House of Commons Hansard Debates for 13 Nov 1992

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increased and that many more rules and regulations have pulverised and unnecessarily destroyed many small enterprises. Taken alone, new safety, health and security measures may appear sensible and responsible and appear to have little impact on small enterprises, but, when taken together, they can have a crucial impact. During the recession, which we have all been enduring, those rules and regulations bite most and can entirely destroy a small business. The recession of the early 1970s and 1980s tended to reduce the amount of manufacturing. It rooted out many of the large industries. The hon. Member for Greenwich mentioned its impact on small companies. Out of the slump in the 1970s and 1980s, tens of thousands of small firms sprang up. The Government have encouraged them and promised them better times and it is up to the Government to protect them now when times are bad.

The autumn statement will do much to stimulate the economy, especially in the south-west. My right hon. Friend the Chancellor has introduced some excellent macro and micro-economic measures. I shall now concentrate on the attitude of public officials to private enterprise, which has not been discussed in the debate. That attitude has damaged many of our businesses. Central Government, quangos and local government officials do not always seem to regard enterprise as a flower to be cultivated. Private enterprise is seen as a weed which needs to be rooted out and choked rather than a flower that must bloom. Not only do we seem to pass more regulations here than many other European countries, but our officials pursue those regulations with the vigour and tenacity of a west highland white terrier or a Jack Russell. They are not merely efficient ; often they are officious.

I shall cite an example along the lines of the VAT case mentioned by the hon. Member for Greenwich. In Dartmouth, a successful company, Western Approaches Yachts, has been making steel-hulled boats. It employs five skilled men and for four years it paid its VAT on time. It was late for the first time because of the boat show. Not only has the company been told to pay the VAT, but it has been punished with a penalty of £1,200, which is equivalent to the wage bill for one week. The VAT people are inflexible and are not prepared to compromise. Following the experience of the hon. Member for Greenwich, I intend to approach them.

Our job in government should not be to root out and to destroy private enterprises but should be to help them when they are going through a difficult time. Take the uniform business rate. Perhaps it should be adjusted yearly according to a company's profits in the previous year. There should be a relationship between the rate and a company's ability to pay and profitability.

Consider the health and hygiene regulations. Many smaller hotels and guest houses in my constituency cannot afford to introduce them all at once. There were no widespread outbreaks of illness and poisoning before they were introduced, so why must they be implemented so speedily now?

Trago Mills is a fine small retail company situated in Devon and Cornwall, which decided to build new headquarters. The company was told that it could not do so without following the building regulations, which

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included installing a lift to enable handicapped people to be interviewed for jobs. It cost that company £30,000 to install that lift. Although the company has advertised jobs and has a lift costing £30,000 to take handicapped people to the first floor, it has not received one application. That is a good example of a bad regulation. If the company had not installed the lift, it would not have received permission to build the new offices.

I wish to mention what is happening in the Department of Trade and Industry --a subject mentioned by my hon. Friends the Members for Colne Valley (Mr. Riddick) and for Dover (Mr. Shaw). There is something called the deregulation unit in the Department. It is buried deep in the Department's corridors--I am not sure where--and, as you will know, Mr. Deputy Speaker, its job is to consider every statutory instrument and Bill to find out their effects on small industries and businesses. That procedure is called compliance cost assessment.

Mr. Cousins : I am looking forward to pressing the Government on that matter. There are not merely officials, but a whole raft of advisers involved in the operation. There is also an entire structure of committees, chaired by the chairman of Slough Estates, the property company. It would be nice to know what was going on in all those committees, would it not?

Mr. Steen : I should have looked forward to hearing the hon. Gentleman's speech, but for the fact that I, too, must go to my constituency, which is a bit further away than those of other hon. Members who have spoken. I shall read what the hon. Gentleman has to say.

What are those officials doing if they are allowing regulations to be introduced that would cripple small firms? Public officials whose job should be to help small enterprises, should go out of their way to find the means to assist small enterprises and to ensure that new regulations are not passed in Parliament if they would have a negative impact on small business. Many small businesses in the south-west are facing cash flow problems and financial difficulties. Those who are involved in compliance cost assessment are accepting regulations without having any idea of the impact that they will have on small businesses. Perhaps my hon. Friend the Minister will be able to tell us how many of those engaged in CCA have worked in a small business. How many of those people know what they are talking about? Is my hon. Friend the Minister aware of what the President of the Board of Trade is doing in the EEC? Does he appreciate there is a little group of civil servants that is exactly like the CCA group? It is called the fiche d'impact. Whenever EEC regulations emerge from Brussels, a team of our civil servants considers their impact on small firms in the United Kingdom. I want to know how many of the regulations that have emerged from Brussels over the past two or three years have had a fiche d'impact. If they have all had fiches d'impact, the findings have all been wrong. We all know that EEC regulations disadvantage British industries.

It might help the House if my hon. Friend the Minister were to place in the Library CCAs of all regulations that have been passed in the House since the Government were elected. I hope that we can see the assessments and the regulations that it was considered would not have an

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impact on small firms. Perhaps the President of the Board of Trade will take similar action in respect of the regulations that stem from the EEC.

It seems wrong that regulations from Europe should be enforced with tremendous enthusiasm, but unilaterally, by our officials in the United Kingdom when in other European countries--especially Greece and Portugal-- the same regulations are not enforced at all. Perhaps the most damaging action that we are taking against small firms is enforcing upon them, without regard for the impact that they will have on their profitability, regulations which other European countries are not implementing. If we wish to achieve a level playing field, we should not enforce regulations here until other European countries enforce the same regulations. It may be that the best way to proceed post-Maastricht is by way of cross-enforcement, so our inspectors go to Greece, for example, to enforce regulations and to ensure that there is compliance.

Rules and regulations should be introduced to help small firms. Our officials and bureaucrats in central Government and local government should be instructed by Ministers that their sole role is to serve the small shopkeeper and the small firm. They should be told that their job is not to make life difficult for small businesses ; instead, they should be instructed to help small businesses in every possible way. I am not concerned that Napoleon called us a nation of shopkeepers. I am worried that we are becoming a nation of public officials and bureaucrats.

12.24 pm

Mr. Jim Dowd (Lewisham, West) : I shall follow the example of the hon. Member for South Hams (Mr. Steen) and speak for only a short time. I am not sure whether I shall be as successful, or unsuccessful, as he.

I have not run a small business, but I have worked in large, medium and small businesses over the years. Given the way in which the House operates and the way that the Inland Revenue treats me, perhaps Members are small businesses.

Small firms are extremely important and significant. They are often centres of innovation. "Risk taking" seems to be a shorthand description of their activities, but it is not solely a matter of taking risks. Indeed, that description suggests that the activities of small businesses are reckless. It is more a matter of using imagination and responding to changing needs and opportunities. Small businesses are often far more flexible, imaginative and willing to adapt and change than many of their larger counterparts.

Some say that the plight of small businesses has never been so great and that their prospects have never been more bleak. That is because many of them were once large businesses. The Government's policies over recent years have had that effect.

I wish to concentrate on the relationship between small and large companies. I might as well join all those who have contributed to the debate in roundly condemning the banks for their performance and their attitude towards small businesses. It seems that many of them will use the interest rate cut--if not the one announced yesterday by the Chancellor of the Exchequer then the one after that, assuming there is one--not to ease the burden on their customers, especially small businesses, but to make up their margins. I join all those who would condemn that

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action as unreasonable. It may be that one or two of the banks are having a twinge of conscience about that, but that is not adequate. The hon. Member for Gordon (Mr. Bruce) talked about the Co -operative bank. I take the opportunity to place on the record the considerable acheivement of that bank in the immediate aftermath of black Wednesday. It issued a statement to all its customers to inform them that it would never, in any circumstances, use the proceeds of the accounts of customers--all of whom are British citizens--to indulge in speculation against their currency. That is an example which our large financial institutions should follow. Such action would benefit customers and the nation generally.

My hon. Friend the Member for Greenwich (Mr. Raynsford) talked about local authority support for small businesses, enterprise and start-ups, as far as it is able to offer it. In fairness, local authorities co-ordinate what assistance is available from the Department of Trade and Industry and other Departments. The more enlightened of our urban authorities have a good record in trying directly and indirectly to assist. In Lewisham, the small business advisory centre cannot make outright grants or loans, but in certain circumstances it can provide assistance with the tedious form filling and accountancy to which the hon. Member for Dover (Mr. Shaw) referred.

Local authority contracts are valued. Conservative Members often act in an atavistic way at the mere mention of local government. They tend immediately to condemn all its workings. Yet many small businesses are only too willing to take on local authority contracts and to work with authorities, because they know that they will be paid. The time that passes before payment is sometimes to be deplored, but, as my hon. Friend the Member for Greenwich said, local authority contracts are secure and small businesses are very willing to take them up.

Regulation of the relationship between small and large companies has been neglected. I used to work for GEC. I am sure that it is now a far better organisation, but it used to impose a contract on suppliers that stated clearly that they would not be paid in fewer than 90 days from the date of invoice and that, in some circumstances, they might not be paid for 120 days--four months. There was nothing underhand about that as it was clearly stated in the agreement that had to be signed by suppliers before they would be accepted by GEC. I am sure that all hon. Members regard such muscle flexing in the marketplace as reprehensible. Regulation is obviously needed.

Mr. Duncan-Smith : I, too, worked for GEC for a while. I recently spoke to Lord Prior about the issue that the hon. Gentleman has raised. He assured me that GEC has reviewed many of its policies and is now being much fairer with its suppliers--although some of that would bear scrutiny.

Mr. Dowd : I am sure that my status was a great deal more lowly than that of the hon. Gentleman. As I said, I assumed that improvements had been made. After all, there is great scope for doing so.

I want to raise another issue on which some action has been taken recently by the Office of Fair Trading, but only after considerable prompting over a long period. It is the behaviour of newspaper publishers towards the archetypal small business, and the one that springs most readily to most people's minds--the corner shop newsagent. I am

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sure that other hon. Members were also approached by local traders when The Daily Telegraph --sometimes known as the Conservative party house journal--inflicted a new arrangement on newsagents, through the wholesalers, under which their margins were cut overnight. It could not be called an agreement because it was one sided and unilateral. The Daily Telegraph even took out court injunctions to prevent any of the retailers from reducing their orders.

It is one matter if firms want to put up their prices--and understandably most would be reluctant to do so--but it is quite another if a firm does not just increase its prices but says to its retailers, "Not only will you pay those increased prices, but we will take you to court if you do not." If the marketplace is to have the freedom for which it is renowned, there must be the freedom to withdraw custom.

I am delighted that the Office of Fair Trading has agreed to investigate what I believe to be an abuse by The Daily Telegraph. I am not singling out that newspaper, as I believe that it is acting as a standard bearer for the rest of what used to be known as Fleet street--our national press.

However, I am not certain that the Office of Fair Trading will examine every aspect of the arrangement. The wholesale operation within the newspaper distribution sector would bear considerable scrutiny. It is anti- competitive and not in the best interests of the newsagents and other small businesses.

Mr. Couchman : I have pursued the issue of The Daily Telegraph's arrangements and I understand that the reduction in margins applies to the Saturday issue. I asked the newsagents' association what had happened to the cash, as opposed to the percentage, margin. That has actually increased by 25 per cent., which is quite interesting.

Mr. Dowd : I am not sure how that carries the argument forward. The newsagents have a unanimous view about the arrangement and they have no doubt that it is injurious to their interests. I will ask them whether they are complaining to me that The Daily Telegraph has insisted that they have 25 per cent. more. I suspect that they are not.

There is a slight paradox in many of the speeches by Conservative Members today. They claim that, by definition, regulation is bad and that it is conducted by bureaucrats or agents of the state--yet it is clear that in some areas regulation is necessary to ensure a fair deal for small businesses. Only the most ideologically blinded do not recognise that the argument is not between the command economy--with total regulation and the manufacture of markets, which clearly do not work--and the Friedmanite excesses on the right--which also clearly do not work, as can be seen in many South American economies. The argument about the existence of the market rests on the degree of regulation that a market needs in order to be most beneficial to those who are in it and the consumers who use it. That is the only argument. The degree of regulation that is necessary will vary from market to market.

Opposition Members do not share the belief that minimum regulation is always the best level. There is an optimum level of regulation. My hon. Friend the Member

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for Greenwich (Mr. Raynsford) made it clear that there is an optimum level of regulation when he referred to some of the services, especially as they relate to public safety and the safety of individual employees. I am not sure of the code words used by the modern Conservative party, but small businesses and support for deregulation seem to have assumed an almost quasi-religious significance for some people. They trot out totems, imagining that they expand the bounds of human freedom by merely recanting them. That is not the Opposition's view of it.

When some of the wilder exponents of the argument talk about abolishing regulation, they conjure up images of wanting to go back to some of the worst excesses of exploitation of workers and customers which took place decades ago.

The hon. Member for Dover (Mr. Shaw) said that meeting a pay cheque is the highest achievement that one can make. I do not disagree that that is an achievement ; it is one for which those who work for companies should be grateful. However, when it is elevated almost to a mystical significance of absolutism the argument gets out of proportion. All those who contribute to the success of private or public sector companies or undertakings deserve congratulation as long as they provide a service and are trading profitably and energetically. There will be an absolute test and it will be that companies and undertakings provide services and are successful in so doing.

The hon. Member for Dover referred to the autumn statement and the disappointment of the media in it. That is no surprise at all. He was feigning his response to the statement. The Government's disinformation team spent the entire week employing its snow-job, saying how bad everything would be and how the Government would do a range of things which they never intended. That was done simply so that anything done against that background of public expectation which was not a total disaster could then be held as a triumph. That is exactly what happened yesterday.

As my hon. Friend the Member for Bolsover (Mr. Skinner) said, a colder assessment during the light of day shows that the chickens are coming home to roost. I am looking at the headline in today's Evening Standard about tube and rail investment, "London has been betrayed". The story says that London tube chiefs are looking at investment plans that have been slashed. They feel that they have been betrayed in view of the promises that were made last year. That is part of the full import of yesterday's statement.

Hon. Members will be able to read the article later, but it says that up to 7,000 jobs will be lost, many of them in small contracting businesses that support not simply the Jubilee line but much of the work that is going on in London Transport.

The hon. Member for Dover mentioned form filling. We all have a degree of sympathy with him on that. The matter needs to be examined. I make a plea to the Minister to ensure that, wherever possible, the forms are written in what has become known as plain English. The forms should be simplified so that people can deal with them as quickly as possible. Unfortunately, it is simply unavoidable that all businesses, organisations and undertakings must make an account of their activities. Those accounts must be verifiable at a later date. The victims of VAT are spread far and wide. The former leader of the Conservative group on Lewisham

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council was hauled up not long ago for failing to complete the VAT returns for his business. In dealing with VAT demands, the Customs and Excise authorities could do no worse than to take advice from the Inland Revenue when it deals with matters such as corporation tax. Businesses in my constituency find the approach of the Inland Revenue in pursuing corporation tax infinitely more understanding and preferable to the brutal way in which the Customs and Excise go about enforcing VAT requirements.

It is common currency across the House that the Government must provide responsive support for small businesses so that they can play their part and meet their responsibilities to both the local community and the nation.

12.40 pm

Mr. James Couchman (Gillingham) : First, I congratulate my hon. Friend the Member for Colchester, North (Mr. Jenkin) on winning the ballot for this morning's debate and on choosing this subject. It must be rare indeed that within three days of one another both Houses of Parliament have chosen the subject of small and medium-sized enterprises for a debate. It is entirely appropriate and relevant to debate the matter now because the state of the economy is heavily bound up with the future of small and medium-sized enterprises. I must declare my interest, as many of my colleagues and some Opposition Members have done. I always declare my vested interest, partly because it establishes a credential to speak on the subject. I still run my family's business--I am sure that if the hon. Member for Bolsover (Mr. Skinner) were in his place he would rubbish me--in a hands-on manner. It has been in my family for 80 years and operates seven public houses which formerly were tenanted but are now leased in London. We have an annual turnover of perhaps £2 million and we still count ourselves as a small business. We face the same problems as all small businesses in these difficult times.

Although I am not unique by any manner of means among hon. Members, I think that I am one of a small minority who is still engaged in what was pejoratively called trade in my grandfather's day. There is still a tendency to look with disdain on those whose business is engaged in buying and selling products or services for profit. I well remember being taken to task by one of my barrister colleagues for referring inadvertently to the licensed trade as a profession. "Profession!", he said. I was not allowed to forget my impertinence by him of a higher calling. I suggest that people both in this place and outside still sneer at the profit motive.

I shall certainly give praise where praise is due to my right hon. Friend the Chancellor of the Exchequer for his autumn statement yesterday. It would be extremely churlish not to applaud the several important initiatives that he has undertaken. Undoubtedly, the abolition of car tax will be welcomed by the manufacturers, spearheaded by our former colleague Sir Hal Miller.

The measures taken to allow local authorities to use their capital receipts for the forthcoming year, and the money made available to the Housing Corporation to reduce the unsold residential property overhang will certainly help to stimulate house building. The construction industry has undoubtedly suffered most grievously in the recession. Of course, not only the construction industry suffers in these times. So many other businesses,

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including removal firms, solicitors, people who supply building materials, DIY stores and furniture stores depend on a buoyant housing market. I am sure that the relief that my right hon. Friend the Chancellor has given to the building trade will be welcome. Like my hon. Friend the Member for Dover (Mr. Shaw), I welcome the increase in first-year capital allowances ; they should certainly help many businesses to invest.

Yesterday's 1 per cent. drop in interest rates, which followed the 2 per cent. reduction made when Britain left the ERM two months ago, will be widely welcomed by the many businesses to whom the cost of borrowed money is a crushing overhead. I repeat my declaration of vested interest in that regard.

My right hon. Friend the Chancellor was right to flag up a warning to banks in respect of the artificial floors that many of them instituted by imposing minimum lending rates, which mean that further cuts in the base rate are of no value. The money that my company invested in the building trade over the past 18 months was borrowed on terms that require interest of the bank base rate plus 2.5 per cent.--but no less than 9.5 per cent. It seems likely that many companies are caught by similar terms. I hope that the banks will do something about that--but not just for my sake. After all, I agreed to those terms--albeit at a time when 9.5 per cent. interest appeared very modest.

In the course of my brief contribution to the debate on the Loyal Address, I expressed a certain cynicism about the role then played by the banks--or perhaps that which they were not playing--in an attempt to lift the economy. I shall not repeat my remarks except to plead again with the high street banks to start helping their small and medium-sized customers invest for the future.

The British Chambers of Commerce reports that small firms involving fewer than 200 people--but which in total employ 12 million people or 60 per cent. of the non-governmental work force--account for 99.3 per cent. of insolvencies. That is a horrifying statistic. Small firms have frequently failed and gone bust because their bank pulled the plug. The BBC also comments that it is no longer only badly managed companies that fail. Many do so because of late payment of debt. I doubt whether the answer lies in the statutory imposition of trading terms. Some firms would use it as an extension of their existing credit terms.

GEC was cited by two Members on opposite sides of the House as one of the worst offenders in that respect. It is the largest employer in the Medway towns in my constituency. GEC would claim that part of the trouble is that the Government pay very slowly for the work that the company undertakes-- particularly for the Ministry of Defence. It behoves local and central Government to take a lead in rapid payment, to serve as an example to slow payers--who seem content still to live off the backs of their subcontractors.

I said in an earlier intervention that small companies contracted to large businesses such as GEC and major defence and construction companies are worried about losing their main customer if they press too hard for payment. If something can be done, it is more likely to be achieved through education than statute.

Another reason for company failures is the current chronic lack of consumer confidence. I only hope that yesterday's autumn statement will lead to a gradual

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rebuilding of consumer confidence, because that will more certainly lead us to recovery than any fiscal step that my right hon. Friend may take.

My noble Friend Lord Weatherill, who until recently chaired the proceedings of this House with such distinction, chose to make small businesses the subject of his maiden speech in another place. He reminded their Lordships of the many years that he worked for his family tailoring business. He is a formidable champion of the 97 per cent. of all businesses that employ fewer than 20 people, for my noble Friend acknowledges the enormous contribution that small firms can make to recovery. He is conscious, as I am, of the continuing, burgeoning bureaucracy that so bedevils them. The House professes to unshackle business men of administrative burdens and to deregulate, but at the same time we and the European Community produce monstrous legislation.

I entirely agree with my hon. Friend the Member for South Hams (Mr. Steen) : the Food Safety Act 1990 will impose burdens at all stages in the production, distribution and selling chain. No one--from the sheller of peas to the seller of the humble chocolate bar, via the grandest of restaurateurs--will be able to ignore the Act. Moreover, it follows all the other legislation that affects small businesses : legislation governing health and safety and employment protection, not to mention the Inland Revenue and Customs and Excise, of which I have all too recent experience. Welcoming their representatives to one's premises is always an uncomfortable experience, even when a routine inquiry is all that is involved.

According to the Federation of Small Businesses, the average owner of a small business spends at least one day a week satisfying the requirements of Government bureaucracy--and I believe that that is a gross underestimate. The problem is not just the time taken up by form filling ; the worst feature of bureaucracy is the confusion and worry that it causes. Many owners of small businesses find it very difficult to keep pace with the imposts of the Government and EC. Even if they can find out what is expected of them, they cannot afford the specialists who are employed by large firms to keep abreast of legislation.

Even if a business man manages to keep up with the legislation and manages, to the best of his ability, to apply it to his firm, he can expect no consistency in regard to inspection. As I said to the hon. Member for Greenwich (Mr. Raynsford) when he was talking about fire regulations, no one wants bad fire safety standards to apply ; but it is not on to expect a fire officer who has applied a particular set of conditions to a major building project in year one to institute a completely new set in year three, when his successor claims that the original conditions are inadequate or, indeed, totally wrong. People in the fire service should look out for such behaviour. The same applies to environmental health officers, whose lack of consistency in applying regulations is notorious throughout the country. The Inland Revenue and Customs and Excise carry out regular and routine visits to businesses. Often they find nothing seriously wrong, but they will always try to expose some minor infringement : that, after all, is what justifies the visit and the salary. They then tend to submit huge, potentially fatal claims covering six back years. Not only

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are such claims extremely worrying for the businesses concerned ; more important, fighting them will cost an enormous amount in professional fees and time, and frequently ends in a settlement amounting to a few hundred pounds. The Revenue and Customs and Excise incur no penalty in such circumstances. I think that the Government should act. I fear that we owe a great debt to the good Professor Keith, who was at the bottom of many of the current regulations governing PAYE and Customs and Excise payments.

Ministers must bear a much heavier burden in helping to stimulate the economy and to provide a catalyst for recovery. They would do well to pay attention to small and medium-sized companies, for it is from them that the recovery in jobs will come. We have heard much heroic talk about the shrinking of the manufacturing base, and the hon. Member for Bolsover gave us a wonderful tirade about the contrast between the present low level of manufacturing employment and the great days that he remembers. Let me cite my recent visit to CAV Lucas, when I was shown an all-singing, all-dancing machine that was said to perform 27 different tasks and to do 81 jobs in three shifts. It was managed by a single operative on each shift, which meant a net loss of 78 manufacturing jobs. There is no doubt that much of the erosion of the manufacturing base, in employment terms, is due to the introduction of automation.

I believe that small businesses will give us the new jobs that will help recovery. It is essential for Ministers--not just officials--to consider all legislation with a view to deciding what the burden on business will be. If those burdens and imposts are considered to be too heavy, they must set the legislation to one side. We cannot continue to have our time, as managers, taken up entirely by having to satisfy the whims of Government bureaucracy. That is so important that a group of Ministers, at Minister of State level at least, should consider the issue. I apologise to my hon. Friend the Under-Secretary of State for Technology, if that is regarded as something of a slight. Ministers of all the Departments involved, in terms of their impact on industry, should meet and report regularly and should seek to ease the non-fiscal burdens on industry and commerce. That would contribute to the renaissance of our business base. it would make the United Kingdom even more attractive to companies from the United States, Japan and other Asian and Pacific countries that seek a European base and which find attractive our language, tax regime, industrial relations and attitude to the social on-cost of labour.

I end, as I began, by congratulating my hon. Friend the Member for Colchester, North on his choice of subject. I must also apologise to him. I fear that he may find himself very lonely at the end of the debate. I, too, must leave the House to attend to the needs of my constituents in my constituency surgery. I apologise also to you, Madam Deputy Speaker, for my absence at the end of the debate. 12.55 pm

Mr. Malcolm Wicks (Croydon, North-West) : I, too, welcome the debate and thank the hon. Member for Colchester, North (Mr. Jenkin) for introducing it. I intend to deal with some of the smallest businesses--the small shops. We were reminded earlier that it was Napoleon who described us as a nation of small shopkeepers. I

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remembered that it was a great European who said that, but I could not remember whether it was Napoleon, Jacques Delors or Lord Tebbit. Small shopkeepers are a particularly neglected group in our debates in the House. They are also neglected by the big institutions. However, in my constituency, the small shop is a crucial feature of the local economy and, therefore, of the national economy. Small shopkeepers work tremendously hard and show much enterprise and energy. Many small shops are run by those whom we refer to as the ethnic minorities. Many Asian businesses form a vital part of the economy and a vital part of our communities. I say "communities" because I am struck by the fact that shops often form the most crucial parts of those communities. When shops close down throughout Britain, and certainly in Croydon, that is bad news for shopkeepers and customers. It is also bad news for the local communities. Many elderly people rely on talking to shopkeepers. It forms a major social contact for them. They do not get that contact in the Sainsbury's or Tesco's. We are therefore talking about shops in both the social and the economic sense.

Many shops are now bruised and battered and feel under threat from many sources. Many shops are boarded up. Recently, I have spoken to between 40 and 50 shopkeepers in my constituency. With few exceptions, the impression I gained was that many are clinging on by their fingernails to economic survival. The events of the next few weeks and months will determine whether they survive.

Many shopkeepers feel betrayed by those who purport to discuss economics and economic policy. They feel that there is a general lack of understanding of their position. They certainly feel neglected. I believe that they are neglected by what I describe as the big institutions--the media, in terms of their reporting of economics, the finance pages, the City pages, the finance houses and the large companies. They say little about the small shops. Despite the lip service that they pay to small shopkeepers, when the Confederation of British Industry and Institute of Directors plead on behalf of their members to the Chancellor of the Exchequer and the Prime Minister, they often talk about large industry rather than small shopkeepers. Political parties have often served small shopkeepers badly. That is certainly true of most Conservative Members, who have greater understanding of finance houses, large companies and landed interests than of the small shopkeeper. Historically, that has been true of Labour Members. We have better understood large industry, trade unions and workers in large enterprises than we have shopkeepers. Labour Members' attitudes are now changing, but hon. Members should self-critically examine how well they speak for small shopkeepers. I wonder how many members of the Treasury and Civil Service Select Committee are shopkeepers. I heard that only one member of the Home Affairs Select Committee is not a lawyer. I wondered whether that meant that there were too many lawyers or too few on the Committee. I suspect that few members of Select Committees and of the other institutions of the House that are concerned with economics and finance are greengrocers or hardware merchants. It is important that such people are represented on Committees, because, despite this debate, we usually neglect such matters.

Small shopkeepers are at risk on a number of fronts, and many hon. Members have articulated better than I the

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different factors that they are facing. The vital factors are recession and unemployment, because more people have less money in their pockets or purses to buy goods in shops. The explanation of the collapse of some small shops is clear.

Interest rates have been a crucial factor. Of course we welcome the fact that they are coming down, but I sometimes think that the small shopkeeper must feel bemused and bewildered by the rollercoaster that has become macro -economic and monetary policy. He or she must wonder why the economics of the fishmonger or greengrocer should be affected by something called the ERM or about the monetary policy of the Chancellor of the day. What thread links those great economic debates to the economics of the small hardware shop, the finances of the greengrocer in Norbury or the economics of the pharmacist in Thornton Heath? Those people want stable finance and money policies, but they have not had them in recent years and, I suspect, recent decades. Hon. Members have spoken of the impact of the business rate. Rent reviews are another aspect. The VAT authorities and the other institutions and policies seem to betray a lack of understanding and insensitivity to the needs of small businesses and small shops. That is my experience, but I need not add to that subject.

Hon. Members have spoken of the banks, and I repeat some of those remarks. Banks are regarded as fair-weather friends by small shopkeepers. Last night, I said to a business man, "I have seen the advertisements on the television. There is a friendly bank manager and a special person looking after small businesses. He looks a nice chap. He comes along to your house and shop, looks at the production line, shakes you by the hand, pats your children on the head and is even pleasant to the dog." I shall not repeat the words of that small business man, but he did not recognise the bank manager.

Why should banks, which made colossal mistakes and thereby incurred huge debts on foreign enterprises, take it out on the shopkeepers of Croydon or Britain, who are the links that we need to develop? When the going gets tough for shopkeepers, the banks cut up rough. That is not on and we should debate that more.

I apologise for the fact that constituency duties meant that I could not be here for the whole debate. I do not know whether other hon. Members have touched on the aspect of planning and transportation. To what extent do out local and national authorities, when talking about planning and transportation issues, have regard to the small shops? There is a crucial link.

People in my constituency are worried about the red routes. They may make sense in terms of speeding cars through communities, but the shopkeepers tell me that they make no sense if people cannot park near or outside shops and pop in to buy things. People in Croydon see the red routes policy as a threat to the local economy and to shops. Those are important matters.

If planners allow more and more superstores and supermarkets to be built on the outskirts of our towns and cities, it may be good news for the superstores, and for those who shop once a week in great Volvo estates and who have refrigerators in which to store the goods. It is not such good news for the shopkeepers, or for the elderly, for single mothers and for those without cars who want to shop in local shops. Planning authorities should take into account the impact on small businesses and small shops.

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I shall not say much about Sunday trading, which we shall discuss on another occasion, except to say that it is related closely to this matter. Sunday trading is bad news for small shops. If we allow Tesco and Sainsbury to open on Sundays in flagrant breach of the law, there is an impact on small businesses and shops.

The managing director and chairman of a local bakery wrote to me recently. The bakery bakes the products and then sells them through shops. He said that, although trade had been increasing by 5 to 10 per cent. over a year, there was now a decrease in trade of between 5 and 10 per cent.--and more in some shops--on Saturdays and Mondays because of Sunday trading. The managing director writes : "The only outcome for us will be some very drastic pruning and offloading of our lower-taking shops, which in turn will put a lot of people out of work."

The issue of Sunday trading will be debated on several fronts, including the moral and theological fronts. It also needs to be debated in terms of the impact on local economies and on local shops.

Our perspective today is needed in a number of our debates on economic policy, on finance and on much else. There is a sense in which the pharmacist, the newsagent and the small grocery, multiplied many thousands of times across our nation, are as important to our society, to our community and to our economy as are ICI and Hanson. It is time that we debated their concerns more often and more rigorously. I therefore thank the hon. Member for Colchester, North for giving us the opportunity to debate this crucial matter. 1.7 pm

Sir Michael Grylls (Surrey, North-West) : Our debate today, ably introduced by my hon. Friend the Member for Colchester, North (Mr. Jenkin), who gave a tour d'horizon of the problems facing small firms today, takes place against a background of world economic downturn. I suspect that the worries expressed in our debate are mirrored in almost every other country. The state of small businesses in the United States is not very good because its economy is also in a downturn.

We should be grateful to my right hon. Friend the Chancellor of the Exchequer for a measure in the Budget just before the general election. That measure would not have been taken up by the Labour party if it had won the election. In the Budget, the inheritance tax for small businesses was effectively abolished. The Small Business Bureau and the Union of Independent Companies, which represents middle-sized manufacturing businesses, have been campaigning for that for years. We have been asking for that welcome change for about 10 years.

If a Government and a society are to encourage people to risk their money, time and often their houses in building up a business, it is not only sensible but right that they should be allowed to pass that business on intact to the next generation--whether it be family or managers. It is an economic fact that almost no business reaches its optimum size in one generation. It is generally family businesses, built up over many generations, that progress.

The penal rates of capital inheritance taxation that pertained until the time of the previous Budget made matters very difficult and were very damaging over a long period. We can rejoice at that change ; even if, in the middle

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of a recession, it is not something about which every firm is thinking the most, that fundamental long-term reform is crucial. During the 1980s, as a result of measures taken to encourage entrepreneurship, many new very small businesses came into being. Such businesses have become a feature of British industrial society. The encouraging thing about the difficult days through which we are living is that the rate of birth of new businesses has been maintained. The fundamental changes that were made in the 1980s encouraged people in the hope and belief that it was worth while starting their own firms.

At the other end of the scale, we have a large number of very large firms that are among the most successful in the world. What we lack is a sufficient number of medium-sized, family, owner-managed businesses in the middle--not only in high tech but in engineering. To sustain an effective and competitive economy, one needs a vast number of middle-sized businesses employing 200, 300 or 500 employees. One of the great successes of Japan and Germany has been that they have had a substantial number of those firms. In Germany and, to a degree, in Japan, competition policy has been aimed at the preservation of medium-sized firms and at encouraging their growth.

We would be wise to fill that gap in our industrial society. Very small firms are all very well, but we should pay more attention to independent medium-sized businesses, and my hon. Friend the Member for Colchester, North was quite right to include medium-sized firms in the motion. We must do everything that we can to try to fill that gap.

One subject that has been much talked about--quite rightly, given the present climate--has been the problem that many of our smaller and medium- sized businesses have faced in their relationship with their banks. There are two aspects to that problem. The first is the rate of interest charged, and the conditions of lending imposed, by the banks. There has rightly been much criticism of the banks for charging small firms too high a rate of interest. It seems odd that we treat businesses so differently, given that we recognise the need to help young fragile people to get on their feet and become adults, so that when they fly the nest they can look after themselves. Large firms receive the special preferential interest rates. They can even borrow on the Eurodollar market. However, small firms pay penal interest rates. No doubt, it may be said that such firms are more at risk, but that is not a sensible way of doing things.

As we criticise the banks, it is vital that we recognise that they have faced severe problems. Like all of us, they have made mistakes. Indeed, they have made mega-mistakes which made very large holes in their balance sheets. As responsible private sector organisations, the banks must restore their balance sheets. However, that must be achieved by prudence. It must not be achieved at the risk of damaging too many of our smaller firms.

Mr. Malcolm Bruce : The hon. Gentleman is making an important point which follows on from an issue that I raised earlier. Should we not convince the banks that the argument about greater risk is not true? If small businesses are required to put their houses on the line, the banks have more security than they have from large corporations which, during a recession, leave the banks exposed. The

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argument that the banks are entitled to charge premium interest rates to small businesses does not even stand up on risk assessment criteria.

Sir Michael Grylls : I accept the hon. Gentlemen's point and I agree with him. I was making the point for argument's sake. It was by no means my argument.

Although there is a problem with interest rates, we must also consider an issue that is fundamentally of more long-term importance, because I believe that the banks will rectify the interest rate problem as a result of public pressure. The minimum lending rate has dropped. All hon. Members must maintain pressure on the banks in that respect.

The more fundamental problem is that we do not have a tradition in Great Britain of long-term structured lending to medium-sized firms or what we might colloquially call "industrial banking". Ours has been a more mercantile lending system--lending for trade rather than for long-term investment. That is not necessarily the fault of the people who run the banks in 1992. It is a long-term historical problem. It is part of our culture and I am not sure how it grew up. Somehow, we must persuade our financial institutions that they must consider long-term secure lending. The Opposition may have a lot of fun ribbing us about the problems facing the country because of the recession, but even they know that recessions will come around again and that there is such a thing as an economic cycle. It is like the weather cycle of sunshine and rain. We will certainly have more recessions. They will occur regularly.

If there is no system for long-term lending for firms to invest in expansion projects, to develop products and market them and to do all the things that firms must do to be successful and compete in the world at large, the disaster that we face now with too many successful, profitable firms being put out of business simply because the banks have run into problems and need to bring money in to rebuild their balance sheets will be repeated in the next five, six or seven years.

When the banks want to rebuild their balance sheets, they do not go to the unsuccessful firms that are about to go bust, because they would not get much money from them. They go to the more successful firms and tell them that they must cut their lending from £500,000 to £300,000 or £200,000. The banks do not say that they are doing that because they need the money, but that is the truth of it. It is appalling to do that to successful businesses and we must resolve that problem.

The banks have been too reliant on using the trick or gadget of demanding a floating charge over all the assets of a company. That is almost unique to Britain. That restricts competition and, more important, results in the banks being cavalier about lending. If one has a floating charge on a company, one lends to it and then says, "It is all right, we can just pull the plug and we will get it all in again." There is a big difference between a floating charge and a single charge over an asset.

My hon. Friend the Minister is generous, and if he were to lend me £50,000--a small sum for him--to build a new factory, he would say, "I shall lend you that money, but I should like a charge over the asset that I have helped to create by my loan to you," and I would not quibble. However, if he said--I am sure that he would not because he is an extremely progressive Minister--"I want a charge over the whole of your business, including all the assets

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