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Lord Pearson of Rannoch: My Lords--

Baroness Miller of Hendon: My Lords, this is a timed debate and I hope that the noble Lord will forgive me. As I do not want to overrun my time, it would be very discourteous.

We seem to have the knack of producing regulations that are more stringent than our obligations require them to be and more stringent than our competitors on the Continent impose on their own industries. That is the point I wish to make. The process, to which I have already referred, we describe as "gold-plating". The Environment Agency, for example, is proposing new regulations on the pig and poultry industries which will cost a reported £1,250 per day to enforce. Those regulations do not apply to the rest of the EU. They do not even apply in Scotland.

On Tuesday last week, the Secretary of State triumphantly announced new regulations relaxing the requirement of SMEs to have their accounts audited, which he claimed would save them up to £180 million per year. I think the phrase "up to" is good, but it might be meaningless, as most of the firms will still need professional assistance to prepare their accounts for tax purposes, and no reputable accountant will probably wish to produce a balance sheet without an audit. However, either way, it is certainly a step in the right direction.

What emerged from the recent Lisbon conference, as from so many similar meetings of heads of state and trade Ministers is, I believe, a lot of lofty rhetoric. I do not doubt for one minute that the heads of state sincerely meant every word of their very high-sounding communique. But as so often is the case, it is easier to say the right thing than to do the right thing. Politics proposes, but it seems to me that Brussels disposes.

I have urged the Government during several previous debates to bear in mind that the corner shop is not the same as a giant conglomerate. The noble Lord, Lord Cocks, made that clear when he referred to Asda. It was very careful of noble Lords opposite to refer to Asda and Tesco and to make sure that they did not talk about Sainsbury, but that is just the polite way in which this House conducts its business.

The same rules and regulations which can easily be absorbed by large businesses cause a wholly disproportionate burden to small and medium-sized enterprises. The noble Lord, Lord Graham, was

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careful to say that he thought I had experience of that. Fortunately, I sold my business before all these rules and regulations were introduced. Looking at them now, standing here at the Dispatch Box, I am glad that I did that.

I ask the Government to examine every regulation they make, not from the point of view of uniformity but of proportionality to small businesses. That is the key point. On his return from Lisbon, the Prime Minister called for reforming the EU. He said that we should encourage the EU to follow the United States and UK models with an emphasis on deregulation and flexible labour markets. But as will be seen from the many examples I have given, we are no less bureaucratic. In some cases, we are more bureaucratic than our European competitors. They are sometimes called our "partners", but we should not forget that they are our competitors.

As Adair Turner pointed out recently, Britain's low unemployment and low inflation reflect the profound liberalisation of the labour market introduced by the previous administration. I believe, therefore, that much of the "knocking" about what we did was somewhat unfounded. I urge the Government not to throw away the advantage gained then. Last year, Britain's commerce was inundated with a record-breaking 3,468 new regulations. We are more than a quarter of the way through this year. I ask the Government drastically to cut the number in the nine months or so left to come.

5.33 p.m.

The Minister for Science, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, I start by thanking the noble Lord, Lord Harrison, for initiating this debate and, indeed, thank noble Lords for the many interesting contributions. I congratulate the noble Lord, Lord Patel, on his speech. It is always a pleasure to hear the first speech in this House of someone who will obviously be a star performer. We look forward to his future contributions. Perhaps I may say on a personal note that I hope he will continue to champion the cause of small businesses. That is clearly a subject of which he has great personal knowledge.

I welcome the opportunity to respond to the debate on behalf of the Government because I believe that there is a good story to tell. The Government are working to create an environment that enables business to meet the challenges of the modern global economy here in the UK, Europe and throughout the world.

I want to focus on small firms, as did most of the speakers today. As many noble Lords said, we recognise that government does not create wealth; small businesses do. Small businesses are the future of our economy and the Government's role is to create the right conditions for them to thrive and prosper. The following statistics show why that is so important. I endorse the comments of the noble Lord, Lord Harrison, that small businesses are, in fact, big business.

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There were an estimated 3.7 million small businesses in the UK at the start of 1998--that includes 2.4 million sole traders--compared to just 25,000 medium-sized businesses and 7,000 large businesses. In 1998 2.4 million businesses were run by sole traders or partners without employees. In 1998 small businesses with under 50 employees accounted for 99 per cent of businesses, 45 per cent of non-government employment and, excluding the finance sector, 38 per cent of turnover.

We have heard much about the need to reduce the burden of regulation. We agree that that is central to building a better business environment. I shall turn in a moment to some of the things we are doing on regulation and how we are managing the process to reduce the number. The noble Baroness, Lady Miller, talked about 3,400 regulations. That is last year's figure and is slightly below the average of the former government in their last two years. That figure is not totally reliable. It involves all sorts of things--some of which are not regulations--to control businesses, but also to enable them to do things. However, if we take that figure alone, it is below what was the previous running rate.

We live in a knowledge-driven, global economy, where information and finance can move around the world at the click of a mouse. That affects the way in which people do business. We must ensure that business can take advantage of the new opportunities which now arise with such rapidity. That means providing economic stability, introducing fiscal measures which encourage enterprise and investment, promoting fair competition, investing in skills, encouraging innovation and removing barriers to finance, especially for the innovators and risk takers that generate wealth in the small firms sector.

Our first task over the past two-and-a-half years of Government has been to establish a platform for economic stability and put an end to the damaging cycle of boom and bust. As someone who has spent most of his life in business, there is nothing more damaging for businesses big or small than a boom and bust situation.

We are aware that the strength of sterling causes problems for many businesses. However, taking the point made by the noble Viscount, Lord Oxfuird, I totally disagree with his analysis of what can be done about it. The idea that we should weaken the strength of the pound, which can only basically be done by taking policies which will allow inflation to grow in the economy, is to return to that cycle of boom and bust which is so disastrous for small businesses.

It is worth reminding ourselves that in the late 1980s and early 1990s 1 million businesses went under, 1 million jobs were lost in manufacturing and 2 million jobs totally disappeared. I do not think that that is the sort of situation that small businesses want to see happen again. The people who suffer most from that sort of boom and bust are those people in industries such as the machine tool industry. As was

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rightly pointed out, they are the people whose investment or sales are cut right back in those periods of recession and slump.

The Viscount of Oxfuird: My Lords--

Lord Sainsbury of Turville: My Lords, I am sorry; this is a timed debate and there are a lot of questions to answer.

I should like to say also that machine tool manufacturers are the sort of people who can raise their productivity; they can use new technology to improve their performance and take advantage of the schemes mentioned by my noble friend Lady Warwick.

Noble Lords on the Benches opposite may not want to be reminded that the previous administration managed an economy which saw insolvencies peak at nearly 16,000 in one quarter in the early 1990s and the lowest number of business start-ups on record--just 77,000 in one quarter. But over 1.2 million new businesses have started up in the lifetime of this Government. There were over 439,000 new business start- ups during 1999 alone. In contrast, the number of business closures during 1999 (386,000) was the lowest for a decade. I believe this demonstrates that the Government are providing the right economic platform on which all of our small businesses can achieve their full potential.

A major step forward was taken with last month's Budget. As a result, Britain now has its lowest ever corporation rates for small companies and, with the 10p starting rate from this month, the lowest starting rate among major industrialised countries. The measures introduced this year, together with the 3p cut in the small companies' rate already announced, will cut corporation tax bills of small companies on average by nearly 25 per cent.

Budget 2000, as has already been mentioned, set out a substantial package of further tax measures to help small businesses. These include cuts in capital gains tax; permanent first-year capital allowances; 100 per cent first-year capital allowances for investment in ICT by small businesses; an R&D tax credit for SMEs; and a new all-employee share ownership plan and enterprise management incentives giving employee share ownership in the UK its biggest ever boost and helping small firms to recruit and retain the key staff they need to succeed.

In answer to the point of my noble friend Lord Graham, we are taking action to encourage employee share ownership because that is clearly an important aspect of new businesses over a period of rapid growth. A final feature of the Budget was tax reliefs to promote corporate venturing, encouraging large and small companies to work together for their mutual benefit.

Let me now turn to the Small Business Service, which is a key part of the Government's overall strategy to create an entrepreneurial Britain. I welcome the endorsement of my noble friend Lord Harrison and say to my noble friend Lord Peston that one of the prime tasks of the SBS will be to put the

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viewpoint of small businesses right at the heart of government. It has three over-arching aims: a strong voice for small business at the heart of government; world class business support services; and to mitigate the effects of red tape. And no one should doubt that David Irwin, the chief executive of the Small Business Service, will make a great success of the venture. He has great experience in this area and has already shown considerable independence in that regard.

At the same time, we need to do more in relation to ethnic minority businesses. We are therefore setting up an ethnic minority business advisory forum to act as a sounding board to help to address the kinds of issues mentioned in this debate. I agree with my noble friend Lord Patel that, if Mohammed will not go to the mountain, the mountain should go to Mohammed. In the case of the Small Business Service, it is key that the people involved go out into the field, visiting small businesses, rather than sit in their offices waiting for people to visit them. Small businesses do not have the time.

The noble Baroness, Lady Byford, raised the question of sub-post offices. We will certainly make available what information we have in relation to some of the deficiencies in the current system which lead to considerable opportunities for fraud. We cannot delay the modernisation of the benefits payment system any longer, though in fact there will not be any change to existing arrangements until 2003.

It should be said, on the other side of the equation, that, with the Horizon project, sub-post offices will have the ability to provide more banking services. With the closure of some rural banks, which is regrettable, they will have an opportunity to take their place. It should be made clear that those receiving benefits through sub-post offices will do so without deductions. People will still be able to receive benefits in cash. As I said, there will be no changes until 2003, so there is a lot of time to take account of this.

I agree with the praise of my noble friend Lord Mason for the Prince's Business Trust. It is an excellent and highly successful initiative which achieves both economic and social objectives, and shows how they can be achieved at the same time. The New Deal for young people allows 18 to 25 year-olds to select a self-employment option at the gateway. Young people receive financial support and advice throughout the self-employment route and the guidance of a mentor. But we will always look at new ideas, and are currently looking at professional, regional innovation funds, which could help to fund the sort of innovation centres my noble friend mentioned.

The noble Viscount, Lord Oxfuird, raised the question of the boundary between the Small Business Service and the Learning and Skills Council. There is no specific problem in that regard. The Small Business Service does not have training as a primary target, whereas it is absolutely integral to the objectives of the Learning and Skills Council.

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I should like to say to my noble friend Lord Cocks of Hartcliffe that, while we want to see small businesses succeed, they in turn must consistently adapt to the changing economic scene and the changing needs of their customers. Regrettably, there will always be failures in management and it is not the role of government to intervene to support those situations. The role of government is to create the right environment and incentives; it is for business to take advantage of the opportunities.

I was delighted by the speech of my noble friend Lady Warwick. She identified something of great importance; that is, the cultural change taking place in our universities. It is extremely impressive. The number of spin-off companies and the research now being done for companies has risen dramatically in recent years. We want to build on the success of Science Enterprise Challenge and the HEROBC scheme. I agree that the universities of today should be at the heart of our knowledge-driven economy. They should not be seen, as so often was the case in the past, as parasites of our economy, but as being at the heart of our knowledge-driven economy. I was greatly encouraged by the way the universities are rising to this challenge and incentive.

My noble friend Lord Graham raised the question of the impact of economic change on urban and rural communities. That is something that both the DTI and the DETR are conscious of. That is why it is essential to promote new sources of growth and jobs created by SMEs as the way forward.

The noble Lord, Lord Pearson, to our surprise, raised the question of Europe. I should remind him of the survey conducted by the British Chamber of Commerce which found that 38 per cent of companies favoured joining or making a commitment to join the euro; 36 per cent were against and 24 per cent were for keeping the options open. Also, the figure of £10 billion needs to be looked at carefully; £7.5 billion of that is the implementation of the working time directive. This Government believe that that was an important and highly desirable piece of legislation. We make no apology for it, nor for the cost involved.

Let me turn briefly to the future. The Small Business Service will make sure that the Government think "small" first. David Irwin has a specific mandate to examine new and existing regulations and is already making his voice heard. To make it easier to remove the burden of regulation, the Government are introducing a Bill that will enable changes to be made without having to wait for space in the main legislative programme.

We have acted to do something about deregulation. The new Labour Government have introduced effective mechanisms for tackling red tape across government. The Government have appointed a Regulatory Reform Minister in each department to examine and get rid of unnecessary regulations and to minimise the burden of any new, necessary proposals by consulting with business.

The Government have established a top level panel to call Ministers to account for the regulatory performance in their departments. These reviews have

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now begun. Following the meeting on 27th March, the Department for Trade and Industry and the Department for the Environment, Transport and the Regions agreed to a package of specific regulatory reforms. Both departments issued press notices, as well as issuing a joint notice with the Cabinet Office. In the next meeting on 18th April, the panel will scrutinise measures being put forward by the Department of Health and the Home Office to reduce regulatory burdens. Again, a press notice will be issued.

Business has been given a powerful voice in this process. David Irwin, Chief Executive of the Small Business Service, and my noble friend Lord Haskins of the Better Regulation Task Force are both members of the panel. David Irwin's role will be to put the special needs of small businesses at the heart of the Government's regulatory reform programme.

I turn now to some of the specific actions that we have taken to minimise burdens on business. We have merged the Inland Revenue and the Contributions Agency, thus ensuring that companies have to deal only with one organisation and one company audit. This was recommended by the previous administration's deregulation task force in 1995, but was something that that administration failed to do.

We are modernising the weights and measures legislation. So far as concerns the Employment Relations Act, we have exempted employers with 20 or fewer employees from the trade union recognition procedures. We have exempted small shops from the EU requirement to show the unit price of pre-packed goods. We have also exempted employers with four or fewer employees from the requirements to provide access to stakeholder pensions and deduct pension contributions.

Last month, the Chancellor of the Exchequer ordered an investigation into competition in the provision of banking services to see whether the market is working effectively and whether it is serving the interest of smaller firms in the United Kingdom. From the viewpoint of the small business, I believe this to be the key issue. I was pleased that my noble friend Lord Peston raised the matter. Much still needs to be done on the question of finance for small businesses, but we have already taken a number of steps. We shall continue to look at this area and take more steps in the future.

I was delighted that my noble friend Lord Harrison drew attention to the serious harm caused to small businesses by the late payment of commercial debts. The Government are determined to change the late-payment culture that existed under the previous administration. In November 1998 we introduced the Late Payment of Commercial Debts (Interest) Act and we have also taken very strong action so far as concerns government payments. I should point out to my noble friend Lord Peston that the Government have improved the overall payment performance of central government year on year since taking office. We shall continue to publish data annually showing the percentage of invoices paid on time by central government.

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As this debate includes the European Union, I should also say that I believe the Lisbon summit also moved the date very firmly forward in terms of the enterprise agenda. Some very specific and clear targets were set at that time.

In summary, through fiscal and monetary reforms, the Government have created a sound and credible platform of stability and long-term economic growth. Now, with both the lowest corporate tax rates for businesses ever and the lowest ever capital gains tax rates for long-term investors, Britain is becoming one of the best places for companies to start, to invest, to grow and to expand. That is why we are seeing so much inward investment to the UK at the present time.

The Government want to see a highly competitive environment for business in the United Kingdom, but we also want to make certain that people have the knowledge, skills and equipment to create competitive advantage in the fast-moving economy in which we now live. The Government want to create an environment where opportunities for enterprise are open to all--young or old, male or female and regardless of ethnic origin or where people live--and to make sure that the global knowledge-based economy is a bringer of opportunity and not a threat.

We cannot stop change; we cannot hold back global forces. However, we can provide economic stability. We can provide people with opportunities to upgrade their skills through organisations, such as the University for Industry, and we can provide incentives for innovation and enterprise. In all of this we will listen carefully to the voices of small businesses so that our policies are always attuned to their needs. In the future, the Small Business Service will always make certain that the voice of small firms is heard in all parts of government.

In a period of rapid economic change small businesses are faced with many opportunities, as well as many difficulties. Their speed of response and flexibility gives them a real advantage. I hope that I have made it clear in this debate that the Government see small businesses as playing a vital role in the knowledge-driven economy and that we want to enable and incentivise them to seize the many opportunities that they have for profitable growth.

5.55 p.m.

Lord Harrison: My Lords, in concluding this debate, perhaps I may take up the theme of my noble friend Lord Graham of Edmonton who said that he had enjoyed today's debate. I have thoroughly enjoyed it, for two reasons. I enjoyed it, first, because I have learnt an awful lot today about small businesses. I thank each and every speaker for his or her contribution to the debate about the role of small businesses. Secondly, I enjoyed it because of the diversity of views expressed by all speakers. In that respect, I believe that we reflect the diversity of small businesses in Britain today. Indeed, our discussion has ranged from the Prince's Trust to the role of universities, to the problems of post offices and ethnic communities and to the possibilities for workers' co-operatives, to name but a few.

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We even invaded the football pitch of some of the smaller teams around the country in our debate--for example, Barnsley, Blackburn and Bristol. I wonder why there is no major team in the Premier League whose name begins with the letter "B". However, I recall that Sir Alex Ferguson and his colleagues are in Strasbourg today in an attempt to try to change the Bosman ruling on the single market, which so affects our football teams--especially the smaller clubs.

I should just like to make one remark that I have been provoked into making by the noble Lord, Lord Pearson of Rannoch. I should tell him that life has moved on. I invite him to walk down the Corridor of this House into the Salisbury Room. I do so because he made mention of the art market. I also invite the noble Lord to inspect the catalogues from Sotheby's, Bonham's and other major art houses here in London. If he does so, he will find that even in respect of sales of British paintings the suggested sale prices are now expressed in both pounds sterling and the euro.

During our debate today much mention was made of shops, from corner shops to the major supermarkets. However, this debate has not been a talking shop: we have really made a contribution to the well-being of small businesses. I hope that we can go further in future debates to ensure that small businesses are put at the heart of Britain's business. I thank all noble Lords for their contributions. I am advised that I need to beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.

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