It is ridiculous to suggest, as the Mayor of London did, that we could build such an airport in the same time it would take to add one runway to an existing

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airport. And all the while, the economy is suffering. The Stalinist command-and-control-economy assumption that we could move hundreds of thousands of jobs to the Thames estuary at the stroke of a Mayor’s or even a Government’s pen is preposterous: many of these jobs would not move, many would move to Europe and many others would no longer be economical, because the capital and investment on which they depended would be destroyed. The assumption that all the hotel and business infrastructure around Heathrow could be rebuilt, cost-free, in the estuary airport is wrong. If people had to pay twice for that, many fewer jobs would survive.

We hear from the Mayor of London that Heathrow could become like Kensington and Chelsea or Canary Wharf, yet he has just been to the old airport in Hong Kong, which, 15 years on, is still a shell, with next to no development, in one of the fastest-growing economies in the world. Boris told me that if he proposed this seriously, he would come down to look at the Thames estuary and the Hoo peninsula, in my constituency, where he wants to build it, but he has not come, so I can only assume that he is not serious. The Davies commission, which did come, was absolutely astonished. It thought, having listened to Boris, that it was like a blank sheet of paper, but there are more than 23,000 people living there, nine villages and some of the most important energy infrastructure in the country.

I am pleased at least that Transport for London has recognised that we could not use HS1 to access that new airport—it would not have the capacity and there is no where to put the trains at St Pancras—yet, like Fosters and Partners, which is in the clouds as much as my hon. Friend the Member for Harwich and North Essex (Mr Jenkin), it is saying that there could be three other substantial railway projects, including a parallel new high-speed line. Even those three projects would not provide the local access to work for the people coming into that airport, which would require further tunnelling under the Medway towns to get those people across the two river pinch points.

Crucially, given the level of environmental protection in this area, legislation states that there must be an “absence of alternative solutions” even before we can consider building such an airport. It cannot be a credible option, therefore, if it has already been determined, as the Davies commission must, that there are other credible options.

I heard that the scheme would cost £80 billion, but the Deutsch Bank aviation analyst tells me it would be £120 billion. Of that, up to £30 billion would be public money. It is absolutely extraordinary. It is incredible. I do not think any Government would fund that. What about the private money? Ignoring all the new investment, we would still be looking at about another £50 on every ticket for anyone who used that airport. What a blow to business that would be!

As to its operational viability, National Grid said that

“the proposals being put forward for a Thames Hub Airport on the Grain peninsula are incompatible with the energy infrastructure”.

The fog is three times what it is at Heathrow and the risk of bird strikes is twelve times as high. The delivery risks are absolutely enormous.

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We have heard a lot about Heathrow, but what about Stansted, which we have also heard about? It needs better train service connections. Perhaps even our Lib Dem friends would support those extra train connections to allow the half-empty runway to be better used. Gatwick should be strongly considered, too, because it has the money. It would only cost £5 billion to £9 billion —about one tenth of the Thames estuary airport—and with the improved train connections, particularly the Thameslink service to London Bridge and, crucially, to Farringdon, it would be a credible option and provide competition.

4.34 pm

Mr Andy Slaughter (Hammersmith) (Lab): “Aviation Strategy” is a great title for a debate; what we are actually having is the “Is Heathrow going to get away with it yet again?” debate yet again. I fear that those at Heathrow might get away with it, as those of us in west London who have debated these issues with them over 30 years and seen how they operate think they might, because of political cowardice and the way in which politicians of all parties have given in to the airport lobby over that time.

Although we have had some excellent speeches today, I am somewhat surprised by that, because at the moment we have very little of substance to say that is new. The reason for that is partly the vacuum caused by the Airports Commission not reporting until after 2015, for no reason whatever other than political convenience. That has created a vacuum into which has floated the Mayor of London, with his frankly ludicrous suggestion of an estuary airport.

Rehman Chishti: Will the hon. Gentleman give way?

Mr Slaughter: I do not think I should.

Not only is the idea of an estuary airport distraction politics of the worst kind; it is now affecting Stansted as well. Because the Mayor has virtually abandoned the idea of an airport actually in the river, he is now looking at the four-runway option at Stansted as a fallback position, which has mesmerised those at Stansted, who cannot get on with their ordinary work.

The fact that we had three London airports in the same ownership for so long has constrained the debate and let BAA, as it was then, keep control of the argument. I still do not understand why so many politicians—this includes the last Labour Government—are mesmerised by the airports and airline industry, which are simply looking after their commercial advantage. That has happened to such an extent that the Conservatives in opposition were saying that HS2 should go via Heathrow. That was another mad suggestion, which slowed down high-speed rail, but it has now been abandoned.

We have been ill served by the debate so far—that goes not just for my constituents, but for the general public. Because Heathrow has been making the weather on this issue and because the other airports in the south-east have been so far behind the curve, it has been left to organisations such as HACAN—the Heathrow Association for the Control of Aircraft Noise, led by John Stewart—and community groups to provide the rationale and the arguments, which they have done admirably.

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We are now faced with the prospect of two options. I do not have the time to go into this, but I am pleased that other colleagues have talked about the horrendous effects that Heathrow expansion would have, and not just on noise—the fact that 25% of those in the EU who are bothered by serious noise nuisance are from around Heathrow should rule out expansion alone. However, there is also the congestion and pollution, as well health and safety issues. Expansion is therefore simply unthinkable, but so is an estuary airport. Not only would an estuary airport be in the wrong place—hon. Members should see what the chambers of commerce have said about the prospect of that much public money going into such a white elephant; it is a ludicrous suggestion—but it would close Heathrow, as the Mayor of London, its chief cheerleader, says it would, or Heathrow would otherwise be reduced to the size of City airport.

That is not sustainable for either the west London or the UK economy, so why are we so hung up on this idea of a hub airport? In advocating expansion, I am not expert enough to say exactly how it would occur and where it would be possible in a city and a region that has five airports, but Gatwick, which is now making some money, Stansted and Heathrow should all get together and look at that proposal. Failing that, our politicians from all parties should get together, show leadership and put forward a proposal that can deliver short-term gains for public transport and free up the existing capacity and, in the longer term, deliver a network to serve the great capital city, rather than going for an expansion of Heathrow.

4.38 pm

Adam Afriyie (Windsor) (Con): We are debating aviation strategy today, but a lot of the comments I have heard—particularly about the sticking-plaster solutions for Heathrow and all sorts of other complicated, detailed, short-term fixes—do not deal with the strategy we need for the nation. We used to be a great island global trading nation in the 1700 and 1800s, and we had a fantastic period even in the early 1900s. If we are talking about strategy, we should be talking about a long-term vision for where we want our country to be, and having a new offshore airport is a very good idea for the long-term economic growth of our country.

A short runway at Heathrow would not do it, while an extra runway at Gatwick would not deal with the hub issue. All those small fixes for the short term would just lead us straight back to where we were: putting off the long-term decision again, as my right hon. Friend the Member for Saffron Walden (Sir Alan Haselhurst) described. I very much welcome the Davies commission. I differ somewhat with the timetable for the reporting and the decisions, but it is right that someone is going to take a calm, long-term view of the situation.

There have been a lot of scare stories saying that, if a new hub airport were to be built over a period of 20 or 30 years, Heathrow would somehow cease to exist. However, we already have regional airports, and Heathrow could continue in that capacity and gradually evolve over time. I must declare an interest, in that I live under the flight path in my Windsor constituency. The biggest challenge is to ensure that, with 480,000 air traffic movements a year, the number of flights does not increase. A second concern relates to night flights. I was involved with the recent Civil Aviation Bill. Thankfully,

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Heathrow has only 16 night flights at the moment, but with an extra runway, that number would increase massively. I will certainly continue to go on marches and to work with hon. Members across the House to ensure that a third runway does not become a reality.

We need to step back and look at the interests of the nation over the next 50 to 100 years, then make this decision in a cool, calm and collected fashion without focusing on short-term, sticking-plaster solutions. I hope that, when the Davies commission reports, it will have taken a long-term, mature look at the matter. I believe that an offshore airport would solve all the problems, despite the short-term challenges involved in getting it built.

4.41 pm

Mr Gordon Marsden (Blackpool South) (Lab): We have had an extremely good debate. I do not have time to dwell on all the contributions, but I shall simply say that the Chair of the Select Committee, my hon. Friend the Member for Liverpool, Riverside (Mrs Ellman), has performed a singularly important task on behalf of us all in putting forward her views so strongly and eloquently. The right hon. Member for Saffron Walden (Sir Alan Haselhurst) made an imaginative pitch for diversification. My hon. Friend the Member for Blackley and Broughton (Graham Stringer) made some thoughtful comments about hub connectivity, which were echoed by many other hon. Members, and my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) brought all his experience and distinguished service to his comments. My hon. Friend the Member for Hayes and Harlington (John McDonnell) spoke with passion, as always, on behalf of his constituents.

I come to this new brief to listen and to learn, as well as to speak, but I do have Blackpool airport just down the road from my office. It handles 250,000 passengers a year, and 750,000 RAF staff trained there during world war two. Flights have been taking off from there since 1909. As today’s debate has shown, the aviation sector has enormous strengths and strategic importance. It encompasses skills in manufacturing, in leisure and tourism, in professional standards and in logistics. The sector serves a huge variety of customers and passengers, balancing business and leisure.

I believe that the aviation sector has a major contribution to make, not least because we have BAE Systems just down the road from Blackpool, supplying good jobs and apprenticeships to my constituents. There are huge opportunities for the sector to contribute to local economies, and I know that Heathrow has done some really innovative stuff with the schools and colleges in its area. The future brings great challenges, not least that of how to satisfy those under the planes as well as those on them, and how to strengthen the sense of a community of interest between them.

We agree with the Government that the aviation sector needs to grow, but we believe that that should be subject to concerns about sustainability criteria being met. The UK scores fifth in the International Air Transport Association connectivity index, and we must maintain and strengthen that position. The industry is vital to the UK economy. The aviation policy framework that was published earlier this year showed that aviation adds some £18 billion to our gross domestic product, although

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the Airport Operators Association puts the figure at nearly £50 billion. The Minister might like to think about whether the significance of aviation jobs, the supply chain and tourism ought to be included in that assessment. The Government’s role is to be an active and intelligent provider of connectivity for those expanding export businesses.

I broadly agree with the Chair of the Select Committee that expansion in the regions will not provide a magic bullet to deal with all our capacity problems and that there are national infrastructure issues that urgently need to be addressed. The question of whether to locate in London and the south, or in the areas beyond, is not an either/or—we have to do both. Similarly, the question of whether to opt for point to point or hub expansion is not an either/or—both are necessary. Addressing the question of the hub, and the spokes that might come from it, is critical to connectivity and consumer experience, and we must remember that that cannot simply be measured or satisfied by the number of shopping malls that might accompany the development.

Howard Davies confirmed to the Airport Operators Association conference on Tuesday that any major response to hub capacity would not become operational until 2023. In that case, there must be a particular and minute focus on short-term capacity solutions. As Davies himself has said:

“A number of airports have proposed that there are ways in which you can make existing airports more appealing and provide some additional headroom.”

I agree, and I also agree with the chief executive of AOA, who says:

“To deliver the UK’s future air connectivity we need both vibrant point-to-point airports and sufficient world class hub capacity”.

That view is echoed by the British Chambers of Commerce, although it makes the point that that strategy should not focus only on the south-east, but

“should also involve the strengthening of regional airports throughout the UK.”

There are some splendid examples of such airports in my region, quite apart from my airport at Blackpool. There is Manchester airport—we have heard wonderful illustrations of its importance—which has great strengths in local connectivity. All the 10 councils of Greater Manchester were involved with the exercise from the ’80s, and this is an £800 million airport city. Liverpool airport is increasingly widening travel options for huge swathes of people across the north-west, Wales and beyond. Elsewhere, Birmingham has put forward to the airports commission, as part of its bid for a second runway, some innovative and interesting ideas on future flight patterns and its future involvement in them.

To the extent that it is relevant to the area, I welcome the language of the aviation policy framework, which sets out the Government’s objectives and principles to guide the making of plans and decisions at local and regional levels, but if we will the ends, we also have to will the means, which means real localism on the ground from government. We believe in active empowered government, and if we are to achieve these objectives, we need local economic partnerships, local authorities and other sub-regional stakeholders to collaborate with airports.

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There is particular potential for boosting tourist economies in popular destinations about the UK, in which regard the APF refers to the strategy of the Department for Culture, Media and Sport. Transport Ministers must not allow aviation to remain in a silo in one branch of the Department or elsewhere. Engagement is needed with other aspects of departmental responsibilities, not least the rail network, and they need to be a force for innovation and collaboration.

Airports are key players in their communities and, as the APF recognises, airports should be encouraged to strengthen these relationships with communities. To build and maximise such initiatives, we need to link rail policy with airport policy. I did not agree when the Government responded to the Select Committee by saying:

“The Government does not agree with the Committee’s view that surface access to major airports in the south east is poor.”

That shows a very complacent attitude, and we should be using the Davies gap to look actively at other ways of expanding. It is crazy that current rail services to airports are not directly considered in the aviation policy framework, and that is why we support building the new western rail link to Heathrow.

Mr Jenkin: Will the hon. Gentleman give way?

Mr Marsden: I will not; I do not have the time.

That was also why I supported my right hon. Friend the Member for Tottenham (Mr Lammy) when he expressed his concerns about Stansted.

We will not prejudge the conclusions of the Davies commission, which has been tasked with producing independent recommendations on the strategy. It must be left to produce its initial report in December and subsequent recommendations, but we echo the calls of the Select Committee to the effect that, given the protracted timetable, the time available must be used to ensure that the research is comprehensive and robust.

Mr Jenkin: Will the hon. Gentleman give way on that specific point?

Mr Marsden: No, I will not; I am trying to keep to my time.

The Government must also address consumers’ ongoing concerns about air passenger duty. As we said in yesterday’s Opposition day debate, the Government need to undertake a real review of the effects of that tax. In straitened times, we need to keep a clear line of sight over costs and charges, ensuring that consumers are not at the centre of any resolution between airports and airlines that disbenefits them. We also have to make sure that new or improved public transport links remain affordable to consumers because otherwise unfair burdens will be imposed on them.

Of course, we have to deal with noise, which was raised by several hon. Members, not least my hon. Friend the Member for Hayes and Harlington. We will continue to oppose any increase in night flights and to listen to arguments for tighter restrictions. We will urge the Government and industry to look further at noise mitigation measures.

These are difficult times and the decisions are difficult to make, but the strategy is not a choice between economic growth, and social and community cohesion

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and contentment. Those factors have to be reconciled, and the Government will have to play a key part in that process.

4.49 pm

The Parliamentary Under-Secretary of State for Transport (Mr Robert Goodwill): I welcome the opportunity to respond to what has been a timely and generally good-natured debate. I also welcome the hon. Member for Blackpool South (Mr Marsden) to his new post. He represents Lancashire’s premier resort; I represent the United Kingdom’s premier resort.

I thank the hon. Member for Liverpool, Riverside (Mrs Ellman) for seeking the debate, the Backbench Business Committee for arranging it, and Members on both sides of the House for taking part in it. The hon. Lady is the sole survivor of the Transport Committee on which I served, and I remember my days there with great affection. She is continuing the assiduous work of her predecessor, Gwyneth Dunwoody, even if not in quite the same pugnacious style.

The Government are determined that the whole country will continue to gain the economic benefits of a vibrant aviation sector. The sector employs some 120,000 people directly, and many more indirectly. Today’s debate stems from the Transport Committee’s report on aviation strategy. As part of the Committee’s investigation, my right hon. Friend the Secretary of State gave evidence before it on 11 February this year, and the Government responded to the report in July.

Let me update the House on some significant aviation policies before dealing with a number of points that were raised. We appear to be in broad agreement about the importance of maintaining the United Kingdom’s position as a leading global aviation hub for the UK economy. Freight volume and terminal passenger numbers were higher in 2012 than in the previous year. We have the third largest aviation network in the world, after the United States and China. The five airports serving London offer direct services at least weekly to more than 360 destinations worldwide, which is more than Paris, Frankfurt or Amsterdam. We are determined to take the necessary action to maintain the UK’s position as Europe’s most important aviation hub.

Aviation capacity is important for the economic growth of the UK, and that vital issue requires long-term thinking and consensus-building. The UK continues to have excellent aviation connectivity, both on a point-to-point basis and through the London hub, but our major airports face a capacity and connectivity challenge in the medium and longer term. Heathrow is operating to capacity today, Gatwick is expected to be full in the 2020s, and Stansted, which currently has considerable spare capacity, is expected to be full by the early 2030s.

The Government accept that aviation capacity, especially in the south-east, has been a controversial and difficult issue for many years. The only way in which we can end the years of indecision and inaction is by taking the approach that we have adopted, which I hope establishes cross-party support and political consensus. That was an important factor in our decision to create the airports commission and to make it independent of the Government. Led by Sir Howard Davies, the commission is examining options, and it will make recommendations that will maintain the UK’s status as a leading global aviation hub in the long term.

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Mr Jenkin: Given that we believe in democracy, openness and transparency, would it not be much more democratic to allow the Davies commission to report before the general election so that the debate at the time of the election can take place in the light of its findings?

Mr Goodwill: The commission will publish its interim report before the end of the year, and the Government will respond to it by the spring. There may be some action that we can take at that stage, perhaps in respect of surface connectivity, but I think it is important for the commission to have a chance to do its work properly, and that means giving it enough time. If we are going to do this, let us do it right.

I am pleased by the support for the commission’s work that Members have given today. The Government welcome the publication of its discussion papers on issues such as connectivity, climate change and noise, and we look forward to receiving its interim report by the end of this year. That report will outline the scale of the additional capacity that is needed, shortlist the places that the commission thinks can best provide that capacity, and make recommendations for the effective use of existing capacity in the short term. We have also asked the commission to consider the findings of the report on our trial of operational freedoms at Heathrow, so that, too, will be covered in the interim report.

The Government look forward to the interim report, and we will give it full consideration, but we shall not be in a position to comment on the scope or content of our response—which, as I have said, we intend to issue in the spring—until the report’s publication at the end of 2013. I hope that the hon. Members for Liverpool, Riverside and for Poplar and Limehouse (Jim Fitzpatrick) will understand the need for the work to be done thoroughly, and the time that that will take.

I am pleased to be able to tell my right hon. Friend the Member for Saffron Walden (Sir Alan Haselhurst) that I will visit Stansted soon, so I will learn about some of the issues there first hand. He said there has never been a strategy, but I hope that the Davies commission addresses that failing.

The hon. Member for Blackley and Broughton (Graham Stringer) has considerable experience of this subject through Manchester Airports Group, and I hope he welcomes the fact that I spent an Industry and Parliament Trust year with MAG, when I learned a lot about the operations of airports. He mentioned the vexed issue of APD, which the House had a good opportunity to discuss yesterday. Although I am new to the job, I am not so wet behind the ears that I would encroach on the Treasury’s territory, but I would make the point that there are other barriers to visitors coming to the UK, including the issue of visas for people from China, so I was pleased that my right hon. Friend the Chancellor addressed that on his recent visit there.

Mr MacNeil: I would hope that the Department for Transport would have a fairly robust view on this and that it would communicate its thoughts to the Treasury if it felt that APD was limiting the numbers of passengers, although we know it is—by about 2.1 million per annum in Scotland. Surely the Department for Transport will not sit back and let the Treasury take the lead.

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Mr Goodwill: The Government are determined to stay on track with our deficit reduction plans, and it is important that the aviation sector continues to play its part. A number of Members in the House should shoulder some of the blame for the deficit that we are having to reduce.

On CAA costs, I assure the hon. Member for Blackley and Broughton that I intend to have regular meetings with its chair, Dame Deirdre Hutton. Indeed, one such meeting is already in my diary. Of course, under the Civil Aviation Act 2012, there is a requirement on the CAA to consult on charges.

The right hon. Member for Greenwich and Woolwich (Mr Raynsford) raised the issue of noise and air quality, as did the hon. Member for Hayes and Harlington (John McDonnell), whose views on this matter are well known. The right hon. Gentleman referred to recent research by Imperial college and others about heart attacks and strokes in areas affected by aircraft noise. We need to do further work on that because other factors may also be in play.

My hon. Friend the Member for Harwich and North Essex (Mr Jenkin) made the case for London to be better connected, so I look forward to his support next week as we push forward with plans for the High Speed 2 rail network, which will connect London with the north of England so effectively. The hon. Member for Poplar and Limehouse raised concerns about some of the initial press coverage following my appointment. May I assure him that he should not read too much into the meeting I had with the Scarborough Greenpeace people? Indeed, I was relieved that the coverage was not portrayed as the Chancellor having another of his chums

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in a Government Department watching his back. I assure the hon. Gentleman that I come to this with an open mind. Indeed, when the Secretary of State appointed me he said, “You’ll be just the person for aviation as you’re 250 miles away from the south-east of England.”

Looking outside London, the Government’s aviation policy framework, which was published earlier this year, supports the growth of regional airports, and we recognise the importance of regional air connectivity to London in supporting regional economies and contributing to national cohesion. In fact, domestic airport connectivity across the UK increased in 2012. We now have a flight from Leeds Bradford to Heathrow, which is becoming a boon to the Yorkshire economy.

Aviation is a challenging topic. Successive Governments have struggled with how best to continue to gain the economic benefits it brings while restraining its impact on local people. I hope that the House agrees that the Government have established the right foundations to move forward, gain consensus and secure the benefits aviation brings for the nation.

4.58 pm

Mrs Ellman: I thank all Members who have participated in this very well-attended Backbench Business Committee debate. There is overwhelming support for additional hub capacity to support our economy. I hope that hon. Members’ contributions will assist the Davies commission to come to the correct conclusion. This issue will not go away; it is about the future of our country.

Question put and agreed to.


That this House has considered aviation strategy.

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Share Capital (Businesses)

Motion made, and Question proposed, That this House do now adjourn.—(Mr Gyimah.)

5 pm

Andrew Selous (South West Bedfordshire) (Con): I am grateful to Mr Speaker for giving me the chance to raise the important issue of how we can raise share capital for our nation’s businesses. All hon. Members will be well aware that we do not have to spend long in either Treasury questions or business questions before Members from all parts of the House get up to talk about the difficulties that businesses have in gaining access to finance. Every time that has happened over the past couple of years when I have been in this Chamber the complaint raised by Members has been that the banks are not lending. Indeed, we still have a partially broken banking system, which is why the banks are not able to lend in the way that British business, large and small, would ideally like them to do.

Of course, loan finance is only one way in which businesses of all sizes—although I am thinking particularly about small and start-up, fast-growing businesses— can raise the capital they need. The other way is through equity or share capital. I find it odd that that type of capital—that way of helping businesses to start up, grow and expand—is a subject so rarely raised in this House, and I wish to remedy that this afternoon. So I stand here on behalf of the nation’s 4.5 million smaller businesses—the small and medium-sized enterprises that do so much to power our economy and grow the larger businesses of tomorrow—and on behalf of the men and women who work in the “small- cap” market sector of the City of London, who try to raise that much-needed and incredibly important share capital, or equity finance, for our nation’s businesses.

I wish to pay tribute to some of the people who work in that sector in the City and who took time out, at no remuneration to themselves, to write the Drury report. They are: Tony Drury, Roger Hardman, David Scott, Michael MacDougall, Simon Webber, Robin Stevens, Brian Hibbert CBE, Charity Walmsley, Laura Keeling, Teresa Quinlan and Paul Quade. I had the pleasure of working with them and helping them. Indeed, I took them all to meet the previous Financial Secretary to the Treasury, so that they could outline what was in their report.

This is not a new issue. The Macmillan committee report of 1931 identified what became known as the “funding gap” as far as British businesses were concerned. Our Government, in March 2012, commissioned the Breedon taskforce to write a report, “Boosting Finance Options for Business”, examining these very issues. In our relatively recent history, we have been quite successful in getting stock markets, large and small, to raise equity capital for small and growing businesses. Between 1998 and 2008, the Alternative Investment Market—AIM—and the PLUS market provided many hundreds of UK companies with early-stage equity finance. It is the belief of the Drury report that if the small-cap sector was rejuvenated in the way it suggests, a further 200,000 people could be found work as the businesses were helped to grow in the way that those behind the report believe they can.

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I have to tell the Minister that, sadly, all is not well in the small-cap market in the UK. Between 2009 and 2012, there was de-listing of 722 companies on the AIM. Indeed, the amount raised on the AIM in 2012 was barely 17% of the £16 billion raised on that market in 2007. Let me quote one small paragraph from the Drury report. It states:

“For us the small-cap sector is ‘Middle England’: the millions of people trying to run and grow their businesses against all the odds. The sector is friendless, ignored by the banks, hounded by officialdom, bullied by bigger brothers and misunderstood by some politicians.”

I hope to rectify some of that misunderstanding today.

Many people are not even aware of all the markets that enable smaller businesses to raise funds. In addition to the AIM, we have the ISDX—the ICAP Securities & Derivatives Exchange—formerly known as PLUS markets. Currently, 112 companies are listed on it. That story is not happy either, I am afraid—there have been 35 de- listings from the ISDX since the ICAP relaunched the exchange in October last year, but only eight additions.

There is also the GXG, on which 106 companies are listed; again, that could be larger. At the moment, 859 UK companies are listed on the AIM, whereas in 2007, before the great recession, there were 1,347. Companies de-list for a number of reasons, one being the cost of being on a market; I will talk about that and regulatory issues, which we need to consider, in a moment.

Today I was given some stunning figures—they really jumped out at me—by the London stock exchange. In the United States of America, bank lending as a percentage of external, long-term funding is 19%—that is, under a fifth. In the European Union, however, the figure is 81%, or more than four fifths. Those figures are stunningly divergent. If the Minister and his officials take back only one set of figures from this debate, I ask them to consider why there is such a different financing model in the US and why so much more share capital and long-term investment are put into businesses there than here in the European Union.

The European Commission green paper on the long-term financing of the European economy has been published and the Government will respond to it. It has some sensible suggestions. The London stock exchange has urged a “think small first” approach and asked the Commission particularly to assess the regulatory impacts on access to capital for smaller companies, the costs of capital and the fiscal bias against equity, which I shall come to.

For the sake of completeness, I should say that there are three other, smaller equity markets: Sharemark, AltCapX and BritDAQ.

Clearly, there is a funding gap for British industry and many businesses. Banks are increasingly nervous of lending to businesses that do not have strong balance sheets. I am not setting up equity capital against loan finance; if a business has a strong balance sheet and a decent amount of share or equity capital, it is more attractive for a bank to lend to. The two issues go together.

As we know from recent research from smallbusiness., one in six small businesses has had to resort to a payday loan and just one in 10 was able to secure a loan from its bank in the first year of trading. The Minister’s Department, the Department for Business, Innovation

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and Skills, has said that it estimates the current funding gap facing British industry up to 2017 at anywhere between £84 billion and £191 billion, of which between £26 billion and £59 billion relates to smaller businesses. Those are huge figures. It is clear why we need to consider how share capital can help bridge some of that gap. Many smaller businesses are simply unaware of even the possibility of raising share capital and how they would go about doing it. I shall come to that in a second.

It is worth putting on the record that the tax treatments of share capital and debt are very different. Debt interest payments are tax deductible, whereas share capital is taxed four times—on purchase, for stamp duty; when profits are declared, through corporation tax; when profits are paid out, through income tax on dividends; and when shares are finally sold, through capital gains tax.

Credit where credit is due—the Government have reduced stamp duty on AIM shares, which is excellent, and we are lowering corporation tax. The Government have already helped in some areas. However, the Minister will see that there is a significant difference between the tax treatments of share finance and loan finance.

The regulatory costs of raising share capital are significant, and the Government need to look at that issue very closely. I am delighted that we have here not only this Minister, who is an excellent Minister for whom I have the very highest respect, but a BIS Minister. I sometimes wonder who in Government is looking at this issue, not just from the investor’s point of view in making sure that every box is ticked as regards regulation, but in being the champion for these 4.5 million small businesses as regards their need to raise share capital. I would love the Minister, as well as dealing with the very many important tasks he has to deal with, to be that champion. I am throwing down the gauntlet to him and hoping that he will take up that challenge as part of his many important responsibilities.

Financial Conduct Authority costs are high in this regard. One broker who deals in the small-cap market in the City, in a relatively small firm, estimated that the regulatory costs are about £10,000 per member of staff. A company that has large volumes of business can cope with that, but for one with relatively small volumes of business the whole thing will border on being unviable. Yesterday morning, at a breakfast meeting, I put that point to Martin Wheatley, the chief executive of the FCA. He acknowledged that the costs of raising share capital for smaller businesses are high and that regulation is onerous. He did not disagree with me, but I am not sure that we quite worked out what we can do about it.

I am convinced that we need to have a proper campaign of education for businesses up and down the country about the advantages of raising share capital rather than just going to a bank for finance. I would like chambers of commerce, the Federation of Small Businesses, the Institute of Directors, the CBI, accountants, lawyers and other business advisers to work together in our communities explaining to businesses how they can raise share capital if they are having difficulty raising loan finance. They could explain that having outside shareholders in a company does not mean that it loses

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control. Many businesses think that if they have an outside shareholder they lose control of their business, but they do not; if they still own 51% of the equity, they retain control. Yes, their standards of corporate governance may need to improve a bit, and that is generally a good thing, but they retain control. That is often not understood, and changing that would further open up the possibility of raising share capital.

It is important to give praise where praise is due. I was delighted when stamp duty was removed from AIM shares earlier this year; indeed, I was one of the people who lobbied very hard for that. AIM shares can now be included in individual savings accounts. It is not generally understood that if someone is lucky enough to have an estate that might breach the inheritance tax threshold, any money they have in AIM shares is not counted towards that threshold. That is another good thing that will encourage vitally needed investment in this important and growing sector of the economy. Indeed, I understand that the Share Centre reported an increase of over 106% in AIM stock purchases on the day that the policy was introduced.

There are some tremendous success stories; I would not want the Minister to think everything was bad. Let me give him an example. Abcam plc is a business involved in cancer research that sells antibodies to researchers. It listed on the AIM in 2005 with a £58 million flotation. By the summer of 2012, it had grown to a market capitalisation of £770 million. Its revenue rose from £12 million to about £100 million, and the number of staff grew from 78 to 600. The company has significantly expanded, opening up offices abroad, and it is now looking to join the main stock market. That is a huge success story, and we want many other businesses to do the same.

I mentioned the European Commission. I was encouraged to see that posted on its website on 18 October, just six days ago, was information about its “Competitiveness of enterprises and SMEs” programme, known as COSME. Its remit includes improving SMEs’ access to capital markets, so that is good.

The London stock exchange is making representations to the European Union and has asked the Government to do so as well. On the markets in financial instruments directive II, it is pressing for the creation of an “SME growth market” classification in order to, again, make it easier, less expensive, quicker and less of a burden for our vital small and growing companies to raise the capital they need. It also wants to ensure that the implementation of the solvency II directive does not divert capital from equities, and it wants the Government to engage with the Commission’s green paper—I know they will—on long-term loan financing.

In conclusion, I think I am remedying this House’s failure to highlight the significance of share capital to small, fast-growing businesses in particular. I repeat my request to the Minister to be, among others, a champion for the needs of businesses large and small up and down the country to raise equity finance and to help them get the funding they need so that they can grow, prosper and create the jobs that our constituents need to help power our economy forward and pay off our deficit so that we can have a secure and prosperous future as a nation.

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5.16 pm

The Minister for Skills and Enterprise (Matthew Hancock): It is a great pleasure to respond to this debate, because I agree with the central thrust that motivated my hon. Friend the Member for South West Bedfordshire (Andrew Selous) to call it, namely the importance of equity finance, especially for small and medium-sized businesses, and the fact that it is not discussed as often as it should be in this House.

It is telling, as my hon. Friend has pointed out, that during Treasury and Business, Innovation and Skills questions we tend to get more questions on access to finance than on any other subject. There is some evidence that access to finance is improving, although it is still not in a strong position. Thanks to the tough choices we have made since 2010, I think it is widely recognised that the economy is, broadly speaking, on the mend. It has not fully recovered by any means, but it is on the way back. That is reflected in the number of businesses, not only in my hon. Friend’s constituency, where businesses are creating jobs, but across the country. Companies House records show that there were 480,000 new incorporations in 2012-13, which is the highest figure on record. If I may correct one of my hon. Friend’s figures—I do so as gently as possible—yesterday’s figures show that the number of SMEs in this country is now 4.8 million, not 4.5 million. I hope he is not too disappointed by that minor correction.

I accept my hon. Friend’s challenge to be, along with the BIS team, a champion of smaller businesses in their quest to access finance. Our programme is vital. The Breedon report made a series of recommendations, many of which have been acted on, including the introduction of the business bank, which my right hon. Friend the Business Secretary announced in September.

We know that it has been much harder for businesses to access finance since the crisis. One of the lessons of the crisis was that the economy had become too reliant on one source of finance, namely bank finance from the four big banks. The business bank will help to solve that problem, but it is by no means the only solution, because we need to increase the supply and diversity of finance available, which brings me to the subject of equity finance.

I will take on board all the points my hon. Friend has made and if I miss any out I will read Hansard and make sure they are acted on. I would stress that when talking about equity finance, we need to be cognisant of the importance of the wider availability of both private equity finance and public equity finance. Although it is difficult to measure with precision, in recent times, the amount of private equity finance, whether through angel investing, venture capital investing or bigger private equity financing, has been greater than the amount of public equity finance. Both are important. It is important to have diverse forms of finance, not only so that if one form struggles, others can take up the slack, but because different forms of finance are right for different companies.

It is true that we have extended tax relief, not only by cutting corporation tax, removing stamp duty on AIM shares and allowing individual savings accounts to invest in AIM shares, which is a tax relief in a sense, but through the extension of the enterprise investment scheme and the introduction of the seed enterprise investment scheme, both of which are extremely popular schemes

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for investing in small and fast-growing companies for those who pay UK income tax. The encouragement of equity finance, in whatever form, through tax relief is an important part of our programme to solve the problems that my hon. Friend highlighted.

Tax treatment plus regulatory costs, whether in the public or private sphere, make up the gap between the equity that an investor can put in and the investment that a small business receives. I hope that drilling down on both will bring more liquidity and finance where they are needed, which is in growing companies that can make good use of them.

I was struck by the figures that my hon. Friend set out. In the United States, 19% of this kind of finance comes from the banks, compared with 81% in Europe. The UK is one of the more friendly destinations in the EU for non-bank finance, but the figures are striking. When I was in the United States last week, I was struck by the powerful fact that more venture capital is available in the skyscraper in which the British consulate in Boston is housed than is available across the whole of Europe. That shows the difference between the two continents not only in the amount of finance that is available, but in the number of people who have started and grown a business and are now reinvesting. The United States, whether on the east coast or the west, is a generation ahead of us. Part of our job is to catch up as fast as we can. That challenge is real; the good news is that the opportunity that it presents is great.

My hon. Friend spoke eloquently about the various small exchanges. I urge him to look also at peer-to-peer finance, whether equity or loan, because that is a small but growing part of the market that companies can look to when trying to access finance.

As well as bringing tax relief and bearing down on regulatory costs, the Government make direct interventions. In the business angel sector, the Angel CoFund makes equity investments of between £100,000 and £1 million in SMEs. It does that alongside syndicates of business angels. It encourages greater levels of angel investment and syndication, and provides companies with experience and expertise alongside the capital. I echo my hon. Friend’s remarks that when finance comes into a small business, it brings not only pure capital, but better governance and advice from people who have skin in the game and who therefore take care in the advice that they deliver.

In the Budget this year, we announced that another £50 million would go to the Angel CoFund, doubling its size. I hope that it will help to strengthen the whole business angels sector, because it invests only when appropriate due diligence has been undertaken and a deal is structured properly. The UK Business Angel Institute, founded by the UK Business Angels Association and AngelNews, is creating standards of professionalism in UK angel investing, which by its nature often involves investing early in quite high-risk companies. If we can have more quality in training courses for private investors, such as those that the UK Business Angels Association is delivering, that will strengthen investing skills in that important area of the market.

My hon. Friend made the point that equity is taxed four times whereas bank debt is tax-deductible. A number of non-tax factors have an impact on whether a business decides to use debt over equity financing, so tax is not the only issue. Different companies look to different

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forms of finance, and debt can be quicker to obtain and less complicated to use. Of course, there is the also the question of the amount of ownership that is given up in return for equity financing.

I turn to deductions for interest as a business expense. To protect the UK Exchequer, a number of rules limit how much interest a company can deduct from its tax liability. My hon. Friend made the point that dividends are paid out of a company’s tax profits. However, they are exempt from tax in the hands of the company receiving them. In the case of an individual shareholder in the income tax system, the combination of dividend tax credit and the lower rates of tax for dividends ensures that dividends are taxed at broadly the same level as other forms of income, even after corporation tax is taken into account. It is important to take into account not just the number of different taxes that apply to a piece of income but the rates of them, so that we can work out the relative rate on each form of finance. Having said that, it is clear that the Government are moving in the direction that he wants, for instance through abolishing stamp duty on AIM shares and other growth markets, making investments eligible for ISAs and so on.

I wish to mention one other area of tax, which is the entrepreneurs’ relief. That is a valuable incentive and reflects the fact that entrepreneurs take risks and are often the beating heart of growing businesses, which should be recognised in the tax system. We have increased the amount of relief that can be used and allowed it to be used in more situations, so that more businesses and entrepreneurs can benefit from the 10% capital gains tax rate rather than the normal 28% or 18% rates. Over

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a number of Budgets, there has also been an increase in the lifetime limit for entrepreneurs’ relief to £10 million, so shares acquired from the enterprise management incentive can qualify for a lower capital gains tax rate. There has been action on stamp duty, capital gains tax and corporation tax, three of the four taxes that my hon. Friend mentioned as part of the barrier. The direction of travel is clear, and his argument is strong.

The value of small businesses to our economy makes them absolutely vital, and helping small businesses create jobs and take people on has been one reason why we have had such strong growth in the number of people employed in the private sector in the past few years.

Andrew Selous: I am heartened by what the Minister has said and by the tone and general thrust of his reply. Will he reflect briefly on my points about the cost of regulation? Might he perhaps meet Martin Wheatley of the Financial Conduct Authority, who admitted to me yesterday morning that the costs of raising capital are high? With his business hat on, representing 4.8 million businesses, will he consider whether there is any way to lower the costs of raising capital through regulation, while keeping investors safe?

Matthew Hancock: My hon. Friend will be delighted to know that I am already arranging a meeting with Martin Wheatley to make the arguments that he has eloquently made today and broader arguments about ensuring that we can get good finance into our small and growing businesses.

Question put and agreed to.

5.29 pm

House adjourned.