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Mr. Geraint Davies: In relation to the minimising of burdens, the hon. Gentleman assured me earlier that he would be brief. So far, he has spoken for more than 40 minutes, so, in respect of burdens, perhaps he would like to bring his comments to a close before we fall asleep.
Mr. Bercow: I thank the hon. Gentleman for his intervention. First, I did not say anything of the sort to him. It is characteristic of new Labour to twist and turn and misrepresent in every conceivable fashion. Secondly, although I have the highest regard for the hon. Gentleman, I was not aware that he had yet reached the lofty height of either Speaker or Deputy Speaker. If he will forgive me, I shall take my cue from the Deputy Speaker in the Chair. I am not inclined to be guided by the hon. Gentleman's benevolent counsel about the length or content of my speech.
I am concerned about reducing regulations on businesses. The Government are lacerating small businesses. I and my right hon. and hon. Friends want to liberate small businesses. My ten-minute Bill on 27 April this year was a small step in a positive direction at an opportune time. The Government should have supported it. They should not be dithering. They should be introducing their own practical and detailed proposals.
Are the Government blissfully unaware of the sheer scale of the anger of British businesses about the imposts upon them? Do they not know that, on 3 November last year, the president of the Confederation of British Industry, Sir Clive Thompson, described the regulation flowing forth from the Government as a "creeping paralysis", and that he went on to say that, unless action was taken to arrest and reverse the phenomenon, regulation would be the only growth marker in the British economy in 1999?
Is the hon. Member for Croydon, Central (Mr. Davies) proud of the fact that the president of the CBI so strongly disapproves of the anti-business, anti-enterprise and anti-profit-making culture that is being spawned by a combination of errors of commission and omission by the Government? If he is proud of it, let him defend that stance in front of his electors.
Mr. Geraint Davies (Croydon, Central):
I thank the hon. Member for Buckingham (Mr. Bercow) for completing his comments within 45 minutes. He seemed to speak not so much about business as about regulation and deregulation. I shall deal with some of those points.
My background is in multinational business; I then started a number of businesses myself. I mention that in response to some of the Opposition comments about Labour Members not having a business background.
I shall not spend a great deal of time speaking about the general economic environmental benefits that have allowed enormous growth in small and medium-sized enterprises in the British economy since the present Government took power. Hon. Members are aware of the extra 400,000 jobs, the lowest inflation in six or seven years, the lowest long-term interest rates in 40 years and the low short-term interest rates, all of which have come about under this Government. The overall environment of stability and job creation has been extremely successful.
Enterprise is in the mind of the entrepreneur. The Government have taken numerous structural and fiscal steps to encourage entrepreneurial activity in small business. When people leave school or university, they should not ask, "Who will give me a job?" They should be thinking actively about how they might become involved in creating new jobs, products and opportunities, rather than walking into a job. We have not quite cracked that problem, but the Government are moving quickly towards resolving it.
The attitude towards risk in Britain is not as ambitious as in the United States. There, on average, every millionaire has gone bankrupt three times. The Government are rightly encouraging responsible risk-taking, which is what we need. However, people are still reluctant to move from a cushy environment to one in which they are taking risks and creating wealth.
The financial situation for small businesses in Britain has historically been difficult, because they have tended to rely on high street banks, which want the collateral of the business man's house, and pull the rug if anything goes wrong. The banks will not consider orders to be guarantees of future cash flow income and have often forced small businesses into bankruptcy on that basis. That is not the situation in continental Europe, where banks often take equity in small businesses.
Fortunately, the Government have been responding to that agenda by trying to establish and encourage venture capital funds, but the difficulty is that venture capital in Britain tends to be focused on big re-engineering--management buy-outs and the like--and not on small business start-ups, which are seen as irrelevant to getting the big bucks. We need to confront the issue of making that culture change, especially if we are to avoid competition from the United States for venture capital opportunities in the single market.
Mr. Butterfill:
I must declare an interest. For many years, I have been an adviser to the British Venture Capital Association. The hon. Gentleman is not exactly
Mr. Davies:
My point is that the share of cash invested is biased enormously to the larger transactions and the re-engineering of big corporations. There is a great difference between the situation here and that in the United States. The expertise that has been built up in the venture capital industry to enable start-ups is not as developed as that in the United States, although it is growing and the Government are increasing it. We want that expertise to be targeted regionally on the strategies emerging from the regional development agencies.
It is important that the Government consider getting rid of regulations as well as introducing them, and my right hon. Friend the Secretary of State rightly made a big play of that in his speech to British Chambers of Commerce. In a sense, regulation is a poll tax on all businesses. Although big businesses such as Asda, which has been mentioned in many of our debates, have been progressive in introducing regulation, which is all well and good for them, the administrative burden is small compared with that for a small operator.
We should all bear that point in mind, because big retail and manufacturing operators often want to get rid of small competitors. One way to do that is to encourage more regulation. Although that sounds peculiar, it is the case.
Mr. Bercow:
Will the hon. Gentleman give way?
Mr. Davies:
I will take a brief intervention, even though the hon. Gentleman gave us a 45-minute monologue.
Mr. Bercow:
The hon. Gentleman should be grateful that the substance of his speech is such that it has inspired an intervention from me. I am listening to him intently. I have two points to make. First, will he confirm that he accepts the calculation that the smallest firms--those employing one to four people for the purposes of compliance with tax legislation--face an annual cost of £288 per employee, whereas the largest firms, with 5,000 or more employees, face a cost per head of onlyabout £5?
Secondly, can the hon. Gentleman clear up a smidgen of confusion resulting from the Minister of State's contribution? Given that the Secretary of State said in his speech to British Chambers of Commerce on 3 June that he intended to make three significant statements on deregulation in June, and that that speech was the first of the three, what were the other two? Have we had them yet, did we miss them or have we a treat awaiting us next week?
Mr. Davies:
I must confess that, unfortunately, the Secretary of State has not disclosed his particular intention to me. I am not in a position to answer that question, as the hon. Gentleman may have guessed.
Mr. Wills:
Perhaps I can give the House two other examples. First, we have launched a consultation
Mr. Davies:
The Small Business Service, which we are all about to enjoy, is of paramount importance in focusing the eyes of civil servants and others on the needs of small business in terms of the overhead of regulation. I do not want to take too much time because I have criticised the hon. Member for Buckingham for taking a great deal of time, but I want to cite as an example of regulation what happened when I started a tour operating company.
In VAT law, there is something called the tour operators' margin scheme. The tour operator would receive some money from people who were going on holiday. After deducting the cost of flights to leave the gross margin, one would pay VAT on that part of the gross margin associated with accommodation. That was fine. Then, suddenly, it was decided that a company must pay VAT on both the accommodation and the flight element of the gross margin unless it owned an airline. That was unfair to small businesses without an airline. Small business responded to that effect. The advice from Customs and Excise was, "In that case, start up your own airline company."
So, I then had to start another company--an aviation company--which simply bought from the people from whom I was buying flights in the first place. The new company sold to the original one with a margin, then paid back a management fee to equalise the impact on VAT. The costs of that process, and the fact that entrepreneurial and management time is being diverted into that, are ridiculous.
That is a simple example of structures that can come from Europe, or from the Government--that change took place under the previous Government--which can have a very difficult impact on small businesses that are competing internationally against very large operators. Such problems are now well known to Government, which is why the issue has risen to the top of the agenda--hence the statement made by the Secretary of State to British Chambers of Commerce.
Inward investment, which tends to be from larger companies, has a direct spin-off effect on small and medium-sized enterprises servicing them. Recently, I attended a meeting of Japanese industrialists and financiers in Britain. They discussed the prospects for future investment and the fact that, increasingly, they were looking for added value in Britain rather than mechanical assembly work. That emphasises the need, of which the Government are aware, for our focus on education, education, education, to be about adding value to the things that we do in this economy and generating decent wages in a competitive way. We are not competing on a very low skill basis with the developing world, which would be in no one's interests.
Europe and the euro have been alluded to. As is known, the Government's position is that we should move forward as and when the conditions are right for Britain to enter. That is an important point, because although
Japanese investors are happy to invest in Britain as a platform into continental Europe, if they thought that we would never join the single currency--which is the view of some people--they would simply move their investment into continental Europe. In the meantime, those people who feel more risk averse about our eventual intentions are hedging their bets, and some of their production is going over to the euro.
A similar process is evident in the financial markets. Institutions such as the Industrial Bank of Japan must decide where to site their administration--Frankfurt, Paris or London. We need to think about that in the context of innovation and enterprise, which cannot simply be about small business. We are talking about enterprise and innovation in large business, and the relationship between large and small business. Investors are attracted by the English language, access to the European markets, and the more flexible and less-regulated market in Britain. To be competitive, we need to preserve that.
Training and added value are key issues. The difficulty for any company in the business culture in the United Kingdom and the United States, which is different from that in Japan, is that people do not stay all their working lives in one company, so it cannot freely invest enormous amounts of money in human capital and productivity in the knowledge that people will stay for life and it will not lose that investment. In Britain, companies invest in management and productivity, but people then go to another company. There is a danger of poaching, which is a disincentive for companies to invest in higher productivity.
We must devise strategies for transferring the training risk. We have already begun to create links between universities and industry so that the risk is shared. More productive people will emerge from that, which will be good for the economy and the Exchequer, and will create additional jobs. That is to be welcomed. I was involved with the university for industry in its infancy, and it is good that the Government have such high ambitions for the success of that idea.
Hon. Members have not mentioned the internet as a means of generating more prosperity for small business. Small businesses, by their very nature, tend to trade in a small area, not internationally. The internet offers a new opportunity for small businesses in Britain to find market niches anywhere in the world. The single currency will make that easier. We have sterling, but there is a single currency in Europe, so there is no need to have many transactions.
Complementary products and compatible markets can be found on the internet. That will enable small businesses to grow. There are new opportunities to generate products by sourcing products from foreign markets. There is an argument for import substitution. People buy products that are exported to Britain and are not produced in this country. Why are they not produced in Britain? Could they be produced here? Do the Government have a role to play in helping to facilitate the production of competitive products? Perhaps the regional development agencies could be involved. I should be interested in the Minister's thoughts on that.
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