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Peter Luff:
The Government have behaved honourably throughout on this matter. When the relief was first introduced, the precept was 0.7p in anticipation of a
certain level of take-up but, in the event, the take-up was lower, so the precept was reduced to 0.4p. A precise estimate was made, but the take-up was disappointing.
Mr. Evans: We know about that issue; if things were made automatic, everybody would get the benefit. The Local Government Association estimates that small business rate relief can save businesses in Britain up to £2,500 annually. Many small businesses will save at least £1,000 if my hon. Friend’s Bill is passed, and that money is significant. Each of us can probably think of businesses in our constituencies that are struggling or that have failed over the past few months. Sadly, the Kaydee bookshop in Clitheroe, which I have mentioned before in the House, has closed—it was an old business that had survived many downturns in the economy. That makes many local people unemployed, and all the ties that people have had over the years, through buying books for their children from the shop or going there as a child themselves, are lost. People have a romantic association with some of these smaller shops and smaller businesses, and this situation is a crying shame.
The supermarkets, which have been mentioned, do what they do. People support them and that is why they do so well, but it is a shame that all the small butchers shops, fishmongers and ironmongers, which added character to towns around the country, have, sadly, closed their doors for the last time. That process detracts from the character of places and we lose the characters who ran a lot of the places. This sort of Bill just might make the difference and mean those businesses surviving through this recession and into the future.
We know that a lot of these small businesses are social services. An accountant who sat down with them would say, “Are you barmy? Why are you spending all these hours doing that? You would be far better off closing the business and going to work for Tesco, because you would make more money out of that.” The labour of love that a lot of these small business people have for these businesses, which perhaps their father or grandfather started, is the reason why they carry on with them; it is a tradition—it is in their blood—but there is no economic sense in it at all.
The Federation of Small Businesses supports the Bill and has highlighted the fact that 85 small businesses close every day. We know that a lot of small businesses are struggling with cash flow, so we must ensure that the banks are doing what they should be doing to support these businesses. The Bill is supported by a veritable who’s who of the small business world, including the National Federation of SubPostmasters, the LGA, the British Chambers of Commerce, the Country Land and Business Association, the Institute of Directors, the Association of Convenience Stores, the National Federation of Retail Newsagents and the Campaign for Real Ale. I am a member of at least three of those bodies—I shall leave it to the House to guess which ones, but I am going to mention CAMRA. I am not only a member of CAMRA, but vice-chair of the all-party group on beer.
As has been mentioned, an important and significant meeting took place in the House just this week, when five Ministers got together to answer some of the questions from MPs of all persuasions about what can be done to support the British pub. As we know, 40 pubs close each week in this country—that works out at more than
2,000 a year. What are communities? We have seen our post offices go, our rural schools close and our rural bus services being attacked—even rural churches are closing. In some places the rural pub is the only thing that is left. If it goes, that would tear the heart out of the local community. We must all start to consider what we can possibly do to support an iconic British institution. My hon. Friend the Member for Mid-Worcestershire (Peter Luff) rightly said that it is a brave man who takes on CAMRA. I think that is why the five Ministers turned up together; they were afraid to go on their own, so they had to turn up in fives just for their own protection.
The sort of measure before us will give some support to help pubs to survive this recession while we try to work out all the other things that could happen to give the pubs some relief. I know that one of the Ministers looked at ways of giving recognition in the ratings system for the community use of pubs. A pub could be given some support if it had a football club or a darts or dominoes team, if the pub was being used as a local post office or if it was being used by a luncheon club or by a number of other groups that might meet in it. There should be some recognition if locals are able to use the pub’s car park or its toilets—public toilets may not be available in some villages—when they are not using the pub. All those things could be recognised in the ratings system, and that should go on top of the measure that my hon. Friend is proposing.
The Bill deals with money to which these businesses are entitled—it is their money; we are not talking about giving extra gifts. The businesses in Wales are getting it, but businesses in England are not. We must ask why they are not getting the same sort of support from our Government, when the Welsh Assembly Government are supporting businesses in Wales.
If I were to be critical—I did mention this to colleagues when my hon. Friend was speaking—I would say that it is a great shame that we cannot make this measure retrospective for a period of five years. What a great boost that would be to many struggling local businesses. We could say, “Listen, you’ve been eligible for this for a few years.” Why should we deny those businesses the money to which they were entitled last year and the year before? I can understand the complications, because he mentioned a few of them, even with this Bill becoming enacted. We are supposedly looking at ways of supporting businesses and injecting money directly into local communities, so that that money gets out straight away into the community—this is one way of doing that. Small businesses have cash-flow problems, so that money will be circulating as quickly as possible. The great thing about small businesses is that when they need anything done they tend to use other small businesses—people take the Yellow Pages out or they use the local knowledge in their head, because a lot of their customers are trades people. They will thus start to support the local businesses that are around them. It is a self-help scheme, and it is long overdue.
I am looking forward to the Minister’s speech, because I hope that he can give some hope that the Government will support this measure in one form or another. Kicking it into the long grass is not an option, because a lot of these small businesses cannot wait. They simply do not have the option, because every time the postman comes they fear opening a letter just in case it is a final
demand, or another bill from a supplier that they did not expect or that they feared would come.
The Bill needs to be introduced as a matter of urgency. The Budget is coming up in just a few weeks’ time, and I hope that we are talking about that sort of time scale for this measure, because if it is not treated as a matter of urgency—such a scheme is operating in Wales, so there is no good reason why it should not operate in England too—we will be putting further nails into the coffins of a lot of small businesses up and down the country. Running a business is a very hard struggle these days, under all the pressures that exist. Small businesses need all the help that they can get, and this Bill will give them just that.
10.59 am
Mr. Brian Binley (Northampton, South) (Con): It is a pleasure to follow my hon. Friend the Member for Ribble Valley (Mr. Evans). Indeed, I have had the pleasure of following him through the pub door on a couple of occasions, and I welcomed his remarks about saving the pubs— [ Interruption. ] I shall overcome the barracking. I also welcomed his remarks about the work that he does for the all-party beer group. I am a co-founder and vice-chairman of the all-party save the pubs group, so I support his views thoroughly.
I especially congratulate my good and hon. Friend the Member for Mid-Worcestershire (Peter Luff) on presenting his Bill, which he did exceptionally well. I was delighted to become a co-sponsor of that Bill, and I pay tribute to my hon. Friend’s work as Chairman of the Business and Enterprise Committee. He is very knowledgeable about such matters, and I am sure that the Minister will take that knowledge into account. That is why I am hopeful that we will hear some encouraging remarks about this issue when the Minister responds to the debate.
I wish to declare an interest. It is well known that my interest in this place is small and medium business, and in fact that is one of my major reasons for coming to this place. I have a business background: I founded two companies that now employ 250 people and I am still the non-executive chairman of one of those businesses. I am proud to be able to say that, because it allows me to bring some knowledge of that sector to this House. That is one of the reasons why having other interests and involvements can be a good thing for the well-being of this House, but it is only right and proper that I should declare that interest.
It is also right and proper to say that I am a keen supporter of “Keep Trade Local”, the campaign run by the Federation of Small Businesses, which is a successful, worthy and timely campaign. Indeed, I went to help to launch the campaign in Coventry.
I said that I had some knowledge of the SME sector, especially small business. The point that I want to make today is that the harsh reality that faces small businesses, especially those in our town centres the length and breadth of the country, is the struggle for survival. They are simply fighting to be here this time next year. That is their business objective, and that is a vital fact to hold on to as Ministers decide whether to support this measure. Small businesses have a prime objective in mind—survival.
For a small business that is not in the cash business, a one-off debt default is a massive problem that can instantly turn a successful business into a failure. My hon. Friend the Member for Ribble Valley mentioned the worries that small businesses have about letters coming through the door. I can tell him that another worry is receiving a letter from a liquidator appointed for another business that owes them money. That can send small businesses into exactly the same situation. Aged debt lists are lengthening. A small business might have been having its invoices paid in 30 days or 45 days, but the time is being stretched to 60 days or 65 days, and that puts a massive additional burden on its cash flow requirement—one that, in many cases, proves just too great. I shall talk about the banks more later, but it is in that area that the money is not getting through. Good businesses are experiencing difficult cash-flow scenarios because their aged debt lists are lengthening, and the banks are simply not responding to a great enough extent. The money simply is not getting through.
Working capital is at a premium for small businesses. I am not talking about millions of pounds. In the case of small businesses, we are talking about hundreds of pounds, as my hon. Friend the Member for Mid-Worcestershire said. For such businesses, £5,000 is a massive amount of money, and therein lies the difficulties that they face. Cash is king, and that needs to be recognised.
Small businesses are dealing with these difficulties in several ways. First, those that employ 10, 15 or 20 people are undertaking a massive and rigorous review of their staffing levels. In order to ensure that their outgoings are reduced, they are cutting staffing levels. Secondly, they are trying hard to tighten their credit controls. If those not in cash businesses used to invoice every month, they are now invoicing every week. Thirdly, they are almost totally cutting capital spending. Those companies that wanted to invest a little to increase their efficiency and productivity are now saying that they cannot afford a new telephone system or to invest in the plans that they made a year or six months ago. Finally, many are making sizeable cuts in their marketing and advertising budget, even though in many respects this is the worst time to do that. They are being forced to do so, because the name of the game is survival, and the objective is to be around this time next year.
What implications does all this have for the Government and the recession that we now face? Sadly, it means more unemployment, because businesses are being more frugal about how many people they employ. I recognise that we are talking about businesses that employ only small numbers, but collectively that adds up to a sizeable number of jobs. I know that that is not what the Government want, and that is one reason why we have to help small business as much as we can.
The reduction in capital spending leads to a vicious cycle—less spending leads to fewer jobs, which lead to a less buoyant economy. That is especially relevant in the small business sector. Of course, small businesses should be talking to their banks. The company of which I am a non-executive director went to talk to the bank about its contingency in September last year. We recognised that we might need the bank’s support and help if we suffered any of the problems that I have described. Because we have been banking with that bank for 20 years, we had a relatively favourable response, but
many small businesses are frightened to go to their banks in the present climate. They are genuinely worried about what the banks will or will not do.
Most small businesses do not operate on loans: they operate on a bank account with an overdraft facility. That facility is very important to them, because it gives them flexibility so that they are not lumbered with a three or two-year loan. They have a flexible friend in an overdraft that they can repay as and when they see fit, rather than having to abide by the terms of a loan agreement that they might have to pay a sizeable fee to get out of, even if business picks up. They are therefore concerned about loans. They do not talk to the banks, so the banks call them in, and they are forced to negotiate new overdraft facilities, often for shorter periods. Those new facilities require a renegotiation fee, perhaps only £300 or £400, but it is another demand on cash flow that they could do without. When they negotiate a new deal for their overdraft, they find that they are paying, if they are lucky, 6 per cent. above base rate, but in many instance 7 or 8 per cent., and I have even heard of someone paying 9 per cent. above the base rate. They are therefore caught in a cleft stick: they have to face the recession on the one hand, and a difficult scenario with their banks on the other.
Mike Penning: I am sorry to interrupt my hon. Friend’s cogent argument, but it is not just the fact that small businesses are penalised with interest rates of 9 or 10 per cent. above base to get those loans and overdrafts, as there are often add-ons, particularly insurance cover, which is compulsory in many cases. When small businesses go to obtain a loan from their banks, they pay huge interest rates and, at the same time, there is a demand—sometimes implicit, sometimes not—that if they do not take the insurance cover, they will not receive a loan, which, as hon. Members can imagine, is hugely expensive for them.
Mr. Binley: My hon. Friend is absolutely right. I was about to move on to the additions placed on small businesses through that renegotiation process. Insurance, as he said, is one of the conditions that are appearing more and more. So, too, are personal guarantees. I have been told by the Federation of Small Businesses that 40 per cent. of the people they surveyed were considering packing up their business. My fear is that that was because they went home to their partner and said, “Look, we’re going to have to put the house on the line.” Their partner says, “We certainly are not: we worked hard for this house, and it’s all we’ve got.” That is another fearful story that is doing the rounds—a fact that, in itself, is a danger.
The final problem, apart from personal guarantees, insurance of the kind that my hon. Friend described, and extra demands on the business appearing in the small print of the negotiation agreement, is decisions that are being made higher up the line in banks. Twenty-five years ago, when I started my first company, which now employs 140 people, as I have said, the banks were almost a partner in my business. We met every three months, and they acted as my financial adviser. They knew the local business scene, and were aware of the local business personalities. They were incredibly helpful, and partly responsible for the fact that that company employs 140 people. Sadly, in many banks in small and
medium-sized towns, that facility no longer exists, as it has been shoved up the decision-making ladder to the point at which deals are matrixed, and they are done so on worst-case scenarios, which means a higher cost than would be necessary if the deal were done at a lower level where people understood the local business scene. That is another problem that has arisen in the past 20 years: decisions are taken higher up the line, and the small business man in a small country town or, indeed, in a suburb of a larger town or at the edge of a city does not get the chance to talk properly to someone who really knows about the local business scene. Another massive support for small businesses has therefore disappeared.
No wonder small businesses are fearful of banks, and they desperately need our help, support and, equally, our understanding. I am led to believe that the Government can provide that understanding, and I hope that we hear more about that when the Minister replies. The Bill is one way in which we can provide that help, which is why I fervently support the measures that my hon. Friend the Member for Mid-Worcestershire has introduced in the House, as well as his speech and, if I may say so, the speech by the hon. Member for Somerton and Frome (Mr. Heath), who represents the minority Opposition. We need to get behind the sector in every possible way. The answer is not loans, as they are not flexible enough. I have said that the money is not coming through and, indeed, the Leader of the House of Commons, who filled in for the Prime Minister on Wednesday, made the point that the loan guarantee scheme is not yet in operation, even though it was due to come in on 1 March. That scheme is meant to help people higher up the food chain, but its delay is indicative of bureaucracy getting in the way.
I genuinely believe that the Government wish to help. I am not knocking the Government for the things that they are trying to put into effect, but I am concerned about the quality of the management that puts those actions into effect. It is simply not good enough in any theatre of business or politics to say, “This is what we propose; we have therefore solved the problem.” It does not work that way. We have to manage the project, and be sure that it has been put into effect. We have to fine-tune, monitor and police it. I fear that that is not happening, so I urge the Government to consider doing more, because it would be helpful to the sector that we are discussing.
I have made the point that there is one way in which we can help. It does not require a big change, it will not cost a lot of money, and the fact is that it could well remove the straw that breaks the camel’s back for many small businesses that face difficulties at present. We have heard that less than 50 per cent. of them take up the offer to apply for relief. They do not like bureaucracy—that point has been made by my hon. Friend the Member for Ribble Valley. In fact, some of them are concerned about democracy, because they fear that it might invite more inspectors into their business, and impose more regulations and requirements on their busy and limited management time. They do not like getting involved at that level with bureaucracy, so it is a simple measure that we can take.
We have heard that take-up is patchy, and I shall give the House two examples of near-neighbours in Essex. In Tendring district council, 72.8 per cent. of small
businesses that qualify claim relief. In Thurrock council—next door, I think, for those people whose geography is better than mine—which is a unitary authority, only 27.1 per cent. claim. It is a massive difference, and there must be an explanation. Perhaps—and I should have found out, Mr. Deputy Speaker, as I can see that you are looking at me with some interest—Tendring district council has written to the people who qualify, and has taken steps to encourage them to apply. Perhaps Thurrock council has not done so: I do not know, and I do not wish to apportion blame, either.
Peter Luff: I am sorry to interrupt the flow of another excellent speech, and I am grateful for my hon. Friend’s support, but it may help him and Mr. Deputy Speaker to know that Essex county council in particular takes an exemplary interest in the issue and is driving it forward aggressively with district councils in its area.
Mr. Binley: Many of my small business colleagues will be delighted to hear that message, and I hope that it spreads to the rest of the country. The truth of the matter, however, is that it ought to be an automatic right, and that case has been well and truly made by my hon. Friend. We know that 40,000 small businesses—according to BDO Stoy Hayward, it is 33,900—will go to the wall this year. Many of them are in our high streets, and many of them are the self-same people who are involved with local charities, and serve as councillors, of whatever political party. They take an interest in local society, and they are the people who will go to the wall. The harm to our communities is multiplied by that.
We need the sector to hang around, especially when the green shoots come. We know that it is a sector that provides jobs growth. It provides massive amounts of British creativity, and it creates vitality in our high streets, as I have just explained. There is a further point. The sector lays the foundation for the supply chains of UK plc. To demonstrate how vital that base is, I need only quote the fact that Airbus UK employs 13,000 people directly, but another 140,000 people are employed through its supply chains. The small business sector is vital to the whole panoply of our industrial sector, our wealth-producing sector. It is vital to the whole of our business and commercial sector. As Winston Churchill said, I repeat that because it is so important.
We need the sector to help us meet the global challenge, which will no doubt be a much more difficult challenge to meet when we come out of the recession. More manufacturing jobs will have moved to China and India when they get moving again. We need all the creativity, enterprise, drive and enthusiasm we can get, and people in the small business sector provide it.
Mark Pritchard: My hon. Friend is a great champion of the people of Northampton, South and is making an excellent case. Does he agree that it would help if we had more business representation on the Government Benches? If there were some experience of business there, there would be some understanding that large businesses started as small businesses. Small businesses develop into medium-sized businesses, and those develop into large businesses, keeping people in jobs.
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