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21 Jan 2009 : Column 262WH—continued
A local fish and chip shop owner, who has been in business for at least 17 years, contacted me to say that during the recession his weekly income has gone down by £40 a week. Even with 50 per cent. small business rate relief, he pays £45 a month in business rates. His plea is for the Government to offer more flexibility, perhaps providing a six or 12-month holiday. For him, the impact of the recession could be terminal—and for only £40 a week. That puts the Government’s £900 billion
cumulative rescue package into perspective. That money would save an awful lot of fish and chip shops.
Brenda Briggs, from the Favours day nursery in Moulton, has contacted me. She says:
“As the owner of a small, family run business in a rural setting I have to say that one of the biggest drains on our resources is the Business Rate. We pay almost £9,000 per annum and for that large sum get very little in return. There is of course the infrastructure to be supported—police, fire, etc.—but we have no street lighting, the roads are always in a bad state of repair and we have to pay extra (approx £2,500) to have our rubbish removed. If the government really are serious in their wish to help us then a reduction in rates (or at least the inclusion of rubbish removal within the amount charged) would be a start!”
Peter Luff (Mid-Worcestershire) (Con): I congratulate my hon. Friend on securing this debate and on the manner in which he is introducing it. I apologise to the House, but I shall not be able to stay for the whole debate because of my Select Committee duties.
I draw to my hon. Friend’s attention the private Member’s Bill that I introduced only two hours ago, which would automatically make small business rate relief mandatory. Many small businesses—about half—do not know that such relief exists, and are not claiming it. As he says, that can make a life-or-death difference for many businesses.
Mr. Hollobone: I am most grateful to my hon. Friend for that extremely helpful intervention—especially as he has the status of Chairman of the Select Committee on Business and Regulatory Reform. I wish him well with his Bill—at least I think I do, as I would rather it did not need to succeed. I would like the Government to adopt his Bill and to take it through the House in Government time. It would be a marvellous response to the debate if the Minister were to make such an announcement today.
Another local businessman, Mr. Sege Rosella of SCM Construction, has written to me, and I have written to the Treasury about his case. Mr. Rosella tells me:
“I am a Director of a small development company based in Kettering...I have been a director of the company for several years and have specialised in developing small ‘starter’ apartments...aimed at the often disadvantaged first-time buyers. I have completed 5 developments during the last 5 years, creating 48 units and enjoyed the financial support of NatWest...Although our previous banking arrangements have been cordial, with all loans taken out by the company repaid in full and on time, recent events in the housing market, driven...by the near collapse of the UK banking sector and subsequent liquidity freeze, have changed the financial model of my current development. I am a small business with a good track record who provides employment for the local community and much needed house building workforce, creating housing that conforms to stated Government policy and meets the needs of young first time buyers and yet due to circumstances that are not of my making, but as a result of a cavalier approach by the major UK banks to credit and risk management, face potential financial ruin unless the RBS continue to provide financial support in accordance with their original commitment.”
Mr. Martin Lee, the managing director of Foden Ibex in Brixworth in my constituency, contacted me to say:
“The VAT reduction was a complete waste of time and money...where the Retailer was already responding to the lack of sales with significant promotions etc. The key issues to restore consumer confidence revolves around Petrol and Energy Pricing”.
Petrol prices, he said, are a feel-good factor, because if people can afford to get out and about they will buy
more. He went on to say that mortgage protection for those who lose their jobs would help. He said:
“Diesel prices must be maintained below £1 litre and the tax take reduced accordingly to maintain stability.”
He also wrote to me on the subject of empty property rate relief:
“this is an iniquitous tax on something that is not earning. We have reduced our working area by 9,000 sq feet in a Modern factory and Office setting since the beginning of 2008 in response to what we saw coming. However, as sensible businessmen, we would give our right arm to let this area at a low rent and remove this overhead. In line with the economic situation no one has even shown the slightest interest yet we have to continue paying full rates for an empty property.”
On banks and cash flow, he says:
“We are now facing the same issues on facility renewals, as stated in the press, where the Bank instead of passing on the Interest Rate reductions to us on renewal wish to charge an extra 1.85% whilst the difference between the LIBOR Rate and Base Rate has only increased by 0.2%. This goes against everything that the Government is supposedly trying to do... Banks must be required to pass on the full effect of any base rate cut and maintain current agreements in place.”
David Taylor (North-West Leicestershire) (Lab/Co-op): My and the hon. Gentleman’s constituencies share an excellent Federation of Small Businesses branch covering Northamptonshire and Leicestershire. Its survey of members shows that the key problem has been access to finance. However, only a week ago, the enterprise finance guarantee for small businesses was announced. It is on a smallish scale—£1.3 billion—but will help. Perhaps his businesses will have access to that, which will prod the banks into action. That is where action is needed. Is that not correct?
Mr. Hollobone: As the hon. Gentleman said, we share a Federation of Small Businesses area and both have a lot of time for Maxine Aldred, the local co-ordinator. As often as I can, I attend the monthly breakfast meetings of the FSB in east Northampton. The message coming across is very much as he states. Let us hope that the Government’s proposals will feed through to these very small businesses. However, it has been a long time coming. An extra week or fortnight can make the world of difference between life and death for many small businesses. I hope very much that his optimism is justified.
I was contacted by John S Ward and Co. in Kettering. It wrote:
“We are a firm of chartered certified accountants who have a client in the building trade. Their tax affairs are up to date. In a difficult economy with loss relief available to extinguish the liability they have no tax to pay. This is because they have no profit! Under the construction industry scheme to receive gross payments from their customers HMRC do not take this into account but still insist that large tax payments on account of tax have to be made and then refunded. Effectively an enforced loan to the Government under threat of legislative action. Even with no tax actually payable this loan can take over a year to be repaid by HMRC. The penalty for not doing so is for a small self employed business to lose its gross payment status and attempt to survive after a 20% deduction is made on its sales and paid to the Government reducing their current cash flow - unlike in any other trade. Senior tax inspectors are involved in pursuing this with incredible enthusiasm and diligence. No consideration is allowed for the firm and its work force during a recession.”
“a business and the incomes of 40 staff and sub contractors are put at risk.”
The message is that HMRC needs to be more flexible when dealing with businesses in such delicate situations.
Mr. Mark Prisk (Hertford and Stortford) (Con): My hon. Friend is making a very good case. On the construction industry scheme, for which I appreciate that the Minister is not directly responsible, I had a similar case in my constituency. Clearly, there is a conflict between the Government’s policies on the better payments scheme, which is meant to allow the deferral of taxes, and the CIS, which is now automated. There is a growing number of cases concerning this problem, about which I have written to the noble Lord Mandelson. It is a very important matter. Does my hon. Friend agree that this conflict of policy is in danger of leaving the construction industry even worse off against its competitors than we feared?
Mr. Hollobone: As always, my hon. Friend is spot on. The extra difficulty with the construction industry is that we need to pump-prime the rest of the economy. If houses and offices are being built, they will need to be furnished and more money will need to be spent on them. That acts as a prompter for the rest of the economy. If we undercut the construction industry, everything else will topple down on top, so it is a very serious situation.
I have received the details of another case, on the same issue, from Mr. Stephen Mucth, who runs SA Mucth, a carpentry contractor employing 10 people. He has been treated similarly unfairly by HMRC, which wants to take away his gross payment card, because of a former late payment—it was only late by two or three weeks and mistakes were made by HMRC as well. It has apologised, but is still threatening to take away his gross payment card. As his MP, I asked him what would happen if he lost his gross payment card. He replied, “Well, all 10 jobs will have to go.” He told me that last year, across the country, 227,000 small businesses had to go to tax commissioners to appeal their gross payment card status. In 195,000 of those cases, the gross payment card was restored. Huge anxiety is being put on construction and construction-related firms over their tax affairs. In the end, it might be sorted out, but the process of being sorted out is putting thousands of jobs at risk.
Mr. Richard Edwards, from the Abington Park veterinary group, contacted me to say:
“Simply the main problem in my business is cash flow. We perform a referral service to local veterinary practices carrying out complex surgical and medical procedures. We have to agree in most cases to do ‘direct’ claims for those clients sent to us by their own practices and who have their animals insured. This then presents enormous cash flow problems when the modern generation of pet insurance companies ie the big supermarkets and insurance groups take up to 10 weeks to settle the claim and thus us waiting ten weeks for cash settlement. I have to pay my suppliers within 30 days. I am sure that I am not by myself in asking that the government does something about the large companies that have a stranglehold on credit terms.”
He adds that a significant improvement would be for such companies to be legally forced to pay small business suppliers within 30 days of goods or services being supplied.
I was also contacted by Cooney Marine, which is a 40-year-old marine-sector business based in Kettering, and is one of the UK’s leading manufacturers of stainless steel yacht equipment and deck fittings. The firm employs a highly specialised work force capable of operating complicated machinery and skilled in the use of three-dimensional design. It recognises the importance of its work force and operates a successful apprenticeship scheme. Along with many other local firms, it has felt the impact of the current recession. There has been a 30 per cent. drop in orders; it has problems with the timely collection of payments from customers, and business running costs are extremely high. As a business, it needs help with debt recovery and insurance, especially regarding larger companies. That would help to ensure more certainty of income and help to safeguard jobs in the future.
David Taylor: The hon. Gentleman is talking about a problem that is a continuing difficulty for small firms. Prior to entering this place, I had a number of small-firm clients. Before his time here, the Government enacted delayed payments legislation, which gave greater powers to small firms further down the feeding chain to speed up payments. The problem is, of course, that they do not want to press clients, or utilise those powers too frequently, because they will damage their relationship often with major customers. The problem is not legislation, but the difficulty in taking a prime customer to court.
Mr. Hollobone: That is absolutely right. However, before my time in this place, we were not facing the worst recession that this country has seen since the 1930s. There has been a paradigm shift in the way in which we need to tackle these issues. It is a national emergency, especially at the level of small businesses. The Government need to think up new initiatives to sort it out, before we have almost complete economic collapse.
Mr. Neil Griffin, from the Kettering chamber of trade and commerce, contacted me highlighting the problem of business rates. He also said that self-employed people should be able to pay at the end of each year, as was previously the case, rather than have to guess what they will make the following year. That would help people to get the money in and to balance the books, before paying tax to HMRC.
Mr. Allsop contacted me about the 800,000 empty properties across the country. He sensibly says that they could be upgraded to help provide low-cost affordable housing and states that something must be done about VAT on the repair of existing buildings. That would be a low-carbon footprint solution to getting the construction industry moving again.
The Federation of Master Builders contacted me about a similar matter. It said that according to Oxford university, there is a new market in reviving existing housing stock that has fallen into disrepair, which could be worth between £3.5 billion and £6.5 billion. The federation recommends
“reducing VAT from 17.5 per cent to 5 per cent. for all building repair and maintenance work”
to get empty properties back into home ownership.
Global Surveys, a commercial surveying firm in Moulton, was formed in 1978 and has achieved national recognition with numerous local authority and Government agencies, as well as with the private sector. It said:
“Due to the present recession, 40 per cent. of staff have been made redundant, two members of staff are on a shorter working week and others are using annual holidays when there is a shortfall of work.”
The company said that its staff
“would certainly benefit from financial support for the shorter working week and reduced holidays.”
“Staged payments of VAT and taxes without interest charges would help, as would a reduction in taxes...Income tax bills are a huge concern as Global Surveys is due to pay a large tax bill for the previous profitable year in the current ‘break even’ period.”
Paul Smith from Blandford Electricals in Kettering has e-mailed me with a number of points, including the withdrawal of credit insurance cover. He said:
“We suffered a large bad debt in the year 2000 and drew up a company policy of insuring our debt for companies for whom we work to a value of over £5,000.”
He went on to say that recently the company has suffered from a number of small bad debts, and that from mid-2008
“we have been having the cover withdrawn from many of our companies who were covered by this insurance”.
“the current challenging conditions prevailing in the UK economy”,
“We have questioned this and the justification for these withdrawals, many of them being for companies for whom we are in the middle of large contract works. This is now causing us much concern and reducing our ability to trade. We would urge the Government to take urgent action on this matter as soon as possible.”
Paul Smith also highlights the issue of slow payments from public and private enterprises, and makes this very good point:
“The Government has made a big thing of encouraging Public bodies to pay within 10 days of invoice receipt. This works where companies can work directly”
“for example local schools”.
However, many of these contracts are managed by third parties, which are still offering extended payment terms of 60 to 90 days. Therefore, many of its invoices are not being settled on time.
Lorely Burt (Solihull) (LD): Is it not the case that, wherever possible, we should encourage Government procurement officers to procure directly from small businesses? Where it is not possible, they should pass any advantage on payment dates down the supply chain. That should be a condition of alterations of payment terms by the Government.
Mr. Hollobone: That seems a most sensible suggestion. I do not understand why the Government cannot get on with that straight away.
Paul Smith also highlights the benefits of a local working initiative. He says:
“We would like the Government to pro-actively promote local working in every sector, using local companies for works in their own towns and cities. This would build the wealth back into the towns and be sound ecological practice. We feel the Government should put guideline distance restrictions on local authorities and public bodies to encourage this.”
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