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5.53 pm

Mr. John Battle (Leeds, West): I, too, welcome the debate, especially the words in the amendment that acknowledge the crucial role of small businesses. The Secretary of State amplified that in her comments. The amendment also contains the phrase:

I want to explore that access to finance in the context of what my right hon. Friend said about start-up rates in poorer neighbourhoods and the need to increase small business activity among women and ethnic minorities, and in communities that still have high unemployment.

Perhaps it will help if I say a little about the small business characteristics of my constituency. My approach is not to focus on the macro-figures, but to see how the micro-economy matches up to those macro-figures. I want to look at recent Government initiatives, such as community interest companies, and explore new ideas for supporting small businesses which could radically decentralise the provision of services and goods and start to build a local, sustainable economy, even in inner-city neighbourhoods.

To give the House a snapshot of my constituency, I can describe it as a series of tightly knit urban villages. Armley, Wortley, Bramley, Stanningley, Farnley, Burley and Kirkstall see themselves not as Leeds, but as having their own identities. My constituency forms a wedge, like a pizza slice, from the business area of the city centre out to the south-west. The problem is that the people who live in that wedge have always had problems getting into Leeds because it is south of the River Aire, the canal and the railway, and there are only three points at which one can cross the canal and the river. We have what the planners now call geophysical barriers.

In practice, my constituency has been cut off from the city centre and, as a result, in the 20th century it developed as a semi-autonomous region within the city. It was characterised by small family businesses, mostly with fewer than 20 people, engaged, in particular, in engineering, printing, textiles and distribution. Those firms were located on industrial sites with street fronts clustered around those urban villages, so local people grew up and went to work in a family firm nearby.

Some of those firms are still with us. They include Pennine Castings, Browns of Bramley, which is a fourth-generation suit-making firm, and Aagard Hanley's, a quality plastering business. F.J. Rogers, which makes organ pipes and sells them worldwide, has been there since 1897. There are new small businesses in the new technologies, such as Northern Instruments, which makes industrial thermometers, and MEI, a medical industrial engineering company, and there are new restaurants, including the brilliant, award-winning organic Millrace. By and large, however, there has not been a small business renaissance in the neighbourhood.

As a result, the challenge that we face is that, although the Leeds economy as a whole has been renewed and reinvigorated, and companies that work in the new technologies and the finance and service sectors have replaced larger, traditional manufacturing companies, there has not been a great expansion in local, family businesses in Leeds, West in the last 10 years. That

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means that there is now higher than average unemployment. More important, however, is the lack of aspiration and the loss of the skills involved in setting up a small business that used to be passed on through the family.

The challenge is to revive that tradition, to reignite the entrepreneurial spark to rebuild our economy locally, rather than to hope for salvation from one major investment in central Leeds. As the detailed ongoing surveys in the "Life in Leeds" features in the Yorkshire Evening Post have illustrated, we cannot all easily travel into the centre of Leeds and cash in on the booming sector of the economy. In addition, call centres in Leeds will not provide high levels of employment for ever. The voice recognition chip will displace many call centre jobs in the next 10 years.

What can we do to develop the momentum behind a vibrant local economy and build economies in those urban villages from the ground up? Can we revive the tradition of the small family business? We have resources, and we spend and invest money, but as the New Economics Foundation has argued, we suffer leakages of our money because it goes elsewhere—it is spent and invested outside our neighbourhood. The foundation's paper "Ghost Town Britain: The threat from economic globalisation to livelihoods, liberty and local economic freedom" argued that we are in danger if local economies decline, reducing our neighbourhoods to ghost towns. I therefore welcome the Government's consultation paper, which was published in March and invited responses to proposals on community interest companies by the middle of June. In a remarkable piece of integrated government, the Secretary of State for Trade and Industry, the Home Secretary and the Chancellor launched the paper, which was entitled "Enterprise for Communities: Proposals for a Community Interest Company." It builds on both the DTI's work on social enterprise and work in the Prime Minister's strategy unit on private action and public benefit, and floats the idea of a new type of company, which I should like to explore.

The document suggests that community interest companies should be set up to pursue local economic objectives, regenerate poorer areas, empower local communities and introduce innovative local services. Not only are community interest companies a means for raising capital for the public good locally but their assets such as building and land are dedicated to that good. It is suggested that those new companies could invest in community transport, fair trade, child care provision, leisure and social housing. They could make the delivery of local services more dynamic and focused on the needs of local communities and provide new opportunities for new forms of partnership, both public and private.

We need new social enterprises. The Government have set up the Phoenix fund, and there are community development finance institutions and community investment tax relief, but they need to be pulled together under a local neighbourhood banner if there is to be any sustained local economic development. We should develop local economic communities, clustered around a few streets in those small urban villages. Perhaps community investment companies could provide that overarching umbrella. They could pull initiatives together and form a new framework for new positive

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partnerships with local government. They could experiment by building up capacity and developing sustainable businesses at the local level.

May I make a few suggestions? We should take a radical look at local service provision, including care of the elderly, the sick and children in our neighbourhoods. Why should meals on wheels, cooked centrally and chill-frozen, be brought into our neighbourhood from somewhere miles away? Could we not use the cooking skills of someone in our own street to provide those meals and save transport costs? Can we not provide more local child care and after-school care, perhaps in a neighbour's home? We could provide proper training and pay people to do work in the neighbourhood that they live in, thus radically decentralising statutory provision. Similarly, we could look at recycling projects and the management of waste facilities.

We could do much more locally and look, for example, at local shared transport schemes in the neighbourhood. Why can we not get the steel shutters off boarded-up shops and reintroduce new locally owned community shops, such as health food and healthy living shops, providing goods and services for the local community on the doorstep? We should look again at security and insurance. Instead of every household taking out individual insurance, why not develop community insurance schemes, which would not only reduce premiums and organise the collection of pooled payments but release capital for local investment in neighbourhood safety and care schemes? We could even invest in local broadband schemes as a new security tool. We should look at radically reshaping investment and fund local services to meet local needs. We should pull together assets and resources so that they are focused much more on the locality. Community interest companies could be used as a catalyst for that.

In conclusion, I urge the Department to consider how those ideas can be translated into practice. It could set up a unit, and consider in detail the way in which pilot schemes could pull such initiatives together. My constituency offers fertile soil for small business development, of which we should take advantage. "Enterprise for Communities" states:

I agree, but we need integrated action to try that out in practice. It can be done, but we need to demonstrate that.

6.4 pm

Mr. Archie Norman (Tunbridge Wells): It is a great pleasure to follow the hon. Member for Leeds, West (Mr. Battle) not only because he made a thoughtful and constructive speech, but because he referred to an area south of the River Aire in Leeds to which I hope I made some minor contribution, though perhaps not in a small business capacity.

I draw the attention of the House to my entry in the Register of Members' Interests, which does not relate directly to small businesses, but which is relevant, none the less.

The Secretary of State made a glossily optimistic speech. I understand why she did so and why she wants to portray the state of small business in an optimistic

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light, but it was totally unreflective of the opinion of small business organisations, such as the Federation of Small Businesses, and of the Institute of Directors. If small business people read her speech, the effect will be to emphasise the gulf that exists between the political and Government world and the business world. It is a gulf of culture and understanding, which is becoming increasingly serious.

I shall concentrate my remarks on regulation, an issue that is misunderstood by Governments of both complexions. It is viewed as an issue of individual regulations, the deregulation taskforce and so on, but the problem is much more profound. It is a chronic problem, owing to the nature of government in this country—the fact that we have a Government who systemically add to the regulatory burden, because of the nature of our political system. Few Ministers get promoted for other than adding to the statute book. It is not glamorous to withdraw legislation or introduce light-touch legislation. It is glamorous to appease some lobby group and bring in new regulations. Also, we have the additional burden of European regulation, which is introduced and enforced, often against the wishes of Governments and parties of any complexion, in a form that lacks proper regulatory scrutiny in the House.

Regulation is a chronic problem that requires systemic solutions, and unless we address ourselves to that, nothing much will happen. The difficulty has affected successive Governments, as my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning) was quoted as acknowledging. The regulatory burden grew under the last Conservative Government as well, but it has accelerated dramatically under the Labour Government. Under all Governments over the past 10 years, we have spoken of deregulation, better regulation taskforces and the deregulation taskforce, on which I served, but all those measures are like standing in the way of an avalanche armed with a toothpick.

It is no good trying to find a bit of regulation that one can liberalise or remove from the statute book. That will not help, because the volume of incremental regulation far outweighs anything that can be removed, and what is removed tends to be innocuous detail, whereas what is imposed is substantive and cost-additive. It is worth bearing in mind the quantum of what has happened over the past five years. I am not making a partisan point; there is a serious problem affecting our competitiveness.

In the recent IOD survey, 84 per cent. of small businesses stated that the payroll burden on them had increased significantly, and 93 per cent. said that the burden of employment law had increased significantly in the past five years. There have been 19,332 new regulations in the past five years. Whether that figure is exactly right I do not know, but the number has been substantial. The estimated cost, according to a firm of lawyers, Penninsula, is £21 billion over the course of five or six years. However one estimates it, the cost is considerable. In the past five years the rate of introduction of new regulation on business has been 53 per cent. up on the previous five years, which is substantial. The impact on business is progressive and cumulative. The effect is to reduce the gene pool of new start-ups and small businesses. That is not in anyone's interest. The 2002 figures for the small business

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population are not available, but the DTI statistics for 1995 to 2001 show that the population of businesses in this country was stagnant at about 3.7 million. That means that there was also no increase in our capacity to generate innovation and growth. The one thing that we know about 2002 is that there has been a significant acceleration in the mortality rate of small businesses, as some 16,000 went out of business—the highest level since 1994. That is partly due to the general economy, but it is also due to the impact of regulation.

We also know that the fastest growing part of the economy today is the public sector and public sector expenditure. What does the Minister think is the impact of public sector investment on the small business community? Public sector procurement is very small business-unfriendly. The amount of red tape, including all the ISO 9000s and other qualifications that businesses have to complete to supply to the public sector, is a major deterrent. Typically, the public sector is very risk-averse in its procurement. As a result, it tends to reinforce the competitive power of big business, not small business. The DTI could do a great deal to improve that situation.

The hon. Member for Leeds, West also referred to call centres. I was looking the other day at the statistics on call centre competitiveness worldwide. We now have among the most expensive call centres in the world. We may think that that is based on a comparison with India; indeed, our costs are three times those in India. However, this country now operates call centres at a higher cost than the United States and Canada. That is substantially because they are employment-intensive services. This country has imposed employment costs and rigidity on a peaking and troughing type of business. As a result, we are now completely uncompetitive. The consequence relates not only to cost. It is important to recognise, although we now have regulatory impact assessments and so on, that the consequence of regulation for business is profound, as it affects the culture of entrepreneurship, the attitude to innovation and the pace of change. It is in that regard that the competitive damage is especially serious.

Of course, we think that each regulation is individually warranted and defensible. The Secretary of State referred to family-friendly working practices, which are difficult to argue against and which most business people favour. However, the cumulative impact is to make our businesses more sclerotic. Although I favour family-friendly working practices and can see that there is a strong case for them, I point out that that is not what they are doing in South Korea. The consequence is that, in each instance, we must ask ourselves how we will compare with the new overseas competition and what the regulation will do to future profitability, investment and employment. That is what will determine whether people have rewarding careers and jobs. It is a question of whether we are competitive, not what legislation we have.

The first thing to recognise about regulation is that it almost invariably reinforces economies of scale. Big business can afford whatever regulation is imposed. When I was running Asda, we reckoned that, to introduce a new Asda brand own-label product on the shelves, we had to go through 17 different items of legislation. I had a department to do that work, but a

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small shopkeeper or someone with a little chain of shops would not have had a prayer in respect of the administrative, legal and other support required. The net result is that we could introduce own-label products at a lower price for our customers, but the small retailer could not.

That is an illustration of how all regulation, however well meaning, and including food labelling and so on, will reinforce the role of the established larger company and limit the capacity of the little guy to compete. The same is true in relation to health and safety, fire and building regulations, on which companies can employ any number of experts, whereas the little business would have to employ some expensive lawyer from outside and simply cannot afford to do so.

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