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11.56 am
Mr. Brian Cotter (Weston-super-Mare): I congratulate the hon. Member for Wolverhampton, South-West (Ms Jones) on her knowledgeable contribution to this morning's debate. She spoke clearly and raised a number of serious issues, such as late payment and business support.
I whole-heartedly welcome the opportunity today to debate innovation and the role of small firms. As the Liberal Democrat spokesman on small businesses and as a small business man of some years' standing, I have become increasingly frustrated at the often unnecessary pressures that small and medium-sized enterprises face, particularly when those pressures seriously impinge on a company's desire for growth and expansion.
I was glad to hear the Minister refer to a long-term approach. Coming from a background of manufacturing, I also welcomed her commitment in July, when she said:
It has long been a concern of mine that manufacturing has declined. Many promote the cause of financial institutions, but what is money for if not for purchasing? A great amount of purchasing is of manufactured goods.
In almost every issue that I encounter as a politician, whether it be crime, education or charity shops, to name but a few, small businesses are affected in one way or another. Yet, somewhat surprisingly, the integral importance of small businesses to our economy and the country as a whole often goes largely unrecognised--although, all of a sudden, quite a few hon. Members seemed to pop up at Prime Minister's Question Time this week, with contributions that were not all as constructive as they could have been. In the past, there has been a great concentration on big businesses and I hope that, with the new Government, we shall see a change. I certainly hope that that will extend to the media as well.
The Minister referred earlier to the fact that in this country we have not been very strong in converting new ideas and inventions into commercial success. The severe problem has been a lack of willingness on behalf of financial institutions to lend money for new ideas. Perhaps the Minister can do something to encourage more imagination among lenders. Too often, our inventions have gone abroad. Are financial institutions geared up to recognising initiative, or are they more interested in passing money from hand to hand?
In an age of unlimited communication, the customer and community are wiser than ever. Demands and priorities shift radically and subtly, and business must be able to respond. The key difference between small and large firms is their role in innovation. Small businesses often have a niche in the development of innovation because they provide a product or service that is slightly different from that provided by larger firms. That success is unarguable, as small businesses have a larger share of major innovations than their share of employment.
Innovation plays a vital role in a company's competitiveness. Profitability will slowly decrease if a company's sole objective is to keep costs down without paying attention to innovation and innovative processes. Customers will therefore be attracted to new products or services that other competitors offer. That is why this debate is so important. As with dinosaurs, so with companies: it is survival of the fittest rather than the biggest that will determine the economic winners.
As the hon. Member for Esher and Walton (Mr. Taylor) said in his constructive speech, design is vital. We all receive information on that. I agree with him and reiterate the point that an extra 1 per cent. of turnover can lead to an increase in profits of between 3 per cent. and 4 per cent. I very much welcome his contribution about engineers. Many people are concerned that engineers should have their profile raised and be much more readily accepted. I support his concern, too, about the euro and the preparedness for that. Such a large issue merits a speech on its own.
Funding problems, cash flow and available staff mean that a small firm is less likely to be heavily involved in the research process, but creativity must not be wasted. Fledgling enterprises must receive the support of a sympathetic capital framework. For Britain to remain competitive in the long term, we need active government and constructive support for enterprise and initiative that will allow British companies to compete. Most important, we must invest in skills and education. That is why the Liberal Democrats are fully committed to improving education, from nursery level to higher education. We are, as we have said, committed to that principle to the extent that we are prepared to fund it by a penny-in-the-pound income tax policy.
If we provide the young with access to understanding the role and significance of skills and training, the economic benefits will be realisable in the long run. A one-off introduction of skills and training will not suffice. The Government must provide opportunities for retraining and the updating of skills, to avoid falling foul of the fact that rapid obsolescence of skills is a principal characteristic of today's economy.
Furthermore, it is vital that we end the nonsensical competition between educational and industrial sectors for project funding and establish instead a collaborative approach to research and development. Links between industry and academics will ensure that the laboratory breakthroughs of today feed more quickly into the production line innovations of tomorrow.
I should like to take this opportunity to detail some problems that prevent small and medium-sized enterprises from taking more innovative steps. Cash flow is important to enable firms to plan for growth and product development. Two principal factors seriously hinder companies' innovative abilities. The first is business rates. The uniform business rate is indiscriminate and set without reference to the local economy. The UBR has seen strategic growth objectives replaced by a rolling, short-term agenda, which has played havoc with regional and local markets.
In August 1997, a Forum of Private Business survey found that 52.3 per cent. of businesses believed that the UBR was their principal and most frequent concern. The Liberal Democrats are committed to addressing that concern by abolishing the UBR and replacing it with a local site value rating, which would be set and raised by the local authority. That would permit the local authority to respond sensitively and, indeed, sensibly, to the business community and to account more fully for the impact of planning decisions and complex developments on the local economy.
The second factor is late payment of debt, which also cripples small firms. That is why the Liberal Democrats welcome the forthcoming legislation on the statutory right to interest on late payment. That legislation and the reform of the business rates would free up cash flow for small firms. However, much more could be done to improve the situation.
As I have already said, initiative and innovation can be found in small firms. Unfortunately, too many promising business plans, with exciting implications for local and regional markets, fail to make it off the drawing board because of a lack of starting capital. We therefore propose a series of radical measures to ensure that such creativity is not wasted. The Liberal Democrats support the
establishment of regional development agencies, which has also been proposed by the Government. We have been hammering away at that idea for years, so we welcome the Government on board. However, we shall examine the final proposals carefully for, in particular, democratic accountability. If the RDAs are to succeed, they must relate to the local community, which is the basis for the whole idea. To ensure effective small business support, the RDAs must have proper access to finance that they can use to support innovation. I urge the Minister to consider that idea carefully.
All those proposals assume that, at every stage, businesses receive the support and advice that they need to develop, innovate and prosper. For a long time, a plethora of business support groups has existed, but unfortunately duplication of work often occurs. The problem requires examination to maximise efficiency--for example, one-stop shops should be encouraged. Too much money has gone to waste. Many firms, both new and established, have never heard of their local business link. Why not? For example, the overall winner of the small business of the year competition said to me recently, when I asked her that very question, that she had not heard of business links or training and enterprise councils. Her business succeeded, but not everybody can do it alone.
It is ludicrous that most business links do not even have rolling programmes or contacts with the high street banks. I spoke recently to a group of some 20 to 30 start-up companies, which were sponsored by a bank. They had been going for some 18 months and a good half had not heard of business links. That is a worrying statistic.
Business links are also notoriously inconsistent. Some are good and some are very bad. For example, the network should be used to encourage innovation in computerisation. However, my experience with my company has been mixed. On one occasion, I asked for help with computerisation from a local counsellor at the local business link, but he did not have any suggestions to make. Yet a few weeks later I approached a computer company and was told that there was financial support through business links, and if I approached a certain gentleman there, he would give me more details. That is rather worrying.
Many business links are not overly concerned with struggling businesses, preferring to concentrate their money and their support on small firms that are already achieving, and therefore do not require so much assistance. That practice ignores the fact that many of the smallest firms are among the fastest growing, and have great innovative potential.
The Minister recently said that the intention was to extend business links down to the lowest level, and I hope that that will happen in practice. I shall be watching developments closely.
The one-stop shop should provide opportunities for business innovation. Such a body would recognise the fact that small and medium-sized enterprises face considerable difficulty in raising capital for investment, especially in securing resources to maintain their existing markets.
In addition to the measures that I have already mentioned, the following factors would ensure that SMEs could be helped to maintain their competitive edge. The
Government should work with the banks and the private sector to develop new sources of private finance. Liberal Democrats would encourage the development of grants, equity finance and mutual guarantee schemes.
"I want to see British innovators and entrepreneurs starting new businesses, particularly in high technology and manufacturing sectors."
I shall be watching that space closely.
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