SMEs (South of England)

Debate between Andrew Smith and Mark Prisk

Wednesday 15th June 2011 Westminster Hall

[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.

Small Manufacturing Businesses

Debate between Andrew Smith and Mark Prisk

Wednesday 15th December 2010 Westminster Hall

[The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)]

I congratulate the hon. Member for Mitcham and Morden (Siobhain McDonagh) on securing the debate, but also on setting out with real passion and determination how we ensure that the smallest enterprises are able to cope in difficult times. Given the Division, I think I am right, Ms Clark, in saying that I have until 4.40 pm. I want to ensure that I do not either run out of puff or get the wrong deadline and not get to the questions asked.

There are a number of broader issues, as well as the specific issue of this particular business. I would like to start with Loughboro Designs, so that I can then move on to the broader issues raised by the hon. Member for Mitcham and Morden and the right hon. Member for Oxford East (Mr Smith), on cash flow, tax and the ability of small and medium-sized enterprises to access finance.

Having run my own business, I understand the problems that the hon. Lady described. I was concerned to hear about the difficulties that Loughboro Designs has had, and she is absolutely right that the tragic death of Mr Wilson’s son adds to the human aspect of the case. I totally agree that we often forget that SMEs are in many ways about people far more than about cash sheets or balance sheets. The character of a business is always shaped by the character of the owner, and the difficulties on a personal level, to which she has referred, should be borne in mind.

When I learnt about the hon. Lady’s concerns, I instructed my officials to investigate the case, and they have been holding discussions with HMRC to see whether it would be possible to arrange a repayment plan for Loughboro Designs’s VAT bill. The hon. Lady highlighted some initial difficulties about contact with HMRC, which I have noted and will raise with my colleagues and officials. HMRC has been shown to be sympathetic to SMEs, and in the case of Loughboro Designs it has confirmed that it is willing in principle to conclude a further agreement under its Time to Pay initiative. It is willing, exceptionally, to receive a further payment proposal, which the business obviously will now need to draft.

Before seeing that new proposal, we cannot guarantee that it will be accepted, but I will ensure that it gets a fair hearing. In the meantime, the distraint action that the hon. Lady described will be held in abeyance. I hope that an agreement can be reached so that the company will be able to fulfil the orders that I understand it has for next January and thereafter. I hope that she will agree that those are initial, positive steps to try to unpick what is obviously a difficult problem.

My officials have also been in contact with the company’s bank, HSBC, to explore whether there is any scope for making additional lending facilities available. I share the hon. Lady’s concern that no viable company should be driven out of business unnecessarily. In that context, once the Time to Pay agreement is resolved, that will be the moment when the bank can act. We will keep in contact with her and the business, and I hope that those measures will give some comfort to her and to Mr Wilson. I also hope that that brings to the attention of Members the role of our “Real help for businesses now” team within the Department, which is able, willing and ready to help viable companies in distress.

The hon. Lady referred to the broader question of HMRC and the Time to Pay initiative, which I think is important. To be fair to HMRC, although there will inevitably be times when businesses are frustrated about discussions, it has set up the business payments support service so that companies that find themselves under pressure can quickly and easily arrange an agreement. Under that scheme, businesses can delay payment of VAT, corporation tax and other taxes to help manage short-term financial difficulties.

In that context, I take the view that cash is king. Time to Pay is about providing a lifeline for SMEs, which, more than any large business, find that tightened cash flow is the factor that drives them down and prevents them from proceeding. Interestingly, the figures available to date show that more than 370,000 such arrangements have been agreed, involving the deferral of around £6.3 billion in taxes.

I emphasise—it is a fair point to make—that Time to Pay is intended to support businesses that are fundamentally sound. The taxman clearly cannot support businesses whose financial viability is dependent on not paying taxes. That would not make sense; it would be good neither for them nor for the economy as a whole. The issue is about helping companies that are fundamentally sound, but might have a short-term problem.

The hon. Lady also mentioned how the tax system works and referred to the FSB. We agree with it that we need a simpler, more predictable and internationally competitive corporate tax regime. That is why in our first few months in government we have tried to take some positive steps. It is one of the reasons why we stopped much of the previous Government’s planned rise in national insurance contributions.

The FSB reckons that that rise could have cost about 57,000 jobs, so we have made an important change. We are also cutting the main rate of corporation tax over the next four years from 28% to 24%, so that this country will have one of the lowest rates of any major western economy. That means, particularly for manufacturers, that the balance between the corporation tax reforms and the reforms that we are planning for capital allowances will leave £250 million a year in the coffers of manufacturing businesses, which is good news. With regard to smaller firms, we are also reducing the small companies corporation tax rate to 20p, rather than increasing it to 22p, as the previous Administration planned to do.

The hon. Lady rightly mentioned access to finance, which is important. Clearly, some businesses are still feeling that pressure, and as we move out of recession and into the early stages of recovery, there tends to be a tightening on the position for businesses, particularly on the availability of working capital. Our view with banking is clear: where we are presented with evidence that banks are behaving unreasonably on lending decisions or the terms and conditions related to them, we will consistently and persistently challenge the banks involved. We need to ensure that we have that evidence. Where we do, we act, and we will continue to do so.

It has been encouraging in the past six months to see the banks start to step forward with clear commitments. The British Bankers Association brought forward 17 commitments in its new proposals to help move things forward, and those words now need to become actions. The proposals include a revised lending code for small firms and a new appeals process for cases in which finance has been declined, and those proposals are especially relevant to smaller businesses. It also includes a £1.5 billion growth fund to be spread over the next 10 years, which is important for companies wishing to grow.

I suggest that the question of competition is just as important so that business have a choice. At the moment, the choice is narrow—principally four high street banks. That is why we have asked the Independent Commission on Banking to look carefully at how we can broaden that, and it will set out its initial ideas in the spring.

The hon. Lady rightly asked what the Government can do in the meantime to bridge the gap. We are taking action to extend the enterprise finance guarantee, which was rightly established under the previous Administration, and are now providing £600 million extra over the coming year. We are rolling the enterprise finance guarantee out over the next four years, which means unlocking about £2 billion extra in bank lending.

The hon. Lady also rightly referred to community development finance institutions. I am pleased to be able to tell her that on Monday I met the Community Development Finance Association and spelt out that we will not only reform the enterprise finance guarantee for existing lenders, but do so in a way that makes it easier for CDFIs to be part of it. The Government will therefore be able to underpin our lending to those small micro-businesses that, frankly, many of the banks do not reach. Those will make some important differences to some of the micro-businesses involved. We are also increasing the enterprise capital funds by around £200 million over the next four years, which will provide around £300 million in additional venture capital investments. Therefore, there is help with debt and with equity.

However, there is another aspect that I find is increasingly raised by the small business community, particularly in those areas of manufacturing where capital investment is important: the role of business angels. We are keen to see an expansion of business angels and are interested in how we can make the climate for them more investment friendly. That is why we are encouraging them, together with Capital for Enterprise Ltd, the Government’s SME investment arm, to put a bid to the regional growth fund to create a business angel co-investment fund.

[Mr Andrew Smith]

How helpful does the Minister think the Government’s changes to capital gains tax have been in that respect?

[Mr Prisk]

I think that they have been helpful. Certainly, the representations I have received indicate that the fact that the entrepreneur’s relief, which is now 10%, has been extended from £2 million to £5 million, has been welcomed by many people in the investment community and the small business community. Those reforms matter, because if we can make progress in that area, we can move forward.

I am conscious of the time and so will bring my remarks to a conclusion. I commend the hon. Lady on securing the debate and hope that the specific actions to which I have referred for supporting Loughboro Designs will progress. The Government are also trying to help with regard to tax, finance and cash flow, all of which are crucial. I hope that the developments I have mentioned will proceed, and I will be happy to talk with her after the debate and in the coming weeks to see whether further action will be necessary in the case that she has discussed or similar cases in her constituency.