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Caroline Dinenage (Gosport) (Con)
Thank you, Mr Streeter, for allowing me to raise this important topic. As a director of a small business based in the south of England, I fall squarely into a category that necessitates me to declare an interest in the subject matter. However, holding such a position also allows me to share some first-hand experience with hon. Members.
Small and medium-sized enterprises hold the key to a successful private sector-led economic recovery in the UK. At a recent UK Trade & Investment maritime sector meeting, I learned that the proportion of UK exports accounted for by SMEs was 5% below the European average. If the UK were simply to raise that level to the average, it would generate a staggering £43.6 billion of additional GDP. That is enough to wipe out the UK’s current account deficit two times over. It is important to keep that in mind when discussing SMEs. These businesses may be small, but they have truly enormous power to drive our economy.
In previous debates in this Chamber, I have highlighted factors that afflict small businesses and limit their growth. In particular, I raised my concerns about the creeping trend of larger businesses putting unfair influence on supply chain companies, such as by extending their payment terms, and the continuing difficulties small businesses face in trying to secure funding from banks. That context is important as we should not view the Government’s role in isolation from all the other factors affecting small businesses.
I strongly believe that the Government “get it” when it comes to SMEs, and they have made it clear that they support their growth and longevity. They continue to put pressure on the big banks to increase their lending to small businesses. They have reinvigorated the enterprise finance guarantee scheme and established a number of new, highly targeted grants. It is clear that the Minister and his Department are working extremely hard to put UK companies on a firm footing.
When the Minister visited my constituency, he will have seen a site called Daedalus, a former naval airbase that now serves as home to a number of small aviation and marine-based businesses. This vast site is being promoted as a potential enterprise zone by the Solent local economic partnership, which will also submit a regional growth fund grant application to support its redevelopment as a hub for business innovation for the entire region. I hope the Minister appreciates the importance of the redevelopment of that site for the future prosperity of the constituency.
It is clear that the Minister also understands the need for the job market to end its over-reliance on the public sector. The need to encourage growth, commerce and manufacturing as part of a private sector-led recovery is at the centre of the Government’s plans, and I commend that approach. After all, it is far more sustainable to grow our way out of a recession than to spend our way out of it. However, the need to rebalance the economy in favour of the private sector applies beyond the boundaries of the north and the midlands. It is a concern to my constituents and many of my colleagues here today that only one project in south-east England succeeded in the first round of regional growth fund applications, as opposed to 14 in the north-east. The Government’s analysis of the first round RGF grants makes for interesting reading. The maps provided on the Department for Business, Innovation and Skills website show a stark contrast between the money diverted north and support for projects in the south.
I represent one of a cluster of constituencies in the Solent area that, together, share all the characteristics of towns and cities in the north of England: public sector dependency, low average wages, low levels of educational attainment and areas of multiple deprivation. On most measurable scales, including unemployment and business growth, Gosport is well behind some of the areas further north that continue to enjoy strong economic support from the Government.
If we were to plonk Gosport in the middle of the north, it would be the second worst performing local authority area in the entire north-east in terms of public sector job dependency. It would also have the third worst ratio of jobs to people in that region, with less than half a job per working adult, whereas the English national average is 0.8% of a job. With its number of active businesses per 10,000 residents being just 25.5, Gosport is the 13th worst performing area in that regard in the entire UK. Almost 35% of working adults in the constituency are employed by the public sector, which is one of the highest such dependency rates in the entire country, and that is before counting the thousands of people who work in the armed forces, especially the Royal Navy, and who call Gosport their home.
Gosport is at least as reliant on public sector jobs as cities further north, yet it appears to have been excluded from wider Government support. Certain Government measures to promote the growth of the private sector have also been denied to the south-east as a whole. I am, of course, speaking of the national insurance contribution exemption for start-up businesses. I cannot help but find that decision a little unfair as research by the Forum of Private Business shows that 51% of businesses in the south-east considered taxation to be the greatest barrier to growth, which is the highest proportion in the UK.
Penny Mordaunt (Portsmouth North) (Con)
I congratulate my hon. Friend on securing the debate. Although Portsmouth fares slightly better than Gosport, we are still described as a northern town on the south coast. Does my hon. Friend know that we fall far short of the Treasury’s projections and ambitions for the national insurance contribution holiday? Although that might have been the right policy to start with, it is not having the desired effect. Now would be a good time to expand the criteria for qualification to include not just different geographic locations and start-ups, but small businesses that hope to expand substantially over the next few years.
Caroline Dinenage
My hon. Friend makes an excellent point. It is worth noting that between 2007 and 2010 the south-east experienced the highest increase in deprivation in the UK. Will the Minister tell us what criteria the Government used in making the decision to exclude the south-east from NI relief? Government responses to that question usually state that the focus is to support areas that have traditionally relied more heavily on public sector employment, and they are usually thought to be the north and the midlands. That same description, however, could also be applied to a number of constituencies in the south, including mine. Furthermore, the exclusion of the south-east has a doubly negative effect on Gosport, as it creates a disincentive to business to choose to locate in the area—which should be a prime area for regeneration according to the Government’s own objectives—over more affluent areas of the north that are indiscriminately provided with Government support that they might neither need nor warrant.
David Simpson (Upper Bann) (DUP)
May I declare that I have an interest in the business sector in Northern Ireland? I congratulate the hon. Lady on securing this debate. Earlier in her speech, she mentioned banks and credit to small businesses, and I am sure she will share my concern about some of the findings of recent research papers on banks and the money being loaned to small businesses. The bankers have stated that they never promised to meet the Government targets; they say that they only promised to make the money available. Leading economists say nothing has changed in the manufacturing sector. In fact, over the past 12 months under this new Government, we have not seen any change from the banks, and small businesses, which are the backbone of the UK economy, are suffering greatly.
Caroline Dinenage
The hon. Gentleman makes a strong point. Yesterday, I met a small business owner in my constituency who is on the brink of losing his business and his house. Against a property that is worth £500,000, the bank will only lend him £50,000, which goes nowhere near far enough towards supporting him in trying to keep his business and his family together.
Although the Government clearly recognise that there are pockets of need in the south-east, it is thought to be extremely difficult to target national insurance investment at a sub-regional level. That may be the case, but such difficulties are not insurmountable. My constituents should not have to accept not receiving help they badly need purely because it is felt that giving them that help would be too difficult.
Penny Mordaunt
On that point, we know from questions tabled to the Treasury that the costs of providing that help, either at unitary authority level or district level, would not be so prohibitively high as to stop such a scheme going ahead.
Caroline Dinenage
That is excellent news, and I know my hon. Friend has done a lot of work on this issue, for which I am very grateful.
I now want to highlight the significant benefits the regional growth fund has brought to certain regions. In the north of England, the RGF has so far created 10,750 jobs directly and 10,916 jobs indirectly, and in the midlands it has so far created 7,923 jobs directly and 37,809 jobs indirectly. By comparison, in the south-east and east of England combined, the RGF has created just 427 jobs directly and 361 jobs indirectly. It is therefore clear that the south gets next to no support from the RGF or enterprise zone designations. Moreover, firms in the south have to pay higher national insurance contributions than firms in other parts of the country. For me and the majority of my constituents—who work in a peninsula where there is, on average, less than half a job per working adult—that is a bitter pill to swallow.
Statistics can also misinform. If anyone looked at the data for private sector jobs created in Gosport, they would be led to believe that we are supporting a growing economy. Unfortunately, that “growth” comes as a direct result of public sector elements of the Ministry of Defence being privatised. For example, Fleetlands, which is the biggest employer in my constituency, has been privatised, becoming Vector Aerospace. That company is now in the private sector, but there are no new jobs. In reality, every year in Gosport more businesses go bust than are created. Officials must look beyond simple numbers and qualifying criteria when making decisions about which areas are in the greatest need of help. The south as a whole has benefited from the creation of large numbers of private sector jobs in the past. It should not be punished for being successful in that regard, and nor should those areas in the south that need help be excluded from Government support solely on the basis of geography.
I understand that the apportioning of Government funding to support business cannot be seen as a local issue. Of course Government funding must focus on achieving wider goals, and must be allowed to maximise the benefit of the schemes it supports for the greatest number of people. I also understand that the RGF and enterprise zone applications are subject to independent scrutiny, which is as it should be. However, I believe that many people have a misconception that the south of England is a universally prosperous region. I hope that I have made it clear that Gosport is certainly not universally prosperous, and I am sure that my colleagues would all be able to provide evidence of areas within their own constituencies that are desperately in need of regeneration.
Despite the difficulties private partnerships in my area face, I have been very impressed by some of their achievements. One such partnership received support from NatWest and Lombard to fund the purchase of a large milling machine worth nearly £500,000 by two Gosport businesses, Marine Concepts Ltd and the Curvature Group. This new joint venture has allowed UK companies to produce components for a wide variety of sectors, including marine, renewable energy, aviation and motor sport. Those sectors had previously required the services of businesses as far afield as Australia in order to meet their requirements. Such investment is creating real jobs as well as preserving the UK’s reputation as a centre for innovative manufacturing. That has been achieved by advanced manufacturing businesses successfully repositioning themselves from serving the Royal Navy to serving private clients across the world.
However, for every such partnership, there is another business struggling with the structural deficit left behind by a radically changed market, which in the case of Gosport has been caused by the contraction of the Royal Navy. Such businesses are willing to adapt, but they are unable to do so without help. For the past 700 years, Gosport—and, in fact, the whole Portsmouth area—has relied on the military to support its entire economy and employment. Much like a mining town or manufacturing centre, the contraction of our armed forces has been intrinsically linked with the falling fortunes of the local economy. However, when the size of the military declines, areas that are dependent on the military are not provided with the same level of Government protection as mining or industrial towns in decline.
Gosport needs to be seen not only as an area with economic problems, but as an area with the potential to reinvigorate itself, given the right encouragement. All the businesses situated on the Daedalus site understand the potential for growth. They are not looking for Government handouts. What they need are a few key measures that can help them create a viable business and the employment that comes with that.
First, they need certainty over the Daedalus site’s future. Historically, the site has been owned by many different Government agencies. There is a runway, yet small aviation businesses have sometimes not been allowed access to the site. Those businesses have not had the incentives to invest, nor the certainty that if they were to invest, they would be allowed to grow and flourish. They also need targeted tax and planning concessions, improved infrastructure and a level playing field; in other words, everything that an enterprise zone would provide.
All the businesses based in or around the Daedalus site are looking to expand, and they are prepared to spend money to do so. I spoke to the owner of one of them yesterday, who said that he was prepared to invest many thousands of pounds to take over a decrepit old building and turn it into a modern, state-of-the-art business premises, yet he had only been able to secure a 10-year lease from the regional development agency. Offering such a short lease is just not good business.
Many of the businesses on the site want to source local people to undertake apprenticeships or engage skilled engineers who are leaving the armed forces. The social benefits to my constituency—where 20% of 16 to 23-year-olds are not in education, employment or training—are clear, and this would help many young people realise their potential.
The lesson is obvious. If businesses feel secure enough to invest and have potential orders waiting in the wings, they will expand. Enterprise zones can create that security, while entrepreneurial business people have never had problems in generating business.
The Daedalus site also lends itself perfectly to the wider qualifying criteria for an enterprise zone. Its green credentials are fulfilled by providing opportunities for local employment, rather than necessitating long commutes by car. That would also have the benefit of relieving the pressure on the infamous A32, the only major road from Gosport that leads into the heart of the peninsula. The pressure placed on a beleaguered transport system burdens my constituents with hours of congestion, particularly during peak periods, as traffic struggles through bottlenecks, and 20,000 people have to out-commute to get to work every day. Gosport is the largest town in the UK without a railway station. Therefore, Gosport not only needs inward investment; it deserves it. That would finally allow the area to realise its full potential, and I am confident that it would also act as a beacon for investment from the private sector.
If I may stray briefly beyond discussion of the south to make a broader national point, I would also welcome clarification from the Minister about how applications for regional growth funding and enterprise zone status are co-ordinated. As he will be aware, the RGF is administered by an independent board under BIS, but the enterprise zone project is administered by the Department for Communities and Local Government. Some people involved in putting forward bids have said they are confused about how applications for both schemes by a single local enterprise partnership will be viewed. I would welcome a reassurance from the Minister that both Departments involved have a clear understanding of how each scheme complements the other, and I ask him to consider providing guidance on how dual applications can be dealt with, and to say whether such an approach would prejudice the likelihood of success. I might add that the application deadlines for both schemes are, after all, on the same day.
Penny Mordaunt
Does my hon. Friend agree that it would also be helpful if the Treasury were to allow a relaxation of competitive tendering rules? She identified the regeneration of Portsmouth harbour, which would benefit not only Gosport and Portsmouth, but Fareham and other nearby towns. However, that regeneration can only happen if the Treasury enables those rules to be relaxed. Clarification on that issue would also be helpful.
Caroline Dinenage
My hon. Friend makes an excellent point. As she says, many parts of the Portsmouth harbour area would benefit from that type of help.
I believe the case for business improvement measures in my constituency is compelling—indeed, overwhelming —as does the Solent LEP. I am certain that there are colleagues in Westminster Hall today from constituencies across the south of England who feel the same about projects in their own areas. Therefore, I would welcome a reassurance from the Minister that, first, he is aware of our concerns, and, secondly, he will do all he can to support and encourage the growth of small and medium-sized businesses in the south.
Mr Andrew Smith (Oxford East) (Lab)
I congratulate the hon. Member for Gosport (Caroline Dinenage) on securing this debate, which raises important issues. As she said, they are important because small businesses are vital for jobs, sustainable growth and prosperity, and because it is crucial that our region does not become stereotyped by the Government or others to our disadvantage.
As the hon. Lady demonstrated by citing the statistics about her own constituency, the truth is that there are wide variations in employment, wage rates, small business formation and success within regions as well as between them. The particular needs of our region are not the same everywhere in the region. As well as being supportive of small businesses in general, policy needs to be sensitive to the particular circumstances of each local economy and its small businesses.
Judging by the experience of my constituency and local economy, we could be forgiven for thinking that the Government do not want economic growth in our region at all. Oxford is an incredibly vibrant economy, with lots of small businesses that have spun off from or are servicing our successful universities and hospitals, the Mini plant, and publishing and other high-tech enterprises, but some decisions that the Government have taken are limiting rather than encouraging growth, small business success and job generation.
One of the biggest constraints that we face in Oxford is housing and developable land. I have no doubt that our local economy could achieve much more economic growth if there were more houses for people to live in and more premises for small businesses, but one of the first things that this Government did was to scrap the south-east plan and set their face against any change to the Oxford green belt, thereby blocking both much-needed housing that was already being planned and the Magdalen college science park extension. The tight local authority boundaries that we have in Oxford give the neighbouring local authorities an absolute veto over our expansion, a veto that they do not hesitate to exercise, even on land of very limited ecological or amenity value.
The second hammer blow that I have to refer to is the incredibly ill-judged and damaging measures aimed at cutting the number of people coming from overseas to learn English here. That is a problem not only in Oxford, but in Bournemouth, Brighton and other southern coastal towns, and it will, I fear, inflict incalculable damage on English language courses and schools that have been generating about £1.5 billion for the UK economy, much of it in southern England. That all adds to the bureaucratic minefield for these kinds of educational businesses and colleges, and the Government’s much-vaunted moratorium on red tape clearly does not apply here. Much of the complexity, as English UK has said,
“results from the UK Border Agency trying to legislate in educational matters which are not its proper remit and where it neither has expertise nor has shown any great inclination to listen to those who do.”
As well as the economic and reputational damage that the changes will inflict on the wider international education sector in which the UK has an important strategic competitive advantage, they will hit the micro-businesses of many host families who supplement their income by accommodating overseas language students.
I come to the third hammer blow. The hon. Lady referred to the regionally discriminatory holiday on national insurance contributions for new businesses, and asked about the rationale for that. I have had a look at the Her Majesty’s Revenue and Customs website where there is a question and answer section. It asks:
“Why does the Holiday not apply in London, the South East and the East?”
and the answer given is:
“The scheme is intended to promote the formation of new businesses employing staff in those countries and regions most reliant on public sector employment. The proportion of jobs in the public sector is higher in other countries and regions than it is in the Greater South East (London, the South East and the East).”
Even if we accept the logic of that approach, it is obvious that the regional criterion is unfairly broad-brush because it must mean that new businesses in local economies in other parts of the UK that have low public sector employment will get the help, whereas areas in the south that are very reliant on public sector jobs, such as my own constituency and that of the hon. Lady, will not.
One of the biggest problems facing small businesses is access to credit, and the failure to hit the targets for bank lending to small and medium-sized enterprises under Project Merlin will hold back small business growth at the very time and in the very places where we need it most.
Business rates are another huge problem for small businesses. I acknowledge that the Government have tried to provide some help, but because of the high rental values in many parts of the south, business rates, which are based on them, tend to be higher, and therefore the costs of setting up and operating a small business have a double whammy effect on the cost of premises.
I could say a lot more, but I know that a number of other speakers are keen to get in. I have not yet mentioned the knock-on effect of cutting the teaching grant to universities by 80% and the trebling of fees, the alienation of other small business organisations by the preference given to the British Chambers of Commerce as co-ordinator of the local economic partnerships, the damage of cuts to investment in the transport infrastructure of the south—to which the hon. Lady also referred—and the interesting recent Institute of Directors report, which showed small businesses benefiting less from Government changes to business taxation than larger ones.
The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)
Was the right hon. Gentleman hoping to get on to the £500 million investment by BMW in his constituency, and the important help that the company has cited as coming from the Government to enable the investment?
Mr Smith
If we are being absolutely honest here there is an important continuity in automotive policy concerning the building blocks of that investment. The hon. Gentleman may seek to make a party political point but I will not. We all have to pull together for the success of the automotive industry, and I am enormously proud of what BMW has achieved with the Mini, and of the strength of the partnership with the work force and the local community, which is making such a success of the initiative. I have already referred to the Mini plant as an important source of business for small enterprises in our area. Those enterprises benefit from the business that BMW generates in the supply chain, and from the spending power of the work force.
I conclude by underlining that it is wrong to see small business support as a zero-sum game between the south and other parts of the UK. The south is an engine of the UK economy, and the wealth that we generate benefits directly and indirectly other parts of the country, just as we will benefit from successful regeneration and from tackling deprivation elsewhere. We need a proper sustainable growth strategy for small businesses in the south, as in other regions, which focuses on improving skills and infrastructure, cutting unnecessary red tape, nurturing enterprise, keeping down taxes and overhead costs, and ensuring that the planning system facilitates rather than strangles sustainable growth and small business formation. By initiating this debate, the hon. Lady has done us a particular service by calling to wider attention the danger that complacent generalisations about the state of the small business economy in the south risk killing the geese that are laying the golden eggs.
Mr Gary Streeter (in the Chair)
Wind-ups will begin at 20 minutes to 11. Seven colleagues are seeking to catch my eye, so by my rough calculation that is about six minutes each if we are to get everyone in. I am leaving it to you to regulate yourselves.
Anne Marie Morris (Newton Abbot) (Con)
Thank you, Mr Streeter. I shall endeavour to be brief. I am here, in large part, to give voice to the south-west, where we have a particular problem with support for small and, I would argue, micro-businesses, which are the lifeblood of our economy.
I should first pay tribute to what the Government have already done to help us. They have reduced corporation tax; we have the national insurance holiday for new businesses, and the extension of the small business rate relief is very much to be welcomed. Given that my cause is very much that of micro-businesses, which make up two thirds of my local economy by number of businesses and 15% financially, I am really pleased about the micro-business exemption from domestic regulation. That is exactly the sort of measure that we should be seeing more of.
Perhaps it is helpful to clarify what I mean by a micro-business. We talk about small and medium enterprises; one passing reference was made to a micro-business. The Minister might be keen to consider defining micro-businesses in legislation so that we can support them. Micro-businesses have been defined in various different countries precisely so that they can be given particular help and support, including tax carve-outs and exemption from regulation. That happens in Australia and in some states in the US. At the moment, we in the UK largely use the EU definition of a micro-business, which is a business with up to 10 employees and a turnover of €2 million. For this country, that is huge. I do not believe that it is an appropriate definition for this economy.
I submit, on the basis of analysis that I have undertaken of Office for National Statistics figures and am happy to share, that a more helpful definition would be an organisation with fewer than five employees and a turnover of less than £250,000. That way, the Government could specifically target help at such businesses, and it would not be quite as expensive as targeting a larger group. That group would include plumbers, electricians and other businesses that are crucial to any rural or deprived urban economy. It would also, inevitably, cover start-ups, which are essential whether they grow to be successful or remain in a steady state. I argue that micro-businesses will create the most jobs, which we badly need. In America, it is claimed that 90% of new jobs after the downturn were created in that sector.
I suggest that we need to reduce the cost and complexity that apply to micro-businesses. Tax is an obvious issue, and the Office of Tax Simplification has done good work, but we should consider more carefully the concept of a flat tax. It would be simple to apply. The suggestion that national insurance and income tax be integrated, even if that is simply a matter of administration, is welcome, but I urge that consideration also be given to VAT. Thresholds are not consistent across Europe, and many small businesses get to a cliff. There is a disincentive to do more than a certain amount of business, because businesses that get to the threshold must spend an awful lot of time earning an awful lot more money before they break even. There must be a way to solve that problem.
I welcome the Treasury’s reduction in the small profit rate. The Institute of Directors tax burden report for 2011 identified it as particularly helpful to micro-businesses, which it defines as businesses having fewer than five employees. However, the Institute of Directors says that it is a one-off win and that micro-businesses will not derive the same benefit as small and medium-sized businesses. It would be good to review what we do with the small profit rate of corporation tax.
The enterprise allowance for jobseekers is an excellent idea—clearly, some new micro-businesses will be started by the unemployed—but limiting it to those receiving jobseeker’s allowance, although a good start, might restrict the benefit brought by the scheme. To illustrate, I bring to the Minister’s attention an initiative at Portsmouth university, which works with graduates to support them, helping them bid to start new businesses and using local business people to mentor them. The university then works with the angel group to see how it can support graduates, but there is no tax incentive. Perhaps one way forward is to look at the enterprise investment scheme and consider whether we can create some form of EIS-lite.
Employment is the biggest barrier for most micro-businesses. I am pleased by the proposal to allow tribunals for unfair dismissal to kick in only after two years. That is welcome. I am also pleased by the suggestion of an employers’ charter. I point out to the Minister that way back in the 1970s, small businesses were given certain carve-outs from employment legislation. There may be lessons to be learned, and the matter might be worth reviewing.
Health and safety is the other big bogey in the room. Lord Young has done a first-class job. The exemptions from risk assessment that he suggests for low-risk businesses are to be welcomed. I strongly urge the Minister to consider negotiating with the Health and Safety Commission. At the moment, businesses with fewer than five employees are exempt from some requirements, but there is a risk that the commission will change its mind. It is important.
Perhaps I have given the Minister food for thought. Many of the initiatives that I have discussed would be welcomed across the whole south, not just the south-west, and micro-businesses would be delighted.
Simon Kirby (Brighton, Kemptown) (Con)
I congratulate my hon. Friend the Member for Gosport (Caroline Dinenage) on securing this debate on an issue that is important to the long-term economy of not only the south and south-east but the UK more widely. As a former small business man, I am acutely aware of the stresses and strains involved in running and building companies as an economy emerges from recession. I will not say much, as I do not wish to detain hon. Members for too long, but I would like to make three or four points.
First, at a macro level, we must ensure that business support for new and developing businesses is clear. I am told that there is little support at present and that the private sector has yet to take up the slack. I am interested to know what the Minister has to say about that. Secondly, the interest rates that banks charge businesses, when they do provide working capital, are still an issue. I understand that interest rates of 20% can be charged, although the Bank of England rate is only 0.5%. How are businesses supposed to cope with such rates and still make a profit?
More locally, I am pleased to report that high-speed internet implementation is making its way across my constituency, which will enable a major change in how goods and services are transmitted and provide the infrastructure for new services. Enhancements in speed bring new opportunities for business. I am delighted that BT announced yesterday that its exchange in Brighton, Kemptown will be upgraded to give 34,000 premises access to superfast broadband.
However, one local concern is the tourist tax recently proposed by the new Green administration of Brighton and Hove. Initially, the tax would be charged at £1 per tourist per visit. As hon. Members might imagine, local hoteliers have come out against the idea, as it would essentially be a tax on hotels. I do not want anything to damage Brighton’s competitiveness as a tourist destination. Once taxes are introduced, they inevitably rise and are rarely repealed. The way to attract tourism to Brighton and other destinations is to maintain a framework that enables visitors while allowing tourism services and businesses to survive.
I believe that the Government’s economic strategy will set this country on a sustainable way forward in which debt, growth and employment will come into balance over time. However, what is done at the micro level is just as vital. State direction, bureaucracy and red tape must all be limited to allow the private sector to grow and fill the vacuum when the state is pared back. Government cannot pick winners, but it can create the framework to allow winners to win. That is just as important in the south-east as it is anywhere else.
Caroline Nokes (Romsey and Southampton North) (Con)
I, too, congratulate my hon. Friend the Member for Gosport (Caroline Dinenage) on securing this important debate. As we have heard ably from her, and from the right hon. Member for Oxford East (Mr Smith) and my hon. Friend the Member for Brighton, Kemptown (Simon Kirby), prosperity is not uniform in many parts of the south-east, which has its share of deprivation, poor educational attainment, low aspiration and poverty. However, what is striking about my constituency is that it has extremes: areas of wealth and enterprise adjacent to areas of worklessness.
I do not want to paint too gloomy a picture. Romsey and Southampton North remains one of the most wonderful places in the country to live. The local authorities, both individually and collectively through bodies such as PUSH, the Partnership for Urban South Hampshire, and the local enterprise partnership, are working hard to promote regeneration and stimulate enterprise and growth.
Southampton city council in particular has pushed ahead with plans to regenerate the city. It has made some striking differences to the cityscape and to employment opportunities, and has promoted the city relentlessly as a place to do business and to establish companies, ideally located as it is, with a major international port, an airport on the edge of the city and opportunities for excellent university education, not to mention easy access to beautiful countryside, the coastline and superb recreational opportunities. The city has 7,600 companies, with 120,000 people employed, but it does not have the support of enterprise zones, and has no national insurance exemption for start-ups and no structural funding from Europe.
How much more could have been achieved for this regional hub with the same level of support that cities in the north received? Would 32% of the work force still be reliant on the public sector?
Stephen Lloyd (Eastbourne) (LD)
I congratulate my hon. Friend the Member for Gosport (Caroline Dinenage) on securing this debate on this important issue. Is my hon. Friend the Member for Romsey and Southampton North (Caroline Nokes) aware that a recent Federation of Small Businesses survey indicated that, if more than 30% of small and medium-sized enterprises in the south-east had access to the national insurance contribution holiday, they would take on new people? That would be good for the country and for our region.
Caroline Nokes
My hon. Friend makes an excellent point and is absolutely right—those companies would be willing to take on more people and create more employment in the private sector. As I was about to say before he intervened, in these straitened economic times, there will inevitably be a correction in the number of people employed by the public sector, and we need that slack to be taken up by members of the FSB and other small business organisations.
Landmark sites on the edge of Southampton that are earmarked for major corporate headquarters remain only partly used. One must therefore ask whether those sorts of sites would have been snapped up by now if there had been more support and more enterprise zones in the south-east.
If Southampton was lifted up—this is true of other cites in the south; my hon. Friend the Member for Portsmouth North (Penny Mordaunt) has left the Chamber, but there are close and obvious parallels and comparisons between Portsmouth and Southampton—and placed anywhere in the north, one would notice striking similarities between it and cities in that region.
On the 2010 recognised indices of multiple deprivation, Southampton is ranked as the 81st most deprived local authority area in the country, which is 10 places worse than in 2007. Therefore, in spite of being perceived as an economic powerhouse, there are places in the south-east where deprivation is getting worse, unemployment is going up, and we could benefit greatly from some support to the SMEs that will play a critical role in economic recovery. As we know, 60% of all new jobs are created by entrepreneurs and high-growth small businesses, and in a part of the country where, as we have heard, it is very expensive to do business and there are high rents and high rates, those small businesses need every bit of support. We neglect the south-east at our peril. The country needs this region to be accelerating growth, and if it is to do that, the full range of funding options must be available to entrepreneurs.
I hope that colleagues will forgive me if I comment briefly on some of the good things that are happening in Southampton. At Solent university, a culture of entrepreneurship is being fostered amongst the students—we have heard that something similar is happening in Portsmouth—and it applies to not just the alumni, but undergraduates and those who are about to graduate. They are all being encouraged to consider their own start-ups and given tools and practical support to do that.
The city council has worked hard to stimulate investment, much of which has come from the retail sector and hospitality, with hundreds of new jobs created with Costco, Sainsbury’s and Morrisons. There have also been manufacturing successes, with up to 700 new jobs in marine manufacturing in Woolston. The city is managing to buck the trend for job creation, but we should remember that that must still be held against the 32% dependency on the public sector.
Another thing that we have seen in the private sector—I am prepared to concede that this is not an SME—is the dramatic expansion of Southampton as a cruise terminal. Much credit must go to Associated British Ports, which has invested private money in the port to a massive extent and boosted the city’s economy, without subsidy from Government or Europe, unlike some of its competitor cities. What ABP wants from the Government is a level playing field, so that businesses are not disadvantaged in an unfair way and confidence is not undermined in a way that chokes off essential private sector investment. It is successful, but it has achieved that on its own and feels aggrieved to see other ports being given a leg up.
There is much to be proud of in the city, but there is still too much deprivation. There could be more stimulus if companies benefited from the same tax breaks available further north. How many more new graduates would find the impetus to start up their own business if they, too, could have that national insurance exemption?
This is an important debate on an important issue, and I urge the Minister to consider carefully what Members are saying about the south-east. The region is desperately needed to drive the economic engine of the country, to accelerate growth and to provide private sector jobs.
Mr Dominic Raab (Esher and Walton) (Con)
Thank you, Mr Streeter, for the opportunity to speak in this debate. I join others in welcoming the ability of my hon. Friend the Member for Gosport (Caroline Dinenage) to secure it, and congratulate her on her excellent speech.
I welcome the various different fronts on which the Government have tried to lever up some economic recovery, through securing and retaining market confidence, which has brought us back from the cusp of default, and through some of the fiscal measures on corporation tax and the regulatory measures to which other Members have referred. None the less, it is worth pointing out some of the findings in the Institute of Directors policy paper that came out this week. It pointed out that the overall tax burden on small and medium-sized enterprises
“is a lot higher than the corporation tax rates of 20 and 26 per cent”—
it is closer to 32% and 43%—and that a business
“can expect to have to pay four or five months’ worth of profits to the state each year.”
That is worrying and, like the IOD, I would love to see the public finances permit a move towards the consolidation of national insurance, a reduction of the overall level of national insurance for employers and businesses, and further cuts in corporation tax.
That analytical view is bolstered by the feedback that I get regularly from local businesses in Elmbridge. They raise three major things with me. The first is credit—there is still not enough credit going to viable SMEs. The second is red tape. Like others, I would welcome it and congratulate the Government if they tackled some of the health and safety and employment law regulations. Thirdly, it is still too difficult to hire and fire in this country, and that is a major obstacle to growth. I would be grateful if the Minister could give an assessment of the one-in, one-out rule for the financial year 2010-11. How many regulations have come in and how many have been scaled back? It would be useful to know what practical progress has been made.
Like others, I welcome the cuts to both the main rate and the small business rate of corporation tax, but national insurance, as others have said, remains onerous. One aspect that is raised constantly with me as an MP for a constituency in the south-east is business rates and a feeling that our businesses are taxed more and more but get back less and less. Can the Minister give an indication of what progress has been made towards ensuring that local communities see a greater share of the revenue of the tax raised from businesses locally so that we can take some positive steps towards incentivising local business growth?
Much has been said already about the one-year national insurance holiday for start-up companies, but I understand that it is still not applicable in the south-east. Many Members present will recognise that we need to do far more to promote investment and infrastructure in other parts of the country that are not as well developed. Other measures of a more socio-economic nature, such as the pupil premium, encourage greater social mobility and economic development.
David Simpson
I have listened to every contribution. Does the hon. Gentleman agree that what we need to do in the whole of the United Kingdom is create the confidence that the business sector once had? Small businesses are fighting a rearguard action against the banks, the markets are not what they were, and small hauliers face opposition from and have to compete against hauliers coming in from Europe filled with cheaper fuel. We need to create the confidence whereby businesses of all sizes are prepared to take a risk again.
Mr Raab
I thank the hon. Gentleman for that contribution and I agree entirely with its sentiment and spirit. One of the concerns is that we will not get that business confidence back unless we do a bit more to bring down the regulatory and tax burden. On the national insurance holiday, I am concerned about the precedent of moving towards increasing regional tax subsidisation, which is, effectively, what we are talking about. Over the years, a wealth of research has shown that cutting business taxes may well increase revenue as a result of business growth. Is the Minister aware of whether any assessment was done of the fiscal impact of extending the national insurance holiday to all parts of the country, specifically in terms of what revenue would be gained back? Is that measure revenue neutral or even revenue positive? Such an approach would certainly be welcomed by businesses across my constituency.
In Elmbridge, I see a huge niche comparative advantage in high-tech start-ups—for example: Chelsea Technology, which pioneered the sensors that were used to clean up the oil slick in the gulf of Mexico; T R Control Solutions, which is a relatively small business that has pioneered the software being used in Whitehall to cut CO2 emissions; Air Products, and Saville Consulting. There are many others. We are not going to rebuild the old manufacturing industries of the past, and there is no point harking back to the industrial revolution with doe-eyed nostalgia. What we can do, and what I hope we will do, is build and innovate in the areas of comparative advantage. The high-tech manufacturing industry is of particular comparative advantage in my constituency, in the south and for the country as a whole.
I am conscious of the time, so I will conclude my remarks. Again, I thank you, Mr Streeter, for giving me the opportunity to speak and I congratulate my hon. Friend the Member for Gosport on securing the debate. I hope that the Minister will address some of the specific points made when he replies.
Mark Lancaster (Milton Keynes North) (Con)
It is a pleasure to contribute to this timely and important debate, which I congratulate my hon. Friend the Member for Gosport (Caroline Dinenage) on securing. It is also a pleasure to serve under your chairmanship, Mr Streeter.
Like other hon. Members, I confess that I have a business background. It is perhaps slightly ironic that in 2005, the year of the 400th anniversary of Guy Fawkes, I was the first firework manufacturer to be elected to this place. Even now, when I wander into Parliament on 5 November, the temptation to blow the place up is still there! So far, I have managed to resist it.
We have had a tour of the south of England this morning—from southerly constituencies, to Milton Keynes North, which is the most northerly seat in the south-east region. Small business is big business in my constituency. On average, five businesses move into or expand in Milton Keynes each month. Some 72% of our companies began in the city. Milton Keynes is the city of start-ups and, in 2010, the Centre for Cities outlook report said that it had the third highest number of business births in the country. We may also be considered the headquarters of headquarters. We are home to the national bases of Volkswagen, Argos, Marshall Amplification, Mercedes-Benz and, imminently, Network Rail.
However, many of the 10,000 businesses in the new city are small and medium-sized enterprises. Many of the business men and women I have met welcomed the excellent measures introduced over the past year by the coalition Government—for example, small business rate relief, which other hon. Members have mentioned. Although I certainly support the national insurance holiday, it seems slightly arbitrary that, as we have heard this morning, it is too often decided on a regional basis. There are centres of deprivation across the south, and Milton Keynes is no different. Some of my wards are the most deprived areas in south-east England.
My hon. Friend the Member for Esher and Walton (Mr Raab) made a point about being able to secure credit as a small business. That remains a major problem. Although I know that the Government are keen to act in that area, we simply must do more because, unless small businesses can secure credit, I fear that their future is bleak.
Business owners are particularly keen on the introduction of local enterprise partnerships. Milton Keynes is part of the South East Midlands LEP. Geographically, that stretches from Luton to Corby, with Milton Keynes being the centre of gravity. It has been very much welcomed that the wealth creators and the innovators will determine the direction of our regions rather than having publicly funded, faceless bureaucrats driving regional funding.
However, some people have found it strange that the funds for starting up the LEPs have been solely allocated to the chambers of commerce. Concerns were raised in a letter to The Daily Telegraph about the decision of the Secretary of State for Communities and Local Government to allocate the £300,000 grant to that national network alone. Although the chambers of commerce are excellent—in my constituency, the chamber of commerce is a lynchpin of business activity—they are not the only bodies representing business. There is also the Institute of Directors, the Federation of Small Businesses and the Forum of Private Businesses, national wings of which wrote the letter to The Daily Telegraph back in April. In particular, our local Federation of Small Businesses is a strong voice. I pay tribute to my predecessor, Brian White, who leads that federation in Milton Keynes.
Collectively, small businesses in my constituency are big business, and they deserve a big voice in these matters. I would hate to think that, in coming up with such an excellent initiative, we are alienating anyone. Will the Minister look again at how we fund LEPs? It is important that we ensure that voices from the whole business community are heard and that we do not solely rely on a single channel when it comes to starting these very important partnerships.
Mr Andrew Turner (Isle of Wight) (Con)
I congratulate my hon. Friend the Member for Gosport (Caroline Dinenage) on securing the debate. We all know that small and medium-sized businesses are absolutely vital to the recovery of the British economy. They create wealth in a community and provide local jobs. Micro-businesses are incredibly important to our local economy on the Isle of Wight. The majority of businesses on the island have only one or two employees, and many have none. There are 6,000 businesses in total on the island, 87% of which have fewer than 10 employees. That is a figure of 5,220. I will come back to those points in a moment.
Potential investors and business owners need to understand that living and working on the island is fundamentally different from the mainland. There are a few drawbacks, but there are many more positive aspects. We have a more relaxed pace of life and a better quality of life. We can use that to attract business people who want a good work-life balance. We also have a rather captive audience because the cost of leaving the island can be extraordinarily high. People tend to buy their food and many of their other goods and services on the island, and they bank on the island. Islanders are more community focused than people in many other parts of the country. That is probably because so many people are born on the island, educated on the island, work on the island, have families on the island, and grow old on the island, so even more than in some other areas, it is in the interests of islanders and their families to build a strong local economy.
I am also interested in the move towards more economic development through the focus of local enterprise partnerships on stimulating regional growth. Unfortunately, I understand that the Solent area LEP, which covers the Isle of Wight, has excluded representation on its board from small businesses, including the Federation of Small Businesses. That seems rather short-sighted. I am worried that the voices of small and micro-businesses will not be heard. I hope that the Solent area LEP will find a remedy for that omission soon.
More can be done to support micro-businesses. Many local businesses have disappeared into franchises controlled and dictated to by large brewers. Small butchers and greengrocers have to compete with supermarkets that have free parking and mass buying power. Even though many small food shops on the island are better value for money than the larger supermarkets and offer a better quality of food and produce, they suffer losing shoppers to loss-leading offers and discounted petrol schemes. Perhaps the Government’s commitment to support local communities means that something more can be done to encourage shoppers to use local shops that sell local products.
As I said earlier, most businesses on the island have one or two employees and many have none. Only 13% of businesses on the island have more than 10 employees. Small and micro-businesses are vital to the island’s economy and they have enough on their plate trying to run a successful business, without having to devote hours and hours to trying to ensure that they comply with unnecessary red tape. The Government’s decision to exempt new start-ups from all new domestic legislation for three years is welcome; it is a good start. That, coupled with a review of the 22,000 regulations currently on the statute book, will reduce the bureaucratic burden that so often puts off good small business owners. However, I regret that the island was not included in the decision to give a national insurance holiday to small, start-up businesses. Just because the previous Government put the island in the south-east region does not mean that it shares the affluence of some of our mainland neighbours. I hope that the Chancellor will look closely at differences within regions—I recognise that that point has been made—when announcing such policies in the future.
I recently met with Neil Whitmarsh, the senior business manager of Lloyds bank on the island. He told me that business lending on the island is well ahead of target, and I welcome that news. Island businesses will also benefit from the improved access to finance promised by the Government. I welcome the announcement from the major banks that they will make £76 billion available in new lending for small businesses across the country in 2011. All in all, I think that the Government understand and appreciate the massive contribution that small businesses and micro-businesses make to our national and local economies. The work that has been done is an excellent start, but we need to keep micro-businesses afloat, otherwise our economy will once more suffer.
Gordon Henderson (Sittingbourne and Sheppey) (Con)
I add my congratulations to my hon. Friend the Member for Gosport (Caroline Dinenage). The debate gives me an opportunity to explain something of what we are doing in my constituency. We have set up the Sittingbourne and Sheppey Link 2 Business, which has its own website that offers local businesses direct access to my office and a range of other services. We set that up because, during my term as MP, one of my top priorities is to help local companies get through the tough economic challenge that our country faces.
As and when the economy improves, I want those businesses to be better placed to expand and provide the extra jobs that my constituents need. At 8.7%, my constituency has one of the highest unemployment rates in Kent. I am determined to do everything I can to help bring that figure down. I am lucky that Swale borough council and Kent county council are two local authorities that recognise the importance of private enterprise to wealth creation. They are both doing all they can to attract more investment into our area. Of course, much of the future prosperity in my constituency is dependent on those companies that already do business in the area, which is why helping them is so high on my priority list.
One way in which I can achieve my goal is to ensure that local business men and women have easy access to advice and are able to get quick answers to any questions they might have about Government policy. The Sittingbourne and Sheppey Link 2 Business provides that service. We hold monthly business breakfasts at which local business people can share with me their concerns and problems. I have been running those breakfasts for a year and the three gripes that are continually raised are the burden of red tape, the lack of a skilled work force locally and the difficulty of accessing Government grants because we happen to be in the south-east of England. As a number of hon. Members have pointed out, we actually have areas of deep deprivation in the south-east. In my constituency, two of my council wards are in the top 10 most deprived nationally.
It is for the people living in those areas that I would like to issue my plea to the Government for help. Swale borough council, Kent county council and I are working together to do all we can to encourage investment into our area. As the Minister will know, Kent took a hard hit recently when Pfizer decided to pull out of Sandwich, with the loss of 2,500 jobs. On the plus side, Vestas is seriously considering setting up a wind turbine factory in Sheerness to create another 2,000 jobs. I am sure that we could seal that deal if there was some access to Government aid. Bringing in such investment would give a huge boost to small and medium-sized businesses in my constituency. Losing that investment would be a tragedy.
I know that the Government’s aid policy is pitched towards regions where there is a need to rebalance economies that have become over-reliant on the public sector. As a business man, however, I know that when times are tough the way to create growth is to invest in those areas of the business that have a proven record of success, rather than those that have been a drain on company profits. The same should apply to Government investment, and I urge Ministers to rethink regional aid policy. The country needs more private sector jobs. In Kent, we are doing all we can to help our local businesses create those jobs, and I am sure the same goes for other southern counties. We need Government help, however. We need financial help. Give us that help and we, in the south and south-east, will help kick-start Britain’s economic recovery.
Mr Gary Streeter (in the Chair)
I thank all colleagues for co-operating on timing. The winding-up speeches now begin. I call Chi Onwurah.
Mr Chuka Umunna (Streatham) (Lab)
Thank you, Mr Streeter. It is actually Chuka Umunna. My hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) is another member of the shadow business team, and she is a she as well.
Let me start by congratulating the hon. Member for Gosport (Caroline Dinenage) on bringing this important issue to the Chamber. I say that not only out of custom, but because we are looking to small and medium-sized businesses to create the jobs and growth that will enable us to reduce the deficit and return the country to prosperity after the global financial crisis and the recession. In the south, SMEs make up 99.4% of enterprises. They deliver 52.6% of the jobs in the private sector and 40.9% of private sector turnover. In the three regions that I commonly think of when I think of the south—the south-west, the south-east and the eastern regions outside London—there are 420,000 SMEs employing 3.26 million people, from sole trader outfits to those employing 100 or more. It is an absolute prerequisite for the full recovery that we all want to see that they grow and flourish.
To see SMEs bloom, we need to foster and promote an enterprise culture in which people can make an informed choice about setting up their own enterprise and business, as opposed to going to down the employment route with another outfit. We need to create a dynamic start-up market by strengthening the support that we provide to people in terms of giving them the networks and access to information that would encourage them to start up a new business. We need to build the capacity of our existing SMEs to grow by promoting the adoption of shared learning, good practice and maximising the skills of business. We need to encourage SME activity in disadvantaged and deprived communities, many of which have already been mentioned.
I know that many MPs in the House, including those who have contributed to the debate, have direct experience of business. The hon. Member for Gosport runs a small manufacturing outfit and has a lot of knowledge in this area. The hon. Member for Brighton, Kemptown (Simon Kirby) mentioned that he is a former business man, and of course the hon. Member for Milton Keynes North (Mark Lancaster) is the first fireworks manufacturer to sit in this House—something that I did not know. I practised as a solicitor for the best part of a decade before entering the House. Throughout my time as a solicitor, I advised SMEs. I think that the Minister worked in business for a good decade before he came into the House, too. Everybody who has contributed does so from practical experience, which is a good thing for us here in Parliament.
As a result, we are familiar with the obstacles that SMEs face. Chief among them is access to finance. The Government’s regional growth fund has been mentioned. The previous Government had a regional growth budget of £1.4 billion, which was delivered through the regional development agencies. This Government are investing the same sum, but over three years—a two-thirds cut in investment. The first round of bids has caused some angst and was very over-subscribed. The applications were restricted to those with bid values of more than £1 million, which denied many SMEs access to the funding. The hon. Member for Isle of Wight (Mr Turner) said, for example, that 87% of the businesses in his area are micro-businesses, and such businesses are probably not in a position to make bids of that size. Will the Government consider revising the criteria to permit bids of a smaller value so that more SMEs can benefit? The Opposition have also suggested reimposing the bank bonus tax and adding £200 million from that to the £450 million already announced for the regional growth fund.
New local enterprise zones were mentioned—the hon. Member for Gosport highlighted that none is scheduled to appear in the south. Notwithstanding whether we proceed with the zones or where they are located, why does the Minister feel that they would work and be successful? When I sat on the Treasury Committee, the chief economist of the Cabinet Office, Jonathan Portes, who left his position in February, said that his understanding was that, instead of creating new economic activity, enterprise zones simply shifted it around the country.
Above all, SMEs look to the banks for access to capital and finance, which they cannot access on the capital markets, unlike larger companies. The hon. Member for Isle of Wight, as well as the hon. Member for Upper Bann (David Simpson) who is no longer in his place, referred to the Project Merlin agreement, which was announced in February. Under it, the Chancellor told us that the banks had agreed £76 billion of gross new lending to SMEs, giving a quarterly target of £19 billion, which we learnt recently that the banks had missed by £2.2 billion. I have some questions for the Minister, given information that has come to light over the past few days since we had Business, Innovation and Skills questions on the Floor of the House last week. In particular, the Minister said in a written answer to my hon. Friend the Member for Barnsley Central (Dan Jarvis), on 8 June:
“The Merlin Agreement was about setting stretching lending targets to the banks to make sure that they make available the credit that businesses need to grow...Lending to SMEs in the first quarter was £16.8 billion against a quarterly ‘stretch’ target of £17.2 billion (the ‘capacity’ target would imply a figure of £19 billion).”—[Official Report, 8 June 2011; Vol. 529, c. 391W.]
That was the first mention of a stretch target, which appears to let the banks off the hook on SME lending, because the stretch target is 10% lower than the original target announced by the Chancellor in February.
Why did the Chancellor not cite the stretch target referred to by the Minister in the written answer last week? Surely Parliament should have been told about such targets at the outset. Secondly, why are those stretch targets and the details about them not published quarterly on the Bank of England website with the capacity targets we were originally told about? On the Project Merlin provisions to do with chief executive officer remuneration, will the pay link reflect whether the banks have also met stretch targets, or will the link be with capacity targets? Lastly, Treasury officials were quoted in the media yesterday as saying that the Minister’s stretch targets do not officially exist, yet clearly they do, because we cannot get more official than a ministerial written answer informing us of the existence of such a target. Why is the Minister saying one thing, when the Treasury appears to be saying another? Perhaps the Minister can provide clarification. We need the banks to lend to SMEs in the south and beyond if we are to see growth return.
Other issues raised in the debate include the national insurance holiday, which the hon. Member for Gosport thought was unfair in not applying in the south-east, while my right hon. Friend the Member for Oxford East (Mr Smith) thought that the application of the criteria determining where the holiday would apply was rather broad brush. The hon. Member for Portsmouth North (Penny Mordaunt), who is no longer in her place, mentioned the low take-up of the benefit: we were told that 400,000 businesses would benefit but it appears to be far fewer. Can the Minister tell us where we are with that?
The cost and complexity of regulation were mentioned by the hon. Member for Newton Abbot (Anne Marie Morris). She would probably agree if I took it from her comments that the issue is one not only of cutting the red tape but of ensuring that the regulation we have is applied in a smarter fashion, and easier for businesses to understand. I think she also mentioned the employment tribunal regulations, as did the hon. Member for Esher and Walton (Mr Raab). The previous Government did away with the statutory dispute resolution procedures—in practice, they were difficult for employers to grapple with—and that was a good thing, but I add a note of caution, because watering down employee rights is not necessarily a substitute for a proper and comprehensive growth strategy to help the businesses we are discussing.
The hon. Member for Romsey and Southampton North (Caroline Nokes) talked about the high rents and rates from which businesses in her area are suffering. I am receiving exactly the same comments from my constituents in Streatham. What does the Minister think we can do centrally about the problem? The lower tax burden and the Institute of Directors report were mentioned by the hon. Member for Esher and Walton. In reality, the tax burden for SMEs is, typically, between 32% and 43%. We need to look at that. The hon. Member for Isle of Wight mentioned the big issue, which the Government need to look at, of SME representation on the LEP boards. The preponderance of SMEs feel excluded from the boards of the LEPs, and that claim is popping up all over the country. Would it be a good idea to give the LEPs responsibility for the billions of pounds of regional development agency assets, so that they can have real local influence in their operating areas? The hon. Member for Sittingbourne and Sheppey (Gordon Henderson), who has been involved in business as well, talked about the challenge of local skill shortages which I, too, recognise.
The hon. Member for Gosport started by mentioning the notion that the south is being pigeonholed as an affluent area without the same challenges as the north and, perhaps, is not being afforded the benefits received in the north. I am not suggesting that that is what she said, but SMEs are the lifeblood of our economy and we need them to thrive everywhere, in deprived communities all over the country, be they north or south. The Government strategy for growth is predicated on a boom in exports and in business investment. We need to see that happen all over if growth is to return.
The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)
I congratulate my hon. Friend the Member for Gosport (Caroline Dinenage) not only on securing the debate but on her excellent contribution. How refreshing, in this Parliament, in a debate on small businesses, to see a significant number of hon. Members such as myself with a business background. I know it is meant to be a dangerous thing for a Minister to have some knowledge of his subject, but it is actually immensely helpful. Many of the representations, on whether we can do a little more of this or extend a particular scheme, are in many senses a process of singing to the choir. I am sympathetic, but we have inherited a tight financial situation and, without wanting to get partisan, we have therefore been restricted in some areas in which we would like to do more. Hon. Members of all parties appreciate that.
As was pointed out by all hon. and indeed right hon. Members, small businesses are vital. We heard from the Opposition spokesman, the hon. Member for Streatham (Mr Umunna), and I welcome him to his position; this is the first opportunity we have had to debate in Westminster Hall. He is right to talk about how small businesses represent a significant proportion both of businesses as a whole—99% in the south-east—and of the jobs created, accounting for just over half of private sector jobs. In my book, small businesses are the drivers of growth and the leaders of innovation, and as we try to move away from the recession, we want to improve on that.
Let me say at the start that this Government are absolutely committed to enabling more people to start businesses, and then to grow them. Many of the initiatives that make a real difference to people’s bottom line in running a business, whether micro, small or medium, are policies that affect every business throughout the country—national policies. I shall come to some of the specific aspects, and the spatial and regional dimension. The Government have started by trying to ensure that people who want to begin the journey of starting a business can do so.
The new national enterprise allowance, which is available throughout the south-east and the country as a whole, will be rolled out over the next year, and will help thousands of unemployed people, whether in Gosport or elsewhere, to take that first step on the crucial journey from being unemployed to being self-employed. That is why we are overhauling the whole bureaucratic process of, for example, registering a company. It has been ridiculously complex in the past, and when I started my business at the bottom of the last recession, it was immensely slow and expensive. We are putting the process online, and making it quick and cheap so that people can get going and get under way.
That is why the Government, during our first 12 months, sought to stop the planned increase in national insurance, which would affect every small business and could have cost, according to the Federation of Small Businesses, some 47,000 jobs. We stopped that, and that helped businesses up and down the land. It is why we are reforming the tax system, to which several hon. Members referred, and cutting the rate back to 20p instead of increasing it, as had been planned. It is also why we are ensuring that the system is simpler. In the past, too much time has been lost in trying to comply with bureaucracy, reliefs, allowances and the ever-changing two-Budgets-a-year process. Simplification and greater predictability are crucial when trying to run an SME.
On regulation, I totally understand that there will be natural caution about how this Government, more than any other, are making progress. My hon. Friend the Member for Esher and Walton (Mr Raab) referred to one in, one out. During the first six months, when we invited representations on various regulations, we received 157 on different regulations. We have cut those by 70% down to 46 and only 11 will cost businesses anything. That is a start, as hon. Members have said, and they are right. This is the beginning of a process, and there is a lot more to do. I am working with my colleagues throughout the Government to consider the next half-year—July to December—so that that 70% reduction in the number of regulations can be matched and improved on. However, we can do more, which is why have introduced the new moratorium for new regulations on SMEs to ensure that micro, small and medium businesses can get on with their business without worrying too much about complying with Government bureaucracy.
That is also why we have taken the bold step of ending gold-plating of EU regulations in this country. We have had a habit of being the first to implement them, and in a way that is far more complicated for our businesses than for our European competitors. We are changing that, which is why we will not implement EU regulations a day earlier than we legally must, and why we will ensure that we do not add to directives and make life more complicated when our businesses are competing with their European partners. Those are crucial steps that will make a difference to the bottom line.
I turn to the specific issues raised by various hon. Members. My hon. Friend the Member for Gosport rightly pointed out the crucial role of exports in our growth overall, and in helping SMEs improve their productivity and innovation. The evidence is there. That is why UK Trade and Investment is changing its strategy to make it far more entrepreneurial. It also has a new “passport to export” service deliberately aimed at SMEs. We have worked with the Export Credits Guarantee Department to loosen up some of the regulatory processes, and to introduce a series of new schemes to help businesses in the credit area with a simpler credit insurance product, a new bond scheme to make things easier, and a new foreign exchange credit scheme. If my hon. Friend would like further details, I am sure that my officials will be happy to supply them.
I shall deal with an issue that is specific to Gosport, and then speak about generic matters. As my hon. Friend knows, I visited her constituency yesterday, and met other people in Portsmouth and elsewhere in the area. One initiative that we are driving forward is recognition of the tremendous value of the marine engineering industry. It is crucial for many hon. Members who have spoken today, but has been neglected. We have all recognised the importance of automotive engineering, and we have all pushed the case for aerospace, but the country has tremendous expertise in marine engineering. I am co-chairing the Marine Industry Leadership Council, and leading the strategy with the industry. It sets out the key issues involving technological change and the ability to take on new opportunities so that that industry is prosperous. That is crucial for areas such as Gosport. National political leadership can make a real difference to a local area.
My hon. Friend mentioned the national insurance holiday. A little perspective is important, but I understand people’s concern. The change will help new businesses. No existing business in any constituency will be treated differently, whether they are in the north or the south. That is important. Although the Chancellor is clearly under financial pressure, he wanted to make a difference, and to help business formation in areas where it is at a lower level, so we chose to help businesses outside the wider south-east. I note the representations, and I totally understand the point. I will come to the broader point about specific pockets of deprivation in apparently more affluent areas, but the policy has tremendous merit. These are early days but, like all tax policies, the Chancellor will keep a close eye on it. He has noted, as have I, hon. Members’ representations.
On finance, the Opposition spokesman, the hon. Member for Streatham, mentioned a couple of issues, as did another hon. Member who is no longer in his place, about access to finance. This is crucial in terms of ensuring that we hold the banks to their targets—I will come to that—and how we deal with equity finance and risk capital. That is why we ensured the continuance of Capital for Enterprise with a £200 million fund. It is also why we have pushed the banks to provide us with a business growth fund, aimed at the mid-caps, which will help unlock around £2.5 billion. The hon. Gentleman also referred to targets. It is the capacity targets to which we will hold the banks. Clearly, in any negotiations there will be other ways in which we wish to stretch the banks and challenge them, but we are monitoring the capacity targets.
On regional growth funds, I am well aware that if people have not won funding they will want to know why, and I understand that. The first round was very popular, and heavily over-subscribed. The second round is now in hand, and its capacity has doubled. It is worth pointing out that it is focused on areas with heavy reliance on the public sector, but the scheme is based on merit, and there is no attempt to place a limit on businesses applying in different parts of the country. That is important, and leads on to the wider issue.
As I discussed yesterday when I visited Gosport, such places have pockets of deprivation, as does my constituency in Hertfordshire, and in a strange way they are more isolated than if they were in an area that is generally recognised in the statistics as bring deprived. That is why the old regional debate about north-south is too crude. It is why I talked to the Solent LEP, as I have to others, about looking at the nomenclature of units for territorial statistics—the NUT statistics, which relate to the size rather than the sanity of the preparation—to ensure that we drill down and better understand the real problems. It is one reason why we are replacing regional development agencies with local enterprise partnerships. That will allow us and, more importantly, local business and civic communities, directly to address some of the problems and local issues that might be masked by more general affluence, which tends to colour the way in which Government policies work. That is why enterprise zones will be open for all enterprise partnerships to apply for.
I had the opportunity of seeing the former HMS Daedalus, which is a fascinating sight. We are in the bidding period, so I must be careful, but I am sure that my hon. Friend the Member for Gosport and her supporters and constituents will make a powerful representation.
Finally, issues were raised about the new generation of entrepreneurs, whom I totally support. Several hon. Members mentioned that, including my hon. Friends the Members for Romsey and Southampton North (Caroline Nokes) and for Newton Abbot (Anne Marie Morris). Yesterday, I was at my alma mater, Reading university, to open its new enterprise centre. We must do what is done in silicon valley, and bring investors—