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28 Mar 2007 : Column 431WH—continued
Let me bring my speech to an end—you will be delighted, Mr. Caton, I am sure. I repeat that we face a massive challenge; we face a challenge particularly from emerging nations. I have spoken about the need to reduce the burden on our business, which includes regulation. Above all, we need to work together, because that is in all our interests. We share a common interest, as I am sure the Minister recognises. The reason why I wanted to have the debate was to establish that fact if we established nothing else. Unless we do our job now, we will fail our children and grandchildren, and in 40 years’ time, it will be much more difficult to compete, and it
will be a very difficult world to live in if we are unable to compete on favourable terms.
Mr. Martin Caton (in the Chair): Before I call the next speaker, I advise hon. Members that I intend the winding-up speeches to start at 10.30 am, and I have a list of several possible speakers. I call Mr. Andrew Smith.
10.2 am
Mr. Andrew Smith (Oxford, East) (Lab): I am sure that it will be the common currency of the debate to speak of the enormous contribution that small businesses and all who work in them make to our economy. That contribution comes in job generation, local services and innovation and creativity, and in how small businesses help to shape the fabric of our local communities, both physically and socially.
I congratulate the hon. Member for Northampton, South (Mr. Binley) on securing the debate and on the very positive spirit in which he advanced his analysis. We have had a double benefit: we have listened to him speak from his personal experience and insight twice in the past 12 hours. I can prove that I was listening last night: the hon. Gentleman gave us three very wise precepts for small business success, and they stuck in my mind, although he did not repeat them this morning. He told us that, first, volume is not everything; it is what someone is making out of the volume that is important. Secondly, cash flow is king. Thirdly, what really matters is not investment in plant, but investment in people. The hon. Gentleman might like to turn those three small business precepts into a small booklet to advise people—it was good stuff.
I take the debate as a welcome opportunity to praise the work of small businesses, especially in my own Oxford constituency, and the work put in by area and sectoral local business associations, the chamber of commerce and the Federation of Small Businesses. The hon. Gentleman was right when he said that small business needs to be exercising more purchase on the education and training system. It can do that only through business people giving up their time—time that they have to spare from the very demanding task of running their businesses—so we all owe them a debt of gratitude. The contribution that those people make benefits our communities, as well as the economy. Certainly, I find the comments and advice that they give to me locally invaluable.
We had a good example recently in the excellent conference put on by the Oxfordshire branch of the FSB. That conference centred on very interesting research that it had commissioned and a resulting report—I have it with me—that I think is of broader interest and would certainly be well worth replicating in other areas. It sought to take the sort of evidence-based approach that is applied in the well-known FSB “Lifting the Barriers” survey, but to do so on a local basis so as to analyse the impact of small businesses in the local community, thereby giving a picture that, by its nature, cannot be fully picked up in the national surveys.
Entitled “The Economic Ecology of Small Businesses in Oxfordshire”, the report was based on a representative sample survey of the 25,000 small businesses in the county produced by the Oxfordshire Economic Observatory, based in the Oxford Institute for Sustainable Development
at Oxford Brookes university. The study produced a wealth of information, but I shall mention just a few highlights this morning. It underlined what the hon. Member for Northampton, South was speaking about: the crucial importance of the small business sector. In Oxfordshire, it accounts for 57 per cent. of the county’s private sector employment. Business growth has been relatively strong in recent years, as we might expect in a generally prosperous county in a generally prosperous region. The number of VAT-registered businesses increased by 9.4 per cent. in the five years to 2006, compared with 6.1 per cent. in the south-east and 6 per cent. in England as a whole.
With regard to size and type, 85 per cent. are micro-businesses, employing fewer than 10 staff; 21 per cent. have no employees at all; 65 per cent. are family owned; 35 per cent. are home-based; and 17 per cent. are female-led. Most small businesses were in services, with wholesale, retail, estate agency and other business activities accounting for about 45 per cent. of the total, but there was a very important, albeit minority, share of small manufacturing businesses as well.
With regard to the overall challenges and obstacles to business, regulation or red tape and taxation issues predictably topped the list. They were regarded as a major problem by 33 per cent. and 26 per cent. of respondents respectively. On more local issues, 13 per cent. identified housing supply and 10 per cent. transport infrastructure as the major problems. Nearly one third said that they experienced skill shortages when recruiting new staff, thus reinforcing points that have already been raised, and 16 per cent. identified planning restrictions as a major problem as well.
The recent survey showed significant optimism about business growth in the next few years, with 75 per cent. expecting to grow their business through a mix of existing activities, new products and services, and new markets. What the survey particularly brings out is what the report calls the small business economic eco-system—drawing an analogy with biology and the importance of micro-organisms in ecological systems. It analysed interaction with other local businesses, so it found, for example, that 50 per cent. of the businesses derive more than 50 per cent. of their annual turnover from local sales and that just over one third place half their expenditure with local suppliers. That is a vital reinforcement of the strength of the local economy. Most of the businesses made good use of local shops, local banking and local post offices, thereby helping to sustain those services for the wider community.
The study also shows the wider value of small business interaction with the local community. That involves things that all too often are taken for granted—for example, the extent of work experience opportunities for young people that are provided by many small businesses and the involvement with schools, charities and sponsorship of various kinds.
In this age of ever more commuting, with all the congestion and environmental costs that that imposes, it is particularly notable that small businesses also provide predominantly local employment, with 75 per cent. reporting that at least half their staff live within five miles of their business premises.
The survey reveals growing environmental awareness and attention to waste recycling, as well as the importance of reducing water and energy consumption. At the same time, however, it reveals concerns about the lack
of information on environmentally beneficial options, the lack of time to weigh options up and fears that they might not be cost-effective or necessarily enhance business prospects.
There is a clear case for better promotion of environmental support and advice services locally. In Oxfordshire, we have the Oxford Brookes Environmental Information Exchange and the Oxfordshire Sustainable Business Partnership, but we also have national support and advice from bodies such as the Carbon Trust. At the conference that launched the report, the trust came in for particular praise from a local manufacturer that had used its advice service.
I therefore ask my good friend the Minister to look closely with our colleagues in the Department for Environment, Food and Rural Affairs at what more can be done to ensure that small businesses can readily access information, advice, support and, where appropriate, incentives to enable them to play their part in reducing waste and emissions and in combating climate change.
I commend this path-breaking Oxfordshire report as a whole to the Government and urge that similar studies would deepen understanding of the contribution and needs of small businesses in other parts of the country. If we are to sustain the impressive growth record and employment generation that the stable economy and other Government policies have helped to bring about over the past decade, we need to make even more of the entrepreneurial flair, hard work, innovation and local commitment that we are fortunate to have from the small businesses in all our communities.
10.12 am
Mr. Philip Dunne (Ludlow) (Con): I want to make a modest contribution to the debate. This is an important subject, and I congratulate my hon. Friend the Member for Northampton, South (Mr. Binley) on raising it. I follow him this morning, as I did yesterday evening in the Budget debate, and it is a great pleasure to do so, given his expertise on this issue.
In the Budget debate yesterday, many of my remarks focused on the importance of business—particularly small business—to the economy. I highlighted some of the measures in the Budget that will make life more difficult for entrepreneurs at the smaller business end and I shall not take up the Chamber’s time by repeating what I said then. Today, I shall focus on the two issues in respect of which we need to look most carefully at the Government’s role.
As my hon. Friend the Member for Northampton, South told us, the small business sector is the critical engine of growth for the economy, employing more than half the people in the country. In rural areas such as mine, small businesses essentially represent the whole economy; indeed, the largest employer in my constituency, which happens to be an international conglomerate, employs 400 people, but the vast majority of businesses employ fewer than 100, with most employing fewer than 25, and they are typically owner managed. Without the entrepreneurial flair of individuals who set up businesses in rural areas, there would be no employment, so the sector is vital for rural communities in particular.
Those who set up businesses are, by definition, entrepreneurs and risk takers. We have heard of my hon. Friend’s personal experience, and I echo his point that many
Opposition Members have gone through such experiences. I do not wish to blow my own trumpet or to get into a competition with my hon. Friend, but I also set up a business from scratch, and it ended up employing slightly more people than his did; indeed, by the time I exited it last year, we had more than 2,500 employees. My point is that most people who go into business recognise that they need to take risks. To get their businesses off the ground, many people make significant personal sacrifices that affect their lifestyle, and there are many different reasons for doing that. However, such individuals are used to taking risks, and one of my concerns about the Government’s approach to business policy is that they often seek to restrict individuals’ ability to take risks. They seem obsessed with the idea not just that they know best, but that businesses cannot be left alone to get on with doing their job and need to be micro-managed in many different ways. I hope to be able to illustrate that in a couple of moments in the brief time that I have.
We hear from all the surveys, and we have heard it again in this debate, that business men’s two primary concerns about their relationship with the Government relate to tax and excessive regulation, and I shall focus mainly on those two issues. Many businesses, particularly under this Government, start paying tax before they start trading. I am thinking particularly of measures in the Chancellor’s 2004 Budget to reform the stamp duty land tax regime for businesses that open new premises and take on long leases. Such businesses must now pay a substantial amount, which is calculated on the duration of the lease, rather than on the first-year element, as was the case previously. That acts as a genuine barrier to business inception.
My business was in the retail sector, and the Chancellor’s measure could affect any retailer, because retail premises were typically let on 15-year leases. For a business that is starting from scratch, which does not know whether it will succeed, to be faced with a bill not of a few hundred or a few thousand pounds but, as in one case with which I am familiar, of £15,000 before it has opened its doors for trading and knows whether it will succeed, the Chancellor’s measure is a significant barrier to business inception and entrepreneurial risk taking. Of course, that applies not only to retail premises but to all premises, which are typically let on relatively long leases. I accept that the relevant period is coming down, partly as a result of the Chancellor’s measure, and that raises separate issues for business investors in property.
Of course, business fulfils a useful function not only as an employer but as a revenue raiser for the Government. The complaint that I frequently hear when I talk to business groups around the country is that entrepreneurs regard themselves as acting primarily in the Government’s interests as their tax collector. The degree to which new regulations and new taxes impose an obligation on companies to spend much of their time collecting tax in one form or another seems to increase from Budget to Budget. Clearly, pay-as-you-earn is a significant and efficient form of tax raising, and other obvious examples include national insurance, VAT, business rates and stamp duty land tax. However, there is a host of other measures, such as aggregates tax, which was increased in the most recent Budget, and the tax-collection duty that they impose is an administrative and revenue-raising burden on individual companies.
As regards the most recent Budget, we are of course focused on the increase in corporation tax on small business. That increase sends small business a serious signal that the Government are not particularly interested in it, and I hope that the Minister will pick that up when she winds up. The attempt to characterise the changed capital allowance arrangements as in some way offsetting that increase is a bit of a joke for small business. It might apply to a small number of sectors whose level of investment in capital will allow them to benefit from the changes, but in most cases, small businesses will be disproportionately affected by the increase in tax compared with what they can offset through capital allowances.
David Frost of the British Chambers of Commerce said:
“The rise in small companies corporation tax will have a particularly damaging effect”
“with 71 per cent. of those surveyed saying it would harm their business. As a Chancellor who champions enterprise and acknowledges the importance of small business to the UK economy, many of our members feel let down and are dismayed by the measures taken, which will hit their competitiveness and increase their tax burden.”
That is not exactly a ringing endorsement of the Chancellor’s measures.
The Chancellor said in his speech that the extra revenue from the increased small companies corporation tax rate would be recycled to
“legitimate small businesses investing for the future”.
What an extraordinary way to characterise small businesses—to imply that a large number are somehow functioning illegitimately.
The Chancellor may have been referring to the measures taken by Her Majesty’s Revenue and Customs three weeks before the Budget, when HMRC decided to halt with a sledgehammer the sideways loss relief, an opportunity for investors to invest in high-risk businesses that allowed them, if the businesses failed, to offset losses incurred from those investments against their other income. It was a useful way for small companies with a significant equity gap in external investment to get it from wealthy individuals. That measure has been stopped. It was stopped in order to deal with abuse elsewhere, but the impact on many high-risk sectors will be keenly felt. I urge the Minister to enter into discussions with the Treasury and the Chancellor to modify that measure during the passage of the Finance Bill.
10.22 am
James Duddridge (Rochford and Southend, East) (Con): This is the first time that I have served under your chairmanship, Mr. Caton, and I hope not to stray too far and incur your wrath. It is a particular privilege to speak after two such experienced people involved in business, who have mentioned with undue modesty the number of people whom they each employed directly as well as the extended number of people employed and supported via the family.
I congratulate particularly my hon. Friend the Member for Northampton, South (Mr. Binley) on his early-day motion 928 highlighting the issue and his continuing work, and the right hon. Member for Oxford, East (Mr. Smith) on his excellent speech in the House yesterday. I heard someone say as they left the Chamber afterwards
that he was running a master class in small business in the House of Commons. Having read Hansard this morning, I think that that is a fair reflection.
My first interaction with small business came when I was 18 or 19. I was asked as a Conservative to stand in for a Member of Parliament who was called away at the last minute. I thought that I was going to go along to a group of one or two shopkeepers, newsagents and so on. It was my first surprise at the size of small business and its importance, which has been highlighted today. On my desk, I still have the little chip of concrete from the Berlin wall that I was given. It says:
“The Federation of Small Businesses: chipping away at regulation and bureaucracy wherever it may be found.”
Small businesses are great advocates.
I was pleased to have received a note from my hon. Friend the Member for Northampton, South saying that the debate was happening. I looked down the list and saw that everybody to whom he had sent it except me had great business experience. Having spent10 years as a banker, I became frustrated with people who said, “Those who can, do—those who can, move away from assisting and teaching to set up or help set up very small businesses, but nothing of any size.”
Banking has given me an insight, and my work as a constituency Member of Parliament has perhaps given me a deeper insight, into businesses’ impact on communities. In Southend, the names of roads, parks and schools all reflect support from business people and entrepreneurs who moved from making money to being social entrepreneurs. Sadly, many of those names are names of 100 years ago. I question whether businesses, especially small businesses, with all the burdens on them, still have the time, energy and inclination to contribute. There are notable examples in Southend, but not of the magnitude of many years ago.
To get more in touch with businesses, I run an annual business survey. I am currently receiving and analysing the 2007 survey, but I shall mention the 2006 survey. This is not a party political point—I do not mean it as a criticism of the current Government—but I suspect that most businesses are not great friends of Government, be they Labour or Conservative. Nevertheless, I was quite shocked by the answer to the first question, which asked:
“Do you believe that the Government understand the concerns of the business community?”
In one way or another, 84 per cent. said no. That is quite a shockingly large number. I will certainly ask that question yearly to monitor the Government’s performance, and am particularly interested to see the results as and when there is a Conservative Government.
As a Back-Bench MP, I try to engage with my constituents. Sometimes it is not successful. I have a survey with a Post-It note attached:
“No further surveys. See overleaf!”
I thought that it was going to be a rant at my personal performance.
“Dear James”—
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