern of the Government. My constituency has a higher percentage of self-employed than others. I am proud of their record. I know the problems at first hand, and I have become more and more concerned about the increase in pressure under which the self-employed work and live.

I listened with interest to the Minister, whom I respect in many ways. He must take more heed of what his hon. Friends have said about high interest rates. I should not like him to be sacked for not looking after the interests of small business men, but he should have a word with the Prime Minister because I believe that the hon. Member for Macclesfield (Mr. Winterton) would do a good job as a Minister responsible for small businesses and farmers.

Many hon. Members, like me, represent areas with a large number of self- employed. When I go back to my constituency in Cardiganshire and north Pembroke people never mention inflation, although it is a big problem. They always talk about high interest rates and their effect on farmers and small businesses. They may be wrong in thinking that high interest rates have more effect on their businesses than high inflation.

I have been in the Chamber since 7 o'clock. I think that only six hon. Members who have been here since the beginning of the debate were Members of the House in 1978. Human nature never changes. We always like to laugh at young Members who are up and coming politically, but I am ashamed that some Conservative Members laughed when my hon. Friend the Member for Truro (Mr. Taylor) was trying to make a good case for the self-employed and for small businesses.

Mrs. Currie : That is because he is an idiot.

Mr. Howells : The hon. Lady did not help many small businesses when she was a Minister.

I do not blame Conservative Members if they want to criticise the Lib-Lab pact. They may criticise the Liberals

Column 386

as much as they like, but we are still here. May I remind them that our former leader, my right hon. Friend the Member for Tweeddale, Ettrick and Lauderdale (Sir D. Steel), did something for small businesses that other hon. Members did not achieve. During the first few days of the pact my former colleague, Richard Wainwright, who was then the hon. Member for Colne Valley, and I met the hon. Member for Bradford, South (Mr. Cryer), who was a Minister at the time. I shall not comment any more, but we were not pleased with the result of our meeting. On our return we had a word with our leader. In his wisdom he suggested that he and others should see Lord Callaghan, who was then Prime Minister, and press on him the need for a Cabinet Minister to look after the interests of the self -employed and small businesses. That was achieved.

If Conservative Members disagree with what I have said, I can tell them about a letter that I have in my office from Lord Plumb, the leader of the Conservative party in Europe. He wrote to me at the end of 1978 to congratulate the Liberal party and Members of the Lib-Lab pact because the 1978 Budget had been the best one ever for farmers and small businesses. [Laughter.] There is no need for the hon. Member for Derbyshire, South (Mrs. Currie) to laugh. These are the facts of life.

The hon. Member for Cambridgeshire, South-East (Mr. Paice), who has left the Chamber, said that the Liberal party was in favour of rating agricultural land. Other hon. Members have expressed the same view over the years. I advise the hon. Gentleman to have a chat with his hon. Friend the Member for Southend, East (Mr. Taylor) who decided a few years ago to introduce a ten-minute Bill on the rating of agricultural land. I opposed him. I am delighted that the majority of Conservative Members came into the Lobby with me and the Bill was defeated.

Lest any other Members want to jump up to support the rating of agricultural land, may I tell them that I have a letter of apology from an ex-Minister of Agriculture because he and others had misled hon. Members about our policy. I hope that hon Members who have come to the House over the last 10 years will realise what we Liberals stand for. We will stand by our policies. Conservative Members should not laugh at what we have done over the years or at our achievements under the Lib-Lab pact, of which I am proud.

I have been a farmer all my life, as well as a small business man. Yesterday the Minister of Agriculture, Fisheries and Food announced an extra payment of 75p for the hill livestock compensatory allowance for sheep. Perhaps hill farmers in Cardiganshire will make a collection for the Minister so that he can help the Government out. I think my constituents would be willing to do that.

Investment in United Kingdom agriculture has fallen by 40 per cent. in the last five years. Full-time employment in the industry has also fallen dramatically, with the loss of some 60,000 jobs in five years. Right hon. and hon. Members speak often about the environment, but it is the farmers on the highlands and marginal lands of Britain who are really responsible for looking after it. It is a great shame that so many of them are leaving the land and the rural areas of Britain, never to return. They have been the guardians of the countryside for generations. It is a great pity that the Government are unable to help the people who have looked after the interests of us all for generations.

Column 387

My hon. Friend the Member for Truro mentioned at the beginning of his excellent speech the Interest on Debts Bill that is to be introduced by the hon. Member for Hampshire, East (Mr. Mates). There is great merit in his proposals. Dr. Emyr Roberts, the National Farmers Union deputy director for Wales, states :

"We very much welcome this Bill, which would help virtually all farm businesses. It would allow small and medium-size firms the statutory right to interest on overdue debts from central and local Government, nationalised industries and large firms. It would not affect small and medium-size businesses in their trading with each other, and a big company could not use it against a small firm." At a time of high interest rates, it is vital that small businesses such as farms are paid promptly, as they cannot withstand payment delays in the way that large firms can. The NFU will urge all Members of Parliament to support the Interest on Debts Bill. I hope that, Ministers also will support the hon. Member for Hampshire, East and his Bill, which will do a power of good to everyone in agriculture and in small businesses.

High interest rates are crippling farmers, shopkeepers, bus operators, and everyone concerned with rural, urban and city life. I hope that, when he replies, the Minister will reassure all those affected by the Government policy of high interest rates that he personally will persuade his right hon. and hon. Friends in Government to lower interest rates this coming year. If he will, the people of this country will be delighted to hear that news. Let us hope that small businesses and small farmers, who have been the backbone of this country, and still are, will be helped sooner rather than later.

9.1 pm

Mr. Graham Bright (Luton, South) : I welcome the fact that the topic for debate chosen by the Liberal Democrats is small businesses, because they have played a growing and more important role in the development of industry over the past 10 years. It is necessary not only to acknowledge that but to congratulate the Government on the work that they have done and to reflect on ways in which small businesses can be improved still further.

Like the hon. Member for Ceredigion and Pembroke, North (Mr. Howells), I am a small business man. That statement usually brings a laugh in view of my stature. The hon. Gentleman and I are similar in that respect. I have been a small business man for a number of years.

I was interested to hear about the Lib-Lab pact's one moment of glory, when it disposed of the small firms Minister. Mr. Harold Lever, without doubt, understood the problems of small businesses. The pity is that, while he was in office, and during the period of the Lib-Lab pact--and I am sorry to mention it again, because I know that it upsets Liberal Democrat Members-- small businesses and business men still suffered increases in income tax, corporation tax, capital transfer tax and capital gains tax.

At the same time, legislation was introduced such as the Employment Protection Act 1975, which was nothing more than a form of appeasement to the unions. However appropriate it may have been for large firms, it imposed crippling requirements on small businesses. When debating the problems of small businesses, we must not only think of interest rates, because those problems cover a much broader spectrum.

It is surprising that the Liberal Democrats could not bring themselves to congratulate my right hon. and hon. Friends on the steady rise in the number of businesses that

Column 388

have registered for value added tax since 1979. The Minister has already spelt out the enormous growth in self- employment, which has risen from 1.8 million to 3 million. We now have more than 2.5 million small businesses. It is partly because so many new businesses have been created in the past year--the weekly rate has increased from 500 to more than 1,500--that there have been more business failures. The hon. Member for Ceredigion and Pembroke, North talked about farming. I do not farm, but I am a business man who, like a farmer, sows seeds, in the form of investments. Business men, like farmers, do not always get it right, and some of the seeds fall by the wayside ; but they till the ground and work hard to protect those that take root.

Hon. Members cannot simply point to interest rates. Lack of management expertise, poor marketing skills and bad financial practice often cause companies to go out of business, and I pay tribute to the Government for their investment in the small firms service.

Mr. Alex Carlile : The hon. Gentleman gives the impression that only incompetent managers "fall by the wayside" because of high interest rates. Does he not agree that many good, sound, careful, competent financial managers have seen their businesses collapse because of the crippling rise in interest rates?

Mr. Bright : The hon. and learned Gentleman should have listened more carefully. I accepted that high interest rates caused problems, and I shall say more about that in a moment, but I also emphasised the fact that there are many other reasons for business failures. Failure in business is a horrible thing : we do not share with the Americans the culture that accepts that seeds must be sown if growth is to follow. It is easy for those who fail to blame interest rates without considering the facts.

One of the reasons why I praise the Government's contribution to the small firms service is that thousands of people have gone into business for the first time. It is not easy to run a business. There is a considerable difference between having manufacturing or engineering skills, or a flair for art, pottery or tapestry weaving, and having the marketing expertise to sell the product. Business men must understand accounts and cash flow or the company is likely to get into trouble. The small firms service has recognised that they sometimes need their hands held, and is able to guide them through difficult times. It has enabled many companies that would have collapsed in the past to survive and succeed.

Let me join in the spirit of the debate and make some constructive and positive suggestions. We still have a long way to go in assisting small firms, and I should like to see a change in administrative methods within Government. I have argued for a long time that the small firms division of the Department of Employment should be enlarged and should deal with the enterprise and deregulation unit, and that its operations should include the Development Commission and the Council for Small Industries in Rural Areas, which are now the responsibility of the Department of the Environment. I should like all the small business organisations to be brought together. The hon. Member for Fife, Central (Mr. McLeish) spoke about training. That is an important concern for small companies which are not attracting people with the right skills. Small businesses require people with multiple

Column 389

skills because a small company cannot afford to employ, for example, a maintenance man, an electrician, a plumber and a carpenter ; it has to employ someone who can do all those jobs. We should emulate the Japanese and the Germans and employ people skilled in multiple disciplines, particularly in maintenance. We should look at our education system, and encourage fifth-year pupils in secondary schools to take vocational courses for industry. We should recognise the needs of small businesses and not encourage people to seek work only in large companies. Some of the initiatives to bring education closer to industry, such as the city technology colleges, are extremely important.

Two areas in which the Government have actively helped small businesses are the loan guarantee scheme and the enterprise allowance scheme. We should attach to any money handed out under those schemes the obligation that the people receiving the money should undergo some training to make sure that they are equipped to run a business. The enterprise allowance scheme brought many people into business for the first time and managed to keep them in business for a year, but when the allowance was taken away many businesses failed. Perhaps it would be a good idea to examine the training facilities available and make it obligatory that people understand the basic principles of running a business.

I accept that we have done a great deal to help by doing away with form- filling and mountains of forms, but we should consider the number of inspectors and officials who call on small firms as they are the bane of small business men. There is a powerful case for a single statute modelled on the Rights of Entry (Gas and Electricity Boards) Act 1954, defining the rights of access for everyone to understand. Those who have rights of access should declare who they are, why they are there and what authority they have to visit the factory. I should like an enlarged factory inspectorate to deal with a whole range of issues rather than having so many people appear on site. There is often friction, and that is extremely confusing for small business men.

The question of late payment has been mentioned, but the House will have ample opportunity to discuss that on Friday. In my view, by delaying payment large companies often weaken their suppliers, and that is not in their interests. However, I am sceptical about the introduction of legislation as it would not necessarily work in favour of small business men.

We should do more to encourage local government to open up contracts for small businesses. There are still far too many bogus and dubious so-called health and safety grounds that stop small businesses getting involved in supplying local government. Small businesses should be taking over some of the printing and other local government services.

I began by congratulating the Liberal Democrats on allowing us to discuss this subject. As soon as they saw the possibility of small business men crying with anguish about the interest rates, they tried to jump on the bandwagon. I have every confidence that interest rates will fall. However, like my hon. Friend the Member for Surrey, North-West (Mr. Grylls), I believe that we must consider the fact that large companies can borrow from abroad. Having talked to the banks, I can see no way in which that

Column 390

can be extended to smaller companies. We must consider that point carefully to see whether some special borrowing powers can be applied to small businesses to allow them to have a lower rate. There is nothing sacred about that, because many large businesses enjoy that privilege already. We are not trying to buck the system ; we are trying to make the playing field level once more for small businesses.

I am confident that when people pass judgment on the Government the small business men will acclaim the past 10 years as being a period of enormous success for them, and the figures prove that.

9.16 pm

Mr. Austin Mitchell (Great Grimsby) : If small businesses look to this debate for salvation or hope, they would be better employed going bankrupt. Only my hon. Friend the Member for Fife, Central (Mr. McLeish), in his excellent speech from the Opposition Front Bench, displayed any understanding of the issue. Only he grappled with the problems. For the Government, the Minister turned a condescending sneer into a system of economics and Conservative Back Benchers whistled into the wind in an attempt to keep up their spirits as their majorities decline. They seemed only to say that, bad as things are, they would be worse under Labour. People do not believe that. The Liberals have shown a unique skill in framing incomprehensible motions. Well, I call it a motion, but it is more of a skip into which they have shoved everything. Perhaps a skip is a bit big. It is more like a Tonka toy dumper truck into which they have placed all their quirks--interest rates, the uniform business rate, bureaucracy, debt and regular brushing of teeth. It is all there. The motion even includes several non-sequiturs, the most amazing of which is that they want the relief associated with the uniform business rate to be extended. So far as I understand it, that would mean the north subsidising the south. The Liberals appear to be claiming that the north should subsidise the south for some time.

I am no friend of the uniform business rate. However, I very much doubt whether the main topic of conversation on the Borders, in Berwick or in Southport is, "Good grief, what an awful time Harrods will have when the uniform business rate comes in. We must keep up our subsidy." If that is the extent of the Liberal's thinking on the matter, it is pathetic.

The other pathetic part of the ridiculous motion is that membership of the European monetary system is introduced as the Liberal's answer to everything. In the previous motion EMS was the answer to the situation in eastern Europe. They asked, "Are there problems in eastern Europe? Well, the EMS will solve them." The EMS is now the answer to the uniform business rate, to bureaucracy and to everything else. Why is the EMS not the answer to AIDS, the problems facing the National Health Service and vandalism?

The Liberals' view of the EMS is similar to a view expressed by Lord Randolph Churchill when he described Gladstone. Before the Liberal party became green, Gladstone used to spend his time at Hawarden chopping down trees. The Liberal faithful were brought round the grounds to catch a sight of the great man and they were all presented with a chip from those trees which they went home clutching. Lord Randolph Churchill asked, "What is Gladstone's answer to the problems facing the world?

Column 391

Chips. What is his answer to eastern Europe? Chips. What about the poor? Chips." His counterparts today, Gladstone's teenage heirs, offer businesses a pamphlet on the EMS as those businesses head towards the bankruptcy courts.

The Liberals portray a pathetic understanding of the EMS. The exchange rate mechanism ties other currencies to the deutschmark and uses them to keep the deutschmark down. The central problem with trading in Europe is that the Germans are generating a huge surplus and that means that the deutschmark should rise if we are to trade fairly. However, currencies are used as guy-ropes to keep the deutschmark down. That is why the exchange rate mechanism has had such a deflationary effect on the economies of France and Italy, in particular, with unemployment at 2.6 million and 2.9 million respectively. There has been a depressing, deflating effect. They are forced to deflate to get down to West Germany's abnormally low rate of inflation. Full membership of the exchange rate mechanism would have exactly the same effect here. It would become an engine of deflation.

The Liberals want to enter the EMS, whatever is the exchange rate. When the deutschmark was 2.80 to the pound, they said, "Join the EMS". When it was 3.20 they said, "Join the EMS." Now it is on its way down again, they still say, "Join the EMS." They are not bothered. Yet the real problem is the valuation at which we enter. If we enter at an unsustainable valuation, it will not keep interest rates down. We would be forced to throw every engine of the economy, particularly interest rates--it is the only one that the Government have--into maintaining an untenable exchange rate. That is exactly the effect. Interest rates would not go down ; they would fluctuate more wildly in the ERM. That is why the Labour party has very wisely suggested four conditions for joining.

A rate will be determined by competitors who have a vested interest in access to our market and who want us to be over-valued so that they can send us more of their manufactured goods, and cause our industry to suffer. That is exactly the effect of membership. Deflation would be the inevitable result. Deflation is the real enemy of small business.

Mr. Eggar rose --

Mr. Mitchell : I shall give way to another condescending sneer from the Minister.

Mr. Eggar : Is the hon. Gentleman in favour of our joining the exchange rate mechanism?

Mr. Mitchell : The Minister heard me say that the Labour party has suggested four conditions. Since I think that those four conditions are unattainable, that is my position.

Deflation inhibits the growth and development of small businesses. The Government's only achievement has been to make big businesses small and small businesses bankrupt, and to turn the unemployed into small business men by making them self-employed. That is their policy for small businesses.

The real problem for small businesses is that the economy is run not for the needs of business or for industry or manufacturing--not for making things--but for those who manipulate money. Big financial institutions are the main enemy of small businesses. Their attitude, not in advertisements but in reality, is to lend small business a

Column 392

brolly when it is sunny, to snatch it back as soon as it rains, and then to charge it for taking it back again. They would much rather buy estate agencies and banks in America, go bankrupt with them, and lend money to South America than lend it to small business in this country. That is the record of our financial institutions. If an economy is run for financial institutions, as ours is, it institutionalises over-valuation, because financial institutions' interests are in buying foreign assets cheaper and putting more money overseas than they are investing in this country. That is their record, and that is the way in which they run the economy. That is the way in which the economy has been run under this Government--for a high exchange rate, for high interest rates, and for the interests of financial institutions, not making things, selling things and surviving in a tough world.

We need an economy that is run for manufacturing, with a competitive exchange rate and cheap money, which allows business to invest, allows us to become competitive and allows us to export, which makes exports cheap and imports dear, and allows us to build national champions such as those that have been successful in competing economies, in particular those of West Germany and Japan--national champions to export. It is on the back of that that small business becomes prosperous and expands. It needs a healthy, competing manufacturing sector.

With deflation, small business shrinks. The Government began with a disastrous rate of inflation that crucified small businesses for four years and caused many of them to go bankrupt. They have never allowed manufacturing to expand its base so that it can do its job of supporting a national economy, provide jobs, generate growth, provide a surplus of spending power and provide the high-skill, high-wage economy that generates demand for small business. That is what it is all about.

The only way in which we shall have a successful small business sector is by having a successful economy. That is why there is such a high proportion of small businesses and why small businesses are so active in Germany and Japan. They have a successful manufacturing economy. That is what we have destroyed and undermined. Until we recreate that, it is no use the Government promising sops and diverting into side issues of more freedom, fewer inspectors--which was the suggestion from the hon. Member for Luton, South (Mr. Bright)--freeing business from controls and regulations and allowing them to fire staff, neglect training, and undermine the conditions in which staff work. Through all those side issues and the manipulation of emotive symbols the Government try to escape the fact that the economy is being run, not for industry, small business, survival, competitiveness and jobs, but for finance and deflation.

Under "Blabynomics", with the obsession of the previous Chancellor of the Exchequer with following the deutschmark, we should have had even higher interest rates. That was one Major gain from the change of Chancellors. It is now Government policy to let the pound fall while pretending to keep it up. They walk backwards towards a devaluation market pretending that it is not happening. Yet they are keeping interest rates too high--much higher than our competitors, higher than industry and small business can bear and far higher than investment requires.

With a trade deficit the size of ours, the pound must come down. Interest rates must come down, too, because we have to invest to survive. Unless we invest to rebuild

Column 393

and expand our industrial base, we shall not survive ; it is as simple as that. It is no good the Government whistling in the wind and distracting small businesses from reality by the lures that they introduce.

This next year will be horrendous for small business. No one has denied that prospect tonight. The small business sector will be tortured by high interest rates. They will be prodded and their position will be made worse by the uniform business rate and higher charges for electricity, water and telephones to fatten up the privatised industries. Telephone charges are now far higher than those in most countries on the continent. Small busineses will be depressed by the decline in spending power as people grapple with inflation, as unemployment increases and as people fail to improve their wages. All that contributes to a general decline. One person's spending is another person's income : money circulates. The Government's policies are dedicated to deflating and squeezing the economy in a fashion which is reminiscent of the attitudes, jargon and lack of concern with which they went into the great deflation from 1979 to 1982 which was so ruinous to British industry and, particularly, for the small business sector.

We are, in business as in society, one of another. We advance together or we do not advance at all. One does not advance the interests of small business by allowing it to triumph over its workers, dodge restrictions, fire people and avoid its commitments to safety and training. We advance together with a healthy, prosperous industry which produces the skills, incomes and wages for people to spend in the shops on the products of small business, to activate the suppliers and small business so that we all grow together. That is true of the economy and of society.

That will not happen until we replace a Government who have been completely ignorant of the interests of business and industry and deferential to those of finance and money and those who manipulate money. We must replace them with a Government dedicated to the interests of jobs, expansion and growth and to working together for an expanding future in which we have a strong industrial base on which this country can survive, compete and hold its head high in the world. A Labour Government will rebuild the economic health and heart of Britain.

9.29 pm

Mr. Richard Shepherd (Aldridge-Brownhills) : I am aerobicised after the activities of the hon. Member for Great Grimsby (Mr. Mitchell). The agility with which he leapt from one theme to another would have put Saul Samuelson at a disadvantage. Nevertheless, the hon. Gentleman tackled some important and great themes.

I began as a very small business man after leaving university with a single shop in Earl's Court road. It has given me a modest prosperity and has enabled me to come here. As is said, "Those who can, do--and those who can't, teach.", so here I am prattling on about a subject that I have always been cautious about approaching. I have always observed that small business men are essentially independent. The nature of their independence and the character of their spirit is instinctively Conservative. They draw from two great traditions that have little to do with Socialism. Their spirit may derive from the dissenters, the Quakers, the independent religions

Column 394

or from the great Conservative tradition. Most of the people with whom I have come into contact in my working life have been in small businesses and have been modest dissenters, who strike out on their own and build businesses. They are instinctively Conservative.

Mr. Beith : The hon. Gentleman seems to be missing the point slightly. What I have found most common among small business men is that they hate being ordered around. What attracts them to different political parties and away from the Labour party is that they are mistrustful of the intervention of the state. They are far more anti-Socialism than they are aligned to any other political views.

Mr. Shepherd : I accept that anti-Socialism is a strong theme among independent business men. Fear, experience and a whole variety of reasons such as the attitude, "I am independent and do not wish to be bossed around" lies behind their thinking. I accept that, but the natural home of most business men I have encountered during my working life has been the Conservative party.

Mrs. Currie : Will my hon. Friend give way?

Mr. Shepherd : Perhaps my hon. Friend will forgive me if I do not give way, but I want to speak only briefly.

Mrs. Currie : Will my hon. Friend please talk about business women as well?

Mr. Shepherd : I hear my hon. Friend and note what she has said. Instinctive Conservatism is important to many small business men who have therefore looked to the Conservative party for understanding. However, during the 20 years that I have been a business man, which includes the 10 years before I became a Member of the House, I have noted that the Government are not particularly mindful of little business men. They take them for granted. I have nowhere else to go--I am an instinctive Conservative. I know that, "Those who can't teach--and those who can, get on with it", and the Government have taken for granted the attention and attendance of many small business men.

I shall say little on this subject because, like most of us, before being elected to the House I had never written a letter to a Member of Parliament and had never been associated with the National Federation of Self Employed and Small Businesses. I stood alone and the modest prosperity that I gained was by the efforts of those with whom I worked. Therefore, I am respectful towards that class of small business people.

I shall not deal with the wider subjects that have been raised, although I am grateful to the Social and Liberal Democratic party for initiating the debate. I shall consider just one narrow tax that the Government have stumbled upon and which is mentioned in the motion. I refer to the uniform business rate. I cannot imagine a Government choosing a tax without knowing how it will fall or where it will hit and pushing it through the House on assumptions that were manifestly wrong. It was paraded by my right hon. Friends the Members for Mole Valley (Mr. Baker), now the party chairman, and for Bristol, West (Mr. Waldegrave), who is now at the Foreign Office. The document is called, "Paying for Local Government". When one reads through what was written in ignorance and then sees what has happened, one realises that the distress is profound.

Column 395

I first realised what we are about when the "Paying for Local Government" Green Paper suggested that the west midlands would pay more under the new system and that central London would pay less. I am a Member of Parliament for the west midlands and have seen the 'flu that hit our industry during the late 1970s and the early 1980s. I have also seen the collapse in commercial property values in manufacturing industry and it seemed to me that a tax predicated on that basis would lead to a reduction in manufacturing industry's overall contribution to domestic rates. I realised, therefore, that the idea had to be wrong.

I am a trader in London and have seen the march of commercial rents. The assumptions behind the Green Paper therefore caused me some confusion. The Government changed a locally based tax, predicated on the supply and demand of local shops to finance local communities, into a national tax and created a huge redistributive mechanism. That amounts to £1 billion in redistributed money, but they do not know where it is going and what effect it will have. The Government should remember that the Landlord and Tenant Act 1985 imposes two conditions on small business men. They already pay a premium to get their businesses. I have no covenant. I have no plc behind me. When I am bidding for shop premises, I am invariably the last person whom a landlord would have by preference. We have now converted our high streets into some of the dreariest in western Europe because all the shops are owned by plcs. Each high street is replicated and one can buy only from these plcs. This nation of shopkeepers, as Napoleon called us, is reduced to a nation of about five plcs. That undermines the vitality of small business men who fight for their markets. They hold on long after the managing director of a plc quits with his pay-off and retires.

I am conscious of the bleak circumstances faced by small businesses. Furthermore, rent reviews are only upwards. Once a rent has got somewhere, the terms of the lease ensure that it never goes down, despite the fact that small business men have to pay extra just to get the lease and often have to offer personal guarantees. In these circumstances, the Government decided to set up an £8 billion tax, and that will affect our national economy. Let us see how it falls. The Government suggested that central London would be a beneficiary but, over and above what businesses there would have had to pay to local authorities under the previous arrangements, they will have to pay some £610 million, of which £190 million will have to come from shops and £230 million from offices. A £610 million tax is being imposed on central London--I am not talking about outer London--and that will have some consequences quite apart from rent and balance of trade consequences. How does the retailer or small business man, the accountant or solicitor in his little office, recoup his share of that £610 million that the Government, without knowing that they were raising it and without knowing where it would go, have imposed? He has to raise prices. Therefore, I am worried about the inflationary impact at the time of the worst inflation that we have known in the last part of this decade. The tax will incite inflation.

Outer London--a smaller region, with a lesser base for rateable value--will pay an additional £30 million, which is not much, but £15 million for shops. The south-east--another Conservative heartland--will pay an additional £270 million, with £120 million from shops and £80 million

Column 396

from offices. The area from which the hon. Member for Truro (Mr. Taylor) comes--the south-west--will have to find another £60 million to distribute, £20 million of which will come from shops. Some £30 million will be shipped out of East Anglia--the Government did not know that--of which £20 million will come from shops.

Originally, I suggested that the Government go ahead with revaluation, because not many people dispute the need for that. However, I also suggested that they should not have redistribution until they had seen how the pattern fell and that they should be prudent. Instead, they embarked on this. As I have said, it will gee up inflation, but it will have other effects. The hon. Member for Great Grimsby (Mr. Mitchell) seemed to think that Britain was ruled from the City of London, but most small business men will recognise his general point that overall prosperity helps every business. A strong and successful City of London is undoubtedly important to whatever Government we have--whether Conservative, Labour or, should it ever happen, SLD.

Furthermore, 1992 is coming and the Government have constructed the highest cost office operating area in the Community. The additional burdens on the City of London will make firms wonder why they should locate there. By this measure, with £900 million exported from poor regions--without knowing the consequences of it--the Government will affect inflation and that is the most damaging result. This £900 million has to be paid for somehow --usually by raising prices. That is just an observation on which hon. Members must make their own judgments.

I do not know how the north of England will be affected, but I have tabled a question to the Department of the Environment asking how local authorities will lose or gain under the tax. The question relates to flows in and out of local authorities. There will be some surprised yelps from Conservative Members representing northern constituencies when they realise that their constituencies do not gain. I am talking about a destabilisation of the national economy which may have an influence on inflation.

I have been cautious. I have asked the Government to look at the Landlord and Tenant Act, which ratchets up prices to the highest rent last paid, never reflecting downward drifts in rents. So the costs for retailers, accountants or small business men always stay at the highest possible level. I predict that many businesses in central London will collapse. I am sorry that the Government have rejected the case put by retirement salesmen. The capital of a small business is often in the business. When these men reach the age of 65, 70 or even more, all they have for their pensions lies in the disposal or sale of their businesses. By imposing an arbitrary date of 1 April the Government have reduced the value of these businesses. I have said that I was a small trader. I started a shop in Sloane street, renting it for £5,000 in 1973, with a 20-year lease and a five-yearly rent review. By 1983, the rent had risen to £15,000, and the latest rent request is for £100,000. Valuation under the Government's uniform business rate is £121,000, which entails the payment of £40,000.

I am not retiring or selling the business, because my brother runs it now. The whole business is now valued at £310,000 under the UBR. We bought the business from a retirement sale. A business sold on that basis now would

Column 397

have a greatly reduced value because from 1 April a tenant in gainful possession of the premises would pay £40,000 in rates, which would affect the rental value.

All this will prevent and confuse redevelopment in certain areas. The Government must urgently consider improving the position of retirement sales, and I suggest that a review of the Landlord and Tenant Act would provide a stimulus for small businesses. I have tried to present my suggestions in a friendly way and in a condensed manner. The Government, in short, must be more mindful of those who are natural Conservatives.

9.43 pm

Mr. James Wallace (Orkney and Shetland) : This has been a good and necessary debate and it has been clear that, but for my right hon. and hon. Friends, we should have had to wait a long time for it. Because of the twin problems of high interest rates and the introduction of the uniform business rate, about which the hon. Member for Aldridge-Brownhills (Mr. Shepherd) has just spoken so eloquently, the Government would have been reluctant to introduce a debate on this subject in their own time. Despite the valiant efforts of the hon. Members for Fife, Central (Mr. McLeish) and for Great Grimsby (Mr. Mitchell), there has been a singular lack of interest on the part of the Labour party, which suggests that we would have had to wait a long time for the Opposition to take the initiative, as well.

This has been the first opportunity in this Session for our party to nominate the business for the day, and we have used it to debate this important subject. The hon. Member for Aldridge-Brownhills pointed out, based on his contact with people in the small business and self-employed sectors, that they tend to be people with independent minds. Those in my party have a great deal of sympathy with such people. Many Social and Liberal Democrat constituencies have high percentages of self-employed people.

It is for that reason that we welcome the fact that there are more people in self-employment and in small businesses today than there were 10 years ago. Any development in that direction is to be welcomed. However, it is worth bearing in mind the fact that we still fall far short of the comparable figures in, for example, West Germany or the United States of America. So there is still some way to go.

What we have heard tonight from the Government does not give us much confidence that we are taking the right strides in that direction. The Minister, many times over, gave us the statistics for the increase--the welcome increase, I say once again. What he said was all very defensive : it was all about what had happened over the last 10 years. There was not really anything about the problems facing small businesses today, and less still about the problems and opportunities of small businesses tomorrow.

We heard too about the number of small businesses being registered, but we have to look beyond that. What happens after they have been registered? My hon. and learned Friend the Member for Montgomery (Mr. Carlile), in an intervention which was not answered properly by the Minister, pointed out, in respect of people

Column 398

who want to be self-employed--North sea divers, journalists, free-lance photographers, actors--that the Government are trying to make them not self-employed, to move them from schedule D to schedule E. Surely, under tax law, there must be some means of ensuring that people who want to be self-employed have their wish respected. The Minister did not answer that point. Perhaps he did not appreciate it. It is a serious point, and I hope that he and his Treasury colleagues will reflect on it.

One could also look at the barriers that the Department of Social Security puts in the way of those who wish to be self-employed. The hon. Member for Surrey, North-West Mr. Grylls) made a very valuable contribution. He referred to a number of areas in which the self-employed have problems--the increasing lack, these days, of venture capital being put into new small businesses ; the need to look at the tax relief that might be applied to small family firms where profits are ploughed back.

The hon. Gentleman talked in terms of £1 million in the context of a particular small business. Many of the self-employed people in my constituency do not know what £1 million is like. A self-employed person who came to my constituency surgery last Saturday wanted to claim family credit. I have dealt with the cases of several self-employed people who find it increasingly difficult to claim family credit.

To his credit, the hon. Member for Fareham (Mr. Lloyd), when he was a junior Minister at the Department of Social Security, changed the rule that required audited accounts. Of course, that rule was nonsense in the context of self-employed people. One wonders who drafts these regulations. But now, even though accounts are allowed, and even though they have been properly prepared by accountants, they are very often sent back with umpteen questions.

One question that came to my notice in a recent case concerned the fact that farm insurance was not being allowed as a business expense, despite the fact that the farm was being insured as a business. Clearly some people in the family credit branch of the Department of Social Security do not understand what small business is about. That is another area in which a barrier is put in the way of people who want to enjoy self-employment.

The hon. Member for Aldridge-Brownhills expressed very well the fact that, for too long, the Government and Conservatives have taken small businesses and self-employed persons for granted. In an intervention, I referred to what is happening over the introduction of the poll tax. Employers whose employees do not, or cannot, pay the poll tax will be expected to attach their wages. That will undoubtedly put a further administrative burden on small employers. Indeed, they are allowed to charge the employee £1 for the service--for actually making a deduction from his wages. Who in the world thinks that that will make any contribution to good industrial relations in small companies?

But there are so many other ways in which the small business man has to act as the Government's tax collector. In a recent article in the Financial Times, Professor Sandford says :

"The biggest unfairness associated with tax compliance is the disproportionate burden it imposes on small companies. What might be called the regressiveness of tax compliance costs applies in its most extreme form to VAT the lowest band of compulsorily registered traders bore compliance

Next Section

Home Page