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14 Apr 2003 : Column 653—continued

Brian Cotter (Weston-super-Mare): The Secretary of State has referred to investment, which is important. Does she agree that the severe problems that businesses face with increased insurance premiums take away a lot of money that could be invested, particularly in manufacturing? Many people were disappointed that the insurance premium tax was not reduced in the Budget. When will the Department for Work and Pensions report back on the vastly increased insurance premiums for business?

Ms Hewitt: We are extremely concerned about the impact on particularly smaller businesses of the very steep rises in employers liability insurance and other insurance premiums. I am sure that the hon. Gentleman will, like me, welcome the fact that, in the Budget, my right hon. Friend the Chancellor of the Exchequer froze insurance premium tax, which, in any case, can be offset against corporation tax, which we have also cut. My right hon. Friend the Secretary of State for Work and Pensions will report shortly and the Office of Fair Trading is also looking at whether there are problems specifically within the insurance market that need to be tackled from the competition point of view.

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We are supporting businesses and giving them the right incentives to increase their rate of innovation. For example, the research and development tax credit already supports businesses to the tune of £400 million a year. Now we are increasing the scope and the value of the credit, and we will consult business on how to improve its operation even further.

We are also giving businesses the right support for innovation. My Department's smart awards for prototypes and technology development help 800 companies a year. The awards help companies such as Cooke Optics in Leicester, which received a grant of £140,000 to develop the high definition film lenses that were used to make the film "Chicago", and Nanomagnetics in Bristol, which has just set a world record for computer information storage. In six months, it expects to beat that record again. It was helped by a grant of £160,000.

That is not all that we are doing to help smaller businesses get the funding that they need. At the request of business, we have extended the small firms loan guarantee scheme. We have created regional venture capital funds—£80 million of public funding that is attracting another £250 million from private investors. All that is threatened by the Conservative party and its pledge to cut public spending by 20 per cent. It would do less; we will do more.

In the United States, small business investment companies are backed by the Government, and that has helped companies such as Apple Computers, Compaq, the Intel Corporation and AOL to move from being start-ups to world beaters. We want our smaller businesses to have the same opportunities, so we shall look at the scope for similar support in Britain.

Alistair Burt (North-East Bedfordshire): The right hon. Lady is projecting herself as the champion of small businesses. Why did she reject the recommendations in the Federation of Small Businesses' Budget submission to rescind the increases to national insurance contributions and for a full review of the climate change levy? Does she not understand the damage that both those measures are doing to small businesses?

Ms Hewitt: We have responded to representations from the small business community by cutting corporation tax for small businesses. I am sure that the hon. Gentleman is aware that the contributions required from small and large businesses in France, Germany and the United States to fund health coverage and health services for their workers are far higher than those that result from the 1 per cent. increase that we have introduced to fund the necessary investment to create a world-class national health service, which has been welcomed throughout the country.

Mr. Bob Blizzard (Waveney): I welcome the measures in the Budget to support small businesses. Lowestoft, in my constituency, also benefits from the fact that my right hon. Friend's Department designated it as a zone with assisted area status. However, the threshold for a business to apply for such assistance at level 2 is £500,000, which is rather a large investment to be required of small businesses in my constituency. Will she examine whether the threshold could be made more flexible?

Ms Hewitt: Of course we shall examine that. I am sure that my hon. Friend will welcome the fact that the

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provisions in the Budget make it easier for small companies to apply for enhanced capital allowances and have extended the help that they may receive in enterprise areas.

Our constituents depend on small and medium-sized businesses for their prosperity. Such businesses create half our country's wealth. They employ some 12 million people and produce nine out of 10 of the new business ideas on which our future prosperity will depend. We need more such small firms.

Dr. Ian Gibson (Norwich, North): Will my right hon. Friend acknowledge the enterprise shown by the Chancellor of the Exchequer in developing a partnership between the Massachusetts Institute of Technology and Cambridge university? Indeed, MIT graduates have created 4,000 firms and about $5 billion of capital. Surely we need to develop such joined-up partnerships through which we can learn from each other.

Ms Hewitt: My hon. Friend is absolutely right. The partnership between MIT and Cambridge university will not only benefit Cambridge and the east of England; it is already benefiting entrepreneurs throughout the country by showing them the huge advantages of spin-outs from universities and tie-ups with new technology.

Mr. Barry Sheerman (Huddersfield): I hate to intervene straight after my hon. Friend the Chairman of the Select Committee on Science and Technology, but does my right hon. Friend agree that small businesses value participation with their local universities? It is all very well for Cambridge and Oxford universities and Imperial college to have even greater research capacity, but many smaller universities need the ability to transfer technology to work with small companies.

Ms Hewitt: My hon. Friend is absolutely right, which is why my right hon. Friend the Secretary of State for Education and Skills and I put forward a strategy in the White Paper on higher education this year and the White Paper on innovation last year to ensure that every university in our country, whether or not it is engaged in world-class research, will have a role to support businesses in its regions and communities. The additional money that we are giving to the higher education innovation fund will enhance that important knowledge-transfer role. We need more such small firms, whether they are spin-outs from universities or directly created by entrepreneurs. Business leaders have welcomed the measures in the Budget to promote entrepreneurship.

Mr. Roger Williams (Brecon and Radnorshire): Many small businesses are owned by sole traders or small partnerships, so any reduction in corporation tax passes them by. The major hurdle is often employing the first person because of all the administration that goes with running the pay-as-you-earn system. Could the Government do something to subsidise or help people who take the first step toward expansion?

Ms Hewitt: The hon. Gentleman makes an important point. That is why we have simplified the process of taking on employees and why we are implementing the reforms recommended by Patrick Carter to simplify payroll administration. That is why the Small Business Service has just published a one-stop guide for

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entrepreneurs that covers employment issues. The simplification of the national insurance system that we introduced several years ago—something that the Conservative party never did when it was in government—has been a particular help to such small businesses.

Business leaders have welcomed the Budget's measures to promote entrepreneurship, such as extending enhanced capital allowances to more small firms, simplifying value added tax—200,000 more small firms will benefit from the simple flat-rate VAT scheme—and increasing the small and medium-sized enterprises thresholds in the Companies Acts to the maximum allowed by the European Union.

However, we need local and regional action in addition to national action. We cannot raise the business birth rate in the north-east, which is only half that of the south-east, by taking decisions in London. As the Budget recognises, the real experts on the strengths and needs of a city or region are those who live, work and run businesses there. Our regional development agencies, with strong business and trade union leadership, are now delivering on their regional economic strategies. Of course, Conservative Members would abolish the RDAs, which would once again centralise decisions here in Whitehall. They should look at the successes of the RDAs, such as the technology corridors in the west midlands that are linking the university and science base with businesses and attracting new entrepreneurs. The science partnership in the north-west is helping to create new biotechnology and advanced manufacturing businesses.

Mr. Mike Hall (Weaver Vale): My right hon. Friend has drawn attention to the work of the RDAs. May I draw her attention—although I do not need to because she already knows about it—to the Daresbury science park, which will exploit the science that will come from the fourth generation light source? I congratulate her on her decision to site that at the Daresbury laboratory in my constituency because it is a wonderful example of the north-west coming together with a fantastic idea on which universities can build with the economic community in the north-west.

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