SMEs (South of England)

Chuka Umunna Excerpts

Wednesday 15th June 2011 Westminster Hall

[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.