Examination of Witnesses (Questions 600
- 619)
WEDNESDAY 28 APRIL 2004
FSB
Q600 Chairman: It is an administrative
burden, you say?
Mr Jones: Yes, absolutely.
Q601 Mr Williams: I was going to
ask you about that, but I took it to be working family tax credits
and child tax credits.
Mr Jones: Yes, that is right.
Q602 Mr Williams: Can you just give
us some sort of indication of what burden that puts on your own
business?
Mr Jones: Until recently we have
about 65 employees. We have had some radical growth. We have got
120 now this year, but that is a different story. It probably
means an extra person to administrate that, not alone but there
are some other things that have come on top of that that we are
all aware of as well that have affected payroll departments and
HR departments.
Q603 Mr Williams: Do you have to
make the payments and then reclaim them?
Mr Jones: No, we are instructed
on the level of the sort of tax credit an individual should receive
and we just adjust their pay for that, so I guess we pay a net
amount to the Revenue.
Q604 Mr Williams: On the matter of
regulation and gold-plating, perhaps you could give us an example
of a gold-plated regulation as it affects your business?
Mr Jones: Yes, okay. I will give
you an example that might come in the future. I will not give
you a personal view on whether that might happen or not, but it
might happen. This is the 48 hour working week. From my own business'
perspective, we are going through a period of heavy growth and
it will be sustained growth. We will be at this level until at
least the autumn and we have been on this curve since the start
of the year. We have won two large projects which will more than
double our turnover and that is great. What it means is because
it will last, let us say, for eight or nine months only we do
not want to take too many additional people on to manage the project
and get it implemented and so on, so we are using the skills we
have got. There is another restricting factor there as well in
that some of the skills we want are very hard to come by, particularly
in technical areas. Design engineers, CAD engineers and technicians
and engineers per se. So we need our people to work more
than 48 hours a week. Now, I know the legislation may be over
a sustained period of 13 weeks or so on, but this might be for
longer than 13 weeks. What this could mean to us, to give you
a couple of examples of that, if someone is halfway through implementing
a process which needs to be up and running by Monday and this
is a Sunday they would have to down tools and go home. Now, I
do not need to explain the economic impact that would have on
our business and also on our customers' business clearly. That
does not make a lot of sense to me. Clearly we have an opt out
now and individuals are entitled to stick with the 48 hour week
right now. I really do not see any need to strengthen that and
the impact it will have on business I think would be quite damaging.
Mr Williams: Thank you.
Q605 Julie Morgan: This is a general
question really to all of you. Some of the regulations the Government
has brought in have been particularly aimed at helping parents
with children and in particular the right to request changed hours
after having had a child, and I think there is a statutory duty
on you to at least consider it, is there not?
Mr Jones: That is right, yes.
Q606 Julie Morgan: I wondered how
you considered that sort of regulation and whether you thought
that was burdensome or whether that was something you felt you
were able to respond to more positively?
Mr Jones: Certainly we respond
to it positively. As a parent myself, it is welcome and we have
to certainly look at the mix between a sort of work/life balance.
To use an old phrase, we call it looking after our people. We
do many things which are not a legal requirement in terms of looking
after our people and I am sure the majority of businesses do this.
It is useful to have legislation, of course, to fall back on but
any good company will certainly look after its people anyway.
I often go beyond the legal requirements for sick pay and other
social issues.
Q607 Julie Morgan: So you would say
that you welcome that type of legislation?
Mr Jones: I would personally and
may be one of the other guys can take the policy view.
Ms Sommer: Could I just add something
to that. Just keep in mind that the majority of our members in
the FSB are self-employed or micro-businesses, so they may be
working with three or four people. They know these people extremely
well, they know their families partially. They are accommodating
their needs anyway because otherwise they could not function.
I think it is not a question of welcoming legislation, I think
it is not necessary to actually have it because they are doing
it anyway. They have to, otherwise they cannot run a small company
like that. In Steve's case they have over 100 employees, it becomes
more formalised and he has not got direct contact on a daily basis
with every employee, but if you look at micro-businesses—and
that is the majority of our members—they do have that contact
and they make this accommodation. They know in advance already
what is happening.
Mr Jones: If I can answer that,
I think legislation that acts as a cover-all can be quite damaging
if it does not distinguish between cases such as this and cases
where an organisation has perhaps 3,000 employees but, let us
say, it does not treat them so well. I can see the need and I
can understand that, but I can also understand the view of the
two or three person company as well.
Q608 Julie Morgan: The feedback from
the Government on the first year of operation was very positive,
so I was hoping that was reflected as well from the small businesses.
Mr Jones: Yes. I must also maybe
question how much it has been implemented. I am not sure. At the
moment it is just the fact that with that particular piece of
legislation the employer has to consider the case.
Q609 Julie Morgan: I think there
are statistics after the first year and I think 70% of requests
were granted by the businesses, which perhaps reflects a bit what
you say, that very small businesses were aware that it was coming,
that someone was going to make this sort of request beforehand.
Mr Jones: Yes, of course.
Mr Davenport: One of the things
I would like to add on that is that if one of my employees had
come to me and said, "I want to invoke the regulation,"
then as a manager and an owner of the company I would consider
myself to have failed because I am not listening to that person.
I do not think, from a personal point of view, that I need to
have legislation to see what is a good thing for my employees.
When you have that legislation people tend to hide behind it a
little bit but what I do is to ask, if they come to me and say,
"I want this, that or the other." It has been done that
way for a long, long time, well before the legislation came in.
Whether I am an odd employer, I do not know, or an over-generous
employer—I probably am—but it is just common decency
to another human being. If I can accommodate him I would as a
natural part of business.
Q610 Julie Morgan: That is very good
to hear, but I think this just sort of sets it all out.
Mr Davenport: I think the larger
the company the more prescribed it gets and that is when it becomes
a problem. I think that is where the legislation, if there needed
to be any legislation, needs to be addressed, not to the very
small company, because you are dealing eyeball to eyeball with
these people all day, every day. In Steve's case, it is a much
larger company than mine but even so he probably knows 90% of
your employees intimately.
Mr Jones: Yes.
Q611 Chairman: Surely the issue is
not so much that you are having to do it but it is whether other
companies who are competing with you are doing the same?
Mr Davenport: I think you get
a better performance from the individual if you do do it.
Q612 Chairman: I agree, but that
is not the issue we are talking about. The issue surely, as mentioned
by Mr Jones, is whether we in this country are gold-plating our
regulations—and I think we are talking about EU regulations
essentially—and whether the other countries within the European
Union are in fact just treating them as guidelines, which I have
heard quite a lot.
Mr Jones: Yes. It kind of expands
outside the EU as well. Certainly from a legislative prospective
that is really what I was referring to. But outside of that we
are competing against, for example, China.
Q613 Chairman: Surely you are not
suggesting we go down to the level at which the Chinese treat
their workforce?
Mr Jones: No, of course not, but
perhaps there are other ways of creating a level playing field
without using their health and safety record, for example.
Chairman: All right. I think we have
covered that one fairly well.
Q614 Mr Caton: Moving back to something
we have touched on, which is the influence of larger industries
in Wales, in your written submission you say: "High profile
problems facing multinationals such as Panasonic and Corus highlight
the plight of the sector overall but do little to promote the
cause of the smaller scale manufacturers who may also face other
economic problems but do not have the capacity to `ride out the
storm'." Do you think there is too much emphasis on the biggest
companies in Wales?
Mr Cottam: Certainly, yes. I think
one of your witnesses in a previous session referred to it as
a "smoke-stack approach". I think that still remains.
We obviously in Wales have an industry which has been borne out
of heavy industry, coal and steel, then latterly even more recently
larger scale operations in the electronics sector. It is possibly
in the hope of a rejuvenation of greater degrees of inward investment,
but I do think that the mindset in the approach to the manufacturing
sector does tend to be geared towards the larger operations. What
we are saying is not so much that that should no longer be the
case but I think you have to have a cross-sector approach to policy
making and support for the manufacturing sector, recognising the
part of the small business sector and bearing in mind of course
that the vast majority of all businesses in Wales are designated
as small businesses. I think what we are saying is that we do
not necessarily feel that the role of small businesses, especially
in the manufacturing sector, is necessarily well reflected when
it comes to generating support and legislation for the sector.
We are not advocating that this is going to change overnight.
We are coming out of sort of very, very dark days of the last
thirty years and we do not think, as I say, that that will change
overnight but it is one thing that we hope will come out of the
report, the need for small businesses to be included more in the
mindset of manufacturing.
Q615 Mr Caton: Of course, as Mr Davenport
indicated earlier when he gave the example of Corus, there is
a relationship between larger companies and smaller companies
often. How reliant are small and medium sized enterprises on the
health and profitability of large companies and multinationals
in Wales?
Mr Cottam: I think very, very
reliant. Obviously we cite Clive's example, but we certainly would
never advocate that the smaller end of the manufacturing sector
could exist without the support of larger operations. Larger operations,
quite apart from anything else, do have the capacity to undertake
large scale research and development, which benefits the sector
as a whole. So we are certainly not advocating the sort of isolation
of either sector; they have to operate as a whole, if you like.
Certainly on smaller businesses we have got statistics recently
from our Barriers to Growth survey, which has just been published,
which shows that 30% of manufacturers in Wales have over 50% of
their sales to other manufacturers. Within that one has to assume
that the significant proportion of those sales will be to larger
operations supplying to make the finished product, if you like.
Q616 Mr Caton: So you find that large
manufacturers are sourcing locally, if you like, certainly from
within Wales, generally?
Mr Cottam: There is certainly
a problem with procurement. Again, that comes up against issues
of cost, if you like, but there is a certain reliance of smaller
manufacturers obviously on larger manufacturers and were you to
pull out the larger manufacturing sector obviously the smaller
manufacturers would be left floundering, so it has to operate
as a whole. But in terms of the mindset that we mentioned earlier,
that has to translate up to the legislation making process and
support for the manufacturing sector as a whole. Some members
have argued that some of the support that is available is geared
towards larger manufacturers, such as RSA, and that there are
prescriptions on support lower down the scale which makes it very
difficult to acquire. But we need to develop a mindset which addresses
the whole sector.
Q617 Mr Caton: Do you think this
relationship between smaller enterprises in Wales and larger manufacturers
is reflected across the whole of the UK or do you think there
are some differences in the Welsh situation as compared with the
rest of the UK?
Mr Davenport: I think it is probably
more concentrated in Wales because of the nature of the physical
structure of the country. An awful lot of business is carried
out in the valleys and it is fairly close to large manufacturing
bases, so the natural instinct of any small enterprise (because
it cannot afford to go out and have marketing people and so on,
it has not got the funding to do that) is to look to larger manufacturing
or larger sectors of manufacturing to sustain itself. One of the
added advantages of that is that larger businesses like to use
local small sector people because they can respond more quickly.
Larger businesses further away cannot respond as quickly and that
is where they score, providing a service in an efficient manner.
But as large businesses move away from Wales then we do tend to
get a problem rippling down, as I said.
Mr Caton: Thank you very much.
Q618 Albert Owen: If I could move
to overseas trade and in particular the reference you made to
your 2002 report, Lifting the Barriers to Growth, whereby only
21% of respondents had customers located in the rest of the European
Union and only 13% in North America. Do you think these figures
represent a problem in capacity or are there artificial barriers
which prevent your members from exporting?
Mr Jones: I do not think it is
a capacity issue. Clearly capacity can be increased, for a start.
I think it is perhaps an issue in acquiring the business. Certainly
in the smaller companies with perhaps just a handful of employees
it is kind of difficult to be away from the business on business
trips. So I think there are perhaps some cultural issues as well
which come into this. Experience of exporting is one, clearly,
from the statistics and I think there is a confidence issue and
perhaps also the lack of motivation to do so. Maybe it is easier
sometimes to service the local market. Getting export business
is not easy. Certainly from my experience it is not easy. We have
set up a distributor network in Canada. That probably took us
two years to set up and perhaps another two years to start really
working well. That is a four year investment. If a business, a
small business in particular, needs to put bread on the table
tomorrow you cannot really look at a four year investment. That
is an extreme case, perhaps. There are other instances and perhaps
Wales Trade International are doing a good job in general in helping
companies to export and giving them the education and hand-holding
to a degree. But I think, yes, experience, confidence and lack
of motivation are certainly some barriers, certainly for small
businesses and perhaps for some medium size businesses as well.
I think the physical aspects are sometimes referred to, such as
infrastructure, transport structure and so on. For export perhaps
there is not such a big issue. If we are looking at competing
in the global market, bearing in mind the sort of travelling distances
by sea from Asia to the UK, then perhaps our infrastructure is
not such a big issue, but perhaps what is an issue is actually
getting people abroad rather than the product, actually getting
people to markets by air. Perhaps Cardiff Airport is not all it
should be.
Q619 Albert Owen: You mentioned world
trade and other organisations. Do you think the Government itself
could be doing more to help businesses? In your report you cite
that there is dissatisfaction with the access to overseas markets,
so could the Government itself do more?
Mr Jones: I think the onus is
actually with the individuals and the businesses. I think the
support is probably there if a business wants to find it. Wales
Trade, from my experience and other experiences that I know about,
are there and have a good range of services to help the exporter.
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