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I understand that small businesses have concerns about regulation, but, of course, some regulation is part of the decent society that we all seek to promote. We also understand, however, that that can be easier for the larger company with more resources than for the small firm. That is why in recent years we have made a number of changes that have benefited small firms in particular. For example, changes to how the minimum wage and training are dealt with will save businesses an
estimated £5 million a year. Changes to the VAT annual accounting scheme are benefiting more than 1 million businesses through doubling the upper threshold for paying VAT in instalments to £1.35 million, and simplified pension scheme returns are estimated to save businesses about another £1 million.
Mr. Brian Binley (Northampton, South) (Con): I am grateful to the Minister for giving way. He is a generous man, and I thank him. [Interruption.] Well, he is a nice man, and I ask my colleagues not to be so mean.
The truth of the matter is that we are still threatening small businesses with sizeable additional regulation. Will the Minister agree today to put off the parental leave and flexible working proposals while we help small businesses get through what will be a very difficult two years?
My hon. Friend the Member for Copeland (Mr. Reed) mentioned procurement, which is an important issue. Business needs work and orders to survive, and the Government, as a purchaser, have a critical role to play. We have commissioned Anne Glover, the chief executive of Amadeus, to report to the Government ahead of the pre-Budget report on removing barriers to small businesses winning a greater share of the public sector procurement market, which is worth £175 billion a year. On cash flow, on access to finance and on training and advice, the Government are working on practical measures to help businesses through the current downturn.
Rob Marris: I congratulate my parliamentary neighbour on a fine speech and on his well-deserved promotion, but I urge him and the Government not to be blown off course. He is rightly talking about the big picturethe world turmoil in financial markets and the leadership that our Prime Minister has shown not only in the United Kingdom but around the world. What do we get from the Opposition, who want to make out that the turmoil is even worse than it is? We get a shopping list consisting of five things: paying promptly, cutting national insurance contributions by 1p for six months, deferring VAT, cutting corporation tax for small businesses and getting businesses to apply for business rates. Is that going to solve a world crisis? No.
Mr. McFadden: The people of Wolverhampton, South-West are very well represented in the House. The measures that the Opposition have suggested do need to be examined, however. The hon. Member for Rutland and Melton spoke of cutting national insurance for small businesses, but he did not say that his party proposes to fund that by abolishing reliefs on investment in plant and machinery, which will be very important to get us through the downturn and back on the road to prosperity. In fact, he was silent on the fact that his party proposes to fund its plans by taxing the investment needed by small businesses.
The hon. Gentleman spoke also of automatic qualification for small business rate relief, but he neglected to mention that the Conservative party voted against the Second Reading of the Bill that introduced that
relief in the first place. I have examined the Division record and found that both the Leader of the Opposition and, perhaps to my greater surprise, the Conservative spokesman on small businesses voted against the Bill. Small businesses are entitled to react with scepticism when the Opposition suggest that they want qualification to be automatic.
Mr. Nick Raynsford (Greenwich and Woolwich) (Lab): In his research, has my hon. Friend noticed that the hon. Member for Cotswold (Mr. Clifton-Brown), who is on the Opposition Front Bench today, summed up for the Opposition in that Second Reading debate and announced that they would oppose root and branch the Bill that introduced small business rate relief?
Mr. McFadden: My right hon. Friend was, of course, the Minister who took the Bill through the House, so he speaks with great authority. What the country is looking for is not such flip-flopping but the decisive leadership that this Government have shown.
Perhaps we should not be surprised by the truth of the Oppositions stance. We remember well the recessions when they were in powertwo recessions, with 3 million unemployed not once but twice, base rates of 15 per cent., 1,000 businesses a week going to the wall and untold damage to local communities. Faced with the threat of severe financial instability, this Government have acted to restore stability to the banking system. In so doing, we have protected the essential foundation upon which small and medium-sized businesses operate. Now, through the action that we are taking on early payment, on improving cash flow, on training and advice, and locally through the RDAs, we are determined to work with small businesses, which are the backbone of our economy, to help them through these difficult times.
This is one of the most enterprising countries in the world. We believe in creativity and innovation, and we see risk not as something to be avoided but as a fact of life and an opportunity for business to show entrepreneurship. We have many business people who have built world-class, innovative businesses over the past decade. Business will face difficult times in the coming monthsthere is no denying thatbut this Government will work with British businesses to ensure that we get through this period and that they can come out the other side doing what they do besthelping our economy grow, employing our workers and making our country stronger and more prosperous for the future.
John Thurso (Caithness, Sutherland and Easter Ross) (LD):
I, too, welcome this opportunity to discuss small businesses and the aid that can be given to them. I might risk the possibility of the hon. Member for Rutland and Melton (Alan Duncan) writing a letter to the Caithness Courier or the John OGroat Journal, both of which I know he has read from time to time. On a lighter note, I cannot help but note that the Secretary of State, as the newest day boy in the other place, is shadowed on these Benches by Britains only downwardly mobile politician. [Interruption.] Those who know understand. The hon. Gentleman introduced his remarks
with a wide sweep across the state of the economy. Indeed, he went back more than two millenniums, starting with Cicero. I shall not follow him down that line, because I would prefer to concentrate more on what help can be offered to small businesses. However, I wish to make two points first.
First, the Government did not actually create this mess, but they certainly made it worse through the hollow boasting that they had abolished boom and bust. That was matched by the hubris of the City, where a heady mixture of testosterone and greed has brought about a situation in which toxic debt seems to be on the back of all companies. The Financial Services Authority completely underestimated the scale of the problem, as the evidence that the Treasury Committee has heard makes abundantly clear. It is clear also that the FSA was deeply under-resourced, as its current chairman has recognised. Light-touch regulation has proved quite insufficient, and I cannot help but notice the irony in the fact that the Conservatives were calling for a lighter touch until a very short time ago.
Secondly, I wish to pick up on the comments of the hon. Member for Rutland and Melton on debt. It is important that we get the facts right. Although the current account has a substantial deficit, which is a matter of considerable concern, the level of debt compared with GDP as measured by most normal international measures is actually lower than in many European and G7 countries. It is important to establish that, because if we agree that the economy will need a stimulusI certainly think that we are in recession, and that it is likely to be deep if we do not actit is almost certain that we will need to borrow more to put that stimulus in place. Behind that is the assumption that the debt that has been put in place to help save the banks will be repaid, which is still an if. We have to hope that the measures taken will succeed, in which case that money will be repaid. We need to be cautious in our criticism on debt.
As has been said this evening, cash is the oxygen of commerce. I was in charge of businesses during the previous two recessions, so I know pretty well what most owners and managers are thinking and doing at this moment. They are stretching their creditors and shrinking their debtors, wherever possible, and they are cancelling capital expenditure, reducing orders and attempting to cut costs. That, in itself, is a downward spiral, because as the larger businesses succeed in doing those things, so the situation is passed on to the suppliers and all the way through to the small and medium-sized enterprises, which are often at the bottom of the business food chain. Above all, businesses are trying to ensure that their facilities with banks are maintained, rather than called in and reduced, and that the charge for them remains reasonable.
In addition, many small businesses that have not previously needed credit are finding that they need it because of the working capital pressure, but if they ask a bank for a facility today, they receive a polite laugh, at best. At the heart of the motion is assistance to all businesses, particularly small businesses, especially with regard to cash flow. That core sentiment ought to be shared by Members in all parts of the House, and, because I agree with it, I shall advise my Liberal colleagues to support it. Although I agree with the diagnosis, I do not agree entirely with the prescription; I have considerable doubts about it, but I shall return to those later.
The Government amendment is, at heart, about the need to restore stability and confidence in the banking system. It is clearly impossible to gainsay that; no one would argue that returning to a stable banking system is not a precursor to getting the economy to move forward. The balance of both the motion and the amendment seems to be the usual tit-for-tat that goes on between the two Front-Bench teams. I have a suspicion that the many small business men whom I knowthey will be watching this debate in my constituencywill be rather put off by that, because they are looking for a little more from this House. They are looking for us all to be somewhat more constructive.
Let me address some substantive points. The first priority for any business at any time is a stable environment in which to do business, and for that reason it is crucial that the banking system is stabilised. That is the overarching prerequisite, without which we cannot proceed. We do not yet know whether what the Government have done has been successfulit would be a brave person who would say that it hasbut it appears to be working. On this occasion, the Government acted firmly, and I hope that what they have done is working, because only one weapon is left in the locker: 100 per cent. nationalisation. I am sure that none of us, save perhaps one or two people who still reminisce over the 1983 Labour manifesto, wants to go down that route.
The second priority for business must be to get the economy moving again. Confidence and stability is a precursor to doing that, but some fiscal stimulus will undoubtedly be needed. Measures such as advancing spending and advancing planned investment will be important, but, to echo a point that has been made by my hon. Friend the Member for Twickenham (Dr. Cable) on many occasions, lately from these Benches, it is equally important to help people to help themselves.
Three measures can help to do that. The first is to have lower taxes for the lower paid, so that they can have more money in their pocket, which they can give to other people, who can then spend it. The second is to have lower interest rates. I sincerely hope that the Bank of England will seriously consider a further reduction in those. The third is to tackle the high cost of fuel, which is a burden on both businesses and homes. That issue could be tackled in a number of ways, not least by helping to invest in more insulation for houses. That would have the added benefit that many builders who are in trouble would receive work. I declare an interest: I live in the far north, so I have a cold house and such insulation would be very welcome.
There is no doubt that the economy needs stimulus. The third priority for business, which is what we are discussing today, is the need for short-term measures to be taken to tackle the current crisis. The Government are in discussions with the banks. It is clear that as part of that negotiation the Government must agree with the banks a protocol for the way in which the banks will deal with business. That protocol should address a number of things, the first of which is the fact that most overdraft facilities, although granted for a year, are repayable on demand. I have seen evidence in my constituency of companies whose facilities are being changed at 24 hours notice. I ask the Government to stipulate in a protocol with the banks that there should be a 28-day minimum period, at least to give companies the ability to renegotiate, change or seek advice and
look for alternatives. The Government can and should address that core problem in that negotiation. It would be wholly unacceptable if the taxpayer, having paid for the bail-out of the banks, found only that the banks were protecting their profits by a credit squeeze on the high street.
The Government could also examine term loans. Many small businesses have term loans, which typically run for five or seven years. In the climate that existed a year or two ago, they could secure rates of 1.75 to 2.25 per cent. above the base rate, which is reasonably priced finance. It would be a simple measure to give them a holiday on the capital repayments with an extension of the term without penalty. For six months or a year, they would have only to pay the interest component, and the repayment period would be extended accordingly. It is a simple proposal, but it could put a lot of money into many businesses quite quickly.
We also need to address the rates and fees that the banks are charging. About the best rate available is 1.75 per cent. over base, but many small businesses face rates as high as 3 or 3.5 per cent. over base. We are now seeing considerable increases in those rates, as well as increases in fees. All those points could help small businesses, practically and quickly, with cash flow.
Then there is the issue of payment terms. The Government have committed to paying their bills more quickly, and that is welcome. I would like to see evidence that that is actually happening, because I cannot see a large bureaucracy that has a computerised monthly supplier payment system moving towards the 10-day payment of bills with any great ease. It is a good idea, but I would like to know how it will happen. Small businesses also need to be brought into the procurement chain. One of the problems that small businesses face is winning business in the first place.
As my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) said in his intervention, a major part of the problem is not Government-contracted payment, but private sector payment. I know of one plc that has just raised its payment terms unilaterally, by letter to all their suppliers, to 90 days end of month from 30 days end of month. That is seriously unhelpful. We are not in the business of legislating on the contractual terms between businesses, but the CBI could look at that issue. It might like to consider asking all of its member companies to agree to a code of conduct on payment, as that would be helpful.
We will, I hope, come through the present difficulties, and in the longer term we need to learn the lessons from it. In a way, the City has been a dutiful wife to the Conservative party for many years, but for the past few years it has had a passionate affair with the Government. I suspect that both the affair and the marriage are in deep difficulty.
We live in a period in which old-fashioned financial values have gone overboard. The City has gone from its useful and necessary purpose of providing capital to being the originator of a sort of debt market casino. Sub-prime may have been the spark that lit the fuse of the crisis, but the bomb was all the toxic debt. We need to return to a culture in which the masters of the universe are the servants of commerce. We have an opportunity to achieve that by restructuring and promoting enterprise and support for business.
My last point is on the burden of regulation. We need to examine the cumulative effect of regulation. If we look at any individual regulation, it is hard to say that it should be abolished, because regulations are full of good intentions to protect or help people. But the cumulative effect is to take considerable time from concentration on making the business productive. One idea would be to consider how many bodies have the right to inspect businesses, to see whether one or two inspections could do the job of the many to reduce the work load involved.
If todays small business people feel much as I did in 1991, they are worried about being squeezed and about squeezing their cash flow to meet the payroll. They are looking to this House for support and help in the short term, and it is right that we should deliver that for them. In considering short-term help, we must also address the underlying causes and seek a long-term change in culture. We have to get away from the irresponsible bonus culture to one that rewards real enterprise and those who are building businesses. That will not be achieved through gimmicks, but through serious policies that we will undoubtedly address on another occasion.
Madam Deputy Speaker (Sylvia Heal): Order. There is approximately one hour left for contributions from Back Benchers. Several Members clearly hope to catch my eye. I ask hon. Members, when making their speeches, to bear the time factor in mind so that more Members can be successful in making a contribution to the debate.
I think that it was the Prime Minister who said, If everybody complains that I dont smile much, that is because these are difficult times and smiling is probably not the right thing to do at the moment. I agree with that. The situation for our business community is pressing, and for many Labour Members interacting with, understanding and listening to our business community are part of our core business as MPs, and so is getting those messages back to our Ministers.
Headline-grabbing announcements to try to deal with a difficult time are not the way forward. A hard, long slog is required, and that is what, over many years, the Government have put into supporting business and enterprise in the UK. Of course, the big prize was economic stability. When we are having discussions with the business community, they never argue with the fact that we have done a brilliant job on that front.
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